WEBVTT - Surveillance: Fed's Balance Sheet With Dudley 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg. Right now, 0:00:28.200 --> 0:00:30.880 we want to have a conversation with a former president 0:00:30.920 --> 0:00:33.760 of the New York Fed. As I said earlier, Bill 0:00:33.880 --> 0:00:36.600 Dudley has done a public service this morning. I believe 0:00:36.640 --> 0:00:39.839 it's a two part essay for Bloomberg Opinion, and it's 0:00:40.040 --> 0:00:45.000 essay today is a tourtive force of clarity on what 0:00:45.240 --> 0:00:49.000 we're doing moving from four trillion to seven trillion and 0:00:49.080 --> 0:00:52.720 indeed out to a possible ten trillion dollar balance sheet 0:00:53.240 --> 0:00:56.920 of our central Bank. Every ECON, one on one student 0:00:57.240 --> 0:01:01.240 should be required to read the Dudley as he built. Dudley, 0:01:01.360 --> 0:01:04.680 congratulations on the clarity that we've known for years from 0:01:04.760 --> 0:01:08.480 your work at Goldman Sachs. What is the singular distinction 0:01:09.000 --> 0:01:12.240 of what Chairman Powell needs to do forward with the 0:01:12.360 --> 0:01:16.000 presumed ten trillion dollar balance sheet. Well, what it means 0:01:16.080 --> 0:01:18.600 is we're going to have a lot of access reserves 0:01:18.600 --> 0:01:22.760 in the banking system allow of deposits in the banking system. Uh, 0:01:22.920 --> 0:01:25.959 and that that's going to create some anxiety that that 0:01:25.959 --> 0:01:29.240 that that fuel is going to lead to inflation. What 0:01:29.280 --> 0:01:32.000 are the implications the implications of when the fit by 0:01:32.080 --> 0:01:35.160 treasury securities and mortgage backed securities is the added amount 0:01:35.200 --> 0:01:38.120 of reserves and bank deposits in the system. The reserves 0:01:38.120 --> 0:01:41.600 have already doubled. Second implication is that that forces the 0:01:41.600 --> 0:01:45.040 private sector hold more cash and deposits than before. And 0:01:45.080 --> 0:01:47.440 the third implication is that the sense of private sector 0:01:47.480 --> 0:01:49.800 may not want to hold all that cash and deposits. 0:01:50.440 --> 0:01:55.840 That encourages them to move into higher riskier, higher yielding assets, 0:01:55.840 --> 0:01:58.960 and that pushes up asset prices. It does not, however, 0:01:59.120 --> 0:02:01.840 need lead to in lation because the fact can control 0:02:02.040 --> 0:02:04.800 credit demand by raising the interest rate that pays on 0:02:04.880 --> 0:02:08.040 reserves at the appropriate time. I will take your singular 0:02:08.080 --> 0:02:11.960 distinction that the FED can control this fear of inflation. 0:02:12.040 --> 0:02:15.000 And certainly, folks in two thousand and eight we saw 0:02:15.040 --> 0:02:19.480 the inflation nieces just dropped by the low inflation that 0:02:19.639 --> 0:02:23.080 surprised them. What I would point out, though, Bill Dudley, 0:02:23.200 --> 0:02:26.320 is all of our listeners and viewers on this simulcast 0:02:26.880 --> 0:02:30.519 understand the phrase, there's no such thing as a free lunch. 0:02:31.040 --> 0:02:34.240 What is the price of a distortion that is a 0:02:34.240 --> 0:02:37.320 ten trillion dollar balance sheet? Well, I mean, I think 0:02:37.360 --> 0:02:39.640 there's a couple of things. Number One, obviously, this has 0:02:39.680 --> 0:02:43.800 implications for financial asset prices, and so defend withdraws this 0:02:44.160 --> 0:02:47.560 liquidity that that's going to have some consequences for financial 0:02:47.560 --> 0:02:51.240 asset valuations. The second consequences of the FED is actually 0:02:51.280 --> 0:02:53.160 taking some risk in its balance sheet. I mean, if 0:02:53.160 --> 0:02:55.400 you think of the FED right now, it's a lot 0:02:55.400 --> 0:02:59.239 of long term assets financed overnight, and that's fine when 0:02:59.280 --> 0:03:01.520 in short term and rates aired zero. But if you 0:03:02.120 --> 0:03:04.119 run the clock ahead a few years and the set 0:03:04.160 --> 0:03:06.560 has to raise short term interest rates, you have a 0:03:06.600 --> 0:03:09.240 situation