WEBVTT - Markets and Fed Independence 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business app. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.160 or watch us live on YouTube. 0:00:27.480 --> 0:00:31.160 Joining us now with PIMCO Pacific Investment Management Company. Let 0:00:31.240 --> 0:00:36.720 me Cantrell expert on Washington, the dynamics of public policy. Oh, 0:00:36.760 --> 0:00:41.480 she's having she's seven. No, she's having a glue street 0:00:41.520 --> 0:00:45.760 breaks of breakfast like these, having a full English. Hi, 0:00:45.840 --> 0:00:47.800 the woman I love to hate missus Key sees you 0:00:47.880 --> 0:00:51.199 and goes how much Van Cleef can you wear? Let 0:00:51.200 --> 0:00:53.560 me joins us this morning. Okay, I'm a Lisa Cook. 0:00:54.120 --> 0:00:57.480 I've been a and I did not see doctor Cook. 0:00:57.640 --> 0:00:59.920 I did not see her at checkson hole. She sort 0:00:59.920 --> 0:01:01.880 of slipped in and slipped down and I had to 0:01:02.120 --> 0:01:05.199 get back to feed the walk the dogs. But Libby, 0:01:05.319 --> 0:01:09.920 let's cut to the Chase Michigan State Bulletproof applied economics. 0:01:10.240 --> 0:01:13.840 She's studied under Berry icing Green at Berkeley. This is 0:01:13.920 --> 0:01:20.360 a front rate national economist in international economics. Why let's 0:01:20.400 --> 0:01:23.039 just start with the why. Why is this happening in 0:01:23.120 --> 0:01:23.920 your Washington. 0:01:25.120 --> 0:01:28.400 Well, well, good morning, Tom. I mean I think that 0:01:28.440 --> 0:01:31.600 you know, broadly speaking, this president is really upset that 0:01:31.760 --> 0:01:35.399 Jay Powell will not cut rates, obviously, and he is 0:01:35.440 --> 0:01:40.039 trying to influence the Fed Board any way that he can. 0:01:40.440 --> 0:01:43.200 I think he's he is frustrated with the structure of 0:01:43.240 --> 0:01:45.560 the Fed Board, where there are stagger terms. As we 0:01:45.600 --> 0:01:49.400 all know, these fourteen year terms which are some intended 0:01:49.440 --> 0:01:52.320 to outlive any one administration. 0:01:51.960 --> 0:01:53.840 On one president. But let me cut to the chase. 0:01:53.920 --> 0:01:57.120 You're expert on this, and this is what everybody's asking, 0:01:57.120 --> 0:01:59.880 whether they're for or against Ms. Cook. Where's a leg 0:02:00.080 --> 0:02:03.720 slight branch on this, where's the House and particularly where's 0:02:03.720 --> 0:02:05.280 a Phil Graham like Senate? 0:02:05.400 --> 0:02:07.600 Well, so that is I think the big point is 0:02:07.600 --> 0:02:09.600 that this is in many ways self defeating for the 0:02:09.639 --> 0:02:13.320 president because of course, not only does this potentially not 0:02:13.480 --> 0:02:15.799 have the impact on the ill curve that he wants 0:02:15.840 --> 0:02:18.960 to see and mortgage rates and what have you, but 0:02:19.080 --> 0:02:24.040 it also makes the confirmation of any future nominee that 0:02:24.240 --> 0:02:27.960 much more difficult. Remember that in order to get confirmed, 0:02:28.240 --> 0:02:31.080 a nominee needs fifty votes in the Senate. Republicans right 0:02:31.120 --> 0:02:34.000 now have fifty three. However, this is something that you 0:02:34.080 --> 0:02:36.960 all appreciate this nuance, but lots of financial press do not. 0:02:37.960 --> 0:02:40.800 The Senate Banking Committee, which is the first step to 0:02:40.880 --> 0:02:45.600 confirmation any nominee, cannot lose one Republican assuming Democrats vote 0:02:45.600 --> 0:02:50.079 against that person. So that means that that by doing this, 0:02:50.200 --> 0:02:55.440 the President has focused attention on that confirmation process and 0:02:55.480 --> 0:02:57.840 in my view, makes it a lot more difficult for 0:02:57.960 --> 0:03:02.000 him to get anybody who has any whiff of partisanship 0:03:02.440 --> 0:03:06.639 or any whiff of you know, being able to be 0:03:06.800 --> 0:03:09.520 influenced by the