WEBVTT - Bloomberg Wall Street Week: November 24th 2023 0:00:00.320 --> 0:00:04.080 A FED chair, a former Treasury secretary, a former White 0:00:04.120 --> 0:00:07.880 House Chief economist, two CEOs who turned around their companies, 0:00:07.920 --> 0:00:11.960 and two private equity competitors with different takes on their business. 0:00:12.320 --> 0:00:15.480 This is a special best of additional Bloomberg Wall Street Week. 0:00:15.760 --> 0:00:31.800 I'm David Weston. Each week we bring you interviews with 0:00:31.840 --> 0:00:35.360 some of the top minds in government, economics, business and finance, 0:00:35.760 --> 0:00:38.560 with the goal of taking a broader and deeper look 0:00:38.600 --> 0:00:40.920 at the world of investing. As we head into the 0:00:40.920 --> 0:00:43.280 holiday season, we thought we'd pull together some of the 0:00:43.360 --> 0:00:47.200 highlights from the year so far across a range of subjects, 0:00:47.479 --> 0:00:50.680 and we start at the top with the person everyone 0:00:50.800 --> 0:00:53.880 on Global Wall Street talks about and speculates about just 0:00:53.920 --> 0:00:57.120 about every day. We had the rare opportunity to sit 0:00:57.200 --> 0:00:59.600 with FED Chair J Powell for an extended one on 0:00:59.600 --> 0:01:02.400 one covera focus not so much on what he thought 0:01:02.400 --> 0:01:05.240 the FED would do at any given meeting, but instead 0:01:05.240 --> 0:01:09.000 on how he approaches his job as steward of monetary policy, 0:01:09.360 --> 0:01:12.200 what his theory of the case is. We started with 0:01:12.360 --> 0:01:15.679 one of the big surprises even mysteries this year. While 0:01:15.720 --> 0:01:19.480 the US economy continues to charge ahead despite all those 0:01:19.560 --> 0:01:22.240 rate hikes, he's delivered at record speed. 0:01:24.640 --> 0:01:28.800 We certainly have a very resilient economy on our hands. 0:01:28.840 --> 0:01:32.399 We've got the economy growing strongly. If you think back 0:01:32.440 --> 0:01:35.959 a year, many forecasts called for the US economy to 0:01:35.959 --> 0:01:38.800 be in recession this year. Not only has that not happened, 0:01:39.240 --> 0:01:42.160 growth is now running for this year above its a 0:01:42.160 --> 0:01:45.520 longer run trend. So that's been a surprise, driven largely 0:01:45.600 --> 0:01:49.400 by consumer spending, driven by a very strong job market 0:01:49.480 --> 0:01:53.360 with people getting jobs with high first time nominal wages. 0:01:53.360 --> 0:01:56.160 And then as inflation has come down, real wages which 0:01:56.160 --> 0:01:59.120 is spurring spending, and we've also had inflation coming down. 0:02:00.000 --> 0:02:03.240 You know that's it really is a story of much 0:02:03.320 --> 0:02:06.320 stronger demand. There may also be there may be some 0:02:06.360 --> 0:02:08.040 ways in which the economy is. 0:02:09.160 --> 0:02:10.800 Less affected by interest rates. 0:02:11.160 --> 0:02:15.760 It's hard to know precisely, but for example, companies, many companies, 0:02:15.800 --> 0:02:18.480 any company with bond market access will have termed out 0:02:18.480 --> 0:02:21.520 its debt right and therefore may not be feeling the 0:02:21.520 --> 0:02:22.520 effects of higher rates. 0:02:22.960 --> 0:02:23.600 The same may be. 0:02:23.680 --> 0:02:26.600 True of homeowners who have a long term, fixed rate, 0:02:26.919 --> 0:02:30.320 low rate mortgage, who then are therefore not because it's 0:02:30.360 --> 0:02:33.760 not an adjustable rate or a higher rate. They're not 0:02:33.800 --> 0:02:36.560 feeling that increase in rates, so the economy may be 0:02:36.600 --> 0:02:40.519 somewhat less susceptible to the effects of rate increases. On 0:02:40.560 --> 0:02:43.520 the other hand, if you look at look at interrat 0:02:43.560 --> 0:02:47.680 sensitive spending, these are very much the the the places 0:02:47.680 --> 0:02:50.000 where we see where we expect to see and do 0:02:50.120 --> 0:02:54.640 see effects. So for example, in housing or in you know, 0:02:54.800 --> 0:02:57.440 the housing effector has been sector has been very affected 0:02:57.440 --> 0:02:58.440 by higher rates. 