WEBVTT - Surveillance: Fed’s Response with Rajan (Podcast) 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg John 0:00:27.680 --> 0:00:29.319 and his FED Day, And of course we'll talk to 0:00:29.360 --> 0:00:32.920 our Steam guest here about FED Day. This weekend I 0:00:32.920 --> 0:00:35.360 will put out, folks my book of the summer. One 0:00:35.400 --> 0:00:38.320 of them I'm gonna surprise with on LinkedIn here this weekend. 0:00:38.320 --> 0:00:42.320 It's a wonderful, wonderful book on international relations. And the 0:00:42.360 --> 0:00:45.160 other one is The Third Pillar. It was a book 0:00:45.280 --> 0:00:50.360 last year that was extraordinary on community and is absolutely 0:00:50.680 --> 0:00:53.120 the book of the moment right now with what this 0:00:53.240 --> 0:00:56.160 nation is going through. Rob and Roger joins us from 0:00:56.200 --> 0:00:59.240 Boost School Chicago. He's the author of The Third Pillar, 0:00:59.320 --> 0:01:03.400 and yes, the former central bankhead for his India. We'll 0:01:03.400 --> 0:01:07.040 get to that here in a wide ranging discussion Rago, 0:01:07.160 --> 0:01:10.280 we have to talk about federals or policy today. I 0:01:10.400 --> 0:01:13.440 understand you have a little bit of reticence about that, 0:01:13.760 --> 0:01:19.120 but the identifiable fault line of our central bank policy 0:01:19.800 --> 0:01:24.959 is somewhere out there, somehow the debt has to diminish. 0:01:25.080 --> 0:01:28.320 How will they do that? Well, they can't really do 0:01:28.360 --> 0:01:31.120 anything about it for now. What they have to do, 0:01:31.280 --> 0:01:35.080 and what they've been doing very effectively, is support all markets. 0:01:35.360 --> 0:01:39.080 The problem is when you support all markets, you are 0:01:39.240 --> 0:01:42.880 not letting the markets do their work. And the question 0:01:43.040 --> 0:01:45.160 is when do you allow that to happen. So take, 0:01:45.200 --> 0:01:49.640 for example, the highly indebted companies like Earths, which are 0:01:49.840 --> 0:01:54.720 experiencing a revival without any debt restructuring as we go on, 0:01:55.120 --> 0:01:57.920 the question is when do we allow them to restructure 0:01:57.960 --> 0:02:01.400 their debt so they can emerge elder from this crisis. 0:02:01.680 --> 0:02:04.200 And that's the question the FED will have to grapple with. 0:02:04.200 --> 0:02:07.440 With all the market supports, when does it allow the 0:02:07.480 --> 0:02:11.480 market to start operating on its own rago does the 0:02:11.520 --> 0:02:16.360 FED risk its independence? We had a conversation earlier today 0:02:16.400 --> 0:02:19.240 about how the FED came out of the nineteen forties 0:02:19.280 --> 0:02:22.800 in World War Two and basically had to nationalize the 0:02:22.840 --> 0:02:26.640 debt economy to allow the nation to recover. Is the 0:02:26.720 --> 0:02:30.440 great unseen out there is we have a FED that 0:02:30.600 --> 0:02:35.520 loses its independence at some point? Well, I hope not, 0:02:36.120 --> 0:02:39.920 but the forces that pushed for FED independence are no 0:02:40.000 --> 0:02:44.040 longer operating right. Remember, the big issue in the eighties 0:02:44.280 --> 0:02:48.160 was very high inflation, which is what Paul Wolker tackled 0:02:48.200 --> 0:02:52.000 by bringing by raising interest rate sky high. The reason 0:02:52.120 --> 0:02:55.520 for FED independence then was that inflation was the problem, 0:02:55.919 --> 0:02:58.840 and making the FED independent of the government would allow 0:02:58.880 --> 0:03:01.880 it to operate and bring it down. Today, we no 0:03:01.960 --> 0:03:05.120 longer have an inflation problem. If anything, it's a disinflation 0:03:05.200 --> 0:03:10.079 problem in the short term. And therefore, when the need 0:03:10.240 --> 0:03:13.440 for the FED is really to support the economy, for 0:03:13.520 --> 0:03:15.880 the FED to cooperate with the Treasury and it's doing 0:03:15.960 --> 0:03:20.760 very well, the rationals for FED independence become a little 0:03:20.840 --> 0:03:24.480 less cure my senses. It will re establish itself again 0:03:24.520 --> 0:03:27.080 over the medium term, but in the short run that 0:03:27.320 --> 0:03:29.799 rationality is no longer on the people. Well, this is 0:03:29.840 --> 0:03:33.120 the issue, isn't it, Professor, The perception of independence and 0:03:33.160 --> 0:03:36.720 central bank independence. If these two both the treasury or 0:03:36.760 --> 0:03:39.200 the fiscal policy side of things, it's going to work 0:03:39.200 --> 0:03:41.880 closer with monetary policy in the year and years to 0:03:41.920 --> 0:03:45.840 come as they actively support issuance from governments. How do 0:03:45.880 --> 0:03:48.920 they maintain the perception of independence in an environment where 0:03:48.920 --> 0:03:51.240 both sides are working together to make sure that we 0:03:51.280 --> 0:03:53.000 can have the kind of Treasury issuance that we've had 0:03:53.000 --> 0:03:56.000 over the last few months. Well, this is a really 0:03:56.040 --> 0:04:00.120 big question. It has to work through institutional independent and 0:04:00.360 --> 0:04:04.840 so for example, protecting the position of the PET chairman UH, 0:04:05.000 --> 0:04:08.480 for government to stay away from criticizing the FED for 0:04:08.560 --> 0:04:13.120 whatever it does and pushing for more overt activity. It 0:04:13.160 --> 0:04:16.479 has to be a discussion which is on equal terms 0:04:16.520 --> 0:04:19.560 between the Treasury and the FED. It cannot be one 0:04:19.600 --> 0:04:23.039 side pushing the other. That will all too perceptions of 0:04:23.160 --> 0:04:26.120 bet independence. I think the FED is doing a fantastic 0:04:26.200 --> 0:04:31.000 job in cooperating. It's done everything is possibly could. But 0:04:31.040 --> 0:04:34.000 there has to be a reciprocal arrangement from the government 0:04:34.120 --> 0:04:38.360 side to respect the independence and not make over statements 0:04:38.400 --> 0:04:40.440 about what it should do. Professor right, I want to 0:04:40.480 --> 0:04:43.200 cause any dramatic headlines for you, but if we can 0:04:43.279 --> 0:04:45.080 lean on your experience of the r PI and just 0:04:45.120 --> 0:04:48.000 reflect them, what's happening and developed central banks right now? 0:04:48.320 --> 0:04:50.479 To some degree, do you think they are taking on 0:04:50.960 --> 0:04:54.440 emerging market characteristics? How these central banks are operating together 0:04:54.720 --> 0:04:59.200 with fiscal authorities for sure. I mean this was always 0:04:59.240 --> 0:05:02.440 an emerging the problem. The central bank was under the 0:05:02.520 --> 0:05:06.680 thumb of the fiscal authorities and essentially had to monetize 0:05:06.720 --> 0:05:09.920 the debt. In many industrial countries, we are in a 0:05:09.960 --> 0:05:13.120 similar situation with enormous amounts of debt having to be 0:05:13.200 --> 0:05:16.680 put out into the markets and the central banks taking 0:05:16.720 --> 0:05:19.880 it on on their balance sheet. If you look at 0:05:19.920 --> 0:05:23.200 the Fed's balance she takes it's expanded from four trillion 0:05:23.240 --> 0:05:26.440 to seven trillion in space a few a few weeks. 0:05:26.600 --> 0:05:30.000 This looks a lot like monetization, and it's very helpful 0:05:30.600 --> 0:05:34.600 in the enabling the government to issue, but it has 0:05:34.680 --> 0:05:37.640 to be seen as temporary and not a permanent facet 0:05:37.680 --> 0:05:39.880 of the landscape. That's what they have to work very 0:05:39.880 --> 0:05:42.880 hard on doing on ensuring there is separation. The Fed 0:05:43.000 --> 0:05:48.560 is willingly doing it in honor in order to meet 0:05:48.560 --> 0:05:51.839 its mandate, not something that's being forced on it by 0:05:51.880 --> 0:05:54.560 the trade professor. A lot of people don't really see 0:05:54.560 --> 0:05:57.120 a path for the Federal Reserve to shrink its balance 0:05:57.160 --> 0:05:59.600 sheet at this point, and doesn't seem like there's any 0:05:59.600 --> 0:06:02.599 fiscal hawks left in Washington, d C. Is they try 0:06:02.640 --> 0:06:06.080 to support this government. What's the potential consequence, I mean 0:06:06.120 --> 