Ylan Mui on the Fed Beat and Trumponomics

Ylan Mui covers White House economic policy for the Washington Post. Previously, she covered the Federal Reserve. Today, she joins the show to discuss what it is like to attend Fed press conferences and write on the technical nuances of Fed policy. David and Ylan also discuss what a Trump Administration might mean for economic issues ranging from trade to infrastructure spending to monetary policy.

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Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected].

David Beckworth: Ylan, thank you for coming on the show.

Ylan Mui: Thank you so much for inviting me.

Beckworth: Well, let's begin kind of going back. How did you get into economic journalism?

Mui: Well, I sort of fell into it. I'm going to give you a full disclosure here. I am not an economist and I don't play one on TV. So I came into economic journalism by just getting interested in journalism overall. I came into economic journalism by just getting interested in journalism overall. I started at the Post as an education reporter covering a local suburban Maryland county. I had before that been an obituary writer and a copy editor. So learning about economics was something that was very new to me, but I was at the Post during the financial crisis on the business staff, and we all sort of learned by doing in that period. And coming out of the crisis, I was tapped to start covering sort of broader macroeconomic issues as well as covering the Federal Reserve. So it's really something that I fell into, but I had a real world sort of experiment laboratory before me as we all tried to figure out what this new world that we were in looked like after the financial crisis.

Beckworth: Yeah, so you learned through the school of hard knocks, and if anyone has read your work, I mean, they wouldn't know that you had that background. You sound very informed, very knowledgeable, very penetrating insights in your articles. So you've done a great job teaching yourself and learning.

Mui: Thank you.

Beckworth: So my question is, how did you do it? So what did you rely on? Did you rely on books, popular press books written by other journalists and academics, Twitter, blogs, research papers? I mean, how did you kind of work your way into that?

Mui: I would answer all of the above actually. So the great thing about journalism is that you get to go deep and investigate corners of the world that other people simply don't have the time or maybe even the inclination to learn about. And in doing so, you have access to some of the greatest minds and some of the deepest thinkers on the issues that you're reporting on. I felt very fortunate to be at the Washington Post because it did give me access to top officials, to some of the leading academics on monetary policy, to yourself of course. And I kind of likened it, I've told people that when I started covering the Fed beat, I felt like I was in a graduate level course on monetary policy, because there was a steep learning curve, very steep learning curve when I started. But I found that covering the Fed, many academics, many economists were very gracious with their time. As you know, many economists love to wax poetic, wax philosophical about-

Beckworth: Absolutely.

Mui: About their papers. They're happy to talk about them. And for me, that was really, really helpful and really important. I can tell you that some of the first Bernanke speeches that I covered, I had the speech up on one screen, and another screen, I'm frantically Googling all the terms that I wasn't familiar with at the beginning. So like I said, there was a steep learning curve. But sort of learning by doing was really important, and so ... And I think that was especially important post-financial crisis, right? Because one of the things that we learned was that the best mathematical models didn't necessarily predict what was going to happen. And I remember hearing a talk or a paper given by Danny Blanchflower, and one of the things that he said was, "I practice the economics of walking about." And that's how he sort of realized how deep the financial crisis was.

Mui: So I think for reporters and for economic journalists, that was really valuable, because we sort of bring both things to the table, right? We're both talking to the academics, talking to the economists, trying to understand the complicated theories behind what's happening in financial markets and what's happening in the economy. But we're also, part of our mandate and part of the value that we bring is talking to the people who are losing their homes, talking to the folks who feel like they have been unfairly treated by their loan service or what have you. And so we're able to meld the two, which I think gives us a really unique perspective.

Beckworth: Yes, and so you relied on all those sources, you bring a human face to the story, and you've learned probably a lot about how economists are human. You mentioned our forecasts weren't very good, and in fact even during the recovery, the Fed's own forecasts were persistently over optimistic. And I think the recovery in general's been very disappointing to many people, and many people expected a quicker recovery than we actually had. Now, let's talk about your experience on the Fed beat itself. How did you start a typical day? Did you get up, do you read the Financial Times, your own paper, do you read Twitter? I mean, what do you go through in a typical day as a Fed beat reporter?

Mui: Well, first caveat is that every day is so different in journalism. You can come in with the best laid plans, and they can get completely blown out of the water by the news of the day. So that's number one. But generally speaking, some of the sources that I rely on is certainly Twitter is a really important tool. There is a very active and very vibrant ongoing conversation on Twitter about Fed policy. So that is something that I definitely watch, keep abreast of and try to participate in where possible. My colleagues at the Wall Street Journal do a fantastic job. My colleagues at the New York Times also do a great job. So a lot of it is just sort of keeping tabs on what the conversation of the day is. One of the benefits of being a Fed reporter is that we get advanced notice of when officials are going to be making speeches, participating in panels, et cetera, not just from the board of governors, but across the Federal Reserve system.

Mui: So I do try to read all of the speeches that are given, at the very least scan them to understand what everyone's position is, sort of what are the arguments that are being made. Making sure that I'm up on the latest Fed speak is really critical. I do subscribe to newsletters, like Morning Money out of POLITICO is excellent, the Journal's Central Banking vertical is also really important I think. So those are all sort of the sources that I go to to help round out what am I missing, what can I not get to, what should I be getting to? I also want to say that the Federal Reserve's own system, many of the blogs are enormously helpful as we all know. The Atlanta Fed's blog, Macroblog, is really great. The New York Feds, their Liberty Street Economics, helpful not just from monetary policy, but also just interesting trends in the economy as well. So I do keep track of all of those.

