00:00How did you approach the committee meeting just last week, and what was the argument for 50 basis points?
00:05So I approached it the same way I approached the first one, which is that I think that the Fed is too restrictive.
00:09I think that neutral is quite a ways below where current policy is.
00:12And given my rather more sanguine outlook on inflation than some of the other members of the committee,
00:17I don't see a reason for keeping policy as restrictive for a long period of time as we are.
00:21The longer you keep policy restrictive, the more you run the risk that monetary policy itself causes a downturn in the economy.
00:26What was interesting about last week, as you know, is the dissent cut both ways.
00:30We also had this argument from President Smith of Kansas City Fed, who put out a long statement.
00:35I've cherry-picked a quote, forgive me.
00:37I see the starts of policy as being only modestly restrictive.
00:40Financial market conditions appear to be easy across many metrics.
00:43When you heard that kind of argument, what was the counterpoint to what he's seeing in markets?
00:48Yeah, so I'd say a couple things.
00:49First of all, I'd say that financial markets are driven by a lot of things, not just monetary policy.
00:53They're driven, of course, in part by monetary policy, but there's a lot of things that drive financial markets.
00:58For example, I think on this program you probably spend a lot of time thinking about AI and new technologies.
01:02If you have AI or a new technology, it could push financial markets higher, which would look like an easing of financial conditions.
01:07But that doesn't necessarily tell you anything about the stance of monetary policy.
01:11Indeed, very often in response to a supply shock, a positive supply shock, although, of course, it depends what kind of supply shock,
01:16you might think that the appropriate stance of monetary policy would be lower and not tighter, all else equal.
01:21But, of course, there's a lot of sort of what-ifs and thinking about the type of the supply shock.
01:25But I think that it's a mistake to look at financial conditions and sort of conclude something automatically about the stance of monetary policy.
01:31And I also want to point out that some of the financial conditions that look the easiest, things like the stock market,
01:37things like various parts of credit spreads, those are not necessarily the financial conditions that feed the most into economic activity.
01:46Yes, the stock market and credit spreads matter.
01:47They matter a lot.
01:48But then you sort of think about something like housing.
01:50I think housing matters a lot more for the cyclical position of the economy.
01:54And it's not that these things don't matter, but it's that they're only part of the picture.
01:57And if you look at financial conditions that affect housing, I think they're quite tighter.
02:00You look at financial conditions that are affecting parts of the private credit market, that also looks tighter.
02:04And I wonder if what we're seeing now in some of the distresses that you see in private markets
02:09means that financial conditions have actually been tighter, but it's been masked by the fact that we don't get marks for those on a regular basis.
02:15Mm-hmm.
02:15Mm-hmm.
02:16Yes.
02:16Mm-hmm.
02:17Mm-hmm.
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