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Speaker 2: Terminal and the Bloomberg Business app. Krishna Gouer of Evercore writing,
Speaker 2: we think any effort to remove Pale would lead to
Speaker 2: a surge in stagflation, trades, further curve steepning dollar sharply lower,
Speaker 2: and a much larger increase in the risk premium on
Speaker 2: us set. So please to say that Krishner is bank
Speaker 2: with us on a program for more Christian Welcome back
Speaker 2: to the program, sir, and good morning. You wrote about
Speaker 2: it going into the weekend last week. You said that
Speaker 2: if you love the trade of the back of the
Speaker 2: trade tobacco, then you'll love the fed independence trade the
Speaker 2: loss of fed independence. Can you talk to us about that, Krishna,
Speaker 2: did we get a flavor for it in yesterday's session?
Speaker 3: So I think we did get a little foretaste yesterday
Speaker 3: of what kind of a train wreck it would be
Speaker 3: in markets if the presidents ever decided to actually try
Speaker 3: to fire FED chair Pal. Now, to be very clear,
Speaker 3: I continue to think that it is not likely. It's
Speaker 3: not fifty percent or higher probability that Trump will actually
Speaker 3: try to terminate Pal, but it's clearly a non trivial risk,
Speaker 3: a serious risk, and when it's put before markets, you
Speaker 3: get the verdict that you got yesterday, yield higher dollar,
Speaker 3: lower stocks, lower, fundamentally reduced attractiveness of US assets across
Speaker 3: the board. That is I think a cautionary message, and
Speaker 3: I hope pits being heard in the right places. Remember
Speaker 3: that up to this point, what we've seen in markets
Speaker 3: is a clear sign of erosion of confidence in US
Speaker 3: administration economic policy making. But we have not seen a
Speaker 3: loss of confidence in the FED. We can prove that
Speaker 3: because up to this point the inflation break evens have
Speaker 3: stayed very well behaved. The market is not priced in
Speaker 3: stagflation trades. But if you ever got to the point
Speaker 3: where FED independence was actually being broken or an attempt
Speaker 3: to break it in real time. I think what you'd
Speaker 3: see is a shift towards stagflation trades, as well as
Speaker 3: a broader intensification of across the board market weakness and
Speaker 3: US assets.
Speaker 2: So, Christian, let's talk about what we've seen so far.
Speaker 2: We have seen and rebalancing away from dollar denominated assets.
Speaker 2: We've seen that over the last several weeks. How much
Speaker 2: toothpaste do you think is out of the tube? How
Speaker 2: much damage is done? Parable?
Speaker 4: Is that damage?
Speaker 5: Well?
Speaker 3: I think right now we're in an intermediate spot between
Speaker 3: business as usual ups and downs in markets and the
Speaker 3: kind of fundamental tectonic regime shift that one of your
Speaker 3: earlier guests was quoted discussing just before this segment began.
Speaker 3: What we've been seeing in the last few weeks is
Speaker 3: absolutely not business as usual. We've seen substantial upward pressure
Speaker 3: on real yields and the real term premium that investors
Speaker 3: demands a hold US government debt despite a deteriorating economic outlook.
Speaker 3: We've also seen the dollar go down on days when
Speaker 3: the yields have been going up. That's the sort of
Speaker 3: thing that you normally see in emerging markets and is
Speaker 3: a sign that capital is being reallocated out of the
Speaker 3: US at the margin. But I think it's still premature
Speaker 3: to talk about a fundamental regime shift. We're not there yet.
Speaker 3: You know, the dollar was overvalued coming in on many measures,
Speaker 3: so some dollar retracement is not perhaps extraordinary. The world
Speaker 3: was over allocated to the US, So again, reallocation out
Speaker 3: of the US at the margin not in itself the
Speaker 3: sign that the old regime is breaking. But there are
Speaker 3: lots of warning signs here. And of course the subtlety
Speaker 3: here is that if there is even a significant risk
Speaker 3: that we could be looking at an economic regime change,
Speaker 3: and that is going to affect asset prices today well
Speaker 3: in advance of whether when we discover whether the regime
Speaker 3: is actually shifting or not.
