Speaker 1: This is Bloomberg Wall Street Week, market shruggle, higher consumer prices.
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: futteral reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the deals are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflations through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan wynhand a back of America, Will CEO of Charlie
Speaker 1: Sharp Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: Suddenly we want more more goods as we saw in
Speaker 1: the strong retail sales numbers on Friday, and more workers
Speaker 1: as we saw in those disappointing jobs numbers last week.
Speaker 1: But the supply isn't there yet, as we saw this
Speaker 1: week in consumer prices, with core CPI coming in at
Speaker 1: a whopping three, well above expectations. This time, the markets
Speaker 1: didn't take it all in stride the way they have
Speaker 1: in the past, with the stock market having its worst
Speaker 1: day since February after those consumer price numbers hit us
Speaker 1: on Wednesday, got to bounce back on Thursday well, ten
Speaker 1: year bond yields climbed up toward one point seven and
Speaker 1: five year break evens pointed toward more inflation yet to come.
Speaker 1: The FIT has done a wonderful job. They've done a
Speaker 1: great job and supervising the banking system, which has performed
Speaker 1: beautifully during this two year period. And the sharp reductions
Speaker 1: and short term interest rates have done a terrific job
Speaker 1: of stimulating housing and autos. They may be done um,
Speaker 1: but we think they will wait a while before they
Speaker 1: raise short term interest rates again. I think they want
Speaker 1: to make sure that the labor markets have stabilized. That
Speaker 1: was Abby Joseph Cohen on Wall Street Week back in
Speaker 1: two thousand two. In some ways, things haven't changed all
Speaker 1: that much. Then as now the Fed is keeping interest
Speaker 1: rates low to stimulate the housing market. Then, as now
Speaker 1: it's trying to strengthen the jobs market. But when do
Speaker 1: you know that it's time to ease off of that
Speaker 1: gas pedal. That's the question a lot of people are asking.
Speaker 1: Dallas Fed President Rob Kaplan says that while it may
Speaker 1: be too early, the time is coming as we see
Speaker 1: demand kick in so This is a contrast to the
Speaker 1: Great Recession, where we had a very slow recovery because
Speaker 1: of sluggish demand. Households weren't spending. In the current situation,
Speaker 1: we've got substantial demand. Households are spending. But what we're seeing,
Speaker 1: UH from our contacts across the board is supply issues.
Speaker 1: And my team, to their credit, had warned me for
Speaker 1: the two weeks leading up to this report that there
Speaker 1: was a meaningful chance it could be disappointed because we
Speaker 1: were seeing Our estimate is something like two million fifty
Speaker 1: five year old and above workers have have either retired
Speaker 1: on schedule or accelerated their retirement. Got a million and
Speaker 1: a half working mothers UH that are home with their kids. UH,
Speaker 1: lack of childcare, school reopening is an issue. And yet
Speaker 1: we are hearing broadly UH. Employers are trying to hire,
Speaker 1: but they're struggling to compete with unemployment benefits. And then
Speaker 1: the last thing we're hearing from goods companies is they're
Speaker 1: cutting back production runs because they lack inputs. And they've
Speaker 1: even done some temporary laidoffs. They've been telling us, UH,
Speaker 1: and we saw all that because but they're they're gonna
Speaker 1: be temporary because they lack the ability to have full
Speaker 1: production runs. So we saw all that in this Job's report.
Speaker 1: And to what extension you these specific issues in er region,
Speaker 1: in Texas and northern Louisiana and New Mexico. We we
Speaker 1: saw all these issues. I can tell you across the board,
Speaker 1: and you know, we do extensive outreach here and we've
Speaker 1: redoubled it since the pandemic, not only talking to businesses,
Speaker 1: but I took a lot to community leaders, heads of
Speaker 1: heads start across our district and they've been the ones
Speaker 1: warning us UH skill training pipelines have have been reduced.
Speaker 1: They can't get people to take money to enter skills training.
Speaker 1: They're seeing many workers who are taking unemployment. They're reluctant
Speaker 1: to enter full time jobs. They may be doing day
Speaker 1: work as a replacement, which allows them to continue to
Speaker 1: collect unemployment. And again we're seeing elevated high school dropouts.
