Adam Posen Thinks Things Could Get Very 'Messy' for the Fed

Kevin Warsh gave a hawkish speech at this year's annual Kansas City Fed Symposium in Jackson Hole, but that doesn't mean the challenges are over. Will the Fed actually pull the trigger on rate hikes? What happens if the central bank doesn't act quickly enough to curb inflation? And how exactly will the new chair want to leave his mark on the Fed? In this episode, we speak with Adam Posen, president of the Peterson Institute for International Economics, who gives us his take on the direction of monetary policy and he grades Warsh's speech. We also discuss why high inflation in the US is different than the inflation seen in other countries, how the Treasury's wading into the bond market affects Fed independence, which of the Fed task forces might be the most impactful, the "messy jobs" theory of AI, and what Warsh really means when he says he wants the FOMC to have a “good family fight.” Get tickets to see Odd Lots live https://events.bloombergevents.com/event/ODDLOTSLA/summary in LA! See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:25Speaker 01

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• 1:47Speaker 03

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• 2:02Joe Weisenthal?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

• 2:07Tracy Alloway?

  And I'm Tracy Alloway.

• 2:08Joe Weisenthal?

  Tracy, another Jackson Hole, another Jackson Hole, another Jackson Hole episode. You know, I think like with central banking and some of these topics, people are pretty polite. You know, it's like sometimes you talk to people, it's a little bit hard to know like what they're really thinking about all these topics, what they feel. It's hard to, sometimes I do perceive a certain lack of, I don't want to be candor.

• 2:32Tracy Alloway?

  Let's say people are very diplomatic.

• 2:34Joe Weisenthal?

  People are very diplomatic. Thank you for finding the word.

• 2:36Tracy Alloway?

  That's a diplomatic answer to the point that you're making about diplomacy at an official Fed function.

• 2:42Joe Weisenthal?

  Very diplomatic and I'm pro diplomacy, but sometimes it's nice to just check in with like someone just like, all right, let's, let's give it, let's give it to us straight.

• 2:49Tracy Alloway?

  I'm waiting for you to describe our next guest.

• 2:51Joe Weisenthal?

  No, I'm saying, again, all right, I'm just going to jump right into it. No, a guest who I believe when we talk to him, I feel like here's someone who's giving it to us straight, who's not as concerned perhaps with like, you know, being overly diplomatic.

• 3:04Tracy Alloway?

  Someone who's not afraid to utter the words fiscal dominance.

• 3:07Joe Weisenthal?

  Yeah, someone who's just afraid, someone who just tells it like it is. Anyway, very excited to say here in Jackson Hole, back with the perfect guest, someone we've had on the podcast multiple times before. Peterson Institute President Adam Posen, also formerly a member of the Bank of England Monetary Policy Committee. So Adam, thank you so much for coming back on Odd Lots.

• 3:26Speaker 05

  After that intro, thank you so much.

• 3:28Joe Weisenthal?

  So much hype. You have to, you have to really like throw some fastballs.

• 3:31Speaker 05

  I don't know whether it's hype or warning.

• 3:32Joe Weisenthal?

  No, it's a, you have to throw some fastballs first, but what'd you think of, uh, this is the first interview we've done since the speech.

• 3:39Tracy Alloway?

  Yeah.

• 3:39Joe Weisenthal?

  So what'd you think of Chairman Warsh's speech?

• 3:42Speaker 05

  Um, yeah, I mean, even, even though, no, no, no, no.

• 3:47Joe Weisenthal?

  We're getting close.

• 3:48Speaker 05

  Even though I knew that was the question, it was coming. Um, you know, if you were grading it, it's a B minus speech.

• 3:55Joe Weisenthal?

  Okay.

• 3:55Speaker 05

  Um, it's a B minus speech by normal standards.

• 3:59Joe Weisenthal?

  Yeah.

• 3:59Speaker 05

  It's much more positive because of the situation we were in. He, the chair, well, you know, let's be blunt, as you said. The chair had created a huge amount of not just confusion, but in central banking circles, in the sophisticated observers like you about what he really thinks. And this was both short term, does he want to raise rates, does he not want to raise rates? But also medium, long term, what is behind all this task forces and the rhetoric? And then he obviously at the July press conference totally messed things up.

• 4:35Speaker 05

  Now, to be fair, three of his four predecessors' chair had major stumbles in one of their early press conferences. Greenspan, Yellen, Powell. So in a sense, if we are able six months from now to look back and say this was a pivot point, and so the stuff that Kevin, excuse me, the chair was saying for the first few months was just growing pains and then he got smacked by reality.

• 4:59Joe Weisenthal?

  Yeah.

• 4:59Speaker 05

  All good. Then this speech gets upgraded to a B plus and we're all happy. And I think there are a number of people now who hope that's true with some confidence more than before. Because the big thing, and Tracy and I talked briefly about this before coming on, is how different this was than last year. Because last year was all about the attacks on the Fed and the fears for the independents and the standing ovation for Jay Powell was his last thing. Well, last Jackson Hole as chair. And this year, I think deliberately the chair and the team wanted to make it much more normal and it passed much more normal. The second thing is, as a European central banker said to me at breakfast this morning, but I think is widely shared sentiment.

• 5:44Speaker 05

  For all the anti-forward guidance, he basically set up, they have to hike. Now, as you know, and we talked about a few months ago, I've been urging them to hike for a while. I think inflation's real. So I'm, again, I'm glad if they're making that call. But yeah, at this point, they really guided. So if, because if you read, there were four sections to the speech. In the fourth section, he basically does the litany of the reasons you would think inflation is not going to stay stable or it's going to persist and maybe go up from here, even though it goes down for a month or two for oil. And basically, the next sentence is, therefore, we have a tightening bias. Didn't say the next sentence.

• 6:26Joe Weisenthal?

  Yeah.

• 6:26Speaker 05

  So things could get really messy because if they don't hike, then people start saying, was that because of Trump? Was the chair out, was the chair out over his skis, meaning ahead of the committee? If the chair's ahead of the committee, it's better than being behind the committee, but still worrisome. Then the third thing is, he did clean up some small but important things. So like he had talked for a while about what's the right target? We don't really know what inflation is, duh, duh. And yesterday he stated very clearly, core PCE, 2%, that's the target. Similarly, he said something I think quite useful about, he doesn't think wage inflation

• 7:10Speaker 05

  is very good predictor of overall inflation, which is a perfectly reasonable position to take. And then later he said, I think financial conditions are important. I know you guys have talked a lot about this at the industry level. All of these were normal, sound, either mainstream or very defensible central bank things. And so that would have been sort of eh, except for the fact that we had these two months, three months of weird stuff. And so it takes on more credibility. I don't want to go on too long, but two other points if I may. So the other two takeaways for me from the speech were, first, he, he does this whole second section, which is about his principles. And

• 7:56Speaker 05

  if I were him, I, I would have made this, and I was surprised, I would have made this a much narrower, much more practical speech. I basically would have cut that section.

