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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Just

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Speaker 1: the Cold Stephan Trillion, I've run the fat balance sheet

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Speaker 1: joining us OUs away into the situation. Jared would at

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Speaker 1: a bank for America. Jared, fantastic to catch up with you, sir.

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Speaker 1: It's a delicate moment. Risk appetite and the sixth clarities

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Speaker 1: of the market just done it to build over the

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Speaker 1: last few weeks, and at the same time, the relationship

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Speaker 1: between China and the United States breaking down. What's the

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Speaker 1: message to clients at the moment, Jared, Well, yeah, it's

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Speaker 1: great to be with you all. I think that the

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Speaker 1: message for us is that the key thing for returns

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Speaker 1: of the next several quarters is what kind of policy

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Speaker 1: path we take, you know, coming out of this pandemic

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Speaker 1: and charting a path forward. You know, three broad scenarios

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Speaker 1: if we do just give you know, you know, extensive

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Speaker 1: unemployment insurance, plug the revenue hole for states. We think

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Speaker 1: that will happen, but that's the limit of what we happen.

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Speaker 1: We think it's the return to the sort of secular

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Speaker 1: stagnation that we're all familiar with. And the portfolios that

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Speaker 1: investors have already crowded into tech and healthcare and investment

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Speaker 1: grade and so on. Not huge, you know, scope who

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Speaker 1: are really massive will market off of that. But the

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Speaker 1: two more interesting scenarios and and the two that I

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Speaker 1: think deserve much more attention, or the the sort of

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Speaker 1: stagflationary effects if you do see increased friction of you know,

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Speaker 1: tech regulation, friction with China, and then and then the

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Speaker 1: third scenario, not stagflation, but I'm calling elevation, where we

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Speaker 1: get bold new policy post globalization, shifting towards higher capex,

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Speaker 1: higher R and D, new industrial policy, the kind of

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Speaker 1: things that can really boost productivity and growth. And I

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Speaker 1: think that's what the market is really underprising. Jared. What's

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Speaker 1: so great about your academic track with theology and your

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Speaker 1: PhD and philosophy is maybe you can give us a

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Speaker 1: new philosophy for a new market. Is the philosophy forward

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Speaker 1: and Investing in two thousand twenty one, two thousand twenty

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Speaker 1: three and beyond twenty two and beyond twenty three and beyond.

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Speaker 1: Is it the same as the old philosophy or is

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Speaker 1: it something new? Well, I think it's absolutely something new.

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Speaker 1: I mean, just look at the realignment happening in you know,

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Speaker 1: and in political cultures around the world. You're seeing people, uh,

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Speaker 1: you know, the populace left, the populace right coming together

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Speaker 1: on propositions that they that you know, we're never up

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Speaker 1: for discussion before. Just look at what the U. S.

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Speaker 1: Government has done, you know, in a Republican controlled Senate,

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Speaker 1: you know, expanding fiscal policy on a scale we've never

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Speaker 1: seen before in US peacetime, something that nobody would have

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Speaker 1: thought possible. I mean just remember the top vote in

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Speaker 1: two thousand and eight when they voted down you know,

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Speaker 1: that package and crushed market. And it's that on this occasion,

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Speaker 1: you know, I think that that Republicans have surprised everyone

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Speaker 1: with the willingness to uh, you know, grow, grow, grow

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Speaker 1: the government balance sheet. Um, what's happening? You know, Uh,

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Speaker 1: the same thing is happening in Europe now with you know,

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Speaker 1: potential volution in terms of fiscal policy. Japan coming through

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Speaker 1: with you know, eleven percent of real water fiscal stimulus.

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Speaker 1: I mean, these are things that we're unthinkable even six,

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Speaker 1: six or twelve months ago, and if they're followed through with,

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Speaker 1: you know, they're kind of productivity boosting policies that can

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Speaker 1: really uh get us to a new level. I think

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Speaker 1: it requires a complete rethink of active allocation and portfolios.

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Speaker 1: So so how would that make you reallocate your your

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Speaker 1: your investments. Well, if we're gonna you know, if developed

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Speaker 1: countries are gonna stop relying on you know, just monetary

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Speaker 1: policy to to help us limp along, but invest in

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Speaker 1: you know, new technology, you know, you know, incentivized corporate capex,

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Speaker 1: invest in research and development. Again, I mean, there's nothing

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Speaker 1: that correlates better with productivity than than R and D.

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Speaker 1: So if you do see scope for productivity to rise,

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Speaker 1: for you know, employment to broaden out, income inequality to decline,

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Speaker 1: that's how you can see you know, really meaningfully higher

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Speaker 1: GDP growth and developed economies that otherwise you know, kind

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Speaker 1: of stagnated. It wanted to person. That means suddenly all

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Speaker 1: the trades that everyone has hated for us so long,

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Speaker 1: the you know, value stocks, the financials, you know, materials, industrials,

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Speaker 1: um you know, Europe, Japan, the things that people don't

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Speaker 1: own today suddenly become much more attractive in a world

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Speaker 1: of higher growth and productivity. Jan what did a Bank

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Speaker 1: of America with us? So? Jardy, are you telling me

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Speaker 1: that this rotation into value into the six colories of

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Speaker 1: this market is not just a squeeze, It has legs.

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Speaker 1: I'm not telling you this is the one, John, but

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Speaker 1: I'd love it would be true. But we need more

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Speaker 1: to confirmation. We need more confirmation. Yeah, there's two things

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Speaker 1: in in our our latest report that we flagged as

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Speaker 1: things to watch to know when it's a big one.

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Speaker 1: You know. Number one is the bond market. It's great

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Speaker 1: to see you know, value and and and high yield

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Speaker 1: in Europe rallying. But until you see confirmation from bond

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Speaker 1: yields telling you that a higher growth, higher demand driven

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Speaker 1: inflation is in the future, that's number one. Number two

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Speaker 1: is Brett You know, when the top five stocks in

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Speaker 1: the SMP are more than market cap, that's not the

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Speaker 1: that's not the instide of a shiny new ball market

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Speaker 1: to see a big rally. We found in our in

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Speaker 1: our quantitative study that you need to see um much

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Speaker 1: broad participation before you see big equity returns, right, Jared,

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Speaker 1: It's amazing how rude John is on a Friday. It's

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Speaker 1: just it's really really typical, folks. We'll get through it today, Jared.

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Speaker 1: I I the last time I saw Ken Lewis was

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Speaker 1: a Bank of America's shop in Singapore. That was a long,

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Speaker 1: long time ago, and that was the last time international

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Speaker 1: stocks did well. When does the international equity market finally

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Speaker 1: turn on a relative or even dare say, an absolute basis. Well,

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Speaker 1: the news this weekend and last week out of Japan

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Speaker 1: and Europe, I think is is a really great start. Um,

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Speaker 1: if you can see you know, I mean, Europe has

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Speaker 1: some ways to go to verify and approve the packages

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Speaker 1: that they're talking about it. But if you if you

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Speaker 1: see resistance from northern European countries, uh, you know, see

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Speaker 1: those dominoes fall, and we suddenly have scope for you know,

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Speaker 1: some kind of debt mutualization, for some kind of continent

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Speaker 1: wide fiscal policy. Then um, you know, some of the

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Speaker 1: deep value trades is maybe value traps European banks, maybe

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Speaker 1: most of all, are suddenly in play. From an investor

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Speaker 1: point of view, things that nobody's own blows have been

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Speaker 1: you know, decimated in those kind of assets in Japan

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Speaker 1: as well. I mean, they relied on extreme nentary policy

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Speaker 1: for so long that if Japan can start to boost

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Speaker 1: you demand get out of this balance sheet recession that

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Speaker 1: they've been been stuck in, and suddenly I think those

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Speaker 1: assets become attractive. You've got to see follow through obviously, um,

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Speaker 1: but once we get confirmation from from the market that

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Speaker 1: things are really starting to turn, you see in inflation

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Speaker 1: expectations turn, then I think it represents an incredible, maybe

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Speaker 1: even generational buying opportunity. Jarn would Banks for America, Chared,

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Speaker 1: We've got to continue this conversation. Jared's not saying this

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Speaker 1: is the one PM, but it might be the dollar

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Speaker 1: week the euro advances. And this for me, Tom the

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Speaker 1: story at the moment, risk appetite continues to build and

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Speaker 1: that dollar strength continues to fight, no question about it.

