Here Are the Biggest Problems Facing the Fed Right Now

Joe and I just recorded an episode on the Mint the coin debate, which is one idea of how to bypass the debt limit on a temporary basis at least. But I think it's fair to say that there are a lot of challenges out there at the moment, especially for the Federal Reserve the Central Bank. So not only are they still trying to navigate an unprecedented economic cycle in the wake of the global pandemic, but they're also now having to deal with higher inflation to decide whether

or not it is indeed transitory. And meanwhile they are also facing the fallout from what's going on in d C. So every time there is the sort of debt ceiling brinkmanship, we generally see some feed through into the treasury market, you know, money market funds stop buying up short term bills around the date, the so called drop dead date that the US is actually supposed to run out of money, and the FED has to figure out all these different ways to try to keep things going along with the

treasury while the politicians do get out. Um, so there was a lot going on in the FED. I haven't even mentioned the insider trading scandal, but that of course is an issue as well. Suffice it to say, the Central Bank faces many, many challenges, and today I am very happy to say we are going to be speaking with the perfect person to discuss some of those issues.

It's someone who actually used to work at the FED as a trader, and he runs a blog right now called fed Guy, and it's one of my favorite reads. I highly suggest you check it out if you haven't been reading it already. Joseph Wang, Welcome to the show. Hi, Tracy, thanks so much for in biding me. I'm through it

to be here. Oh, thank you so much for coming on. Um, Joe and I have wanted to get you on for a long time, so I'm happy you could make it maybe just to begin with, could you describe your background at the FED? What exactly where are you doing there? Sure, I worked on the Open Markets desk at the New York FED, and so what the open market that's does. It's basically the FEDS trading desks, so we conduct operations UM. So all the QUI O, the REPO operations are done

by the desk. I focus on money markets, so I run the repo operations, and I studied the banking system. A lot of my work has to do with setting how the financial system works, money market funds, just the plumbing of the system basically. So when we have something like a debt ceiling crisis, do you start getting flashbacks to previous episodes. Well, I think one of the main mechanisms of the dead ceiling does impact the markets is through the money markets. So yes, that's probably the direct

way that the death ceiling impacts UM. And you can see it right now. Actually, if you look at the short term builder, if you can already see bills that mature around the job dead date are selling off quite a bit. So usually you see market impacts first the money market sector when it comes to the debt ceiling. So how do you think money markets and I guess the wider treasury market should feel about debt ceilings and

this kind of political brinkmanship. And the reason I asked that is because you know, we we do tend to see these bouts of debt ceiling drama every once in a while, or at least you know, in recent years,

we've seen them every once in a while. But on the other hand, you know, when it gets really bad, we tend to see treasuries rally because people go into safe haven assets, and treasuries are still considered that even if the cause of market turmoil is because of the US itself, which is kind of ironic, But how do you think treasuries feel about these sorts of issues and

has it evolved in recent years? So you're exactly right, And I think that the way that I would think about this is that I think overall, of course, the investment community understands that this is a passing thing. The U. S. Treasury has a printing press, right, so they can always

make their obligations. But on a more nuts on both sides, there are classes of investors that are not able or constrained in their holdings of things that are defaulted, most notably the four point five true and dollar money market

fund complex. So under the regulations, they are highly constrained in holding defaulted securities, and they also don't want they don't want to be able to They want to be able to tell their clients when they clients read about the dead selling on the US that you know, we're

not exposed to this at all. So even though I think the investment community understands that this is the passing thing, there are mandate constraints that come into play, and that's why you still actually see sell offs in the in

the short term turchy markets. Addition, I think that we've been through the death seeing a few times over the past decade, and what we can learn from a lot of public documents that were either disclosed by the FED or through subpoenas that the official sector actually has a lot of plans just just to avoid and you fall out in the trojan market. So it would be I think reasonable to not for the trogury market to not

be too much afraid of the dead sailing um. But a lot of these backup plans do have economic impacts, and so it's not in reasonable for the troges to actually rally in that context. Well, so one of the things I want to ask you is how much the r r P, the reverse repot program might make a difference this time around. So you know, we know that the Fed has been running this UM. Recently, they they upped the amount that they could take. I can't remember

