Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jaily, we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, sun Cloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. Michael McKee whether
Speaker 1: wearing many hats this morning and right now we're going
Speaker 1: to rapidly digress here to a gentleman like Paul Booker
Speaker 1: from New Jersey, Raphael Bostick. What an interesting path out
Speaker 1: of Harvard and Stanford, really first rate academics and a
Speaker 1: different fed president Michael indeed, and now the president of
Speaker 1: the Atlanta Federal Reserve, Rafael Bostick, and we welcome you
Speaker 1: to Surveillance this morning. At you're in Atlanta, where it's
Speaker 1: gonna be a lot warmer. I looked this morning, Rafael,
Speaker 1: and it was thirty seven degrees out on the back
Speaker 1: lawn of the Jackson Lake Lodge. So in some ways
Speaker 1: we're better off. It's not as it's not as beautiful,
Speaker 1: but in subways we're better off. Uh, let me ask
Speaker 1: you first about the numbers that we just got four
Speaker 1: point two percent on the year over year headline PC
Speaker 1: three point six percent for the core. Is that out
Speaker 1: of line at all with what you were anticipating? And
Speaker 1: does that maybe put more pressure on you to decide
Speaker 1: you would like to see sooner taper? Well, Mike, first
Speaker 1: of all, I'm glad we're not sitting out in thirty
Speaker 1: degree weather. Uh. That makes for a much less comfortable interview. Uh,
Speaker 1: you know. And and for the numbers that came out today,
Speaker 1: you know, I've I've been in studio, so I have
Speaker 1: not a chance to look at the numbers, UM more deeply.
Speaker 1: But I would say this sort of number is not
Speaker 1: a It's not a huge surprise for me. We know
Speaker 1: that there have been a lot of price pressures, UM,
Speaker 1: and those have continued. UM. I heard you guys talking
Speaker 1: before about the notion of transitory and you know when
Speaker 1: I to businesses, but they've told me is that, UM,
Speaker 1: this is episodic. They do believe that this is really
Speaker 1: driven by the pandemic circumstance. But what it also become
Speaker 1: clear is that this episode is gonna last longer than
Speaker 1: people expected. So UM, we're trying, We're going to figure
Speaker 1: out how to incorporate that into our modeling. I would say,
Speaker 1: for me, what I'm seeing is really consistent with the
Speaker 1: outlook that I had before. So I'm still comfortable that
Speaker 1: we're on a good trajectory with the economy and we
Speaker 1: should still see fairly robust growth. Llow, we put you
Speaker 1: on the other side of that big mahogany table at
Speaker 1: the FED and those who might argue for a delay,
Speaker 1: is there an argument there because what seems to be
Speaker 1: happening is a problem on the supply side, and you
Speaker 1: guys address the demand side. Well, it's certainly true that
Speaker 1: there are supply side challenges, and you know, you've, I've
Speaker 1: we've all heard many stories about supply chain issues and
Speaker 1: trying to get goods to product to meet the robust
Speaker 1: demand that's out there. I definitely worried about that and
Speaker 1: thinking about that. What I would also say, though, is
Speaker 1: that what we have seen and businesses consistently tell me
Speaker 1: they're getting having record volumes, the demand is super strong, uh,
Speaker 1: And so I don't think that pushes in a different
Speaker 1: direction than the types of things that we're thinking about
Speaker 1: in terms of removing some of the accommodation. I think
Speaker 1: the economy is performing extremely strong, and any weakness that
Speaker 1: we're going to see is just pulling us off of
Speaker 1: very high numbers. Initially, there seems to be a feeling
Speaker 1: on Wall Street that if you end tapering, and particularly
Speaker 1: if you do it quickly, that that will remove us
Speaker 1: support from the equity markets. Uh. The FED has been
Speaker 1: contributing to the big rise we have seen in the
Speaker 1: indexes and maybe even to inflation with QUWI purchases. How
Speaker 1: much do you worry about financial market stability with this
Speaker 1: switch in policy coming up? Well, you know, I always
Speaker 1: worry about financial stability. I think it's important that we
Speaker 1: make sure that our financial system remains wrong and resilient
Speaker 1: so they can provide the services that are needed for
Speaker 1: our economy. Uh. What I do think though, in terms
Speaker 1: of our policies is that we're really aimed at two
Speaker 1: other things. We're looking at maximum employment and stable prices.
Speaker 1: I think that we're doing a pretty well, uh, making
Speaker 1: good progress in both, which suggests that we should be
Speaker 1: trying to get our our our policies back into a
Speaker 1: more normal situation. You know, we've been at a very
Speaker 1: extreme level accommodation, and I think that the strength of
Speaker 1: the economy calls for us to pull off of that
Speaker 1: a little bit and let the economy stand on his own. Uh.
Speaker 1: We still have a fair amount of energy momentum. I
Speaker 1: think that we can do our tapering faster than we
Speaker 1: have in previous episodes because of that momentum and my
Speaker 1: expectations the economy will continue to operate in a strong way.
Speaker 1: We were talking earlier about whether the inflation impulse that
Speaker 1: we're seeing now will less longer than you anticipated. Is
Speaker 1: the idea of getting the taper underway, and uh, you
Speaker 1: have said, get it done fairly quickly, so that you
Speaker 1: have some freedom to be able to address interest rates
Speaker 1: if you need to. Well, I mean, certainly, I think
Speaker 1: it's important that we move one tool, one lever at
Speaker 1: a time. Uh. It's much more complicated to communicate what
Speaker 1: we're trying to accost with policy if we're moving interest
Speaker 1: rates and doing things and asset purchases at the same time. So,
Speaker 1: you know, getting the asset purchases done is going to
Speaker 1: be an important thing, uh, in terms of the sequencing
Speaker 1: of our policy. But I do really think about them
Speaker 1: in very different ways. UM. I think about a lot
Speaker 1: of the asset purchase impetus coming out of the deep
Speaker 1: recession that was triggered through the pandemic. UH. And as
Speaker 1: the economy has moved further and further away from those
Speaker 1: those lows, I think the need for the type that
Speaker 1: uh those purchases starts to decline. UH. And at that point,
Speaker 1: I think we should move on to other things. US
Speaker 1: that's done. I think what I'm going to do is
Speaker 1: really look at the data and have the data inform
Speaker 1: me as to how I should be thinking about when
Speaker 1: we should do lift off with interest rates. Right now,
Speaker 1: I have the that projected as the end of two.
Speaker 1: But you know, as I always say, a lot's going
Speaker 1: to happen between now and then, UH, and that will
Speaker 1: really inform the actual decision that we make in terms
Speaker 1: of when we start to move interest rates. Well, when
Speaker 1: you talk to CEOs in your district, or even the
Speaker 1: mom and pop stores in your district, what are they
Speaker 1: telling you about how long they think this inflation will last? Well? Yeah,
Speaker 1: they actually don't talk about it usually in terms of inflation.
Speaker 1: They talk about it in their ability to meet product demand.
Speaker 1: And so business leaders UH that I talked to UH
Speaker 1: tell me that the supply chain challenges are significant. What
Speaker 1: we thought were going to be or what they thought
Speaker 1: were going to be short term challenges are starting to
Speaker 1: look like they're gonna last a bit longer into too UH,
Speaker 1: and that has implications for what's going to happen in
Speaker 1: terms of prices. But I do think and I think
Speaker 1: it's important for everyone to keep this in mind. This
Speaker 1: is all part of an episode, and so I've I've
Speaker 1: moved away from transitory or permanent and really try to
Speaker 1: talk about this as an episodic uh period of inflation.
Speaker 1: And for me, with a long episode, the thing that
Speaker 1: I'm going to be most concerned about is whether people
Speaker 1: start to take the length of the episode as a
Speaker 1: signal that they need to start doing things fundamentally differently.
