Atlanta Fed's Raphael Bostic on Monetary Policy During Extreme Uncertainty

This is obviously an extraordinarily difficult time to make economic forecasts. Nobody really knows how tariffs will affect the US economy. And beyond that, nobody knows what the ultimate state of tariffs will be, or if they'll ever settle into a predictable rate. So how do you conduct monetary policy in this environment? On this episode, recorded at the Federal Reserve Bank in Atlanta, we spoke with Atlanta Fed President Raphael Bostic. He walked us through how he's thinking about the dual mandate right now, and why he has significantly dialed back his expectations for aggressive rate cuts since the start of 2025. Read More:For Exhausted Stock Market Pros the Choice Is Buy or Stay HomePowell Signals 2020 Fed Framework Language on Chopping Block Only Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 0:58Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:41Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 1:57Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alockway.

• 2:01Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:02Tracy Alloway?

  Joe, we're here in Atlanta.

• 2:04Joe Weisenthal?

  I've never, I'm embarrassed, I've never really spent any time in Atlanta so far, but it seems lovely. We're in Midtown. I had a southern food.

• 2:13Tracy Alloway?

  I was gonna ask, how much fried stuff have you eaten?

• 2:17Joe Weisenthal?

  I have to be really careful because I will devour the food while I'm here.

• 2:21Tracy Alloway?

  So I went out with our producer Carmen last night and we had fried chicken, fried okra, fried green tomatoes. I think there were a few other fried things. It was so good.

• 2:30Joe Weisenthal?

  It was so good.

• 2:31Tracy Alloway?

  All right, but we're not actually here, we're not here just to talk about southern food. We are actually here to interview someone very important.

• 2:38Joe Weisenthal?

  That's right.

• 2:39Tracy Alloway?

  President of the Federal Reserve Bank of Atlanta. And I think it's really interesting to be interviewing someone from the Fed at this particular moment in time. Because just last week, we had an FOMC meeting. They decided to keep rates unchanged. But then just a couple of days after that, over the weekend, we had some pretty big news.

• 2:58Joe Weisenthal?

  Well, that's right. So obviously, it's an extraordinarily difficult time for literally everyone to understand what's going on with the economy. The Fed in particular, people have talked about, oh, it's in a tight spot, right? Because there perhaps are signs of economic deceleration. There's the potential inflationary impulse of the tariffs and the tariffs themselves keep moving. That being said, I was sort of knock on wood between the recent detente, so to speak, with China. Maybe things are quieting down. Maybe we'll at least have some trade policy stability for some period of time. Which maybe makes things today slightly easier to understand or anticipate than they might have even been a week ago.

• 3:41Tracy Alloway?

  That is the big question. So why don't we get right to it? We're speaking with Raphael Bostic. He is, of course, the President of the Atlanta Fed. So Raphael, thank you so much for coming on Odd Lots.

• 3:51Speaker 04

  Well, thank you for having me and welcome to Atlanta.

• 3:54Tracy Alloway?

  Thank you.

• 3:54Joe Weisenthal?

  Thanks for having us.

• 3:55Tracy Alloway?

  So I'm going to start with the, I guess, the obvious question. But you know, last week after the FOMC meeting, you put out a statement saying that your baseline outlook is for the economy to be less resilient than you expected at the beginning of the year. Given the news over the weekend, a potential truce, at least for 90 days, between China and the US, does that change your outlook?

• 4:18Speaker 04

  A little. I would say the overarching message that I've gotten from the people I talk to and from our survey responses and other things, and it's the reason why I was comfortable with our policy action last week, is that there's just a tremendous amount of uncertainty out there. And because of that, businesses and households as well, aren't really comfortable making big decisions. And as a consequence, the amount of energy I would have expected to see in the economy is going to be less than, that expectation was at the beginning of this year. It looks like it's going to be less than that for the remainder of this year. And then we'll have to see how things play out to determine how much less. But

• 5:01Speaker 04

  that uncertainty definitely is weighing on consumers and business leaders alike.

• 5:06Tracy Alloway?

  Joe and I have been joking about trying to get through podcasts nowadays without saying the word uncertainty. I don't think we've succeeded.

• 5:12Joe Weisenthal?

  It's literally never going to happen. That word comes up in every episode. But actually, going back to Tracy's question, what does that mean, the economy is less resilient? What did you mean by that term?

• 5:24Speaker 04

  So what we've seen through the last several years is an economy where all the analysts had expected things to start slowing down.

• 5:35Joe Weisenthal?

  Yeah.

• 5:36Speaker 04

  You know, inflation went very high. We had challenges in terms of supply chains, which led people to worry maybe labor markets would loosen, people lose their jobs. Sentiment expressed a lot of concern. Consumers and households were all expressing their frustration with things. All those things would have suggested that you would see less economic activity.

• 5:59Joe Weisenthal?

  And the fastest pace of rate hikes in decades.

• 6:01Speaker 04

  Correct.

• 6:02Joe Weisenthal?

  Yeah.

