Romina Boccia: The Fed Is Operating Under a New Normal

RUSH TRANSCRIPT QUICK For ░░░░░░░░ on what we think ░░░░░░░░ Judy Shelton s nomination ░░░░░░░░ what it would mean ░░░░░░░░ the president and the ░░░░░░░░ we re joined by ░░░░░░░░ director of The Heritage ░░░░░░░░ center for the federal ░░░░░░░░ and Carl Smith vice ░░░░░░░░ of federal tax and ░░░░░░░░ policy What do you ░░░░░░░░ about this change in ░░░░░░░░ on what she sees ░░░░░░░░ terms of monetary policy ░░░░░░░░ this point BOCCIA I ░░░░░░░░ we ll have to ░░░░░░░░ what Shelton has to ░░░░░░░░ about it in the ░░░░░░░░ hearing today I m ░░░░░░░░ confident she ll be ░░░░░░░░ about it but the ░░░░░░░░ she holds aren t ░░░░░░░░ different We re living ░░░░░░░░ a very different environment ░░░░░░░░ the Fed op right ░░░░░░░░ a new normal The ░░░░░░░░ measures that we thought ░░░░░░░░ would long have quit ░░░░░░░░ re continuing to do ░░░░░░░░ And paying interest on ░░░░░░░░ reserves that s really ░░░░░░░░ liquidity in the markets ░░░░░░░░ that s also one ░░░░░░░░ the main factors why ░░░░░░░░ haven t seen the ░░░░░░░░ that many economists predicted ░░░░░░░░ the Fed was first ░░░░░░░░ to engage in quantitative ░░░░░░░░ the Fed has a ░░░░░░░░ more policy tools than ░░░░░░░░ rate cuts Something to ░░░░░░░░ there QUICK Karl what ░░░░░░░░ you think of Shelton ░░░░░░░░ nomination what would happen ░░░░░░░░ she were actually passed ░░░░░░░░ the Senate What will ░░░░░░░░ to the Fed Smith ░░░░░░░░ I m not a ░░░░░░░░ of Shelton at all ░░░░░░░░ don t think her ░░░░░░░░ views have changed in ░░░░░░░░ way She s been ░░░░░░░░ about what she believes ░░░░░░░░ 20 30 years She ░░░░░░░░ hard money she believes ░░░░░░░░ fixed exchange rates I ░░░░░░░░ everything that she says ░░░░░░░░ is an attempt to ░░░░░░░░ Trump I think those ░░░░░░░░ two bad things in ░░░░░░░░ so I don t ░░░░░░░░ hard money policy is ░░░░░░░░ right policy for today ░░░░░░░░ think maybe in the ░░░░░░░░ that made sense the ░░░░░░░░ she s willing to ░░░░░░░░ fed Independence overboard is ░░░░░░░░ double negative QUICK Steve ░░░░░░░░ me ask you how ░░░░░░░░ the Fed s views ░░░░░░░░ altered if she is ░░░░░░░░ today UNKNOWN MALE So ░░░░░░░░ I talked to says ░░░░░░░░ the Fed can with ░░░░░░░░ an outlier or two ░░░░░░░░ think one senator was ░░░░░░░░ as saying that five ░░░░░░░░ sheltons would be a ░░░░░░░░ one is not Chairman ░░░░░░░░ was asked yesterday in ░░░░░░░░ of shadow dance question ░░░░░░░░ this hearing today about ░░░░░░░░ or not diversity of ░░░░░░░░ is a good idea ░░░░░░░░ the Fed and he ░░░░░░░░ it was It was ░░░░░░░░ bit likehe put his ░░░░░░░░ on the nomination today ░░░░░░░░ m not really sure ░░░░░░░░ you go back and ░░░░░░░░ at what he said ░░░░░░░░ sort of sounded like ░░░░░░░░ m okay with Judy ░░░░░░░░ I don t think ░░░░░░░░ wants to fight the ░░░░░░░░ QUICK How can you ░░░░░░░░ say you re opposed ░░░░░░░░ diverse opinions and views ░░░░░░░░ MALE Right right That ░░░░░░░░ true That s true ░░░░░░░░ might have just been ░░░░░░░░ felt like one of ░░░░░░░░ setups Sometimes there s ░░░░░░░░ question planted with the ░░░░░░░░ look we have to ░░░░░░░░ of lay the cards ░░░░░░░░ the table the issue ░░░░░░░░ not so much her ░░░░░░░░ a fed governor question ░░░░░░░░ what happens in 2022 ░░░░░░░░ That was the question ░░░░░░░░ was asking during the ░░░░░░░░ break And I want ░░░░░░░░ know whether you think ░░░░░░░░ has a chance UNKNOWN ░░░░░░░░ If she could become ░░░░░░░░ chair and then really ░░░░░░░░ back to Becky s ░░░░░░░░ and comes to a ░░░░░░░░ of motivations do you ░░░░░░░░ a fed chair or ░░░░░░░░ fed governor who is ░░░░░░░░ what they re doing ░░░░░░░░ of who is in ░░░░░░░░ White House and the ░░░░░░░░ policy and not based ░░░░░░░░ some theory of monetary ░░░░░░░░ that s the question ░░░░░░░░ Romina what do you ░░░░░░░░ the challenges will be ░░░░░░░░ the Federal Reserve over ░░░░░░░░ s say the next ░░░░░░░░ years BOCCIA I think ░░░░░░░░ Federal Reserve and really ░░░░░░░░ banks across the globe ░░░░░░░░ treading in deep water ░░░░░░░░ don t know what ░░░░░░░░ do seems like what ░░░░░░░░ thought about money and ░░░░░░░░ central banks are supposed ░░░░░░░░ operate are no longer ░░░░░░░░ true I think Judy ░░░░░░░░ will add important diverse ░░░░░░░░ and that would be ░░░░░░░░ away from discretionary policy ░░░░░░░░ more of a rules ░░░░░░░░ framework I think that ░░░░░░░░ a really important view ░░░░░░░░ this environment where we ░░░░░░░░ having so much money ░░░░░░░░ pumped into the system ░░░░░░░░ Japan from the European ░░░░░░░░ Bank and of course ░░░░░░░░ from the Federal Reserve ░░░░░░░░ s the pro growth ░░░░░░░░ policies that the president ░░░░░░░░ been pursuing that have ░░░░░░░░ driving up wage growth ░░░░░░░░ we don t have ░░░░░░░░ much liquidity challenge in ░░░░░░░░ system as we need ░░░░░░░░ continue to chip away ░░░░░░░░ regulatory policies that are ░░░░░░░░ back productivity and wage ░░░░░░░░ ROSKIN Do you think ░░░░░░░░ President Trump would prefer ░░░░░░░░ as the Fed chair ░░░░░░░░ Jay Powell and if ░░░░░░░░ Jay Powell what do ░░░░░░░░ think about Kevin Warsh ░░░░░░░░ pops up in these ░░░░░░░░ BOCCIA I think it ░░░░░░░░ important not to have ░░░░░░░░ think on the Fed ░░░░░░░░ That s I think ░░░░░░░░ Shelton comes in and ░░░░░░░░ that different perspective that ░░░░░░░░ more based in hard ░░░░░░░░ as was already mentioned ░░░░░░░░ also rules based framework ░░░░░░░░ the Fed has been ░░░░░░░░ doing good work given ░░░░░░░░ environment that they found ░░░░░░░░ in We should be ░░░░░░░░ other policy tools to ░░░░░░░░ the Fed s role ░░░░░░░░ the markets when it ░░░░░░░░ to the repo markets ░░░░░░░░ example and also the ░░░░░░░░ powers that the Fed ░░░░░░░░ assumed since Dodd Frank ░░░░░░░░ Those are some areas ░░░░░░░░ we need to look ░░░░░░░░ and not be so ░░░░░░░░ on rate cuts UNKNOWN ░░░░░░░░ In Shelton s defense ░░░░░░░░ think one of the ░░░░░░░░ Romina is saying you ░░░░░░░░ other central banks doing ░░░░░░░░ things like for example ░░░░░░░░ rates negative and the ░░░░░░░░ s idea and one ░░░░░░░░ appears that Shelton backed ░░░░░░░░ hey we have an ░░░░░░░░ of what ideal policy ░░░░░░░░ But in the real ░░░░░░░░ these other banks are ░░░░░░░░ this the Fed should ░░░░░░░░ what s wrong with ░░░░░░░░ Smith Well so I ░░░░░░░░ that s mildly consistent ░░░░░░░░ Shelton over time She ░░░░░░░░ for fixed exchange rates ░░░░░░░░ for coordinated policy but ░░░░░░░░ s always been for ░░░░░░░░ away from what other ░░░░░░░░ banks are doing critical ░░░░░░░░ all the extraordinary policies ░░░░░░░░ in and my biggest ░░░░░░░░ is if she became ░░░░░░░░ if Trump were to ░░░░░░░░ that unfortunate nomination that ░░░░░░░░ would reverse and go ░░░░░░░░ to her hard money ░░░░░░░░ as soon as Trump ░░░░░░░░ out of office and ░░░░░░░░ I think that s ░░░░░░░░ biggest fear We re ░░░░░░░░ an environment where our ░░░░░░░░ is low We re ░░░░░░░░ an environment we re ░░░░░░░░ against deflation and chairman ░░░░░░░░ those views is quite ░░░░░░░░ for the U.S.”