where short term, the cost of the other set 0:03:09.320 --> 0:03:13.000 of paying interest on reserves could actually exceed the returns 0:03:13.040 --> 0:03:15.120 on its portfolio, and so the FED could actually start 0:03:15.120 --> 0:03:17.760 to lose money. Bill you said, when the FED starts 0:03:17.800 --> 0:03:20.360 to reduce its balance sheet, when the FED starts to 0:03:20.440 --> 0:03:24.280 raise rates. Can the Fed ever do either of those things? Well, 0:03:24.400 --> 0:03:28.320 obviously all depends on the paths of the coronavirus pandemic 0:03:28.360 --> 0:03:32.040 and also how the economy response to that. I'm assuming 0:03:32.080 --> 0:03:33.880 that a few years from now we'll be back to 0:03:33.960 --> 0:03:36.160 a more normal economy, and when we when we're back 0:03:36.200 --> 0:03:39.040 to a more normal economy, will also be back to 0:03:39.160 --> 0:03:41.600 a more normal level of interest rates. Bill, we just 0:03:41.640 --> 0:03:44.360 got data showing that June is on pace for the 0:03:44.440 --> 0:03:48.600 fastest pace of issuance ever for US junk bond sales. 0:03:48.680 --> 0:03:52.400 What are the consequences of the debt being occurred by corporations, 0:03:52.480 --> 0:03:54.800 not to say the United States of America as a 0:03:54.800 --> 0:03:57.320 result of the FEDS policies. Well, the shore run, it 0:03:57.320 --> 0:04:00.520 means people have the cash and resources to stay in 0:04:00.600 --> 0:04:03.560 operation in the long run. Obviously, there's limits to how 0:04:03.640 --> 0:04:05.840 much that people can take on, so there's a risk 0:04:06.160 --> 0:04:08.880 of servicing that dead over the longer term. I mean, 0:04:08.920 --> 0:04:11.200 the set is worried about today and tomorrow and next 0:04:11.240 --> 0:04:14.040 week and next month. They're not so worried about what's 0:04:14.040 --> 0:04:15.720 going to happen in five years from now. But you 0:04:15.760 --> 0:04:19.040 know there will be a hangover from what we're experiencing today. 0:04:19.480 --> 0:04:22.559 I look, Mr Dudley at all that we've gone through, 0:04:22.839 --> 0:04:25.599 and I would suggest this was not in your textbooks 0:04:25.600 --> 0:04:29.960 at Berkeley years ago. It is unorthodox. Do you have 0:04:30.040 --> 0:04:34.480 a confidence in the belief of all of the smart 0:04:34.600 --> 0:04:37.480 people like you to get this fixed, even if we're 0:04:37.480 --> 0:04:41.839 working off original theory. Well, we've never gone down this 0:04:41.920 --> 0:04:44.640 particular path before, so I think Tom yet to be 0:04:44.680 --> 0:04:47.800 a little bit cautious and say, we don't know how 0:04:47.839 --> 0:04:50.560 this is all going to turn out. That said, it's 0:04:50.600 --> 0:04:53.200 certainly better than allowing the economy to sink beneath the 0:04:53.200 --> 0:04:55.880 way it's gonna have a full flown depression. So I 0:04:55.880 --> 0:04:58.640 think what the FET is doing is appropriate, but we 0:04:58.680 --> 0:05:00.400 don't yet know how this is all going to play 0:05:00.440 --> 0:05:02.840 out over the long run. Bill Dudley, I give Chairman 0:05:02.880 --> 0:05:06.400 Paul extremely high marks. Everybody grows into the position and 0:05:06.440 --> 0:05:09.560 the pressure of those very bright lights, and he's I think, 0:05:09.640 --> 0:05:12.800 really handling much better now the press conference, in the 0:05:12.839 --> 0:05:16.320 back and forth and the nuances of all this. But 0:05:16.440 --> 0:05:19.320 the thing that's out there is what if we receive 0:05:19.640 --> 0:05:23.680 some form of exogen is shock to the system given 0:05:23.720 --> 0:05:28.039 this balance sheet build up? Are we prepared for the 0:05:28.160 --> 0:05:30.400 not the next pandemic. I don't want to get all 0:05:30.480 --> 0:05:34.359 fiery in that, but are we prepared for any kind 0:05:34.400 --> 0:05:39.560 of exogen is shocked within our debt markets? Well? I 0:05:39.600 --> 0:05:41.480 think the FED has shown that they have a pretty 0:05:41.520 --> 0:05:45.280 wide array of tools to deal with market functioning issues, 0:05:45.320 --> 0:05:47.080 and I think one of the