President in terms of minetary policy. So again, 0:03:09.560 --> 0:03:11.800 sort of self defeating me from the market's perspective in 0:03:11.840 --> 0:03:13.520 the short term, from a rate protecting the short ure. 0:03:14.280 --> 0:03:17.640 Yeah, it's really it's really funny. We only get Libby 0:03:17.639 --> 0:03:19.920 when summer recess is going on in the Senate and 0:03:19.960 --> 0:03:21.560 the Congress are out, and she actually can make her 0:03:21.600 --> 0:03:23.000 way up to New York. But Liby, I got to 0:03:23.040 --> 0:03:24.560 ask you this, you know, forget about you know, fit 0:03:24.600 --> 0:03:27.040 credibility for a minute. Let's talk about Intel. The US 0:03:27.080 --> 0:03:29.720 government's making eight point nine billion dollar investment in Intel's 0:03:29.760 --> 0:03:32.720 That's just the first of other investments that this government 0:03:32.800 --> 0:03:34.160 is going to be making in the private sector. 0:03:34.320 --> 0:03:37.320 Yeah, again, And to bring Congress into this. In order 0:03:37.480 --> 0:03:40.880 for the president the executive branch to make an equity 0:03:41.000 --> 0:03:45.160 investment in a company, you need congressional authorization. And the 0:03:45.200 --> 0:03:48.800 President is using the Chips Act funding, the majority of 0:03:48.840 --> 0:03:52.560 Chips Act funding for this investment in that bill. Sorry 0:03:52.600 --> 0:03:54.640 to get all you know propeller head on you, but 0:03:55.000 --> 0:03:58.560 in that bill there is no actual authorization for an 0:03:58.600 --> 0:04:01.040 equity investment. So I think there's a question about the 0:04:01.160 --> 0:04:04.800 legality of this particular veston. However, going forward, you would 0:04:04.840 --> 0:04:07.520 absolutely need Congress to authorize. And so no, I do 0:04:07.560 --> 0:04:09.760 not think it's a coming first. 0:04:09.560 --> 0:04:11.560 Day and Friday. We want you to come in Thursday 0:04:11.560 --> 0:04:14.040 and Friday as well. I got to get back to 0:04:14.160 --> 0:04:19.440 doctor Cook. You know, frankly, everybody knows wonderfully closely into 0:04:19.640 --> 0:04:23.320 King Green. This is one of his great students at Berkeley. 0:04:23.320 --> 0:04:26.719 She's being run over the coals. Where is the senator 0:04:26.720 --> 0:04:30.600 from Idaho? I'd been in his office. Creto has potatoes 0:04:30.880 --> 0:04:34.080 lined up in his office. Where is Tim Scott of 0:04:34.120 --> 0:04:39.520 the Carolinas? Where are these senators just to have due 0:04:39.560 --> 0:04:43.760 process for against Trump? Due process? Where is it? 0:04:43.839 --> 0:04:46.719 Libby and I would also add to that list where 0:04:46.720 --> 0:04:50.120 a Senator rounds, where is Senator Tillis, Where is Senator McCormick. 0:04:50.120 --> 0:04:52.840 I mean, these folks who you've just highlighted are all 0:04:52.880 --> 0:04:55.880 on the Senate Banking Committee. Senator Tim Scott of course 0:04:55.920 --> 0:04:58.279 being the chair of the Senate Banking Committee. And again 0:04:58.320 --> 0:05:00.719 this may sort of seem like, you know, kind of 0:05:00.720 --> 0:05:04.000 walky talk, but this is very important because this will 0:05:04.040 --> 0:05:07.839 be the first step for any nominee for the FED. 0:05:08.279 --> 0:05:12.440 And again, by focusing the attention, the public's attention on 0:05:12.480 --> 0:05:15.320 the credibility of the FED, on the independence of the Fed, 0:05:15.680 --> 0:05:18.599 he just raised the stakes and raised the bar in 0:05:18.680 --> 0:05:21.480 terms of I think again getting his own nominee confirmed. 