0:02:58.200 --> 0:03:00.959 As purchases of durable goods. 0:03:01.040 --> 0:03:03.239 If you look at surveys, people will not say that 0:03:03.280 --> 0:03:04.920 it's a good time to buy a car or a house. 0:03:05.040 --> 0:03:05.920 Quite the contrary. 0:03:06.360 --> 0:03:10.600 So we see policy working through its usual channels. It 0:03:10.639 --> 0:03:12.720 may just be that rates haven't been high enough for 0:03:12.800 --> 0:03:15.480 long enough. And again it's all happening in a context 0:03:15.560 --> 0:03:16.840 of very strong demand. 0:03:17.080 --> 0:03:19.600 We've heard other speculators maybe the terming out of debt, 0:03:19.639 --> 0:03:22.520 as you say, both corporate debt and hushole debt may 0:03:22.800 --> 0:03:26.160 diminish the effectiveness of rate hikes. Do you have a 0:03:26.240 --> 0:03:28.880 view on whether that's true, And if it is true, 0:03:28.919 --> 0:03:30.640 what does it say about mante posy. Does it mean 0:03:30.720 --> 0:03:33.040 you have to go farther in the rate hikes or 0:03:33.080 --> 0:03:34.440 do you just not have the power to affect it? 0:03:35.400 --> 0:03:39.640 So no, I don't think that there's a fundamental shift 0:03:39.720 --> 0:03:42.080 in the way that interest rates affect the economy. There 0:03:42.160 --> 0:03:44.800 may be some differences in this cycle because of what 0:03:44.840 --> 0:03:48.920 I mentioned. As I mentioned, we are seeing those the 0:03:48.920 --> 0:03:51.440 effects where we expect to see them, which is intrasensitive 0:03:51.480 --> 0:03:55.240 spending and also asset prices to some extent, and the 0:03:55.240 --> 0:03:57.920 exchange rate, which you're also seeing a strong exchange rate, 0:03:58.240 --> 0:04:02.080 which is disinflationary. I don't think there's a fundamental change 0:04:02.080 --> 0:04:04.960 in the way monetary policy affects the economy. And again 0:04:05.000 --> 0:04:07.440 it goes back to just very strong demand. We take 0:04:07.480 --> 0:04:10.720 the economy as it is, We take fiscal policy and 0:04:10.760 --> 0:04:13.000 the economy and all the things we don't control, they 0:04:13.000 --> 0:04:17.120 come to us, and we conduct policy always to achieve 0:04:17.960 --> 0:04:21.600 maximum employment and stable prices. So we just take what comes. 0:04:22.080 --> 0:04:25.320 The fact that we have a strong, growing economy, a 0:04:25.320 --> 0:04:27.080 strong growing labor market. 0:04:27.160 --> 0:04:27.480 And. 0:04:28.880 --> 0:04:29.960 Inflation coming down. 0:04:30.080 --> 0:04:32.719 These are the elements that we want to see that 0:04:32.960 --> 0:04:36.560 to achieve the outcome we want. It may take more time, 0:04:36.680 --> 0:04:40.480 but ultimately this is the kind of thing you would 0:04:40.480 --> 0:04:43.400 want to see along the path to getting through this 0:04:43.440 --> 0:04:44.960 without a big increase in unemployment. 0:04:45.120 --> 0:04:48.800 How much effect thus far has the FED had we 0:04:48.920 --> 0:04:52.040 all have memorized how long and variable lags? How long 0:04:52.080 --> 0:04:54.320 and how variable and where are you in that process? 0:04:54.560 --> 0:04:56.640 Are you at the twenty five percent point, the fiferent 0:04:56.640 --> 0:04:58.440 in terms of seeing it in the effect in the 0:04:58.480 --> 0:05:01.400 real economy, there's no precision in. 0:05:03.080 --> 0:05:05.400 Our understanding of how long legs are. 0:05:07.080 --> 0:05:09.599 One thing that has changed in the modern era is 0:05:09.640 --> 0:05:14.239 that markets now, over the course of the last thirty years, 0:05:14.240 --> 0:05:16.800 central banks that have decided, instead of being secretive, to 0:05:16.839 --> 0:05:19.640 be very transparent. And what that has meant is that 0:05:20.040 --> 0:05:24.839 markets move actually well in anticipation, well before our policy moves. 