Speaker 1: And you notice in this Job's report one group that
Speaker 1: had an increase in their employment with sixteen and nineteen
Speaker 1: year olds, and normally it's say that might be good,
Speaker 1: but a number of them were a little alarmed by
Speaker 1: our high school dropouts that I think they would be
Speaker 1: better off in the economy and the long run would
Speaker 1: be better off if they finished high school, got their
Speaker 1: g e d. At least so they could then eventually
Speaker 1: get into skills training. But we're seeing all these trends.
Speaker 1: I suspect that any of these decisions whether to go
Speaker 1: back to work or not are influenced by several factors,
Speaker 1: not just one factor. But talk about their unemployment insurance
Speaker 1: is specifically there was a time go a year back,
Speaker 1: where we wanted people to stay home for safety concerns,
Speaker 1: for health concerns, we wanted to pay them to stay home.
Speaker 1: That time is passing. If it hasn't already passed, does
Speaker 1: the impetus for enhanced unemployment insurance really fade as it's
Speaker 1: safer to get back. I think we want people to
Speaker 1: go back to work now, don't we. So I'll answer
Speaker 1: it this way because I'll stay out of the political
Speaker 1: aspects of this. What we're hearing from contacts. You know,
Speaker 1: if you go back six months or more obviously, or
Speaker 1: even three months, there were a number of sectors that
Speaker 1: hadn't yet reopened, and number of their workers didn't have
Speaker 1: the option to come back. As sectors reopened. For example,
Speaker 1: dining were unusual in Texas we we are now exceeding
Speaker 1: pre pandemic levels, but still movie theaters are just starting
Speaker 1: to reopen. I know in other parts of the country.
Speaker 1: In New York, restaurants are just starting to fully reopen. Uh.
Speaker 1: You want to help people that have lost their jobs,
Speaker 1: but as we more fully reopened, and we want to
Speaker 1: incentivize people to come back either to the jobs they
Speaker 1: left or two other jobs. UH. Contacts are telling me
Speaker 1: this is a real issue. One of the numbers that
Speaker 1: people paid attention to is actually the increase in wages,
Speaker 1: how much people were making. Given that need to get
Speaker 1: those people off the sidelines, are we looking at possible
Speaker 1: wage inflation just around the corner. We're hearing across the
Speaker 1: board for unskilled workers as well as skilled workers. But but,
Speaker 1: but but notably unskilled workers. Businesses tell us they're either
Speaker 1: offering higher wages, but that's not doing it to get
Speaker 1: people back, and they're offering bonuses, you know, signing bonuses.
Speaker 1: And even with that, I think, based on our our work,
Speaker 1: you would have seen much greater hiring in leisure and
Speaker 1: hospitality than we saw if if they were able to
Speaker 1: learn more works, in other words, to demand from these
Speaker 1: businesses to higher is greater than you saw in the
Speaker 1: growth and employment there thanks to Dallas Fed President Rob Kaplan.
Speaker 1: Coming up, cryptocurrencies take a hit from an unexpected source.
Speaker 1: Advocate Elon Musk, our crypto experts Jillian Tet at The
Speaker 1: Financial Times and Peter Krause of Aperture Investors take us
Speaker 1: through the climate olenges of bitcoin. That's next on Wall
Speaker 1: Street Week on This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. Elon Musk has done a
Speaker 1: lot to boost cryptocurrencies like bitcoin and dogecoin, but suddenly
Speaker 1: he's on the other side of the trade, joking about
Speaker 1: doge coin being a hustle on Saturday Night Live and
Speaker 1: then reversing his decision to accept bitcoin and payment for
Speaker 1: Tesla's We talked with Jillian Tech, chair of the editorial
Speaker 1: board and editor at large US for The Financial Times,
Speaker 1: and Peter Krauss, CEO of Aperture Investors about whether the
Speaker 1: setbacks are just a blip or reflect something deeper in
Speaker 1: a nutshell, Well, duh, because we have warned at The
Speaker 1: Financial Times now for many months that cryptocurrency is filthy
Speaker 1: and there's really just two key stats you need to
Speaker 1: know to understand why. Firstly about clip currency has been
