How many Jackson Holes have you actually been to now?

Uh, it's a little hard to say, but my first one was 1997.

I've missed a few here and there as breaking news has happened and I've had to be somewhere else, but so somewhere around 25 to 30.

So Joe, if we keep doing this for another 40 years, we'll uh we'll notch up as many Jackson holes as Mike has been to. Maybe

not. But if he does it another 40 or so, we can never catch up.

If Mike stops now and we keep doing it until we're 80,

maybe we'll catch up.

Welcome to Lots More, where we catch up with friends about what's going on right now.

Because even when OddLots is over, there's always lots more.

And we really do have the perfect guest. We are of course talking to the one and only Mike McKe of Bloomberg TV. A little surprising speech today, huh?

Yeah, I was wrong. As were the majority of analysts who thought that J. Paul would want to leave his options open for September because as we've been repeating over and over again, there's another jobs report, there's another CPI report before the next meeting.

And so what happens if we see a reversion to the mean? We had a weak jobs report. What if the next one comes in strong?

Uh we had inflation going through CPI at a low level. Does that pick up a lot? In which case you don't want to cut rates. So it was a bit of a surprise that he said basically opened the door to a rate cut because now it's really hard to close that door. Tracy, have you read Anna Wong's take yet?

I have not. So, she has a new piece out on the terminal which you you should read, but she argues that's not so dovish if you use the 2024 speech as the benchmark, which is true for sure. That was a more dovish speech. But what I think the vibe is that maybe the three of us have, it's certainly dovish in the context of a lot of people suddenly like, let's look at the inflation side again.

Well, this is exactly it. So Mike, I think you had the same experience as us, which is a lot of the people from the Fed that you've been talking to over the past couple of days. They sounded more hawkish than they did, you know, perhaps like just three or four weeks ago.

Yeah. And I I have to think that or I have to caution myself to look at this as perhaps, as a statistician would say, a selection error because we happened to hit people who were more hawkish. Obviously, the chairman basically validated Chris Waller's forecast that uh infl they've decided that inflation is going to go up, but it's going to go up slowly.

It'll take a while to get into the economy and sector by sector, it'll be a one-time price rise and not a continuing price increase. Setting aside the actual technical economic details of the speech itself, were you surprised that there wasn't something more, I don't know, validary is the word, but you know, it's his last speech as the chairman. It comes at a time when we all were all talking about the sort of threats to Federal Reserve independence. Were you surprised it was such a policy speech and not any sort of nods to some of these bigger things?

I was not surprised by that. Paul is very self-fulfacing. He's not somebody who likes to toot his own horn. And I we kind of knew going in that he didn't want to make a big deal of this being his last Jackson Hole as chair.

The Fed independence thing was a bit of a surprise because it has been such a a big issue. But I think given the message he wanted to send to the markets about the policy going forward, plus he had the whole section on the new framework he had to discuss. Yeah. I think they felt it was just going to be too long, too much and that would come up in many other uh fora to talk about.

It is funny, no one's talking about the framework. The results of like five years of work on the framework are published today and they're just lost in all

I have asked uh Fed officials about this. I said, why do you do this? Because they came up with this new framework in 2020 that didn't work. And a year into it, JP Pal said, "Well, we've junk the framework because we've got inflation." And so, if you're gonna go to all this work to create a framework and then as soon as the economy turns, you junk it. Kind of what's the point?

And their argument is that it gives them sort of a reference point of how they want to think about things. And today really, they went back to 2012, which was

we'll do whatever the economy needs when it needs it. It's important to remember it's interesting thinking about that 2020 framework because we are so the existence of that framework is so 2010s right it's so like thinking about well the main problem of monetary policy is long periods of undershoots

the zero bound

the zero bound constantly under 2% how are we going to credibly get it above and then five minutes later we have the worst inflation yeah in 40 years that was a real that framework from 2020 was is an artifact of a time.

Yeah, absolutely. And the Fed's new framework sort of takes into account the fact that that could happen again because they're not using shortfall anymore in in employment. Uh but and they're they've also dropped references to the zero lower bound, but they basically they're saying we admit that we can't steer the economy in quite as precise a way as we thought we could because the underlying conditions that we're working off of can change faster than we anticipated. I will just note I know that pal didn't speak about central bank independence directly but there is at least one paper being presented at the conference that does deal with this issue by Emmy Nakamura from Berkeley and we have a really good episode coming up with her. So there there is some thematic discussion. It's just we're not all hearing it because it's closed doors. Although Mike, you get to go inside the conference. I get to go inside.

