Closing Bell - Closing Bell 11/14/24

Episode Date: November 14, 2024

From the open to the close, “Closing Bell” and “Closing Bell: Overtime” have you covered. From what’s driving market moves to how investors are reacting, Scott Wapner, Jon Fortt, Morgan Brennan and Michael Santoli guide listeners through each trading session and bring to you some of the biggest names in business.

Welcome to Closing Bell. I'm Scott Wapner, live from Post 9 here at the New York Stock Exchange. In just moments, Fed Chair Jay Powell will begin speaking. We'll take you there live as soon as he does begin his remarks. I do want to bring in CNBC senior economics reporter Steve Leisman with a first look at what we may hear in what is, Steve, the chair's first remark since the news conference of just one week ago. Yeah, it is. And Fed Powell will say in Dallas, Fed Chair Powell will say in Dallas, we are moving policy over time to a more neutral setting, but the policy path is not preset. So the economy is not sending any signals that we need to be in a hurry to lower rates. The strength of the economy gives the Fed the ability, he says, to approach decisions

carefully. Inflation progress has been broad-based. It's eased substantially, he'll say, from its peak, but, quote, we're not there yet. He sees October PCE at 2.3. This is taking into account the CPI and the PPI and doing what economists have done all around Wall Street today. PCE at 2.3 with the core rising to 2.8%. Still pretty happy with that.

He expects inflation to continue to decline and a sometimes bumpy path, but he says it is on a sustainable path, he says, to the Fed's 2% goal. The U.S. economy, he says, has weathered the global pandemic and its aftermath and is now back in a good place. He says it's remarkably good,

by far the best of any major economy in the world. Labor market is solid, having cooled off from significantly overheated conditions. And he says it no longer is a source of significant inflationary pressure. He thinks business investment and consumer spending are both pretty good. Singles out housing as being the one weak sector out there.

The risks to achieving the dual mandate, he says, are roughly balanced. So that's it, Scott. That's where we're at in terms of what Powell says. I want to take one quick look at the probabilities, but I don't see. It's maybe down a little bit here, Scott. It was down today compared to where it was before he spoke. And maybe his saying that we have a lot of time might be something that might make the market think less is on the way. It's going to be a moderated conversation as well, so not just straight remarks from the chair, Steve.

So he will be asked questions, which will make it a bit more interesting, certainly. And it does come, it's worth noting, too, in the district where just a day ago it was Lori Logan, the Dallas Fed president, who, while I suppose is taking a cautious tone like everybody else, did say, quote, the Fed will most likely need more cuts. So, I mean, the stage is set for something else to happen in December after that, maybe anybody's guess to the pace and size. That's right, Scott. The direction is down. We're arguing over the pace right now. He says we're still on a path to neutral, but not in any particular hurry to get there. And I will tell you, Scott, I've been able to confirm the December Fed funds now at 69. I guess that's down from 74, 75 before he spoke and a little bit of a decline in the March contract, which is the one that is the next cut that's priced in. Steve, thanks. We'll stay with you, of course, throughout the remarks.

Let's bring in Rick Reeder now of BlackRock's Global Fixed Income. He's the CIO. What are your expectations today, Rick? Did you get a chance to hear what Steve was just saying from the text that we've already gotten a peek at? Yeah, I did. I mean, you know, I think it's going to be fascinating. I think there's a bunch of things. You know, you've had some acceleration in inflation. The CPI was pretty good. You know, the comment on housing, I think, is interesting because you've got the mortgage rate up.

And much of why housing inflation is still high is because mortgage rates are down. If you actually brought the rate down, you'd get more home building. You bring down affordability. And so I think that's interesting. You know, one thing, since they cut rates, the, you know, firstly, since they started cutting and they cut 50, the front end of the curve has backed up almost 130 basis points. So this question of is the market setting policy for the Fed, I think, comes in the question. Listen, I'd love to know what the terminal rate is that the Fed is assuming today, because that has the amount that that has moved recently has been significant. So

anyway, there's a ton of questions. How do you interpret the new policy that could come in? How does that affect your your process from here? I from here? I think it'll be fascinating, you know, how much he describes around some of this, you know, probably in this forum, probably not a ton, but I think there's a lot of questions out there. Well, you make good points in that the market has been undoubtedly moving towards the Fed, certainly interest rates have, while at the same time, you could make the argument, too, that conditions have just gotten looser as a result of the rally we've had and the forceful one at that since the

result of the election happened. Stocks have surged. The problem is rates have backed up as well. So I agree with all that. You know, there is, you know, so much of what's moving now is the interpretation of how is policy going to change? How is this administration and now what is a favorable Congress? How is that going to move? And quite frankly, a lot of the current data is interesting, but the markets are interpreting where are we going from here?

