WEBVTT - Herrmann: The Fed needs to wake up

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleventh, LEO to Washington,

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<v Speaker 1>d C, Bloomberg one to Boston, Bluemberg twelve Hunde to

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<v Speaker 1>San Francisco, Bluemberg, Ninez to the Country series A Channel

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<v Speaker 1>one nine and around the globe the Bloomberg Radio plus

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<v Speaker 1>SAP and Bloomberg dot Com. This is Bloomberg Surveillance. Good morning,

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<v Speaker 1>I'm John Tucker, along with Tom keenan Michael McKee. The

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<v Speaker 1>Opening Bell Report this morning is being brought to you

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<v Speaker 1>by se I imagining your asset management firms operational infrastructure

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<v Speaker 1>as a competitive advantage. Lead se I show you how

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<v Speaker 1>at s e I C dot com slash imagine the

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<v Speaker 1>rally we saw in the foot see the CAC and

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<v Speaker 1>the German decks UH failing to translate into much of

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<v Speaker 1>a lift for US docks right now, at least for

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<v Speaker 1>the indexes, the down Jones and Duster laverage is down

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<v Speaker 1>twenty points, decline up about a tenth of a percent,

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<v Speaker 1>SMP five hundreds down two points, and then as they

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<v Speaker 1>composite index in the early going, Tom down fourteen points.

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<v Speaker 1>That's a decline of about three tents of a percent.

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<v Speaker 1>Among the shares most active so far this morning. Apple

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<v Speaker 1>shares down almost one percent. The Apple iPhones in China,

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<v Speaker 1>Beijing authorities say it violates a rival's patent. And also

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<v Speaker 1>we're seeing shares a Bank of America among the most active.

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<v Speaker 1>They're up right now about half a percent. Smith and

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<v Speaker 1>West and the gunmaker that is rising right now, up

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<v Speaker 1>eleven percent at a fourth quarter beat at views of

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<v Speaker 1>the top estimates. And uh that is a check of

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<v Speaker 1>the markets right now in the early going. And we

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<v Speaker 1>bring the market to checks to you every fifteen minutes

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<v Speaker 1>during the trading day right here on Bloomberg Radio. Back

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<v Speaker 1>to Tom and Mike, John Tucker, thank you so much.

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<v Speaker 1>I've waited three days for this. My people talk to

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<v Speaker 1>his people. His people said no, no, no, no, no

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<v Speaker 1>no no. Finally we got John Herman and Mitsubishi UFJ

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<v Speaker 1>with us everybody. It's differently in the game. We had

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<v Speaker 1>Steve Roach in earlier today. Who writes a more thoughtful allegic, No,

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<v Speaker 1>David mel passwords. John Derman wouldn't know thoughtful. He spits

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<v Speaker 1>it out in sentences, in short paragraphs, lots of bullet points.

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<v Speaker 1>And John, you stopped me in my tracks. The other

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<v Speaker 1>very with a re gauging of the new terminal rate

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<v Speaker 1>and potential DDP. Let's cut to the chase. Why is

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<v Speaker 1>John Herman so cautious. We're unfortunately, we've been conscious for

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<v Speaker 1>the last several years and it's a little bit out

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<v Speaker 1>of think with our normal you know, our normal vibe

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<v Speaker 1>and everything else. But the problem is is what we've

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<v Speaker 1>what we've been seeing, uh is two fall one. We've

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<v Speaker 1>been seeing very uh sluggish growth in labor force and vulnerabilities,

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<v Speaker 1>where the labor force actually declines outright declines every month,

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<v Speaker 1>every quarter every year from nine even assuming that millennials

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<v Speaker 1>enter the labor force US with a participation rates, so

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<v Speaker 1>even assuming that we still get outright declients because in

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<v Speaker 1>our view, the government's are not going to encourage immigrations

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<v Speaker 1>on to augment the labor for US, so we're gonna

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<v Speaker 1>be stuck in one of these bad environments for the

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<v Speaker 1>labor force. That's the first thing. So that means overall

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<v Speaker 1>is going to be strained on the economy to really

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<v Speaker 1>uh you know, grow employment going forward and to have

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<v Speaker 1>that be the catalyst that growth the way it was

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<v Speaker 1>from through last decade. So that's first problem. Second problem

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<v Speaker 1>is business investment is extremely weak this decade and we

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<v Speaker 1>think it remains weak next decade. So, um, you put

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<v Speaker 1>the two pieces together, as Robert Solo up in my

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<v Speaker 1>team would say, there's your trend growth in GDP and

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<v Speaker 1>for US freend is around one four one four in

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<v Speaker 1>Mike McKee, this is a major theme of Chairman Greenspan. Greenspan.

