Bostic

Andrea: I don't know if anybody saw on 60 Minutes 3-4 weeks ago, they did a story on Jerome Powell, but they had a shot of the Federal Open Market Committee meeting, and who was right there in the middle of the picture, but my longtime friend and colleague, Rafael Bostic, who is the president of the Federal Reserve Bank of Atlanta and has been in that role since 2017. Before that, he worked in DC and was the designer of one of the most effective Home Mortgage adjustment programs that got us through the great

financial crisis. He's been an academic at the University of Southern California, so he has the academic's view of the world, and we're really lucky to have him here. We've been trying forever to get him down here, and we just had a confluence of events that made it work. So, let me introduce Rafael Bostic. [Applause] We are working with these mics because this is being live-streamed, for all I know, around the world, but definitely around the country, and we want to make sure that we get nice sound

quality for that. We will chat with some pre-arranged questions for a while, and then at the end, we will leave time for questions from the audience.

So my first question has to do with the beige book because timing is excellent that the beige book came out yesterday afternoon, and for those of you that don't know, every Federal Reserve Bank prepares an economic overview of their region, and for us, that comes from Georgia all the way down here to Florida, and it's very carefully done in kind of an interesting way, and it provides

really good realtime information. So my first question is, what you found revealing in the beige book yesterday and how you see conditions being different here in South Florida versus maybe the rest of your District?

Rafael Bostic: Sure, well thank you very much, first of all, good evening everyone. So, I know the professor trained you already, so that's why I wanted to go there. That's good. I just want to say how excited and thrilled I am to be here in Miami to talk about the economy and real estate. I actually hadn't done my briefing, so I didn't know this was a real estate challenge. Congratulations to all the participants. At USC, we do a real estate challenge, and I was the program director, so I've been at one a lot of these evenings where we are all wondering what the judges have done, and then we'll go out afterwards and argue about it. So, it's great. I'd also say that, you know, Kevin, I think you talked about evicted, the book. Many years ago, I guess maybe eight, nine years

ago, I did a podcast, a book, I had a book club podcast, and we did evicted as one of our conversations. It's actually quite the book is quite thought-provoking on how real estate markets function and operate and how people live in that space as they're on the edges of precariousness, and so it really, it was very thought-provoking for me, and the conversation was actually quite interesting. So I would encourage all you to get the book, but also listen to our podcast because you can get a lot

of different insights. Now you asked about the beige book and, you know, the one of the things that we in Atlanta have really invested a lot in is trying to get realtime information. So everyone knows the government issues data on unemployment rates and inflation and GDP and capacity utilization, all those sort of things, but one of the things that I've learned and become much more sensitive to is the fact that that information is all backward looking, it's telling about things that happened last month or last quarter, and in today's

world that is changing so rapidly and so consistently, sometimes that information is not going to be helpful for giving me a sense of what's going to happen moving forward. And so we've built a whole apparatus what we call the regional economic Information Network, which is basically a team of people whose job it is to go and talk to people and talk to Business Leaders, Community leaders in unstructured conversations somewhere between 60 and 90 minutes to just ask like, what are you seeing today,

what are your stresses, what are your challenges, what things you expecting will happen in the next 3 months and the next six months, and that kind of intelligence gives us a supplemental piece of information above and beyond the aggregate statistics and ways that are actually quite helpful. And in today's environment in the last several years, have been incredibly important because as you recall through COVID, we learned new things weekly, like the world was changing on such a regular basis that the backward data

even two weeks ago sometimes wasn't actually useful. So we needed to be continually doing that. So over an FOMC cycle, a Federal Open Market Committee, that's the interest rate setting body, we'll get somewhere between 60 and 100 of these interviews, and a lot of times those interviews themselves will tell a narrative about how the economy is working that is distinct from what you might see in the aggregate data. So what is our beige book entry really said that the economy is slowing down,

but it's slowing down slowly, the pace of change is slow, and at the same time, we've heard from businesses that their pricing power, their ability to pass through increases in cost has weakened considerably relative to where it was last year or the years before. To me, that's good news because that really speaks to the reality that what we're hearing is consistent with what my outlook for the economy is, which is continued slowing down.

