WEBVTT - Narayana Kocherlakota: Fiscal Stimulus Can Be Effective (Audio)

0:00:03.240 --> 0:00:06.640
<v Speaker 1>Global business news twenty four hours a day at Bloomberg

0:00:06.680 --> 0:00:09.760
<v Speaker 1>dot com, the Radio plus Mobile Act and on your radio.

0:00:10.039 --> 0:00:14.160
<v Speaker 1>This is a Bloomberg Business flag from Bloomberg World Handquarters.

0:00:14.200 --> 0:00:18.200
<v Speaker 1>I'm Charlie Pellet. Stalks are hire rebounding from yesterday's drop

0:00:18.239 --> 0:00:21.520
<v Speaker 1>spawned by concerns tied her molitary policy from Europe to

0:00:21.520 --> 0:00:25.160
<v Speaker 1>the U S could derail economic growth. SMP five hundred,

0:00:25.200 --> 0:00:28.160
<v Speaker 1>Indecks up eleven to sixty one, up five tenths of

0:00:28.240 --> 0:00:31.440
<v Speaker 1>one percent. Naz stank is up thirty five points, up

0:00:31.520 --> 0:00:34.360
<v Speaker 1>seven tenths of one percent. Down. Industrial is up a

0:00:34.440 --> 0:00:37.479
<v Speaker 1>hundred and twenty five points, also up seven tenths of

0:00:37.520 --> 0:00:40.760
<v Speaker 1>one percent. Tenure down nine thirty seconds had yield one

0:00:40.800 --> 0:00:44.320
<v Speaker 1>point seven two percent. Gold up ten cents. A little

0:00:44.400 --> 0:00:47.480
<v Speaker 1>change there. At twelve sixty nine, the ounce crude oil

0:00:47.520 --> 0:00:50.520
<v Speaker 1>West Texas Intermediate closing in on fifty dollars of barrel

0:00:50.560 --> 0:00:53.959
<v Speaker 1>forty nine seventy five on w T I hired by

0:00:54.000 --> 0:00:57.360
<v Speaker 1>two point two percent. I'm Charlie Pellett. That's a Bloomberg

0:00:57.400 --> 0:01:03.240
<v Speaker 1>business flash. He's taking stock the FED in focus on

0:01:03.360 --> 0:01:07.480
<v Speaker 1>Bloomberg Radio on Calfe and Hayes along with pim focus

0:01:07.560 --> 0:01:10.319
<v Speaker 1>the FED, and focused the European Central Bank, and focus

0:01:10.360 --> 0:01:12.759
<v Speaker 1>the Bank of Japan and focus. It is a world

0:01:12.840 --> 0:01:16.560
<v Speaker 1>of central bank Angstome saying, well, someone who knows this

0:01:16.640 --> 0:01:19.160
<v Speaker 1>central bank angst himself, I think in a certain way.

0:01:19.160 --> 0:01:22.680
<v Speaker 1>As Mariana Cortula quota, he's a Bloomberg You columnist, he's

0:01:22.760 --> 0:01:25.959
<v Speaker 1>a former Minneapolis Fed president, he served there from two

0:01:26.000 --> 0:01:29.880
<v Speaker 1>thousand nine to fifteen, and he's joining us now to

0:01:30.080 --> 0:01:34.040
<v Speaker 1>talk about many of these issues and his latest Bloomberg

0:01:34.120 --> 0:01:37.080
<v Speaker 1>view piece. Uh Nariana, I'd like to start though, with

0:01:37.480 --> 0:01:39.440
<v Speaker 1>the numbers we've been getting. You know, we've got the

0:01:39.480 --> 0:01:43.600
<v Speaker 1>Services index from the I s M looking fairly strong.

0:01:43.640 --> 0:01:46.679
<v Speaker 1>And then you contrast that to the Atlanta Fed cutting

0:01:46.720 --> 0:01:49.040
<v Speaker 1>its GDP tracker for the third quarter to two point

0:01:49.080 --> 0:01:51.880
<v Speaker 1>two because of trade devis at Widen and you pile

0:01:51.960 --> 0:01:55.320
<v Speaker 1>on that there's a group of Fed bank presidents now

0:01:56.000 --> 0:01:58.480
<v Speaker 1>who think it's time to raise the key right now.