Speaker 1: Because if that's true, then a lot of the relationships
Speaker 1: that we've seen historically may not hold any longer, and
Speaker 1: we may do to think about our policies differently. So
Speaker 1: a lot of the surveys that we're going to be
Speaker 1: doing on inflation expectations and the like, um, those are
Speaker 1: going to be the things that will inform what makes
Speaker 1: the best sense for for policy moving forward. Raphail. The
Speaker 1: theme of this conference the title is Macroeconomic Policy in
Speaker 1: an uneven economy at this point. Do you think that
Speaker 1: there one and twenty billion dollars of monthly bond purchase
Speaker 1: is helps even out the unequal recovery or do you
Speaker 1: think it exacerbates at this point given the recovery and
Speaker 1: the labor market some of the inequalities, given the fact
Speaker 1: that lower rates and better financial conditions tends to help
Speaker 1: wealthier individuals more because of their assets. Well, you know,
Speaker 1: I think of the purchases, the goal is really to
Speaker 1: make sure that the economy stays robust so that people
Speaker 1: come and get employed, because if you don't have a job,
Speaker 1: then you're going to have a higher level of precariousness,
Speaker 1: and that precariousness could trigger and translate into uh, significant hardships.
Speaker 1: And I think so what I'm trying to weigh is
Speaker 1: sort of, uh, the hardships or the potential for hardships
Speaker 1: that many at the lower end of the wealth distribution
Speaker 1: could could face without a strong economy versus some of
Speaker 1: the benefits that are going to accrue to those at
Speaker 1: the top because we have a strong economy. Uh. And
Speaker 1: for me right now, the precariousness side is of more concern, uh,
Speaker 1: in part because of how the pandemic has played out.
Speaker 1: We know that in this pandemic, jobs at the lower
Speaker 1: end of the wate retributionn't have been hit much harder,
Speaker 1: and so there is an imperative that we make sure
Speaker 1: our policies are in position so they can come back
Speaker 1: more quickly. Uh. That is starting to happen now, and
Speaker 1: and for me, I found it heartening that a lot
Speaker 1: of those gaps in terms of job losses and categories
Speaker 1: are starting to narrow, and that gives me some comfort
Speaker 1: that the policies have been effective. Mike McKie, why don't
Speaker 1: you drop in here for one final question with the
Speaker 1: good President from Atlanta. Well, let me point out that
Speaker 1: the Good President from Atlanta is one of the voting
Speaker 1: members of the Open Market Committee this year, So what
Speaker 1: you say really matters. And I'm wondering, I'm sitting here
Speaker 1: listening to what you're saying, and I'm thinking of the
Speaker 1: how the print headlines are gonna say. You know, Bostick
Speaker 1: joins group of hawks. I'm wonder if this is really
Speaker 1: hawkish or if it's just time? Um is there? At
Speaker 1: some point would anybody notice in terms of market interest
Speaker 1: rates if you start cutting back on QUEWI purchases. So
Speaker 1: I actually think that the markets will not respond very
Speaker 1: strongly to this UM. The economy is in a very
Speaker 1: strong way and strong position, and I think the UH
Speaker 1: asset purchases at this point have been something of an
Speaker 1: insurance policy. I think that we don't need that insurance
Speaker 1: nearly as much as we have in previous episodes. Because
Speaker 1: of that, I think the markets are going to really
Speaker 1: absorb this pretty smoothly. And UH, we'll we'll see the
Speaker 1: economy continues to just roll on. Raphael Bostick, You more
Speaker 1: than anyone I know inside the Beltway has thought harder
Speaker 1: and harder about our nation's social policy, our fabric, your
Speaker 1: CV out of USC, etcetera. Is extraordinary. You talk years
Speaker 1: ago about trying to get the doors wider in America,
Speaker 1: having you do with housing in the black experience in America.
Speaker 1: Where are we right now? Can our institutions and particularly
Speaker 1: this FED get the doors open wider? Well, you know,
Speaker 1: I think we're definitely gonna try. And let me step
Speaker 1: back and start by saying, you know, the gaps in
Speaker 1: homeownership or as large as they've ever been since we
Speaker 1: started tracking this, UH, and that means that there is
Speaker 1: a challenge that we face in terms of UM families
Speaker 1: of of African, American and Latino backgrounds UM getting assets
Speaker 1: that allow them to accrue wealth. What I'll tell you
Speaker 1: is for the FED, our monetary policy and the policy
Speaker 1: framework that we announced last year is really designed to
Speaker 1: make sure that the employment market, the labor markets work
Speaker 1: better for all UH. And we are also advancing a
Speaker 1: number of other things we're convening. So we have a
Speaker 1: Racism in the Economy series to highlight a number of
Speaker 1: the barriers and potential solutions. We're working for, solutions in
Speaker 1: communities to try to make those differences to really change
Speaker 1: how the economy works for people UH and make sure
Speaker 1: their institutions are well positioned to succeed. So I think
Speaker 1: there's progress that can be made and I'm gonna work
Speaker 1: hard with my colleagues to a push to make that happen.
Speaker 1: Dr Boston, thank you so much for joining us today.
Speaker 1: What I love about this, folks, is everybody has a
Speaker 1: different path to their economic excellence. And Michael McKee, I
Speaker 1: don't think I've ever said this to see someone of
Speaker 1: interesting business academics and then took the toughest job in
Speaker 1: the country no, not the chairman of the FED. The
Speaker 1: president of the University of Delaware. That's a tough job.
Speaker 1: That was a tough job. And Pat Harker just totally
Speaker 1: bailed on that. Excuse me, the president of the Philadelphia Fed,
Speaker 1: and he joins us. Now, thank you very much for
Speaker 1: joining us. Pat, And as I mentioned Roba El earlier,
Speaker 1: we are a lot warmer here in the studio, and
Speaker 1: I'm sure you are in Philadelphia, then we would be
Speaker 1: on the back lawn at Jackson Lake Lodge where it
Speaker 1: was thirty seven degrees a short time ago. Uh, I'm
Speaker 1: wondering about heat. In terms of inflation, we got inflation
Speaker 1: numbers today. The headline PCE goes up to four point
Speaker 1: two percent, faster than you had anticipated and higher than
Speaker 1: had been anticipated by the Fed. Does that suggest to
Speaker 1: you that we might need to see uh, and I
Speaker 1: know taper comes first, but that we might need to
Speaker 1: see interest rates rise sooner than the market has been expecting. First.
Speaker 1: Good morning. Yeah, we're a little warmer, although I do
Speaker 1: miss the view. The view from my my office is
Speaker 1: my home office is a lot different. And go fighting
Speaker 1: blue hands, go University of Dolaware. So yeah, so on inflation.
Speaker 1: I mean, clearly it is a concern. Um. The word
Speaker 1: transitory I think has been used probably in some ways
Speaker 1: too much. Uh. But there are clearly sectors of the
Speaker 1: economy which are accelerating faster than others. That's always the case.
Speaker 1: The question in my mind to watch on inflation is
Speaker 1: are we seeing spillover from these COVID infected sectors to
Speaker 1: the non COVID infected sectors and our expectations becoming unanchored
Speaker 1: so far on the latter point, the answer is no,
Speaker 1: but it is clearly something we need to watch. And
Speaker 1: what we're hearing from our business contacts is that this
Speaker 1: may be longer lasting than we had expected they had expected,
Speaker 1: So is clearly a risk that we have to be
Speaker 1: cognizant of with respect to policy. Are those people telling
Speaker 1: you that they're going to have to keep raising prices
Speaker 1: in order to make up their margins? R I hear
Speaker 1: from our contacts business contexts they're working very hard not
Speaker 1: to raise prices. They are seeing some increase in productivity.
Speaker 1: Good news. This We are seeing across the economy and
Speaker 1: in individual sectors increases in productivity, which helps to mitigate
Speaker 1: some of the challenges they're facing but that doesn't completely
Speaker 1: get rid of them. So yeah, they're they're concerned about
Speaker 1: this right now. I think generally they're very concerned. One
Speaker 1: major national homebuilder I was talking to you recently said,
Speaker 1: you know, the supply chain disruptions we taught were temporary.