Beckworth: Let me ask this question. Can you be a journalist today and not be engaged in social media? I mean, is Twitter almost essential, following these blogs essential to being on top of things?

Mui: There are several prominent journalists who are not engaged in social media. I think two that jump to mind are my colleague, Jon Hilsenrath from the Wall Street Journal has sort of famously eschewed Twitter. Kelly Evans at CNBC who anchors The Closing Bell, she just recently quit social media because she found it was a distraction. I find it to be extraordinarily helpful, again, to be part of the conversation that's going on around your beat or around your topic I think is really important, to know what other people are saying and to know what, again, the current arguments are. One of the mandates that we have at the Post, which is now owned by Jeff Bezos, the founder of Amazon. So one, we're owned by a guy who is in the digital media space, right? So we'd better be digital. I don't think there's any question about that, so that's number one. But number two is that they really want us and encourage us to have an impact on our beats wherever the news may be occurring, whether that's Twitter, whether that's Facebook, whether that's being engaged in the blogosphere.

Mui: So we are really encouraged to seek out alternative ways of bringing Washington Post news and analysis to whatever audience we can find. I try to make ... I recently joined Snapchat, and I try to make Fed Snapchat a thing, which really didn't work out. But it was fun experiment while I was trying it. So maybe the Fed conversation-

Beckworth: Interesting.

Mui: Has not yet moved to Snapchat, but maybe we'll get there in five years.

Beckworth: Yeah. Well, and the nice thing about Twitter from my perspective is, it's kind of the place where I found my people, if I can say that. Like you mentioned earlier that there's people that are doing this, that they love it. You're a reporter. I've been an academic most of my professional life, and I'm a research fellow now. I mean, but I've found people who care about this, and I mean, I care passionately about this as you do, and I just need to kind of meet these people. I met you, I mean, and many others that way. And it's kind of, I'm thinking about this election we've been through, there's these different bubbles we live in. I live in one bubble. I actually live in Nashville, Tennessee. It's a very different bubble than my Fed bubble.

Beckworth: And I remember one time I was in a Wal Mart in rural Tennessee or Kentucky, I forget where. But anyways, I was in there, and I was having a Twitter debate with Justin Wolfers whether Janet Yellen was the most appropriate choice to replace Ben Bernanke. And I was intent on my phone, and people were walking past me, buying their things at Wal Mart. But it is fascinating. It's a connection that you get that you wouldn't otherwise have had, and I think it's a very powerful tool. Let me go back briefly to your conversation on blogging. Now at the Washington Post, you guys have a blog called Wonkblog there. And you write both for the regular newspaper as well as for Wonkblog, is that correct?

Mui: That's right.

Beckworth: So how do you allocate your time between that, and what's more important for you professionally? Is it to do a balance of some or more the press side? What do you do?

Mui: Yeah, it's always a moving target, how much time is devoted to Wonkblog versus how much time is spent on sort of "traditional print stories." The short answer is, it just varies. What I find is that the audience for each of these different medium is a little bit different. So on Twitter, as you mentioned, it's a very engaged, very knowledgeable, very expert audience. And so I want to be part of that conversation and also provide them news, whether it's I'm tweeting again at Yellen's speech, tweeting a press conference, tweeting interviews that I've had with Fed officials. So that's one audience. The Wonkblog audience is maybe not quite so expert or so intent on Fed coverage, but they are interested in analysis. And so that might be the place.

Mui: For example, I remember I wrote a piece before the taper was announced, the sort of phasing out of the Fed's quantitative easing program, raising the idea of, what if the taper was tiny, right? And sort of floating the idea from conversations that I had had with folks about, what if the taper was very small, something like 10 or 15 billion dollars a month or something like that. So that's sort of the place for that kind of analysis. And then the Post does serve and has a very large lay mainstream audience who basically wants to know, are interest rates going to rise and do I need to refinance, right?

Beckworth: Right, right.

Mui: And so we want to make sure that we speak to that audience as well and for the Fed, as they found during the financial crisis, it is critical that they speak not just to I think, as Janet Yellen put it in one of the transcripts of a meeting, the 1,000 people sitting in ivory towers and that they're really speaking to America and the public as a whole. So part of my role is to do all of that in one beat.

Beckworth: Well you have your hands full it sounds like.

Mui: Yes.

Beckworth: You mentioned earlier the speeches. You followed all the speeches while you were on the Fed beat, so, and apparently you had notice from the officials there that were coming. But there's a lot of speeches, and something I've observed is sometimes, one president of a regional bank will say one message, he wants to tighten. Another president may say she wants to loosen. And so you get these mixed signals, and sometimes you get a lot of noise. And so I'm just wondering, have you found the speeches overall to be more noise or signal? Do they help us understand better where policy's going do you think, or do they just create more noise and distraction?

Fed Speeches: Are they more noise than signal?

Mui: Well, as a reporter, I'm always going to say that more information is better than less information, that's for sure. And I think that Larry Meyers over at Macroeconomic Advisors always has a great ranking of who is the most influential Fed speaker and the number of speeches they give, et cetera. So there is a system for determining how valuable each of these speeches are, but I guess what I would say more broadly is that I think it is important that there is a public debate. I mean, it does sometimes create a cacophony for the markets. I know markets obviously certainly want clear sense of direction, but sometimes, let's just face it. The direction is not clear. And sometimes the committee itself is not sure what it's going to do or what it should do. And I think that when markets are sort of complaining about mixed signals from the Fed, I think it's because there is debate within the Fed, and I think that's important for the public to know and to understand.