great successes in the 0:05:47.160 --> 0:05:49.359 last few months is that we had a lot of 0:05:49.400 --> 0:05:52.320 market stress in March going into April, and the FED 0:05:52.400 --> 0:05:56.560 introduced a number of special liquidity facilis that have actually 0:05:56.560 --> 0:05:59.800 caused markets to return to good functioning. So I think 0:05:59.800 --> 0:06:01.760 it tells you that the FED still has pretty good 0:06:01.960 --> 0:06:05.760 tools to deal with things like illiquidity. The problem I 0:06:05.760 --> 0:06:08.200 think we have fundamentally, though, is that the pandemic is 0:06:08.240 --> 0:06:12.080 causing harm to household and corporate balance sheets, and there's 0:06:12.160 --> 0:06:14.600 limits to what the FED can do with respect to 0:06:14.640 --> 0:06:18.239 that damage. My favorite quote over the weekend fund manager 0:06:18.400 --> 0:06:21.080 called the Federal Reserve helicopter parents for the market. I 0:06:21.080 --> 0:06:23.440 thought that was pretty apt at a time when you 0:06:23.440 --> 0:06:25.840 have a lot of worries that are just being absolutely 0:06:25.880 --> 0:06:29.159 pushed away at the at the behest of the Federals. 0:06:29.279 --> 0:06:30.920 Or if people saying, put your faith in the FED, 0:06:30.960 --> 0:06:33.760 don't fight the Fed. The FED has our backs. I'm 0:06:33.800 --> 0:06:36.919 wondering how concerned you are, Bill that this takes the 0:06:37.000 --> 0:06:41.479 pressure off of Congress of federal lawmakers to actually pass 0:06:41.560 --> 0:06:45.000 some stimulus efforts that could potentially get to main street 0:06:45.040 --> 0:06:48.280 faster than some of the Fed's programs. Well, I think 0:06:48.360 --> 0:06:51.679 Cheri Pale has made that same point that it can't 0:06:51.720 --> 0:06:55.240 all be just about Monterrey policy. The pandemic is causing 0:06:55.279 --> 0:06:58.839 harm to people's incomes, to their balance sheets, and that's 0:06:58.880 --> 0:07:01.560 something that really terry policy can't repair by it. So 0:07:01.960 --> 0:07:04.680 that's why you need fiscal policy stimulus. So, you know, 0:07:04.680 --> 0:07:07.839 one of the you know, risk here is that people 0:07:07.839 --> 0:07:10.920 think that the FED is all powerful and basically put 0:07:10.920 --> 0:07:12.920 all the all the weight on the FED. And the 0:07:12.960 --> 0:07:15.480 fact I think that we need more, probably probably gonna 0:07:15.480 --> 0:07:17.400 need more fiscal stimulus than what we've got to take. 0:07:17.960 --> 0:07:20.239 Dr Dudley, thank you so much for joining us today. 0:07:20.280 --> 0:07:23.800 Bill Dudley is the former president of the New York Fed. 0:07:23.880 --> 0:07:27.920 An exceptionally interesting and clear essay for Bloomberg Opinion today, 0:07:28.240 --> 0:07:30.960 and I really anticipate, folks, what I believe is a 0:07:31.080 --> 0:07:35.160 presume second essay from Bill Dudley on the prescription forward 0:07:35.520 --> 0:07:42.160 given a ten trillion dollar deficit right now with us 0:07:42.160 --> 0:07:44.360 and we're thrilled to bring you here for an important 0:07:44.400 --> 0:07:49.880 conversation on deflation and disinflation. James Sweeney of Credit Sweets 0:07:49.960 --> 0:07:54.240 he writes, wonderfully direct research reports this out of the 0:07:54.280 --> 0:07:57.680 acuity of a London school of economics. James, I've got 0:07:57.680 --> 0:08:00.280 to start with what was in the literature this week again, 0:08:00.800 --> 0:08:04.760 which is the what if what if we do fiscal policy? 0:08:05.120 --> 0:08:08.560 What if we do fiscal salvation? And what if we 0:08:08.680 --> 0:08:12.400 run out of it before we get a legitimate recovery? 0:08:12.600 --> 0:08:15.520 Is that feasible? Is that possible? I mean, with the 0:08:15.560 --> 0:08:18.320 politics the way they are right now, I think anything 0:08:18.440 --> 0:08:20.920 is possible with fiscal I mean I could imagine a 0:08:21.000 --> 0:08:24.800 strong stimulus, I could imagine a temporary strong stimulus that 0:08:24.880 --> 0:08:27.280 runs out, and I can imagine no stimulus, and that 0:08:27.760 --> 0:08:30.800 creates a lot of uncertainty for the outlooking both directions. 