0:01:58.600 --> 0:02:03.440
<v Speaker 1>And I bet you don't reason. Is uh no that

0:02:03.440 --> 0:02:05.520
<v Speaker 1>that would be bet you would win. Kathleen, thanks a

0:02:05.560 --> 0:02:07.440
<v Speaker 1>lot for having me on. Uh it's a lot of

0:02:07.480 --> 0:02:10.280
<v Speaker 1>to join you. I um. In terms of the data,

0:02:10.400 --> 0:02:13.880
<v Speaker 1>I think that we're Uh, we're still in a situation

0:02:13.880 --> 0:02:19.799
<v Speaker 1>where we're seeing slow growth, we're seeing a inflationary pressure

0:02:19.840 --> 0:02:22.240
<v Speaker 1>is remaining subdued. Uh. When I look at my the

0:02:22.280 --> 0:02:26.760
<v Speaker 1>metrics high follow on inflation expectations, they remain low with

0:02:26.800 --> 0:02:31.079
<v Speaker 1>the five year five year forward Uh. Tips spreads remain low,

0:02:31.160 --> 0:02:35.120
<v Speaker 1>and also some of the surveys remain low. So I

0:02:34.360 --> 0:02:36.959
<v Speaker 1>I don't see it as a time to raise rates

0:02:37.000 --> 0:02:41.320
<v Speaker 1>just based on those considerations. But the overwhelming consideration is

0:02:41.360 --> 0:02:44.280
<v Speaker 1>really the FEDS a limited tool kit with which to

0:02:44.400 --> 0:02:48.160
<v Speaker 1>deal with downside risks of any kind. Uh. And you

0:02:48.200 --> 0:02:50.120
<v Speaker 1>want to keep the patient as healthy as possible if

0:02:50.160 --> 0:02:52.320
<v Speaker 1>you don't have have any treatments if it gets sick,

0:02:52.360 --> 0:02:56.160
<v Speaker 1>and so that that really argues against raising rates. Uh.

0:02:56.520 --> 0:02:58.760
<v Speaker 1>I think one of the most compelling argument against raising

0:02:58.840 --> 0:03:03.919
<v Speaker 1>race at this point. Professor Cutcota, you are the Lionel W. Mackenzie,

0:03:03.919 --> 0:03:07.840
<v Speaker 1>professor of economics at the University of Rochester, and Lionel

0:03:07.960 --> 0:03:12.160
<v Speaker 1>Mackenzie I guess was famous for his work on general

0:03:12.280 --> 0:03:16.320
<v Speaker 1>equilibrium theory, attempting to explain the behavior of supply and

0:03:16.400 --> 0:03:22.639
<v Speaker 1>demand and prices. Where do you see inequality this equilibrium

0:03:22.960 --> 0:03:28.160
<v Speaker 1>in global markets right now? Uh? Great? Question, and uh

0:03:29.000 --> 0:03:33.160
<v Speaker 1>a great citational linel Um. I think that, uh. My

0:03:33.160 --> 0:03:37.560
<v Speaker 1>my own concern remains that I think the interest rates,

0:03:37.920 --> 0:03:40.640
<v Speaker 1>and this was going to come surprisingly to so many

0:03:40.640 --> 0:03:43.160
<v Speaker 1>of your listeners, is I think interest rates actually remained

0:03:43.240 --> 0:03:45.640
<v Speaker 1>too high in much of the world. And I think

0:03:45.640 --> 0:03:48.040
<v Speaker 1>we see that when people talk about boy, there's too

0:03:48.080 --> 0:03:52.480
<v Speaker 1>much supply or too little demand, well that's really those

0:03:52.600 --> 0:03:55.360
<v Speaker 1>those words are really markers for the fact that interest

0:03:55.400 --> 0:03:58.440
<v Speaker 1>rates are too high. The interest rates were lower, um

0:03:58.560 --> 0:04:00.800
<v Speaker 1>than we'll be able to clear up the excess supply