what it was. What the cap is now, do you remember? Yeah, it's a hun sixty billion per counterparty. So earlier in the year it was thirty billion, and then was up to eighty and now it's too un sixty But in practice, though, I would just think a bit as a full lotment facility, So there really is no limit. So one of the reasons they've raised it is in preparation, presumably for money market funds having to move into this thing because they have to avoid bills or they're unable to buy bills

because Treasury can't issue them. UM. So how much does that help in a scenario like this? I think it helps tremendously in terms of rate control. So heading into the debt seling, one of the ways that the US Treasure prepares is by paying down bills. The way they manage your debt is they have they manage under a regular and predictable issue and schedule, and in practice that means maintaining coupon issuants as much as they can and

meeting short term cash flows through bill issuants. If you think back last March when we suddenly had a lot of emergency COVID expenditures, what happened is that they met those expenditures issuing two trillion dollars in bills. Now in the same way as we're heading into dead selling and they're trying to maintain space on the dead selling, what they're doing is the reducing the amount of bill issuance

to reduce the amount of dead outstanding. The main investors in the bill markets are the money market funds, and now that money market funds don't have as many bills to invest in, there's a buffer there where they can invest in the overnight reverse reple operation that helps us that maintain rates even as the amount investments available in the money market space decreases. Without the overnight report facility, I think short term rates would definitely be below zero.

How much does it matter that the Fed now pays interest on our rps, because I remember that was a big deal in the summer when they started to do that, I think it was an extra five basis points UM something like that. Five base points, whereas previously they had been paying almost nothing. But why the need to do that and how much UM? Did that sort of change things for money market funds? So the reverse report facility is one of the fed's key tools for short term

rate control. One of the Fed's goals or any center being skills, is to control rates. In the US, we choose the overnight rate. Before the crisis, it was primarily controlled by adjusting reserve balances within the banking system. After the crisis, now that we have so many more reserves, that's just not a feasible way. So in practice, the FED controls overnight rates by paying interest on the reverse

report facility as basically boundary lower bound rate. That means that if you're an investor with sir M funds and you can always invest in the FED risk free at the RP rate, that puts a lower boundary of what's you're willing to accept in other investments. So if you can invest in the FED at five basis points, there's never a reason for you to buy to invest in any lower rates. And that's how that's basically a crucial

tool to FED now uses to control interest rates. So let's say we get to I mean, I think the consensus right now is that the US um Treasury could run out of money sometime around mid October. I think the one day I've seen consistently come up as October eighteen. I should just say that we are recording this on October five. So maybe something changes between now and then.

But if we get to October eighteenth and treasury runs out of money, the debt limit isn't raised, what would you expect to actually happen in the treasury market, in money markets, and how would the FED respond? So this scenario has happened quite a few times in the past decade, and from public documents have been disclosed, you can kind of see that the FED and Treasury have basically been wargaming this for for the past ten years. So the

path forward is basically prioritization. But before before they actually drop that date, there's this is basically a political political process, right It's in negotiation within Congress, So the FED doesn't really want to step in or say anything, and administration has an incentive to maximize I guess fear to encourage a compromise, but when the drop dad it actually happens.

What was discussed during was that the FED and what that was that the treasure would actually prioritize principal interest payments to U S tursury holders as well as Social Security. The thing is, when the trishy runs out of space under the debt limit, it still has a lot of cash receipts. If you look at data from the past five years, the US Treasure usually has cash receipts so about let's say eight hundred to nine hundred billion during

the fourth quarter, so that's pretty steady. So they have a lot of money coming in, but they don't have enough money to pay everything that that's that's due. But if they only focus on paying principle and interest, that's about two in over a quarter four If they only paid social Security, that's probably three billion. So they have enough money to pay some bills but not everything. And was discussed in the past was just prioritization, So the

trophy market will actually be fine. There will not be a default. And what would happen, I think is that once they hit the dead scene, sitting the absolute drop dead date in order to calm the markets. They will announce their plan to prioritize surgery payments and others, more humanitarian payments, social security, veterans benefits, food stamps, and so forth, and that should actually immediately calm the trgury market down because they know that to fault us off the table

heading into it. You can already see the disruptions. Some short term bills are selling off. But I think once we red reach the drop dead date oddly enough, I think that prioritization announcement will solve everything. Of course, there would be some economic impact from this, because trojury does a lot of things. They also have pay it's to let's say, doctors, hospitals, farm studo comple companies, defense companies,

