The Walter E. Hoadley Annual Economic Forecast Panel

Adam Lashinsky:

A pleasure to see all of you here in the room and all of you online and a pleasure to be here with each of you. As you know, we’ll start with a conversation among the panelists here, and then I’ll take questions from the audience and from online. I want you to know that I do discriminate in only one way with these questions, and that is if your penmanship is clear. So please write clearly so that I can be sure to understand and ask your questions to our panelists. As David said, we have a very distinguished and diverse group, diverse in particular in terms of professional expertise, and experience, and their approach to coming to the topic of economics and the forecast for 2025. Great privilege, I think, to start with you, Mary, to give us the Fed’s perspective on the economic outlook for the current year as well as monetary policy please.

Mary C. Daly:

Absolutely. So the way I’m seeing the economy, I’m going to start to the end of last year, we came into 2025 in a good place. The economy is in a very good place. Growth is solid, the labor market is solid, and inflation is coming down, albeit gradually, but we’re heading toward our 2% target. And that called for us to recalibrate policy, took 100 basis points of cuts to make sure that we were keeping policy just in line with what needs to be done, continuing to bring inflation down while we support our full employment mandate. So that seems like a good place to be. To my mind, it is a good place to be. So then you enter 2025 and what do I see? Well, I see continued momentum in the economy. The underlying aspects of the economy are in a good position, policy’s in a good position, there is uncertainty, but I remind everybody the world is always full of uncertainty.

I mean, in my time at the Fed, I’ve lived through a financial crisis and a pandemic and those were extraordinarily uncertain times. And what I want to convey to everyone here is that uncertainty is not a paralysis. It just means you have to watch and be careful and thoughtful as you navigate the information we have. So that’s how I’m approaching 2025 as a policymaker, a monetary policymaker, is we can take our time to look at what’s coming in both on the economy and any policy changes, make decisions. We don’t need to be preemptive, we have plenty of power in our tools to take time to judge. So that’s where I am looking in 2025, and I look forward to seeing what happens.

I will offer one more thing. Our contacts, one of the roles of Reserve Bank Presidents is to spend time with business leaders, communities, go to all the areas we serve. I have the nine Western states. People are pretty optimistic. They see the momentum in the economy, the recession risks that they fear has faded, and they feel like we’re in a good position. So I think that also gives me a sense that a lot is possible. We’ll just have to watch the data and make good decisions.

Adam Lashinsky:

Excuse me. Mary, I think looking backward over the past four plus years, one could very easily summarize what the Fed was confronting, it was the economic impacts of the pandemic. Could you similarly summarize how the Fed thinks about the world now as succinctly, or is that not possible?

Mary C. Daly:

Well, I actually think we were fighting inflation and all the effects of the pandemic, and we were trying to bridle demand while we don’t limit growth. And so I think that has been accomplished. What I see now is an economy that has a lot of momentum in it, but we have to make sure we get inflation down. Momentum is great, but 2% inflation is our target, and that is the balancing act that I’m focused on right now. We definitely want to get inflation back to target and that is where 100% of my energy is devoted. So while inflation has come down, we have not finished the job and we haven’t given up that fight.

Adam Lashinsky:

Great. We are going to have plenty of opportunity on this panel to bring political issues into the conversation. Whether or not Mary comments on them-

Mary Daly:

We’re apolitical.

Adam Lashinsky:

… will be up to her. And we can reframe those as policy conversations, but we’ll get there. Baie, you look at the world through the prism of what the economy means to your clients. I assume I’m saying that correctly.

Baie Netzer:

Yes.

Adam Lashinsky:

And so give us B of A’s view of GDP, of inflation, and what you’re looking at on behalf, and what you’re telling clients to expect.

Baie Netzer:

So thank you first of all, pleasure to be here. Our investment strategy is informed by B of A global research’s economic forecast. So let me set that up really briefly, be short, and then the implication for investment strategy is very obvious after I talk about that. So basically, we agree with Mary that we are starting from a very strong point. And our assessment of the health of the US economy today, that’s our starting point, right? That’s our view of potential growth, and inflation, and interest rates before we talk about the impact of any fiscal policy. Later we can talk about whether fiscal policies speed us up from that starting point or slow us down and reduce economic growth. But the major takeaway for us is that we believe the US economy has achieved the potential to grow at a rate faster than it did in the last expansion, because we are now firing on all cylinders. And there’s really just two catalysts we’re looking at.

The first is consumption, 70% of our economy. We have a lot of cash still on deposit in banks and money market funds. We have an economy that’s still producing jobs and a low unemployment rate, and wages are growing faster than inflation. So we think consumption has a lot of power in it right now to accelerate growth through 2025 and 2026. We don’t think it’ll last forever in part due to our aging demographic and some temporary increases in the size of our labor force that we expect to go away, but we think it’s strong. The other catalyst which is really important is productivity growth, and what we have seen is a surge in new business formation and a surge in CapEx in the pre-pandemic era. The first phase of that CapEx was into software. The second phase was into factories, remember US Infrastructure Act, reshoring, bringing factories back on shore. And the third phase, which we’ve been seeing now is into equipment, so outfitting those factories.

What that has done has been to elevate productivity growth above the rate of productivity growth we saw in the last expansion. So that’s the fundamental reason why we see GDP growth in 2025 and 2026 in the two to 2.5% range. So 2.3% 2025, 2% 2026. What does that mean for inflation? More growth means stickier inflation. We don’t think inflation will meet the Fed’s target of 2%. We think it’ll get stuck around 2.8%, somewhere in the range of two and a half to 3%, and because of stickier inflation, we think the Fed’s last cut was the Fed’s last cut. So we expect the terminal fed funds rate this year to be four and a quarter to 4.5%.

Very easy then to talk about investment opportunities, what we are preparing our clients for. We don’t see additional cuts from the Fed, we see sticky inflation. It’s not great for bonds. We see double-digit earnings growth. We see a very strong corporate earnings environment going forward. So we are overweight equities, US equities. We like US equities better than international equities because we think the US has a faster growth rate than other countries. And we are underweight bonds, and we came into the year with that same positioning as well.

Adam Lashinsky:

I’m going to ask you a follow-up, but first it seems obvious to ask Mary to comment, to respond if you’d like, on B of A’s thoughts on what the Fed will do.

Mary C. Daly:

Well, the Fed, we are actually the good position to wait and see, but I can guarantee that if we have inflation that’s printing above our target, that’ll be our number one focus. I mean, it is extraordinarily consequential if we leave inflation above our target. We’ve promised the American people that’s our goal, we will get inflation down, and so we will dedicate ourselves to getting inflation down. And if it takes more than the rest of this year, we’ll continue our work.

