저자: ChristopherWaller · 외국인
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월러 연준 이사는 실물경제가 견조하고(상반기 실질GDP 연율 1.8%, 민간최종수요 3%), 고용도 안정적이라고 평가. 근원 인플레이션은 3개월 기준 3.05%로 하락 추세지만 여전히 목표 2% 상회. 8월 물가지표 결과에 따라 9월 15~16일 FOMC에서 금리 동결 또는 인상 가능성 언급. 에너지·관세·AI 관련 물가 불확실성 존재.
다듬은 글
Hello everyone, I am Howard Schneider. I work as a Reuters reporter in Washington, covering the Federal Reserve and the economy . Thank you for joining us for today's conversation with Federal Reserve Governor Chris Waller . Governor Waller became a Federal Reserve Governor in 2020 upon President Trump's appointment and is one of the Fed's key voices on monetary policy and the economic issues and controversies that influence its decisions .
Prior to that, he worked as a research director at the St. Louis Federal Reserve for about 11 years , and immediately before that, he served as a professor of economics at the University of Notre Dame . Director Waller was also one of the few people President Trump considered as a candidate for Federal Reserve Chairman .
We are scheduled to discuss various topics with Director Waller today, but before that, let's start the conversation with the remarks Director Waller has prepared . Director Waller, would you mind telling me? thank you . Before we begin the main discussion, I would like to briefly discuss the impact on the economic outlook and monetary policy, in light of my current views .
Simply put, while inflation remains significantly above the Federal Open Market Committee (FOMC) target of 2%, recent data suggests that signs of deflation are finally appearing . If this trend continues for the next two weeks, I would support maintaining the federal funds rate target at its current level .
However, there is still significant uncertainty regarding how military conflicts, trade policies, and artificial intelligence will affect prices and economic activity . If the August data shows that these movements are temporary , it may be appropriate to raise the policy rate at the FOMC meeting on September 15 and 16 .
Now, after explaining the economic and monetary policy outlook , I would like to share some thoughts on how to convey these views to the public . First, let's look at the real economy . Despite the uncertainties I mentioned , namely most of the factors that burden economic growth or economic activity , real gross domestic product (GDP) growth remains solid .
Real GDP recorded an annualized rate of 1.8% in the first half of this year . Consumer spending showed solid growth in the second quarter following a sluggish start at the beginning of the year. Corporate investment has remained strong overall . Overall, real private domestic final purchases, which best reflect the fundamental strengths of consumer demand, recorded a high growth rate of 3% in the first half of 2026 .
Data for the third quarter of this year is limited, including sluggish retail sales in July, but this is because the Amazon Prime Day promotion in June affected seasonally adjusted sales in July. Retail spending, excluding out-of-store sales, increased. Considering the increase in wealth resulting from the rise in stock prices this year , this upward trend in consumption is expected to continue.
From a corporate perspective, data center construction plans signal rapid growth in corporate investment driven by upgrades in artificial intelligence ( AI) and related technologies . Investment in high-tech is increasing rapidly, and software investment, which was feared to be dampened by AI's coding capabilities, is showing growth approaching its long-term historical average.
Some will argue that such investments in certain sectors that are capital-intensive but not labor-intensive distort GDP and should be ignored to some extent . I do not agree. AI investment is currently a legitimate component of GDP, and I expect that AI technology will continue to play an important role in the economy even after it passes its peak of development and becomes fully integrated into our lives like the internet .
Looking at it more broadly, one sign that the growth in business spending is continuing is that non-manufacturing purchasing managers' sentiment rose to a solid level in July. New orders from these companies, which account for the majority of firms in the economy, continued to increase in July, and the supply problem index also improved.
As the results of the August non-manufacturing survey are scheduled to be released today, we will be able to see if this trend continues . Considering the various factors of the economy , I expect real GDP growth to be slightly over 2% this year . Considering all the uncertainties mentioned earlier, this is a fairly good result.
The labor market is also in a satisfactory state. There were signs that labor demand would ease relative to supply in the second half of 2025, but those signs have disappeared. Job creation is somewhat volatile, but it increased by a monthly average of 60,000 people through July . This is close to or slightly above the figure needed to keep pace with the slowing growth of the workforce, which is attributed to a decrease in the number of net immigrants .
