WEBVTT - Bloomberg Wall Street Week: Diamond, Feeney, Tarullo 0:00:00.240 --> 0:00:04.160 This is Bloomberg Wall Street Week. Market shrug off higher 0:00:04.160 --> 0:00:07.080 consumer prices. The economy is in the process of rebounding. 0:00:07.120 --> 0:00:09.440 Will the Federal Reserve have its own digital currency? The 0:00:09.440 --> 0:00:12.440 financial stories that cheap hard work. Many people think the 0:00:12.480 --> 0:00:14.320 eels are just going to keep marching up. We have 0:00:14.440 --> 0:00:16.640 more spending coming out of Congress. One of the big 0:00:16.760 --> 0:00:19.600 questions I think on investor's minds inflation through the eyes 0:00:19.640 --> 0:00:22.720 of the most influential voices. Larry Summer is the former 0:00:22.760 --> 0:00:26.239 Treasury Secretary Bryan Wynahan back of America, Will CEO of 0:00:26.360 --> 0:00:30.479 Charlie Sharp. Bloomberg Wall Street Week with David Weston from 0:00:30.560 --> 0:00:35.880 Bloomberg Radio. Inflation record, COVID numbers and an unresolved standoff 0:00:35.920 --> 0:00:39.159 with Russia, leaving us with an uncertain start to the 0:00:39.200 --> 0:00:42.560 new year. This is Bloomberg Wall Street Week. I'm David 0:00:42.600 --> 0:00:45.919 western It wasn't just the winter cold snap that may 0:00:45.960 --> 0:00:49.200 have sent a shiver down your spine. This week Wednesday, 0:00:49.240 --> 0:00:52.400 we heard what we had suspected. Inflation last year was 0:00:52.440 --> 0:00:55.280 the worst it has been in nearly four decades, up 0:00:55.320 --> 0:00:59.680 a whopping seven percent. Here's American Action Forum President Douglas 0:00:59.680 --> 0:01:03.720 Holtz Eaken. They do have a real problem. There's real 0:01:03.880 --> 0:01:07.800 heat on these inflation numbers, and all that inflation certainly 0:01:07.840 --> 0:01:10.600 has the attention of the Federal Reserve, as Chair J. 0:01:10.720 --> 0:01:13.920 Powell testified at his Senate confirmation hearing, that the Fed 0:01:14.000 --> 0:01:17.080 has to turn its attention now from supporting the economy 0:01:17.240 --> 0:01:21.320 to making sure inflation doesn't become a long term problem. 0:01:21.360 --> 0:01:23.760 We will use our tools to support the economy and 0:01:23.800 --> 0:01:27.080 a strong labor market and to prevent higher inflation from 0:01:27.080 --> 0:01:30.720 becoming entrenched. And if all that weren't enough, Russia came 0:01:30.760 --> 0:01:32.840 to the table with the United States and then with 0:01:32.920 --> 0:01:36.400 other NATO allies to talk about all those Russian troops 0:01:36.440 --> 0:01:39.360 massing on the Ukraine border, and the Party is basically 0:01:39.600 --> 0:01:43.319 agreed to disagree at least for now, leaving prospects of 0:01:43.319 --> 0:01:46.319 a further invasion still up in the air, which was part, 0:01:46.400 --> 0:01:49.600 but only part of what drove oil prices up this week. 0:01:49.840 --> 0:01:54.400 Here's i h S Market Chair Dan Jurgen. There's geopolitical 0:01:54.400 --> 0:01:57.960 anxiety feeding into the market on top of a tightening 0:01:58.000 --> 0:02:01.840 market that's coming with the economic rebound. Three big banks 0:02:01.840 --> 0:02:04.040 reported their earnings at the end of the week was 0:02:04.080 --> 0:02:06.920 something of a mixed bag. JP Morgan reported record profits, 0:02:06.960 --> 0:02:09.640 but disappointed a bit on trading and is adding to 0:02:09.720 --> 0:02:12.400 its cost. City also came up short on trading in 0:02:12.440 --> 0:02:15.120 the midst of a major restructuring there, and Wells Fargo 0:02:15.200 --> 0:02:17.639 said it's tepid loan growth in the fourth quarter should 0:02:17.639 --> 0:02:20.760 pick up this year. Going beyond the banks, the markets 0:02:20.800 --> 0:02:24.000 overall well. They had a volatile week, responding to the 0:02:24.040 --> 0:02:27.240 high inflation numbers, the low retail sales numbers on Friday, 0:02:27.360 --> 0:02:29.919 and the testimony of FED Chair J Powell that reducing 0:02:29.960 --> 0:02:33.520 monetary policy support is now a certainty. Socks fell for 0:02:33.560 --> 0:02:35.960 the second week in a row, with the SPI and 0:02:35.960 --> 0:02:38.639 the NAZAC both off about three tenths of a percent, 0:02:38.880 --> 0:02:41.000 while yields on the ten year climbed a hundred and 0:02:41.000 --> 0:02:43.520 twenty five basis points and in the week at one 0:02:43.560 --> 0:02:46.520 point seven eight. That's the highest level since the pandemic hit. 0:02:46.919 --> 0:02:49.760 To put this rather confusing week in perspective, we welcome 0:02:49.800 --> 0:02:52.720 to Bob Diamond these Atlas Merchant Capital founding partner in 0:02:52.800 --> 0:02:56.600 CEO and joe An Feenie Advisors, capital management partner and 0:02:56.720 --> 0:02:59.760 portfolio manager. So Joanne, let me start with you. Respect 0:03:00.000 --> 0:03:02.760 equities in particular, Typically when the interest rates are going up. 0:03:02.800 --> 0:03:06.400 That's not necessarily something all equities like, the equities respond 0:03:06.480 --> 0:03:09.520 that way this week, yeah, you know, and they've responded 0:03:09.560 --> 0:03:12.600 that way since the late fall, when I think it 0:03:12.680 --> 0:03:15.480 became finally clear to investors that interest rates would have 0:03:15.560 --> 0:03:17.640 to go up given the level of inflation. We're seeing 0:03:17.639 --> 0:03:20.600 the tightness in the labor markets and the slowness with 0:03:20.639 --> 0:03:23.519 which supply is coming back on one and so yeah, 0:03:23.560 --> 0:03:26.359 we certainly saw evaluations come back and some come down, 0:03:26.360 --> 0:03:28.799 in some places more than others. And you know that 0:03:29.000 --> 0:03:30.880 we just don't know for how long that's going to 0:03:30.960 --> 0:03:33.919 go on, which points that big question that investors always face. 0:03:34.680 --> 0:03:37.120 You try to time this market where you just hold 0:03:37.160 --> 0:03:39.560 on for the long haul. So, Bob, what about the 0:03:39.560 --> 0:03:41.800 Fed trying to time bringing it back down again? How 0:03:41.920 --> 0:03:44.600 risky is that? Because the track record on the so 0:03:44.680 --> 0:03:47.080 called South Atlantics is not a great one. So, David, 0:03:47.120 --> 0:03:50.520 we talked about this um um, you know when we 0:03:50.640 --> 0:03:53.800 when we talked in December, um, the Fed needs to 0:03:53.880 --> 0:03:58.400 begin moving UM. As of today, they're still very very easy, 0:03:58.560 --> 0:04:01.240 ultra easy, I would call it. The balance sheet is 0:04:01.280 --> 0:04:04.840 still expanding. They're still um, you know, almost a hundred 0:04:04.920 --> 0:04:09.960 billion in in uh in um uh security purchases each 0:04:10.000 --> 0:04:12.400 month UM, and I think it's time that they get 0:04:12.400 --> 0:04:15.160 on with it. So UM. I think the sooner they 0:04:15.280 --> 0:04:19.760 begin this process of kind of easing into an economy 0:04:19.839 --> 0:04:23.760 that has recovered and is growing and has a very 0:04:23.880 --> 0:04:26.720 very tight labor market, the better. At the same time, 0:04:26.760 --> 0:04:29.159 I've you've got omicron out there, you've got the COVID virus, 0:04:29.200 --> 0:04:31.480 and so you can't quite know where the economy is going. 0:04:31.760 --> 0:04:33.840 So how big a risk is it that so called 0:04:33.880 --> 0:04:36.480 policy mistake stopping on the great break too fast and 0:04:36.560 --> 0:04:39.640 leading into dare say, a recession? Listen, it is it 0:04:39.800 --> 0:04:42.040 is everyone has said, who has been on already? This 0:04:42.080 --> 0:04:44.880 is tricky, It's not it's not five minute rice to 0:04:44.960 --> 0:04:48.039 time this. But I think the biggest mistake that the 0:04:48.160 --> 0:04:52.640 FED could make would be to delay too long beginning 0:04:52.680 --> 0:04:55.159 to get to neutral. And I think, you know, David, 0:04:55.200 --> 0:04:57.400 we've talked about this before, and Joanne and I have 0:04:57.480 --> 0:04:59.800 talked about this, but when the FED goes from ultra 0:05:00.040 --> 0:05:04.520 easy to neutral, it's usually fine for the markets. That's 0:05:04.560 --> 0:05:07.880 been the history. We're not even close to neutral yet. 0:05:07.920 --> 0:05:10.960 So when I say begin the actions, what I'm talking 0:05:11.000 --> 0:05:14.320 about is getting closer to neutral. If you look at 0:05:14.360 --> 0:05:18.880 the futures markets, then they're expecting FED funds not this year, 0:05:18.880 --> 0:05:21.640 but at the end of two thousand and twenty three, 0:05:22.160 --> 0:05:24.039 FED funds will be one and a half to one 0:05:24.040 --> 0:05:27.880 and three quarters. Neutral is maybe two two and a 0:05:27.920 --> 0:05:30.599 half percent. And I would just bring up, you know, 0:05:30.680 --> 0:05:34.239 it kind of ages me and my experience on Wall Street. 