Alan Blinder has had a long, esteemed career as a central banker, an economist, a prolific writer, and much more. What became clearer than ever to me as we sat down and talked at the Federal Reserve of Kansas City’s annual symposium is that it’s his involvement here at the Jackson Hole event — widely considered the most important Federal Reserve conference of all the various ones held each year - that also sets him apart in the annals of the central bank’s history.
As for the message in Jackson Hole about the Fed’s policy future, we did talk at length about Chair Jay Powell’s speech that opened the official proceedings of the symposium and was widely seen by markets and many economists as all but announcing a 25-bps rate cut at the September meeting. Alan says rating Powell’s remarks on the likelihood of a cut on a scale of one to 100, “what I heard was 55… the market reacted much more like they heard 85.” He expects the Fed will wait to see if the coming jobs data confirm or refute a severe weakening in the labor market and if inflation data show a further rise in prices or if they tend to slow down. And you will see his key comments highlighted in the transcript clips below.
What was most fun to hear Alan discuss was the history of the first ever K.C. Fed annual symposium held in Jackson Hole. How it had been held for five years in Kansas City and focused on agriculture, a big part of the region’s economy, and was moved to the historic Jackson Lake Lodge in 1982 in order to entice then-Fed Chair Paul Volcker, an avid fly fisherman, to attend the event as well as economists many of whom knew little about the Tetons region.
“He was, of course, a big, bright attraction with a list of fairly prominent young…economists,” Alan recalls.
Fast forward to the 1994 symposium and the “infamous” speech he gave where he dared to talk about the Fed’s dual mandate - where it focuses not only on inflation but also unemployment at a time when he recalls then Fed Chair Alan Greenspan avoiding discussing it. It’s a good one.
So dive in and hear Alan share his stories of the early days of the K.C. Fed event which has now become an event watched and heard around the world. And get more details on his analysis of why henleans toward the Fed cutting its key rate next month - but not with super confidence.
Also hear Alan’s views on central bank independence, the other big topic this year at the Jackson Lake Lodge, and why if it’s lost it will be bad for the U.S. economy.
Being the first (at Jackson Hole) 00:01:41:03
So here I always call that a stroke of genius by Roger Guffey, who was the president of the Kansas City Fed < to move what had been a regional once a year lightly attended symposium to Jackson Hole>. Well, I could only agree could he get Volcker to come here? Yes. And then the rest of us, it's not so hard now.
Jackosn Hole: Tally Ho! 00:02:21:01
So, you never really know how a startup is going to wind up. But I got asked… I got out my, map of the United States and discovered it was actually in the Kansas City Fed district, which was common to most people. This was not exactly around the corner from Kansas City, right? I had never been to the Tetons. I said to my wife, Madeleine, you want to go to the Tetons, take the kids? We had two little children. Then she said, yeah, it looks like a great place to go. So, I think other prominent economists had the same thought, and they wound up supplementing Volcker. He was, of course, a big, bright attraction with a list of fairly prominent young men economists.
The Young and the restless 00:03:13:11
When I say young, I don't mean two years past a PhD. We had established reputations. It was John Taylor, myself and forgetting others. It was like that. Yeah. All of us. Fairly young, but not kids by any means. So talk to us about 1994 and the infamous Jackson Hole speech you made. I did.
The infamous Blinder Jackson Hole speech of 1994 00:03:39
Kathleen: So talk to us about the the infamous Jackson Hole speech you made:
Alan: Now I need to preface that by saying that the, title of the conference then, was something like the Economics of Unemployment or the Economics of High Unemployment. Maybe it was reducing unemployment. Anyway, it had unemployment featured in the title. The other prefatory remark, as I was fairly new to the vice chair, very new to the vice chairmanship of the Fed.
Blinder’s famous feather-ruffling speech 00:04:09:03
I had a reputation for being dovish, and Bill Clinton sent me over there as a as a dove, a potentially dovish member of the board of go and vice chairman of the board of, governors. I had voted once to raise interest rates. I have no idea how Bill Clinton felt about that. I never talked to him. He never talked to me. Good thing about Bill Clinton. He did not interfere with the Federal Reserve. Okay. But I felt given that and the, title of the conference, I should talk about unemployment and the Fed's dual mandate. And one thing that I said many, many times after the furor over which we'll come back to in a second, is what happened that day, was the vice chairman of the Federal Reserve endorsed the Federal Reserve Act.
The dual mandate unmasked in public! 00:05:02:15
That's news. That's what I did. Yeah. In those days, and to my knowledge, Greenspan never did… you know, we're not supposed to talk about the dual mandate. But I did, and it you know what the law reads? That I've changed. It read the same way in 1994. So I felt that gave me no more than a license to talk about the central bank. And what a central bank in general and the Fed, in particular, can do to reduce unemployment. And I suggested obliquely, remember, these were the dark ages of the Fed; it said nothing and said it, cryptically. Yes. Oh, yeah. So I was fairly subtle. Cryptic? No number. But I did sort of suggest that the Fed could bring the unemployment rate down below where it was then, which was 6%.