And it could be quite different. And, you know, watching how the markets are playing that out. Listen, I think some of these things that are the superficial answer to what a new administration is, I think, quite frankly, would be much more complex than the markets have have reacted to today. But but anyway, it's been it's been wild to to watch it and quite frankly, to participate in it. Your anticipation remains a cuts coming next month and then we'll have to see what happens as we turn the calendar is that a fair assessment yeah i mean listen i think scott i think i think december you got to get that funds rate closer to four or at around four because of the effects we talked about before after that you know it'll be

fascinating to see the new dot plot the the SEP projections, because quite frankly, I think you can throw out to a large extent what we got in September. And I think we got a whole new ballgame to think through. Listen, I still think they would like to get a couple of cuts done, at least a couple of cuts done into next year. But the pace at which that happens and whether they actually need it, because it's really called into question. I mean, part of why the front of the yield curve is interesting today is you've now priced out any further cuts for all intents and purposes. So I think that I think seeing the next SEP projections where they have terminal rate, et cetera, is going to be is going to be fascinating. I mean, the point that the Fed chair seems to be making in part with these remarks is

he feels they have the luxury of going at the pace they want to because the economy isn't screaming that they need to do anything. Of course, the risk is both sides of that, that they overstay their welcome in not cutting quickly enough and the economy starts to weaken or the labor market starts to weaken and they've waited too long. It's a delicate dance still. It's a super delicate dances dance But this is part of why I think just get the funds rate to get it down another 25 basis points get it close to Four is that restrictive? There's a good debate of whether that's restrictive not I would argue

It's very restrictive for much of the population today. That's a borrower homebuyers We talked about potential homebuyers we talked about but just it to that number, and then you can evaluate the data. You can evaluate what policy is going to look like. You can validate. You have a very good sense then, or more so, where are we going to be with tariffs? What's the growth in the rest of the world going to look like? So listen, I think once you get that rate there, then you can sit back and say, OK, what do we need to do from this point going forward? How are you thinking about Fed independence in the in the wake of the election? I thought Mark Short, formerly chief of staff, of course, for Vice President Pence, had some interesting comments earlier on this network in which he said there will be pressure on Fed Chair Powell to lower rates. You're likely to see more volatility in that relationship.

How are you assessing that? Is that volatility, if it does occur in that relationship, concerning to you in any way? So listen, I think you had to, so I think on both, by the way, on the bond side and the equity side, I think you have to now evaluate the fact that the range of outcomes for both is wider. The influence that the administration, whether it's opinion or otherwise, has on or in the markets interpret how they're trying to influence policy or what have you, I think is going to create a wider band around a bunch of these markets. And you have to build that. How much risk you take into each of these markets, you have to interpret that.

Listen, I think there you'll see preservation of Fed independence. I am pretty convinced you'll see that play out going forward. But there's no doubt there are going to be calls for lower rate. You think about we've got a big debt burden in the country today. One of the ways you help that is you bring the interest rate down so our debt service doesn't move significantly higher. But listen, I think at the end of the day, I think this administration will preserve the idea of Fed independence with some opinions along the way. Yeah, you can bet on that, to say the least. You know, you are already feeling as though the

air was getting a little thin at the, you know thin at the high of the market. And here we are with a significant rally since the election. So what do you think now if you want to judge equities first and then we can talk about fixed income afterwards as we wait for Fed Chair Powell to start speaking? And actually, you know what, Rick, before you answer that, we may actually be getting the chair walking towards the podium there, because I think he was just introduced. We can't hear it, but I have a feel.

There he is. Let's go to the Fed chair. Thank you, Mr. Chair, to the Federal Reserve Bank of Dallas and to the Dallas Regional Chamber for the kind invitation to be with you today. I have just a few brief comments on the economy and monetary policy before we move to our conversation. So looking back, the U.S. economy has weathered a global pandemic in its aftermath and is now back to a good place. The economy has made significant progress toward our dual mandate goals of maximum employment

and stable prices. The labor market remains in solid condition. Inflation has eased substantially from its peak, and we believe it is on a sustainable path to our 2 percent goal. We are committed to maintaining our economy's strength by returning inflation to our goal while supporting maximum employment. The recent performance of our economy has been remarkably good, by far the best of any major economy in the world. Economic output grew by more than 3 percent last year and

is expanding at a stout 2.5 percent rate so far this year. Growth in consumer spending has remained strong, supported by increases in disposable income and solid household balance sheets. Business investment in equipment and intangibles has accelerated over the past year. In contrast, activity in the housing sector has been weak. Improving supply conditions have supported this strong performance of the economy. The labor force has expanded rapidly, and productivity has grown faster over the past five years than its pace in the two decades before the pandemic, increasing the productive capacity of the economy and allowing rapid economic growth without overheating. The labor market remains in solid condition, having cooled off from the significantly

overheated conditions of a couple of years ago, and is now, by many metrics, back to more normal levels that are consistent with our employment mandate. The number of job openings is now just slightly above the number of unemployed Americans seeking work. The rate at which workers quit their jobs is below the pre-pandemic pace after touching historic highs two years ago. Wages are still increasing, but at a more sustainable pace, and hiring has slowed from earlier in the year. The most recent jobs report for October reflected significant effects from hurricanes and labor strikes, making it difficult to get a clear signal. Finally, at 4.1 percent, the unemployment rate is notably higher than a year ago, but has flattened out in recent months and remains historically low. Turning to inflation, the labor market has cooled to the point where it is no longer a source of significant

inflationary pressures. This cooling and the substantial improvement in broader supply conditions have brought inflation down significantly over the past two years, from its mid-2022 peak above 7 percent. Progress on inflation has been broad-based. Estimates based on the Consumer Price Index and other data released this week indicate that total PCE prices rose 2.3 percent over the 12 months ending in October, and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent. Core measures of goods and services inflation, excluding housing, fell rapidly over the past two years and have returned to rates closer to those consistent with our goals. We expect that these rates will continue to fluctuate in their recent ranges, and we are watching carefully to be sure that they do, however, just as we are closely tracking the

gradual decline in housing services inflation, which has yet to fully normalize. Inflation is running much closer to our 2% goal, but it's not there yet, and we are committed to finishing the job. With labor market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2% objective, albeit on a sometimes bumpy path. Given progress toward our inflation goal and the albeit on a sometimes bumpy path. Given progress toward our inflation goal and the cooling of labor market conditions, last week my Federal Open Market Committee colleagues and I took another step in reducing the degree of policy restraint by lowering our policy interest rate by a quarter percentage point.