Speaker 6: Okay, so christ, let's game out what it would look
Speaker 6: like if, to use your phrase, we did see a
Speaker 6: real Liz Trust type moment in the United States, with
Speaker 6: a real loss of confidence both in fin independence as
Speaker 6: well as policy certainty going forward in the United States.
Speaker 6: What would that look like in terms of asset prices
Speaker 6: going forward?
Speaker 3: Well, so, what I wanted to sort of point to
Speaker 3: here is to begin with that the starting position is
Speaker 3: very different. Right, The US is not the UK. The
Speaker 3: US is the core holding in every global investors portfolios,
Speaker 3: the core holding in every official sector portfolio, the dollar
Speaker 3: dominant currency. So it takes a lot more to generate
Speaker 3: the type of liz Trust dynamics in the US than
Speaker 3: it did in the UK. And we're definitely not there yet.
Speaker 3: But what would that pathway look like. That pathway would
Speaker 3: essentially involve morphing from a tariff crisis to a fiscal crisis,
Speaker 3: and the mechanism by which that would happen is a
Speaker 3: global buyers strike in the treasury market at the time
Speaker 3: when the deficit blew out on an economic downturn, lack
Speaker 3: of serious physical consolidation in tax legislation, and potentially even
Speaker 3: some doubling down on unfunded tax cuts down the lines
Speaker 3: try to pull the US out of that recession. To
Speaker 3: be really clear, that's not my forecast. It's not even
Speaker 3: my main risk case. My main risk case is a
Speaker 3: garden variety recession. But it is more than a tail
Speaker 3: risk at this point already, And if the FED chair
Speaker 3: were to be fired, I think the risk of that
Speaker 3: morphing from a tariff crisis to a fiscal crisis would
Speaker 3: move up a lot.
Speaker 1: You keep saying we're not in a fundamental regime shift.
Speaker 1: Yet we're not at this Liz Trust moment yet. So
Speaker 1: the catalyst for you might be something on the fiscal front. Well,
Speaker 1: what happens when the tax negotiations become the new main
Speaker 1: driver and the president is pushing for more than just TCJA.
Speaker 3: So I think the area that we all need to
Speaker 3: be focused on and thinking about is the interaction between
Speaker 3: the trade policy, the tariffs more broadly pulling back from
Speaker 3: international economic insecurity engagement on the part of the US,
Speaker 3: and the fiscal front, where the US is already running
Speaker 3: a large structural deficit, and as you point out, you know,
Speaker 3: this tax legislation moving through that looks at this stage
Speaker 3: unlikely to tackle serious fiscal consolidation, with pressures to add
Speaker 3: more tax cuts, you know, to what is already in
Speaker 3: the hopper. So as every you know, as every economist
Speaker 3: NERD will tell you, a trade deficit is simply a
Speaker 3: capital surplus. And so when you start to to, you know,
Speaker 3: to pull away from international economic engagement on the trade side,
Speaker 3: it almost inevitably is going to have consequences on the
Speaker 3: capital account side as well. And that's where we've got
Speaker 3: to be careful because a good part of that capital
Speaker 3: is funding the US deficit.
Speaker 2: Christna looking forward to continuing the conversation with you, sir.
Speaker 2: Brilliant as always, Krista go with that of Emma Coore.
Speaker 2: Robert Starkna City marking down growth expectations, writing quote, we
Speaker 2: see global growth falling from just down to three percent
Speaker 2: last year to two point one percent in twenty twenty five,
Speaker 2: as our forecasts have been marked down for a broad
Speaker 2: group of economies, including the United States. Rob Joint just
Speaker 2: now for more rop good morning, good morning, two point
Speaker 2: one percent. That's global recession territory, isn't it.
Speaker 4: It's starting to get into that territory.
Speaker 7: It would be a distinctly weak year, much weaker than
Speaker 7: we saw over the last few years when we grew
Speaker 7: just a bit below global trend, but still probably would
Speaker 7: skirt that definition of global recession. But that being said,
Speaker 7: I think the risk to the forecasts are skewed strongly
Speaker 7: to the downside, especially because within that forecast we still
Speaker 7: have China growing at a decent rate despite this trade
Speaker 7: war going on between the US and China, and we
Speaker 7: don't have a US recession.
