WEBVTT - Surveillance: Fed Policy with Bullard 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.280 with Jonathan Faroe and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.600 --> 0:00:30.160 the Bloomberg Terminal, and the Bloomberg Business app. So I'm 0:00:30.200 --> 0:00:32.640 gonna get right to it. With Jobs Day coming up 0:00:32.640 --> 0:00:36.280 on Friday, ism statistics today, all of it coming back 0:00:36.320 --> 0:00:39.360 down to fellow reserve policy and what is so important 0:00:39.440 --> 0:00:42.400 understand and folks, this is out at the Arch of 0:00:42.479 --> 0:00:46.279 Saint Louis on the Mississippi River. It's important when you 0:00:46.320 --> 0:00:49.960 are a Saint Louis Cardinal and you're on injured reserve. 0:00:50.479 --> 0:00:54.520 So Adam Wainwright of the Saint Louis Cardinals saying the 0:00:54.680 --> 0:00:58.960 Star Spangled banner on opening Day for the Cardinals, which 0:00:59.160 --> 0:01:02.680 clearly sets us up for next year. On opening day, 0:01:02.720 --> 0:01:06.639 Michael McKee, we expect James Bullard of the Saint Louis 0:01:06.720 --> 0:01:11.520 fed to sing Opening Day for the Cardinals. Well, I 0:01:11.560 --> 0:01:14.080 suppose I could make that my first question Tom to 0:01:14.319 --> 0:01:16.960 Jim Bullard. He is the president of the Saint Louis 0:01:17.000 --> 0:01:20.320 FED and he joins us now good morning, Jim. Tom 0:01:20.360 --> 0:01:21.760 wants to know if you're going to sing the national 0:01:21.800 --> 0:01:24.320 anthem on opening day next half. I have no plans 0:01:24.880 --> 0:01:28.680 to do that. Well, as Rosanne Rosenta dat I used 0:01:28.680 --> 0:01:32.520 to say on Saturday Night Live, it's always something. We 0:01:32.520 --> 0:01:35.480 were in the middle of a quote unquote banking crisis 0:01:35.720 --> 0:01:38.959 and now we've got another oil shock this morning. Everybody 0:01:39.040 --> 0:01:40.959 waking up to headlines and say maybe we go to 0:01:40.959 --> 0:01:43.720 one hundred dollars. So, as a FED official, when you 0:01:43.760 --> 0:01:49.000 see that, how are you reacting well on the financial stress? 0:01:49.040 --> 0:01:52.240 I think you know this is a post Dodd Frank world, 0:01:52.360 --> 0:01:55.360 and I do think that the reaction to the banking 0:01:55.400 --> 0:02:01.680 problems was swift and was appropriate and both here in 0:02:01.720 --> 0:02:06.960 the US and overseas, and so I think you know 0:02:07.040 --> 0:02:09.920 the idea that there are macro predential tools that you 0:02:09.960 --> 0:02:12.919 can use in that kind of situation to calm things down. 0:02:13.480 --> 0:02:15.799 That seems to have worked so far. You never know 0:02:16.120 --> 0:02:19.320 if there's further things happening, but if if there are, 0:02:19.480 --> 0:02:24.119 we can react with macro predential tools again. And then 0:02:24.160 --> 0:02:27.800 on the policy the monetary policy side, we can still 0:02:27.840 --> 0:02:33.440 proceed to fight inflation and get inflation down during twenty 0:02:33.480 --> 0:02:37.400 twenty three and twenty twenty four back to targets. So 0:02:37.440 --> 0:02:41.800 I think you know this idea that you can walk 0:02:41.800 --> 0:02:43.400 and chew gum at the same time. You've got the 0:02:43.440 --> 0:02:47.960 macro predential tools for financial stress and you've got monetary 0:02:48.000 --> 0:02:51.520 policy to fight inflation. We can do both as long 0:02:51.560 --> 0:02:56.480 as the financial stress doesn't morph into something much larger. 0:02:56.520 --> 0:02:59.480 And so far, so good. But knock on wood, you're 0:02:59.520 --> 0:03:01.240 never sure what's going to be around the corner. But 0:03:01.280 --> 0:03:03.399 does one hundred dollars oil or the idea at least 0:03:03.400 --> 0:03:07.440 of this oil shock complicate your job? Yeah, well, of 0:03:07.480 --> 0:03:11.720 course oil is always the oil prices is always important. 