We are pleased this morning, Becky, to be joined by Beth Hammock, the new Cleveland Federal Reserve Bank president, ex-Goldman and all kinds of fun things. Welcome, your first television interview. Welcome to the conversation.
So let's start right away. Let's get into it. The morning the durable goods number came out, up 0.1% on the investment side. What are you hearing about how the change of policy is affecting the companies in the context you're talking to?
Thanks for having me, Steve. It's great to be here. One of my favorite parts of the job of being Cleveland Fed President is going out in the district and talking to companies, talking to businesses and understanding how they're thinking about things. What we're hearing right now is that the uncertainty is really weighing on businesses and it's creating issues for them in terms of planning, in terms of thinking about where they're going to go. And so some of them have put pauses on whether they're going to make bigger investments, whether they're going to invest in new facilities, new capital plans. And then they're thinking about their hiring plans, thinking about their labor force and do they have the people they need? How many people are they going to be able to keep on for what length of time given what these changes might do for their businesses?
What is the macro effect of this? If people hold back now, what does that mean for the economy now? And what does it mean for the economy in the future?
It's a great question. We don't know the answer to that. I wish I had a crystal ball. We don't have one. I think everyone is trying to work through what the implications of these tariffs and these policies are going to be, how significant the tariffs are going to be, how long they're going to stay in place. And if you're looking at building a new facility, building a new plant because you want to bring back production into the US, you need to have confidence that those policies are going to be in place for a long period of time. Can't just be two or four years. It's got to be 10, 20, 30 years to get that capital investment to make sense.
When you put it all together, there are people - Torsten Slok from Apollo, others, JP Morgan as well - they say if these policies stay in place, there is 60, 70, 80, even 90% chance of recession. What's your outlook?
I'm not really operating with a base case right now. I think the cone of possibilities is so wide.
When you say base case, that means you have no sort of odds-on bet in what you've...
I'm looking at scenarios. I'm trying to break the world into different scenarios of what could happen if we see businesses really start taking the tariffs and it impacts their input costs and they have to raise prices significantly. If we see pricing going up a lot but we don't see an impact on growth or labor, then that could be inflationary but it could be - like one of my colleagues says - that the tariffs could be just a change in the price level and that it's not going to be persistent. And it could be that we see actual weakening in the labor force, weakening in growth, and that would require a different set of policies. And it could be that we have the two sides of our mandate in conflict, which is the most challenging for monetary policy. If we see higher inflation and lower employment, that's where things get really complicated.
How long do you think it will take you to kind of suss out which one is the more important? Because my guess would be that you'll have someone in the Oval Office who is watching very closely when you all meet next month to see what happens. Is it crazy to think that it's too soon, or is it crazy to think that that decision could be made by that point, that you will say okay, we know enough about what's happening here?
I think it's too soon. I think we need to be patient. I think this is a time when we want to make sure we're moving in the right direction than moving too quickly in the wrong direction. And so I would rather take our time, make sure we're looking at the data. The hard data that we've come into this quarter with are actually really good. You've got unemployment right around 4.2%. That's right around full employment. Inflation's continuing to come down right around 2.5% on PCE. So we've seen good things in the hard data. The soft data is more concerning. A lot of the surveys have shown more worrisome, more struggling with exactly what things are going to mean. We're seeing that in the Beige Book that came out yesterday. You're hearing a lot of focus on tariffs and uncertainty. And so, to me, this is a good moment for us to take our time and make sure we're moving in the right direction. You've seen that this is not a Fed that's afraid of moving quickly if we need to move quickly. And so, if we have clear and convincing evidence by June, July, September, we're not afraid to move preemptively.
That's the thing. I know how hard it is, but saying I want to wait and see. Let's say the tariffs... and we've seen when the stock market acts a certain way, it seems like the tariffs are become less certain that they're going to be here for a long time. So on the one hand, you say that you might not get to the second derivative. It might be a one-shot deal. We might not even get the one-shot deal. We might not even get that. But we do seem to have a lot of uncertainty. I think I can already say I think the risk has shifted much more to a growth risk than inflation. We had some really soft inflation numbers already. If you really want to be preemptive and be the greatest Fed in history to actually anticipate something instead of reacting to it, you would cut soon. Did I convince you? Are you going to vote for...
I'm not voting this year, so it's an easy next year. Next year we're voting again. Look, I think the Fed has proven that it can be preemptive and it will be preemptive when it's clear what the right action is.
When did they prove that?
In 2020. I think in 2020 when you saw the onset of the pandemic...
Oh, okay. When you saw the onset of the pandemic, took too long perhaps - that is a viewpoint.
But I think when it's clear which way the economy is going, that's a good moment for the Fed to be.
What would be the flashing red signals? What would you look to? Is it the stock market? Or what are the indicators that you watch most closely to think, okay, here's telling me what the real heartbeat of the country is?
It's really in the real data. I mean, the stock market, I grew up in the markets so I pay attention to the markets, but I pay attention to the markets now because of the impact they're going to have on individuals and businesses and those signals that they're going to take. So as a policy maker, it's really more about how the markets impact the real economy rather than the markets themselves.
