It is another good day in the jobless world. Two hundred and eighteen thousand jobless claims reported last month. Remember we had the big job last week. We had the big jump the week before up to two twenty four, and now we've gone backwards a little bit on that. I'm waiting to see the latest revisions to see what last week it was two twenty seven. So last week was revised up and this week we come way down to to eighteen on a continuing basis one million, eight hundred and seventy one thousand. That is down from one million, eight hundred ninety four thousand, So it does look like workers are still on the job, companies are still holding onto their employees.

It is another good day in the jobless world. Two hundred and eighteen thousand jobless claims reported last month. Remember we had the big job last week. We had the big jump the week before up to two twenty four, and now we've gone backwards a little bit on that. I'm waiting to see the latest revisions to see what last week it was two twenty seven. So last week was revised up and this week we come way down to to eighteen on a continuing basis one million, eight hundred and seventy one thousand. That is down from one million, eight hundred ninety four thousand, So it does look like workers are still on the job, companies are still holding onto their employees.

Yet it's a little bit higher off the back of this MIC. So we're up three or four basis points on a ten year to four fourteen on a thirty year, up three basis points at least at a four thirty five. You put this together with jobless claims and together with payrolls, together with the ISAM services manufacturing improving, it's pretty decent dates over the last couple of weeks.

Yet it's a little bit higher off the back of this MIC. So we're up three or four basis points on a ten year to four fourteen on a thirty year, up three basis points at least at a four thirty five. You put this together with jobless claims and together with payrolls, together with the ISAM services manufacturing improving, it's pretty decent dates over the last couple of weeks.

If you're looking for cracks, you're not finding it. When people say well, just fast forward, look at the real time data. Well, here we have the real time data, and it's confirming the strength that we saw last Friday in the ten year yield, I'm noting really taking a leg higher four point one percent rounded up. To me, that's what I'm watching longer term. What does that suggest about the neutral rate and about long term momentum underneath some of the recovery we've seen.

If you're looking for cracks, you're not finding it. When people say well, just fast forward, look at the real time data. Well, here we have the real time data, and it's confirming the strength that we saw last Friday in the ten year yield, I'm noting really taking a leg higher four point one percent rounded up. To me, that's what I'm watching longer term. What does that suggest about the neutral rate and about long term momentum underneath some of the recovery we've seen.

Dunnas maye because we can have that conversation right now, realtime reaction with think Richmond Fed President Tompak and alongside Blimpecks Mike McKay president back in good morning, she say.

Dunnas maye because we can have that conversation right now, realtime reaction with think Richmond Fed President Tompak and alongside Blimpecks Mike McKay president back in good morning, she say.

Thanks for having me here, and I am having that data didn't surprise.

Thanks for having me here, and I am having that data didn't surprise.

Well, let's talk about this data. Let's talk about how much weight you're putting on it. It's really strong coming out of the gate for twenty twenty four. How much weight are you putting on this stuff at the moment?

Well, let's talk about this data. Let's talk about how much weight you're putting on it. It's really strong coming out of the gate for twenty twenty four. How much weight are you putting on this stuff at the moment?

Well, I think the data has been remarkable, and it's been remarkable across the board. Yeah, the fourth quarter GDP three point three percent, the jobs numbers last month, and I think all of them do talk about an economy that's fundamentally healthy. That's a great thing. I am always cautious about numbers around the turn of the year. I mean, they're big seasonal adjustments. A great example would be the jobs numbers last month. The actual jobs were actually down two and a half million because a lot of the retail folks who were hired for Christmas, you know, then got laid off after. But the seasonal adjustments bring it up to a positive three hundred and fifty three. So that's a pretty big seasonal adjustment. I look hard at it. I'm glad to see it coming in. That's the best data we have, but I'm not sure I'm going to take too much out of any one month.

Well, I think the data has been remarkable, and it's been remarkable across the board. Yeah, the fourth quarter GDP three point three percent, the jobs numbers last month, and I think all of them do talk about an economy that's fundamentally healthy. That's a great thing. I am always cautious about numbers around the turn of the year. I mean, they're big seasonal adjustments. A great example would be the jobs numbers last month. The actual jobs were actually down two and a half million because a lot of the retail folks who were hired for Christmas, you know, then got laid off after. But the seasonal adjustments bring it up to a positive three hundred and fifty three. So that's a pretty big seasonal adjustment. I look hard at it. I'm glad to see it coming in. That's the best data we have, but I'm not sure I'm going to take too much out of any one month.