0:05:21.600 --> 0:05:23.919 And I would say Stephen Myron as well, who he 0:05:24.040 --> 0:05:26.680 wants to get in place by the September meeting. This 0:05:26.760 --> 0:05:28.839 makes it a lot more difficult. That was always going 0:05:28.920 --> 0:05:31.440 to be very difficult anyway, but this makes it even 0:05:31.480 --> 0:05:32.480 harder to Okay, I got. 0:05:32.360 --> 0:05:34.200 To go to the Supreme Court. Damian wants to jump 0:05:34.200 --> 0:05:36.520 in here, folks, Lebby Cantrell. Where this with PIMPC you're 0:05:36.560 --> 0:05:40.280 with real expertise on Washington. If it goes and I'm 0:05:40.279 --> 0:05:43.800 speaking as a hack to the Supreme Court, do you 0:05:43.920 --> 0:05:48.560 see evidence that the Trump appointed justices will look at 0:05:48.680 --> 0:05:52.160 due process and tell their guy, no, you can't do 0:05:52.200 --> 0:05:52.680 that him. 0:05:52.800 --> 0:05:56.120 Well, they've already made a special case for the FED, right, 0:05:56.160 --> 0:06:00.560 They've already in their footnotes in their recent judgment around 0:06:00.880 --> 0:06:05.080 firing other chairmen of independent agencies, they've already basically carved 0:06:05.080 --> 0:06:07.719 out and said that the FED is a special case 0:06:08.080 --> 0:06:11.719 and that that the threshold for firing the chairman or 0:06:11.760 --> 0:06:14.240 a governor for the FED is going to be different 0:06:14.520 --> 0:06:17.280 from firing somebody at the FTC, for example, which is 0:06:17.320 --> 0:06:20.200 also another which is another independent agency. So you know 0:06:20.400 --> 0:06:22.280 who knows. I'm not. You know, I'm not. I'm not 0:06:22.320 --> 0:06:24.440 a lawyer, although sometimes I do like to play one 0:06:24.440 --> 0:06:27.400 on TV or radio, But I am not. But think 0:06:27.640 --> 0:06:29.560 think your point is a good one that in that 0:06:29.600 --> 0:06:32.240 this will this could very well be adjudicated by the 0:06:32.279 --> 0:06:34.120 Supreme Court. And the last thing the time I'll say 0:06:34.160 --> 0:06:35.760 this is I think this is by design. I think 0:06:35.800 --> 0:06:39.720 the President is fine challenging all of these norms because 0:06:39.720 --> 0:06:41.640 some of it will stick, and some of it has stick, 0:06:41.760 --> 0:06:45.760 and thereby he expands executive power in the process. 0:06:45.800 --> 0:06:49.480 Good morning, ninety nine in Washington. Libby Cantrell with this 0:06:49.640 --> 0:06:53.159 is PIMCO on this is really important legal matter of 0:06:53.240 --> 0:06:57.000 due process with Lisa Cook, the governor of the FED. 0:06:57.000 --> 0:07:01.800 There are presidents pointed by the regional section. There are governors. 0:07:02.160 --> 0:07:04.800 There are a set of vice chairman, and there is 0:07:04.839 --> 0:07:07.960 a chairman chairman. Poull may come back to be a governor. 0:07:08.080 --> 0:07:10.560 Just walk away. We'll see in the spring of next year. 0:07:10.680 --> 0:07:12.720 Damien Sasaur with Libby Kentrell. 0:07:12.840 --> 0:07:14.240 Well, I mean, I guess for me, is this a 0:07:14.320 --> 0:07:16.440 kill shot at the Fed? Bibby? I mean, you know 0:07:16.520 --> 0:07:18.960 he's been attacking the Fed. He's been attacking Powell. He's 0:07:19.000 --> 0:07:21.560 been attacking, attacking, attacking for so long now that the 0:07:21.600 --> 0:07:24.000 market just seems desensitized to it. I mean, do you 0:07:24.080 --> 0:07:25.840 believe and I guess you know you don't look at 0:07:25.840 --> 0:07:28.320 markets maybe as closely as others. Is any of this 0:07:28.440 --> 0:07:30.840 price then? I mean, could this result in greater dominick? 0:07:32.080 --> 0:07:32.520 Stop it? 0:07:33.280 --> 0:07:34.360 I just want to I want to. 0:07:34.640 --> 0:07:40.160 I want to, sir, Yes, I have expected doing d 0:07:43.480 --> 0:07:44.000 thanks job. 0:07:44.680 --> 0:07:44.760 No. 0:07:44.880 --> 0:07:46.880 So, I mean, you know we have been talking about 0:07:46.880 --> 0:07:50.320 a steeper yield curve really since the since the election, uh, 0:07:50.680 --> 0:07:55.240 partly because of deficits, partly because of concervative the independence 0:07:55.360 --> 0:07:57.720 of the Fed, and obviously that has been a way 0:07:57.960 --> 0:08:00.440 for us to make money for for our clients. I 0:08:00.440 --> 0:08:02.920 do think that the fact that we the equity market 0:08:02.920 --> 0:08:05.160 didn't really move all that much last night. The FX 0:08:05.160 --> 0:08:08.440 market kind of moved a little bit, but the you know, 0:08:08.480 --> 0:08:10.240 the bomb market's moved, you know, moving a little bit, 0:08:10.280 --> 0:08:12.920 obviously in a super yeal curve. But I do think 0:08:12.960 --> 0:08:16.240 there is your to your question, There is sort of 0:08:16.280 --> 0:08:20.960 this desensitization, this imperviousness, if you will, to these moves. 