and those companies will have some liquidity problems. But the trugy market I think will be fine, and maybe they rally as you mentioned before, understanding that when there's a liquidity crisis in the non financial sector, maybe if they're liquidity to get squeezed a bit, that affects the economy. Even if Turgury doesn't prioritize or they decide not to. Ultimately it's a political decision by by the Treasury and

it's the one that makes a lot of sense. The FED also has a plan just to step in in case anything bad happens, just just as I mentioned a bit earlier. So a lot of investors have mandate restrictions where they can't hold treasures that defaulted. The biggest investor that has these meant these mended restrictions, these are legal, are the money market fund industry. So if by any chance there was like a technical default, a lot of the money market fund industries will not be able to

hold treasuries. And that's a huge problem because they don't just church of those, but they are also enormous investors in the report market. The report market is a multi trillion dollar market for basically overnight secured loans, and a lot of those loans are in treasuries with tregary crap Claro.

So if you're a money market fund based on sec data, probably investing a trillion dollars in turgy backed repot every day to the private sector, excluding FED, and because of your mandates, you're not able to accept or unwilling to accept without a waiver from your board of directors, default to Claro. So a lot of people who are getting funding in the report market using treasuries may lose access

to that funding. And you know, that's classic bank one lefe scenario because if you're buying turguries on leverage using overnight money and suddenly you lose access to that financing, and that could be very disruptive um effectively, I think in practice of default and technical default would probably buy furycate the turgy mark between those that are at risk of not receiving principle and interest in the coming months and those that are safe let's say they're interest due

dates are next year. If you do the math, the amount of treasuries outstanding that have principal and interest payments during the this quarter about a bit over a trillion. So there's potential for enormous disruption when let's say investors have to shuffle out of at risk treasuries into treasuries that are not at risk because this has never happened before. Oh in addition to that, once there's a technical to thought, I imagine the ratings agencies would have to follow up

and to downgrade the US. And in addition to the money market events, there are also many classes of investors that have trouble holding securities that are not let's say rated triple A by two or more end agencies that maybe they have trouble holding U S reasuries. There's some discretion there depending on how their mandates are written. Um, so it could be a very destructive event. And that is something that has never happened before, and no one really knows how it will happen, but which is kind

of why no one will allow it to happen. You have the Treasury prioritizing and if for whatever political reason, they don't prioritize P and I payments, The FED has discussed in October of what their game palent plan would be, and it's uh, they have the tools and the motivation to be able to fix everything. So but they would do is they would still accept the defaulted Collardo in their repo market operations, so they would be able to provide liquidity against that, even if the money market funds

cannot or do not want to. They would be able to accept defaulted Collardo and their securities lending operations. So if you had let's say ann at risk treasury, you could stop it out with the FED. Or, of course, if that's not enough, they could just do outright purchase QWI style to purchase at risk Collardo. So you have these two tiers of plants from the triedurgy and from the FED to make sure basically the trigy market will

be protected. And so going forward to Dassling, I don't really worry about anything because there's just this is something that happens so many times. And if you're in the market, you know that something that people wanticipate, risk that people anticipate usually don't materialize because they prepare for them. And I think this is one of those cases. So I mean I get the point that the FED is sort of prepared to step in as lender of last resort um,

you know, if it really has to. And I get that it also attempts to be politically neutral, um, you

know when these types of situations come up. But I'm wondering, like, what do people at the Central Bank actually think when politicians are arguing with each other And we sort of get to this point like you know, again, you were on the open markets desk, you were a trade or does everyone they're kind of like roll their eyes and go like, oh no, now we have to work on on a and plan B and how is this going to affect the market and do we have to factor

this into our economic predictions and things like that, Like I guess, how do people actually think about it? So the Central Bank is a very conservative and organization. It's I think even more as a utility, so it wants to make sure the basic plumbing of the system works, and that includes the trojan market. Trades are basically a full of money or financial system. If you look at

class de classified documents, this scenario of payment prioritization. There were simulations of this run in eleven and again, and I'm not I'm absolutely sure that it's being run right now. So people there, I think don't think they worry about the market impact, but it does create an enormous amount of work for them and so they don't like that. And I think that they understand that this is part