Speaker 1: It looks as temporary as we thought. They will eventually
Speaker 1: solve themselves, like appliances, But right now they're putting in
Speaker 1: used appliances and the new homes and promising to deliver
Speaker 1: a new appliance because they simply can't get the appliances
Speaker 1: in that case because of chips. To a large extent,
Speaker 1: we think about cars and chips, Well, there are chips
Speaker 1: in your dishwasher, and sometimes they don't work in my dishwasher.
Speaker 1: If if the rest of the Open Market Committee follows
Speaker 1: your advice and decides to start tapering fairly soon, what
Speaker 1: kind of message does that send at a time time
Speaker 1: when people are very unsure about the impact of COVID
Speaker 1: on the economy. So delta is clearly a problem, and
Speaker 1: the next one. It's not just going to be delta.
Speaker 1: First and foremost. We've got to get this endemic under
Speaker 1: control under way. To do that is get people vaccinated.
Speaker 1: It started with a health crisis. It's going to end
Speaker 1: by solving the health crisis, not by raising rates or
Speaker 1: lowering rates. So we need to keep that first and
Speaker 1: foremost right in front of our mind, and we need
Speaker 1: to tell everybody. So yeah, I mean, given that, given
Speaker 1: that this is a health crisis, I think we need
Speaker 1: to follow. As our colleagues and Raphael was just on
Speaker 1: have said, we really need to follow the data and
Speaker 1: see how things turn out over the next couple of months.
Speaker 1: We put these systems in place. We put this accommodation
Speaker 1: in place because of the health crisis, and we will
Speaker 1: be able to remove it now because we are slowly careful.
Speaker 1: We chipping away at the health crisis, but we're not
Speaker 1: there yet. We talked a lot about inflation this morning,
Speaker 1: but what about the labor market? Of the committee and
Speaker 1: it's minutes of the last meeting suggested you've made progress,
Speaker 1: but not nearly enough. And even if we get a
Speaker 1: similar jobs report next Friday to what we had, you're
Speaker 1: still gonna be about six million short. I'm wondering if
Speaker 1: you expect to make up that difference very quickly, or
Speaker 1: if the participation rate is going to stay low and
Speaker 1: that might change your thought about the proper path for policy.
Speaker 1: To separate two things there, it's a good question. One
Speaker 1: is the path of policy, but also, uh, what is
Speaker 1: causing this? Uh, what's causing this? It's not a lack
Speaker 1: of demand. It's clearly not a lack of demand. We
Speaker 1: see that in the JULT data, lots of open jobs.
Speaker 1: People are still concerned about coming back to work. People
Speaker 1: are concerned about getting on transit thing city like Philadelphia
Speaker 1: to get to the workplace. People are concerned about going
Speaker 1: to the restaurant with the delta variant, etcetera, etcetera. And
Speaker 1: so again. Until we solve those problems and childcare and
Speaker 1: all the other things holding people back from entering the workforce,
Speaker 1: that's going to be an issue. Unemployment insurance is rolling off,
Speaker 1: I mean the expanded unemployment insurance. We are starting to
Speaker 1: see some of those early early results from some states
Speaker 1: that removed the federal unemployment early. Yeah, you know, it
Speaker 1: doesn't seem like that's having a huge impact on getting
Speaker 1: more people into the labor force. It's these other factors life,
Speaker 1: but simply as life right, taking care of kids, taking
Speaker 1: care of elderly parents, getting to and from work, it's
Speaker 1: causing us. So what does that mean for policy? If that,
Speaker 1: if what I just said is true, then adding accommodation
Speaker 1: or keeping highly accommodative policy is not going to solve
Speaker 1: that problem. It's not going to close back gap. It's
Speaker 1: not a demand problem, it's a supply problem. Well within
Speaker 1: the Patrick Carker, I think you're best situated of anybody
Speaker 1: within the FED. I note that the Philadelphia FED was
Speaker 1: four or five of the American population sitting on one
Speaker 1: percent of the land. It's a micro cosm of this nation.
Speaker 1: The manufacturing index back great. What do you hear from
Speaker 1: the small, the mid and the large business people of
Speaker 1: your district? So they're nervous. I mean, I think generally
Speaker 1: people are nervous and about what the future holds. But
Speaker 1: that said, they are seeing lots of demand. I mean,
Speaker 1: our manufacturing contacts are manufacturing business Outlook survey. Although it's
Speaker 1: ticked down a little bit in terms of future activity,
Speaker 1: it's still an expansionary territory. Their biggest problem, and you
Speaker 1: know this is getting skilled labor. And by the way,
Speaker 1: we should put this in context and some of the
Speaker 1: work we're doing in the Philly FED. This problem of
Speaker 1: skilled labor and labor generally with us before the pandemic hit.
Speaker 1: The pandemic has just exascerbated the problem, it hasn't created
Speaker 1: the problem. We still need long term structural solutions to
Speaker 1: solving our labor woes, and that's kind of work we're
Speaker 1: doing in our community development function at the Philly Fed
Speaker 1: and really across the federal reserve system. Well. At the
Speaker 1: Philly Fed, you said something that I think is just
Speaker 1: fascinating Patrick, that some of the supply side issues that
Speaker 1: we're seeing in the labor market, the frictions there are
Speaker 1: not solved by monetary policy. This isn't something that holding
Speaker 1: rates low for a longer period of time or even
Speaker 1: up trying a hundred twenty billion dollars of bonds every
Speaker 1: month is going to solve in its own right. So
Speaker 1: how do you determine the potential negative ramifications from the
Speaker 1: ongoing a hundred twenty billion dollars of purchases with the
Speaker 1: lack of influence, frankly on solving these labor market dynamics.
Speaker 1: So I have been on record and I continue to
Speaker 1: be on record that I would like to start papering
Speaker 1: sooner rather than later. I'd like to start it sooner
Speaker 1: rather than later. And I like to keep keep it
Speaker 1: as simple as possible. The old engineer, and I'm trained
Speaker 1: as an engineer, you know, the old kiss principal, keep
Speaker 1: it simple, stupid. Let's just start this process. Let's get
Speaker 1: that over with and then we can start to think
Speaker 1: about the FED funds rate and normalizing the FED fundry.
Speaker 1: We're not there yet. I'm still forecasting late probably twenty
Speaker 1: three before we do lift off. But let's get the
Speaker 1: capering process underway. Mike, let's engineer this Jackson hole right now?
Speaker 1: Is this the Jackson hole? A complexity or simplicity? As
Speaker 1: a president speaks of, Well, it depends on whether you're
Speaker 1: reading the papers which are complex, or whether you are
Speaker 1: talking about raising interest rates or starting to taper. I'm wondering, Pat,
Speaker 1: if you think that starting to taper is going to
Speaker 1: have an impact uh this soon on the whole FED,
Speaker 1: the new framework. Uh, the idea that you're waiting. Will
Speaker 1: people take that the wrong way and think that you're
Speaker 1: giving up too soon? They might, But again I don't
Speaker 1: think that's that's appropriate. Uh. We have achieved our inflation
Speaker 1: goal essentially, I mean we're above two again. Good news,
Speaker 1: is explications have not become an anchored But we are
Speaker 1: averaging about two percent and keeping this accommodation through tapering
Speaker 1: there for a long period of time. Uh. And it's
Speaker 1: not solving the labor problem. That's not the problem. Just
Speaker 1: look at how many jobs are open in the US economy,
Speaker 1: the jokes data. I just think it's the proven thing
Speaker 1: to do to just take this first move and then
Speaker 1: let's see how things play out before we think about
Speaker 1: any change in At that country, we talked about whether
Speaker 1: or not the FED has contributed to inflation by propping
Speaker 1: up asset prices. A lot of people have said fiscal
Speaker 1: policy is contributing to inflation by putting a lot of
Speaker 1: money into the economy and now down and watching in
Speaker 1: their debating hundreds of billions more. Are you worried that that?
Speaker 1: Leaving aside the political merits of this, are you worried
Speaker 1: it could be inflationary? Let's start with what we know
Speaker 1: almost exists, not done yet, but the infrastructure bill. As
Speaker 1: an old civil engineer, I'm all for fixing our infrastructure.