• 8:05Tracy Alloway?

  It was a long speech for someone who says they don't like forward guidance.

• 8:08Speaker 05

  Exactly. No, you're absolutely right, Tracy. I was like, I, people ask me ahead of time what I thought was going to happen. I thought he was going to compete with Jay Powell from like four years ago for the shortest possible speech. I thought he was just going to.

• 8:19Joe Weisenthal?

  Yeah.

• 8:20Speaker 05

  You know, he didn't. Um, so I think that muddles his message because some of the principal stuff, it raises more questions than answers. It's either a bromide or what does he really mean by that? And I don't think that was useful. But, you know, that's not a big deal. The big deal that I'm worried about is, and a lot of ex-Fed, ex-central bank people, academics are worried about, is he seems to be still, even through yesterday's speech for all its improvements, trying to maximize his last minute discretion.

• 8:51Tracy Alloway?

  Yeah. So this is the thing I noticed because at the very end of the speech, he talks about, well, inflation has to be heading in the right direction and at the right speed. And I don't know what the right speed is. The right speed sounds very subjective to me.

• 9:06Speaker 05

  Absolutely. And, and right direction doesn't mean anything unless you're saying the target, I mean.

• 9:14Speaker 05

  Without the speed, just to emphasize your point, without the speed, then we're back with what we had the last four years, which is inflation's above target. Well, we know what the direction should be, but if we don't declare a speed, we're going to bring it back to target, it doesn't mean anything.

• 9:28Tracy Alloway?

  Right.

• 9:29Speaker 05

  So, yeah, I think, I think it's really striking because that, to me, is the most consistent thing through the stuff he said from his hearings, his confirmation hearings, his first two press conferences, his remarks at ECB Sintra and then yesterday, is he, he's sort of reserving the right to make up his mind at the last minute before every meeting without precommitting what things he's looking at. He gave us a little bit of that. I mean, to his credit, he did say some things about which indicators he likes better than others, and that's good. And you don't want him to be inflexible. But it's really odd for somebody coming from the Hoover Institution, who's been seen as a conservative, who was mentored

• 10:11Speaker 05

  by the late John Taylor, but also just in a broader central banking context, everybody tries to situate themselves between what's called rules versus discretion. Is it like, I'm going to raise rates every time monetary growth goes up, or something like that, which generally is a bad idea if you're too strict. Or pure discretion, I'm gonna, you know, I don't have to justify, I'm just gonna make the right call every time. And that's basically Greenspan circa 1999. And Greenspan could get away with it, partly because he was very good, and partly because by that point, he had such dominance over the committee. And partly it had, it caused trouble for later, because then you had the Weekend at Bernie's

• 10:52Speaker 05

  problem, which is if, if Greenspan, God forbid, drops dead, and then we obviously just lost him recently, but in 1999-

• 11:00Tracy Alloway?

  I have the image in my head now.

• 11:02Speaker 05

  Yeah, no, no. In 1999, you know, you were worried if, if then already somewhat old Alan Greenspan had a heart attack on the Fed's tennis court, all the credibility went away, because it was all about him.

• 11:14Joe Weisenthal?

  Oh, interesting.

• 11:15Speaker 05

  And, and this is why Ben Bernanke, Rick Michigan, Thomas Labach, and I pushed the inflation targeting idea. And Ben, very consciously, when he was Chair, pushed accountability, because he wanted it to be not just all about one person. And I think this, to me, is not talked about enough, and is the worst, most worrying thing about where Chair Worsch has gone.

• 11:39Tracy Alloway?

  So this is exactly what my next question was going to be. You have been a central banker at the BOE, not necessarily the Fed, but you have insight into how these monetary policymaking committees actually work. What is the role of the Fed Chair in its current form as you envision it? Is Worsch supposed to be trying to get everyone on his side and get them voting in his direction? Or is he supposed to be, I don't know, synthesizing a common position from the committee?

• 12:06Speaker 05

  That's a really good question, Tracy. And the, in the Fed system, that's not specified. So, and it varies over time, partly because of the chairman, Chair, excuse me, partly because of the Chair, partly because of the political surroundings, partly because of the economy. But, for example, at the European Central Bank, it is, for all the attention deservedly President Lagarde gets, it is very much meant to be a consensus-driven organization, and really try to get as many people on board as possible. And that's partly because they're representing nations, not districts within one nation. At the Bank of

• 12:45Speaker 05

  England, when I served, and still, it's, and this is something Chair Worsch evokes now, invokes, I should say, is it's all about discussion, what, what Kevin calls friendly debate, or whatever.

• 12:58Tracy Alloway?

  The family fight.

• 12:59Speaker 05

  Yeah, that's what he says, you're right. And the Bank of England really prioritizes that. The Fed has generally, on average, given more power and deference to the Chair, certainly, basically, since Volcker. So the last 45 years. It varies over time, but essentially, there's always something. So if financial crisis, Ben Bernanke wanted, started running the committee, trying to open it up more, more debate, but financial crisis came, and you really wanted Ben making the decisions, and there wasn't time, and then there were these crazy US rules about you can't have more than four people in the room from the committee at one time without it becoming a-

• 13:39Joe Weisenthal?

  Then you have to take notes, right?

• 13:40Speaker 05

  Then you have to take notes, and whatever. And so, like, ended up, it would be the New York Fed President, Chair Bernanke, Kevin Warsh, and Don Cohn were the four people in the room. And that was the right call, given the situation. So, anyway, this is part of the reason I worry about the discretion, because the ethic of the committee, in, in the norm of the committee in the Fed system, is you don't contradict the Chair. You might dissent, but even there, as was pointed out by the former Fed Governor Larry Meyer a while back, there's sort of an informal rule, only so many people dissent on the committee

• 14:19Speaker 05

  at any one meeting, and the Chair never loses a vote. Even Volcker, once it was clear he was going to lose a vote, he was, he basically said, next meeting is my last meeting.

• 14:30Tracy Alloway?

  Huh.

• 14:31Joe Weisenthal?

  That's super interesting. Well, let's actually, so one of the comments Chairman Worsch said, he basically said, six, I don't know, 64, 65 months of above-target inflation, that's true.

• 14:44Speaker 05

  Yep.

• 14:45Joe Weisenthal?

  And he said, and then he, but he also said, and this is the Fed's fault.