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<v Speaker 1>Mike agrees with John Herman about the business investment dynamic.

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<v Speaker 1>The question, uh, in terms of how you frame this

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<v Speaker 1>is are you calling it secular stagnation? No? No, you

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<v Speaker 1>know you know that. Second, I think I would agree.

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<v Speaker 1>I would agree with many of the features of it.

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<v Speaker 1>But what that suggests seculo secative to me. What it

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<v Speaker 1>suggests is that no matter what they do in government,

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<v Speaker 1>and no matter who you vote in, nothing can be done.

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<v Speaker 1>And what I'm suggesting, and where we've been suggesting for

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<v Speaker 1>the last several years, is if we can just um

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<v Speaker 1>really get the two parties to really work together, because

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<v Speaker 1>you can't expect one party to dominate, and you can't

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<v Speaker 1>expect one party to be uh, you know, completely clairvoyant

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<v Speaker 1>and and and just decide for the right path, which

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<v Speaker 1>you we're hoping there's two parties work together and get

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<v Speaker 1>a good set of growth policies in place, which means

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<v Speaker 1>you number one, you've got to promote immigration, especially the

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<v Speaker 1>H one DVISA class. You've gotta get that going. We

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<v Speaker 1>need four hundred thousand people a year of this from

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<v Speaker 1>this class times forty years. Okay, first thing. The second

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<v Speaker 1>thing we somehow have got to encourage and incentivize business

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<v Speaker 1>is to really make a investment in the country. And

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<v Speaker 1>this is what green Spence saying. You know, investment in

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<v Speaker 1>planting equipment lasting fifteen years or longer is the weakest

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<v Speaker 1>discycle of any cycle since the fifties in our measurement,

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<v Speaker 1>and green Spence is the weakest cycle of his lifetime,

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<v Speaker 1>which pulls it back to the thirties. So this is

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<v Speaker 1>very very bad. You must and what green Spence saying, well,

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<v Speaker 1>we're saying is that it's business is concerned that the

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<v Speaker 1>two parties are not going to be able to come

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<v Speaker 1>together and resolve some of the issues around the retiring

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<v Speaker 1>boomers and the entitlement programs and all this stuff. And

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<v Speaker 1>if you can't do that, businesses are right to be cautious.

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<v Speaker 1>And the trajectory most likely next decade is going to

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<v Speaker 1>be Okay, they can't sort it all out. Okay, they

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<v Speaker 1>still are paying all these entitlements, and they're just gonna

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<v Speaker 1>raise taxes on on either corporations or or wealthy your individuals,

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<v Speaker 1>and that's not going to really spur investments. So they've

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<v Speaker 1>got to really come to grips with this stuff, work

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<v Speaker 1>together and just being more collegial, and the and the

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<v Speaker 1>two parties is so far apart. So that's basically our

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<v Speaker 1>our issue. We think it and be done. But if

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<v Speaker 1>if all two people are gonna do is a fight,

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<v Speaker 1>then it's obviously Michael political stagnation. The other question of

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<v Speaker 1>the morning is whether or not uh fed forward guidance

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<v Speaker 1>in the form of the dot plot is useful anymore.

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<v Speaker 1>Uh St Louis fed President Jim Bullard this morning out

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<v Speaker 1>with a thoughtful paper suggesting it is not, and also

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<v Speaker 1>admitting that he is the person who did not put

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<v Speaker 1>a dot into the dot plot on Wednesday for the

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<v Speaker 1>long term terminal rate and at a very low short

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<v Speaker 1>term rate. He's changing the way he forecasts the economy

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<v Speaker 1>to what he calls regime based instead a convergence base,

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<v Speaker 1>and we just got off the phone with him. He

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<v Speaker 1>spoke with reporters about his thoughts, and here is one

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<v Speaker 1>of the things he said about the dot plot. The

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<v Speaker 1>policy rate dot plot, in my opinion, puts too much

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<v Speaker 1>weight on the idea that we quote no unquote the

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<v Speaker 1>long run, steady state of the economy, and they're in reality,

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<v Speaker 1>we are uncertain about the medium and longer run outcome

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<v Speaker 1>for the economy. What we need is a manageable way

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<v Speaker 1>to express this uncertainty. And his manageable way Tom is

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<v Speaker 1>to use what he calls regime forecasting. Other words, say

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<v Speaker 1>this is where we are for now and under the

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<v Speaker 1>conditions that we have now, uh, this is the appropriate

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<v Speaker 1>monetary policy of policy X would be. And then if

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<v Speaker 1>the regime changes, if something changes, then you change the

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<v Speaker 1>forecast rather than making a forecast now that you will

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<v Speaker 1>change in the future very quickly. Is that doable? Is it?

