# Kansas City Fed President Jeffrey Schmid on the First Jackson Hole of the Warsh Era

An episode of [Odd Lots](https://invisiblenetwork.ai/podcast/1056200096), 27 Aug 2026, 29 min.

Audio: https://podtrac.com/pts/redirect.mp3/tracking.swap.fm/track/UVBrz8bN8aM2Xe47PEPu/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/8a94442e-5a74-4fa2-8b8d-ae27003a8d6b/23fe5a8c-d1c2-4e74-975b-b4b30028ce5d/audio.mp3?utm_source=Podcast&in_playlist=982f5071-765c-403d-969d-ae27003a8d83

We are back in Jackson Hole! And this year's Federal Reserve Bank of Kansas City symposium on monetary policy might be one of the most interesting editions in years. It marks the first under new Fed Chairman Kevin Warsh, and Fed observers all over the world will be closely watching his Friday speech for signs of how he might further distinguish himself, and the institution he is in charge of, from the Jerome Powell era. This meeting at Jackson Hole also comes at a fascinating, and pretty tense, time for monetary policy in the US and abroad: high bond yields, above-target inflation, and AI's still unrealized effect on broader parts of the economy like the job market. As we have in the past, we speak with Jeffrey Schmid, the president and CEO of the Kansas City Fed, about what to expect and he also shares his thoughts on the wave of baby boomer retirements and how it's affecting the labor force, his recent FOMC votes, and he explains why this symposium is so focused on payments. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios.
[0:04] Speaker 2: Podcasts. Radio. News.
[0:18] Speaker 3: Well, hello and welcome to another episode of the Odd
[0:20] Speaker 3: Thoughts Podcast. I'm Tracy Allaway.
[0:22] Speaker 4: And I'm Joe Weisenthal.
[0:23] Speaker 3: Joe, we're back in Jackson Hole.
[0:25] Speaker 4: Where else could we be? I guess if you're watching
[0:28] Speaker 4: on video, it's pretty obvious.
[0:29] Speaker 1: If you're listening on audio, maybe there's some mystery. But
[0:32] Speaker 1: if you're listening on audio, switch and watch us on
[0:34] Speaker 1: video and you'll see.
[0:35] Speaker 3: Okay, for the old school audio listeners, we are back.
[0:37] Speaker 3: And the backdrop to this is always literally beautiful, right?
[0:41] Speaker 3: We have the mountains in the background. But I think
[0:44] Speaker 3: I say this every year. I think this genuinely might
[0:47] Speaker 3: be one of the most interesting Kansas City Fed economic
[0:50] Speaker 3: symposiums ever.
[0:51] Speaker 1: The most interesting until the next year. But yes, there's
[0:54] Speaker 1: quite a bit going on, both in terms of the
[0:56] Speaker 1: substance of what everyone's here to talk about, plus the
[0:59] Speaker 1: context of so many unresolved questions in the economy and
[1:03] Speaker 1: so forth.
[1:03] Speaker 4: So thrilled to be here.
[1:05] Speaker 2: All right.
[1:05] Speaker 3: Well, we should get into it. And I'm glad to
[1:07] Speaker 3: say we do, in fact, have the perfect guest.
[1:09] Speaker 4: Perfect guest.
[1:09] Speaker 3: We're going to be speaking with Kansas City Fed President
[1:12] Speaker 3: Jeff Schmidt. Thank you so much for coming back on
[1:14] Speaker 3: All Thoughts.
[1:14] Speaker 2: Well, welcome to Jackson Hole. I mean, this is amazing.
[1:17] Speaker 2: 49th year. So next year is the big 50. Oh, wow.
[1:20] Speaker 4: We'll definitely be back for that.
[1:22] Speaker 2: You've got to come back next year.
[1:22] Speaker 4: If you'll have us.
[1:23] Speaker 2: Oh, absolutely. I mean, it's such an amazing thing that
[1:27] Speaker 2: Kansas City Fed created. half century ago, and we just
[1:30] Speaker 2: keep on trying to add to it as we go forward.
[1:33] Speaker 3: Well, thank you for giving us an excuse to come
[1:35] Speaker 3: back to one of the world's most beautiful places every year.
[1:38] Speaker 3: So the theme of this year's symposium is financial innovation
[1:42] Speaker 3: in payments, but it's coming against this backdrop of general
[1:45] Speaker 3: economic uncertainty and pretty high bond yields. Is there a
[1:50] Speaker 3: connection between the two?
