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Speaker 1: This is Bloomberg Surveillance. You can't count on the United

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Speaker 1: States providing all the demand for the world. We can't

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Speaker 1: be the consumer first and last. Ressourt it needs to

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Speaker 1: be more. I think the Fed got it right last

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Speaker 1: December when they said they would have four increases this year.

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Speaker 1: Investment really is the global issue that we're facing a

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Speaker 1: shortage of right now, and that's really holding back the

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Speaker 1: global economies. Bloomberg Surveillance your link to the world of economics, finance,

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Bloomberg Surveillance.

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Speaker 1: Michael McKee and Tom Keen. We welcome you on a

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Speaker 1: Monday to super Monday for us on economics, finance, investment,

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Speaker 1: international relations, indeed, a little bit of politics as we

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Speaker 1: go to the set of elections that we see tomorrow

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Speaker 1: is always Bloomberg Surveillance were bunched by Marx Panneth LLLP,

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Speaker 1: ranked among the top three forensic accounting firms in New

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Speaker 1: York by the New York Law Journal for the sixth

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Speaker 1: six s I x th H six year in a row.

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Speaker 1: Visit Marks Panneth dot com m A r K S

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Speaker 1: Panneth p A N E T H. Marks panneth dot com.

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Speaker 1: I've been waiting for this all weekend. Mike's going to

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Speaker 1: bring them in. The paper man had a strong set

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Speaker 1: of authors. David Greenlaw iconic at Morgan Stanley, Peter Hooper

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Speaker 1: of Deutsche Bank and with terrific I m f experience,

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Speaker 1: Frederick Michigan with a terrific textbook, a macro Economics of

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Speaker 1: former FED governor and I'm your Sufi who owns Fiscal

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Speaker 1: Debt Analysis. And Mike. There was another guy who helped

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Speaker 1: with the paper, Michael Faroli, JP, Borgan Security Chief US Economists.

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Speaker 1: We should point out this is Friday. The Chicago Booth

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Speaker 1: School every year holds a Monetary Policy Forum, which has

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Speaker 1: become the event everybody interested in what monetary policies UH,

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Speaker 1: the challenges and the options for monetary policy at It's

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Speaker 1: once a year and it is the the biggest hitters

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Speaker 1: in economics and monetary policy all over the country exactly. UH.

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Speaker 1: And Michael Foulie selected as a sort of lead author

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Speaker 1: on paper UM on what the FEDS supposed to do

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Speaker 1: about communications. This is one of the longer papers I've

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Speaker 1: ever read, because the FED has some significant issues in

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Speaker 1: terms of how it communicates with the markets, and I

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Speaker 1: don't think that's a surprise to anybody. But the group

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Speaker 1: you mentioned put together some recommendations on what the FED

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Speaker 1: should be doing, and we welcome Michael to talk about

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Speaker 1: it with us. Obviously, the FEDS had problems throughout the

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Speaker 1: financial crisis in communicating its policies, but you start in

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Speaker 1: the paper, Mike, with the from the basis that as

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Speaker 1: they normalize policy, communications becomes even more of a challenge.

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Speaker 1: That's right. I think, Uh, you know, when they were

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Speaker 1: at the zero bound, there were some um, I think

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Speaker 1: clear communication layups, in particular their ability to kind of

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Speaker 1: uh state that they were going to stay low for

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Speaker 1: a very extended period and give some calendar dates to

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Speaker 1: what they meant by that. I think now that we're

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Speaker 1: getting away somewhat from the zero lower bound, that raises

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Speaker 1: some different issues about what, you know, what constitutes best

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Speaker 1: policy in terms of communication about the future path of

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Speaker 1: interest rates. Well, it's easy to say we don't like

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Speaker 1: the way you communicated, and here's a different phrase you

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Speaker 1: should use, but how did you go through and quantify

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Speaker 1: the feds issues, uh, the way economists tend to do

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Speaker 1: and figure out where the problems are. Yeah, you know, so,

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Speaker 1: first of all, I think we want to give the

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Speaker 1: FED credit. They have come a long way from where

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Speaker 1: they were in the early nineties when they didn't even

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Speaker 1: communicate anything to the markets. Uh. And generally speaking, they

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Speaker 1: are attempting to, I think, do the right thing, and

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Speaker 1: theory would say that the right thing is to communicate

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Speaker 1: a path that is very data dependent. So rather than

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Speaker 1: give you a specific time horizon or say how many

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Speaker 1: hikes we're going to do this year next year, Uh,

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Speaker 1: you know, best policy would suggest that they try to

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Speaker 1: convey to the market what matters to the set and

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Speaker 1: how the said will react as as the data have changed.

