1 00:00:00,080 --> 00:00:12,960 Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:34,320 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg fraug 5 00:00:34,400 --> 00:00:36,839 Speaker 1: Us in economics. It's a fun, fun day out in 6 00:00:36,920 --> 00:00:39,879 Speaker 1: Jackson Hall with all of these interviews coming up from 7 00:00:39,960 --> 00:00:43,920 Speaker 1: Mr Kaplan from Bostic of Atlanta, and here now is 8 00:00:43,920 --> 00:00:47,120 Speaker 1: our Michael McKee with the Feller Reserve Bank of St. 9 00:00:47,200 --> 00:00:51,080 Speaker 1: Louis FED. President. Good morning, Thank you very much. We'd 10 00:00:51,080 --> 00:00:53,800 Speaker 1: like to welcome everybody listening to us on Bloomberg Radio 11 00:00:53,840 --> 00:00:56,200 Speaker 1: and watching us on Bloomberg Television around the world. We'd 12 00:00:56,200 --> 00:00:58,440 Speaker 1: like to welcome Jim Bullard and thank you for getting 13 00:00:58,480 --> 00:01:00,400 Speaker 1: up so early to join us. Sarah, thanks are having me. 14 00:01:02,680 --> 00:01:04,600 Speaker 1: You're for Minnesota, so you have to pretend you like 15 00:01:04,720 --> 00:01:07,240 Speaker 1: it and it's an inforrible thing. Look a lot of 16 00:01:07,240 --> 00:01:10,919 Speaker 1: Wall Street focus today on the chairman's speech. The minute 17 00:01:11,000 --> 00:01:14,920 Speaker 1: suggested that the FED is locked in for September. So 18 00:01:15,520 --> 00:01:18,280 Speaker 1: even if you disagree with that rate path, is there 19 00:01:18,319 --> 00:01:21,000 Speaker 1: any reason to think that he's gonna see anything market 20 00:01:21,040 --> 00:01:24,360 Speaker 1: moving today. I'm sure the chair will be very careful. 21 00:01:24,840 --> 00:01:28,040 Speaker 1: I've not seen the speech, but he'll do a good job. 22 00:01:28,160 --> 00:01:31,640 Speaker 1: He always does. He's always very very serious. You don't 23 00:01:31,680 --> 00:01:34,160 Speaker 1: get the impression there's any kind of change a foot 24 00:01:34,280 --> 00:01:37,240 Speaker 1: for the Open Market Committee and the rate path that 25 00:01:37,360 --> 00:01:40,080 Speaker 1: there are. Well, the markets are putting a high probability 26 00:01:40,120 --> 00:01:42,800 Speaker 1: on September, and I mean you can pull the other 27 00:01:43,400 --> 00:01:45,960 Speaker 1: members of the Committee as well as I can, and Uh, 28 00:01:46,319 --> 00:01:48,680 Speaker 1: there's certainly seems to be sentiment to go in that direction. 29 00:01:48,920 --> 00:01:51,360 Speaker 1: Would you expect the forward guidance to drop out of 30 00:01:51,360 --> 00:01:53,720 Speaker 1: the statement in September, the idea that the rates are 31 00:01:53,720 --> 00:01:58,800 Speaker 1: accommodative and we'll stay that way. Uh, that's an interesting issue, 32 00:01:58,920 --> 00:02:01,240 Speaker 1: and I think we'll have to wrestle with that one. 33 00:02:01,920 --> 00:02:05,040 Speaker 1: I'm so from from my point of view, i'd, you know, 34 00:02:05,240 --> 00:02:08,200 Speaker 1: rather not be calling rates accommodative right now. I think 35 00:02:08,240 --> 00:02:11,720 Speaker 1: the whole structure of rates is lower, and therefore I 36 00:02:11,760 --> 00:02:15,079 Speaker 1: think we're at neutral, are very close to neutral right now. 37 00:02:15,600 --> 00:02:20,960 Speaker 1: Very interesting story out today on Bloomberg News. Twenty years ago. Unemployment, 38 00:02:21,080 --> 00:02:25,120 Speaker 1: very low, inflation sticky and relatively low. James Stock, you 39 00:02:25,200 --> 00:02:29,520 Speaker 1: normally famous economists did a paper that suggested that in 40 00:02:29,560 --> 00:02:33,600 Speaker 1: those situations where you don't really know why something is happening, 41 00:02:34,120 --> 00:02:37,200 Speaker 1: it is better for the FED to be aggressive than 42 00:02:37,520 --> 00:02:40,840 Speaker 1: to take a step back because you don't know when 43 00:02:40,880 --> 00:02:43,680 Speaker 1: inflation might show up. Now you're in the step back camp. 44 00:02:44,440 --> 00:02:48,400 Speaker 1: Why is James Stock wrong and Jim Board right? Yeah, 45 00:02:48,440 --> 00:02:51,359 Speaker 1: that's an older paper and there was a literature about 46 00:02:51,520 --> 00:02:54,320 Speaker 1: that kind of went around the circles on this, about 47 00:02:54,320 --> 00:02:56,480 Speaker 1: whether you should be more aggressive or less aggressive when 48 00:02:56,520 --> 00:03:00,360 Speaker 1: you're uncertain about about key, key things like the slope 49 00:03:00,400 --> 00:03:04,640 Speaker 1: of the Philip curve. Um, there are arguments on the 50 00:03:04,639 --> 00:03:07,760 Speaker 1: other side. So that was just one paper in a 51 00:03:07,600 --> 00:03:10,120 Speaker 1: in a kind of sea of papers on that. UM. 52 00:03:10,160 --> 00:03:12,760 Speaker 1: I would say it's makes more sense probably to be 53 00:03:12,919 --> 00:03:19,200 Speaker 1: a gradualist on that in the current environment. You know what, uh, 54 00:03:20,200 --> 00:03:22,280 Speaker 1: what you'd like to do is just take on board 55 00:03:22,320 --> 00:03:24,880 Speaker 1: the idea that inflation has been very low, it's been 56 00:03:25,000 --> 00:03:28,840 Speaker 1: very stable, It really has been quite sluggish, and it 57 00:03:28,960 --> 00:03:31,160 Speaker 1: just doesn't seem like you have to do too much. 58 00:03:31,160 --> 00:03:33,480 Speaker 1: But if you had to, you could move pretty fast 59 00:03:33,520 --> 00:03:36,040 Speaker 1: if you needed to. So so I just don't see 60 00:03:36,360 --> 00:03:40,280 Speaker 1: the argument for being pre emptive in this situation in 61 00:03:40,320 --> 00:03:43,720 Speaker 1: a world where the Phillips curve really hasn't been a 62 00:03:43,760 --> 00:03:47,640 Speaker 1: factor in the last twenty years. Well, the Fed essentially 63 00:03:47,640 --> 00:03:50,240 Speaker 1: did not take jamets. Just to show you how flat 64 00:03:50,240 --> 00:03:52,600 Speaker 1: we're talking about now, this is a ratio of ten 65 00:03:52,680 --> 00:03:55,280 Speaker 1: to one, So you need a hundred basis points of 66 00:03:55,360 --> 00:03:59,760 Speaker 1: gap between unemployment and some natural rate of unemployment to 67 00:03:59,800 --> 00:04:03,640 Speaker 1: get just ten basis points on the inflation rate. And man, 68 00:04:03,880 --> 00:04:08,960 Speaker 1: that's that''s really really, that's almost nothing. The next two years. 69 00:04:09,200 --> 00:04:12,600 Speaker 1: We don't see inflation. I don't see it, and more importantly, 70 00:04:12,720 --> 00:04:14,480 Speaker 1: I don't think markets see it. If you look at 71 00:04:14,520 --> 00:04:17,960 Speaker 1: tips space measures of inflation expectations, they're taking all of 72 00:04:18,040 --> 00:04:23,320 Speaker 1: us into account. They've taken into account, uh, fiscal policy, 73 00:04:23,880 --> 00:04:26,520 Speaker 1: rapid growth in the economy, low unemployment rate. They still 74 00:04:26,560 --> 00:04:29,600 Speaker 1: don't see that much inflation, especially if you translate from 75 00:04:29,680 --> 00:04:32,760 Speaker 1: a CPI basis to a PC basis. So they're really 76 00:04:32,800 --> 00:04:35,320 Speaker 1: saying we probably won't hit our inflation target over the 77 00:04:35,360 --> 00:04:38,480 Speaker 1: next five years, next ten years, or the five I'm sorry, 78 00:04:38,480 --> 00:04:42,000 Speaker 1: the next ten years. Well, if they did not take 79 00:04:42,480 --> 00:04:45,960 Speaker 1: James Stock's advice, it kept very slow for long and everybody, 80 00:04:46,160 --> 00:04:48,640 Speaker 1: not everybody, but a lot of people suggest that maybe 81 00:04:48,640 --> 00:04:50,719 Speaker 1: that was one of the proximate causes of the two 82 00:04:50,760 --> 00:04:53,160 Speaker 1: thousand and eight financial crisis, that rates were too low 83 00:04:53,400 --> 00:04:56,200 Speaker 1: for too long and excess is built. You know, okay, 84 00:04:56,360 --> 00:04:59,680 Speaker 1: so financial stability is a is an issue. In the 85 00:04:59,760 --> 00:05:01,919 Speaker 1: nine eight though, would have been the currency crisis and 86 00:05:02,360 --> 00:05:06,640 Speaker 1: started in Thailand and unspread UH in Asia, ultimately not 87 00:05:06,720 --> 00:05:09,880 Speaker 1: affecting the U S economy. Was a lesson from that 88 00:05:10,560 --> 00:05:13,400 Speaker 1: because it drove US rates lower and that actually helped 89 00:05:13,520 --> 00:05:17,600 Speaker 1: the boom in the U S. So um later you got, 90 00:05:17,960 --> 00:05:20,000 Speaker 1: of course, the dot com bubble did come to an 91 00:05:20,080 --> 00:05:24,320 Speaker 1: end later. Yield curve was inverted in two thousand and 92 00:05:24,440 --> 00:05:27,400 Speaker 1: FED went ahead and and race rates in the face 93 00:05:27,440 --> 00:05:31,000 Speaker 1: of inverted yield curve, and you could argue that that 94 00:05:31,080 --> 00:05:33,279 Speaker 1: was a mistake at the time, Well, you and other 95 00:05:33,320 --> 00:05:35,440 Speaker 1: members of the Open Market Committee, I said, we would 96 00:05:35,440 --> 00:05:40,000 Speaker 1: not intentionally UH invert the yield curve. But are you 97 00:05:40,080 --> 00:05:43,040 Speaker 1: smart enough? Do you have enough insight into the markets 98 00:05:43,120 --> 00:05:47,400 Speaker 1: to know whether you would do that? Here's what I 99 00:05:47,440 --> 00:05:49,560 Speaker 1: think in this issue. I was around in two thousand, 100 00:05:49,760 --> 00:05:51,960 Speaker 1: we met, we did it, played it wrong. I was 101 00:05:51,960 --> 00:05:54,320 Speaker 1: around in two thousand and six. Again, the old curve 102 00:05:54,400 --> 00:05:57,040 Speaker 1: was inverted. We played it wrong this time. I want 103 00:05:57,080 --> 00:05:59,640 