WEBVTT - Three Rate Hikes Is Still a Good Baseline, Kaplan Says 0:00:00.120 --> 0:00:02.920 Brought you by Bank of America Mary Lynch. Investing in 0:00:03.000 --> 0:00:07.840 local communities, economies and a sustainable future. That's the power 0:00:08.080 --> 0:00:12.360 of global connections, Mary Lynch, Pierce Fenner, and Smith Incorporated 0:00:12.760 --> 0:00:26.400 Member s I p C. Welcome to the Bloomberg Surveillance Podcast. 0:00:26.440 --> 0:00:29.920 I'm Tom Keene with David Gura. Daily we bring you 0:00:29.960 --> 0:00:34.800 insight from the best of economics, finance, investment, and international relations. 0:00:35.240 --> 0:00:40.760 Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, 0:00:40.800 --> 0:00:47.960 and of course, on the Bloomberg for Just days away 0:00:47.960 --> 0:00:51.000 from the first round of elections in France and tomorrow 0:00:51.520 --> 0:00:53.880 the World Bank and the International Monetary Fund begin their 0:00:53.880 --> 0:00:56.880 Spring meetings in Washington. Tumillby there with Francine Laqua and 0:00:56.920 --> 0:01:00.360 an incredible lineup of guests, and our coverage begins this 0:01:00.400 --> 0:01:03.360 morning with John Lipsky, former first Deputy Managing Director of 0:01:03.400 --> 0:01:06.319 the IMF. He was acting Managing director for time as well. 0:01:06.360 --> 0:01:08.600 He's now that Peter G. Peterson Distinguished Scholar at the 0:01:08.600 --> 0:01:11.080 Henry Kissinger Center for Global Affairs in the School of 0:01:11.080 --> 0:01:14.600 Advanced International Studies at the Johns Hopkins University in Washington, 0:01:14.640 --> 0:01:16.640 and John Lipsky joins US now from our Bloomberg nine 0:01:16.680 --> 0:01:18.760 one one studios in Washington. Great to have you with 0:01:18.840 --> 0:01:21.119 us again, John, Thanks very much for being here this morning. 0:01:21.240 --> 0:01:24.200 Thanks happy to Let's start with the world economic outlook 0:01:24.200 --> 0:01:26.240 we got this week. I imagine you've poured over it, 0:01:26.720 --> 0:01:28.759 and I wonder sort of what you've what you've what 0:01:28.800 --> 0:01:30.520 you've seen there, what you've drawn from it, what that's 0:01:30.520 --> 0:01:32.200 going to sort of what the bedrock is going to 0:01:32.280 --> 0:01:34.600 be there for the meetings that that start tomorrow. Well, indeed, 0:01:34.640 --> 0:01:37.240 the UH much has been made of the fact that 0:01:37.280 --> 0:01:41.080 the i m F actually upgraded their growth forecast for 0:01:41.400 --> 0:01:44.120 two thousand seventeen two thousand and eighteen. It's been a 0:01:44.160 --> 0:01:47.319 long time since they've adjusted their forecast upwards, but the 0:01:47.600 --> 0:01:51.240 adjustment is tiny point one percent, and in fact the 0:01:51.960 --> 0:01:56.040 trend remains very sluggish growth, especially in the advanced economies. 0:01:56.440 --> 0:01:59.840 Their forecasting growth of under two percent when the long 0:02:00.080 --> 0:02:03.360 term average for those for the advanced economies has been 0:02:03.360 --> 0:02:07.640 nearly three percent. So from that longer term perspective, UH 0:02:07.800 --> 0:02:10.640 this is not such a happy picture. And for the 0:02:10.680 --> 0:02:14.400 emerging economies they see growth still only at about the 0:02:15.120 --> 0:02:16.919 at about the long term average about four and a 0:02:16.960 --> 0:02:20.480 half percent. But before the crisis hit in two thousand seven, 0:02:20.480 --> 0:02:23.960 those countries were growing by seven to eight percent. So 0:02:24.120 --> 0:02:28.280 it is remains a rather modest picture for growth, and 0:02:28.320 --> 0:02:30.800 the Fund continues to say risks are tilted to the 0:02:30.840 --> 0:02:33.400 downside and points out some specific things that need to 0:02:33.400 --> 0:02:36.000 be done. So even though the mood music is is 0:02:36.040 --> 0:02:39.160 a little more upbeat than previously, uh, this is not 0:02:39.440 --> 0:02:41.799 as good as it should be or could be. Yeah, 0:02:41.880 --> 0:02:44.200 your former colleague Christine Leguard telling our friends in lack 0:02:44.200 --> 0:02:45.960 With just a couple of days ago that spring is 0:02:45.960 --> 0:02:48.359 in the air for for the global economy. So we 0:02:48.360 --> 0:02:50.360 can use either metaphor the mood music or or or 0:02:50.440 --> 0:02:52.519 the the spring being in the air. Let me ask 0:02:52.560 --> 0:02:54.600 you about the degree to which the French election is 0:02:54.600 --> 0:02:58.160 going to distract from the goings on in Washington this weekend, 0:02:58.400 --> 0:03:01.359 that being a major risk event. Well, indeed, it's a 0:03:02.160 --> 0:03:07.639 mainly because of what it might suggest the atmosphere around 0:03:07.919 --> 0:03:11.639 the European Union is going to be for the coming months. 0:03:11.760 --> 0:03:14.120 After all, we also have a German election coming in 0:03:14.200 --> 0:03:18.600 the in the fall, we're going to start the negotiations 0:03:18.600 --> 0:03:21.919 over so called Brexit, the UK's departure from the European Union. 0:03:22.360 --> 0:03:25.680 So this French election could have a fair amount to 0:03:25.720 --> 0:03:30.120 do with the the atmosphere surrounding that. And when we 0:03:30.160 --> 0:03:34.880 look at the European growth figures, they remain better than 0:03:34.920 --> 0:03:37.840 they have been, still subdued. The I m F says, 0:03:37.880 --> 0:03:41.760 the European banking system still needs attention. So Europe will 0:03:41.760 --> 0:03:44.400 continue to be the focus and the French election will 0:03:44.440 --> 0:03:47.320 provide a kind of weather vane for the where the 0:03:47.360 --> 0:03:49.760 wind is blowing. I want to ask you about multi 0:03:49.800 --> 0:03:53.280 ladderalism and how it relates to to this current administration. 0:03:53.520 --> 0:03:55.520 You have the IMF meeting this weekend with with the 0:03:55.520 --> 0:03:57.680 World Banking Concert with the World Bank. Who's going to 0:03:57.760 --> 0:04:00.800 make the case for multi ladderalism and from multi ladd institutions? 0:04:00.880 --> 0:04:02.560 Is this the venue to do it? I know that 0:04:02.640 --> 0:04:04.600 Christine Legard will be on stage with Steven manuch In 0:04:04.600 --> 0:04:06.840 the Treasury Secretary. They'll do an interview over the course 0:04:06.880 --> 0:04:09.720 of of the meetings. Is this the forum to make 0:04:09.800 --> 0:04:14.320 that case to the US presidential administration? Oh? Absolutely, and 0:04:14.640 --> 0:04:17.400 I'm sure this will be a message that we're repeated 0:04:17.720 --> 0:04:20.840 many many times. Uh. The I m F is, of 0:04:20.839 --> 0:04:25.000 course trying to lead the way in representing UM. Let's 0:04:25.000 --> 0:04:28.760 call it a neutral technical voice saying that in fact, 0:04:28.880 --> 0:04:33.480 international collaboration has a real substance to it and produces 0:04:33.680 --> 0:04:36.960 better as the holds out the the promise of better 0:04:37.040 --> 0:04:42.320 economic results. But remember the Group of twenty UH Foreign 0:04:42.320 --> 0:04:46.920 Finance ministers are meeting tonight and tomorrow and later this UH. 0:04:47.080 --> 0:04:51.680 This year, the the G twenty leaders are going to 0:04:51.720 --> 0:04:55.440 meet in Germany, and that will be a really critical 0:04:55.480 --> 0:04:59.400 moment to see how the US intends to to participate 0:05:00.000 --> 0:05:02.520 in the G twenty. Will it take a leadership role 0:05:02.960 --> 0:05:07.520 or an adversarial role or essentially ignore the whole organization 0:05:07.760 --> 0:05:11.080 which has been the key venue for the large economies 0:05:11.279 --> 0:05:15.640 to collaborate on economic programs. Good morning everyone, David Gerr 0:05:15.720 --> 0:05:19.200 and Tom keenan New York in our Washington Studios FM 0:05:19.200 --> 0:05:24.200 Washington Studios with the Johns Hopkins University. John Lipsky, of course, 0:05:24.240 --> 0:05:27.719 his service to Solomon Brothers and JP Morgan in recent years, 0:05:27.839 --> 0:05:30.640 that's a joke. And then his work at the International 0:05:31.000 --> 0:05:33.960 Monetary Fund. John, you had two tours of duty at 0:05:34.000 --> 0:05:36.159 the i m F. I believe as a young lad 0:05:36.760 --> 0:05:39.840 minted out of Stanford, you darken the door. How is 0:05:39.880 --> 0:05:42.679 the i m F different today