of the political process. Though another declassified memo that features let's say someone speaking with chir Paul basically inside the fact that they understand that part of this is the political process, and it's also partly trying to put pressure on Congress to do something. So even though this probably won't happen, having this in the news. Talking about very bad scenarios is something that serves a purpose. So let's let's shift gears um slightly and talk about some other

challenges that the Central Bank faces at the moment. And you know, there isn't a shortage of new things, new developments to actually wrap their heads around and address. But one of the interesting things that you brought up in a recent post on your blog was this notion of um wealth effects and maybe wealth effects that haven't necessarily been understood or taken into account by the Fed. Could

you walk us through your thesis there. And you know, a lot of people tend to complain, well, some people complain about the fed's emergency liquidity feeding into risk assets like or financial assets like stocks and bonds, and making people who are already wealthy even richer. But you point out that not only is that happening, but there's also a sort of unaccounted for wealth effect through cryptocurrency. So

could you maybe describe that? Sure? So, so, I think the labor market is a very confusing market to analyze right now, because you have lots of indications of tight labor market with you have help wanted signs everywhere. We're just going higher, and at the same time, the unemployment

rate is still pretty elevated. So I think one of the reasons just thinking about this has to do with the wealth effect, and there are actually academic papers finding something similar and common sense, and I think you should understand that the more money you have, the less you need to work, the less you're motivated to search that you won't you're less willing to set uluer wages. And one of the things that has happened over these two years is that the wealth effect, basically the wealth people

hold it has been supercharged. If you just look at residential real estate, it's up over the past two years, and a little bit over six of the Americans own a home, and that's your largest asset, so a lot of people have a lot more equity in their in their homes. If you own stocks, um, you know that's uh SMP is up over the past two years. When you look at FED data and you break it down, one of the things you notice is that you know what everyone says, it's true, it's really the rich people

getting much much richer. However, because the wealth effect, the growth and asset value is so extreme this time around, if you were actually just top halfen wealth. You saw significant gains in your in your paper wealth, So that has to have an effect on whether or not you're willing to work and what wages you're willing to accept. And that's just what's what you see in official data. There is also an enormous wealth boom that you don't see,

and that's in the cryptocurrency. Is you alluded to the cryptocurrency that they are, they exist on decentralized letters, so they don't show up anywhere in official data. But we see just from public data sources of where cryptocurrencies are treating and no. Cryptocurrencies have gone from basically nothing that a couple of years ago to two trillion dollars in

total assets size. And we know Bitcoin and Ethereum are the most well known ones, but just behind them there are hundreds of these all coins that have also grown to billion dollar market caps, and none of this shows up an official data, but it's it's being held by by the general public, likely younger people. Enthusiasm for cryptocurrencies is palpable. If you look at coin based user data, it's just surging, and so that has to have an impact on the motivation of young people to work as well.

If you can just stay at home and trade cryptocurrencies, or if you held a little bit of crypto um, then you you are a bit bothier than you were before. Maybe you're not as desperate for a job. Just anecdotally, I remember that I took a cab from l a airport from lax in my uper driver at the time. He was driving a ten year old camera and he was telling me that he put thirty dollars into bitcoin because bitcoin only goes off, and you know, he did not seem to look like a wealthy person, so actually

encouraged him to diversify a bit. And he also told me he bought them dodge coin. So this is this phenomenon. So the phenomena I think is real and it's something that that it's not captured in official data. This wealth effect, I think fundamentally changes the dynamics of labor market. And if that's true, though, then you know, maybe maybe the FED is actually a bit behind in raising rates and

so far as raising rates close it down inflation. Yeah, there's I mean, there's a ton of irony um in thinking that cryptocurrency might be the reason that the FED ends up overheating um the economy me but or letting the economy run too hot. But do you think the Fed? This is kind of an unfair question because I don't think anyone really understands crypto. But do you think the FED understands crypto? Or is it making a good faith effort to understand the market? I don't think the FED

understands crypto. I think one of the things that I would take away from my time and the FED is, I guess how surprising how few things said management understands. And I think that it's kind of apparent from even if you look back, let's say twenty years ago during the financial crisis, the FED was not really aware of

what was happening in shadow banking either. Now I only speak from my experience at the New York FED, but if you really think about it, New York FED is basically a government agency with unlimited money and no government oversight. So I think a lot of strange things happening there.

