Kansas City Fed President Jeffrey Schmid on the First Jackson Hole of the Warsh Era

**Jeffrey Schmid** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Tracy Alloway** (0:17)
Well, hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

**Joe Weisenthal** (0:22)
And I'm Joe Weisenthal.

**Tracy Alloway** (0:23)
Joe, we're back in Jackson Hole.

**Joe Weisenthal** (0:25)
Where else could we be? I guess if you're watching on video, it's pretty obvious. If you're listening on audio, maybe there's some mystery. But if you're listening on audio, switch and watch us on video and you'll see.

**Tracy Alloway** (0:34)
Okay. For the old school audio listeners, we are back. And the backdrop to this is always literally beautiful, right? We have the mountains in the background. But I think I say this every year. I think this genuinely might be one of the most interesting Kansas City Fed economic symposiums ever.

**Joe Weisenthal** (0:51)
The most interesting until the next year. But yes, there's quite a bit going on, both in terms of the substance of like what everyone's here to talk about, plus the context of so many unresolved questions in the economy and so forth. So thrilled to be here. All right.

**Tracy Alloway** (1:05)
Well, we should get into it. And I'm glad to say we do in fact have the perfect guest.

**Joe Weisenthal** (1:09)
Perfect guest.

**Tracy Alloway** (1:09)
We're going to be speaking with Kansas City Fed President, Jeff Schmid. So thank you so much for coming back on Odd Lots.

**Jeffrey Schmid** (1:14)
Well, welcome to Jackson Hole. I mean, this is amazing. 49th year. So next year is the big 50

**Joe Weisenthal** (1:20)
Oh, wow. We'll definitely be back for that. You got to come back next year.

**Tracy Alloway** (1:22)
If you'll have us.

**Jeffrey Schmid** (1:23)
Oh, absolutely. I mean, it's such an amazing thing Kansas City Fed created a half century ago, and we just keep on trying to add to it as we go forward.

**Tracy Alloway** (1:33)
Well, thank you for giving us an excuse to come back to one of the world's most beautiful places every year. So the theme of this year's symposium is financial innovation in payments, but it's coming against this backdrop of general economic uncertainty and pretty high bond yields. Is there a connection between the two?

**Jeffrey Schmid** (1:52)
Yeah. So let's park that last question because it's a good one. Let's talk a little bit about why this is important. Because some people would say, oh man, payments, that's boring. But actually, we want to ultimately, as the Federal Reserve make payments boring. I mean, we move five to $10 trillion a day through the systems through multiple different payment pipes. What's really fascinating about what you're going to see in the next couple of days with some of the research that's being done is, we're moving toward, I've seen the words atomic settlement in the marketplace, which is actually when payments are actually going to be instant.
Through our lives, at least my life, you've always talked about floating fees. There's always been a friction and a cost to payments. Well, this innovation that we have now in technology is going to move money from me to you instantaneously, and it's going to be reconciled instantaneously. Well, that's the atomic side of this whole settlement business. And it's going to be one, very innovative, but two, it's going to be somewhat disruptive too. And so that begs the question about how do you accommodate a system that's instant. Gets back to your last question is that we're going to be talking a lot more as we go forward about two main things in our world. One is duration, duration of assets. The second is going to be liquidity.
And so when you think about it, if the payment is instant, then there's got to be liquidity, proven liquidity behind it, right, to settle it. And so I think there's a couple of things in your question that I think it begs. One is what's happened in the economy that's changed the nature of the yield curve, the price of money, be it short term, long term. Well, a lot of things. I mean, the economy is going, is moving along nicely.
It's growing and as long as we can try to get this inflation thing back to our mandated 2%, we're going to see a more normalized yield curve. So if you think historically, whatever is happening, the bond market is pretty good at pricing risk and price. And so the nature of what's happening for me is, I try to simplify this because I'm not that smart, go back to supply and demand. If prices are changing, then there's a dynamic between supply and demand that's occurring. It could be a bond prices or corn and wheat, whatever it is. It gets down to that when it comes to economics.