• 6:03Speaker 04

  And that just didn't happen. Like last year, GDP was over 2%, which is faster than potential. In the face, look, I go around and talk to a lot of folks.

• 6:14Speaker 04

  For much of the pandemic, the second question I would get after, what are you going to do with raids is, when is the recession happening?

• 6:21Tracy Alloway?

  Mm hmm.

• 6:22Speaker 04

  Right? That was the overarching sentiment. I used to would always say, like, that's not my outlook. So people should expect that the momentum will continue. That momentum did, in fact, continue. And I call that resilience, right? That strength and that that continued energy in the economy that allows firms to produce, people to consume at robust levels. Then we come to today, where there's a lot of uncertainty. And the uncertainty is hits on many levels. And I'm, I'm sorry, I'm saying this word that. No, no. It's totally unavoidable.

• 6:54Tracy Alloway?

  It's just a joke. You're allowed to use the word uncertainty.

• 6:57Speaker 04

  Well, thank you. Folks are not sure about the cost of goods again. Yeah. People are not sure whether that will trigger a recession. I will say in the last six months, actually, the last three months, analysts have used the word recession. Yeah. In their narrative about possibilities far more than they have for quite some time. And all of that, people notice. And if folks think that there's going to be a possibility that they're going to lose their job or those sorts of things, they're going to engage differently. Their perceptions of what a safety net needs to be for them, that rainy day fund is going to change, and their willingness to spend out of savings is going to change, or even

• 7:41Speaker 04

  spend out of regular income. All of that would suggest less energy. That's less resilience. Got it. And, you know, the less resilience does not necessarily mean recession. I would say even today, recession is not in my outlook, but it's less, right? So rather than the 2% or 2.5%, it may be 1%, maybe a half percent. That's the thing that I'm looking to really understand is, as I try to keep my finger on the pulse of the US economy.

• 8:10Tracy Alloway?

  I think one of the reasons a lot of people expected recession going back to 2023, 2022 was the soft data measures, the surveys looked absolutely terrible. And, you know, if you looked at something like consumer sentiment, people seemed to think it was basically the end of the world. Fast forward to 2025, and we do have a similar dynamic happening now where the soft data is deteriorating, but the hard data remains relatively strong.

• 8:40Tracy Alloway?

  Is there a risk that this time is different? And maybe we're a little overconfident in the economy, given what happened with the soft data a couple of years ago?

• 8:50Speaker 04

  So, you know, it's funny that you say this time is different.

• 8:52Tracy Alloway?

  I always hesitate to say on a podcast, but I still do it.

• 8:54Joe Weisenthal?

  Sometimes it can be different.

• 8:55Tracy Alloway?

  Yeah.

• 8:56Speaker 04

  Well, a lot of times it can be different, but just as often as not, right? And so part of what I try to do in my approach is never assume, never have a preconceived notion or an expectation about what's going to happen, but rather just pay attention. And what I would say on the sentiment, which is quite interesting, you know, I was a psych major undergrad.

• 9:16Tracy Alloway?

  Oh, I didn't know that.

• 9:17Speaker 04

  And so psych and econ, yeah. And so for me, I know psychology is important. And I know psychology can shift people's decision making, even when the information set doesn't change. And so understanding that psychology and how it translates into decision making is a critical thing. The very interesting thing with sentiment today is that we have had two realities with sentiment, right? The conventional wisdom is that when people are feeling bad, they do less. When sentiment turns negative, things slow down. I think there's been a history to show that that has been an experience more often than not. The anomaly or the odd one was this most recent one, where sentiment was really down in the dumps.

• 10:02Speaker 04

  You know, the vibe session and all those sorts of things.

• 10:04Tracy Alloway?

  Yeah.

• 10:05Speaker 04

  But when push came to shove, consumers continued to go out. People kept going to restaurants, going on trips, renovating their homes, all those things. And the economy remained robust. So the question we have today is which of those realities is going to play out? And the one thing I would say that's different today than in the pandemic environment is that going into the pandemic, we hadn't had a high recessionary period. And we also didn't have a situation where the government was going to provide support for the economy in such a robust way. So you might imagine that even in the face of more negative sentiment, look, the pandemic was super stressful on many dimensions. And so it didn't surprise me.

• 10:50Speaker 04

  People were a little kind of upset and rattled, if you will. But they got a lot of support. People kept their jobs, you know, it's very interesting. When I think about the pandemic, a lot of it is people kept getting paid that like the employment rate rebounded incredibly fast, but they didn't have things to spend on. They couldn't go to restaurants. They didn't go, couldn't go on vacation. So the household balance sheet was actually quite stronger than you would expect to see in sentiment turning south. Today, the, that balance sheet is in a quite a different place. I talked to a lot of folks and asked bankers, for example, compared to pre pandemic, where

• 11:30Speaker 04

  your customers' balance is during the pandemic, everyone's like a lot higher, 30, 40% higher. Today, that's not what I'm hearing and many of them are back to pre pandemic levels, which might mean that families' response function may be back to a pre pandemic setting. And we'll just have to see how that plays out.

