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00:00ON A SUSTAINABLE TRACK. SCARLET: HE IS NOT WORRIED ABOUT NOT ENOUGH INFLATION. INFLATION EXPECTATIONS MAY HAVE EDGED LOWER. WE SHOULD BE CAUTIOUS IN ASSESSING THAT A TIGHTENING LABOR MARKET WOULD MOVE INFLATION BACK TO 2%. YOU TOTALLY CALLED THIS. HOW DID BRAINERD WIN OVER YOUNG VERSUS FISHER? >> SHE STARTED TO WARN, WAIT A SECOND. I AM NOT SURE THAT WE CAN RAISE INTEREST RATES AT THIS PACE AND THAT LOOKS FAIRLY PROPHETIC. I THE TIME WE GET FIRST QUARTER. MARKETS SHUDDERED AT THE ASPECT OF FOR INTEREST RATE HIKES AND THAT WAS A CRITICAL FACTOR IN SWAYING THE COMMITTEE TO JANET YELLEN -- TO BRAINERD'S POINT OF VIEW. >> IS THIS EVIDENCE THE FED IS KEEPING AN EYE ON FINANCIAL MARKETS AND WHAT IS GOING ON AROUND THE WORLD IN TERMS OF VOLATILITY? >> THAT IS ONE OF THE CONCLUSIONS AND IT IS IMPOSSIBLE TO AVOID. THERE IS TOO MUCH FEEDBACK BETWEEN THE POLICIES AND WHAT HAPPENS THE REST OF THE WORLD. TO IGNORE THE ISSUES OF THE DOLLAR IN GLOBAL FINANCIAL STABILITY. WHAT WE'RE SEEING HERE IS A CONTINUATION OF THE PROCESS WHERE THE FED IS ACKNOWLEDGING THOSE EXTERNAL RISKS AND RECOGNIZING IT IS HARD TO BREAK AWAY FROM THE REST OF THE WORLD WHEN THE REST OF THE WORLD IS LIVING TOWARD ZERO INTEREST RATES. >> REYNARD IS PUTTING INTO -- THE EXPECTATIONS. HOW RELIABLE DO THOSE INFLATION EXPECTATION MEASURES PLAY OUT TO BE? >> THAT IS A FANTASTIC QUESTION, ONE THAT THE FEDERAL RESERVE IS STRUGGLING WITH. THE SURVEY MEASURES HAVE DRIFTED DOWNWARD. THE MICHIGAN NUMBERS WERE STRONGER TODAY. THEN THERE'S THE QUESTION OF HOW MUCH DO THEY READ INTO THE MARKET BASED MEASURES OF MARKET EXPECTATIONS OR INFLATION COMPENSATION. THERE IS ENORMOUS AMOUNTS OF UNCERTAINTY OF WHAT IS GOING ON WITH INFLATION EXPECTATIONS BUT BY MOST MEASURES THEY HAVE BEEN ON THE SOFT SIDE. THAT RESONATES WITH FEDERAL RESERVE OFFICIALS. IF YOU HAVE TO THINK ABOUT WHERE THE BALANCE OF RISKS LIE IT DOES NOT TRY WITH THE FACTORS THAT WOULD NORMALLY BE ASSOCIATED WITH RISING INFLATION EXPECTATIONS. >> THEY HAVE BEEN TAKING UP EVER SO SLIGHTLY RECENTLY. WE SAW YELLEN LOOK THROUGH THE SERVANT -- SURVEY-BASED MEASURES. DOES THAT GIVE AN INSIGHT AS TO HOW SHE FEELS? >> SHE PAYS ATTENTION TO THEM BUT SHE IS ALSO SKEPTICAL OF THE DEGREE OF INFORMATION THEY CONTAIN. SO THIS IS AN ISSUE WHERE THE FED IS GOING TO SEARCH THROUGH SOMETHING THAT IS HARD TO MEASURE. SCARLET: IT HAS BEEN SO LONG SINCE INFLATION HAS OVERSHOT TARGETS OR CONSENSUS. WHAT HAPPENS WHEN INFLATION GOES DOWN WHAT WE EXPECTED? >> THE CONCERN FOR THE FEDERAL RESERVE IS THAT WE START TO MAKE TO MAKE DECISIONS ON THE BASIS OF HIGHER EXPECTATIONS OF INFLATION. GENERALLY WHEN WE SEE THAT HIGHER INFLATION WE ARE CONCERNED THE ECONOMY IS INCREASINGLY RANDOM IN THE SENSE THAT RETURNS FOR ONE SECT HIM -- THE SECTOR ARE RELATIVELY HIGHER THAN RETURNS FOR THE OTHER SECTOR. >> WE HAVE A FUNCTION AT THE TERMINAL THAT LOOKS AT THEM. YOU CAN SEE HOW THE WHOLE WORLD IS FALLING SHORT. THE ACTUAL TARGET VERSUS WHERE WE ARE AT. AND IN REALITY, YOU ONLY REALLY SEEING AUSTRALIA MAY BE KIND OF CLOSE TO THAT TO PRESENT LEVEL. SCARLET: THAT IS A GOOD POINT. 2% BECOMING THE GLOBAL BENCHMARK. WHEN OIL WAS STABLE BEFORE BEGAN ITS HISTORIC COLLAPSE, HOW RELIABLE WAS INFLATION EXPECTATIONS AS AN INDICATOR? >> BIG ABOUT WHAT WE ARE TALKING ABOUT. THERE HAS BEEN SOME CONCERNS THAT MEASURES OF INFLATION EXPECTATIONS THAT WE USE SUCH AS THE MARKET BASED MEASURES ARE NOT TELLING US THAT MUCH ABOUT INFLATION FIVE YEARS FROM NOW. THEY'RE TELLING US SOMETHING ABOUT A MODEM THE MARKETS THAT COULD BE INTERPRETED AS ONE THAT IS INFLATIONARY OR RECESSIONARY OR DEFLATIONARY. I'M NOT SURE AGAIN THE FED HAS THAT MUCH FAITH IN THE EXACT NUMBERS THAT ARE COMING OUT OF THOSE MARKET-BASED MEASURES. ALIX: BRAINERD WON THIS ROUND. ISSUE GOING TO BE VICTORIOUS FOR THE FORESEEABLE FUTURE OR IS

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Fischer Versus Brainard: The Fed's Take on Inflation

Tim Duy, a University of Oregon professor, discusses the Fed's take on inflation with Bloomberg's Alix Steel, Scarlet Fu and Tracy Alloway on "What'd You Miss?" (Source: Bloomberg)

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