for when you first 0:05:42.680 --> 0:05:45.680 walked in the door with Nut Wixel and John Madred 0:05:45.760 --> 0:05:50.680 Kine's well, dramatically different time. Because remember, even though the 0:05:50.760 --> 0:05:54.560 i m F and the Breton Wood system were designed 0:05:54.560 --> 0:05:57.920 to be international, when I first walked in the door 0:05:57.960 --> 0:06:01.960 in four UH, the world was still divided by the 0:06:02.000 --> 0:06:04.880 Cold War, and membership in the I m F was 0:06:05.279 --> 0:06:11.960 restricted to Western countries. After the global system became truly 0:06:11.960 --> 0:06:14.880 global for the first time, and that was reflected in 0:06:15.000 --> 0:06:18.640 the I m F and other international institutions. So today 0:06:19.520 --> 0:06:22.960 the membership has brought er. It's truly a venue for 0:06:23.000 --> 0:06:26.919 global considerers. You've lived the joy of being the chief 0:06:26.960 --> 0:06:31.440 pinata people taking shots at you about the forecasting ability 0:06:31.560 --> 0:06:35.360 of Ken Rogoff and Olivier Blanchard, and now the good 0:06:35.360 --> 0:06:39.000 professor from Berkeley, Mariye Hobbs felt enjoys being beaten to 0:06:39.040 --> 0:06:42.680 death pushed back against the harsh critics of I m 0:06:42.720 --> 0:06:46.440 F guestimates in the acclaimed Blue, Green, and Red books 0:06:46.680 --> 0:06:50.840 helped me out here with what they get wrong. Oh 0:06:50.839 --> 0:06:53.039 but let's let me start by saying what they get right. 0:06:53.880 --> 0:06:59.080 They I think that the clearly the world economic outlook 0:06:59.120 --> 0:07:03.360 forecast of the m F remains the principal benchmark forecast 0:07:03.640 --> 0:07:08.160 for the global economy. Uh. You can like it, disagree 0:07:08.200 --> 0:07:11.520 with it, but it tends to point to the key 0:07:11.640 --> 0:07:16.600 issues and discusses them in depth and in a serious way. 0:07:16.880 --> 0:07:23.440 So it provides a tremendously useful benchmark for discussions. Uh, 0:07:23.560 --> 0:07:26.120 it would be I think too narrow to say, well, 0:07:26.160 --> 0:07:28.080 let's do a scorecard and see if they get it 0:07:28.160 --> 0:07:31.600 right to the decimal points it is. It tries to 0:07:31.680 --> 0:07:36.360 focus on the critical near term issues, so that's what 0:07:36.400 --> 0:07:42.360 they get right. Let's put it this way. Let's put 0:07:42.400 --> 0:07:45.240 it this way. There is a market test. H it 0:07:45.480 --> 0:07:49.760 is the benchmark global forecast that you'll find everyone taking 0:07:49.840 --> 0:07:53.840 into account and either agreeing with their disagreement. But if 0:07:53.880 --> 0:07:57.280 it didn't have that basic quality, it wouldn't be the benchmark. 0:07:57.440 --> 0:07:59.440 John Let's I was talking with Tom yesterday we were 0:07:59.440 --> 0:08:01.240 doing a book live and I said to him, is 0:08:01.280 --> 0:08:03.320 there a theme for this this year's spring meetings? And 0:08:03.320 --> 0:08:05.000 he says, there's always a theme, but it gets scrapped 0:08:05.000 --> 0:08:08.600 just a few hours. And I'm at you mean, thinking 0:08:08.640 --> 0:08:11.440 like Mike Tyson, everyone has a plan until they get 0:08:11.440 --> 0:08:14.960 punched in the mouth. Is America first going to be 0:08:15.000 --> 0:08:18.120 the de facto theme of of of the conference this weekend. Well, 0:08:18.160 --> 0:08:20.280 for sure, there's going to be an awful lot of 0:08:21.440 --> 0:08:26.480 interest in the in the new Trump administration's participation in 0:08:26.560 --> 0:08:29.320 the meetings, and especially not just in the I m 0:08:29.360 --> 0:08:32.240 F meeting itself, but in the G twenty ministerial and 0:08:32.320 --> 0:08:36.800 to see, uh whether the what, what kind of participation 0:08:37.240 --> 0:08:40.440 and attitude is projected by the U S authorities. But 0:08:40.600 --> 0:08:43.560 not just not just after all we just talked about there, 0:08:43.600 --> 0:08:49.400 they're the live issue of Greece and the current uh 0:08:49.600 --> 0:08:51.880 let's call them friendly negotiation between the i m F 0:08:51.920 --> 0:08:55.320 and the European Union over resolving that there's