Over the past few months, employment growth has expanded to the overall economy . The unemployment rate fell slightly to 4.1% in July . This is a historically low level and is slightly lower than the median long-term equilibrium unemployment rate of Federal Open Market Committee (FOMC) members . Layoffs, new unemployment benefit claims , and unemployment insurance claims are also at low levels.
We expect this trend to continue in the August employment report to be released tomorrow . Since economic activity and the labor market are in good condition, these indicators do not have a significant impact on determining the direction of monetary policy. However, it is an important background factor in the inflation outlook that I am currently focusing on .
And I will share my assessment of how effective the current policy stance is in bringing inflation back to 2%. I will explain in more detail shortly . Current inflation is significantly above the FOMC's 2% target and has exceeded this target for five and a half years . In July, the personal consumption expenditure (PCE) inflation rate rose by 0.2%, and the core inflation rate excluding food and energy also rose by 0.2% .
While it was welcome news that core inflation remained at a low level, similar to the beginning of the year , what caught my eye in the last PCE report was that the growth rate of non-market services accounted for about half of the core PCE price increase . As you know, I do not like to mention specific items in PCE inflation estimates .
However, non-market service prices have been a problem for me because they are estimates rather than actual price fluctuations. Therefore, excluding this one factor , I think fundamental inflation is at a better level than last month's core inflation figure. Over the past 12 months, PC (consumer goods) prices rose 3.7%, and core PC inflation was 3.3%.
While these 12-month price growth rates should be considered important because they have a real impact on businesses and consumers, they are not the optimal indicator for gauging the current level of inflation . This is because, even excluding the uncertainty of price increases due to geopolitical factors , current high energy prices and tariffs are not considered the primary cause of sustained inflationary pressure .
It appears that the price effect of tariffs has already been largely offset. In addition, my concern that rising energy prices would affect the prices of various goods and services has not yet materialized. In order to identify current inflation trends following such price shocks, it is useful to pay attention to recent rates of price increase, such as how inflation over the past three months has changed over the past year .
To address the continued volatility of energy prices, I will focus on core inflation excluding food and energy . This is generally a good indicator for gauging future inflation trends. Currently, three-month core inflation through July stands at 3.05%, falling short of the FOMC's target of 2% . Nevertheless, it is important to examine the trends .
Three-month inflation has steadily declined from 4.76% in February to 3.05% currently . This is a significant change in the 3-month inflation rate . It is a significant improvement, and the speed of this decline is encouraging. One of the factors I anticipate for the decline in inflation is a change in the way the Department of Commerce estimates fees paid to stock market traders and related professionals .
This change in non-market price estimates, expected to occur soon, could lower 12-month PC inflation by a few tenths of a percentage point . Considering my concerns regarding the pricing of non-market services , I think this is a welcome modification to the measurement method . I believe there is some risk of inflation rising at present .
Energy prices have risen again and are maintaining levels much higher than in early 2026. In addition, technology product prices are under upward pressure due to the development of artificial intelligence (AI ) and the possibility of further tariff increases . However, unlike the period of high inflation following the pandemic , wage growth taking productivity growth into account largely aligns with the expectation that inflation will fall to the 2% level .
In addition, it is worth noting that public concern about future inflation may increase after inflation exceeding the FOMC target persists for a long period . Fortunately, the Fed has shown a very good track record in fulfilling its commitments, and while long-term inflation expectations have not risen significantly, this should be recognized as a risk factor, and the FOMC must be prepared to respond if long-term expectations rise and inflationary progress reverses .
Taking these points into consideration, I will now present the monetary policy outlook I mentioned at the beginning of my remarks today . The current labor market is stable with employment approaching its maximum sustainable level , and inflation is making slow but steady progress toward the 2% target.
Another employment report is scheduled to be released tomorrow, and inflation figures will also be announced before the next FOMC meeting . Employment data is expected to remain largely unchanged from past trends . Therefore, August inflation figures will have a significant impact on determining the appropriate policy direction .
If progress toward achieving the 2% target continues, I am willing to support maintaining the current policy interest rate level . However, if inflation skyrockets, we will consider raising interest rates. It is judged that current policies are only slightly suppressing aggregate demand , and there is a possibility that we will support tightening policies if inflation surges even slightly further.