Speaker 1: mined using the computer algorithms in China, overwhelmingly using Chinese coal,
Speaker 1: mostly in the west of the country. And secondly, the
Speaker 1: sector has grown so rapidly that it now has the
Speaker 1: carbon footprint people calculate around the size of say Sweden
Speaker 1: UM and that is worrying. I mean, there have been
Speaker 1: any number of activists, scientists, um investors pointing this out
Speaker 1: and pointing out the tremendous irony that that Tesla has
Speaker 1: been branded as e s G friendly, good for environmental,
Speaker 1: social and governance even while it's got this filthy footprint
Speaker 1: in bitcoin. So, Peter, there's more than a little irony here, right,
Speaker 1: because at least we tend to think of people who
Speaker 1: tend to invest in crypto as being very environmentally conscious,
Speaker 1: and it turns out they may be polluting the environment,
Speaker 1: warming up admitting a lot of greenhouse gases. Yeah. Look,
Speaker 1: I mean, we spend an enormous amount of time every
Speaker 1: week trying to think about e s G. Countists and
Speaker 1: vest We designed investment processes, We have information and data
Speaker 1: we look to enquire as to managements views on e
Speaker 1: s G and how they deal with those different conditions,
Speaker 1: and investors are demanding, in particular in Europe, but all
Speaker 1: over the world investment portfolios that are e s G
Speaker 1: friendly and in fact even e s G compliant with
Speaker 1: some of the new regulations in Europe. So it is
Speaker 1: in fact a paradox for investors to be investing in bitcoin,
Speaker 1: which is exactly the opposite of that, not even close
Speaker 1: and more interesting to the Jilly point, if it continues
Speaker 1: to grow, If it continues to grow, the exponential effect
Speaker 1: on the use of poor use of energy coal, dirty
Speaker 1: energy is palpable. And so I find it, you know,
Speaker 1: kind of almost humorous that people are investing in bitcoin,
Speaker 1: thinking that they're doing something that's citing, and at the
Speaker 1: same time they're acting in exactly the opposite way that
Speaker 1: they want the rest of the world to behave. So
Speaker 1: so Julian, that says one thing to people who want
Speaker 1: to buy or hold the cryptocurrencies. What does it say
Speaker 1: for the big banks? Because the big banks are getting
Speaker 1: some pressure actually to manage some funds that actually would
Speaker 1: include some crypto and it we have JP Morgan for example,
Speaker 1: as we're coming out, so we're really gonna get to
Speaker 1: zero missions. Everyone wants to get to zero missions. If
Speaker 1: they really want to do that, does that mean they
Speaker 1: can't hold crypto? Well, what I argue the column the
Speaker 1: Bananche times are three key points. Firstly, this shows that
Speaker 1: nobody can afford to ignore E s G risks, even
Speaker 1: if they have an E S G label on of
Speaker 1: an asset. And essentially what you're seeing is a very
Speaker 1: fast moving sector where there aren't many binary situations. It's
Speaker 1: not static. It's often a question of trade off and
Speaker 1: the only way from investors to code is to take
Speaker 1: a holistic view and recognize they will need to adjust. Secondly, though,
Speaker 1: in coming out of that point in fact, there is
Speaker 1: now a scramble a foot in the crypto world to
Speaker 1: tackle these green issues or these dirty issues, and the
Speaker 1: Unitine Nations just teamed up with the Rocky Mountain Institute
Speaker 1: and a group of fintech leaders to explore ways to
Speaker 1: try and deal with it. Two options. One, you change
Speaker 1: the computing process is to slash the amount of electricity
Speaker 1: they consume, and there's been a cryptocurrency this week called
Speaker 1: Cheer launched to do just that. Secondly, you can try
Speaker 1: and source it from clean energy sources, say Icelandic hydro
Speaker 1: electric power, and create a registry. There are efforts on
Speaker 1: that way, but the third point is that regulators clearly
Speaker 1: need to start getting involved. I mean, the reason why
Speaker 1: someone like Elon Musk can have almost this Wizard of
Speaker 1: Ods like effect on the crypto market is because it's
Speaker 1: opaque and unregulated and probably highly concentrated in its holdings.
