WEBVTT - Clarida Sums Up Yellen's News Conference: 'Trust Me' 0:00:00.240 --> 0:00:04.040 Runt you by Bank of America Mary Lynch with virtual reality, 0:00:04.320 --> 0:00:09.719 virtually everything will change. Discover opportunities in a transforming world. 0:00:10.119 --> 0:00:14.440 Be of a, mL dot Com, slash VR, Mary Lynch, 0:00:14.520 --> 0:00:28.120 Pierced Fenner and Smith Incorporated. Ye. Welcome to the Bloomberg 0:00:28.160 --> 0:00:32.320 Surveillance Podcast. I'm Tom Keene with David Gura. Daily we 0:00:32.440 --> 0:00:36.080 bring you insight from the best of economics, finance, investment, 0:00:36.120 --> 0:00:42.200 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:42.280 --> 0:00:49.800 Bloomberg dot Com, and of course on the Bloomberg. Joining 0:00:49.880 --> 0:00:52.159 us now is James Sweeney, Chief Economistic Credits with head 0:00:52.200 --> 0:00:54.480 of Global Fixed Income there as well. Great to see 0:00:54.520 --> 0:00:57.440 you here in our Bloomberg eleven three oh students in tips. 0:00:57.520 --> 0:00:58.840 Let me just start by by asking you a bit 0:00:58.880 --> 0:01:01.320 about the FED meeting yesterday. Agree with your expectations that 0:01:01.360 --> 0:01:03.680 were met. Let's talk about the balance sheet in a 0:01:03.720 --> 0:01:05.800 few moments. But first when it came to the to 0:01:05.840 --> 0:01:07.680 the outlook and what they had to say, how did 0:01:07.680 --> 0:01:10.280 it drive with what you were expecting? Yeah? Well, I 0:01:10.280 --> 0:01:13.520 I think the Fed was stoical in the sense that 0:01:14.040 --> 0:01:17.160 they were not uh, they were not moved by the 0:01:17.240 --> 0:01:20.000 recent weakness and inflation and the decline in some of 0:01:20.000 --> 0:01:24.440 the inflation expectation indicators. They did acknowledge it, but they 0:01:24.520 --> 0:01:26.880 went ahead and pulled the trigger on their hike, of course, 0:01:26.920 --> 0:01:30.080 and and laid out that balance sheet policy. Um. They 0:01:30.080 --> 0:01:34.360 still expect inflation to drift up towards their their targets 0:01:34.480 --> 0:01:37.559 over the medium term, but they did reduce the path 0:01:37.640 --> 0:01:41.199 of that increase somewhat, so it it looked it looked 0:01:41.240 --> 0:01:44.240 safe and reasonable. UM. But you know, I wrote a 0:01:44.240 --> 0:01:49.760 couple of weeks before the meeting, UM that the Fed 0:01:49.840 --> 0:01:53.120 was ignoring the recent weakness and inflation. And I think 0:01:53.160 --> 0:01:57.360 the market is really ignoring any any sorry, the recent 0:01:57.520 --> 0:02:00.360 decrease in inflation. I hope, I said decrease, UM, And 0:02:00.400 --> 0:02:02.919 the market seems to be ignoring any possibility of an 0:02:02.960 --> 0:02:06.680 increase in inflation, um, you know, a meaningful increase above 0:02:06.800 --> 0:02:10.160 that that recent average over over the next couple of years. 0:02:10.160 --> 0:02:11.760 It's it seems like the market and the Fed are 0:02:11.840 --> 0:02:16.360 jointly agreeing that inflation is a horizontal line UM right now. 0:02:16.560 --> 0:02:19.600 And and as a result, UM, the kind of expectations 0:02:19.680 --> 0:02:23.040 that that exists for where short term rates will be 0:02:23.040 --> 0:02:26.440 a couple of years out, are are you know, very 0:02:26.720 --> 0:02:31.400 low rates, very narrow um, very narrow path, and everyone 0:02:31.480 --> 0:02:33.320 sort of agreed that too. Or three years from now, 0:02:33.400 --> 0:02:35.440 we're going to have short term rates in the mid 0:02:35.480 --> 0:02:38.520 two's UM and not much risk of being a lot 0:02:38.600 --> 0:02:41.919 higher or a lot lower um. The options market actually 0:02:42.400 --> 0:02:46.639 confirms that narrow path, which is expected, and I think 0:02:46.639 --> 0:02:48.840 that's I think that's a little risky. How do we 0:02:48.880 --> 0:02:51.280 get to to this point? Whereas, as you point out, 0:02:51.320 --> 0:02:53.480 I think in a recent note progress toward full employment, 0:02:53.480 --> 0:02:56.080 Trump's inflation and the global industrial production growth at the 0:02:56.080 --> 0:02:58.000 FED is regarding that side