the uncertainty 0:08:55.320 --> 0:08:59.040 about Europe. All of these will be important, but overriding 0:08:59.280 --> 0:09:02.959 will be the question of is there the commitment to 0:09:03.800 --> 0:09:09.839 international cooperation collaboration to sustain the international trade and financial 0:09:09.880 --> 0:09:12.320 system that has produced such good results for such time 0:09:12.360 --> 0:09:17.200 but seems to be under under attack or where do 0:09:17.240 --> 0:09:20.840 we stand in that regard? John Lipsky, thank you so much. 0:09:20.880 --> 0:09:24.800 With the JOHNS. Hopkins University h Dr Lipsky of course 0:09:24.840 --> 0:09:28.400 for years at JP morgan Um Economics. He wrote the 0:09:28.400 --> 0:09:32.320 first chapter to my book years ago David Gurrow with 0:09:32.360 --> 0:09:36.360 one James Glassman who darkens our door on Jobs Day, 0:09:37.280 --> 0:09:40.120 and it was smart and they were way out front 0:09:40.320 --> 0:09:43.200 on the job economy. And this mystery, one of the 0:09:43.240 --> 0:09:47.320 mysteries here which is alluded to by Madame Legarde, but 0:09:47.720 --> 0:09:51.680 permeates all of our work. Where's the wage growth? Where's 0:09:51.720 --> 0:09:55.360 the wage growth? In every country? Where's where's the wage growth? 0:09:55.960 --> 0:09:59.160 And you wonder if that could be the surprise here 0:09:59.200 --> 0:10:13.319 wrapped her on of course the French election. It is 0:10:13.360 --> 0:10:18.160 an appropriate day to speak of fair and balanced David. 0:10:18.600 --> 0:10:22.880 Foreign Affairs magazine actually is fair and balanced. Not that 0:10:22.880 --> 0:10:27.640 I would editorialize, uh there, but but they're fair and 0:10:27.640 --> 0:10:31.400 they're balanced, and in their new issue, which is hard hitting, 0:10:32.240 --> 0:10:36.120 there are articles in support of where this administration would 0:10:36.120 --> 0:10:39.040 like to go. That's a good setup, isn't it. Absolutely Rose, 0:10:39.120 --> 0:10:41.040 the editor of Foreign Afairs, joining us here in our 0:10:41.040 --> 0:10:43.000 eleven three oh studios in New York. Let me go 0:10:43.080 --> 0:10:45.040 straight to your note at the beginning of the issue 0:10:45.080 --> 0:10:46.640 here you talk about the three ways by which you 0:10:46.679 --> 0:10:49.360 have to disentangle what this administration is doing when it 0:10:49.400 --> 0:10:51.600 comes to foreign policy. Say you're looking for the normal, 0:10:51.679 --> 0:10:54.200 the incompetent UH, and the dangerous and you warn't here 0:10:54.200 --> 0:10:57.160 the damage is already being done. What do you What 0:10:57.200 --> 0:10:59.199 did you set out to do with this issue in particular, Well, 0:10:59.200 --> 0:11:01.679 you know, it's very hard to cover the Trump administration 0:11:01.679 --> 0:11:04.560 in real time because we are still trying to figure 0:11:04.559 --> 0:11:06.880 out what's going on, and they're so nontransparent and they're 0:11:06.920 --> 0:11:10.080 so unusual. It's also difficult for magazine like Foreign Affairs 0:11:10.120 --> 0:11:12.360 for as print edition because we have a long lead time, 0:11:12.400 --> 0:11:14.400 and so you have to it. What we wanted to 0:11:14.440 --> 0:11:18.640 do was evaluate with this issue what they're actually been 0:11:18.720 --> 0:11:22.040 doing and what the consequences are. And what are most 0:11:22.080 --> 0:11:25.440 of our authors are saying is that they really don't 0:11:25.440 --> 0:11:28.319 know what they're doing on foreign policy, and the instincts 0:11:28.360 --> 0:11:32.400 that they brought to the administration to power UH actually 0:11:32.440 --> 0:11:36.920 are all wrong because they're out to essentially dismantle a 0:11:37.000 --> 0:11:40.200 global system that actually has been working pretty well. And 0:11:40.280 --> 0:11:43.680 so UH. Their process of what you're seeing this spring 0:11:43.800 --> 0:11:46.160 and presumably what you'll continue to see over the next 0:11:46.320 --> 0:11:50.200 few months as well, is the education of the Trump administration. 