0:03:12.120 --> 0:03:15.760 I would have expected somewhat higher oil prices anyway, with 0:03:16.080 --> 0:03:20.160 China coming back sooner than expected during the first half 0:03:20.200 --> 0:03:24.480 here of twenty twenty three, and with Europe scurring recession, 0:03:25.320 --> 0:03:27.720 so both of those and strong data in the US, 0:03:27.840 --> 0:03:31.720 all of those are pretty bullish factors I would say 0:03:31.720 --> 0:03:35.800 for the oil market. This was a surprise, that OPEC decision, 0:03:36.400 --> 0:03:38.360 but whether it will have a lasting impact, I think 0:03:38.440 --> 0:03:41.440 is an open question. Now you had already moved up 0:03:41.560 --> 0:03:44.240 your estimate of where the Fed funds rate needed to 0:03:44.280 --> 0:03:47.040 be to bring down inflation. You were talking an effective 0:03:47.080 --> 0:03:50.120 radar around five point six percent. Does this change that 0:03:50.200 --> 0:03:53.760 calculation at all? And can you explain why you think 0:03:53.800 --> 0:03:58.000 we need to go that high to hit the terminal rate? 0:04:00.320 --> 0:04:02.760 I think, well we will need I think we'll need 0:04:02.760 --> 0:04:06.920 to get over five percent. The committee says that the 0:04:06.960 --> 0:04:10.960 median person on the committee says a little over five percent. 0:04:11.080 --> 0:04:14.520 I'm a little higher than that. I think inflation will 0:04:14.600 --> 0:04:19.200 be stickier. And you know, I'd look mostly at the 0:04:19.480 --> 0:04:23.560 core measures of inflation, like PC core inflation or the 0:04:23.680 --> 0:04:26.520 Dallas Fed trim mean, which really hasn't come down very 0:04:26.600 --> 0:04:29.560 much at all, still in the four percent range, so, 0:04:30.400 --> 0:04:34.200 you know, four point six or something like that. So 0:04:34.200 --> 0:04:36.640 so we're still talking about a lot of inflation, more 0:04:36.640 --> 0:04:41.200 than double our inflation target on that basis, and oil 0:04:41.240 --> 0:04:44.760 prices fluctuated around it's hard, it's hard to track exactly 0:04:44.800 --> 0:04:46.800 some of that might feed into inflation and make our 0:04:46.880 --> 0:04:49.480 job a little bit more difficult. Just north of us 0:04:49.520 --> 0:04:52.839 this morning, in Oakbrook, Illinois, McDonald's has told its corporate 0:04:52.839 --> 0:04:56.440 officials to stay home this week because they're going to 0:04:56.560 --> 0:04:59.880 start notifying people that they're being laid off. How concern 0:05:00.120 --> 0:05:03.200 are you with all these headlines about layoffs coming in 0:05:03.839 --> 0:05:08.280 that you may go too far? Yeah, the labor market 0:05:08.360 --> 0:05:12.960 is super strong still, many more job openings, and there 0:05:13.000 --> 0:05:17.039 are unemployed workers. I think if a worker does get 0:05:17.040 --> 0:05:21.360 disrupted today that they should, you know, let's hope and 0:05:22.080 --> 0:05:25.240 pray for them that they'll be able to get a 0:05:25.279 --> 0:05:29.359 new job. But it's still a very robust labor market 0:05:29.400 --> 0:05:35.280 with three point eight percent unemployment. You know, the Kansas 0:05:35.320 --> 0:05:38.920 City FEDS Labor Market Conditions Index still at a super 0:05:39.000 --> 0:05:44.000 high level. Jobs reports have been very very strong in 0:05:44.040 --> 0:05:47.600 twenty twenty three here, so you're really not seeing much 0:05:47.640 --> 0:05:51.440 ebbing in the labor market. I think there's structural issues 0:05:52.160 --> 0:05:57.080 where labor supplies running under labor demand, and that's going 0:05:57.120 --> 0:06:00.280 to take quite a while to settle down. What are 0:06:00.279 --> 0:06:06.279 you expecting for Friday the job's reporting? I don't I 0:06:06.279 --> 0:06:11.279 don't have a number for you, but anecdotal information seems 0:06:11.279 --> 0:06:15.360 to indicate that their firms are still scrambling for workers. 0:06:15.440 --> 0:06:18.280 They're doing some other things that are strategies that might 0:06:18.320 --> 0:06:21.239 slow this down a little bit. There's substituting capital for labor. 