You know, inflation was super high, it has come down quite a bit, but it is not at our target right now, and so there's still a ways to go, and we just need to make sure that that is continuing as we move forward. Other thing I would just say, and just to get this out of the way, like we've made great progress and the economy is doing quite well today, right? It's creating lots of jobs. Last reading was 300,000 or so jobs in a month. That's a large number. Wage growth is happening and it's faster than the rate of inflation, so workers are making

progress against sort of how the economy is evolving, and inflation is continuing to move, come down. And if you think about our mandates, stable prices, so that's inflation getting at a target, it's also maximum employment to make sure that the economy is continuing to grow and create opportunities. We're doing well on the maximum employment basis, and we've got progress that we're seeing in the inflation space, and those are good news stories.

Andrea: That's good to hear. Do you have anything to talk about specifically South Florida, what you're seeing there versus the rest of the southeast?

Rafael Bostic: Sure. So, you know, my district is extremely diverse. So I have the full State of Florida, the full state of Georgia, the full state of Alabama, I have the bottom half of Mississippi, the bottom half of Louisiana, and the Eastern 2/3 of Tennessee, right? So that's a lot. I got Appalachian, I got Gulf Coast, I have military, I got Tech, I got entertainment, it's all there, right? And so when I come down here, you know, this

is a unique place. It is a gateway to a lot of South and Central American money, it is a hub that attracts a lot of hospitality and Leisure activity. Everyone likes the vacation done here in Miami, right? And so, those sectors wind up being outsized and very unique and distinctive. So this market is strong, and even in the Florida space, Miami itself is kind of distinct. You know, we track a lot of information about real estate markets. So, home housing affordability, pricing, all those sorts of

things, and the strength that you see in this market is actually stronger in some sectors. So, I see a look at a lot of markets, commercial markets, office markets, they're not, I would not say they're super strong here, but they're stronger than what you are seeing in other places, and that's actually quite interesting. And then the strength in Hospitality, the continued demand from consumers to want to go on vacation, to spend and do those things, has meant that the pricing pressure in this

market is stronger than what we see in other places, and I think you, I was talking to some people earlier today and they were noting that in this market, the levels of inflation are higher than they are in other parts of the country, but they are also coming down. So they're not as high as they were a year ago, and that's a positive thing, and that's something we'll have to remember.

Andrea: Yeah, that's definitely something we'll have to remember. I know that everybody here is dying to ask the next question I'm about to ask. We all, you would like to hear your thoughts about interest rates hopefully dropping eventually, but also Raphael has a very specific view about the anticipation of those rates dropping that I don't know that everybody has considered.

Rafael Bostic: Yeah. So I'll say two things on this. So one, you know, I purposefully didn't talk about interest rates to start because I wanted to make sure everyone stayed in the room for the whole fireside chat. Look, we are on our path to our inflation target, and you

know, over like when inflation got high, we as a body increase interest rates to a level that I think is currently restrictive, and it will eventually slow things down, but it's the question is really at what pace. And I would say that I'm expecting that pace to be slow, and I expect the progression of inflation to our 2% target to be somewhat bumpy. And so, my outlook for the economy is, well, let me tell my outlook for the economy is slow, steady growth that continue to slow. I do not have a

recession in my outlook, but that slowness means means that we won't, I don't think it'll be appropriate to drop rates soon because if we drop rates, there is a possibility that there's excess energy in the economy that puts upward pressure on prices and moves us even further from our target. So I'm willing to be patient. I'm not in a hurry to get our inflation to 2% as long as it's moving there while we're seeing job growth and output growth, right? Because we have the dual mandate.

If we're doing well on one and the others moving to in the direction we want to go, then I'm fine standing there. So I see one cut for this year. That's my outlook, and it'll be toward the end of the year because as you've seen in recent months, inflation is not moving as strongly to our 2% target as it was toward the end of last year. So I'm willing to be patient on that.