The heresy of admitting unemployment could fall- 00:06:01:10
Imagine that. Oh, yes. What a heretical thought. Bringing the unemployment rate to below 6%. So I remember I did not have the number six. I don't and I don't remember the exact words that I used, but. You could read between the lines that I was suggesting. It could go lower. And, that didn't sit well with some of the Fed staff, maybe some of the other, governors, presidents, and, yes, banks, and probably not with Alan Greenspan
The furor over the rift with Chair Greenspan that never was 00:06:36:
Alan Greenspan, who never, ever talked about the dual mandate at that time. Ironically, he's the Fed chief that drove the unemployment rate down to 3.8%. That was a theory only a few years later. Yeah, only a few years later. But, he didn't say anything at the time to kind of bail me out from the from the furor that erupted after that. The furor itself was created by Keith Bradshaw, who was covering the Jackson Hole conference for the New York Times. Okay. And saw that maybe on a slow news day in August, he could get on page one if he put up a story about - which he did - about a rift between the vice chairman and the chairman of the Fed.
Transition to now and more allegations of dovishness 00:07:36:00
There was no rift. But what was true was that Greenspan would never talk about the mandate. But at the same time, it seems to me and we're kind of busy, pressed for this. Right. Because there's a question right now about the dual mandate. And, some people say this is a dovish Fed because they're putting the labor market first. They're ignoring the fact that inflation is still well above target.
Goal: price stability or a number? 00:07:57:03
And I think what's interesting too is I always thought it was like, oh, so it was quite happy with price stability as the Fed's goal. Right. You don't know the number. Well, I didn't <encounter> a journalist who cared. But I think Bernanke was very keen on it. And that's what that was: the 2012 framework
Betting on 25bps Fed rate cut but not sharing market’s “super confidence” – 08:59:12
There are some big numbers coming.… if they come in close to expectations… on both the real side of the economy and the inflation side, I think they will cut 25 basis points. So, if I was a trader on a trading desk and had to make a bet, I would bet that side. But not with super confidence, because there are these other numbers to go. And I characterized it to somebody else in an interview that, they're on a 0 to 1 spectrum with one Super Dove and zero Super Hawks. I think to me, what I heard was 55. Okay. So the market reacted much more like they heard 85.
The Fed will do what it will do and probably what it should do 00:09:52:01
I would be waiting… I think what I just characterized is what I the Fed will do; it is probably, is very, very close to what I think the Fed should do. There are some still some big numbers. If the…last three months employment reports turn out to be an aberration. You put the three together. He mentioned in this speech 35,000 increase in a month for three months. That's pretty low. Yeah. I don't know that the suppose the next three months or 135 or something, who knows what's going to happen that might change your mind.
An uncomfortable inflation up-creep- 00:10:45:22
Or if they're negative or another 35 that would deepen the, case. The cut and the other side is what's going to happen to inflation. People are making something and they should make something of it, of the fact that inflation is now and looks like it's creeping up a little instead of down. It's nice when it's creeping down.
Inflation is slow-moving: that could change 00:11:06:08
Yes. But I would emphasize creeping. It wasn't falling fast. And it's not rising fast. And it could either of those could change. It could start, rising a lot faster, which would make the FOMC think that's not such a good idea to cut interest rates, or it could slow down or even start trickling down. I don't think it will because of the tariffs.
Tariffs in the background but there is economic slowing 00:11:30:16
The tariffs are in the background. Pushing prices up. But you know this economy is looking weak. I mean a lot of people are saying that the slowdown in payrolls is because there are certain kinds of workers, hospitality people lawn services, all kinds of things that they're either staying home because is afraid they might get picked up, you know, by or and or they've, they've gone back anyway.
Markets do not seem to see signs of a slowing 00:11:58:05
And, and companies also because of tariffs are uncertain. So this is necessarily the economy's getting weaker. I mean, you can see many signs that in a lot of ways. And the thing that gets me, I know the stock market doesn't control what the Fed does. Not at all. However, if you've got a market going again to new highs, this seems like anything but a sign that investors see this big slowdown or any kind…
Blinder would favor a cut today is this were decision day 00:12:28:03
I don't think they're taking the tariffs seriously enough. And the tariffs are stagflation. Every shock. Now I don't want to exaggerate this. This is not like OPEC one or OPEC two. Nothing remotely close to that magnitude. But directionally it's the same. It's a supply shock that lowers growth raises unemployment. Probably that's where the labor force cripples in. And causes more inflation. And that's the other side. That's the case for not cutting interest rates. Now. Now I you asked me a minute ago where was I? I weigh the two sides. But I think if a decision was going to be made today, I would be favoring cut. And I think the FOMC would be too. But they don't have to make it yet. That's what everybody has to remember.