0:06:09.279 building what you were talking about, its developing markets. Their 0:06:09.320 --> 0:06:12.960 currency is the escape hatch. There right, it deflates it 0:06:12.960 --> 0:06:17.400 it depreciates versus other currencies when this fiscal balance gets 0:06:17.400 --> 0:06:20.440 super out of whack. We're not seeing that though right now, 0:06:20.480 --> 0:06:22.719 at the weakening of the dollar being attributed to risk 0:06:22.880 --> 0:06:26.000 on rather than a lack of credibility. At what point 0:06:26.400 --> 0:06:30.040 is the currency back in play here? Well, Typically, the 0:06:30.080 --> 0:06:36.440 central banks intermediation starts becoming more difficult when, for example, 0:06:36.560 --> 0:06:40.679 the banks separately are unwilling to hold the enormous quantity 0:06:40.680 --> 0:06:42.800 of reserves that are pushed onto the banand sheet. That 0:06:42.839 --> 0:06:46.320 typically means a strong economic recovery where they want to 0:06:46.360 --> 0:06:50.040 expand credit. That's one reason the central bank might find 0:06:50.080 --> 0:06:52.880 it hard to maintain a large balance sheet. The second reason, 0:06:52.920 --> 0:06:56.760 of course, is inflation. Now, neither of these is currently 0:06:56.839 --> 0:07:00.919 a big issue. When this start becoming issues, it is 0:07:01.040 --> 0:07:04.200 very important that the Fed be able to shrink its 0:07:04.200 --> 0:07:07.440 balance sheet by selling assets back on the market, and 0:07:07.480 --> 0:07:11.800 presumably under these two conditions it will be reasonably easy 0:07:12.160 --> 0:07:16.440 to sell assets back onto the market. The the greater 0:07:16.560 --> 0:07:20.240 danger amongst these two stronger credit and stronger inflation is 0:07:20.280 --> 0:07:23.400 probably stronger inflation. And that's why that's just a risk 0:07:23.480 --> 0:07:26.280 over the medium term. It's not a risk today, Professor, 0:07:26.320 --> 0:07:28.320 I was reading a recent column that you wrote, or 0:07:28.360 --> 0:07:32.960 you're arguing for federal governments as well as monetary policymakers 0:07:33.080 --> 0:07:36.680 to withdraw some support. Now, is that an accurate reflection 0:07:36.720 --> 0:07:41.360 of your stance? Now, I'm not saying a withdrawal support. Now. 0:07:41.440 --> 0:07:45.760 What I am saying is, as we go forward, we 0:07:45.840 --> 0:07:49.920 have to change the narrative from this is about a 0:07:50.040 --> 0:07:54.040 couple of months of support to the economy as we 0:07:54.120 --> 0:07:56.840 deal with the pandemic and then things come back. Now, 0:07:56.960 --> 0:08:00.679 that was the narrative which we started the fight within March, 0:08:01.040 --> 0:08:03.680 but now it's becoming much clear this much creer. This 0:08:03.760 --> 0:08:06.200 is going to be a long drawn out battle, and 0:08:06.360 --> 0:08:08.680 some sectors of the economy are going to take years 0:08:08.720 --> 0:08:12.240 to come back. Some sectors will have to transform themselves. 0:08:12.360 --> 0:08:15.200 So what I'm saying is, as we go forward, we 0:08:15.360 --> 0:08:18.280 have to ask how much support do we need and 0:08:18.320 --> 0:08:21.080 where do we still have to continue supporting Hearts and 0:08:21.160 --> 0:08:24.480 Carnival or should we allow them to restructure their debt 0:08:24.520 --> 0:08:27.720 and maybe change their business models so that they can 0:08:27.920 --> 0:08:32.600 deal with the emerging new economy. That's really the question. 0:08:32.960 --> 0:08:38.560 When do we start moving support to enabling transformation rather 0:08:38.600 --> 0:08:41.880 than preserve, preserving the economy as is, and as we 0:08:41.920 --> 0:08:46.000 go forward, we have to move from preservation to transformation, 0:08:46.640 --> 0:08:49.280 both in terms of Treasury policies as well as in 0:08:49.320 --> 0:08:53.000 FED policies. Professor Roger, one final question, and I must 0:08:53.000 --> 0:08:57.000 turn back to the third pillar and your primal scream 0:08:57.120 --> 0:09:02.079 for community in America. This past weekend in Chicago with 0:09:02.200 --> 0:09:06.439 the gang warfare was a war zone with that protest 0:09:06.640 --> 0:09:11.600 from sea to shining sea in America. Your book is 0:09:11.600 --> 0:09:15.319 a book of optimism, but you talk about the intractable 0:09:15.760 --> 0:09:20.600 inability for America to find community. How do we find 0:09:20.679 --> 0:09:23.760 the third pillar? The great question if you look at 0:09:23.800 --> 0:09:27.760 what the pandemic has done, it has exacerbated every division 0:09:27.880 --> 0:09:31.080 we had, whether it's rural, upon whether it's on the 0:09:31.080 --> 0:09:33.760 basis of race, whether it's on the basis of education. 