Adam Lashinsky:

Good. Baie, When I listened to your remarks, the first 80% of your remarks were backward looking. You talked about what’s happened in the economy since the pandemic. I hear your forecast as sort of a linear extrapolation of looking backwards, saying it’s gone about like this and it’s going to continue to go about like that. Am I hearing you correctly?

Baie Netzer:

Well, I think there’s one big change in terms of how we’ve adapted our forecast going forward, and I’m going to kind of oversimplify here, but consumption has always been a strong motivator for the economy. But when you think about productivity, so much of that depends on CapEx, right? Literally putting capital into the hands of workers. So building equipment, or upgrading equipment, building factories, et cetera. Productivity growth declined from the era before the global financial crisis of 2007 to 2008 to the era after the global financial crisis. We saw companies pulling back on CapEx, putting more money and returning capital shareholders.

And so the implication for that was that productivity growth fell, it was cut in about a half, and productivity growth is a catalyst for economic growth. So economic growth then slowed as well. The big change now, which is kind of not the linear forecast, is we’ve seen this surge in CapEx, and therefore we believe there’s this structural tailwind that exists now in the economy that we didn’t have before, and that’s powering growth going forward. Very important because we do think we will see our labor force dwindle in size and that this structural tailwind can support growth.

Adam Lashinsky:

Okay, I’m going to make an observation that like Mary, you stayed studiously away from any policy or political commentary. And I know that these things are relevant to your clients, so maybe we’ll come back to that. John, I want to ask you to, first of all, share with us your economic outlook and take the time that you’d like to get there, but I specifically… Well within reason, right?

Mary C. Daly:

That is not something I would offer. We’re economists.

Adam Lashinsky:

I’ve still got my microphone, don’t worry. And then as specifically, let’s get into your views on how things like tariffs, trade and immigration may or may not affect that outlook.

John H. Cochrane:

Okay, let me start with the larger picture and I’ll pick up on structural tailwinds. I kind of like that. We are living in the midst of a revolution in economic policy as well as other policies. There’s a global vibe shift, my colleague Neil Ferguson likes to call it. All sorts of ideas and verities and institutions that we’ve kind of sat with for 20 years are being rethought, reexamined, some of them not working, and reformed. Our current administration is a reflection of that vibe shift. It’s happening because of the vibe shift, but it isn’t an external thing that come to hit us and that’s important to realize. A lot of what’s happening will stick.

This is a moment. I think it’s bigger than the Reagan Thatcher change in the 1980s. This is Roosevelt 1932, who by the way did more executive orders so far than even Trump, but we’ll see if Trump can beat that record.

Adam Lashinsky:

He’s doing his level best.

John H. Cochrane:

He’s doing his level best. Also, remember Roosevelt, a lot of those were spaghetti on the wall following a similar approach. Some worked, some didn’t. Some ended up in court, some didn’t. But it was a huge shift in our economy and our government. We’re in a shift of that magnitude. Now that means big volatility. Who knows what’s going to happen? Volatility can be a very good thing, especially if you can pick the good parts and quickly get rid of the bad parts, volatility can be a good thing. Volatility is also a time of risk.

So let me point out just a couple of the good parts, some structural tailwinds, before we get to some of the dangers, which is I think where we naturally want to go. And these are just three of 100 things that caught my attention. The US is not going to follow Europe down the road of a economic suicide in the name of completely ineffective climate policies. The US is not going to follow Europe down economic suicide in killing artificial intelligence in the cradle before we know what it’s going to do, by regulations that essentially make it impossible to develop AI in the European Union. The regulatory juggernaut that had been increasing and increasing is at least on hold. We’ll see what DOGE matters gets actually done, but I think we recognize, and Europe is even beginning to recognize, that this went too far and needs at least some serious reform. Just try to get building permits in San Francisco, even progressive democrats have begun to understand this is a problem.

Adam Lashinsky:

When you say this, you mean government regulation generally, yes?

John H. Cochrane:

Regulation generally. So there’s three big structural tailwinds that are going to really push the economy despite threats. Now there are threats, there’s volatility, and let’s not forget things happen. The problem with forecasts is that they kind of give you what’s going from the current trend, but we’re always hit by something, and we’re hit by something, we call them shocks. Shocks just means you don’t know what it is, you don’t know where it came from, and no one can forecast where it’s going to come from. There will be shocks.

There could be external shocks, geopolitical shocks, there could be internal shocks, financial shocks, debt could cause us problems in debt markets. You never know when that’s going to come. There will be internal shocks, there will be policy mistakes. Hopefully walked back quickly, probably not. Everybody doing this kind of stuff causes policy mistakes among which perhaps tariffs, immigration, and trade. Those are some dangers I see. Now, I’ll try to be brief. Tariffs, if I say tariffs are good, they’ll take away my economics union card. There is nothing clearer in economics than price controls, rent controls, and tariffs are bad ideas, and largely because they’re ineffective at the things people want them to do. They’re cause and effect bad ideas, they’re not bad ideas of intent, they just don’t work.

Adam Lashinsky:

I’m going to ask you to pause.

John H. Cochrane:

Please.

Adam Lashinsky:

Yes or no, do you agree with John on what he just said?

Mary C. Daly:

Me?

Adam Lashinsky:

Yes.

Mary C. Daly:

Well, I don’t want to lose my economics union card. Absolutely.

John H. Cochrane:

Well, for-

Adam Lashinsky:

Go on, please.

John H. Cochrane:

For the purpose of… There are so many things that are answers in search of questions, tariffs is one of them. If the question is make the American economy stronger, tariffs don’t help. For the same reason we don’t have tariffs between California and Nevada or San Francisco and Oakland.

Adam Lashinsky:

So let me push back on you. Whatever changes happen in the next 48 hours, like the changes that have happened in the last 48 hours, I think it is fair to assume we will have more tariffs rather than fewer. You could challenge that, but probably we will. Are you concerned of their impact on the economy?

John H. Cochrane:

Now there, much as I dislike tariffs, I have to be honest, the impact of tariffs and these tariffs is not an economic disaster. Remember, tariffs are a tax on producers largely passed on in the form of higher prices. Corporate taxes are a tax on producers largely passed on in the form of higher prices. Sales taxes are taxes on producers passed on to consumers in the form of higher prices. Excise taxes, do I need to go on? We got a lot of taxes that raise prices.

The real problem of tariffs is economic inefficiency. We are forced to do things at home that would be better to ship back and forth abroad. We got economic inefficiencies all over the place. Just look out the window and the tariffs are small. Tariffs by the way, are way better than the usual quotas or other non-tariff barriers. If you want something you can get it, you just got to pay a little more. So much as I dislike tariffs, and much as I dislike microeconomic inefficiency, it’s hard to see that these tariffs, if they went in, would be a huge economic negative. They’re not an economic positive, but they’re not end of the world. The foreign policy aspect we’ll get to, because that’s really-

Adam Lashinsky:

I want to let Mary jump in.