We're confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to 2%. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we are attentive to the risks to both sides. We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. We're moving policy over time to a more normal setting, but the path for getting there is not preset.

In considering additional adjustments to the target range for the federal funds rate, we will carefully assess incoming data, the evolving outlook, and the balance of risks. The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we're currently seeing in the economy gives us the ability to approach our decisions carefully. Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve. We remain resolute in our commitment to the dual mandate given to us by Congress, maximum employment and price stability. Our aim has been to return inflation to our objective without the kind of painful rise in unemployment that has often accompanied

past efforts to bring down high inflation. That would be a highly desirable result for the communities, families, and businesses we serve. While the task is not complete, we've made a good deal of progress toward that outcome. Thank you very much, and I look forward to our discussion. Thank you, Chair Powell, for those remarks. I will note that you are not the only Fed official who is giving a public speech today. Your colleague, Governor Coogler, gave remarks earlier today in Uruguay about the importance of an independent central bank. No particular reason, I'm sure, that that was the topic of the day.

We have a lot of students here today. I'm wondering if you could just explain in general why there is this bromide about it's important for the central bank to be politically independent. Sure, I'd be glad to let me say what we mean by independence first so what that really means is that the decisions that we make about monetary policy about interest rates cannot be reversed by any other part of the government except of course Congress Congress created the Federal Reserve by statute and can do what it wishes to do by statute. But our decisions are not reviewable

by any other agency. And we are charged to make those decisions with regard to the medium and longer-term well-being of the public that we serve. So we're not thinking as we make our decisions about the well-being of any political party or anything like that. So we're just looking at the macroeconomics and doing the very best we can. There's been a lot of research about central bank independence, and what it shows is that central banks who are independent, meaning independent from the other parts of the government, do a better job on inflation.

And that makes a lot of sense because, you know, we're thinking really just of getting inflation under control while keeping the labor market strong, and we're not thinking of political factors, which would frankly be a distraction to the already difficult work that we have to do the main job. So the academic research is very clear globally, by the way. This has been a global trend for more than the past 50 years.

Advanced economies like the United States economy around the world all have central bank independence of one part or another, in one form or another. The other thing I'll add is that what comes with that, on our part, is an obligation to be highly transparent about what we do, to explain ourselves to the public, to Congress. Congress has oversight over the Federal Reserve in our system. So we spend a great deal of time talking to the oversight committees and the broader Congress in the House and the Senate, explaining to them why we're doing what we're doing. I testify as a

matter of statute two times of the year in each of the House and Senate. So that kind of gives us the accountability that we need to be democratically legitimate in a situation where we do have some independence. The macroeconomic conditions that you just described in your remarks sound tantalizingly close to a soft landing. I know you're not willing to declare victory yet. To what extent do you think the fact that the Federal Reserve is credibly independent is responsible for the good outcomes that we've had so far? So the credibility is really everything in our work. And I think, as you know, inflation spiked really globally all around the world as the economies around the world

reopened after the pandemic shut down. And on the back of a lot of fiscal and monetary stimulus, we saw a burst of inflation all around the world. And what happened is we raised interest rates to bring that down, but the public had faith. We measure inflation expectations many different ways, surveys and based on market-based instruments, and they all kind of showed the same thing, which is the public all through all this believed that we would get inflation down, that we would restore price stability,

which we define as 2% inflation. And that's ultimately the key to it. Inflation is a social phenomenon. If people believe that inflation will be higher, then it probably will be. And if they believe that inflation will come down, then people who make and take prices and wages, they will make sure that it does come down. So it's absolutely critical that we be credible. And part of that is that we responded so forcefully when it became clear that inflation needed a response from us. We responded quite forcefully, and we think that helped

keep inflation expectations anchored, as we say. And then one last question, and then we can move on, I promise, on this. There have been times in U.S. history when people look back and say that the Fed was not seen as terribly independent. What did we learn from those episodes, in your view? Well, if you go back to the period of the high inflation, which I'm old enough to remember, it was during my college years, and basically the public kind of lost faith that the Fed would restore price stability and and you know the cost was a decade of very high and very volatile inflation quite difficult business conditions extremely difficult for people on a fixed income think what that does you may have felt it if you're

on a fixed income and prices go up 20%, you're just in trouble right away. So inflation is worst for people at the lower end of the income spectrum and the wealth spectrum. So we've seen it here in the United States in the 1970s, actually. And it's not a pretty picture. So, you know, I think this is very widely, by the way, understood and supported. You know, I've spent a lot of So, you know, I think this is very widely, by the way, understood and supported. You know, I've spent a lot of time on Capitol Hill, and I think where it really matters on both sides of Capitol Hill, the Senate and the House, in both political parties, there's a broad understanding that an independent central bank