Mui: I also think that the role of the news media and at times, the amplification that we can provide or that we do provide to certain viewpoints, certain speeches, et cetera, has ... There's a feedback mechanism, right?

Beckworth: Mm-hmm (affirmative).

Mui: And so there are instances I do think where folks know that they can have their voice heard by coming out with a very different point of view. So there certainly is a question about the relationship between the Fed and the media and how that plays into the crafting of monetary policy.

Beckworth: Yeah, it's interesting your response. We had on a while back on this show, we had Andy Levin on, who used to be a Fed official, worked closely with Bernanke and Yellen. And he really, I asked the same question about the benefit of speeches, and he actually likes it and he wants to see more of it. He wants more diversity at the Fed. He wants more diversity of thought, of perspective. And he thinks that if anything, the Fed suffers from groupthink within the FOMC. And so he's pleased to see that, so interesting you kind of shared similar thoughts to him.

Mui: Yeah, I think that you ... What we might see post this election is how narrow the conversation has been. Now, Andy Levin probably won't agree with the diversity of voices that might be added to the Fed in a Trump presidency. However, it is true that as we look post this election, the debate, the conversation, the policies that may now sort of be in the mix and may be more close to actually seeing fruition are very different than the ones that we saw pre-election. So I feel like we are at the moment not just for monetary policy but for economic policy as a whole where the entire narrative could shift, could shift pretty dramatically. And I think too the point about diversity of viewpoints, we'll see that band of viewpoints start to change pretty dramatically I think under President Trump.

Beckworth: Yeah, well since we're on him, let's go ahead and jump into that. So it's been fascinating to watch after his election how the markets have responded to his election. So of course, the night of the election, markets were tanking and all of us were worried there'd be a big collapse in the market the next day. But then suddenly, they turned around, stock market's up, and probably most interesting to us is that treasury bond yields are up, I mean, quite a bit. They're at 2.2 the last I checked. I mean, they're above 2%, they've been below for a long time. And generally, the markets take ... What I've read and what seems reasonable to me is that the bond market is saying, hey, this is some kind of regime change, a regime change that's going to be directed towards some kind of reflation, some higher inflation, more spending, something that wasn't possible under the previous Fed, under the previous administration.

Beckworth: And that's been fascinating to watch, because as you just mentioned, there's going to be some different voices making economic policy. And what I take away from it, it's not really even just the Fed. It's a much broader point I guess, kind of what you've said, is that this is ... A vote for Trump is a vote to try something different, and I think that something different includes tolerating higher inflation, higher spending that wasn't available before. So going back to, again, this groupthink, lack of diversity at the Fed, inflation has been incredibly low as you know since the crisis. It's averaged 1.5% as measured by the core PCE deflator, which is the Fed's preferred inflation measure. The Fed's target is 2%.

Beckworth: There's been this debate about, well should the Fed try to overshoot it's target so on average it hits 2% inflation? And what I see from this election and from what the market is saying, the market is saying, hey, we are going to have more diverse views and diverse enough that the Fed maybe can hit 2% on average. There will be a more symmetric inflation target. What are your thoughts on interpreting what the market's saying?

Interpreting the Market Response to the 2016 Election

Mui: Oh, that is a very complicated question, and I'm going to try to take it in slices here.

Beckworth: Okay.

Mui: The first thing that I would say is, before we can get into what the Fed's response might be, we have to understand what might the economy look like under President Trump, right? So let's start there, and the first thing I would say is one, I was completely shocked by the market reaction, both the extent of the decline in after hours and over in Asia, and the extent of the rise the next day. So that's number one. But I just do not know. I think I cannot emphasize that enough, and I don't think anybody knows. Right now, what we are hearing out of Capitol Hill, what we are hearing from Trump's economic team, is that number one on their priority list from an economic standpoint is tax cuts, right?

Beckworth: Mm-hmm (affirmative).

Mui: That they want to do radical rethinking of the tax code, et cetera. Great. Markets are also sort of anticipating that there's going to be massive infrastructure spending as well. That could be highly stimulative beyond the tax cuts. I'm not convinced that infrastructure's going to happen. I'm hearing conflicting sort of proposals for how if it does happen, how that infrastructure spending could be done. I will tell you the House Freedom Caucus says, "Absolutely no way are we going to spend any government money on infrastructure spending." Paul Ryan has said he doesn't want to do infrastructure, we already did it. So that infrastructure stimulus, that 1 trillion dollars of infrastructure spending that's sort of been kicked around there by the Trump campaign team, it is far from certain how real that number is. Under a Trump administration, the upsides to the economy could be great if you have a trillion dollars in infrastructure spending and you do have these massive tax cuts.

Mui: The downsides are also really great, not only from the impact to the national debt, but also if he does end up undertaking some of the trade policies that he said he would do, such as labeling China currency manipulator, which he said he would do on day one, such as slapping those double digit tariffs on imports from China and on imports from Mexico. So at this moment right now, markets are focused on the upside, the potentially dramatic upside which could, as we were talking about, kind of reflate the economy, provide a massive stimulus. But they are not focusing on the potential for massive downside. And so I'm not ruling out, and I don't think anyone should, that a year from now, I'm back on Macro Musings, and we're having a conversation about the next recession. So it is just too unclear at this point in time to tell. Now to go to your point about what might the Fed's reaction be, this has been the Fed's sort of fear all along is that what if they get behind a curve, right?

