WEBVTT - PIIE President Adam Posen Talks Jackson Hole Symposium

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Joining us now who

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<v Speaker 1>has been writing fire recently. Adam Posen of the Peterson

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<v Speaker 1>Institute for International Economics, who has been pretty aggressively talking

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<v Speaker 1>about some of the harmful ramifications from a new World Order.

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<v Speaker 1>But before we get to all of that, I want

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<v Speaker 1>to get to how this is set up and how

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<v Speaker 1>this feels very different than previous Jackson Hall meetings.

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<v Speaker 2>Thank you Lisa for having me back. It's good to

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<v Speaker 2>be back with you and Tom. And you're right, it

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<v Speaker 2>is different. It's different inherently because it will be Powell's

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<v Speaker 2>last speeches chair, and he's had quite the tenure, and

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<v Speaker 2>there's always the combination. Now it so happens of his

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<v Speaker 2>potential legacy speech talking about the Framework review and the

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<v Speaker 2>fact that the economic situation is genuinely unclear. But then

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<v Speaker 2>of course there's this whole overlay of the Trump administration's

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<v Speaker 2>variegated attempts to put pressure on the FED in an

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<v Speaker 2>overt way, using personal attacks and using social media in

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<v Speaker 2>a way that is unprecedent and harmful.

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<v Speaker 1>I know that human nature is such that if someone

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<v Speaker 1>tells you what to do again and again and again,

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<v Speaker 1>and you have somewhat of a rebellious spirit.

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<v Speaker 3>You want to do the opposite.

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<v Speaker 1>And I wonder how academics who get together and who

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<v Speaker 1>want to do what they think is right are airing

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<v Speaker 1>on the side of being overly hawkish in order to

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<v Speaker 1>sort of thumb their nose at what they see as

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<v Speaker 1>political interference and something that isn't their fault. Do you

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<v Speaker 1>feel that in some capacity, I feel they're thinking about it.

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<v Speaker 2>I feel that they're trying to be very self aware

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<v Speaker 2>of that. And there is a history lease of central

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<v Speaker 2>bank independence, and Tom and I are old enough to

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<v Speaker 2>remember this that when the buddiest bank was like the

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<v Speaker 2>leading bank setting policy outside the US, whenever a left

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<v Speaker 2>wing finance minister, or for that matter, a conservative finance

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<v Speaker 2>minister would say you're too tight, the central Bank would

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<v Speaker 2>explicitly Hans Steetmeyer would explicitly say, you yell at me,

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<v Speaker 2>I'm not doing anything.

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<v Speaker 3>So there is that element.

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<v Speaker 2>But I think what Paula said, what President Collins, who

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<v Speaker 2>you just had, has said, is they are trying to

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<v Speaker 2>make the right call in the economy, and in the end,

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<v Speaker 2>I think, if anything, they're going to bend over backwards

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<v Speaker 2>to not be hawkish today because they want to show

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<v Speaker 2>then no matter what the Trumpies do, they're going to

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<v Speaker 2>make the call on the basis of the economy.

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<v Speaker 4>And Posen with us the Peterson Institute, as we welcome

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<v Speaker 4>all of you worldwide good morning on Bloomberg Radio and

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<v Speaker 4>on Bloomberg Television as well, to call this for you

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<v Speaker 4>in the limited time that we have. Doctor Posen's essay

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<v Speaker 4>and Foreign Affairs days ago sets the table for a

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<v Speaker 4>post American world. Doctor Posen, of course, channeling the economist

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<v Speaker 4>Joni Mitchell from nineteen seventy. It was good of you

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<v Speaker 4>to end the essay looking at a parking lot with

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<v Speaker 4>the lights turned out. In the seventies, the inflation was

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<v Speaker 4>six point eight percent. We've been running three ish, four

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<v Speaker 4>ish depending out. Jason measures it for me. The answer is,

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<v Speaker 4>do you fear an inflation back to the time of

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<v Speaker 4>big yellow TAXI?

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<v Speaker 3>Yeah? Tom, thank you.

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<v Speaker 2>I know you curate foreign affairs articles for your audience,

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<v Speaker 2>and I'm grateful you've picked up on mine, and I

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<v Speaker 2>think people have been missing the big picture. This is

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<v Speaker 2>an economic regime change. It's not just the tariffs. It

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<v Speaker 2>goes to the thirty year bonds and the international flows

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<v Speaker 2>that you were talking about and so is inflation going

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<v Speaker 2>to get out of hand? No, Ultimately, no matter who

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<v Speaker 2>succeeds Powell, who Trump appoints, they'll be forced to turn

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<v Speaker 2>around if it gets big. But what you're going to

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<v Speaker 2>get is the stuff we saw in the early eighties.

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<v Speaker 2>You're going to get a steeper yield curve, You're going

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<v Speaker 2>to get a higher yield curve. You're going to get

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<v Speaker 2>risk premium. You're going to get more out of the dollar.

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<v Speaker 4>Right, can we go all nerd?

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<v Speaker 3>Now? Places? What were we doing before?

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<v Speaker 2>Right?

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<v Speaker 3>Come on?