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Speaker 1: So they've done that. But you know what we did

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Speaker 1: was to kind of look at how, um, how rates

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Speaker 1: respond to data surprises, and if the FED isn't conveying

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Speaker 1: an expectation that is data depending, we'd expect to see

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Speaker 1: the market respond less to data and more to feed communications,

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Speaker 1: which at times has happened. Um. And you know part

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Speaker 1: of that is, you know what I just described as

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Speaker 1: Syrian theory. Uh, have met an imperfect world where sometimes

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Speaker 1: you know, the market just doesn't understand what the FET

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Speaker 1: is saying, so they have to say it more bluntly

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Speaker 1: and say, you know, we're not going to high rates

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Speaker 1: for you know, x x amount of time. UM, but ideally,

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Speaker 1: you know, I think as we get away from the

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Speaker 1: zero bound, uh would be ideals for the FED to

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Speaker 1: um to continue to communicate. Uh, not so much. Hey,

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Speaker 1: we're gonna hike four times this year or two times

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Speaker 1: this year, but we're going to respond as we get

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Speaker 1: closer to our mandate and really, you know, hammer home

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Speaker 1: what the mandate is rather than x amount of dots,

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Speaker 1: you know, having a certain amount of rad hikes. I look,

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Speaker 1: Michael Ferli, congratulations on the paper. You've got a great

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Speaker 1: set of papers sited in the back, including two paper

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Speaker 1: which I call the toolbox paper. Rick Michigan, who helped

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Speaker 1: you write the paper twelve years ago? Can Central Bank

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Speaker 1: transparency go too far? Why are we still asking this question?

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Speaker 1: I mean Rick was way out front on this, as

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Speaker 1: he always is, but that was twelve years ago and

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Speaker 1: we're asking the same question. Yeah. So you know, I

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Speaker 1: think at the time risk Rick was partly asking about, uh,

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Speaker 1: you know, whether FED meetings should be televised. Uh. Um.

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Speaker 1: That seemed to be a bad idea, and I think

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Speaker 1: that generally still is a bad idea. Uh, And I

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Speaker 1: think there's now a slightly different issue, which is, you know,

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Speaker 1: if the FED in December, if the median person thought

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Speaker 1: there was four hikes was the most likely thing, does

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Speaker 1: it actually help to say that? Or does it because

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Speaker 1: you know that that medium person felt that way the

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Speaker 1: economy which may be changing. And if the market only

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Speaker 1: here is the four hikes but doesn't hear the part about, uh,

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Speaker 1: the economy changing, then then there's I think a risk,

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Speaker 1: a risk of misperceptions. Would you get rid of the dots?

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Speaker 1: I think you know, I have to say, are our

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Speaker 1: group of authors kind of cleaved on this issue? UM?

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Speaker 1: I would probably favor getting rid of the dots. I

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Speaker 1: think you either have to get rid of them or

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Speaker 1: improve them. I would favor getting rid of them because

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Speaker 1: I think improving them is going to be difficult. But

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Speaker 1: there is an argument that you know, if you add

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Speaker 1: things like fan charts and so forth, that you could

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Speaker 1: further convey the uncertainty that's um embedded in those dots.

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Speaker 1: But I think the simplest thing maybe just to get

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Speaker 1: get rid of them, that they may have outlived their usefulness.

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Speaker 1: You know what, I think you see that particularly in

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Speaker 1: this period since since December, where the FED has been

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Speaker 1: getting a lot of grief from commentators about, you know,

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Speaker 1: how out of touch their forecast is. Well, you know again,

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Speaker 1: things change and the Fed's jobs isn't like many of

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Speaker 1: us to be. You know, great forecasts is to react

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Speaker 1: to what is changing in the economy. And you know,

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Speaker 1: arguably some you know, some things have changed since December.

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Speaker 1: And so if the dots are gonna you know, kind

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Speaker 1: of have this uh misperception attending to them, then maybe

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Speaker 1: it's better just to get rid of them. But you

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Speaker 1: know so, I think you either get rid of them

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Speaker 1: or or improve them by UM emphasizing uncertainty in the outlook.