0:09:34.200 --> 0:09:37.440 We're sitting working at home, others are on the front 0:09:37.480 --> 0:09:41.920 line dealing with the pandemic or or serving people in stores. 0:09:42.320 --> 0:09:45.640 So really the issue is how do we bring the 0:09:45.679 --> 0:09:50.920 country together in a stronger way. And I really believe 0:09:51.040 --> 0:09:54.200 we have to look at disadvantaged communities. We'll have to 0:09:54.240 --> 0:09:57.200 look at communities that have fallen behind, and we have 0:09:57.360 --> 0:10:01.600 to ensure that they provide the people is stronger sense 0:10:01.640 --> 0:10:05.480 of belonging, the strongest sense of empowerment, but also greater 0:10:05.559 --> 0:10:09.200 capabilities for the new economy we are creating. That requires 0:10:09.240 --> 0:10:13.640 work bottom up, and that also requires pushing more part 0:10:13.720 --> 0:10:16.160 to them so that they can seize the seeds that 0:10:16.360 --> 0:10:19.360 are and use it effectively. This is a lot of work. 0:10:19.640 --> 0:10:23.560 It requires transformations of our transformation of our economy. It 0:10:23.600 --> 0:10:26.520 requires a lot more decentralization. But I think in the 0:10:26.600 --> 0:10:30.360 long run this will be the way we get sustainable growth, 0:10:30.720 --> 0:10:35.320 not through more and more debt, but through stronger growth 0:10:35.400 --> 0:10:37.800 from every part of economy. So that's that's what the 0:10:37.840 --> 0:10:40.959 book is about. Professor. Already, powerful conversation, and we appreciate 0:10:41.000 --> 0:10:42.520 your time and look forward to getting your back soon. 0:10:42.559 --> 0:10:45.600 That is Professor ram Ranch and the former RBI Caverna 0:10:45.880 --> 0:10:52.800 and the University of Chicago Booths score Professor. Earlier this 0:10:52.920 --> 0:10:56.720 morning in Paris, the O e c D issued what 0:10:56.840 --> 0:11:00.520 I am more than certain was the grimmest report they've 0:11:00.600 --> 0:11:04.000 ever done, and with it was some terrific nuance that 0:11:04.120 --> 0:11:07.920 was led by Lawrence Boone. She is their chief economist 0:11:07.920 --> 0:11:11.439 and has just done a phenomenal job of explaining the 0:11:11.520 --> 0:11:16.240 distinctions of this pandemic, Lawrence, what is the single distinction 0:11:16.320 --> 0:11:20.240 when you overlay this pandemic on the global economy. What's 0:11:20.280 --> 0:11:25.480 the one message you have but the one high Um, 0:11:25.600 --> 0:11:28.559 the one message we have is that we are confronted 0:11:28.840 --> 0:11:34.800 by massive uncertainty. Um. It's a global pandemic, as you say, 0:11:34.840 --> 0:11:40.079 but also a global economic crisis. And it's the it's 0:11:40.160 --> 0:11:43.680 the biggest and perfect clients we are saying. And because 0:11:43.720 --> 0:11:47.679 we have this massive uncertainty, we we had to issue 0:11:48.200 --> 0:11:51.600 two scenarios, two fits of broadcast for the first time 0:11:51.600 --> 0:11:54.640 in a each history, so that we could we could 0:11:54.679 --> 0:11:58.280 flame you know, the extent of what the possible outlook, 0:11:58.760 --> 0:12:03.080 and both of them, as you said, are very dream Lawrence. 0:12:03.160 --> 0:12:06.360 What is so important here is the shift literally in 0:12:06.400 --> 0:12:09.240 the less number of days, but certainly in the last 0:12:09.280 --> 0:12:14.280 two weeks, towards a less prosperous world economy. We had 0:12:14.320 --> 0:12:18.840 a developed nation COVID virus, and now we have the 0:12:18.920 --> 0:12:23.240 COVID virus of an impoverished Mumbai and all of India. 