Speaker 1: It's in woeful shape across our economy. We need to
Speaker 1: fix it. So what's the implication, what impact will that
Speaker 1: have on the economy. Well, I mean the evidence I've seen,
Speaker 1: at least the modeling i've seen, you know that chillion
Speaker 1: dollars will have maybe one two tenths of a percent
Speaker 1: impact on GDP. So we're not talking about a huge
Speaker 1: overall impact in certain sectors, absolutely, but not overall. My
Speaker 1: biggest concern right now is not that it's going to
Speaker 1: overstand that bill itself is going to overstimulate the economy,
Speaker 1: is that where are we going to get the labor,
Speaker 1: the skilled labor, to fix the roads, to do the
Speaker 1: broad bad work, and so forth. That we need a
Speaker 1: really intensive effort to get people into the labor force
Speaker 1: with those skills. Now, the broader issue of the three
Speaker 1: three and a half trillion that is right now, I
Speaker 1: don't have picks opinion on that because really that's a
Speaker 1: moving target every single day, and it's very hard to model, uh,
Speaker 1: such a moving target. All right, very quickly, pat next Thursday,
Speaker 1: September two, Delaware Blue Hens versus the Black Bears of Maine. Winner. Well,
Speaker 1: I'm always going to go with the blue Hens. Come on,
Speaker 1: everyone will be fully vaccinated. Petrick Harker, thank you so much, greatly,
Speaker 1: greatly appreciated this morning. The voice of Philadelphia. This is wonderful, folks,
Speaker 1: because it's a changeable feast of what the FED invented,
Speaker 1: the geography of the nation, and Michael McKee, it's pretty
Speaker 1: simple to say the culture of the fabric of Philadelphia
Speaker 1: radically different what capital holds court in in Dallas. Yes,
Speaker 1: certainly the lture is a little bit different. Robert Kaplan
Speaker 1: much more likely to be wearing cowboy boots than Pat Harker.
Speaker 1: Robert Kaplan is the president of the Dallas Federal Reserve.
Speaker 1: And this is, I guess, uh, Rob a little bit like, Uh,
Speaker 1: we're all sitting around the table at the FED meeting,
Speaker 1: the Open Market Committee meeting, because each one of you
Speaker 1: is getting, in turn your chance to describe the economy. Uh.
Speaker 1: Let's let's ask you, um in Dallas, in the in
Speaker 1: your region, what are CEOs and company officials saying about
Speaker 1: whether this inflationary spike that we've seen is going to
Speaker 1: continue because maybe COVID is going to disrupt supply lines
Speaker 1: even longer. What they're gonna what they're saying is the
Speaker 1: materials supply demand balances are gonna last longer than people
Speaker 1: may be expecting. Now certain material imbalances are going to
Speaker 1: get resolved. That semiconductors. My contexts are telling me it
Speaker 1: could take much longer to see those balances resolved. One
Speaker 1: of the reasons is a lot of the changes we're
Speaker 1: making to the economy. Electrification of the auto grid, for example,
Speaker 1: takes a lot of semi conductors, and so we're going
Speaker 1: to produce more semi conductors, but demand is growing. So
Speaker 1: that's the that's the materials. The one that I think
Speaker 1: is gonna be even more persistent is the labor supply
Speaker 1: demanding balances and that we've had three million retirements since February.
Speaker 1: We have a million a quarter million half people who
Speaker 1: have left the workforce to be caregivers. You have a
Speaker 1: fear of infection, and broadly, businesses are becoming resolved to
Speaker 1: the idea it's gonna be hard to attract labor. They're
Speaker 1: gonna pay more. The wage increases are are certainly for
Speaker 1: labor welcome. But I think businesses are actively thinking about
Speaker 1: how to manage their business, and if they're a big business,
Speaker 1: they're going to use more technology more scale. Small mid
Speaker 1: sized businesses, the only thing they option they have is
Speaker 1: to raise prices. UH and they're doing that, and they're
Speaker 1: more confident that they can raise prices and have them stick. Well,
Speaker 1: I'm sure you've probably heard Pat Harker just a moment
Speaker 1: ago talking about if we get this stimulus bill, the
Speaker 1: infrastructure bill, we could see inflationary impacts because there aren't
Speaker 1: enough workers. How much do you worry that inflation is
Speaker 1: going to be embedded in these companies thoughts going forward
Speaker 1: because they can't find workers. Uh. I think these labor
Speaker 1: supply demand and balances will be with us for an
Speaker 1: extended period. So so do I worry about I think.
Speaker 1: I think it's going to be part of our economy,
Speaker 1: a feature of our economy. And uh I think that
Speaker 1: as a result of that. Are our year end at
Speaker 1: the Dallas FT, our year end PC inflation forecast is
Speaker 1: three point a three point nine percent. I could see
Speaker 1: affirming even to four percent by the end of the year.
Speaker 1: We think the extreme moves will moderate, like used car prices,
Speaker 1: some of those extreme moves from the reopening will moderate,
Speaker 1: but we we think price pressures will broaden because of
Speaker 1: these some of these persistent imbalances, particularly on labor. So
Speaker 1: headline for next year we think right now is in
Speaker 1: the range of two and a half percent, and I
Speaker 1: could see us, you know, revising that up versus down
Speaker 1: as we go through the next few months. So I'm
Speaker 1: watching it carefully. And we've got a commitment at the
Speaker 1: FED to anchoring average inflation at two percent. We're willing
Speaker 1: to run moderately above. We've also got a commitment to
Speaker 1: anchor it. And low moderate income communities I'm talking to
Speaker 1: actively are seeing a greater share of their wallet going
Speaker 1: to to uh, you know, gasoline, food, rents, autos, and
Speaker 1: they're they're, they're, they're they're feeling that those effects. Well,
Speaker 1: I know your two thousand twenty two guy for raising
Speaker 1: interest rates, and you also want to get the taper
Speaker 1: over with. Is it possible that, uh, we see the
Speaker 1: Fed have to move up the date of liftoff for
Speaker 1: the Fed funds rate. Uh. I've been very careful with
Speaker 1: emphasize that decisions on the asset purchases should be separated
Speaker 1: from decisions on the Fed funds rate. We've got a
Speaker 1: number of months and into next year to assess how
Speaker 1: the economy unfolds, how these dynamics unfold. Will make that
Speaker 1: judgment next year. I do believe we should start the
Speaker 1: asset persons adjustment process soon. I mean literally as soon
Speaker 1: as possible. And I would like to see us move
Speaker 1: do that process gradually over stay eight months. Uh, And
Speaker 1: I think we've got to get started on that, and
Speaker 1: I think the extent we get moving on that, it
Speaker 1: may actually give us more flexibility down the road on
Speaker 1: our decisions on the FED funds. Right if you're just
Speaker 1: joining us, Robert Kepit of the Dallas Fed with us
Speaker 1: on radio and television worldwide as we elebrate what we
Speaker 1: do at Bloomberg and all of Bloomberg surveillance is economics.
Speaker 1: Michael McKee leading our coverage in this hour as we
Speaker 1: go to the speech of the Chairman of the Federal
Speaker 1: Reserve System and we see show you worldwide the geography
Speaker 1: of this nation, from Philadelphia to Caplan's Dallas and on
Speaker 1: to Bullard St. Louis as well. Robert Caplan, good morning
Speaker 1: to you. You know, I bust your chops about Dallas
Speaker 1: research because you're the only Fed president that actually reads
Speaker 1: his research. You have a spectacular research piece linking surging
Speaker 1: home prices into rent inflation and buried in Jim Dolmus's
Speaker 1: peace is six point nine percent rent increases in two
Speaker 1: thousand twenty three. Is your FED ready for that? Uh?
Speaker 1: I think low modern income communities are not ready for that,
Speaker 1: and they're they're very cognizant of having to deal with it.