And in my own experience, let's say, the person who ran the money markets as at the New York FED didn't have any experience or expertise in money market at all, and that was very common throughout the open market desk, because you know, you don't really have any external pressure to to know or do anything. So I don't think the FED is very much in tune with what's happening in cryptocurrencies. So speaking of the FED, UH not necessarily being in tune with the economy right now. UM. I

wanted to ask you also about inflation. So this is probably the biggest question currently facing central banks and investors at the moment. Uh, To what degree are these inflationary pressures that we've been seeing some of the gridlock in supply chains and supply shortages and things like that, To what degree are they transitory? And to what degree should central banks actually be worried about them? Should central banks be responding to them? Is an interest rate hike the

appropriate way to fix? Um? You know the problem of not enough shipping births in Los Angeles and things like that. Um. So, I guess my question is, like, number one, how do you think the FED is thinking of inflation at the moment? A number two, to what extent is the flexible average inflation target still in play? I think the FED is really worried about inflation. After telling everyone was transitory, you

no longer share that word anymore. And I think that's it's a really hard it's a really hard question for the FED right now because you know, a lot of this inflation, it's it appears to be driven by supply side effects that you have. You know, we read about the energy crunch, we have, you know, congestion at ports says this hasn't been discussed at this on the podcast. Um, there is also a big demand first as well. You know, we kind of printed and spent a lot of money

and that increases demand. A lot of the supply constraints will be changed by interest rate hikes, but interest rate hikes do damp in demand. So if you high rates, you can really hurt demand. And so you know, reducing demand that you know, lowers inflation. However, it costs your other mandate, which is unemployment. So it's a very very

difficult time for the Fit to choose right now. And I would also that though that just mechanically speaking, looking at the financial system, it's really hard for the FED high rates without having a tremendous financial impact. And the reason for that is when you have a very high level of debt in the system, your interest rate hikes

are magnified in their effect. So there's interest rate risks not in let's say fixed income debt, and when you hike rates, you kind of basically destroy some of that value. And when you're thinking about tresuries, you're basically kind of pulling away money out of the system. If you think about tresuries as a form of money, then what we've been doing in the past, let's say decade, when we reduced rates, all those hyderation assets, they become their market

price arises, they become enriched. People have more money through that which they can repo or sell and then they can, you know, buy the stuff. Or if you're let's say, let's say a sixty proo, the manager of your bonds appreciate you have to buy more equities to balance, then that makes equity markets go higher. But when you're hiking rates,

you're doing the reverse. And because the level of debt is so much higher, then I think there's some very long, nonlinear impact, so that Collado channel from thro wish money monetary policy is transmitted that I think it really sets a constraint as on the fattest whether or not they could just high rates like they did in the seventies because you could have very, very large impacts on the financial markets, so I don't think they're in a position

to do much. If there is a solution to inflation, I think it probably has to come from the fiscal side, maybe through taxation by let's say, more progressive income taxes

for example. So when you have when it seems like we're moving towards the world where the fiscal authorities play much greater role in demand right there spending trillions of dollars, and when you have a large market constraining the central bank, I think one of the ways that you could solve inflation is just through taxation, basically draining away money selectively out of the financial system, instead of something blunt like an interest rate increased wholesale lopping of market value of

fixed income debt. That's really interesting because I always thought of fiscal as you know, one way to boost demand. Obviously, you know, the government announces some big infrastructure spending program and hopefully Congress passes it instead of arguing about it for a long time, and voila, you know, the economy gets a demand boost. But I hadn't actually considered that the reverse could also be true. That fiscal could act

as a sort of demand constraint if it has to. Yes, we can, and I think but the problem of course is that the fiscal, the Congress, who you know, the sets of fax laws is, can't act as quickly as the feed and the fat can. You know, Luck last March, instantly you rolled out liqudity facilities and cut rates. It's very difficult for for the legislature to to be able to act as quickly. So what is decision making actually

like at the FED? Because I mean, on the one hand, we have seen the Central Bank praised in recent years for putting together a very very quick response to the market crash that we saw in and you know, the turmoil in the treasury market specifically. But on the other hand, it does get a lot of criticism for basically being outside,

um the sort of democratic process. You know, it's it operates without political oversight, I guess, and you know, there's a perception that it's just a bunch of economists doing their own things. So I'm curious what internal decision making actually looks like at the FED. Is it really just you know, one or two senior people making decisions or is there some sort of um committee like process in doing these things. So the FED is very very consensus driven,