0:12:23.760 --> 0:12:26.600 The horrific statistics out of Chile and the rest of 0:12:26.679 --> 0:12:30.840 South America. What do you people presume will be the 0:12:31.000 --> 0:12:38.640 developing economy effect of this terrible virus. So this is 0:12:38.720 --> 0:12:43.240 one of our major concerns. I do you know developing 0:12:43.280 --> 0:12:49.160 economies usually have less equipped healthcare system. It's much more 0:12:49.280 --> 0:12:54.000 difficult to confine people and provide a shelter because of 0:12:54.080 --> 0:12:58.960 the sheer size of informal workers. UM. They've been hurt 0:12:59.120 --> 0:13:02.480 by a locomoy scientists as well, and what we've seen 0:13:02.679 --> 0:13:06.200 is that capital outflows have been more abrupt and matching 0:13:06.400 --> 0:13:09.520 than in any other crisis. UM. And I think that's 0:13:09.559 --> 0:13:14.800 where the oecy message becomes really really right on points, 0:13:14.840 --> 0:13:20.079 because without cooperating globally, it's going to be very difficult 0:13:20.160 --> 0:13:22.320 both for this country, but for the rest of the 0:13:22.360 --> 0:13:26.760 world as well, including the advanced economy, to renew with 0:13:26.840 --> 0:13:30.000 the type of growth that we had before. Because what 0:13:30.200 --> 0:13:34.280 this is telling us, beyond the financial risk that that 0:13:34.480 --> 0:13:38.800 can be coming from emerging market economies, beyond the human tragedy, 0:13:39.480 --> 0:13:41.760 is that the virus you know, for which we have 0:13:41.880 --> 0:13:44.360 no vaccine or no treatment. As your where you speak 0:13:44.360 --> 0:13:48.760 A said, we'll stay whether if we don't eradicate it 0:13:49.040 --> 0:13:52.760 every where every single country and a fire cooperation is 0:13:52.760 --> 0:13:56.840 still necessary. So dr give us a sense of kind 0:13:56.880 --> 0:14:01.680 of how you think the response has in across uh, 0:14:01.720 --> 0:14:04.760 you know, some of the developed economies here it seems 0:14:04.800 --> 0:14:08.560 like a lot of economies are trying to reopen here. Uh, 0:14:08.600 --> 0:14:10.960 what is your sense of how this might play out? 0:14:10.960 --> 0:14:16.120 What are your forecasting right now? So it's it's very diverse. 0:14:16.360 --> 0:14:21.080 Of course developing economies. You are seeing countries like India 0:14:21.120 --> 0:14:26.360 where there's still some state science confinement. Others are more open. 0:14:26.840 --> 0:14:30.920 The governments trying to reach out to informal people, you know, 0:14:31.000 --> 0:14:35.840 informal workers through digital means and and also by giving 0:14:35.840 --> 0:14:39.880 put tickets. We also have countryline pressing on where the 0:14:40.000 --> 0:14:43.080 type of decision related confinements are being made at the 0:14:43.120 --> 0:14:47.440 state level. Um are others like Columbia who are actually 0:14:47.560 --> 0:14:51.920 putting in place more confinement and reaching out to informal 0:14:51.960 --> 0:14:55.720 workers fo digital. South Africa has been very at the 0:14:55.720 --> 0:14:58.840 forefront of this because they had some of the other 0:14:59.640 --> 0:15:03.120 and of it various clisses before. So it's extremely diverse 0:15:03.720 --> 0:15:08.040 depending on the experience they had and how how is 0:15:08.080 --> 0:15:11.960 you they think about using how compatible they deal with 0:15:12.080 --> 0:15:16.840 digital and also you know how large is the country 0:15:16.920 --> 0:15:21.600 and and dispersed the economic activity. Lawrence, do you have 0:15:21.720 --> 0:15:23.920 of an opinion and a view and you're just so 0:15:24.040 --> 0:15:28.200 experienced at this of the effort of Mirco mccron to 0:15:28.320 --> 0:15:31.960 provide fiscal union in Europe. Have you folded that into 0:15:32.040 --> 0:15:36.800 the o e c D analysis. So I think that's 0:15:36.840 --> 0:15:41.360 super important because one of the main concern that we 0:15:41.760 --> 0:15:45.680 had in the building up of