If evidence emerges in August that the trend toward achieving the 2% inflation target has reversed , slightly adjusting the policy stance will help resume the trend. Finally, I would like to talk about central bank communication, which I consider to be an essential part of the monetary policy process .
I distinguish three important types of communication regarding monetary policy and explain how I personally convey my views to the public. First, I would like to explain the reasons why I have adopted my current policy stance . If I voted in favor of freezing interest rates, I will explain how the current economic situation influenced my policy decision .
For example, I had no trouble supporting the FOMC's decision to keep interest rates unchanged at the end of July . This is because, based on the data at the time, it was determined that the real economy was robust and signs of deflation were beginning to appear. So I was willing to be patient and watch to see if deflation would continue .
The second method of communication is to explain how future economic data will affect my policy decisions . Simply put, I am going to explain my response function . When considering future data, the important thing is to convey that if the data comes out in a specific way, the policy will be set in a specific way .
The key point here is that this is not a commitment to policy implementation . This is a conditional policy announcement . If different economic results emerge, I will support different policies . In my remarks today, I explained the conditions for supporting the maintenance of a freeze on interest rates and the conditions for supporting more tightening policies .
By disclosing my response function, consumers, companies, and investors will be able to better understand what policy decisions I will make under various outcome scenarios and formulate future plans based on this . Of course, is my response function perfect? no. However, through years of experience as a professional economist and policymaker, I have acquired significant knowledge of how policies should respond to shocks.
From this perspective, I can compare myself to a home plate umpire in baseball. The pitcher tries to strike out the batter, and the batter tries to hit the ball or get on base by walking . Both want to handle the ball, but they cannot do so until they know the umpire's strike zone . The strike zone is the umpire's response function.
If the ball passes this area, it is a strike, and if it passes there, it is a ball. Of course, players do not expect the umpire's strike zone to be perfect . All they need are approximate parameters and a guarantee that they will not change significantly in all situations . You can do well enough even without perfection.
Therefore, I make sure not to miss out on good results by pursuing perfection in my approach . The third and final type of communication is preemptive guidance. This suggests the future path of policy interest rates and is effectively unrelated to publicly disclosed data . This type of communication is most effective when the policy interest rate reaches the effective lower bound and additional communication is needed to adjust market expectations.
For example, back in September 2021, I was clearly aware that policy interest rates needed to be raised to counter accelerating inflation . However, since this was only possible after asset purchases were halted , I supported preemptive guidance strongly suggesting the end of asset purchases, which paved the way for interest rate hikes in 2022 .
Market interest rates began to rise by sending a message to the market that an interest rate hike was imminent . Although the 2-year Treasury yield was raised by 200 basis points by March 2022, we did not move the policy rate out of the effective lower bound. Therefore, in this case, preemptive monetary policy guidance helped to tighten the economic situation long before actually raising the policy interest rate .
However, it is important to remember that these measures were taken when the policy interest rate was close to 0%. I agree with Chairman Wash's remarks that forward monetary policy guidance is not appropriate now or in many other situations . However, I think it should be used when really necessary .
I think I have said enough , Mr. Howard, so I will move on to the questions . I think the questions contain much more information than my answer . Thank you, Chris. I will now move to the chairman's seat . Please ask a question first . Thank you once again for the detailed and, as always, thought-provoking answer.
First of all , this analysis places a heavy weight on the Consumer Price Index (CPI). Since the forecast for the CPI is currently highly volatile, could you please explain this in more detail ? We set a 2% inflation target based on personal consumption expenditure (PCE) . PCE is calculated differently from CPI.
Right? You need to convert CPI to PCE . What aspects of the next CPI, to be released on September 11, should we look at to determine whether the situation will worsen or continue to improve ? If the Consumer Price Index (CPI) and the Producer Price Index (PPI) are released a day later, PCE figures can be predicted with considerable accuracy.
So, we can focus on these two figures . This is because these two figures tell us what will happen in the future . I have been arguing for over a year that tariffs will eliminate the one-time price level effect and that inflation will fall sharply by this summer . Although uncertainty arose regarding this outlook due to the energy price shock earlier this year, core personal consumption expenditure (PCE) inflation was approximately 2.3% as of January 2025 .
It didn't differ much from the expectations at the time . If the effect of tariffs is mitigated by nearly 1 percentage point as I have argued, inflation figures will drop significantly. I expect that such a phenomenon will appear in the future. As I mentioned, energy prices have not affected the prices of other products so far .