0:05:34.279 --> 0:05:38.120 But if you look at the experience in the early 0:05:38.160 --> 0:05:41.520 eighties when Bulker had to really you know, put the 0:05:41.560 --> 0:05:45.599 brakes on, short rates got to fifteen. So if we 0:05:45.680 --> 0:05:49.400 talk about getting short rates overnight FED funds back to 0:05:49.480 --> 0:05:52.200 two percent or two and a half percent um, I 0:05:52.240 --> 0:05:54.880 think that's what we should be aiming for, you know. 0:05:55.000 --> 0:05:57.520 And and to that point, uh, you know, Bob, you 0:05:57.600 --> 0:06:01.320 put it really in good context, right, this not the eighties. Right, 0:06:01.480 --> 0:06:05.240 short rates heading to fiftcent is very unlikely for that 0:06:05.320 --> 0:06:07.360 to be in our future. So we're really looking at 0:06:07.360 --> 0:06:12.240 short rates in the two ish bus percent range. And also, right, 0:06:12.360 --> 0:06:14.720 this is a very different economy from where we were 0:06:14.839 --> 0:06:16.720 back then in the seventies and eighties when we had 0:06:16.760 --> 0:06:20.560 to deal with those oil embargoes and the slowdown in production. 0:06:21.000 --> 0:06:23.040 This time, the FED at least has a tail and 0:06:23.720 --> 0:06:26.480 help it solve the inflation problem. And that more supply 0:06:26.640 --> 0:06:28.919 is going to be coming back online this year. Just 0:06:29.000 --> 0:06:32.000 look at the semiconductor industry, which is bringing new factories 0:06:32.200 --> 0:06:35.239 up and running and we'll be putting out chips starting 0:06:35.279 --> 0:06:38.000 mid year, and that's going to help by bringing up supply. 0:06:38.560 --> 0:06:42.240 That will help close that gap between consumer demand, which 0:06:42.240 --> 0:06:45.160 is incredibly strong and the gap in supply that we've 0:06:45.200 --> 0:06:48.000 been suffering. That should also help to bring down inflation 0:06:48.080 --> 0:06:50.360 even as those interest rates go off. Bob Diamond and 0:06:50.400 --> 0:06:52.039 Joy and Feeny will be staying with us as we 0:06:52.120 --> 0:06:54.880 turn to the specifics of the tech sector and especially 0:06:55.120 --> 0:06:58.880 fintech that's gonna happen. This is Wall Stree Week on Bloomberg. 0:07:02.920 --> 0:07:06.880 This is Bloomberg Wall Street Week with David Weston from 0:07:07.000 --> 0:07:10.480 Bloomberg Radio. Joe An Feeni of Advisor's Capital Management and 0:07:10.520 --> 0:07:13.120 Bob Diamond of Atlas Merchant Capital are still with us 0:07:13.480 --> 0:07:16.080 as we turn from the markets overall to one segment 0:07:16.120 --> 0:07:18.680 that has been particularly riled by the talk of higher rates, 0:07:18.720 --> 0:07:20.920 and that is the tech sector and more specifically fintech. 0:07:21.000 --> 0:07:22.680 But let me start with you. You've got some experience 0:07:22.680 --> 0:07:24.560 now it's just with banks, but also with tech and 0:07:24.600 --> 0:07:28.200 specifically fintech with your major deal involving Circle. So give 0:07:28.240 --> 0:07:32.160 me your sense. Typically it's thought that tech gets beaten 0:07:32.240 --> 0:07:34.560 up with higher rates. Is that true? Now? Is this 0:07:34.680 --> 0:07:37.160 the time not to invest in tech come back to 0:07:37.360 --> 0:07:40.239 higher rates? David, we're talking about just getting back to neutral. 