1 00:00:00,160 --> 00:00:03,360 Speaker 1: This is Bloomberg Wall Street Week. What's the state of 2 00:00:03,400 --> 00:00:06,360 Speaker 1: corporate governance? The deficit is a real issue. The US 3 00:00:06,400 --> 00:00:09,800 Speaker 1: economy continues to send mixed signals to the financial stories 4 00:00:09,840 --> 00:00:12,680 Speaker 1: that keep our world. Fed action to con concerns over 5 00:00:12,760 --> 00:00:16,239 Speaker 1: dollar liquidity and encouraging China data the five hundred wealthiest 6 00:00:16,239 --> 00:00:18,360 Speaker 1: people in the world. Through the eyes of the most 7 00:00:18,480 --> 00:00:22,520 Speaker 1: influential voices Larry Summers, the former Treasury Secretary, Star CEO, 8 00:00:22,640 --> 00:00:26,360 Speaker 1: Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week 9 00:00:26,480 --> 00:00:31,320 Speaker 1: with David Weston from Bloomberg Radio. Full speed ahead, one 10 00:00:31,320 --> 00:00:35,760 Speaker 1: point nine trillion dollars, one hundred million vaccinations and strong 11 00:00:35,960 --> 00:00:39,280 Speaker 1: new projections for growth. But is there a speed limit 12 00:00:39,320 --> 00:00:42,879 Speaker 1: to how fast Weekend drive this economy? This is Bloomberg 13 00:00:42,880 --> 00:00:45,600 Speaker 1: Wall Street Week. This week devoted to the eye word 14 00:00:45,800 --> 00:00:49,960 Speaker 1: that is inflation. I'm David Weston, So where does this 15 00:00:50,040 --> 00:00:53,280 Speaker 1: all lead to? Yields continue to climb, At what point 16 00:00:53,280 --> 00:00:55,840 Speaker 1: does the FED need to step in? And if it does, 17 00:00:56,040 --> 00:00:58,480 Speaker 1: where does that leave the dollar? When it comes to 18 00:00:58,640 --> 00:01:02,240 Speaker 1: understanding the intricate mechanism that is our financial system, there 19 00:01:02,320 --> 00:01:05,399 Speaker 1: is no one, no one like Ray Dalio, founder of 20 00:01:05,440 --> 00:01:08,880 Speaker 1: Bridgewater Associates. Ray is clear that he's not saying what 21 00:01:08,920 --> 00:01:12,039 Speaker 1: the US should do. Indeed, he has written a book 22 00:01:12,080 --> 00:01:15,160 Speaker 1: on how capitalism needs to be reformed. But Ray has 23 00:01:15,200 --> 00:01:18,560 Speaker 1: a clear and certain view about the consequences of fiscal 24 00:01:18,959 --> 00:01:22,720 Speaker 1: and monetary policy, whatever those policies may be. So we 25 00:01:22,840 --> 00:01:24,880 Speaker 1: turned to him this week to get a sense of 26 00:01:24,959 --> 00:01:29,760 Speaker 1: where we may be headed. Think of the economy as 27 00:01:29,840 --> 00:01:35,920 Speaker 1: being um, like an individual um and their pulses dropping. 28 00:01:36,400 --> 00:01:39,920 Speaker 1: When the pulse is dropping, the doctors come running in 29 00:01:39,959 --> 00:01:43,960 Speaker 1: with the stimulant, and they inject stimulant. Now that the 30 00:01:44,000 --> 00:01:51,480 Speaker 1: economy is rebounding, he's um, and inflation pressures are rebounding UM, 31 00:01:51,520 --> 00:01:56,720 Speaker 1: there's not the same pressure to administer that stimulation. When 32 00:01:56,800 --> 00:02:00,320 Speaker 1: it happens, when it becomes a problem is first the 33 00:02:00,480 --> 00:02:05,520 Speaker 1: rising interest rates start hurting financial asset prices. First, typically 34 00:02:05,560 --> 00:02:10,040 Speaker 1: they hurt bonds, then they pass through and hurt stocks 35 00:02:10,600 --> 00:02:14,880 Speaker 1: because still interest rates affects stocks. And when that starts 36 00:02:14,919 --> 00:02:18,200 Speaker 1: to affect stocks, that's one thing. Maybe the stock market 37 00:02:18,600 --> 00:02:23,720 Speaker 1: can correct, Tenner and the federal reserve can tolerated. When 38 00:02:23,760 --> 00:02:27,560 Speaker 1: it goes beyond that and starts to affect the economy, 39 00:02:27,840 --> 00:02:31,280 Speaker 1: that's when you see the real tradeoff have to search 40 00:02:31,800 --> 00:02:36,160 Speaker 1: uh surface. So that's what that looks like. Okay, so 41 00:02:36,440 --> 00:02:40,200 Speaker 1: let's play a little dickens here and ask about the 42 00:02:40,200 --> 00:02:42,639 Speaker 1: ghost of Christmas future. At the very end, they say, 43 00:02:42,720 --> 00:02:44,959 Speaker 1: is this what has to be? Or can I still 44 00:02:45,080 --> 00:02:48,399 Speaker 1: change it somewhat? Can we change it somewhat? And could 45 00:02:48,440 --> 00:02:50,680 Speaker 1: J Pale specifically change and change it, or for that matter, 46 00:02:51,040 --> 00:02:56,320 Speaker 1: the administrative government. Our basic situation is that we're spending 47 00:02:56,680 --> 00:03:00,480 Speaker 1: a lot more money than we're earning, and so are 48 00:03:01,360 --> 00:03:04,919 Speaker 1: that that gap exists, and a balance sheet means that 49 00:03:05,000 --> 00:03:08,240 Speaker 1: we owe a lot more money, and that owing that 50 00:03:08,280 --> 00:03:12,880 Speaker 1: money is somebody's financial assets, that bonds that they might sell. 51 00:03:13,600 --> 00:03:16,320 Speaker 1: So you can't It's not an easy thing to change 52 00:03:16,360 --> 00:03:18,960 Speaker 1: because what do you do? Spend less money? And if 53 00:03:19,000 --> 00:03:22,160 Speaker 1: you spend less money, you give less checks out, or 54 00:03:22,639 --> 00:03:25,480 Speaker 1: you can't get people to easily earn more money and 55 00:03:25,600 --> 00:03:28,760 Speaker 1: change that. So it's a difficult dilemma. And it's a 56 00:03:28,800 --> 00:03:32,720 Speaker 1: particularly difficult dilemma that I think that you're going to see. 57 00:03:32,760 --> 00:03:36,840 Speaker 1: Particularly the part is late this year and beyond that, 58 00:03:36,920 --> 00:03:40,480 Speaker 1: because late this year you're probably gonna see, um everything 59 00:03:41,400 --> 00:03:44,720 Speaker 1: be a problem. Um you're gonna probably see higher interest 60 00:03:44,800 --> 00:03:48,880 Speaker 1: rates because growth will be stronger, inflation will be stronger, 61 00:03:49,280 --> 00:03:52,640 Speaker 1: and that you'll see probably there won't be enough demand 62 00:03:52,720 --> 00:03:55,080 Speaker 1: on it. So the thing to watch out for is 63 00:03:55,120 --> 00:03:59,160 Speaker 1: a signal if this happens, is that you see the 64 00:03:59,200 --> 00:04:05,680 Speaker 1: need to buy bonds when the economy is strong and 65 00:04:05,800 --> 00:04:09,600 Speaker 1: when inflation. If you take um, there's this year, and 66 00:04:09,640 --> 00:04:13,240 Speaker 1: then there's beyond this year, there's um, and there's the 67 00:04:13,280 --> 00:04:17,159 Speaker 1: next few years. Um. It's a problem because how we're 68 00:04:17,200 --> 00:04:19,880 Speaker 1: going to spend money as a political issue a big 69 00:04:19,880 --> 