It's time now for our Wall Street Week Daily segment, and David Westin is here
with us and, of course, are focused, laser focused on the economy.
Yeah, and Jackson Hole and what they said today in Jackson Hole, particularly
Jay Powell, the chair, as you know, former Treasury Secretary Larry Summers
had some concerns that they might back off too soon, declare victory against
inflation in effect. And may we go on longer than we think.
And so we talked to him and asked him after Jay Powell, his remarks, what he
took away from it. And Larry said overall, he thought that
he did address the issues. This is what Larry had to say.
He made clear that he was continuing and echoing the very strong inflation
focused policies that he had called for in Jackson Hole last year.
That was the most important thing, that he recognized very clearly that while
progress had been made, the battle against inflation was a long way from
one. He recognized that there could not be
movement away from the 2% inflation target around which the Fed has oriented
its policy. He recognized the prospect that the
neutral interest rate had risen. Not explicitly.
He didn't use the words neutral interest rate, but he noted that growth was much
faster than many people expected, given how high interest rates have been
pushed. And that was something that the Fed was
going to have to stay focused on. So I was very pleased with the speech,
and I think it will reinforce the growing sense in markets that after
whatever happened in 2021, the Fed had regained its bearings and was now very
focused on maintaining price stability as a basis for long run prosperity.
And I was very glad to see that. And I think the strategy that was put in
place a year ago in Jackson Hall, to the surprise and chagrin of many, has proven
to be effective. And I was very glad to see that it's
going to be continued. Sure, there are other issues that the
chair could have addressed. I would have liked to see a little more
recognition of the complexities for monetary policy brought about by the
nation's problematic fiscal posture. But overall, I thought this was a very
good and encouraging speech for the medium term prospects of the American
economy. Larry, I'm so glad you raised the fiscal
policy because that's something you raised in your Washington Post piece and
it's very much out there to what extent the yields have actually increased
because there's so much more issuance and there will continue to need to be
issuance because the more money we're borrowing.
I wonder about the neutral rate and how it fits with that.
And are we really taking into account we put it a different way?
Are we at a sufficiently restrictive number policy right now for monetary
policy to get us down to 2% within a reasonable period of time, given all the
other factors? I don't think any of us can know the
answer to that question. I don't think any of us should pre-judge
that question. My best guess would be that we're going
to need more interest rate increasing because I don't think there's a lot of
contraction that is still in the pipeline.
And, you know, some people, some forecasts and they won't actually
materialize are saying that GDP growth could be 5% in the third quarter.
In Chappelle's remarks, he said that some progress was made on inflation.
He was quick to say, we're not there yet and we need to stay the course and we'll
have to, of course, adjust going forward.
One of the things that you have raised that's caused some comment is a
comparison with what happened in the 1970s with inflation, where it came down
and then it bounced back up again. What from your point of view, is the the
relevance of that and the danger that we can have a rebound in inflation as
people who are more on team transitory and have taken a dovish posture on all
this completely for the last couple of years have said and they're right, the
1970s are very different from now. We had a big recession.
We had oil shocks in a larger way than we have now.
CPI was computed differently than we do now, and they're right about all of
that. But I think the broader lesson is that
the most serious inflation problem the country ever had got made by people who
declared victory prematurely several times in the early seventies, in the
late sixties, in the early 1970s, and again as President Carter was coming
into office where even when the inflation problem was still there, in
reality, the policy discussion began with a lot of orientation to stimulus.
And so in that sense, I think the seventies are a useful and cautionary
reminder about the mistake that we could easily make.
You know, it's always a good idea to think about temptation, and the
temptation is always to make things easier.
Support markets being high, higher, provide a bit of extra
stimulus to the economy, but ultimately that can become a treadmill.
And what's fortunate is that the Fed is now in a quite credible posture.
The reason the Fed is in a credible posture is not because it's
automatically always going to be credible, it's because it recognized how
far off things had gotten, how far off track they had gotten during 2021.
And they made radical policy adjustments of a kind that almost no one expected
and that many people were counseling against.
And that's what enabled us to have our credibility.
And so I think that would be kind of a tragic irony if having regained
credibility, we took that credibility as some kind of argument to stop pursuing
the policies that had enabled the Fed to regain its credibility.