0:08:31.040 --> 0:08:33.040 They all look in both direction, and then it sort 0:08:33.040 --> 0:08:36.040 of it really comes down to that the V shaped idea, 0:08:36.040 --> 0:08:37.920 and I get I looked at the spreadsheets down we're 0:08:37.960 --> 0:08:40.400 going up. We go que three. How big of a 0:08:40.480 --> 0:08:43.440 mystery is the fourth quarter of this year. It's a 0:08:43.520 --> 0:08:46.440 very big mystery. And I think that, well, we've got 0:08:46.440 --> 0:08:49.480 three uncertainties. I mean, first we have are we going 0:08:49.520 --> 0:08:53.199 to have another fiscal stimulus? We have that extended unemployment 0:08:53.280 --> 0:08:56.200 help running out on July thirty one, So you're gonna 0:08:56.200 --> 0:09:00.120 have a big drop in household cash flows at to 0:09:00.240 --> 0:09:03.599 that if if you don't you renew it um, and 0:09:03.880 --> 0:09:05.960 it looks like they probably won't. They might extend it, 0:09:05.960 --> 0:09:08.280 but not renew it. But on top of that, you know, 0:09:08.360 --> 0:09:13.439 we have ongoing contagion, accelerating contagion in many states, and 0:09:13.480 --> 0:09:16.600 could that lead to more shutdowns? Even without more shutdowns, 0:09:16.720 --> 0:09:19.200 could it lead to people staying home to the extent 0:09:19.240 --> 0:09:22.360 where we don't have the full recovery, um, you know, 0:09:22.760 --> 0:09:25.959 the full post shutdown normalization we were hoping for. And 0:09:26.000 --> 0:09:28.840 then you have the election as well, So UM, I 0:09:28.880 --> 0:09:31.440 think you have to put large arab bands around any 0:09:31.480 --> 0:09:34.439 forecast for for the fourth quarter this year and arguably 0:09:35.040 --> 0:09:37.199 for the third two. Let's talk about the bounce we've 0:09:37.240 --> 0:09:39.320 seen as well, James, and how the bounce, the data 0:09:39.360 --> 0:09:41.920 bounds that we've seen over the last month informs your 0:09:42.000 --> 0:09:44.720 views about the ladder end of this year. What do 0:09:44.760 --> 0:09:47.040 you take your wife from the bounds? Yeah, it does 0:09:47.120 --> 0:09:49.640 not inform my view about the latter half of this year. 0:09:49.679 --> 0:09:52.520 This bounce was entirely predictable. This is turning the light 0:09:52.559 --> 0:09:55.319 switch off on the economy and turning it back on again. 0:09:55.400 --> 0:09:58.960 It's pretty it's pretty easy if if hours work to 0:09:58.960 --> 0:10:01.559 go down because they sent this home and then we 0:10:01.760 --> 0:10:04.000 they bring us back to work and hours work, they're 0:10:04.040 --> 0:10:05.520 going to go back up, and the data are going 0:10:05.559 --> 0:10:07.400 to bounce. But it's not answering answering any of the 0:10:07.480 --> 0:10:11.880 big questions. So you know, the unemployment to jump in 0:10:12.240 --> 0:10:15.679 this is so so significant. So many people are looking 0:10:15.679 --> 0:10:19.560 at this data bounce and they're extrapolating out two three 0:10:19.640 --> 0:10:24.640 Q two for que into what does inform your view 0:10:25.040 --> 0:10:27.400 about the year still to come? Well, I mean, I 0:10:27.480 --> 0:10:30.000 think you can extrapolate this bounce out a few more months, 0:10:30.080 --> 0:10:32.840 as long as you're seeing people return to work. But 0:10:33.000 --> 0:10:35.200 further out, I mean, if I'm thinking about the labor 0:10:35.240 --> 0:10:37.600 market at the end of the year, I want to 0:10:37.600 --> 0:10:41.199 know how damaged our businesses, How bad are their balance 0:10:41.240 --> 0:10:43.400 sheets and earning so that they can't hire. I want 0:10:43.440 --> 0:10:47.160 to know how bad are their sales expectations given that 0:10:47.200 --> 0:10:48.960 the virus may still be around and a lot of 0:10:49.000 --> 0:10:52.560 people might be avoiding certain activity. And I want to 0:10:52.600 --> 0:10:56.480 know even how much how many efficiencies have businesses found 0:10:57.400 --> 0:10:59.640 while their workers have been working from home? So some 0:10:59.679 --> 0:11:04.120 business is