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<v Speaker 1>Can it be? I think I think it's gonna think

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<v Speaker 1>it's gonna be a little tricky. You gotta remember with

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<v Speaker 1>this guy, Bullet Bullard is the king of flip loops.

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<v Speaker 1>So last September he was out there saying, okay, in

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<v Speaker 1>his view, he had the highest dots on the interest

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<v Speaker 1>rate trajectory the next three years and now he's gone

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<v Speaker 1>nine months later to the lowest dot. I mean, this

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<v Speaker 1>guy is all over the spectrum. So if it was

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<v Speaker 1>a golfer, you would be so concerned to be hitting

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<v Speaker 1>you in the gallery. But the deal is, what we

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<v Speaker 1>have to do is this, We have to realize where

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<v Speaker 1>we are. We have to calibrate where we are in

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<v Speaker 1>the economic cycle. And our models keeps saying the years

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<v Speaker 1>one most likely recession years, so we're very close. So

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<v Speaker 1>you know, it's not like you're gonna get in the

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<v Speaker 1>longer run in in three In three years, little more

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<v Speaker 1>than three years, you're gonna be in a recession. So

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<v Speaker 1>it's like, what are you talking about the longer run

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<v Speaker 1>when you can and you have to be cutting rates.

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<v Speaker 1>So this is where they're not waking up. I think

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<v Speaker 1>that they're behind the curve on this stuff, but at

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<v Speaker 1>least they're they're starting to say, O, g, maybe we

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<v Speaker 1>are Maybe we only have another one, two or three

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<v Speaker 1>years left in the cycle. And you know, why are

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<v Speaker 1>we thinking of, you know, putting rates over three percent?

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<v Speaker 1>That's crazy, totally crazy. Let's come back John Herman with

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<v Speaker 1>us left to talk about. I want to quiz him

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<v Speaker 1>on his interpretation of not rising inflation, but at least

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<v Speaker 1>the obvious invisible inflation that we've got right now. John

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<v Speaker 1>Herman again the headline with a terminal rate three five

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<v Speaker 1>and eight years. It is gives pause to say the least.

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<v Speaker 1>Will continue with John Herman and Missubishi u f J

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<v Speaker 1>dow negative forty five vis time now to check in

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<v Speaker 1>with Michael Barr and get the latest news headlines brought

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<v Speaker 1>to you by Volvo Cars, White Planes. Visit Volvo Cars,

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<v Speaker 1>White Planes dot Com. Mike Tom, thank you very much.

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<v Speaker 1>British Prime Minister David Cameron and Labor leader Jeremy Corbin

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<v Speaker 1>paid tribute to a member of Parliament who was shot

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<v Speaker 1>and killed yesterday. Joe Cox was meeting with constituents in

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<v Speaker 1>the northern England town of Birstall when she was attacked.

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<v Speaker 1>Cameron talked about Cox, who was considered a rising star

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<v Speaker 1>in the Labor Party. If we truly want to honor Joe,

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<v Speaker 1>then what we should do is recognize that her values service, community, tolerance,

0:09:52.840 --> 0:09:55.760
<v Speaker 1>the value she lived by and worked by. Those are

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<v Speaker 1>the values that we need to redouble in our national life.

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<v Speaker 1>In the months and in the years to come, Britain's

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<v Speaker 1>Parliament will meet Monday in honor of Cox, who was

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<v Speaker 1>forty one. Security is tied in Charleston, South Carolina, as

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<v Speaker 1>the city remembers nine people gunned down during a church

0:10:11.360 --> 0:10:14.319
<v Speaker 1>Bible study a year ago. Streets are closed today around

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<v Speaker 1>Emmanual A. M E. Church and the College of Charleston's

0:10:17.360 --> 0:10:20.280
<v Speaker 1>t D Arena, where they will be a memorial service.

