The Fed on Inflation: "Americans Are Being Impatient"

In today's video, I want to share with you the highlights of today's Federal Reserve press conference. So the Federal Reserve decided to not change interest rates at today's meeting. The rate remains at 3.75%. I just want to say that I made a wager that they would not change interest rates today, and I won that bet, so I'm happy about that. Woohoo. Anyways, I want you to take a look at this on page 2. And just for your information, and I showed you this in detail, that the Federal Reserve continues to print billions of dollars. And right here, it gives the Federal Reserve authorization to print even more money if needed. Okay, now let's jump into the video highlights. Okay, here's the first clip that I want to show you. So if you didn't know, Kevin Warsh, who's the newer chair of the Federal Reserve, when he was coming into the Fed, he had a reputation for being such a tough guy against inflation, like zero tolerance for inflation. Like, I'm going to eradicate it. Okay, but listen, what's the situation right now? Inflation's elevated. And what did Warsh do? He did nothing. He didn't raise interest rates. Like, what's up with that, right? Like, explain yourself. But rather than explaining his thought process, I'm just going to show you. It's going to be easier if you just see it for yourself. Please take a look. Hi, Anne Saphir with Reuters. Nice to see you again. So I need a little help here, too. You've said repeatedly you have no tolerance for inflation, and yet we are seeing above-target inflation repeatedly for five years and through your term so far. And sure, you have no magic wand, but you have not taken action. You just gave us a little peek at your reaction function as well. You said that if underlying inflation is rising, that you would tend to think that you might need to tighten. And with the exception of the most recent inflation print, that is what we've been seeing. So could you explain what you mean by no tolerance for inflation and what you plan to do about it? Sure. So, Anne, I hear from you what I hear more broadly from households and businesses. Impatience. Deliver it already. This is not an excuse. This is a fact. This FOMC, this board has been in business for eight and a half weeks. The patience, the impatience that households and businesses feel have been going on for 63 months. We are on the job. We will deliver. We are focused like a laser on making sure we can do it. But the suggestion that we're going to be able to do it with our magic wand is one I want to disabuse you and everyone else of. But the discussion in the last two days give me more confidence even than I had eight and a half weeks ago. This team that we have at the FOMC, the support that we have from board staff and the new hard questions we're asking, we need to resolve those. And as we resolve those questions, get smarter on those, we're going to deliver on the remit. You don't have to take my word for it. Okay. I mean, I'm at a loss for words. You just saw what Ward said. You saw it straight from the source. He's basically saying that you, me, Americans in general, households were being impatient with their progress against inflation. In other words, he's basically saying, just suck it up. That's how I interpreted it. I don't know what your thoughts are, but that's the way I see it. Okay. So this next video clip I want to show you, the reporter says that your job is to bring down inflation. And if that's your job, why are you not taking action? What are you waiting for? So I want to show you what Warsh responds with. Please take a look. I'm struggling a little bit with some of what you've said today, and maybe you can help clarify this. You've said over and over again, that your job is to bring down prices, to get prices stable, to hit your target, and that you will hit your target. The market says you're not there yet because they've raised rates. But all you've talked about today is talking about it. And it's not like members of the committee weren't there before you talking about it. So I guess what the American people might be asking is, what are you waiting for? Yeah. So believe it or not, this press conference is not all I've done today. We have spent an inordinate amount of time in the last two days, two weeks, looking at our monetary policy strategy, evaluating our tools, thinking hard about the sources of data that we have at our disposal and we wish we had. We've also thought hard about the period ahead, what among these questions will be answered with more clarity, certainly not certainty. So the decision we'd made today, the discussion we had in that room, was the farthest thing from inertia I can imagine. Okay, now I want to show you this video clip. The question is, what data or data points is important to the Federal Reserve for them to make their brilliant decisions, right? So you're going to see Warsh say that it's not one data point that they're looking at or he's looking at. He says that he's looking at the trends, which is so vague. I mean, to me, it just sounds like BS, but I want you to take a look. How much do you think not going in July was down to the cool CPI print for June? So in two words, not much, not much. I'd like to believe that the committee shares my views, which is the historic problem with data dependence is the data and the dependence. We are not relying on any one individual piece of data as cover or as an excuse or as validation. What I care about and what I think the committee cares about is trends on the data. Sure, we got some encouraging inflation data. Now, I want to show you this video clip. I thought this was a very, very good and very important question. So if you didn't know, the Federal Reserve is trying to get the rate of inflation down to 2%. That's their target or claimed targets rates, right? 2% inflation. Okay, so what does that mean? 2% using what measurements? Because you have CPI inflation, you have CPI core inflation, PC, PC core, like which measurement are you using or want to use? So you're going to see Warsh say that traditionally the Federal Reserve likes to go off PC inflation, but he says, Warsh says that he's not going to be going off PC inflation. He's going to be going off a broader view and that his secret magic formula is going to be, well, he basically says that he's not going to reveal it. He's not going to reveal his cards. I think those were his exact words. I'm thinking like, okay, great answer. When you talk about the 2% inflation target, what measure are you relying on? Yeah, so I'll give two answers. First, let me give the proper standard answer. The Federal Reserve every January outlines a statement of purposes and strategy. And in that strategy document, which I believe was dated January of this year, it describes a measure of PC inflation as the objective function there. So that's our number. We're sticking with it. Who knows come after next January what we might say about strategy. I suspect the task forces might have something to add. But I'll say this, some version of the Lucas critique, some version of Goodhart's should remind us that when we talk about measures of inflation or something else, and we describe those measures as being consistent with our objectives, we might make them such that they're not very good measures or very good objectives. Broadly, if you said to me standing in front of you, I abide fully by the strategy document, we're going to deliver 2% inflation and not a whisper more. But to achieve that, I'm looking at a broader set of inflation data than PCE. So without sort of fully revealing my cards, I'm trying to understand like my colleagues, what's the underlying generalized change in prices that are happening in the economy. It is not a perfect science. I might have said 42 days ago, I've got a task force for that. But we have a data project that's trying to look and see whether we can't separate the noise from the signal. And so if you would hear a message from me, yes, I care about what the PCE prints are, I care about what the contributions are from CPI and everything else. But my my lens is broader than that, even though the remit is quite narrow. Okay, if you noticed, Walsh didn't do anything today, he didn't really say I mean, he really didn't say anything meaningful today either. He just kind of was up on that podium taking up space like physically and just, you know, wasting our time taking our time too. And people caught on to this, the reporters they caught on to this. So the reporter asked an awkwardly funny question about regarding the situation. And I want you to take a look. Hi, Chairman Walsh, Brian Chung with NBC News. So you said you'd be open to having press conferences when there's news to make. So today, no change to rates, no forward guidance for the average household, I guess, what was the news today? So apparently, it was news that I had a press conference. Let me just see if I can offer some clarity on that. Between now and year end, my predecessors and Federal Reserve committed to press conferences this year, I'm committing to press conferences this year, that might be news to the people in this room and of no particular interest to your viewers and your readers back at home. What I can offer as assurance is that the Fed's on the case, that this Fed chairman feels better about this board and this committee's ability to deliver than I did when I showed up here on the first day. And I showed up pretty confident. I've been heartened by the reception that I received. OK, so no change to interest rates, no forward guidance. They continue to print money. What's new? Right. Nothing. Absolutely nothing. So what was the point of today's press conference? I have no idea. I'm asking you because I don't know. All right. So listen, this press conference is 45 minutes long. I think I condensed this into about 10 minutes. So I guess I save you 35 minutes. That's the bright spot. Anyways, please subscribe. Thank you for the support and wish you a very nice day. Take care.