Markets are obviously interested in if and when the FED is going to cut emphasis on the when, and I know you've said we don't have to be in any rush, but with the data like this, basically are you telling people you know, we're doing fine with rates where they are.

Markets are obviously interested in if and when the FED is going to cut emphasis on the when, and I know you've said we don't have to be in any rush, but with the data like this, basically are you telling people you know, we're doing fine with rates where they are.

Well, I have said you don't have to be in any particular hurry. You've got a dual mandate with employment and inflation. In the employment side of the mandate, I mean, it's actually operating at historic levels three point seven percent of employment, job gains. We talked about initial claims, job openings. It's a very strong labor market still, so gratified to see inflation coming down. Hoping it continues to come down. I think we've got some time to be patient.

Well, I have said you don't have to be in any particular hurry. You've got a dual mandate with employment and inflation. In the employment side of the mandate, I mean, it's actually operating at historic levels three point seven percent of employment, job gains. We talked about initial claims, job openings. It's a very strong labor market still, so gratified to see inflation coming down. Hoping it continues to come down. I think we've got some time to be patient.

I know you said you don't have a roadmap for rate cuts. Yesterday, Carlisle Group chief executive Harvey Schwartz said investors should not be thinking the Fed would cut rates five times this year because that would imply something's wrong with the economy. I assume you would agree with him.

I know you said you don't have a roadmap for rate cuts. Yesterday, Carlisle Group chief executive Harvey Schwartz said investors should not be thinking the Fed would cut rates five times this year because that would imply something's wrong with the economy. I assume you would agree with him.

Well, it's hard for me to get into the market forecast because there's always two elements going on in those forecasts. One is rate normalization under a healthy economy and inflation coming down. But the other, of course, the economy takes a wrong turn and you come down faster, and so those things are a weighted average. To me. There is certainly a model that you take rates down quickly. That's not a model that's good for the economy. That's just one of the things that could happen. And then there's the model where you toggle rates down as the economy comes back into balance.

Well, it's hard for me to get into the market forecast because there's always two elements going on in those forecasts. One is rate normalization under a healthy economy and inflation coming down. But the other, of course, the economy takes a wrong turn and you come down faster, and so those things are a weighted average. To me. There is certainly a model that you take rates down quickly. That's not a model that's good for the economy. That's just one of the things that could happen. And then there's the model where you toggle rates down as the economy comes back into balance.

Underpinning this is really the mystery of the neutral rate sort of this vague, mysterious concept that people throw around. Mount Zeiover at Deutsch Bang changed his view recently, saying that he thinks the neutral rate, instead of being about three percent in the post pandemic reality, might be around three and a half percent or even four percent. Does that job with your thinking?

Underpinning this is really the mystery of the neutral rate sort of this vague, mysterious concept that people throw around. Mount Zeiover at Deutsch Bang changed his view recently, saying that he thinks the neutral rate, instead of being about three percent in the post pandemic reality, might be around three and a half percent or even four percent. Does that job with your thinking?

It's certainly conceivable to me that it's come up from the estimates that we saw before COVID. The challenge with all these neutral rate estimates is the standard deviation's two hundred basis points, and so the center of the SEP I think in the last meeting was about two and a half, So it could be a half, it could be four and a half, and so I think you have to sort of make your decisions not based on trying to hit a theoretical neutral but based on what you see in the economy and what you learn about how the economy reacts to rates. And that's what I'm trying to do.

It's certainly conceivable to me that it's come up from the estimates that we saw before COVID. The challenge with all these neutral rate estimates is the standard deviation's two hundred basis points, and so the center of the SEP I think in the last meeting was about two and a half, So it could be a half, it could be four and a half, and so I think you have to sort of make your decisions not based on trying to hit a theoretical neutral but based on what you see in the economy and what you learn about how the economy reacts to rates. And that's what I'm trying to do.

I guess as I'm watching some of the data come in and I hear from all of these investors they're concerned about reaccelerating inflation later in the year, some of these comps change. Are you also starting to worry about that a little bit more.

I guess as I'm watching some of the data come in and I hear from all of these investors they're concerned about reaccelerating inflation later in the year, some of these comps change. Are you also starting to worry about that a little bit more.

Well, we've already had a lot to worry about in today's conversation, so I won't focus on all of the worries I have got. I saw the shipping conversation.

Well, we've already had a lot to worry about in today's conversation, so I won't focus on all of the worries I have got. I saw the shipping conversation.

Ear today, at least it's specialized in worried.

Ear today, at least it's specialized in worried.