Therefore, we expect reasonable Consumer Price Index (CPI) and Producer Price Index (PPI) figures to be released next month . Of course, there may be some who criticize me for relying solely on specific data, but it seems I am already receiving such criticism. However, what I want to emphasize is that if you only look at the trend, you are bound to miss the inflection point .
Inflection points are not captured as trends. That is exactly the point. Therefore, when you reach a point considered to be an inflection point, you should place greater emphasis on observing short-term data to capture that inflection point . This is exactly what I argued in the speech I gave in July .
I thought there was a possibility that inflation had reached an inflection point . I saw that while it could rise , there is a possibility it could turn into a downtrend . Two figures were released, and both showed such a trend. I plan to wait a little longer to see if a third figure comes out. However, if the trend reverses, then it is time to implement an interest rate hike.
Then, in terms of the Consumer Price Index ( CPI), which is more important, the core CPI or the headline CPI ? Naturally, root CPI is more important . This is because the headline CPI is highly volatile. This does not mean that you should ignore energy or food prices when thinking about how future inflation will unfold.
I would never say that. However, when predicting the direction of inflation, we try to exclude energy or food prices . You can tell just by looking at the volatility of energy prices this year. This is a perfect example of why you should focus more on core inflation rather than judging based on headlines alone.
yes . So, if I want to avoid relying too heavily on specific data , how should I determine the benchmark for the three-month Consumer Price Index (CPI) ? And which figures do you think will drive inflation trends ? Well, I think I'm talking about cases where prices skyrocket. Try defining the criteria for a 'surge' yourself .
If you decide that two price increases are not enough. This kind of thing has happened in the past, you know . This refers to cases where prices are somewhat sluggish in the summer but then surge again . For example, there was a time in 2024 when such a prediction failed. Well, I do n't want to present numerical estimates, but if the 3-month average Consumer Price Index (CPI) shows signs of falling— currently at 3.03—I think it would be fine if it dropped to around 2.8 .
You may start moving from that point on, or you may stay in your current position. Let's talk briefly about the change in the PCE calculation method. Last week, the Chairman instructed us to focus on the weight of items in the PCE basket that increased by more than 3% . Right? So, first, is this index a good indicator?
Second, when moving based on the CPI in September, there is a possibility that the target PCE indicator will be revised and decline after two weeks. What is the risk involved? Yes, that is exactly what I am trying to say. We all expect the PCE indicator to fall due to the economic recession . So, if actual data is added to such a situation , the NPC ( Real Productivity Liquidity Ratio) could drop significantly .
For example, if it drops from 2.10 to 3.3, it will go down to 3.1 . And if proper data comes out, it could fall below 3 on an annual basis, and even lower on a 3-month basis . This is exactly what I am trying to say . To borrow John Lennon's words , I am willing to give disinflation a chance. You just need to wait for one meeting.
I don't see a reason why interest rates absolutely have to be raised. We are actually standing at a turning point, and as we have long expected— no, at least I have thought so for a long time—raising interest rates is a mistake. Raising interest rates while disinflation is underway is either too late or too early .
It's relying too much on the past . So I asked, "How much does it cost to wait for one meeting ?" That is what I am saying. Raising it by 25 basis points in a single meeting right now will not cause the CPI to fall to 2%. Of course. In my opinion, this is risk management . We need to wait and see whether inflation or deflation will persist, but I have no intention of taking a big risk .
yes. When you brought this up in July, it felt like it was leaning toward an interest rate hike in the short term. It seems like it is now leaning toward an interest rate hike . Yes, that is exactly what I mean. In July, core personal consumption expenditure continued its upward trend for the sixth consecutive month .
It went up instead of down. So it was a signal that the trend did n't look good . So we had to prepare for interest rate hikes . However, the figures came out lower than expected , and at that time, the question arose: "Can we wait for one more meeting and see if the trend continues ?" I had that thought .
Yes, I felt the same way, and it has been confirmed that my thinking is correct. Another reasonable figure has emerged. As I mentioned, excluding non-market services, the figure was about 0.12 . Right? Okay, let's see if any other figures come out. yes . And to explain this so that the audience can clearly understand , these non- market services include, for example, portfolio fees paid to a broker , which are determined by stock market prices .