• 12:03Speaker 00

  What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 12:19Speaker 05

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high frequency traders and that sort of thing, and folks who service institutional clients.

• 12:28Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Reese Merica Ripple says.

• 12:36Speaker 06

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80 year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 12:55Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 13:05Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume, so writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 13:47Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 14:28Joe Weisenthal?

  Eventually, I want to get to the contemporary situation and then thinking about the tariffs, et cetera. But before we do, you know, thinking back, one of the residual lessons of the pandemic period, and there are two big ones, and they've come up a lot, many lessons, but from the corporate perspective, one is companies, maybe for the first time in a long time, realize that they can raise prices without losing market share. And so suddenly, price increases become maybe back on the strategy book. And then the other thing is the sort of residual fear of being caught short labor, right? And so for years, there was this expectation, you put a help wanted sign in the window and you get a line out the door and labor

• 15:12Joe Weisenthal?

  is easy to come by. And maybe one of the reasons that's been theorized for the lack of layoffs in, say, 2022, 2023, is just this fear that if you cut jobs, you're not going to be able to get them back in the door when you need them. Do you think those lessons still linger with us today? When you talk to business leaders today, do they still have sort of these searing memories of not having been able to staff their staff their facilities once demand starts picking up? And do you think that still affects the sort of marginal impulse to lay off workers?

• 15:47Speaker 04

  So I wouldn't put it exactly like that. I think that there is a reluctance among firms, and this is what I've heard from most firms.

• 15:55Joe Weisenthal?

  Yeah.

• 15:55Speaker 04

  That, you know, they're going to hold tight today and see how things evolve. And because there's two sided risk, because the economy might be stronger than people are projecting today, or it might be weaker, you don't want to take actions that might cause you to have to do extra things to get back to where you are. So I think there's a precautionary posture that's happening today, which is actually quite different than what happened during the pandemic. We ask our firms through our surveys, is the labor market easier for you today? Or is it worse than it was a year ago and two years ago? And uniformly, the answer is easier. We're hearing easier to hire.

• 16:34Speaker 04

  If the number of people who apply for a vacant position is up in some instances considerably, and the quality of the applicants is also up relative to where they were in the pandemic. Back then, they put a shingle out, and if they got someone, it was someone that they probably didn't want to hire, and they were hiring them anyway because they didn't have options. That's not the environment that we have today, and that's that's important. In terms of the the impulse of firms to increase prices, I do think that's still real today. And, you know, one lesson that I think people did learn through the pandemic was if you

• 17:15Speaker 04

  tell people costs are up, and it's obvious that that wasn't in debate, then people understand that the price might have to go up. And what businesses learned is that most consumers, most of their customers were okay with that. The question is, are they still okay with that? And to me, I would say there are two really interesting dynamics that that I think are potentially emerging. One is, I think, firms. Are going to try to apply the lesson learned from the pandemic. They have an assumption or an expectation that the consumer response is going to be exactly the way it was before. We will see if it actually is.

• 17:57Speaker 04

  And I think the concern about the level of prices that we've heard a lot about in the last six months suggests that maybe they won't, but maybe they will. And in fact, it might actually be more complicated in that for some households, it may be the size of the change. So if it's a smaller incremental, it may not register. For others, it could be one penny, and that's too much. And then the third piece to this is sector by sector, do you wind up seeing different responses? And then if you wind up with something like that, and I think that's probably where we're going to wind up, then forecasting at the aggregate level becomes incredibly challenging.

• 18:40Speaker 04

  You have to wind up doing a lot more, your spreadsheets get larger, the math gets more complicated. And so I think our job will get a bit more challenging.

• 18:52Tracy Alloway?

  So just on this point, at the press conference last week, Powell seemed to suggest this idea of tariff impacts may be operating at different speeds. So the impact on inflation could potentially come quicker, especially if you had a bunch of companies immediately raising prices to offset the cost. But the impact on something like the labor market could take a lot longer to actually feed through, maybe even because some businesses still have residual scars from the pandemic or whatever. How do you deal with those two different factors operating at different speeds? It seems very difficult.

• 19:29Speaker 04

  Well, we have a very dynamic economy. And that's just an overarching feature of the environment that we work in. I think part of what we try to do in Atlanta is try to get hints about the longer run things in real time as much as possible. Because for many of these things, if you wait for them to show up in the national data, you're two months behind, a quarter behind, sometimes a couple of weeks behind, and then there's more of a scramble. We learned And the great financial crisis that we needed to be asking much more front forward and prospective questions about what businesses are seeing, what they're feeling,

• 20:13Speaker 04

  and how they're going to respond. So that even if the revelation happens at different speeds, the impulses and the drivers will be more contemporaneous. And if you can discern those, then you might be able to get a head start on where things are going. What I would say today is, and it gets back to what we were just talking about, I think many firms will probably try to pass through costs to the extent they see them. They will learn pretty quickly whether those cost increases are being taken on by customers or being rejected by them. And then they'll have to make a decision about what is their production function going to look like. And once they make that decision, then they'll decide what kind of workforce

• 20:56Speaker 04

  they need. I'm expecting that those lessons will be learned quickly. And as I go around, I talk to chambers of commerce, I do open discussions in cities all across the sixth district. I say, if you see someone doing something that's really different than what they were doing two weeks ago, you need to call us and let us know because we need to be collecting that information to try to understand whether a single impulse is actually a trend, and whether there are some lessons that can be learned from the collection of the masses.