0:07:40.320 --> 0:07:42.520 So we're talking about maybe a ten year in the 0:07:42.600 --> 0:07:45.120 higher end of one and a half to three and 0:07:45.680 --> 0:07:47.760 rather than the lower end, and we're talking about two 0:07:47.840 --> 0:07:50.560 percent at funds rates. So no, I don't think they'll 0:07:50.600 --> 0:07:55.160 be a negative impact. UM. Our investments, our last three 0:07:55.240 --> 0:07:57.840 or four investments, an Atlas, Merchant Capital have all had 0:07:57.880 --> 0:08:01.679 a very very strong tech angle to them. UM. We're 0:08:01.800 --> 0:08:06.760 very very positive overall on the fintech sector. UM stable 0:08:06.840 --> 0:08:09.920 coins in particular, as you know, we we announced in 0:08:10.000 --> 0:08:13.640 Conquered Acquisition Corps of merger with Circle. UM and I 0:08:13.680 --> 0:08:19.200 think payments technology, stable coins UM. You know, the ability 0:08:19.240 --> 0:08:24.920 to to uh impact the costs of commercial services UH, 0:08:24.960 --> 0:08:28.520 the opportunity to increase economic stability. All these things we 0:08:28.600 --> 0:08:31.600 think are very very positive. So UM, there will be 0:08:31.640 --> 0:08:34.400 winners and losers. UM. I think there are periods in 0:08:34.440 --> 0:08:36.840 the market where anything with a tech angle, whether it 0:08:36.880 --> 0:08:39.520 was fintech or outside of finance, you know, had a 0:08:39.520 --> 0:08:42.520 good bid UM and I think it's it's appropriate that 0:08:42.600 --> 0:08:45.320 there are you know a little bit more selective in 0:08:45.400 --> 0:08:48.360 terms of the platforms that will be both successful. But 0:08:48.520 --> 0:08:52.520 within financial services the impact of technology and the impact 0:08:52.800 --> 0:08:58.559 of technology focused platforms UM is significant and we really 0:08:58.600 --> 0:09:00.960 like it is a is a an area to invest, 0:09:01.200 --> 0:09:03.839 you know, And I think that the news that of 0:09:04.160 --> 0:09:07.839 JP Morgan just you know, really confirms that they are 0:09:07.880 --> 0:09:10.880 spending because competition is up and they need to become 0:09:10.880 --> 0:09:13.640 more efficient. And where are they going to get that technology? Well, 0:09:13.640 --> 0:09:15.480 some of it will be internal, but if you go 0:09:15.559 --> 0:09:17.280 beyond the big money center banks, think of all the 0:09:17.320 --> 0:09:20.640 regional banks, community banks, they also need to become more efficient. 0:09:20.920 --> 0:09:22.559 And so a lot of the fintech names that are 0:09:22.559 --> 0:09:26.000 providing some of those capabilities, whether it's a smaller name 0:09:26.080 --> 0:09:28.480 like an Encino or a larger name, you know, they 0:09:28.520 --> 0:09:31.280 got thrown out too over the last several months with 0:09:31.320 --> 0:09:33.960 all those multiples coming down, So you know, it's like 0:09:33.960 --> 0:09:36.360 the babies got thrown out with the bath order over 0:09:36.360 --> 0:09:38.840 the last several months. And I think this year we're 0:09:38.840 --> 0:09:42.200 going to see quality names really come back. So as 0:09:42.240 --> 0:09:44.800 Bob was saying, we're going to have to be really selective, 0:09:45.240 --> 0:09:48.280 but I think investors are gonna start looking more carefully 0:09:48.320 --> 0:09:50.920 at the companies to see if they actually have customers, 0:09:51.520 --> 0:09:54.680 a well defined market and customers that have money to spend. 0:09:54.840 --> 0:09:57.160 And and some of these companies have proved themselves already 0:09:57.480 --> 0:09:59.839 and they're multiple still got crushed. So I think there's 0:09:59.880 --> 0:10:02.760 a real opportunity for tech investing right now. You know, 0:10:02.800 --> 0:10:05.360 you don't want to buy tech necessarily when it's really high. 0:10:05.400 --> 0:10:07.400 You want to buy it when the market is panicking 0:10:07.760 --> 0:10:09.760 and when the numbers have really come down as they 0:10:09.800 --> 0:10:13.280 have a little less months. And Joanne, I would also say, 0:10:13.320 --> 0:10:15.040 you and I have talked about this, but there are 0:10:15.080 --> 0:10:19.600 sectors like using stable coins again UM, where you know, 0:10:19.679 --> 0:10:24.880 we should really embrace and encourage clear regulation uh. And 0:10:24.920 --> 0:10:27.600 I think in the case of of Circle, we certainly 0:10:27.640 --> 0:10:31.280 do uh embrace