Welcome everyone to a very special edition of Macro Musings, the podcast. We are coming to you live from the Atlanta Federal Reserve Bank with its president, Raphael Bostic. Raphael, thank you for joining us.
Thank you for coming down to spend some time with me.
Oh, it's great to be here in the building live, and this will come out in a few weeks for the other listeners. Last time we were together, it was in May at your wonderful financial markets conference. You invited me to participate to moderate a panel. But I love the conference because it dealt with the plumbing of the financial system. We talked about private credit growth. You had panels on the treasury market, the operating system of the central bank. I moderated that one. And you had a fascinating conversation with the vice chair of the Federal Reserve about the liquidity facility. So, a lot of fantastic conversations on stage as well as in the hallways, dinner time. And even you and I got a few chances to chat. And we would start off on monetary policy. I think we talked two times, but we ended up talking about birding. We'd start with technical monetary policy issues and end up with birding. And I learned you're an avid birder. So tell us about that. When did you start and how did you get into it?
Well, first of all, thank you for doing that at the conference. You helped make it a very successful one inviting me. And the birding, you know, I got into birding a long time ago. I don't call out numbers anymore because I'm an old person, so we just want to let that be. But it really happened by accident. My husband and I were hiking in some national parks. I was a fast hiker. He was an enjoy-the-journey type of hiker. And I just started noticing these things bouncing around in the trees and I didn't know what they were. And then his sister got us a guidebook and a bird feeder. And once I realized I could actually figure out what each one of these things was, that was it. And it really sort of exploded into something that I really enjoy to do. And for me, it does two things. So, one, it keeps me balanced and connected to the planet. And two, to do it well, you really have to be focused in the moment. So, it's an escape from the work because I'm not a good sort of vacation, just lay on the beach. My mind will just keep working. And so to see birds and to notice them, you have to really just shut everything else off. So when I'm doing that, I feel very away from work and just very recharging.
Good therapy for the soul, escape from the 24/7 central banking job that you have. Now at the conference, you were awesome because you showed me how to be a birder. You showed me all the apps, Merlin, eBird, even Audubon. So I went home, showed my wife, we've been doing some birding, nowhere near your level, but just to know the level of seriousness that you've been doing. You've been doing it for several decades. Because you do bird trips, I understand. So I have to ask you a few other technical bird questions. Have you ever made it to a fallout? Maybe explain what a fallout is.
I have never seen a fallout. So fallouts happen during migration where a bunch of birds, all the birds are flying from South America, Central America up to here. And there'll be situations where the winds are really hard. And so when the birds, the first piece of land they see, they all just fall down and they're exhausted. And if you happen to be there, you will see an amazing collection of all manner of birds. I've never seen one. They're famous. They happen a lot on the Gulf Coast. That's one of the first places. And then also you'll get it up like Magee Marsh in the Ohio area. As they're flying, like they might fly from here, like Kennesaw Mountain or something, trying to get up to Canada, and if the winds aren't so favorable once they get to Lake Erie and those places, they fall. And you can just see amazing things.
Yeah. Now have you had a big year?
No. So a big year is, it's funny, I actually just watched a podcast, a YouTube podcast on a big year. A big year is where someone decides for one year I'm going to try to see as many birds as I can and it's a calendar year. That would, I don't think the folks here would be happy about me doing a big year at this point. But it takes a lot of planning. You spend a lot of time in marshes and things with a bunch of mosquitoes and all that. I'm not sure I'm really up for it. I'll enjoy every now and then do a trip. Hope there are some odd things around.
Yeah. Well, I watched the movie The Big Year. That was a lot of fun, part of my journey becoming a birder talking to you. And I understand now is a great time to be watching birds. The migration is happening. So, if you get out there, you'll see some.
That's exactly right. I see other migrations. So after the birds come up here, they do all their breeding, they nest, all that kind of stuff, and now it's time to get out of here for the winter. And so this is about the time when if you're out, you can start to see a lot of unusual things. So there are actually some software packages and online where they will monitor because these bird flights, their volumes are so large they can show up on weather cameras. And so you can anticipate like when they're coming and get out there. So there are a couple that will tell you your area is a high night for the birds to come down. So, get up in the morning and go out and look for things.
Well, we could talk the whole time about birding, but I have one question for you, like how is it going?
It's great. I made a list of birds that I saw, the indigo bunting, the summer tanager, and then usual yard birds. They have the feeders and stuff, but we're still learning and growing and we aspire to be like President Bostic in birding prowess and ability.
But let's talk about central bankers. So, make the case. You already did, but make the case. Why should more central bankers take up birding?