Speaker 1: And there are efforts underway now amongst the regulators to
Speaker 1: exert more oversight, not just all over the questions of
Speaker 1: market manipulation, but also money laundering and frankly, every single
Speaker 1: big bank who's dealing with crypto or thinking about it,
Speaker 1: and farm managers, whether it's Ferdella to your Golden Facts,
Speaker 1: needs to throw that weight around it behind this process
Speaker 1: big time, and ironically, green issues might turn out to
Speaker 1: be the issue that causes everyone to runny together, even
Speaker 1: the libertarians. I just want to jump on something to
Speaker 1: just inject another idea into the conversation. There are there
Speaker 1: are two uh issues around around cryptocurrencies. One is the
Speaker 1: mining issue, which creates the sort of scarcity value and
Speaker 1: the desire to actually earn something for producing a new bitcoin,
Speaker 1: and that you know, that's the speculative aspect of bitcoin.
Speaker 1: And the speculative aspect of cryptocurrency. But the more interesting
Speaker 1: aspect of cryptocurrency is not the fact that it is
Speaker 1: a speculative value, but that it's a mechanism by which
Speaker 1: you can actually trade, settle, and effectively record transactions immediately
Speaker 1: or instantaneously. That's the much more valuable part of crypto.
Speaker 1: And you don't need mining exercises and energy um utilization
Speaker 1: in order to go after that. So I think you
Speaker 1: have to start thinking about unbundling the sort of speculative
Speaker 1: aspect of crypto, which frankly has no value to it,
Speaker 1: and now we know it's dirty as it as it
Speaker 1: relates to the environment and the actual value crypto, which
Speaker 1: is a currency that settles immediately, instantaneously, records the transaction,
Speaker 1: and lowers the cost of transactions in the world, and
Speaker 1: is the most valuable part. And so I think this
Speaker 1: might be, to Jillian's point again, the sort of start
Speaker 1: of unappealing the onion between the speculative aspects, which frankly
Speaker 1: are not that valuable, and what the true value of
Speaker 1: crypto could be over time. So so Jillian and Peter says,
Speaker 1: you can separate out the immediate settlement on the one
Speaker 1: hand from the speculu on the other, what about another aspect,
Speaker 1: which is the complete anonymity, which I think we saw
Speaker 1: this week and the Colonial pipeline hack. Actually, as we
Speaker 1: look at all these ransomware attacks, there've been almost four
Speaker 1: hundred on infrastructure. Could we have those ransomware infantachs without
Speaker 1: crypto if you had to actually rate a check in
Speaker 1: your bank account, I'm not sure the ransomware would work.
Speaker 1: That's a great point, David, and I think the issue
Speaker 1: is not so much anonymity, but pseudent anonymity that basically
Speaker 1: don't know who lies behind these accounts. You canteract the accounts,
Speaker 1: and notly enough, some law enforcement officials actually think that
Speaker 1: the benefit to having this because they can actually see
Speaker 1: once you get inside system, you know where accounts are
Speaker 1: coming from. But pseudonomity is absolutely part of the issue.
Speaker 1: And again going back to my point that actually green
Speaker 1: might provide a spark to actually get community support for
Speaker 1: more accountability and transparency. If you started to create a
Speaker 1: register of green versus dirty cryptocurrencies, that's the kind of
Speaker 1: thing that could actually put this on a more with
Speaker 1: you're footing. That was Peter Krass of aperture Investors and
Speaker 1: Jillian Tett of The Financial Times coming up. Inflation was
Speaker 1: up this week and stacks and bounds were down. At
Speaker 1: least you're part of the week. What does that mean
Speaker 1: for investors? We ask Katherine Keating of b N y
Speaker 1: Melon that's next on Wall Street Week on Bloomberg. This
Speaker 1: is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: It was a tricky week for investors as the market
Speaker 1: has been on a tear. Even some warned of gathering
Speaker 1: storm clouds, and this week it felt like we just
Speaker 1: might be feeling some raindrops as well, with those CPI
Speaker 1: numbers coming on the heels of disappointing jobs numbers last week.
Speaker 1: So investors have to be asking themselves whether they should
Speaker 1: be reaching for the umbrella or even running to shelter.