Yeah. No, there's a lot to worry about. Yeah, I mean, I think you have to acknowledge how good the inflation data has been for the last seven months. I mean, last seven months core inflation one point nine percent. That's right on target. That's terrific, right, And I'm not rooting against inflation, but I'm always you know, trust but verify, you know, let's make sure that's really right. And so we'll get a few more months. It would be I would very much like to see that trend continue and you know, broaden, because it's been disproportionately goods deflation that's been masking higher than normal prices and rents and shelter. So I'd love to see it broaden and maybe well, you know, the trend is good and you can't argue with that that trend. Let's just see how we go.

Yeah. No, there's a lot to worry about. Yeah, I mean, I think you have to acknowledge how good the inflation data has been for the last seven months. I mean, last seven months core inflation one point nine percent. That's right on target. That's terrific, right, And I'm not rooting against inflation, but I'm always you know, trust but verify, you know, let's make sure that's really right. And so we'll get a few more months. It would be I would very much like to see that trend continue and you know, broaden, because it's been disproportionately goods deflation that's been masking higher than normal prices and rents and shelter. So I'd love to see it broaden and maybe well, you know, the trend is good and you can't argue with that that trend. Let's just see how we go.

How do you parse inflation these days? Those because yes, the PCE is down below three percent. But when you look at things like the Cleveland and Dallas trim means, the Atlanta Fed Sticky wage index, it all shows basically more inflation than your targeted index.

How do you parse inflation these days? Those because yes, the PCE is down below three percent. But when you look at things like the Cleveland and Dallas trim means, the Atlanta Fed Sticky wage index, it all shows basically more inflation than your targeted index.

Well, these numbers will converge over time, right, and so what's happening right now in inflation, as I said, is you've got a lot of clawback of goods price increases that happened during COVID, and so goods deflation, which has always been a factor, is even more significant than it has been over the last twenty years. Rents and services are higher. These trim mean measures look at the center of the distribution, and so they're looking at that center part which is higher as opposed to the weighted average, which is lower. If it broadens, everything will come down. If it doesn't, it won't, and we'll just see what happens.

Well, these numbers will converge over time, right, and so what's happening right now in inflation, as I said, is you've got a lot of clawback of goods price increases that happened during COVID, and so goods deflation, which has always been a factor, is even more significant than it has been over the last twenty years. Rents and services are higher. These trim mean measures look at the center of the distribution, and so they're looking at that center part which is higher as opposed to the weighted average, which is lower. If it broadens, everything will come down. If it doesn't, it won't, and we'll just see what happens.

Well, how do you make a judgment then on when you think it'll be appropriate to cut? What are you looking for? The phrase I think that Chairman and others have used as measurable progress towards the two percent target? How would you define that?

Well, how do you make a judgment then on when you think it'll be appropriate to cut? What are you looking for? The phrase I think that Chairman and others have used as measurable progress towards the two percent target? How would you define that?

If I could get these kind of numbers sustained and even better broadened, that's what I'm looking for, sustained and broadening.

If I could get these kind of numbers sustained and even better broadened, that's what I'm looking for, sustained and broadening.

It was a worry in the news conference, and you could sense that with jam and Pal that he wasn't comfortable yet. And I wonder if you will not to belie there just with this idea that maybe the improvement we've seen over the last six months is down to so called one off factors. Do you share that concern as well?

It was a worry in the news conference, and you could sense that with jam and Pal that he wasn't comfortable yet. And I wonder if you will not to belie there just with this idea that maybe the improvement we've seen over the last six months is down to so called one off factors. Do you share that concern as well?

Well? Another way to put it is that core inflat, I mean, headline inflation for last year was whatever two point six percent. There was a three point three percent six month period and a one point nine percent six month period, So which do you believe the three point three or the one point nine So we're rounding now over those three point three months. January last year was a very inflationary month. So everything is leaning in terms of the numbers should be coming down, and I expect them to come down over the next few months, but let's see if they do.

Well? Another way to put it is that core inflat, I mean, headline inflation for last year was whatever two point six percent. There was a three point three percent six month period and a one point nine percent six month period, So which do you believe the three point three or the one point nine So we're rounding now over those three point three months. January last year was a very inflationary month. So everything is leaning in terms of the numbers should be coming down, and I expect them to come down over the next few months, but let's see if they do.

It speaks to this risk that maybe we stabilize above target on inflation, and Mike, as you know, the worry is that we do stabilize above target. And if you've started to cut interest rates, you have to start hiking again. Is that a concern that you have that if you do start to move, you're stuck in that cycle then and you have to continue and you can't start hiking again.