of its mandate more than 0:02:58.040 --> 0:03:01.919 the other. Yeah. Well, um, as I said, I think 0:03:01.960 --> 0:03:05.840 the inflation news is being interpreted as a wobble against 0:03:05.840 --> 0:03:09.440 a kind of more or less horizontal trend um. And 0:03:09.639 --> 0:03:12.359 what's happening in the labor market is labor income has 0:03:12.360 --> 0:03:14.880 slowed a little bit recently, but it continues to grow. 0:03:15.400 --> 0:03:18.200 And the unemployment rate is not falling at eight five 0:03:18.200 --> 0:03:20.239 basis points a year anymore as it did from two 0:03:20.280 --> 0:03:24.360 thousand nine to two thousand fifteen, but it but it 0:03:24.400 --> 0:03:26.560 does appear to still be falling. So you know, we 0:03:26.560 --> 0:03:28.720 we could have a three handle on the unemployment rate 0:03:29.240 --> 0:03:32.880 with within a year. Uh. And in those conditions, UM, 0:03:32.919 --> 0:03:36.480 it's it's appropriate to uh to get short rates up 0:03:36.520 --> 0:03:39.840 to you know, positive in real terms. But before long, 0:03:40.480 --> 0:03:43.680 the fact that risky asset prices across a broad spectrum 0:03:43.720 --> 0:03:47.880 of them are are looking somewhat expensive from a historical perspective, 0:03:48.440 --> 0:03:52.119 UH is another reason that, UM, you know that that 0:03:52.120 --> 0:03:54.840 that policy should be tightening, and so now that the 0:03:54.920 --> 0:03:58.000 question really becomes the mode of that tightening. UH. The 0:03:58.040 --> 0:04:01.880 sequencing of balance sheet verse is versus rate et cetera. 0:04:02.080 --> 0:04:03.960 But you know they've they've now pulled the trigger and 0:04:03.960 --> 0:04:06.320 they've gotten They've gotten all the way up from zero 0:04:06.360 --> 0:04:08.520 to twenty five to one to one and a quarter. 0:04:08.560 --> 0:04:11.520 That's that's a pretty big move, especially given the other 0:04:11.880 --> 0:04:14.400 developed central banks are really not moving rates at all. 0:04:14.600 --> 0:04:16.680 James Sweet with us from Chris Swiss. Let me ask 0:04:16.680 --> 0:04:18.479 you about the balance sheet and the detail that we 0:04:18.560 --> 0:04:21.000 got yesterday, the way in which they intend to do 0:04:21.080 --> 0:04:25.320 this compositionally and in terms of of process itself. UH, 0:04:25.560 --> 0:04:27.240 was that in line with your expectations as well? And 0:04:27.279 --> 0:04:28.720 what is that? What does that tell you? What should 0:04:28.760 --> 0:04:31.520 that tell investor? Is about the path forward here? Um? 0:04:31.600 --> 0:04:33.279 The some of the numbers they gave here a little 0:04:33.320 --> 0:04:35.320 more aggressive than we thought, and I think the amount 0:04:35.320 --> 0:04:38.400 of detail was sooner than we thought. And and actually 0:04:38.440 --> 0:04:40.880 we did slightly tweak our view in response to the 0:04:40.920 --> 0:04:45.000 news where we now expect the balance sheet normalization to 0:04:45.040 --> 0:04:48.360 commence in September and the next rate hike and not 0:04:48.480 --> 0:04:52.480 to happen until December UM in two thousand and eighteen, 0:04:52.520 --> 0:04:56.040 we expect two more hikes, so so we're only expecting 0:04:56.120 --> 0:04:59.960 three hikes over the next eighteen months, but the balance 0:05:00.000 --> 0:05:03.480 sheet normalization to occur at the same time. So specifically, 0:05:04.000 --> 0:05:06.320 you know, they said that they would start out I 0:05:06.360 --> 0:05:08.600 think it was six billion and four billion on on 0:05:08.680 --> 0:05:12.320 treasury and mortgages where they would have a cap on 0:05:12.360 --> 0:05:14.719 how much runof they're going to allow, you know, runoff, 0:05:14.720 --> 0:05:20.640 meaning they're not reinvesting coupons in principle for maturing um securities, 0:05:20.760 --> 0:05:23.239 and as a result, their balance she's gonna start shrinking, 0:05:23.279 --> 0:05:26.200 and then they're gonna up it um basically doubling that 0:05:26.320 --> 0:05:29.359 those numbers after three months, and then they're gonna do 0:05:29.400 --> 0:05:32.240 it again three months after that. And so if you 0:05:32.279 --> 0:05:34.000 