Speaker 4: In the forecast, we have low growth but no recession.
Speaker 7: If those two downside risk materialize, you can easily get
Speaker 7: into global recession.
Speaker 2: Just sit on China for a bait. What's driving that growth?
Speaker 7: Well, it's interesting if you go back not too long ago,
Speaker 7: we were actually marking up growth in China. We were
Speaker 7: marketingmp growth in Europe. These narratives were getting more positive
Speaker 7: in China. We were starting to see signs that private
Speaker 7: sector demand was picking up. You had the positive AI
Speaker 7: story that was developing in the investments around that. But
Speaker 7: this trade war is kind of reversed that narrative and the.
Speaker 4: Headwinds are going to be substantial.
Speaker 7: We do see the government coming out with more stimulus
Speaker 7: to try and offset some of that, which is why
Speaker 7: that forecast is not even lower on the year. But
Speaker 7: you know, it's going to be a big challenge of
Speaker 7: this trade war pers that persists.
Speaker 4: How much can.
Speaker 6: There be a huge divergence between the rest of the
Speaker 6: world and the United States or the rest of the
Speaker 6: world actually takes off and it starts expanding at a
Speaker 6: faster rate, Especially based in the fact that rates can
Speaker 6: keep going lower, you might get disinflationary forces in certain places,
Speaker 6: and you have the potential for stimulus at the same
Speaker 6: time that money is flowing into their economies and away
Speaker 6: from the United States. And it's a pretty potentially rosy
Speaker 6: scenario for outside of the United States to diverge.
Speaker 2: Yeah.
Speaker 7: Absolutely, And if you look at the contours of our forecast,
Speaker 7: you get a lot of softness in the US, you
Speaker 7: get softness elsewhere. And it depends on how these tariff
Speaker 7: negotiations and tariff uncertainty evolves. But other parts of the
Speaker 7: world hold up relatively well outside of China. Most of
Speaker 7: the EMS, we've been marking some of them down slowly,
Speaker 7: but most of them still have pretty solid growth forecasts.
Speaker 7: But I do think that the policy uncertainty and the
Speaker 7: tariffs that are emitting from the US is going to
Speaker 7: weigh on a lot of economies.
Speaker 4: I mean, for Europe it's a good example.
Speaker 7: We had one percent growth over the next four quarters
Speaker 7: prior to these tariff stresses. Now we have close to
Speaker 7: zero growth or just above that. So I think for
Speaker 7: the rest of the world, it's going to be hard
Speaker 7: to grow or at a solid rate, given that these
Speaker 7: tariffs are still looming large and trade uncertainty is still
Speaker 7: looming large.
Speaker 6: How much would you have to see to get more
Speaker 6: constructive on the global outlook where suddenly a week or
Speaker 6: dollar actually helps support US companies. You end up with
Speaker 6: a little bit more in terms of certainty with.
Speaker 4: Trade deals, and suddenly all of this sort.
Speaker 6: Of negativity versus course the hard data has been solid
Speaker 6: and things are looking a little bit more like they
Speaker 6: were maybe three months ago.
Speaker 8: Yeah.
Speaker 7: Absolutely, And I think we're in that ninety day pause,
Speaker 7: and if we start to get trade deals materializing over
Speaker 7: that period and there starts to be signs that the
Speaker 7: administration is backing off of its tougher stance on tariffs,
Speaker 7: not backing off entirely. We do think those trade deals
Speaker 7: are going to have probably a ten percent minimum tariff,
Speaker 7: those sectoral tarifs will stay in place. But if you
Speaker 7: start to see us moving away from that very high
Speaker 7: level of uncertainty where we don't know what the tariff's
Speaker 7: going to look like in a week or two weeks,
Speaker 7: and you start to get those deals emerging, I think
Speaker 7: the global economy is still going to have a tough
Speaker 7: patch for the next few quarters, but I could see
Speaker 7: that forecast for the global economy that's at two point
Speaker 7: one moving up a bit if that uncertainty starts coming
Speaker 7: off the boil. But right now, I think the risks
Speaker 7: again are still skewed to the downside, especially because more
Speaker 7: tariffs are probably likely to be announced in coming weeks
Speaker 7: and we don't know how these negotiates are going to go.