Speaker 1: We ask Katherine Keating, CEO of b N y Melon
Speaker 1: Wealth Management, whether investors are changing their strategy to hedge
Speaker 1: for inflation. Investors always have to be concerned about inflation
Speaker 1: because inflation is one of the things that can lead
Speaker 1: to the end of a business cycle, tightening rates, recession,
Speaker 1: bear markets. We don't see that yet. We actually agree
Speaker 1: um with Chairman Pale that we should expect inflation, and
Speaker 1: we should expect it to be transitory. There are a
Speaker 1: lot of inflationary forces at work in the market. Were
Speaker 1: reopening right, we wouldn't have been here together last May,
Speaker 1: and yet here we are. We're reopening um and so
Speaker 1: we need to expect inflation, and we need to expect
Speaker 1: some surprises because the economy closed down in a very
Speaker 1: synchronized manner, but it's reopening in stages, and so we
Speaker 1: need to expect some of these surprises. And I and
Speaker 1: I always think that Janet Yellen has a great way
Speaker 1: of making economics human, and she reminds us it's not
Speaker 1: just statistics, it's people's activity. And if I think of
Speaker 1: my own activity in April, I was representing the reopening
Speaker 1: of the economy and some of those sectors that really
Speaker 1: drove the CPI increase, I'm grateful to be fully vaccinated.
Speaker 1: I was traveling on my first business trip, renting a car,
Speaker 1: flying on a plane, going to restaurants. Those were some
Speaker 1: of the sectors. As we address transitory against not transitory,
Speaker 1: which j Pallis talked about repeatedly, how informed should we
Speaker 1: be about how much money is sitting on the sidelines,
Speaker 1: particularly in households. There's a lot lot of money sitting
Speaker 1: out there that doesn't really have a weight quite yet
Speaker 1: to express itself. Well, that's right. If you look at households,
Speaker 1: households are in very good shape, right, three trillion dollars
Speaker 1: in household household bank accounts, savings accounts. You look at
Speaker 1: stimulus this year, that's going to households, which will actually
Speaker 1: be twice as much as what went last year, you know,
Speaker 1: six hundred billion last year, a trillion two this year.
Speaker 1: So households are in very good shape, which again is
Speaker 1: a good sign for the economy because if we think
Speaker 1: about the two thousand and eight crisis, that's a crisis
Speaker 1: that really hit households in a different way because of
Speaker 1: the housing component of it. Households today are actually in
Speaker 1: very good shape. To one extent of people run away
Speaker 1: from bonds in this environment because it seems like whatever happens,
Speaker 1: it doesn't seem like bonds will gain in value very
Speaker 1: much going out. Well, that's right. We are we have
Speaker 1: seen interest rates, you know, decline for most of our
Speaker 1: investing lives, and now we're seeing them begin to rise.
Speaker 1: And so there's always a role for bonds in the portfolio.
Speaker 1: It's a smaller role going forward. It's a smaller role because,
Speaker 1: as you note, returns are going to be much lower,
Speaker 1: but there's always a role, and we're broadening portfolios portfolios
Speaker 1: to get exposure to other things to make up for
Speaker 1: what you used to get from your bond portfolio. We're
Speaker 1: seeing some of the tech stocks get particularly particularly hard now.
Speaker 1: They drove a lot of the market for a long time,
Speaker 1: and they're still well up overall. But at the same time,
Speaker 1: what is the problem with tech when it comes to inflation?
Speaker 1: Is it just because there is They're so richly valued
Speaker 1: that when people get nervous they run away from it. Look,
Speaker 1: I think there are two things. I think the tech
Speaker 1: stocks really, um you know, lead the recovery because of
Speaker 1: the way we were spending our time last year, right,
Speaker 1: they really enabled us to keep the economy open to
Speaker 1: a certain extent. So you saw tech stocks, um you know,
Speaker 1: get very high multiples because of that. And also because
Speaker 1: investors were willing to pay for growth in a sector
Speaker 1: that was growing when you had so many sectors not growing.