0:06:21.320 --> 0:06:25.599 That makes a lot of sense in this situation, but 0:06:26.120 --> 0:06:30.920 I just think that on the whole, they still need workers. Well, 0:06:30.960 --> 0:06:35.120 if they still need workers and supply is running below demand, 0:06:35.920 --> 0:06:39.440 that has to complicate the idea of monetary policy, because 0:06:39.440 --> 0:06:42.119 that's not what's supposed to happen when you're raising rates 0:06:42.279 --> 0:06:46.280 as much as you have. That's true, although I'm not 0:06:46.360 --> 0:06:50.880 as oriented towards the Phillips curve as many, But I 0:06:50.920 --> 0:06:54.760 think the way I would state it is that the 0:06:54.880 --> 0:06:58.680 strong labor market gives us headroom to fight inflation. It's 0:06:58.680 --> 0:07:01.160 a good time to be fighting inflation and trying to 0:07:01.200 --> 0:07:03.800 get inflation back to target while the labor market is 0:07:03.839 --> 0:07:06.720 as strong as it is, and even workers that get 0:07:06.720 --> 0:07:10.080 disrupted hopefully will be able to find a new job 0:07:10.200 --> 0:07:13.000 and maybe a better job. In this situation, you have 0:07:13.040 --> 0:07:15.840 critics around the country and certainly on Capitol Hill. That's 0:07:15.840 --> 0:07:20.240 say workers are finally getting their share, wages are going up, 0:07:20.840 --> 0:07:23.640 not quite keeping up with inflation, but much better than 0:07:23.680 --> 0:07:25.680 they had been, and here comes the Fed wants to 0:07:25.800 --> 0:07:29.480 squash them down again and cut the wage increases in 0:07:29.560 --> 0:07:31.600 order to bring down inflation. What do you say to 0:07:31.960 --> 0:07:36.080 those people, Well, what are they talking about? Real wages 0:07:36.080 --> 0:07:39.360 have gone down for most people, so the inflation is 0:07:39.440 --> 0:07:43.720 hurting them. So inflation is hurting the average worker. So 0:07:43.720 --> 0:07:46.080 you don't think the FED has a perception problem with 0:07:46.160 --> 0:07:48.400 America these days. You'd like to get rid of the 0:07:48.400 --> 0:07:51.720 inflation so that people can get there, get a better 0:07:52.920 --> 0:07:55.440 labor market outcome, and be able to afford the goods 0:07:55.440 --> 0:07:59.080 that they have to purchase. So I think there's been 0:07:59.080 --> 0:08:02.160 a lot of confusion around this issue. It's true that 0:08:02.400 --> 0:08:09.440 some workers and some categories got more than the increase 0:08:09.520 --> 0:08:11.680 in wages that more than made up for inflation, but 0:08:11.800 --> 0:08:15.240 for many workers that hasn't been the case. They've been 0:08:15.320 --> 0:08:19.520 lagging behind in real wages. And that's why you'd like 0:08:19.560 --> 0:08:22.720 to bring inflation under control and get a better outcome 0:08:22.800 --> 0:08:27.480 for the labor market. Markets have been struggling this morning 0:08:27.520 --> 0:08:29.760 to figure out what's going to happen going forward with 0:08:29.800 --> 0:08:34.640 the oil price headlines. But going into this weekend they 0:08:34.640 --> 0:08:38.600 were pricing four rake cuts over the coming year. Why 0:08:38.640 --> 0:08:41.559 are you when wall streets so far apart in what 0:08:41.600 --> 0:08:44.520 you say is likely to happen, They should listen to me. 0:08:45.200 --> 0:08:48.959 So here's what I think. I think I put eighty 0:08:48.960 --> 0:08:53.360 percent probability that the financial stress will decline, and then 0:08:53.480 --> 0:08:57.400 make that your base baseline forecast. I think that's for 0:08:57.480 --> 0:09:01.520 low growth, but growth continued, pretty strong labor market and 0:09:01.559 --> 0:09:06.040 inflation coming down. That's got eighty percent probability. Maybe now 0:09:06.040 --> 0:09:09.000 I'd go to eighty five percent probability or something. And 0:09:09.040 --> 0:09:16.960 then the other branch where financial stress gets worse, you know, 0:09:17.080 --> 0:09:19.680 then we'll have to bring out more macroprudential tools and 0:09:19.720 --> 0:09:22.760 it'll be a stressful situation, and all bets are off 0:09:22.760 --> 0:09:25.520 in that situation. The problem with Wall Street is they've 0:09:25.520 --> 0:09:28.160 got too much probability on that branch and not enough 0:09:28.160 --> 0:09:30.120 probability on the other branch. So I think they're going 0:09:30.120 --> 0:09:34.400 to reprice to the slow growth scenario, and so I 0:09:34.400 --> 0:09:36.640 think we'll see this change in the weeks. I had 0:09:36.640 --> 0:09:38.920 here go back to the banks for a second. In February, 0:09:39.559 --> 0:09:42.679 the staff at the Open Market Committee presented on the 0:09:42.720 --> 0:09:47.040 idea of these asset mismatches on bank balance sheets. So 0:09:47.559 --> 0:09:50.440 you were kind of aware that this could be a problem. 