these projections is the 0:15:45.720 --> 0:15:50.640 way that the pandemic, you know, has affected countries within 0:15:50.760 --> 0:15:53.640 the euro Zone in a very different way, and that 0:15:53.760 --> 0:15:56.960 depends not only on the confinement and the way they 0:15:56.960 --> 0:16:00.960 tackle um the pandemic, but it also difference on the 0:16:01.000 --> 0:16:05.720 economic specialization and the type of physical support that country 0:16:05.760 --> 0:16:08.440 is we're able to put in Joyce. So we were 0:16:08.480 --> 0:16:11.400 seeing these divergence across viewers in the country, which I 0:16:11.480 --> 0:16:13.800 do you know, having followed that for a long time, 0:16:14.160 --> 0:16:18.080 is not very helpful. UM. But this, this European recovery 0:16:18.080 --> 0:16:22.840 plan put out by American and Macon is right addressing 0:16:23.200 --> 0:16:28.000 these diregens, and I think this is to be very welcome. Rasford, 0:16:28.040 --> 0:16:31.280 thank you so much in congratulations on a just a 0:16:31.360 --> 0:16:35.240 superb and needed view forward by the O E c D. 0:16:39.560 --> 0:16:41.560 Let's start a program this morning with pre a measure 0:16:41.560 --> 0:16:45.240 of TV securities on this Federal reserve decision several hours away. 0:16:45.360 --> 0:16:48.080 Let's just begin with what you're focused on and what 0:16:48.160 --> 0:16:50.200 you want to hear from that news conference, which M 0:16:50.280 --> 0:16:53.120 and PAL. So you know, I think we're not looking 0:16:53.160 --> 0:16:55.800 for any specific policy. Actually, we're not looking for them 0:16:55.840 --> 0:16:58.800 to strengthen forward guidance. We're not looking for a specific 0:16:59.160 --> 0:17:01.000 dollar amount of they going to be buying per month. 0:17:01.200 --> 0:17:03.440 I think what I'll be focused on is the language. 0:17:03.760 --> 0:17:07.840 How does chap Our frame the outlook frame the reopening. 0:17:07.880 --> 0:17:10.639 You know, we had a pretty positive payroll number, but 0:17:10.680 --> 0:17:13.760 in our on Friday, but in our view that was expected. 0:17:13.840 --> 0:17:17.119 When the economy reopens, you will you are likely to 0:17:17.160 --> 0:17:19.919 see much better data. But I think for Chepower to 0:17:20.040 --> 0:17:22.399 stress on the medium term risks, I think one of 0:17:22.400 --> 0:17:25.400 the things we're really focused on is, yes, we're reopening slowly, 0:17:25.680 --> 0:17:27.960 but are we reopening to a new normal? And we 0:17:28.040 --> 0:17:30.200 just don't know this. So I think for chap Ower 0:17:30.280 --> 0:17:32.280 to say, and for the fact to say there's considerable 0:17:32.400 --> 0:17:36.200 risks in the medium term, we're going to remain highly 0:17:36.240 --> 0:17:40.280 accommodative and sort of suggest that there might be more 0:17:40.560 --> 0:17:44.000 steps in the months ahead. So I think we do 0:17:44.080 --> 0:17:46.840 expect them to undertake geek of control we expect them 0:17:46.880 --> 0:17:49.399 to be buying a lot more longer data treasures. But 0:17:49.440 --> 0:17:51.960 I don't think now is the time to commit to 0:17:52.040 --> 0:17:54.199 that because of all the uncertainty. So I think just 0:17:54.320 --> 0:17:57.600 suggesting that there's still that uncertainty, I think we'll see 0:17:57.600 --> 0:17:59.400 it in then in the dot plot. If the long 0:17:59.480 --> 0:18:01.960 run dot ns down, it will be the lowest ever 0:18:02.040 --> 0:18:03.879 long run not so, I think that will be the 0:18:03.920 --> 0:18:06.400 fact saying, well, maybe there is some impact on our 0:18:06.440 --> 0:18:10.000 star based on the pandemic. Unfortunately we don't have too 0:18:10.000 --> 0:18:13.520 many pandemics to go to. But I think some reflection 0:18:13.600 --> 0:18:16.920 of our star maybe lower inflation. You know, even though 0:18:16.920 --> 0:18:20.400 there's talk around high inflation for some necessities. I think 0:18:20.440 --> 0:18:23.600 to suggest that, unlike a war, capacity is still out there. 