It is not based on the supply and demand of the economy, but is also related to quantity. It is just like the more stocks you buy, the more costs you end up paying . Right? If the fees increase, the total cost also increases. Therefore, when analyzing this, one confuses price and quantity . Therefore, I highly appreciate the efforts to rectify these issues .
In the past, this was not a big problem, but for some reason, it has become a problem over the past year. So , this means that these specialized financial fees account for almost the entire increase in non-market service prices . The factor that determines half of the PCE is not even the actual measured price.
It makes you tilt your head. Right? You might want to just set this part aside, but I do n't like doing that. However, I think it is worth keeping an eye on, at least for now. Let's look at a few different aspects of what you just mentioned regarding the discussion on inflation . Growth of over 2% is a good sign for the economy.
Because it is higher than the long-term trend line . Right? Then the question is whether this is growth that does not cause inflation, or whether the capacity gap widens and increases fundamental inflationary pressure on the economy . If production capacity increases, potential production increases.
That is not inflation. Right? This is not a new discovery by the Fed . The Federal Reserve and researchers have been doing this work for a long time . When analyzing production growth, you look at potential production and determine how current production compares to potential production . yes . As potential production increases and approaches actual production, the production gap, or excess demand, is not that serious.
That is not the case at all. Therefore, even if an appropriate growth rate is observed, deflation may occur . In that case, do you think potential production is currently increasing? Yes, that is correct. It has been that way for the past few years. Growth rates and productivity have been rising for various reasons in addition to AI .
It is a phenomenon that started even before AI. yes . AI may eventually lead these changes, but I think AI is a truly amazing technology. I watch my wife use the Vive Code all day long, and the things she can do with it are truly amazing. What is the best program your wife has made so far? What is it?
The best program my wife has made so far ? I do n't want to commercially advertise what my wife does. So if I say anything, I might get arrested . Well, but I've been watching what my wife does with it, and it's really fascinating to see what she can do with things like coding. So I think my wife's work is interesting.
I recently heard a joke quoting Robert Solow, which went, " We are seeing AI everywhere except in the final settlement of corporate earnings ." Right ? I think that someday AI will be reflected in corporate profits , but that is not the case yet. On another note, you mentioned that the current monetary policy involves somewhat prolonged accumulation but is not at a serious level, and it seems I agree with the Chairman on this point .
The Chairman also said at Jackson Hole, "The current policy does not appear to be restricting anything." This places significant weight on the opinion that interest rate hikes are necessary . Yes, as I mentioned before, there is a difference between the financial situation on Wall Street and that of ordinary people .
Mortgage interest rates are not low, and auto loan interest rates are not low either. Ordinary people face various problems such as credit spreads and corporate bond interest rates . How will this situation affect them? Me? I don't really understand . As I mentioned before , what appears to be an eased financial environment is actually just a reflection of stock market prices .
I look at macroeconomic data. That is exactly what I consider important. If the housing market has crashed and new cars have become almost a luxury item rather than something middle-class families can naturally afford , that is not an accommodating financial environment . And most stocks are not owned by the bottom 50% of income earners or the bottom three- quarters .
The top 25% of income earners account for the majority. Given the situation where results vary by income distribution and household type, are you saying that the current policy level has the potential to restore it to 2% ? Yes, that's good. I think so too. Let's try it at least once and see the results .
As I mentioned, I am not suggesting we wait until next year, but let's wait and see if the situation improves . Um, just a moment. If I may say so, it seems to be quite clear now. great. I think so too. Hmm, about the bond market. Speaking of the rise in yields , although you do not deal with fiscal policy, I would like to ask you what you think about the current U.S.
debt situation from the perspective of a taxpayer who is more knowledgeable about it. To provide some background , anyone in your position is likely aware that the debt stands at $40 trillion, the debt-to-GDP ratio is 6%, and current interest payments amount to $3 trillion . This is not sustainable.
The expression 'unsustainable' is very strong, but at the same time, it is also ambiguous. This is because it raises the question of how long it will continue. Are we standing on the edge of a cliff right now ? If not, where might it be? From a fiscal policy perspective, the nominal fiscal deficit amounts to about 6% , half of which is interest expenses.