00:04:23,280 Speaker 1: political issue, and we're gonna have to spend There's gonna 70 00:04:23,279 --> 00:04:25,960 Speaker 1: be too much spending, and so that will affect the 71 00:04:26,200 --> 00:04:30,599 Speaker 1: value of the dollar and or interest rates. Ray. As 72 00:04:30,600 --> 00:04:34,080 Speaker 1: we speak, the Federal Reserve is buying something like billion 73 00:04:34,120 --> 00:04:37,920 Speaker 1: dollars both in treasuries and mortgage bonds right now. How 74 00:04:37,920 --> 00:04:39,400 Speaker 1: can you justify that When they came out and said 75 00:04:39,400 --> 00:04:43,440 Speaker 1: we're gonna have six and a half GDP growth this year, well, um, 76 00:04:43,560 --> 00:04:49,720 Speaker 1: there their position would be, um, that we are having 77 00:04:49,720 --> 00:04:54,119 Speaker 1: a rebound from a depressed level and that we need 78 00:04:54,120 --> 00:04:58,320 Speaker 1: to have that rebound. And that also averages don't tell 79 00:04:58,520 --> 00:05:02,640 Speaker 1: convey the condition of all people, and so the issues 80 00:05:02,760 --> 00:05:07,280 Speaker 1: the stimulation is many times five to seven times the 81 00:05:07,320 --> 00:05:12,600 Speaker 1: amount of income lost through COVID, So that there's a distribution. Now, 82 00:05:12,760 --> 00:05:16,239 Speaker 1: if you were to say, what's that distribution for, which 83 00:05:16,279 --> 00:05:20,400 Speaker 1: is more of a political question, It is for um 84 00:05:20,720 --> 00:05:25,800 Speaker 1: UH child enablement, it is for schools, it is for hospitals, 85 00:05:25,839 --> 00:05:31,040 Speaker 1: it iss for UH for that so UM, the Federal 86 00:05:31,080 --> 00:05:36,159 Speaker 1: Reserve would say, we're just going above their inflation targets, 87 00:05:36,200 --> 00:05:38,839 Speaker 1: not by much. If you look at indicators like the 88 00:05:38,960 --> 00:05:41,919 Speaker 1: break even inflation rate, it's about two and a half percent, 89 00:05:42,200 --> 00:05:46,320 Speaker 1: and they would say not yet. But the important thing 90 00:05:46,440 --> 00:05:49,760 Speaker 1: to convey here on inflation is that there are two 91 00:05:49,839 --> 00:05:53,680 Speaker 1: types of inflation. Okay, I just want to make this clear. 92 00:05:54,400 --> 00:05:57,800 Speaker 1: We're used to one type of inflation, which is when 93 00:05:57,800 --> 00:06:02,680 Speaker 1: the economy is too hot, um, there's a capacity constraint, 94 00:06:02,760 --> 00:06:07,040 Speaker 1: and when demand presses up against existing capacity, prices rise, 95 00:06:07,760 --> 00:06:10,640 Speaker 1: unemployment rates a loow, and so forth. There is a 96 00:06:10,920 --> 00:06:14,800 Speaker 1: thing called a monetary inflation. That's when you can have 97 00:06:15,200 --> 00:06:21,080 Speaker 1: stag inflation. And that monetary inflation means that even when 98 00:06:21,080 --> 00:06:26,960 Speaker 1: the economy weakens, inflation rates rise because there's too much inflation, 99 00:06:27,040 --> 00:06:28,920 Speaker 1: and there's the move out of that thanks to rate 100 00:06:28,960 --> 00:06:32,760 Speaker 1: vario Co chairman and co c i O of Bridgewater Associates. 101 00:06:33,320 --> 00:06:36,520 Speaker 1: Coming up what one point nine trillion dollars and vaccinations 102 00:06:36,560 --> 00:06:39,839 Speaker 1: mean for the real economy. We hear from Brian moynihan, 103 00:06:39,960 --> 00:06:43,200 Speaker 1: chairman and CEO of Bank of America about what all 104 00:06:43,320 --> 00:06:47,560 Speaker 1: this growth means for his customers and the prospect of inflation. 105 00:06:48,200 --> 00:06:56,440 Speaker 1: That's next on Wall Street Read on Bloomberg. This is 106 00:06:56,480 --> 00:07:01,320 Speaker 1: Bloomberg Wall Street Weeks Inflation special. We've David weinsted from 107 00:07:01,440 --> 00:07:04,640 Speaker 1: Bloomberg Radio. Everybody pretty much agrees that the vaccine is 108 00:07:04,680 --> 00:07:07,040 Speaker 1: going into people's arms, and the one point nine trillion 109 00:07:07,080 --> 00:07:10,280 Speaker 1: dollars going into the economy are going to trigger remarkable 110 00:07:10,360 --> 00:07:13,480 Speaker 1: growth this year. The question is how much and how 111 00:07:13,560 --> 00:07:17,680 Speaker 1: we can handle that much growth without triggering inflation, which 112 00:07:17,680 --> 00:07:19,800 Speaker 1: is what we asked Bank of America Chairman and CEO 113 00:07:20,200 --> 00:07:24,600 Speaker 1: Ryan Wynihan. Our team has the US growth predicted Canadas 114 00:07:24,600 --> 00:07:27,680 Speaker 1: Browning plat and the number one research platform for many 115 00:07:27,680 --> 00:07:30,239 Speaker 1: of the last decade, In years since I've been CEO, 116 00:07:30,720 --> 00:07:33,120 Speaker 1: they do a terrific job. They have the US growing 117 00:07:33,120 --> 00:07:36,600 Speaker 1: at six and a half percent for one and around five, 118 00:07:36,680 --> 00:07:39,080 Speaker 1: five and a half or twenty two. Now you have 119 00:07:39,120 --> 00:07:42,400 Speaker 1: to step back and think about that. That's an economy 120 00:07:42,400 --> 00:07:45,360 Speaker 1: basically the same size that was coming into the middle 121 00:07:45,440 --> 00:07:47,920 Speaker 1: to the end of eighteen, which was pretty good times 122 00:07:47,960 --> 00:07:50,440 Speaker 1: in the US predicted to go three times a rate 123 00:07:51,040 --> 00:07:54,480 Speaker 1: with an interest rate environment that is probably half or 124 00:07:54,520 --> 00:07:56,560 Speaker 1: lower than it was. And I there's all the angst 125 00:07:56,600 --> 00:07:58,680 Speaker 1: about the ten year moving to one sixty, but at 126 00:07:58,720 --> 00:08:00,640 Speaker 1: that point it was two and a half moving towards three. 127 00:08:00,920 --> 00:08:03,720 Speaker 1: I think in a FED funds rate was much higher 128 00:08:03,720 --> 00:08:06,000 Speaker 1: than is now. So think about the amount of accommodation, 129 00:08:06,040 --> 00:08:07,840 Speaker 1: and then you add to one point nine trillion dollars 130 00:08:07,840 --> 00:08:10,240 Speaker 1: stimulus on top of it, plus the stimulus is still 131 00:08:10,240 --> 00:08:12,520 Speaker 1: on spent. So when you put that all together and 132 00:08:12,560 --> 00:08:15,240 Speaker 1: then the stimulus frankly from people going back to work 133 00:08:15,240 --> 00:08:18,680 Speaker 1: as economy opens, you know, the team is a six 134 00:08:18,720 --> 00:08:21,360 Speaker 1: and a half percent and a huge economy. You know 135 00:08:21,360 --> 00:08:23,800 Speaker 1: in the US growing faster in the world economies predicted 136 00:08:23,840 --> 00:08:26,880 Speaker 1: they've got five for the world. If you think about that, 137 00:08:26,880 --> 00:08:29,800 Speaker 1: that is a pretty powerful engine that has already recovered 138 00:08:29,800 --> 00:08:34,520 Speaker 1: about seven percent of where it was and now is 139 00:08:35,080 --> 00:08:38,400 Speaker 1: growing at three times or eight. That's a pretty powerful prediction. 