0:18:23.640 --> 0:18:26.760 You look outside, there's still all that capacity. It's tremendous 0:18:26.800 --> 0:18:29.080 amount of slack in the system. I think for him 0:18:29.119 --> 0:18:31.520 to stress on that will actually tell the market that 0:18:31.560 --> 0:18:33.880 the fat is likely to be accommodative for a long 0:18:33.920 --> 0:18:36.600 long time. Speaks the love inflation, speaks the love of 0:18:36.680 --> 0:18:38.359 rights for a long long time. Prayer. I just wonder 0:18:38.359 --> 0:18:40.960 if they can make it even more simpler. Just a 0:18:40.960 --> 0:18:42.639 few months ago, if you asked the fellow reserve. What 0:18:42.640 --> 0:18:45.880 their objective was, it would be extending the cycle. Can 0:18:45.920 --> 0:18:48.720 they say something like, we need to get this economy 0:18:48.720 --> 0:18:52.359 back to pre COVID nineteen levels, that's the objective. Amnatory 0:18:52.400 --> 0:18:54.760 policy will be loosen until we get there. I think 0:18:54.800 --> 0:18:58.320 they could. In fact, one form of strengthening forward guidance 0:18:58.440 --> 0:19:01.360 is to make it outcome based um. But I think 0:19:01.440 --> 0:19:03.800 if we realize that there could be a lot of 0:19:03.840 --> 0:19:06.560 structural damage done to the economy, I think it gets 0:19:06.600 --> 0:19:09.200 a little harder for them to commit to pre COVID levels. 0:19:09.400 --> 0:19:11.960 Just remember, the economy is growing at a trend. So 0:19:12.000 --> 0:19:15.320 are we getting back to pre COVID output level or 0:19:15.359 --> 0:19:17.440 are we getting back to pre COVID trend level. I 0:19:17.480 --> 0:19:20.000 think they'd like to get to trend. But if there 0:19:20.080 --> 0:19:22.080 is a lot of structural damage done, if if you 0:19:22.200 --> 0:19:24.440 four start to pick up, I think the FED will 0:19:24.560 --> 0:19:27.080 struggle to say we want to get back to that level, 0:19:27.080 --> 0:19:29.720 but to suggest that we're not about to take the 0:19:29.880 --> 0:19:32.600 foot off the pedal. In fact, we might accelerate more 0:19:32.920 --> 0:19:36.200 in terms of easing if we find that these risks 0:19:36.200 --> 0:19:38.280 that they're talking about. So I think today they really 0:19:38.320 --> 0:19:41.000 stress on the risk if they do materialize as we 0:19:41.080 --> 0:19:44.600 reopen and we're not reopening to the old normal, then 0:19:44.640 --> 0:19:46.880 they actually come in with more. I think that's what 0:19:46.920 --> 0:19:49.480 we really need to see, particularly after the rate rise. 0:19:49.520 --> 0:19:52.320 I mean last week we had a pretty significant rate rice. 0:19:52.480 --> 0:19:54.320 I think the market is trying to test the FED 0:19:54.720 --> 0:19:57.200 to see how accommodative will they be? All are they 0:19:57.240 --> 0:19:59.680 okay with rates being higher? I think chap I will 0:19:59.680 --> 0:20:03.280 be really forcefully in that they don't want much higher 0:20:03.359 --> 0:20:06.440 rates here Priam Israel. When we talk about getting back 0:20:06.520 --> 0:20:09.000 to pre COVID levels, we've already gotten there. When it 0:20:09.040 --> 0:20:11.600 comes to markets in terms of reversing some of the 0:20:11.680 --> 0:20:15.160 losses with the respect of the SMP and NASDAC, there's 0:20:15.160 --> 0:20:18.600 a feeling in markets heads I win tails I win 0:20:18.840 --> 0:20:21.080 because the FED is going to come in and backstop 0:20:21.160 --> 0:20:24.760 asset prices. So far, the Feed has given no indication 0:20:24.800 --> 0:20:27.119 that they would like to push against that. Do you 0:20:27.160 --> 0:20:29.760 think that this impression that the market have has is 0:20:29.760 --> 0:20:32.040 correct that basically this is the one tool the FED 0:20:32.119 --> 0:20:34.359 has and they're going to double down on it, and 0:20:34.400 --> 0:20:37.520 that is keeping asset prices high. Right, great point. I 0:20:37.520 --> 0:20:39.200 mean if you look at the stock market, you'd almost 0:20:39.240 --> 0:20:42.119 say what pandemic. You know that where is is this 0:20:42.200 --> 0:20:45.159 medium term risk being reflected? I think the stock market 0:20:45.520 --> 0:20:47.959 is partly reflecting the fact that