• 14:47Speaker 05

  Yep.

• 14:48Joe Weisenthal?

  And so, you know, obviously, that's, means it's in large part, he claims his predecessor's fault. But it also occurs to me, you know, inflation has been above target around the world in many respects, and it's not just a US problem. I'm curious, like, that comment, like, is it, it seems kind of true, like, is that, is that fair? Is that correct?

• 15:09Speaker 05

  I think it's fair. I mean, I think what was unfair in the run-up to his appointment by President Trump, and in some of the initial statements, there was a lot of, talk about diplomatic, not diplomatic, there was a lot of pretty nasty sounding tone about the previous regime, and, you know, I'm going to reform, I'm going to clean house on my watch, it's okay. That was unnecessary. But I do think it is entirely justified to say, Chair Powell, with the deference and buy-in of the committee, basically started, was late to the game in hiking in 2022, was early, if not, in my view, profoundly mistaken to cut multiple

• 15:54Speaker 05

  times last year, and is behind the curve again. And the international comparison actually doesn't flatter the US. You have to do a little bit of careful things on the data. But basically, if you control for three things, which is how dependent on imported energy are you?

• 16:14Joe Weisenthal?

  Okay.

• 16:15Speaker 05

  How, what was the inflation going into the last few years? So what you have to clean up from the predecessor. And then, out of the Fed or any central vice control, how loose is your fiscal policy? When you look at that, the Fed is more of an outlier. So the ECB has kept inflation down, the Swiss National Bank's kept inflation relatively down, Bank of England's almost the same as a Fed. But additionally, this gets into the independent stuff, because part of the reason the US has more inflation, in my view, and

• 16:55Speaker 05

  many people's view, is because Biden did do a fiscal blowout on coming into office that probably wasn't necessary. And then, there's been no consolidation, and obviously, Trump, in his first year, did this long-term set of tax cuts.

• 17:11Joe Weisenthal?

  Yeah.

• 17:12Speaker 05

  And so, but again, it's still, if you take Kevin's, what you quoted him, you know, it's, it's ultimately up to the Fed at one time. If you take that seriously, then all this fiscal laxity, indiscipline, should be another reason to hike.

• 17:27Joe Weisenthal?

  Yeah, yeah.

• 17:28Speaker 05

  So, anyway, long, much too long, but, but I think even a sober, temperate thing suggests, no, Powell did get it wrong. Now, it's not he got it horrendously wrong, it's not he got it wrong for the wrong reasons. But, you know, when you and I talked, the three of us talked about this last year, which is, and the year before, that at Jackson Hall, there was this drumbeat from the Fed staff and members, the labor markets could be really weak, the inflation is going down, and there were people like me, or Michael Strain, AEI, and Diane Swonk in KPMG, who are out there saying, we don't see this. Now, I'm not saying necessarily they had to listen to us, and could, it didn't. But just to say,

• 18:12Speaker 05

  they actually did get something wrong. There were people who were saying, no, the labor market is not going to collapse in the next two years. And they kept saying, yes, it will. So, yeah, they did get some things wrong.

• 18:20Tracy Alloway?

  What's the sort of bar for political interference with the Fed? Because, you know, it could be anything from just the President talking about how he thinks rates are artificially high, it could be maybe something a little bit different, like the fiscal dominance idea, to the extent that the Fed now feels hamstrung in some way, in terms of what it can do with rates.

• 18:42Speaker 05

  Again, you're right to raise that, Tracy. The, I mean, so the first thing to say is, a certain amount of yelling at or scapegoating the Fed is part of the game.

• 18:53Tracy Alloway?

  Okay.

• 18:54Speaker 05

  And in fact, in previous presidencies, it kind of sometimes was healthy, right? So it's like, oh, God, Fed has to raise rates to raise, to deal with inflation. I don't want to be blamed for it. So I'm going to go out there and yell, but meanwhile, in the background, wink, wink, Fed, do your job. And that was under Volcker, under Greenspan, under Bernanke, under Yellen, I mean, that was always understood. So a certain amount of, not like President Trump tweeting, the Fed Chair is an enemy of the state, not using lawfare to go after Lisa, Governor Cook, or now Governor Powell. I mean, that's outrageous, and arguably criminal. But a certain amount of carping about the central bank, that's fine.

• 19:38Speaker 05

  Where the rubber hits the road is partly what you said, which is when does the government Treasury Secretary or President who's trying to sell US bonds say, you have to help me sell US bonds, whether or not inflation is high? And in that case, what a central banker should do, a Fed President or a Fed Governor should do is say, I'm here to sell, help you sell US bonds and your successor sell US bonds and your successor sell US bonds. And that means I don't do cheating and manipulation now. I'm here to help you sell the bonds.

• 20:16Tracy Alloway?

  But you're preserving the long-term credibility of US debt.

• 20:20Speaker 05

  Exactly. And so you have to be willing to stand up to that. And that gets us into the potential really big situation now. But the second thing, and this is the part that was really unprecedented under Trump besides the individual illegal attacks on individual members, is they were, and this was very loud last year, they were threatening to take away the votes of some of the Reserve Bank Presidents or quickly turn over the Reserve Bank Presidents, not, not get rid of them and put in their own political pointies rather than having the staggered terms as, as intended. And there was, you know, talk about changing the Fed's mandate and there was, and then the things about the Fed's budget.

• 21:05Speaker 05

  And so the big one, economically speaking, is the caving in in the face of fiscal pressure. But the almost as big and as a means to that one is the threats to politicize, turn over, fire, remove the functional independence of the Fed by messing with who's appointed when.

• 21:44Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So search Barclays Brief wherever you get your podcasts.

• 22:09Speaker 01

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• 23:22Joe Weisenthal?

  It occurs to me, you're talking about this phrase, family fight. And I hadn't thought much about it. And it's, because it's a good sounding phrase. It's like, great, we want our, we want, like, just, it feels good, right? It feels good. But he's used the phrase a bunch of times now, in both of his press conferences, I believe. And I'm curious now, like, just sort of like thinking about a few things that have been said. I asked, last year at this conference, I asked Chicago Fed President Austin Golesby, why are dissents rare at the Fed? And one of his answers is that Chairman Powell was good at building consensus. But now I'm sort of curious, like, was there a perception under the Powell years that

• 24:07Joe Weisenthal?

  he was too good at building consensus? Did members of the FOMC feel that actually that meeting room was not a real site for debate? And when Kevin Warsh says, we want the family fight, is he saying, no, we're, I'm okay with, unlike my predecessor, I'm actually okay if you don't agree with me?

• 24:28Speaker 05

  I think he's saying, I think Kevin Warsh is saying what you just said, Joe, that I am okay with more dissent and more debate. I don't believe him.