John H. Cochrane:

But I’m not going to say anything about that.

Adam Lashinsky:

Forgive me, I want to let Mary jump in then I want to come to Susan and we’ll come back around. Please, Mary.

Mary C. Daly:

What I want to jump in on is I think we were joking about our economics union card, but we’re looking at it from a model’s perspective, et cetera. The President of the United States, all sovereign heads are looking at it from a society perspective and other things. So we would call it the objective function. There are other things in the objective function, and it’s not for me or John as economists to judge those types of things. And I think it’s really important as citizens, you think about the slate of things that the leaders are taking on.

John H. Cochrane:

So let’s not evaluate tariffs by inflation, they’re really not that big. By economic damage, they are some economic damage, but much as I hate them, I can’t gin myself up to say they’re terrible. Let’s look at them as foreign policy moves, negotiation moves, because that’s really where they are, and I should not lead on that question.

Adam Lashinsky:

Great. And Susan, start if you would, by explaining to people your academic orientation, how it’s different from Mary and John, and I will give you the ultimate softball. I would like you to weigh in on everything you’ve heard so far.

Susan Hyde:

Well, that’s a big, tall order, but I will start by saying some of you may be wondering why there’s a political scientist on this panel on economic forecast for 2025. And I’ll say that I am not entirely sure. I asked the organizers of the Commonwealth Club event, but I do think that there is a number of things related to the foreign policy orientation of the new administration that are worth discussing in relation to the economic forecast 2025. So typically, I do study threats to democracy, I also study how domestic politics of countries all over the world intersect with their foreign policy and their international interactions. And right now, that’s really interesting because we’re seeing lots of things we don’t normally see or that are relatively uncommon.

So overview, my big thing that I think is important to establish is that for the US and for leading economies in the world, it’s not an established law, but it is a very widespread pattern that foreign policy typically changes very little between administration and administration. This is true for France, this is true for the UK, this is true for the United States. And so what we’re seeing now is a departure from some of that consistency in US foreign policy orientation over time.

I want to make two or three quick points that maybe we can expand on if there’s time. One of the things is that I really liked that Mary brought up uncertainty is not paralysis. But I think it’s worth digging into what we think about as the uncertainty that’s coming right now. So I’ve just said that foreign policy is typically something that we think of as relatively stable. That’s because parties across the political spectrum typically want to act in the US’s best interest, vis-a-vis are security and economic policy. They’re united, they’re theorized together, and we think about how they interact in my field. Typically, places that have a ton of internal political turmoil and that have a lot of uncertainty about what their foreign policy orientation is going to be, or what their domestic political stability is going to look like, are risky places to do business in a lot of ways, can be risky places to do lots of things. Typically, not the world’s leading economy, I’ll say.

Adam Lashinsky:

Well, and so give us your assessment of where the United States ranks at this moment in compared with countries that you’ve studied and that you’re referring to in that comment.

Susan Hyde:

So clearly, they’ve invited me to be someone who says things that are a little bit more controversial compared to some of my other panelists. But I do think that right now, given the wide range of abrupt departures from current US foreign policy, the US is a really big source of chaos right now for our partners in the world. We think of security policy and economic policy as being linked. Right now, the current administration is treating economic policy as though it can be separated from security policy, and is using tariffs to bludgeon our security allies. That’s not something we normally see in my world in international relations. So on one hand you could think of it as an interesting thought experiment. Well, we don’t see this very often so we can look at what the consequences are. In many ways it’s a test of a lot of our theories, but it doesn’t line up.

Adam Lashinsky:

PhD theses will be written, right?

Susan Hyde:

They could be, but in a lot of ways it’s just unprecedented, which makes it very risky. And then one very small point here, I just wanted to say, that uncertainty and predictability and riskiness are kind of separate concepts in this space. So we know that there’s places that are corrupt and risky to do business, that’s often priced into doing business there. Folks know what they’re getting into. Right now, I, as a scholar of foreign policy, I do not know what this week will bring, this month will bring, or the year will bring, and I think there’s a lot of unprecedented things going on. So that’s really different from being predictably unstable.

John H. Cochrane:

Could I follow up?

Adam Lashinsky:

Please, yep.

John H. Cochrane:

As the non-foreign policy expert, I get to ask questions. US foreign policy was in tatters, and it was consistent, but it was consistently bad. Let’s just take Iraq, Afghanistan, Syria’s line in the sand, Libya, leading to the Russian invasion of Ukraine where conceivably since nobody thought we would do anything, Putin took a chance he shouldn’t have taken. And then we give them just enough to bleed, but not enough to win. Whatever you think of what’s going on in Israel, America seemed to be in slow retreat and predictably bad and not a reliable ally to our enemies. Didn’t that need a sudden shift? Maybe not in the direction this administration is going, but it doesn’t seem like just continue the bad things we were doing all along was a great idea.

Susan Hyde:

Yeah, I guess I’m not here to necessarily take up a partisan stance on the Biden administration or the Trump administration as something I agree with or something I don’t agree with. I just think that there is something about this that is not consistent with any theories of international relations that we have on the books. And so you can have a argument about whether the Biden administration was good or bad policy, that’s not what I think my comparative advantage is on this panel. I think I’m here to just say that this is… The isolationists have a coherent set of ideas that we can talk about, but what’s happening now is sort of a separation of economic and security policy that we typically think we just haven’t seen very much of.

Adam Lashinsky:

So Baie, I’m going to come to you in a moment. John, when you made the observation about Roosevelt having issued more executive orders than Trump, of course Roosevelt took office in the midst of the Great Depression. Trump has taken office at a time of impressive economic growth, and this horrible foreign policy climate you talk about also coincided with a period of impressive consistent US economic growth. So the question would be, if we change things up completely, what does that say about our topic today, which is economic growth? And Baie, I just want to ask you how you and your colleagues think about investing in the United States versus investing outside the United States because it’s a perennial topic, right? The US equities versus non-U.S equities?

Baie Netzer:

We’re favoring US equities over both developed market and developing market equities, but a couple easy reasons there. First of all, just on an economic growth basis, we see higher economic growth in other developed countries, Europe, Japan, et cetera. Europe is more levered to manufacturing to goods which would be more impacted by tariffs than the United States is. United States economy is more like 80% services. The market, though I will say, the S&P 500 is 50/50 goods and services. So that’s why you see more volatility in the market in reaction to tariffs. And then on emerging markets, we’re neutral in part because of the difficulties faced by the Chinese economy has a kind of boomerang effect on other emerging markets that are doing business with China.