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Speaker 1: Catherine Man of course, running economics at City Grow Up,

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Speaker 1: and what a job Villin Powder did providing leadership there.

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Speaker 1: One of his great acquisitions is Abraham Robari, who was

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Speaker 1: just brilliant on Europe with a certain authority and then

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Speaker 1: on foreign exchange as well. And we're thrilled that Dr

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Speaker 1: Robari could join us. This morning, Abraham John mentions the

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Speaker 1: yuro call one ten. John has seen this forty seven

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Speaker 1: times in his lengthy career. Are we gonna get suckered

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Speaker 1: again into strong euro? And then? Oops? Yes, Tom, Tom,

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Speaker 1: thanks for having me on. That's exactly how we feel.

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Speaker 1: So we think for the for the moment, there is

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Speaker 1: a bit of upside drift in the Euro, and that's

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Speaker 1: partly because there is a search in markets for undervalued

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Speaker 1: assets and euros on equities btt s, and to some

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Speaker 1: degree the Euro show up there. But we think this

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Speaker 1: is going to be on borrow times. So even though

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Speaker 1: we think there will be a little bit more upside

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Speaker 1: drift in the Euro and the euro dollar for instance,

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Speaker 1: we think that there won't be much more headroom and

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Speaker 1: just as before, this rally will be over before long.

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Speaker 1: There's a question about the other side of that trade,

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Speaker 1: which is the dollar and watching the dollar continue to weaken.

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Speaker 1: I was kind of shocked this morning when I came

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Speaker 1: in to my living room, uh that the dollar was

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Speaker 1: weakening versus even the Chinese u N there in Minby,

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Speaker 1: despite the elevated tensions between the US and China, are

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Speaker 1: we finally reaching a point where people have had it

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Speaker 1: with the increase in the debt loads and some of

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Speaker 1: what's going on in the United States and are moving

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Speaker 1: away from the dollar or is this just a temporary reallocation.

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Speaker 1: So from our perspective, it is probably more temporary, and

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Speaker 1: there are good and bad reasons for it. I think

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Speaker 1: the good reasons for why the dollar is a little

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Speaker 1: bit under pressure right now is that the global investor

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Speaker 1: base is getting less worried about the rest of the world.

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Speaker 1: So we are seeing activity indicators in general slightly exceeding

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Speaker 1: what people were expecting. But even on the health side,

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Speaker 1: I think the long suffering emerging markets are seeing signs

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Speaker 1: of flattening as well. So they're good reasons for the

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Speaker 1: rest of the world if you like to see a

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Speaker 1: little bit of dollar downside. And that also translates again

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Speaker 1: into looking for what looks cheap, and US acids don't

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Speaker 1: look cheap by any metric across the board. And then

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Speaker 1: there are the bad reasons quote unquote. So there's some

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Speaker 1: level of concern around US China attention, the debate about

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Speaker 1: US debatement, and then also slowly beginning concern about the

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Speaker 1: potential risk attached to the U S election so these

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Speaker 1: are I think, very acute for the time being, but

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Speaker 1: once again we think that's probably temporary. We think that

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Speaker 1: the US still looks, as you know, among the least

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Speaker 1: ugly in the in the global economy. That the likelier

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Speaker 1: of a bound second growth in the US is is

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Speaker 1: much higher than elsewhere. So we we think it's once

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Speaker 1: again too early too to write off the dollar and

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Speaker 1: call an end to the strong dollar. Even right now,

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Speaker 1: it just feels like a sentiment story. It feels like

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Speaker 1: a positioning story, and that's what's pushing some of these

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Speaker 1: big moves over the last several weeks. It doesn't feel

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Speaker 1: like it's got anything to do with right differentials, just

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Speaker 1: optimism around places like Europe. Why don't you buy into

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Speaker 1: the euro optimism of the last couple of weeks, Abra him, Yes,

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Speaker 1: So we think there are two reasons why we're skeptical.

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Speaker 1: One is exactly on that issue of risk appetite. I

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Speaker 1: think a good chunk of that was that previously we

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Speaker 1: had very defensive positioning, and and I think we are

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Speaker 1: now at a point where positioning is by no means stretched,

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Speaker 1: but it's it's no longer very defensive. So we're already

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Speaker 1: at relatively neutral levels, and we do think they're significant risks. Well,

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Speaker 1: let's call it the second phase of the recovery down

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Speaker 1: the road, so significant risks of disappointment that could weigh

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Speaker 1: on broader risk appetite, and again I think assets like

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Speaker 1: yours and equities would be very vulnerable. The second has

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Speaker 1: to do much more with the specific European developments. We

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Speaker 1: of course had these initiatives around the EU recovery from

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Speaker 1: the French, German proposals and so forth. And though we

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Speaker 1: think that these are significant visible fiscal transfers supported by Germany,

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Speaker 1: we don't think they're a Hamiltonian moment. We don't think

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Speaker 1: this is a game changer for the Eurozone or for

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Speaker 1: the euro in that it doesn't really chart the clear

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Speaker 1: path going forward. It's it's dealing with the one off

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Speaker 1: situation in a faily, in a fairly constrained way. So

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Speaker 1: these two reasons make as skeptical that we're looking at

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Speaker 1: a kind of enduring break in the euro or enduring

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Speaker 1: upside for Eurozone assets. Abraham and Bowery of Silly Group

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Speaker 1: with us today. Abraham is just follow up on the

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Speaker 1: CP next week, just briefly might sound stupid on the

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Speaker 1: surface of things, but I'm trying to work out whether

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Speaker 1: more que next week is euro positive or euro negative.

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Speaker 1: Which one is it. It's a very good it's a

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Speaker 1: very good point. We think on balance right now more

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Speaker 1: quies euro positive, and that's because you still have a

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Speaker 1: risk premium, particularly for BTPs and Euro purchases. A BUREASID

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Speaker 1: purchases by BCB bring down that risk premium. So in

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Speaker 1: that sense we think if bTB did not increased asset purchases,

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Speaker 1: in fact, the Euro would end up setting off, and

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Speaker 1: so would of course in particular periphery sovereign day Abraham.

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Speaker 1: You mentioned a Hamiltonian moment. Many people are thinking the

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Speaker 1: Broadway play. I'm thinking about way way back, where maybe

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Speaker 1: it was fractious, but Hamilton's had to deal with I'm

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Speaker 1: going to say thirteen colonies or states, however you want

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Speaker 1: to describe it. You can't have a Hamiltonian moment with

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Speaker 1: twenty seven just have countries, can you. I am very

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Speaker 1: sympathetic to your perspective. I wouldn't completely write it off

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Speaker 1: for you know, very different future, but but but I

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Speaker 1: think certainly this isn't it, and we're far away from it.

