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CNBC Transcripts: CNBC’s Steve Liesman Speaks with San Francisco Fed President John Williams and Dallas Fed President Robert Kaplan Today

Following are transcripts of CNBC EXCLUSIVE and First on CNBC interviews with San Francisco Fed President John Williams and Dallas Fed President Robert Kaplan today, Friday, May 4th. Both interviews are with CNBC's Steve Liesman from Stanford University's Hoover Institution annual monetary policy conference.

All references must be sourced to CNBC.

CNBC Exclusive Interview with San Francisco Fed President John Williams

Video on CNBC.com: https://www.cnbc.com/video/2018/05/04/feds-williams-reacts-to-april-jobs-report.html?play=1 & https://www.cnbc.com/video/2018/05/04/williams-inflation-may-over-shoot-2-percent-expectation.html?play=1.

TYLER MATHISEN: ALRIGHT, MELISSA. 164,000 JOBS ADDED AND THE UNEMPLOYMENT RATE DOWN BELOW 4% FOR THE FIRST TIME IN AS LONG AS I CAN REMEMBER. DOES THAT MEAN THE ECONOMY IS EXACTLY WHERE THE FED WANTS IT? STEVE LIESMAN LIVE AT STANDFORD WITH THE NEXT PRESIDENT OF THE NEW YORK FED. STEVE.

STEVE LIESMAN: THANKS VERY MUCH, TYLER. YES, I'M HERE AT THE HOOVER INSTITUTION ANNUAL MONETARY POLICY CONFERENCE WITH JOHN WILLIAMS, NOW THE FED PRESIDENT OF THE SAN FRANCISCO FED, AND THEN YOU'RE GOING TO GO ACROSS THE COUNTRY AND BE THE PRESIDENT OF THE NEW YORK FED. AND THE QUESTION PEOPLE HAVE IS ARE YOU CRAZY? WHY WOULD YOU TRADE THIS FOR THAT?

JOHN WILLIAMS: WELL, I HAVE TO ADMIT I LOVE –

LIESMAN: I'M A NEW YORKER SO I CAN SAY THAT.

WILLIAMS. OK, WELL, I LOVE IT HERE. OBVIOUSLY STANFORD IS ABSOLUETLY BEAUTIFUL, A WONDERFUL INSTITUTION AND I AM GOING TO MISS THE WEST COAST. BUT I'M REALLY EXCITED ABOUT COMING TO NEW YORK AND OBVIOUSLY IT'S A REALLY IMPORTANT ROLE AND I'M EXCITED ABOUT JOINING THE NEW YORK FED.

LIESMAN: I WANT TO GET TO THAT IN A SECOND BUT LET'S TALK ABOUT SOME OF THE CONTEMPORARY ECON ISSUES WE HAVE. THE JOBS REPORT THIS MORNING MISSING EXPECTATIONS, 164, BUT THE UNEMPLOYMENT RATE FALLING, WAGES WERE WEAK, PARTICIPATION RATE IS DOWN – WHAT'S HAPPENING IN THE JOBS MARKET RIGHT NOW?

WILLIAMS: WELL, I THINK IT'S – YEAH, I DON'T GET TOO CAUGHT UP IN EVERY MONTH'S REPORT. BUT I DO SEE IT AS PRETTY CONSISTENT WITH WHAT WE'RE SEEING. IF YOU LOOK AT THE JOB GROWTH, IT'S BEEN VERY SOLID OVER THE LAST THREE OR FOUR MONTHS. UNEMPLOYMENT DID COME DOWN, WHICH WE'D BEEN EXPECTING. WAGE GROWTH IS STILL I THINK ON AN UPWARD TREND, BUT IT'S NOT PICKING UP FAST. OVERALL, I THINK IT'S A POSITIVE REPORT IN THE SENSE THAT THE U.S. ECONOMY IS STILL ON A GOOD GROWTH TRAJECTORY, LABOR MARKET IS STILL VERY STRONG AND GETTING STRONGER.