go a year out and if they're if they do 0:05:34.120 --> 0:05:36.240 manage to kind of be on a glide path of 0:05:36.240 --> 0:05:39.560 of of of balance sheet change. You know, within kind 0:05:39.560 --> 0:05:41.080 of a year, year and a half, they're gonna be 0:05:41.200 --> 0:05:45.640 at que two levels of reverse quee um and and 0:05:45.680 --> 0:05:47.920 the market will have to cope with that. James Sweeney 0:05:47.920 --> 0:05:50.640 with this was Curt Sweets. Good morning everyone, Bloomberg Surveillance, 0:05:50.800 --> 0:05:52.479 David Gurr and I David. We gotta thank all of 0:05:52.480 --> 0:05:57.360 our teammates today for a marathon day. Have to say 0:05:57.760 --> 0:05:59.560 the listen, good day. Have you hear James this morning? 0:05:59.600 --> 0:06:02.440 On too many themes? One of the themes that we 0:06:02.520 --> 0:06:05.640 have is what the financial markets, in the bond market 0:06:05.800 --> 0:06:09.400 is telling James Sweeney, I believe I'm seeing a flattening 0:06:09.640 --> 0:06:12.400 yield curve. Do you link that to slower g d 0:06:12.440 --> 0:06:14.560 P or is it just a separate thing you're not 0:06:14.600 --> 0:06:17.480 worried about. Well, you know, I think I think yields 0:06:17.520 --> 0:06:21.080 are pretty sensitive to to what's happening in global growth, 0:06:21.080 --> 0:06:23.320 the news flow, the surprises, the p M I is 0:06:23.360 --> 0:06:26.960 all that. Um. We had an unusual period last year 0:06:27.080 --> 0:06:29.080 where global growth was very weak at the beginning of 0:06:29.120 --> 0:06:32.479 the year. It recovered throughout the year. Yields didn't go 0:06:32.600 --> 0:06:35.200 up until the election. It was as if you know, 0:06:35.320 --> 0:06:38.080 seven months of move was concentrated into three or four 0:06:38.080 --> 0:06:41.719 weeks after the election, and we actually think global growth 0:06:41.800 --> 0:06:44.840 hit a local peak early this year January February and 0:06:44.920 --> 0:06:48.120 has been coming off. So you know, given some downside 0:06:48.120 --> 0:06:51.640 surprises in the US inflation and falling global growth, it's 0:06:51.680 --> 0:06:54.160 not so surprising that yields came back down again. Um, 0:06:54.200 --> 0:06:57.080 but I think actually, you know, we've got a two 0:06:57.080 --> 0:06:59.279 eight target on the ten year at the end of 0:06:59.279 --> 0:07:03.400 the year. My colleague Privine Core Party are our rate strategist. 0:07:03.880 --> 0:07:06.040 So I think global growth is gonna is gonna pick up. 0:07:06.040 --> 0:07:07.760 I think the Fed is going to continue to implement 0:07:07.800 --> 0:07:10.760 its tightening um, and I think we may be around 0:07:10.800 --> 0:07:14.560 a temporary low in the tenure. Was it an ultra 0:07:14.760 --> 0:07:20.320 accommodative press conference yesterday? Are we beyond ultra accommodative? As 0:07:20.320 --> 0:07:22.840 you mentioned, they've done a set of rate increases in 0:07:22.840 --> 0:07:25.160 the world. I believe the world has not come to 0:07:25.200 --> 0:07:28.720 an end. The the stance of policy is a combinative. 0:07:28.840 --> 0:07:32.240 The incremental news from yesterday was somewhat more hawkish than 0:07:32.280 --> 0:07:37.120 the market expected, but not sufficiently hawkish to to necessarily 0:07:37.160 --> 0:07:39.280 interrupt the party. I may see the futures are down 0:07:39.320 --> 0:07:41.960 a little bit this morning on on stocks. UH. The 0:07:42.000 --> 0:07:44.640 market will take a little while to digest, but basically 0:07:44.760 --> 0:07:48.320 stocks and bonds across the board have been seeing price 0:07:48.440 --> 0:07:53.120 gains together for months and months as this low UH, 0:07:53.160 --> 0:07:55.640 this easy monetary policy and low real rates have have 0:07:55.760 --> 0:07:59.360 met with the growing US economy and no wobbly but 0:07:59.600 --> 0:08:05.040 fine in global economy. UM. The question now is could 0:08:05.040 --> 0:08:08.640 tighter monetary policy, you know, could that trigger higher yields 0:08:08.760 --> 0:08:11.840 UM and could it even trigger some some weakness in 0:08:12.040 --> 0:08:15.080 equity markets and risky assets. This