Speaker 1: And these negotiations are for trading partners, not China, where
Speaker 1: America gets most of it's good good How long can
Speaker 1: you wait around and not have a trade deal with China?
Speaker 7: Yeah, And I think that's the challenging situation, is that
Speaker 7: this trade war feels untenable from both sides. You're looking
Speaker 7: at tariffs on many goods that go across both borders
Speaker 7: of well over one hundred percent.
Speaker 4: That trade is going to be uneconomical.
Speaker 7: So if you keep those tariffs on, trading those categories
Speaker 7: is basically going to fall to zero over time. And
Speaker 7: we still get in a direct sense, that's not even
Speaker 7: including indirect trade throughout other countries, over thirteen percent of
Speaker 7: our imports from China, So it's a big headwind. I
Speaker 7: think we're probably going to see the temperature cool down
Speaker 7: there as well, but the longer that persists, the deeper
Speaker 7: the risks are. Especially one risk in that conversation is
Speaker 7: what happens with global supply chains? Are we going to
Speaker 7: get shortages and stresses like we saw during the pandemic.
Speaker 7: Given that China is still deeply entwined in global supply chains, can.
Speaker 1: China still grow if other countries put their walls up?
Speaker 7: Well, that's going to be another tough conversation is if
Speaker 7: this trade war persists. Are other countries is going to
Speaker 7: put on tariffs on China to kind of gain favor
Speaker 7: with the US, and we're going to have the world
Speaker 7: kind of breaking up into spheres again. I hope we
Speaker 7: don't go down that route. But China, I think will
Speaker 7: be okay for you know, the near term because they
Speaker 7: have enough policy stimulus space, they have a lot of
Speaker 7: connectivities with other economies. But if we're in a persistent
Speaker 7: deep trade war, it's going to wait significantly on their
Speaker 7: economy over the medium term.
Speaker 2: From the perspective of price stability, the Europeans might have
Speaker 2: to if you say a chane of USCN y ufcm
Speaker 2: y has gone from seven forty to eight forty since
Speaker 2: the stand of February, they're going to have to eat
Speaker 2: a lot of Chinese exports isn't that the biggest threat
Speaker 2: to price stability on the continent right now?
Speaker 7: It's a big challenge because these exports have to go somewhere,
Speaker 7: and again, thirteen percent of US imports, that's a lot
Speaker 7: of goods.
Speaker 4: You know. Some of that we think is going to.
Speaker 7: Be rerouted through other economies, as we were talking.
Speaker 4: About that eventually go to the US.
Speaker 7: But if the administration cracks down on that, that cuts
Speaker 7: off an important channel for those products, and a natural
Speaker 7: point for where those could.
Speaker 4: Go is Europe.
Speaker 7: But I think if that starts to happen, you again
Speaker 7: have a conversation, well, did the Europeans start to put
Speaker 7: on trade barriers of their own to kind of protect
Speaker 7: their own domestic industries.
Speaker 4: So this could get even.
Speaker 7: Messier quicker, really quick, which is saying a lot given
Speaker 7: how MESSI it's been over the last few weeks.
Speaker 2: Just to sit on Europe, do you think they'll have
Speaker 2: to that economy at the moments that still speed. I
Speaker 2: know a lot of people are excited about a prospective
Speaker 2: fiscal stimulus, but we were already talking about zero percent
Speaker 2: growth on the continent. What's this going to do to them?
Speaker 2: Disinflationary price section at the time we have zero percent
Speaker 2: growth on the continent.
Speaker 7: Yeah, exactly, and that's the real challenge. And I think
Speaker 7: in the near term they have other challenges to face
Speaker 7: as well, primarily also negotiating with the US, and I
Speaker 7: think that puts them in a very difficult spot, which
Speaker 7: is another that I think other countries are going to
Speaker 7: be putting pressure on the US and on China to
Speaker 7: kind of come to the table and make some sort
Speaker 7: of deal, because as you said, this is going to
Speaker 7: be another challenge for Europe that is going to be
Speaker 7: difficult to handle. Actually in an environment where again, if
Speaker 7: you go back a few months ago, you were finally
Speaker 7: starting to get a positive narrative emerge out of Europe
Speaker 7: for the first time in several years. Unfortunately that's largely
Speaker 7: gone away with the current trade stresses. That could come
Speaker 7: back if these trade sesses move away, but I think again,
Speaker 7: at a minimum, they're going to be facing challenges from
Speaker 7: both sides.