maybe discovering that they could rearrange somethings, use 0:11:04.200 --> 0:11:07.080 less space and fewer workers. And I think all of 0:11:07.120 --> 0:11:10.400 those three factors are different factors that backward looking forward, 0:11:10.400 --> 0:11:13.200 looking at a productivity one which could lead to an 0:11:13.200 --> 0:11:15.840 elevated unemployment rate later in the year. So I think 0:11:16.160 --> 0:11:18.960 the unemployment rate is falling now for very simple and 0:11:19.000 --> 0:11:22.920 simplistic reasons, where the light switches is being dialed back 0:11:22.960 --> 0:11:25.920 up again. But um, it's gonna be high. It's gonna 0:11:25.920 --> 0:11:27.560 be a lot higher than three and a half percent 0:11:27.720 --> 0:11:30.120 at the end of the year, maybe in the high 0:11:30.160 --> 0:11:33.600 single digits are even higher. Um And and you know, 0:11:33.640 --> 0:11:36.679 so we've got to really think about all those factors separately, James, 0:11:36.720 --> 0:11:39.240 Efficiencies is a sort of a dirty word right now 0:11:39.280 --> 0:11:42.120 as people look for the second wave of layoffs. How 0:11:42.200 --> 0:11:46.680 much are the federal reserves policies buoying this market from 0:11:46.679 --> 0:11:49.800 a main street perspective, keeping some of these businesses alive 0:11:50.160 --> 0:11:52.640 and can continue to through the end of this year. Well, 0:11:52.679 --> 0:11:56.280 there's no doubt that the p p P program in particular, 0:11:56.320 --> 0:11:58.280 which I think of more of the Treasury of the 0:11:58.559 --> 0:12:02.360 Treasury program than a fit probe him, has has kept 0:12:02.400 --> 0:12:05.280 a lot of businesses going UM and I think the 0:12:05.320 --> 0:12:09.000 FED programs in general have kept credit flowing. You've had 0:12:09.000 --> 0:12:13.360 this extraordinary issuance in the primary markets, but it doesn't 0:12:13.360 --> 0:12:15.160 mean everything is good. I mean you're gonna have a 0:12:15.200 --> 0:12:17.800 lot of business failures and we don't know what the 0:12:17.840 --> 0:12:20.000 balance sheet damage looks like six months from now. So 0:12:20.000 --> 0:12:22.760 it's just a very, very big deal when you have 0:12:22.840 --> 0:12:26.600 the GDP contraction of this size driven by the virus. 0:12:26.640 --> 0:12:30.440 We've had policy responses which are extremely forceful UM, but 0:12:30.559 --> 0:12:33.600 it's even possible that they are not enough. And that's 0:12:33.600 --> 0:12:36.920 why you circle July thirty one as the date that 0:12:37.040 --> 0:12:40.319 some of the Cares Act benefits expire. And and this 0:12:40.400 --> 0:12:43.439 is going to be the next particularly important moment that 0:12:43.480 --> 0:12:45.440 markets are going to focus on as we've come to 0:12:45.520 --> 0:12:48.080 learn what the second half is going to be. Like James, 0:12:48.080 --> 0:12:51.040 everyone's becoming a social scientist and trying to pass through Google, 0:12:51.040 --> 0:12:54.439 Google searches and other soft high frequency data to get 0:12:54.480 --> 0:12:56.640 a sense of what the consumer behavior is going to 0:12:56.760 --> 0:12:59.880 be with respect to the virus as well as businesses. 0:13:00.000 --> 0:13:02.200 What are you looking for? What sort of the early 0:13:02.280 --> 0:13:04.839 indicators that can give us a sense of just how 0:13:04.920 --> 0:13:08.000 much business is being suppressed by people's concerns and frankly, 0:13:08.040 --> 0:13:10.920 how much businesses have to respond by shutting down so 0:13:10.920 --> 0:13:13.040 that they don't have the extra expenses of being open 0:13:13.320 --> 0:13:16.679 without enough business to justify it. Yeah, there's different forms 0:13:16.720 --> 0:13:20.120 of foot traffic data, web traffic data, you know, hours 0:13:20.200 --> 0:13:23.120 worked data. I mean, there's a lot of very ultra 0:13:23.200 --> 0:13:26.760 high frequency macro data that didn't exist just a few 0:13:26.840 --> 0:13:30.320 years ago, and right now, I would say, survey quite 0:13:30.480 --> 0:13:34.960 quite a few of these numbers. Um, you're not normalizing, 0:13:35.120 --> 0:13:39.680 You're you're normalizing very slowly in the states that reopened first, 0:13:40.280 --> 0:13:44.320 and then the states that reopened later they're slowly normalizing too. 0:13:44.360 --> 0:13:46.880 And now in the states that reopened first, you have 0:13:46.960 --> 0:13:50.800 a very sharp pick up in contagion in a number 0:13:50.840 --> 0:13:54.400 of them. So I think the best case scenario was 0:13:54.880 --> 0:13:59.160 the viruses is a little quiet, and you know, you're 0:13:59.240 --> 0:14:02.440 you're rich hurning workers to work, and some workers are 0:14:02.520 --> 0:14:05.839 avoiding risks, and therefore you can't expect a normal level 0:14:05.840 --> 0:14:08.679 of demand. But if the virus is severe been a 0:14:08.760 --> 0:14:12.600 lot more workers and customers are going to avoid going out, 0:14:12.640 --> 0:14:15.680 and in those most affected sectors like restaurants and travel 0:14:15.720 --> 0:14:18.280 in airlines, etcetera. You know you're gonna have a problem, 0:14:18.280 --> 0:14:22.320 and so every data point on the contagion UH suggests 0:14:22.360 --> 0:14:25.200 you know something bad for the second half of the year. James, 0:14:25.240 --> 0:14:28.280 you made your name with Niel Sauce studying deflation and 0:14:28.320 --> 0:14:32.000 really pushing against the deflation gloom in Europe, ages and 0:14:32.120 --> 0:14:34.960 ages Ago. I want you to parse right now the 0:14:35.040 --> 0:14:38.880 disinflation of America in goods and services. We've had a 0:14:38.920 --> 0:14:43.760 pernicious decline in price for goods at times fine, but 0:14:43.960 --> 0:14:48.000 services have been remarkably stable. Can you model out, given 0:14:48.000 --> 0:14:51.320 this pandemic and the tough recovery, can you model out 0:14:51.760 --> 0:14:56.920 services disinflation or even outright inflation? Sure? Well, I mean 0:14:56.920 --> 0:15:00.480 in the way inflation is measured about to and thirds 0:15:00.600 --> 0:15:03.040 is services prices, and one third is good. And it's 0:15:03.040 --> 0:15:06.200 important to know that because you know, most people really 0:15:06.200 --> 0:15:08.400 look at cars and look at gasoline, and there's their 0:15:08.440 --> 0:15:12.360 view on inflation. But the services are important, and you've 0:15:12.400 --> 0:15:15.480 got things like housing, healthcare, and financial services in there 0:15:15.480 --> 0:15:19.040 which are opaque, and sometimes the prices are even basically modeled, 0:15:19.240 --> 0:15:22.160 at least in the short term. Right now, housing inflation 0:15:22.240 --> 0:15:27.560 looks likely to put downward pressure on overall inflation um, 0:15:27.720 --> 0:15:30.680 financial inflation, and the others are in healthcare a little 0:15:30.680 --> 0:15:34.120 bit more mysterious. Um. But this was a huge drop 0:15:34.320 --> 0:15:36.920 in services consumption, the likes of which we haven't seen 0:15:36.960 --> 0:15:39.120 since the Great Depression. And right now we have a 0:15:39.200 --> 0:15:42.200 much bigger services sector. So you know, we're gonna see 0:15:42.200 --> 0:15:44.760 headline inflation bounce around zero for a while. We're gonna 0:15:44.800 --> 0:15:48.720 see core inflation bounce around one percent um. Services are 0:15:48.840 --> 0:15:51.640 doing some of that work. I mean, there's certain goods 0:15:51.680 --> 0:15:54.760 like airlines and use cars that are that are doing 0:15:54.760 --> 0:15:56.520 it on the good side as well. But this is 0:15:56.560 --> 0:16:00.280 the temporary implications on prices from the shut down and 0:16:00.640 --> 0:16:02.760 from the virus. The wrong term questions a little different. 