[1:52] Speaker 2: Yeah, so let's park that last question because it's a
[1:56] Speaker 2: good one. And let's talk a little bit about why
[1:58] Speaker 2: this is important. Because some people would say, oh, man, payments,
[2:01] Speaker 2: that's boring. Not us, but some people. But we want
[2:06] Speaker 2: to ultimately, as the Federal Reserve, make payments boring. I mean,
[2:09] Speaker 2: we move $ 5 to $ 10 trillion a day through the systems,
[2:13] Speaker 2: through multiple different pipes, payment pipes. What's really fascinating about
[2:18] Speaker 2: what you're going to see in the next couple of
[2:20] Speaker 2: days is with some of the research that's being done
[2:22] Speaker 2: is we're moving toward, I've seen the words atomic settlement
[2:28] Speaker 2: in the marketplace, which is actually when payments are actually
[2:31] Speaker 2: going to be instant. And through our lives, at least
[2:35] Speaker 2: my life, you've always talked about float and fees. There's
[2:38] Speaker 2: always been a friction and a cost to payments. Well,
[2:41] Speaker 2: this innovation that we have now in technology is going
[2:44] Speaker 2: to move a money from me to you instantaneously and
[2:47] Speaker 2: it's going to be reconciled instantaneously. So that's the atomic
[2:50] Speaker 2: side of this whole settlement business. And it's going to
[2:54] Speaker 2: be one, very innovative, but two, it's going to be
[2:57] Speaker 2: somewhat disruptive too. And so that begs the question about
[3:01] Speaker 2: how do you accommodate a system that's instant. Gets back
[3:05] Speaker 2: to your last question is that we're going to be
[3:07] Speaker 2: talking a lot more as we go forward about two
[3:10] Speaker 2: main things in our world. One is duration. duration of assets.
[3:14] Speaker 2: The second is going to be liquidity. And so when
[3:16] Speaker 2: you think about it, if the payment is instant, then
[3:20] Speaker 2: there's got to be proven liquidity behind it to settle it.
[3:24] Speaker 2: And so I think there's a couple of things in
[3:28] Speaker 2: your question that I think it begs. One is, what's
[3:31] Speaker 2: happened in the economy that's changed the nature of the
[3:34] Speaker 2: yield curve, the price of money, be it short term,
[3:37] Speaker 2: long term? Well, a lot of things. I mean, the
[3:39] Speaker 2: economy is moving along nicely. It's growing. And as long
[3:47] Speaker 2: as we can try to get this inflation thing back
[3:49] Speaker 2: to our mandated 2%, we're going to see a more
[3:53] Speaker 2: normalized yield curve. So if you think historically, whatever's happening,
[3:58] Speaker 2: the bond market's pretty good at pricing risk and price.
[4:01] Speaker 2: And so the nature of what's happening for me is
[4:05] Speaker 2: I try to simplify this because I'm not that smart.
[4:08] Speaker 2: Go back to supply and demand. If prices are changing,
[4:12] Speaker 2: then there's a dynamic between supply and demand that's occurring.
[4:15] Speaker 2: It could be in bond prices or corn and wheat,
[4:17] Speaker 2: whatever it is. It gets down to that when it
[4:21] Speaker 2: comes to economics.
[4:22] Speaker 1: The obvious move here would be to dive in a
[4:24] Speaker 1: little bit more on the inflation question.
[4:26] Speaker 4: But maybe that's obvious.
[4:27] Speaker 1: Maybe instead, I'm curious, since the last dots, actually, unemployment
[4:31] Speaker 1: has fallen from 4.3%, I believe, to 4.1%.
[4:36] Speaker 4: That fits with what you're saying. The economy is growing.
[4:39] Speaker 1: Have you changed your, when you think about this sort
[4:41] Speaker 1: of pace of economic gains or just.
[4:44] Speaker 4: The rapidity of the growth, have you lifted up your sort.
[4:48] Speaker 1: Of general view of what trend state growth looks like?
[4:52] Speaker 1: Have you become more optimistic about the durability of the expansion?
[4:57] Speaker 2: I'm pretty optimistic about the durability. So I think about
[5:01] Speaker 2: last year, I dissented a couple as a voting member
[5:04] Speaker 2: of FOMC. I talked a lot about last year, still
[5:08] Speaker 2: do talk about, that the labor force is going through
[5:10] Speaker 2: a very fascinating structural change. I mean, people in my generation,
[5:16] Speaker 2: the baby boomers, I mean, we're retiring at about 4
[5:18] Speaker 2: million people per year. So just when you think about
[5:21] Speaker 2: the dynamic of what that creates in the labor force, one,
[5:25] Speaker 2: it creates opportunities. Two, it creates risk. I mean, I'm
[5:30] Speaker 2: signing more retirement letters in the last three months than
[5:32] Speaker 2: I have for the last three years. But I worry
[5:34] Speaker 2: about the intellectual muscle that we're losing in that. So
[5:38] Speaker 2: what that does is that challenges my 25, 35, 45-year-old
[5:43] Speaker 2: Fed economist and banker saying, look, how do we think
[5:47] Speaker 2: about what the job entails? And how do we use
[5:50] Speaker 2: AI to transfer what the 65-year-old retiree knows to what
[5:55] Speaker 2: they need to know now, not wait till they're 55
[5:57] Speaker 2: or 65? So the labor force is changing. I mean,
[6:02] Speaker 2: immigration policy has an influence on it as well. But
[6:05] Speaker 2: we're going to continue to go through this probably for
[6:08] Speaker 2: the next decade as we kind of see the baby
[6:12] Speaker 2: boom generation go out of the labor force and kind
[6:15] Speaker 2: of the new entrants come in. But that's all going
[6:18] Speaker 2: to be net positive for the economy.