• 21:28Joe Weisenthal?

  We need a Fed tip line. It's like, oh, something's interesting.

• 21:31Tracy Alloway?

  How many calls have you been getting? Have you been getting calls?

• 21:33Speaker 04

  So, no, nobody calls me, as it turns out. But we have a team that's out in the field, and they are getting calls on a regular basis. You know, when I got here, I was really, I didn't really know any of this. But we have a network of staffers whose job it is is just to have relationships with business leaders and with community folks all over the Southeast, and come and see them and talk to them in really conversational, unstructured ways for 90 minutes, two hours, just to get a sense of where are they, how are they feeling, what are they worrying about, what are they excited about, what's changed? Because the relationships are personal on some level, people do feel more comfortable picking up the phone and telling us things. And and it's been something that's really helped us.

• 22:18Speaker 04

  So so we knew fairly early on that people's horizon in the pandemic was expanding. So the we did a survey. We do a number of surveys. We have a survey shop here. We did a survey of businesses and asked them, OK, in April of 2020, when do you think this will be done? They said September of 2020. In January of 2021, we asked them. They said probably another 18 months, right? And and and it was this learned experience. And we got to see their understanding of the environment evolved in real time in ways that really, I think, helped us understand what questions we needed to ask and what kind of decisions and policy changes that we should be looking for. It's been quite interesting.

• 23:03Speaker 04

  And I think there's going to be some of that. Yeah. There's going to be a lot of that that happens in the next several months. Look, we've just gone through a period where people were expecting tariffs. I think many people didn't expect the tariffs to roll out at the scale that we saw. And it's causing everyone to think about, OK, now if this is our new reality, like, how do I think about this? What am I going to do? And just as it was at the early stages of the pandemic, people are kind of doing it on the fly. Yeah. And the only way to really understand how things are going and people are doing on the fly is to be there with them and to be continually asking them and seeing how their decision making and their changes are evolving as they get more insights.

• 23:46Speaker 04

  So as the tariff environment shifts, as the numbers move around, there's learning when you see, oh, their strategy was A and now their strategy is M. Like, that's saying something about their thought process and what they're likely going to do and moving forward.

• 24:19Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 25:00Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 25:42Joe Weisenthal?

  So let's talk a little bit more about the intersection of tariffs and monetary policy. And something that's been on my mind in particular is tariffs are a supply shock in some way. And what I've been wondering about is, does that therefore increase the terminal rate in terms of how low the Fed can ultimately go in a cutting cycle? Okay, you're supply constrained on some level, perhaps also in theory, there's going to be some forced development in the United States of some industrial capacity. And so that's a positive activity impulse. Does that mean when you think about like weakness and when you think about possible rate cuts, which is what everyone is expecting at some

• 26:27Joe Weisenthal?

  point, does that increase the floor of how low you can go?

• 26:31Speaker 04

  I don't think of it like that.

• 26:33Joe Weisenthal?

  Okay.

• 26:33Speaker 04

  Well, first of all, I think Being able to say a blanket statement on anything like this is going to be quite challenging. It would be challenging if you just picked one tariff rate for the whole world.

• 26:44Joe Weisenthal?

  Yeah.

• 26:45Speaker 04

  In an environment now where there's so much variation and price discrimination, country to country and sector to sector, it's really difficult to know how to add it all up. And then you overlay that the numbers can change. But we're expecting, one of the things I do when I talk to folks in public settings, show of hands, how many people think that the tariff numbers that we see today are going to be the tariff numbers that we see a month from now.

• 27:13Joe Weisenthal?

  Does anyone raise their hand?

• 27:14Speaker 04

  Nobody's hands goes up. And in part, that's by design, right? So we know there are negotiations going on. We know it's a 90-day moratorium in some of these instances. So that change that's out there means that it's going to be very challenging. I try to go back to just our basic mandate. We got price stability and we have maximum employment, maximum sustainable employment is how I like to think about it. And so what I try to do is figure out, okay, given all the things that are going on, what's that likely to do for us getting closer to our 2% target in inflation? And what's that likely to do in terms of the movement of labor markets relative to some broad notion of full employment?

• 27:57Speaker 04

  Today, what I would say is, what I hear from analysts, I talk to my economists in the building, like, relative to the pre-tariff environment, tariffs have a upward, put an upward force on inflation. And so that means that our policy is going to have to anticipate and to some extent, potentially push against those inflationary forces to the extent that we see them. So that will put a limit on where our current policy stance is. Now, you asked something about the broader economy-wide new fundamental as to like an R star type of thing. I think there's a lot of debate, there's a lot of debate on sort of R star in non-turbulent times.

• 28:42Joe Weisenthal?

