YouSaid · the spoken record

David Beckworth

lines on the record: 74
first: 2025-07-16
most recent: 2025-07-16
sittings or episodes: 1
sources: podcast

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“Well, they can follow me on X at David Beckworth. I have a sub stack called macroeconomic policy nexus. I'm Athanas Center, and you can follow me there as well.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“On the Fed's balance sheet was rated in late 2010s, I believe, to pay for some transportation funding. So the Fed's balance sheet is an attractive target and the more people know about what you can do with it, the more dangerous it is.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“The ample reserve of floor system, one of its features that the proponents talk about is that the size of the balance sheet is separate from the stance of policy. So prior to 2008, you could adjust reserves and it would directly adjust the interest rate on the target. Now we can grow the balance sheet, shrink the balance sheet and we peg. It's an administrative interest on reserve interest rate. It's a beautiful thing they say. We got two levers. It's true. It also comes with a cost. It's the double-edged sword of monetary policy. And that is if a politician learns this. Oh, so you're telling me you can do monetary policy with rates and then inject a bunch of liquidity to buy my bonds. I want to build a wall. How about some wall bonds or I want a brand new deal? There's just some green new deal bonds and buy those. So it's very tempting. And in fact, the Fed's balance sheet has been rated before. There was the cap.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Then there is a case, and I've looked at it, and it's about 20 basis points. So it's something. In fact, I estimated from late 2008 to the end of 2024, it's about $55 billion. That's something, but the Fed has paid out close to $400 billion. So it's about $15, $14 overpayment of what the Fed has paid. So most of the money the Fed paid the banks would have been paid through interest rates. So it's more of an illusion than anything. So it's not going to save us a lot. But here's the thing. I do think it's politically a sensitive topic. So it's good time to talk about this. Do we always want to have someone saying, hey, why are we paying the banks? Before it was Elizabeth Warren, now it's Rand Paul. I think banks would probably prefer something where it's less a toxic environment. And there's other reasons to question this reserve system. Just real briefly here.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“By regulators and supervisors to hold plentiful, high quality liquid assets. And so if we suddenly said reserves are going to pay zero, so if we take away interest on reserves, they're still going to be there. They're effectively being paid at zero. And Treasury bills are still being paid four and a half, 5%. Well, guess what's going to happen? Banks are going to scramble and try to get to treasury bills. And so what would happen is now Treasury Bill rates may come down some, but what's going to happen is that the government's still going to be paying interest to banks via the interest payments on treasury bills and treasury notes and things like that. So there is no free lunch here. Now, there is a little bit of an argument here to the extent that the Fed was paying more on interest to banks versus what an overnight treasury bill would be.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“But their call was to end interest on reserves. And the reason for this, again, circling back to fiscal dominance, they thought, man, we could save all this money we're paying out to banks. Imagine if we didn't have to pay under some reserves. That would be money going into the Treasury paying on our debt, our deficits, which sounds great, wonderful, great motivation. I'm glad they started the conversation because I do think we need to talk about the operating system that we have. However, it's not going to save us any money to be blunt. And here's why. For a given amount of demand for liquidity, so there's a lot of reasons banks have a large demand for highly liquid assets. And that's the new regulations coming out of Dodd-Frank, out of Basel. So everything from liquidity coverage ratio to internal liquidity tests, banks are desiring, and then in many cases required.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“They view this ample reserve system as one that, again, it satiates liquidity demand. Banks have all the liquidity that they need. There's not going to be a rush for liquidity, which of course it's not quite the case as we saw in 2019 and in 2020. That's the motivation. And so now they would have totally different arguments for why we have it. They think it satiates liquidity. They think it meets something called a Friedman rule, which says you should supply liquidity until things are satiated at equal to the cost. They think it's easier to implement than what we had before 2008 because you don't need to forecast reserve demand. So these are all the arguments for it. I won't get into all of them unless you want me to. I can come back later. But there have been these calls, which I think you're addressing by some officials, some senators like Ted Cruz, but also Rand Paul behind the scenes been pushing this.