0:16:02.880 --> 0:16:06.160 The one final question, James, it's just real simple here. 0:16:06.200 --> 0:16:08.920 If we're gonna model this kind of nominal g d P, 0:16:09.600 --> 0:16:13.440 should we begin to really aggressively talk about a FED 0:16:14.000 --> 0:16:19.520 that manages for nominal GDP and not real GDP. Well, yeah, 0:16:19.560 --> 0:16:23.400 I mean I think really the dual mandate is nominal 0:16:23.440 --> 0:16:25.680 GDP in a way, because you've got you know, the 0:16:25.760 --> 0:16:28.520 unemployment rate is the real growth piece and the inflation 0:16:28.640 --> 0:16:30.760 is the is the inflation piece. So there you have it. 0:16:30.880 --> 0:16:34.320 If you're doing both right, You're you're really targeting nominal, 0:16:34.400 --> 0:16:38.360 just not you know, explicitly. Um So, I think we've 0:16:38.360 --> 0:16:40.600 had a four percent nominal GDP trends in the US 0:16:40.680 --> 0:16:42.680 over the past ten years, and hopefully we can get 0:16:42.680 --> 0:16:46.000 back on it. I think the equity market is trading 0:16:46.080 --> 0:16:48.080 as if the expectation is we're going to be on 0:16:48.160 --> 0:16:51.280 that four percent nominal GDP trend before too long. Um 0:16:51.320 --> 0:16:53.720 The bond market seems to have its doubts, and I 0:16:53.760 --> 0:16:58.120 think that that encapsulates pretty well the range of opinions 0:16:58.200 --> 0:17:01.120 right now on deflation and inflation, a wide range of 0:17:01.120 --> 0:17:03.640 opinions on pretty much everything right now. James task to 0:17:03.640 --> 0:17:06.080 catch up with you said as alwise, James Sweeney of 0:17:06.160 --> 0:17:13.399 Credit sways on this market, this economy, this recovery. Joining 0:17:13.480 --> 0:17:17.479 us now is he did a bit ago? Uh? Joining 0:17:17.560 --> 0:17:20.399 us now is the head of the m t A. 0:17:20.520 --> 0:17:24.520 Their chairman Patrick Foy joins us now. Pet A hundred 0:17:24.520 --> 0:17:28.760 and thirty two people within your huge organizations succumbed to 0:17:28.760 --> 0:17:32.200 the virus. The courage in the heat of this was noted. 0:17:32.640 --> 0:17:34.639 What will they do? What will the m t A 0:17:34.760 --> 0:17:39.000 do to celebrate on this reopening? Well? Phase two Phase 0:17:39.000 --> 0:17:41.800 two is a big step for New York City and 0:17:41.840 --> 0:17:45.200 frankly a big step forward for the UH for the country. 0:17:45.600 --> 0:17:47.640 On gladtime that you're gonna be eating in New York 0:17:47.640 --> 0:17:50.639 City restaurants five days a week. The city needs the 0:17:50.640 --> 0:17:54.480 business and the UH and the tax revenue. Throughout the 0:17:54.640 --> 0:18:01.159 entire pandemic, the m t A UH employees, UH, Subways, buses, 0:18:01.160 --> 0:18:03.879 Metro North Long our Road, road bridges and tunnels have 0:18:04.000 --> 0:18:08.080 been heroes, moving heroes. They've done extraordinary work in the 0:18:08.119 --> 0:18:13.560 most trying circumstances. At one point, UH a total of 0:18:14.280 --> 0:18:18.200 well over ten thousand employees or under home quarantine. Ten 0:18:18.320 --> 0:18:22.560 thousand employees have returned to work. The number of employees 0:18:22.600 --> 0:18:25.840 on home quarantine is in the is in the hundreds, 0:18:25.880 --> 0:18:29.080 down from thousands. And tragically, a hundred and thirty two 0:18:29.080 --> 0:18:32.280 of our colleagues succumbed to the virus at at the 0:18:32.400 --> 0:18:35.960 mt A, Subways, Buses, New York City Transit, Metro North 0:18:36.000 --> 0:18:40.080 Long Island Railroad, UH, and UH, and that is tragic. Obviously, 0:18:40.119 --> 0:18:43.320 New York has been the epicenter of the UH of 0:18:43.400 --> 0:18:48.080 the pandemic, but the MTA workforce has been heroes, moving heroes, 0:18:48.440 --> 0:18:53.080 first responders, and essential employees, including fellow transporters. What will 0:18:53.119 --> 0:18:57.080 be the process of someone on a subway, someone on 0:18:57.160 --> 0:19:00.800 a bus not wearing a mask. Wellok it state law 0:19:00.920 --> 0:19:03.399 to wear a mask on public transit. As a result 0:19:03.440 --> 0:19:07.400 of an executive order that Governor Cuomo issued some weeks ago, 0:19:08.000 --> 0:19:12.280 I can tell you that UH compliance by our employees 0:19:12.359 --> 0:19:16.240 is universal. We have done physical counts on the subways. 0:19:16.280 --> 0:19:19.640 The original account was a ninety two mask compliance by 0:19:19.640 --> 0:19:23.760 our employees. We believe it is now. We've got a 0:19:24.000 --> 0:19:28.080 robust communications and messaging plan to get the number even higher, 0:19:28.440 --> 0:19:31.359 and we've been distributing over the last couple of weeks 0:19:31.440 --> 0:19:34.959 millions of masks to writers who were returning to the system. 