Speaker 1: Now what you see is with interest rates rising, it
Speaker 1: actually reduces the present value of the cash flows and
Speaker 1: earnings of tech stops and so that's what you're seeing
Speaker 1: a rotation, but it's a rotation into sectors that we
Speaker 1: should all be embracing. Mid cap, small cap value, non
Speaker 1: US stocks. We think all of these will play good
Speaker 1: roles in the portfolio. So follow up on that. Who
Speaker 1: might benefit actually from inflation? For example, financials, So financials
Speaker 1: um will benefit from inflation and in particular difference between
Speaker 1: short term and long term right, um, so that's a
Speaker 1: sector that benefits. Energy often benefits from inflation. Um. So
Speaker 1: many sectors benefit from higher rates. How concerned are your
Speaker 1: investors right now when you talk to them? How worried
Speaker 1: are there because there's a lot of uncertain in the
Speaker 1: marketplace right now. As you say, we've never seen this
Speaker 1: happen in our economy. Ever, shut it down and bring
Speaker 1: it back. That's how anxious are people out there. So
Speaker 1: if we talk to our clients, they really focus on
Speaker 1: three things. They focus on the economy because their business people,
Speaker 1: They focus on the markets because their investors, and they
Speaker 1: focus on taxes because their taxpayers and so um our
Speaker 1: our clients. Our clients are sort of living the reopening
Speaker 1: of the economy as business people, they see this supply
Speaker 1: demand and balances as they're trying to hire and trying
Speaker 1: to get workers. Um, they've benefited obviously from the markets
Speaker 1: as markets have you know, tipped to all time highs
Speaker 1: in recent weeks and even now still up nicely year
Speaker 1: to date. And so what we're talking to them a
Speaker 1: lot about right now is taxes. They feel that that's
Speaker 1: much more uncertain. They know that they know the proposals
Speaker 1: that have been um introduced by the Biden administration, but
Speaker 1: they're asking us will they pass. There are very narrow majorities.
Speaker 1: If they pass, when will they be effective? How will
Speaker 1: it affect the market. So one of the questions about
Speaker 1: tech actually I have is about taxes because if you've
Speaker 1: made a lot of money, at least on paper by
Speaker 1: the appreciation of the tech stocks does indicate maybe you
Speaker 1: should sell those right now and take the lower capital
Speaker 1: gains if you think it's around the corner. So what
Speaker 1: we tell our clients we tell them two things. Number One,
Speaker 1: as an investor, time is your biggest advantage because markets
Speaker 1: tend to grow over time. So we say planned don't
Speaker 1: panic do things that you would otherwise do for your portfolio.
Speaker 1: Tech stocks rose to be, you know, the five largest
Speaker 1: tech stocks rose to be something SMP five hundred. If
Speaker 1: you've got large concentrations outside positions, you might want to
Speaker 1: trim those. You might want to trim those for investment reasons,
Speaker 1: but also potentially for tax That was Katherine Keating of
Speaker 1: b n y Melon Wealth Management. Coming up, we wrap
Speaker 1: up the week with our special contributor, Larry Summers. This
Speaker 1: is Wall Street Week on Bloomberg. This is Bloomberg Wall
Speaker 1: Street Week with David Weston from Bloomberg Radio. So the
Speaker 1: markets were royal this week by one thing, really, the
Speaker 1: prospect of inflation. And we're blessed to have with us
Speaker 1: the special Wall Street Week contributor from Harvard, Larry Summers,
Speaker 1: who was really the first to warn about this possibility
Speaker 1: way back when President Biden proposed his American rescue plan
Speaker 1: back in late January. So Larry, welcome. Let me say,
Speaker 1: Jason Furman, an economist you know well you respect, was
Speaker 1: on Bloomberg this week saying that no credible economists ever
Speaker 1: doubted that this was too much stimulus. I don't remember
Speaker 1: all those economists agreeing with you at the time. I
Speaker 1: don't know. I didn't feel like I was echoing the
Speaker 1: conventional wisdom at UH at the time, and David, I
Speaker 1: nobody knows yet, and it's too early to know, and
Speaker 1: the record of forecasters isn't UH great. But I have
Speaker 1: to say that whether you look at average hourly earnings,
Speaker 1: whether you look at producer prices, whether you look at
Speaker 1: consumer prices, whether you look at direct measures of UH
Speaker 1: labor shortage, whether you look at market expectations of UH inflation,
Speaker 1: whether you look at survey expectations of inflation. I was
Speaker 1: on the worried side about inflation, and it's all moved
Speaker 1: much faster, much sooner than I had UH than I
Speaker 1: had predicted, And I think that has to make us
Speaker 1: nervous going forward. Yeah, no question about it. At the
Speaker 1: same time, we have a number of people who continue
Speaker 1: to say it's not that big a problem. They have
Speaker 1: various reasons for that. One thing I say is it's
Speaker 1: just specific sort of kinks in the supply eye chain
Speaker 1: that isn't a larger phenomenon. What do you say to them? So, look,
Speaker 1: by definition, there are always going to be a few
Speaker 1: components of the cp I that grew rapidly in any
Speaker 1: given month. That's what the Carter Economists said all through
Speaker 1: the creation of UH, the Great UH inflation. I think
Speaker 1: there's some things that are striking. If you look at
Speaker 1: corese c p I this month, it grew faster than
Speaker 1: headline cp I. That's exactly the opposite of what that
Speaker 1: idea would tend to predict. If you look at the
Speaker 1: pace of inflation, it seems to be accelerating. What I'm
Speaker 1: struck by is how selective people are. I mean, the
Speaker 1: thing that leaps out at me when I do micro
Speaker 1: economic analysis of the price in disease is that house
Speaker 1: prices by some measures are up eighteen percent over the
Speaker 1: last year, but the owner occupied housing components of the
Speaker 1: CPI is up like two and so that tells me
Speaker 1: that we're probably missing something large with respect to housing.