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“We're in this regime because in late 2008, the Fed was worried about putting too many reserves into the economy. They were worried about inflation. Going back to this comment I made earlier about, you know, they were talking up rate hikes in 2008 because of the commodity prices driven up inflation. So what they were doing is they were injecting liquidity to help the financial system because it was teetering long before the broader economy collapsed. The financial system, as you know, was understrained late 2007, 2008. And yet the Fed was worried that all this liquidity was put into the system was going to generate more accurate demand, more inflation, ironically, right? They were worried about that in 2008. So they imposed interest on reserves. It was a way to keep the reserves at the, from circulating out, from becoming high-powered money, from turning into inflation. That was the original reason that was introduced. Now, over time, the justifications have changed. And now...”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“All right, so just to round up this conversation, you already mentioned a couple times through this conversation, but this idea of removing interest on reserves, and I think that brings up this discussion as well around executing on the rate targeting policy in terms of just the actual mechanics and the monetary plumbing associated with it. As of right now in this ample reserve regime that we're in, the best way that they have to protect the upper bound of the Fed funds rate is through interest on reserve balance. They also have like the standing repo facility there available and that sort of thing. And on the lower bound, the RRP. So that's a very different world that we're in now versus like pre-2008 before this all happened. And so I'm curious if you could just explain a little bit about the mechanics of both the implications of what would happen if we did something like removing interest on reserve and then also just why we're in this regime right now of how we execute on monetary policy.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Disruptions. Now, to do that would require Congress to authorize it. That's the hard part, I think. And that may not work, but if someone can go talk to Secretary Besson, President Trump about this, I think they would like this because it would make the Fed more nimble, less worried about disruption. QT is hard because you do have these long-term securities you got to unwind. And they can be disruptive. So what we need to do is get them off the Fed's balance sheet without getting them back into circulation and the treasury is the only entity that can do that.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“The way to avoid the hiccups is not to quickly solve those long-term treasuries. What you do is you take the treasuries off the long-term treasuries off the Fed's balance sheet and you put them on the treasuries balance sheet, long-term treasuries and Fed's balance sheet on to the treasury. So they still wouldn't be in the transacted on the marketplace. They would just go from one government agency to another. And instead, what would happen is you'd have more treasury bills. And there's much more stronger appetite for treasury bills than there are. So you wouldn't have changed the flows of long-term treasuries currently in the market. You wouldn't be selling treasuries into the long-term treasuries into the market. But you would still have a cost because there's the interest rate risk that the treasury now would bear the cost to the taxpayer directly. But it would avoid putting them into the actual treasury market and causing them.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, great, fair point. I mean, moreover, if we are heading into a fiscal dominance regime, as we talked about, then this is completely off the table because the Fed will be required to buy up a lot more securities, right? So this might be you and I dreaming about an ideal world. Ever exist, even if we were not getting close to fiscal dominant world, which I think we are, there's still the chance of a recession. I think it's your point. Like there's always going to be a...”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Question I have is around how do they get to that point of achieving this duration match balance sheet without? Forth a bunch of excess duration onto the market, and how do they do so without any sort of hiccups? And then the second question being Obviously, that's all well and good to think about in this stage. We're just in this expansion and we have maximum employment. What happens during a crisis? Like, is this actually realistic to happen?”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Long term treasury. So I think the Fed should minimize its footprint, minimize the fiscal cost that it's incurring. And I don't know if I want to go back to the pre-2008 system, but I would go on the journey that many other central banks are going on right now. They're going towards a demand-driven system as contrasted with a supply driven. So what we currently have, the Fed just pushes out it, supplies all these reserves until liquidity is satiated. So the European Central Bank, the Bank of England, Reserve Bank of Australia, Bank of Canada, they want to go to a system where banks, money markets, the financial systems demand for liquidity drives the amount of reserves and liquidity in the system. And we don't think all the details, but that is, I think, a more efficient approach that minimizes the footprint of the Federal Reserve and the financial system.