has been a very 0:08:15.080 --> 0:08:19.240 technical market. There's there's a lot of frustrated traders out there, 0:08:19.280 --> 0:08:22.000 equity traders in particular. It's been a tough market to 0:08:22.080 --> 0:08:25.800 trade with with really these tech stocks leading aggressively and 0:08:25.800 --> 0:08:28.720 and the rest of the equity market behaving in some 0:08:28.760 --> 0:08:30.800 odd ways. Just got about thirty seconds here. We'll come 0:08:30.840 --> 0:08:32.559 back with you, But let me ask you how indelible 0:08:32.640 --> 0:08:34.520 this plan for the balance sheet is? In other words, 0:08:34.520 --> 0:08:36.760 so with the potential for so much changeover at the Fed, 0:08:36.800 --> 0:08:40.079 how much gredience do you give what we heard yesterday? Yeah, 0:08:40.160 --> 0:08:42.840 I think there's a good chance that if we get 0:08:42.880 --> 0:08:46.360 a candidate, you know, outside of Gary Cone outside of 0:08:46.440 --> 0:08:50.120 Janet Yelling. Um that you know, I would expect a 0:08:50.160 --> 0:08:54.720 FED chair to to obviously UM influence the implementation of 0:08:54.760 --> 0:08:57.240 the policy. There's there's nothing to say that that this 0:08:57.240 --> 0:09:01.440 this path um can't be paused, can't be stopped. Um. 0:09:01.480 --> 0:09:03.559 You know, I think there are other candidates from Yelling 0:09:03.640 --> 0:09:06.160 and Cone. UM. I think Kevin Wars for example, is 0:09:06.800 --> 0:09:10.880 leading candidate. And UM, yeah, we will we will see, UM, 0:09:10.960 --> 0:09:13.920 we will see. It should be it should be interesting. UM. 0:09:13.960 --> 0:09:15.640 I think the market is gonna end up being very 0:09:15.640 --> 0:09:19.600 focused on on this search for new leadership. And if 0:09:19.640 --> 0:09:22.720 it's yelling, um, then then we expect this path to continue. 0:09:22.760 --> 0:09:24.960 Of course, let's come back with James Sweeney of Credit 0:09:24.960 --> 0:09:27.680 Sweet James, I got about eight ways to go here, 0:09:28.040 --> 0:09:29.840 and I think you're gonna go Why quill C plus 0:09:29.840 --> 0:09:32.480 cyplus G plus n X And something I didn't talk 0:09:32.520 --> 0:09:36.960 about it yesterday, which is investment and the dearth of 0:09:37.040 --> 0:09:40.560 investment here there and everywhere. Do you care the commercial 0:09:41.000 --> 0:09:44.840 and industrial loans have rolled over or any other investment 0:09:44.880 --> 0:09:50.000 parameter that shows a tepidness or weakness. We care, In fact, 0:09:50.040 --> 0:09:53.000 we did a thorough piece on that recently. And why 0:09:53.040 --> 0:09:57.400 do you know, I thank you, Tom. But what we 0:09:57.520 --> 0:10:00.640 found is that is it C and I loan really 0:10:00.640 --> 0:10:04.840 do very consistently lag what happened to investment last year, 0:10:05.280 --> 0:10:08.080 and so they're really not telling us about anything new. 0:10:08.600 --> 0:10:11.000 Last year, we had a couple of things going on. 0:10:11.080 --> 0:10:13.200 We had a mining and energy investment slump, which was 0:10:13.240 --> 0:10:16.760 global um that was definitely weighing in the US. We 0:10:16.800 --> 0:10:21.079 also had dollar strength weighing on manufacturing investment. So I'm 0:10:21.120 --> 0:10:24.080 not so worried about C n I loans, but I 0:10:24.120 --> 0:10:27.599 think on the investment side, there was a brief overshooting 0:10:27.640 --> 0:10:31.040 expectations about what Capex was gonna do after the after 0:10:31.080 --> 0:10:33.320 the election and when the when the p m I spiked. 0:10:33.760 --> 0:10:35.360 Now that the p m I s have come off, 0:10:35.400 --> 0:10:37.520 I think people are calming down. Um. So we have 0:10:38.080 --> 0:10:41.720 kind of mid single digit expectations for business investment in 0:10:41.720 --> 0:10:45.880 the US going forward, which is okay, it's not great. 