Speaker 1: And I think if people are seeing their house prices
Speaker 1: go up at eighteen before too long, they're gonna be
Speaker 1: estimating that the amount they could rent their houses for
Speaker 1: is gonna be going up substantially. So the largest distortion
Speaker 1: I see in the numbers is UH with respect to housing.
Speaker 1: You know, so many people commented on use car prices
Speaker 1: and use car prices. Surely that's not a trend. That's
Speaker 1: going to continue, but it's only a couple percent if
Speaker 1: that of the index. If you look at the monthly CPI,
Speaker 1: medical care was zero UM in the most recent reading.
Speaker 1: I don't leave for a moment that medical care prices
Speaker 1: are gonna stay at zero. And that's a much larger
Speaker 1: component of the CPI than UH used car prices, so
Speaker 1: it may be that it's going to change. The other
Speaker 1: thing to say is, let's be clear, the core cp
Speaker 1: I grew at nine tenths of a percent. That's an
Speaker 1: that's an annual inflation rate above eleven. So there's plenty
Speaker 1: of room for there to be a lot of translatory
Speaker 1: factor in it and for us still to have what
Speaker 1: would be an extremely serious problem of UH inflation rising
Speaker 1: to the four percent range. So I don't think you
Speaker 1: can dismiss these figures. I also think that if you
Speaker 1: look at the hourly earnings figures, if you look at
Speaker 1: the producer price things, all the inputs which have to
Speaker 1: do with future price increases, those seem to be UH
Speaker 1: accelerating as well. So Larry, what do you say to
Speaker 1: the Fed Frankly who keeps saying it's transitory and specifically
Speaker 1: the arguments I understand is, look at what we're seeing
Speaker 1: right now is the necessary reaction of economy coming back online.
Speaker 1: And once it gets back online, things will settle back
Speaker 1: down again. So this is just like a relatively short
Speaker 1: one off. Look, anything's anything's possible, and they could be right.
Speaker 1: But I always believe in government that the right strategy,
Speaker 1: indeed in life, the right strategy is to hope for
Speaker 1: the best and plan for the worst. And the FED
Speaker 1: seems to be planning for a very benign scenario that
Speaker 1: we certainly can't uh count on. And I don't think
Speaker 1: anybody at the FED Vice Chairman Clara to acknowledge this
Speaker 1: in the last day or two thought that inflation would
Speaker 1: be anything like the number we saw in April. I
Speaker 1: certainly didn't see the slightest hint of a suggestion in
Speaker 1: anything that came from the FED that we were gonna
Speaker 1: be seeing wage growth figures pointing to um wage growth
Speaker 1: relative well above five even for a single month. And look, David,
Speaker 1: you have to make a judgment. Do we think from
Speaker 1: here that supply factors are going to be bigger than
Speaker 1: demand factors or vice versa. On the demand side, we
Speaker 1: have two trillion dollars of savings overhang. We have three
Speaker 1: trillion dollars of stimulus that's worked its way only part
Speaker 1: way through the system. We have the continuing consequence of
Speaker 1: eighteen percent UH housing price UH increases and all the
Speaker 1: money that that's going to free up UH for consumers.