140 00:08:38,440 --> 00:08:41,280 Speaker 1: And our team is quite convinced it's all there well, 141 00:08:41,400 --> 00:08:43,280 Speaker 1: and that raises the question a lot of people are asking, 142 00:08:43,360 --> 00:08:45,880 Speaker 1: is is it possible we may be overheating the economy 143 00:08:45,920 --> 00:08:48,040 Speaker 1: because we also have been increasing the money supply. I 144 00:08:48,040 --> 00:08:51,520 Speaker 1: think it's up year over year the m two it's 145 00:08:51,520 --> 00:08:53,520 Speaker 1: been held down the inflation because there hasn't been much 146 00:08:53,520 --> 00:08:55,679 Speaker 1: reloscity because people are at home. What happens when they 147 00:08:55,720 --> 00:08:58,040 Speaker 1: come out of home. In fact, some of those deposits 148 00:08:58,080 --> 00:09:00,000 Speaker 1: you talked about that didn't spend all those stimulus texts, 149 00:09:00,000 --> 00:09:01,800 Speaker 1: they haven't sitting there in their bank account. Are you 150 00:09:01,800 --> 00:09:04,440 Speaker 1: worried we could get inflation That would be troubling. Well, 151 00:09:04,559 --> 00:09:06,240 Speaker 1: that's part of the discussion to see in the market. 152 00:09:06,280 --> 00:09:08,360 Speaker 1: But let me just tell you what we're seeing our customer, 153 00:09:08,400 --> 00:09:10,839 Speaker 1: very Stavid. It will help you think about that. If 154 00:09:10,840 --> 00:09:14,400 Speaker 1: you think about last year up till March ninth or tenth, 155 00:09:14,679 --> 00:09:17,520 Speaker 1: that was before any activities had taken the shutdown and 156 00:09:18,320 --> 00:09:20,880 Speaker 1: we're all hearing about this virus and learning about it. 157 00:09:20,920 --> 00:09:23,439 Speaker 1: It was really the March fifteenth and out where people 158 00:09:23,440 --> 00:09:26,560 Speaker 1: started taking at the government level and in the employee 159 00:09:26,640 --> 00:09:29,800 Speaker 1: level of significant actions. If you look at that period 160 00:09:29,800 --> 00:09:33,680 Speaker 1: of time twenty two thousand, twenty over nineteen grew you know, 161 00:09:33,720 --> 00:09:37,959 Speaker 1: double digit, say ten percent. When you look at it one, 162 00:09:38,280 --> 00:09:40,640 Speaker 1: we're now growing at six percent. And if you look 163 00:09:40,679 --> 00:09:42,560 Speaker 1: at it for the month of March, for the first 164 00:09:42,559 --> 00:09:47,040 Speaker 1: part of March here, it's actually growing above that's pretty unbelievable. 165 00:09:47,040 --> 00:09:49,440 Speaker 1: And what you're frankly seeing now is the chart the 166 00:09:49,520 --> 00:09:52,000 Speaker 1: credit card charges, which had been depressed because there's a 167 00:09:52,000 --> 00:09:54,959 Speaker 1: lot of travel entertainment, are back and actually growing year 168 00:09:54,960 --> 00:09:58,440 Speaker 1: every year, growing year every year of time pre pandemic shutdown. 169 00:09:58,840 --> 00:10:01,360 Speaker 1: And so you're gonna see massive your your comparisons as 170 00:10:01,360 --> 00:10:03,800 Speaker 1: you moved into April when everything was shut down. So 171 00:10:03,960 --> 00:10:06,480 Speaker 1: the raity is the consumers at Bank of America, which 172 00:10:06,520 --> 00:10:09,679 Speaker 1: is you know, fifty million people spending three trillion dollars 173 00:10:09,679 --> 00:10:12,160 Speaker 1: plus a year, and all these different forms are spending 174 00:10:12,200 --> 00:10:14,720 Speaker 1: more money than they did last year in growing at 175 00:10:14,720 --> 00:10:17,800 Speaker 1: ten percent, and that was before the pandemic. That bodes well. 176 00:10:17,920 --> 00:10:19,920 Speaker 1: And then if you look at the charges, you can 177 00:10:19,920 --> 00:10:22,520 Speaker 1: see like on a credit card, the seniors and boomers 178 00:10:22,559 --> 00:10:25,760 Speaker 1: are getting vaccinated. We're up fifty in charges over the 179 00:10:25,840 --> 00:10:28,720 Speaker 1: last few weeks. In terms of travel and related things. 180 00:10:28,760 --> 00:10:32,040 Speaker 1: You're seeing the TSA statistics, so the types of things 181 00:10:32,080 --> 00:10:34,320 Speaker 1: are happy now. By the way, grocery stores are down 182 00:10:34,360 --> 00:10:37,760 Speaker 1: a little bit. Why because people shifted more to restaurants 183 00:10:37,760 --> 00:10:40,280 Speaker 1: and that's all bodes well for normalization economy. So we 184 00:10:40,360 --> 00:10:43,120 Speaker 1: see that very good. Does that overheat the economy? I 185 00:10:43,160 --> 00:10:45,079 Speaker 1: think you've heard it from Chair Pow. In many cases 186 00:10:45,080 --> 00:10:47,120 Speaker 1: they're willing to take the risk to get the you know, 187 00:10:47,280 --> 00:10:50,200 Speaker 1: the average inflation rate above two percent. There are people 188 00:10:50,280 --> 00:10:52,760 Speaker 1: concerned in the market. We all have that concern because inflation. 189 00:10:52,800 --> 00:10:55,160 Speaker 1: Inflation is tough to fight if it gets embedded in there. 190 00:10:55,480 --> 00:10:59,000 Speaker 1: But our economists or have raised or projections from four 191 00:10:59,040 --> 00:11:01,920 Speaker 1: percent to six percent really ninety days, and I think 192 00:11:02,120 --> 00:11:04,480 Speaker 1: likewise other people will do so. And Brian, that's part 193 00:11:04,520 --> 00:11:05,840 Speaker 1: of what I want to ask. You refer to the 194 00:11:05,880 --> 00:11:09,080 Speaker 1: tenure yield of being over one point six now and historically, 195 00:11:09,120 --> 00:11:11,080 Speaker 1: as you point out, that's not that high. Goodness knows, 196 00:11:11,320 --> 00:11:13,360 Speaker 1: but it went up very fast, and some people think 197 00:11:13,360 --> 00:11:15,480 Speaker 1: it's on its way to go higher than that. Are 198 00:11:15,520 --> 00:11:18,120 Speaker 1: you concerned about the rapidity with which it's going up? 199 00:11:18,160 --> 00:11:19,640 Speaker 1: And by the way, where do you think it ends up? 200 00:11:19,920 --> 00:11:22,600 Speaker 1: You know, our team basically thinks that it's gonna potentially 201 00:11:22,640 --> 00:11:26,040 Speaker 1: go through two percent um, and we'll see, we'll see it, 202 00:11:26,200 --> 00:11:28,839 Speaker 1: but it's it's the reason that's going up is because 203 00:11:28,880 --> 00:11:31,400 Speaker 1: people are seeing the economy recovery. In the end of 204 00:11:31,400 --> 00:11:33,520 Speaker 1: the day, this is the healthcare crisis, and we had 205 00:11:33,520 --> 00:11:35,360 Speaker 1: to win the war on the healthcare crisis. It's the 206 00:11:35,440 --> 00:11:38,840 Speaker 1: first way I thought about it, and I thought about 207 00:11:38,840 --> 00:11:40,200 Speaker 1: it ever since. If we have to win the war 208 00:11:40,240 --> 00:11:42,679 Speaker 1: against the fires, and they have done that, and they 209 00:11:42,679 --> 00:11:45,040 Speaker 1: haven't completed it yet, but we have the pieces in place. 