Adam Lashinsky:

And so does in investment decisions, in particular in asset allocation, do things like the President of the United States picking on the allies of the United States, like the President of the United States enforcing a tariff one moment and delaying it for 30 days the next moment. The President of the United States cutting off funding willy-nilly to federal programs. Does this come into play in the sense of the way Susan was talking about the potential for chaos? Does that give your strategists pause on investing in the United States?

Baie Netzer:

So a couple differences here. So in the markets, volatility is investment opportunity. You have to go in knowing where if you see a downturn in something that is fundamentally attractive, you’re going to go in and buy. That is the key to investing, and you have to understand the positivity behind that volatility. The other thing I would-

Adam Lashinsky:

Or you need to pay attention to risks that could cause you to lose your money.

Baie Netzer:

Or you have to hedge, that’s called a hedge. You just know how to hedge, that’s our job. That’s what we get paid to do. Within the US also, you have to think about those themes I drawed out. So CapEx, right? What’s driving CapEx? We see defense as a huge opportunity going forward, and that is not just public defense contractors. That is technological warfare, cybersecurity, biosecurity, unmanned systems like drones. A lot of these aren’t even available in the public markets. You have to look at venture, at startups, et cetera. Same thing for artificial intelligence. The AI data center buildout, a lot of that will have an AI halo effect. It’s not just chip companies, and we want those AI data centers in the United States. So we’re going to need utility infrastructure, grid upgrades. We’re going to need materials to build AI data centers, electrical components, energy security, natural resource independence.

Again, Greenland has a lot of metals that the US wants, right? Well, we want to make sure we have the fossil fuels and the renewable energy sources in the US to power our own grid. And then reshoring, bringing manufacturing back on shore, that was part of the way we tried to get around the Chinese tariffs when we had parts that were produced in China. That’s also an investment opportunity.

Adam Lashinsky:

Great.

Mary Daly:

May I jump in?

Adam Lashinsky:

Yeah, please. And then John and I issued you a challenge, so it’ll be your floor next.

Mary Daly:

Yeah, I’m going to just jump in on this because one of the things I started with is that when you talk to the contacts across, all the Reserve bank presidents are doing this, I’m doing this in 12th district. There is that enthusiasm of the opportunity that you see volatility, you think it’s a bad word, but some of them it’s just a shakeup that allows people to have an opportunity to go in. And I say that people are fairly bullish about the use of AI and the fact that there’s not going to be a cutting off at the neck of AI development, that we can actually use it. There’s a real sense that we can be more productive than we have been in the past decade. And I think that enthusiasm creates the willingness to take the risks, to do the hedges, but get in the game. And that’s the momentum ultimately that drives the economy and optimism.

Adam Lashinsky:

John, bear with me for a moment. Susan, are you feeling enthusiastic and optimistic right now?

Susan Hyde:

I can get there, I can get there. I’m more in the world of just feeling a little perplexed. And John, I just want to follow up on one quick thing, which is that I am perfectly happy to see a readjustment in US foreign policy. I have lots of things I can critique about every administration we’ve ever had. However, what I just don’t know what the goal is right now. And I was waiting for you to say that because you said that right before when we were talking, but I don’t know what the foreign policy objective is right now. And there’s lots of reasons. Adam, you brought up immigration when you posed a question to the panel earlier.

And I think that if we care about immigration into the US, there’s lots of kinds. There are economic migrants, there’s refugees, there’s all these things that we can talk about. They all have different causes. But I can guarantee you, this is one thing I’m willing to bet on, that if you make lots of other countries economically and politically unstable, if you upset the world order such as there’s more unreliability in terms of whose leading the order, that’s only going to increase migration, right? It’s going to make more people desperate and more people willing to go. Indeed, USAID funding for a lot of these countries is a big part of that. Administrations across the political spectrum have relied on that as something that helps us promote peace and stability in other countries in the world, which is in our national interest.

Adam Lashinsky:

Soft power, in other words.

Susan Hyde:

I mean would, yeah, that’s a term that I avoid, but yeah. I avoid the term typically. But yes, you can call it that.

Adam Lashinsky:

Okay, fair enough. John, as I promised, I’ve made you a promise now I’m keeping it.

John H. Cochrane:

What was the challenge?

Adam Lashinsky:

Yeah. Well one, I observed that the US economy is in much better shape whether or not we’ve had good foreign policy than at other periods. And you nodded your head, so I think you wanted to comment on that. So that’s one thing. And the second thing is to talk, I would like to have a conversation about the economic impact of immigration policy and where we see that going.

John H. Cochrane:

Okay, great.

Adam Lashinsky:

And you can skip the first and go straight to immigration, totally up to you.

John H. Cochrane:

No, no, no. That’s why I brought my little notepad so I can remember three questions at the same time. I do want to just, on foreign policy, which is foreign policy and economics are now kind of the same thing. And there’s a lot of my foreign policy colleagues talk about the economic competition with China. We need a strategy and a question, and I would put it, are we here to deter China in particular from bad action? Are we here to bind them to the international system, or are we right now fighting an economic war against China? And I think far too many people want to fight the war rather than deter and bind China and preserve the peace.

Adam Lashinsky:

And that’s what you’re advocating as well, I assume?

John H. Cochrane:

That’s my view, but I’m an economist, not a foreign policy type. I don’t like to fight wars unless you have to.

Adam Lashinsky:

Susan, briefly. Yeah?

Susan Hyde:

Yes, we all agree. That’s my card I get to my international relations.

John H. Cochrane:

But I think we underestimate, the US is a big economy, and we do pretty good on our own, but globalization is real. You don’t get an iPhone unless you can sell it around the world. So the idea of retreating is not a good one. The US economy is in better shape really than anywhere else. Europe stopped growing in about 2010 and many parts of it are going negatively. My beloved Italy is actually going down in GDP per capita, which is just a disaster.

But the US could be better, and even 2% growth, we used to have 4% growth. So long run growth is the central question, and even the good stuff that we have, I would love to see more. Now we have the ingredients, we have AI, we have now great new ideas, productivity enhancing ideas if you could only get the permits. We also have a lot of bloat and cost disease. $4 billion a mile to dig a subway in New York, $100 billion to run a train from Fresno to Bakersfield. I mean, come on guys. So there’s a lot that could be done to increase-

Adam Lashinsky:

You swim in the Hoover and the Cato waters, and so you’re an economist, but you’re very aware of the political conversation. And just to repeat something you said and ask you to reflect on it, the United States has the best economy in the world, certainly the best large economy in the world, and not by a little lot. And yet the voters rejected the president who oversaw that economy to the extent that presidents oversee economies, we don’t want to get into that.