0:11:50.480 --> 0:11:53.880 They've realized it seems already that their initial approach, the 0:11:53.920 --> 0:11:56.600 bannoned view of the world just isn't gonna fly and 0:11:56.679 --> 0:12:00.439 doesn't work. Now they're floundering to try to do something else. 0:12:00.840 --> 0:12:04.480 They've brought in a more moderate people, They've empowered people 0:12:04.559 --> 0:12:08.959 like Kushner and Cone and Dina Powell and and so forth. 0:12:09.280 --> 0:12:11.720 But I still don't think they have a new actual 0:12:11.760 --> 0:12:14.600 governing strategy. And since they don't actually have an ideology 0:12:14.720 --> 0:12:17.000 or a sense of what they want to achieve, Uh, 0:12:17.040 --> 0:12:18.840 no one really knows what they're going to do when 0:12:18.840 --> 0:12:21.520 they haven't staffed up the administration. So we're all essentially 0:12:21.760 --> 0:12:25.800 watching and waiting for their process of self education to 0:12:25.880 --> 0:12:27.920 get to the point where we can actually get back 0:12:27.960 --> 0:12:30.000 to the business of running the country in the world. 0:12:30.120 --> 0:12:33.080 You've got a guy like Bob Cohen Princeton via Duke 0:12:33.120 --> 0:12:37.120 and Harvard thinking about the liberal international order. Do you 0:12:37.160 --> 0:12:40.160 get the sense of that kind of contemplation is happening 0:12:40.160 --> 0:12:42.240 within the White House? This education is taking place. But 0:12:42.280 --> 0:12:44.240 does the White House see what it's doing in those 0:12:44.240 --> 0:12:47.559 sort of broader terms. I think, uh, not really. Uh, 0:12:47.679 --> 0:12:50.600 there's no evidence that this White House actually understands, at 0:12:50.640 --> 0:12:52.600 least the White House, the new people who have come 0:12:52.640 --> 0:12:56.000 in understands what the liberal order is, what the system 0:12:56.160 --> 0:13:00.000 in the global UH trading networks are and and security networks, 0:13:00.040 --> 0:13:02.640 what alliances we have, and how to make that operate. 0:13:02.840 --> 0:13:04.640 There are a lot of professionals in maybe parts of 0:13:04.679 --> 0:13:06.720 the U. S. Government, but there's this disconnect between the 0:13:06.760 --> 0:13:09.520 professional staff of the government, all the technocrats, and the 0:13:09.559 --> 0:13:13.880 White House. UH. And while the removal of Flynn and 0:13:13.920 --> 0:13:17.720 the replacement with McMaster was an excellent sign that brings 0:13:17.760 --> 0:13:20.640 those professionals closer to the center of power, UH, it's 0:13:20.640 --> 0:13:23.040 still not clear that they are actually running things. And 0:13:23.120 --> 0:13:27.560 at this point, I think everybody is over interpreting UH 0:13:27.800 --> 0:13:32.320 really random decisions and actions and words by the administration 0:13:32.400 --> 0:13:35.400 as if they actually are reflective of some larger strategy. 0:13:35.559 --> 0:13:37.680 But it's clear they don't. They have no idea what 0:13:37.760 --> 0:13:39.640 to do on Syria, they don't know what they want 0:13:39.640 --> 0:13:41.280 to do on trade, they don't know what they want 0:13:41.280 --> 0:13:43.920 to do on Russia China, and so we're all waiting 0:13:44.000 --> 0:13:45.560 until they kind of figure that out. We got a 0:13:45.559 --> 0:13:47.840 minute and a half left. State the case for the 0:13:47.880 --> 0:13:50.400 president's policy. You do that in your new issue. But 0:13:50.480 --> 0:13:52.560 the state of the case of the president's policy is 0:13:52.720 --> 0:13:56.520 there was a great deal of complacency about how things 0:13:56.520 --> 0:14:00.920 were going and that was unjustified, and that in effect, 0:14:01.240 --> 0:14:05.559 sort of like the electoral surprise of the Brexit and 0:14:05.600 --> 0:14:08.559 then Trump. UH, there was a was a recognition by 0:14:08.679 --> 0:14:11.560 large sectors of the population in America around the world 0:14:11.840 --> 0:14:14.960 that the liberal order that had been keeping sort of 0:14:15.000 --> 0:14:19.080 things basically stable and moving forward was disproportionately benefiting some 0:14:19.120 --> 0:14:22.320 groups in society and screwing the middle classes the lower 0:14:22.360 --> 0:14:25.560 classes and UH not paying enough attention, and that those 0:14:25.600 --> 0:14:29.280 