so everything is done by community committee. Uh, it's just that what happens in practice is the most senior person says something and everyone just nods. So it's it is it is by consensus. And you can kind of see this in at the highest levels, at the level in the sea, for example, you have a FED chair who basically you know, says something and everyone agrees, and what's happening is behind the scenes, just lots of evolving so that when we actually make it to the decision, everyone

is on the same page. Um. But I think well when in practice also, I mean, the power is heavily tilted towards let's say the FED chair and the two wise chairs, so in practice those people have a disproportionate

amounts of power. But I think you're concerned about FED governments and lack of oversight is valid, especially since the FED seems to be becoming more powerful that has over time, and you can see this I think in their reaches to or it's expanding their mandate to say the climate change impacts on the financial system, because when you can make it that argument because climate change affects the financial system, therefore we must have oversight of it. Then there's no

limiting principle there. Then, right, everything affects the financial system, doesn't that mean that the FED could have its influence on anything. It reminds me to let's say, the early days of our country, when the federal government was very limited, but then through the Commerce Clause, they vastly expanded their

power because basically everything is affected interest comments. Even if you were growing wheat in your own backyard for your own consumption, that meant that you weren't buying wheat in the interesting markets, so that affected interstate commers. So this expansion of part that the FED is doing through through basically being able to touch everything that affects the financial system, has no limiting principle. And if that's the way that they are going to go, then I think they do

need more oversight. Just going back to the inflation discussion, there was one more thing that I want to ask you, which is another big mystery that is sort of bedeviling markets at the moment, is the fact that we still have relatively low bond yields and specifically nominal yields, but we also have higher levels of inflation, even though it looks like inflation expectations haven't moved that much recently. I'm

looking at tips, they've been pretty flat. I think, how do you think about this, this puzzle of low yields. I think that's a puzzle if you assume that bond yields are basically a reflection of economic conditions and inflation expectations, and there are definitely people who buy bonds with that framework, but there are also many people who buy bonds without that framework. And um for example, a view are a commercial bank to receiving io R and new reserves fifteen

basis points. Under the regulations, surgeries and reserves are considered equivalent. So what do you do, well, I I just sapp out my reserves and buy a whole bunch of sruguries. And you see commercial banks doing that to the tunes of hundreds of billions at a time. So it's not because of any fundamental view and growth and inflation. It's just that under their constraints, you know, treuguries are better than reserves that will by struguries and will hedge the

interest rate risk. Um. You also have a lot of actors let's say the FED buying eighty billion a month. If that does not care about growth of inflation. They're buying it because it's their mandate to do so. And you have also many other I would say foreign central banks. You're very conservative Investment managers who were buying trujuries because they need to save the assets are maybe they're regulatorily bound by their regulations to do that. So I think

that tugs are just the financial asset. They go higher because there are a lot of people buying it, and I think it's a mistake to infer economic conditions from them. The analogy I would use this I let's say you're looking at Tesla stock. Let's say you can forecast earnings and you can put that into a dividend discount model. You can come up with a fundamental value of Tesla. Right, that's your framework. You forecast earnings, you value based on

the fundamental way. But you can't really take the price of Tesla into as an input in your model and back out supposedly market expectations for revenue growth because people are buying tests up for momentum, or maybe you're an options dealer, you got to buy Testla to head your options right, and in the same way, you really can't take price as an input for let's say treasuries and try to back out what the treasury market is saying

about economic conditions because not everyone approaches treasuries as an investment on that basis. So this is one of the areas where I kind of see overlap between some of the research you do and some of the research one of our other, uh, you know, recurrent money market guests, Saltan Posar, actually does where you know, he's well known for calling up banks and you know, speaking to people in the money markets and trying to gather color on

what exactly they are doing. And I see a lot of that in the post that you do on your blog as well, like actually digging into the numbers to see what treasuries at large banks have been buying, and then you know, charting the fact that they've been buying a lot more bonds over the past year or so. How much does that sort of inform your thinking? Do you still keep in contact with a lot of people in the market and try to get as much information

as you can from them. You're right that a lot of the work that I did at the FED was basically the same as what Salton did, And I have great respect result and I read everything he writes. It's great and I'm glad you have them on your show. Sometimes I think a lot of my information I actually I get through Twitter these days, and what I've realized