is very important in just serving the public as best we can. We're not perfect. Everyone makes mistakes, but you'll get the best results if you have people who are just focused on that task and separate from politics. Thanks. A little bit more elaboration from what we heard last week at the press conference on this question. In that press conference, you basically downplayed the impact of the election on FOMC policy. You said we needed to kind of wait and see. But that does stand in contrast to how the FOMC behaved at the December 2016 meeting,

when roughly half of committee participants, according to the transcripts, upgraded their economic forecasts based on expected changes to fiscal policy under a Trump administration, in particular, a previous trifecta in which the Republicans controlled both chambers of commerce, excuse me, of Congress and the White House. You were, in fact, one of the policymakers who made changes to your forecast, finding that the staff's assumptions around a tax cut was a reasonable placeholder, which gave you greater confidence in the outlook. Does that approach seem reasonable in the current circumstances? That basically, you know, since the FOMC has been starting to judge some downside risks to the growth outlook,

does the election and the results that we have today remove or at least substantially mitigate downside risks to growth? So does it? That's your question. remove or at least substantially mitigate downside risks to growth? That's your question? I think it's too early to reach judgments here, and I'll tell you why. The job of staff is to go and be very nimble and make assessments in real time, much like capital markets do. The markets are pricing in assessments of what policy changes will be made and what their effect on the economy will be. And staff will do all of that.

I think policymakers are going to wait longer to see what the actual effects will be. And so, for sure, at our December meeting, staff will present what we know. But the thing is, we don't actually really know what policies will be, staff will present what we know, but the thing is we don't actually really know what policies will be put in place. We know that policies in several areas will change. We don't know how much. We don't know over what time frame. When it comes to fiscal policy, it takes quite a long time to get a bill through Congress, and I think this year what we're looking at is something that doesn't need to get done until the end of the year and therefore probably won't and won't have any economic effects this year, but it'll be more or 25, it'll be 26 or 27. So I think we have

time to make assessments about what the net effects of policy changes will be on the economy before we react with policy. That's not to say we won't be doing quite a lot of analysis. And the analysis we do, by the way, is informed by the best research, the best thinking, the best experts. And there's a lot of research on the effect of policy changes on the economy. We'll make those assessments. But I think we'll be careful about changing policy until we have a lot more certainty. You've spoken before about federal debt as being at unsustainable levels and the potential consequences for growth. Do we get to a point where deficits and debt get so high that it makes your job harder, essentially, that makes it harder for

the Fed to achieve its goals? So we're not at that point now. I want to be clear that we're not in any way taking into account fiscal issues when we make our, let me say it this way, the debt issue is not an issue that is guiding us in making our economic judgments. Fiscal policy can, of course, affect the economy. You know, first of all, we do not have a role of supervising the elected branches that do fiscal policy. In fact, it's the other way around. So we don't give them specific advice. But as I have often said and as all of my predecessors have noted,

the U.S. federal government budget is on an unsustainable path. It's not that the debt we have is at an unsustainable level. It's not. It's that we're on a path that's not going to be sustainable. We have a very large deficit at a time when we're at full employment, and I would just say we know that we're going to need to address that, and it's going to need to be done sooner or later, and sooner is better than later.

But I leave it at that. In addition to the potential long-term risks that higher deficits and debt present for growth, are there also risks to the functionality of the Treasury market, you know, when shocks the market and if so how might the Fed respond well the functioning of the Treasury market is incredibly important and it does function very well it's the most liquid and most important probably financial market in the world certainly one of the most important and so you know we did see some at the beginning of the pandemic, you may remember that the treasury market market loss function because normally, normally in an emergency money flies into the treasury market. But the pandemic was such an unusual event.

People didn't want to own longer term securities. They only wanted to own effectively cash. And so we had to jump in and support that. I think more broadly than that, it's just important that the treasury market remain well regulated and that companies have an incentive to do intermediation in the treasury market. It's relatively low risk. It's very important for the economy. And it's important that that be the case.

In the March 2020 episode that you're referring to, the Fed ultimately had to step in as a lender of last resort. Would the Fed do that if there were similar disruptions in the initial issuance of Treasuries? That was in the secondary market, as I recall. You know, we're not a fiscal actor. So that was a situation where we have a mandate that we share with other agencies to look after the financial stability, after financial stability. And part of that is if really important markets break down, and they kind of all broke down at the beginning of the pandemic. They just stopped working,

and so we set up a series of facilities to backstop those markets, but they actually didn't get used because just the fact that we had the facilities restored credibility and the markets started working on their own. It was remarkable. So in the case of a financial stability event like that or the global financial crisis where really the whole global financial system was at risk

given the failure of a number of large financial institutions around the world, in those kinds of things we can use these emergency tools, but they're not for every event. They're really for financial stability events. You mentioned that it's a little bit too early to know what policy beyond the remit of the Fed would look like. We don't know exactly what the fiscal picture will look like,

but we do know directionally that tariffs are likely to go up, right? Even if we don't know how much, we don't know necessarily if it will be exactly what was described on the campaign. And I'm wondering how you're thinking about that. Well, go on. Sorry. So what matters for us is we don't stand in judgment over these policies in any way. What matters for us is to what extent will new policies have an effect on our mandate goals of maximum employment and price stability, and do we need to change our policy because of these changes in order to achieve those goals?