  For sure.

• 28:43Speaker 04

  And so today, I think you would see the same thing. Look, I think, you know, pre-pandemic, coming out of the great financial crisis, and actually even before that, we knew there was a long secular decline in R star. Demographics and a whole host of other things were believed to be behind it. And the notion that you could see Inflation moved the way it has, kind of caused people to just have to step back and say, "Well, wait a minute, maybe our notion of the immutable is not so immutable." Yeah. And I think that debate is being taken on board right now. And so, the other thing to think about is, look, to the extent that this, that we are in a period where firms are redoing their supply chains and perhaps not looking for

• 29:28Speaker 04

  lowest cost location, that has implications for just, could potentially have implications for what a baseline new level of inflation is likely to be writ large. And if that is what happens, then sure, all the fundamental dynamics and measures are going to change as well, but we haven't seen that. And, you know, it's, it's been interesting. I've talked to a number of producers, and they have production in multiple countries. And they say, "You can put the same plant in three different countries and they will have different levels of productivity." Yeah. And that is interesting, but it also means that the specifics of where they put

• 30:11Speaker 04

  things down, how much production happens in those places, and then where assembly and it all comes together, is incredibly material. And folks don't have the answers to those things now. So I actually try to shy away from Sure. Thinking about those bigger issues right now and just say, "Look, we are in a period of tremendous transition where we had a received wisdom, cost minimization in production, free and open trade, and that equilibrium is being broken." And when you're in disequilibrium, in econ, you know, there's the, I forget what they say it, but there are an infinite number of possible new equilibriums that you could

• 30:56Speaker 04

  achieve. And so what we're trying to do now is kind of figure out, are there ways to narrow and get a sense of what are the ranges of possibilities, given where things are going? So then we can start to think about those parameters, make judgments about what best long-run policy might look like.

• 31:14Tracy Alloway?

  On the neutral rate, R star, I was going to ask if it's even a useful concept, given the current levels of uncertainty, if it's actually even possible to try to attempt to navigate by the stars.

• 31:28Speaker 04

  Well, you know, the chair famously had a speech on the stars and expressed some skepticism that the scars were always going to be reliable guides. I think there are really two things. And, you know, I was like major undergrad in addition to econ. One of the things I take, took or have taken from being in both those professions is that economic models are models. They are stylized characterizations of how the world actually works. We should all understand and appreciate that there is a confidence interval around any number that comes out from these models, even though some economists may declare them as truth and you should never deviate from those sorts of things. It's one of the reasons why, you know, a lot of the

• 32:12Speaker 04

  rules are useful, but the actual numbers that come out never hit right where the rule is. And so there are other things that are going to influence what makes sense from a policy perspective. And those are the things that we have to actually acknowledge. People are not ruthless utility maximizers. Firms aren't either. And in fact, what's been interesting for me in this pandemic period is the old model, I'm calling this more like a high level, was cost minimization. And that means find the place where you can produce everything at the lowest cost, do all your stuff there because that makes you the most efficient. All right. What that doesn't do though, is acknowledge that if you're locally reliant or dependent, if anything happens in that locality, your ability to produce goes basically

• 32:57Speaker 04

  goes to zero. Right. So there's a, there's a higher variance potential in your output. And we were not putting any cost value on that. Right. And we learned that there is a cost value on that. And so the change of philosophy that might be going on right now, and we'll get to see how many people really start to set up these supply chains with the eye toward diversifying locations just for reducing variance, that's a new thing. And that could be quite interesting to look at moving forward.

• 33:28Tracy Alloway?

  Joe, I want a T-shirt that says ruthless utility maximizer. I think I could rock that.

• 33:33Joe Weisenthal?

  Most people aren't, but Tracy is actually the one, the one person who lives by the economic.

• 33:40Speaker 04

  We'll see, we'll see what we can do. I'll, I'll look around and see if there's some economic education club that does that.

• 33:46Joe Weisenthal?

  Prior to the tariffs, actually, thinking back to like January, et cetera, we didn't know anything about what the tariff rolled out. Was the US economy decelerating? Like, was it an economy that was sort of due for several more rate cuts?

• 34:03Speaker 04

  So my outlook at the beginning of the year was that the economy would continue to grow in a solid way, and inflation would return to 2% over time. And my expectation was somewhere toward the end of this year, we would be at that point where it would be appropriate for us to have a neutral stance for policy. So I had maybe three or four rate cuts for the year with the idea that there was a lot of momentum, we're still over 2% GDP, hiring is happening at a robust clip, and we could avoid having sort of a recessionary or negative outcome. I felt like the bones of the economy were pretty solid and strong. And that's why I talk about the resilience and all those sorts of things.

• 34:48Speaker 04

  So even with the slowdown, I thought that we would still see pretty robust growth, people would still have jobs. One of the things that was quite useful for us to see was that wage growth was returning to pre-pandemic levels. So we were evolving to an environment that was fairly sustainable.

• 35:06Joe Weisenthal?

  Somebody would call it a soft landing.