0:09:50.679 --> 0:09:53.200 Was there something that the Fed missed or didn't do, 0:09:53.400 --> 0:09:57.840 or should have done to keep the bank situation, we'll 0:09:57.840 --> 0:10:02.240 call it from developing as it has. I can't talk 0:10:02.240 --> 0:10:05.520 about what was presented at their home c ME, so 0:10:05.559 --> 0:10:09.920 I will neither confirm nor deny that. But my own 0:10:09.960 --> 0:10:15.000 staff here was certainly well aware of issues with banks. 0:10:15.280 --> 0:10:19.000 We talked to bankers all the time. We're a regulator 0:10:19.000 --> 0:10:22.880 of banks, and so we knew that there were issues 0:10:22.920 --> 0:10:30.000 about let's say, some deposits running off to non bank 0:10:31.000 --> 0:10:34.720 entities that wanted to pay a higher rate. That's occurring, 0:10:36.200 --> 0:10:39.240 but I think at a rate that's certainly manageable for 0:10:39.640 --> 0:10:43.240 at least for the banks that we talked to. They've 0:10:43.280 --> 0:10:49.200 got some securities holdings that have lost value as interest 0:10:49.280 --> 0:10:51.439 rates have gone up, but that also I think is 0:10:51.520 --> 0:10:56.240 manageable for nearly all institutions. So that you know, they're 0:10:56.320 --> 0:10:59.480 running businesses and they've got challenges, but they've also they're 0:10:59.480 --> 0:11:05.720 also petitive, and they'll they figure out ways to manage 0:11:05.760 --> 0:11:10.040 the situation. I would also say anecdotally that most banks 0:11:10.040 --> 0:11:13.520 say loan demand is strong, and they actually haven't sentives 0:11:13.600 --> 0:11:16.280 to make loans at the higher interest rates. If they 0:11:16.320 --> 0:11:20.240 can in order to offset some of the older loans 0:11:20.280 --> 0:11:22.959 that they have that are that are at lower interest rates, well, 0:11:22.960 --> 0:11:24.880 we got to send it back to Tom. But given 0:11:24.960 --> 0:11:28.920 how Tom introduced us, you've got predictions for interest rates, 0:11:28.920 --> 0:11:33.240 growth GDP, the end of the year Cardinals prediction. I'm 0:11:33.240 --> 0:11:34.960 sure it'll be a great year for the Cardinals. I 0:11:34.960 --> 0:11:37.400 think they'll win the division and I'll do very well. 0:11:37.520 --> 0:11:41.840 Another victory yesterday, so excellent. All right, Tom Keane, we'll 0:11:41.840 --> 0:11:44.280 send it back to you and the folks in New 0:11:44.360 --> 0:11:48.239 York given the fact that Jim Bullard is so optimistic 0:11:48.280 --> 0:11:50.280 about the Cardinals, will take that as a good sign 0:11:50.320 --> 0:11:52.600 for the economy, we hope. And we like the pictures 0:11:52.640 --> 0:11:54.679 clock as well. Michael McKee, thank you so much for 0:11:54.720 --> 0:11:58.000 getting back to a National League baseball Here. James Bullard 0:11:58.040 --> 0:12:01.280 of the FED, our John G. Wilson and Don lem 0:12:01.440 --> 0:12:05.200 report here an update on the Blackstone Real Estate Income Trust. 0:12:05.720 --> 0:12:08.800 And they're talking about the liquidity the redemptions as well 0:12:08.840 --> 0:12:11.560 that we're seeing. And to put this in scale, this 0:12:11.760 --> 0:12:15.520 trust was up eight percent last year. I want to 0:12:15.600 --> 0:12:19.600 make clear, even with the withdrawal requests they're seeing, they're 0:12:19.600 --> 0:12:24.079 seeing some rent stability within the Blackstone Real Estate Income Trust. 