One thing I would just emphasize though is that, and I talked about this a bit with our rain network, the world is changing fast and unexpected things have been happening on a regular basis. So even though I have an outlook, I have to be prepared for the possibility that the world evolves in ways that aren't like my outlook, and if it does do that, then I'm going to have to change sort of my view of what appropriate policy is. So my two words for the economy, one is grateful. I'm grateful for all the progress we've made on inflation. I'm grateful that the economy has continued to grow and have significant

employment growth, but I'm vigilant as well because the unexpected can happen, and when it does, we need to notice that on time so that our policy can adjust on time to keep the economy moving the way we need it to.

Andrea: Thank you. Just you talking about behavioral change, you have the big picture. What would you say are the maybe three to five most important behavioral changes that you've seen since the pandemic that will impact the either as or the economy, you know, what are you watching?

Rafael Bostic: Yeah. So that's a very interesting question, and that came from someone in our audience. Well, here's the thing. Through the pandemic, so my group, we have 1,800 people, I think some PE times people forget that we're an employer as well, and that there are the dynamics in the workplace, like I have to wrestle with that, me and my leadership team, to make sure we can continue to do all the things that we need to do. Clearly, there have been some significant changes in labor markets, like workers through the pandemic, they were sitting at home

doing their work for many, many of them, and even the central workers who were out there, they started being much more aware of where alternative job options were, right? And so, you know, when Amazon and Walmart and Target and others announc broadly that their entry level pay is now going to be $20 an hour, $23 an hour, $25 an hour, I think that kind of awareness changed how a bunch of workers view their univers, their opportunity set to say, okay, I could either work for minimum wage or I can try to get a job at the Fulfillment

center, and it's really changed the competitive dynamic for workers. And we saw through the pandemic that wage growth for lower wage jobs grew faster or was higher than it was for other jobs at other parts of the distribution. That's quite unusual. That's not what you usually see in economic disruption. Usually the pain is at the low, the biggest pain is at the lowest end. That didn't happen in the pandemic, and I think in part it was because of, well, one, they were essential workers, but two, the workers understood that they had

better opportunities than they might have otherwise. Second thing is something that, you know, everyone has dealt with, which is the location of work has changed. Workers actually want to work differently spatially than they have before. So whether it be work from home 100% of the time, 80% of the time, 60% of the time, it's meant that we all have to think differently about space and sort of how we want to do what we want to do and where we want to do it. Has huge implications for real estate and is one of the reasons why in

a lot of conversations there been a lot of concerns raised about the viability of a lot of office space because the workers realized that they actually had an office in their house, and sometimes it's nice to not have to get all cleaned up, and you know, you can wear shorts and on the zoom call and all that kind of stuff, and you can still get your work done. And that realization is, I think, is going to, we're not going to go all the way back to 5 days a week in the office. I just don't, I think that workers are valuing that flexibility in an interesting way.

And then a third thing I would just offer is, and we're in a business school here, so business strategies. So pre-COVID, many business schools, I think pretty much all of them, we're teaching that the goal in production is to find your lowest cost provider of an input and then use that exclusively, like you're working towards cost minimization. And what COVID actually revealed was that if you do that, you have different kinds

of vulnerabilities. And so because if something happens in that location, now you can't produce at all. And so there's value in having a more diversified input sector and input strategy, and that diversification necessarily would mean it's not going to be lowest cost, right? If you've already found lowest cost, if you go somewhere else, that by definition, if you've done your job well, will be higher than what you were paying this other place. But it gives added value in that you now have more flexibility. So if

something happens in one place, you can still be present almost fully in the marketplace. And that resilience, there's value in that resilience. But what it then means is that every businesses or the businesses that embrace that value are going to have a different cost basis. And that cost basis then has implications for what inflation might look like. And so that's a third thing. And I think that that's an important thing. You hear people talk about friendship, insuring, onshoring, all those things are to some extent about