Speaker 2: From the USA and huge changes in the past few months.
Speaker 2: For rob it's going to say thank you, sir, Robert
Speaker 2: Suckerman of City Alex no Rastat at the Kaido Institute, Alex,
Speaker 2: welcome to the program. This is what you had to
Speaker 2: say on the fat if they were controlled by the president,
Speaker 2: rights would fold in flesh and with spiral growth wood
Speaker 2: Snack Knight a disaster. Ultimately, that seems unlikely, but we
Speaker 2: should all be vigilant to that possibility. Alex, Why do
Speaker 2: you think it remains somewhat unlikely?
Speaker 8: Remains someone unlikely because the law is fairly clear on this.
Speaker 8: The ability of the president to remove and replace the
Speaker 8: share of the Federal Reserve at whim seems to be
Speaker 8: outside of his power. This hasn't been tested, of course,
Speaker 8: in the last one hundred and twelve years of the
Speaker 8: Federal Reserve system existing, but it seems fairly robust. So
Speaker 8: you know, this president surprises us all the time, right,
Speaker 8: But I think the law is probably on our side here.
Speaker 1: So when it comes to ousting J. Powell, though, do
Speaker 1: you think the President is doing this to actually have
Speaker 1: a scapegoat if his tariff negotiations don't go as planned.
Speaker 8: I think there's no downside for President Trump politically for
Speaker 8: challenging Chairman Powell.
Speaker 5: If he doesn't get what.
Speaker 8: He wants, he doesn't get a new FED chair, then
Speaker 8: he can always blame it on him.
Speaker 5: If he does get what he wants.
Speaker 8: Then he has control over the Central Bank of the
Speaker 8: United States, which can help help him politically, So there's
Speaker 8: really no downside. Of course, the major downside is on
Speaker 8: the US economy.
Speaker 5: If he succeeds, if he succeeds.
Speaker 8: In getting power with the Central Bank, ending central bank
Speaker 8: independence in the United States, then you'll have those negative
Speaker 8: economic consequences that I talked about, higher inflation, lower growth,
Speaker 8: more political and economic uncertainty. But if he doesn't get
Speaker 8: control of the FED, but he just threatens it, then
Speaker 8: there's a chance that either Powell or future Chairman of
Speaker 8: the Federal Reserve will listen more to the threats of
Speaker 8: politicians like they did in the nineteen seventies when we
Speaker 8: had stagflation, and then we'll have this poor economic outcomes
Speaker 8: going forward.
Speaker 1: Alex where is Congress in all of this, both when
Speaker 1: it comes to tariff and trying to wrankle back some
Speaker 1: of the control on tariff policy, and also when it
Speaker 1: comes to FED policy.
Speaker 4: J Powell does have a boss.
Speaker 5: It's Congress.
Speaker 8: So I have been asking where Congress is for basically
Speaker 8: my entire career on almost every issue. I mean, the
Speaker 8: long term trend for Congress is to pull back its
Speaker 8: power and a grant more and more power to the president.
Speaker 8: So Congress is like a dead institution.
Speaker 5: It's not a dying institution.
Speaker 8: They make noises sometimes they introduced legislation to try to.
Speaker 5: Reign in the president.
Speaker 8: There is recently resolution introduced by Senator Powell to reduce
Speaker 8: his the president's power to set tariff rates. There are
Speaker 8: numerous challenges in the courts saying that no Congress has
Speaker 8: its power, but ultimately it's very difficult to make Congress
Speaker 8: exercise its power if it simply doesn't want to. And
Speaker 8: what we are seeing right now is a Congress not
Speaker 8: taking up its powers and responsibilities to either reign in
Speaker 8: the president or to govern. And they are focusing importantly
Speaker 8: on the tax cuts bill. They're focusing importantly on the
Speaker 8: Tax Cuts and Jobs Act extending that, but outside of that,
Speaker 8: they are not considering major pieces of legislation or getting
Speaker 8: a wrangle or reigns on this president.