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Speaker 1: And in this specific case, as I mentioned, it's it's

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Speaker 1: one off. There's no transfer of physical powers or political

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Speaker 1: powers even and we're dealing with a construct that's not

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Speaker 1: even easily scaled. So I think it is very inappropriate

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Speaker 1: to refer to this as as Hamiltonian. So, just going forward,

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Speaker 1: to broaden out your base, cases that the dollar will

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Speaker 1: resume its strengthening and you'll see a weakening in the

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Speaker 1: Euro going forward, and that the dollar will end the

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Speaker 1: year as the dominant currency, just as it was a

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Speaker 1: couple of months ago. Is that correct? Yeah, I think broadly.

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Speaker 1: But we're we have a couple of things along the way,

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Speaker 1: and I think the one that obviously stems out is

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Speaker 1: the U S. Election. So what we assume is that

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Speaker 1: we are in a sort of late stage of the

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Speaker 1: ridge recovery, but then there will be a period of

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Speaker 1: uncertainty around the U S. Election, and we think that

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Speaker 1: the dollar might end up be a little bit under

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Speaker 1: pressure because of that, but then around the election the

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Speaker 1: dollar would once again risen with uptrend as well. So

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Speaker 1: are a few more absence laws, but we believe that

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Speaker 1: the dollar bull market can still continue. It's John Freu,

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Speaker 1: I want you to get a question in here on

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Speaker 1: the CC before meeting, because I think you know, John,

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Speaker 1: you looked awfully good on the lawn of the ECB

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Speaker 1: building just a few years ago. I mean you were

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Speaker 1: like the Frankfurst expert as well. John, what do you

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Speaker 1: see from the c B? And I know you've got

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Speaker 1: a question for Dr Roberry about it. Tom. I used

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Speaker 1: the time my visits to the e c B really

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Speaker 1: effectively because they go on tour twice a year, so

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Speaker 1: I'd end up in places like Cyprus covering the European

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Speaker 1: Central Bank. You've got to time these things properly. Will

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Speaker 1: do that. Hopefully next year, if these get back to normal,

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Speaker 1: will go on one of those ECB tours as well.

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Speaker 1: That's the problem for the CB. They're already doing so much.

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Speaker 1: What's the objective of the next move. You'll remember just

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Speaker 1: a couple of months ago, Christine the Guard said she

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Speaker 1: was not here to close spreads. She wanted to put

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Speaker 1: pressure on the fiscal policymaker. What kind of pressure do

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Speaker 1: you put on fiscal if you follow up next Thursday

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Speaker 1: with more que, more asset purchases. Well, I think it's

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Speaker 1: absolutely critical that they continue and reinforce at this next meeting,

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Speaker 1: because not only are spreads still wide in in peripery

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Speaker 1: sovereign DETT, but in between we've had the German court

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Speaker 1: ruling with HAVE which had questions the ECB capability to

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Speaker 1: do its job. So I think at this meeting it's

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Speaker 1: totally essentially the DCB at least in some shape or form,

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Speaker 1: reinforces its presence in in asset markets. But beyond that,

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Speaker 1: also just keep in mind, unlike the fat DCP has

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Speaker 1: not been particularly proactive, forceful or aggressive as Chappower likes

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Speaker 1: to refer to it, we've seen a pretty steady run

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Speaker 1: rate from d CD, so I think it's again important

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Speaker 1: for the ECB symbolically to be active, even if kind

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Speaker 1: of on a weekly basis. We don't see particularly pressure

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Speaker 1: rising on on risk assets in Europe, but I think

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Speaker 1: that the CB does act in some shape or form.

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Speaker 1: Next week will be extremely important. Abraham mc bery city

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Speaker 1: grow up on a situation in Europe and a foreign

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Speaker 1: exchange market. Abraham grant a cash off the sir, thank you,

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Speaker 1: send O best to it say it's so important about

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Speaker 1: the US Chamber of Commerce, which I guess is a

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Speaker 1: lobbying group as it's founding in nineteen o eight was

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Speaker 1: an international delegation to to Japan at the time that

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Speaker 1: was extraordinary, and then President Taft really driving forward the

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Speaker 1: founding of the Chamber to the modern day of this

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Speaker 1: controversy and that, but also the representation of business abroad.

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Speaker 1: Myron Brilliant is involved with this, is head of International

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Speaker 1: Affairs for the Chamber, and he joins us. Now, let's say, Myron,

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Speaker 1: you and the crew where to get on Kathay Pacific

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Speaker 1: tonight and Monday morning. You're in Hong Kong or in

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Speaker 1: Beijing to bring a business delegation in. It's not going

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Speaker 1: to be a normal meeting, isn't well, Tom, I wasn't

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Speaker 1: alive in night when the US Chamber of Commerce was

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Speaker 1: created by President Tafts support. But I can tell you

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Speaker 1: that our mission hasn't changed. Right. We know that we

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Speaker 1: have tremendous interest in selling and exporting around the world,

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Speaker 1: and of course Hong Kong has been an important gateway

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Speaker 1: to China and to Asia, and we do a fair

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Speaker 1: amount of business sixty seven billion dollars of trade investment

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Speaker 1: between Hong Kong and I'd say so if I were

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Speaker 1: landing today in Hong Kong, I'd be very concerned about

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Speaker 1: Hong Kong's future. We issue earlier in the week about this, okay,

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Speaker 1: but this is really really important. Iron We've got a

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Speaker 1: press conference coming up with the President of this afternoon.

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Speaker 1: I hear Kizzier or Mr Kudlosier or somebody else's ere

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Speaker 1: My Ironnew, what would you say to them about how

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Speaker 1: to handle this exceptionally delicate time. Well, if the China

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Speaker 1: US relationship has never been more complex, and I've been

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Speaker 1: involved in it for about thirty years, I was there,

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Speaker 1: uh lobbying for China's accession to the WTL and getting

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Speaker 1: rid of the annual MFN status debate in the nine

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Speaker 1: so I know the history here. But China US relations

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Speaker 1: are much more important on a national security front, on

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Speaker 1: the geostrategic front, and of course on economic terms as well.

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Speaker 1: So what I would be saying is that I think

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Speaker 1: China does need to have a response from the US government.

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Speaker 1: Of course, the business commit doesn't want to have the

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Speaker 1: claddal consequences of that, But there has been an action

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Speaker 1: taken by the Chinese government that is an erosion of

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Speaker 1: the one country, two systems approach that has served Hong

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Speaker 1: Kong well, has served the course, Hong Kong as an

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Speaker 1: international community of financial hub, a rules based economy, and

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Speaker 1: I think it served China's interest well. And this action

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Speaker 1: taken by China to adopt a new national security law,

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Speaker 1: I think undermines that confidence and creates instability and insecurity

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Speaker 1: and adds to a plafila of issues that already exists

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Speaker 1: in the U S China relationship that are complex and challenging,

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Speaker 1: from technology to trade to Hong Kong, obviously human rights

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Speaker 1: and other issues as well well. Uncertainty is the key

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Speaker 1: word here, and that was the prevailing sentiment among businesses

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Speaker 1: and c suites when we saw the trade tensions ramping

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Speaker 1: up between the US and China. Now there's a question

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Speaker 1: of the uncertainty of whether the Phase one deal is

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Speaker 1: off the table, whether we're going to see the US

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Speaker 1: take measures that increased sanctions or tariffs on China. How

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Speaker 1: much are you were read about that uncertainty, that lack

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Speaker 1: of clarity on the US response and what China will

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Speaker 1: do in retaliation of the effect on US businesses. So,

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Speaker 1: first off, we very much supported UH the US administration's

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Speaker 1: effort to try to address unfair trade actions through a

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Speaker 1: trade negotiation, and we were very much supportive of the

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Speaker 1: actions around intellectual property, around technology transfer. Of course, trying

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Speaker 1: to deal with some issues that were not addressed in

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Speaker 1: Phase one, like subsidies and state owned enterprise structures and

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Speaker 1: things like that. However, we believe that Phase one agreement

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Speaker 1: is in the interest of both China and the United

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Speaker 1: States and brought out in some stability. China has not

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Speaker 1: fulfilled all of its obligations under its Phase one agreement.