LIESMAN: DOES THE UNEMPLOYMENT RATE WITH A THREE HANDLE ON IT MAKE YOU NERVOUS ABOUT INFLATION AND THE ECONOMY RUNNING TOO HOT?

WILLIAMS: WELL, NO, IT DOESN'T. FIRST OF ALL, THE WAGE GROWTH NUMBERS HAVE BEEN RISING BUT ARE STILL PRETTY MODERATE AND THE INFLATION DATA ARE SIMILAR TO THAT. THEY'VE BEEN PICKING UP, MOVING CLOSER TO 2% TREND BUT I DON'T SEE ANY RAPID INCREASE IN INFLATION COMING. SO I FEEL THAT THIS IS A PRETTY MUCH GOLDILOCKS ECONOMY. VERY STRONG LABOR MARKET, INFLATION MOVING IN ON TREND AND I SEE THIS AS ALL PRETTY POSITIVE.

LIESMAN: CAN YOU GIVE US A JOHN WILLIAMS BENCHMARK, WHAT NUMBER OF PAYROLL GROWTH IS A STRONG REPORT?

WILLIAMS: SO IF YOU -- LET ME BACK THAT UP A LITTLE BIT AND THINK ABOUT WHAT'S A SUSTAINABLE GROWTH RATE IN TERMS OF LABOR FORCE GROWTH, I THINK ECONOMISTS WOULD PUT THAT AROUND 80 TO 120,000 JOBS A MONTH IS THE RIGHT NUMBER TO, ON AVERAGE, TO MATCH THE NUMBER OF PEOPLE ENTERING THE LABOR FORCE. SO, WE'VE BEEN SEEING, YOU KNOW, OVER –

LIESMAN: MORE THAN THAT.

WILLIAMS: CLOSER TO 200,000 OFFER THE LAST SEVERAL MONTHS. SO WE'RE STILL WELL ABOVE THAT AND THAT'S ONE OF THE REASONS THE UNEMPLOYMENT RATE CONTINUES TO TREND DOWNWARD.

LIESMAN: WE DO OUR CNBC FED SURVEY BEFORE EVERY MEETING AND WE ASK PEOPLE WHAT'S THE TERMINAL RATE FOR THE FEDERAL RESERVE. THAT NUMBERS BEEN GOING UP AND UP AND UP. IT WAS AS LOW AS, SAY, 2.6% AND WHEN I SAY TERMINAL RATE FOLKS, I'M TALKING ABOUT WHERE THE FED WILL STOP THIS CYCLE, ESSENTIALLY. YOU WOULD SEE IT AS THE LONG RUN POTENTIAL RATE OF – OR RATE FOR THE FUNDS RATE. IT'S NOW AT 3.25. CAN YOU GIVE US AN IDEA OF HOW THAT'S CHANGING AND WHAT THE NUMBER IS IN YOUR MIND?

WILLIAMS: SO, I DO WANT TO SEPARATE OUT THIS KIND OF LONG RUN CONCEPT FROM WHAT MAYBE IS THE PATH FOR FUNDS RATE OVER THE NEXT FEW YEARS. SO IN MY VIEW ON THE LONG RUN IF YOU WERE TO ASK ME SAY FIVE OR TEN YEARS FROM NOW, WHAT DO I THINK IS NEUTRAL FEDERAL FUNDS RATE IS, I THINK, PERSONALLY, THAT'S ABOUT 2.5%, 2% INFLATION AND A HALF PERCENT REAL RETURN ON THE INTEREST RATE. YOU KNOW, WE LOOK AT THE ESSENTIAL OR THE MEDIAN OF MY COLLEAGUES PROJECTION FOR MARCH, THAT'S A LITTLE HIGHER THAN THAT OR A LITTLE BELOW 3%. NOW I DO THINK WHEN YOU ASK ME, WELL WHERE IS THE FED FUNDS RATE LIKELY TO GO OVER THE NEXT FEW YEARS, YOU HAVE TO THINK ABOUT THIS IN THE CONTEXT OF THE ECONOMIC OUTLOOK. I SEE THE UNEMPLOYMENT RATE GETTING DOWN TO ON 3.5%. I SEE US MODESTLY OVERSHOOTING OUR 2% INFLATION TARGET. SO THERE MAY BE A TIME OVER THE NEXT FEW YEARS WHERE THE NEUTRAL – I'M SORRY, THE FED FUNDS RATE IS SLIGHTLY ABOVE THIS LONG RUN MUTUAL RATE. SO I THINK YOU DO HAVE TO SEPARATE THE LONG RUN FROM MAYBE WHERE WE ARE TWO YEARS FROM NOW.