[6:20] Speaker 3: OK, well, I'm going to ask the obvious question then
[6:22] Speaker 3: and go back to inflation and what's going on with
[6:25] Speaker 3: bond yields. So the 30-year above 5%. The new Fed chairman, Warsh,
[6:30] Speaker 3: he says that yields can be a valuable signal for
[6:33] Speaker 3: policymakers such as yourself. They can say something about the economy.
[6:37] Speaker 3: When you see those yields, what are you seeing? What's
[6:40] Speaker 3: your takeaway?
[6:41] Speaker 2: So I would put it in a much more macro
[6:43] Speaker 2: context of just the price of money up the curve, right?
[6:46] Speaker 2: So we have, with our policymaking tools, we have influence
[6:50] Speaker 2: on the short end. We don't really have any influence
[6:54] Speaker 2: on the longer end, even though I will say this.
[6:56] Speaker 2: through the last couple cycles, the post-08 and post-2020 cycle,
[7:02] Speaker 2: we did take some actions inside of our balance sheet
[7:04] Speaker 2: to pull duration into our balance sheet, which did influence
[7:09] Speaker 2: some of the longer rates. So it's not absolute that
[7:12] Speaker 2: we don't have influence, but it would be more of
[7:14] Speaker 2: a balance sheet action that that would happen. For me,
[7:18] Speaker 2: what's really fascinating with a growing economy and this whole
[7:21] Speaker 2: technology and AI influence is what's creating demand for credit
[7:27] Speaker 2: inside that for the commercial sector and the public sector.
[7:31] Speaker 2: So here again, back to supply and demand. If there's
[7:35] Speaker 2: more demand for credit, you're going to have a competition
[7:40] Speaker 2: between commercial and public credit. And so that's going to
[7:42] Speaker 2: affect the price. So all I can say is it
[7:45] Speaker 2: seems to me like the demand or the yield curve
[7:48] Speaker 2: is fairly normalized inside of an economy that's growing somewhere
[7:52] Speaker 2: between 2% and 3.5%. And that the price of money
[7:56] Speaker 2: is going to be influenced by some of the more
[7:59] Speaker 2: dynamic growth curves inside GDP, most notably inside the data
[8:06] Speaker 2: center build, the AI build. What I need to try
[8:09] Speaker 2: to figure out is what percentage of that growth number
[8:13] Speaker 2: is in this kind of cycle, right? I think about
[8:17] Speaker 2: a flywheel. The more it spins, you've got to figure
[8:21] Speaker 2: out who that's affecting, where the risks are. And I
[8:25] Speaker 2: think that's what the Fed needs to do more of.
[8:27] Speaker 1: When you talk to businesses in your district, do you
[8:30] Speaker 1: encounter entities that perceive themselves to be as essentially competing
[8:36] Speaker 1: with the data center build out? for labor or for
[8:39] Speaker 1: equipment or for freight capacity or anything and that sort
[8:42] Speaker 1: of real crowding out phenomenon that like do you do
[8:46] Speaker 1: you hear that from people you talk to.
[8:48] Speaker 2: Every day i mean think about the commodities that it
[8:51] Speaker 2: takes that the data center is demanding that that apply
[8:54] Speaker 2: to other industries i mean think about the machinery industry
[8:57] Speaker 2: steel copper right so so uh i mean lately Not
[9:02] Speaker 2: that the AI influences commodities like grains. They've surged the
[9:08] Speaker 2: futures market on that. So absolutely, that's why we got
[9:13] Speaker 2: to peel the onion back and try to figure out
[9:16] Speaker 2: what parts of the growth onion are being driven specifically
[9:20] Speaker 2: by this kind of boom effect that technology and AI
[9:23] Speaker 2: and data centers is having from a commodity standpoint to
[9:26] Speaker 2: other industries. I think that's a really important part of
[9:29] Speaker 2: us getting inflation back down to two.