210 00:11:45,200 --> 00:11:48,360 Speaker 1: The vaccines are game changer and being deployed a hundred 211 00:11:48,400 --> 00:11:51,640 Speaker 1: million shots and arms, which is unbelievable, thirty million sitting 212 00:11:51,640 --> 00:11:53,560 Speaker 1: on shelves that need to be deployed, and then many 213 00:11:53,600 --> 00:11:56,280 Speaker 1: coming after it. So I think there's concern about that. 214 00:11:56,440 --> 00:11:58,520 Speaker 1: I think it will play out a little bit, David, 215 00:11:58,520 --> 00:12:00,760 Speaker 1: and I think we have to watch it. But it 216 00:12:00,840 --> 00:12:02,840 Speaker 1: went up, but it's still back to where it was, 217 00:12:03,080 --> 00:12:05,800 Speaker 1: you know, only a few months before when it fell 218 00:12:06,440 --> 00:12:09,040 Speaker 1: down into the sixty eight range, And so I think 219 00:12:09,080 --> 00:12:11,000 Speaker 1: people have to be careful about these movements are just 220 00:12:11,040 --> 00:12:12,960 Speaker 1: to get it back in line where it was, even 221 00:12:12,960 --> 00:12:14,800 Speaker 1: at a very low level. If you don't look in 222 00:12:14,800 --> 00:12:17,040 Speaker 1: the last decade and then go back from two thousand 223 00:12:17,040 --> 00:12:19,760 Speaker 1: and seven backwards and try to count the number of 224 00:12:19,840 --> 00:12:21,880 Speaker 1: days a tenure trade of below three percent, you won't 225 00:12:21,920 --> 00:12:25,280 Speaker 1: find a lot. And so as economy normalizes and growth 226 00:12:25,400 --> 00:12:27,679 Speaker 1: rate comes up and we get above two percent, I think, 227 00:12:27,840 --> 00:12:29,920 Speaker 1: you know, you'll see a little higher rate, but it's 228 00:12:29,960 --> 00:12:32,080 Speaker 1: still be in a great grand scheme of things, one 229 00:12:32,080 --> 00:12:34,280 Speaker 1: of the lowest rates we've seen in a long long time. 230 00:12:34,600 --> 00:12:36,640 Speaker 1: What does it mean for Bank of America's business specifically? 231 00:12:36,640 --> 00:12:38,520 Speaker 1: You and I have talked in the past. You are 232 00:12:38,880 --> 00:12:41,960 Speaker 1: a traditional bank, You take deposits. The shape of yield 233 00:12:41,960 --> 00:12:44,160 Speaker 1: curve matters to you. It was flat for a long time, 234 00:12:44,200 --> 00:12:46,560 Speaker 1: even inverted for a minute or two, and now it 235 00:12:46,679 --> 00:12:48,920 Speaker 1: is really steepening quite a bit. What does that mean, 236 00:12:48,920 --> 00:12:51,640 Speaker 1: for example, for net insterest margin? Your chief financial officer 237 00:12:51,720 --> 00:12:53,920 Speaker 1: said he's pretty confident about that. Is it looking good 238 00:12:54,000 --> 00:12:56,839 Speaker 1: for Bank of America. Yeah. We we saw the trough 239 00:12:56,840 --> 00:12:59,560 Speaker 1: in the third quarter of twenty and we still see 240 00:12:59,559 --> 00:13:01,439 Speaker 1: that as a trought, and we see it coming back, 241 00:13:01,480 --> 00:13:03,120 Speaker 1: and by the end of the year it's back to 242 00:13:03,120 --> 00:13:05,679 Speaker 1: where sort it was pre pandemic, but it's much different. 243 00:13:05,720 --> 00:13:07,920 Speaker 1: It's driven more by the sheer volume of deposits. Our 244 00:13:07,960 --> 00:13:10,480 Speaker 1: team has done a great job and driving our deposit 245 00:13:10,559 --> 00:13:13,840 Speaker 1: franchise across the rover trillion eight and deposits. So the 246 00:13:13,920 --> 00:13:16,280 Speaker 1: loans are still down and what we're finally seeing as 247 00:13:16,320 --> 00:13:18,720 Speaker 1: the loans are stabilizing. This is one of the good 248 00:13:18,720 --> 00:13:21,240 Speaker 1: pieces of news. We expected a month of March we 249 00:13:21,280 --> 00:13:24,160 Speaker 1: will cross over to where we're producing more small business 250 00:13:24,160 --> 00:13:27,400 Speaker 1: credit in that month than we did before the pandemic 251 00:13:27,480 --> 00:13:29,280 Speaker 1: and that that's been a long haul. So that's you know, 252 00:13:29,320 --> 00:13:32,800 Speaker 1: thirteen twelve, thirteen months, and so we're seeing some loan 253 00:13:32,840 --> 00:13:35,480 Speaker 1: demand coming in. With capital markets demand has been outstanding 254 00:13:35,480 --> 00:13:37,800 Speaker 1: and huge as you've seen, but in terms of core 255 00:13:37,880 --> 00:13:41,640 Speaker 1: middle market borrowers, they they're starting to it's flattened out 256 00:13:41,679 --> 00:13:44,240 Speaker 1: and that's good. So R and I is affected buyer deposits, 257 00:13:44,240 --> 00:13:46,680 Speaker 1: which are growing very strongly. Again, we'll grow because of 258 00:13:46,679 --> 00:13:49,040 Speaker 1: all the stimulus coming in, but importantly is to get 259 00:13:49,040 --> 00:13:51,320 Speaker 1: loan growth, and we're starting to see that stabilize and 260 00:13:51,400 --> 00:13:54,360 Speaker 1: that looks good for us going forward. The shape the 261 00:13:54,400 --> 00:13:56,480 Speaker 1: O curve, you know, with short rates come up, that 262 00:13:56,640 --> 00:13:58,720 Speaker 1: actually helps us a lot because we have a huge 263 00:13:58,760 --> 00:14:02,160 Speaker 1: amount of non intersparing deposits that don't reprice but but 264 00:14:02,240 --> 00:14:04,360 Speaker 1: that's life of being a great bank and being the 265 00:14:04,360 --> 00:14:06,840 Speaker 1: ability to top deposit gathering bank in the United States 266 00:14:06,840 --> 00:14:09,960 Speaker 1: thanks to Brian moynihan, Chairman and CEO of Back of America. 