sort of changing your business model for how you're going to get inputs to production. Now all three of those things, I would say, are we are in flux today, right? We have not settled this out. So I talked to a lot of businesses, they all tell me, well, the first, they don't tell me, they ask me, what are you doing for your hybrid work policy? Like there's still a lot of uncertainty about what the sweet spot is for where we should settle out. And I would say many families haven't really figured out, many workers

haven't figured out exactly what the perfect mix is either. And so in all of these, we're in, we're in a transition. I would say we are not in an equilibrium from a workforce or or or business production standpoint. And so it's a super interesting time, I think, for academics and researchers. There's a lot of work that you're going to be able to do, actually, I should count myself among a lot of what we're going to be able to do to have new discovery about how economies work both at the

macro and the micro level.

Andrea: Yeah, it's definitely an interesting time, and it's a great time to be in school to be able to debate these concepts. So we're really lucky to be here. I mean, you touched on the labor force. A lot of the growth in the labor force has been in specific sectors like government and healthcare, rather than kind of across the board, and it's kind of unusual to have the labor force growing with interest rates so high. Do you think that will continue or do you think some other sectors will

kick in?

Rafael Bostic: So, you know, what's interesting, over time or so, everyone remembers the pandemic, everything crashed, right? And what has happened is that the recovery sector to sector did not all happen at the same time. And it's been interesting. Government and the healthcare sectors were some of the slowest to recover, right? So on some sense, what we've seen in the last 6 months or so, because you know, a disproportionate amount of the new jobs created have been in those two sectors, is that's somewhat

catch-up, right? And other parts of the economy have, they bounce back much faster. And it's been, it's taken more time for them to go. One of the things that we've been watching though is sort of the, it's funny to call it like this, but the residual. So if you take out the catch-up sectors, if you take out government, if you take out healthcare, what does that look like? And up until the last two or three months, the residual space was really contracting such that it was just at break even. There were there were almost no new jobs

being produced in that space. In the last couple months, we started to see an uptick in the residual. Now the residual is actually the majority of the economy, which is why it's funny to call it residual. But if you divide it, catch-up and everybody else, the everybody else is starting to grow now, and that is is quite interesting, that that's broadening the base of prosperity.

Andrea: Yeah, that that's good to hear. It makes me optimistic. We know that monetary policy is is very broad brushed the economy as a whole. Does the real

estate sector ever, you know, specifically enter your thinking in these debates at the Open Market Committee?

Rafael Bostic: Well, it better, okay? I mean, I so so one level, look, if you think about the great financial crisis, that was driven by excesses in real estate, like that's housing markets, that is real estate at a fundamental level. And I think, you know, before then, housing had been viewed as sort of sort of a trailing indicator. So when the economy is strong, housing be strong, when the economy weakens, housing weakens,

and people didn't think of it as potentially being able to precipitate sort of that kind of broad-based disruption. But we also know that commercial real estate can do that, can do that, like we've seen this in various episodes across the history of this country. And so what important, and you know, I'll just say for me, I think about real estate a lot because during the great financial crisis, more banks failed in my district, in the six District, than anywhere else in the country, and it was largely because of

concentrations in real estate holdings by these bank institutions. So so we talk about real estate all the time to make sure that our institutions are understanding and appreciating the risk that it carries in addition to the opportunities it presents, and then are holding enough capital to present itself, to protect itself from those risks should they, should they sort of appear or emerge. So it is, it is definitely an important thing.

I would also say that, you know, we do a lot in our bank thinking about local economies as well as sort of the macro economy, because ultimately and ultimately, the macro is just the sum of a bunch of micros. And so if the micros aren't working, it's hard to imagine how the macro going to work. And one of the things that we see in this space as well is that if real estate difficulties are concentrated in particular parts of a of an urban space, right, that can have significant impacts and implications, negative implications for the ability of regular people who are approximate to that to thrive in

important ways. So we definitely want to understand all these things. I, you know, I go out and I talk and I ask lots of questions to make sure I have an understanding of that.