0:08:20.960 --> 0:08:23.840 And I do think people are actually assuming that the 0:08:23.880 --> 0:08:25.720 Senate will do its job. I do think that they 0:08:25.800 --> 0:08:28.280 will assume the summer. 0:08:28.320 --> 0:08:30.720 I mean, it's kind of the you know what I mean. 0:08:32.080 --> 0:08:34.440 You're just thinking, Wow, I can get a break. 0:08:34.840 --> 0:08:36.480 This is important. I want you to just said this 0:08:36.520 --> 0:08:39.560 because I think it's really important. John Farrell did a 0:08:39.600 --> 0:08:43.680 spectacular interview with the Secretary of the Treasury and the 0:08:43.760 --> 0:08:47.360 other person. People are saying, look, can Besson just I mean, 0:08:47.400 --> 0:08:49.520 I don't even know if best In plays golf. I mean, 0:08:49.600 --> 0:08:51.560 you know, it could takes some lessons with Damien he does, 0:08:51.760 --> 0:08:54.040 is beston going to come to the rescue here and 0:08:55.040 --> 0:08:59.199 appeal to the president for some common sense of due process. 0:09:00.040 --> 0:09:01.840 Yeah, I mean, I guess that's that's an open question. 0:09:01.880 --> 0:09:04.040 I mean, what we know about this treasury is that 0:09:04.120 --> 0:09:08.160 they have been, you know, very responsive to participants in 0:09:08.200 --> 0:09:10.839 the treasury market that they had. You know that s 0:09:11.120 --> 0:09:14.240 Secretary Busset in particular has leaned done the President when 0:09:14.240 --> 0:09:16.520 he has seen really the long end kind of get 0:09:16.559 --> 0:09:18.959 you know, you know, potentially get away from market back 0:09:19.240 --> 0:09:21.920 back in April. So, you know, I think that we 0:09:21.960 --> 0:09:25.440 can rely on this treasury to at least hear the input. 0:09:25.559 --> 0:09:27.960 But again, the president here is I mean, you know, 0:09:28.040 --> 0:09:30.240 he he has this sort of be in his bonnet. 0:09:30.720 --> 0:09:33.400 This is something that he wants to see change. Again. 0:09:33.480 --> 0:09:36.240 I just think that this is self defeated in many ways. 0:09:36.280 --> 0:09:39.640 It's part unfair question. But Damian sort of alluded to 0:09:39.679 --> 0:09:43.720 it earlier. Does Pimko feel the long end is drifting away, 0:09:43.960 --> 0:09:47.240 price down, yield up, Japan and the rest. 0:09:47.360 --> 0:09:49.720 Well, I mean, obviously we're seeing that with global gill curves, 0:09:49.720 --> 0:09:52.319 and so yeah, I think there is there's there're just 0:09:52.360 --> 0:09:58.040 a broader question about obviously about deficits about the political 0:09:58.080 --> 0:10:01.000 will around you know, any fiscal consolidation. Of course, we 0:10:01.040 --> 0:10:04.760 haven't seen any physical consolidation. We've seemed just just the opposite. 0:10:04.800 --> 0:10:07.960 And then a concern around you know, obviously inflation, which 0:10:08.000 --> 0:10:10.720 is you know, related to the independence of these central banks. 0:10:10.720 --> 0:10:12.520 So yeah, I think that we have we have been 0:10:12.600 --> 0:10:16.240 kind of calling for and position for seeper yeal curves 0:10:16.280 --> 0:10:18.559 in many developed markets, you know, including in the US. 0:10:18.960 --> 0:10:21.280 Libby when some summer recess ends, you know you're going 0:10:21.360 --> 0:10:22.600 to be getting back to work. You know it's going 0:10:22.679 --> 0:10:26.720 to be that sprint right to avoid the ever left work. Well, 0:10:29.640 --> 0:10:32.080 about myself, I'm internalizing I have to do this. But 0:10:32.160 --> 0:10:33.960 you know, for me, you know what are you going 0:10:34.000 --> 0:10:35.680 to be most focused on? You know, I mean, like 0:10:35.920 --> 0:10:37.880 I mean, we've just seen a lot of tax revenue. 