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Speaker 1: This is gonna be another issue of tension and has

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Speaker 1: emerged as one in the last few weeks. But I

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Speaker 1: think that the negotiations between China United States on the

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Speaker 1: trade front has been to some extent isolated from the

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Speaker 1: broader political challenges in the relationship, and that's a good thing.

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Speaker 1: We want to see China the United States work through

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Speaker 1: these difficult trade issues because the stakes are so large

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Speaker 1: for the economy of China, the United States, and of

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Speaker 1: course the global economy. But that said, uh, this is

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Speaker 1: an issue that is coming to the forefront because it's

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Speaker 1: been a very difficult environment with COVID nineteen. The pandemic

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Speaker 1: has of course created a challenge before trying to purchase

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Speaker 1: all the goods they should be purchasing from the United States,

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Speaker 1: and I think they've been a little slow and implementing

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Speaker 1: some of their obligations around financial services in I p R,

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Speaker 1: although they have taken some steps in that direction. I

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Speaker 1: hope those negotiations get fully implemented. I think the Phase

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Speaker 1: one agreement is something we supported very forcefully. We provided

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Speaker 1: a lot of input to our government. We talked to

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Speaker 1: the Chinese government about it. But there that's a four

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Speaker 1: that's not a ceiling in this and there's so much

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Speaker 1: more work to be done to improve the commercialationship between

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Speaker 1: China the United States, and we're going to continue to

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Speaker 1: be advocates in that front. Martin brilliant with full let's

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Speaker 1: continuing the conversation of the US Chamber of Commis right

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Speaker 1: now with a someone and I always go back, folks

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Speaker 1: to his fabulous interview with Jeff Bezos of a number

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Speaker 1: of the years ago. David Rubinstein with his efforts here

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Speaker 1: at Bloomberg, with Leadership Live and others to speak to

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Speaker 1: people directly and at length about the sensitive issues of

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Speaker 1: their business. Mr Rubenstein clearly with the Carlisle Group as well,

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Speaker 1: David well timed with the leadership of YouTube. I find

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Speaker 1: people glued to the product, glued to YouTube. But there

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Speaker 1: are real issues here, olah, the Twitter upset of the

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Speaker 1: morning with the president, there's real issues of how YouTube

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Speaker 1: will police itself. What did you learn well YouTube? When

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Speaker 1: I talked to the CEO yesterday, Suechski Um, and she

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Speaker 1: was the person who actually rented her garage to Sergey

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Speaker 1: Brin and Larry Page when they were starting the company,

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Speaker 1: and then she became I think later the sixteenth employee,

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Speaker 1: and then later she when she was employeed there, she

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Speaker 1: recommended they buy a little company called YouTube, and now

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Speaker 1: it's become a behemoth. Um she Uh. It was an

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Speaker 1: awkward situation in the sense that we didn't really know

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Speaker 1: exactly what President Trump's executive what are said, because as

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Speaker 1: I was interviewing her yesterday, it hadn't yet come out.

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Speaker 1: But she basically said that they do the best they

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Speaker 1: can to police the things that come on you to

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Speaker 1: use the word police, but if something is inaccurate on YouTube,

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Speaker 1: they try to take it down. And you have you know,

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Speaker 1: I assume hundreds and hundreds of people who watch what

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Speaker 1: goes on YouTube, so they can make sure that's not

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Speaker 1: filled with things that are wrong or inaccurate or dangerous.

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Speaker 1: I looked, David at the time that we're in with

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Speaker 1: the invention of this new media property. You know, the

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Speaker 1: valuations that are being put on these properties. My question

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Speaker 1: of the morning, which I say to you with great

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Speaker 1: respect for your for your financing of all this, are

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Speaker 1: these things news organizations? Is YouTube? Is Twitter as Facebook

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Speaker 1: a news organization? To David Rubinstein, well, of course, nothing

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Speaker 1: rivals Bloomberg as a news organization, I would say, But

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Speaker 1: there's no doubt that many, many people, particularly younger people

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Speaker 1: than me, get their news from YouTube, from Twitter, from

430
00:23:20,400 --> 00:23:23,240
Speaker 1: Facebook in ways that I would have found surprising the

431
00:23:23,240 --> 00:23:25,400
Speaker 1: other ways. I go out and buy the newspapers every day.

432
00:23:25,440 --> 00:23:28,280
Speaker 1: I still physically buy them and read them in the

433
00:23:28,280 --> 00:23:31,639
Speaker 1: hard copy, but very few people do, including none of

434
00:23:31,640 --> 00:23:34,160
Speaker 1: my children do. And so people get their news from

435
00:23:34,240 --> 00:23:36,960
Speaker 1: these other kind of sources. So for many people, YouTube

436
00:23:37,000 --> 00:23:39,600
Speaker 1: probably provides more news to people under the age of

437
00:23:39,680 --> 00:23:41,639
Speaker 1: let's say thirty, than than the New York Times, the

438
00:23:41,640 --> 00:23:44,119
Speaker 1: Washington Post, or the Wall Street Journal. So yes, they

439
00:23:44,119 --> 00:23:47,159
Speaker 1: are news organizations in that sense, David. The idea of

440
00:23:47,240 --> 00:23:50,720
Speaker 1: leadership right now has a pretty interesting meeting, especially as

441
00:23:50,760 --> 00:23:53,680
Speaker 1: the Twitter spat with President Trump heats up and as

442
00:23:53,720 --> 00:23:57,160
Speaker 1: we see Twitter punished in stock markets for their actions

443
00:23:57,160 --> 00:24:00,320
Speaker 1: and Facebook, which has not taken similar actions, were ordered

444
00:24:00,320 --> 00:24:03,480
Speaker 1: by stock investors. How do you, as both an investor

445
00:24:03,680 --> 00:24:06,480
Speaker 1: as well as a watcher of how these trends are evolving,

446
00:24:07,000 --> 00:24:11,840
Speaker 1: view leadership in this capacity? Where does the responsibility lie

447
00:24:11,960 --> 00:24:14,480
Speaker 1: with society or some kind of great or good kind

448
00:24:14,520 --> 00:24:18,440
Speaker 1: of concept or with just the bottom line? Well, two

449
00:24:18,520 --> 00:24:22,680
Speaker 1: points one. Clearly, the market doesn't like controversy. So if

450
00:24:22,720 --> 00:24:25,520
Speaker 1: you are in a kind of a spat with the

451
00:24:25,520 --> 00:24:28,919
Speaker 1: president United States, it's probably not going to help your stock.

452
00:24:29,080 --> 00:24:31,600
Speaker 1: That would be my guess. If you are saying good

453
00:24:31,600 --> 00:24:35,000
Speaker 1: things about the president of the United States in this context, uh,

454
00:24:35,240 --> 00:24:37,600
Speaker 1: maybe it doesn't hurt your stock. It may help your stock,

455
00:24:37,960 --> 00:24:40,920
Speaker 1: But generally, uh, I think there is a responsibility of

456
00:24:40,960 --> 00:24:43,560
Speaker 1: all the organizations that have this kind of dissemination of

457
00:24:43,600 --> 00:24:47,840
Speaker 1: information to try to be reasonably accurate. Obviously don't want censorship,

458
00:24:47,880 --> 00:24:50,280
Speaker 1: but you want people to make certain that they don't

459
00:24:50,320 --> 00:24:54,600
Speaker 1: watch YouTube or Facebook and see something that is defamatory

460
00:24:54,640 --> 00:24:57,879
Speaker 1: about something or something anti semitic, or or something that

461
00:24:57,920 --> 00:25:00,439
Speaker 1: it deals with the racial overturns that that are just

462
00:25:00,480 --> 00:25:04,240
Speaker 1: inappropriate so it's a tough, tough job, and I wouldn't

463
00:25:04,280 --> 00:25:05,399
Speaker 1: want to be one of the people who had to

464
00:25:05,400 --> 00:25:07,720
Speaker 1: figure out what is appropriate and what is not appropriate.