the FET has just 0:20:48.000 --> 0:20:49.600 told us that rates are going to be low for 0:20:49.640 --> 0:20:51.920 a very long period of time. So when you just 0:20:52.000 --> 0:20:55.480 count cash flows, that interest rate component is important. That's 0:20:55.480 --> 0:20:59.120 why being multiples rise. I think what we are all 0:20:59.160 --> 0:21:01.480 struggling with rank and I don't have an answer. Nobody 0:21:01.480 --> 0:21:04.560 really knows, is what is the medium term outlook? Has 0:21:04.560 --> 0:21:08.159 there being structural damage done? I think, um, you know, 0:21:08.200 --> 0:21:10.800 the market is right in that interest rates are going 0:21:10.840 --> 0:21:13.119 to go for a long time. I struggled with the 0:21:13.200 --> 0:21:17.000 e component of that. You know, the pe, the pe 0:21:17.160 --> 0:21:20.639 could be higher, but if companies are you know, going 0:21:20.800 --> 0:21:24.920 bankrupt or particularly small businesses getting impacted, and we don't 0:21:24.920 --> 0:21:27.359 do enough on the fiscal front, and this still worries me. 0:21:27.400 --> 0:21:30.280 I expect you're about to make another push for more 0:21:30.320 --> 0:21:33.800 physical stimulus here. I don't think he'll bring up financial 0:21:33.840 --> 0:21:36.520 stability as a reason for them to cut back on 0:21:36.560 --> 0:21:39.399 accommodation because if they do cut back on accommodation and 0:21:39.440 --> 0:21:41.600 you get a pretty big impact on the economy or 0:21:41.680 --> 0:21:45.920 you you know, worsen the recovery process, and that's really 0:21:45.960 --> 0:21:48.760 the worst case outcomes. So I don't think they stressed 0:21:48.760 --> 0:21:51.600 on financial stability, but I do think the stock market 0:21:51.640 --> 0:21:54.560 is pricing in this getting back to normal, and that's 0:21:54.600 --> 0:21:57.040 what really I we we struggled with as to what 0:21:57.320 --> 0:22:01.320 new normal is. We've got to have sophisticates here on 0:22:01.400 --> 0:22:04.280 the bond market. That would be you, Lisa Bramo. It's 0:22:04.280 --> 0:22:07.080 in the host of the real yield. John Farrell from 0:22:07.080 --> 0:22:11.119 Mere Mortals like me. Can you explain to me is 0:22:11.200 --> 0:22:16.480 the FED action that is talk or is the FED 0:22:16.720 --> 0:22:21.239 action that's actual tangible action? What part of where they 0:22:21.240 --> 0:22:23.919 are right now are they Are they all talk in 0:22:24.040 --> 0:22:28.359 promise or they actually doing right now? Um, so they've 0:22:28.400 --> 0:22:30.760 done a lot. I think we shouldn't forget how much 0:22:30.840 --> 0:22:33.520 they did in March. In fact, some of the facilities 0:22:33.560 --> 0:22:36.639 are still getting ruled out, so I would not discount 0:22:36.760 --> 0:22:39.520 the action part. They did take grades down to zero 0:22:39.800 --> 0:22:43.000 they've been suggesting through talk and forward guidance is a 0:22:43.119 --> 0:22:45.480 very powerful tool. I think the innovation of the two 0:22:45.920 --> 0:22:49.520 eight crisis was forward guidance. The FED discovered that if 0:22:49.560 --> 0:22:51.399 you tell the market that you're not hiking for a 0:22:51.440 --> 0:22:54.080 long time, that can keep rates law that can help 0:22:54.119 --> 0:22:57.320 asset prices um you know, so I think they continue 0:22:57.359 --> 0:22:59.880 to use that as a tool. That talk is powerful. 0:23:00.040 --> 0:23:02.640 They do have various ways they can talk, Fed speeches, 0:23:02.920 --> 0:23:05.280 press conference. The dot plot is one form of that 0:23:05.359 --> 0:23:09.000 communication as well. The action will be needed though at 0:23:09.040 --> 0:23:12.080 some point, particularly when you talk about the tenure, because 0:23:12.160 --> 0:23:15.960 talk can only really anchor the front end. So I'll 0:23:15.960 --> 0:23:18.280 be certainly watching for how to see frame, how to 0:23:18.359 --> 0:23:22.160 share out frame. The QUE program isn't just about market functioning, 0:23:22.359 --> 0:23:25.320 because if that's the case, treasury markets functioning just fine, 0:23:25.359 --> 0:23:28.280