Well, for me, I think it gets you in touch with the flows of the planet. And you know, there are natural flows and then there are human flows. And part of what I've found to be really interesting in this job has been how much I can learn just by going places and paying attention, being very focused on the local spaces, listening carefully to what they're saying and how they're feeling. And I feel like I have a better sense of the pulse of my district and by extension the country's economy because I am trying very much to come informed with information but don't just let your lens be the thing that governs. It's really sort of how everything fits together in really interesting ways.
Well, I asked AI this question and I want you to rate us. I got I think three here. I want you to rate how realistic is this, but why more central bankers should take up birding to be like you. And so number one answer is better pattern recognition or long-term perspective with immediate alertness. And it said birders develop patience for seasonal cycles and migration patterns while maintaining acute awareness of moment-to-moment changes. This dual temporal focus perfectly matches central banking where you must understand long-term economic cycles or responding quickly to market developments. That reasonable?
Brilliant. Yeah. Okay. Okay. Thumbs up. I'm going to use that one actually.
Thumbs up. Second point, data integration under uncertainty. Successful birding requires synthesizing incomplete information, weather patterns, habitat conditions, seasonal timing, brief glimpses to make confident identification. Central bankers face similar challenges. Making policy decisions with partial economic data and uncertain forecasts.
This AI is pretty good. AI. Okay. AI thing, you know, we were just talking about like the fallouts. A lot of that is paying attention to the patterns and knowing the timing and all that kind of stuff. Using data to your advantage.
Okay. So, we're making a strong case. Exactly. Last one. It develops humility and continuous learning, which I think you've alluded to this. Even expert birders regularly misidentify species and learn new things. This humility and growth mindset would serve monetary policy makers well in an inherently uncertain field where overconfidence can be economically costly.
Well, that's exactly right. And you know, you're out. Well, when I'm out often times, oh, there's a bird and it'll be a log or a leaf or whatever. And it is one of these things. It's continuously humbling and but that makes it rich and there's always some learning that happens and there's always discovery and that's a wonderful thing.
All right. Well, we look forward to more central bankers taking up birding.
You and you, too. It doesn't just have to be central bankers. Anybody can do it.
That's right. So, let's move into, you know, probably most people are here to listen to. Let's talk about the Fed and eventually we'll get to the market, folks, for those who are listening. But let's talk about the Atlanta Fed. So, this is a unique central bank. Tell me what makes it unique among the other regional banks.
So, there are a couple things. So, you know, one, well, first we're the sixth district that covers the whole state of Florida, the whole state of Georgia, the whole state of Alabama, the bottom half of Mississippi, the bottom half of Louisiana, and the eastern two-thirds of Tennessee. So, it's a large district. It's about one-sixth of the US economy. It's extremely diverse. It goes from Appalachia, a lot of rural areas in the middle. It has Miami, Nashville, New Orleans. So, it has a lot in addition to Atlanta. The distribution of economic activity is actually quite interesting in that it almost perfectly mirrors the US economy. So by understanding the sixth district, I feel like I understand it's a microcosm for the US and so getting that pulse. And many other districts, they'll have specialties like they'll have energy or technology or those sort of specialties. So I feel like our opportunities are strong there. And then we do a bunch of special services for on behalf of the system historically. So we have historically been a key leader in driving the payment system services that are done by the Federal Reserve. Things like check clearing and processing for those of you who still write checks. Automated clearing house. Government payments, so Medicare, Social Security, those sorts of things go over Federal Reserve hardware. And of course there's cash, right? So there's a lot of stuff that we do and we've historically had a leadership role in that and we continue to play an important factor there. And then in monetary policy, we have a few distinctive characteristics that I think are also quite helpful for me in terms of trying to figure out how the economy works. One, we have a survey center that runs a series of surveys like the survey of business uncertainty, the survey of business inflation expectations. We do a survey of CFOs and we do a whole host of other things to try to get real-time information. And one of the things that's interesting, like the surveys really built up, well actually let me get to that in a second, but we also have a group of people that we call the regional economic information network or the RAIN team and their job is to just go talk to people in unstructured ways for an hour and a half or two hours and ask these leaders sort of how's your business going? How are things happening for your employment, your workforce? Are you able to retain people? What are the things that are stressing you out? How is your cost happening? What do you think is going to happen with prices moving forward? And we bring all of that. So I actually have the US produced data from the federal government. I have the information that we get from surveys and the information from RAIN. Those are three distinct sources. And those last two are actually useful and we've built them up because during the great financial crisis, we missed it. And that was a type of event that somebody out in the real world had to know there were risks building up and we just didn't have conduits to get that information. So we built up those other two vehicles to try to make sure that we're always collecting a broader set of information including forward-looking information to give us a sense of where the economy is likely to be six months from now, a year from now or two years from now.