0:10:20.600 --> 0:10:23.520
<v Speaker 1>Crews have found the flight data recorder from egypt Air

0:10:23.679 --> 0:10:27.360
<v Speaker 1>flight eight oh four. The Egyptian Investigation Committee says it

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<v Speaker 1>managed to successfully retrieve the memory unit of the flight

0:10:31.000 --> 0:10:33.920
<v Speaker 1>data recorder, which is the most important component. It comes

0:10:33.960 --> 0:10:36.680
<v Speaker 1>a day after the airs. A three twenties cockpit voice

0:10:36.720 --> 0:10:40.520
<v Speaker 1>recorder was also retrieved. Global News twenty four hours a day,

0:10:40.600 --> 0:10:43.559
<v Speaker 1>powered by ours twenty four hundred journalists more than a

0:10:43.679 --> 0:10:46.040
<v Speaker 1>hundred fifty news bureaus around the world. Now Michael Barr,

0:10:46.320 --> 0:10:50.480
<v Speaker 1>Tom Michael Barr thinks so much to down negative. There's

0:10:50.520 --> 0:10:52.760
<v Speaker 1>some weight to the tape, is how I would put it.

0:10:53.559 --> 0:10:56.840
<v Speaker 1>Michael McKee and Tom King. Mike's packing his bags. We're

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<v Speaker 1>going to London. Bloomberg s Avalance brought you by Elbow

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<v Speaker 1>Bermuda dot com for more details. Global business news twenty

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0:11:39.240 --> 0:11:42.760
<v Speaker 1>A dot org slash radio for the rally of European

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<v Speaker 1>shearers have failed to translate into much of a lift

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<v Speaker 1>for u S stocks down Jones Industrial Average right now

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<v Speaker 1>forty seven points lower. That's down three tens of persuthly

0:11:51.640 --> 0:11:54.520
<v Speaker 1>SMP five hundred down six that's down three tiens. And

0:11:54.559 --> 0:11:58.760
<v Speaker 1>then has that Composite index down that's down a half

0:11:58.880 --> 0:12:02.080
<v Speaker 1>a percent of the shares moving in the early going

0:12:02.440 --> 0:12:04.920
<v Speaker 1>shares of the Apple they are down nine tenths of

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<v Speaker 1>a recent regulators Invaijian st Apple iPhones violate a Chinese

0:12:10.720 --> 0:12:13.960
<v Speaker 1>rivals patent and among other stocks moving in early New

0:12:14.040 --> 0:12:18.080
<v Speaker 1>York trading MGM Resorts International that's up about two point

0:12:18.160 --> 0:12:21.360
<v Speaker 1>four percent. The shares a jump like yesterday that you know,

0:12:21.480 --> 0:12:26.439
<v Speaker 1>operator raised its profit growth forecast. Also the weapons maker

0:12:26.559 --> 0:12:30.360
<v Speaker 1>Smith and Wesson that is rising this morning. That's up

0:12:30.480 --> 0:12:34.839
<v Speaker 1>over eleven percent after a fourth quarter beat. And we

0:12:34.960 --> 0:12:37.000
<v Speaker 1>checked the markets for you every fifteen minutes during the

0:12:37.040 --> 0:12:40.319
<v Speaker 1>trading day. Right here Bloomberg Radio, I'm Black. Back to

0:12:40.520 --> 0:12:45.280
<v Speaker 1>surveillance now with Mike and Tom John Tucker, thank you

0:12:45.640 --> 0:12:49.120
<v Speaker 1>very much. Well, back again to Jim Bullard, the president

0:12:49.200 --> 0:12:51.520
<v Speaker 1>of the St. Louis FED, who today announced a new

0:12:51.600 --> 0:12:56.320
<v Speaker 1>regime regime forecasting for the least the St. Louis Fed.

0:12:56.360 --> 0:12:58.880
<v Speaker 1>Will be interesting to see how the rest of the

0:12:59.200 --> 0:13:03.920
<v Speaker 1>organization takes to the idea. But basically, he said, it's

0:13:04.360 --> 0:13:07.600
<v Speaker 1>in response to the fact that what they have been

0:13:07.679 --> 0:13:11.520
<v Speaker 1>doing has not really worked. The dot plot has not

0:13:11.640 --> 0:13:17.800
<v Speaker 1>been serving us. Well, it's it's predicting, uh, that rates

0:13:17.840 --> 0:13:21.480
<v Speaker 1>will go up on the order of for our forecast anyway,

0:13:21.520 --> 0:13:25.839
<v Speaker 1>we had rates going up three fifty basis points. Uh.