[9:32] Speaker 3: Okay, so speaking of getting inflation back down to two,
[9:34] Speaker 3: I mean, in addition to saying that bond yields can
[9:36] Speaker 3: be an important signal for policymakers, Warsh has also suggested
[9:40] Speaker 3: that higher yields can kind of do some of the
[9:42] Speaker 3: Fed's work for it in the sense that, you know,
[9:45] Speaker 3: if the 30-year yield is going up, you're going to
[9:47] Speaker 3: have higher mortgage rates, a dampening on credit, that sort
[9:50] Speaker 3: of effect. Is that the case for you? Do you
[9:53] Speaker 3: see a tightening effect from those higher bond yields?
[9:56] Speaker 2: So I would say think about what's happening. in the
[10:00] Speaker 2: longer dated treasury market and really think about how you
[10:06] Speaker 2: would react as a user of that credit. So the
[10:09] Speaker 2: competitive nature between commercial and public debt, that price is
[10:14] Speaker 2: going to influence, it's going to create a behavior. It's
[10:17] Speaker 2: either going to slow your decisioning to do that. Or
[10:21] Speaker 2: you might think that the returns on that are so
[10:24] Speaker 2: astronomical that an 80 basis point move in the 10-year
[10:27] Speaker 2: isn't going to affect your business model. But I think
[10:31] Speaker 2: moving rates, especially policy rates, I think has a behavioral impact.
[10:37] Speaker 2: And it should. You're trying to influence the movement of
[10:41] Speaker 2: capital and credit. And clearly, the market is pricing and
[10:46] Speaker 2: repricing risk and demand for that credit. And that's why
[10:50] Speaker 2: I think you've seen the longer ends change. But I
[10:53] Speaker 2: think that your question is a great one. But I
[10:56] Speaker 2: would think that as the price goes up, it is
[10:59] Speaker 2: going to influence whether or not you're going to have
[11:02] Speaker 2: accommodative or restrictive types of behaviors.
[11:05] Speaker 1: So, OK, maybe moves at the long end of the
[11:08] Speaker 1: curve could have some behavioral impact on the proclivity to
[11:12] Speaker 1: invest or build, etc. But ultimately, presumably, the Fed has
[11:16] Speaker 1: to do something if inflation continues to run hot.
[11:19] Speaker 2: Do you worry?
[11:20] Speaker 4: And it's been years.
[11:21] Speaker 1: Now of unacceptably hot inflation just in the current part
[11:26] Speaker 1: of the cycle that we're in right now.
[11:28] Speaker 4: Do you worry about a long term price for the economy?
[11:32] Speaker 1: If the Fed right now is not perceived as taking
[11:35] Speaker 1: this inflation seriously and acting on it directly?
[11:38] Speaker 2: I absolutely do. I mean, I've been fairly public about
[11:43] Speaker 2: my proclivity to say, look, I think the labor force
[11:47] Speaker 2: is in a pretty good place. We haven't done our
[11:49] Speaker 2: job yet on inflation. So the question is, and I
[11:54] Speaker 2: would say that it gets harder as you trend toward two, right?
[11:58] Speaker 2: Because Everybody worries. It's a natural thing to worry about overshoot, right?
[12:04] Speaker 2: Do you make decisioning? Either you're too slow or you're
[12:08] Speaker 2: too aggressive. And I think that's the nature of the
[12:11] Speaker 2: journey from three to two. But we clearly have had
[12:15] Speaker 2: a bit of a surge into the mid threes. It
[12:18] Speaker 2: has to be addressed. That's our mandate. It's one of
[12:21] Speaker 2: the two mandates. And you've seen the narrative from the
[12:27] Speaker 2: last meetings. There were several dissents. I think there were
[12:30] Speaker 2: very thoughtful dissents. I think it's consistent with what Chairman
[12:33] Speaker 2: Warsh wants is that great debate, because he's been pretty
[12:38] Speaker 2: vocal about we have a choice in the Fed to
[12:41] Speaker 2: manage inflation to two. And we should be up to
[12:45] Speaker 2: that task. And so I think the things he's going to,
[12:48] Speaker 2: people are very, they're anticipating this presentation on Friday. Maybe
[12:54] Speaker 2: it'll give us more insights. I mean, Got to give
[12:56] Speaker 2: him a little bit of room, right? He's still only
[12:58] Speaker 2: a few weeks in. But I like, he has a
[13:02] Speaker 2: vast imprint of what he believes the Fed should be
[13:05] Speaker 2: and what it should do. And I think I'm in
[13:09] Speaker 2: his camp as far as the mission and the mandate.
[13:28] Speaker 3: So you mentioned dissents and I know you're not voting
[13:30] Speaker 3: this year, but you have voted previously and you have
[13:33] Speaker 3: dissented previously. So I have a sort of behavioral FOMC question,
[13:37] Speaker 3: but like, what is the thought process when you decide actually,
[13:41] Speaker 3: instead of just voicing some uncertainty here, I'm actually going
[13:44] Speaker 3: to go for a dissent. Like what is the hurdle
[13:46] Speaker 3: that you have to get over before you're willing to
[13:49] Speaker 3: kind of, I don't know, push the dissent button. I
[13:51] Speaker 3: don't even know how you record your actual decision, but.