Well, your GDPNow measure is very popular, well known, probably the most popular real-time estimate of GDP. And then your wage tracker, that was really popular during the inflation surge. People look at that every day.
Yes. Well, you know, our team is incredibly innovative and our researchers, they're very good in doing their research, but they also have really taken a commitment to trying to be accessible to everybody. GDPNow is not a hard tool to use. You can get on there. You understand it. The wage tracker. And I've get a lot of comments about how splitting between job stayers and job switchers has been quite informative. We actually a couple years ago put out an inflation dashboard, an underlying inflation dashboard because at the time right before the pandemic, the PCE number was really different than a lot of the other measures and it was creating a lot of conversations. So, we tried to be like fully transparent and give people a sense of what's going on. Two other ones that are very popular, our home ownership affordability monitor and we also have just a general housing affordability monitor for renters as well. And given all the challenges in affordable housing, that's been another one that gets picked up pretty regularly.
Well, I'll mention for those like to nerd out on monetary policy, you have a nice Taylor rule page. You can tweak the rules and see what the different rules would prescribe. Now, I want to quickly go back to your cash operations because I've been doing some reading, some research, had some guests on the podcast talking about the net income loss on the Fed's balance sheet. Well, lo and behold, if you look just at the Atlanta Fed, you guys are actually making money, positive net income and I understand largely due to your cash operations.
Well, it is, you know, I don't talk a lot about those things. That is much more of a passive reality where monetary policy drives activity but it is a testament to the important role that we play and in particular we're in the process of transitioning to a new vault in Miami because the demand for cash down there is significant and we want to make sure that we have all that the public requires but also it's going to serve as a safety net because what we've learned is that when there are big storms and things that happen, the demand for cash spikes. And so we want to have a repository that's close to all the banks in Florida and the Gulf Coast so we can get them the resources they need so that once the storm is done, we don't have like runs on the bank and a bunch of frustrated, angry people who are feeling really stressed out. We really want to get out ahead of that so that people can focus on just living as opposed to do I have the resources that I need to do the living.
Yeah. If power goes out because of a hurricane, we all use digital money. Cash becomes really important really quickly.
Extremely quickly. Exactly.
Well, let's transition into something that I've followed closely. In fact, at the conference, I found you initially to hit you up on nominal GDP targeting. In fact, we have some nominal GDP targeting mugs here. Everyone of this podcast knows I'm a big champion of it. But the new consensus statement came out at the Jackson Hole meeting and tell me your understanding, your thinking about it, how you went from FAIT to what we have now.
Yeah. So, what I thought with the framework revisions, there were a couple things that were very important to me. One, I thought that it would be very important that the statement be relevant in a wide range of economic circumstances and when the previous statement was written we were going through a long period where I think many believed that we weren't going to see a lot of variety and we would be near the zero effective lower bound for like the foreseeable future. And that reality didn't turn out to happen. And so I think this resetting to get us back to a more generalist statement is actually quite important. The second thing that I thought would be important is really to talk about how we think about inflation and the things that are important for it. And we sort of lift up inflation expectations as something that we definitely want to pay attention to. And I think that was an important thing for people to understand and give them a sense of what we're going to be paying attention to moving forward. A third thing was really, you know, when I talk about our mandates, I talk about stable prices and maximum employment, but I often say sustainable maximum employment because we know that if people go in and out of employment, that is usually more detrimental than you would think. And we have some researchers here who have done some work that that last-in-first-out dynamic really inhibits planning on the part of families and increases their struggles. And so adding the notion of sustainability, we want to have a robust economy that isn't so volatile that people lose faith in it. That was a third thing that I thought was actually quite important. And then with in terms of the inflation goals and discussion for target, I actually would be open to using a range and I've said this in many settings, but you know you can only do so many changes. It's a committee of 19 people. You have to pick your spots. But I do think that sometimes there's this illusion of precision that we can move inflation to the third decimal place and that kind of stuff. I don't really think that's real. And sometimes that can cause people to focus on the wrong things. And there are some big picture things that matter. Like in today's environment, you know, it's interesting. We're at 2.4, 2.6, 2.8, somewhere in that range. And people are asking like is that too? For me, I think no, my range would be narrower, but it's a good conversation to have about sort of what are we trying to accomplish and how should things go.
So, if you could start from scratch, what would your range be?
That's a very good question. It may be two and a quarter to one and three-quarters, something like that. Like the range of two.
So, fairly narrow. It wouldn't be like one to three or?
No, that would be too much wiggle room. Well, I think you know one of the things I worry about is momentum, right? So, if you're one and a half and then you saw it move to 2.8, like the likelihood it's going to stop at 2.8 is limited.