John H. Cochrane:

Well, I mean now we’re getting to political commentary. This election, to the extent it was about economics, it was about inflation, which was a big unforced error of our economic management system. And they just said, these guys don’t know what they’re doing. And the election was about a lot more than just inflation and-

Adam Lashinsky:

Always is, yep.

John H. Cochrane:

Well this one, sometimes it’s about inflation and unemployment. I think the election of 1932 was about inflation and unemployment in many ways. This one was about real disappointment in our institutions. Being lied to during COVID didn’t help about public health policy, for example. So don’t just look at inflation and unemployment.

Adam Lashinsky:

If you believe that you were lied to, I would agree with you that that would not help.

John H. Cochrane:

Yeah. But let’s get away from politics. And the opportunity for long run growth is the most important thing. We’re doing well compared to the rest of the world we could be doing even better.

Adam Lashinsky:

Okay, and then I’ll ask the others to comment. Give us your economist’s viewpoint on how immigration policy will affect the economy.

John H. Cochrane:

Well, you did ask about immigration, didn’t you?

Adam Lashinsky:

I did.

John H. Cochrane:

Our immigration policy is one of those many things that has been stuck in a rut for 30 years, and everybody understands that it’s broken, and we can’t seem to do anything about it. From an economic point of view, we need economic migrants. High skilled, low skilled people who want to come to the US, work hard, pay taxes, buy things, they’re demanders as well as suppliers, bail out social security and Medicare for us, grow the economy, start our businesses. We need economic migrants. We don’t let in economic migrants, we only let in asylum seekers in some chaotic process. We all kind of know that’s broken. Now what’s going to happen? If there is a mass deportation of like 11 million people living here who are working here, that’s going to cause a big economic disruption. I don’t think that’s going to happen because I think it’s pretty clear that’s going to cause an economic disruption. There’s volatility, or my hopes is that out of the disruption we’re seeing comes, oh, we got to pay attention to this stuff and fix it. That’s the positive case.

Adam Lashinsky:

Yeah, please, Mary. I want to know-

Mary C. Daly:

I want to go back to inflation for a second if I may, which is I think we can’t underestimate how much inflation takes from people. You’re on this treadmill where you’re falling further and further behind. Baie said that real wages, wages are growing faster than inflation, but that didn’t happen for a long time. And so all these individuals, especially who were just trying to keep up, they fell further back on the treadmill. So they are just now getting to a point where they feel like they’re back to where they were in 2019. But remember, in a good economy of no inflation, they would be further along. So I think part of what you see in people’s just rejection of their surroundings is inflation is a toxic tax. It just robs people of their sense of wellbeing and livelihood and that’s why we have to get to 2%. But that is a foundation then that makes all other things possible.

John H. Cochrane:

But if I could just follow up quickly on inflation, because that’s what I do. I’ll gently chide Mary and everybody’s the Fed. The inflation we saw, worse than anything since the 1970s, was not a mistake of some technical coefficient in the Taylor rule, or something in the flexible average inflation targeting strategy, or how the Fed does its forecast. Our government faced COVID and the supply disruptions of COVID with a hard choice. They flooded the economy with money. 5 trillion initially and another 6 trillion after COVID in printing and borrowing money and throwing it at the economy. That was a hard choice. There was a crisis. We made that choice, and it was a choice to inflate rather than suffer economic damage. No one’s being honest about, we made that choice because another crisis will happen, and we will face the choice again. Are we going to hit this crisis by flooding the economy with money and cause inflation, or are we going to not do that and have the financial and economic disruption that not inflating will cause? I think we need to face that.

Adam Lashinsky:

Baie, you want to? Please.

Baie Netzer:

I’m going to wrap up B of A’s assessment of the impact of some of these fiscal policies and what we think it’ll do to growth real quick. So the approach that B of A global research took to all of the different fiscal policies proposed is to say, well, which fiscal policies have the greatest impact on the economy? Tariffs, immigration, deregulation, tax cuts. Easy way to think of it is they grouped immigration and restrictions and tariffs as being bad for inflation in the short term, bad for economic growth in the long term, and deregulation and tax cuts as being stimulative to growth. Real quick, because Mary and I were talking about the importance of staying non-wonky. The way we look at tariffs, and I’ll give you an example of China, this is kind of the back of the envelope math.

We import about $430 billion in goods from China every year, already an average tariff of 19% on most of those goods. Trump proposed going to 60, that’s an additional 40 percentage points. You multiply 40% by 430 billion, you get about 170 billion. So theoretically, we all just buy the same goods, we’d be spending 170 billion more on those goods every year. That is 0.9% of consumer spending. That gives you a theoretical cap on the increase to inflation. Inflation is at 2.9, theoretically could go to 3.8 just based on those tariffs on China in reality. So the way things actually work probably wouldn’t be that high for a number of reasons.

First of all, the currency absorbs some of the shock, dollar appreciates, renminbi depreciates, producers will absorb some of the cost. You’ll see some consumers switch to buying from manufacturers who don’t have tariffs, and some consumers will just say, I’m not buying it anymore because the price is too high. It’s discretionary. And that is the bad thing about tariffs. It acts as a tax on consumption, so a downward long-term effect on growth. Immigration restrictions, same thing. Shorter term upward pressure on prices in the sectors where immigrants work, agriculture, construction, face-to-face service sectors. B of A’s approach was simply to say, is there some combination of those policies that allows real GDP to stay at that two to 2.5% rate with just a modest increase of inflation? So still in that 2.5% range.

And it found that under very, very specific assumptions, yes, we could do that, but I’m just going to give you an example. We assumed that tariffs on China go to 40%, not 60%. We assumed that there would be immigration restrictions, but no mass deportations. With deregulation, we expect benefits to accrue in energy, specifically to LNG exports and to financials. And with tax cuts, we think you’re going to need more than just an extension of the status quo in order to see stimulative growth. So we think you’ll also see a corporate income tax cut and a removal of the salt cap. But those are very specific assumptions, and if you don’t get those assumptions, you go back to that state of volatility. Still potentially opportunity, but you have to be prepared that what you’re assuming doesn’t get implemented.

Adam Lashinsky:

So let me follow up with Mary on two of the topics. I know on tariffs, Mary, you said the Fed has a wait and see approach. I read in the Wall Street Journal this morning that steel prices already have gone up in anticipation of tariffs. That’s a real-world example. That’s one thing I’d like you to react to. And secondly, help us understand, there’s a school of thought and Baie just articulated it, that clamping down on and particularly low skilled immigrants in the United States is by definition in inflationary action. So help us understand those two things, if you will.