0:13:26.080 --> 0:13:28.959
<v Speaker 1>And you know, if we're if the committee's only moving

0:13:29.200 --> 0:13:32.679
<v Speaker 1>once a year or you know, maybe a little faster

0:13:32.840 --> 0:13:37.240
<v Speaker 1>than that, it can take up to fourteen years to

0:13:37.440 --> 0:13:41.120
<v Speaker 1>get to make that kind of normalization. That's way outside

0:13:41.200 --> 0:13:45.120
<v Speaker 1>of anything that's plausible about business cycle dynamics or monet

0:13:45.360 --> 0:13:48.840
<v Speaker 1>policy dynamics. So I think you have to conceptualize things

0:13:48.880 --> 0:13:52.800
<v Speaker 1>in a different way that you get rid of this

0:13:53.000 --> 0:13:56.120
<v Speaker 1>idea of a long run steady state and two or

0:13:56.200 --> 0:13:59.640
<v Speaker 1>three year convergence to that long run steady state. You're

0:13:59.679 --> 0:14:02.840
<v Speaker 1>play sat with uncertainty about what the long run outcome

0:14:03.120 --> 0:14:07.360
<v Speaker 1>is by by going to this regime idea and UH,

0:14:07.559 --> 0:14:10.960
<v Speaker 1>and then UH you make policy optimally for the regime

0:14:11.000 --> 0:14:14.280
<v Speaker 1>you're in and recognize there's upside risk because you can

0:14:14.400 --> 0:14:17.040
<v Speaker 1>switch to the other regimes in the future. So I

0:14:17.080 --> 0:14:19.800
<v Speaker 1>think it's more we're looking at the same data but

0:14:19.960 --> 0:14:23.080
<v Speaker 1>with a different concept about how to think about the

0:14:23.160 --> 0:14:27.640
<v Speaker 1>long run UH in this in this new new approach.

0:14:29.040 --> 0:14:32.480
<v Speaker 1>So John Herman is with us from Mitsubishi, apparently not

0:14:32.640 --> 0:14:36.720
<v Speaker 1>a fan of Jim Bullard, but um, he's basically saying

0:14:36.840 --> 0:14:41.560
<v Speaker 1>that whether you agree or disagree with the FEDS view

0:14:41.800 --> 0:14:45.800
<v Speaker 1>of where the terminal rate is, the terminal rate is

0:14:45.880 --> 0:14:49.400
<v Speaker 1>far enough away that you can't really know. Because we've

0:14:49.440 --> 0:14:52.080
<v Speaker 1>been we've been we've been very critical of where they

0:14:52.160 --> 0:14:54.280
<v Speaker 1>thought we thought that we've been arguing for the last

0:14:54.320 --> 0:14:57.960
<v Speaker 1>few years at the terminal rate based on our analysis

0:14:58.360 --> 0:15:02.240
<v Speaker 1>of the trend growth from GDP. This potential is Robert

0:15:02.320 --> 0:15:05.680
<v Speaker 1>solo idea from M I. T. You know, of productivity,

0:15:05.720 --> 0:15:10.080
<v Speaker 1>sustainable productivity growth, sustainable labor force growth, where is it estimated?

0:15:10.360 --> 0:15:13.160
<v Speaker 1>And then put a Fed funds rate that's basically spot

0:15:13.240 --> 0:15:17.240
<v Speaker 1>on that and um so we've been always arguing for

0:15:17.320 --> 0:15:20.360
<v Speaker 1>about one and a half percent, possibly lower in the

0:15:20.480 --> 0:15:22.400
<v Speaker 1>terminal Fed funds rate. And in the meantime, the Feds

0:15:22.440 --> 0:15:25.000
<v Speaker 1>start out saying, you know, over four percent, and they

0:15:25.040 --> 0:15:27.120
<v Speaker 1>cut at the four and now they're at three. And

0:15:27.320 --> 0:15:29.320
<v Speaker 1>even as Bullard just fessed up in the in that

0:15:29.520 --> 0:15:31.400
<v Speaker 1>in that segment he said, he said, you know, we

0:15:31.520 --> 0:15:35.160
<v Speaker 1>were thinking three fifty basis points terminal rate, and but

0:15:35.320 --> 0:15:37.640
<v Speaker 1>at one high year we won't get there for fourteen years.

0:15:37.800 --> 0:15:40.160
<v Speaker 1>It's like, why are they saying three hundred fifty paces points?

0:15:40.400 --> 0:15:43.280
<v Speaker 1>It's incredible. I mean, there's you know, and in we

0:15:43.360 --> 0:15:45.280
<v Speaker 1>go through an inflection point in labor force in the

0:15:45.360 --> 0:15:48.600
<v Speaker 1>year eighteen and every year after that we're biased to

0:15:48.760 --> 0:15:51.440
<v Speaker 1>shrink the labor force. How are you telling me that

0:15:51.600 --> 0:15:54.120
<v Speaker 1>sustainable GDP growth is going to be above one and

0:15:54.120 --> 0:15:56.520
<v Speaker 1>a half percent. How are you possibly going to convince

0:15:56.600 --> 0:15:59.120
<v Speaker 1>me of that, especially when productivity grows as weak as

0:15:59.200 --> 0:16:02.400
<v Speaker 1>this is, and and so on. So I think I

0:16:02.480 --> 0:16:05.520
<v Speaker 1>think the FETs has been really offsides on this issue.