Speaker 1: And I think while I think what we're saying, uh,
Speaker 1: part of our two and a half percent plus forecast
Speaker 1: for next year is we need to anticipate this appreciation
Speaker 1: at home prices is gonna is going to translate into
Speaker 1: higher rents down the road, and that's got to be
Speaker 1: part of our thinking. It's been highly publicized rob that
Speaker 1: and FED Chair J. Powell seems to be a little
Speaker 1: bit more dubbish or a little bit more patient when
Speaker 1: it comes to the taper, when it comes to the
Speaker 1: rate hiking cycle. Where do you guys disagree most? I mean,
Speaker 1: where do you see him wrong in his thinking in
Speaker 1: terms of being patient at a time of rents going
Speaker 1: up that quickly. Well, I actually reframe, uh what you
Speaker 1: as slightly. I think the role of the chair is
Speaker 1: to encourage a process of debate and disagreement. This is
Speaker 1: why I thought it was so important to get asset
Speaker 1: purchases on the table. But his job is to I
Speaker 1: believe the chair's job is to encourage debate and disagreement,
Speaker 1: try to forge a consensus and understand views in order
Speaker 1: to come up with policy and have a good process.
Speaker 1: And I think j Pal does a superb job at that.
Speaker 1: Are you expecting him to make any kind of announcement
Speaker 1: today in terms of paper timing? I would not go
Speaker 1: near commenting on what j Pal is going to say
Speaker 1: in his speech. I don't I don't think it'd be
Speaker 1: appropriate to captain doesn't expect that from you? You know,
Speaker 1: I had to try right anywhere near there? All right?
Speaker 1: Would you? Would you expect that the Open Market Committee
Speaker 1: on September two would announce the beginning of paper or
Speaker 1: that it would come at the next couple of meetings.
Speaker 1: So right now I'll speak to my own process, and
Speaker 1: that may reflect on what others are doing. Um when
Speaker 1: we've seen we've I've been talking pre research and I
Speaker 1: thought we ought to be moving soon on asset purchases
Speaker 1: and beginning that process. With the resurgence, we've gone back
Speaker 1: at the Dallas fit and redoubled our efforts over the
Speaker 1: last X number of weeks and intensively over the last
Speaker 1: ten days, even to look at high frequency data, real
Speaker 1: time surveys, stepping up, talking to contacts and what I'm
Speaker 1: seeing and what I think we're gonna see up until
Speaker 1: the meeting. But I'm gonna keep reconfirming this is resiliency.
Speaker 1: That doesn't mean that you won't see some slowing and
Speaker 1: say the August jobs numbers because the matching process will
Speaker 1: slow because of fear of infection. It won't be because
Speaker 1: a lack of demand for jobs. You might see a
Speaker 1: little near term slowing in g d P, but I
Speaker 1: don't think. I don't think what we're seeing is going
Speaker 1: to change the outlook. And that's the process I'm going
Speaker 1: through leading up to the meeting, and I would guess
Speaker 1: others are doing the same process. Robert Caplen, thank you
Speaker 1: so much, greatly, greatly appreciated this morning. With the Dallas
Speaker 1: FED as well, we have spoken with the Harker of Philadelphia.
Speaker 1: It is rather different in Dallas. And then there's the
Speaker 1: absolute unique characteristics of St. Louis FED. If you think
Speaker 1: of modern economic research, guess what St. Louis invented it
Speaker 1: years ago. And they have Mike the chart service, they
Speaker 1: have the facts service, they have the only one I
Speaker 1: know that can actually use the thing. It's so wonderfully complicated,
Speaker 1: is James Bullard. I was using Frasier the other day,
Speaker 1: which comes from Minnesota, which I mean all this historical stuff. Uh.
Speaker 1: Jim Bullard is the president of the Federal Reserve Bank
Speaker 1: of St. Louis, And I guess, uh, we could ask
Speaker 1: have you ever seen anything like this before in the economy,
Speaker 1: but I kind of know the answer. This is a
Speaker 1: unique experience. You were among the first to say that
Speaker 1: the FED should start tapering, and I'm wondering if that's
Speaker 1: because you are afraid of inflation hanging around and may
Speaker 1: need to raise rates sooner than the markets anticipate. Yeah,
Speaker 1: I think we do Fraser as well, uh in St. Louis.
Speaker 1: So just to set the record straight on that one.
Speaker 1: UM uh so yeah, I think, um. The key word
Speaker 1: is optionality for we want to or I would like
Speaker 1: to anyway taper now and and get it finished by
Speaker 1: the end of the first quarter, and then at that
Speaker 1: point I think we could assess what's happening in the
Speaker 1: economy with respect to inflation. By that time, we'll have
Speaker 1: many more jobs reports, and you know, it certainly looks
Speaker 1: like they'll all be strong to varying degrees. Um. Unemployment
Speaker 1: will tick down with a fore handle at that point,
Speaker 1: and then we'll be able to see in the first
Speaker 1: half of two if inflation is moderating or not. And
Speaker 1: if it's moderating, then we're in great shape. And if
Speaker 1: it's not moderating, uh, then we might have to be
Speaker 1: more aggressive. So I think that optionality has a lot
Speaker 1: of value right now. Um. I think the purchases don't
Speaker 1: have much value right now. So um, it seems like
Speaker 1: the tradeoff is just right to me. Let's phase out
Speaker 1: the purchases and let's give ourselves some breathing room. In well,
Speaker 1: as you look over the forecast horizon, do you think
Speaker 1: that inflation sticks around? Yeah? I think, uh, right now
Speaker 1: I'm sitting here today, I'd say two and a half
Speaker 1: percent or higher in core PC inflation. Uh, so we're all,
Speaker 1: you know, right now, we're at three and a half
Speaker 1: on core PC inflation. That's the committees preferred smooth measure
Speaker 1: of inflation, the one that's enshrined in the sep TO
Speaker 1: Summary of Economic Projections. So it looks like we're going
Speaker 1: to have quite a bit of inflation this year. That
Speaker 1: three and a half percent number of measures from one
Speaker 1: year ago is higher than it's been in thirty years,
Speaker 1: and it is enough to bring the average inflation rate,
Speaker 1: however you want to calculate it on that measure over
Speaker 1: any five year period, either looking back or looking forward
Speaker 1: up to two percent. So UM, then in the question
Speaker 1: is how how fast is inflation going to moderate? UM.
Speaker 1: If it moderates quickly, then then we're fine. But if
Speaker 1: if it doesn't moderate, and I'm right and we're two
Speaker 1: and a half percent or higher, then the Fed might
Speaker 1: have to start to try to put downward pressure on
Speaker 1: inflation in order to keep it at the right level.
Speaker 1: Do you worry that interrupts the new framework? The idea
Speaker 1: that you could have to raise rates because inflation is
Speaker 1: higher than new anticipated, but you don't get the unemployment
Speaker 1: rate down as far as you would like to, or
Speaker 1: at least in terms of the diverse and inclusive unemployment rates.
Speaker 1: Now we'd be hitting the new framework exactly. Uh. You know,
Speaker 1: beautiful monetary policy under what I'm describing, because we would
Speaker 1: have at that point had UH inflation above the two
Speaker 1: percent targets for some time, and then inflation on a
Speaker 1: core PC basis would be averaging two over some kind
Speaker 1: of five year window either backward looking or or centered
Speaker 1: and forward looking, and so you'd be you'd be hitting
Speaker 1: it on that dimension. And then I think on the jobs,
Speaker 1: you know, you've got to think about not exactly where
Speaker 1: we are today, but where we're gonna be at the
Speaker 1: end of the taper. The key thing here is when
Speaker 1: is the taper going to end? And uh it certainly
Speaker 1: looks like you're gonna have a very strong jobs from
Speaker 1: market at that point. I mean, you can make the
Speaker 1: argument today that this is one of the tightest job
Speaker 1: markets we've seen, UH in in recent decades, because the
Speaker 1: unemployment of vacancies ratio has gone down below one, so
Speaker 1: more than one job opening for every unemployed worker. If
Speaker 1: you want a broad measure of labor market performance, you
Speaker 1: can look at the Kansas City FEDS Labor Market Conditions
Speaker 1: Index that's moved up into positive territory and is headed
Speaker 1: toward very high numbers, which will be again indicating one
Speaker 1: of the strongest job markets that we've seen in recent decades.