regulation. And I think that can also 0:10:31.400 --> 0:10:35.840 help separate UM platforms from those that are more investable 0:10:35.880 --> 0:10:38.280 than than others. And Joan, I wonder if that takes 0:10:38.320 --> 0:10:39.839 us to Another big story of the week actually was 0:10:39.880 --> 0:10:42.920 the nomination by President Biden is Sarah Bloom Raskin to 0:10:43.040 --> 0:10:45.959 be the vice chair of the FED for supervision because 0:10:46.120 --> 0:10:48.760 she worked when she was a Treasury she worked specifically 0:10:48.800 --> 0:10:50.760 on regulation crypto. I'm told she's one of the first 0:10:50.760 --> 0:10:52.520 people to say we need to regulate this and came 0:10:52.559 --> 0:10:54.480 up with a paper on it. So does that mean 0:10:54.520 --> 0:10:56.480 that we're going to have that regulation sooner rather than 0:10:56.559 --> 0:10:59.040 later and maybe have it be informed. Yeah, I think 0:10:59.040 --> 0:11:01.319 that's right. I mean, she has to stellar reputation that 0:11:01.440 --> 0:11:04.479 she's pretty highly respected, and she certainly has the experience 0:11:04.520 --> 0:11:07.240 in her various areas of work over the past many 0:11:07.320 --> 0:11:11.440 years to be able to think and lead discussions pretty 0:11:11.480 --> 0:11:13.760 pretty well on that. But you know, I think people 0:11:13.800 --> 0:11:19.199 again not separating which companies actually benefit from more concise, 0:11:19.679 --> 0:11:22.959 more thorough regulation and which once might lose. You had 0:11:23.000 --> 0:11:26.559 the whole area trade down on the fear of more regulation, 0:11:26.880 --> 0:11:29.680 but actually it should be viewed as a positive for 0:11:29.800 --> 0:11:32.520 the development of products in that set, and I think 0:11:32.520 --> 0:11:35.800 people probably misread that. So once again, going forward, I 0:11:35.840 --> 0:11:38.080 think we're going to get some clarity on the direction 0:11:38.120 --> 0:11:40.680 which regulation is likely to go, and I think that 0:11:40.720 --> 0:11:42.880 could actually help some of the better companies. Joy and 0:11:42.920 --> 0:11:44.880 I couldn't agree more. I think there's a there's a 0:11:44.920 --> 0:11:48.120 perception that you know, regulation is negative, regulations not negative. 0:11:48.280 --> 0:11:51.400 You know, good sound regulation will make it more clear 0:11:52.080 --> 0:11:54.480 who are the winners and who are the losers, and 0:11:54.679 --> 0:11:58.080 which you know can operate within a highly regulated financial 0:11:58.120 --> 0:12:01.320 services industry. My unders ending is that the FED white 0:12:01.320 --> 0:12:03.760 paper on stable coins is coming out very soon, and 0:12:03.800 --> 0:12:06.560 I think that will add to some clarity around that 0:12:06.600 --> 0:12:08.959 as well. So so Bob, you've mentioned stable coins a 0:12:09.000 --> 0:12:11.240 couple of times, and really focus, if you would, on 0:12:11.280 --> 0:12:13.880 the payment companies, because you do have experience, You've got 0:12:13.880 --> 0:12:17.360 investments in the area. What will be the difference between 0:12:17.679 --> 0:12:19.160 the sheep and the goats, if I can put it 0:12:19.200 --> 0:12:20.880 that way, Because there are a lot of companies out 0:12:20.880 --> 0:12:23.280 there right now, which ones will survive and flourish and 0:12:23.280 --> 0:12:25.640 which ones will follow the wayside. So there are there 0:12:25.679 --> 0:12:29.440 are stable coin companies or companies that are platforms that 0:12:29.440 --> 0:12:33.160 that expect to be that would prefer to be offshore, 0:12:33.240 --> 0:12:36.120 that would prefer to be outside of the regulatory perimeter, 0:12:36.240 --> 0:12:39.080 and I think I think those will be very challenged 0:12:39.440 --> 0:12:44.240 in terms of becoming um you know, really used is payments. 