It speaks to this risk that maybe we stabilize above target on inflation, and Mike, as you know, the worry is that we do stabilize above target. And if you've started to cut interest rates, you have to start hiking again. Is that a concern that you have that if you do start to move, you're stuck in that cycle then and you have to continue and you can't start hiking again.

We're always trying to be cautious because you don't really want to reverse course. An interesting period to look at eighty six. In nineteen eighty six, after the end of the Vulgar era, inflation was actually under two percent, and the FED, which had tightened significantly, started loosening significantly. In eighty seven, inflation basically doubled from where it was in eighty six, and the FED started increasing again. So that stuff has happened in history, and you're certainly aware of that, and to the extent you could avoid it, you'd love to avoid.

We're always trying to be cautious because you don't really want to reverse course. An interesting period to look at eighty six. In nineteen eighty six, after the end of the Vulgar era, inflation was actually under two percent, and the FED, which had tightened significantly, started loosening significantly. In eighty seven, inflation basically doubled from where it was in eighty six, and the FED started increasing again. So that stuff has happened in history, and you're certainly aware of that, and to the extent you could avoid it, you'd love to avoid.

It's that way on.

It's that way on.

You as an official.

You as an official.

Just the experience of Vulcaran cut well.

Just the experience of Vulcaran cut well.

A lot of people write about the history of FED tightening. Cycles don't end well, and so you know it'd be awesome for it to end well. But as you go study the past, it's not like you study the past, you see lots of great examples that you're just dying to duplicate.

A lot of people write about the history of FED tightening. Cycles don't end well, and so you know it'd be awesome for it to end well. But as you go study the past, it's not like you study the past, you see lots of great examples that you're just dying to duplicate.

Let me take the other side of the argument, and that is that inflation is going to keep coming down, but you're not going to move fast enough, and the economy is going to slow more than it needed to, or even go into recession because the FED waited too long.

Let me take the other side of the argument, and that is that inflation is going to keep coming down, but you're not going to move fast enough, and the economy is going to slow more than it needed to, or even go into recession because the FED waited too long.

That's the risk you're trying to balance. And like I said, I take a lot of signal about just how historically strong the labor market continue used to be, including the claims numbers we saw this morning, and so you are trying to balance the risk to the employment side of the mandate versus the risk to the inflation side of the mandate. Inflation still elevated, the unemployment side is still very strong. I think that's how I met out right now.

That's the risk you're trying to balance. And like I said, I take a lot of signal about just how historically strong the labor market continue used to be, including the claims numbers we saw this morning, and so you are trying to balance the risk to the employment side of the mandate versus the risk to the inflation side of the mandate. Inflation still elevated, the unemployment side is still very strong. I think that's how I met out right now.

We were in Jackson whole number of months ago. We would talking to some of your colleagues about some of the anecdotes they were hearing in that district. Remember that conversation, Lisa, And the guidance that we were getting from some FED officials is that what they're hearing in the district was different to what they were seeing in the data. Did the anecdotes conflict with the economic data?

We were in Jackson whole number of months ago. We would talking to some of your colleagues about some of the anecdotes they were hearing in that district. Remember that conversation, Lisa, And the guidance that we were getting from some FED officials is that what they're hearing in the district was different to what they were seeing in the data. Did the anecdotes conflict with the economic data?

Well, I'll give you some anecdotes. I mean, I was in Western Carolina earlier this week just some things that might be interesting. One is that I saw great Clips had a sale on haircuts for nine to ninety nine, and so that's interesting that even some services are coming down in price. That would be consistent with the data. There's a big paper mill that laid off eleven hundred people in a county of seventeen thousand, and a year later, unemployment that county's down, not up, because there were so many openings for people in manufacturing positions that all of the people who were surplused, who didn't retire, you know, had jobs. So that's confirmatory of a strong labor market. I think the third quarter five percent GDP stuff that wasn't what I was hearing either, and I said the same thing. But today what I'm hearing is people aren't hiring as much, but they're not firing as much either. Price centers understand they're on the back end of the price curve. It's not over yet, but they're on the back end of it. And demand, especially on the consumer side, is still healthy.