267 00:14:10,240 --> 00:14:13,480 Speaker 1: Coming up the great Krugman Summers debate over the risk 268 00:14:13,520 --> 00:14:17,040 Speaker 1: of inflation, we hear the doubbish side from Nobel Laureate 269 00:14:17,120 --> 00:14:20,480 Speaker 1: Paul Krugmann. That's next on Wall Street Week on Bloomberg 270 00:14:25,920 --> 00:14:30,280 Speaker 1: z is Bloomberg Wall Street Weeks Inflation Special with David 271 00:14:30,280 --> 00:14:33,560 Speaker 1: Weston from Bloomberg Radio. The question of what the one 272 00:14:33,600 --> 00:14:36,640 Speaker 1: point nine trillion dollar fiscal injection will meet for VIEUS 273 00:14:36,640 --> 00:14:39,280 Speaker 1: economy has generated something of a debate between two of 274 00:14:39,280 --> 00:14:42,960 Speaker 1: our most respected economists, former Treasury Secretary Larry Summers of 275 00:14:43,000 --> 00:14:47,080 Speaker 1: Harvard and Nobel Laureate Paul Krugman. Each recognizes that the 276 00:14:47,120 --> 00:14:50,040 Speaker 1: other has a point, but they have a decided difference 277 00:14:50,080 --> 00:14:53,600 Speaker 1: in emphasis, with Larry concerned were underestimating the risk of 278 00:14:53,640 --> 00:14:56,480 Speaker 1: inflation and Paul saying it's not as big a risk 279 00:14:56,520 --> 00:14:59,680 Speaker 1: as Larry suggests. So we went to the sources themselves, 280 00:14:59,720 --> 00:15:02,520 Speaker 1: and first, as Paul whether in part the problem is 281 00:15:02,560 --> 00:15:06,360 Speaker 1: that we are very much an uncharted territory Okay, this 282 00:15:06,440 --> 00:15:08,400 Speaker 1: is a it's it's a lot of money. I mean 283 00:15:08,480 --> 00:15:11,840 Speaker 1: even um, you know, uh, even for an economy the 284 00:15:11,880 --> 00:15:14,240 Speaker 1: sives the US at one point n actually in here, 285 00:15:14,240 --> 00:15:16,400 Speaker 1: at one point actually in there, and soon you're talking 286 00:15:16,400 --> 00:15:20,000 Speaker 1: about real money, and it's a. UM. If it was 287 00:15:20,160 --> 00:15:24,040 Speaker 1: designed as a fiscal stimulus, it would be a very 288 00:15:24,200 --> 00:15:27,760 Speaker 1: very big fiscal stimulus. Now it's actually not really designed 289 00:15:27,800 --> 00:15:30,520 Speaker 1: that way. Large parts of it are probably not going 290 00:15:30,600 --> 00:15:34,000 Speaker 1: to have a very big, certainly short term multiplier effect 291 00:15:34,040 --> 00:15:37,080 Speaker 1: on the economy. So it is going to boost the economy. 292 00:15:37,280 --> 00:15:41,680 Speaker 1: It's uh, we're going to you know, the consensus forecasts 293 00:15:41,720 --> 00:15:45,280 Speaker 1: are for five and a half six percent growth over 294 00:15:45,320 --> 00:15:48,960 Speaker 1: the course of this year. Some estimates are running higher 295 00:15:49,000 --> 00:15:53,080 Speaker 1: than that. Um. Most of those estimates suggest that we're 296 00:15:53,120 --> 00:15:57,680 Speaker 1: going to be pretty much at full employment by early 297 00:15:57,800 --> 00:16:01,880 Speaker 1: next year, which is uh, which is a good thing. 298 00:16:02,160 --> 00:16:05,480 Speaker 1: Does mean that it's not silly to think that there 299 00:16:05,560 --> 00:16:08,520 Speaker 1: might be some inflationary pressure. But it does not look 300 00:16:09,120 --> 00:16:11,000 Speaker 1: at least as I read it, and I said, I 301 00:16:11,000 --> 00:16:13,800 Speaker 1: think as the consensus of the Wall Street economists read 302 00:16:13,840 --> 00:16:17,440 Speaker 1: it like it's a major inflationary threat. Well, and shared 303 00:16:17,480 --> 00:16:20,480 Speaker 1: pou has said, yes, there will be some uptickings and prices, 304 00:16:20,520 --> 00:16:23,680 Speaker 1: but it will be as he says, transitory. Yeah, how 305 00:16:23,720 --> 00:16:26,280 Speaker 1: will you, as an economist look at the data decide 306 00:16:26,320 --> 00:16:30,080 Speaker 1: whether it's transitory or more than transitory. Well, first of all, 307 00:16:30,120 --> 00:16:33,200 Speaker 1: we're gonna look at things. One of the concepts that 308 00:16:33,240 --> 00:16:36,920 Speaker 1: has really really worked over the past fifteen years is 309 00:16:36,960 --> 00:16:40,720 Speaker 1: core inflation. Uh. It's it's not the only thing to 310 00:16:40,760 --> 00:16:44,080 Speaker 1: look at, but taking out food and energy and maybe 311 00:16:44,120 --> 00:16:47,120 Speaker 1: some other things. Look at look at stuff that's obviously 312 00:16:47,200 --> 00:16:52,280 Speaker 1: just supply bottlenecks. Um, the you know, wood prices are 313 00:16:52,280 --> 00:16:56,320 Speaker 1: way up. That's not a sustained inflationary issue. That's because 314 00:16:56,320 --> 00:16:58,960 Speaker 1: we've had a surge in demand. And uh, and we'll 315 00:16:59,040 --> 00:17:01,960 Speaker 1: deal with It's we want to look at underlying measures 316 00:17:02,000 --> 00:17:05,439 Speaker 1: of inflation. You want to look at wages. Um. You 317 00:17:05,520 --> 00:17:09,160 Speaker 1: want to just generally say, is this is this looking 318 00:17:09,400 --> 00:17:14,920 Speaker 1: like the build up to the seventies? And um, you know, 319 00:17:15,000 --> 00:17:17,840 Speaker 1: my guess is it's very unlikely to look like that. 320 00:17:17,960 --> 00:17:21,480 Speaker 1: It's our kind of worst case scenario. The closest I 321 00:17:21,480 --> 00:17:25,120 Speaker 1: can come to this and is something like the Korean War, 322 00:17:25,440 --> 00:17:29,720 Speaker 1: which actually did lead to a one year spiking inflation, 323 00:17:29,760 --> 00:17:33,560 Speaker 1: but then inflation quickly subsided back to uh to an 324 00:17:33,640 --> 00:17:37,320 Speaker 1: underlying reative around two percent, and that's that's the worst case. 325 00:17:37,320 --> 00:17:38,760 Speaker 1: I don't think this is going to be nearly as 326 00:17:38,800 --> 00:17:43,440 Speaker 1: inflationary as that the similars to the economy will come 327 00:17:43,480 --> 00:17:47,040 Speaker 1: not just from one but also it looks like from 328 00:17:47,080 --> 00:17:49,600 Speaker 1: the vaccines really kicking in a big way. I mean, 329 00:17:49,600 --> 00:17:52,679 Speaker 1: we've had I think a suppression of demand, not just supply, 330 00:17:52,960 --> 00:17:55,360 Speaker 1: because people have been getting checks and haven't been able 331 00:17:55,400 --> 00:17:57,080 Speaker 1: to spend it the way they would have otherwise because 332 00:17:57,080 --> 00:17:59,639 Speaker 1: they're locked up at home, the restaurants aren't open, they 333 00:17:59,640 --> 00:18:02,919 Speaker 1: can't go on flights. Does that give you some pause 334 00:18:02,960 --> 00:18:05,800 Speaker 1: here that we could have a rapid uptake but real 335 00:18:05,880 --> 00:18:08,359 Speaker 1: demand a lot of dollars searching the same number of 336 00:18:08,359 --> 00:18:11,920 Speaker 1: services and goods really quickly. Yeah. So though the it's 337 00:18:12,040 --> 00:18:15,080 Speaker 1: two sided. I mean, the pandemic has prevented people from 338 00:18:15,119 --> 00:18:18,879 Speaker 1: spending in the way they uh, they would have normally, 339 00:18:18,880 --> 00:18:22,200 Speaker 1: but it's also preventing some goods and services from being 340 00:18:22,720 --> 00:18:25,119 Speaker 1: supplied in the way they would have. So on the 341 00:18:25,160 --> 00:18:29,680 Speaker 1: one hand, uh, yeah, people will start eating in restaurants again. 