0:04:01.040 --> 0:04:04.400
<v Speaker 1>on and um and uh to the fact that we

0:04:04.480 --> 0:04:06.280
<v Speaker 1>have have two little demand at the current point in

0:04:06.320 --> 0:04:08.600
<v Speaker 1>time because people would start to spend more as opposed

0:04:08.640 --> 0:04:10.560
<v Speaker 1>to saving, and that would soak up the supply that

0:04:10.560 --> 0:04:13.840
<v Speaker 1>we we have. So when people and I hear this

0:04:13.920 --> 0:04:16.680
<v Speaker 1>from many business business people in financial market participants, that

0:04:16.760 --> 0:04:20.640
<v Speaker 1>they see signs of excess supply and and uh in

0:04:20.680 --> 0:04:23.560
<v Speaker 1>sufficient demand out there. But those are all markers that

0:04:23.560 --> 0:04:25.920
<v Speaker 1>should be it makes you think, boy, interest rates, even

0:04:25.920 --> 0:04:31.760
<v Speaker 1>though they're historically unusually low, remain too high. So in

0:04:31.880 --> 0:04:36.400
<v Speaker 1>terms of what central banks should do again, the question

0:04:36.520 --> 0:04:38.760
<v Speaker 1>gets very interesting. The FETE is getting ready to high

0:04:38.800 --> 0:04:40.960
<v Speaker 1>grates and boiled boys, they don't do it in November.

0:04:41.000 --> 0:04:42.840
<v Speaker 1>It's sure looks like the majority is going to vote

0:04:42.839 --> 0:04:46.000
<v Speaker 1>for December. And at the same time, now there's these

0:04:46.480 --> 0:04:48.919
<v Speaker 1>stirrings from the bank in Japan and European central banks

0:04:48.920 --> 0:04:51.360
<v Speaker 1>saying it seems, you know, this quantity of vising really

0:04:51.400 --> 0:04:54.440
<v Speaker 1>isn't working, so they're gonna start cutting back. That's a

0:04:54.440 --> 0:04:56.720
<v Speaker 1>little less stimulus as well. I know you think the

0:04:56.960 --> 0:04:59.480
<v Speaker 1>central bank should be more stimulative perhaps, but do you

0:04:59.520 --> 0:05:02.120
<v Speaker 1>agree me to be though that that bond purchases have

0:05:02.480 --> 0:05:04.600
<v Speaker 1>run out of steam in terms of being able to

0:05:04.600 --> 0:05:08.760
<v Speaker 1>boost economies. I would interpret what's going on in the

0:05:09.600 --> 0:05:12.240
<v Speaker 1>boj a little bit differently, and it's actually they're reaching

0:05:12.760 --> 0:05:17.599
<v Speaker 1>a policy conclusion that that uh that I had been

0:05:17.640 --> 0:05:20.200
<v Speaker 1>reaching some of my own thinking a while back, which

0:05:20.279 --> 0:05:23.160
<v Speaker 1>is it might be better to be targeting prices of

0:05:23.240 --> 0:05:26.480
<v Speaker 1>bonds as opposed to trying to target target quantities. What

0:05:26.640 --> 0:05:30.120
<v Speaker 1>we really believe in the in the economic modeling that

0:05:30.200 --> 0:05:33.840
<v Speaker 1>we do is it's really prices that matter for economic

0:05:33.880 --> 0:05:37.560
<v Speaker 1>decision making, not so much quantities, and so buying a

0:05:37.600 --> 0:05:39.840
<v Speaker 1>certain amount of bonds every month is merely a very

0:05:39.920 --> 0:05:42.440
<v Speaker 1>indirect way to to get the influence you want, which

0:05:42.520 --> 0:05:46.200
<v Speaker 1>is on on prices and yields. So I actually took

0:05:46.240 --> 0:05:50.120
<v Speaker 1>their their statement uh that they made uh recently to

0:05:50.240 --> 0:05:53.040
<v Speaker 1>be much more. I thought it was a very healthy move,

0:05:53.080 --> 0:05:55.240
<v Speaker 1>which is to start to talk about we're gonna be

0:05:55.320 --> 0:05:58.480
<v Speaker 1>aiming to target UM a certain yield for the for

0:05:58.600 --> 0:06:02.760
<v Speaker 1>the ten year as opposed to UM buying buying buying assets.