• 35:08Speaker 04

  Yeah, I never use those words, right? So I try to stay away from that stuff because it means different things to different people. But if that's what you want to call it, I'm happy for that.

• 35:17Joe Weisenthal?

  Some might say.

• 35:18Speaker 04

  You know, to me, I think one of the questions that I ask is, to what extent, once we get through and get to some degree of steady state, we will still have those aspects of the US economy still in place at the same levels of strength. And something we're going to continue to look at and look for as we go through the rest of 2025 and into 2026.

• 35:42Tracy Alloway?

  So you mentioned wage growth just then. And one of the things I've been thinking about when it comes to inflation under the tariff regime is wage growth. Do you think it's fair to say that the chances of having a lot of wage growth alongside higher goods prices is lower than it was post-pandemic? And if that's the case, does it perhaps give the Fed more room to look through higher goods prices if you're not worried about, you know, a big self-reinforcing inflationary spiral?

• 36:12Speaker 04

  Yeah, so that's a very interesting question. I would say It's possible. One of the things that's been quite interesting is, I think, in this environment, wage growth has been a trailing indicator as opposed to a leading indicator. And so what we will see, if that continues, is that a lot will depend on the extent to which consumers are willing to take on price. If they're unwilling to take on price, then the dynamic that we have is pretty set. And then we'll, I think we'll see different strategies taken by firms as to how to, to manage their increased cost basis. And to the extent that is necessary, you might see some reductions in the staffing level.

• 36:56Speaker 04

  I don't think you'd see reductions in wages. But again, a lot of this depends, you know, there's a big difference between a 10% tariff rate, a 40% tariff rate, and a 125% tariff rate as to what the cost implications are going to be and the ability of firms to absorb them in their margins as opposed to having to pass those on. And so, again, this is another one where I think the details will matter in a pretty significant way and, you know, we'll have to see where it goes.

• 37:26Joe Weisenthal?

  You know, in the wake of the original big inflation in the late 70s and early 80s, and it took a while for that to come down, but I got the strong impression over the years that for the Fed, this was like a crowning achievement of sorts, having defeated that inflation and had several years of price stability. And I also think that, you know, fast forward in the wake of the great financial crisis, particularly in the latter half of the 2010s, that something resembling what people would call full employment has been another achievement. And I think that, you know, if you go back to Powell's speech in August to Jackson Hole last year, that's part of what he said, like, this has been an achievement to get low unemployment, and we don't want to lose that.

• 38:10Joe Weisenthal?

  We don't want to let it slip again. In your view, like, how important is that? For you know, when you think about the potential tension of the dual mandate, how do you think about sort of like preserving that achievement of maintaining a low level of unemployment even in the face of all this uncertainty? And potentially, you know, inflationary shocks from the form of tariffs?

• 38:35Speaker 04

  So let me say two things on this. First, I'm very pleased that during my tenure here, the two mandates have not been in conflict. They've not been in tension. So I've not really had to face that challenge. We've either had low inflation so we could worry more about employment, or we've had really rock solid employment so we could worry about inflation. But I think one of the things that was quite interesting where the end of the 2010s was the effort by the Fed, and it started before I got here, to be less preemptive around anticipating that inflation must happen because we've never seen an environment where inflation didn't arise.

• 39:19Joe Weisenthal?

  Yeah.

• 39:20Speaker 04

  And so, and so there was a philosophy that was embraced to say, okay, we should actually see signs of inflation before we get too crazy on this. And what we wound up seeing was unemployment levels fall to numbers that were inconceivable, right? So at one point, unemployment was a three and a half percent, somewhere like that. When I first started my career as an economist, the unemployment rate that was viewed to be the natural rate of unemployment was, I think it was like 6%.

• 39:55Joe Weisenthal?

  Yeah.

• 39:56Speaker 04

  And so the idea that you could get to three and a half without seeing inflation was just, just, it was like crazy talk, right? And so for us to then just, well, let's let it go. And then it kept going and kept going and kept going. I think that was a tremendous, you could call it an achievement, but it was a discovery that a lot of our perceptions or understanding of what the possible could be might be constrained by our own.

• 40:30Speaker 04

  You know, preconceived notions of where the world is. And in this instance, you know, I think about all the advances that have been made in technology in job searches. So a lot of natural unemployment is about, you know, it's it takes time for the match to happen between an employer and an employee. Now, you can sit over lunch on your phone and submit like a hundred applications to things. Businesses are using AI type tools to review resumes to really be able to pick out the people. And that match happens faster. If that's the case, then the natural rate should be lower. And now the question is, how much lower? And, you know, this is something we argue about. I actually think it's is much lower than others in my building do.

• 41:14Speaker 04

  But I think the experience would show that change did happen, and it happened in ways that we could get more people employed and in a sustainable way without being a problem, without that being a problem for inflation.

• 41:26Tracy Alloway?