things needed to be remedied. And the best argument so 0:14:29.320 --> 0:14:33.600 far is that by UH challenging our assumptions, by moving 0:14:33.640 --> 0:14:37.240 to address some of the problems with globalization, by sending 0:14:37.280 --> 0:14:40.040 the signal that the unitis can't be pushed around, we 0:14:40.080 --> 0:14:44.520 are bringing back a certain degree of UH sober American 0:14:44.680 --> 0:14:47.720 leadership and confronting real problems that have been brushed under 0:14:47.760 --> 0:14:49.480 the rug. The problem is you need to have a 0:14:49.520 --> 0:14:53.720 professional competence UH developing that into an actual strategy and 0:14:54.040 --> 0:14:56.200 putting it in place, and we don't haven't seen that yet, 0:14:56.240 --> 0:14:58.560 partly because there are no people in the top echelon 0:14:58.680 --> 0:15:01.320 the administration who actually have good jobs yet. Can I 0:15:01.320 --> 0:15:05.440 do my usual sales picture. Here's here's the issue, folks. 0:15:05.840 --> 0:15:11.280 The heritage of Foreign Affairs Magazine is spectacular. Gideon Rose 0:15:11.320 --> 0:15:13.600 and his team have kicked a new life into it. 0:15:13.600 --> 0:15:17.640 It is fabulous article to article, in short essay to 0:15:17.760 --> 0:15:22.760 short essay. Their bonus round have it in large friendly 0:15:22.960 --> 0:15:27.640 funds and my eyes. Thank you, Gideon, Foreign Affairs Magazine. 0:15:27.840 --> 0:15:38.480 It's the price of a Martini. Get it brought you 0:15:38.560 --> 0:15:42.200 by Bank of America. Mary Lynch Dedicated to bringing our 0:15:42.240 --> 0:15:45.840 clients insights and solutions to meet the challenges of a 0:15:45.880 --> 0:15:50.240 transforming world. That's the power of global Connections. Mary Lynch, 0:15:50.440 --> 0:16:00.360 Pierce Federan Smith Incorporated, Member s I p C. There's 0:16:00.440 --> 0:16:04.000 something new from Bloomberg. It's called Lens. Starting right now, 0:16:04.040 --> 0:16:06.880 you can use the Bloomberg Io s app off your 0:16:06.920 --> 0:16:11.840 iPhone or iPad, or our new Google Chrome extension to 0:16:11.920 --> 0:16:15.840 read any news story on any website, scan it, and 0:16:15.880 --> 0:16:20.280 then instantly see the news stories relevant market data from Bloomberg. 0:16:20.640 --> 0:16:23.720 In addition, see all the bios of the key people 0:16:24.160 --> 0:16:27.400 mentioned in the story. It's called Lens, and it is 0:16:27.440 --> 0:16:30.560 just that, a lens into the people and the data 0:16:30.640 --> 0:16:34.880 of any story you may be reading. Again, Lens brings 0:16:34.920 --> 0:16:38.160 you the power of Bloomberg's news and data download or 0:16:38.200 --> 0:16:41.560 io s app or search for the Bloomberg extension at 0:16:41.600 --> 0:16:44.920 the Chrome Store to try lens out. Learn more at 0:16:44.920 --> 0:16:54.680 Bloomberg dot com slash lens. Yeah, this is fascinating. Robert 0:16:54.720 --> 0:16:58.800 Kaplan is not your normal FED president, and critically he's 0:16:58.840 --> 0:17:01.800 not the normal FED resident of the heritage of the 0:17:01.920 --> 0:17:04.600 Dallas Fed. It goes back to the Georgia School and 0:17:04.640 --> 0:17:08.199 the good work of Robert McTeer, among the others. And 0:17:08.200 --> 0:17:11.000 then they brought in Kaplan of a small school in 0:17:11.119 --> 0:17:16.560 Boston called Harvard University. Michael McKee picked himself up the floor. 0:17:16.800 --> 0:17:19.840 Here is our Michael McKee were the president of the 0:17:19.920 --> 0:17:22.960 Dallas FED. Thank you very much, and we would like 0:17:23.040 --> 0:17:25.960 to welcome Robert Caplan, the president of the Dallas Federal 0:17:26.080 --> 0:17:29.520 Reserve Bank, to Bloomberg Radio and TV worldwide. Thanks for 0:17:29.800 --> 0:17:32.280 joining us this morning and having us down here and 0:17:32.440 --> 0:17:36.440 in the Big d Welcome to Texas. The consensus forecast 0:17:36.480 --> 0:17:39.240 for first quarter in GDP one and a half percent, 0:17:39.640 --> 0:17:42.720 so called hard data, has been soft. The soft data 0:17:42.760 --> 0:17:47.119 has been strong, the yield curve flattening, tenure coming down 0:17:47.160 --> 0:17:52.040 a lot, but the financial condition indexes are loosening. So 0:17:52.359 --> 0:17:54.840 what is really going on? Other is there something happening 0:17:54.880 --> 0:17:58.920 that we're not picking up. Well, Uh, let me talk. 0:17:58.960 --> 0:18:00.760 Let me start with the last part on the tenure. 