Speaker 1: to take this signal seriously, even though when you look 104 00:05:59,640 --> 00:06:03,120 Speaker 1: at mac economic models it doesn't really fit into the 105 00:06:03,160 --> 00:06:05,720 Speaker 1: models the way we'd like. But I think you have 106 00:06:05,760 --> 00:06:08,320 Speaker 1: to take it seriously as a signal. And what I 107 00:06:08,360 --> 00:06:11,279 Speaker 1: think about this is there is no reason to challenge 108 00:06:11,520 --> 00:06:14,400 Speaker 1: the yield curve at this time. There's no reason in 109 00:06:14,440 --> 00:06:18,280 Speaker 1: other circumstances. If inflation was higher and heading higher, then 110 00:06:18,279 --> 00:06:21,479 Speaker 1: I might say, well, we're taking some recession risk, but 111 00:06:21,520 --> 00:06:23,640 Speaker 1: I'm willing to trade that off because it looks like 112 00:06:23,680 --> 00:06:25,960 Speaker 1: inflation is getting out of control. We're not in that 113 00:06:26,040 --> 00:06:29,560 Speaker 1: situation today. Inflation is low, it's stable, it's barely up 114 00:06:29,600 --> 00:06:32,640 Speaker 1: to target, just barely getting to target today. So we 115 00:06:32,720 --> 00:06:35,640 Speaker 1: don't need to challenge, we don't need to be preemptive 116 00:06:35,839 --> 00:06:39,560 Speaker 1: on the yield curve. One of the other arguments against moving, 117 00:06:39,640 --> 00:06:42,160 Speaker 1: people say is the impact that you have on emerging 118 00:06:42,200 --> 00:06:45,040 Speaker 1: markets and the spillover effect that could have on the 119 00:06:45,120 --> 00:06:48,520 Speaker 1: US economy. I know your mandate is the US economy, 120 00:06:48,560 --> 00:06:51,760 Speaker 1: but how much of a risk do you think that is? Well, 121 00:06:51,880 --> 00:06:54,200 Speaker 1: I mean, we've been going very slow at the rate 122 00:06:54,279 --> 00:06:58,960 Speaker 1: increases well telegraphed I think these foreign economies have had 123 00:07:00,000 --> 00:07:02,880 Speaker 1: ample opportunity and apple understanding of what was going on 124 00:07:02,960 --> 00:07:05,680 Speaker 1: in the US. You do have some countries that have 125 00:07:05,760 --> 00:07:10,200 Speaker 1: special situations, usually special political situations in one kind or another. 126 00:07:10,800 --> 00:07:14,040 Speaker 1: They borrowed in foreign currency, that's often an issue. Not 127 00:07:14,160 --> 00:07:18,119 Speaker 1: enough reserves, that's often an issue. So UM, I would 128 00:07:18,120 --> 00:07:22,320 Speaker 1: take those as special cases the countries that are having trouble. Um, 129 00:07:22,400 --> 00:07:25,040 Speaker 1: but I'll keep an eye on it. Also on the 130 00:07:25,080 --> 00:07:27,559 Speaker 1: list of things that FEDE officials have been concerned about 131 00:07:27,880 --> 00:07:30,160 Speaker 1: the decline in home sales, and not just the decline 132 00:07:30,160 --> 00:07:33,200 Speaker 1: in home sales, but median prices have been falling, is 133 00:07:33,240 --> 00:07:37,400 Speaker 1: the is the FED killing the housing market by raising rates? Uh? Well, 134 00:07:37,760 --> 00:07:40,480 Speaker 1: housing is one of the most interest sensitive sectors, so 135 00:07:40,600 --> 00:07:44,720 Speaker 1: you would think it would have some impact there. Um. 136 00:07:44,760 --> 00:07:47,560 Speaker 1: If you talk to real estate people, then they say, wow, 137 00:07:47,640 --> 00:07:53,520 Speaker 1: it's limited in it's because of the limited inventories and prices. Uh. 138 00:07:53,720 --> 00:07:57,800 Speaker 1: You're saying medium prices went down, but uh, some of 139 00:07:57,800 --> 00:08:00,720 Speaker 1: the year over year figures are still positive. So um, 140 00:08:00,760 --> 00:08:02,920 Speaker 1: and they have risen quite a bit. They've been rising. 141 00:08:03,000 --> 00:08:05,520 Speaker 1: The housing prices up until now, until recently have been 142 00:08:05,640 --> 00:08:09,160 Speaker 1: rising at a fairly good clip. Finally, on the list tariffs. 143 00:08:09,640 --> 00:08:12,720 Speaker 1: Most economists say there will be some effect, but it 144 00:08:12,720 --> 00:08:14,800 Speaker 1: doesn't show up in the data. So I'm wondering what 145 00:08:14,920 --> 00:08:18,440 Speaker 1: companies in your district CEOs are telling you about the 146 00:08:18,480 --> 00:08:21,600 Speaker 1: impact of tariffs so far and what impact that might 147 00:08:21,640 --> 00:08:24,880 Speaker 1: be having on their investments. Certainly get an airfull about 148 00:08:25,240 --> 00:08:28,560 Speaker 1: tariffs from many different angles. There's a lot of concern 149 00:08:29,000 --> 00:08:33,640 Speaker 1: on main street about how these tariff wars will affect 150 00:08:33,640 --> 00:08:36,280 Speaker 1: them and their products. Soybeans, for instance, is a major 151 00:08:36,320 --> 00:08:41,120 Speaker 1: product out of the eighth district that's UH, that's exported. Um. 152 00:08:41,160 --> 00:08:43,880 Speaker 1: I hope we can get to some resolution. I hope 153 00:08:43,880 --> 00:08:47,559 Speaker 1: that the strategy works, that this is UH negotiating tactic, 154 00:08:47,720 --> 00:08:51,760 Speaker 1: but that ultimatelyly it leads to freer trade and better 155 00:08:51,800 --> 00:08:55,119 Speaker 1: trade arrangements with our trading partner. Well, there's been uncertainty 156 00:08:55,160 --> 00:08:57,920 Speaker 1: about tariffs. There was uncertainty about the impact of the 157 00:08:58,040 --> 00:09:00,920 Speaker 1: tax reform law, and la time we talked to you 158 00:09:01,000 --> 00:09:03,920 Speaker 1: suggested that that was leading companies to hold off on 159 00:09:04,040 --> 00:09:07,120 Speaker 1: investment decisions because they weren't sure what the climate was 160 00:09:07,160 --> 00:09:09,680 Speaker 1: going to be. Has that changed or company is still 161 00:09:09,720 --> 00:09:13,959 Speaker 1: on hold. They are concerned about the tariff issue because 162 00:09:14,400 --> 00:09:16,520 Speaker 1: they feel like well, if I if I put a 163 00:09:16,559 --> 00:09:19,400 Speaker 1: plant in country acts and then there are a bunch 164 00:09:19,440 --> 00:09:21,720 Speaker 1: of you know, the tariffs go way up that are 165 00:09:21,720 --> 00:09:24,679 Speaker 1: going to have to move the plant to some other country. 166 00:09:24,800 --> 00:09:26,880 Speaker 1: And so they want to know what the rules are 167 00:09:26,920 --> 00:09:30,760 Speaker 1: before they invest, as a classic element of investing on 168 00:09:30,800 --> 00:09:34,480 Speaker 1: a grand scale, And they do want certainty before they 169 00:09:34,480 --> 00:09:37,959 Speaker 1: do that one of the tet but they wanted the 170 00:09:38,280 --> 00:09:42,199 Speaker 1: more certain One of the topics here as we talk 171 00:09:42,280 --> 00:09:47,440 Speaker 1: about changing market structure is the decline in business dynamism 172 00:09:47,480 --> 00:09:50,000 Speaker 1: in the United States. Do you have a good handle 173 00:09:50,040 --> 00:09:53,040 Speaker 1: on why that is and how is it in the 174 00:09:53,080 --> 00:09:56,560 Speaker 1: eighth district? You know, I have I have an idea 175 00:09:56,600 --> 00:09:58,520 Speaker 1: about this, and I'm going to test it out and 176 00:09:58,640 --> 00:10:01,080 Speaker 1: pitch it out here to these two people here at 177 00:10:01,120 --> 00:10:04,560 Speaker 1: this conference. But I think the core ideas that in 178 00:10:04,600 --> 00:10:06,960 Speaker 1: the nineteen eight if you look at the data since 179 00:10:06,960 --> 00:10:09,440 Speaker 1: the nineteen eighties, there are more people working for big 180 00:10:09,480 --> 00:10:11,400 Speaker 1: companies today than there were. It used to be like 181 00:10:11,480 --> 00:10:14,480 Speaker 1: kind of like six. Now it's like eight of all 182 00:10:14,520 --> 00:10:17,199 Speaker 1: employees are working for so called big companies, depending on 183 00:10:17,280 --> 00:10:19,920 Speaker 1: how you define that. So if you think about what 184 00:10:20,000 --> 00:10:22,920 Speaker 1: happens since the eighties, it was all about rolling up industries. 185 00:10:23,400 --> 00:10:27,640 Speaker 1: Hardware industry used to be very uh dispersed. Now you've 186 00:10:27,679 --> 00:10:30,880 Speaker 1: got Lows and home depot. Uh. Coffee used to have 187 00:10:30,920 --> 00:10:34,160 Speaker 1: a coffee shop on every street corner. They're independently owned. 188 00:10:34,320 --> 00:10:38,400 Speaker 1: Now you've got Starbucks. That theme has rolled through the 189 00:10:38,480 --> 00:10:42,120 Speaker 1: US corporate sector since the nineteen eighties, and I think 190 00:10:42,160 --> 00:10:45,160 Speaker 1: that that is what has driven this idea that you know, 191 00:10:45,200 --> 00:10:48,640 Speaker 1: more people are working for bigger companies. The worry about 192 00:10:48,640 --> 00:10:51,960 Speaker 1: that is bigger companies that are thought to not innovate 193 00:10:52,120 --> 00:10:55,600 Speaker 1: as much, and so that might hurt our economy long term. 194 00:10:55,760 --> 00:10:59,640 Speaker 1: Not enough small firms and uh, you know, they tend 195 00:10:59,679 --> 00:11:03,240 Speaker 1: to be you know, more sluggish and not not react 196 00:11:03,360 --> 00:11:06,920 Speaker 1: enough to market events compared to smaller firms, So that 197 00:11:06,960 --> 00:11:09,560 Speaker 1: would be the concern. Jim Bullard, president of the St. 198 00:11:09,559 --> 00:11:11,680 Speaker 1: Louis Fan Thanks for joining us on this cold morning. 