Andrea: Yes, I know. It's very nice to have somebody with the real estate background in the the position of power that you have. About power, you have power.

Rafael Bostic: I also have, I this is something I don't know, I have to go find this out, but there's a home ownership affordability monitor, I guess we want to put it as initials, that it tells you that Miami Fort Lauderdale West Palm Beach, that metro area is the least affordable area in your district. And I think we probably know that if you know anybody who's trying to afford especially their first house. So, you know, I guess first of all, why should people who are not in the first house market even care about that? And secondly, what can be done to make housing more affordable?

So, thanks for that, thanks for the the plug on on our tool. So, and I, I don't actually like acronyms, so this one, one of my things, I, oh, I thought you did that on purpose to call it home. Oh, oh, they did, okay. I, I don't, I just don't, I just don't say I won't say that. So so okay, so we have, so we, so before I get into the affordability issue, I would just say we got lots of tools that are available for you to use, and and we try to make them accessible and and easy to understand and for regular people. So you don't need a PhD and Eon to understand these things. So we have a home ownership affordability monitor, we have a rental

affordability monitor. The the the home ownership affordability model is national, we do it for each metro area. The rental affordability model is for the southeastern states, that's our district. We have a wage tracker, we have a GDP now tracker, lots of an inflation dashboard, all of these are online. There's actually an app called economy now that you can download and it'll, it'll send you little plugs of updates for things that we're doing. I would encourage all of you to subscribe to just get the blast on a on a weekly

basis about all the things we're trying to do, because one of our goals is to help, help every American, every person in the world actually, be positioned and understand where things are so that they're as informed as we are. Like ultimately, me just hoarding all the information, that's not useful. We want make sure everyone one is position to be as successful as possible. So so go do that.

Affordability is is a real challenge. And it's a challenge for a number of reasons. One is just the the mechanics of adding units takes time. So you, this is a, this is a real estate group, so I, many of you are real estate, I don't know if everyone is, but it takes time. Like I, I've been using analogy recently, so if if the Campbell Soup company realized that there was an increase of demand for cream and mushroom, right, they just add a shift and they produce more cream and mushroom and as as about as in the marketplace very quickly. If if the City of Coral Gables Real realizes or developer X realizes there's a shortage of housing, it'll

be three years before any of that housing actually comes to marketplace in many, many places, right? And so you have to have a well oiled planning infrastructure, space infrastructure, capital market infrastructure if you are going to have any hope of having a local real estate market respond to the ups and downs of demand and supply that may happen in an economy. So that's a baseline challenge that we have. Second challenge, new housing, if it comes on in many places, starts at the top, right? That's where you're going to get most of

the highest return on your investment, particularly when there are constraints that are put on what you can build, because a fourth, a third element is what actually shows up in the marketplace is a negotiation between the developer and the local community. You've got to get approvals, you've got to get the neighborhoods to to buy off on these things, and and so or sign off on these things. And and so, in many instance, I, I lived in Los Angeles before I had this job, communities always down zoned it, they

always made it smaller, they always made it less, right? And that meant that the amount that came on was always probably less than what the analyst would suggest the market actually needs. And so you have this long arc where the the number of people coming in is greater than the number of units. And you know, econ tells you if demand is greater than supply, the price goes up, right? And so a lot of what we have is just, is just basic supply and demand, and particularly in markets that are growing. And so you think about

Florida, like Florida is a importer of people right now, like there are more people coming in here from all over the place, and so it puts extra pressure on the supply side to be able to respond. And it's, it's just been a challenge.

Andrea: It has, and I know it's not on my list here, but I think we sent up the live local act that probably most of the real estate people in here are familiar with was past by the state legislature with the goal of opening up land for development for affordable housing. And I don't if you have any thoughts on that.