0:18:00.880 --> 0:18:04.840 My own my own sense is the tenure is is 0:18:04.880 --> 0:18:09.119 reflecting the fact that expected GDP growth is going to 0:18:09.240 --> 0:18:12.720 be uh, maybe sluggish as it has been the last 0:18:12.720 --> 0:18:16.480 several years. And also there's some geopolitical events, particularly what's 0:18:16.480 --> 0:18:20.720 going on in Europe, potentially other geopolitical events military and 0:18:20.760 --> 0:18:24.320 otherwise that might be causing people on balance to be 0:18:24.440 --> 0:18:27.760 in the US dollar be in the tenure. I think 0:18:27.760 --> 0:18:31.320 in terms of GDP growth for the first quarter, I 0:18:31.320 --> 0:18:34.119 think the key underpinning to this economy still though for me, 0:18:34.680 --> 0:18:37.919 is the U S. Consumer household balance sheets in the 0:18:38.000 --> 0:18:42.000 United States are in relatively good shape, household debt services 0:18:42.040 --> 0:18:44.640 in very good shape. So the consumers got the ability 0:18:44.640 --> 0:18:47.679 to spend, and they're almost seventy of the economy. The 0:18:47.800 --> 0:18:51.280 question is will they spend uh, And I think there's 0:18:51.359 --> 0:18:55.960 also some uncertainties for them. The healthcare reform discussion may 0:18:56.000 --> 0:18:59.399 have some chilling effect on some consumers because they're not 0:18:59.520 --> 0:19:03.000 sure how much their healthcare is going to cost. Maybe 0:19:03.040 --> 0:19:08.399 some other uncertainties. So my own view is, uh, the 0:19:08.400 --> 0:19:11.000 the household sector ultimately is going to spend this year 0:19:11.040 --> 0:19:13.880 because they've got the capacity to, and so I think 0:19:13.880 --> 0:19:17.159 we'll have a little better GDP growth than first quarter suggests. 0:19:17.560 --> 0:19:21.119 But I do think because of aging demographics and a 0:19:21.200 --> 0:19:26.280 number of other headwinds, perspective, GDP growth still is challenging, 0:19:26.560 --> 0:19:28.840 and I still think that's the big issue for this 0:19:28.880 --> 0:19:31.359 country to deal with. Well. The markets have started to 0:19:31.400 --> 0:19:34.280 price out more aggressive FED action. The FED this year 0:19:34.400 --> 0:19:38.720 sort of pivoted towards a faster pace of moves. Is 0:19:38.760 --> 0:19:41.320 there anything that tells you that that pivot may have 0:19:41.440 --> 0:19:46.200 stopped or slowed now? I still I still think uh, 0:19:46.480 --> 0:19:52.159 uh the uh, the three um, the median of three 0:19:52.640 --> 0:19:55.239 rate increases for this year we've already done one is 0:19:55.280 --> 0:19:58.600 still a good baseline. Uh. If the economy develops a 0:19:58.640 --> 0:20:01.480 little more slowly and we can we can do less 0:20:01.480 --> 0:20:04.040 than that. If the economy is a little stronger, we 0:20:04.040 --> 0:20:06.960 can do more than that. But I still think we're 0:20:07.000 --> 0:20:10.200 making good progress toward full employment. There's still some labor slack, 0:20:10.520 --> 0:20:13.800 but I think we're approaching full employment. The trickier issue 0:20:13.880 --> 0:20:17.119 is inflation. The work we're doing here in Dallas and 0:20:17.200 --> 0:20:20.280 our work on the Dallas trim means suggests the core 0:20:20.320 --> 0:20:24.720 inflation continues to slowly gradually move up. But I think 0:20:25.720 --> 0:20:30.239 UH excess capacity globally, particularly in China, UH and and 0:20:30.320 --> 0:20:34.720 possibly growing because they keep investing in excess capacity in China. 0:20:35.160 --> 0:20:38.920 And second, technology and technology enabled disruption which is impacting 0:20:39.240 --> 0:20:44.560 businesses pricing power and also increasingly replacing people with technology. 