[13:54] Speaker 2: So, so it is a, here again, There's not a
[13:58] Speaker 2: lot of mystery to it, right? You've got 19 people
[14:00] Speaker 2: that have these amazing teams. Joe Gruber is our chief economist,
[14:05] Speaker 2: one of the brightest people I know when it comes
[14:07] Speaker 2: to trying to synthesize what's happening in the economy and
[14:10] Speaker 2: try to have this discussion and debate in the 10th
[14:14] Speaker 2: district about how do we represent the seven states that
[14:16] Speaker 2: we represent. So I'm a bit of a communication transmitter, right?
[14:21] Speaker 2: I go around the district. I listen closely. to what
[14:24] Speaker 2: businesses and leaders, local leaders are thinking and worrying about.
[14:29] Speaker 2: I bring that to the FOMC table. I speak my
[14:33] Speaker 2: piece on behalf of the 10th district. I go back
[14:35] Speaker 2: to the district and I say, this is what's happening
[14:37] Speaker 2: with the FOMC. So, you know, this dissent is just
[14:42] Speaker 2: an action that really has a life of its own
[14:46] Speaker 2: kind of between meetings. And as you know, we love data, right?
[14:52] Speaker 2: We all like to, you know, But we have to
[14:55] Speaker 2: be careful about, you always have to think about where
[14:58] Speaker 2: is the data today and how is it trending? And
[15:02] Speaker 2: then you have to rebalance your mandate between inflation and
[15:05] Speaker 2: full employment. And so everybody's going to have a little
[15:09] Speaker 2: bit different opinion about that friction. And at the end
[15:12] Speaker 2: of the day, we're all singular about it. But the
[15:16] Speaker 2: dissent is really a mechanism of saying, I think the
[15:19] Speaker 2: risks are between those two mandates are weighted differently than
[15:23] Speaker 2: you think they are. And that's the thing I love
[15:27] Speaker 2: about the conversation.
[15:30] Speaker 1: Let's talk more, actually, speaking of the conversation, Chairman Warsh
[15:35] Speaker 1: has described the, quote, good family fight, which sounds like
[15:38] Speaker 1: a good debate. Can you tell us, does the tenor
[15:41] Speaker 1: feel different? I mean, the idea of all of you
[15:43] Speaker 1: coming together and debating and going back and arguing, it
[15:46] Speaker 1: feels like I would hope that's how the FOMC is operating.
[15:50] Speaker 1: Does the new approach feel any, does it feel distinct
[15:55] Speaker 1: versus past FOMC chairs?
[15:57] Speaker 2: Yeah, so I now are into two tenures. I absolutely
[16:02] Speaker 2: loved working with and around Jay Powell. I think he
[16:06] Speaker 2: had a lot different kind of style and mandate relative
[16:11] Speaker 2: to the cycle that he was in the middle of.
[16:13] Speaker 2: I mean, we had the pandemic challenge, then we had
[16:18] Speaker 2: the inflation challenge. I really enjoyed, and by the way,
[16:23] Speaker 2: it was hard to dissent because I really have a
[16:25] Speaker 2: deep respect for the way he thinks about the market
[16:28] Speaker 2: and the economy. I actually have a great appreciation for
[16:31] Speaker 2: what Chairman Warsh talks about. And I think less about
[16:35] Speaker 2: the family fight is more about being willing and accepting
[16:41] Speaker 2: to the debate. And so, look, you can get into
[16:45] Speaker 2: these environments They're big, they're heavy, there's lots of issues
[16:52] Speaker 2: that you want to deal with. But to have a
[16:53] Speaker 2: chairman on any board, and I used to be chairman
[16:56] Speaker 2: of bank boards, you want people's truths. You want to
[17:01] Speaker 2: see where they stand because, frankly, a lot of times
[17:04] Speaker 2: those truths may impact the way I think about things.
[17:08] Speaker 2: So it's really more about being transparent and willing to
[17:14] Speaker 2: accept a debate versus saying, look, You've got other leaders
[17:18] Speaker 2: that say, you know, my way or the highway. And
[17:21] Speaker 2: so I don't like that style. I prefer the openness
[17:25] Speaker 2: of a debate.
[17:26] Speaker 3: Wait, so say more about the Fed chair's role in this.