199 00:11:11,720 --> 00:11:14,960 Speaker 1: We'll let you get warm and justice. Second, okay, we'll 200 00:11:15,000 --> 00:11:18,280 Speaker 1: send it back to you. Michael McKee, Thank you so much. 201 00:11:32,000 --> 00:11:34,920 Speaker 1: Michael McKee in front of the split rail fence at 202 00:11:35,040 --> 00:11:39,360 Speaker 1: Jackson Hole. A beautiful, beautiful morning. Is the fog is 203 00:11:39,400 --> 00:11:42,160 Speaker 1: burned off. Here he is with a president of the 204 00:11:42,240 --> 00:11:44,600 Speaker 1: Cleveland Fed. Here he is and thank you very much, 205 00:11:44,600 --> 00:11:48,080 Speaker 1: and we welcome President Mster to Bloomberg Television and Radio worldwide. 206 00:11:48,120 --> 00:11:50,120 Speaker 1: Thank you for coming out in the cold here. You're 207 00:11:50,120 --> 00:11:53,440 Speaker 1: not nervous, you're shivering because it is really cold out here. 208 00:11:52,679 --> 00:11:56,959 Speaker 1: To the fundamental question that they just asked, was j 209 00:11:57,120 --> 00:12:00,520 Speaker 1: Powell today? The minutes sort of suggest were locked in 210 00:12:00,559 --> 00:12:04,120 Speaker 1: for September for a rate move. So does Chairman Poule 211 00:12:04,679 --> 00:12:07,760 Speaker 1: need to say anything today or can the bond traders 212 00:12:07,800 --> 00:12:10,200 Speaker 1: who are not in the Hampton's uh you know, leave 213 00:12:10,240 --> 00:12:14,040 Speaker 1: by noon. Well, look, the case for raising interest rates, 214 00:12:14,080 --> 00:12:16,480 Speaker 1: I think it's pretty compelling. We have an economy that's 215 00:12:16,520 --> 00:12:19,840 Speaker 1: growing above trend, we have low unemployment, and we have 216 00:12:19,960 --> 00:12:23,480 Speaker 1: inflation at basically our goal of two percent. So we've 217 00:12:23,480 --> 00:12:29,160 Speaker 1: been trying to engineer UM calibrate our policy path to 218 00:12:29,360 --> 00:12:32,920 Speaker 1: the economy, and so this gradual increase in rate seems 219 00:12:32,960 --> 00:12:36,040 Speaker 1: to be a very compelling case right now, given that 220 00:12:36,080 --> 00:12:38,800 Speaker 1: we are accommodative still on monetary plans. We think the 221 00:12:38,840 --> 00:12:41,200 Speaker 1: market gets that the Chairman doesn't need to steer us 222 00:12:41,240 --> 00:12:43,559 Speaker 1: in any direction. Well, you know, the Chairman will give 223 00:12:43,640 --> 00:12:45,320 Speaker 1: his speech today and I think he's going to be 224 00:12:45,360 --> 00:12:48,440 Speaker 1: talking about UM some longer own issues as well as 225 00:12:48,520 --> 00:12:50,920 Speaker 1: perhaps short run issues. And I'm looking forward to hearing 226 00:12:50,960 --> 00:12:54,360 Speaker 1: his speech as well. Uh, you think in September you 227 00:12:54,440 --> 00:12:57,880 Speaker 1: go ahead and drop the accommodative statement from from from 228 00:12:57,920 --> 00:13:02,120 Speaker 1: your statement the accommodative sentence end for guidance. So you know, UM, 229 00:13:02,200 --> 00:13:04,560 Speaker 1: in the minutes mentioned that you know, we're thinking about 230 00:13:04,679 --> 00:13:07,360 Speaker 1: how we want to you know, change the statement. UM. 231 00:13:07,440 --> 00:13:10,080 Speaker 1: We we look at the statement every time to make 232 00:13:10,080 --> 00:13:13,560 Speaker 1: sure that we're being UM transparent about our views on 233 00:13:13,640 --> 00:13:16,720 Speaker 1: policy and and sort of give an indication where policy 234 00:13:16,800 --> 00:13:19,760 Speaker 1: is going. Now, we're in a in a situation now 235 00:13:19,840 --> 00:13:23,240 Speaker 1: where you know, we are data dependent as we've been UM, 236 00:13:23,280 --> 00:13:26,000 Speaker 1: and we want to be UM as transparent so we 237 00:13:26,040 --> 00:13:28,760 Speaker 1: can where we think policy is going. But we also 238 00:13:28,800 --> 00:13:31,960 Speaker 1: want people to understand that we don't lock ourselves into something. 239 00:13:32,160 --> 00:13:34,400 Speaker 1: We want to react to how the data comes in 240 00:13:34,520 --> 00:13:37,000 Speaker 1: and where the economy is going. So again, we want 241 00:13:37,000 --> 00:13:40,200 Speaker 1: our our our statements to be transparent in that sense 242 00:13:40,280 --> 00:13:43,199 Speaker 1: so that people aren't misled. Well, I wonder if if 243 00:13:43,240 --> 00:13:45,640 Speaker 1: the markets completely get the message. And the reason I 244 00:13:45,679 --> 00:13:47,719 Speaker 1: asked that is the is the yield curve being so 245 00:13:47,760 --> 00:13:50,920 Speaker 1: flat and a lot of people predicting it's going to invert. 246 00:13:51,679 --> 00:13:54,880 Speaker 1: You're about a hundred basis points below where the median 247 00:13:55,720 --> 00:13:59,320 Speaker 1: terminal rate would be based on your latest forecast. So 248 00:13:59,360 --> 00:14:01,560 Speaker 1: if you're going to raising rates to that point and 249 00:14:01,600 --> 00:14:03,800 Speaker 1: the Eel curve is this flat, does that suggest that 250 00:14:03,880 --> 00:14:07,320 Speaker 1: markets aren't getting your message or that they fundamentally disagree 251 00:14:07,320 --> 00:14:09,719 Speaker 1: with your assessment of the economy. Well, I think the 252 00:14:09,800 --> 00:14:12,000 Speaker 1: yeld curve is certainly something we look at the slope 253 00:14:12,000 --> 00:14:14,320 Speaker 1: of the young curve. I think there's reasons to think 254 00:14:14,400 --> 00:14:16,560 Speaker 1: that it may not be signaling the same as it 255 00:14:16,600 --> 00:14:19,600 Speaker 1: has in the past. As you know, um an inverted 256 00:14:19,640 --> 00:14:23,760 Speaker 1: your curve is usually correlated with um an economy going 257 00:14:23,760 --> 00:14:27,360 Speaker 1: into recession. But there's a reason too that the long 258 00:14:27,480 --> 00:14:31,960 Speaker 1: end is depressed now for other reasons. In particular, there's 259 00:14:32,000 --> 00:14:35,360 Speaker 1: demand for safe assets, so you know, quality flight to 260 00:14:35,680 --> 00:14:39,280 Speaker 1: quality into the U S. Treasury market and also um 261 00:14:39,400 --> 00:14:41,720 Speaker 1: QI around the world. You know, we've a lot of 262 00:14:41,800 --> 00:14:44,640 Speaker 1: central banks have used the long end in the US. 263 00:14:44,760 --> 00:14:46,960 Speaker 1: We did, we bought long term masses, and that put 264 00:14:47,200 --> 00:14:50,640 Speaker 1: downward pressure on the long ended. So the signal that 265 00:14:50,680 --> 00:14:53,760 Speaker 1: you take from the old curve now is different than 266 00:14:53,840 --> 00:14:57,160 Speaker 1: it has been in the past. You mentioned Qui. At 267 00:14:57,200 --> 00:15:00,720 Speaker 1: the less FED meating, you had a staff presentation monetary 268 00:15:00,760 --> 00:15:04,040 Speaker 1: policy tools, and the conclusion of the staff was, we're 269 00:15:04,040 --> 00:15:06,360 Speaker 1: going to get to the zero lower bound again sometime 270 00:15:06,400 --> 00:15:09,480 Speaker 1: in the next decade, and they aren't really sure how 271 00:15:09,560 --> 00:15:13,120 Speaker 1: much que or forward guidance is going to help get 272 00:15:13,160 --> 00:15:16,880 Speaker 1: off zero. Does that worry Well, I think QUI was 273 00:15:16,920 --> 00:15:22,880 Speaker 1: successful in terms of putting lower UM accommodation into the economy. 274 00:15:22,920 --> 00:15:25,160 Speaker 1: It is one of the tools that we have. Forward 275 00:15:25,200 --> 00:15:27,800 Speaker 1: guidance is another tool that we have, and I think 276 00:15:27,800 --> 00:15:30,320 Speaker 1: this discussion was an important one to have so that 277 00:15:30,360 --> 00:15:33,360 Speaker 1: we are prepared. There's reason to believe that longer term 278 00:15:33,360 --> 00:15:36,040 Speaker 1: interest rates are going to be lower UM in the 279 00:15:36,080 --> 00:15:40,120 Speaker 1: future for demographic reasons, because of demand for safe assets, 280 00:15:40,160 --> 00:15:42,440 Speaker 1: and so it's very very good for the FED to 281 00:15:42,480 --> 00:15:44,680 Speaker 1: have these discussions to be prepared. But we do have 282 00:15:44,800 --> 00:15:47,680 Speaker 1: tools that we can use at the lower bound. Do 283 00:15:47,720 --> 00:15:50,120 Speaker 1: you have enough confidence in them that they work or 284 00:15:50,120 --> 00:15:52,800 Speaker 1: do you need to find another arrow for the quiverment? Well, 285 00:15:52,840 --> 00:15:56,119 Speaker 1: I think we're always you know, looking at our monetary 286 00:15:56,160 --> 00:15:59,200 Speaker 1: policy framework. UM that's something else that we're going to 287 00:15:59,280 --> 00:16:01,360 Speaker 1: have a discussion of bound in the future, and that's 288 00:16:01,400 --> 00:16:05,600 Speaker 1: part of this, you know, prudent planning for the future. Uh. 289 00:16:05,720 --> 00:16:09,480 Speaker 1: The FED had maybe three main concerns, and not concerns 290 00:16:09,520 --> 00:16:12,080 Speaker 1: in the sense that they were imminent problems for the economy, 291 00:16:12,120 --> 00:16:15,160 Speaker 1: but things that you're watching. Emerging markets a big one, 292 00:16:15,600 --> 00:16:18,960 Speaker 1: and I wonder how you approach this, what your feel 293 00:16:19,200 --> 00:16:23,720 Speaker 1: is feeling is about the Fed's responsibility for what happens 294 00:16:23,800 --> 00:16:26,800 Speaker 1: in emerging markets, given the dollars role as the reserve currency, 295 00:16:26,920 --> 00:16:29,400 Speaker 1: and the outside effect that you have on other people. Right, 296 00:16:29,560 --> 00:16:32,280 Speaker 1: So Congress has given us our mandate, and of course 297 00:16:32,320 --> 00:16:35,760 Speaker 1: it's it's centered on the domestic economy, but we are 298 00:16:35,800 --> 00:16:40,640 Speaker 1: in a global economy, so the feedback effects of other markets, 299 00:16:40,680 --> 00:16:44,040 Speaker 1: other countries onto the US economy is something that we 300 00:16:44,120 --> 00:16:47,720 Speaker 1: must take into account when we're doing US monetary policy. 