I'm not sure about the exact figures, though . In other words, it means that it is recording a structural deficit of approximately 3% . We cannot continue to operate like this. It is absolutely impossible. Therefore, the interest rate itself is not the problem; structural issues excluding interest are more important.
Fundamentally, even excluding interest payments, expenses exceed income . Most calculations prove that it cannot be operated in this way in the long run. Does that mean I will go bankrupt immediately? That might not necessarily be the case . There is a possibility that rates of return will start to rise, as we are seeing right now .
People say, "To hold this bond, you must pay more interest. We will not stop raising funds. You just have to pay more interest." It is the intention to say... "And as I have argued, it is highly likely that this will happen in the future. It is highly probable that government bond yields will rise. There is also the competition among AIs to secure funding.
When AIs first started their businesses, they utilized their own capital and did not borrow from elsewhere. However, they are now investing not only in the corporate bond market but also in U.S. Treasuries. I believe this is a factor driving up yields. And there is one final point that no one pays attention to, which is an interesting research finding .
U.S. Treasuries, as the reserve currency and the world's safest and most liquid asset, have enjoyed a premium of high prices and low yields . According to research published by Professor Hanno Rustig of Stanford Graduate School of Business and his colleagues , that premium has disappeared. It is now negative.
Yes, that is exactly the reason. When I gave a speech on neutral interest rates in Iceland a few years ago, my greatest concern was the point at which a premium would no longer exist for safe and liquid U.S. Treasuries." I have raised my estimate for the neutral interest rate . In other words, this means that a higher policy interest rate may be applied for a specific inflation rate.
It means that the accumulation isn't as long as I thought it would be. That's right . Hmm, since you brought up math, shall we talk about it for a moment? Mathematically, how difficult is it for the United States to pay off its debt through economic growth ? If we can reduce the structural fiscal deficit to near zero, it won't be that difficult .
Actually, 1943 was the best year. And tax issues, too. What I have always emphasized is that a 3% structural fiscal deficit is not sustainable. I cannot advise you on how to resolve this. Yes, because that's not my business. This is a problem that the Assembly must solve. I was simply curious about which lines intersect when looking only at the growth rate .
Yes, first of all, it is the nominal growth rate. You remember that the debt-to-GDP ratio is the ratio of debt to nominal GDP, right? And as you know , the bad news is... the argument is that it can be solved through inflation . Just like the U.S. government did after World War II. They wrote off massive debt through inflation.
However, that is not a good result. It does n't make people's lives better, either. A real GDP growth rate must be demonstrated. What I am trying to say is that even if the fiscal deficit increases by 6%, the economic growth rate is 3%, and inflation is 2%, that ratio continues to increase . It is still adding to the deficit.
It's just arithmetic. It's not political at all. It is just a mathematical problem. So, let's talk about global rates of return. You just mentioned it briefly, but let's take a closer look. There is some good news, and it seems the Finance Minister and the Chairman think so . All of this is the result of the fact that there have suddenly become a huge number of investment ideas.
There is genuine competition over capital used for productive purposes , which means that competition for funds in the market will intensify, resulting in higher returns . The bad scenario is demographic headwinds, the fragmentation of the world order, the resulting rise in inflation, and the accumulating fiscal deficits not only in the United States but across developed nations.
This will have to go through a difficult adjustment process . As of now, it does not seem likely that the Fed will lose control of inflation. U.S. inflation is stable. However, should we view it as a good thing that people are spending money, or should we see it as causing bigger problems because the cost of living is too high?
In fact, in any standard economic growth model, the real interest rate is determined by two or three key factors. There are several key factors. The first is the population growth rate. However, the current population growth rate is 0%. This will lower the rate of return . you're right. It is not a factor that increases the rate of return.
you're right. If good growth rates are shown, returns will increase because companies can afford higher real interest rates . It means that as a company's products or investments become more profitable, it gains the ability to pay higher interest rates. This is exactly why real interest rates are rising .
The third factor is, as I just mentioned, that the rate of return on debt is disappearing. This will lead to a rise in interest rates . It is not good news. The fact that the convenience rate of return is disappearing is bad news. Therefore, while the rate of return on convenience does have some influence , I do not think it is everything.
Many other factors are at play . yes. And there is also a term premium risk . If you look at the increase , it is all due to the actual risk period premium. In other words, investors are saying, "I am a little unsure about where the global economy is headed. Hmm. I also feel a bit uneasy about the dollar's status as a reserve currency .