0:05:24.839 --> 0:05:30.320 So the transmission from policy moves to financial conditions actually 0:05:30.400 --> 0:05:32.680 happens before the moves now, whereas that was not the 0:05:32.760 --> 0:05:36.400 case fifty years ago when Milton Friedman coined the phrase 0:05:36.720 --> 0:05:41.080 along and variable legs. But now you have financial conditions 0:05:41.120 --> 0:05:43.599 changing and the questions how does it affect the economy. 0:05:43.720 --> 0:05:48.480 The standard channels are asset prices in such intrasensitive spending 0:05:48.520 --> 0:05:50.760 in the exchange rate, for example, And again we do 0:05:50.800 --> 0:05:54.120 see that happening, just not as fast as we would like, 0:05:54.480 --> 0:05:57.840 and I would attribute some of that to just stronger demand. 0:05:58.160 --> 0:06:01.839 Household savings were turned out to be higher household spending 0:06:01.839 --> 0:06:04.040 has been stronger, and that's by far the largest part 0:06:04.040 --> 0:06:04.680 of the economy. 0:06:04.800 --> 0:06:07.200 In order to conduct monetary policy effectively, do you need 0:06:07.200 --> 0:06:10.919 at least hypothesis about how much has already hit the economy, 0:06:10.960 --> 0:06:12.480 because it's hard to know how much more you need 0:06:12.520 --> 0:06:14.359 to do if you don't know how far you've come. 0:06:14.680 --> 0:06:17.320 So on lags, I think if you think back, it's 0:06:17.360 --> 0:06:20.720 been a year now since the last seventy five basis 0:06:20.720 --> 0:06:23.279 point hike we did. It was the November meeting in 0:06:23.279 --> 0:06:26.320 twenty twenty two. The first one was in June, so 0:06:26.320 --> 0:06:28.479 it's more than a year, so we should be seeing 0:06:29.080 --> 0:06:31.479 the effects. By the way, they don't all just arrive 0:06:31.600 --> 0:06:34.000 on one day. They arrive and then they're thought to 0:06:34.120 --> 0:06:36.800 peak and then to diminish. So there's a lot of 0:06:36.839 --> 0:06:39.840 uncertainty around lags, and one of the reasons why we 0:06:39.920 --> 0:06:43.560 have slowed down significantly this year is to give monetary 0:06:43.560 --> 0:06:46.760 policy time to work. The truth is, though you can 0:06:46.800 --> 0:06:52.640 find academic support for different speeds and duration of lags, 0:06:52.640 --> 0:06:55.840 So we have to use our eyes and a little 0:06:55.839 --> 0:06:59.000 bit of risk management in patients in slowing down the 0:06:59.000 --> 0:07:01.000 pace to make sure that we we are seeing the 0:07:01.040 --> 0:07:03.760 full effects, and I think again that's part of why 0:07:03.760 --> 0:07:06.960 we've slowed down this year. We went very quickly in 0:07:07.000 --> 0:07:09.640 twenty twenty two to catch up to where we needed 0:07:09.680 --> 0:07:12.800 to be, and now we're moving carefully with these decisions. 0:07:14.920 --> 0:07:17.360 After we spoke with Chair Powell, our special Wall Street 0:07:17.360 --> 0:07:20.760 Week contributor and former treasure Secretary Larry Summers warned us 0:07:20.760 --> 0:07:23.800 about what he thought Powell had not given sufficient attention 0:07:23.840 --> 0:07:27.080 to that looming federal deficit and what it means for 0:07:27.120 --> 0:07:29.239 the economy and for monetary policy. 0:07:31.640 --> 0:07:35.640 I didn't find anything to strongly disagree with in what 0:07:35.760 --> 0:07:39.840 Chairman Powell said, but there was a big newfoundland of 0:07:39.880 --> 0:07:43.680 a dog that wasn't barking as he was speaking. And 0:07:43.720 --> 0:07:49.720 that's everything about the federal fiscal situation. That matters two ways. 0:07:50.360 --> 0:07:54.000 If there's more debt and much bigger deficits, that means 0:07:54.040 --> 0:07:57.920 more demand in the economy, and that raises the neutral 0:07:58.000 --> 0:08:02.400 rate now and raises even more the prospective neutral rate 0:08:02.640 --> 0:08:03.400 in the future. 0:08:03.840 --> 0:08:05.320 That's one important length. 