0:12:44.800 --> 0:12:47.280 And there are others like Circle, which has said they 0:12:47.400 --> 0:12:51.839 planned to m apply with the o C c UM 0:12:51.960 --> 0:12:55.160 for a full reserve banking license. That's how that's how 0:12:55.240 --> 0:12:59.239 much they would um prefer to be within the regulatory 0:12:59.320 --> 0:13:02.760 perimeter of of the US financial system. So UM, I 0:13:02.760 --> 0:13:05.520 think I think we'll see it with more clarity David, 0:13:05.600 --> 0:13:07.360 going forward, but I think we can see it, and 0:13:07.679 --> 0:13:11.880 there's ore there's already a separation from those that had 0:13:11.880 --> 0:13:15.680 prefer to stay outside of the regulatory perimeter and those 0:13:15.720 --> 0:13:18.559 that would prefer to operate inside. Joyn, I'm really curious 0:13:18.559 --> 0:13:21.200 again for you, as a portfolio manage, we hear increasingly 0:13:21.240 --> 0:13:24.000 people say, even the we're skeptical of cryptocurrency overall, that 0:13:24.080 --> 0:13:26.680 there is a role in your portfolio for some of 0:13:26.720 --> 0:13:29.120 it for various reasons. Do you feel that way? Do 0:13:29.160 --> 0:13:31.320 you look to balance to some extent have some role 0:13:31.360 --> 0:13:34.240 for cryptocurrency, whether stable coin or a different sort. Yeah, 0:13:34.320 --> 0:13:36.240 you know there can be a role for it. As 0:13:36.320 --> 0:13:38.560 Bob was saying, it's at this point a bit of 0:13:38.800 --> 0:13:41.960 a wild west, right. Some are quality and they're really 0:13:42.040 --> 0:13:45.560 careful about adhering to what is likely to be regulatory 0:13:45.600 --> 0:13:49.880 frameworks that keep them safe, right and create transparency. Um, 0:13:49.920 --> 0:13:53.000 but you know, we do create opportunity for our clients 0:13:53.040 --> 0:13:55.680 to be involved in some of the cryptocurrencies. We like 0:13:55.760 --> 0:13:59.280 the ones that have a more grounded foundation in the 0:13:59.360 --> 0:14:02.640 underlyingable wuting technology. UM. But you know, it's a bit 0:14:02.679 --> 0:14:06.120 hard right now to get too to evolved because again 0:14:06.480 --> 0:14:10.000 there's going to be a shakeout among those who are 0:14:10.040 --> 0:14:14.040 are more careful about keeping those transparency uh, you know, 0:14:14.320 --> 0:14:17.199 guard rails in place and keeping out some of the 0:14:17.280 --> 0:14:20.200 more de various activities that have been you know, used 0:14:20.280 --> 0:14:23.680 in those platforms and also you know, potential for hacking 0:14:23.680 --> 0:14:25.880 and other things. So one really has to be careful. 0:14:25.920 --> 0:14:29.000 But you know, it's a clearly speculative um, you know, 0:14:29.040 --> 0:14:32.000 potentially a lot of upside, but also a riskier position, 0:14:32.080 --> 0:14:35.760 so one wants to limit exposure. I think that that 0:14:35.920 --> 0:14:37.960 realm at this point. Great having both of you with us. 0:14:38.000 --> 0:14:40.920 That's Bob Diamond of Atlas Merchant Capital and Joe an 0:14:40.960 --> 0:14:46.400 Fee of Advisor's Capital Management coming up. It looks like 0:14:46.440 --> 0:14:48.920 FED Chair j Pal is headed toward us second tour 0:14:49.000 --> 0:14:51.880 of duty. But what confronts him this time may be 0:14:52.120 --> 0:14:55.360 very different from what he's seen before. We ask former 0:14:55.360 --> 0:14:59.720 FED Governor Dan Torulo of Harvard. They could dust off 0:15:00.800 --> 0:15:03.040 a lot of the tools from the eighties. You know 0:15:03.160 --> 0:15:08.960 the output gap analysis h Phillips curve. This is Wall 0:15:09.000 --> 0:15:14.000 Street Week on Bloomberg. This is Bloomberg Wall Street Week 0:15:14.200 --> 0:15:20.640 with David Weston from Bloomberg Radio economic defender of last 0:15:20.760 --> 0:15:23.760 resort since the Great Financial Crisis of two thousand eight, 0:15:24.040 --> 0:15:26.840 it's been the Federal Reserve we've depended on to bail 0:15:26.880 --> 0:15:29.800 out the economy when things got rough. The ongoing labor 0:15:29.800 --> 0:15:32.720 market slack and the subdued inflation outlook are key reasons 0:15:33.160 --> 0:15:35.960 for the Committee's decision to maintain the current high degree 0:15:36.320 --> 0:15:41.800 of monetary policy. Monetary policy will likely remain highly accommodative 0:15:42.240 --> 0:15:45.280 for quite some time, but now we face something we 0:15:45.360 --> 0:15:49.040 haven't seen for a while, a FED