Central bank independence is a Trump threat 00:13:48:14
I think it's a real threat, but it's Trump's threat. It's in some sense unique to Trump. But he's got the whole Republican Party following him. I mean, he's going to he's going to send up somebody to replace JP back up one phrase. He's probably off the “I need to fire Jay Powell” thing. Now, he could go back to that. Right. But yeah. But for the now it looks like no he's not it's not that far away. I can put on Stephen Miran to make Jay Powells life miserable. And probably approve him because they roll over and play dead whatever he says. And that's enough for now. He's raising a ruckus, as you know, about Lisa Cook's mortgages, and he's going to make life miserable for the people on the Fed that are not his people.
Central bank independence is important- 00:15:15:07
He already has two appointees to the board. On the board. Now we only need two more. And he's going to have a third shortly. He's the only one war appointee away from the majority. Right. And then he could start doing things in addition, just making Jay Powell his life miserable. So. I was going to say most I will say most economists, almost all economists who don't work for Donald Trump. So that's the vast majority will tell you that central bank independence is important, right, of reasons to get better monetary policy. You get better growth, you get better control of expected and actual inflation. And the world's governments have shown that they agree with that. But I'm writing something on pointing out in that that, around the end of the 80s, there were basically only three central banks, prominent ones that were independent. The federal Reserve, the Swiss National Bank, and then it was the Bundesbank. There was no ECB. Now, almost all the world's, central banks in civilized countries. I leave out Russia and places like that are independent and who made them independent.
ALAN S. BLINDER is the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University, and a regular columnist for The Wall Street Journal.
Dr. Blinder served as Vice Chairman of the Board of Governors of the Federal Reserve System from June 1994 until January 1996. In this position, he represented the Fed at various international meetings, and was a member of the Board's committees on Bank Supervision and Regulation, Consumer and Community Affairs, and Derivative Instruments. He also chaired the Board in the Chairman's absence. He speaks frequently to financial and other audiences, often through the media.
Before becoming a member of the Board, Dr. Blinder served as a Member of President Clinton's original Council of Economic Advisers from January 1993 until June 1994. There he was in charge of the Administration's macroeconomic forecasting and also worked intensively on budget, international trade, and health care issues.During presidential campaigns, he has served as economic adviser to Bill Clinton, Al Gore, Hillary Clinton, and the Biden-Harris campaigns. He continues to advise members of Congress and officeholders. He also served briefly as Deputy Assistant Director of the Congressional Budget Office when that agency started in 1975, and has testified before Congress on a wide variety of public policy issues.
Dr. Blinder was born on October 14, 1945, in Brooklyn, New York. He earned his A.B. at Princeton University in 1967, M.Sc. at London School of Economics in 1968, and Ph.D. at Massachusetts Institute of Technology in 1971–all in economics. Dr. Blinder has taught at Princeton since 1971, and chaired the Department of Economics from 1988 to 1990. He was the Founder and either the Director or Co-Director of Princeton's Griswold Center for Economic Policy Studies from 1989 to 2011.
Dr. Blinder is the author or co-author of 23 books, including the textbook Economics: Principles and Policy (now with the late William Baumol and John Solow), which is now in its 14th edition, and from which over three million college students have learned introductory economics. His best-selling book, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead (2013) won several awards. Advice and Dissent: Why America Suffers When Economics and Politics Collide (2018) was published by Basic Books. His latest book, A Monetary and Fiscal History of the United States, 1961–2021 was published by Princeton University Press in October 2022. Dr. Blinder has written scores of scholarly articles on such topics as fiscal policy, central banking, offshoring, and the distribution of income. He also appears frequently on CNBC, Bloomberg TV, and elsewhere.
Dr. Blinder was previously President of the Eastern Economic Association and Vice President of the American Economic Association. He has been elected a Distinguished Fellow of the American Economic Association, and a member of the American Philosophical Society, the American Academy of Arts and Sciences, and the American Academy of Political and Social Science (AAPSS). In October 2023, he was awarded the Daniel Patrick Moynihan Prize by the AAPSS.
He also serves on academic advisory panels for the Hamilton Project, the Center for American Progress, and the Washington Center for Equitable Growth. He is a member of the Council on Foreign Relations and the Bretton Woods Committee, and a former governor of the American Stock Exchange.
Dr. Blinder has also had a successful business career, co-founding two entrepreneurial start-ups. He and his wife, Madeline, live in Princeton, NJ. They have two sons and four grandchildren.