Perhaps we should hold it at a premium . Of course, that is n't a good look. But growth is clearly an important factor . Right. There is a mix of good and bad news, but the part that is somewhat controllable is on the bad news side, isn't it ? It is about resolving structural problems . Yes, resolving those issues will be of great help.
Then, let me ask you about the recent movements in the Treasury bond market . I understand that the Treasury Secretary and the Chair held in-depth discussions regarding recent intervention in the yen market and Treasury bond purchases at the G20 meeting in Asheville . Were you surprised by these moves ?
As you know, what the Treasury Department does is within its purview . As an economist rather than a policymaker, I have never thought that such short-term intervention would have a significant effect . However, if he wants to do it, that is within Bassens' authority , and whether he wants to or not is his choice.
Of course. What is the impact on the Fed?" If you believe that such intervention only had a short-term impact on long-term interest rates , you could say there was no effect at all . Right. If rates remain unchanged even after the Fed adjusted them , there might be a slight margin of error in the data they revised .
That is fine. I see no problem with it . Now, let's move on to the Chair's remark at Jackson Hole that he prefers an unbiased view of the market . And if the Treasury Department intervenes more actively in that area, that could be seen as a market distortion, couldn't it ? So, as he mentioned, this is related to a communication issue.
It is like the problem of the mirror room . Are we seeing pure market signals and undistorted prices , or are we viewing the world through a distorted lens as the Fed communicates with the market and the market communicates with the Fed ? So, is this the problem right now ? Are we trapped in a world that cycles like this mirror room ?
Let me give you an example to explain the situation . As many of you know, I do weight training. And my wife is my weight training coach. Yes. The first thing my wife said when I started weight training was, "Look in the mirror..." It was, "Don't look." I wondered why that wasn't possible. She said that once you start looking in the mirror, you become more concerned with your appearance than with the work you do.
So, do n't look in the mirror; focus on your technique and perform your lifting movements correctly. I will show you how you look. The mirror room problem is similar in communication as well. Just don't look in the mirror. And as you will notice if you listen carefully to the speech , I hardly mentioned the financial situation.
I look at macroeconomic data . Macroeconomic data is not included in the mirror room. Therefore, if you focus on your work and the variables that are actually important , market results can be viewed as indicators to gauge the situation. However, ultimately, our mission is to achieve price stability and full employment, not the financial situation .
That is why I have always avoided worrying about the financial situation by looking at macroeconomic data . So, do n't look in the mirror. That is why former Vice Chairman Richard Clarida seems to have given a similar explanation a few years ago . Writing on this topic, he stated, "It is not a problem because we can verify information obtained from the market and check for consistency through various sources such as survey data and econometric data.
" I said. In today's speech, you explained the so-called 'reaction function' very clearly . Chairman Jackson Hole said, "I won't do that because it cannot be perfect." You used a baseball analogy to explain well that perfection is not required . It means having only the parameters necessary to set a rough range .
Then, what is the optimal method for this? Well , as I mentioned, if you consider the standard macroeconomic models used for market forecasting, there must be rules on how the Fed should respond in order to solve the model. Prediction is impossible. That is why I believe every forecasting agency on Wall Street has its own built-in response function .
While there are various response functions available, the key is that the way of reacting to situations must be consistent . If inflation rises, interest rates are raised; if GDP growth rises, inflation is examined to determine whether it needs to be offset. If the unemployment rate rises significantly, interest rates may need to be lowered .
This is a fundamental principle of economics. I am not giving strange advice. This is exactly what I mean by 'reaction.' As the central bank governor, when the unemployment rate rises or surpasses a long-term peak We utilize this theory to determine what to do when the time comes, or when inflation rises or falls.
Of course, it can be difficult to provide precise figures . While I cannot give you exact numbers , I can at least suggest a direction on how the situation might unfold, in terms of quality . Right? What I mean is, we are not just talking to the financial market, but to the general public as well . We are setting public expectations .
If we all move forward knowing nothing about that aspect , it would be much better than having the information . Yes, as I said, the same goes for the strike zone . It is n't perfect. It varies from umpire to umpire . That's right. That's right. That's right. But the players just say, "Just tell me." So that I can approach the game with an understanding of the situation .