bent on tightening 0:15:49.400 --> 0:15:53.040 rather than loosening. With Chair J. Powell testifying his confirmation 0:15:53.080 --> 0:15:56.360 hearing this week, the quantitative easing has to come to 0:15:56.440 --> 0:16:00.600 an end. Will be normalizing policy, meaning we're gonna end 0:16:00.600 --> 0:16:03.800 our asset purchase in March, that rate hikes are coming 0:16:03.920 --> 0:16:06.120 this year. If we have to raise interest rates more 0:16:06.200 --> 0:16:08.680 over time, we will, And that the Fed's balance sheet 0:16:09.000 --> 0:16:11.880 is just too big we're mindful of the balance sheet 0:16:11.960 --> 0:16:14.400 is nine trillion dollars. It's far above where it needs 0:16:14.440 --> 0:16:17.760 to be, in short, that the economy no longer needs 0:16:17.800 --> 0:16:20.680 the sort of monetary policy support the FED has been 0:16:20.680 --> 0:16:24.480 providing for over a decade. The economy no longer needs, 0:16:24.600 --> 0:16:29.160 or once the very highly accommodative policies that we've had 0:16:29.200 --> 0:16:31.600 in place to deal with the pandemic in the aftermath. 0:16:31.960 --> 0:16:34.280 And so, as J. Piale is on the brink of 0:16:34.320 --> 0:16:37.000 being confirmed for a second term as Chair of the 0:16:37.000 --> 0:16:39.960 Federal Reserve, it's time to think about how different the 0:16:40.000 --> 0:16:46.520 next four years maybe from what came before, and to 0:16:46.560 --> 0:16:48.320 help us take a look at what the Federal Reserve 0:16:48.440 --> 0:16:51.040 has in store for it. Coming up, we welcome to 0:16:51.120 --> 0:16:53.520 a former member of the Federal Reserve Board. He is 0:16:53.640 --> 0:16:56.600 Daniel Tarullo. Dan, thanks so much for being with us. 0:16:57.000 --> 0:16:58.800 It's been one thing to manage the Fed. It's not 0:16:58.880 --> 0:17:01.360 been easy, I'm not saying, and we were losing monetary 0:17:01.400 --> 0:17:04.560 policy supporting economy. How difficult will it be if and 0:17:04.680 --> 0:17:07.520 when J. Powell gets confirmed as the next chair to 0:17:07.840 --> 0:17:11.640 really have a very different regime. Well, David, it's true 0:17:11.680 --> 0:17:15.160 for the first time really in about forty years. Inflation 0:17:15.359 --> 0:17:18.520 is the part of the dual mandate that's front and center, 0:17:19.119 --> 0:17:21.600 if not standing alone at least much more prominent than 0:17:21.640 --> 0:17:25.680 it has been. And essentially what they're confronting here is 0:17:25.760 --> 0:17:29.040 that had, of course a major supply side shock in 0:17:29.080 --> 0:17:34.560 the form of the virus of uncertain duration with literal 0:17:34.720 --> 0:17:39.320 variants that keep mucking up people's efforts to analyze when 0:17:39.400 --> 0:17:43.160 the effects will pass through. At the same time, they've 0:17:43.200 --> 0:17:46.040 had an awful lot of fiscal stimulus over the last 0:17:46.560 --> 0:17:50.159 couple of years, and so when you have reduced supply 0:17:50.760 --> 0:17:55.200 and increased demand predictably, you've got inflation of the sort 0:17:55.280 --> 0:17:58.400 that we haven't seen in some time now. The FED 0:17:58.480 --> 0:18:03.080 spent most of telling itself and us that they thought 0:18:03.080 --> 0:18:05.919 that inflation was going to be transitory because it was 0:18:06.280 --> 0:18:09.480 grounded in those supply side effects people not going to work, 0:18:09.760 --> 0:18:12.399 not being able to get things around the country, and 0:18:12.440 --> 0:18:17.920 the like. Obviously they're not holding to that line anymore. UH, 0:18:17.960 --> 0:18:24.240 And the the implicit policy implication of their view last 0:18:24.320 --> 0:18:26.280 year that they didn't really need to do much has 0:18:26.359 --> 0:18:31.680 now obviously been abandoned. But they now need a new 0:18:31.800 --> 0:18:36.280 hypothesis as to uh, the trajectory of inflation and what 0:18:36.400 --> 0:18:39.359 will cause it to perhaps recede, what will cause it 0:18:39.400 --> 0:18:43.200 to embed itself. UH. And and that's really I think 0:18:43.200 --> 0:18:46.040 the first order of business on monetary policy for the 0:18:46.080 --> 0:18:48.560 FED this year. Do they have, as far as you 0:18:48.600 --> 0:18:50.560 can tell, a theory of the case at this point? 