465
00:25:07,960 --> 00:25:10,520
Speaker 1: But there's no doubt that as we go forward as

466
00:25:10,560 --> 00:25:14,639
Speaker 1: an investor, more and more value will accree to these

467
00:25:14,720 --> 00:25:17,440
Speaker 1: type of organizations because that's where people are getting their news,

468
00:25:17,640 --> 00:25:20,240
Speaker 1: that's where people are watching. David. You recall that video

469
00:25:20,280 --> 00:25:22,680
Speaker 1: that leaked out of Facebook a number of months ago

470
00:25:22,760 --> 00:25:25,320
Speaker 1: with Mark Zuckerberg talking about Senate to Warren saying, We're

471
00:25:25,320 --> 00:25:27,359
Speaker 1: prepared to go to the map if they try and

472
00:25:27,359 --> 00:25:29,800
Speaker 1: break up this company. You speak to the leadership of

473
00:25:29,840 --> 00:25:31,439
Speaker 1: these tech firms, can you give us a sense of

474
00:25:31,480 --> 00:25:33,800
Speaker 1: the kind of things that they are worried about coming

475
00:25:33,800 --> 00:25:35,719
Speaker 1: out of Washington, d C. The things that keep them

476
00:25:35,760 --> 00:25:38,040
Speaker 1: up at night, the things that scather them well, um,

477
00:25:38,080 --> 00:25:41,040
Speaker 1: you know Will rogers Um, the famous humorists in the

478
00:25:41,119 --> 00:25:43,480
Speaker 1: I Guess nineteen thirties used to say the country is

479
00:25:43,520 --> 00:25:46,840
Speaker 1: never safe when other Congresses in session. So people in

480
00:25:46,880 --> 00:25:50,200
Speaker 1: Silicon Valley are always worried that Congress or the administration

481
00:25:50,200 --> 00:25:53,040
Speaker 1: will do something. But as we've learned in the Microsoft

482
00:25:53,119 --> 00:25:56,000
Speaker 1: lawsuit and other kinds of things, Uh, these things take

483
00:25:56,040 --> 00:25:58,240
Speaker 1: a long time to get done if they're going to

484
00:25:58,320 --> 00:26:00,800
Speaker 1: get done, and it's not that easy to break these

485
00:26:00,800 --> 00:26:03,280
Speaker 1: companies up. On the other hand, um A T and

486
00:26:03,359 --> 00:26:05,959
Speaker 1: T was broken up and Standard Oil was broken up

487
00:26:05,960 --> 00:26:08,520
Speaker 1: many many years ago. So I don't see any of

488
00:26:08,520 --> 00:26:11,359
Speaker 1: these companies being broken up, but they might change the

489
00:26:11,359 --> 00:26:13,320
Speaker 1: way they operate, and they certainly are spending more and

490
00:26:13,359 --> 00:26:16,680
Speaker 1: more time in Washington letting members of Congress ended members

491
00:26:16,720 --> 00:26:21,199
Speaker 1: administration know their pluses. David Rubinstein an open question on

492
00:26:21,240 --> 00:26:24,320
Speaker 1: a Friday. As we stagger into June with this pandemic,

493
00:26:24,840 --> 00:26:28,520
Speaker 1: we are seeing a massive economic contraction out of the thirties.

494
00:26:28,520 --> 00:26:31,919
Speaker 1: As you know, the Melon family was hugely charitable in

495
00:26:32,000 --> 00:26:35,879
Speaker 1: Washington a lifetime ago. Are we going to see the

496
00:26:36,080 --> 00:26:41,560
Speaker 1: combinations and the transactions that lead to combinations because of

497
00:26:41,600 --> 00:26:45,200
Speaker 1: this economic depression like we saw in the thirties. Are

498
00:26:45,200 --> 00:26:48,959
Speaker 1: we going to see one big roll up. Well, I

499
00:26:48,960 --> 00:26:51,600
Speaker 1: don't know we'll see that, but I do think that

500
00:26:51,680 --> 00:26:55,160
Speaker 1: we're going to find more and more pressure being put

501
00:26:55,160 --> 00:26:57,160
Speaker 1: on the wealthiest people in the United States to give

502
00:26:57,200 --> 00:26:59,920
Speaker 1: back to society, and obviously many of them are already

503
00:27:00,000 --> 00:27:03,119
Speaker 1: doing that, but more and more philanthropy will be required

504
00:27:03,400 --> 00:27:06,080
Speaker 1: to meet the gaps that government can no longer meet

505
00:27:06,520 --> 00:27:08,879
Speaker 1: because government won't have the resource, is not going to

506
00:27:08,960 --> 00:27:10,879
Speaker 1: have the budget to be able to do all the

507
00:27:10,960 --> 00:27:13,000
Speaker 1: things that it has done over the last couple of years,

508
00:27:13,240 --> 00:27:16,520
Speaker 1: and some more and more philanthropy will be expected. I

509
00:27:16,600 --> 00:27:19,920
Speaker 1: think of these wealthy individuals who benefited from, you know,

510
00:27:19,920 --> 00:27:22,959
Speaker 1: a lot of the tech uh increase in value, and

511
00:27:23,080 --> 00:27:24,760
Speaker 1: I think you will see more and more pressure for

512
00:27:24,760 --> 00:27:28,439
Speaker 1: for people to do more UH where government can't do it. Remember,

513
00:27:28,640 --> 00:27:31,040
Speaker 1: we're running big deficits and big debt, and I think

514
00:27:31,080 --> 00:27:32,639
Speaker 1: the government at some point it's just not going to

515
00:27:32,680 --> 00:27:34,000
Speaker 1: be able to pay for all the things that has

516
00:27:34,040 --> 00:27:36,760
Speaker 1: been paying for. David, always great to get your perspective.

517
00:27:36,760 --> 00:27:39,119
Speaker 1: It's valuable thing. Thank you for joting to Guess this morning.

518
00:27:39,119 --> 00:27:46,280
Speaker 1: Really appreciate your time, so audience worldwide on Bloomberg TV

519
00:27:46,480 --> 00:27:49,960
Speaker 1: and on Bloomberg Radio. Alongside Michael McKay and May I'm

520
00:27:50,000 --> 00:27:51,639
Speaker 1: really placed to say that back with us on this

521
00:27:51,720 --> 00:27:55,639
Speaker 1: program is the Cleveland Fed President, Loretta Messa. Laretta, fantastic

522
00:27:55,680 --> 00:27:57,320
Speaker 1: to have you with us back on the show. We

523
00:27:57,440 --> 00:27:59,959
Speaker 1: just had a conversation with Muhammad al Arian a little bit.

524
00:28:00,000 --> 00:28:02,600
Speaker 1: Earlie on Bloomberg TV for our listeners on Bloomberg Radio

525
00:28:02,600 --> 00:28:04,600
Speaker 1: who may have missed that he was talking about the

526
00:28:04,680 --> 00:28:07,879
Speaker 1: risk to the downside of doing more one of the

527
00:28:07,920 --> 00:28:11,600
Speaker 1: downside risks for the Federal Reserve of doing even more well.