Speaker 1: So I think you know, all of that corroborates what
Speaker 1: you're hearing on this show and everywhere across the economy
Speaker 1: about jobs, which is that firms are having a really
Speaker 1: tough time hiring. They're offering wage increases, are offering bonuses,
Speaker 1: are offering retention signing bonuses, retention bonuses. Uh, they have
Speaker 1: job affairs where going shows up. So lots of things,
Speaker 1: uh seem to be pointing to a very strong jobs
Speaker 1: market right now. And if you're gonna have six percent
Speaker 1: growth in the US economy over the second half this
Speaker 1: year and four percent growth next year, that's just going
Speaker 1: to improve all that much more. So I think we'll
Speaker 1: be in great shape in uh in the first half
Speaker 1: of two, but we have to have some optionality there
Speaker 1: in case inflation doesn't moderate. Well, what are companies telling
Speaker 1: you about what they're having to pay and how long
Speaker 1: they think they're gonna have to pay it, both for
Speaker 1: input goods and for labor. Is this going to be
Speaker 1: something that at this point they're anticipating a bit of
Speaker 1: a cycle. Well, one of my top concerns, and I've
Speaker 1: heard it on listening to you guys, is CEOs will
Speaker 1: come in and they'll say, yeah, my input costs are
Speaker 1: way up, but we don't think this is a problem.
Speaker 1: We're gonna pass that right on in raise prices and uh,
Speaker 1: you know, my labor costs are up, but we're going
Speaker 1: to pass that on into prices. That sounds like a
Speaker 1: worrisome dynamic to me, and one that you know. We
Speaker 1: certainly want real wages to go up, but for everyone.
Speaker 1: I want those to be as high as possible. But um,
Speaker 1: we don't want to get into a cycle where that
Speaker 1: just feeds through to the inflation process in the economy.
Speaker 1: Jim Bowler toom Keenan good morning to your thrilled to
Speaker 1: speak to you before Chairman Pal Jim Boward, I want
Speaker 1: to go back five years to two big things of
Speaker 1: two thousand and sixteen. One of them was Marvin good
Speaker 1: Friend in the uproar over his paper at Jackson all
Speaker 1: the late Marvin good Friend folks of Carnegie Mellon on
Speaker 1: zero interest in the negative rates. Well, guess what, Jim
Speaker 1: Bollard good Friend was right. Negative rates up, up, up,
Speaker 1: up worldwide as well. And also you may recall in
Speaker 1: two thousand and sixteen somebody in St. Louis said, forget
Speaker 1: about a single point outcome. We are going to have
Speaker 1: the different states of a regime chain dovetail what happened
Speaker 1: five years ago and take us out ten years. Can
Speaker 1: we get to a constructive different state given them huge
Speaker 1: negative interest rates worldwide. Yeah, I think uh after Professor
Speaker 1: good Friends paper h. Central banks around the world did
Speaker 1: experiment with negative rates, I think with very mixed success,
Speaker 1: and I think that's why we've tried to avoid that
Speaker 1: outcome in the US. UM With respect to the regime,
Speaker 1: I mean I did switch in sixteen to saying that
Speaker 1: I thought we were just in a low inflation low
Speaker 1: now anal interest rate low real interest rate environment, uh,
Speaker 1: slow growth, and that that wasn't gonna change very readily,
Speaker 1: and that meant that monetary policy didn't have to be
Speaker 1: as aggressive as we had previously been. So I was
Speaker 1: kind of on the Davers side at that point. But
Speaker 1: now we're coming through this pandemic um and policy has
Speaker 1: been a human tragedy of course, of unimaginable dimensions, but
Speaker 1: from the economy's point of view, have played it very
Speaker 1: well as a nation with the fiscal policy and the
Speaker 1: monetary policy. And now we're coming out of the pandemic
Speaker 1: with a very strong economy, and I think it's very
Speaker 1: possible that we're switching into a high productivity growth regime
Speaker 1: and that means somewhat higher interest rates than you'd otherwise
Speaker 1: have seen. It means faster growth than you otherwise would
Speaker 1: have seen, and I'm hopeful that all of that occurs.
Speaker 1: The last time we had a faster growth, higher productivity
Speaker 1: growth economy was the late ninety nineties where we boomed
Speaker 1: for four years and started talking about paying off the
Speaker 1: entire national debt. Well, and Jim, you're talking about nap
Speaker 1: that didn't happen. But Jim, you're talking about negative interest
Speaker 1: rates and how that's been problematic in certain ways, and
Speaker 1: certainly in the United States it wouldn't be as as
Speaker 1: smooth as it has been other places, for the money
Speaker 1: market fund and a variety of other reasons. But you've
Speaker 1: talked about the need to get interest rates up so
Speaker 1: that we can use that in combat the next downturn,
Speaker 1: have some ammunition. If we cannot get rates substantially higher,
Speaker 1: how important How do you foresee us IT purchases factoring
Speaker 1: into future stimulus. Yeah. They've become a standard part of
Speaker 1: the toolkit, and we used it after the global financial crisis,
Speaker 1: pioneered by uh former chairman Bernanke and kudos to him
Speaker 1: for that. And then uh, you know, when this crisis
Speaker 1: came along, we went right back to it with considerable success,
Speaker 1: I would say, in the March April period where we
Speaker 1: really were staring at possible depression and a possible financial crisis,
Speaker 1: and I thought Chaire Powell did a excellent job during
Speaker 1: that time frame in getting us into a policy that
Speaker 1: avoided the financial crisis that could have occurred on top
Speaker 1: of the pandemic and put us on very good footing.
Speaker 1: It wasn't too long after UH March April that financial
Speaker 1: stress measures came way down from from very high levels
Speaker 1: and we got back to UH normality, at least with
Speaker 1: respect to financial markets. So UM, asset purchases are part
Speaker 1: of the toolkit and they're here to stay. But right now,
Speaker 1: I don't think they're helping us that much, and they
Speaker 1: may be causing harm, especially in housing, where we don't
Speaker 1: want to feed into an incipient UH housing bubble. We
Speaker 1: got into a lot of trouble in the mid two
Speaker 1: thousands with housing, and I'm not too anxious to try
Speaker 1: to UH to see that happen again. So UM, I
Speaker 1: think that just time has come to end these purchases
Speaker 1: and get the Committee and the nation some optionality for
Speaker 1: what we may have to do in two But we're not.
Speaker 1: We're certainly going to keep sharp control over our our
Speaker 1: interest rate decisions. We're not gonna be on any kind
Speaker 1: of mechanical path, but we're going to want to assess
Speaker 1: where we are in the spring of two to see
Speaker 1: what the what course we want to chart U to
Speaker 1: keep inflation under control. Uh. From that point forward to
Speaker 1: let me ask you one last question, and that's about
Speaker 1: how you think the Wall Street folks are going to
Speaker 1: react to this. Uh. There's been a feeling that you
Speaker 1: guys are propping up the big gains that we've seen
Speaker 1: in the indexes, and the fact that the bond market
Speaker 1: has kept rates so low indicates they believe that we're
Speaker 1: not going to have an inflation problem. If if you
Speaker 1: send a message that maybe we will and it's time
Speaker 1: to stop giving you guys support, we're gonna have a problem.
Speaker 1: I don't think so. I mean you you talked to
Speaker 1: pretty much everybody in the markets, and my sense is
Speaker 1: that you know, at some level the tapering process has
Speaker 1: already been priced in. Maybe not that all the details
Speaker 1: around it or exactly h exactly how long fold and
Speaker 1: so there's a little bit more there, But certainly seems
Speaker 1: like commentators and traders are well aware that UH there
Speaker 1: will be a tapering process, and and that it makes
Speaker 1: sense at this point given how well the economy has done.