• 24:37Joe Weisenthal?

  Okay.

• 24:38Speaker 05

  But if you take it at face value, he's right. And that's what I meant in part.

• 24:44Joe Weisenthal?

  You think he's right?

• 24:45Speaker 05

  He's, he's right that debate had gotten too little and it's healthy to have debate. I think Powell, it's partly he was very good inside the building, but I think it was two other things. I think he smartly and justifiably, first under COVID, and then when the Fed was under such overt attack by Trump, saying, let's not dissent and give, and create divisions in the committee casually. Let's, let's make the bar very high. So, you know, if you dissent, I understand, but let's not show division because that just gives the attackers on the Fed, or in the case of COVID, that just gives the sense of panic, I think. And there is always this temptation.

• 25:26Speaker 05

  So like when I was on the Bank of England MPC, which was 2009 to 12, so I was there during the financial crisis. And there was a point at which the governor and Bank of England had a much live debate, publicly at least, than, than the Fed. Then Governor Mervyn King came at one point and said, look, quantitative easing is really controversial. We're going to take the vote, you'll vote however you want, but once we've done it, can we have a moratorium on people asking whether or not quantitative easing works or not for a while? And I totally supported that. I mean, again, it's an emergency, you, you don't want to just, oh, well, you know, according

• 26:08Speaker 05

  to Vicksel, I'm not sure, you know, the usual central bank thing, I'm giving a talk in Glasgow and I just sort of wander off into monetary theory. So I think, not through bad motivations, but I think Powell ended up between the COVID panic and then the rallying solidarity and people not wanting to look like they were undermining the chairman while the Fed was under attack, you did end up getting much lower than usual dissents. And then what happens, which shouldn't, but does happen, is it builds momentum. So if you've gone 12 meetings, 15 meetings without anybody dissenting, the bar psychologically becomes higher for someone to dissent. So again, I hope I'm wrong.

• 26:50Speaker 05

  I don't think, I don't think Chair Warsh really means it. I hope he does. But taking it literally, yeah, we went through a period where there was too little dissent.

• 27:01Tracy Alloway?

  So you mentioned Mervyn King just then, and King is heading the new task force on Fed Communications. So I'm curious whether you have any insights or perhaps informed guesses about what, what the problem is that Warsh slash King are now trying to solve?

• 27:18Speaker 05

  Well, I know well, two of the three members of that committee. So I worked with Governor King, he was governor, and I knew him before that, when I was at the Bank of England. And Peter Fisher, the former New York Fed and US Treasury Senior Official, is on the Board of Directors of the Peterson Institute. So just full disclosure. So I, I've not talked to them directly about confidential things, but just disclosure. I think this is the committee that has the biggest chance of a surprise to being radical. I think people are very concentrated on the balance sheet committee. And I think actually they are likely to come out with much more sober, practical, smaller

• 28:02Speaker 05

  scale recommendations than people think they are. That's just my guess.

• 28:06Tracy Alloway?

  Yeah.

• 28:07Speaker 05

  But knowing who's on that committee, Raghu Rajan, Jeffrey Stein, Karen Dinen, who's also a colleague of mine, that. But I think the communications fund is going to surprise people because both Mervyn and Peter, and I'm only referring to their public statements, have gotten pretty radically skeptical about central bank communications in recent years. So Mervyn King was actually the leader of the inflation targeting movement, long before we wrote our book. He's the one who in 1992, when the British pound fell out of the exchange rate mechanism and there was basically a crisis, we don't, we need to have something to anchor in the UK. He's the one who leapt into action with a couple of key staffers.

• 28:49Speaker 05

  He was chief economist of the bank at the time and said, look, these little countries are trying inflation targeting, but we think it can work for us. And he did. And so he was the father, the parent of what these, what used to be known as the fan charts, that you would.

• 29:03Tracy Alloway?

  I love the fan charts. I think I was the only one, but I really liked them.

• 29:07Speaker 05

  No, no, no, there were a few of us scattered around, but it was definitely a niche product. And there are problems, better or worse, with the fan charts and the Bank of England has changed it. But basically, Mervyn was leading the effort, and we cited this hugely, Bernanke had all cited this hugely in our book, that they were, again, back to the combination of accountability and transparency, that you were sending out a forecast, you were being pretty, much more explicit than central banks usually were about the forecast, you were with the fan charts, which are essentially colored spreads about how likely a given outcome would be. Here's what we centrally think is going to happen, here's what may happen. You were trying to give the message, this was probabilistic, that, you know, we're

• 29:51Speaker 05

  making our best guess, but it's probably going to air on the high side and it's going to be somewhere around here. So anyway, it, it was.

• 30:01Speaker 05

  Very, very much about transparency, accountability, and more information is better. Regular information is better. Commitment to specific releases at specific times is better. So you have a track record and the committee has to admit when it changes its mind or learns something. Anyway, in more recent years, since Governor King left the bank, retired, he's become quite loud in the spirit of some of the things Chair Waish has been saying, that it's too much noise, central banks can't forecast, we're lousy at forecasting, given that, we shouldn't be putting out all this information that's not really misleading. And Mervin

• 30:46Speaker 05

  also is, from even before that, was very concerned about this idea of the markets getting too dependent on the information and the future plans of the central bank and then not giving as much information back, and also having more moral hazard that they're not going to take the price and risk.

• 31:05Tracy Alloway?

  This is the idea that like yields are an important policy signal for central bankers, or they should be?

• 31:11Speaker 05

  They should be. And it should be a two-way street. It should be yields and volatility around yields should be higher than it had been. This is their point of view, not mine. Should be higher than it had been because that forces markets to take risk more seriously and price things better. And so you have less, not zero, but you have less chance of a bubble and less inequality of things running out of them. And then at the same time, that should mean the pricing that the markets give you is more informative.

• 31:41Tracy Alloway?

  Right.

• 31:42Speaker 05

  And Peter Fisher, who between, after he was at Fed New York and Treasury, was head of Asia and other senior roles at BlackRock, he feels very strongly, these two points as well, at least what I know from his statements. He's very skeptical about central banks' ability to forecast and very worried about central banks, certainty about central banks causing bubbles and indiscipline and then clouding market signals. So even though Chair Waish in the speech here at Jackson Hole backed off a little bit of some of the more extreme statements of that, he admitted that he had this thing about a hall of mirrors image

• 32:23Speaker 05

  in the speech, which is a way of admitting the market isn't always right. And if the Fed chases the market noise, you may get a weird dynamic. And I was glad he said that. Much better than play the ball, not the referee, which was garbage.

• 32:39Tracy Alloway?