Speaker 1: And we have the fact that when nominal interest rates
Speaker 1: stay the same and inflation accelerates, real interest rates to climb,
Speaker 1: and that means people borrow and spend more. That's what
Speaker 1: we have on the demand side, and all of that
Speaker 1: is pointing towards more inflation. On the supply side, we
Speaker 1: have maybe people will go back to work more when
Speaker 1: unemployment insurance ends. I actually think that's a significant factor,
Speaker 1: but the administration denies that unemployment insurance is relevant to
Speaker 1: UH the decisions. People talk about all the kids going
Speaker 1: back to school and that will enable workers to go back.
Speaker 1: But as Jason Furman's work is gonna show, you don't
Speaker 1: really see that when you calculated carefully, as being a
Speaker 1: very large effect, because the change in the labor first
Speaker 1: participation rate of people with kids and people without kids
Speaker 1: aren't really very different. So I'm not sure what the
Speaker 1: huge supply effect that people are looking towards So what
Speaker 1: I see going forward is we're in a tight place
Speaker 1: now with current inflation at a reasonably high rate, and
Speaker 1: I seem more on the side of increased demand than
Speaker 1: I see on the side of increased supply, and so
Speaker 1: that makes it seem pretty unlikely to me that this
Speaker 1: is all gonna subside. Uh, it might happen, but I
Speaker 1: don't think it's gonna happen without policy action and policy
Speaker 1: they are. The more determined, the more clear the evidence
Speaker 1: that inflation is rising and inflation expectations are rising, the
Speaker 1: more determined the FED is to say, we're nowhere near
Speaker 1: beginning the process of um tightening monetary policy, and I
Speaker 1: think potentially it's gonna do some real damage to their credibility,
Speaker 1: and that's going to have important impacts for inflation expectations.
Speaker 1: And there you have Summer's Inflation Watch the first episode
Speaker 1: actually with Larry Summer is our special contributor at Wall
Speaker 1: Street Week and of course from Harvard. Finally, one more thought.
Speaker 1: The price is wrong. In one sense, this week was
Speaker 1: all about prices, the price of gas at the pump,
Speaker 1: producer prices, and of course those spiking consumer prices. But
Speaker 1: there's more than just the economics and fed reaction when
Speaker 1: it comes to prices. There's also, of course, the politics.
Speaker 1: Pocketbook issues always loom large in any election, and even
Speaker 1: if we may not blame the candidate for what we're
Speaker 1: paying at the pump or in the checkout line, we
Speaker 1: at least want the sense that they know what real
Speaker 1: people in the real world are paying for things, which
Speaker 1: brings us to the political price gaff, perhaps originating with
Speaker 1: President George Herbert Walker Bush back in getting caught out
Speaker 1: in a presidential debate having no idea what a gallon
Speaker 1: of milk costs, and then Rudy Giuliani running for president
Speaker 1: in two eight just hazarding a guest at the price
Speaker 1: of milk and getting it hopelessly wrong. History may have
Speaker 1: repeated itself sort of this week in the New York
Speaker 1: mayoral race. When leading candidates were asked how much an
Speaker 1: average house costs in Brooklyn. Former Wall Street banker Ray
Speaker 1: McGuire guests it was between eighty and ninety thousand dollars. Well,
Speaker 1: we could forgive him, because, after all, at City he
Speaker 1: didn't handle mortgages. Sean Donovan is a different story. He
Speaker 1: ran housing for Marion, Mike Bloomberg and then hud for
Speaker 1: President Obama, and he guessed that a house in Brooklyn
Speaker 1: would go for about a hundred thousand dollars, although afterwards
Speaker 1: he did say that he just got confused because he
Speaker 1: had too many numbers rolling around in his head. The
Speaker 1: right answer, well, that was nine hundred thousand dollars and
Speaker 1: leave it to Andrew Yang to nail it, though former
Speaker 1: New York Sanitation had Catherine Garcia was awfully close at
Speaker 1: eight hundred thousand dollars. But if it's any constellation that
Speaker 1: eight thousand dollars could buy something in Brooklyn, according to Zillo,
Speaker 1: it may not be a house or even an apartment.
Speaker 1: There is a parking place in Brooklyn going for eighty
Speaker 1: thousand dollars. That does it. For this episode of Wall
Speaker 1: Street Week, I'm David Weston. This is Bloomberg. See you
Speaker 1: next week.