Beckworth: Yeah.

Mui: What happens if they do not start raising rates gradually and then are forced more abruptly going forward? I mean, I think you heard that argument from Janet Yellen when she was on the Hill just yesterday. You've been hearing it from folks like Eric Rosengren as well, saying the best way to avoid another recession is actually to start raising rates now.

Beckworth: It's interesting, you mentioned what will the Trump policies look like. If this reflation does happen, there's two ways I can see it happening in terms of the Fed's response to it. Number one, Trump appoints governors, maybe even a new chair after 2017, that's more open to reflation. And that seems, I don't know. That seems kind of unlikely in my mind, or at least there's mixed signals as maybe you've suggested. Because on one hand, he's had people on his transition team that would be very hard money. There's even some individual who want to go to the gold standard on a transition team. And yet, the market is saying, hey, there's going to be reflation. There's going to be some level of higher inflation. So one channel would be he appoints people to the Fed who are a little more open to higher inflation. I'm not sure that's going to happen, but that's one possibility. The other is that Trump just kind of, from his position as president, just kind of strong arms the Fed into doing it, no matter who's there, kind of like what's happened in the past.

Beckworth: We recently had Peter Conti-Brown on. He's written or spoke about the Fed and how presidents over time have kind of jawboned, they have strong armed the Fed into doing what they wanted. So it could be the Fed has its staff with people who are more open to high inflation, or maybe it's not that's the case, it's simply the Trump president pushing hard on the Fed to tolerate higher inflation. Any thoughts on who he might appoint or where that's going to go?

Mui: I have no idea.

Beckworth: Okay.

Mui: I do not pretend to know at this point, and I think sort of far down on the list in terms of priorities. Janet Yellen, again, was just on the Hill yesterday, and she said that there is no chance that she would leave before her term is over. Privately, I had heard some speculation before the election that Yellen might be out after her term ends anyway under a Clinton presidency, that maybe Clinton would want to appoint her own person, et cetera. But certainly under a Trump administration, I don't think she's obfuscating here when she says she intends to stay, not only because one, her term does last that long for the next two years, right? But also because the Fed has faced significant challenges and significant confrontation from Capitol Hill, and it seems like Jeb Hensarling, the chairman of the House Financial Services Committee, is fully intent on reviving his Financial Choice Act, which would constrain the Fed's powers. And I think that Janet Yellen would want to be in office to try to push back against that.

Beckworth: The one thing that was interesting yesterday in her testimony is that she mentioned the concern about high inflation arising from massive spending, right? She talked about that as a potential concern. And I guess I thought for a long time ... Or, I've been thinking that one of the reasons the Fed hasn't pushed hard to get inflation up to this 2% target is this political pressure. I remember when Ben Bernanke in 2010 was really criticized by Congress for QE2, and other times when people have questioned the Fed for allowing inflation or planting the seeds for high inflation, although it never happened. I was under maybe the impression that Janet Yellen might have finally said, "Phew, okay, well one good thing out of this is we don't have to worry about so much pressure to keep inflation low." But her response yesterday seemed to suggest otherwise, right?

Mui: Well, I think there are a couple things there. One is that, don't forget, the Fed is a committee. And so there's only so far that you can push the committee. They do believe that they like to operate in terms of consensus here. The second thing is that I don't know that Yellen truly believes that a 4% inflation target is appropriate or that she's willing to tolerate higher inflation beyond sort of measurement uncertainty, et cetera. I don't think that she's willing to sort of make up for years of missing the target by a symmetrical number of years above the target, right?

Beckworth: Right.

Mui: I do take her at her word in that she went through the period of the 1970s and the the hard won credibility of the 1980s, and the Fed sort of being able to establish and contain inflation at a low level. And I don't think she's willing to gamble that.

Beckworth: Yeah. So in a sense, she's still fighting the last war. That might be a little unfair on my part, but-

Mui: Well, but we're going to see. I mean, like I said, for the past seven years, we've been questioning why isn't inflation higher? Is it because of the Fed not taking a strong enough stance? Is it because of factors outside of the Fed's control, like demographics, innovation, changes, et cetera? But if this new regime change does happen, if we are in a reflationary period in which we're seeing significant fiscal stimulus, that will test whether or not that those questions were right, right?

Beckworth: Yeah.

Mui: If we see inflation rise, if we see potential growth move up, if ... The folks on Trump's economic team do not believe that we're in a cycle of secular stagnation. I talked to Stephen Moore just a few days ago, and they absolutely don't believe it. They believe 4% is achievable with the right policies. So we shall see who's right in this massive debate that we've been having. It seemed like consensus had been moving toward, we are in a slow growth, low inflation period that might be outside of the Fed's powers to alter. Now we're going to find out.

Beckworth: Yes, this will be a great national experiment for macroeconomics. Okay, so you mentioned that Stephen Moore and that Trump's economic advisors do not believe we are in a secular stagnation environment. So the big debate over r-star, which is the natural interest rate dropping, it's fascinating. That was almost the whole conversation for a while. Everyone was wondering, where has it gone? Where has it fallen? And now, you don't see it much in the press. You don't see it much discussed on Twitter and many different places. And from what you're saying is that, at least in the Trump administration's perspective, they don't see it as an issue.