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Department, so the trash, and we'd swap them at face value apart so all the interest rate risk would be transferred over to the Treasury Department. And now you would have this matching maturity. You would have Treasury bills on the Fed's balance sheet, on the asset side to match its liabilities of overnight reserves. So the Fed would stop losing money and it would be much easier to roll off treasury bills. They're short-term anyways. You just naturally could roll them off and shrink them based on what your preferences are. And I think it's also important because when the Fed is losing money, it's something being indirectly borne by the taxpayer. It's actually a fiscal cost. But we don't see it directly. It's kind of like, you know, what's this deferred asset? What's deferred remittances to treasury? We don't see it. We don't process it. If it goes to treasury, it's very clear that there's a loss because now Treasury is bearing interest rate risk on these.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Well, my sub stack because I think the Fed's balance sheet effectively gives it a footprint that's way too big that really undermines muscle memory in the markets, that causes over-reliance on the Fed to be the liquidity provider of first resort as opposed to last resort. But here's something I would recommend if there's anyone at the Fed listening, any policymaker listening. One way to expedite this process would, and this would probably take an act of Congress, so maybe I'm being way too ambitious, but call it a moonshot, if you will. But the Treasury should issue a bunch of new Treasury bills, ones that don't count toward the debt ceiling. And here's why. The Treasury would take those Treasury bills and swap them for the long-term Treasuries held on the Fed's balance sheet. It would do an asset swap. So now all those long-term treasuries would go to the Treasury.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“I think Governor Waller is correct. They're going to gently go toward maturity matching on both sides of its balance sheet. And I think more towards Treasury bills is going to take some time. They got to run off those agencies as well. Those are probably even more destabilizing if they do them too quickly. I think that's the right direction. I just don't think they'll go far enough. I'll say this. I think there's ways to expedite this smoothly. I mean, here's the danger. If you run off the Fed's balance sheet too quickly and it holds all these long-term treasuries, as you said, it can be disruptive to the long-term treasury market, 10-year yield. And that's very important to mortgages and a lot of economic activity, right? So how do you do that? How do you run things off without being disruptive? Putting aside money market issues like the repo crisis and so on 2019. And here's my proposal. I think we should go to a very different operating system altogether. And I've written about this.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“And then the last factor is just the usefulness, and what are we trying to achieve with the balance sheet? So it feels like there's a lot of talk right now around where do they want to go as they get out of this world of QT that they're in right now and to think about what's next. And there's been some interesting speeches, especially from Governor Waller talking about this idea of returning to a regime where effectively the Soma portfolio, their assets and their liabilities match on a duration basis because right now A lot of their liabilities are long duration, a lot of their assets are short duration and that's posing some issues. So yeah, my first question around this idea of balance sheets and you can go in any direction you like from there. But yeah, like what do you think is the role in the future for the balance sheet in this situation?”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Can easily be a source of confusion. So if we can somehow reiterate this as a conditional statement, it's conditional on current circumstances. I think if there's a way to better articulate what maximum employment is, I think also I'll just throw this in there. If there's some way to say, look, we're trying to stabilize total dollar spending, maybe put a nominal GDP measure in there. Also, I mean, this would be really radical, identify who all the dots belong to. I mean, of course, we might just look at the Fed chair's thought in that case, but I think the more transparency, the better. Since we've opened this floodgate, I don't think we're going back. So let's make it more transparent.