Paul Krugman, thank you so much for

being with us this morning. Really

appreciate you taking the time. As I

mentioned just now, we just heard from

Fed Chair Kevin Worsh and his focus here

still seems to be on that high

inflation. What did you make of this

comments this morning?

>> Okay, this is one of those classic uh

the important thing is not what he said,

but what he didn't say.

>> You know, in the last couple of months,

Worsh has floated. Oh, maybe we need a

different measure of inflation and

actually it's okay. And he didn't. He

was completely firmly on the side of the

standard measure which is running above

target. So he was not this was a hawkish

speech at least relative to what he'd

been saying before. Uh he said very

little of substance. I mean I uh I think

for even in the markets the difference

between forward guidance and reaction

function and we're watching carefully is

pretty I mean that that's may affect

day-to-day trading but almost nothing

else and um he did and there are still

five task forces which nobody quite

knows what the point is but who cares. I

thought this was the the news here

basically was that war sounded utterly

conventional. He did not sound at all

like somebody who was going to do

something different. Probably if uh

Trump was hoping he was going to make a

case for interest rate cuts or even

sound slightly more dovish than the than

the rest of the FOMC, he didn't. So, I

know I I uh not not an exciting speech,

but I guess not exciting is good in

these circumstances.

>> Paul and I think the markets sort of

feel the same way. They're sort of

saying eh the markets, all three major

indices now flat. We're seeing

short-term yields though rise because of

this fear of higher inflation.

With that being said though, what do we

anticipate? Was there any sort of read

through of what the Fed's next move was?

It's because of the fact that he really

emphasized that he's not one to provide

forward guidance, but yet they're

focused on this higher inflation. So,

what does this mean moving forward?

Well, he seemed to be saying, which is

kind of what most of the the Fed uh Fed

governor's board members are saying,

which is that inflation is stubbornly

above target, which points to continuing

restrictive policy to bring it down. He

actually kind of provided some numbers

that suggested that he he really does

not believe that this is transitory that

it's that it is underlying that the the

majority of items are showing

excessively high price increases. So

this is a kind of a tight money until we

see a lot better data speech.

>> When you heard what he said about the

task force, as you noted, we didn't

really hear much. We maybe were hoping

we would hear more. He said that they're

they're encouraging the progress is

there, but recommendations will come

later. At what point do you think we're

going to hear more about the task force

and what could those recommendations

even be here?

>> Uh, you know, there was uh uh Chris

Waller supposedly uh told him over

dinner, "What's the point? Tell me who's

on the task forces and I'll tell you

what the task forces will say." I don't

think anyone um you know monetary policy

has got to be one of the most hashed

over policy areas in in the world. Uh

it's almost inconceivable that any of

these task forces will tell us anything

that we haven't already heard hundreds

of times. So I think that's kind of you

know he's not giving up on it but I

think that was basically a time buying

move and I think he's pretty much given

up on that. So, uh, one thing I think is

worth saying though is that one thing

that I think was a little bit

interesting was he said very firmly the

short-term interest rate is the tool for

monetary policy except under exceptional

circumstances. And what is interesting

is that if you look at what his uh his

counterpart uh Scott Bessant is doing,

those long-term bond purchases uh are

effectively monetary policy,

unconventional monetary policy being

conducted by the Treasury. So we

basically have um his uh over at the

Treasury Department, they're doing what

would normally effectively the the

Treasury is doing quantitative easing.

And so you have uh war saying we don't

do that anymore and meanwhile uh down

the road that's what they're doing.

>> Right. Right. And we've seen this sort

of tension persist especially over the

last week as you noted with this with

this announcement of the double buyback.

So moving forward will this tension

continue especially since there's so

many unknowns following this address.

Now,

>> I I mean, I don't uh I came away from

this basically feeling that well, it

turns out that after all of the hull and

after all of the fear that Trump was

appointing a loyalist or that Wars was

going to do something drastic, I mean,

he didn't even say anything about

shrinking the balance sheet, you know,

that was that was his big thing was that

the Fed needs to back off the

consequences of quantitative easing, you

know, years ago. And he didn't say if

unless I missed it, he didn't say a word

about that. So, um, this was basically

we got a generic Fed chairman, which by

by the way I think is fine. That's

that's what we wanted.

>> One thing that was also sort of a

question mark, Paul, is the impact of

AI. He sort of put into question, okay,

will it be significant? What will lead

to productivity?

What do you think we expect to hear?

because that also was something that

maybe had people a little bit excited

that Kevin Worsh would be more vocal

about the impact of artificial

intelligence, but it seems like even

he's uncertain about the impact of that

in the economy.

>> Yeah. I mean, he actually uh he says

something intelligent which is basically

we don't know what the hell is

happening. So, in the in the past he's

been saying, oh, you know, we don't need

to worry about inflation because AI will

produce this wonderful productivity boom

which, you know, might happen, might

not. uh he did say it's boosting

investment which is actually slightly a

hawkish uh statement but basically uh he

said very little I mean he he talked

about how great it is and how you know

secular stagnation seems to be over um

but he didn't he didn't make any

confident pronouncements about what AI

is going to do which I have to say is

very much the path of wisdom here I mean

you know this stuff is uh I mean the uh

I read and I'm sure everybody else does

enormous amount about AI and my basic

take on it now is uh tell me what you

want to believe and you can find an

expert who will tell you that. So his

his agnosticism on AI was actually

encouraging.

>> Paul really quickly there's so much

uncertainty within geopolitics right

now. But now the latest is this

announcement on tariffs on Canada.

Canada putting tariffs on us. What is

the expectation of the impact that that

will have on broader businesses here in

the US?

>> Well, it really depends on how far this

goes. I mean, the so far the tariffs,

although they're nasty and they're um

they're disruptive, they're only

applying to a relatively small uh amount

of trade. Now, if the stuff goes

forward, I mean, there, you know, the

the if you take the full list of what

Trump is threatening and what the

Canadians are threatening to retaliate,

it basically destroys the US auto

industry, you know. So, this could be um

very serious. I,

you know, so far mostly uh I mean, so

far the the if I can say the ridiculous

outweighs the the substantive. I mean um

uh you know if Trump just restricts

himself to renaming Lake Ontario then

it's not such a bad thing but I who

knows where how far this goes.

>> Lots of question marks after that

meeting. Lots of question marks around

the candidate terrace. Paul Krugman

Nobel laurate in economics and author of

the Paul Krugman Substack. Thank you so

much for being with us this morning.

Thank you.