0:20:44.800 --> 0:20:48.679 Those are having downward pressure impacts on inflation. So I 0:20:48.680 --> 0:20:51.399 think the inflation mandate will have to watch a little 0:20:51.400 --> 0:20:54.240 more closely. But I still think, having said all that, 0:20:54.280 --> 0:20:57.639 the three is probably a good baseline. But patients means 0:20:57.720 --> 0:21:00.680 to me when I say we should be grad frual inpatient, 0:21:00.800 --> 0:21:05.600 it means we we have the ability and the flexibility 0:21:05.720 --> 0:21:08.440 UH to wait and see how the economy unfolds. Turn 0:21:08.520 --> 0:21:11.200 over a few more cards, and I would counsel that 0:21:11.200 --> 0:21:15.720 that's quite appropriate that we exercise that patience basis points 0:21:15.720 --> 0:21:19.840 to to one the proper setting for rates at this 0:21:20.000 --> 0:21:22.439 moment or should they be higher, And it's just a 0:21:22.480 --> 0:21:26.360 process of getting there. Here's how I think about that. UH. 0:21:26.560 --> 0:21:28.840 For me, I always think about what's the neutral rate. 0:21:28.840 --> 0:21:30.679 I've talked to you before about what's the rate at 0:21:30.720 --> 0:21:36.200 which we're neither accommodative or restrictive. If you ask me today, 0:21:36.240 --> 0:21:39.760 I would say that neutral rate, and it's a theoretical 0:21:39.880 --> 0:21:43.000 rate and it can change, is closer to two than 0:21:43.080 --> 0:21:47.720 to three. So for its seventy basis points. Now, that 0:21:47.840 --> 0:21:52.959 tells me in that framework, we're still accommodative. But uh, 0:21:54.080 --> 0:21:57.400 we don't have that much room to get to neutral. 0:21:57.920 --> 0:22:00.719 So we're accommodative, but probably not as a comidative as 0:22:00.760 --> 0:22:03.879 people think. Uh. And so that's how I look at it. 0:22:03.920 --> 0:22:08.000 So I still think basis points is appropriate place to be. 0:22:08.480 --> 0:22:12.080 And I think if we continue to make progress unemployment 0:22:12.080 --> 0:22:16.919 and inflation, and the economy unfolds around two percent GDP growth, 0:22:17.200 --> 0:22:19.720 I still think it'll be appropriate to get a little 0:22:19.760 --> 0:22:23.400 closer to neutral and continue to remove accommodation for years. 0:22:23.400 --> 0:22:25.200 I would come down here and ask you when is 0:22:25.240 --> 0:22:27.200 the Fed going to raise interest rates? But the question 0:22:27.200 --> 0:22:29.520 Wall Street is asking now is when is the Fed 0:22:29.560 --> 0:22:31.600 going to tell us what their plans for the balance 0:22:31.640 --> 0:22:34.960 sheet are? How soon do you think we get the 0:22:34.960 --> 0:22:38.680 program that you want? Uh. My own view has been 0:22:39.040 --> 0:22:41.480 that we need to get a little further along in 0:22:41.720 --> 0:22:45.920 so called normalization of rates before we begin to let 0:22:45.920 --> 0:22:48.320 the balance sheet run off. For me, I think that 0:22:48.359 --> 0:22:51.280 could be as soon as later this year or maybe 0:22:51.320 --> 0:22:54.879 early next year, we should begin the process of letting 0:22:54.920 --> 0:22:59.320 the balance sheet roll off. That means not selling securities. 0:22:59.600 --> 0:23:02.760 It means letting our treasury securities and mortgage backed securities 0:23:03.520 --> 0:23:06.480 run off as they mature. And I still believe we 0:23:06.520 --> 0:23:10.240 should do that gradually, patiently. But I think that process 0:23:10.280 --> 0:23:12.200 again could begin as early as at the end of 0:23:12.240 --> 0:23:15.920 this year, and I think that's appropriate. Yes, I think 0:23:15.920 --> 0:23:18.320 it should be phased in. I think it should be gradual, 0:23:18.680 --> 0:23:20.879 and the objective to me ought to be to do 0:23:20.920 --> 0:23:23.360 it in a way that's gradual enough that we don't 0:23:23.400 --> 0:23:26.159 have a material impact on either the treasury market or 0:23:26.200 --> 0:23:29.119 the mortgage backed securities markets. A lot of decisions have 0:23:29.200 --> 0:23:31.880 to be made on the operational aspects of this. When 0:23:31.920 --> 0:23:35.240 do When can we expect an announcement on that? Uh? 0:23:35.280 --> 0:23:38.199 I think similar to that time frame, I think I 0:23:38.240 --> 0:23:41.760 think it's appropriate at least a couple of three months 0:23:41.800 --> 0:23:45.240