Well, I'll give you some anecdotes. I mean, I was in Western Carolina earlier this week just some things that might be interesting. One is that I saw great Clips had a sale on haircuts for nine to ninety nine, and so that's interesting that even some services are coming down in price. That would be consistent with the data. There's a big paper mill that laid off eleven hundred people in a county of seventeen thousand, and a year later, unemployment that county's down, not up, because there were so many openings for people in manufacturing positions that all of the people who were surplused, who didn't retire, you know, had jobs. So that's confirmatory of a strong labor market. I think the third quarter five percent GDP stuff that wasn't what I was hearing either, and I said the same thing. But today what I'm hearing is people aren't hiring as much, but they're not firing as much either. Price centers understand they're on the back end of the price curve. It's not over yet, but they're on the back end of it. And demand, especially on the consumer side, is still healthy.

Do you trust the data? And I say this because some of the headline data people have been saying people aren't responding to the surveys to the same degree post pandemic as they were pre pandemic. Does that factor in?

Do you trust the data? And I say this because some of the headline data people have been saying people aren't responding to the surveys to the same degree post pandemic as they were pre pandemic. Does that factor in?

Well, you have to always take data with a grain of salt. You also have to accept it's all you've got right, and you have to be wary of confirmation bias. You know, I like the data when it agrees with what I think, and I don't like the data when it doesn't. So when the data comes in, I take it for what it is and I try to dig into it and understand, you know, does it what's behind the numbers? Like the seasonal since I was talking earlier, But I accept it and then try to test it as opposed to rejecting anything that doesn't agree with my prior hypothesis.

Well, you have to always take data with a grain of salt. You also have to accept it's all you've got right, and you have to be wary of confirmation bias. You know, I like the data when it agrees with what I think, and I don't like the data when it doesn't. So when the data comes in, I take it for what it is and I try to dig into it and understand, you know, does it what's behind the numbers? Like the seasonal since I was talking earlier, But I accept it and then try to test it as opposed to rejecting anything that doesn't agree with my prior hypothesis.

I think that great clips offer was for mullets for the Super Bowl er, So did you see.

I think that great clips offer was for mullets for the Super Bowl er, So did you see.

You're nice to say it wasn't just because of my hairline. I've got a cheap offer.

You're nice to say it wasn't just because of my hairline. I've got a cheap offer.

The hiring that we have seen in recent months that do you expect that? First of all, was it a surprise to see the December January numbers? And do you expect that to continue or are we going to fall off dramatically? And what we see unemployments start to go up to the four point one percent the SEP calls for I.

The hiring that we have seen in recent months that do you expect that? First of all, was it a surprise to see the December January numbers? And do you expect that to continue or are we going to fall off dramatically? And what we see unemployments start to go up to the four point one percent the SEP calls for I.

Was surprised at how strong the numbers were in December and in January. December revised and in January. What I'm hearing is not as much hiring, but definitely not as much firing. That's that's how I put it. To labor hoarding, that's sort of the technical phrase. But especially with frontline people, if you have really fought hard over the COVID era to bring people in your factory or into your restaurant, you're just loath to take the risk of letting them go and try to go into that fight again. And so on the frontline side, people are being careful. To extent that I'm hearing anything on job cuts, it's actually the professional side. It's overhead and you're a business. Maybe your pricing power isn't going to be what you thought it was going to be. You're worried about the risk on the operation side to laying off operating people. Well, let's take a look at our overhead and dinner. That's where you see in some of the jobs announcements you've seen recently. I think disproportionately look like overhead as opposed to frontline.

Was surprised at how strong the numbers were in December and in January. December revised and in January. What I'm hearing is not as much hiring, but definitely not as much firing. That's that's how I put it. To labor hoarding, that's sort of the technical phrase. But especially with frontline people, if you have really fought hard over the COVID era to bring people in your factory or into your restaurant, you're just loath to take the risk of letting them go and try to go into that fight again. And so on the frontline side, people are being careful. To extent that I'm hearing anything on job cuts, it's actually the professional side. It's overhead and you're a business. Maybe your pricing power isn't going to be what you thought it was going to be. You're worried about the risk on the operation side to laying off operating people. Well, let's take a look at our overhead and dinner. That's where you see in some of the jobs announcements you've seen recently. I think disproportionately look like overhead as opposed to frontline.

Interesting. Seeing a lot of that this morning. It's wow, we've talked about those companies too. It was a moment in the news conference last week where Chairman Power was asked about the month of March, and it felt like that kind of off the cuff. He just got freezing cold water and poured it all over March. We're trying to work out whether that was Chairman Powe's view or if that's the general view of the committee that you share as well. But perhaps March is just too soon.

Interesting. Seeing a lot of that this morning. It's wow, we've talked about those companies too. It was a moment in the news conference last week where Chairman Power was asked about the month of March, and it felt like that kind of off the cuff. He just got freezing cold water and poured it all over March. We're trying to work out whether that was Chairman Powe's view or if that's the general view of the committee that you share as well. But perhaps March is just too soon.