Trump Administration’s view on Secular Stagnation

Mui: That's right. I mean, they believe that it can be counteracted with the right fiscal policy, which we haven't had, which they believe we haven't had for the past eight years. It will be interesting to see. I think that the other piece of this though ... So we've talked about the impact of tax policy, et cetera, but a lot of economists as you know say that the real perhaps bang for your buck comes not necessarily from infrastructure spending, which will be sort of a short term boost and the productivity gains won't be felt for a while, not necessarily from tax cuts but from immigration reform, right? So that one of the factors that might be holding back potential growth are the demographic changes in American society in which we have so many Baby Boomers now actually entering retirement age.

Mui: So immigration reform might be a way to change the economy's potential growth over the long term. Immigration reform is not one platform that Donald Trump ran on. And actually, if he ran on immigration reform, it was reforming it in a way that might actually hurt the economy rather than opening up our borders and increasing the number of people who are entering the workforce. So I would say that is an underappreciated point in the debate over which direction the economy is headed right now, and also in terms of the market response. Again, I feel like the market is focused on tax cuts and the possibility of infrastructure spending, and they're not necessarily focused on other issues, longer term issues that could provide a substantial downside, at least when you look at potential growth.

Beckworth: Yeah, I think that's a great point. Another way of saying that is, the market as you see it is focusing too heavily on demand side issues and not supply side issues. They're focused on increasing spending that could potentially arise from tax cuts, from infrastructure spending. But they may be ignoring potential supply side developments, adverse supply side developments that might come from immigration and trade changes down the road. So those changes would affect our productive capacity, right? If there's fewer people, worse demographics, we're not trading, we're not utilizing comparative advantage, gain some trades, that's going to affect how efficient the productive side of our economy is. I think it's a great point. And I want-

Mui: It's also a great example of journalist speak versus economist speak, so thank you for translating that to economist speak for me.

Beckworth: Absolutely. I mean, I guess the true, I don't know, market person would say, "Oh yes, but maybe the market has priced that in." I guess to take the other side of that, just to be-

Mui: Sure.

Beckworth: The other hand.

Mui: Sure.

Beckworth: Maybe the market thinks that Trump actually won't follow through on those adverse supply side development.

Mui: Well, I've talked to a number of economists about this, and basically, because we have seen over the past week or so since Trump has been elected, many forecasts being revised higher, at least over the next year or two, right? And so in speaking with economists about this, what they said is that number one, the most concrete part of his plan, his economic plan, so far is tax cuts, right? So there's a pretty high chance ... And that's also something obviously Republicans want to get done as well, so that has a pretty high chance of happening. But the other thing is that they're sort of factoring in is that yes, even if he does sort of institute some protectionist measures that they won't be as dramatic or as draconian as what he proposed on the trail.

Mui: And so the impact to the economy might ... The economy might take a hit, but it won't be enough to offset the high level of fiscal stimulus that's expected. One person said to me, "The tax cuts and infrastructure spending affect the left side of the decimal point, whereas any changes to immigration policy will likely affect the right side of the decimal point." So net net, you come out ahead no matter what.

Beckworth: Interesting.

Mui: Now again, we just don't know at this point. I mean, we do know that Donald Trump said in a 60 Minutes interview that he was absolutely going to build a wall, maybe a fence in some spots, but there's going to be some sort of wall being built. What does that say about his immigration policy? What does it say that he has apparently picked Jeff Sessions to be his attorney general? All of those things will play into the Fed's stance and its monetary policy. Politics is going to have a greater role in monetary policy than it has I think in eight years, perhaps since the financial crisis. It's going to have a greater role than we've seen in a long time whether or not the Fed wants to admit it.

Beckworth: Yeah, I think you're right, and it'll be interesting to see what happens moving forward. And it definitely will keep us engaged and see what's happening. Have you spoken to Larry Summers at all since the election?

Mui: No, I have not.

Beckworth: Okay, it would be interesting to hear his take on this. I know he's written some pieces, but especially since he's been the big one advocating secular stagnation, and now you have Stephen Moore and the Trump administration saying, "Ah, no big deal. We're going to solve it." I mean-

Mui: Well-

Beckworth: It's strange.

Mui: Yeah, well I think it's kind of funny. I saw some comments from Joe Stiglitz in which he said, "Maybe the left is actually a big winner if they get the infrastructure spending that they've wanted so long." I had another Democrat tell me that Keynesian stimulus by any other name is still a Keynesian stimulus, right?

Beckworth: Right.

Mui: So there could be hope for fiscal stimulus for fiscal spending on sort of the infrastructure side in this administration, but again, I would say it is not clear. We've heard conflicting plans for how that would happen, one being that it would be almost entirely privately financed and sort of incentivized by tax credits. That's a plan that I believe is actually on Donald Trump's web site. But we also heard from some economic advisors that there would be government spending involved, there'd be actual public investment beyond just tax credits. So we don't even necessarily know what it would look like if it were to happen.

Beckworth: One of the interesting things related to that is how there seems to be at least the more openness to deficit spending by Republicans now. You mentioned some of them are against-

Mui: Well ...

Beckworth: Okay, so some of them are against infrastructure spending, but tax cuts, right? They all seem to be now gung ho about tax cuts, or are they more concerned about the budget?

Mui: Well, so this is an interesting question, also a debate as well, is the sort of the Grover Norquist camp believes that tax cuts are not spending, right? So, and I actually have asked this question of Stephen Moore, who also said the same thing, that tax cuts pay for themselves. And so if you dynamically score, it's not really spending, so therefore-

Beckworth: Interesting.