0:16:05.640 --> 0:16:08.720
<v Speaker 1>That's what we've been critical about them. We view two

0:16:08.800 --> 0:16:12.400
<v Speaker 1>stands is very flat. We think gets much flatter from here. Uh.

0:16:12.600 --> 0:16:14.840
<v Speaker 1>We we were concerned that the thirty year bond would

0:16:14.840 --> 0:16:17.520
<v Speaker 1>stay below three percent for the next three years. It's

0:16:17.560 --> 0:16:20.280
<v Speaker 1>now after the performance this this first half of the

0:16:20.360 --> 0:16:23.480
<v Speaker 1>year is definitely supporting that view that thirty year bond

0:16:23.560 --> 0:16:26.840
<v Speaker 1>yeels come lower and like ten year yeels lower than

0:16:26.920 --> 0:16:29.200
<v Speaker 1>two point three percent and so on. And that was

0:16:29.320 --> 0:16:32.240
<v Speaker 1>very much an outline forecast. But you know, um, we

0:16:32.400 --> 0:16:34.800
<v Speaker 1>still think that the set is going to go very

0:16:34.880 --> 0:16:38.560
<v Speaker 1>gradual over the next three years. And we're concerned that this.

0:16:38.840 --> 0:16:40.920
<v Speaker 1>You know, we're in a kind of a soft patch

0:16:41.040 --> 0:16:44.440
<v Speaker 1>now with jobs now, but we're worried that the sort

0:16:44.480 --> 0:16:47.840
<v Speaker 1>of structural secular forces on the weakness in the labor

0:16:47.880 --> 0:16:51.200
<v Speaker 1>force really grinds us to us. Uh, you know, an

0:16:51.240 --> 0:16:55.600
<v Speaker 1>economic slowdown in one we're really worried about that and

0:16:55.680 --> 0:16:58.480
<v Speaker 1>the timing of that with the boomer retirements, this is

0:16:58.560 --> 0:17:01.000
<v Speaker 1>just not a good thing. So, um, we would be

0:17:01.160 --> 0:17:03.760
<v Speaker 1>very concerned, and if we were in yelling shoes, we

0:17:03.800 --> 0:17:06.480
<v Speaker 1>would be telling the Congress of this, so that maybe

0:17:06.600 --> 0:17:09.480
<v Speaker 1>the Congress could do something and try to you know,

0:17:09.600 --> 0:17:12.040
<v Speaker 1>improve like we've been saying, improve the immigration, get the

0:17:12.160 --> 0:17:14.280
<v Speaker 1>H one B visa program in large and so on,

0:17:14.760 --> 0:17:18.080
<v Speaker 1>really try to spur business investment, sort of dialed down

0:17:18.280 --> 0:17:21.479
<v Speaker 1>the acrimony between the two parties and so on. Uh,

0:17:21.560 --> 0:17:23.639
<v Speaker 1>you know, give everyone a little more confidence to do

0:17:23.840 --> 0:17:26.879
<v Speaker 1>things and to borrow and to invest. And uh, they

0:17:27.000 --> 0:17:29.840
<v Speaker 1>just the Congress just is just not about that game anymore.

0:17:29.920 --> 0:17:32.920
<v Speaker 1>It's just unbelievab them. Yeah, so I'm wondering what the

0:17:33.000 --> 0:17:37.560
<v Speaker 1>utility of your forecast five years or six years out is, um,

0:17:38.080 --> 0:17:41.320
<v Speaker 1>given the inability to know what what what's going to

0:17:41.400 --> 0:17:43.600
<v Speaker 1>happen between now and then, you you can forecast one

0:17:43.640 --> 0:17:47.040
<v Speaker 1>data point. But you know, I think I think in

0:17:47.200 --> 0:17:48.879
<v Speaker 1>in three years, in three years of song, I think

0:17:48.920 --> 0:17:50.560
<v Speaker 1>you're gonna see that this cycle is very long in

0:17:50.600 --> 0:17:53.080
<v Speaker 1>the tooth, you know, So it's not gonna you know,

0:17:53.720 --> 0:17:55.800
<v Speaker 1>at that point, even if you do bring in a

0:17:56.119 --> 0:17:58.240
<v Speaker 1>you know, a new government and new regime and so on.