0:10:37.880 --> 0:10:39.760 I mean hasn't been spent yet, but I mean these 0:10:39.800 --> 0:10:42.280 tarwerf the tariff revenue is there. Money is coming in. 0:10:42.320 --> 0:10:44.360 I know there's the big concern about the fiscal But 0:10:44.480 --> 0:10:46.680 you know, what do you expect in that run up 0:10:46.880 --> 0:10:48.520 to the end of September when you know, when people 0:10:48.559 --> 0:10:48.840 were turning. 0:10:48.920 --> 0:10:51.760 Yeah, So Congress comes back right next next week, and 0:10:52.280 --> 0:10:55.320 one big piece of unfinished business is to fund the 0:10:55.360 --> 0:10:58.480 government and avoid a government shutdown. The deadline for that 0:10:58.559 --> 0:11:02.880 is September thirtieth. I think again the market is desensitized 0:11:02.880 --> 0:11:06.640 to these arguments for good reason because it really doesn't 0:11:06.640 --> 0:11:11.160 necessarily affect the economy unless you see a prolonged government shutdown. 0:11:11.520 --> 0:11:11.720 Yeah. 0:11:11.720 --> 0:11:15.280 I do think that the chances of a government shutdown are. 0:11:15.160 --> 0:11:18.360 Not non negligible, not negligible. 0:11:17.760 --> 0:11:22.040 At all, and partly because you Democrats have very little 0:11:22.080 --> 0:11:25.000 power right now, and this is one lever of power 0:11:25.040 --> 0:11:25.920 that they can exert. 0:11:26.240 --> 0:11:29.440 Olby Clinic, Thank you so much. Let me cantrell with 0:11:29.520 --> 0:11:32.160 this is Pimco here, and of course on the back 0:11:32.200 --> 0:11:34.640 and forth between the White House and the Federal Reserve 0:11:34.720 --> 0:11:41.200 system involving the governor. Lisa. Stay with us. More from 0:11:41.240 --> 0:11:43.880 Bloomberg Surveillance coming up after this. 0:11:51.120 --> 0:11:54.720 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:11:54.800 --> 0:11:58.319 weekday afternoons from seven to ten am Eastern Listen on Alva, 0:11:58.360 --> 0:12:02.080 Karplay and Android Otto the Bloomberg Business Up, or watch 0:12:02.160 --> 0:12:03.280 us live on YouTube. 0:12:03.800 --> 0:12:06.599 Its differently now with Kim Harvey at Duke University. We 0:12:06.640 --> 0:12:08.800 can do all sorts of different topics, but we need 0:12:08.840 --> 0:12:12.640 to get a briefing from Professor Harvey leading into the 0:12:12.720 --> 0:12:16.920 vice chair Lyle brainer will do that scheduling eleven. Man, 0:12:16.960 --> 0:12:19.600 it's doctor Harvey. Thank you so much for joining today. 0:12:20.000 --> 0:12:24.000 You were years ago a visiting scholar the Board of 0:12:24.080 --> 0:12:28.560 Governors of the Federal Reserve System. What is the Board 0:12:28.600 --> 0:12:31.200 of Governors? This is a set of offices in the 0:12:31.240 --> 0:12:32.080 Eccles building. 0:12:34.160 --> 0:12:37.160 It is a setup offices, and when I was there, 0:12:37.360 --> 0:12:40.560 the offices were really old and needed repair. So it's 0:12:40.640 --> 0:12:45.920 kind of ironic that they're actually doing repair today so 0:12:46.000 --> 0:12:51.240 many years later. But it is an important part of 0:12:51.280 --> 0:12:54.400 the FED. A lot of the research is done there, 0:12:55.000 --> 0:12:57.280 and I was visiting scholar many years ago. 0:12:57.520 --> 0:13:01.439 What does a governor do different than a Federal Reserve president, 0:13:01.679 --> 0:13:05.920 a vice chair like doctor Brainerd or the chair chairman Poul. 0:13:06.200 --> 0:13:09.320 How is a governor different? Yeah? 0:13:09.520 --> 0:13:14.640 So the FED is organized so there's a central part 0:13:14.640 --> 0:13:17.840 of the FED, which is the Board of Governors, and 0:13:17.880 --> 0:13:23.680 then there are regional feds and each of the regional 0:13:23.720 --> 0:13:27.880 feds as a presidency. And then there's a rotation on 0:13:28.120 --> 0:13:33.439 the fo MC, which is the most important component. So 0:13:34.240 --> 0:13:38.960 the FOMC is the key committee that makes the decisions 0:13:39.080 --> 0:13:39.880 on the rates. 