Mui: They have very specifically said that their plan is deficit neutral. Now, whether or not it ends up being the case, whether or not it is scored deficit neutral but the reality turns out to be something different, again, remains to be seen. But certainly they are coming from the viewpoint that the tax cuts will not add to the deficit, will not add to the debt. They're also, if you sort of look at their proposals and what they're arguing, it's that other cuts in government spending, such as repealing the Affordable Care Act, might also offset some of the loss revenue from tax reduction. So it is a plan that has not a whole lot of detail so far, but they're starting to be filled in. But again, the starting point that they're coming from is, number one, tax cuts are not spending, and two, that their plan is actually deficit neutral.

Beckworth: Interesting. And that's how they could sell it to a skeptical conservative Congress.

Mui: Sure.

Preparing for an FOMC Presser

Beckworth: Okay, I want to switch back now, Ylan, to the Fed beat itself. We've been discussing some of the issues. I know you have done an FOMC presser, so that's the press event after an FOMC meeting where Janet Yellen gets up and presents her comments, takes questions. And you've been a part of that, correct?

Mui: Oh yes.

Beckworth: Yeah, so how do you prepare for that, what is it like in that moment, and just tell us all about it.

Mui: Yeah, so it is a whole procedure, it's a whole process that really takes up the entire day. So it really starts the day before any FOMC meeting or press conference or not. I start preparing the day before by pre-writing a story that sort of encompasses either what I expect to happen, or at least a lot of what we as journalists call B matter, which is sort of the history and context in which the decision is being made, et cetera. So I am someone who is ... I like to be prepared for every situation. So I typically write that the day before. Sometimes when I'm not sure what will happen, I will actually write two versions of the story. I will write-

Beckworth: Interesting.

Mui: One version that says ... I think this happened, let me think back to last September. It was when there was a lot of debate, is the Fed going to hike in September or December? When will the first rate hike occur? I wrote two versions of the story, one that says the Fed remained on hold, pretty straightforward, kind of boring, right? And another one that was, the Fed decides to hike for the first time. This is a milestone in history, et cetera, et cetera, et cetera. So I do that so that once the embargo lifts, once we are able to publish the Fed's decision, I am ready to go right at 2:00 PM with a fully fleshed out story.

Mui: So that's step one. Step two is actually going to the Fed lockup procedure as well. So your listeners may or may not know, but as members of the media, we do have the ability to get the Fed's decision in advance. That information is tightly controlled through a lockup process that is extremely convoluted, and it involves going to sort of a secure location. We have to turn over any communication devices. We cannot bring a laptop, we cannot bring our phone in-

Beckworth: Interesting.

Mui: Yeah, all we can bring in is paper and pen and maybe our lunch.

Beckworth: So how far in advance do you get to do this?

Mui: So we get the information about, well, I'm trying to remember now actually, anywhere between an hour to 30 minutes in advance. So there's a whole screening procedure, we go into a room where we have purchased a computer that stays in the Fed's lockup facility. It is there for the sole purpose of me to use for FOMC meetings, right, that is on the Fed's secure network and that they control internet access to, right? So once we go into this secure room, the Fed before they hand out the copy of the statement, the FOMC statement, they turn off the internet. So we have no access to communicate with the outside world. There are some phones, there are land lines, but of course, everyone can hear if you're going to be on the phone. So that way, the information stays in the room. The Fed has been criticized in the past for some perhaps leaky procedures, but they have since tightened their lockup rules, and this is what we follow now.

Mui: So we do get the information in advance, and we can start preparing our stories then. There is a countdown that always feels a little dramatic to when the internet will be turned back on and 2:00 PM is upon us. And at that point, they turn the internet back on and we are able to all at the same time disseminate our stories across our various platforms. So that's the first part. On the days that there's a press conference, we have half an hour to then transition into sitting in the room with the chair and being able to ask her our questions. Typically, I prepare about five questions, because the question that you're going to ask will change depending on where you fall in the lineup. If you are the first called on in the press conference, then you kind of have to ask the most obvious question, right? You can't let a press conference go by without saying, "Why did you decide to hike rates?", or, "Why did you not decide to hike rates?", right?

Beckworth: Yep. Yep.

Mui: So, and as you sort of move on down the line, you can ask questions that maybe are a little bit more technical, a little bit more detailed. So you have to be prepared because you don't know when you're going to be called on.

Beckworth: It's fun to watch those FOMC pressers on Twitter. As we see ... At home, I'll have CNBC on or Bloomberg on, I'll be watching you guys ask the questions and then will be on Twitter tearing apart everything that's being said, and I don't know if you guys are on there too. I think I've seen some of you even make comments. You're in the room, and you're on Twitter too.

Mui: Oh yeah. So once the Fed's statement is public, we have full access to the internet, and we have a little bit of an advantage over the chair actually in this case, because we can have our laptops in front of us as we're taking notes, as we're working on our stories, updating them in real time, and being on Twitter in real time. Again, as you mentioned at the top of the interview, this is part of being involved in the conversation, and I see myself in sort of sending out salient quotes, et cetera on Twitter, that's part of the reporting process. And, but we can see what the commentary is. We can see what the market reaction is, right, to what she's saying. And she is blind to that at the moment because she's just sitting there taking our questions.

Mui: So that can present some challenges, such as, I can't remember which press conference it was, but I think it was a spring press conference when one of the reporters asked Yellen to define what did she consider a considerable period between the end of the Fed's QE program and the beginning of rate hikes, and the answer that Yellen gave seemed to upset markets. And you saw some spikes-

Beckworth: Yes, I remember that.