0:19:34.960 --> 0:19:37.760 It is not optional, it is mandatory and state law 0:19:37.840 --> 0:19:41.040 to wear a mask on transit. Public health officials tell 0:19:41.119 --> 0:19:44.800 us that the single most important thing any anybody can 0:19:44.840 --> 0:19:48.040 do in whatever environment they're in, but including on transit, 0:19:48.200 --> 0:19:51.000 is to wear a mask. Protects you, it protects your 0:19:51.000 --> 0:19:54.000 fellow commuters, and it protects our employees. Pet I've been 0:19:54.000 --> 0:19:57.240 looking at pictures of workers cleaning all of the subway 0:19:57.240 --> 0:20:00.800 cars twice a day, which is fantastic for anyone who 0:20:00.880 --> 0:20:04.000 wants to write a clean subway. It all takes money, 0:20:04.040 --> 0:20:06.400 and your CFO said that it could be as soon 0:20:06.560 --> 0:20:09.680 as early July, at which point the m TABLE run 0:20:09.800 --> 0:20:12.160 out of money, will run out of federal funding that's 0:20:12.160 --> 0:20:15.640 been propping up the finances. What then if the federals, 0:20:15.680 --> 0:20:18.760 if if the federal government does not re up that financing, 0:20:18.800 --> 0:20:21.159 what happens to the m t A. So so at 0:20:21.200 --> 0:20:23.639 least a just one point of clarification, which is important. 0:20:23.920 --> 0:20:27.440 Our employees are not cleaning subways. UH, They're not cleaning stations. 0:20:27.440 --> 0:20:31.040 They're disaffecting them. And we've been doing that since since 0:20:31.119 --> 0:20:36.600 Mark three. Bob Foreign, our CFOs concern is is well placed. 0:20:37.000 --> 0:20:40.240 We're in a dire financial situation. We got the MTA 0:20:40.320 --> 0:20:43.480 received three point eight billion dollars, was awarded three point 0:20:43.480 --> 0:20:47.240 eight billion dollars in the Cares Act. That money will 0:20:47.359 --> 0:20:51.880 carry us through July, will be drawing it down through August. UH. 0:20:51.920 --> 0:20:53.919 The f t A, at U, S d OT has 0:20:53.920 --> 0:20:57.200 done a good job of facilitating and expediting that money. 0:20:57.560 --> 0:21:02.200 The Heroes The Heroes Act, which passed the House thanks 0:21:02.200 --> 0:21:05.280 to Speaker Pelosi UH and the support of the New 0:21:05.320 --> 0:21:09.200 York Congressional Delegation, provides an additional three point nine billion 0:21:09.240 --> 0:21:13.639 dollars of federal funding. It's obviously subject to Senate approval. 0:21:14.040 --> 0:21:17.200 It is absolutely critical that the MTA received that money. 0:21:17.560 --> 0:21:20.600 We hired McKenzie to do a review of our finances 0:21:21.080 --> 0:21:24.679 UH and the looking at the revenue decline because ridership 0:21:24.720 --> 0:21:28.680 is down across the system, expenses her up and also 0:21:28.720 --> 0:21:32.600 a dedicated package of taxes and subsidies which also accounts 0:21:32.600 --> 0:21:36.080 for fifty of the mt A revenue in a in 0:21:36.080 --> 0:21:40.960 a normal year. Mackenzie's midpoint is seven point seven billion dollars, 0:21:41.280 --> 0:21:43.600 So the three point eight from CARES and the three 0:21:43.640 --> 0:21:46.400 point nine in the House bill on the Heroes will 0:21:46.440 --> 0:21:51.199 take us through. It's critical that we received that federal funding. PA, 0:21:51.440 --> 0:21:54.119 just real quick here. That distinction that you made between 0:21:54.160 --> 0:21:58.359 disinfecting and cleaning, why was that an important distinction to make? Well? 0:21:58.600 --> 0:22:02.840 We we UH. Cleaning means taking the coffee cups out 0:22:02.960 --> 0:22:06.080 and the refuse on a on a subway car or bus. 0:22:06.480 --> 0:22:11.440 We've been disinfecting using disinfecting agents since since March three 0:22:12.600 --> 0:22:15.520 because of the pandemic. We've also been piloting the use 0:22:15.560 --> 0:22:18.960 of ultra violet sea light on subway cars and busses 0:22:19.000 --> 0:22:22.080