  Right. That was the previous message was like, oh, market, you're the ball. Like, off you go.

• 32:43Speaker 05

  Yeah, that was, that was really bad. But anyway, no, I mean, of all the things that annoyed central banking community, that may have been the most annoying. But, but anyway, so just to say, I think Chair Waish's true beliefs and instincts though are much more in the, we can't get any forecasts right, market has much more information on a lot of things than we do, we have a moral hazard issue of not spoon-feeding the markets. So I think the Communications Committee is probably where we're going to get the biggest surprise.

• 33:19Joe Weisenthal?

  Yeah, I find myself like thinking like maybe all these things, various charts, dots, that sort of like serve a real purpose, maybe opposed GFC and maybe is just a lot of noise right now. Since we're talking about this sort of, you know, monetary policy at the theoretical level and a lot of, which is great, but, and you know, this, I'm just sort of, maybe sort of said a little bit here, and I'm curious, you know, from think tank world, what do you think about so many social scientists, including a lot of economists, suddenly either leaving universities or leaving think tanks and joining one of two, two, two very big AI companies? And when you think about the sort of future of social sciences, not so

• 34:04Joe Weisenthal?

  much like, well, we use models, which I'm sure there's going to be tons of that, but just the sort of, depending on which side you're on, either vortex or brain drain of people of stature moving into these companies, what do you think? How does that make you feel?

• 34:19Speaker 05

  I mean, as someone whose main job is to hire, develop, retain talent, I think about this a lot. And it is, as I think you implied, Joe, I mean, I think it's not unprecedented. So during the internet boom, when Amazon was first coming up and Google was first coming up, they hired economists. And they were hiring them more to be useful, like Amazon's pricing model, useful in terms of internal.

• 34:47Joe Weisenthal?

  Design an auction system or something like that.

• 34:49Speaker 05

  Right. So like the very famous MIT microeconomist, Hal Varian, became Google's first chief economist and brought with him and hired a bunch of really smart people. But they also were there to talk about policy and help explain why the technology was good and what kinds of regulations they wanted and didn't want. And that's, that's normal. I mean, that's okay. But there was also a little bit of this sense, which we're seeing now, an order of magnitude higher, oh my God, I can make real money. Oh my God, that's where the cool people are. Oh my God, I can be part of changing the world. So it's very seductive. And we've seen this in other fields, you know, when genetic engineering had a

• 35:29Speaker 05

  boomlet many decades ago, all these Nobel Prize winners and grad students would leave academic jobs and set up startups to, you know, Genentech, things like that. Right now, I think it's challenging. It's challenging because the case that can be made, and I know I have colleagues I know who are, have gone in-house at some of these companies, the case that can be made that this is the most transformative technology of a century, and it has the potential to do enormous good for the world, is legit. It may be overhyped,

• 36:12Speaker 05

  it may take longer to get there, there may, we may have to care more about how many people we displace and what happens on the way. But the idea that that is a valid view and you want to be part of that, I think is real. And so beyond the money and the sense of I want to be doing the cool stuff, which matter, because think tanks, you pay well compared to average American salaries, which you don't pay like those when you go. You know, I understand it. You can also go one step further, which is unlike, say, Google or Amazon when they were coming up, where there were policy issues, but actually, a

• 36:52Speaker 05

  lot of us didn't realize what all the policy issues were. And the economists who were hired, some of them worked on policy, but most of them were, like we said, working on sort of internal tools. Now, a lot of what the hiring, say, for example, Anthropic is doing, is by their own account, about trying to envision what the right policies are to make the transition for AI work. And at least among the economists I know who've gone there, that's a sincere belief. But it does make it more awkward, because it's one thing to say, oh, I work for Amazon, I came up with the pricing auction model, and that's why

• 37:34Speaker 05

  you get this. And people say, you're ripping me off. And you say, no, I'm not. Ah, fuck. But when it's like someone who's, you know, world-class expert on the economics of innovation or of growth or whatever, goes in and then starts saying, well, you know, they're going to create three times as many jobs as they destroy, and it's, and the singularity is near, and so you can't regulate right now because we're on the customer side. They may sincerely believe it, but it gets, it, people understandably discount their views once they're in-house and getting money. And also, and I was talking about this, a very noted academic who has been pursued by all these places, who turned it down not

• 38:19Speaker 05

  to go. I mean.

• 38:20Joe Weisenthal?

  Hero.

• 38:21Speaker 05

  Well, and this is a person who's very techno-optimist. I mean, so it's not about that. But there's also just, you do inherently, these are still companies. I mean, you're becoming part of a hierarchy, you're losing your independent voice. What you choose to work on, you know, you may, you may choose not to work on that, which you might have worked on because now you work for this company. So again, is it outright corruption of the sort we're seeing in the Trump administration? No. But it is unsettling. And I think there's a role for this academic colleague of mine, the people at the Peterson Institute and like institutes, to, I hope, be willing to settle for the low six-figure salaries, which

• 39:05Speaker 05

  are still pretty darn good, and influence policy without.

• 39:11Speaker 05

  Going on staff.

• 39:12Tracy Alloway?

  Just on the AI side of things. So at the moment, if you look at the economic impact, it's very much sort of short term effects on prices and inflation and capital investment. And everything else, you know, the impact on productivity, even jobs is much further off into the future and very theoretical. Do you see any evidence of an impact on the labor market side or productivity here and now?

• 39:37Speaker 05

  Much more indicative evidence of improvement in productivity, Tracy, than on effects on the labor market.

• 39:43Tracy Alloway?

  Okay.

• 39:45Speaker 05

  So, speaking of colleagues of mine, Martin Truismpa and Jed Kolko are both top economists who work at Peterson and work on these issues. Anton Korinek is affiliated with Peterson, is on leave this year. He went to work at Anthropic this year. But anyway, if you look at their work, and in particular, I would cite the work of Jed Kolko. And he was chief economist at the US Department of Commerce under Biden. He was at Indeed, was it Indeed or ADP?

• 40:14Joe Weisenthal?

  Yeah, Indeed, I believe.

