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00:00Great to have you talk to us first about perhaps maybe some of the different shifts that maybe the Federal Reserve has seen relative to maybe what you're looking at a lot of people have said that the Fed it's clear they are behind the curve. How do you think we've gotten so far behind the curve. I think we are behind the curve. I think that's one of the reasons we have seen inflation to be picking up. I think the reason is it was a very serious head to the economy and it was sort of shocked. But I think you know at least for the last three quarters of a year maybe longer it's clear that the need to start moving and I think just a little reluctant to want to see the data had to look at it. Well I don't think that's really the reason for the slow news depending on how you read our statement that I think they're they're beginning to see that and take action. There's been a lot of talk here about the flexibility that the Fed that FOMC members want to have to be able to sort of look at data react to it or in some cases not react to it if they think that it's going to be a relatively transitory here. Do you think that the flexibility as it currently stands with Fed policy is maybe a little bit too flexible. No I think it's it's it's it's flexible in the wrong direction. I think you know if you look at the history of rules like the so-called Taylor Rule you see when they have gotten on it hasn't worked out so well when they're on track and works pretty well. So that's the lesson. And then I think by any measure they're on track now and they have been for a while. And so they need to make that adjustment. And I think it would be better for the economy if they make the adjustment sooner rather than later and smooth as Tennessee forecast the ball as possible. But we haven't got to that point. You have. And they're still talking about the future. But the Fed's new framework implied that it was going to drift away from these sorts of rules. They decided that they wanted him to have that flexibility particularly to overshoot on inflation to have a more inclusive labor market. But suddenly it's felt that inflation is one too hot and increase in the labor market perhaps isn't the main focus when indeed the world is upended from a supply chain perspective. Should they never built in that flexibility. Would you make of the new a framework of the Fed and whether or not it works. Well they made this adjustment. Is average inflation targeting the idea that you can plug that into a rule and you can see what it implies. And also there's a debate about the so-called equilibrium interest rate which people call our star. John Williams. It's a lot of work by not just debate about that but even when you put those in it looks like the rate is too low. And if you assume inflation comes down it's just too low. And so that's I think that people have to take into account. It's not one particular strategy or rule. It's not all sad. And the Fed actually publishes these and it's its monetary policy report. Page 44 wrote about the most recent one there. They're sitting there in the on wall and others. And you can see how they're behind the curve. What about the structural shifts that have been created from the pandemic. We heard from the Fed chair earlier and I believe it was last year when he said maybe the natural rate of unemployment. It's a lot higher maybe than it has been in previous cycles. Do you see those structural shifts underway as as well. It's certainly possible. And I think that's where the Fed is banking on. But again the magnitudes are not nearly large enough to have this rate near zero in J. But I'll put it know I think that the notion you used the word twice very very strong labor market that's there in the notion of the federal funds rate is the primary means of adjusting policy. You said that as well as part of the principles. So all those suggests that it's about time to be clearer more systematic about the rate increase. People are writing about that. I think they're concerned. There wasn't much discussion of that in their press conference which I watched. But I think people are talking about all the time. You're seeing it in financial times in the newspapers the Wall Street Journal etc. They're beginning to see that there's a problem here. But when you talk about the rules that the Fed lists out in its policy report I mean they all sort of include I guess the employment gap to some extent or another here with regards to the inflation gap the gap between expectations and the trends that we see here. What can we blame. Maybe part of the lag in the Fed response to the idea that these were much more supply side issues they were happening in certain areas of the economy that don't necessarily show up immediately and those sort of headline inflation numbers. Is that a valid excuse. I don't think it is. We've seen this in the past and that was one of the excuses raised way back in the 70s as supply. It wasn't monetary policy. I think it is monetary policy because we have evidence that the rate is low compared to what history would show you your chart show that it's we've never seen it like this in the past so they need to make an adjustment. I don't think it's that unusual. Of course the pandemic was terrible and very unusual and still there. But I don't think it's sufficient by any means to justify the near zero rate. Meanwhile cost of living. Prices continue to spiral particularly the rent side and how much the Fed can affect that. Very quickly Professor. Is there any way they can orchestrate now a soft ending to what has been an economy running hot. By all means. And I think that's what we hope they will do. They'll begin to make the adjustments. Maybe it'll take more than what's in the cards which is only nine point nine by the end of this year. I think it should take longer to take more than that. But every again it's advertised. It's clear it doesn't need to be a contractionary effect. It makes it all focus on inflation. And that's what the Fed should aim for. The economy doesn't need a downturn at all. That's pretty ridiculous when it needs to be stronger and it will be stronger if we deal with this inflation problem.

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Stanford's Taylor: Fed Is Off-Track, Needs to Adjust

John Taylor, professor of economics at Stanford University, says the Federal Reserve is behind the curve on inflation and needs to adjust policy. He speaks on "What'd You Miss?" (Source: Bloomberg)

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