528
00:28:11,600 --> 00:28:14,320
Speaker 1: The way I view what we've done so far is, remember,

529
00:28:14,359 --> 00:28:18,399
Speaker 1: we saw that the financial markets were not functioning well,

530
00:28:18,920 --> 00:28:21,800
Speaker 1: so we took very strong actions to make sure that

531
00:28:21,840 --> 00:28:25,720
Speaker 1: the financial markets continue to function so that credit could

532
00:28:25,800 --> 00:28:30,919
Speaker 1: flow the households of businesses. Without a functioning financial system,

533
00:28:31,000 --> 00:28:34,119
Speaker 1: we'd have a financial stability crisis on top of a

534
00:28:34,119 --> 00:28:37,199
Speaker 1: pandemic crisis. So no one would have wanted that. So

535
00:28:37,240 --> 00:28:40,160
Speaker 1: our actions so far i've been I think impactful. I

536
00:28:40,200 --> 00:28:43,000
Speaker 1: think you've seen the financial markets working better. I think

537
00:28:43,080 --> 00:28:46,200
Speaker 1: liquidity is flowing um and I think those have been

538
00:28:46,560 --> 00:28:51,000
Speaker 1: um important programs that we set up, these emergency facilities.

539
00:28:51,000 --> 00:28:54,320
Speaker 1: Some of them are still to come in terms of

540
00:28:54,400 --> 00:28:58,520
Speaker 1: opening for business. The terms are being negotiated um with

541
00:28:58,560 --> 00:29:01,160
Speaker 1: Treasury and to make sure that the programs work well.

542
00:29:01,840 --> 00:29:04,760
Speaker 1: So we that's kind of a state of play there.

543
00:29:05,400 --> 00:29:08,160
Speaker 1: I think as the economy and more places begin to

544
00:29:08,200 --> 00:29:10,640
Speaker 1: open up, we'll have a better sense of what the

545
00:29:10,680 --> 00:29:13,800
Speaker 1: recovery is looking like, and we may have to and

546
00:29:13,840 --> 00:29:17,479
Speaker 1: I expect that we'll have to support the recovery going forward,

547
00:29:17,520 --> 00:29:20,000
Speaker 1: but we're really at the very beginning stages of that

548
00:29:20,040 --> 00:29:22,320
Speaker 1: because there's still parts of the country that are shut down.

549
00:29:22,440 --> 00:29:25,440
Speaker 1: So it really depends on what you mean by doing more.

550
00:29:25,520 --> 00:29:27,920
Speaker 1: I do think there's gonna be a second phase of

551
00:29:28,120 --> 00:29:32,160
Speaker 1: monetary policy, but that will be more of the supporting

552
00:29:32,160 --> 00:29:35,720
Speaker 1: the recovery, supporting activity making sure that we can have

553
00:29:36,440 --> 00:29:40,880
Speaker 1: a recovery that that takes hold and develops well. Presidents,

554
00:29:41,120 --> 00:29:43,320
Speaker 1: let's talk about that, because quite clearly, a couple of

555
00:29:43,320 --> 00:29:45,720
Speaker 1: months ago it's not a day compared to where we

556
00:29:45,760 --> 00:29:47,680
Speaker 1: are now, and I think it would be hard pushed

557
00:29:47,720 --> 00:29:50,960
Speaker 1: to suggest that it's about market functioning anymore. You've talked

558
00:29:51,000 --> 00:29:54,160
Speaker 1: about that next phase. If the previous phase the objective

559
00:29:54,200 --> 00:29:57,160
Speaker 1: was market functioning, what does the next phase look like

560
00:29:57,440 --> 00:29:59,400
Speaker 1: and how are the tools different? How is the response

561
00:29:59,440 --> 00:30:03,320
Speaker 1: to the federals of different? Right? So looy I view

562
00:30:03,360 --> 00:30:05,720
Speaker 1: it is we you know, just think about the second quarter.

563
00:30:05,800 --> 00:30:08,680
Speaker 1: The second quarter numbers when they come out are going

564
00:30:08,760 --> 00:30:12,240
Speaker 1: to be very, very negative numbers. I mean, we know

565
00:30:12,360 --> 00:30:14,360
Speaker 1: that we know that that was the height of the

566
00:30:14,400 --> 00:30:17,560
Speaker 1: shutdown when there was no activity. In the third quarter

567
00:30:17,680 --> 00:30:21,240
Speaker 1: and fourth quarter, we're gonna cease activity begin to emerge.

568
00:30:21,320 --> 00:30:23,120
Speaker 1: I think some of the quarterly growth rates are going

569
00:30:23,160 --> 00:30:27,120
Speaker 1: to overstate UM the what it looks like really out

570
00:30:27,120 --> 00:30:29,040
Speaker 1: in the field, because we're gonna see from a base

571
00:30:29,080 --> 00:30:31,800
Speaker 1: of very little activity some pickup and activity, and they're

572
00:30:31,800 --> 00:30:33,560
Speaker 1: gonna look like big growth rates. But we're still going

573
00:30:33,600 --> 00:30:36,160
Speaker 1: to be below where we were at the start of

574
00:30:36,200 --> 00:30:40,360
Speaker 1: the year in terms of both employment and output. So

575
00:30:40,640 --> 00:30:43,280
Speaker 1: I think we have to take this, you know, looking

576
00:30:43,320 --> 00:30:45,720
Speaker 1: at how this is emerging, I think there's a lot

577
00:30:45,760 --> 00:30:49,320
Speaker 1: of concern about um second waves of the virus. So

578
00:30:49,520 --> 00:30:53,440
Speaker 1: what makes this difficult is that we have both economics

579
00:30:53,480 --> 00:30:57,080
Speaker 1: going on and also a health crisis going on, and

580
00:30:57,120 --> 00:31:01,040
Speaker 1: so that is that's very different than other economic shocks

581
00:31:01,080 --> 00:31:03,520
Speaker 1: that we've had in the past, and so I think

582
00:31:03,560 --> 00:31:06,160
Speaker 1: a lot of how the recovery goes it's going to

583
00:31:06,240 --> 00:31:10,200
Speaker 1: be depended on COVID testing, the three seats, COVID testing,

584
00:31:10,880 --> 00:31:13,480
Speaker 1: contract MCNE, and making sure that the capacity of the

585
00:31:13,480 --> 00:31:17,200
Speaker 1: health care system and handle UM and increase in cases

586
00:31:17,240 --> 00:31:20,560
Speaker 1: that every epidemiologist is telling us that we should expect

587
00:31:21,040 --> 00:31:23,920
Speaker 1: over the second half of the year. That means that

588
00:31:23,960 --> 00:31:27,240
Speaker 1: the recovery could be slow. Um, when you have so

589
00:31:27,320 --> 00:31:30,200
Speaker 1: many people out of work, it's hard to imagine that

590
00:31:30,240 --> 00:31:32,880
Speaker 1: we'd see a quick v shape recovery. I think it's

591
00:31:32,880 --> 00:31:35,400
Speaker 1: gonna be slow. I think businesses are going to be

592
00:31:35,480 --> 00:31:38,880
Speaker 1: thoughtful about reopening. I think people are going to be

593
00:31:38,920 --> 00:31:43,080
Speaker 1: thoughtful about spending. And so what that means is that

594
00:31:43,280 --> 00:31:47,080
Speaker 1: monetary policy has a role to play as we support

595
00:31:47,080 --> 00:31:49,600
Speaker 1: the economy getting back to our dual mandate goals of

596
00:31:49,640 --> 00:31:53,400
Speaker 1: full employment and price stability. And so that's more traditional

597
00:31:54,480 --> 00:31:57,520
Speaker 1: monetary policy. And the tools that we have are our

598
00:31:57,640 --> 00:32:01,600
Speaker 1: interest rate tool, which already is at zero, forward guidance

599
00:32:02,200 --> 00:32:06,120
Speaker 1: which we've used before, and also asset purchases, but asset

600
00:32:06,160 --> 00:32:09,479
Speaker 1: purchases not to improve market functioning, but really to support

601
00:32:09,520 --> 00:32:13,720
Speaker 1: the economy as it moves forward towards full employment and

602
00:32:13,880 --> 00:32:19,840
Speaker 1: christ stability. Well, markets want you to specify exactly what

603
00:32:19,960 --> 00:32:21,960
Speaker 1: you're going to do. What you're going to do, of course,

604
00:32:22,560 --> 00:32:24,920
Speaker 1: and I'm wondering if the June tenth meeting is a

605
00:32:25,040 --> 00:32:28,840
Speaker 1: time for you to announce anything new at this point.