0:08:05.880 --> 0:08:10.880 The other important length is that when you're trying to 0:08:10.920 --> 0:08:14.640 sell huge amounts of long term debt because you have 0:08:14.800 --> 0:08:15.520 very big. 0:08:15.280 --> 0:08:18.240 Deficits, its price goes down, and that. 0:08:18.200 --> 0:08:23.440 Means longer, higher long term yields, a rising term premium. 0:08:23.840 --> 0:08:25.040 And I think you've got. 0:08:25.000 --> 0:08:28.840 Both of those phenomena going on, and realization that the 0:08:28.880 --> 0:08:34.319 neutral rates likely to be higher because of fiscal policy 0:08:34.960 --> 0:08:42.320 and the supply absorption aspect. And I understand that the 0:08:42.320 --> 0:08:46.760 Fed's job is not to get involved in fiscal policy, 0:08:47.400 --> 0:08:50.680 but I think over time, the FED is going to 0:08:50.760 --> 0:08:55.080 have to, as the monetary authority of the country, going 0:08:55.160 --> 0:08:58.199 to have to engage on some of these questions about 0:08:59.280 --> 0:09:04.520 treasury debt, especially given the magnitude of its own balance 0:09:04.559 --> 0:09:09.480 sheet and the magnitude of the losses that acting as 0:09:09.760 --> 0:09:14.319 the agent of the treasury and taxpayers, the very substantial 0:09:14.400 --> 0:09:17.880 losses that have been taken in a marked to market 0:09:18.000 --> 0:09:22.480 sense on the Fed's balance sheet. So those fiscal issues 0:09:22.559 --> 0:09:25.840 have to be at the center, it seems to me 0:09:25.960 --> 0:09:28.640 of a discussion of interest rate issues. 0:09:28.840 --> 0:09:31.440 So pick up on exactly what that means for the FED, 0:09:31.600 --> 0:09:34.320 because J. Paul didn't deny that, although he said there 0:09:34.320 --> 0:09:36.280 are a lot of factors, he thinks that's just one 0:09:36.360 --> 0:09:39.000 factor going into what's going on the twenty five year yield, 0:09:39.040 --> 0:09:40.880 for example, or thirty year yield. Right now, he said 0:09:40.880 --> 0:09:43.240 it's too complicate. He doesn't really know, but he said, 0:09:43.280 --> 0:09:44.800 we have to take that as it is. It doesn't 0:09:44.880 --> 0:09:47.520 change our policy if you are exactly right. 0:09:47.400 --> 0:09:48.199 And I assume you are. 0:09:48.480 --> 0:09:51.839 How does it change the Fed's policy monetary policy right now? 0:09:52.679 --> 0:09:56.920 Well, I think there are two separate parts of it. 0:09:57.000 --> 0:10:01.680 Insofar as the neutral rate is being pushed up by 0:10:01.960 --> 0:10:06.079 higher fiscal deficits, that's a thing that means the FED 0:10:06.120 --> 0:10:11.400 has to raise the actual rate in order to keep 0:10:11.480 --> 0:10:16.120 the same degree of balance between the accelerator and the brakes. 0:10:17.160 --> 0:10:19.920 Insofar as the interest rate. 0:10:19.800 --> 0:10:23.520 Is going up because of some kind of term premium, 0:10:23.920 --> 0:10:30.400 and that's important. That's restraint that's being applied to the economy. 0:10:31.040 --> 0:10:34.480 That's the break, and it might substitute for a break 0:10:34.559 --> 0:10:38.560 the FED would otherwise have to provide. So it's not 0:10:38.720 --> 0:10:41.840 enough for the FED to recognize that rates are going up. 0:10:41.960 --> 0:10:46.320 It has to implicitly be forming a view as to 0:10:46.480 --> 0:10:50.240 what the cause is. And I don't think that's analytically 0:10:50.320 --> 0:10:53.320 easy at this point. And it's sort of the first 0:10:53.440 --> 0:10:56.359 rule of mine fields to step gingerly. 0:10:58.720 --> 0:11:02.360 That was special Wall Street Week contributor Larry Summers of Harvard. 0:11:04.120 --> 0:11:04.520 Coming up. 0:11:04.600 --> 0:11:07.920 We turned to another economist, doctor Cecilia Rouse about where 0:11:07.920 --> 0:11:10.640 the economy is headed as we head into an uncertain 0:11:10.720 --> 0:11:15.599 twenty twenty four. That's next don Wall Street Week on Bloomberg. 