  I wanted to go back to something Joe brought up, which is the sort of, I guess, cross current of monetary versus fiscal policy. And I get that, you know, monetary is always existing alongside fiscal policy, which may change in various directions. But it does feel like the tariffs are sort of an extreme example of that in the sense that they have a big impact on the market. So they have a big impact on financial conditions, and they seem to be changing constantly, as we've been discussing. How is the Fed just generally thinking about, I guess, the tension between your own monetary policy versus the changes in financial conditions being wrought by the Trump administration

• 42:10Tracy Alloway?

  and its impact on financial conditions?

• 42:13Speaker 04

  So I don't think it's different in character, but it is different in magnitude. And so, look, we take all non-monetary policy as given, right? And then, you know, I just respond in thinking about where we need to go.

• 42:32Speaker 04

  Based on where that part of policy is and where businesses are and all those sorts of things. These changes here that are being made are very much like that. Like, trade policy is not something that the Fed manages, and there are lots of different ways that you can influence it. And so that's what we're seeing here. I think, for me, one of the things that's been quite interesting to reflect on is that if, in your standard econ, like, if you do your models, it's all marginal this and marginal that. And the margin is calculus. So these are small, small changes on the status quo. And what we see today are decidedly not small changes relative to the status quo.

• 43:12Speaker 04

  And so the question is, does that require a different kind of conceptual model about what response functions will be for businesses and for families and households? That's the bigger question that we're having to wrestle with, which is quite different than what we usually do. But it is, it's not so much about the idea that, you know, there's a policy and it changed how financial markets are thinking about risk, right? There are lots of other things that do that as well, and, you know, that's just part of the landscape.

• 43:43Joe Weisenthal?

  With any luck, we might have some policy stability for a while, lots of 90-day pauses, et cetera. And I, you know, my personal guess is that 90-day pauses could turn into more 90-day pauses at some point in the future. You mentioned at the beginning of the year, you know, maybe this was an economy that would, you know, require or be three to four cuts. Today, May 14th, assuming some policy stability, I'm mindful of the fact that our Bloomberg colleagues would love a nice, clean headline, "Boston, CSX." But what, uh, and so I'm trying to do them a favor here. What does the rest of the year look like for you from a policy perspective? How many cuts are we getting?

• 44:27Speaker 04

  All right. So, okay, I will say, so I'm required to do this, right? So, so you know, and the dot plot summary of economic perspectives, I have one cut for the year. And in part, it's because I think the uncertainty is unlikely to resolve itself quickly. Right? So 90 days. So we have 90 days in two settings, right? So you have the reciprocal tariff 90 day window. You have the China tariff 90 day window, which is at a different periodicity than that. And we have all these negotiations and we don't know how any of them, we know the UK. But other than that, you know, it's all.

• 45:08Joe Weisenthal?

  I don't even think that's formally signed. Anyway, yeah.

• 45:11Speaker 04

  Well, you would, yeah, I just, I just read the Bloomberg headline on it and it seemed like it was done. And so, so until there's uncertainty, you know, what we've asked our businesses, like, what kind of plans are you making for this year? And many of them like, well, I don't really know. We're going to keep change to a minimum until we get that resolution. And so if that uncertainty continues, then I expect we're not going to see the same level of big investments or those sorts of things. And that will then push out the time before we'll be able to get to that equilibrium.

• 45:46Joe Weisenthal?

  I think we both have two more short questions. I just, real quickly on those business conversations, and this is something that's been coming up in episodes. Do you see a divergence between small and large businesses? Large businesses who have the balance sheet can lose money for a couple of quarters. For a small business, they make a mistake, they make an order, there's a huge tariff bill at the port. It might be existential. Have you noticed a sort of a distributional effect in terms of planning and how, and the effects?

• 46:12Speaker 04

  Absolutely. And I think forecasts for sales, forecasts for costs are much higher for small businesses. When we talk to small business leaders, you can see this in our survey responses. They're the ones who are feeling most at risk.

• 46:26Joe Weisenthal?

  Yeah.

• 46:27Speaker 04

  And we'll just have to, I mean, I think they're hoping that this is a short episode and we can get to a new steady state so they can understand how to run their businesses.

• 46:36Tracy Alloway?

  I have just one more question, and it's a very important one. We heard that you like birding. Do you prefer seeing hawks or doves? This is a very serious question.

• 46:46Speaker 04

  You know, that's very good. You know, when I first started, I got asked if my hawk or dove, and I said I was an owl. And I have doves in my backyard pretty regularly, morning doves.

• 46:55Tracy Alloway?

  They're the stupidest birds.

• 46:58Speaker 04

  But it's always super exciting when a red shoulder, red tail hawk comes swooping in, or a Cooper's. So just like when they ask parents their, their favorite child, and they say, we love them all. I love all my birds.

• 47:10Tracy Alloway?

  I don't love morning doves. They're idiotic. They're like, they have a death wish and always are getting killed and building their nests in stupid places. And then it becomes my problem. Okay, enough about morning doves. Raphael Bostic, thank you so much. Really appreciate the invite to Atlanta and this conversation. Thank you.

• 47:29Speaker 04

  Thanks for coming down to Atlanta. I look forward to talking to you again sometime in the future.