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“If I'm an investor, if I'm a bank, many of these banks, they look at what the Fed thinks, what the Fed, and they think the Fed's going to do. Again, it's a conditional forecast. If I would say, oh, we always said this is going to change if conditions change. But when you're making plans, you look at what the Fed's thinking currently and it becomes kind of like an unconditional forecast. So I think a lot of like, you know, the banks, Silicon Valley Bank and such, why were they holding these assets the way they were? They were surprised by the sudden increase in interest rates. The Fed itself was surprised by the rate increases, right? The Fed's losing money on this balance sheet too. And so I do think the SEP is easily”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“I think they're much more limited in a world where we do have high interest rates, as you've mentioned, high inflation. They're still useful. I think they should be improved. But we can clearly see the danger of them in this sense. They're supposed to be conditional forecasts. So forecasts given what the policymaker knew at the time. And they're often viewed, though, as unconditional forecasts. This is what it's going to be no matter what. look to just to make this concrete, if you go to 2020, early 2021, man, the Fed was projecting close to zero interest rates. I forget the exact names, but really, really low interest rates for like three years out.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“How do you see the role of bad communication? So I think about forward guidance, these dot plots that they do, these press conferences that they do at every meeting. Obviously a lot of those At the zero lower bound, and they needed a way to effectively communicate policy into the future. But it's clear we're not in this ZERP era anymore. So how do you see the usefulness of those styles of communication?”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“So, I think an argument for nominal GDP targeting, it's not the only argument, is, look, the third part of the Fed's mandate, we talk about the dual mandate, price stability, maximum employment, but it also says low interest rates or stable stable interest rates. Well, guess what? Nominal GDP targeting would actually generate that. If in fact you want to target nominal GDP, you put that on, and let's say you can have some kind of systematic, almost automatic way to do that, then long-term treasury yields will also be relatively stable. So I think that's another argument for it. But again, that's assuming a monetary dominance world.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Two comments. One, if we were in a fiscal dominant regime, it doesn't matter what your preferred reaction function is, whether you target inflation, not only, those things are out the window. It's whatever Congress wants, Treasury wants. I mean, again, if you're in a fiscal dominant regime, then they're effectively setting what the inflation target is, what price level stability. There is no price level stability. They determine the price level and the inflation rate. When I talk about this debate about what framework, what target, flexible inflation, flexible average inflation targeting, or nominal GDP, I'm assuming really a monetary dominant one where fiscal house in the background is keeping things in order. But with that said, I want to go back to what you mentioned my second point. It's true, like over the long run, like long-term treasury yields, 10-year treasury yield does tend to track nominal, the nominal GDP growth rate.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Does that relate to this discussion we had around fiscal dominance where high debt to GDP levels, you know, if we just think about financial oppression, simple way to think about it is if we have NGDP above the cost of debt from the Treasury. So say Treasury debts at 3%, NGP is growing at 4%, over time that will alleviate the debt situation. Do you think that's a useful framework for if we were to pursue an NGDP level targeting?”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Seen that it was poised to take off and just really accelerate. And they could have used it as a cross check. So I think a central bank that follows something like a nominal GDP or total dollar spending target is it's easier for them to avoid the confusion created by an inflation target. Inflation targets just time and time again have confused. They confuse the Fed in 2008. The European Central Bank, they actually raised rates in 2008. And in 2011, during the Eurozone crisis, the ECB raised rates twice. So it's just because of inflation caused by supply shocks. In any event, I would push for something like that where you aim to stabilize total dollar spending in the economy. And so that's my reaction function would have that in it.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Cut rates and the economy wasn't free fall. And Ben Bernanke and his autobiography says that was the biggest mistake he made as fed chair. Point is this. Their eyes, their blinders were set on inflation, which was high as the economy was falling. So in my view, it's better to look at the total dollar spendings or equivalently total dollar income, every dollar spends a dollar earned. stabilize that's a nominal variable and in the long run if you stabilize total dollar spending you're going to stabilize inflation it's going to be very similar so an inflation target what i like a nominal gdp which is total dollar spending they're going to give you roughly the equivalent over the long run in the short run though it can make a huge difference in 2008 the fed would have reacted sooner now 2020 if they'd been looking at nominal gdp or forecast of it or again nominal gdp is a mouthful forecast of total dollar spendings they would have”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“An inflation targeter would say, Hey, don't respond to inflation going up because there's a shortage of something. That's just going to do more harm to the economy. They would say only respond to inflation going up from excess demand, too much spending, too much money. But in real time, it's hard to know what is it demand-driven? Is it supply driven? And in 2008, they began to talk up rate hikes. We never raised rates in 2008, but go back and look at Fed fund futures. Go look at Treasury futures. You can see between early 2008 and mid-2008, it goes way up. The market was anticipating. Go read some of their statements, man, in the August 2008 FOMC minutes. The balance of risk was towards higher inflation. They were worried about high inflation and inflation instability. They weren't worried about employment. 