Speaker 4: Will that change?
Speaker 1: Will they become more vocal as we head into the
Speaker 1: midterm elections?
Speaker 5: That's probably they probably will.
Speaker 8: Now for Republicans who control, you know, the House, of course,
Speaker 8: be more vocal is dangerous because the head of their
Speaker 8: party of course is President Trump, and he is in charge,
Speaker 8: and sort of the cause of a lot of this
Speaker 8: economic uncertainty is his arbitrary wielding of power, so they
Speaker 8: face a dangerous.
Speaker 5: They'll trade off there.
Speaker 8: But modern Republicans, I think will definitely start to step
Speaker 8: up and try to distance themselves from the President if
Speaker 8: the economy gets worse and it looks like a terrible
Speaker 8: midterm election for them.
Speaker 5: Democrats, of course, will always be.
Speaker 8: Out there criticizing President Trump no matter how good things
Speaker 8: are or how bad things are, but they will probably
Speaker 8: be louder if things get worse. But they might be
Speaker 8: louder in the sense of if the Republicans saying, well,
Speaker 8: you know, this means that President Trump means more power.
Speaker 8: So that doesn't necessarily bode well if they start to
Speaker 8: be louder.
Speaker 2: What a moment, Alex, Thank you, sir Alex Narrista of
Speaker 2: the Cato Institute. He has to take from the full
Speaker 2: of the your Fed, President buil Dumpley right in this
Speaker 2: Trump's pressure on the FED is counterproductive. Not only does
Speaker 2: it increase the motivation for the FED to weight, but
Speaker 2: it also makes households and businesses more concerned about the
Speaker 2: inflation consequences should the Fed's independence come to an end.
Speaker 2: Build joined just now for more, but welcome to the program.
Speaker 2: So in good morning, I want to pick up on
Speaker 2: the first part of that second line. Not only does
Speaker 2: it increase the motivation for the FED to wait? Can
Speaker 2: you build on that a bit bill motivate to wait?
Speaker 2: Where does that motivation come from?
Speaker 5: Well, Fed's credibility is really important.
Speaker 9: And if the fedest scene is sort of caving to
Speaker 9: political pressure, that impairs the Fed's credibility. And if the
Speaker 9: FED credibility is impaired, that's going to lead to higher
Speaker 9: inflation expectations. So this is why the Trump pressure on
Speaker 9: the FED is counter productive. It's basically putting markets on edge.
Speaker 9: And we can basically see that just in the last
Speaker 9: twenty four hours, goal prices up dollar a weeker bodials
Speaker 9: up at the time that people are expecting rate cuts.
Speaker 9: I mean, the market still expects the FED to cut
Speaker 9: interest rates this year by seventy five to one hundred
Speaker 9: basis points.
Speaker 5: So we see the market responses. They don't like the
Speaker 5: fact that there's this uncertainty about the Fed's independence. This
Speaker 5: is so from Presidents Trump's perspective, this is really counterproductive.
Speaker 2: Well, just to build on that, another way of saying
Speaker 2: that would be that when the independence of the FED
Speaker 2: is threatened, the threshold to move is higher, they dig in.
Speaker 2: Is that a fair way of putting good.
Speaker 5: I don't think it's so much that they dig in
Speaker 5: to be stubborn.
Speaker 9: I think the fact is, though, that if the Fed's
Speaker 9: independence's under threat, if they move, then people wonder what's
Speaker 9: the motivation. Is the FED moving because it's the right
Speaker 9: thing to do, or is the FED moving because they're
Speaker 9: under pressure? And the extent that people think that the
Speaker 9: Fed's moving because they're under pressure, that undermines the credibility
Speaker 9: of the FED, and so the FED has to take
Speaker 9: that on board in terms of their thinking.
Speaker 1: So basically, what you're saying is they cannot move for
Speaker 1: a while now given Trump's higher because it'll look like
Speaker 1: they would be placating this White House.