All right. So what's the vibe like in in the room?

Well, I hate to disappoint everybody, but it's rather quite boring unless unless you're an academic economist because these papers are written by academic economists and they're designed to look at longer term issues and try to put them into context so that the central bankers can think about them. Okay, here's a problem that's come up. What's the research said about it in the past? That sort of thing. It's not a meeting where people come in and go, "Okay, here's unemployment and here's prices and what do we do at the next meeting?" That that doesn't get discussed at all. Even the open market committee officials who are here, they're not going to be really talking about that because uh they talk about that all the time. They're here to fish and and hike and enjoy the scenery along with these academic papers. So inside it's an academic uh conference. They present the papers. They have a discussant who talks about the papers and then people can ask questions. And if you notice, you know, if you're watching your Bloomberg terminal, it's almost never a headline from inside because nobody says anything that would move markets or interest people really.

You know, other regional feds have their conferences. So, you know, there's there's a Boston Fed one in November. There's an Atlanta Fed one. I think it's somewhere in Florida at some point in the year. The only thing that's really special here is that, and Powell alluded to it, it's Jackson Hole in August. and anyone would be a fool to say no to coming there and that's how they got Vulkar to come because he liked fly fishing like this in theory like they could all show up at the other ones but it's Jackson Hole in August going to say and and and as you mentioned people are here to fly fish I think that's actually an important element even though it's just a fun element which is that

it's late summer it's kind of like halfway between vacation and work out here for almost everyone another reason that it has become important though is starting with Ben Bernani during the great financial crisis he came and the chairman usually gave a speech to open the conference on the conference topic

and it was like, okay, we're talking about long-term labor issues. That's a really good thing to talk about and we're glad you're all here kind of thing. Then he announced basically that they were going to do QE for the first time at this meeting. And then the next year he also had announcement about uh QEQT and what they were going to do. And then all of a sudden the focus became what's the chairman going to say?

if there's rarely a Fed meeting in August, just the way the calendar falls, maybe at the very beginning, and then there isn't one till September. So you have this long month where there's no reference point for the markets and that this became the reference point. So everybody pays attention to it and as you know, it's a big buildup to it. Oh, we've got Jackson Hole next week. What's the chairman going to say? And so that's really focused a lot of attention on it, which then feeds on itself because it becomes important. So people want to be there because it is important.

This reminds me, there was an old study. It was done a few years ago, so I would love to see a new study, but it basically looked at all the FOMC statements and speeches over time. And starting from 2009, they exploded in both length and complexity. So I think it used to be you could have like, you know, a high school reading level and be fine reading some of the FOMC statements. They were very short, like 400 words. and then they became like 2,000 words and you needed a college degree at a minimum to fully understand them. Talk to us about just like the format of the speech cuz this is something else that people like to do is dissect like the number of words and things like that. And it is true this is a longer speech this year versus the relatively short speech from last year where Pal very definitively opened the door to a cut.

Yeah. Uh well I think that what made this speech long was talking about the framework. It's as we said maybe somewhat irrelevant but he had to go through it. They'd been doing this exercise and it was anticipated he would announce it here. So basically he went through it. We've now done the exercise and now we've explained it to you and so you'll understand going forward if we refer to this. So that made it longer. The part that uh was really kind of to the point was the stuff about the economy. He outlined what they were thinking about uh the labor market and what they were thinking about inflation and then how those two knit together. If this had been an ordinary speech without the framework, it wouldn't have been as long. Maybe it would have come across as even more punchy because it was just on that subject. you you were talking about the Fed's statements getting very long uh in the post great financial crisis years and the Fed realized that at one point and so about two or three years ago they've cut them back significantly. We used to have very long statements where they tried to explain every little thing and people found that too much. So now they're just kind of saying here's we got one paragraph on where the economy is and a paragraph that says here's what we're doing about it.

You know another nice thing about Jackson Hole in late August is you don't just get you don't just lure the Fed share there. you lure central bankers all around the world. But I feel like in this moment the the Fed itself, the Fed is always first among equals. Most people would agree with that, but the Fed because of all the dramas like this black hole sucking up all the energy. It's your perception, you know, we saw the walk where Powell was with Lagarde and Bailey and Ua is your perception that all the developed market central banks are roughly wrestling with still the same things because there's just been there's been this global factor of the inflation and so forth. Are they all sort of basically feeling the same stresses?