Mary C. Daly:

Okay, so let me back up and talk about how I view. It and it’s a good time to say when you’re saying the Fed, I’m really speaking for myself today. We all speak for ourselves as individuals who are on the committee, the FOMC. So let me just talk about how I think about it. I think about it as this, we have several policies and any administration that walks in the door produces a slate of policies that they would like to change, it would like to change. So in the current administration, there’s taxes, maybe reducing taxes, certainly extending the tax cuts. Deregulation, that’s a fairly large slate of opportunities. There’s then tariffs and immigration.

The way we have to think about it as a policymaker is to say there’s a net effect of all of those and we don’t know what it is yet. So if you take preemptive action based on looking at these things in individual silos, you could end up making a policy mistake. Speculation usually lives to a policy mistake. So we definitely don’t want to take preemptive action on this, and we want to assess the net effects. So the net effects just depend on the scope, the magnitude, and the timing of the changes. And we don’t know the scope, the magnitude, and the timing of the changes yet, so we really have to focus on that. And that’s true whether you’re talking about tariffs, or immigration, or deregulation, or taxes. I think that’s something to keep in mind, is that it’s easy to talk about in economics textbooks or in political science, the individual silos. What’s really hard is backing up and saying what’s the total effect on the economy?

Adam Lashinsky:

So I’m going to come to your questions in a moment. Susan, I’d like to ask you to put a cap on this immigration conversation. What do you see? How do you view what we’re seeing as US policy on immigration? How is affecting us and the rest of the world? I’m not asking you in an economic sense, I’m asking you in the sense that you look at it.

Susan Hyde:

Yeah, I mean I guess I have two points that are not just on immigration but apply to immigration. One is that as I’m listening to the conversation, I’m hearing a lot of assuming basically that Trump will not be able to carry out what he’s saying explicitly that he’s going to carry out as part of the built-in assumption. So he’s still saying mass deportations, that was a big campaign promise. We have united government; we don’t have divided government right now. So the question of who’s going to stop him is one that’s an important one to consider on anything that you’re sort of saying. Well, that doesn’t quite make sense, so we probably won’t follow through with that statement. I think we have to just put a question mark on that. We don’t know right now.

And then one more if, which is think it’s important to bring into this conversation about immigration and the other policies that have come up. If the US becomes an unreliable source of foreign policy, basically if it becomes unclear what the US objectives are and what we’re trying to do, and if we become an unreliable ally, those are two ifs. I’m not saying those are definitely going to happen. If those do happen, it is entirely rational for other countries in the world to make other plans. We haven’t always been the reserve currency of the world. I’m just saying, there’s been times at which other things happen. I’m telling you the extreme, a lot of things could change. I hope they don’t. I don’t think they will, but I think it’s part of our job to think about what’s the full range of possibility here.

Adam Lashinsky:

Okay, John, quickly and then we’ll go to the audience.

John H. Cochrane:

Yeah, quick follow-up. Just in a time of volatility, there’s also a time for possibilities of good things. Trump himself tweeted that we should staple a green card to every STEM degree. One of the big tragedies of the US is students from around the world come learn at our grade universities and then we kick them out just when they’re starting to sit down and write AI programs for us or start new businesses. Even in this administration, there’s a recognition that that is a bad idea, that there are immigrants we need.

Adam Lashinsky:

It’s worth pointing out, there’s a robust debate going on internally in the administration on this topic.

John H. Cochrane:

We need immigration reform, and I think everybody left and right recognizes that. So maybe that’ll come up. And on tariffs, the story was great. Steel tariffs go up and automakers say, what the heck’s going on here? So what happens with tariffs is everyone runs to Washington to get an exemption, which is part of the bad side, it leads to crony capitalism. But that’s also part of the mollifying effect. If your inputs get tariffs, then you go to get an exemption. If you discover that you’re sending stuff across the border five times and you’re paying five times the tariff, you go get the rule changed. That’s not a great system, but it is one of the things that makes it less damaging than it would be otherwise.

Adam Lashinsky:

It’s funny you say it’s not a great system. I won’t use a vulgarity here, but it strikes me as not a great way to run a railroad actually.

John H. Cochrane:

Well, it’s how we run our tax system. So just our import taxes and we run the-

Adam Lashinsky:

With lobbying and exemptions.

John H. Cochrane:

Exactly.

Adam Lashinsky:

All right. You touched on something that someone in the audience wants to hear more about. So I’m going to read this. There is much focus in this conversation on systemic observations or state actors, but it seems another unprecedented feature of the current economic trajectory is the outsize impact of volatile and self-something individuals, self-serving individuals in position of power. This person says, for example, Elon Musk. How does this affect the forecast, or does it simply mean we’ll have more volatility? So you raised the issue of crony capitalism, for example, and then we have ample evidence of this happening right now. Are you, John, or anyone else concerned about that?

John H. Cochrane:

I think it is a great mistake to allege evil motivations to people when you don’t know what their motivations are. So yeah, Musk is influential. Andrew Mellon was influential to Coolidge. George Soros was influential to Biden. Everyone’s had influential buddies. Musk is bringing some energy, he’s bringing interesting new effort here. Why don’t we take this at face value? Going back to the beginning of the Republic, people took time off from their private business to go in public service and not necessarily make-

Adam Lashinsky:

Susan, I’m going to bite my tongue and ask you to comment, to respond.

Susan Hyde:

Look, I think it’s important that the US respects its democratic institutions. And I think that it is true that most US presidents bring with them foreign policy advisors, economic advisors. But we have a process and an institutional method for appointing those folks, for vetting them via security clearance, for giving them authority and access to systems. And that is what’s most concerning to me right now. I think that shaking things up is a great thing. It’s good to have advisors who will give you new ideas and will help shake things up. That’s not the complaint. The complaint is that we’re seeing a departure from some very important rules and institutions that are part of US democracy. And I think that’s where my concern lies.

Adam Lashinsky:

But like what? Be more specific if you would, because John’s saying, let’s just assume Musk’s intentions are good and he’s going to do some good work on behalf of the US taxpayers and citizens.

John H. Cochrane:

I want a short chance to agree once you’re done here.

Susan Hyde:

So I don’t know that his intentions are good, I don’t know that his intentions are bad. I’ll say two things. One, we’ve seen things like this in a lot of other countries in the world, again, this is something I do spend a lot of time on, in which this type of individual can be a big source of self-dealing and corruption as I think the questioner was talking about. So that is also a possibility. I think we can all hope that Musk is there for the only the best intentions of the United States. I think that’s what we should all hope for. It’s also possible that there are other motivations there. And I’m just considering the full range of possibilities. When we think about this specifically, I’m concerned about just the fact that this special employee status that Musk has, it did not go through the same procedures that normal advisors go through.

Adam Lashinsky:

There’s lack of oversight is what you’re saying, potentially?

Susan Hyde:

It’s oversight and accountability.

Adam Lashinsky:

And accountability.