0:10:45.920 --> 0:10:48.360 It's not a boom. If you get an infrastructure stimulus, 0:10:48.360 --> 0:10:51.120 if you get tax reform, you know, maybe those numbers 0:10:51.160 --> 0:10:54.280 go higher. But um, but I think the you know, 0:10:54.400 --> 0:10:57.800 the reality of this whole recovery, which is the absence 0:10:57.840 --> 0:11:01.640 of an investment boom despite very low interest rates. I 0:11:01.640 --> 0:11:04.120 think that's likely to persist for a while until we 0:11:04.160 --> 0:11:07.360 find some kind of trigger. I think it's possible, but 0:11:07.440 --> 0:11:10.800 we haven't had it yet. Investments okay, it's not a disaster, 0:11:11.480 --> 0:11:14.160 um and the specific shocks from the dollar and from 0:11:14.280 --> 0:11:17.400 energy are really falling out of the data. Now. I'm 0:11:17.440 --> 0:11:20.199 watching the reaction here to the b O E rate 0:11:20.240 --> 0:11:23.120 decision on on Top Live on the Bloombergose life block 0:11:23.200 --> 0:11:25.240 of what's happening, and so they're keeping the interest rate 0:11:25.280 --> 0:11:28.160 A quarter percent vote was five to three. How big 0:11:28.160 --> 0:11:31.400 a deal is that divide among policymakers at the at 0:11:31.440 --> 0:11:32.800 the b O And what does it tell you about 0:11:32.840 --> 0:11:36.160 the Bank of England's engagement with the UK economy, with 0:11:36.200 --> 0:11:39.920 economic policy and with this still ongoing Brexit process in 0:11:39.960 --> 0:11:42.959 the UK. Well, you're you're always gonna have You're always 0:11:43.000 --> 0:11:47.559 gonna have some central bankers who are outside the consensus view. So, 0:11:47.840 --> 0:11:51.439 um you know. I actually I recently read Sebastian Malaby's 0:11:51.480 --> 0:11:54.360 new book on on Alan Greenspan and it was very 0:11:54.360 --> 0:11:57.760 interesting on the committee dynamics. I think during the Greenspan era, 0:11:58.360 --> 0:12:02.440 a um, you know, it became thought pretty widely that 0:12:03.000 --> 0:12:05.480 the leaders of central banks just make the decisions and 0:12:05.480 --> 0:12:09.000 the committees go along. And what Malaby detailed was how 0:12:09.080 --> 0:12:11.840 much effort Greenspan used to put into bringing his whole 0:12:11.840 --> 0:12:14.560 committee along. It takes a lot of work to to 0:12:14.679 --> 0:12:17.160 herd these cats and and you know, maybe carneys and 0:12:17.200 --> 0:12:20.520 work to do if he's got three dissenters at the moment. 0:12:20.559 --> 0:12:23.640 But most of the time, um, the governors, the chairs 0:12:23.720 --> 0:12:26.559 get get their way, so um, I mean definitely in 0:12:26.600 --> 0:12:28.560 the UK the outlook is a little confusing right now. 0:12:28.640 --> 0:12:33.800 High inflation growth rolling over, but unemployment actually pretty low 0:12:34.480 --> 0:12:37.000 um and a lot of currency moves. So you know, 0:12:37.400 --> 0:12:40.520 you would forgive a group of central bankers or economists 0:12:40.520 --> 0:12:43.400 for having different views on where monetary policy ought to be. Well, 0:12:43.440 --> 0:12:45.280 let's come full circle. Then we were talking about Kevin 0:12:45.280 --> 0:12:48.400 warsh and uh Garry Conan, and who might be leading 0:12:48.440 --> 0:12:51.360 this FED going forward given what you're just saying, given 0:12:51.400 --> 0:12:53.680 the what we we've read in this Smashion Maloby's book, 0:12:53.679 --> 0:12:56.319 how much determinism does the new FED chair have? In 0:12:56.360 --> 0:12:58.440 other ways, we're talking about the potential for a personnel 0:12:58.679 --> 0:13:01.079 turn over and all that might bring. Are we are 0:13:01.080 --> 0:13:03.960 we overplaying that? Given what the committee is able to 0:13:03.960 --> 0:13:06.800 do No, I don't think so. I think, UM, I 0:13:07.240 --> 0:13:11.280 think it's very important who gets the leadership job, and 0:13:11.400 --> 0:13:15.079 I think whoever accepts the leadership job has to recognize that, UM, 0:13:15.120 --> 0:13:17.679 the president is going to be filling the seats around them. 0:13:17.720 --> 0:13:20.960 So some people are surprised that Janet Yellen is emerging 0:13:21.000 --> 0:13:24.440 as a as a pretty strong candidate. UM. But even 0:13:24.440 --> 0:13:26.720 if it's yelling, it's gonna be yelling with a very 0:13:26.720 --> 0:13:30.679 different group of governors UM around her. UM. Some people 0:13:30.720 --> 0:13:33.240 would say that why would Yellen take such a job, 