Rafael Bostic: Yeah, I gave a speech on, I mentioned this last week. So yes, I, I am actually interested in it. Look, the Liv local is a is an interesting strategy where it says you can build housing in commercial and Industrial zoned locations and don't need to get special dispensation or anything for that, and the height and sort of density restrictions are eased off on it. It's super interesting. I because, you know, zoning in many regards has been sort of a major constraint on the ability to add supply. Like if you

it says certain things are not happening in certain places. And if the number of places you can build housing is small, guess what? You're going to get a small number of units. Like that's kind of what it says. And this is trying to open that up. What'll be interesting for me is or what I see as interesting is it's this is actually a test of the extent to which local markets have evolved in ways that have gone beyond what the zoning imagined the land use could be or should be, because now we're going to see a

bunch of developers, like just because something, you can do something there doesn't mean that you will, like it will depend on their assessment of what the market is and what the market can support. And so I think it's going to be a tremendous experiment. So this has been up for about a year and a half, something like that, right, past not too long ago, and so I think we're just at a point where we're going to start seeing what comes to market and sort of what gets built. And I'm expecting this another

area where we're going to learn a lot. And and I and me and my team will be definitely watching this to to understand because it is, it is pretty innovative.

Andrea: Yeah, it's definitely something different that I have not seen in other places. Speaking of the sort of academic world, I know that you have experienc dealing with sort of hypothetical situations. So let me ask you to take, you know, two sides of a a perspective. And, you know, what in in 18 months, if inflation is still at the threes, let me ask you what you think the