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Speaker 1: The dots flow from the Survey of Economic Projections, which

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Speaker 1: the FIT puts out four times a year, basically their

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Speaker 1: views in individual views on what the economy is going

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Speaker 1: to do. The interesting and you look at the SEP

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Speaker 1: in the paper UM and whether or not it should

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Speaker 1: be retained or changed. An interesting thing to me is

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Speaker 1: if you look at what the FED forecast for two

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Speaker 1: thousand and sixteen, the economy is performing better in every category,

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Speaker 1: better in every category. Yeah, that's gonna be a tricky

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Speaker 1: UM issue when you get to the March meeting in

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Speaker 1: two weeks time. Is that if you're getting closer to

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Speaker 1: the mandate on both inflation and employment, why then would

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Speaker 1: you be taking out a lot of rate hikes in

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Speaker 1: the dots? Now two reasons for that. One I think

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Speaker 1: is the move down in some survey measures of inflation

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Speaker 1: expectations have probably got them a little bothered. Uh. And

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Speaker 1: then the second thing is, I think some of the

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Speaker 1: developments and financial markets may tell them that, okay, will

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Speaker 1: this year? You know, so far we're tracking better, financial

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Speaker 1: markets are adding some downside risk of both employment and inflation.

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Speaker 1: But but you're absolutely right that uh uh, inflations already

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Speaker 1: now above where they thought it would be at in

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Speaker 1: the fourth quarter of this year, and we're only two

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Speaker 1: tenths above their fourth quarter unemployment rate forecasts. So um,

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Speaker 1: you know, arguably we're getting pretty close to you know,

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Speaker 1: they're both of their goals. Well, what what was the

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Speaker 1: conclusion in terms of the survey of economic projections? In

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Speaker 1: terms of whether that needs to be changed? You know,

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Speaker 1: I think in terms of the economic forecasts, uh, I

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Speaker 1: don't think that itself has too many problems with that.

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Speaker 1: I think the market understands that their views on um,

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Speaker 1: you know, growth in inflation have uncertainty. And you also

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Speaker 1: have to remember that they're required to publish that twice

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Speaker 1: the year, so publishing the economic forecast four times year,

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Speaker 1: I don't think as much of a problem. I think

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Speaker 1: it's more the issue of publishing the interest rate forecasts

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Speaker 1: and whether that is confusing the market the kind of

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Speaker 1: to have this feeling that rather than maybe if they

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Speaker 1: all had a thoughtful pipe in their hands, smoking their

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Speaker 1: pipe where they were speaking, I would cut down in

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Speaker 1: the communication. That's my careful analysis. That's true. Wellkay, show

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Speaker 1: a cigar. Probably we'll come back with Michael Faroli if

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Speaker 1: JP Morgan to address the immediate American economy and of

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Speaker 1: course is a truly outstanding research and call and the

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Speaker 1: terminal nailure where we're going our potential GDP. If you will,

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Speaker 1: we'll touch on that. Really must must listen Michael Faroli

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Speaker 1: out in our podcast look for them out at iTunes

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Speaker 1: Bloomberg Surveillance, Michael McKee and Tom Keane sure to bring

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Speaker 1: them back to our individual podcasts and the whole length

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Speaker 1: of the program as well. Futures negative three time out

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Speaker 1: of bringing Michael r and get the latest world of

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Speaker 1: national headlines. Michael, Mike time, Thank you very much. Presidential

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Speaker 1: hopeful those are in the final flurry if campaigning for

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Speaker 1: supporting states that will be voting in tomorrow's Super Tuesday contests.

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Speaker 1: Hillary Clinton and Bernie Sanders will be in Massachusetts today.

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Speaker 1: Donald Trump is clarifying his comments about his stance on

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Speaker 1: receiving support from former Ku Klux Klan leader David Duke.

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Speaker 1: Trump on Sunday was asked on CNN whether he rejected

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Speaker 1: support from Duke. Trump replied, I don't know anything about

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Speaker 1: David Duke. This morning on NBC's Today Show, he said

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Speaker 1: he was given a very bad earpiece for the interview

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Speaker 1: and that he disavowed David Duke all weekend long on

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Speaker 1: Facebook and on Twitter. The movie Spotlight one for Best

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Speaker 1: Picture this year's Academy Awards. Global News twenty four hours

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Speaker 1: a day, powered by our it's two d journalists more

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Speaker 1: than a hundred fifty news bureaus from around the world.

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Speaker 1: I'm Michael Barn, my time, Michael Barr, thanks so much

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Speaker 1: for an exchange. He end weaker one oh seven, Uh

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Speaker 1: interesting this morning? One oh excuse me stronger, I should

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Speaker 1: say that's the second time I've been spoken that today

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Speaker 1: must have stayed up too late for the oscars yen stronger.

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Speaker 1: I got that right. Stay are this Bloomberg surveillance? This

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