2008, of course, is the most infamous case. They actually did not.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“When the Fed has screwed up and has done poorly, it's because they deviated from this tailor rule, this systematic reaction function. Now, I'm someone who is persuaded that that's not the best way to do things. I think inflation targeting and in the short run is the simple and flexible inflation target is going to have a lot of problems when it comes to supply shocks. So when you do inflation targeting, And again, they would say, oh, we're going to look through supply shocks. We're going to be good central bankers and practice they're not. So in 2008, as an example, inflation was just soaring. It was getting really high. I want to say 7%, 8%, if I remember correctly, but it was getting high because of oil prices, commodity price. It was a negative supply shock. The rest of the world was sucking up these supplies. For us, it was a relative negative supply shock. In theory, they would say we should just look through that.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so you're asking about what's the right reaction function. How should the Fed respond to changes in the economy and where should it guide the dollar size of the economy? Inflation targeting, flexible inflation targeting basically says we're going to strive to hit 2% inflation. And they would even say it's flexible inflation targeting because over the short run, supply shocks, things are going to happen. You're not going to hit it perfectly. But over the medium long run, you should hit it. And that's kind of like what a tailor rule. So the famous Taylor rule, your listeners probably know, but a tailor rule named after the famous economist John Taylor, who observed this relationship where the Fed seems to systematically adjust its interest rate target based on deviations of the economy from full employment and also deviations of inflation from 2%. And anyways, you plug this in. It seems to work in most times.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, yeah, 100%. Okay, so I see sort of like three buckets for us to discuss. There's the rate targeting approach. There's their fed communications, i.e. forward guidance, name of the show. And then their balance sheet management side of things as well. So I want to go through each of those. So let's start with the rate targeting approach. You actually have right behind you NGDP level targeting. So maybe we can use that as a jumping off point for.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“A deep depression where they can do something like makeup policy, but they want to get away from it. They do not want to touch, they don't want, they don't want to touch fate with a 10 foot pull. They want to kill it. Interesting to see this evolution of thinking.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Kind of oversimplifies. I do think the Fed went too long with its purchases. I think well beyond what was needed. I think the more important reason for inflation in this period was when you dump $5 trillion into an economy with supply constraints, you're going to have big inflation overshoots. Anyhow, we go from fit to fate and they really have felt burned. I mean, if you read their speeches, if you read the minutes this past year starting, I believe in May, they have all but conceded that they don't want to do fate. And so they're going back to a version of fit, flexible inflation target. So it's an interesting journey. Flexible inflation targeting 2012, 2020, flexible average inflation targeting. Now we're going back to flexible inflation targeting. Now, if you read the documents, the minutes, they're still leaving some wiggle room should we go back to zero lower.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Average inflation targeting and Fit included a few more things than just the average. Average was a big thing, but they also changed the language on the maximum employment. So in the 4 2020, the Fed said it would respond to deviations above and below maximum employment, never defined what maximum employment is, but symmetric response. In 2020, they said, nope, we're only going to respond to bouts of unemployment. If a labor market overheats, so we're not going to worry about that. So they said explicitly, we're responding to shortages from maximum employment. So this policy is very, we would say asymmetric. It's asymmetric in makeup policy, only makeup from below 2% and only make up when there's shortfalls in the labor market. And then, of course, it's about as soon as this is implemented, we have the biggest run up in inflation in 40 years. So poorly timed, I don't blame all this on the Fed. I think saying fate's responsible.