And the answer to that question is not obvious. So let's say that there will be some tariffs. We have no idea what that's going to look like. That's one thing. Another thing is what about retaliation? That changes the picture. In addition, that's happening at a time when there could be fiscal policy, which could be supportive of the economy. So what's really the net effect? We don't take one piece of this. We're looking at the whole economy. In addition, remember, this is way over a $20 trillion economy. Many, many things affect the economy all the time.

It's not that common that changes in government policy have immediate effects in the achievement of our goals. That could be the case. And, of course, we will use our tools, as we're supposed to do, to foster the achievement of maximum employment and price stability. That's what we do. That's what we always do. And we'll do it here. I'm just saying we're going to be careful to wait and better understand the net effects of these things as those things affect the achievement of our goals.

If you look back to the previous round of trade wars under Trump's first term, the Fed staff prepared a report in the 2018 Tealbook where they basically talked about whether the Fed should be looking through any price increases that result from tariffs and assume that it's a one-time step up in prices as opposed to self-perpetuating inflation or not. And the staff said at the time that the Fed should look through the tariff increases so long as, one, you think it's going to be a one-time adjustment and not a series of adjustments, and two, so long as inflation expectations are anchored. It's not obvious that

either of those conditions will hold the next time around, right? Back in 2018, we had had decades of very low inflation. Now we've had a much more recent experience with higher inflation. And as you point out, there could be a series of retaliations and tariffs and counter tariffs and counter tariffs. So are the risks bigger this time that a price shock could feed into trend inflation? They're different. We're in a different situation. The debt situation has changed substantially. And you're right, we're not, you know, six years ago and such, the inflation was really low and inflation expectations were low. Now, we've come way back down, but we're not back where we were. It's a different situation.

Inflation is still running above 2%. But we'll take all of that into account. I tell you, though, the answer isn't obvious until we see the actual policies. And even then, it's not obvious. So I just think we reserve judgment until we actually know what we're talking about. And I don't want to speculate. I don't want to guess. I think it's more important that we wait and see what actually happens.

Last time around, as you suggested, there were mixed consequences, there were mixed effects, and as I recall, during these previous trade wars, the Fed actually cut rates several times because there were consequences for growth and investment and confidence. So how does the Fed respond if higher tariffs result in both higher prices and slower growth? Do you have the tools to respond to that? Well, so you're absolutely right. So in 2000, and I guess it was 19 we cut rates three times and that was right after there had been fiscal stimulus there had been tariffs and so it really was because the net effect of what was happening and and

and what was happening around the world too there. There was global growth was really soft. There was a feeling that the U.S. economy was softening. We actually cut rates three times, I guess, beginning mid-year. And that kind of worked. That restored confidence. We felt at the end of 2019, we felt like that had really worked and that situation was quite a good one. And, of course, then the pandemic arrived and none of it mattered. So that's the way it happened. But that's exactly my point, though.

You know, we had a meeting the prior December and it briefed us on what might happen, but what actually happened was something quite different. So I don't want to talk about the pandemic. I just mean the way that played out, I don't think we started that year thinking that it would be appropriate to cut rates three times. So just know that we will do what we believe is the right thing. That's what we're always going to do. But I think it's really important to reserve judgment and see how this plays out. We don't even have – we're still months away from a new administration, let alone knowing the real details of what's going to happen and then being able to project what will be the net effects on the economy.

Another major factor in the economy in the past year or so, you have said, is immigration. That immigration is a strong reason why supply and demand have gotten closer into alignment. In the past few months, we've already seen big decreases in immigration. What effect do you think that is likely to have on the macroeconomy in the near term? So before I answer that, I do want to say that immigration is a question to be addressed by political authorities using such values as they deem appropriate. We're looking at the macroeconomic effects and reporting on them. It's not a question of judging.

We don't have a view on the right level of immigration. That is for the voting public and their elected representatives. But what we saw over 2023 and 24 was a surge in immigration and also a surge in the labor force, and it certainly pushed up economic growth. And it may or may not have had some effect on getting the labor market back into balance. It will take time to really understand that. But it certainly made for a bigger economy. And, you know, we're coming off the back of a severe labor shortage. So there was room at that time for people to get work.

And, you know, they went to work at roughly the same level as nonimmigrants went to work. So that happened. Then the rules changed. The prior administration, the current administration, the Biden administration, changed the rules a few months back, and we've seen that come down. These are judgments that get to be made by elected people about what the right thing for the country as a whole is, not by us. But you ask what the effects will be, you will see, really, there have been two supply-side things that have been pushing up U.S. potential output and actual output.

One of them is just more workers, and the other one is productivity. And the more workers part of it is probably diminishing in its effects, and so that won't be something that's pushing up overall output. At the same time, the number of job openings has come way down, so it's not clear what the overall effect will be on that. There's about one job opening for every unemployed person now. In terms of productivity, productivity is incredibly important. That's just output per hour.

And if you think about it, higher output per hour is really the only way for incomes to go up over time among the public. And we've actually had, for the first time in a while, a few years of higher productivity going back five years now. This is incredibly important and very positive, and we hope it continues. And there's no reason why it can't. I will say, though, that over the past 50 years, if you have one or two or three years of high productivity, it tends to revert to the trend really quickly because it tends to be driven by longer run things like evolving technology and evolving educational levels and things like that. So it doesn't, you don't tend to get big, big increases of productivity that are sustained very often.