Susan Hyde:

And ability. If he does do something that would cross the line, I’m not sure what the procedure is to deal with it at this point.

John H. Cochrane:

I want to agree with Susan. There’s a larger picture here, which isn’t about Musk. There’s a flurry of executive orders. And among my many pronouns or many adjectives is conservative, and conservatives don’t like the idea that we elect kings. We have a republic. The rule of law questions and what’s going on right now, rule by executive order, even rules by regulations would be lovely to go back to well-formed administrative procedures, act regulations. I think that raises real questions. So the means of what’s going on now is very unsettling.

Adam Lashinsky:

Great. A little bit of a change of pace that I think will be interesting for all of you. Some hypothesize that the current dramatic changes in policy are the result of stagnant standards of living for the middle class. How do you see your outlook impact the middle class versus the most wealthy and educated. And Mary, let me start with you. How can you approach a question like that?

Mary C. Daly:

Yeah, absolutely. I mean, one of the things that I’ve studied throughout my academic career, or my research career is the inequalities that form between the bulk of the country and others. And ultimately, it’s a breach of the equation that people were taught, that if you work hard and you play by the rules and you engage in the economy, your incomes and your well-being will grow and you’ll pass that from your generation to the next generation. And that equation has been disrupted. And so people feel that they… You can look at it. It’s automation, it’s globalization, et cetera, but it’s the inability to plot your path in life and feel like you can get there. And the high inflation period we just came through just is furthering that kind of concept.

And I think ultimately, I come from the Midwest and when I go back to visit my family, and I grew up in a place where lots of things got disrupted and people lost their jobs. And ultimately, they always ask the same question, why isn’t the economy better? Why can’t I get ahead? The aggregate data or the aggregate numbers don’t inform me. My experience is I’m falling behind and I’m falling behind. And so ultimately the idea that we can grow faster, and productivity can help us and more people can come into the workforce and we can engage in that, I think that’s a positive that many Americans, whether you’re in the middle or the lower part of the income distribution, are buying into. They want that. They want that idea that we could do better for everyone.

John H. Cochrane:

We can do better, but I want to challenge the premise. And I think we’ll see if Mary disagrees with me. It’s simply not true that the opportunities for the middle class have stagnated. Wages, real wages over the last 20, 30 years are going up. Now, people don’t work as much, especially when you get below middle class. Earnings are low because people aren’t working. But wages and especially after tax and transfer are stronger than they ever were. Now the very top end has a lot of market-to-market stock market wealth, which isn’t doing them a whole lot of good because it’s all reinvested in companies that are growing. So there’s market-to-market asset inequality, but just the premise that wages and opportunities for the quote middle class have stagnated is just not true.

Adam Lashinsky:

We’re going to go Mary, Susan, Baie, please.

Mary C. Daly:

But John, I think that’s true as a fact. That’s not-

John H. Cochrane:

They could be better.

Mary C. Daly:

… debated. They could be better. What people look at though, this is a human characteristic. You don’t just look at how well you’re doing, you compare it to how well everyone else is doing. What is true is that the highest end have been doing much, much better than the next, the 75th, than the 50th. And so that widened the gap of how well you do. So it used to be a rising tide lifts all boats, and what that meant is everybody rises together. Now people are, it’s rising tide is lifting the boats, but the returns on that tide are higher for the highest end than they are for the middle. And people feel a little bit discouraged by that.

John H. Cochrane:

But the middle has risen.

Mary C. Daly:

It has risen.

John H. Cochrane:

I just wanted-

Mary C. Daly:

That’s a fact.

Adam Lashinsky:

Susan, please.

Susan Hyde:

I just wanted to add to the equation that one of the things that we think has historically unprecedented in my field is income inequality. And that’s something that is associated with fairly stable… Adam Przeworski is a political scientist who’s written on rich democracies being very stable places. But one of the things that he thinks is a historically unprecedented and potentially bad for both democracy and stability is the level of income inequality that we’re seeing right now, not just in the US but globally.

Adam Lashinsky:

Baie?

Baie Netzer:

I want to encourage everybody, if you want to dive deeper into this, to go to BankofAmericaInstitute.com. Bank of America banks half of all the households in the United States, and we look across our 69 million small business and consumer accounts, and we identify trends in employment, spending, income. One of the key insights we got last year was that the major discrepancies in wealth, and spending, and employment are generational. So there was a huge discrepancy in discretionary spending between Baby Boomers and younger generations. Specifically, those 60 years and older were the only demographic to have increased discretionary spending year over year. Largest decline was in the Gen Xers, followed by the Millennials, but for different reasons. The Gen Xers appear to be saving more for retirement, which makes sense, right? They’re next after the Baby Boomers to retire, and they seem be spending a lot of money to support Gen Z. Now, Gen Z is those 15- to 30-year-olds, right? Some in school.

Adam Lashinsky:

This is their children.

Baie Netzer:

Some in school, some out of school, but still living with mom and dad. The Millennials are a different story, and this gets a little bit to the struggle that many are seeing, and this is particularly true of the 35 to 45-year-old Millennials, so the older end of that range. They are the most exposed to higher interest rates, higher inflation, and higher housing cost. They hold the highest portion of US student debt outstanding. Right at the time when they’re having children, they want to settle down, buy a house, they have inordinate inflation in childcare, it is way over the average for inflation, and they face one of the most unaffordable housing markets in decades. They don’t have the discretionary spending to spend right now.

Baby Boomers on the other hand are sitting on decades of accumulated wealth. The average net worth of a US Baby Boomer household is 1.8 million. The average net worth of a US millennial household is 200,000. So in terms of consumption, what is powering that right now? You think about the Baby Boomers. Think about travel and leisure, think about senior living, healthcare. Typically, when I’m talking to our clients, Millennials will raise their hand and they’ll say, well, what about wealth’s transfer? Ultimately, I’m going to inherit this and that’s going to power my consumption. And my response is, say that to a Baby Boomer and you’re going to hear four words. “I’m not dead yet.” The Baby Boomers are spending their accumulated wealth. They’re aging in place, they’re not selling their homes, and they are outspending. And that powers consumption. The top 20% of income earners power 40% of consumption in the United States. So income inequality is definitely a political issue. It is a social issue as well. It’s not showing up so much in that consumption data on the overall economy.

Adam Lashinsky:

I just want to ask you, Mary. It’s obvious why B of A would focus on data like that because it’s effective product strategy. Does any of that resonate with you from economic perspective? And what I’m asking is, does the Fed look at a demographic segmentation like that?