• 47:32Joe Weisenthal?

  Anytime. That was a blast.

• 47:46Tracy Alloway?

  Joe, that was fantastic. Getting to talk to, I guess, I guess Bostic is non-voting at the moment, but getting to talk to a Fed person at this really interesting juncture in economic and I guess central bank history.

• 48:00Joe Weisenthal?

  It's such an interesting time for all kinds of reasons. I mean, you know, the fact that the COVID shock still looms with us in various ways.

• 48:11Tracy Alloway?

  Yeah, clearly.

• 48:12Joe Weisenthal?

  In particularly just the fact that, you know, up until very recently, arguably, depending on how you measure it, inflation's still running above target. But this is sort of uncharted territory to some extent because of the speed of policy changes in both directions in DC. You know, I wrote in one in a newsletter, I think it was last week after the Powell's press conference, you know, I've never heard more.

• 48:39Joe Weisenthal?

  More different ways to express the concept of we don't know anything that's about to happen.

• 48:44Tracy Alloway?

  That's right.

• 48:44Joe Weisenthal?

  Extreme level of humility is required in this moment.

• 48:48Tracy Alloway?

  Well, he certainly mentioned the word uncertainty a number of times. Yeah, it really is. Well, the other thing I was thinking is, I guess, the complexity of trying to do economic analysis in the current period is really, really coming through. And I thought the point that Bostic was making about productivity, depending on where people actually move manufacturing or move operations to, like, that level of detail seems almost impossible to predict, and yet productivity is obviously something that matters enormously for the economy.

• 49:21Joe Weisenthal?

  Well, is it, who are we talking to? And they were quoting Paul Krugman, someone recently, and they're like, productivity isn't everything, but it's almost everything. I guess pretty much all there is, you know, you think from the perspective of any sort of international, any company that has international ties. And now we've had like two supply shocks in a way, in a very short period of time. You could almost be forgiven for post-COVID, say, oh, you know, this is a once in a century type of thing, so I don't know how much we're going to change our businesses. But A, now we've had this other one. And so at some point, this idea of moving supply chains, which has already like been happening to various degrees, has to be top of mind and how these things get organized

• 50:05Joe Weisenthal?

  and what do you reshore and what do you friendshore and what do you put in Vietnam that has links to both US and China. Their policymaking in a state of flux, for sure.

• 50:16Tracy Alloway?

  Yeah, and it also gets harder for companies, right? Like, the longer this kind of goes on, because you had the first wave of reshoring after the 2016 Trump administration. And now what's left to move places, especially if you have tariffs on both Vietnam and China.

• 50:32Joe Weisenthal?

  You know what I've been thinking about? I would never give financial advice on the podcast because it would be terrible. But something I've been thinking about a little bit lately is that You actually might have this situation, this doesn't even really have to do with our conversation, but a straight thought in my head, you actually have the situation now, which I think is kind of interesting, in which if you're an American importer, you're obviously thinking, at least to some extent, about diversifying the base of where you source from. So do you like go more to Latin America? Do you go to other non-China parts of Asia and so forth? If you're a Chinese exporter, you might be thinking about the same thing. There's already been this pressure from Chinese exporters, just a business pressure,

• 51:14Joe Weisenthal?

  to move some of their lower-end manufacturing outside of China. Now there is the fact that there's this big tariff disparity, assuming that current levels stay roughly stable. So it'll be interesting to see if there is some sort of, you know, positive impulse to non-China EM generally, because it strikes me that a lot of different entities really do have an economic reason to truly diversify in a way that maybe hadn't been the case several years ago.

• 51:45Tracy Alloway?

  Oh, for sure. And we saw that in the episode we did with Sarah LaFleur.

• 51:49Joe Weisenthal?

  That's right.

• 51:49Tracy Alloway?

  When one of her Chinese manufacturers was talking about, well, if we can't export a bunch of stuff to America, maybe we start selling M.M. LaFleur clothes into China.

• 51:59Joe Weisenthal?

  Oh, that too. That's right.

• 52:00Tracy Alloway?

  That as well, right? It's like on both sides of the equation.

• 52:02Joe Weisenthal?

  So many moving parts.

• 52:03Tracy Alloway?

  You know what I'm thinking about? Eating more fried things before I leave Atlanta.

• 52:08Joe Weisenthal?

  Okay, so we gotta wrap it up right now.

• 52:09Tracy Alloway?

  Yeah. Shall we leave it there?

• 52:10Joe Weisenthal?

  Let's leave it there.

• 52:11Tracy Alloway?

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

• 52:17Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at theStalwart. Follow Raphael Bostic. He's on LinkedIn. You can check out some of his posts there. Follow our producers, Kermit Rodriguez, at Kermit Arm, Dashal Bennett, at DashalBod, and Kell Brooks, at KellBrooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have all of our episodes in a daily newsletter. And you can chat about all of these topics 24/7, including monetary policy, with fellow listeners in our Discord, discord.gg/oddlots.

• 52:48Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we travel around the US interviewing regional Fed presidents, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 53:41Speaker 07

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