I was slightly surprised, but much more importantly, I was glad. This was the right thing to do. inflation is much further from its reasonable target. Then unemployment is... The Fed can have much more of a durable impact on inflation. that it can. on unemployment. Give in deficits, given. AI spending We're probably at or below. The neutral ray of interest There was no reason to be committed into for the rate cutting. in the environment. So... Share Powell's signal to return to data dependence. to agnosticism about what was going to happen next. That was exactly the right thing to do. Yes, there are. risks of a slow down but if we get a slow down and the fed does a 50 basis point cut six weeks later. That is not going to be important. But if the fed loses its credibility around inflation, at a moment of massive deficits. Massapolitical pressure from the... administration, substantial international uncertainties. Evidence of higher inflation expectations, and it's been a long time since inflation was near 2%. in the face of all that. This was really the right thing to do.

It's a disadvantage, but there are now so many indicators. So many real-time data sets. Things like the Million Price Projects. at MIT. all sorts of sensitive indicators that are being followed by people. In the markets on and almost weekly. basis that this is unfortunate and it's not what a serious government country does to have such a long... a slowdown. but I don't think it's in immense problem. in the grand scheme of things. It's certainly a much smaller problem than politicization. It's a much smaller problem than dealing with. budget deficits. This is not the major challenge facing the Fed.

Well. We're not that far away. from. 2% after. five years of being above. 2% isn't that great a place to be. even if you accept. but that's true. You can always... Take some things out of. The numbers. and then say we're near normal. That kind of argument... Reminds me of What was... chair Powell's darkest moment in what was I what I think has been a really very distinguished term of service. which was the transitory inflation idea. in 2021. Yes, maybe it's true that if you take out tariffs. The numbers will look good. because people are spending more money on tariff goods. They're spending less money on other goods. whose price is lower. and that should be taken out. as well. So... I don't think cherry picking the components that have risen. is a particularly good way. of doing the analysis. I also think it's not clear. What's gonna feed through? into people's expectations. of inflation.

I think it reflects the confusion of the picture. and I think that the descent... and from Kansas City. in favor of raising rates. Reflects were not cutting rays. reflects what is the genuine argument. Among serious economists in this moment. hehe descent from governor Mirren. reflects the bizarre spectacle. of aid. government official. part of it administration that's at war with the Fed in its rhetoric. putting something on, putting somebody on the fad. I'm on. A temporary basis while they're on their leave. from their other Senate confirmed job. I think that that's not to be taken seriously as anything but. a politically aberrant moment.

They signaled that. this kind of thing was going to... happen. I don't. Thank you particularly. that the precise size of the fed balance sheet. in an era where we're paying interest on reserves. is really that important. a variable. in an earlier era. when. The other side of the balance sheet was money that paid zero interest, the era of monetism, you could get very excited. by the size of the fed balance sheet. Bye. I don't. find it that exciting, a variable to worry about its precise size. I do think it's important for the country as a whole. to be charming out its death. more than we have. and from that point of view. the fed. reducing the size of its balance, she's probably a good thing. because it means a little less. short term obligation of the federal government. and a little more. long term obligation.