• 40:15Speaker 05

  Yeah. And yeah, so he's a real practical labor market economist. And he and there are a number of others. There's another think tank called Economic Innovation Group. There are a bunch of them. And you're just not seeing the data. So the number of hires, even of coders, you know, if you had to pick the two jobs where you most thought they're toast, would be long haul truckers and coders, and lower level coders. And we're just not seeing it. Job growth continues in those industries. I think there's been a lot of, yes, theory, but really important theory work done, not by my team, but by people like Eric Bjorn

• 40:57Speaker 05

  Nielsen at Stanford, or Luis Garcano at London School of Economics, about why, no, there's two examples, but they've done great work, about why we haven't seen the job displacement yet. And partly, it's a matter of time, as you indicated. Time keeps coming up. It's how fast things happen. That there is arguably a period in which it is efficient to have the human and the AI working together, especially as the AI is in sort of learning mode, and especially as the businesses, just like with the internet, you have the technology and then you have to figure out how to reform your business to make use of it. So there's a period there, we don't know if it's one year, five years, probably less than 10 years,

• 41:43Speaker 05

  probably closer to five. But there's a period there where the businesses are changing, and the specialized applications are being created, and things like robotics are being integrated. And during that period, we probably don't lose many jobs. Again, long haul truckers, I'm not trying to make fun of them. I mean, they may be the ones, but. And so Bjorn Nielsen has spoken about a J curve, that it takes time for this to happen. And it's similar to the argument I made with you all about the effect of tariffs and migration last time I was on. The businesses, people have to make decisions and implement things. It takes time. Another argument which Luis Garcano and his co-authors have made is what they

• 42:26Speaker 05

  call messy jobs, which is the idea that, actually, again, you can, you can try to come up with the sort of extreme case, long haul trucker job. But most, almost every job, and even arguably long haul truckers, have a lot more specific knowledge and are embedded in a lot of relationships, that there's much more complementarity and much more, I don't want to say uniqueness, but specialization than people appreciate. And so just sort of doing a lot of these things that get published by consulting firms or international institutions, like, these are the most exposed sectors, these are the most exposed sectors, probably

• 43:08Speaker 05

  are misleading. And we know this from the past, that, again, in the Industrial Revolution in 19th century England, the analog to the long haul truck driver was the skilled artisan who did weaving. And so those people literally did get replaced by the automated weaving stuff. But if you had done this kind of study before the Industrial Revolution, outside of that very narrow, they're real people, but that very narrow job description, the displacement was very different than you would have expected. Anyway, so, so the job stuff, it's probably coming. If it is coming, it is showing up in the lack of hiring of younger people.

• 43:52Tracy Alloway?

  Yeah, frozen.

• 43:53Speaker 05

  Yeah. And Terrence had a throwaway line in his speech or something, it happens to be one I agree with, and again, we've talked about this previously, that a lot of the lack of hiring, I think, is overhang from the huge shifting around of people and redefining jobs after COVID and the reemployment. And so you can't automatically say the lack of hiring is AI. I mean, it may be contributing, but there's other stuff. Productivity is different. So there, I think there's a legitimate active debate. And it's not a debate ideologically or anything. It's because it's generally, it's hard. You've got a limited amount of data and you're trying to figure out what's going on. I think there's a legitimate debate

• 44:33Speaker 05

  about how much productivity growth we've got that's due to AI. Is it the real big money stuff yet? How soon? I'm at probably the, just this side of pessimistic on that, in the sense that, I think, going back to the jobs reshuffling after COVID, I don't think the AI productivity kicked in, the, excuse me, the AI productivity boost to growth kicked in until very recently, last year and a half. But it is, that is, that is much more an open debate. Nobody, except some really, really crazy techno optimists who talk about staying in your lane, who are not economists, I think.

• 45:16Tracy Alloway?

  You mean Joe?

• 45:17Speaker 05

  No, no, no, no, no. I would never say such a thing. He's a man for all seasons.

• 45:24Joe Weisenthal?

  Finally, someone says.

• 45:25Speaker 05

  I'm very, I'm very, I'm very diplomatic. They, you know, I think the extreme calls about, you know, huge amounts of productivity growth, as my grandmother used to say, we should be so lucky.

• 45:41Joe Weisenthal?

  Yeah.

• 45:41Speaker 05

  But we ain't there yet.

• 45:44Joe Weisenthal?

  Yeah, I think, by the way, I find the messy jobs theory to be quite compelling. And by the way, the long haul truckers would absolutely say, look, there's a lot more to this job.

• 45:52Speaker 05

  Oh, I agree. I didn't.

• 45:53Joe Weisenthal?

  Include, you know, like, all the things that they have to do with the warehouse.

• 45:56Speaker 05

  No, I didn't mean to.

• 45:57Joe Weisenthal?

  No, I know. But I think, but like, people think of that.

• 45:59Tracy Alloway?

  Illustrates the point.

• 46:00Joe Weisenthal?

  Illustrates that point.

• 46:01Speaker 05

  Yes, exactly.

• 46:01Joe Weisenthal?

  Let me tell you what's actually involved.

• 46:03Speaker 05

  Right.

• 46:03Joe Weisenthal?

  Another one, you know, people point out, Adam Ozymac has pointed out, that people still get hired to play the piano at parties.

• 46:11Speaker 05

  Yeah, yeah.

• 46:12Joe Weisenthal?

  But, you know, as others would argue, well, the person responds to the crowd, they see what the mood is.

• 46:17Speaker 05

  No, no.

• 46:18Joe Weisenthal?

  These things that the player piano could not do, they could say like, oh, like, maybe this crowd looks like it needs an up tempo thing. So I do think, I do think like the message, these jobs are much more probably complex.

• 46:29Speaker 05

  I'm glad to hear you say that. And again, I was using the truckers just because that's the example.

• 46:33Joe Weisenthal?

  No, no, I know. But I think it's a good.

• 46:34Speaker 05

  But I agree with you. And Adam Ozymac, who's at EIG, is one of the other people, I think, is doing great work on this and comes down in this sort of, it may come yet, but it hasn't happened yet. But I think the really important point you said about the messy jobs is like with the piano. So I was in a meeting, supposed to be off the record, I won't go into details, but a very big, big, big, big, big shot from the AI community, not an economist, there are no economist big shots, from the AI community was talking. And a pretty famous academic economist asked this person, well, you kept telling everyone there's going to be a job apocalypse, hasn't happened. Why do you think that is? Just open

• 47:14Speaker 05

  question. And among other things, this person said, the big, big, big, big shot said, well, you know, it turns out people really like dealing with humans and don't always want to deal with machines. And even among the not exactly emotional IQ high economist community, we're all kind of like, duh. You know, but I mean, that's what you mean about the live piano player. I mean, I didn't need AI to have Spotify, I mean, current generation AI to have Spotify, you know, like, figure out, if I like Paul Simon and Billy Joel, then I did.

• 47:46Joe Weisenthal?

  Yeah.

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• 50:16Joe Weisenthal?

  Since we're talking about some of these questions and measurement and limited data, I wanted to get your take on, I think you may have, I don't know if you saw it, there are these questions about, it came up with Nvidia specifically, and whether some of the chips that they design, but which are manufactured in, manufactured elsewhere, largely Taiwan, et cetera, whether they're being adequately captured in data. And there was this report out that, oh, we should have added 0.3% to GDP, which is not that much in the sense that like, oh, the big techno optimists were right.