[17:30] Speaker 3: in the family fight, I guess. Because you hear chairman,
[17:32] Speaker 3: you think head of the household. If you look at
[17:38] Speaker 3: it that way, his role could either be to try
[17:41] Speaker 3: to get everyone on board with what he thinks or
[17:44] Speaker 3: where the economy is going at any particular moment in time,
[17:47] Speaker 3: or his role could be to try to synthesize all
[17:49] Speaker 3: those different viewpoints and come up with a coherent strategy
[17:52] Speaker 3: and sort of transmit that communication. Which of those two
[17:57] Speaker 3: roles is it?
[17:59] Speaker 2: I would say that he has left an imprint on
[18:06] Speaker 2: his experience with the Fed that I have a huge
[18:09] Speaker 2: amount of respect for. I mean, he was a governor
[18:12] Speaker 2: through the 08 crisis. He's spent the last 15 years
[18:16] Speaker 2: really steeped in economics and monetary policy. A lot of
[18:24] Speaker 2: the things he knows are no secret. So I have
[18:27] Speaker 2: a high amount of respect for what he thinks because
[18:30] Speaker 2: he's lived it. He's studied it. And so I'm always
[18:34] Speaker 2: listening to not only him, but there's 11 other presidents
[18:38] Speaker 2: that probably have double my IQ that I have just
[18:41] Speaker 2: a real amount of respect for. But I do like
[18:46] Speaker 2: where he's come from, where he is in this point
[18:49] Speaker 2: in time, and where I think he can lead us
[18:53] Speaker 2: as we continue to really– pound at this dual mandate
[18:57] Speaker 2: that we have. And look, he's been very public about
[19:02] Speaker 2: what he feels and how important the Fed mission is
[19:06] Speaker 2: to the greatest economy on the globe. And so I
[19:11] Speaker 2: really appreciate my interactions with him. And I think he's
[19:14] Speaker 2: a great leader.
[19:15] Speaker 1: I'm going to try and ask the version of the
[19:18] Speaker 1: forbidden question, which is, how much easier is would you
[19:23] Speaker 1: perceive the task of getting inflation to target B were
[19:29] Speaker 1: the deficit smaller?
[19:32] Speaker 4: How much would that make your life easier?
[19:34] Speaker 1: Or let's say, for example, there was a plan to
[19:38] Speaker 1: reduce the cyclical deficit to something that resembled what it
[19:43] Speaker 1: was 10 years ago or something like that. How much
[19:46] Speaker 1: would that make your life easier in terms of getting
[19:49] Speaker 1: back to inflation?
[19:50] Speaker 2: Well, so for me, we elect people in Congress and
[19:56] Speaker 2: in the executive branch to really try to solve those problems.
[20:01] Speaker 2: I mean, it kind of gets back to this whole
[20:03] Speaker 2: discussion that we've had very actively in the last few
[20:06] Speaker 2: weeks and months about our reaction function. That really is
[20:10] Speaker 2: where the Fed's role is, is how do we react
[20:13] Speaker 2: to the data that is created by decisions that are
[20:17] Speaker 2: either legislated or fiscal and how that affects the economy,
[20:22] Speaker 2: but more importantly, the mandates that we have by Congress.
[20:26] Speaker 2: So it's a little bit like trying to discuss what
[20:30] Speaker 2: is the optimum size of the Fed's balance sheet. Well,
[20:34] Speaker 2: at the end of the day, it all depends. You know,
[20:37] Speaker 2: it depends on the kind of reserves that you want
[20:39] Speaker 2: in the system. It depends on how either fragile or
[20:42] Speaker 2: strong you think the markets are at that given time.
[20:46] Speaker 2: And so it's just relative. We just have to react
[20:49] Speaker 2: well to continuing to get this inflation number down as
[20:53] Speaker 2: long as labor is full. Okay.
[20:56] Speaker 3: I'm going to turn to, I guess, a topic that's
[20:58] Speaker 3: perhaps even more subjective than the optimum size of the
[21:02] Speaker 3: Fed's balance sheet and talk about R-star. Okay.
[21:05] Speaker 2: Oh, boy.
[21:06] Speaker 3: So, I mean, there's a debate about whether or not
[21:09] Speaker 3: like our star has just naturally been increasing recently in
[21:12] Speaker 3: the state of financial conditions. When you look at financial
[21:15] Speaker 3: conditions now, do you think something fundamental has changed in
[21:18] Speaker 3: the US economy such that perhaps we're more accommodative than
[21:23] Speaker 3: we would have been otherwise?
[21:24] Speaker 2: So, I would say that if you think, you know,
[21:30] Speaker 2: I was a banker in the 08 cycle. you know,
[21:34] Speaker 2: it'd be hard to second guess the actions of the
[21:36] Speaker 2: Federal Reserve and the FOMC back when that was happening.