0:13:40.040 --> 0:13:43.440 Let me bring in my colleague Damien Sasauer before Lyle Brainerd. 0:13:43.600 --> 0:13:45.000 We have Cam Harvey. 0:13:45.480 --> 0:13:48.440 Cam, does the whole cook issue? Does this really change things? 0:13:48.480 --> 0:13:51.120 Does really change someone's outlook on the FED, on their 0:13:51.240 --> 0:13:54.040 ability to act? I mean, you know, what's the real 0:13:54.160 --> 0:13:57.920 world impact on what Trump is, you know, basically proposing 0:13:57.960 --> 0:13:58.400 to do here. 0:13:59.440 --> 0:14:06.120 Yeah, it's pressure, So it's political pressure. And like, in 0:14:06.160 --> 0:14:11.080 a way, what we really value is an independent FED. 0:14:12.160 --> 0:14:15.360 So I've got some recent research that asks the question 0:14:16.559 --> 0:14:20.320 how important is it to be a reserve currency? And 0:14:20.360 --> 0:14:24.600 the US has got this privilege. So the people all 0:14:24.640 --> 0:14:28.120 over the world central banks hold US dollars. They hold 0:14:28.400 --> 0:14:32.480 not just the cash but treasury bonds, and that demand 0:14:32.680 --> 0:14:38.120 for the bonds actually reduces the yield, so it allows 0:14:38.240 --> 0:14:42.840 the US to have lower interest service cost on their debt. 0:14:43.120 --> 0:14:46.480 It allows the US to have leverage. So it is 0:14:47.040 --> 0:14:51.200 a privilege to actually have this. So one of the 0:14:51.280 --> 0:14:56.200 key components of having a reserve currency is to have 0:14:56.400 --> 0:15:01.160 an independent central bank, and that's been challenged right now. 0:15:01.240 --> 0:15:03.560 So I just want to ask you on that, right, 0:15:03.600 --> 0:15:05.120 I mean, because I agree with you, the dollars still 0:15:05.160 --> 0:15:08.440 the world's reserve currency. It's transactual dominance is unquestioned. But 0:15:08.480 --> 0:15:10.880 here's the deal. You know, will you know some of 0:15:10.920 --> 0:15:12.800 these appointments, some of the things that Trump is doing here, 0:15:12.800 --> 0:15:15.280 Will this give him greater access to what's going on 0:15:15.480 --> 0:15:18.120 inside the FED, the ability to really impact at the 0:15:18.200 --> 0:15:21.080 grassroots level, the way people are speaking to one another, 0:15:21.120 --> 0:15:23.600 the way people are sharing data with one another. Is 0:15:23.600 --> 0:15:24.960 that really what we're talking about here. 0:15:26.200 --> 0:15:30.880 So this is a very difficult issue because it could 0:15:30.920 --> 0:15:35.440 be that the FED is making a serious mistake. And 0:15:36.360 --> 0:15:39.200 I for the last couple of years have criticized the 0:15:39.200 --> 0:15:43.600 FED for keeping the FED punts rate too high, and 0:15:43.640 --> 0:15:46.440 then now all of a sudden in DC, they've jumped 0:15:46.480 --> 0:15:47.720 on that bandwagon. 0:15:48.720 --> 0:15:50.760 So it is delicate. 0:15:51.240 --> 0:15:55.880 The balance and the pressure here and there to get 0:15:55.880 --> 0:15:59.880 them to think about this more carefully could be useful. 0:16:00.360 --> 0:16:04.280 Kim Harvey with this Duke University, we continue with Professor Harvey. 0:16:04.360 --> 0:16:07.640 We welcome all of you on an extraordinary Tuesday here 0:16:07.640 --> 0:16:11.200 in August. Damien SASA are in for Pallsphenia. I'm Tim King. 0:16:11.240 --> 0:16:14.600 Good morning across the nation, good morning in the Carolinas, 0:16:14.760 --> 0:16:18.160 and of course on YouTube, subscribe to Bloomberg Podcast. Our 0:16:18.240 --> 0:16:22.240 new digital experience. Really humbled by that excellence. Now, Damien 0:16:22.360 --> 0:16:24.560 sassare with Professor Harvey. 