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<v Speaker 4>As buried in the middle of every textbook chapter twenty ors,

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<v Speaker 4>so is in chapter insurance. Your essay is that we've

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<v Speaker 4>given up the ghost of us being the insurer for

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<v Speaker 4>the world in the seventies, in the sixties, post World

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<v Speaker 4>War Two? Can we recover after Trump back to an

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<v Speaker 4>insured world where they trust America to be the insurer?

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<v Speaker 2>Just as some foreign policy types talked about after Vice

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<v Speaker 2>President Vance at the Munich Summit and all this stuff

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<v Speaker 2>against NATO. You don't do it in a day. If

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<v Speaker 2>the president realizes the mistake, if the Congress steps up,

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<v Speaker 2>if there's an election and the changes, we can go back.

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<v Speaker 2>But you have to think of it, like Germany or

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<v Speaker 2>Japan after the war. You have to rebuild trust, you

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<v Speaker 2>have to invest. And the longer this goes on, the

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<v Speaker 2>longer the US ceases to provide the kinds of insurance

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<v Speaker 2>that it did. Other countries self insure, and so they

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<v Speaker 2>take money out of the dollar, They invest in different institutions,

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<v Speaker 2>they make different trade deals, they try to build things up.

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<v Speaker 2>So the longer it goes, the harder it's going to

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<v Speaker 2>be to turn it back. And everybody's sours off, including

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<v Speaker 2>the US, but they make the best of it they can.

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<v Speaker 1>That's the big picture as you see it. Some people

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<v Speaker 1>would say that this was already fracturing in other ways

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<v Speaker 1>heading into this, and we saw that in the post

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<v Speaker 1>pandemic reality. But shifting to the inflation side that tom'son

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<v Speaker 1>rightly picked up on. If the FED does cut by

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<v Speaker 1>twenty five or fifty basis points now and you do

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<v Speaker 1>see inflation pick up materially, what do you see as

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<v Speaker 1>a risk that they have to hike materially next year?

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<v Speaker 1>Something that Ken Rogoff has talked about.

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<v Speaker 2>Well, I mean nothing against KEM, but you and I

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<v Speaker 2>have been talking about this on your show for a

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<v Speaker 2>year and a half did. I no, but anyway, But

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<v Speaker 2>so I'm aligned with the brilliant rogueff. It's they I

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<v Speaker 2>think they have a reversal built in at this point

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<v Speaker 2>because essentially they're gambling on.

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<v Speaker 3>The fact that the our star hasn't risen.

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<v Speaker 2>They're gambling on the fact that the recessionary effects of

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<v Speaker 2>the tariffs and the anti migration will more than offset

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<v Speaker 2>the inflationary effects. They're gambling on the fact that long

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<v Speaker 2>term inflation expectations will remain fully anchored, which amidst everything

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<v Speaker 2>else after the last few years and after the attacks

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<v Speaker 2>on the FED, seems like a bad gamble.

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<v Speaker 3>And ultimately they're gambling on.

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<v Speaker 2>The fact that the pass through of these things is

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<v Speaker 2>going to be very limited, which gets us back to

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<v Speaker 2>Tom's seventy's analogy.

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<v Speaker 1>At the same time, if you look at the unemployment

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<v Speaker 1>rate of young adults sixteen to twenty four, it's ten percent.

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<v Speaker 1>It's the highest ever been on super recession. You see

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<v Speaker 1>an increasing number of people remaining on jobless claims. We're

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<v Speaker 1>receiving those roles because they cannot get a job. Doesn't

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<v Speaker 1>the labor market worry you at this point?

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<v Speaker 2>It does, But that's different from what you and I

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<v Speaker 2>were just talking about Lisa. This is what happens when

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<v Speaker 2>you run a terrible policy mix, when you get stagflation,

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<v Speaker 2>is you have no good choice, and then you're stuck

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<v Speaker 2>worrying about inflation despite the fact people are suffering.

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<v Speaker 3>This is the problem.

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<v Speaker 2>It's not because there aren't going to be problems and

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<v Speaker 2>aren't already problems in the labor market. It's because the

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<v Speaker 2>inflation threat is worse at this point.

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<v Speaker 3>And if the.

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<v Speaker 2>Trump administration hadn't done all the things that had done,

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<v Speaker 2>we wouldn't be facing this terrible trade off.

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<v Speaker 4>I noticed last night I looked at the Nielsen ratings

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<v Speaker 4>and there were two people listening in Wyoming as the

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<v Speaker 4>Red Sox beat the Yankees. It was me and Adam.

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<v Speaker 4>We were sitting in our little he was in a

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<v Speaker 4>pup tent. I'm in a little bigger tent, and we

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<v Speaker 4>were listening to the Red Sox on our radio.

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<v Speaker 1>Oh yeah, this is your transistor radio that you have. Yeah, yeah,

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<v Speaker 1>everyone's buying that out here. Those are really good. Do

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<v Speaker 1>they have a chance except all you want to know today.

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<v Speaker 3>They have a chan They always have a chill.

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<v Speaker 1>Imposed of the Peterson Institute for International Economics on economics,

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<v Speaker 1>on policy, and on the red sox.

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<v Speaker 3>Thank you so much for being with us