301 00:16:47,880 --> 00:16:51,400 Speaker 1: So again, you know, at this point, um, we don't 302 00:16:51,760 --> 00:16:54,920 Speaker 1: anticipate that there will be big feedbacks, but we've seen 303 00:16:54,960 --> 00:16:59,400 Speaker 1: in the past that financial markets can propagate shocks from 304 00:16:59,400 --> 00:17:01,760 Speaker 1: one economy to another, and so it's certainly something that 305 00:17:01,760 --> 00:17:06,000 Speaker 1: we're going to be monitoring. A nothing obviously on everybody's list, tariffs, 306 00:17:06,440 --> 00:17:09,520 Speaker 1: Alan Blinder said the other day of economists agree that 307 00:17:09,560 --> 00:17:12,639 Speaker 1: tariffs will have an impact on the economy, yet we 308 00:17:12,680 --> 00:17:14,960 Speaker 1: don't see it in the data. So how worried are 309 00:17:15,000 --> 00:17:18,440 Speaker 1: you about that? Well, it's certainly a risk. UM. If 310 00:17:18,480 --> 00:17:21,840 Speaker 1: you look at just the terrorists have been announced. In 311 00:17:21,920 --> 00:17:25,119 Speaker 1: terms of the macro economic effect, it's not that large, 312 00:17:25,240 --> 00:17:28,320 Speaker 1: but there's uncertainty around how that will play out, and 313 00:17:28,359 --> 00:17:31,399 Speaker 1: that it's in and of itself, can affect firms in 314 00:17:31,440 --> 00:17:34,399 Speaker 1: our district. We've been monitoring because of course the fourth 315 00:17:34,400 --> 00:17:38,040 Speaker 1: district is UM you know, has a trade with Canada 316 00:17:38,040 --> 00:17:39,960 Speaker 1: as being an important part of the economy and also 317 00:17:40,000 --> 00:17:42,600 Speaker 1: the auto industry, and so we're we are very much 318 00:17:42,920 --> 00:17:46,159 Speaker 1: looking at firms and talking to firms, and firms have 319 00:17:46,600 --> 00:17:49,440 Speaker 1: said that they are taking too account terrorists, but so 320 00:17:49,480 --> 00:17:53,280 Speaker 1: far they haven't reacted strongly to them. They haven't taken 321 00:17:53,280 --> 00:17:56,600 Speaker 1: off investment that they had planned, but they are considering it, 322 00:17:56,680 --> 00:17:59,480 Speaker 1: and so that's something that we want to monitor very carefully. Well, 323 00:17:59,520 --> 00:18:02,520 Speaker 1: you are so the center of the tariffs for the 324 00:18:02,600 --> 00:18:05,959 Speaker 1: United States economy according to the President. So do you 325 00:18:06,000 --> 00:18:11,520 Speaker 1: see any positive effects UM. I think that most economists 326 00:18:11,560 --> 00:18:16,480 Speaker 1: and myself including think that free trade actually benefits UM countries. 327 00:18:16,520 --> 00:18:18,800 Speaker 1: If you actually look at the history that you want 328 00:18:18,800 --> 00:18:21,440 Speaker 1: to have free and open and fair trade, and so 329 00:18:21,680 --> 00:18:25,160 Speaker 1: I would be in that camp. Well, if you if 330 00:18:25,200 --> 00:18:28,159 Speaker 1: you go forward with additional tariffs, does it have a 331 00:18:28,200 --> 00:18:32,720 Speaker 1: major effect on the economy or or your district or 332 00:18:32,840 --> 00:18:35,520 Speaker 1: is it small enough given the size of the U. S. 333 00:18:35,560 --> 00:18:38,159 Speaker 1: Economy that it doesn't really matter all that Munch. I 334 00:18:38,240 --> 00:18:40,040 Speaker 1: think it depends on how it plays out. If we 335 00:18:40,080 --> 00:18:42,680 Speaker 1: get into a trade war where we have one country 336 00:18:42,720 --> 00:18:46,400 Speaker 1: retaliating against another, that in and of itself can affect 337 00:18:46,480 --> 00:18:48,800 Speaker 1: the U. S. Economy through the direct root of the 338 00:18:48,800 --> 00:18:51,760 Speaker 1: tariffs themselves, but also through the uncertainty that it causes. 339 00:18:52,240 --> 00:18:54,840 Speaker 1: Do you anticipate that the tarrifts will add to any 340 00:18:54,880 --> 00:18:57,880 Speaker 1: of the inflation pressures that you lore at amester Warriable? 341 00:18:58,400 --> 00:19:01,840 Speaker 1: So you know that's is a consideration. If it's a 342 00:19:01,840 --> 00:19:04,920 Speaker 1: one time tariff and it's a one time increase in prices, 343 00:19:04,960 --> 00:19:07,080 Speaker 1: then we'll look through that. I think that's not an 344 00:19:07,080 --> 00:19:10,560 Speaker 1: inflationary But if you have these retaliatory tars that come 345 00:19:10,560 --> 00:19:13,399 Speaker 1: on over time and continue, then it's something that we 346 00:19:13,480 --> 00:19:16,840 Speaker 1: have to take into account in terms of our inflation readings. 347 00:19:16,840 --> 00:19:20,840 Speaker 1: Speaking of inflation, do you think you understand inflation dynamics 348 00:19:20,880 --> 00:19:24,040 Speaker 1: these days? I mean you're worried that the lack of 349 00:19:24,040 --> 00:19:26,359 Speaker 1: slack in the economy is going to push up prices, 350 00:19:26,400 --> 00:19:29,240 Speaker 1: but it's not really happen. So I think it's something 351 00:19:29,280 --> 00:19:31,920 Speaker 1: we watch. Um. You know, we know for a number 352 00:19:31,960 --> 00:19:35,280 Speaker 1: of years that the so called Phillips curve um has 353 00:19:35,359 --> 00:19:38,359 Speaker 1: not been very steep, and so it's something that we 354 00:19:38,400 --> 00:19:40,880 Speaker 1: have to understand. I mean, my own view of inflation 355 00:19:40,960 --> 00:19:44,640 Speaker 1: is that inflation expectations are very important determinant of dynamics. 356 00:19:44,960 --> 00:19:48,280 Speaker 1: We have seen inflation move up to our two percent goal. 357 00:19:48,760 --> 00:19:50,920 Speaker 1: I expect by the end of the year that I'll 358 00:19:50,960 --> 00:19:53,679 Speaker 1: be able to conclude that it's sustainably a two percent 359 00:19:53,760 --> 00:19:56,480 Speaker 1: I mean, we're gonna seem monthly variations in the in 360 00:19:56,520 --> 00:19:59,080 Speaker 1: the data as we always do, but I think it's 361 00:19:59,119 --> 00:20:01,400 Speaker 1: been moving up and think that's something that as we 362 00:20:01,760 --> 00:20:04,800 Speaker 1: go forward into the next year, we're gonna have to 363 00:20:04,800 --> 00:20:07,720 Speaker 1: be monitoring very carefully where we are relative to our goals. 364 00:20:07,760 --> 00:20:11,240 Speaker 1: But that's typical monetary policy making. Well, the shift the 365 00:20:11,320 --> 00:20:14,720 Speaker 1: argument has shifted basically for whether inflation is rising and 366 00:20:14,960 --> 00:20:17,680 Speaker 1: will it hit your goal to how far above your 367 00:20:17,720 --> 00:20:19,919 Speaker 1: goal do you let it go? What would you be 368 00:20:19,960 --> 00:20:23,760 Speaker 1: comfortable with? So we didn't overreact when inflation was below 369 00:20:23,800 --> 00:20:25,840 Speaker 1: our goal. I don't think it's right for us to 370 00:20:25,920 --> 00:20:28,320 Speaker 1: overreact when inflation goes a bit above our goal. We're 371 00:20:28,359 --> 00:20:32,679 Speaker 1: always aiming to keep inflation ball at our two percent 372 00:20:32,760 --> 00:20:36,359 Speaker 1: goal um, and so I'm comfortable with inflation moving a 373 00:20:36,359 --> 00:20:38,800 Speaker 1: little bit above two percent. But again it's got to 374 00:20:38,880 --> 00:20:41,280 Speaker 1: be in the medium run forecast coming back down to 375 00:20:41,320 --> 00:20:43,680 Speaker 1: two percent. Well, I mean, these guys out there on 376 00:20:43,720 --> 00:20:45,880 Speaker 1: the trading guests are all wondering, what does she mean 377 00:20:45,920 --> 00:20:48,359 Speaker 1: a little bit? I mean two point five percent for 378 00:20:48,440 --> 00:20:52,199 Speaker 1: how long? It really depends on the forecast, right, I mean, 379 00:20:52,240 --> 00:20:55,480 Speaker 1: I wouldn't be comfortable if I saw forecasts that had, 380 00:20:55,640 --> 00:20:58,240 Speaker 1: you know, inflation moving up and continue to move up 381 00:20:58,440 --> 00:21:01,280 Speaker 1: above two percent. If I saw it move up temporarily, 382 00:21:01,320 --> 00:21:04,280 Speaker 1: but my forecast and most economists forecasts were to come 383 00:21:04,280 --> 00:21:07,080 Speaker 1: back down to two percent over that media un forecast 384 00:21:07,520 --> 00:21:11,200 Speaker 1: time horizon, over which policy monetary policy and effect the economy, 385 00:21:11,200 --> 00:21:14,000 Speaker 1: then I'd be comfortable. And the other question everybody wants 386 00:21:14,000 --> 00:21:15,760 Speaker 1: to know is if inflation is moving up, when do 387 00:21:15,800 --> 00:21:19,200 Speaker 1: I get a raise? Because right now, consumer price inflation 388 00:21:19,280 --> 00:21:22,760 Speaker 1: is running above average hourly earnings. Right, So if you 389 00:21:22,800 --> 00:21:24,880 Speaker 1: look at the e c I data, which is one 390 00:21:24,880 --> 00:21:28,800 Speaker 1: of the indicators of wage inflation. You have seen an 391 00:21:28,800 --> 00:21:32,960 Speaker 1: accelerate um from where it was earlier in the expansion, 392 00:21:33,280 --> 00:21:35,280 Speaker 1: which is a good thing um. And if you look 393 00:21:35,280 --> 00:21:39,480 Speaker 1: at the DISAGGREGATEDDC it's the lower end um of wages 394 00:21:39,480 --> 00:21:41,160 Speaker 1: that are moving up. So I think that's a very 395 00:21:41,160 --> 00:21:43,520 Speaker 1: good thing. I think a lot of what's going on 396 00:21:43,560 --> 00:21:46,240 Speaker 1: in the wage um picture has to do with low 397 00:21:46,280 --> 00:21:50,960 Speaker 1: productivity growth, So investment being up can increase productivity growth. 