LIESMAN: YOU TALKED ABOUT OVERSHOOTING, AND I HAVE TO ASK YOU A QUESTION. THE WORD SYMMETRICAL WAS IN THE STATEMENT TWICE THIS MONTH. WAS THAT A SIGNAL TO PEOPLE TO, "HEY," -- SAY "HEY, THE FED IS GOING TO NOT REALLY BE ALL THAT MUCH CONCERNED IF WE OVERSHOOT INFLATION ON THE UPSIDE"?

WILLIAMS: WELL, AS YOU KNOW, FROM THE BEGINNING, WE'VE SEEN OUR INFLATION TARGET AS BEING A SYMMETRIC ONE WHERE WE WANT INFLATION TO BE AROUND – ON AVERAGE - 2%, SOMETIMES ABOVE OR BELOW. GIVEN THAT INFLATIONS BEEN BELOW TARGET FOR A NUMBER OF YEARS, I THINK IT IS IMPORTANT TO REINFORCE THAT MESSAGE THAT WE THINK OF THIS AS THE 2% AS THE MIDPOINT OF WHERE WE EXPECT INFLATION TO BE AND I AM PERSONALLY COMFORTABLE WITH THE FACT THAT INFLATION MAY OVERSHOOT THAT 2% FOR A WHILE, BUT AGAIN, LOOKING TO GET THIS AVERAGE 2%. I THINK THE WORD "SYMMETRIC" IS A SIGNAL TO SAY, THAT INFLATION SHOULD SOMETIMES WILL BE SOMETIMES ABOVE, SOMETIMES BELOW BUT ON AVERAGE AT 2%.

LIESMAN: JOHN, A LOT OF THE DEBATE RIGHT NOW IN THE MARKET IS OVER THE NUMBER OF RATE HIKES THIS YEAR. IT LOOKS LIKE THE MARKET IS PRETTY WELL PRICED IN TWO AND THEY'RE DEBATING A THIRD ONE FROM HERE. WHAT'S THE RIGHT WAY TO THINK ABOUT IT?

WILLIAMS: WELL, I THINK THE RIGHT WAY TO THINK ABOUT IT IS IN TERMS OF DATA DEPENDENCY. LOOKING AT OUR OBJECTIVES OF PRICE STABILITY AND MAXIMUM EMPLOYMENT. WOULD THE ECONOMY CONTINUE TO GROW ABOVE TREND? WOULD JOB GROWTH CONTINUE TO BE GOOD? AND IN INFLATION NUMBERS, YOU KNOW, REALLY GETTING PRETTY CLOSE TO OUR 2% GOAL. I THINK THE RIGHT WAY TO THINK -- THE WAY THAT I THINK ABOUT IT IS WE'RE GONNA CONTINUE THIS GRADUAL PROCESS OF MOVING INTEREST RATES UP. IF YOU GO BACK TO MARCH, THE CENTRAL TENDENCY OF THE COMMITTEE WAS FOR THREE OR FOUR RATE INCREASES IN THE YEAR. WE'VE HAD ONE. I STILL THINK THAT'S THE RIGHT WAY TO THINK ABOUT IT GIVING THE CONTINUED IMPROVEMENT IN THE ECONOMY.