0:18:51.040 --> 0:18:53.240 What are they managing this for? As they say, we 0:18:53.320 --> 0:18:55.639 have to get inflation down. We heard that from both 0:18:55.880 --> 0:18:58.120 FED Chair j Pal aswell as lair Brainer this week. 0:18:58.280 --> 0:18:59.960 They agree in the goal, but did they have a 0:19:00.240 --> 0:19:03.000 theory about how to come about with that goal? Well, 0:19:03.040 --> 0:19:06.560 they have. I wouldn't have expected that at confirmation hearings 0:19:06.600 --> 0:19:11.119 they would have put forth a more or less nuanced 0:19:11.119 --> 0:19:15.240 monetary policy view. Uh. So, I don't know what they're 0:19:15.400 --> 0:19:20.400 operating theory is now, but it's surely not just going 0:19:20.440 --> 0:19:25.040 to be last year's I mean, there are several options, right. Uh. 0:19:25.560 --> 0:19:28.480 They tend to talk about expectations a lot that is 0:19:29.160 --> 0:19:33.840 uh well grounded inflation expectations in the public and markets 0:19:34.240 --> 0:19:38.240 keeping inflation down. Um, that's a that's a hard one 0:19:38.320 --> 0:19:41.280 to judge in real time, and nobody really quite understands 0:19:41.280 --> 0:19:46.159 why expectations change. They could dust off a lot of 0:19:46.160 --> 0:19:50.600 the tools from the eighties, you know, the output gap analysis, uh, 0:19:50.920 --> 0:19:57.040 Phillips curve the relationship between inflation and unemployment, wage price cycles. Uh, 0:19:57.080 --> 0:20:00.840 and try to apply that right now? Are they could 0:20:00.920 --> 0:20:06.240 come up really with transitory version two, which would basically say, look, 0:20:06.320 --> 0:20:10.679 we think the medium term are longer term disinflationary forces 0:20:10.720 --> 0:20:15.000 in the economy. Globalization, demographics and the like are still 0:20:15.040 --> 0:20:18.280 at work, um, and so we we don't need to 0:20:18.359 --> 0:20:23.240 make major adjustments in monetary policy, but we do make 0:20:23.320 --> 0:20:25.760 need to make some. So those are at least three 0:20:25.840 --> 0:20:29.160 possibilities or some combination of them. But I haven't seen 0:20:29.200 --> 0:20:33.240 anything yet, uh that would give us a hint as 0:20:33.280 --> 0:20:38.000 to which particular blend of those notions the feed is 0:20:38.040 --> 0:20:41.520 going to redoct What's important, David, though, is that they 0:20:41.640 --> 0:20:44.199 do articulate, as you put it, a theory of the 0:20:44.280 --> 0:20:48.639 case so that they can then judge incoming data against 0:20:48.680 --> 0:20:52.040 that theory, and that allows them to make policy adjustments 0:20:52.040 --> 0:20:55.280 as appropriate. Thank you so much to Daniel Tarullo of 0:20:55.359 --> 0:20:59.680 the Harvard Law School. Coming up, we wrap up the 0:20:59.720 --> 0:21:04.480 week special contribute to Larry Summers of Harvard. This is 0:21:04.520 --> 0:21:09.840 Wall Street Week on Bloomberg. This is Bloomberg Wall Street 0:21:09.880 --> 0:21:13.360 Week with David Weston from Bloomberg Radio. This is Wall 0:21:13.359 --> 0:21:16.359 Street Week. I'm David Weston. We are delighted to welcome 0:21:16.400 --> 0:21:19.120 back once again our special between Larry Summers to Wall 0:21:19.160 --> 0:21:21.440 Street week. So, Larry, we had a lot of data 0:21:21.480 --> 0:21:24.080 flow this week, and i'd like your reaction to and 0:21:24.160 --> 0:21:26.920 let's lead off with the lead, which is the CPI 0:21:27.040 --> 0:21:29.960 numbers of seven percent. It's been a good long time 0:21:30.119 --> 0:21:33.359 since we've seen that kind of number. It has David 0:21:34.119 --> 0:21:38.520 Richard Nixon imposed wage price controls when inflation was about 0:21:38.520 --> 0:21:41.600 two thirds as high as it's been last year. This 0:21:41.680 --> 0:21:44.439 is above any place that got during the Guns and 0:21:44.520 --> 0:21:50.320 Butter Vietnam inflation. I ate the data flow is saying 0:21:50.359 --> 0:21:53.760 what I thought for quite some time that yes, there 0:21:53.800 --> 0:21:59.040