0:16:24.280 --> 0:16:27.120 So, Cam, we know about the lag from monetary policy 0:16:27.120 --> 0:16:29.040 through to the real economy. You know, ray cuts just 0:16:29.040 --> 0:16:32.240 don't you know, have an impact on the everyday person overnight. Right, 0:16:32.320 --> 0:16:35.280 So talk to us about you know what if Trump 0:16:35.280 --> 0:16:37.160 gets out of his wish and he gets one hundred 0:16:37.160 --> 0:16:39.840 and fifty basis point cuts from the Fed before at 0:16:39.880 --> 0:16:41.600 the end of the first quarter of next year. I mean, 0:16:41.920 --> 0:16:44.080 if that were to happen, would that have any real 0:16:44.120 --> 0:16:45.720 world impact immediately? 0:16:47.240 --> 0:16:49.880 Oh, would have a dramatic impact. So you're talking one 0:16:49.960 --> 0:16:53.200 hundred and fifty basis points, Yeah, sure, bring it off, 0:16:53.440 --> 0:16:58.120 very dramatic. So more likely we'll have a few cuts. 0:16:58.560 --> 0:17:02.400 But it's there is a lag, but the lag is 0:17:02.440 --> 0:17:05.440 not as big as you might think. In any kind 0:17:05.840 --> 0:17:09.800 you reduce rates, you reduce the cost of capital. And 0:17:09.960 --> 0:17:13.400 when the cost of capital is decreased, that means there 0:17:13.440 --> 0:17:18.040 should be increased business investment and consumers will do things 0:17:18.440 --> 0:17:21.960 like buy a house that they were kind of waiting 0:17:22.400 --> 0:17:25.359 to do for the rates to come down. So I 0:17:25.359 --> 0:17:29.080 would say that if the rates did come down substantially, 0:17:29.560 --> 0:17:32.679 that that could be a significant boost for economic growth 0:17:32.920 --> 0:17:36.520 and potentially exactly at the right time where we're seeing 0:17:37.000 --> 0:17:39.520 a significant softening in the labor market. 0:17:39.880 --> 0:17:42.720 Kim Hervy, we're talking to the wonderful Stephen England or 0:17:43.000 --> 0:17:47.000 a standard Charter about how everybody's looking at the mix 0:17:47.200 --> 0:17:50.639 of our economics the summer of twenty twenty five, and 0:17:50.680 --> 0:17:54.760 we're worried about substituting and substitution effect and what are 0:17:54.800 --> 0:17:57.600 we going to do with tariffs and all that describe 0:17:57.680 --> 0:18:02.120 for us the risk to our income effect of dampened income, 0:18:02.440 --> 0:18:07.080 dampened investment, damp and real Dare I say damp phenomenal GDP? 0:18:07.400 --> 0:18:12.520 Is that a legitimate risk? Oh, it's definitely legitimate. So 0:18:13.359 --> 0:18:16.720 there's a lot of confusion over this teariff stuff. And 0:18:17.520 --> 0:18:21.080 just to be very clear, tariffs lead to a one 0:18:21.160 --> 0:18:26.240 time jump and price level. They're only inflationary if the 0:18:26.359 --> 0:18:31.159 tear freight continues to go up. And this is widely misunderstood. 0:18:32.240 --> 0:18:34.960 And it's also the case when you'd have tariffs, you 0:18:34.960 --> 0:18:38.760 would have a substitution effect as you mentioned, so you 0:18:39.000 --> 0:18:44.480 substitute alternative goods. But your point on the income effect 0:18:44.760 --> 0:18:48.359 is very important that right now what we need is 0:18:48.480 --> 0:18:52.440 increase growth. So growth has been in the first half 0:18:52.920 --> 0:18:56.919 not very robust. And given this significant weakening in the 0:18:57.000 --> 0:19:00.000 labor sector, we need some policies that are pro grows 0:19:00.680 --> 0:19:03.040 and increasing tariffs is not pro. 0:19:02.880 --> 0:19:05.000 Growth, Kim. You know, I was kidding a little bit 0:19:05.000 --> 0:19:06.720 earlier on when I talked about one hundred and fifty BIPs. 0:19:06.720 --> 0:19:08.920 But let's talk about the markets pricing, and right this minute, 0:19:08.960 --> 0:19:11.480 they're only pricing in an eighty percent probability of a 0:19:11.480 --> 0:19:14.119 step cut. They are only pricing in one hundred and 0:19:14.160 --> 0:19:16.000 twenty five basis points of cuts through the end of 0:19:16.040 --> 0:19:18.879 next year. That's equal to the fomc's dots medium of 0:19:18.880 --> 0:19:21.159 long term projections. It's right on the screws with the 0:19:21.160 --> 0:19:24.200 one year one year usois op rate. Talk to us 0:19:24.680 --> 0:19:27.800 about the propensity for yields to go higher from here 0:19:27.960 --> 0:19:30.359 if what you're saying is true and the tariff impact 0:19:30.400 --> 0:19:31.960 has only been front loaded, and now we're going to 0:19:31.960 --> 0:19:33.000 see the impact on inflation. 