Speaker 1: This economy is producing more national income than the one
Speaker 1: that existed before the pandemic. The pre pandemic economy didn't
Speaker 1: have zero interest rates, by the way, UH, So I
Speaker 1: think UM, I think markets would UH react, you know,
Speaker 1: in some broad sense, they'd react well to this because
Speaker 1: it would mean that the Fed is going to stay
Speaker 1: in good position to handle all the possibilities that might
Speaker 1: come if inflation all rates in two and a great
Speaker 1: position for that, and if we get the tabor out
Speaker 1: of the way, UH, then we'll also be a good
Speaker 1: position if we have to tamp down a little bit
Speaker 1: on inflation pressure in the economy. Dr Bullard, thank you
Speaker 1: so much for joining us today from St. Louis. Jim Bullard.
Speaker 1: Right now, get to Gopinath with us with the International
Speaker 1: Monetary Fund and their chief economists. Their director of research
Speaker 1: Maurice Hobsfeld, will be on the UH podium later at
Speaker 1: Jackson Old today someone else who has held that position
Speaker 1: over the years. Gita, thank you so much for joining
Speaker 1: us UH this morning. Before we get to the affairs
Speaker 1: of Jackson Hole, Gita, I am required to address a
Speaker 1: bit outside your remit at the International Monetary Fund and
Speaker 1: that is what all are why ching, which is how
Speaker 1: the i m F will adapt and adjust to Afghanistan
Speaker 1: and the Taliban. This has to do with special drawing rights.
Speaker 1: Explain to our audience the choice set that the Managing
Speaker 1: Director and all of you at the i m F
Speaker 1: have with these unusual events in Afghanistan. HI tell them
Speaker 1: it's a pleasure to join your show. Now a SDRs
Speaker 1: are allocated to all the member countries. Now, which countries
Speaker 1: can actually use the SDRs depends upon whether the government
Speaker 1: in that country is being recognized by the membership off
Speaker 1: the i m F. And at this point, with the
Speaker 1: recent developments that we've seen, which is a heartbreaking, there
Speaker 1: is no recognition. So at this point, uh, you know,
Speaker 1: the SDRs will not be available to be used by Afghanistan.
Speaker 1: If we can look at your panel today with a
Speaker 1: former Vice Channel and Alan Blinder also were leaper of
Speaker 1: Virginia as well, it is to me the most interesting
Speaker 1: event at Jackson Hall. And I'm gonna be honest Kit too,
Speaker 1: It's more interesting than what the Chairman's gonna say, we
Speaker 1: live in a time where we've never seen linkages of
Speaker 1: fiscal and monetary policy. It's literally, we're doing MMT within
Speaker 1: your panel, Will you people discuss modern monetary theory? Are
Speaker 1: we doing MMT in two thousand twenty two? So I'm
Speaker 1: now I don't believe we are doing MMT. Oh, you know,
Speaker 1: it's a decade before the COVID crisis was one where
Speaker 1: everybody was complaining that monitored policy cannot be the only
Speaker 1: game in town, and that was appropriate. And then COVID
Speaker 1: struck and fiscal policy came to town in a big way.
Speaker 1: So we've seen interaction of the kind that we've never
Speaker 1: seen before. But it was necessary. It was needed for
Speaker 1: the kind of challenge the world economy was facing, and
Speaker 1: it helped to prevent a much deeper recession. I mean,
Speaker 1: our estimates that the recession would have been three times
Speaker 1: worse last year had it not been for both fiscal
Speaker 1: and monitary policy support. Now that said, would be very
Speaker 1: clear why this is good policy, because ultimately decision making,
Speaker 1: central bank decision making has to be controlled by central
Speaker 1: bank priority, central bank goals uh and so central like
Speaker 1: independence has served countries very well, and it makes sense
Speaker 1: to do quantitative easing and asset purchases as long as
Speaker 1: you're doing this independently. This is not about being pressured
Speaker 1: by governments to the monetary financing. You're meeting your goals,
Speaker 1: You're keeping inflation expectations anchored, and that's what the difference is.
Speaker 1: Get this is such a delicate dance. How do you
Speaker 1: avoid politicizing at the central banking community at a time
Speaker 1: when low interest rates that they're helping continue really is
Speaker 1: what is allowing some of the fiscal impulse that we
Speaker 1: see in Washington, d C. How fraught does this become,
Speaker 1: as with inequality as a focus for the Federal reserve
Speaker 1: for central banks at a time when that really is
Speaker 1: the purview of fiscal policy and not monetary policy. There
Speaker 1: are some things indeed that fiscal policy is just much
Speaker 1: a better place to address. And again issues of inequality
Speaker 1: is a great example of that. Now, what we when
Speaker 1: we look at which countries are able to do large
Speaker 1: scale asset purchases, it is countries that have built up
Speaker 1: very credible central banks, very transparent central banks, with good
Speaker 1: rules based policy making. So we have to keep that
Speaker 1: in mind. I mean, the exception doesn't make the rule.
Speaker 1: You have to maintain your reputation for keeping your eye
Speaker 1: on inflation and inflation expectations, and if you do that
Speaker 1: in good times, and then when you have hit by
Speaker 1: a crisis, you can do exceptional measures. So you know,
Speaker 1: we are living in times of low interest rates, and
Speaker 1: I suspect that will be the case going forward for
Speaker 1: many years. So this is a challenge that both fiscal
Speaker 1: and monetary policy has to deal with. And I would
Speaker 1: bring in there what's happening in financial markets because what
Speaker 1: we are seeing, of course is very high valuations and
Speaker 1: frankly complacency in financial markets. So there's very little room
Speaker 1: for surprises at this time. And this is exactly going
Speaker 1: to be the challenge which is what we will see
Speaker 1: in Jackson all which is how do you communicate you're
Speaker 1: very clear of it when you're going to move without
Speaker 1: creating tantrums GA. There's also the flip side of this
Speaker 1: that easy monetary conditions can plug a hole and actually
Speaker 1: take the pressure off fiscal policymakers from actually putting through
Speaker 1: some of the policies necessary to bridge some of the
Speaker 1: issues in society that FED policy is increasingly becoming aware
Speaker 1: of how do you sort of view that the idea
Speaker 1: that when the Fed creates this calm, creates the stasis
Speaker 1: in markets, it can make people, at least in Washington,
Speaker 1: d C. Feel like there isn't as much of a problem.
Speaker 1: I mean that exactly was the problem before this crisis, right,
Speaker 1: I mean everything was left to monitory polity and fiscal
Speaker 1: policy wasn't doing anything. This time around, at least in
Speaker 1: the advanced economies, we have seen the recognition that montreal
Speaker 1: policy cannot do it all. And uh, you know that
Speaker 1: the one of the messages I will make is to
Speaker 1: make sure this continues and this is not a one off,
Speaker 1: you know, intervention that happened with fiscal policy, That this
Speaker 1: is durable and this continues because one of policy cannot
Speaker 1: solve kinds of problems. You're talking about the one final question.