342 00:18:30,080 --> 00:18:32,280 Speaker 1: On the other hand, restaurants will be able to start 343 00:18:32,280 --> 00:18:35,040 Speaker 1: serving meals again. So there's a there's both the demand 344 00:18:35,080 --> 00:18:38,679 Speaker 1: and the supply effect from the vaccines and on. On 345 00:18:38,800 --> 00:18:42,520 Speaker 1: balance is probably somewhat inflationary because some of that increased 346 00:18:42,520 --> 00:18:44,879 Speaker 1: spending will spill over to other stuff. But it's not 347 00:18:45,000 --> 00:18:48,240 Speaker 1: nearly as much as just looking at the growth numbers 348 00:18:48,560 --> 00:18:52,119 Speaker 1: is is not getting the whole story. We we are 349 00:18:52,240 --> 00:18:54,600 Speaker 1: right now have an economy that that is depressed in 350 00:18:54,720 --> 00:18:58,840 Speaker 1: part because of supply constraints that will go away as 351 00:18:58,920 --> 00:19:02,320 Speaker 1: the as facts ation spreads. So you've been in a 352 00:19:02,359 --> 00:19:05,560 Speaker 1: fairly famous now debate with Larry Summers over the risk 353 00:19:05,600 --> 00:19:07,240 Speaker 1: of inflation. And in the fairness to Larry, he's not 354 00:19:07,280 --> 00:19:09,240 Speaker 1: saying it's a certain thing, it's just something he thinks 355 00:19:09,280 --> 00:19:12,679 Speaker 1: it's a serious problem. We have. One of the issues, 356 00:19:12,680 --> 00:19:14,760 Speaker 1: as I understand it, is how you look at it, 357 00:19:14,800 --> 00:19:17,280 Speaker 1: what the model is you apply. As you said, this 358 00:19:17,359 --> 00:19:20,360 Speaker 1: is not a typical situation of a downturn. This is special. 359 00:19:20,520 --> 00:19:22,920 Speaker 1: It's more like a natural disaster or even a war. 360 00:19:24,080 --> 00:19:26,520 Speaker 1: I guess my question really is do we have a 361 00:19:26,560 --> 00:19:29,200 Speaker 1: model that covers this? Do we know what the likely 362 00:19:29,200 --> 00:19:33,399 Speaker 1: effect on inflation would be? Given that it is Sue generous, Well, no, 363 00:19:34,200 --> 00:19:35,800 Speaker 1: this is it's very hard to come up with a 364 00:19:35,880 --> 00:19:38,240 Speaker 1: historical parallel. Actually, one of the funny things I just 365 00:19:38,240 --> 00:19:40,159 Speaker 1: want to say about the debate between me and Larry 366 00:19:40,359 --> 00:19:44,960 Speaker 1: is that we conceptually have very similar views of the economy. 367 00:19:45,040 --> 00:19:49,160 Speaker 1: We're just making some different judgments about the numbers. Uh 368 00:19:49,200 --> 00:19:51,320 Speaker 1: it really, I don't. I don't think you can take 369 00:19:51,320 --> 00:19:53,320 Speaker 1: a look at at the way he's talking about it 370 00:19:53,359 --> 00:19:55,040 Speaker 1: in the way I'm talking about and say that there's 371 00:19:55,040 --> 00:19:58,280 Speaker 1: a fundamental difference in economic philosophy. There is really a 372 00:19:58,359 --> 00:20:01,760 Speaker 1: judgment about the numbers and think that if I was 373 00:20:01,800 --> 00:20:03,480 Speaker 1: going to make my case, I would say I would 374 00:20:03,520 --> 00:20:08,440 Speaker 1: say I would look at the form of this one 375 00:20:08,480 --> 00:20:11,280 Speaker 1: point nine trillion dollars and say that a lot of 376 00:20:11,320 --> 00:20:15,040 Speaker 1: it is, in fact, although useful in important ways, is 377 00:20:15,119 --> 00:20:18,359 Speaker 1: not going to be uh, pushing up demand all that 378 00:20:18,440 --> 00:20:20,919 Speaker 1: much in the short run. That was Paul Krugman, author 379 00:20:21,040 --> 00:20:24,880 Speaker 1: of Arguing with Zombies. Coming up, we'll hear the other 380 00:20:24,920 --> 00:20:27,600 Speaker 1: side of the debate from our special contributor Larry Summers 381 00:20:27,640 --> 00:20:30,800 Speaker 1: of Harvard. That's next on Wall Street Week on Bloomberg. 382 00:20:34,000 --> 00:20:38,560 Speaker 1: This is Bloomberg Well Street Weeks Inflation Special with David 383 00:20:38,560 --> 00:20:42,560 Speaker 1: Weston from Bloomberg Radio. I don't think the right question 384 00:20:42,680 --> 00:20:45,920 Speaker 1: is whether this package would overheat the economy. I think 385 00:20:45,920 --> 00:20:51,359 Speaker 1: if we were passed as written, it would overheat the economy. 386 00:20:51,440 --> 00:20:56,000 Speaker 1: But will this shift the debate towards our doing more? 387 00:20:56,800 --> 00:21:01,000 Speaker 1: Will this shift the debate UH to words doing more 388 00:21:01,160 --> 00:21:03,360 Speaker 1: for those who have been left behind? And I think 389 00:21:03,440 --> 00:21:07,639 Speaker 1: they're on the answers yes, But we are going to 390 00:21:07,760 --> 00:21:10,919 Speaker 1: have to watch this economy very carefully. And I do 391 00:21:11,080 --> 00:21:20,399 Speaker 1: think the conventional wisdom is underestimating the risks of hitting capacity. 392 00:21:20,960 --> 00:21:23,400 Speaker 1: That was special contributor to Larry Summers here on Wall 393 00:21:23,440 --> 00:21:26,760 Speaker 1: Street week back in January. Now two months later, the 394 00:21:26,840 --> 00:21:29,520 Speaker 1: question is what has changed and whether the risk of 395 00:21:29,560 --> 00:21:33,720 Speaker 1: inflation is less or more than what Larry saw back then. David, 396 00:21:33,800 --> 00:21:38,120 Speaker 1: I'm I'm much more concerned. UH markets have had their 397 00:21:38,160 --> 00:21:41,679 Speaker 1: biggest increase in the ten year in a century, with 398 00:21:41,760 --> 00:21:47,160 Speaker 1: only one UH exception showing that they've got a real concern. 399 00:21:47,920 --> 00:21:51,960 Speaker 1: The fiscal policy outlook has dimmed from where it was 400 00:21:52,200 --> 00:21:56,600 Speaker 1: as the full stimulus that was contemplated then has passed. 401 00:21:57,119 --> 00:22:00,840 Speaker 1: People have declared that it's a new era in ways 402 00:22:00,920 --> 00:22:04,719 Speaker 1: that suggests that large fiscal policy will continue for a 403 00:22:04,760 --> 00:22:10,600 Speaker 1: long time UH to come. The COVID recovery has accelerated, 404 00:22:10,640 --> 00:22:14,640 Speaker 1: which is a very good thing but means more demand pressure. 405 00:22:15,240 --> 00:22:19,720 Speaker 1: And the FED has stuck to its guns on no 406 00:22:20,000 --> 00:22:24,560 Speaker 1: rate hikes for for years and years and continuing to 407 00:22:24,640 --> 00:22:27,760 Speaker 1: grow its balance sheet. So it seems to me that 408 00:22:28,359 --> 00:22:33,440 Speaker 1: what was kindling is now igniting, and I am much 409 00:22:33,480 --> 00:22:37,840 Speaker 1: more worried that we will have either inflation or we 410 00:22:37,880 --> 00:22:42,280 Speaker 1: will have a pretty dramatic fiscal monetary collision. Are we 411 00:22:42,400 --> 00:22:45,199 Speaker 1: mishandling macroock and policy right now in the United States? 