0:19:35.640 --> 0:19:39.080 Yeah, So again, let's be careful with the tariffs. A 0:19:39.200 --> 0:19:42.160 tariff could lead to a one time increase in prices, 0:19:42.520 --> 0:19:46.479 but it's only inflationary if it's a continuous policy of 0:19:46.680 --> 0:19:54.000 increasing tariffs. More seriously, tariffs could decrease economic growth. So 0:19:54.600 --> 0:19:59.360 it is not a pro growth policy whatsoever. And that 0:19:59.520 --> 0:20:04.760 decrease economic growth could cause issues in terms of uh, 0:20:05.119 --> 0:20:09.680 you know, yeah, fewer firms going out to the debt market, 0:20:10.200 --> 0:20:13.399 the government having some issues and raising funds, so there 0:20:13.440 --> 0:20:16.520 could be a lot of like knock on issues with 0:20:16.720 --> 0:20:18.800 the slower growth in financial markets. 0:20:18.800 --> 0:20:19.240 Obviously. 0:20:19.320 --> 0:20:21.480 Well, Cam, I think it's timely that we're talking about growth. 0:20:21.520 --> 0:20:23.679 I mean, it's GDP week here in the US, you know, 0:20:23.760 --> 0:20:25.399 and as we look into the second half, you know, 0:20:25.440 --> 0:20:27.640 I'm just looking at you know, some IMF projections. I'm 0:20:27.680 --> 0:20:30.040 looking at some of the bigger banks here, a lot 0:20:30.080 --> 0:20:32.200 of them are projecting that China growth is gonna is 0:20:32.240 --> 0:20:34.600 going to fall and fall quite significantly here. You know, 0:20:34.640 --> 0:20:36.240 what are your thoughts there, What are your thoughts on 0:20:36.280 --> 0:20:37.800 the impact that China is having on the rest of 0:20:37.800 --> 0:20:38.160 the world. 0:20:40.359 --> 0:20:44.640 So, China is obviously a very important engine of kind 0:20:44.640 --> 0:20:49.159 of world economic growth now so uh, and they are 0:20:49.200 --> 0:20:53.719 struggling in some respects, in particular in the property sector. 0:20:54.119 --> 0:20:59.560 As we've seen, they really need to grow, uh, and 0:20:59.640 --> 0:21:02.320 they need to grow more than the US needs to 0:21:02.359 --> 0:21:06.280 grow because they've got a demographic problem that's way more 0:21:06.359 --> 0:21:09.720 serious than the US Kim her So it's very important 0:21:09.720 --> 0:21:11.160 for them to have growth. 0:21:11.400 --> 0:21:13.760 Kim Harvey with US Duke University. Kim, I want to 0:21:13.960 --> 0:21:17.120 make this personal as we go to a former vice 0:21:17.200 --> 0:21:20.760 chair of Brainerd Low Brainerd came out of Wesleyan with 0:21:21.280 --> 0:21:25.000 bulletproof academics, and I would say, Kim, somewhat like you. 0:21:25.440 --> 0:21:30.520 It's not Richard Claired the dynamics stochastic general equilibrium theory. 0:21:30.640 --> 0:21:34.439 It's much more of a holistic policy view. And I 0:21:34.440 --> 0:21:37.000 would suggest we get that from Lisa Cook as well 0:21:37.040 --> 0:21:41.679 out of ken Green and Berkeley. Explain the place of 0:21:42.080 --> 0:21:50.240 policy centric economists at the FED, whether Harvey, Brainerd or Cook. Yeah. 0:21:50.359 --> 0:21:54.080 So one thing that's really important at the FOMC is 0:21:54.119 --> 0:21:58.920 to have diversity of viewpoints. So I'm always encouraged when 0:21:59.400 --> 0:22:05.680 there's some agreement. If it's just unanimous on everything, I'm 0:22:05.720 --> 0:22:09.360 worried about that. So we need to debate. And these 0:22:09.400 --> 0:22:14.680