[21:40] Speaker 2: Then you kind of, you know, your economy kind of
[21:42] Speaker 2: gets back on track. Then you have to deal with
[21:44] Speaker 2: the pandemic, you know, a few years later. So now
[21:48] Speaker 2: we're out of that. So the way I would frame
[21:50] Speaker 2: this is, I think actually things are normalizing when it
[21:55] Speaker 2: comes to our star. However, I would also say that
[21:59] Speaker 2: we may be in a higher position base level of
[22:03] Speaker 2: our star than we were back even pre-08. So yeah,
[22:08] Speaker 2: I think from my standpoint personally, I think we're at
[22:12] Speaker 2: a fairly accommodative place for rates right now. And I
[22:17] Speaker 2: think we continue to talk about the nature of our
[22:20] Speaker 2: star relative to where the yield curve and rates are today.
[22:24] Speaker 2: But for me, I think things are pretty accommodative.
[22:28] Speaker 4: You mentioned being a banker.
[22:29] Speaker 1: Just out of curiosity, Do you ever hear of a
[22:32] Speaker 1: company being like, oh, you know what? We want to
[22:33] Speaker 1: build that factory, but they raised rates by 25 basis
[22:37] Speaker 1: points last month.
[22:38] Speaker 4: And now it no longer checks out. Have you ever
[22:40] Speaker 4: heard of that?
[22:41] Speaker 2: Very rare.
[22:41] Speaker 4: Yeah, I never heard.
[22:42] Speaker 2: However, I will say this, that those, those decisions are
[22:46] Speaker 2: much more of a long dated decision. So that's why
[22:49] Speaker 2: the 10 year is such a benchmark because you're really,
[22:53] Speaker 2: you're making that decision for 10 and 20 years and
[22:56] Speaker 2: the financing and the leverage of capital. becomes much more
[23:00] Speaker 2: of a long-dated kind of thing. Now, I will say this.
[23:03] Speaker 2: It's much more sensitive to things like current asset stuff.
[23:06] Speaker 2: So decisions on, should I pre-buy inventory? If I'm going
[23:11] Speaker 2: to pay another 25 or 50 basis points on my
[23:13] Speaker 2: line of credit, maybe I stall that decision. So that's
[23:18] Speaker 2: when the restrictiveness of the short rate starts to influence
[23:22] Speaker 2: more of the current decisioning in the market.
[23:26] Speaker 1: Just real quickly, you mentioned the Fed's reaction function. Chairman
[23:30] Speaker 1: Warsh has talked about his dislike of forward guidance, et cetera,
[23:34] Speaker 1: and it's clear he has a different communication style than
[23:37] Speaker 1: his predecessors, but there was a different communication style under
[23:40] Speaker 1: the Greenspan years and so forth. That being said, do
[23:44] Speaker 1: you think either the public or the other members of
[23:46] Speaker 1: the FOMC have a clear handle right now on either
[23:49] Speaker 1: his or the Fed's reaction function currently?
[23:53] Speaker 2: That's one of the more exciting things, I think, that's
[23:56] Speaker 2: going to come out of the task force debate is
[23:59] Speaker 2: I think we're going to get information about things like
[24:02] Speaker 2: data sets. We're going to have much more clarity about communications,
[24:06] Speaker 2: what works, what doesn't. There's been lots of things written
[24:10] Speaker 2: on where is the Fed's role, let's say, in a
[24:15] Speaker 2: market crisis scenario, let's say post-08. Where should we be?
[24:19] Speaker 2: Most of that is kind of trust and confidence you're
[24:22] Speaker 2: trying to instill. But once things normalize, then I think
[24:27] Speaker 2: I was watching something that Chairman Warsh talked about, better
[24:31] Speaker 2: the Fed be on the page B12 versus A1. And
[24:36] Speaker 2: there's something to be said about that. It's a little
[24:38] Speaker 2: bit like this conference. We don't want payments on even B12.
[24:42] Speaker 2: We just want to make sure that payments are working well,
[24:45] Speaker 2: the technology is resilient, and it's protected. And so that
[24:50] Speaker 2: I think you can adapt all the time the communications
[24:55] Speaker 2: that you're creating where the Federal Reserve is concerned. More
[24:58] Speaker 2: important that the market has a function to decide risk
[25:03] Speaker 2: and price. And you want to make sure that market's
[25:05] Speaker 2: strong and that you're not making it in any way
[25:08] Speaker 2: fragile with some of your communications.
[25:11] Speaker 3: Are the task forces in dialogue with the regional Fed presidents?
[25:15] Speaker 3: Have they sought you out to discuss some of the
[25:17] Speaker 3: things they're looking into?
[25:19] Speaker 2: There's a lot of relationship overlap with the 15 that
[25:23] Speaker 2: were named, and I suspect that there is a lot
[25:25] Speaker 2: of discussion around that. I think Chairman Warsh has had
[25:30] Speaker 2: long relationships with these folks, but I think that'll come.