412 00:22:46,359 --> 00:22:51,919 Speaker 1: I think this is the least responsible macro economic policies 413 00:22:52,040 --> 00:22:57,119 Speaker 1: we've had in the last forty years. I think fundamentally 414 00:22:57,160 --> 00:23:02,800 Speaker 1: it's driven by in try insigence on the Democratic left 415 00:23:03,520 --> 00:23:08,800 Speaker 1: and in transigence and completely unreasonable behavior in the whole 416 00:23:08,840 --> 00:23:12,960 Speaker 1: of the Republican Party. It's driven us to the kind 417 00:23:13,000 --> 00:23:17,240 Speaker 1: of political deals, uh that we're seeing, and their understandable, 418 00:23:17,280 --> 00:23:21,840 Speaker 1: and I understand why reasonable people, given the tragic choices 419 00:23:21,920 --> 00:23:27,879 Speaker 1: they have, might make these kinds of macro economic choices. 420 00:23:28,400 --> 00:23:32,560 Speaker 1: But I think we are running enormous risks. I would 421 00:23:32,600 --> 00:23:35,520 Speaker 1: put the risks this way, David. I think there's about 422 00:23:35,680 --> 00:23:40,119 Speaker 1: one third chance that inflation will significantly accelerate over the 423 00:23:40,119 --> 00:23:44,680 Speaker 1: next several years and will be in a stagflationary situation 424 00:23:45,320 --> 00:23:48,560 Speaker 1: like the one that materialized between nineteen sixty six and 425 00:23:48,640 --> 00:23:52,480 Speaker 1: nineteen sixty nine, where inflation went from the range of 426 00:23:52,560 --> 00:23:57,040 Speaker 1: ones to the range of UH sixes. I think there's 427 00:23:57,080 --> 00:24:00,359 Speaker 1: a one third chance that we won't see inflation, but 428 00:24:00,440 --> 00:24:02,560 Speaker 1: that the reason we won't see it is that the 429 00:24:02,600 --> 00:24:06,960 Speaker 1: Fed hits the brakes, hard markets get very unstable, the 430 00:24:07,000 --> 00:24:11,399 Speaker 1: economy skids downwards close to recession. I think there's about 431 00:24:11,400 --> 00:24:14,720 Speaker 1: a one third chance that the Fed and the Treasury 432 00:24:14,760 --> 00:24:18,760 Speaker 1: will get what they're hoping for and will get rapid growth, 433 00:24:18,800 --> 00:24:23,280 Speaker 1: which will moderate in a non inflationary way. But there 434 00:24:23,280 --> 00:24:28,919 Speaker 1: are more risks in this moment that macro economic policy 435 00:24:29,119 --> 00:24:35,080 Speaker 1: itself will cause grave consequences. Then. I can remember there 436 00:24:35,119 --> 00:24:39,080 Speaker 1: have been terribly serious moments in the past, but then 437 00:24:39,240 --> 00:24:44,160 Speaker 1: macro economic policy was trying to stabilize things. Now there's 438 00:24:44,200 --> 00:24:47,360 Speaker 1: the real risk that macro economic policy will be very 439 00:24:47,440 --> 00:24:51,640 Speaker 1: much destabilizing things. You and Paul Krugman have had an 440 00:24:51,640 --> 00:24:54,600 Speaker 1: extended debate, a constructive debate. I would say you agree 441 00:24:54,600 --> 00:24:56,520 Speaker 1: on a fair amount of things, although you disagree on 442 00:24:56,560 --> 00:24:58,720 Speaker 1: the edges. One of the things that Paul Krugman says, 443 00:24:58,800 --> 00:25:01,640 Speaker 1: is we don't have to worry about this inflation risk 444 00:25:01,720 --> 00:25:04,040 Speaker 1: quite so much because it takes a long time. If 445 00:25:04,040 --> 00:25:06,240 Speaker 1: you go back to the seventies, it took ten years 446 00:25:06,280 --> 00:25:08,359 Speaker 1: to really have it developed, and therefore there's plenty of 447 00:25:08,400 --> 00:25:12,040 Speaker 1: time for the FED to react. What's your response, He's 448 00:25:12,080 --> 00:25:15,760 Speaker 1: just wrong. Look at the nineteen sixty six to nineteen 449 00:25:15,800 --> 00:25:20,720 Speaker 1: sixty nine period before there were any supply shocks, when 450 00:25:20,720 --> 00:25:24,919 Speaker 1: William Machesney Martin was exuding much more concern about inflation 451 00:25:25,359 --> 00:25:30,359 Speaker 1: than J. Powell is today, when the Guns and Butter 452 00:25:30,480 --> 00:25:34,840 Speaker 1: of Lyndon Johnson was a very small fiscal expansion compared 453 00:25:34,880 --> 00:25:38,280 Speaker 1: to what we're seeing today, and when inflation went up 454 00:25:38,440 --> 00:25:43,679 Speaker 1: about four percentage points in uh A three three plus 455 00:25:43,800 --> 00:25:50,080 Speaker 1: year period. It's just wrong to say that, and this idea. 456 00:25:50,800 --> 00:25:57,160 Speaker 1: I don't understand how people say that expectations are anchored, 457 00:25:57,800 --> 00:26:01,440 Speaker 1: and they also say that we're an entirely new era 458 00:26:01,560 --> 00:26:05,919 Speaker 1: of policy where the neoliberal era is over and a 459 00:26:06,000 --> 00:26:09,600 Speaker 1: new progressive tide is behind us. If we're in an 460 00:26:09,760 --> 00:26:13,199 Speaker 1: entirely new era of policy, that I'd expect people to 461 00:26:13,240 --> 00:26:18,480 Speaker 1: reorient their expectations. So I don't really understand, Uh, the 462 00:26:18,680 --> 00:26:24,480 Speaker 1: logic of those who are serene right now. And to remind, 463 00:26:25,480 --> 00:26:30,639 Speaker 1: markets have had as dramatic a first quarter as any 464 00:26:30,640 --> 00:26:35,639 Speaker 1: time in the last century, except for night which was 465 00:26:35,680 --> 00:26:40,280 Speaker 1: of course presaged um all the chaos of the end 466 00:26:40,280 --> 00:26:47,000 Speaker 1: of the Carter years and then the terrible recession. So 467 00:26:47,080 --> 00:26:50,159 Speaker 1: I don't know how sanguine Chair J. Pale is, but 468 00:26:50,359 --> 00:26:52,320 Speaker 1: he has been saying. We heard from him yet again 469 00:26:52,400 --> 00:26:54,720 Speaker 1: this week. We don't have to worry about this risk 470 00:26:54,720 --> 00:26:57,040 Speaker 1: of inflation so much because there is slack in the 471 00:26:57,119 --> 00:26:59,680 Speaker 1: labor market. There is something like nine million people who 472 00:26:59,680 --> 00:27:02,000 Speaker 1: don't have a job today who did have one before 473 00:27:02,000 --> 00:27:04,320 Speaker 1: the pandemic. Does that give us a cushion against some 474 00:27:04,359 --> 00:27:07,000 Speaker 1: of the downside here? I don't. I don't think so, 475 00:27:07,160 --> 00:27:12,840 Speaker 1: and I don't understand why he finds that argument persuasive. Uh. 476 00:27:12,920 --> 00:27:16,240 Speaker 1: The nine ten eleven, whatever it is million people that 477 00:27:16,600 --> 00:27:23,760 Speaker 1: he estimates represents about six of the workforce. They have 478 00:27:23,960 --> 00:27:30,399 Speaker 1: lower wages than others, so they contribute less in just 479 00:27:30,560 --> 00:27:34,480 Speaker 1: productivity terms, So it corresponds to a gap of about 480 00:27:34,560 --> 00:27:39,199 