0:06:03.640 --> 0:06:06.240
<v Speaker 1>We talked about buying assets. I'm wondering if you maybe

0:06:06.279 --> 0:06:11.560
<v Speaker 1>could reference, uh, the Obama administration's economic stimulus plan, because

0:06:11.920 --> 0:06:14.320
<v Speaker 1>you said at the time, I believe that the reason

0:06:14.400 --> 0:06:17.480
<v Speaker 1>you've decided you didn't vote against it was not that

0:06:17.680 --> 0:06:21.080
<v Speaker 1>you were necessarily opposed to it, but that economic stimulus

0:06:21.200 --> 0:06:25.800
<v Speaker 1>was not a settled question within the world of academia. Yeah. No,

0:06:26.160 --> 0:06:29.880
<v Speaker 1>one of the unfortunate I should say, one of the

0:06:29.960 --> 0:06:34.480
<v Speaker 1>fortunate features of an unfortunate event is that, uh, in

0:06:34.680 --> 0:06:39.159
<v Speaker 1>response to the downturn of of two thousand uh eight,

0:06:39.240 --> 0:06:41.680
<v Speaker 1>in two thousand nine, we've been able to do a

0:06:41.760 --> 0:06:44.160
<v Speaker 1>lot of studies to follow up studies to analyze the

0:06:44.200 --> 0:06:47.200
<v Speaker 1>effect of physical stimulus. UH. Those studies weren't available at

0:06:47.200 --> 0:06:50.560
<v Speaker 1>the time that I signed a petition you make reference to.

0:06:51.480 --> 0:06:54.480
<v Speaker 1>I think now is as usual. There's still more work

0:06:54.560 --> 0:06:56.360
<v Speaker 1>to be done and more clear to be to be

0:06:56.600 --> 0:06:59.360
<v Speaker 1>too found. But I think that it seems clear the

0:06:59.400 --> 0:07:02.440
<v Speaker 1>physical list when we're at the zero or bound interest

0:07:02.560 --> 0:07:04.839
<v Speaker 1>rates can be very effective as a way of boosting

0:07:05.360 --> 0:07:09.320
<v Speaker 1>overall output. Alright, just ten seconds. Is there any chance

0:07:09.360 --> 0:07:12.320
<v Speaker 1>of it? It doesn't raise a key rate by December? Noriana, Yes,

0:07:12.360 --> 0:07:14.600
<v Speaker 1>there is a chance, and that's the right thing to do,

0:07:15.440 --> 0:07:19.880
<v Speaker 1>not doing. They should they should not raise rates. All right,

0:07:19.920 --> 0:07:21.720
<v Speaker 1>now you're a quo Letkona. Thank you so much. We'd

0:07:21.720 --> 0:07:25.320
<v Speaker 1>like to get every drop of information and analysis we

0:07:25.440 --> 0:07:28.760
<v Speaker 1>can out of his former Federal Reserve Bank president in Minneapolis,

0:07:28.920 --> 0:07:33.840
<v Speaker 1>Noriyanna Coacha Lakota, also a Bloomberg View columnist. We're going

0:07:33.880 --> 0:07:38.360
<v Speaker 1>to continue our fed in focus here on taking stock.

0:07:38.440 --> 0:07:41.480
<v Speaker 1>I'm Kathleen Hayes along with Pim Fox, and this is Bloomberg.

0:07:45.600 --> 0:07:48.760
<v Speaker 1>Coming up on taking stock, will be speaking with Richard Grossman.

0:07:48.880 --> 0:07:52.000
<v Speaker 1>He's the head of Halsted Property. We're going to find

0:07:52.040 --> 0:07:55.880
<v Speaker 1>out about residential real estate values and whether low interest

0:07:56.040 --> 0:07:58.760
<v Speaker 1>rates will help the market. That's next