Well, I don't ever pre judge a meeting, and I don't prejudge the March meeting. We'll see where we get. But I always think Chairman Pal speaks for the committee.

Well, I don't ever pre judge a meeting, and I don't prejudge the March meeting. We'll see where we get. But I always think Chairman Pal speaks for the committee.

He was talking about the sheet too, and that sounded much more interesting. If they're not going to cut interest rates, maybe they make a decision about QT collectively the committee. You can we talk about that. The decision that you've got to make, is it independent of the interest rate decision? For you, what happens with the balance sheet from here? Can you do one and continue with the other.

He was talking about the sheet too, and that sounded much more interesting. If they're not going to cut interest rates, maybe they make a decision about QT collectively the committee. You can we talk about that. The decision that you've got to make, is it independent of the interest rate decision? For you, what happens with the balance sheet from here? Can you do one and continue with the other.

Independent of the the reinterest rate decision? Because you're talking about normalizing and when is the right time to start normalizing rates, and you're talking about normalizing the balance sheet. So we're still in the process of doing that. As Truman Pal said, well, we'll have a conversation about it, and I think it's great that we do that because you want to plan what you do. I still haven't seen any signals that you know, we're closing in a level of ample. You know, you know, at the end of the ample reserves regime A just a number that keeps hitting me. If you add up the overnight RP plus the reserves today, we're still over four trillion. And if you look at September twenty nineteen, we were in the one point two one point three trillion in reserves without an overnight RP and without a standing REPO facility. So I think we're a pretty long way from where we were then. And you know, times change, we'll see where we are. We've got to learn more, but I still think we're a long way from where we were.

Independent of the the reinterest rate decision? Because you're talking about normalizing and when is the right time to start normalizing rates, and you're talking about normalizing the balance sheet. So we're still in the process of doing that. As Truman Pal said, well, we'll have a conversation about it, and I think it's great that we do that because you want to plan what you do. I still haven't seen any signals that you know, we're closing in a level of ample. You know, you know, at the end of the ample reserves regime A just a number that keeps hitting me. If you add up the overnight RP plus the reserves today, we're still over four trillion. And if you look at September twenty nineteen, we were in the one point two one point three trillion in reserves without an overnight RP and without a standing REPO facility. So I think we're a pretty long way from where we were then. And you know, times change, we'll see where we are. We've got to learn more, but I still think we're a long way from where we were.

At you know where I'm going, because you do hear people say that if you start cunning interest rates but you're still doing QT, they're sort of running in opposition to each other. Do not see it that way, Don't Richmond Fed President Tom Barking with us around the table this morning together with Bloomberg's Michael McKee. It's fantastically continue this conversation. The worries of the banking sector of last year different this year. Last year was about working through interest rate sharks. Now it's about potentially credit stress. Is this coming up on the committee when you saw that in NYCB last week the day of the decision. Is this something you will talked about together collectively.

At you know where I'm going, because you do hear people say that if you start cunning interest rates but you're still doing QT, they're sort of running in opposition to each other. Do not see it that way, Don't Richmond Fed President Tom Barking with us around the table this morning together with Bloomberg's Michael McKee. It's fantastically continue this conversation. The worries of the banking sector of last year different this year. Last year was about working through interest rate sharks. Now it's about potentially credit stress. Is this coming up on the committee when you saw that in NYCB last week the day of the decision. Is this something you will talked about together collectively.

Well, commercial real estate, as the Secretary said, is a known issue, and it's an important issue. I was in DC yesterday doing a round table with some real estate executives. That's a market that struggled to come back, and you can feel the stress in the commercial real estate area, particularly of course downtown off US. So that's a real thing in the banks many banks and non banks have exposure to. That's an important thing to take into account in terms of stability. But as I say, it's not a new kind of risk. I mean, we have had real estate shocks before, We've gone through real estate cycles. It wouldn't stun me if you know a bank or two ended up wrong footed in those things. But the system knows that real estate is a you know, asset with a certain amount of risk, and I hope, I hope and expect that you know, we've got enough capital to whether that.

Well, commercial real estate, as the Secretary said, is a known issue, and it's an important issue. I was in DC yesterday doing a round table with some real estate executives. That's a market that struggled to come back, and you can feel the stress in the commercial real estate area, particularly of course downtown off US. So that's a real thing in the banks many banks and non banks have exposure to. That's an important thing to take into account in terms of stability. But as I say, it's not a new kind of risk. I mean, we have had real estate shocks before, We've gone through real estate cycles. It wouldn't stun me if you know a bank or two ended up wrong footed in those things. But the system knows that real estate is a you know, asset with a certain amount of risk, and I hope, I hope and expect that you know, we've got enough capital to whether that.