0:13:33.679 --> 0:13:36.280 But people close to Yellen say that, well, because she's 0:13:36.360 --> 0:13:39.199 very civic minded and if she thinks that, uh, if 0:13:39.200 --> 0:13:41.160 she thinks that she's the best person for the job 0:13:41.200 --> 0:13:43.800 and it's good for the country, she may go ahead 0:13:43.800 --> 0:13:46.439 and do it. But I think we should definitely respect 0:13:46.880 --> 0:13:50.120 a wider range of possible outcomes, given not just the 0:13:50.120 --> 0:13:52.800 potential change in the chair, but the potential change in 0:13:52.800 --> 0:13:55.880 those around FED. FED governors have been outvoted before that 0:13:55.880 --> 0:13:58.720 that happened to vulcer, it can happen, and in the 0:13:58.760 --> 0:14:01.520 Trump era, it's definitely something that should be on the 0:14:01.559 --> 0:14:04.400 list of possibility. Interesting that's worth having you back on 0:14:04.480 --> 0:14:07.720 along James Sweeney, Thank you so much. Here's with credit 0:14:07.760 --> 0:14:23.040 sweet story on the Bloomberg right now that Bob Mueller 0:14:23.160 --> 0:14:25.720 is examining whether President Trump sat to slow the probe 0:14:25.760 --> 0:14:28.920 into net form. National Security Advisor Michael Flynn. Good to 0:14:28.920 --> 0:14:31.800 talk about this here with one Richard Painter, former Associate 0:14:31.840 --> 0:14:34.760 Council to the President, Chief ethics lawyer to George W. Bush, 0:14:34.760 --> 0:14:37.280 who joins us now the Richard Professor of Corporate Law 0:14:37.320 --> 0:14:40.800 at the University of Minnesota Law School. Mr Painter, great 0:14:40.800 --> 0:14:42.920 to have you with us here. Help me understand what's 0:14:43.000 --> 0:14:45.200 changed as a result of this turn this next chapter 0:14:45.320 --> 0:14:50.760 in this investigation. It appears the investigation widens. What's changed. Well, 0:14:50.840 --> 0:14:55.680 I think it was inevitable that the Special Council would 0:14:55.800 --> 0:15:01.160 investigate strikes out justice by the President. Huh the President 0:15:02.560 --> 0:15:07.840 in his statements to the Russian ambassador news media, Uh, 0:15:07.920 --> 0:15:10.520 you know, adding it all out it it's very uh 0:15:11.040 --> 0:15:14.920 clear that he um certainly was very very concerned about 0:15:14.960 --> 0:15:19.240 the Russian investigation when he fired James Comy. And uh 0:15:19.560 --> 0:15:22.400 it appears to me that he did fire James Commy 0:15:22.480 --> 0:15:26.400 because of the Russia investigation, that because of the pretense 0:15:27.200 --> 0:15:30.520 set forth in the Department of Justice memorandum, And you know, 0:15:30.840 --> 0:15:35.760 so that is a strong case for obstruction of justice. 0:15:35.760 --> 0:15:38.600 Whether it's the case that the special that the special 0:15:38.600 --> 0:15:41.920 comfort want to prosecute or not remains to be seen. 0:15:41.960 --> 0:15:44.760 But I think it's inevitable that there certainly would be 0:15:44.760 --> 0:15:50.120 an investigation of whether or not the President uh committed 0:15:50.200 --> 0:15:54.320 obstruction of justice of the sort that could be prosecuted. 0:15:54.600 --> 0:15:56.520 How important do you think it's going to be the 0:15:56.520 --> 0:15:58.840 the interview that you mentioned, the interview during which the 0:15:58.920 --> 0:16:01.760 President Trump sat down with Sterhold of NBC News, the 0:16:01.800 --> 0:16:05.960 tweets that he's made about the circumstances surrounding this this investigation. 0:16:06.000 --> 0:16:07.800 What role is all of that going to play here 0:16:07.840 --> 0:16:13.080 going forward. Well, that's the information that we know of. 0:16:13.240 --> 0:16:16.920 That's what's public, uh, And I think that when it's public, 0:16:18.400 --> 0:16:21.960 what again, I think const is a quite strong case 0:16:22.120 --> 0:16:26.160 of starting of justice. But what the special prosecutor will 0:16:26.200 --> 0:16:29.720 do is talk to others in the administration and kind 0:16:29.720 --> 0:16:32.600 of what the President said privately. Did he talk to 0:16:32.680 --> 0:16:36.720 other people other than James comy Um about trying to 0:16:36.760 --> 0:16:39.560 stop the Russian investigation? Did he talk to other people 0:16:40.200 --> 0:16:44.520 about what he said to James comey Um? And those 0:16:44.520 --> 0:16:46.600 are the questions that it didn't need to be answered. 