• 50:47Speaker 05

  No, but it's real money.

• 50:50Joe Weisenthal?

  I'm curious what you think. It is real money. On the other hand, when I look at it, I say, well, the market certainly noticed that Nvidia has been doing very well. The Fed doesn't target GDP, so it doesn't really imply anything about, oh, we would have done something different monetary policy wise. Tell us what your thoughts on this discussion.

• 51:05Speaker 05

  So, I mean, GDP, measuring how much income we get for how much production and how much labor, that's what GDP is meant to do. And on a national basis. And it is much more science than art. But there are pieces of it where it's not very simple. And so there are multiple definitions that get, there's something called GDI, and then there's, of course, final demand, and there's these various things. And they're all meant to be a check on each other. And over time, they basically move together. So what you're saying, Joe, about this discussion of mismeasurement of, say, Nvidia or the other top tech

• 51:48Speaker 05

  companies, again, doesn't really change the fundamental path. But going back to what you both raised, if we're trying to assess how much we've seen a big transformation in productivity, this matters. If this 0.3% say a year was overlooked, and it is directly attributable to the AI sector, then that tells a different story about productivity. So it does matter. A colleague of mine, I already mentioned, Martin Trezepa at Peterson, is doing some work on this. Former Fed official at Peterson, Joe Gagnon, has also written about this. So there's, I mean, there are a lot of subtleties, but which I don't even understand. But there are basically two issues.

• 52:31Speaker 05

  One is sometimes when companies that are based in the US, using US technology, produce stuff abroad, the allocation of how much stuff is actually produced in the US versus not, and therefore, how, whether it's GDP versus GNP, what's imports, what's exports, gets messed up. And so with these very complicated supply chains, there is a issue of trying to figure out what stuff gets, it gets allocated to the domestic pile versus the import pile.

• 53:07Tracy Alloway?

  This is the old value add argument, right?

• 53:09Speaker 05

  Yeah, sorry. Again, I'm worried I'm going to screw up on nuance. So look on our website for a paper by Joe, or a paper, Joe Gagnon, or Martin Trezepa, or a tweet. I'm afraid I don't want, but just essentially, there is a discussion over how much is domestic versus national. But as you said, Joe, it, in the end, the markets, you're either selling stuff or you're not. I mean, Nvidia's bottom line actually doesn't change based on any of this.

• 53:37Joe Weisenthal?

  Right. We all know they're making a ton of money regardless of the government.

• 53:41Tracy Alloway?

  Also, the people who are working at Nvidia designing the chips in the US are still getting paid, and that's reflected.

• 53:47Speaker 05

  Absolutely. And all the money that comes into Nvidia, you know, some of it goes to shareholders, some of it goes to investments, some of it goes to the workers, you know. So, so again, this is worth worrying about, but this is not a major distortion. The second thing, though, which is the more contentious part, is there are always, in technological revolutions, there are recurrent statements that GDP, or whatever economists are using, are just not capturing the true value. And usually, the economist's response to that is some combination of, A, well, we're capturing the true market value. So if people are getting more out of it than what they're paying the market, it's great, but the market value is what we're supposed to think about.

• 54:33Speaker 05

  So that's one response. The second response is, oh, well, there are these various things like hedonic indexing, where we try to adjust for quality, and this shows up more on the inflation side than the growth side, but that helps you figure out what's real growth and what's not. So, so let's look at this specific sector and try and fix that. So there is still a controversy about that. I mean, but this goes back, Tracy, to what you were saying about the timing and the productivity, or the J curve, right? So we already have GPT, Claude, whatever, I don't want to cite any particular brand name. We have the, we have the AI. And you or I can go in and type, get me the cheapest possible ticket to Jackson Hole, and I don't want to have

• 55:16Speaker 05

  to think about it, but don't seat me next to a baby.

• 55:21Speaker 05

  And that provides utile stream.

• 55:23Joe Weisenthal?

  Tracy, when she does it, and she says, don't seat me next to Joe.

• 55:25Tracy Alloway?

  Don't seat me next to Joe.

• 55:26Speaker 05

  I thought it was, don't seat me next to economists.

• 55:28Tracy Alloway?

  We've spent enough time together. Do we really need another four hours on a plane?

• 55:32Joe Weisenthal?

  And keep going.

• 55:33Speaker 05

  No, no, no, no.

• 55:35Speaker 05

  If, and so that's giving me utiles. You know, it's saving me some time. It gets me a better experience. I don't get annoyed with the AA, or United, or Delta website, because somebody else is dealing with it for me. Does that show up in GDP? No. So this is why we usually think the big productivity gains and the disinflation stuff comes further down the pipeline. It's when, further down the track, I should say, not the pipeline, when the businesses start transforming. So like, it was really cool that Intel and all, and Texas Instruments, and whoever else was building chips in the 90s, you know, were following Moore's Law and all that. And that showed up a bit in GDP.

• 56:17Speaker 05

  But the gains really happened when McDonald's and Walmart and UPS and everybody transformed their businesses to take advantage of.

• 56:26Tracy Alloway?

  Joe, do you remember when Goldman economists, I think it might even have been hacky. Yeah, they put out a note saying that productivity was being mismeasured because the graphics in the new Grand Theft Auto game, I can't remember what edition it was at that time, were so much better than the previous graphics. We should have them back on now that the new ones are coming out.

• 56:45Joe Weisenthal?

  The new GTA 6 is coming out. Yeah, we should do that.

• 56:47Tracy Alloway?

  All right. I have just one more question. We could talk for hours, and unfortunately, we don't have that much time. But just in terms of the pure inflation outlook, the last time we had you on, it was right after you published a paper saying that you thought inflation was going to be 4% by the end of the year. I can't remember if you were looking at PCE or CPI.

• 57:05Speaker 05

  No, I was saying, at that time, I was saying.

• 57:09Speaker 05

  4% on PCE and a little higher on CPI.

• 57:14Tracy Alloway?

  Yeah, okay. Well, I mean, at least on CPI, we got to over 4% earlier in the year. And I think a lot of people were surprised by that direction of travel. What's your thinking now?