impact on the macroeconomy, on rates, on markets will be. And then also, if inflation gets fairly quickly down to your 2% target. So sort of good side, bad side. Rafael Bostic: So I try not to live in hypotheticals any these days, I know, but you know how to do it. Yeah, that’s a detail. I so look, if if inflation stalls out or even starts moving in in the opposite direction away from our target, I don’t think we’ll have any any other option but to respond to that. If it seems that the level of restrictiveness that we’re at today is not enough to do the job or get the job done, I’d have to be open to increasing rates. That’s just the reality because ultimately we have a target, and if people start to think that we are okay away from our target, their expectations about how the economy is going to evolve are likely to shift in ways that are are not optimal. All right, so what what we know with inflation, when inflation is high, people are and businesses are less likely to fully invest in long run options because their expectation about where prices are going to be out in the distance is going to be very high and that means that certain sorts of investments aren’t going to make sense anymore, right? And that the low investment, the low inflation environment is one that I think sets up the economy for its most for strongest and most resilient position coming out into the future because families will be willing to invest much more in their human capital and their capabilities and capacity, and businesses will as well. Inflation is high, it means that people are not going to want to invest, you’re just going to want to consume now. It pulls your consumption horizon much more into the present. And you know, we can consume more, that that can work, but if we do that at the expense of investments, when we get out three, five, 10 years, we will be in a much worse position. And so getting inflation under control and getting it back to a place that is where we want it to be is very important. And I’ll just say one of the things that we track to make sure that we understand the implications of things is we track expectations, like where people and businesses think inflation is going to be five years from now. And we use that as an important measure because everyone really appreciates that in the short run, you’re going to have bouncing around, things happen. But it’s on average, where are we going to wind up? And one thing that’s been true through the pandemic is that those longer run expectations have stayed pretty stable. People still have confidence that this is an episode that we’re going to get through and we’re and we get to the other side, we’ll be back in a place where people feel comfortable that long run investments make sense. And if they feel that today, that means that they’re likely, this means that they’re more likely to make those investments as we move forward and and really look through the volatility that we’ve had today. So if it stays high for a long time, there’s a risk that those expectations start migrating up. We call that in like fed speak, they talk, if you hear people talk about inflation be expectations becoming unanchored, that means they’re moving away from that long run number that they’ve been at for a long time. And that’s a problem. We we need to make sure that that doesn’t happen. So on the other hand, so economist, right, on the other hand, like if inflation were to fall more rapidly, then for me, I would say that’s great. And if it mean, if it, it’s accompanied with the economy staying strong, that’s even better. And it says that, you know, maybe we pull forward some of the moves of interest rates because we will just be getting closer to there. Look, we can’t wait till we get to 2% to remove our restrictiveness or else there’s a possibility we overshoot, right? And I’d like to avoid that if we can. And so we’ll just have to watch. So I mean, when I describe risks today and risks to our outlook, I see them as as broadly balanced. There are some stories that say it it’s going to go slower and there are some stories that say it’s going to go faster. And if you, if I can, this folks, the likelihood people fall about 50/50 on those two sides. That’s actually, that’s that’s a good reality to understand. Andrea: Well, makes me feel better sitting up here. So having asked a whole bunch of questions, let me see if there’s questions from the audience. We have a couple people with microphones. We have one here. Audience Member 1: Good afternoon, Mr. President. My name is Nelson Sor. I am a professor of Economics at Miami Dade College. Thank you for for joining us today. I just have a quick question. We’ve been discussing this in my classrooms a lot. So economic data right now is very strong for the most part. Wage growth has been rising, inflation is falling, and the economy is just generally strong. However, if you ask the average Joe on the street, they feel pessimistic about the economy. So there seems to be a disconnect between the the the sentiment, consumer sentiment, and just sentiment in general about the economy and actual data. So I mean, there’s, I’ve heard different reasons why that might be, but we wanted to get your your take on that. Thank you. Rafael Bostic: So that’s a good question. It’s a question many people are asking today. And I I would say people don’t live inflation, people live prices. And when inflation is high, the price becomes high. And when inflation goes up faster than wages, prices feel like they’re moving away from what people can handle. And that’s not a good feeling. That’s never a good feeling. And once people get to that point, they remember what prices used to be. Now, if you think about the dynamic in the economy today, the rate of inflation has slowed, it has not gone to zero, and it is not gone negative, right, which means that prices are going to stay where they are, by and large, right? And what’s going to happen, and what will eventually happen is, well, if, if according to my outlook, I should say this is that wages are going to catch up, right? So when inflation spiked to 7%, wage growth was 3%. Everyone fell behind. Everybody knew it. They went to the gas station, they went to the grocery store and it was like, wow, got to spend all this extra money. Wages today, wage growth today is greater than inflation, right? So they fall behind, they’re starting to catch up. They haven’t 100% caught up, so people know they’re still behind. But every month they’re growing faster than prices are. And they’re getting to be where they can handle it. Now psychology is a funny thing because people don’t do math ruthlessly, like they don’t come out of the grocery store and say, oh, last time I was there, I had seven cents in my in my wallet. Now I have 12 cents, right? Like that’s a level of awareness and sensitivity which is not really going to move the dial in terms of how people experience things. It will only be after it was 7 cents