0:17:58.720 --> 0:18:01.240
<v Speaker 1>I think you know, you're looking at you know, the

0:18:01.320 --> 0:18:04.640
<v Speaker 1>potential maybe helping growth, you know, much further past there.

0:18:04.760 --> 0:18:07.600
<v Speaker 1>So I think you're we're going towards the slowdown, and

0:18:08.000 --> 0:18:10.359
<v Speaker 1>you know we're you know, some of the signals, some

0:18:10.440 --> 0:18:12.960
<v Speaker 1>of the job market signals are signaling that you know,

0:18:13.119 --> 0:18:15.600
<v Speaker 1>it could be just you know, eighteen months away, you know,

0:18:15.960 --> 0:18:18.119
<v Speaker 1>and that's not our core view, but some of the

0:18:18.200 --> 0:18:23.000
<v Speaker 1>signals are pointing to Buried in your note, John, Yeah,

0:18:23.520 --> 0:18:28.280
<v Speaker 1>is an inflation what certain geography is? Good morning New York,

0:18:28.359 --> 0:18:35.480
<v Speaker 1>San Francisco, Washington, Boston. Not all geographies inflations about rent?

0:18:36.280 --> 0:18:41.840
<v Speaker 1>Are you setting inflations low without rent? Uh? In? The

0:18:42.160 --> 0:18:44.480
<v Speaker 1>government I think has got this one measured right when

0:18:44.560 --> 0:18:47.480
<v Speaker 1>you when you strip out rent has been running three

0:18:48.040 --> 0:18:50.399
<v Speaker 1>over three percent for the last couple of years and

0:18:50.520 --> 0:18:53.760
<v Speaker 1>around three in a quarter. Now. Wage growth over that

0:18:53.880 --> 0:18:55.760
<v Speaker 1>time period was somewhere between two and two and a

0:18:55.800 --> 0:19:00.760
<v Speaker 1>half percent, significantly lower than rental growth rate, which means

0:19:00.800 --> 0:19:04.040
<v Speaker 1>rent has been attacks on the basics. And you're stuggist

0:19:04.040 --> 0:19:07.680
<v Speaker 1>singing the ability your numbers one your numbers one point

0:19:07.800 --> 0:19:13.639
<v Speaker 1>for core inflation x rent? How does how does Jane

0:19:13.800 --> 0:19:18.359
<v Speaker 1>yell and treat that she should say, okay, look, what

0:19:18.560 --> 0:19:22.400
<v Speaker 1>that suggests is that the inflation pressure is broadly, are

0:19:22.520 --> 0:19:25.919
<v Speaker 1>still pretty benign for quiet in the way green Spanish

0:19:25.960 --> 0:19:28.400
<v Speaker 1>to say it. So it should tell her, look, don't

0:19:28.440 --> 0:19:31.040
<v Speaker 1>be in a hurry to raise. It's not like you're

0:19:31.080 --> 0:19:35.640
<v Speaker 1>behind the curve. So go slowly, go cautiously, be careful,

0:19:36.280 --> 0:19:40.360
<v Speaker 1>and hope that the economy develops even more momentum, hopefully,

0:19:41.000 --> 0:19:44.400
<v Speaker 1>and hopefully the recovery broadens out to be include more

0:19:44.520 --> 0:19:48.320
<v Speaker 1>families and more businesses, and you know, maybe then we

0:19:48.440 --> 0:19:52.000
<v Speaker 1>can start to build you know, more sustainable inflation. It

0:19:52.040 --> 0:19:54.879
<v Speaker 1>would say, you know, go cautiously and slowly. When you

0:19:55.520 --> 0:19:58.800
<v Speaker 1>when you say go cautiously and slowly, bullets regime calls

0:19:58.880 --> 0:20:02.520
<v Speaker 1>for one more rating. And now now he's here, now

0:20:02.600 --> 0:20:05.879
<v Speaker 1>he's yeah. We were thinking three. We were thinking before

0:20:05.920 --> 0:20:08.760
<v Speaker 1>all this, the theatrics of the last few weeks, we

0:20:08.840 --> 0:20:11.399
<v Speaker 1>were thinking three to four over the next three years.

0:20:11.680 --> 0:20:15.280
<v Speaker 1>And so we're more like three now. And you know,

0:20:15.400 --> 0:20:17.760
<v Speaker 1>and that sounds like one a year, but you know

0:20:17.920 --> 0:20:20.480
<v Speaker 1>they may only do two over the next three years.