0:16:47.200 --> 0:16:50.520 I think if people start to claim the executive privilege 0:16:50.600 --> 0:16:52.920 of the there's starts to that the special prosecutor is 0:16:52.960 --> 0:16:55.600 going to ask a court. And I think it's quite clear. 0:16:55.600 --> 0:16:57.440 Out of the United States, there is the nexting case 0:16:57.600 --> 0:17:01.680 that when involves a criminal investigation, uh, they claim executive 0:17:01.680 --> 0:17:04.600 privileges is really quite weak. Professor, Let me ask a 0:17:04.680 --> 0:17:08.359 dumb question. Is there a chief White House ethics lawyer 0:17:08.760 --> 0:17:17.320 in the White House right now? I believe so. But they, uh, 0:17:17.440 --> 0:17:21.920 they they have a very different approach to the ethnics 0:17:21.920 --> 0:17:25.119 issues that we did the push administration is this lawyer 0:17:26.359 --> 0:17:29.600 administration is Mr cass It was just because of time, Professor, 0:17:30.080 --> 0:17:38.200 Is Mr cassu Wits competent to advise the president in Washington? Um? Well, 0:17:38.280 --> 0:17:40.840 first of all, Mr Cassawits is not the chief White 0:17:40.840 --> 0:17:43.560 House ethics lawyer. He is not a government employer, he's 0:17:43.640 --> 0:17:46.879 not on the White House capital's death So his job 0:17:47.080 --> 0:17:50.240 is only to advise the President in his personal capacity 0:17:51.160 --> 0:17:57.720 with the respective investigation and defending himself against potential criminal charges. Um. 0:17:58.280 --> 0:18:01.480 The White House people are hiring their own criminal defense attorneys, 0:18:02.160 --> 0:18:05.320 and uh, you know, there's a very very important role 0:18:05.359 --> 0:18:09.000 for criminal defense lawyers in this situation, but it certainly 0:18:09.080 --> 0:18:12.760 isn't to try to advise people going forward as to 0:18:12.840 --> 0:18:14.960 what to do with their offessional capacity. This was too short, 0:18:15.040 --> 0:18:17.399 Richard Painter, thank you so much. With Minnesota and the 0:18:17.480 --> 0:18:20.879 University of Minnesota, uh Law, we'll hope to get him 0:18:20.920 --> 0:18:22.679 back on soon. That was great with David. That was 0:18:22.720 --> 0:18:32.639 really quite good. Runch you by Bank of America Mary Lynch. 0:18:32.880 --> 0:18:38.399 With virtual reality, virtually everything will change. Discover opportunities in 0:18:38.440 --> 0:18:43.040 a transforming world VI of a mL dot Com slash VR, 0:18:43.880 --> 0:18:53.080 Mary Lynch, Pierced Fenner and Smith Incorporated. This is gonna 0:18:53.080 --> 0:18:56.920 be fun, and I don't mean working with data. It's 0:18:56.960 --> 0:19:02.520 always fun. Which is the Journal of Economic Literature. I 0:19:02.560 --> 0:19:05.159 was reading it last night, David, because the Yankees were 0:19:05.200 --> 0:19:12.040 un late Volume x x x v I I December. 0:19:13.000 --> 0:19:19.640 The Science of Monetary Policy, a new Keynsian perspective Clarta 0:19:19.680 --> 0:19:23.840 Gali Girdler. If you read it, you gotta read this paper, folks. 0:19:23.840 --> 0:19:28.359 In fact, you probably reread it. They lead with a 0:19:28.440 --> 0:19:31.560 quote from Alan Blinder, having looked at monetary policy from 0:19:31.600 --> 0:19:35.000 both sides now quoting Jody Mitchell, I can testify that 0:19:35.080 --> 0:19:38.760 central banking and practice is as much an art as science. 0:19:39.160 --> 0:19:42.879 I would suggest Richard Clata that art was on display yesterday. 0:19:42.920 --> 0:19:48.840 It is amazing how complex the rationalization has got. Yeah, well, 0:19:48.880 --> 0:19:50.879 I think what you're referring to is the fact that 0:19:50.920 --> 0:19:52.840 we got a rate hike from the FED even though 0:19:52.880 --> 0:19:56.359 the data has been soft. There's a FED that says 0:19:56.440 --> 0:19:59.720 that their data dependent and I've said on this show, 0:19:59.800 --> 0:20:02.600 but four data dependence itself is not a monetary policy. 