606
00:32:28,920 --> 00:32:31,840
Speaker 1: You're fed. Cleveland FED did a study of the tailor

607
00:32:31,920 --> 00:32:35,600
Speaker 1: rule and five other uh, simple rules and found that

608
00:32:35,840 --> 00:32:38,960
Speaker 1: if you use those you would have the FED funds

609
00:32:39,000 --> 00:32:42,640
Speaker 1: rate your target anywhere from a negative two to a

610
00:32:42,680 --> 00:32:46,400
Speaker 1: negative fourteen percent. That suggests at this point you're not

611
00:32:46,640 --> 00:32:50,000
Speaker 1: loose enough for the economy we have at the moment. Well,

612
00:32:50,040 --> 00:32:54,240
Speaker 1: I think those rules, right are based on the dynamics

613
00:32:54,240 --> 00:32:58,240
Speaker 1: and the economy, based on history and historic relationships. And

614
00:32:58,360 --> 00:33:01,040
Speaker 1: if I told you that the employment rate which is

615
00:33:01,080 --> 00:33:05,680
Speaker 1: now at fourteen point seven percent um, you know, when

616
00:33:05,680 --> 00:33:08,280
Speaker 1: you stick that into a role, you're gonna get that

617
00:33:08,480 --> 00:33:12,480
Speaker 1: kind of result from the rules. But really, right now,

618
00:33:12,560 --> 00:33:16,160
Speaker 1: we're not really trying up to this point to stimulate activity. Right.

619
00:33:16,200 --> 00:33:19,920
Speaker 1: The economy was shut down as an investment in our

620
00:33:19,960 --> 00:33:22,400
Speaker 1: public health. Right, that was the tool that we the

621
00:33:22,400 --> 00:33:25,920
Speaker 1: economic country did to sort of try to make sure

622
00:33:26,040 --> 00:33:29,080
Speaker 1: that the capacity and the healthcare system could build up.

623
00:33:29,320 --> 00:33:32,240
Speaker 1: More could be learned about the transmission mechanism of the

624
00:33:32,640 --> 00:33:36,240
Speaker 1: of the virus. So the tool, the work that we've

625
00:33:36,280 --> 00:33:38,360
Speaker 1: done so far at the FED, and I would you know,

626
00:33:38,400 --> 00:33:41,160
Speaker 1: the federal government also was really to get us through

627
00:33:41,200 --> 00:33:45,720
Speaker 1: the shutdown period so that when the economy began begins

628
00:33:45,760 --> 00:33:48,680
Speaker 1: to reopen, that that's a point where we can support

629
00:33:48,680 --> 00:33:51,720
Speaker 1: the recovery, and I think that's where the second phase

630
00:33:51,720 --> 00:33:54,560
Speaker 1: that I was talking about comes into play. We're just

631
00:33:54,720 --> 00:33:57,640
Speaker 1: at the beginning now of states beginning to reopen. So

632
00:33:58,000 --> 00:34:01,400
Speaker 1: again I think we're talking about a future state right

633
00:34:01,440 --> 00:34:03,760
Speaker 1: when we see what the recovery is starting to look

634
00:34:03,800 --> 00:34:07,840
Speaker 1: like as more of a country is able to reopen,

635
00:34:07,960 --> 00:34:10,640
Speaker 1: and so I think we're going to have that conversation,

636
00:34:10,719 --> 00:34:13,239
Speaker 1: those conversations, but again I think that comes at a

637
00:34:13,320 --> 00:34:16,439
Speaker 1: later stage when right we know a little bit more

638
00:34:16,480 --> 00:34:19,520
Speaker 1: about what that recovery point is looking at, and we're

639
00:34:19,520 --> 00:34:22,200
Speaker 1: collecting date all the time on how the opening reopening

640
00:34:22,280 --> 00:34:25,480
Speaker 1: is going, so we have some you know, information on that,

641
00:34:25,560 --> 00:34:29,200
Speaker 1: but really beginning stages of that for the country, well,

642
00:34:29,280 --> 00:34:32,600
Speaker 1: you the FED have long suggested that forward guidance is

643
00:34:32,680 --> 00:34:35,000
Speaker 1: kind of the next tool that you would employ. But

644
00:34:35,040 --> 00:34:38,640
Speaker 1: when you look at two year Treasury note futures, they're

645
00:34:38,719 --> 00:34:41,280
Speaker 1: under one percent out to the end of two thousand

646
00:34:41,360 --> 00:34:44,239
Speaker 1: twenty two. And it's raised a question in people's minds

647
00:34:44,280 --> 00:34:46,879
Speaker 1: on Wall Street. If you give traders just a one

648
00:34:46,880 --> 00:34:50,040
Speaker 1: way bet forever, you're gonna have problems down the road.

649
00:34:50,040 --> 00:34:53,600
Speaker 1: You're gonna have a taper tantrum. If everybody is in

650
00:34:53,680 --> 00:34:56,719
Speaker 1: on the same trade for years and years, So I

651
00:34:56,800 --> 00:34:59,359
Speaker 1: think that's always a concern when you're we're using these

652
00:34:59,400 --> 00:35:02,719
Speaker 1: tools um at the zero lower bound. We always when

653
00:35:03,040 --> 00:35:04,920
Speaker 1: whenever we use a tool, at least the way I

654
00:35:04,960 --> 00:35:07,440
Speaker 1: approach this is we always have to think about what

655
00:35:07,520 --> 00:35:10,640
Speaker 1: it looks like at the moment, but also what does

656
00:35:10,680 --> 00:35:12,600
Speaker 1: it look like in the future, and how would you

657
00:35:12,680 --> 00:35:16,320
Speaker 1: exit from that tool. So I always think approach policy

658
00:35:16,400 --> 00:35:20,040
Speaker 1: that way, not just looking at the current moment, but

659
00:35:20,120 --> 00:35:23,440
Speaker 1: also thinking about, Okay, what's the path of this going forward,

660
00:35:23,480 --> 00:35:27,120
Speaker 1: and that's really going to different be decided by what

661
00:35:27,239 --> 00:35:30,000
Speaker 1: happens in the economy, what does the recovery look like,

662
00:35:30,120 --> 00:35:35,400
Speaker 1: how much accommodation, monetary policy, accommodation is needed, right, and

663
00:35:35,440 --> 00:35:39,840
Speaker 1: then also communicating well so that we're not surprising anyone

664
00:35:39,920 --> 00:35:42,719
Speaker 1: with our policy that we want we want people to

665
00:35:42,840 --> 00:35:46,480
Speaker 1: understand where we're coming from, what our rationale is, but

666
00:35:46,600 --> 00:35:50,920
Speaker 1: we don't want to necessarily mislead in some way by

667
00:35:51,120 --> 00:35:54,400
Speaker 1: saying we know exactly what the economy, how the economy

668
00:35:54,480 --> 00:35:56,480
Speaker 1: is going to evolve. And so that's when we got

669
00:35:56,520 --> 00:36:00,120
Speaker 1: into earlier in the In the earlier recovery, it is

670
00:36:00,160 --> 00:36:03,160
Speaker 1: about making sure that people understood that we're not prexyent,

671
00:36:03,760 --> 00:36:06,239
Speaker 1: but we are going to base our policy actions on

672
00:36:06,360 --> 00:36:11,719
Speaker 1: what the data is telling us about the economic outlook. Well,

673
00:36:11,719 --> 00:36:14,400
Speaker 1: President Memester, at the moment, there are people worried about

674
00:36:14,400 --> 00:36:17,120
Speaker 1: how big the FATS role is in clearing markets now

675
00:36:17,160 --> 00:36:19,880
Speaker 1: and how big the FATS role is in setting prices.