0:20:20.560 --> 0:20:25.119
<v Speaker 1>I mean, it's remarkable. Well, so, um, I, given what

0:20:25.280 --> 0:20:27.320
<v Speaker 1>you say about Mr Bullard, I would say that the

0:20:27.400 --> 0:20:34.520
<v Speaker 1>same is probably true for you three years, but right now, uh,

0:20:35.960 --> 0:20:38.399
<v Speaker 1>where should in a half to one? I mean, that's crazy.

0:20:38.440 --> 0:20:40.920
<v Speaker 1>We've gone from three or four to three. What is

0:20:41.119 --> 0:20:43.520
<v Speaker 1>pretty consistent? What is the appropriate and accurate? What is

0:20:43.560 --> 0:20:45.800
<v Speaker 1>the appropriate rate right now? Is what I'm trying to get.

0:20:46.359 --> 0:20:49.160
<v Speaker 1>I think, I think you know, as Yellen is saying,

0:20:49.640 --> 0:20:52.280
<v Speaker 1>and I think she's she's now really keen in on it.

0:20:52.440 --> 0:20:55.840
<v Speaker 1>She thinks that the real interest, the real neutral rate,

0:20:56.119 --> 0:20:59.000
<v Speaker 1>is close to zero, and I think that's the right idea.

0:20:59.119 --> 0:21:02.639
<v Speaker 1>So that means enough nominal rate this cycle if we

0:21:02.760 --> 0:21:04.760
<v Speaker 1>think inflation is gonna stay lower than two for the

0:21:04.760 --> 0:21:06.439
<v Speaker 1>rest of the I mean the nominal rate of one

0:21:06.480 --> 0:21:08.200
<v Speaker 1>and a half a lower. John, I don't have a

0:21:08.240 --> 0:21:11.040
<v Speaker 1>lot of time. I got thirty seconds. Would you explain

0:21:11.160 --> 0:21:14.639
<v Speaker 1>to me how a small business, a middle business, or

0:21:14.720 --> 0:21:19.320
<v Speaker 1>a ginormous business runs their business on a zero real rate?

0:21:19.480 --> 0:21:22.520
<v Speaker 1>Help me with that. I think what they what they

0:21:22.920 --> 0:21:25.880
<v Speaker 1>what they should be. Unfortunately, what they have been doing

0:21:26.080 --> 0:21:29.240
<v Speaker 1>is they've been using these low borrowing rates to the

0:21:29.320 --> 0:21:32.920
<v Speaker 1>bigger companies at least to buy back stocks and pay

0:21:33.040 --> 0:21:36.520
<v Speaker 1>dividends and so on, funded at very low borrowing rates

0:21:36.600 --> 0:21:40.159
<v Speaker 1>like the way Apple does. Unfortunately, the best thing for

0:21:40.320 --> 0:21:43.040
<v Speaker 1>them to do is to say, look, we have uh,

0:21:43.160 --> 0:21:46.399
<v Speaker 1>you know, we we have investment ideas where they return

0:21:46.480 --> 0:21:49.879
<v Speaker 1>on these investments well exceed these very borrowing costs, and

0:21:49.920 --> 0:21:52.960
<v Speaker 1>we're gonna go and do those investments. Unfortunately, they're not

0:21:53.040 --> 0:21:55.359
<v Speaker 1>doing that. If we make it back from London, I

0:21:55.640 --> 0:21:58.680
<v Speaker 1>promise you will be on against John Herman always with

0:21:59.040 --> 0:22:02.639
<v Speaker 1>interesting take and whatever you say, folks. Mr Herman has

0:22:02.720 --> 0:22:06.040
<v Speaker 1>nailed the flattening yield curve view and the idea of

0:22:06.600 --> 0:22:09.760
<v Speaker 1>what some people would suggest is a run rate of

0:22:09.880 --> 0:22:12.959
<v Speaker 1>g d P a little bit. Uh lord, this has

0:22:13.000 --> 0:22:15.560
<v Speaker 1>been a wonderful day. I did not realize Mr Bullard

0:22:15.600 --> 0:22:18.440
<v Speaker 1>would make it an interesting uh to day. Thanks particularly

0:22:18.560 --> 0:22:22.119
<v Speaker 1>Mike for a terrific work with James Bullard. We are

0:22:22.280 --> 0:22:26.359
<v Speaker 1>on our way to London. Tune in Monday. Bloomberg Surveillance

0:22:26.520 --> 0:22:27.080
<v Speaker 1>from London