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“And they revise this consensus statement to say that the Fed can make up for past misses in its inflation target on the downside, to be very clear, not on the upside, but if they're persistently below 2%, then they can run the economy hot, stimulate the economy so that inflation is running above 2%. So on average, they get the average to 2%. And the thinking behind this is, well, if we're going to be stuck in a world with low inflation and slow growth, we need something like an average inflation target. Now, they called it flexible average inflation targeting because it was only from below. They wouldn't do it from above. So just to kind of summarize, we had something called a flexible inflation target or an ordinary inflation target, 2012 effectively 2020. Then in 2020, they introduced flexible average inflation targeting. So we go from fit flexible inflation targeting to fate, flexible.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Yes, so the Fed first created its consensus statement. If you read this document they have and they update it every year back in 2012 when they first adopted an explicit inflation target. So it's pretty clear they were implicitly targeting something close to 2% before then, but they came out, they got approval from Congress and they made it official and they had write up a statement how they do it, why they do it. And that's kind of like their constitution for monetary policy, this consensus statement. And as we go through then the 2010s, you know, it's a low inflation, low interest rate world, the Fed and many scholars on central banking are worried the Fed doesn't have enough ammunition and world rates are low and the Fed's main tool is its interest rate and they're worried that balance sheet purchases and balance sheet tools are only so effective. So we get to 2019-2020.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so for the second half of this conversation, I want to obviously within this context of fiscal dominance, we also have this review happening right now at the Fed in terms of how they execute on monetary policy. So they're going through their monetary policy framework review right now, which I believe happens every five, six years, correct me if I'm wrong. But the last time that happened was in 2019, I think, where they brought forth this average inflation rate targeting thing. And now they're relooking at how do they actually execute on monetary policy. You've been doing a lot of work in this regime. So I would love for you to just walk everyone through the different options that are at hand. And what are they currently thinking about? And what are some of the current issues with their current system of executing on monetary policy?”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“So that'd be a Rubicon. Although, again, I don't know that they would. Need to do that, they could just go through, and I and maybe even I would argue, you know, Wall Street and financial firms would probably object to the cutting out the middleman. So because if these firms aren't making much on their spreads because rates are being repressed, they want to make money off of something. And so the services provided to the Fed and the U.S. Treasury might be it.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. And in fact, historically, they have had before direct lines where they would by they even had a, I believe they had a repo facility, but these were always small amounts, but some have suggested that, yeah, we bring back direct purchases from the treasury by the Fed just to cut out the middleman and make it more transparent. Look, this is the reality, this is what we're doing. We're going to do it. Now, it may be, I'm not positive, but I want to say the stuff that they roll over on their balance sheet is directly repurchased from the Treasury, but that's different. But in terms of new additions to the balance sheet, you go to the market to get it. Yeah, in fact, the whole open market part of the Federal Reserve Act was added some years after the Federal Reserve Act was actually first established. So it was a new thing because the Fed was going directly to the Treasury.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“It was still a secondary market. I'd have to double check, but I'm pretty sure it was still secondary market, but it was just, they're basically a conduit. Was buying up, you know, most of the new issue. And so”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Is one Rubicon to be crossed here? Correct me if I'm wrong, but I'm not sure. Did the Fed actually buy treasuries directly from the Treasury in 2021, or was it still from primary dealers in the secondary market? It was still”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Institution to pick on in other countries that have gone through this. So Charles Kellemers came up with this scenario he thinks could happen. And I think it's possible, depending on how desperate we get. But he argued that one could get rid of interest on reserves. Now, again, I've argued by itself that wouldn't really relieve the Fed because banks wouldn't be holding treasury bills and they would pay too. But he argues you eliminate interest on reserves and then you reimpose reserve requirements again. So banks have to hold the reserves earning zero.