"He says that. Right. Then, as the Chairman mentioned, aren't we actually missing out on good results by pursuing perfection ? I think that is what his remarks meant. He is implying that it is too complex and difficult to define, so they cannot set a strike zone . Yes, that is fine , but I have a very different perspective on that issue .
Yes. So, shall we talk about communication more broadly? I think this issue can be viewed from two perspectives . Not only Kevin Warsh or the Chairman, but some people say that there is too much talk going back and forth and it is confusing . One person says one thing, and another says another. However, if we go back to the 80s and 90s , the political debate surrounding the transparency and opacity of the Federal Reserve in the United States was very fierce.
Bills were introduced, and there were efforts to expand the use of the Freedom of Information Act (FOIA) . And since then, the direction has actually been moving toward disclosing more information. Yes, it is quite consistent. Then, these efforts to increase transparency and provide more information are now Do you think we have reached a limit?
Will this become a problem? Yes, I believe all these discussions began in the academic literature of the 80s and 90s . Why try to scare people ? What good does that do ? I have used this example in my intermediate macroeconomics class for years . Let's assume you are a state transportation authority and need to close three lanes of a highway due to construction .
There are two ways to handle this: letting people flock into the construction zone without saying a word and causing chaos, or installing signs in advance that say, "Construction ahead." Please use a detour. It is to inform them that... Which would you choose? Naturally, you would prefer to obtain information in advance to make a better decision .
I believe that communication and advance notice are important. It is about providing information beforehand so that people can make important decisions . If you expect such advance notice from the State Department of Transportation , I think it is only natural to expect the same from the Central Bank .
What I mean is, in an era like this where suspicion is the default mode, I am not hiding behind a wall and saying, "Listen, we are in the better position." Please trust us and let us hide behind the curtain . " Is it a good idea to say that? That was the norm in the past; people didn't explain or apologize.
Right? Good luck if you want to return to that kind of world. That approach does n't work, nor is it a good model for considering economic well-being . That is why I try to communicate as much as possible so that people can make the best decisions. Surprising people is not my goal . Of course, surprising things might happen, but..." Whatever I do, I will surprise people .
"That is not my goal. Um, I will wrap up. We don't have much time left. But speaking of the task forces , Fed Chair Wash announced five. Communications , Balance Sheet, AI and Productivity, and the Inflation Framework, and there is a fifth task force, but I ca n't remember the name. Oh, right. Yes, yes, yes.
Now, which of these task forces do you think is most likely to produce tangible results ? Most of these issues have already been discussed extensively , and AI and productivity are new topics within the Fed's area of expertise . I mean a task force that can produce practical recommendations that the FOMC can adopt, so that in six months or a year, people will say, 'Yeah, this is the better way.' Yes, the Communications task force seems the most likely .
I mean, I have been talking about communication throughout my 17 years at the Fed , going back as far as the 90s as you just mentioned . Of course, there have been gradual improvements in communication..." However, I recently conducted a comprehensive review of communication , and people hold very strong opinions regarding communication methods and the proper way to communicate .
Let’s take the scenario analysis Chairman Ben Bernanke pushed for last year as an example . The backlash was quite strong . I believe the idea itself is valuable, but the resistance was significant . Therefore, I do not think the scenario analysis will yield any particularly new results . Personally, I think the balance sheet issue will be the point of greatest disagreement .
I agree with the opinion that we should reduce reserve requirements while maintaining sufficient reserves . However, I would absolutely oppose the view that reserves should be made insufficient . Regarding personal data , that is fine. We are always using personal data . What I worry about is that if you start making decisions based on personal data that the public does not know , not only the public but also the market will listen to you too attentively .
They will assume that you know something they do not . Furthermore, there is a risk that the market will not trust you . If your words cannot be verified with data, a trust issue is inevitable. That is not good. As for AA1, who knows? Not yet. It is a matter of the distant future, and we are not deciding monetary policy for two years from now .
Right. Yes. And honestly speaking, the issue of inflation might be the most interesting. Yes. I know the people on that committee , and they hold very diverse views. So I am curious to see what results they produce, but if there is a new inflation model that could make my predictions more accurate , please give it to me .
Yes. I am willing to strive for better predictions. Yes. Alright. Well then, goodbye.
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