0:11:24.080 --> 0:11:26.320 This is a special additional Wall Street Week bringing you 0:11:26.360 --> 0:11:28.960 some of the most important interviews from twenty twenty three. 0:11:29.160 --> 0:11:30.120 I'm David Weston. 0:11:30.400 --> 0:11:33.240 Earlier this year, Cecilia Rouse stepped down as chair of 0:11:33.280 --> 0:11:36.679 President Biden's Council of Economic Advisors and agreed to take 0:11:36.760 --> 0:11:39.400 over as president of the Brookings Institution as of the 0:11:39.440 --> 0:11:40.120 first of the year. 0:11:40.559 --> 0:11:42.000 We talked with her earlier this. 0:11:42.000 --> 0:11:44.760 Month after US jobs numbers came in a bit lower 0:11:44.800 --> 0:11:47.680 than expected, and asked what they told us about where 0:11:47.720 --> 0:11:49.080 the economy is headed. 0:11:51.200 --> 0:11:54.679 I think we are seeing the slowing of the labor market, 0:11:54.720 --> 0:11:57.400 which has been long anticipated. Some might say what took 0:11:57.440 --> 0:12:00.600 so long, But what we see is that employees growth 0:12:00.640 --> 0:12:03.640 remains healthy. Like if we were to talk pre pandemic. 0:12:04.240 --> 0:12:06.240 An average job growth if we look over the last 0:12:06.240 --> 0:12:08.720 three months, has been just over two hundred thousand jobs 0:12:08.760 --> 0:12:11.040 a month. This month it came in at one hundred 0:12:11.040 --> 0:12:13.960 and fifty. That number will be revised, but what we 0:12:14.000 --> 0:12:16.719 see is healthy job growth, which is consistent with an 0:12:16.720 --> 0:12:20.560 economy that is powering along, but which is coming down 0:12:20.679 --> 0:12:23.720 from the very high growth we had as the economy 0:12:23.760 --> 0:12:26.240 recovered from the pandemic. I think these numbers will be 0:12:26.240 --> 0:12:28.480 welcomed by the FED. As I said, I think many 0:12:28.520 --> 0:12:31.600 economists will see this as the natural course of the 0:12:31.640 --> 0:12:33.400 economy getting back to normal. 0:12:33.760 --> 0:12:36.440 Well, no offense to the economists such as you, but 0:12:36.800 --> 0:12:40.000 and you've been off on some few things recently, and 0:12:40.120 --> 0:12:42.599 let me talk about that specifically, the relationship between the 0:12:42.679 --> 0:12:45.160 labor market on the one hand and inflation on the other. 0:12:45.360 --> 0:12:47.920 We thought we knew what that was, that it seemed 0:12:47.960 --> 0:12:50.640 to really the relationship went away, that Phillips currency knew 0:12:50.679 --> 0:12:51.319 really flat. 0:12:51.679 --> 0:12:52.280 Where are we now? 0:12:52.320 --> 0:12:55.000 Do we have a theory about what the labor market 0:12:55.120 --> 0:12:56.160 means for inflation? 0:12:57.400 --> 0:13:01.840 So you know, the reality is that in economics there's 0:13:01.920 --> 0:13:05.320 not a fabulous theory and one theory of inflation. And 0:13:05.360 --> 0:13:07.960 I think that is part of the challenge. Another part 0:13:07.960 --> 0:13:10.080 of the challenge is what was the source. We know 0:13:10.440 --> 0:13:14.640 that we had unprecedented supply challenges due to the pandemic, 0:13:14.960 --> 0:13:18.560 both in terms of getting goods to people manufacturing goods 0:13:18.600 --> 0:13:20.360 because people have a part of that process and with 0:13:20.400 --> 0:13:22.959 the pandemic they couldn't show up to work. And then 0:13:23.000 --> 0:13:26.079 we also know we had unprecedented demand because of the 0:13:26.480 --> 0:13:30.959 remarkable support that the federal government here and abroad provided 0:13:31.040 --> 0:13:33.760 to consumers and businesses to get them through the pandemic. 0:13:34.160 --> 0:13:37.079 So we know we had this mismatch of supply and demand. 0:13:37.320 --> 0:13:39.760 The question is which was going to win in terms 0:13:39.760 --> 0:13:44.400 of sort of regularizing faster. So I think this goes 0:13:44.440 --> 0:13:46.840 back to we hadn't seen inflation for a long time. 0:13:47.280 --> 0:13:50.880 Economics doesn't have one solid, well established theory of inflation, 0:13:51.240 --> 0:13:53.560 and the fact that we had an unprecedented shock to 0:13:53.640 --> 0:13:56.640 our domestic economy and the global economy. 