0:20:02.600 --> 0:20:05.520 So we saw that in full display. So the data 0:20:05.560 --> 0:20:08.680 would have suggested pausing, but they hiked. Why did they hike? 0:20:08.720 --> 0:20:12.119 I think two big reasons. The first, uh is they 0:20:12.160 --> 0:20:15.359 clearly want to get the balance sheet reduction underway, and 0:20:15.400 --> 0:20:18.160 they set a standard for themselves, which is we can't 0:20:18.160 --> 0:20:21.040 really think about the balance sheet normalization until hikes are 0:20:21.040 --> 0:20:24.640 well underway. So yesterday was the fourth So I think 0:20:24.680 --> 0:20:26.640 that I think that was definitely a factor. I think 0:20:26.680 --> 0:20:29.439 the other factor as well is the fact of the 0:20:29.480 --> 0:20:32.000 matter is is that their models are telling them policy 0:20:32.040 --> 0:20:34.600 still accommodative. There are raising rates, but they don't think 0:20:34.640 --> 0:20:39.040 they're tightening policy. Um financial conditions are very easy, so 0:20:39.080 --> 0:20:41.040 they saw an open door. They took advantage of it, 0:20:41.080 --> 0:20:43.760 but I must admit it created sort of an interesting 0:20:43.800 --> 0:20:46.440 press conference. Well, I'll say the least on page four 0:20:46.560 --> 0:20:51.359 or five of CLARAA Gallant Gurtler, you walked through the 0:20:51.400 --> 0:20:55.359 mathematics of the economy, the I S curve knocked up 0:20:55.400 --> 0:20:58.760 against what Chare Yellin talked about yesterday, the strength thing 0:20:58.800 --> 0:21:01.359 called the Phillips curve. Does the math in that paper 0:21:02.760 --> 0:21:07.160 still work well? The Phillips curve obviously is a very 0:21:07.160 --> 0:21:09.840 important part of that analysis, and Cherry yelling herself as 0:21:09.880 --> 0:21:12.520 an expert on it and made mention of it several times. 0:21:12.800 --> 0:21:16.480 So far, we're not seeing the traditional Phillips relationship between 0:21:16.560 --> 0:21:21.000 unemployment and inflation. Interestingly enough, we are seeing some evidence 0:21:21.200 --> 0:21:24.880 of the Phillips curve effect in wages once you adjust 0:21:24.880 --> 0:21:27.240 for the fact that productivity is low. But I think 0:21:27.240 --> 0:21:29.600 the big thing that the Fed's probably noticing, although they 0:21:29.600 --> 0:21:32.760 didn't dwell on it yesterday, is in January, year over 0:21:32.840 --> 0:21:35.600 year core inflation was at one eight, very close to 0:21:35.640 --> 0:21:38.000 two percent, and now it's about one five. So it's 0:21:38.000 --> 0:21:40.440 going in the wrong direction. I think that's probably more 0:21:40.480 --> 0:21:42.879 of a concern. It's moving in the wrong direction. They 0:21:42.920 --> 0:21:47.119 hope it's temporary, but so far can't tell David if 0:21:47.119 --> 0:21:49.440 the kids can't sleep tonight. You can just read in 0:21:49.520 --> 0:21:53.080 the footnotes from Clara to Gilly and Girdler. You know, 0:21:53.160 --> 0:21:57.480 footnote that's my favorite right there, fot you much loved 0:21:57.520 --> 0:21:59.760 copy of clari. Let me ask you about what we 0:21:59.840 --> 0:22:02.360 learned about the balance sheet yesterday and how that changes 0:22:02.440 --> 0:22:04.640 your perspective on what things are going to be like 0:22:04.880 --> 0:22:07.080 going forward. Here we we've got some numbers, have a 0:22:07.080 --> 0:22:09.800 better sense perhaps of the timetable for it from an 0:22:09.800 --> 0:22:12.320 investor's perspective, What does that mean? You know? I think 0:22:12.320 --> 0:22:14.160 I think David, it's a good question because I think 0:22:14.720 --> 0:22:18.760 underreported fact of the Fed's plan is with these caps, 0:22:18.800 --> 0:22:21.000 they announced their FED is still going to be buying 0:22:21.040 --> 0:22:24.159 treasuries and mortgage backed securities. So you tell your listeners 0:22:24.200 --> 0:22:25.760 they want to shrink the balance sheet. Oh and by 0:22:25.760 --> 0:22:27.560 the way, every month they're still buying. You think, well, 0:22:27.560 --> 0:22:29.000 what you know, that's sort of like I'm going on 0:22:29.040 --> 0:22:31.160