It's quite rare, although it has happened. I do want to ask you some more questions about productivity, but just one follow-up on the immigration point. So yes, economic growth is about the size of the workforce and how productive that workforce is. I asked before about the consequences of decelerating immigration. What happens if the workforce actually shrinks as a result of, for example, mass deportations, which may be in the offing? You know, I'm not going to be comfortable speculating on potential policies. You know, it's not our job to be a commentator. No, I'm not asking whether it's good or bad. I'm just asking what does it mean if the workforce shrinks?

You know, I mean, I think we can do the arithmetic. If there are fewer workers, there will be less work done. But we don't, it gets too close to, you know. I just don't want to go there. This is getting me into, you know, into political issues that I really want to stay as far away from it as I possibly can. All right, so let's talk about productivity. You're right that productivity has been above trend. I think eight out of the last nine quarters GDP growth has been above trend, largely because of productivity. To what do you attribute that? So this is something people will be arguing about in decades from now, but I would give you four or

five candidates. So one of them is that in the pandemic, people started a lot of businesses, a lot of businesses, and many of those fail fairly quickly or don't turn out to matter. But when there's a burst of activity in starting businesses, there tends empirically to be higher productivity because many of these are technologically driven or the use of technology is pushed out into the society. So that's one. Another is that unlike a lot of our, for example, European countries where they kept the labor force in place. Here,

people had money from government transfers and also from forced savings. They couldn't travel, they couldn't go to restaurants. And so they quit their jobs, and they went and found other jobs. And so there was this huge reallocation of people from jobs that they actually didn't want that much to jobs that they wanted more. And that's a real, we think that's a real factor in this. In addition, given the tremendous labor shortages, a lot of time and effort went into supplementing, you know, people's technological capabilities in ways that substituted for labor. So there was a lot of that.

Can you give an example of what you mean? Sure. I mean, just call centers. You know, there are lots of ways to, you know, you can now do call centers. So they're much more automated. We're getting to a place where call centers will be done by, you know, by artificial intelligence probably. But also just, you know, go to a fast food restaurant,

which of course I never do anymore at my age. But if you go to, I'm told, if, go to a fast food restaurant, which, of course, I never do anymore at my age. But if you go to, I'm told, if you go to a fast food restaurant, you know, a lot of that is, and I've seen this in airports, actually. You don't necessarily need somebody to take your order. You've got a nice menu. You punch a screen, and the food appears. So, and there was tremendous incentive to do that when there weren't any workers. You saw stores that didn't have very many people in them and that sort of thing. So I think that's an example that we saw.

I don't think I heard you mention in that response anything about generative AI. I'm wondering, do you think that that could be part of a new era of productivity acceleration? You know, artificial intelligence, pre-generative AI, is used all the time by big companies and modest-sized companies too, and it's certainly having an effect on productivity. Generative AI is just in the early stages, and certainly the companies and the banks in particular that we deal with, are not really using it yet. They're not really deploying it yet and they're very aware of the risks in it. So, but over time, I mean, you can find estimates from credible organizations that generative AI will create a burst of productivity, a large burst of productivity in the next decade. You can also find skeptics, you know, very credible skeptics who think that

that's hugely overdone. The history has always been that, you know, there's innovation, there's technology, it doesn't show up in the productivity statistics at all. And then it shows up a lot, but much later. So it's usually later and bigger than we expect. That may be the case here. Because this really, it is an extraordinary set of developments. And the ability to replace a lot of work that's currently done by humans, including well-educated humans, is obvious. How does that influence your thinking about monetary policy? You know, it really doesn't in the short term.

We keep extremely close tabs on the labor force. If you think about it, monetary policy is trying to move, trying to keep the economy at maximum employment and price stability, trying to use our tools to do that. And that's a meat you're thinking, you're thinking two or three years out. The kind of things that drive longer-run productivity and that matter for the longer run are really not tools that are in our hands. The best thing we can do for technological evolution is to create macroeconomic price stability,

by which I mean price stability and a good, strong, stable labor market so that people don't have to worry about inflation, volatile or high. And so that's the most that we can do, I think, best thing we can do. You mentioned that a lot of the financial institutions that you regulate or you oversee are also experimenting with these new technologies with AI. Given that so much AI is not explainable, you know, it's sort of a black box. A lot of the time, the software engineers or others who work with it cannot explain

how it came to the decision that it did. Does that make it harder to regulate in the sense that there might be blind spots for certain kinds of systemic risk, right, if banks don't necessarily know how they're coming to the decisions that they're coming to, and there could be some hurting that may not be obvious. It raises just that kind of question, many different questions like that.

