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President Boston can you hear me are you there sir?

I am here can you hear me?

I got you great great to hear you uh it would it be better to see you but we'll take a rain check on that um I don't know if you heard but I told Becky what my first question was going to be to you which is given what's happened with the Atlanta fed uh GDP now given what's happened with the economic uh data we've seen do you feel like the economy is accelerating here?

So I don't know if I would say accelerating I think it's maintaining the strong momentum that it's had really for the second half of 2023. Um I think everyone has been expecting it to slow at a faster Pace than it has and so it might feel like there's some extra energy but I'm not hearing from my context that things are getting faster or stronger that demand is moving in the other direction it's really just staying very strong where it was. Uh and if there's any weakness or weakening it's it's just at a very incremental level.

We were talking just just just pre just a minute ago about this idea that we had thought that the economy fed chare Powell said it several times going back to I don't know 2022 in uh in Jackson Hole the economy needed to slow in order to bring inflation back down to Target that did not end up needing to be true in 2023 do you feel like it's needed now does the economy need to slow to hit that 2% Target?

Well I think over the longer Arc the the economy does need to slow to get to that longer run potential at some point there's going to be uh just too much energy in the in the economy and you'll start to see upward pressure on prices. But right now you know the supply has uh responded quite well both in terms of supply chain and labor for us and there's evidence that suggests that the productivity is is elevated as well so as long as those things are in place I think you can still get growth uh and see inflation uh continue to come down. Now I will also say though in that environment we should expect inflation to come down much slower than what many have expected and that's one reason why I've I've really tried to pull back my expectations on when we'll need to move because if that trajectory slows down in terms of inflation uh then we're going to have to be more patient than I think many have expected.

Rafael I really want to come back to this productivity story but I do want to do a little nuts and bolts fed business you said you've pulled back when but you've also pulled back how much are you still thinking just one rate cut this year?

Yeah so I am and I I'll tell you that's where I was probably six or eight months ago and then the strong performance of the economy in 20 at the end of 2023 caused me to think well maybe things are are actually going to uh be uh moving in a way so that we can move sooner. I've actually gone back to where I was before because we've seen infl kind of uh become much more bumpy in its trajectory and it just says to me that we're just going to have to watch and wait and see how things evolve.

So if it's one cut do you care to share with the audience here when you might think of doing that one cut?

So sure I'm happy to do that uh look if the economy evolves as I expect and that's going to be seeing continued robustness in GDP in employment uh and a slow decline of inflation through the course of the year. I think it'll be appropriate for us to do uh start moving down uh at the end of this year the fourth quarter. As and we'll just have to see whether the data come come on like my Outlook right now is that inflation is is really just going to drop incrementally through the course of 2024 and that incremental progress will continue into 2025 and we won't get to our 2% Target till sometime in early 2026.

So with that Outlook I think that we we have time to be patient and we can just watch the economy and see if that's how things actually play out.

So you're confirming what I've suspected of you all along which is I would not have wanted to be a student in one of your classes because the bar was so high for Success some of your colleagues only want to see a couple more months of improved progress but you want to see what amounts to what almost a half a year of better progress before you're willing to cut why are you more on this issue?

Well you know you'll have to ask others why they feel what where where they are look to me I think there are two things going on here. So one the road is going to be bumpy and I think if you've looked over the last several months inflation hasn't moved very much relative to where we were at the end of 2023 and if we continue on that pace that's something we got to keep an eye on. But the second thing I would say is that um the there are some secondary measures in the inflation numbers that have got me uh a bit concerned that is things may move even slower if you look at the share of goods in the Market Basket for both the CPI mainly the CPI we look at but the PC as well the the number uh the percentage of those goods that have inflation that's growing up higher than 3% and higher than 5% um those are much higher now uh than they were before and they're starting to Trend back to what we saw in the high inflation period they're moving away from what we'd like to see. And so I gotta make sure that uh those aren't hiding some extra upward pressure pricing pressure before I'm going to want to move uh our policy rate.

Let me ask you the same question though but from the complete other side which is uh unemployment below 4% uh GDP running at least for now it appears above Trend according to all the best forecasts that are out there why cut it all it seems like the economy does it seem to you as if the economy is doing just fine at the current rate and the the current rate may not be that restrictive?

Well um you know there's a lot of debate right now about how restrictive our rate is. But what I would say is this I actually agree with you an economy that's growing strong that's creating a lot of jobs that's putting Americans to work and getting them salaries those are good things and I'm not in a rush to try to disrupt that dynamic as long as inflation is moving closer to our Target uh and so it's that that dual picture uh which really informs how I'm viewing what unappropriate policy p is and it's one reason why I'm willing to be uh quite patient here uh. The one caveat would be that if employment starts to degrade then we're going to have then I'll have to take that on board but I'm not getting reports about that from anybody uh that I talk to outside of Highly interest rate sectors like mortgages and and and Realtors.

President Professor bosk um so good to talk to you this morning um I'll speak for my colleagues and say that uh we'll appreciate the next time you'll be around the table with Joe and Becky and Andrew and myself uh and we'll have a longer uh conversation uh in the meantime thank you so much for your time.

Well you're very much you're very welcome and listen uh given what just happened this morning I need to become an engineer as well and U I'll have you to be in there go in and see you in person I look forward to that.