Speaker 1: four percent in uh G d P. According to the 481 00:27:39,240 --> 00:27:43,639 Speaker 1: Fed Zone forecast, that gap will be closed by the 482 00:27:43,760 --> 00:27:48,679 Speaker 1: end of this year. And we're gonna still have zero 483 00:27:48,800 --> 00:27:53,680 Speaker 1: interest rates, We're still gonna have big budget deficits, We're 484 00:27:53,680 --> 00:27:59,280 Speaker 1: gonna have all the savings that he thinks in Paul 485 00:27:59,359 --> 00:28:02,320 Speaker 1: Krugman thing are going to be generated by this stimulus 486 00:28:02,680 --> 00:28:06,199 Speaker 1: that's gonna get spent at some point, likely two and 487 00:28:06,320 --> 00:28:12,600 Speaker 1: likely uh to overheat the economy. So look, nobody can 488 00:28:12,800 --> 00:28:18,560 Speaker 1: predict these things with great confidence. But I'm very concerned 489 00:28:19,080 --> 00:28:22,880 Speaker 1: that the inflation risks are high. And frankly, I'm concerned 490 00:28:23,440 --> 00:28:27,360 Speaker 1: that there are gonna be hundreds of PhD economists at 491 00:28:27,359 --> 00:28:30,160 Speaker 1: the BED who are going to be devoting their efforts 492 00:28:30,200 --> 00:28:34,720 Speaker 1: to explaining how any bad statistics are transient or distorted 493 00:28:34,760 --> 00:28:39,520 Speaker 1: in uh the statistics. And so I'm very worried, given 494 00:28:39,520 --> 00:28:43,800 Speaker 1: this new approach, that we're gonna be very slow in 495 00:28:43,880 --> 00:28:50,280 Speaker 1: any necessary responses to inflation. Um, if it comes. How 496 00:28:50,320 --> 00:28:54,440 Speaker 1: will the consequence of inflation express themselves to ordinary Americans. 497 00:28:55,040 --> 00:28:57,560 Speaker 1: I'm old enough to remember the eighties, and I remember 498 00:28:57,920 --> 00:29:00,720 Speaker 1: the real concerned, funny concerned. I remember mortgage rates at 499 00:29:00,760 --> 00:29:04,080 Speaker 1: eighteen and a half percent. I remember retiring is being 500 00:29:04,120 --> 00:29:07,080 Speaker 1: really concerned about living on a fixed income. How will 501 00:29:07,160 --> 00:29:12,120 Speaker 1: express itself this time? David look, we're not going to 502 00:29:12,200 --> 00:29:15,120 Speaker 1: have eighteen percent mortgage rates. We're not going to go 503 00:29:15,160 --> 00:29:19,440 Speaker 1: all the way back to the nineties seventies. I think 504 00:29:19,480 --> 00:29:22,560 Speaker 1: it's important to be concerned, but it's also important to 505 00:29:22,680 --> 00:29:28,080 Speaker 1: keep concerns in perspective. That's said, here's one aspect that 506 00:29:28,160 --> 00:29:33,800 Speaker 1: I'm struck by in the discussions of the statistics. The 507 00:29:33,840 --> 00:29:38,440 Speaker 1: rental um, the owner occupied housing part of the index 508 00:29:39,200 --> 00:29:42,960 Speaker 1: is something that's holding it way down and holding measured 509 00:29:43,000 --> 00:29:48,760 Speaker 1: inflation down. And yet across America, house prices are going 510 00:29:48,840 --> 00:29:51,760 Speaker 1: up faster than they have in a long time. And 511 00:29:51,800 --> 00:29:55,160 Speaker 1: given what's happened to treasury yields, mortgage yields are on 512 00:29:55,280 --> 00:29:58,880 Speaker 1: their way up, and refinancing opportunities are on their way 513 00:29:59,480 --> 00:30:04,120 Speaker 1: uh down. So I think for families thinking about the 514 00:30:04,200 --> 00:30:07,200 Speaker 1: cost of owning a home in all the ways they 515 00:30:07,240 --> 00:30:10,000 Speaker 1: would think about it, it's gonna be going up pretty 516 00:30:10,000 --> 00:30:14,520 Speaker 1: fast over the next year. And so if somehow policymakers 517 00:30:14,600 --> 00:30:22,040 Speaker 1: are taking consolation from some index that's showing some construction 518 00:30:22,640 --> 00:30:26,880 Speaker 1: of owner housing is holding down inflation, I don't think 519 00:30:26,920 --> 00:30:29,080 Speaker 1: that's gonna be a very comfortable thing. Thanks to a a 520 00:30:29,160 --> 00:30:33,000 Speaker 1: special contributor, Larry Summers of Harvard. Finally, one more thought, 521 00:30:33,480 --> 00:30:37,200 Speaker 1: and the winner is Hungary. There's an awful lot of 522 00:30:37,200 --> 00:30:40,440 Speaker 1: talk these days about inflation, about whether it's coming, about 523 00:30:40,440 --> 00:30:43,280 Speaker 1: whether it will last, about whether we'll get out of control. 524 00:30:43,880 --> 00:30:45,840 Speaker 1: For those of us old enough to remember the nineteen eighties, 525 00:30:45,920 --> 00:30:48,480 Speaker 1: it's not surprising that we get nervous about our money 526 00:30:48,560 --> 00:30:51,160 Speaker 1: growing less and less valuable. After all, some of us 527 00:30:51,280 --> 00:30:55,480 Speaker 1: actually had mortgages at over eight interest, and the burden 528 00:30:55,520 --> 00:30:59,080 Speaker 1: inflation places on savers and those unfixed incomes, and there 529 00:30:59,120 --> 00:31:02,480 Speaker 1: are more and more of us is very real. But 530 00:31:02,560 --> 00:31:05,840 Speaker 1: when it comes to serious inflation hyper inflation, the United 531 00:31:05,840 --> 00:31:08,520 Speaker 1: States has never been in the same league as some others. 532 00:31:09,080 --> 00:31:12,600 Speaker 1: Think about the French Revolution when inflation reached one and 533 00:31:12,640 --> 00:31:16,160 Speaker 1: forty three percent and that is a month, not a year, 534 00:31:16,800 --> 00:31:19,080 Speaker 1: or the Weimar Republic when it got up to twenty 535 00:31:19,360 --> 00:31:23,680 Speaker 1: thousand five a month, And note that just about every 536 00:31:23,720 --> 00:31:26,960 Speaker 1: instance of hyper inflation came tied to a war or 537 00:31:27,000 --> 00:31:31,480 Speaker 1: other armed conflict. But the top prize goes to Hungary when, 538 00:31:31,560 --> 00:31:33,920 Speaker 1: in the aftermath at World War Two, the Pengo fell 539 00:31:34,000 --> 00:31:39,600 Speaker 1: by thirteen point six quadrillion percent every month. Not surprisingly, 540 00:31:39,760 --> 00:31:42,560 Speaker 1: Hungry decided to ditch that currency altogether and moved to 541 00:31:42,560 --> 00:31:45,440 Speaker 1: the floor end. So even as we and the Fed 542 00:31:45,800 --> 00:31:49,280 Speaker 1: keep an eagle eye on those inflation expectations and the 543 00:31:49,320 --> 00:31:52,520 Speaker 1: break evens, we can take some comfort and just how 544 00:31:52,560 --> 00:31:56,160 Speaker 1: stable our currency really has been, at least so far. 545 00:31:57,320 --> 00:31:59,080 Speaker 1: That does it for this episode of Wall Street Week. 546 00:31:59,120 --> 00:32:01,920 Speaker 1: I'm David Weston. This is Bloomberg. See you next week, 547 00:32:05,640 --> 00:32:06,160 Speaker 1: m hm.