398 00:21:51,000 --> 00:21:53,280 Speaker 1: I think that's a good thing. I think the other aspect, 399 00:21:53,280 --> 00:21:56,119 Speaker 1: of course, is an inflation has been low over most 400 00:21:56,119 --> 00:21:58,440 Speaker 1: of the of the expansion, and that also explains the 401 00:21:58,520 --> 00:22:01,800 Speaker 1: low levels of wage the Right Semester, thank you very 402 00:22:01,840 --> 00:22:04,359 Speaker 1: much for joining us. Thank you. We'll let you go 403 00:22:04,400 --> 00:22:07,760 Speaker 1: get warm and we'll send it back to you. Careful, 404 00:22:07,960 --> 00:22:11,640 Speaker 1: careful interview with the president of the Cleveland Federal Right Semester. 405 00:22:12,119 --> 00:22:27,520 Speaker 1: We're there, Michael mckew. This will be an important interview, 406 00:22:27,680 --> 00:22:30,600 Speaker 1: always interesting with a member of the Dallas FED. And 407 00:22:31,280 --> 00:22:35,240 Speaker 1: for Robert Kaplan, it is about confidence in the American economy. 408 00:22:35,720 --> 00:22:39,240 Speaker 1: It is about the business process. It is about business 409 00:22:39,640 --> 00:22:43,880 Speaker 1: and from that confidence the leadership that leads to investment 410 00:22:44,320 --> 00:22:47,120 Speaker 1: and then on two jobs. We do this with green 411 00:22:47,240 --> 00:22:50,359 Speaker 1: on the screen, the dow up the vis under twelve 412 00:22:50,359 --> 00:22:54,159 Speaker 1: eleven point nine nine. I'm watching yields here higher a 413 00:22:54,200 --> 00:22:57,639 Speaker 1: little bit this morning, but really all attention paid to 414 00:22:57,760 --> 00:23:00,880 Speaker 1: this series of FED interviews leading to the power speech. 415 00:23:01,080 --> 00:23:04,480 Speaker 1: Right now are Michael McKee and Jackson Hall with Robert 416 00:23:04,560 --> 00:23:07,919 Speaker 1: Kaplan of the Dallas Fed. Thank you very much. We 417 00:23:07,960 --> 00:23:11,320 Speaker 1: welcome Dallas FED President Robert Kaplan to Bloomberg Television and 418 00:23:11,400 --> 00:23:15,080 Speaker 1: Radio worldwide. Thank you for joining us. You're you're probably addressed. 419 00:23:15,119 --> 00:23:20,040 Speaker 1: You're not as old as we're about twenty minutes away 420 00:23:20,040 --> 00:23:22,040 Speaker 1: from the main event of the day for Wall Street 421 00:23:22,080 --> 00:23:25,800 Speaker 1: and the chairman's speech the minutes suggests we're locked in 422 00:23:25,840 --> 00:23:30,359 Speaker 1: for a rate increase in September, probably in December as well. 423 00:23:30,400 --> 00:23:32,960 Speaker 1: Do you expect the chairman to give us any guidance 424 00:23:33,480 --> 00:23:35,600 Speaker 1: to the contrary. I'm not going to comment on what 425 00:23:35,640 --> 00:23:38,840 Speaker 1: the Chairman is gonna say. I'll let his speech stand 426 00:23:38,920 --> 00:23:41,919 Speaker 1: on its own. I've said I think we ought to 427 00:23:41,960 --> 00:23:45,800 Speaker 1: be moving toward neutral, which means three or four increases 428 00:23:45,840 --> 00:23:47,840 Speaker 1: over the next nine to twelve months, and I think 429 00:23:48,560 --> 00:23:51,679 Speaker 1: at this point moving in September and December is consistent 430 00:23:51,840 --> 00:23:54,560 Speaker 1: with that path, so that that would be my own view, 431 00:23:55,000 --> 00:23:59,040 Speaker 1: but I think everyone around the table you should express 432 00:23:59,080 --> 00:24:01,320 Speaker 1: their views independently, including the chair, and I know he 433 00:24:01,359 --> 00:24:04,639 Speaker 1: will well. One of the arguments around the table is 434 00:24:04,720 --> 00:24:09,040 Speaker 1: that inflation is roughly at your target, but it's not 435 00:24:09,119 --> 00:24:12,520 Speaker 1: moving up very fast. And you've been advocating continuing with 436 00:24:12,640 --> 00:24:16,280 Speaker 1: the path that you're on. But why do you need 437 00:24:16,359 --> 00:24:20,800 Speaker 1: to do that if inflation is not breaking up? So UH. 438 00:24:21,080 --> 00:24:24,360 Speaker 1: Our measure at the Dallas FED is the trim mean, 439 00:24:24,600 --> 00:24:28,440 Speaker 1: which is a core inflation measure. X is out extreme 440 00:24:28,480 --> 00:24:30,639 Speaker 1: moves to the upside and downside. And we see that 441 00:24:30,720 --> 00:24:34,119 Speaker 1: getting to two by the end of this year and 442 00:24:34,200 --> 00:24:36,919 Speaker 1: even strengthening beyond there. And here's here's what's going on. 443 00:24:37,160 --> 00:24:40,320 Speaker 1: There's two conflicting factors. One is the cyclical factors. Got 444 00:24:40,320 --> 00:24:42,719 Speaker 1: a very tight labor market, we have higher input costs. 445 00:24:42,880 --> 00:24:45,800 Speaker 1: Some of it's due to tariffs, maybe transitory factors, but 446 00:24:45,840 --> 00:24:50,240 Speaker 1: there's no question that cyclical factors are pushing prices UH 447 00:24:50,640 --> 00:24:55,040 Speaker 1: upward UH and and having inflation. Their structural factors going 448 00:24:55,080 --> 00:24:58,680 Speaker 1: the other way. Globalization, automation, you know, people being replaced 449 00:24:58,680 --> 00:25:02,159 Speaker 1: by technology, and so my own view is inflation is 450 00:25:02,160 --> 00:25:04,720 Speaker 1: going to keep moving up because the cyclical factors are 451 00:25:04,800 --> 00:25:06,800 Speaker 1: very strong. I don't think it's going to run away 452 00:25:06,800 --> 00:25:09,000 Speaker 1: from us. But I think what the balance we're trying 453 00:25:09,080 --> 00:25:11,160 Speaker 1: to tread at the at the FED, and what I'm 454 00:25:11,160 --> 00:25:14,439 Speaker 1: trying to tread is you want to move gradually. You 455 00:25:14,480 --> 00:25:18,119 Speaker 1: don't want to move so slowly that inflation uh, and 456 00:25:18,160 --> 00:25:21,120 Speaker 1: the cyclical forces get ahead of themselves and get ahead 457 00:25:21,119 --> 00:25:22,919 Speaker 1: of us, and we have to play catch up, in 458 00:25:22,920 --> 00:25:25,040 Speaker 1: which case would have to raise rates more quickly. And 459 00:25:25,080 --> 00:25:29,760 Speaker 1: I think that typically leads to bad outcomes in particular recession. 460 00:25:30,040 --> 00:25:33,800 Speaker 1: So what we're trying to do is raise gradually. And 461 00:25:33,960 --> 00:25:37,960 Speaker 1: and that's the reason why I've been advocating let's keep moving. 462 00:25:38,000 --> 00:25:40,960 Speaker 1: The other reason I'm advocating let's keep moving, we're meeting 463 00:25:40,960 --> 00:25:44,360 Speaker 1: our dual mandate objectives. We're reading our full employment objective. 464 00:25:44,400 --> 00:25:48,280 Speaker 1: As you said, inflations around two percent. In that context, 465 00:25:48,400 --> 00:25:50,639 Speaker 1: we should we shouldn't be a we don't need to 466 00:25:50,680 --> 00:25:54,000 Speaker 1: be accommodative. We should be moving to a neutral stance. 467 00:25:54,440 --> 00:25:57,480 Speaker 1: And neutral would mean for me, three or four increases 468 00:25:57,520 --> 00:26:00,280 Speaker 1: to get to somewhere in the neighborhood. UH. US or 469 00:26:00,280 --> 00:26:01,840 Speaker 1: minus of two and a half to two and three 470 00:26:01,880 --> 00:26:04,679 Speaker 1: quarters percent, maybe a little bit more. And that's the 471 00:26:04,760 --> 00:26:08,200 Speaker 1: primary reason why I've been advocating we should keep gradually 472 00:26:08,800 --> 00:26:11,320 Speaker 1: raising the FED funds rate. Well, you're the FEDS man 473 00:26:11,320 --> 00:26:14,240 Speaker 1: in the oil patch, and you just wrote this week 474 00:26:14,359 --> 00:26:17,080 Speaker 1: that oil prices are going to go up. Well, here's 475 00:26:17,080 --> 00:26:19,680 Speaker 1: what here's what I'm saying. I'm saying they're vulnerable to 476 00:26:19,800 --> 00:26:23,399 Speaker 1: an upside price spike. Here's why we were in a 477 00:26:23,400 --> 00:26:27,320 Speaker 1: global oversupply situation over the last few years, where now 478 00:26:27,720 --> 00:26:31,680 Speaker 1: we think in in global equilibrium, supply basically equal to demand, 479 00:26:32,240 --> 00:26:38,760 Speaker 1: but because global demand keeps growing um and uh, they're 480 00:26:38,800 --> 00:26:44,199 Speaker 1: also there's the risk of supply outages from Iran Venezuela. Uh. 481 00:26:44,440 --> 00:26:46,840 Speaker 1: We think US production is going to need to keep growing, 482 00:26:47,280 --> 00:26:50,200 Speaker 1: and shale in particular, but there are limits to how 483 00:26:50,240 --> 00:26:52,840 Speaker 1: fast shale can grow. So what we've cautioned is in 484 00:26:52,880 --> 00:26:55,760 Speaker 1: the next three years three to five, we're likely to 485 00:26:55,760 --> 00:26:59,680 Speaker 1: move into global undersupply situation. So while we're in this period, 486 00:27:00,240 --> 00:27:04,359 Speaker 1: we're a little more vulnerable than we have been to uh, 487 00:27:04,560 --> 00:27:07,119 Speaker 1: you know, less oil on the market from Iran because 488 00:27:07,160 --> 00:27:09,680 Speaker 1: of sanctions, or less oil on the market from Venezuela, 489 00:27:09,720 --> 00:27:11,840 Speaker 1: and we're just cautioning. I think we're a little more 490 00:27:11,880 --> 00:27:15,440 Speaker 1: vulnerable to an upside price shock and oil uh in 491 00:27:15,480 --> 00:27:17,560 Speaker 1: this period, and we just have to be sensitive to that. 492 00:27:17,800 --> 00:27:20,840 Speaker 1: Does that translate into inflation concerns that would change the 493 00:27:20,920 --> 00:27:24,960 Speaker 1: rake bath? I think oil and energy is obviously one 494 00:27:25,080 --> 00:27:29,080 Speaker 1: part of inflation, but I think it leads, it leads 495 00:27:29,080 --> 00:27:31,320 Speaker 1: into a broad narrative. Most CEOs I talked to, and 496 00:27:31,359 --> 00:27:33,920 Speaker 1: I talked about thirty a month, and we do broad surveys. 