is set fin Twitter. It's just test amazing resource. You can access the thoughts of some of the I think best managers, expert subject matter experts in the world, and it's all an available on Twitter. And you don't get certain things that you could get, let's say, if you

had relationships with your Treasury desk. But I think once you understand how the system actually works, there's just enough from public data and from let's say, anecdotal reports through outlets like Bloomberg or fin twit that you can actually have a very good picture as to what's happening. There's one more question that I want to ask you, which is maybe it's a sensitive one. I don't know, but let me know if it is. But why did you

ultimately decide to leave the fund? I think it goes back to what I was mentioning about the open market sex. The FED is a phenomenal place to work on the open Market's desk. You have access to tremendous amounts of confidential data. You can call up big banks or dealers or just hitch funds or money market funds and they'll speak to you and you get to understand. But it's a really good place to learn, but it's not a

really good place to work. It's not a good place to work because well, just looking in the money market, says, no one on the management, almost no one on the management has any expertise or experience in money markets. It's kind of basically purely based on your seniority, so it's impossible to grow. It's kind of just like a I guess, the big piggy bank for the people who got there first. And so it's a good place to grow, but it's not a good place to learn. And we have tremendous turnover.

I can tell you from just this past year on the money market. Says turnover was like some of them go to other divisions and the fed, some of them go to the street. So I felt that I had learned all there is to learn, and there is really no point of being there anymore. Mh um. One more question for you, and then we're going to have to wrap up. But what do you think the biggest challenge

is that the FED is facing at the moment. I think the FED is seen a moment where they have to choose between their two mandates, employment or inflation, and that's a very difficult choice, and it's going to be a political choice depending on the composition of who's on the m C. You have inflation that you can control and a few raised rates or try to tamp down and demand, you're going to have higher unemployment. That's a very very difficult choice and there's just no good way

to do it. So they're going to have to Basically, it's going to be a political thing, and it's going to be based on their values. What are they value more employment or inflation? And we'll have to see the composition of the FMC. Looks like it's changing with all these revelations and resignations, So we're going to see how the composition of the flom SE is next year to see how they might rule. Yeah, certainly a lot going

on in interesting times. UM for the FED. Well, Um, Joseph wag uh The the writer at the Fed Guy blog, thank you so much for coming on and just for our listeners, if you haven't checked out that guy yet, I highly recommend that you do. It's fed got dot com. Joseph, thanks so much, Thank you so much to happen you, Tracy. So here's the part where I talked to myself because Joe isn't here. But um, I'm trying to think how

to sort of synthesize that conversation. I mean, part of me is just relieved that I don't actually work at a central bank and have to be on the hook for solving a lot of these problems at the moment. And you know, I obviously don't think the FED is a perfect institution, um, and certainly we're seeing that recently

with the news about the insider training scandal. But it is clear that they are facing a number of new situations that they've been thrust into after COVID and after the big market crash, and I don't necessarily envy them having to figure out how the world works in current conditions, you know, trying to figure out whether or not hiking interest rates would actually do anything to damp down supply pressures um that are caused by transportation gridlock and supply

chain issues that just seems really difficult to me. And also Joseph some idea of bitcoin and a sort of unaccounted for wealth effect maybe changing the composition of the labor market. That again is something brand new, and I doubt that the vast majority of central bankers, you know, many of whom are quite old at the moment and probably haven't been following bitcoin for that long or that much. I doubt that they've really wrapped their heads around that phenomenon.

So yeah, I guess the message is, uh, don't envy the people at the FED, and there's a lot going on and a lot of new challenges that they are facing, and that I am going to leave it there. One thing I would say is, if you are enjoying odd Thoughts, if you do appreciate the work that Joe and I put into the show, and here I will just go ahead and mention that I am recording this with a

triple fracture in my left foot. If you appreciate all thoughts, please go over to Apple Podcasts and give us a review, hopefully you know, a five star one. It would be much appreciated, and Joe and I enjoy seeing that kind of feedback, So thank you so much and I will leave it there. So this has been another episode of add Thoughts. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway. You can follow my co host Joe Wisenthal at The Stalwart, and you can follow Joseph

Wang at fed Guy twelve. Can also check out his blog at fed guy dot com. And you should follow our producer Laura Carlson. She is at Laura M. Carlson. And you can follow Bloomberg Podcasts at podcast Thanks for listening.