Mary Daly:

So of course we have to look at the entire economy. I mean, the thing you learn early on if you’re an economist or a policymaker is if you just look at single numbers and you think the story, you’re probably going to be wrong. So you have to look at all the inputs, and one input is how the economy is being experienced by all types of groups. And generational groups is really one of the things that are important to the continuation of the economy. And I just want to go back to something that we’ve been talking about. We’re talking about the details, but just go back to the philosophical question. Do people want a country that delivers from one generation to another a higher standard of living? And do we want that to be something that people feel is available to them? And I think most people are saying, yes, we want that, and then that data collide with that expectation, and they say something’s got to change.

So whether their wages have risen and they have, they want the equation to work better for them, and I think that’s something we all have to take in. And whether it’s the Baby Boomers are spending out of their things instead of passing it down. I mean, if you go to the younger generations, and I’m sure many of you interact with them regularly, they’re just afraid. They’re afraid that they work really hard, inflation erodes their earnings, they try to buy a house, it’s really delayed. How can we have children? We can’t afford childcare. And that’s something that I think is important to making the equation be better.

Adam Lashinsky:

I realize if we did fail in some ways that we did not have particularly good age demographic diversity on this.

Mary Daly:

Well, I’ll just say I know a lot of young people and they complain a lot to me, so that’ll help.

Susan Hyde:

I work with them all the time.

Adam Lashinsky:

Yeah, okay. But it’s interesting. Just briefly, I think you mentioned in your very first remarks that one of the things that the Fed does is it talks to businesses, it’s surveys businesses. Does the Fed also survey individuals?

Mary Daly:

Absolutely.

Adam Lashinsky:

How?

Mary Daly:

Yeah. So if you don’t know the Fed very well, we have something called the Beige Book. And so, we’re asking questions and we talk about all the reserve banks, the regional reserve banks, there’s 12 of us all do this. And we get input from individual community members, from civic leaders, from businesses, small, medium and large. Some of these are running global companies, some are running a local coffee shop. And we’re getting that input. But we also spend a lot of time in what I would call the field. And I’m meeting individuals all the time and asking them, “How are you experiencing the economy?” And I still hear, despite all of this, I mean we’ve talked a lot about an administrative change and administrations change and policy changes, but what the Americans I’m talking to are facing is what’s going to happen with inflation, and will I still have opportunities in jobs? So it comes back to the fundamentals.

Adam Lashinsky:

I want to read you, Mary, a question from the audience. What are the ways that Fed leaders can protect the independence of the Central Bank, particularly in the political climate that lacks checks and balances?

Mary Daly:

Our independence is something that has been historically very valuable and valuable across other central banks as well. The single best way to protect independence is to do your job well. So that’s why you’ll hear us consistently focusing on getting inflation back to target and making sure we do that as gently on economy as we can so that we’re not trading off full employment for lower inflation. We want to do both, but that is the single best way. Americans trust leaders who are accountable, transparent, and good at their work. So that’s where we’re at. That’s how we do it.

Adam Lashinsky:

Susan, can you jump in? I think Turkey doesn’t have an independent central bank. President Trump has made comments that he doesn’t think the Fed should be independent.

Susan Hyde:

So we have seen a sort of unprecedented attack on US institutions. A few of which, and I don’t think we have time to go into details, but I really hope the Central Bank is never one of them in terms of it being continued to be staffed by the experts that it should be, and they really shouldn’t have the folks who are focused on making the economic choices that are required for a central bank to be truly independent to continue to do their jobs. A lot of countries have adopted the name Independent Central Bank without actually having one, and lo and behold, they don’t have the same effects on inflationary policy and a whole host of other things. So, I think you do have to protect central bank independence from political interference. It’s extremely important for them to continue to have that same effect.

I wanted to mention one tiny other thing related to what the people want. We are also, at the political scientist room, I have to say we’re in this moment of just unprecedented informational environment that we haven’t seen, and so I don’t know what to compare it to. A lot of people are not sharing the same information about what’s happening in the world, and that is a threat to a lot of the things that have come up in relation to accountability and citizens holding their elites accountable. If they’re being lied to and if there’s an easy way to do that in a political fashion, that’s bad for all democracies in the world.

Adam Lashinsky:

It occurs to me, John, we have a real time experiment going on, which is that we have the central bank of one of the world’s major economies that is not independent, and that would be China’s, and we have ours. So we actually are running a real time experiment in that. Would you agree?

John H. Cochrane:

Well, independence is not an absolute goal. And I think actually the US is just about perfect on the spectrum of independence versus non-independence. We live in a democracy. We do not take a technocrat and say, “Go do whatever you want with the money supply, and you’re there for life and we can’t stop you no matter what.” No. The board members are periodically reappointed, Powell has to go before Congress, blah, blah, blah. The independence of the Fed comes with not just competence, which is very important, but also respecting its limited mandate. When we say inflation and unemployment, we say, and only inflation and unemployment. You may get it in your head that there’s some other policy goal you want, good or bad, you’re not allowed to go there. The Fed has limited tools. If the Fed wants to stop inflation, the easiest way to do it is to go take 100 bucks out of everybody’s pockets and burn it. That’s called taxes. The Fed is not allowed to do that.

Too bad, because that would be the most effective way to stop inflation. But unelected technocrats don’t get to do stuff like that. So there’s a balance here, and we want democratic accountability eventually. It’s like when you’re dieting. You kind of put the beer in the basement so that it’s hard to go get it, but you don’t-

Mary C. Daly:

We’ve learned a lot about you, John.

Adam Lashinsky:

But it’s there, but it’s there. Look, because we are very nearly out of time, I thought that was very well said. But Mary, I want to give you the last word to react to that.

Mary C. Daly:

Sure, absolutely. And I did think it was very well said. I mean, ultimately you see that I have not commented on things about how the fiscal agents, our administration run the society and our government. And that’s because the single best way to lose independence is to step outside of your mandated goals. We have mandated goals, price stability, full employment, monetary policy. We work on the payment system for safety and soundness. We don’t make spending decisions, we don’t make lending decisions. We just do our work, and we do it well. And if the world is working as it should, you don’t even know we’re here.

Adam Lashinsky:

I want to thank-

John H. Cochrane:

Make the Fed boring.

Mary C. Daly:

Make the Fed boring.

Adam Lashinsky:

I want to thank all of you for a stimulating conversation. Mary Daly, president and CEO of the Federal Reserve Bank of San Francisco. John Cochran, Rose Marie, and Jack Anderson senior fellow at the Hoover Institution. Baie Netzer, managing director and senior investment strategist for Bank of America Private Bank. And Susan Hyde, class of 1959 Chair and Robson professor of Political Science at UC, Berkeley. If you would like to become a member and support the club’s efforts in making virtual and in-person programming possible, visit www.commonwealthclub.org. I’m Adam Lashinsky, and even though I do not have the gavel that they used to give me, we are finished. Thank you and see you next time.