LIESMAN: JOHN, I'M GOING TO APPARENTLY HAVE TO ASK YOU ABOUT THE NEW YORK FED JOB IN NEW YORK BECAUSE RIGHT NOW I'M GETTING A WRAP THAT I HAVE TO WRAP IT UP NOW. THANK YOU FOR JOINING US.

WILLIAMS: IT'S BEEN GREAT TALKING TO YOU.

First on CNBC Interview with Dallas Fed President Robert Kaplan

Video on CNBC.com: https://www.cnbc.com/video/2018/05/04/were-gonna-have-a-good-year-in-18-dallas-feds-kaplan.html?play=1.

WILFRED FROST: LET'S TURN NOW TO THE BROADER ECONOMY AND THE FED. CNBC'S STEVE LEISMAN IS AT STANFORD UNIVERSITY'S HOOVER INSTITUTION JOINED NOW BY DALLAS FED PRESIDENT ROBERT KAPLAN. STEVE, OVER TO YOU.

STEVE LIESMAN: WILFRED, THANKS VERY MUCH. AND PRESIDENT KAPLAN, THANKS FOR JOINING US.

ROBERT KAPLAN: GOOD TO BE HERE, STEVE.

LIESMAN: LET'S TALK ABOUT THIS JOBS REPORT, WHICH IS SOMETHING OF A PUZZLE. 164,000 JOBS CREATED BUT WAGES UP ONLY 0.1% WHILE THE UNEMPLOYMENT RATE HITS A LOW WE HAVEN'T SEEN SINCE IN THE THREES. WHY AREN'T WAGES RISING?

KAPLAN: SO I'M ALWAYS CAREFUL NOT TO OVERREACT TO ONE-MONTH DATA. MY GUESS IS IF WE LOOK OVER THREE TO SIX MONTHS, WE'LL SEE SOME WAGE PRESSURE. THIS MONTH DIDN'T SHOW IT, IT SHOWED EVERY OTHER ELEMENT OF TIGHTENING IN THE NUMBERS, BUT IT DIDN'T SHOW IT IN WAGE PRESSURE, BUT I THINK IT WILL. I THINK THIS MAY BE JUST A ONE MONTH ABERRATION. I STILL – EVERYTHING I SEE TELLS ME THERE'S MORE WAGE PRESSURE OUT THERE.

LIESMAN: BUT THE LABOR FORCE PARTICIPATION RATE FELL. DOES THAT TELL YOU THAT THERE ARE – THERE'S SLACK OUT THERE OR THERE ISN'T SLACK OUT THERE?

KAPLAN: EVERYTHING I SAW HERE TELLS ME THERE'S A LITTLE LESS SLACK. U6, WHICH -- UNEMPLOYED PLUS DISCOURAGED WORKERS, PLUS PEOPLE WHO WANT TO – WORK PART-TIME, WHO WANT TO WORK FULL—TIME. THAT'S NOW 7, 8. THAT'S BELOW THE PRE-RECESSION LOW. THAT DIPPED DOWN, UNEMPLOYMENT RATE DIPPED DOWN, THE 628 ON PARTICIPATION, AND OUR OWN WORK AT THE DALLAS FED SUGGESTS PARTICIPATION IS INEXORABLY GOING TO DIP BELOW DOWN TO 61% OVER THE NEXT TEN YEARS BECAUSE OF AGING. YOU CAN'T GET AWAY FROM DEMOGRAPHICS. AND SO I THINK THIS LABOR FORCE IS GETTING TIGHTER.

LIESMAN: WHAT DOES THAT SAY ABOUT WHETHER OR NOT THE FED NEEDS TO BE TIGHTER?