497 00:27:34,359 --> 00:27:36,959 Speaker 1: Most companies I talked to are saying input costs are 498 00:27:36,960 --> 00:27:41,600 Speaker 1: going up. Energy is part of it, uh steal aluminum um. 499 00:27:41,960 --> 00:27:44,240 Speaker 1: Some of that's due to these to due to tariffs. 500 00:27:44,320 --> 00:27:48,000 Speaker 1: I think input cause generally are going up so uh UM. 501 00:27:48,040 --> 00:27:50,240 Speaker 1: I think we just have to be aware of that. Now. 502 00:27:50,880 --> 00:27:54,280 Speaker 1: This is why there's one impact of the tariffs that 503 00:27:54,359 --> 00:27:57,639 Speaker 1: affects oil that people are concerned about. One of the 504 00:27:57,680 --> 00:28:00,760 Speaker 1: reasons production isn't growing faster and say the Permian Basin 505 00:28:00,840 --> 00:28:05,360 Speaker 1: and Texans Texas is lack of infrastructure, particularly pipelines that 506 00:28:05,400 --> 00:28:08,480 Speaker 1: takes steal uh and these tariffs. A lot of people 507 00:28:08,520 --> 00:28:11,119 Speaker 1: in the industry are concerned they're going to slow building 508 00:28:11,119 --> 00:28:13,400 Speaker 1: of those pipelines or at least make it more expensive. 509 00:28:13,880 --> 00:28:17,840 Speaker 1: And so all these factors that fit in with one another, 510 00:28:17,920 --> 00:28:20,600 Speaker 1: and it's part of the broad dashboard that I'm watching. 511 00:28:20,840 --> 00:28:24,240 Speaker 1: Let's talk about tariffs in those CEOs. Uh, we don't 512 00:28:24,240 --> 00:28:27,000 Speaker 1: see tariff impacts in the data yet, So are the 513 00:28:27,080 --> 00:28:31,480 Speaker 1: CEOs changing behavior at all because of what they think 514 00:28:31,600 --> 00:28:34,720 Speaker 1: might happen? If you'll if you look economy wide, we 515 00:28:34,760 --> 00:28:37,600 Speaker 1: don't see much impact. Digree. If you look at individual industries, 516 00:28:37,800 --> 00:28:41,040 Speaker 1: you're seeing you're seeing impact. And what I hear from 517 00:28:41,120 --> 00:28:45,480 Speaker 1: CEOs i'm talking to is, at a minimum, the tariffs 518 00:28:45,520 --> 00:28:48,240 Speaker 1: are having somewhat of a chilling impact on their capital 519 00:28:48,280 --> 00:28:51,000 Speaker 1: spending plants, meaning they're just saying, let's just wait a 520 00:28:51,040 --> 00:28:54,280 Speaker 1: little bit and see how this unfolds. And in certain 521 00:28:54,320 --> 00:28:57,959 Speaker 1: industries it's raising input costs and for the first time 522 00:28:58,000 --> 00:29:00,880 Speaker 1: in a long time, they're trying to pass on price increases. 523 00:29:01,360 --> 00:29:04,600 Speaker 1: I don't see it yet, as you said, in overall GDP, 524 00:29:05,080 --> 00:29:08,320 Speaker 1: and I think if it's contained here, I'm optimistic that 525 00:29:08,440 --> 00:29:10,600 Speaker 1: it won't have a material effect on GDP. But what 526 00:29:10,720 --> 00:29:13,880 Speaker 1: we're watching for and what companies are watching for, is 527 00:29:13,920 --> 00:29:17,120 Speaker 1: this spread further. Is it more prolonged as it get wider. 528 00:29:17,480 --> 00:29:21,600 Speaker 1: I'm hopeful that that won't happen, and if it does, 529 00:29:21,640 --> 00:29:24,240 Speaker 1: we'll have to reassess the impact on the overall economy. 530 00:29:24,320 --> 00:29:26,200 Speaker 1: Based on what you said about three or four more 531 00:29:26,440 --> 00:29:29,240 Speaker 1: rate increases, you're about a hundred basis points below what 532 00:29:29,320 --> 00:29:32,520 Speaker 1: you think neutral might be. Yet the yield curve is 533 00:29:32,520 --> 00:29:37,760 Speaker 1: extraordinarily flat right now. Market spreading about inversion, does that 534 00:29:37,840 --> 00:29:41,040 Speaker 1: suggest maybe a failure to communicate on the FEDS part, 535 00:29:41,080 --> 00:29:44,280 Speaker 1: in the sense that investors don't understand your view of 536 00:29:44,320 --> 00:29:47,280 Speaker 1: the economy or they don't believe your forecasts. No, I 537 00:29:47,320 --> 00:29:52,280 Speaker 1: actually think the the treasury markets reading what we're saying 538 00:29:52,520 --> 00:29:56,360 Speaker 1: pretty accurately. Here's the way I read the treasury market. 539 00:29:56,400 --> 00:30:00,560 Speaker 1: The short end, the one in two year treasuries are 540 00:30:00,600 --> 00:30:04,040 Speaker 1: are fully reflective. I think of the of the rhetoric 541 00:30:04,080 --> 00:30:08,080 Speaker 1: from the Fed, how many times we planned to raise rates? Uh, 542 00:30:08,120 --> 00:30:11,320 Speaker 1: and I think that's uh. That's substantially reflected in the 543 00:30:11,360 --> 00:30:13,320 Speaker 1: short end of the curve. The long end of the 544 00:30:13,320 --> 00:30:15,240 Speaker 1: curve isn't controlled by the FED. The long end of 545 00:30:15,280 --> 00:30:18,760 Speaker 1: the curve is dictated by economic conditions and GDP growth. 546 00:30:18,960 --> 00:30:21,200 Speaker 1: With the long end of the curve is saying is yes, 547 00:30:21,480 --> 00:30:24,520 Speaker 1: there's a lot of global liquidity which may be putting 548 00:30:24,560 --> 00:30:26,800 Speaker 1: some downward pressure. In other words, there's lots of pension 549 00:30:26,800 --> 00:30:29,240 Speaker 1: funds and central banks that are buying the tenure in 550 00:30:29,280 --> 00:30:31,160 Speaker 1: the third year. But I think with the long end 551 00:30:31,160 --> 00:30:34,000 Speaker 1: of the curve is also saying is that medium term 552 00:30:34,040 --> 00:30:36,680 Speaker 1: growth is going to be weaker than what it looks today. 553 00:30:36,800 --> 00:30:40,920 Speaker 1: It's gonna be more sluggish. So I actually think that 554 00:30:40,960 --> 00:30:44,840 Speaker 1: the Treasury curve is very consistent with what we've been 555 00:30:44,920 --> 00:30:48,520 Speaker 1: saying and our economic outlook, and pretty consistent with what 556 00:30:48,600 --> 00:30:51,160 Speaker 1: the Feds have been saying about the path of rates. Well, 557 00:30:51,160 --> 00:30:55,480 Speaker 1: if growth is going too slow and inflation UH isn't 558 00:30:55,480 --> 00:30:58,400 Speaker 1: going to get out of control, what do you worry 559 00:30:58,400 --> 00:31:01,840 Speaker 1: about in terms of the economy, What in your mind 560 00:31:01,920 --> 00:31:06,560 Speaker 1: could derail December or two thousand nineteen rate pikes. Well, 561 00:31:06,600 --> 00:31:11,480 Speaker 1: in the short run, the things I'm looking at we'll 562 00:31:11,480 --> 00:31:15,160 Speaker 1: have to see if terroriffs become more widespread. But related 563 00:31:15,160 --> 00:31:19,719 Speaker 1: to that, I'm looking for UH risk outside the United States. 564 00:31:20,160 --> 00:31:23,040 Speaker 1: So obviously there are countries like Turkey and Argentina that 565 00:31:23,080 --> 00:31:25,680 Speaker 1: are very dependent on dollar denominated debt and they're having 566 00:31:26,200 --> 00:31:30,480 Speaker 1: a turmoil so far that hasn't led to contagion. I 567 00:31:30,480 --> 00:31:33,920 Speaker 1: think it's so far contained, but I'm watching that. I 568 00:31:33,960 --> 00:31:36,960 Speaker 1: think the reason watch it so closely is if you 569 00:31:37,040 --> 00:31:41,760 Speaker 1: had global financial instability that could spill over back in 570 00:31:41,800 --> 00:31:44,320 Speaker 1: the United States and affect financial conditions here. So I'm 571 00:31:44,320 --> 00:31:47,720 Speaker 1: watching for that. Setting that aside, I'm more worried about 572 00:31:47,800 --> 00:31:50,080 Speaker 1: about the medium term outlook than what happens in the 573 00:31:50,080 --> 00:31:53,000 Speaker 1: next six twelve months. I think the short term outlook 574 00:31:53,040 --> 00:31:54,720 Speaker 1: for the U s economy is very strong, as you 575 00:31:54,760 --> 00:31:57,400 Speaker 1: and I have discussed, but I'm more worried about what 576 00:31:57,520 --> 00:32:02,239 Speaker 1: happens in twenty one, which is being driven more in 577 00:32:02,280 --> 00:32:05,360 Speaker 1: my opinion, by the fact that fiscal stimulus will have faded, 578 00:32:06,280 --> 00:32:10,240 Speaker 1: but we'll be left with an aging population, slowing workforce 579 00:32:10,280 --> 00:32:14,040 Speaker 1: growth UH, and sluggish productivity I think mainly due to 580 00:32:15,320 --> 00:32:18,080 Speaker 1: lagging education and skill levels in the United States. We 581 00:32:18,120 --> 00:32:20,880 Speaker 1: can do something about those things, but that's still my 582 00:32:20,960 --> 00:32:24,920 Speaker 1: biggest concern. And then the third concern, which I've mentioned before, 583 00:32:25,040 --> 00:32:27,959 Speaker 1: is we're getting a tail wind from fiscal stimulus right 584 00:32:28,000 --> 00:32:31,120 Speaker 1: now and a lot of government debt. That tailwind can 585 00:32:31,120 --> 00:32:33,640 Speaker 1: turn into a headwind if we decide in the next 586 00:32:33,640 --> 00:32:35,480 Speaker 1: few years. We've got to moderate debt growth in the 587 00:32:35,520 --> 00:32:37,480 Speaker 1: United States. So those are the three things I'm most 588 00:32:37,520 --> 00:32:40,520 Speaker 1: worried about. But that isn't necessarily a six month worry, 589 00:32:40,560 --> 00:32:43,200 Speaker 1: that's a medium term worry. Well, let me quickly ask 590 00:32:43,240 --> 00:32:47,160 Speaker 1: you this. The FED most recent meeting staff presented UH 591 00:32:47,200 --> 00:32:50,480 Speaker 1: an analysis of policy going forward and suggested you're gonna 592 00:32:50,520 --> 00:32:52,160 Speaker 1: be at zero, You're gonna have to cut rates to 593 00:32:52,240 --> 00:32:55,400 Speaker 1: zero again sometime within the next decade, and that maybe 594 00:32:55,480 --> 