A lot of people have speculated that the FED would cut rates in response to another bank failure. Do you think that that's an accurate assessment or do you think that that is not the correct channel of response, because that's basically the base, it's the market. A lot of people are.

A lot of people have speculated that the FED would cut rates in response to another bank failure. Do you think that that's an accurate assessment or do you think that that is not the correct channel of response, because that's basically the base, it's the market. A lot of people are.

Saying mandates employment and inflation. You've got to take an account what you think is going to happen to employment and inflation if the economy is to turn south. I mean, that's a case for trying to normalize rates faster, but the kind of we'd have to turn south as opposed to this being some sort of a bank oversight response.

Saying mandates employment and inflation. You've got to take an account what you think is going to happen to employment and inflation if the economy is to turn south. I mean, that's a case for trying to normalize rates faster, but the kind of we'd have to turn south as opposed to this being some sort of a bank oversight response.

The Chairman said that this is a man problem commercial real estate. But I want to ask you if you think that in the context of FED officials, including the then chairman, telling us in two thousand and seven, that real estate.

The Chairman said that this is a man problem commercial real estate. But I want to ask you if you think that in the context of FED officials, including the then chairman, telling us in two thousand and seven, that real estate.

Was not going to collapse. Sorry, And your question is do you have a good handle on this?

Was not going to collapse. Sorry, And your question is do you have a good handle on this?

Can you be sure that this is something that's manageable well?

Can you be sure that this is something that's manageable well?

And the banks that we supervise. I mean we're spending a lot of time with them and productively going through the real estate assets and trying to understand what the risks are and what the reserves are against those risks and making sure we've got those things appropriately handled. So in the scope that we've got, we're working hard on that. I think you never know what you don't know, and so you know what might happen in the non bank sector, don't know. You know what could happen, you know with these real estate assets. We'll see. But I think we've got our head down with the banks that we oversee trying to work through it. Well.

And the banks that we supervise. I mean we're spending a lot of time with them and productively going through the real estate assets and trying to understand what the risks are and what the reserves are against those risks and making sure we've got those things appropriately handled. So in the scope that we've got, we're working hard on that. I think you never know what you don't know, and so you know what might happen in the non bank sector, don't know. You know what could happen, you know with these real estate assets. We'll see. But I think we've got our head down with the banks that we oversee trying to work through it. Well.

Does this weigh on your thinking at all about when you might want to cut interest rates? The story that the real estate people tell is that this problem is only going to get worse over time time as companies get closer to their refinancing.

Does this weigh on your thinking at all about when you might want to cut interest rates? The story that the real estate people tell is that this problem is only going to get worse over time time as companies get closer to their refinancing.

I think it's important to take commercial real estate apart. I mean, there are huge parts of commercial real estate that are quite healthy. Data centers would be a good example. Retail is healthy, the holding part of multi family the building has its issues. We're really talking about office in a narrower B and C downtown office space. That's where the biggest risk is and I'm sure there will be losses there already have been and will be losses in that space. But as I said, it's a known variable. If you go back to our stress test assumptions, you'll see pretty significant stress on commercial real estate valuations, and you saw the outcomes for the bank.

I think it's important to take commercial real estate apart. I mean, there are huge parts of commercial real estate that are quite healthy. Data centers would be a good example. Retail is healthy, the holding part of multi family the building has its issues. We're really talking about office in a narrower B and C downtown office space. That's where the biggest risk is and I'm sure there will be losses there already have been and will be losses in that space. But as I said, it's a known variable. If you go back to our stress test assumptions, you'll see pretty significant stress on commercial real estate valuations, and you saw the outcomes for the bank.

So there are a lot of known variables out there, which is the reason why we're so worried. And you said, there's a lot of worry around this table. We were worrying earlier with a bunch of credit people who are no longer worried because somehow some of these maturities are not an issue. How do you understand the fact that people were talking about zombie companies, they were talking about zombie real estate. They were talking about how the world was going to be turned on its head when the Fed raised rates by five five and a half percentage points make sense? The fact that that just hasn't happened.