I would say the good news is, in terms of the institutions we supervise, we understand that, but they understand it very well. I think people are treating AI very carefully, and they're not just loosing it, at least among the regulated banks. They're not just loosing it on their customers and on the problems they face. They're being very careful and thoughtful, we believe, or at least I believe, about how they implement it, doing lots of work, but they're keeping it carefully under wraps and not deploying it so much yet in their business. And everyone's working to understand the technology, where it's going, what it's capable of, what the risks are. And you mentioned that. It's making decisions, and we often don't know why it makes these decisions. So how do you

get after things like discriminatory outcomes in lending if you don't know why it's making its decisions? So it's going to be challenging, but I would say we're well aware of that and so are the banks. You have a five-year strategic review coming up. How has your experience over the last five years made you reevaluate, if at all, the strategy adopted in 2020? We had a strategic, and we have a document called our Statement on Longer-Run Goals and Monetary Policy Strategy. It's one page. The type is getting really small, so I think we're going to go to two pages next time. But remember, that was the era where, for a long time after the global financial crisis, rates around the world were incredibly low. For example,

major European countries, their longer-term debt was yielding negative 30 basis points and things like that. How do you even understand that? So rates were very, very, very low in the economy. And that's a problem for central banks because we can't cut rates meaningfully below zero, and cutting rates is what we do to support the economy. So we actually like having significantly positive interest rates like we do now. All right, so what we did is we said there was a whole literature on how you deal with, in monetary policy, how you deal with having interest rates stuck at zero, in effect, and you can't cut, You're kind of stuck.

You can't support the economy. You get into this trap where growth is low, inflation is low, unemployment is high, and you can't get out of it without fiscal policy, and fiscal policy is challenged. So there was a lot of research done on it, and we took a pretty mainstream, fairly vanilla approach to that, which is, I won't go into all the details, but it was to have a make-up strategy so that we would promise ex ante mainstream, fairly vanilla approach to that, which is, I won't go into all the details,

but it was to have a makeup strategy so that we would promise ex ante to let inflation run a little bit high if it were running too low. And the thought was, if people believe that you'll do that, if that's credible, then inflation won't run low. So that's all we did. Four months after we announced that the pandemic hit, and then inflation a year after that came up. So the change, you know, 20 years of low inflation ended sort of four months or a year and four months after we did the framework. So the question we'll be asking in this framework five years later is really it revolves around how do we think about the problem of the zero lower bound now? Now that interest rates are substantially higher than they were, substantially higher, is that going to be a – so the question you're asking is,

in a world where we review the framework every five years, shouldn't we change the framework to reflect that interest rates are higher now so that some of the changes we made are probably not necessary or in any case shouldn't be the base case anymore. They might be a case that we have that remedy handy, but at the same time, the base case should be more like a traditional reaction function where you don't promise an overshoot, you just target inflation. We haven't made any decisions, but those are the questions we'll be asking. You mentioned the prospect of long-term rates being higher, the neutral rate being higher.

You've said many times when asked by journalists, among others, about how we know when we fit the neutral rate that we know it by its works, right? Which almost sounds like ecclesiastical or something. How long does it take to evaluate whether we've hit it? When do we know? Like, if there are lags between the time that we hit the neutral rate and that we can see it in its works, does that increase the risk for policy errors? Let me just take a second and explain. So we move interest rates up and down, but, you know, what is high and what is low? You know, compared to what is the question?

You have to have an estimate of something that's kind of neutral, something that a level of interest rates that's neither pushing the economy up, supporting it, or dragging it down, which would be higher restrictive policy. And we fully acknowledge that there's no sort of either theoretical or empirical way to arrive at an estimate of what the neutral rate is that you can really have a lot of confidence in. So what does that argue for? It argues for moving carefully. So in our current situation, we feel like our policy is restrictive. We can't say exactly how restrictive it is. By that, I mean it's weighing on economic activity and lending, hiring and all that, because the economy was overheated and now it's cooling down and it's moved pretty much as we had hoped it would, which is that we've had a gradual cooling in the labor market. Inflation's come down a lot, and the labor market's not quite stabilized, but it's in a good place. So it's actually worked very well. So we've started the process of cutting rates and moving back down toward neutral. I think the right way to find that level is carefully and patiently.

You don't want to move too quickly. You may have to move quickly because if the labor market were to begin to deteriorate in a serious way, we would want to get ahead of that. But we're not seeing that. So I think what it tells you, as Catherine pointed out, we think that policy works with long and variable lags, to quote Milton Friedman. Monetary policy does have effects on economic activity, hiring and all that, but with long and variable lags. And that makes it all that much more difficult to know how far to go. I think in this situation what it calls for is us to be careful, move carefully, and as we as we sort of reach the range of or get near the plausible range of neutral levels, it may be the

case that we that we slow the pace of what we're doing just to increase the chances that we get this right you know we're navigating between as i mentioned in my remarks the risk that we move too quickly the risk that we move too slowly we want to go down the middle and get it just right so that we're providing support for the labor market but also bringing in helping enabling inflation to come down so So going a little slower, if the data let us go a little slower, that seems like the smart thing to do. So you say that interest rates are still restrictive right now. But if you look at the CPI numbers that have came out recently, or today's PPI numbers, you know, core CPI is over

3%. I think when I looked, the one-month rate is higher than the three-month rate, which is, I believe, higher than the 12-month rate. The economy is booming. The market is on fire. Core PPI came in above expectations today. Business formations are up. Why are we cutting rates? It seems like the economy is doing pretty well. The economy is doing very well, and that's a great thing. We totally welcome that. But look at the labor market. So what we've seen is a lot of the great data that we've seen has been because of the expanding supply side.