Mui: During that time, so we could see that, and we could see that reaction. And she has no idea that markets perhaps misinterpreted or that she perhaps-

Beckworth: Interesting.

Mui: Gave an answer that she didn't intend to give or signaled something she didn't intend to signal until after the fact.

Beckworth: So really, she's just sitting up there vulnerable, and you guys can get her to say things that can roil the markets.

Mui: Right.

Beckworth: What an advantage. So when those ... Well, first off, you've answered a question-

Mui: Well, she was in the room. She was in the room making those decisions, so she does have the ultimate advantage.

Beckworth: Yeah, this is true. It's the price you pay for being the head of the Fed, so.

Mui: Right.

Beckworth: You have to bear some of the costs of your decisions. Now, you answered a question I had, and I figured the answer you gave was what I was suspecting, but I was going to ask, how do you get your articles out so quick? But now I know. You guys write multiple drafts, multiple versions. But I was thinking as you mentioned that, you only write multiple drafts when there's uncertainty, as you mentioned. So it's probably useful to see what the consensus, like if the market's saying, hey, it's unlikely they're going to do it, you feel a little more comfortable writing just one version. Is that right? Am I getting that?

Mui: Oh, that's exactly right. And most of the time, there's not such a big question. I don't write multiple versions for every meeting. I mean, in November, I only wrote one version of the story, let's just say. It seemed pretty clear that the Fed was not going to make a move right before the election, so there's that. But I will say sometimes, that can catch us off guard. Going back to the election, again, I am not ashamed but also not proud to say that I had been preparing stories about what will the Clinton economy look like, thinking I'm going to be ahead of the curve here. And as one colleague told me post-election, so many great projects died on the vine on Election Day night, because we were caught off-guard. And that's a criticism of the media, definitely, and we had to sort of scramble to come up with new coverage plans.

Beckworth: Interesting. So when you're sitting in those meetings and the information comes out, how engaged ... I mean, you guys have had to been looking closely at all the data that comes out with that announcement. So not every meeting, but some of the meetings, they have the summary of economic projections that come out, the famous dot plot. So what do you guys do with those? When they come out, you have to wrestle with those too. You have 30 minutes to look those over, make sense of them, say something about it.

Mui: Yes, and actually now that you mention some of the economic projections as well, we do, I'm thinking at the times ... They all sort of blend together now, but the times that we have a press conference, they usually give out the economic projections first, so we have more time to look through those, and then hand out the statement a little bit later-

Beckworth: That makes sense.

Mui: So that is helpful. And one other thing that I do is, I pull up or print out the Fed's previous statement, the statement from the previous month so we can see what changed. It also is helpful to have the previous economic forecast in front of me to, again, see what changed. The Fed does include some historical comparison, but if you want to go back a little bit farther, then you have to have the previous ones in front of you. So I definitely remember before they started publishing the median forecasts for rate projections, reporters would be sitting there almost with a magnifying glass out. Not literally, but we're all sort of scrunching our eyes, trying to count here, look between the lines because some of the dots were kind of in between the lines. And they're really small, so it's hard to see. I mean, it gets as granular or as sort of basic as that sometimes inside lockup.

Beckworth: Now, based on all these experiences, are you planning to write a book about your time on the Fed beat, or are you going to wait until you're done with the Trump beat before you do it?

Mui: Well, the narrative can shift very quickly, but I will say that I'm working with the Brookings Institution to write a very short book on negative interest rates. I think one thing that'll be interesting to see is whether or not they're still around if we're in a new era or a new reflation. So that is one smaller project that I'm working on, but I don't have any plans to write a major book.

Beckworth: Well, that sounds interesting, and when you do, we'll have to have you back on the show to talk about it.

Mui: Sure.

Beckworth: That does raise one question that I've been thinking about as well, and we kind of touched on it earlier though, but if this reflation does occur, let's say for the sake of argument that Trump's fiscal spending plans do go through, his tax cuts do go through, and all this rapid growth returns. Stephen Moore is right, it's the end of secular stagnations, concerns about r-star, they all seem antiquated. When that happens, I wonder if you have any thoughts on what might happen to all the Fed's unconventional policies. So clearly, negative rates would no longer be needed. But you think they would quickly unwind their balance sheet, they would start selling off assets in this environment?

Fate of the Fed’s Unconventional Monetary Policies

Mui: Well, and I think this also goes to the point about rewriting plans. The Fed had previously floated some ideas for how it might unwind its balance sheet. President Rosengren had suggested maybe tapering the re-investments if we actually start selling off the balance sheet. More recently, they've talked about maybe not selling off the balance sheet at all. I think that they are looking at first steps first, and one is, use a tool that they know, which is looking at the Fed funds rate, and then going from there.

Mui: I mean, I wonder about pressure from Congress to sell assets. I wonder about pressure from Congress to use IOER or to not use IOER as the Fed sort of moves out of the unconventional phase of its policies. I think all of those things are going to play a big role in how the Fed moves forward, and I don't know that they have come up with a plan for what happens if they have to go really fast, both for rates and for its balance sheet. So that's, again, prior plans being thrown out the window, I think that's going to have to be one of them if we do see a rapid acceleration in inflation and in growth.