They are. We're still living in a post-pandemic world. So data are somewhat difficult to read and you see the ups and downs of the economies that you may or may not be able to track. But the biggest thing at the moment is that they're all wrestling with Trump fiscal policy. But the fiscal policy has different impacts on different countries. For the United States, it's inflationary. For many of the countries out there, it's deflationary because their currency is going down. The dollar is getting stronger. And so they have different problems they have to deal with. They all have a problem with the consequences of the Trump policy, but but the consequences are different for each one.

Well, you were talking about this on TV earlier because when it comes to tariffs, there is still a huge debate over how inflationary they might actually be because in traditional economics, you would view them as a tax which tends to destroy demand and can lead to deflation. On the other hand, we have seen producer prices start to pick up. What have you learned about just how policymakers are actually viewing the impact of tariffs at this conference?

Well, there has been division. We have the Chris Waller version who went to the textbook and said tariffs are a one-time increase in the price level and then since he first said that in July, what we've seen is the president delaying these tariffs. So, they come on one by one and that drags the process out. Now, what the chairman seemed to decide was that it's still going to be a one-time increase sector by sector. So, it might drag out, but it's not going to be an ongoing process of each sector seeing prices rise. So, the impacts they they have a hard time judging because it's not like you pass uh Smoot Holly and on a certain day it takes effect and you see the immediate price impact and then you can measure what's happening and what's it's going to do. Here they have to take into account each sector, whether the the exporter absorbs any of it, whether the importer absorbs any of it, what companies do in terms of pricing. Do they take some out of their margins because they don't want to lose market share or do they just pass it along to people? These are all complex questions and and as one of the Fed economist said to me, each one affects another.

So because so much of this stuff is intermediate goods that are used to price something else. So it gets very complicated. So, it is hard for them to know exactly how this is going to play out.

Tracy, I have a take.

Oh. Oh, do you? What a surprise. All right, go ahead. I was thinking about this when we were on air is maybe the answer is that tariffs are a one-off

in terms of the inflationary impulse but that the underlying political impulse to impose tariffs this desire for everyone to have all their stuff and protect their home uh countries industries and so forth is going to be this new permanent feature that is not a one-off.

Would that feature be inflationary?

And if that is sustained then maybe it is.

Yeah. I mean there is an irony here which is uh the Trump administration has long criticized paperwork and government bureaucracy and things like that and I cannot even imagine how much time companies are spending trying to figure out tariffs right now and doing customs documentation and stuff like that.

Okay, Mike, next year we're going to have a new Fed chair, new vibes at Jackson Hole potentially. Who are you watching out for

right now? I'm still watching out for the original Trump list, the Kevin's Hasset and Worsh and for Chris Waller. You could argue that the speech today improved Waller's chances if if you were looking at it from a Las Vegas point of view in terms of odds because he was right,

right? Sort of.

At least at least the Fed is saying he was right. But this is Donald Trump. So, we have no idea. I think most of the people who've been sort of added on in the talking about stage in terms of the list are more red herrings. Some of them are obviously not going to be the chair, but what he's been able to do is get more people on TV getting interviewed about, are you going to be the chair? And they're all saying, well, we need to cut rates. You're not on the list if you're not going to cut rates. So, are they really serious candidates? And Scott Besson says, "Okay, I got 11 people I'm going to bring in." The president keeps saying, "I got three people I'm going to choose from." So, I think you go back to the original list. He's comfortable with those people. They all look like they could be fed chairs and we know the the impression that the person makes is important. So they're they're the most likely ones to choose from. I'm not saying he couldn't surprise. He surprises in almost everything he does.

Have you interacted with Waller before? I've never met him. So

Oh, I know Chris quite well. The one thing about Chris is we've we've extrapolated the Lisa Cook thing to if the president got four people on the board, then they can fire all the bank presidents, etc., etc., and he'd have all this control. I don't think Waller would go along with that. He's in favor of lower interest rates. Uh he has his own ideas about the economy, but he's a very smart economist and uh and you could defend what he says even if you don't necessarily agree with it. But he's an institutionalist. He's somebody who follows what the Fed has done in the past. And I don't think he would give in to the president's desire to do something that would hurt the Fed, hurt its credibility, hurt its ability to do its job.

Tracy, it's 2025. I think David Zervos looks like a Fed chair.

Okay, I'm going to go fly fishing. I'm going to do what I'm supposed to do at Jackson Hole and go fish.

Let's go.

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