0:13:57.240 --> 0:13:58.119 What we're seeing. 0:13:57.840 --> 0:14:03.080 Now is monetary authorities stepped in, the federal government stepped in, 0:14:03.120 --> 0:14:06.240 They pulled back appropriately, and the economy is getting back 0:14:06.240 --> 0:14:06.640 to normal. 0:14:07.240 --> 0:14:09.640 And as a labor economist, which you are, what about 0:14:09.640 --> 0:14:12.160 what I would call the cross tabs beyond just the 0:14:12.280 --> 0:14:15.800 overall numbers, the top line numbers. We had been having 0:14:15.800 --> 0:14:17.720 a pattern, I believe, of having some of the lower 0:14:17.760 --> 0:14:20.080 income people and people of color, some of the minorities 0:14:20.240 --> 0:14:24.240 benefit disproportionately. Is it a last in, first out sort 0:14:24.240 --> 0:14:26.960 of thing, where as you start to slow the labor 0:14:27.000 --> 0:14:29.120 market actually those are the people that get hurt the most. 0:14:30.160 --> 0:14:32.680 Well, that is a bit to remain to be seen. 0:14:33.040 --> 0:14:36.800 You are absolutely right that traditionally strong labor markets benefit 0:14:36.840 --> 0:14:39.640 those who traditionally are not helped in labor markets. So 0:14:39.680 --> 0:14:43.400 we had narrowing of, for example, racial gaps in unemployment 0:14:43.520 --> 0:14:48.080 and employment. We saw women have benefited tremendously in this recovery. 0:14:48.680 --> 0:14:51.320 What we saw in today's job report suggested a bit 0:14:51.320 --> 0:14:54.479 of a tick up in unemployment for African Americans Hispanics, 0:14:54.880 --> 0:14:57.080 but we saw overall a tickup as well, So. 0:14:57.680 --> 0:14:59.000 This remains to be seen. 0:14:59.320 --> 0:15:02.120 There have been, and you know, there are some changes 0:15:02.160 --> 0:15:05.240 in our labor market. We still have very strong growth 0:15:05.600 --> 0:15:08.560 in employment, I think overall, especially given where we are, 0:15:09.080 --> 0:15:13.120 and we see labor having more of a voice traditionally, 0:15:13.160 --> 0:15:16.920 when we see unions being stronger, that helps those who 0:15:16.960 --> 0:15:19.880 are the lower wage workers as well. We've seen increases 0:15:19.920 --> 0:15:22.360 in the minimum wage, so I think it depends. We 0:15:22.400 --> 0:15:25.520 will have to see. One thing we do believe we've 0:15:25.560 --> 0:15:29.160 also seen for African Americans is that the wage increases 0:15:29.200 --> 0:15:32.280 and the labor market increases are changes in occupations. So 0:15:32.320 --> 0:15:35.360 if they stick there, that could be more enduring. But honestly, 0:15:35.480 --> 0:15:38.760 we will see as we go. Hopefully what we see 0:15:38.800 --> 0:15:41.880 now is a labor market that is cooling. The Federal 0:15:42.520 --> 0:15:45.680 Reserve is able to pause the interest rate increases and 0:15:45.720 --> 0:15:47.880 maybe even start to decrease at some point in the 0:15:47.880 --> 0:15:50.520 future when in place inflation needs to come down a 0:15:50.520 --> 0:15:54.200 bit more. But that we maintain this strong labor market 0:15:54.280 --> 0:15:56.120 even as inflation continues to cool. 0:15:56.480 --> 0:15:58.680 You mentioned the labor unions, and certainly that has been 0:15:58.720 --> 0:16:00.720 a development through the course of this. We've had the 0:16:00.760 --> 0:16:03.920 Writers Guild, We've had the actors, we had ups and 0:16:03.960 --> 0:16:06.600 now we had the UAW with the autoworkers. More yet 0:16:06.640 --> 0:16:10.120 to come. There's still some issues depending out there. Do 0:16:10.160 --> 0:16:13.280 you have a sense or a hypothesis whether this is 0:16:13.320 --> 0:16:16.560 a fundamental shift, perhaps over the longer term, of the 0:16:16.560 --> 0:16:18.600 power between labor on the one handed capital and the other, 0:16:18.880 --> 0:16:21.360 or whether this is labor basically doing what it should 0:16:21.400 --> 0:16:23.240 be doing, which is selling at the top of the market, 0:16:23.240 --> 0:16:24.920 if you would, This is when they have the most 0:16:24.960 --> 0:16:26.520 power so get the best deal they can. 0:16:26.600 --> 0:16:27.800 But it will come back down. 0:16:29.240 --> 0:16:30.640 Again. Remains to be seen. 0:16:30.720 --> 0:16:33.560 I think in a healthy economy we have both labor 0:16:34.320 --> 0:16:38.440 has voice and we have capital the owners and the 0:16:38.560 --> 0:16:42.080 managers also have agency, and that they work together and 0:16:42.520 --> 0:16:46.320 they negotiate, because fundamentally, we want a strong economy that 0:16:46.520 --> 0:16:50.200 benefits all, but we also don't want to leave workers behind. 0:16:50.680 --> 0:16:53.840 We understand shareholders and managers have to get their returns 0:16:53.840 --> 0:16:57.760 as well. So I hope that we we rebalance that 0:16:57.920 --> 0:17:01.200 negotiation and so that we don't we have this increasing 0:17:01.240 --> 0:17:04.480 income and equality, this increasing wealth inequality, which I think 0:17:04.560 --> 0:17:08.160 is not healthy for our society, both economically nor politically. 0:17:10.800 --> 0:17:13.280 That was doctor Cecilia Rouse, who takes over as president 0:17:13.320 --> 0:17:23.119 of the Brookings Institution on January first. This is a 0:17:23.160 --> 0:17:25.760 special best out of edition of Wall Street Week. I'm 0:17:25.840 --> 0:17:29.119 David Weston. When Brian moynihan took over as CEO of 0:17:29.119 --> 0:17:32.359 Bank of America in twenty ten, his company was still 0:17:32.480 --> 0:17:35.680 reeling from the acquisition of Merrill Lynch and countrywide. 0:17:35.960 --> 0:17:37.240 Today, the second. 0:17:37.080 --> 0:17:40.359 Largest bank in the country is making record profits. Brian 0:17:40.440 --> 0:17:42.840 sat down with us at the Aspen Economic Strategy Group 0:17:42.880 --> 0:17:46.240 meetings in August against the backdrop of beautiful Mountains, the 0:17:46.320 --> 0:17:51.240 failure of several regional banks in March, and recurrent uncertainties 0:17:51.280 --> 0:17:55.200 overfunding the federal government. But throughout the year, Brian came 0:17:55.280 --> 0:17:58.240 back to the overall strength of the US. 0:17:58.160 --> 0:18:02.480 Economy because in the day, the consumption power of the 0:18:02.560 --> 0:18:05.960 United States drives economies around the world. Therefore, there's you know, 0:18:06.119 --> 0:18:08.840 US consumers spend dollars, so if you're selling stuff in dollars, 0:18:08.920 --> 0:18:12.199 you got to be exposed a dollar. And so I 0:18:12.240 --> 0:18:14.399 think the idea of some of this debate about reserve 0:18:14.400 --> 0:18:16.879 currency status, it's been tightening in the flight to quality, 0:18:16.920 --> 0:18:19.520 and the US tends to come. Now ten year bonds 0:18:19.520 --> 0:18:21.280 moved up and everybody gets moved on up. We're talking 0:18:21.280 --> 0:18:23.680 about the difference between you know, three eighty three ninety 0:18:23.680 --> 0:18:24.800 and four ten, four twenty. 0:18:25.320 --> 0:18:27.680 These are not very big moves in a grand scheme 0:18:27.680 --> 0:18:28.000 of things. 0:18:28.000 --> 0:18:30.800 It is tapping quickly, and people get excited about who 0:18:30.840 --> 0:18:33.640 trade bonds is living from the grand or impact in economy. 0:18:33.680 --> 0:18:36.640 Those moves are needed to get the ultimately yeld curve 0:18:36.680 --> 0:18:38.760 has to get back and sink or else we aren't 0:18:38.880 --> 0:18:41.400 taming the inflation or we're going to drive into a recession. 0:18:41.640 --> 0:18:43.200 When you talk about the strengthen the US dollar. 