KAPLAN: FOR ME, I THINK THAT THE FED SHOULD CONTINUE TO GRADUALLY REMOVE ACCOMMODATION, CERTAINLY, UNTIL WE GET TO INFLATION, UNTIL WE GET TO NEUTRAL, AND, FOR ME, NEUTRAL IS SOMEWHERE BETWEEN 2.5 OR 2.75, THAT WOULD BE MY BEST ESTIMATE OF NEUTRAL. WHERE WE GO FROM THERE, I'M A LITTLE UNSURE.

LIESMAN: WE'RE PRETTY CLOSE TO NEUTRAL RIGHT NOW. YOU'RE LIKE A YEAR AND A HALF OR SO AWAY FROM IT.

KAPLAN: I THINK THAT THE NEXT COUPLE OF THREE MOVES ARE CLEARER, 150 TO 175. I THINK ONCE WE GET IN THE MID 2s, I THINK THE GOING GETS TOUGHER. WE HAVE TO BE VERY, VERY CAREFUL AND HERE'S WHY: OUT YEAR GROWTH BECAUSE OF DEMOGRAPHICS, SLUGGISH PRODUCTIVITY, HIGH LEVELS OF DEBT TO GDP, I THINK OUT YEAR GROWTH IS GOING TO MODERATE DOWN TO 1.75 TO 2.

LIESMAN: DOES THE FED NEED TO GO RESTRICTIVE OR TIGHTEN TO KEEP THE SLOWING OF THE ECONOMY? IS THAT THE NEXT STEP AFTER NEUTRAL?

KAPLAN: I'M NOT READY TO MAKE THAT JUDGMENT YESTERDAY. THE SEP OUR PROJECTIONS SUGGEST YES, BUT I THINK THAT'S A JUDGMENT I'D RATHER MAKE OVER THE NEXT YEAR, AND ITS GOING TO TAKE INTO ACCOUNT A LOT OF FACTORS, INCLUDING WHERE THE 10-YEAR TREASURY IS.

LIESMAN: WELL, YOU MENTIONED IT, AND YOU'RE A FORMER GUY OF THE BUSINESS, WHAT DOES THE YIELD CURVE -- A FLATTER YIELD CURVE TELLING YOU NOW – AND I HAVE THIS QUESTION, IF YOU WERE FACED WITH THIS DECISION TO RAISE THE FED FUNDS RATE AND THAT WOULD CAUSE THE YIELD CURVE TO INVERT, WOULD THAT STOP YOU?

KAPLAN: IT WOULD GIVE ME GREAT PAUSE.

LIESMAN: WOULD NOT VOTE TO INCREASE THE FUNDS RATE?

KAPLAN: I'M NOT GONNA PREDICT WHAT I WILL OR WON'T DO, BUT I CAN TELL YOU AS I SIT HERE NOW. RIGHT NOW AS I SIT HERE, I DON'T WANT TO KNOWINGLY INVERT THE YIELD CURVE. AND SO WHAT'S THE YIELD CURVE TELLING ME? THE FLATNESS SAYS WE'RE LATE CYCLE. IT ALSO TELLS ME THAT EXPECTATIONS OF MEDIUM TERM GROWTH ARE VERY SLUGGISH. SO WE'RE GONNA HAVE A GOOD YEAR IN 18. WE'VE GOT A LOT OF STIMULUS RIGHT NOW. I THINK BY 19 WE'LL GROW A LITTLE MORE SLOWLY, AND BY 20, OUR OWN PROJECTIONS OF THE DALLAS FED SUGGEST WE'RE GONNA GET BACK DOWN TO THE POTENTIAL, WHICH IS MORE LIKE 1.75 TO 2, AND I THINK THAT'S WHAT THE YIELD CURVE IS TELLING US. IT'S TELLING US OUT YEAR GROWTH LOOKS SLUGGISH.

LIESMAN: ROBERT, UNFORTUNATELY BECAUSE OF THE PRESIDENT, WE HAVE TO LEAVE IT THERE. REALLY APPRECIATE YOUR COMING ON TODAY.

KAPLAN: OKAY. GOOD TO TALK WITH YOU, STEVE.

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