00:32:58,800 Speaker 1: q E and forward guidance don't work as well as 595 00:32:58,840 --> 00:33:01,080 Speaker 1: they did the last time to get us out of that. 596 00:33:01,360 --> 00:33:04,480 Speaker 1: Does that concern you? What else do you do? So 597 00:33:05,320 --> 00:33:08,840 Speaker 1: what that emphasizes for me is our tools are in 598 00:33:08,880 --> 00:33:12,200 Speaker 1: the lingo asymmetrical. It's a lot easier to tighten than 599 00:33:12,280 --> 00:33:16,280 Speaker 1: to ease. So that affects my thinking now, Meaning I 600 00:33:16,400 --> 00:33:19,600 Speaker 1: mentioned growth are strong now, but I think it's going 601 00:33:19,680 --> 00:33:23,080 Speaker 1: to wane somewhat in nineteen maybe two and a half 602 00:33:23,120 --> 00:33:26,000 Speaker 1: percent and then trending down to two percent or one 603 00:33:26,040 --> 00:33:29,840 Speaker 1: or three quarters to two percent. UH makes me conscious 604 00:33:30,040 --> 00:33:34,000 Speaker 1: that it's very important that we move gradually and patiently 605 00:33:34,520 --> 00:33:37,640 Speaker 1: because if we overdo it UH, and we have to 606 00:33:37,640 --> 00:33:40,640 Speaker 1: play catch up and the economy is in a downturn, 607 00:33:40,680 --> 00:33:43,440 Speaker 1: we don't have much capacity for fiscal stimulus, and as 608 00:33:43,480 --> 00:33:46,720 Speaker 1: you just said, our tools, uh, we don't have a 609 00:33:46,720 --> 00:33:49,000 Speaker 1: lot of tools in then as many as we've had 610 00:33:49,000 --> 00:33:51,360 Speaker 1: in the past in the next recession. So it tells 611 00:33:51,440 --> 00:33:55,280 Speaker 1: me that we ought to be moving gradually and patiently now. 612 00:33:55,640 --> 00:33:58,640 Speaker 1: And also remind myself monetary policy acts with a lag 613 00:33:59,320 --> 00:34:01,760 Speaker 1: so we may not see the effect of the great 614 00:34:01,800 --> 00:34:05,560 Speaker 1: increases now for another six to twelve months, and it's 615 00:34:05,560 --> 00:34:07,880 Speaker 1: a little bit masked by all this fiscal stimulus. I 616 00:34:07,880 --> 00:34:10,080 Speaker 1: think it's very important for us to keep that in mind. 617 00:34:10,600 --> 00:34:13,680 Speaker 1: And so again, all that leads me to let's gradually 618 00:34:13,719 --> 00:34:17,000 Speaker 1: move to neutral and then when we get there, let's 619 00:34:17,680 --> 00:34:20,319 Speaker 1: assess where we are and figure out what, if any, 620 00:34:20,360 --> 00:34:23,000 Speaker 1: action should be taken. But I think it's very important 621 00:34:23,920 --> 00:34:26,719 Speaker 1: that we we move in a gradual, patient way. All right, 622 00:34:26,840 --> 00:34:29,040 Speaker 1: Robert Kaplan, thank you very much for joining us, President 623 00:34:29,440 --> 00:34:31,480 Speaker 1: of the Dallas FED. We'll send it back to you. 624 00:34:31,840 --> 00:34:48,520 Speaker 1: Michael McKee in Jackson Hole for a former governor of 625 00:34:48,560 --> 00:34:53,279 Speaker 1: the Federal Reserve System, Frederick Michigan, Rick Michigan of Columbia University, 626 00:34:53,520 --> 00:34:57,040 Speaker 1: Do we need dear a statement? Rick? Today? Unfed Independence 627 00:34:57,120 --> 00:34:59,640 Speaker 1: is this is a good point for Chairman Paul to 628 00:34:59,680 --> 00:35:05,000 Speaker 1: slip been one or two sentences to stake out FED territory. 629 00:35:05,680 --> 00:35:10,120 Speaker 1: I don't know if it's if it's necessary right now. Certainly, uh. 630 00:35:10,280 --> 00:35:14,400 Speaker 1: Bet A reserved independence extremely important. Uh. And we have 631 00:35:14,960 --> 00:35:19,400 Speaker 1: a lot of both history and also research that indicates 632 00:35:19,400 --> 00:35:23,719 Speaker 1: that when central banks are independent of politicians, we get 633 00:35:23,760 --> 00:35:26,680 Speaker 1: much better monetary policy. And the problem here is the 634 00:35:26,719 --> 00:35:29,759 Speaker 1: politicians things short term. We see this right now with 635 00:35:29,840 --> 00:35:32,560 Speaker 1: President Trump. He you know that we have the economy 636 00:35:32,719 --> 00:35:36,360 Speaker 1: roaring along and inflation is potentially a serious problem. But 637 00:35:36,440 --> 00:35:38,279 Speaker 1: he's a low interest rate guy and he wants to 638 00:35:38,320 --> 00:35:40,680 Speaker 1: keep the economy strong because that gets some votes. And 639 00:35:40,719 --> 00:35:44,920 Speaker 1: this is very typical. Uh. What has been very interesting 640 00:35:45,080 --> 00:35:48,239 Speaker 1: in the last twenty or so years is that that 641 00:35:48,480 --> 00:35:52,480 Speaker 1: basically during the clin administration, there was a basically a 642 00:35:52,600 --> 00:35:55,279 Speaker 1: rule that the president would not criticize the FED for 643 00:35:55,400 --> 00:35:57,959 Speaker 1: raising rates, and that actually has served us very well 644 00:35:58,000 --> 00:36:01,600 Speaker 1: and actually existed until this recent press sency. Uh. And 645 00:36:02,080 --> 00:36:04,200 Speaker 1: it's been violated. But on the other hand, it's not 646 00:36:04,280 --> 00:36:06,320 Speaker 1: clear how big a deal this is. You know, Trump 647 00:36:06,360 --> 00:36:10,160 Speaker 1: is Trump. He liked the tweets about everything, says things 648 00:36:10,160 --> 00:36:12,000 Speaker 1: that are pretty wild on a lot of different issues, 649 00:36:12,040 --> 00:36:14,360 Speaker 1: and so I don't know how seriously to take his 650 00:36:14,440 --> 00:36:17,960 Speaker 1: comments on lower illustrates. Tell me about and this goes 651 00:36:18,000 --> 00:36:21,239 Speaker 1: to your service at the Bank of New York ages Ago. 652 00:36:21,760 --> 00:36:25,880 Speaker 1: Tell me about the dollar dynamics in the FED. I 653 00:36:25,960 --> 00:36:28,680 Speaker 1: mean it a given FED mating at the Echoes building 654 00:36:29,239 --> 00:36:32,800 Speaker 1: or within the this color book or that color book. 655 00:36:33,280 --> 00:36:37,560 Speaker 1: Is there a lot of attention paid to dollar movements? 656 00:36:37,560 --> 00:36:41,440 Speaker 1: Not really? Uh that there's several issues here, uh that 657 00:36:41,840 --> 00:36:44,960 Speaker 1: the dollar movements. Uh, First of all, the impact on 658 00:36:45,000 --> 00:36:48,080 Speaker 1: the US economy is not that large because we're so 659 00:36:48,360 --> 00:36:50,960 Speaker 1: we're so big that were our trade sector is actually 660 00:36:50,960 --> 00:36:53,799 Speaker 1: smaller relatant most countries. So for a point of view 661 00:36:53,840 --> 00:36:57,439 Speaker 1: how important it is to actually the forecast, it's not huge. Uh. 662 00:36:57,520 --> 00:37:02,040 Speaker 1: That Also very important is that the Seat of Reserve 663 00:37:02,120 --> 00:37:06,240 Speaker 1: should focus on domestic issues, should focus on what's happened 664 00:37:06,239 --> 00:37:09,360 Speaker 1: to inflation, and also what's happened to the overall economy, 665 00:37:09,440 --> 00:37:11,759 Speaker 1: and the dollars should feed into that in terms of 666 00:37:11,760 --> 00:37:14,080 Speaker 1: actually having an impact on on what goes on in 667 00:37:14,160 --> 00:37:17,480 Speaker 1: you as economy. But that end is not huge. So 668 00:37:17,520 --> 00:37:19,719 Speaker 1: in that sense, the dollar really is not a big issue. 669 00:37:19,760 --> 00:37:22,319 Speaker 1: The only time it could be really relevant is doing 670 00:37:22,320 --> 00:37:26,399 Speaker 1: a financial crisis with potential for financial disruption. But that's 671 00:37:26,440 --> 00:37:28,720 Speaker 1: not the situation we're in right now. So I would 672 00:37:29,400 --> 00:37:31,839 Speaker 1: expect that there's very little discussion of the dollar right 673 00:37:31,880 --> 00:37:35,600 Speaker 1: now inside inside the Echo building when the FMC meets 674 00:37:35,719 --> 00:37:37,919 Speaker 1: let's back up to first principles. I love the cover 675 00:37:38,040 --> 00:37:42,280 Speaker 1: of your second edition Macroeconomics, Policy and Practice. You've got 676 00:37:42,320 --> 00:37:44,719 Speaker 1: the yachts of the elite on the cover. That's the 677 00:37:45,000 --> 00:37:48,680 Speaker 1: that's that's It's got these gorgeous sailboats sailing off into 678 00:37:48,680 --> 00:37:51,840 Speaker 1: the distance. You should know. I'm a very avid sailor, 679 00:37:51,920 --> 00:37:54,319 Speaker 1: but my boat is a tiny little boat, only two 680 00:37:56,160 --> 00:37:58,719 Speaker 1: and your your publisher, no doubt, said no, we need 681 00:37:58,800 --> 00:38:02,560 Speaker 1: something more more fancy then that, so that students could 682 00:38:02,600 --> 00:38:06,240 Speaker 1: dream someday of the big yachtchet with that set Rick Michigan. 683 00:38:06,719 --> 00:38:08,920 Speaker 1: A lot of people are looking at the inequalities of 684 00:38:08,960 --> 00:38:12,759 Speaker 1: America in this mystery of wage growth. Rick Michigan on 685 00:38:12,840 --> 00:38:16,279 Speaker 1: wage growth, When does it happen? Okay, So I think 686 00:38:16,360 --> 00:38:18,919 Speaker 1: that there's a there's a huge problem for the US 687 00:38:19,000 --> 00:38:22,279 Speaker 1: in terms of income equality. Uh And in fact, this 688 00:38:22,360 --> 00:38:25,680 Speaker 1: is also leading to some of our very unusual politics 689 00:38:25,680 --> 00:38:27,680 Speaker 1: which I don't think as healthy, healthy as it has 690 00:38:27,680 --> 00:38:31,000 Speaker 1: been in the past. Uh. The problem here is that 691 00:38:31,560 --> 00:38:34,000 Speaker 1: if you don't get a good education, if you don't 692 00:38:34,360 --> 00:38:38,239 Speaker 1: get highly educated, then you're screwed. And uh and unfortunately, 693 00:38:38,280 --> 00:38:39,919 Speaker 1: there are a lot of people in the US who 694 00:38:40,120 --> 00:38:43,160 Speaker 1: are not getting well enough educated and they're not having 695 00:38:43,160 --> 00:38:46,160 Speaker 1: wage increases, and people who are highly educated, people like me, 696 00:38:46,200 --> 00:38:49,400 Speaker 1: have done very well. That creates problems because many of 697 00:38:49,400 --> 00:38:52,799 Speaker 1: the policies that then get put into place are ones 698 00:38:52,880 --> 00:38:56,960 Speaker 1: which very focusing. They're very much on distribution, redistribution or 699 00:38:57,200 --> 00:38:58,719 Speaker 1: in ways that may not be the best way to 700 00:38:58,760 --> 00:39:01,640 Speaker 1: do it, or us we have u some of the 701 00:39:01,719 --> 00:39:04,080 Speaker 1: kind of things that we've seen during the during this 702 00:39:04,160 --> 00:39:07,680 Speaker 1: most recent presidential election. So this is actually not healthy. 