Speaker 5: Well, it depends on the economic news.
Speaker 9: Obviously, if the unemployerent rate goes up significantly, then the
Speaker 9: Fed's going to cut rates because there's not be any
Speaker 9: question about whether it was a response to the President's
Speaker 9: Trump's pressure.
Speaker 5: But if there is a question.
Speaker 9: About why the FED is moving, then the FED has
Speaker 9: to take that on board in terms of their decision making.
Speaker 1: What do you expect the FED to do this year?
Speaker 1: Do you think they'll are going to have a bias
Speaker 1: towards which part of their mandate inflation or growth concerns
Speaker 1: in the labor market.
Speaker 9: Well, I think in the short term they're going to
Speaker 9: have to be patient because obviously there's a lot of
Speaker 9: concern about where we're going to actually land on trade
Speaker 9: policies and tariffs number two, the terrorist to the extent
Speaker 9: that they do go up significantly, which seems likely, is
Speaker 9: going to flow into the prices and we're so we're
Speaker 9: going to see some higher inflation data, and I think
Speaker 9: the Fed's worried about the fact that missing the inflation
Speaker 9: mandate for the fifth year in a row could cause
Speaker 9: inflation expectations become unanchored, and if that were to happen,
Speaker 9: that'd be terrible. You know, one reason why things worked
Speaker 9: out so well over the last few years is that
Speaker 9: inflation expectations did stay well anchored, so the FED didn't
Speaker 9: have to push the unemployment rate up to get inflation
Speaker 9: back down relatively close to their target. Inflation expectations become
Speaker 9: un anchored, the job becomes much more difficult. So the
Speaker 9: FED has to be very careful not to act too prematurely,
Speaker 9: because if inflation expectations go up, their job becomes much
Speaker 9: more difficult. They was.
Speaker 2: Six years ago. You wrote a piece for Bloomberg Opinion.
Speaker 2: I'm sure you remember it well because it was controversial
Speaker 2: at the time. You said the Federal Reserve shouldn't enable
Speaker 2: President Donald Trump, that the Central Bank should refuse to
Speaker 2: play along with an economic disaster in the making. Does
Speaker 2: that apply this time around?
Speaker 9: Well, if it shouldn't take politics into consideration in terms
Speaker 9: of their monetary policy decisions, they should do what they
Speaker 9: think is appropriate to achieve their dual mandate of a
Speaker 9: stable employment, full employment and price stability. And I think
Speaker 9: that's what they're going to do this time. I mean,
Speaker 9: I don't think the Fed's political all and I think
Speaker 9: that's completely appropriate.
Speaker 5: But the FED has.
Speaker 9: To be aware of the confidence that people have in
Speaker 9: the FED and the Fed's ability to be independent, and
Speaker 9: to the extent that confidences eroded, that weighs on the
Speaker 9: effectiveness of monetary policy.
Speaker 2: Bill, just to bring that up again, do not stand
Speaker 2: by that piece anymore. But you work back way back
Speaker 2: into my night saying I.
Speaker 9: Stand by it in the sense that the FED has
Speaker 9: to do what they think is appropriate to achieve their
Speaker 9: dual mandate objectives, and if the administration is doing things
Speaker 9: that are kind of productive to that, then the FED
Speaker 9: needs to take that on board. But the FED shouldn't
Speaker 9: be acting in a political manner. The FED needs to
Speaker 9: be completely independent of politics, and I think they are.
Speaker 1: Do you think the FED is completely independent independent of politics?
Speaker 1: Given the fact that the FED chair has been outspoken
Speaker 1: about the.
Speaker 9: Tariff regime, I think the FED chairman just talking what
Speaker 9: everyone can see. I mean, higher terrorists are bad for prices.
Speaker 9: They're going to drive up the inflation in the short term.
Speaker 9: To not say that would not be credible from the
Speaker 9: Fed's perspective.
Speaker 2: Bill, I appreciate your time, sir, as always pot down
Speaker 2: to be that a former New York FED president and of
Speaker 2: course a columnists for Bloomberg Opinion. This is the Bloomberg
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Speaker 2: Mm hm