So there are a lot of known variables out there, which is the reason why we're so worried. And you said, there's a lot of worry around this table. We were worrying earlier with a bunch of credit people who are no longer worried because somehow some of these maturities are not an issue. How do you understand the fact that people were talking about zombie companies, they were talking about zombie real estate. They were talking about how the world was going to be turned on its head when the Fed raised rates by five five and a half percentage points make sense? The fact that that just hasn't happened.

Is it possible that some of them were wrong. I'm just not sure if it's not that. If it's not so, here are the numbers that have really spoken to me, which is, if you look at the total interest burden for individuals and the total interest burden for companies, and you divide that total interest burden today by total revenue for companies or total personal disposable income for individuals. The numbers have finally now in aggregate, just gotten back to twenty nineteen levels. And so what does that mean. There are a lot of people individuals who refinance their mortgages or pay down their credit cards. There are a lot of companies that refinance their debt when rates were very low, and so they are absolutely companies that are wrong sided, wrong footed in this. But in aggregate, this total interest burden hasn't yet hit the country in that scope. I think that a lot of people are predicted it could. I mean, that's a good reason to be cautious on the economy. On the other hand, they couldntinued month over month health of demand. You know, look at GDP for the last half of last year sort of argues against it. But that's what you watch.

Is it possible that some of them were wrong. I'm just not sure if it's not that. If it's not so, here are the numbers that have really spoken to me, which is, if you look at the total interest burden for individuals and the total interest burden for companies, and you divide that total interest burden today by total revenue for companies or total personal disposable income for individuals. The numbers have finally now in aggregate, just gotten back to twenty nineteen levels. And so what does that mean. There are a lot of people individuals who refinance their mortgages or pay down their credit cards. There are a lot of companies that refinance their debt when rates were very low, and so they are absolutely companies that are wrong sided, wrong footed in this. But in aggregate, this total interest burden hasn't yet hit the country in that scope. I think that a lot of people are predicted it could. I mean, that's a good reason to be cautious on the economy. On the other hand, they couldntinued month over month health of demand. You know, look at GDP for the last half of last year sort of argues against it. But that's what you watch.

We've got about two minutes left, which means we should probably talk about something you definitely don't want to talk about, which is politics done in Washington. When senators and officials in Washington start to write letters to the chairman to ease policy. How does the committee respond to that. It's a big election year. You talk about live meetings. We're wondering how live some of the meetings are going into that election. How do you avoid getting into politics?

We've got about two minutes left, which means we should probably talk about something you definitely don't want to talk about, which is politics done in Washington. When senators and officials in Washington start to write letters to the chairman to ease policy. How does the committee respond to that. It's a big election year. You talk about live meetings. We're wondering how live some of the meetings are going into that election. How do you avoid getting into politics?

Listen. I think the Chairman was brilliant on sixty minutes, and if you watched it, he sort of closed with a very clear answer to that, which is, we just try to do the right thing. And I think his phrase was integrity is priceless, and I thought that was very well put.

Listen. I think the Chairman was brilliant on sixty minutes, and if you watched it, he sort of closed with a very clear answer to that, which is, we just try to do the right thing. And I think his phrase was integrity is priceless, and I thought that was very well put.

The Chairman on sixty minutes also talked about the urgency of the fiscal health of the country. CBO yesterday debt will hit a record high, so much of that is for net interest payments. Is that a reason to potentially cut rates?

The Chairman on sixty minutes also talked about the urgency of the fiscal health of the country. CBO yesterday debt will hit a record high, so much of that is for net interest payments. Is that a reason to potentially cut rates?

I assume you'll have other people on and ask the question of whether it's to cut debt. I mean, yeah, there's two ways you go. I think we're trying to becus on inflation and unemployment, and I think having rates being restrictive levels is good for the long term. And if we can get inflation down to where we want to and if employment can stay in the right place, rates can normalize that'll reduce that burden. But our objective function is not around the country's debt burden. Our objective function is around what Congress has asked us to do, which is inflation and unemployment.

I assume you'll have other people on and ask the question of whether it's to cut debt. I mean, yeah, there's two ways you go. I think we're trying to becus on inflation and unemployment, and I think having rates being restrictive levels is good for the long term. And if we can get inflation down to where we want to and if employment can stay in the right place, rates can normalize that'll reduce that burden. But our objective function is not around the country's debt burden. Our objective function is around what Congress has asked us to do, which is inflation and unemployment.

So it's going to see you. Thanks for I appreciate your time. As always, Richmond Fed President Tom bark in there alongside Bloomberg's Michael McKee

So it's going to see you. Thanks for I appreciate your time. As always, Richmond Fed President Tom bark in there alongside Bloomberg's Michael McKee