Beckworth: It is interesting, because for a long time they've been projecting a reduction of their balance sheet, but each year, their plans get pushed out. I have a paper, I recently looked at this, the Fed's plans to shrink their balance sheet, and they've stated it twice in different statements released with an FOMC meeting, their exit strategy. And of course every time they're first going to raise rates and then they're going to do the asset sell in an orderly fashion, but there's no discussion of timing in that. And at the Jackson Hole meeting, Janet Yellen in her speech mentioned they would continue to follow those plans. It may have been the footnote in her speech, but she does say, "We are still planning on shrinking the balance sheet," even though there's been discussion to maybe reconsider that option.

Beckworth: But yes, if it does happen, this will be really kind of a shock, because every year the Fed has said they're going to do this, they have a projection. Every year they have an annual report where they put out where the balance sheet they expect it to be in the future, and you do see the projection, this decline in the Fed's balance sheet. And it's been kind of a running joke that every year the report's done, they just push the forecast out another few years. We'll shrink it five years from now, and then another five years from now. But this could really change the pace of their plans, and it'll be interesting to see how they handle that.

Mui: It could. Now, I would remind your listeners that there is precedent for them changing their plans, not just sort of unofficially, but officially as well. I mean, the original exit strategy said that they would sell their assets. The most recent version of that official exit strategy, which was voted on by members of the FOMC, said that they would not sell their assets. They would likely retain them and just sort of let them trickle off naturally, organically if you will. So I'm not ruling out that they could officially change their plans again, and they could point to precedent and they could point to sort of the escape hatch, the boilerplate escape hatch that they have in every FOMC statement that the approach and stance of monetary policy all depends on the evolution of the economy.

Beckworth: Yeah, if there's anything we've learned over the past eight years is that monetary policy can be very ad hoc.

Mui: Yes.

Beckworth: QE programs were very ... Their beginning and their ending seemed to very ad hoc. I mean, no one predicted when they'd end, and I think of Bernanke's temper tantrum, what that caused. Forward guidance, I mean, the destination, the end time of that constantly got changed, Evans Rule. A lot of things were definitely made up on the fly, and understandably so, given how uncertain the times were. But that does let us know that moving forward as you said, their plans could change quickly.

Beckworth: We're running out of time, but one last question I'd like to ask is, what is it like being a part of the macroeconomic profession? You're a reporter at a beat, and being a woman, and our profession is, unfortunately, underrepresented by females. There's a great article that's out in the Journal of Economic Perspective about diversity in the economics profession and how it's a problem that's been going on for many, many years. And I'm wondering, is this something that you're even aware of, that you see ... Does it create any issues, any tension in the practice of what you do or what you see with female macro economists?

Mui: It is definitely something that I'm aware of, and I am always happy to see other female reporters on the Fed beat even, and to talk to female economists about the Fed and about macroeconomic issues. I think I was the only Fed reporter, maybe I'm the only one who dared to attempt it since I am a woman, who wrote about sort of Janet Yellen's historic ascent to become Fed Chair as the first female to serve in that role. She was the only woman in her PhD class and how she has sort of approached this position over time. I mean, I know that after speeches, there are always many female economists who come up to her and tell her that she has been a role model for them, that you can succeed and there is a place for you in this profession. And I think that at least for someone of my generation who I'm struggling with issues of work life balance, et cetera.

Mui: But I forget that at the time that she was sort of making her career, in the early stages of her career in this profession, there were so few female economists. I think this was at the time when the ADA was just putting out statements saying that women should be welcome in the economics profession, which we sort of see as a given now. The question is, why aren't there more?

Beckworth: Interesting.

Mui: But at that time, the question was, should they even be there, right? And I talked to one of her former cohorts I believe at the University of California at Berkeley who said that when she got pregnant, she was scared to tell her dean because she thought she might lose her job. And I was so confused when she said that she was afraid to tell her dean, and I said, "Well, why would you even be afraid?" And she said, "Oh, dear, you are younger than"-

Beckworth: Different generation.

Mui: Different generation. "You are younger than me." So I think that it's really important to appreciate that. You may not agree with her policies or her positions, but certainly, she has reached a position that was not attainable or not seen as attainable for many women in economics at the start of her career. The other thing I would say is, there are not very many female Fed reporters either, and I remember that when I went on maternity leave with my second child, that first press conference that I missed, several other of the former female reporters, or female reporters had left the Fed beat for whatever reason, and there was a press conference in which there were no women who asked questions. I was recently on a panel for a macroeconomics conference in which I was the only woman who participated in the entire day of conference events, at least who was formally on the agenda. So there's still a long way to go-

Beckworth: Absolutely.

Mui: But I think that it's important to recognize the issue and I'm always happy to see other women who are working on this topic.

Beckworth: Yeah, and you've made a contribution yourself, and we appreciate that. And Janet Yellen, I mean, I think that's a great example. I've gone to high schools before. I was invited to make a pitch to seniors about different careers, and they wanted an economist to come in. And it was great to come in and say, "Hey, you want to know who one of the most powerful people in the world is?" And I said, "Janet Yellen, a woman. She's an economist." And you could see that sparkle in the eyes of these female high school students that hey, I too could be an economist. So it's great to have her as a role model out there.

Beckworth: Well, our time is up, and it's been a great conversation. Our guest today has been Ylan Mui. Ylan, thank you so much for being on the show.

Mui: And thank you, David.

About Macro Musings

Hosted by Senior Research Fellow David Beckworth, the Macro Musings podcast pulls back the curtain on the important macroeconomic issues of the past, present, and future.