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Massive large scale asset purchases. If we get to this place now, that I think is one definite sign. If you go into a coma, you wake up in a few years and we see yield curve control, rest assured we're in stage three. We're definitely in a fiscal dominant regime. I think that would be part of it. I think there'd be a spectrum, though, of efforts to push down rates and to impose effectively a tax on people and institutions in the financial system. So yield curve control would effectively be a tax. If the Fed pushed yields below, what would be the true clearing yield or interest rate, then we're not getting the full return, we're being taxed. Another form, though, might be banks. And banks are tried and true and tested.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“I mean, some people might say we already did yield curve control in the past. When rates, you know, the Fed effectively kept rates close to zero, loosen the short end, which kind of pegged the rest of the curve. But I think yield curve control is different than maybe what we did in the past. So I think one could argue in the past there are legitimate reasons why rates were low. The Fed was following the fundamentals down. It wasn't pushing them down. But even if you disagree with that, I think going forward, it's going to be fundamentally different. I mean, what yield curve control, you're absolutely right. What it would imply is the U.S. government's going to have to buy up a lot of debt. I mean, sorry, the Fed is going to have to buy up a lot of its government's debt because the peg those rates and to keep the market functioning is going to have to intervene. The Fed's going to have to really open up all of its repo facilities, probably expand the counterparty list.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“Okay, so we're in stage two. You've characterized a little bit about stage three. I just want to refine that a little bit more. Yield curve control you mentioned is something that occurred in the US in the 1940s. Obviously, Japan has experimented with that a lot over the last decade. Do you view that as sort of the end game of fiscal dominance? And as well, how do you contrast the use of Yule Curve control with QE, which the way the simple framework I have is QE is buying basically X amount at any yield and then yield curve control is buying any amount at X amount of yield. So I'm curious, how do you think about those two? And how do we, yeah, the trajectory basically towards that stage three, and if those are relevant. Using a similar philosophy to SMH, the Vanic Fabless semiconductor ETF ticker SMHX goes even deeper, exclusively investing in Fabless, semiconductor, innovators, designing AI infrastructure.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“If I'm Treasury Secretary Bess and I can't speculate based on what I hope AI will do, but it was an interesting thought experiment.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“You know, it's interesting, Felix. I saw someone on X make make a kind of a related but slightly different argument. They argue that if you take AI or AGI seriously, that we're going to have this wave of some amazing rapid productivity growth because of AGI going future, we actually should be locking in long-term rates where they are right now. Because if we get massive productivity growth, the real return to capital shoots through the roof that's going to actually push interest rates up in the future. And it'll be even more expensive to finance your debt. Now, maybe in that world we're also much richer and we can afford to pay off our debt, debt to GDP, debt to income is more sustainable, but that was an interesting take. Of course, we live in the here and now. I can't.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“But I appreciate the nod. Yeah, I mean, I think you can say that because why is the Treasury issuing more treasury bills? Because it's cheaper. You go along on the curve. It's going to face more. So I do think, yeah, more Treasury issuances being motivated by, I mean, the mandate of the Treasury is to minimize the cost of the taxpayer. And right now, that's legitimate reason and it's driven again by the fact that we have so much debt. I guess you could argue why are interest rates so high? Are they just high because the Fed has set them high and the expected path rates are high? Or is there a growing term premium risk premium and long-term treasuries? I think it's probably a bit of both, but I do think more treasury bill issuance is a sign of the high financing cost, which is, again, is tied to the stock of debt. I mean, that's why we're doing it. So I think that's a fair critique.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“That's a great question. So, just to be clear, I did not work in the debt management part of Treasury. I was in international affairs.”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT
“I'm curious who thought as somebody who actually worked at the Treasury, these policies around tilting issuance towards bills and treasury buybacks. Do you characterize those phenomenons as stage two fiscal dominance or how do you perceive those?”
2025-07-16 · Forward Guidance · We’re Entering The Final Phase Of Fiscal Dominance | David Beckworth · IDENTIFIED FROM THE TRANSCRIPT