Speaker 1: I'm gonna get you in trouble here. My my apologies
Speaker 1: up front as well. We have had a wonderful set
Speaker 1: of Federal Reserve chairman's, including a guy named Bernanky, who
Speaker 1: I think you have a nodding acquaintance with. We've got
Speaker 1: clarative Columbia holding Ford on monetary theory, and others. Talk
Speaker 1: to me about the reappointment of a non PhD economists
Speaker 1: Chairman of the Fed. Do you care that your own
Speaker 1: Powell isn't a PhD economist? I didn't share. Powell has
Speaker 1: been in doing a great job in very difficult times,
Speaker 1: and no, I don't care whether he has a PhD
Speaker 1: or not. I think it's important to get the right
Speaker 1: inputs from all kinds of people, with all kinds of backgrounds,
Speaker 1: and and he's been very clear about that, and he's
Speaker 1: been reacting very well to the kinds of advice he's
Speaker 1: been getting. To Dr Copeneff, thank you so much for
Speaker 1: joining us today. Get to go open at the International
Speaker 1: Monetary Fund right now. Lisa Brandma's Taylor Rigs and I
Speaker 1: are honored to present to you Mark Kimmitt, Brigadier General,
Speaker 1: retired Brigadier General, former Assistant Secretary of State for the
Speaker 1: Bush Administration. General Kimmit, thank you so much. You came
Speaker 1: out of West Point and you had to wander up
Speaker 1: to Camp Stanley and Korea, which wasn't a Hollywood TV
Speaker 1: set of mash but it was the real deal back
Speaker 1: in nineteen fifty four with real day. We face real
Speaker 1: danger today in cobble. How do we in adapt an
Speaker 1: adjust on this Friday afternoon in Afghanistan. Well, I think
Speaker 1: the two issues, one of the near term issues and
Speaker 1: the long term issues. The near term issue, we tighten
Speaker 1: up the security, We push out the perimeter UH so
Speaker 1: that the screening is done further out by fewer people UH,
Speaker 1: and candidly we quit UH asking permission of the Taliban
Speaker 1: to protect our troops. In the long term, we've got
Speaker 1: to understand the implications of the Cobble bombing and understand
Speaker 1: that that's a recruiting poster for every terrorist outfit in
Speaker 1: the world. And we better start getting ready to adapt
Speaker 1: to this new pre nine eleven period that we're going
Speaker 1: to be going through. Lisa and Taylor have some important questions.
Speaker 1: I have to ask a difficult question which alludes to
Speaker 1: section sixty at Arlington Cemetery. How do we defend people
Speaker 1: like you against suicide attack? Well, the most important issue
Speaker 1: is how do we defend America against suicide attacks? And
Speaker 1: that is continue the policies that we've had, which is
Speaker 1: unflinching offensive operations, fight them forward, don't wait for them
Speaker 1: to come to us, general commit going forward. How concerned
Speaker 1: are you about the strategic importance of Afghanistan and the
Speaker 1: US not having a footprint there at a time of
Speaker 1: increasing chaos. Yeah, I don't think we have a strategic
Speaker 1: interest in Afghanistan except to prevent it from becoming yet
Speaker 1: again another safe haven and sanctuary for terrorism as it
Speaker 1: had been pre nine eleven. We're already seeing indications that
Speaker 1: it is that everybody's now coming back to this ungoverned
Speaker 1: space and they're suiting up. For lack of a better term,
Speaker 1: we need to not have the pre nine eleven view
Speaker 1: of just keeping an eye on things there. But as
Speaker 1: we see these terrorist training camp and we see these
Speaker 1: activities and hear these activities being planned, we've got to
Speaker 1: take action against these camps through air strikes and candidly,
Speaker 1: sometimes we're gonna have to put our people on the
Speaker 1: ground to make sure that these people never have a
Speaker 1: chance to achieve a critical mass to attack us again,
Speaker 1: because they look at what's happening at Kabbal and they
Speaker 1: say it's time to go after the Americans again. We've
Speaker 1: shown weakness and we can't show weakness going forward. In general.
Speaker 1: Is their political capital to do that At a time
Speaker 1: when most people in the United States were for withdrawing
Speaker 1: the troops and when frankly, the allies of the United
Speaker 1: States perhaps don't trust the commitment to go in and
Speaker 1: to have their backs. Well, first of all, I don't
Speaker 1: want to talk about political capital. The fact remains most
Speaker 1: Americans agreed with the withdrawal, but they have not agreed
Speaker 1: with this debacle that we're seeing over the last couple
Speaker 1: of weeks. Uh, those of us that have watched this
Speaker 1: for a long time had policy positions focused on this.
Speaker 1: I believe that we should have done us at a
Speaker 1: longer pace, during the winter, not the fighting season, and
Speaker 1: we should have left the commitment on the ground to
Speaker 1: continue to put some backbone into the Afghan army. The
Speaker 1: sloppy way we did it, this shambolic way we did it,
Speaker 1: I think is directly demonstrated by what happened yesterday and
Speaker 1: as of yesterday, I mean, what do you think of
Speaker 1: we're asking terrorists to support us in fighting the other terrorists?
Speaker 1: In general? Mackenzie yesterday said the Taliban was our front
Speaker 1: line of security. Somehow that suicide bomber got through to
Speaker 1: the US forces as that second line of security. Unfortunately,
Speaker 1: the suicide been went off and thank god it didn't
Speaker 1: get on the airplane. Are we trusting the Taliban enough
Speaker 1: to stop those suicide bombers from getting through to American forces? Well,
Speaker 1: we shouldn't be trusting the Taliban at all. Since the
Speaker 1: Doha Talks, they have demonstrated their unwillingness to abide by
Speaker 1: any agreement or commitment that they've made. Look, this isn't
Speaker 1: an evacuation. This is a hostage situation. We're not doing
Speaker 1: aid evacuation. We're asking the Taliban to release these hostages.
Speaker 1: I don't know who's kidding who, but the Taliban can't
Speaker 1: be trusted, shouldn't be trusted. And this and this uh
Speaker 1: this uh uh strategic communications campaign, their wrning seems to
Speaker 1: have a lot of people fooled. General kimmen, we have
Speaker 1: had a lot of academic experts on and they really
Speaker 1: emphasize the tribal nature of society among Sunni and she
Speaker 1: You are truly expert at tribal tensions from the Levant
Speaker 1: all the way over east into Afghanistan and indeed to Pakistan.
Speaker 1: Please advise us on the new relationship America will have
Speaker 1: with the fractured Pakistan. Well, first of all, this this
Speaker 1: is less about the shoe Sunni Shia divide UH, and
Speaker 1: it's more about tribal politics, and candidly, it's about Pakistan's
Speaker 1: UH supposed national security concerns where they want to use Afghanistan.
Speaker 1: It's sort of a ford border between them and India.
Speaker 1: They don't want to be surrounded UH. Candidly, even though
Speaker 1: Pakistan is expressing grief and sorrow for what happened yesterday,
Speaker 1: we know the Pakistani fingerprints all over the support of
Speaker 1: the Taliban, and candidly could very well be UH their
Speaker 1: support for isis K. This is a country that harbored
Speaker 1: Osama bin Laden for years UM and the relationship that
Speaker 1: we have with them is somewhat questionable. But they have
Speaker 1: forty nuclear weapons and we certainly don't want to have
Speaker 1: their government overturned and taken over by a bunch of
Speaker 1: tribal types inside of Pakistan. General Kibet, before we let
Speaker 1: you go, you were talking about the messiness of the operation,
Speaker 1: and I want to talk about some of the strategy.
Speaker 1: What would the rationale be for abandoning the Bagram air
Speaker 1: base and not just in focusing resources on the Kabbal Airport. Yeah, look,
Speaker 1: I'm I'm a little bit UH conflicted about that issue
Speaker 1: with Bagram Airport. Yeah, it's more secure, but it's also
Speaker 1: much further out in the Taliban would have set up
Speaker 1: checkpoints um for anybody to get to the Bagram airfield.
Speaker 1: So yeah, I think it's convenient excuse, but Bogram, while
Speaker 1: it was easier to defend, it would have been harder
Speaker 1: for people to evacuate too, because it's so far away
Speaker 1: from the city of Kabul. General Kimmitt, what do you
Speaker 1: tell the man the woman coming out of the class
Speaker 1: of two thousand twenty one at West Point Um. This
Speaker 1: is a long war. It's been going on since the
Speaker 1: nine eleven and it's not going to stop anytime soon.
Speaker 1: You need to look at what your predecessors from the
Speaker 1: last twenty years have done to defend this country and
Speaker 1: you better rock up and be ready to defend it
Speaker 1: as well. Mark Kimmitt, we look forward to speaking to
Speaker 1: you again. Mark Kimmitt, I retired Brigadier General and of
Speaker 1: course working with the Bush administration as Assistant Deputy Assistant
Speaker 1: Director of Defense for the Middle East. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and
Speaker 1: on Bloomberg Television each day from six to nine am
Speaker 1: for insight from the best in economics, finance, investment, and
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,
Speaker 1: Bloomberg dot com, and of course, on the terminal. I'm
Speaker 1: Tom Keene, and this is Bloomberg