0:18:43.359 --> 0:18:46.080 Is it stronger today as a reserve currency globally than 0:18:46.080 --> 0:18:47.360 it was ten twenty years ago? 0:18:47.440 --> 0:18:49.359 And if so, whid because I think the opportunities in 0:18:49.359 --> 0:18:51.080 the US are the strongest. And that's why, you know, 0:18:51.160 --> 0:18:53.000 with a great financial system we have, with a great 0:18:53.040 --> 0:18:56.800 set of companies and innovation, we have the research universities, 0:18:56.840 --> 0:18:58.960 we have the things like if we keep investing in 0:18:59.000 --> 0:19:02.600 all that and like capitalism and you know, United States 0:19:02.640 --> 0:19:05.639 style capitalism drive, the US will always be a favorite 0:19:05.640 --> 0:19:08.480 place because other places are struggling with different systems that 0:19:08.560 --> 0:19:12.280 proved not to be as beneficial, with less innovation, less 0:19:12.280 --> 0:19:15.160 ability tackle problems, and so yes, it's interesting from time 0:19:15.160 --> 0:19:17.360 to time all what goes on. But if you think about, 0:19:17.520 --> 0:19:19.520 you know, think about the late sixties to now, we've 0:19:19.560 --> 0:19:21.280 doubled them amount of people work United States. We were 0:19:21.320 --> 0:19:24.240 supposed to be taken over by Japan inkeewers, the computers 0:19:24.280 --> 0:19:25.720 are going to get rid of all the people. The 0:19:25.720 --> 0:19:28.080 people are still working. We had to more in Vietnam. 0:19:28.200 --> 0:19:32.360 We had the political constitutional crisis and Nixon presidency. 0:19:32.359 --> 0:19:33.920 You had an oil and bark. 0:19:34.040 --> 0:19:36.040 All that stuff happened in the early seventies and still 0:19:36.680 --> 0:19:38.840 a dec you know, fifty years later, we have twice 0:19:38.880 --> 0:19:40.240 as many people work in this country. 0:19:40.359 --> 0:19:42.080 Since we talked last Brian, and we now have the 0:19:42.119 --> 0:19:45.600 proposed regulations on capital requirements from the Federal Bank regulators. 0:19:45.760 --> 0:19:47.880 We talked before, and you said one hundred basis points. 0:19:47.880 --> 0:19:50.320 As I recall, a difference in the capital requirements would 0:19:50.359 --> 0:19:52.639 amount to one hundred fifty billion dollars lest year long. Now 0:19:52.680 --> 0:19:54.360 we have the proposals. What would it mean for Bank 0:19:54.359 --> 0:19:55.720 of America and for our banking system. 0:19:55.960 --> 0:19:58.159 Well, what it does is it's not to get too 0:19:58.240 --> 0:20:01.280 technical in the grand scheme of things, but it changes 0:20:01.320 --> 0:20:02.360 the calculation of risk. 0:20:02.200 --> 0:20:05.520 Weighted assets RWA. And so the idea is that the. 0:20:05.560 --> 0:20:07.760 Estimates by the FED is it's fifteen to twenty percent 0:20:07.800 --> 0:20:10.520 of RWA increase. When you do that, then ten percent 0:20:10.600 --> 0:20:13.560 of RWA at X and ten percent of URWA at 0:20:13.560 --> 0:20:15.320 one point one times X means you have to have 0:20:15.440 --> 0:20:18.159 more capital, and so the amount of capital goes up. 0:20:18.200 --> 0:20:20.040 That then constrains lening because you can't do anything with 0:20:20.080 --> 0:20:21.720 that capital. If you did, then you'd have more rw 0:20:21.880 --> 0:20:24.280 and you have to have more capital. But I think 0:20:24.280 --> 0:20:27.679 if you step back, this industry is well capitalized. It 0:20:27.760 --> 0:20:30.480 just proved it again in another crisis. It's well managed, 0:20:30.640 --> 0:20:34.720 it's well regulated. You've had successive FED regime of chairs 0:20:34.760 --> 0:20:37.840 and people working in the chair supervision vice chair over 0:20:37.880 --> 0:20:40.359 the years say the capital is adequate. Industry, it's well, 0:20:40.600 --> 0:20:43.720 it's well managed as well capitalized. They'll be banks will fail. 0:20:43.800 --> 0:20:45.679 They fail, they failed throughout history. 0:20:45.680 --> 0:20:46.280 That happens. 0:20:47.080 --> 0:20:49.359 But since the financial crisis, more people under the tent 0:20:49.560 --> 0:20:51.680 because the issue of financial crisis, a lot of stuff 0:20:51.720 --> 0:20:53.119