676
00:36:20,200 --> 00:36:22,320
Speaker 1: And it's been a conversation in the last several weeks

677
00:36:22,360 --> 00:36:25,040
Speaker 1: with us and your colleagues, including President Williams, about yield

678
00:36:25,080 --> 00:36:27,200
Speaker 1: curve control. I want to try and understand from you

679
00:36:27,280 --> 00:36:29,080
Speaker 1: because this is where the confusion is on Wall Street

680
00:36:29,080 --> 00:36:31,279
Speaker 1: for some people in fixed income at the moment, would

681
00:36:31,360 --> 00:36:34,200
Speaker 1: yield curve control for you be something focused on the

682
00:36:34,239 --> 00:36:36,480
Speaker 1: front end to the belly of the treasury curve or

683
00:36:36,520 --> 00:36:39,439
Speaker 1: would you think about doing what Japan is doing, which

684
00:36:39,480 --> 00:36:41,160
Speaker 1: is all the way out to ten years. Just how

685
00:36:41,200 --> 00:36:43,719
Speaker 1: much control over the yield curve, so to speak, would

686
00:36:43,760 --> 00:36:47,279
Speaker 1: you be looking to have, right, So, my view of

687
00:36:47,400 --> 00:36:49,680
Speaker 1: yield curve control is that it really is a support

688
00:36:49,880 --> 00:36:52,800
Speaker 1: for forward guidance if we were going to do it now.

689
00:36:53,080 --> 00:36:55,760
Speaker 1: The Committee has discussed yield curve control as a tool

690
00:36:56,520 --> 00:37:00,960
Speaker 1: back in UM during the financial crisis, and and also

691
00:37:01,280 --> 00:37:04,040
Speaker 1: as part of our framework review as a tool, a

692
00:37:04,080 --> 00:37:08,640
Speaker 1: potential tool, No decisions have been made on that at all. UM. Again,

693
00:37:09,080 --> 00:37:10,880
Speaker 1: I don't think of that as something that would be

694
00:37:10,920 --> 00:37:12,839
Speaker 1: in this phase of what we're doing to make sure

695
00:37:12,880 --> 00:37:15,920
Speaker 1: that the markets continue to function. But as a tool,

696
00:37:16,000 --> 00:37:18,640
Speaker 1: I think it's worth while thinking about what those tools

697
00:37:18,680 --> 00:37:21,680
Speaker 1: are going to be that we can use. But right

698
00:37:21,680 --> 00:37:26,040
Speaker 1: now that's a discussion for the future phase. And my

699
00:37:26,080 --> 00:37:28,799
Speaker 1: own view is that if you wanted to do it, UM,

700
00:37:28,840 --> 00:37:32,319
Speaker 1: you'd have to think hard about how you would implement it,

701
00:37:32,360 --> 00:37:35,480
Speaker 1: and also, as I said before, how do you exit

702
00:37:35,560 --> 00:37:38,600
Speaker 1: from it? Because with any of these tools right there

703
00:37:38,600 --> 00:37:42,120
Speaker 1: are pros and cons of using them right now. You know,

704
00:37:42,239 --> 00:37:44,880
Speaker 1: as you point out, the yield curve is very flat

705
00:37:44,920 --> 00:37:48,480
Speaker 1: at the short end. So maybe with the four guides

706
00:37:48,520 --> 00:37:51,719
Speaker 1: we've given already, it's not necessary to do something to

707
00:37:51,880 --> 00:37:54,439
Speaker 1: emphasize at torward guides. But I don't want to take

708
00:37:54,480 --> 00:37:57,080
Speaker 1: it off the table as something that's a potential for

709
00:37:57,120 --> 00:37:59,319
Speaker 1: me to think about as a possible tool. I just

710
00:37:59,360 --> 00:38:01,240
Speaker 1: don't see that we need it here in the space,

711
00:38:01,400 --> 00:38:04,720
Speaker 1: nor do I see going forward that we necessarily would

712
00:38:04,719 --> 00:38:07,319
Speaker 1: need to use it. But if we were to use it,

713
00:38:07,360 --> 00:38:10,320
Speaker 1: I would view it as a reinforcement for forward guidance

714
00:38:10,360 --> 00:38:12,880
Speaker 1: on the short end. Before we let you go, I

715
00:38:12,920 --> 00:38:15,400
Speaker 1: have to ask you about this. There are there is

716
00:38:15,440 --> 00:38:18,000
Speaker 1: the possibility we could end up in a new trade

717
00:38:18,000 --> 00:38:21,440
Speaker 1: war with China, additional tariffs going on. How would that

718
00:38:21,480 --> 00:38:24,839
Speaker 1: affect the economy. Have we already absorbed that or would

719
00:38:24,880 --> 00:38:28,160
Speaker 1: that be a new hit to the economy? Now? Well,

720
00:38:28,200 --> 00:38:31,040
Speaker 1: I think you know, whenever there's a new rising up

721
00:38:31,080 --> 00:38:34,200
Speaker 1: of uncertainty, and this is another uncertainty, I think we

722
00:38:34,239 --> 00:38:37,520
Speaker 1: have to take it on board as being another potential

723
00:38:37,520 --> 00:38:40,480
Speaker 1: head wind to a recovery. So I think we have

724
00:38:40,640 --> 00:38:42,879
Speaker 1: to just use that as part. We have to take

725
00:38:42,920 --> 00:38:46,840
Speaker 1: the conditions as they are. Um, I think that we

726
00:38:46,840 --> 00:38:49,480
Speaker 1: we've played this game before and sort of saw how

727
00:38:49,520 --> 00:38:54,839
Speaker 1: the uncertainty did dampen um the expansion earlier, and so

728
00:38:54,960 --> 00:38:56,640
Speaker 1: I think we had to just take that on board.

729
00:38:56,760 --> 00:39:01,560
Speaker 1: Is this is another uncertainty attitude, incredible amount of uncertain

730
00:39:01,600 --> 00:39:03,719
Speaker 1: we already have, Loretta, We've got to leave it there.

731
00:39:03,719 --> 00:39:05,200
Speaker 1: I just wanted to say thank you and thank you

732
00:39:05,239 --> 00:39:07,160
Speaker 1: for talking to us ahead of the blackout period before

733
00:39:07,200 --> 00:39:09,680
Speaker 1: the next FED decision. Really appreciate your time and hopefully

734
00:39:09,680 --> 00:39:11,440
Speaker 1: we can get you back on soon. The Cleveland Fed

735
00:39:11,440 --> 00:39:15,640
Speaker 1: president that Loretta Mesta. Thanks for listening to the Bloomberg

736
00:39:15,640 --> 00:39:21,600
Speaker 1: Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,

737
00:39:21,960 --> 00:39:26,200
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

738
00:39:26,239 --> 00:39:30,480
Speaker 1: Tom Keene before the podcast. You can always catch us worldwide.

739
00:39:30,960 --> 00:39:32,040
Speaker 1: I'm Bloomberg Radio