[25:37] Speaker 2: I think that'll come as the information, some of the
[25:41] Speaker 2: research emerges. Then I think there's going to be much
[25:45] Speaker 2: more interaction and dialogue between Those groups and the FOMC.
[25:50] Speaker 4: But as of now, not really so much.
[25:51] Speaker 3: Mervyn King isn't on the phone to you asking how
[25:54] Speaker 3: to change the comms policy.
[25:55] Speaker 2: Okay. All right.
[25:56] Speaker 3: Well, Jeff Schmidt, thank you so much for coming back
[25:58] Speaker 3: on All Thoughts. Really appreciate it.
[25:59] Speaker 2: I love doing this. Thank you.
[26:06] Speaker 3: Thank you. Well, Joe, interesting start to what I am
[26:16] Speaker 3: sure is going to be a very interesting symposium.
[26:18] Speaker 4: Really fun.
[26:19] Speaker 2: I love this.
[26:20] Speaker 1: Two years in a row, we've talked to Jeffrey at
[26:22] Speaker 1: the start. It hadn't clicked to me that next year
[26:24] Speaker 1: is the 50th, so we have to come to that.
[26:27] Speaker 1: But obviously always fun to talk to the person who's
[26:30] Speaker 1: throwing the party, you know? That is the perfect guest.
[26:34] Speaker 3: We'll ask him what his plans are for the 50th anniversary.
[26:36] Speaker 3: I do think the fact that the task forces don't
[26:39] Speaker 3: seem to have been in direct dialogue with the presidents
[26:42] Speaker 3: just yet is kind of interesting.
[26:44] Speaker 4: That struck me for sure.
[26:45] Speaker 3: And so I wonder what's going to happen when they finally,
[26:48] Speaker 3: I guess, release their findings. Jeff seemed to suggest that
[26:51] Speaker 3: that's when they were going to start the actual dialogue
[26:53] Speaker 3: about it.
[26:54] Speaker 1: No, there's going to be, look, there's, I have a
[26:56] Speaker 1: lot of questions about the task force because look, there's
[27:00] Speaker 1: the task forces. There's a million ideas about different ways
[27:03] Speaker 1: we could be measuring the economic data. There's a million.
[27:08] Speaker 4: Ideas for different ways to communicate and so forth. And
[27:11] Speaker 4: all that's great. And it's always, I.
[27:13] Speaker 1: Think probably a good idea to have fresh eyes.
[27:16] Speaker 4: On the other hand, In the here and now, I
[27:19] Speaker 4: think the big question is like, yeah, OK, but inflation
[27:21] Speaker 4: is higher.
[27:22] Speaker 2: You're going to raise rates, right?
[27:23] Speaker 4: That is to my mind.
[27:24] Speaker 1: And so this is I still think there is some
[27:27] Speaker 1: ambiguity about the reaction function of the new sort of
[27:31] Speaker 1: Kevin Warsh approach, etc., So I'm very excited to hear
[27:34] Speaker 1: about the task forces, et cetera. But I think for
[27:37] Speaker 1: a lot of people.
[27:38] Speaker 4: It's irrespective. There's still the, okay, yeah, but inflation is
[27:40] Speaker 4: still over 3%. The immediate problem of inflation above target.
[27:43] Speaker 3: Well, I guess we'll see what Walsh says on Friday.
[27:46] Speaker 3: But in the meantime, shall we leave it there?
[27:47] Speaker 2: Let's leave it there. Okay.
[27:48] Speaker 3: This has been another episode of the OddLots Podcast. I'm
[27:50] Speaker 3: Tracy Allaway. You can follow me at Tracy Allaway.
[27:53] Speaker 4: And I'm Jill Wiesenthal. You can follow me at The Stalwart.
[27:56] Speaker 1: Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiell Bennett
[28:00] Speaker 1: at Dashbots, Kale Brooks at Kale Brooks.
[28:02] Speaker 4: And Kevin Lozano at Kevin Lloyd Lozano.
[28:05] Speaker 3: And for more OddLots content, you should check out our
[28:07] Speaker 3: daily newsletter. You can find that at Bloomberg.com forward slash OddLots.
[28:10] Speaker 1: And you can chat about all of these topics 24-7
[28:13] Speaker 1: in our Discord, discord.gg slash OddLots.
[28:17] Speaker 3: And if you enjoyed this conversation, then please leave a
[28:19] Speaker 3: comment or like the video or better yet, subscribe.
[28:22] Speaker 4: Thanks for watching and listening.
[28:33] Speaker 3: Thank you.

Shows are listed from Apple Podcasts' charts and directory, and Podcast Index where it is used. Every show and episode belongs to its publisher and plays from the publisher's own feed; this site hosts none of them.