703 00:39:07,719 --> 00:39:11,080 Speaker 1: It's a problem that's very serious. Unfortunately, not that much 704 00:39:11,160 --> 00:39:14,040 Speaker 1: the government can do about in the short term. Because 705 00:39:14,080 --> 00:39:16,319 Speaker 1: this is a book about the fundamentals of education, and 706 00:39:16,360 --> 00:39:18,960 Speaker 1: fixing a l high education, which is a huge problem 707 00:39:18,960 --> 00:39:21,600 Speaker 1: in the theory, is very hard to do. I'll take 708 00:39:21,680 --> 00:39:25,000 Speaker 1: your point that the Federal Reserve Bank cannot solve this problem. 709 00:39:25,040 --> 00:39:28,600 Speaker 1: They've got only so many tools in so much institutional force. 710 00:39:29,080 --> 00:39:32,040 Speaker 1: But there's a primal scream, Rick Michigan, whether it's in 711 00:39:32,080 --> 00:39:35,840 Speaker 1: Australia or Hungary or in the United States, a populous 712 00:39:35,960 --> 00:39:39,800 Speaker 1: revolt against the disparity of what g d P gains 713 00:39:39,840 --> 00:39:43,520 Speaker 1: were getting. What can be the policy prescription? And folks, 714 00:39:43,719 --> 00:39:47,359 Speaker 1: I say this with Michigan's landmark textbook which said, wait 715 00:39:47,400 --> 00:39:50,960 Speaker 1: a minute, I'm actually going to talk about policy, Rick, 716 00:39:51,160 --> 00:39:55,040 Speaker 1: what is the policy prescription to meet the people that 717 00:39:55,160 --> 00:39:59,279 Speaker 1: support President Trump and their primal scream. So I think 718 00:39:59,320 --> 00:40:02,440 Speaker 1: that a key shoe here is how do we improve 719 00:40:02,680 --> 00:40:06,520 Speaker 1: elementary high school education so that the people who basically 720 00:40:06,800 --> 00:40:09,320 Speaker 1: may not afford to go to college or actually may 721 00:40:09,920 --> 00:40:12,240 Speaker 1: be people who can be very productive in the society 722 00:40:12,239 --> 00:40:14,600 Speaker 1: but doing the trades. How can we make that a 723 00:40:14,640 --> 00:40:17,680 Speaker 1: lot better? And this is a huge, huge issue in 724 00:40:17,719 --> 00:40:20,720 Speaker 1: the context of not just the US, but many other countries. 725 00:40:20,800 --> 00:40:23,200 Speaker 1: Chile has worked very hard, has been very successful to 726 00:40:23,280 --> 00:40:25,879 Speaker 1: Latin American country in terms of getting growth, but they've 727 00:40:25,880 --> 00:40:28,000 Speaker 1: never fixed their education. Do we need to go back 728 00:40:28,040 --> 00:40:29,839 Speaker 1: to a guilt Do do we need to go back 729 00:40:29,880 --> 00:40:34,320 Speaker 1: to a guild system or reinvigorate unions after the atomization 730 00:40:34,360 --> 00:40:37,120 Speaker 1: of labor. Yeah, I don't think it's so much the 731 00:40:37,800 --> 00:40:41,120 Speaker 1: UH making union struggle will be a solution. But I 732 00:40:41,160 --> 00:40:44,160 Speaker 1: think giving people a leg up. What's always been wonderful 733 00:40:44,160 --> 00:40:47,200 Speaker 1: about the United States has been your view is but 734 00:40:47,280 --> 00:40:50,160 Speaker 1: if you work really hard, you can actually do better 735 00:40:50,200 --> 00:40:53,120 Speaker 1: than your parents. And this has been something that has 736 00:40:53,160 --> 00:40:57,200 Speaker 1: actually allowed us to have actually hire income inequality within generations, 737 00:40:57,200 --> 00:41:01,000 Speaker 1: but across generations. Uh, that that there's that there is 738 00:41:01,040 --> 00:41:03,680 Speaker 1: a quality. My grandfather was a pedlary, starved to death, 739 00:41:03,760 --> 00:41:06,719 Speaker 1: basically never made a living. My father was an accountant, 740 00:41:06,960 --> 00:41:09,480 Speaker 1: was a successful businessman. And then I'm the third generation. 741 00:41:09,520 --> 00:41:12,640 Speaker 1: Of course I'm the scholar. So this is the American dream, 742 00:41:12,840 --> 00:41:15,440 Speaker 1: and the American dream is not there anymore. That we 743 00:41:15,480 --> 00:41:18,719 Speaker 1: actually have less upward mobility across generations now in the 744 00:41:18,840 --> 00:41:22,920 Speaker 1: US then in Europe. That's a disastrous thing for this country. 745 00:41:23,000 --> 00:41:25,920 Speaker 1: On the other hand, fixing it in sort of uh 746 00:41:26,040 --> 00:41:29,360 Speaker 1: by quick fixes, that's not going to be the solution. Uh. 747 00:41:29,680 --> 00:41:32,719 Speaker 1: Many of the issues of talking about trying to boost manufacturing, 748 00:41:32,719 --> 00:41:35,239 Speaker 1: which a Trump administration is pushed and thinking that will 749 00:41:35,280 --> 00:41:39,520 Speaker 1: help these people is just not not right. That that 750 00:41:39,640 --> 00:41:42,040 Speaker 1: it's not going to work. It's really something that we 751 00:41:42,120 --> 00:41:44,440 Speaker 1: have to dig in deeper to say, how do we 752 00:41:44,520 --> 00:41:48,120 Speaker 1: give people who want to work the ability to make it, 753 00:41:48,200 --> 00:41:50,480 Speaker 1: and we're not doing that in this country and that's terrible. 754 00:41:51,160 --> 00:41:53,840 Speaker 1: Within this Rick is to bring it back the Chairman 755 00:41:53,920 --> 00:41:57,440 Speaker 1: Palatin speech that we're going to hear an institution that 756 00:41:57,520 --> 00:41:59,560 Speaker 1: a lot of people turn to. It used to be 757 00:41:59,640 --> 00:42:03,320 Speaker 1: just about monetary policy. We've broken the rule on discussion 758 00:42:03,320 --> 00:42:06,480 Speaker 1: of fiscal policy. We've broken the rule you know, often 759 00:42:06,520 --> 00:42:10,839 Speaker 1: on discussion of a dollar and such. Where's this fed one, 760 00:42:10,920 --> 00:42:14,759 Speaker 1: two or three Jackson holes from now? Well, I think 761 00:42:14,760 --> 00:42:17,280 Speaker 1: that the problem is that many of these other issues 762 00:42:17,360 --> 00:42:20,400 Speaker 1: are ones that the FED can control. I think the 763 00:42:20,400 --> 00:42:23,759 Speaker 1: FED can, of course, will be making a clear cut 764 00:42:23,800 --> 00:42:27,040 Speaker 1: case for why independence of the FED is so important. Uh. 765 00:42:27,120 --> 00:42:30,239 Speaker 1: And I actually think that that uh, even though that 766 00:42:30,960 --> 00:42:35,040 Speaker 1: Trump has has criticized the FED for for raising interest rates, 767 00:42:35,040 --> 00:42:38,040 Speaker 1: that this will actually not be a very serious challenge 768 00:42:38,040 --> 00:42:40,239 Speaker 1: to the FED. I think this is again just one 769 00:42:40,280 --> 00:42:43,920 Speaker 1: of many Trump's comments which are sometimes frequently very wild 770 00:42:44,120 --> 00:42:46,200 Speaker 1: and uh and people take them with the grain and 771 00:42:46,239 --> 00:42:50,080 Speaker 1: salt as they should. Uh. The other issues in fiscal policy, 772 00:42:50,160 --> 00:42:52,439 Speaker 1: we we also have a fiscal policy without now which 773 00:42:52,480 --> 00:42:56,120 Speaker 1: is extremely peculiar, again, very focused on the short term. 774 00:42:56,560 --> 00:42:59,120 Speaker 1: You're an economy that's basically close to overheating, and then 775 00:42:59,160 --> 00:43:01,040 Speaker 1: you put in a big will stimulus. This is not 776 00:43:01,080 --> 00:43:04,279 Speaker 1: the right timing for this, uh and UH. And particularly 777 00:43:04,480 --> 00:43:07,040 Speaker 1: there's some of the fiscal stimulus, which is focused on 778 00:43:07,120 --> 00:43:09,920 Speaker 1: tax cuts for very high income people really are not 779 00:43:10,080 --> 00:43:12,680 Speaker 1: something that will produce long term growth, but will the 780 00:43:12,719 --> 00:43:15,439 Speaker 1: issue of the corporate tax cut is something that could 781 00:43:15,480 --> 00:43:17,920 Speaker 1: be couldn't be justified in terms of promoting growth. But 782 00:43:18,000 --> 00:43:20,279 Speaker 1: a lot of the tax decreases that we just saw, 783 00:43:20,640 --> 00:43:22,560 Speaker 1: we actually would not focused on what really needs to 784 00:43:22,560 --> 00:43:24,759 Speaker 1: be focused on, but instead and goos just goosing up 785 00:43:24,760 --> 00:43:29,160 Speaker 1: the economy, and that's not the right way to go. Governor. Professor, 786 00:43:29,280 --> 00:43:33,239 Speaker 1: thank you so much, Rick Michigan of Columbia University. We 787 00:43:33,320 --> 00:43:38,760 Speaker 1: greatly appreciate that this morning and extensive conversation with professors. 788 00:43:45,360 --> 00:43:49,600 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 789 00:43:49,640 --> 00:43:54,960 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 790 00:43:55,000 --> 00:43:59,240 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 791 00:43:59,280 --> 00:44:03,480 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg Radio.