Unemployment has moved up from 3.4 to now 4.1. By a significant number of indicators, it's still cooling. Our mandate is not for growth. It's for maximum employment and price stability. But on the inflation data, so we do see inflation continuing on that bumpy path I mentioned. Today's reading was slightly more of an upward bump than we had expected. But I would say the broader trend, if you look back over the last 18 months, we think that's still intact. We're going to tear this report apart and look at all the details. We'll get another report in December before the December meeting. We'll get another labor report.

We'll get the final numbers for October by the end of this month. And we'll look at all that. We'll make our assessment. We do believe policy is restrictive. And again, I would point to the labor market. But, you know, it's not clear how restrictive it is. That's a very fair point and we're well aware of that. And I think we're mindful of the risk that we go too far too fast, but also of the risk that we don't go far enough. It doesn't seem like that's where we are either. It seems like we're

right where we need to be. I mean, I do feel like the U.S. economy is in a very good place, and I feel like our policy is in a really good place. We've got a lot of space to cut rates if the economy weakens. In the meantime, we can take the process of reducing rates. We can be careful about that, and that's what we're planning to do. I know we're short on time, so one last question. There has been an idea floated to announce who will succeed you as Fed chair in order to possibly exert more influence over monetary policy, a sort of shadow chair, two popes idea. Your term on the Fed's board runs until January 2028, beyond your term as chair, which ends in May 2026. Under what circumstances, if any, would you consider remaining on the Fed's board after your term as chair ends, as Mariner Echols did for a few years after he was no longer

chair? So, you know, I would just say I'll certainly serve to the end of my chair term, and that's really all I've decided and all I'm thinking about. We're very focused just on getting the job done for the American people. That's enough of a job for us to do, and we're focused on that. All right. Well, thank you so much, Chair Powell. I really appreciate it, and thank you all for attending. Thank you, Catherine. on that. All right. Well, thank you so much, Chair Powell. I really appreciate it. And thank you all for attending. That was Fed Chair Powell down in Dallas today. His first remarks

since his news conference of one week ago in which today the Fed chair said the following, largely sticking to the script of last week, described the labor market in, quote, solid condition. Remarkably good is how he said the performance of the economy is by far, and he underscored those words, by far the best of the major economies of the world, sees PCE for October at 2.3%, sees inflation coming down to target with the caveat, he said, albeit at a sometimes bumpy path. That's alluding to maybe the stickiness in some of the readings that we've gotten of late and why they're going to be careful about their decisions moving forward. Again, said they're going to be data dependent. We remain resolute in pursuing the dual mandate, he said.

Wouldn't really get into politics at all around the election. He did underscore why he thinks the Fed needs to be independent, why that is so important. He said, quote, credibility is everything. He was asked if the result of the election does mitigate any of the downside risk to the economic assumptions of the Fed, in which he said it was simply too early to say on the issue of tariffs. He did note the possibility of retaliation in which he said would, quote, change the picture of how maybe the impacts there would be. But as I suggested, really, when asked about going any deeper into the political picture, he did avoid that. And he did get a little bit of a round of applause on on one of those notes. And then at the end there, you just said or you just heard that he said he

will serve until the end of his chair term, which is mid next year, declined to really speculate on what he would do after all of that. Senior economics reporter Steve Leisman is back with us. I said at the top, Steve, this was largely sticking to script. Is that how you sensed it as well? Not exactly, Scott. I thought that he did say a bunch of things he said last week. I thought he emphasized a little bit more the idea that things are maybe going to move a little more slowly than the market thinks. And the market did react, Scott. Even if it was the same similar language, the market, if you look at what happened to the probabilities we're at 75 percent for

December now we're down to 61 look at what's happened if you want to see to what's happened in March as well where the next cut was kind of baked in I believe it's now below and also take a look at the two-year which spiked up on this so and you're right Scott he did not talk about politics but you can see that it's on his mind. You can see it has the clear potential to affect policy and create perhaps a certain, again, slowness in how the Fed responds and cuts rates. I think the direction we talked about earlier is still clear. The pace is very much up in debate and it's very much an issue for what the next administration does, how quickly they do it, how clear it is, what the impacts are going to be of what they do.

Your points are well taken. I guess my point was the words may be similar to what we heard a week ago, but the emphasis on certain parts of it perhaps a little more hawkish certainly is. Your point is very well taken, how the market has reacted. Senior markets commentator Mike Santoli, Virtus' Joe Terranova are both with me at Post 9. Mike, that was your reaction, just a little more hawkish. I mean, the short end of the curve certainly moved. Hawkish, absolutely. Shorter-term yields up, curve flattening out again. And the stock market just feeling that pressure around the edges in a day it was already kind of just taking profits further and trying to reassess. It just adds more suspense. You're right,

the Fed's in a good spot. It's operating from a position of strength, but it does mean a little bit less clarity how far we have to neutral. It comes on a day clearly where the market was in need of a little bit of a correction. I do think we introduced now that there is going to be a pause at some point early in 2025. I think pace is now back in play. We're worrying about how quick are we going? Are we jogging? Are we running? And I think, you know, the response in the market, dollar higher,

small caps lower, makes sense. It was interesting, too, on the debt issue. He said it is on an unsustainable path, but it's not at an unsustainable level now. I thought that was an interesting nuance. He does generally frame it in that fashion, but yes, he did emphasize it. It's not an emergency today. Thanks so much. So, thoughts will be read. We talked about what's happening in the bond market. We'll continue to react in overtime. Morgan and John will certainly do that, and I'll see you tomorrow.