and now it’s like 57 cents that you start to see it becomes more salient, right? But that takes time. That’s an arc that that people that we have to experience. So I take comfort because I I am the the the wonky guy who’s doing the math to know that workers are are catching up, right? The economy is the dynamics we have today are such that every month the burden of the high price is lower. And at some point, they will actually, their income will surpass it such that they will then be how the economy was and has been for a long time on average in our regular state, wages are about one to one and a half percentage points higher than inflation. And so real incomes have been positive, people’s standard of living has been growing, and people have become more resilient. Those are are the things that we’re going to get back to. But that, but that will take time. And psychology doesn’t change so regulated. So that’s kind of how I think about it. You know, I I’m with my family, we have family get togethers, I hear about high prices, right? People people talk to me about, you know, steak costs too much, eggs cost too much, like like so so I live it just like everybody else. I never asked them to do math, right? That that that’s not the type of thing they want to hear. So like just be patient. If the economy continues to grow, there will be a time when the burden just seems less. Audience Member 2: Anybody else? Everyone here? Okay, but then we come, then we come down, we’ll start up there. I know the Fed’s been adamant about saying that they’re data driven and analyst associates, whoever’s been pricing in three rate cuts for the year, is there any data or indexes or metrics that you’re seeing that you know are make you believe that it’s going to be one cut? I know you know PPI just ticked up, but I don’t know if there’s anything that you see that makes you think different from, you know, what the three cuts is expected to be. Rafael Bostic: So let me answer this in two ways. So, just so we all level set, so every quarter, every other FOMC meeting, all 12 presidents and all seven Federal Reserve Governors are asked to offer their assessment of where inflation, where unemployment, where GDP, and where our policy rate should is going to be at the end of this year, the end of next year, and the end of the year after. And then we do some law around stuff and we don’t talk to each other in putting that those things together. We just send it in and then what we do is we just do a plot of what everybody said, right? And that’s, so the thing is called The Dot Plot. It’s in the summary of economic projections. And what typically happens is that when we do the Dot Plot, people will say, okay, given where we are now, if they can look at what people put in and they’re like, oh, well that means that there’s going to be one cut at some point, there’ll be two cuts, depending on what the numbers and they just do the math to see how many cuts. And the cuts are always, they assume are always 25 basis points, all right? And so then they key on the median person, the median position, they say, look, if if we had a vote of the whole group, the median position is the position that would win that vote. And they take that as a sign that the committee wants to do that, whatever number of cuts that median position is. And I, I went through all that just to say that the Dot Plot is not actually a decision. It’s not a conversation that anyone’s had. It is just raw math. And the thing that’s not in that is what the outlook is or what the assumptions are about how the economy is going to advance for all 19 of us, right? Because it could be that some of us expect the economy to grow like 30%, some of us are expecting recession, and those narratives kind of govern what it is. We’re not all working from that same expectation, right? So I don’t put a lot of stock on the dot plots. It’s a, it’s a, you know, it’s a nice device. And and it gives, it for me, the thing that’s most useful is it gives a picture of the diversity of views that the committee has about what the possible looks like. And what we’ve seen is for this year is kind of narrowing a bit relative to where we were at the beginning. Next year, the diversity views is pretty broad. And because there’s uncertainty in how the economy will come out. What I would say is this, between the last dot plot and this one, there has been a shift towards fewer cuts, even though the median did not move. And this is because if you look at sort of what the distribution is around the median, the skew moved much more to fewer cuts than than more. And that’s actually quite interesting. I would just say this. The outlook on what an appropriate policy trajection trajectory looks like is purely a function of what our expectation of where the economy is likely to go moving forward and how inflation is likely to progress. This time last year, well, maybe it was like June last year, I thought there’d be one cut for this year because I thought inflation was going to come down slow and the economy continue to grow, contract slow. At the end of last year, inflation had come down really fast for the last 6 months of 2023, faster than I expected. And I took that on board to say, okay, I thought it was going to be slow, but maybe clearly is not going as slow as I thought. And if that’s the case and I can pull forward my cuts, and so I was open for two cuts for this year, right? Now you take the first three months of this year and basically inflation has kind of stopped or stalled out a bit, and it made me go back to one cut, right? And so it is in all of these cases, the progression is about the information set that you have and what the expectation of your outlook is. I’m most recently I’ve sort of been on the fewer cuts side of the the the conversation. But if the economy started to move such that inflation moved fast, I’d move right. And I really want, and this, so I liked how you started data driven because we are looking for the data. We want the data to inform how the economy is evolving because that sort of governs what we need to do. And just, I was talking earlier today, we got two mandates, right? And everyone should view our projected policy approaches based on those mandates, what’s happening with employment and what’s happening with inflation. And those two things are the things that I look at more than anything else. I mean, there’s a lot of other data out there, there are a lot of other ways to assess the economy, but we definitely want to make sure that we never side of those two measures. Audience Member 3: Hey, Mr. Bostick, thanks so much for coming. My name is Jino Tabot. I’m a grad student at the real estate development program. As you may have heard in the news, a number of states like Texas and Florida are looking to have more power when it comes to the topic of immigration, part their formulas, the power of deportation. And anecdotally, we have heard some people say that they