• 57:25Speaker 05

  I guess, thank you for saying that, Tracy. I guess what I was saying, and it was things I was saying, and then a joint piece with Peter Orzag of Lazard, what we were saying was, going back to where we were with the criticisms of the Powell Fed that I think were legitimate, the US labor market is much more resilient than they thought. Credit was much more available, or in the terms, the financial conditions were not as loose, not as tight as they thought. Fiscal policy was a little looser than we thought. And the Fed, having not brought down inflation for 64 months, or whatever it was then, 55 months, did have some momentum built up. And then additionally, one thing

• 58:10Speaker 05

  we talked about was, as I said, I think there was a J curve in the impact of tariffs and anti-migration policies. Over time, it took time for it to kick in. But anyway, the big point was, whenever the next inflation shock comes, it's going to go worse. I had no idea that the President of the United States would bomb Iran and ignore the fact that disrupting the streets of hormones might have some inflationary effects beyond whatever else you think of it. But I knew there was going to be an inflation shock, and we were primed to have more. So the next couple of months, inflation may trickle down a tenth or two because of the energy market, whatever. But as Chair Worsch said, as many FOMC members

• 58:54Speaker 05

  have said, this is not good. You got persistence, you've got persistent inflation in essentially the core measures that are services and not imported goods. You've got, you know, as the Chair said in his speech, you've got three, six, 12 months where the moving average looks like it's going up. It's in the high threes rather than four, but it's going up. So my view is, the Fed is going to hike. If they don't hike in September, they're certainly going to hike in December. I expect if they hike in September, they're still going to hike in December. You know, and so six months from now, Fed funds will be 75 bips or 100

• 59:38Speaker 05

  bips higher than it is now. And inflation will start coming down for reals, as the kids say. But until then, we're going to be in this three and a half to four and a half range with some upside risk.

• 59:51Joe Weisenthal?

  All right. Adam Posen, always great catching up with you, especially this beautiful location. Thank you so much for coming back on Odd Lots.

• 59:58Speaker 05

  Thank you for having me. I'm a big listener.

• 59:59Joe Weisenthal?

  Thank you so much.

• 1:00:00Tracy Alloway?

  Thank you.

• 1:00:01Joe Weisenthal?

  Love to hear it.

• 1:00:14Joe Weisenthal?

  Tracy, I love chatting with Adam.

• 1:00:16Tracy Alloway?

  It's so good.

• 1:00:16Joe Weisenthal?

  It's always really good. I'm really glad we made it happen. You know what's interesting? I'll be curious, like, to see how Powell's legacy ages. Like, I think there's going to be, you know, as Kevin Warsh said, 64, 65 months of above target inflation. When you think back at the last several Fed shares, a lot of, generally, like, the one who people, like, really think that was a bad tenure was Arthur Burns, right? Despite, and Bernanke has held out, like, people have, think of him fondly despite the fact that he presided over a financial crisis and several years of high unemployment. It doesn't seem like, from a reputational perspective, high unemployment under your watch gets sort of penalized the

• 1:01:00Joe Weisenthal?

  same degree as high inflation.

• 1:01:02Tracy Alloway?

  People really seem to hate inflation. You're right. Like, it's kind of skewed.

• 1:01:06Joe Weisenthal?

  Yeah, it clearly, it clearly is. So, you know, between, like, the questions like, well, did the Fed gather this sense of momentum where people were not dissenting for maybe reasons that were sort of inevitable or structural, et cetera? And you go five, over five years of above target inflation. I just think it'll be really interesting to see, like, how people are talking about Powell in the years ahead.

• 1:01:28Tracy Alloway?

  It was also interesting to hear that there seems to be a sort of unspoken norm that you can only have a handful of dissents per meeting.

• 1:01:35Joe Weisenthal?

  Yeah, yeah.

• 1:01:36Tracy Alloway?

  The other thing I was thinking about, just on the messy jobs note, I was, you know, there is this thinking out there that, oh, well, for instance, contractors can get replaced because now you can just ask ChatGPT how you're supposed to, I don't know, fix your toilet or something like that. But I was thinking, so my husband and I, we were doing a project where we were roofing an outdoor shed, and we asked ChatGPT how to do it. And we watched a couple YouTube videos, and it told us to use this one product, like, to stick on the shingles and things. And then after we had started doing it, we realized that that product only worked in environments that were above 60 degrees Fahrenheit, and we were in New England.

• 1:02:15Joe Weisenthal?

  Huh.

• 1:02:16Tracy Alloway?

  And the bots and the YouTube videos were incapable of spotting that we were in fact in Connecticut versus Florida. So, you know, there's, there's some nuance left for humans.

• 1:02:26Joe Weisenthal?

  Yeah, I think that's right. I feel strongly, like, for all the extraordinary things that the models can do, that there are just so many of these minor things that we don't even articulate about what human judgment looks like, that they're not there yet. They may yet get there. They may get there by the end of the year, but they're not quite there yet. But just like on the conversation, I do think it's interesting, you know, the term that I've been thinking about with the, the Warsh speech, it's, I found it to be hawk-ish, which is like, like, with a dash between the hawk and the ish, as in, it was clearly like, more like, yes, clear that the, there's a plan to fight, that there

• 1:03:10Joe Weisenthal?

  is going to be work to do to get inflation, because he said the two things that were key, which is inflation is going in the wrong direction, and policy has been insufficiently restricted, which therefore, the third thing that, the silent part is, therefore, high rates, which he didn't say. So, like, that is hawk-ish. On the other hand, it was not hawkish in the sense that we are now about to embark on an aggressive, it was not Powell 2022, where it's just, we're going to get inflation down, and I'll see you next year.

• 1:03:40Tracy Alloway?

  Well, it also begs the question of, okay, you could have said the exact same things at the July meeting.

• 1:03:45Joe Weisenthal?

  Yeah.

• 1:03:45Tracy Alloway?

  And yet, he opted not to hike because he said he wanted to see more information. But more information is always coming out. And also, in this environment, it feels like more shocks are also constantly happening. And so, you know, you have to wonder what the threshold actually is.

• 1:04:02Joe Weisenthal?

  Yeah. Well, anyway, I'm glad, big, big year, much to think about.

• 1:04:06Tracy Alloway?

  All right. Shall we leave it there?

• 1:04:07Joe Weisenthal?

  Let's leave it there.

• 1:04:08Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 1:04:13Joe Weisenthal?

  And I'm Jill Leisenthal. You can follow me at TheStalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashil Bennett at Dashbot, Cale Brooks at Cale Brooks, and Kevin Lozano at Kevin Lloyd Lozano.

• 1:04:24Tracy Alloway?

  And for more Odd Lots content, you should check out our daily newsletter. You can find that at Bloomberg.com/oddlots.

• 1:04:30Joe Weisenthal?

  And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 1:04:36Tracy Alloway?

  And if you enjoyed this conversation, then please leave a comment, or like the video, or better yet, subscribe.

• 1:04:42Joe Weisenthal?

  Thanks for watching and listening.

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