0:12:24.720 --> 0:12:31.040 Stay with us. This is Bloomberg Now with the latest 0:12:31.040 --> 0:12:33.400 news from New York City and around the world. Here's 0:12:33.440 --> 0:12:43.120 Michael Barr that high to hit the terminal rate, I think, 0:12:43.160 --> 0:12:45.360 well we will need I think we'll need to get 0:12:45.440 --> 0:12:50.079 over five percent. The committee says that the median person 0:12:50.120 --> 0:12:53.680 on the committee says a little over five percent. I'm 0:12:53.720 --> 0:12:57.720 a little higher than that. I think inflation will be stickier, 0:12:58.360 --> 0:13:02.640 And you know, I'd look mostly at the core measures 0:13:02.640 --> 0:13:06.680 of inflation, like PC core inflation or the Dallas Fed 0:13:06.679 --> 0:13:09.480 trim mean, which really hasn't come down very much at all, 0:13:09.640 --> 0:13:13.959 still in the four percent range, so you four point 0:13:14.000 --> 0:13:17.480 six or something like that. So so we're still talking 0:13:17.480 --> 0:13:20.240 about a lot of inflation, more than double our inflation 0:13:20.360 --> 0:13:25.080 target on that basis, and oil prices fluctuated around it's 0:13:25.720 --> 0:13:28.080 it's hard to track exactly some of that might feed 0:13:28.120 --> 0:13:30.600 into inflation and make our job a little bit more difficult. 0:13:31.000 --> 0:13:34.280 Just north of us this morning, in Oakbrook, Illinois, McDonald's 0:13:34.320 --> 0:13:38.000 has told its corporate officials to stay home this week 0:13:38.080 --> 0:13:40.720 because they're going to start notifying people that they're being 0:13:40.800 --> 0:13:44.439 laid off. How concerned are you with all these headlines 0:13:44.440 --> 0:13:49.600 about layoffs coming in that you may go too far? Yeah, 0:13:49.679 --> 0:13:54.600 the labor market is super strong. Still many more job openings, 0:13:54.640 --> 0:13:58.840 and there are unemployed workers. I think if a worker 0:13:58.920 --> 0:14:03.280 does get disrupted today that they should you know, let's 0:14:03.280 --> 0:14:06.800 hope and pray for them that they'll be able to 0:14:07.360 --> 0:14:10.800 get a new job. But it's still a very robust 0:14:10.880 --> 0:14:17.120 labor market with three point eight percent unemployment. Uh, you know, 0:14:17.160 --> 0:14:20.800 the Kansas City FEDS Labor Market Conditions Index still at 0:14:20.840 --> 0:14:25.200 a super high level. Jobs reports have been very, very 0:14:25.240 --> 0:14:29.120 strong in twenty twenty three here, so you're really not 0:14:29.280 --> 0:14:32.120 seeing much ebbing in labor market. I think there are 0:14:32.800 --> 0:14:38.400 structural issues where labor supplies running under labor demand, and 0:14:39.160 --> 0:14:42.080 that's going to take quite a while to settle down. 0:14:42.360 --> 0:14:48.000 What are you expecting for Friday the jobs reporting? I 0:14:48.040 --> 0:14:49.800 don't have an I don't have a number for you, 0:14:50.360 --> 0:14:55.720 but anecdotal information seems to indicate that their firms are 0:14:55.760 --> 0:14:59.360 still scrambling for workers. They're doing some other things that 0:14:59.400 --> 0:15:01.800 are strategy. Gee, it might slow this down a little bit. 0:15:01.800 --> 0:15:04.400 There's substituting capital for labor that makes a lot of 0:15:04.440 --> 0:15:10.120 sense in this situation. But I just think that on 0:15:10.160 --> 0:15:14.240 the whole, they still need workers. Well, if they still 0:15:14.280 --> 0:15:18.680 need workers and supply is running below demand, that has 0:15:18.680 --> 0:15:22.120 to complicate the idea of monetary policy, because that's not 0:15:22.320 --> 0:15:25.080 what's supposed to happen when you're raising rates as much 0:15:25.080 --> 0:15:29.640 as you have. That's true, although I'm not as oriented 0:15:29.640 --> 0:15:35.360 towards the Phillips curve as many, But I think the 0:15:35.400 --> 0:15:37.920 way I would state it is that the strong labor 0:15:38.040 --> 0:15:41.360 market gives us headroom to fight inflation. It's a good 0:15:41.360 --> 0:15:44.200 time to be fighting inflation and trying to get inflation 0:15:44.240 --> 0:15:46.640 back to target while the labor market is as strong 0:15:46.680 --> 0:15:50.520 as it is, and even workers that get disrupted hopefully 0:15:50.560 --> 0:15:52.960 will be able to find a new job and maybe 0:15:52.960 --> 0:15:56.040 a better job. In this situation, you have critics around 0:15:56.080 --> 0:15:59.040 the country and certainly on Capitol Hill. That's say, workers 0:15:59.040 --> 0:16:02.640 are finally getting there or share wages are going up, 0:16:03.240 --> 0:16:06.040 not quite keeping up with inflation, but much better than 0:16:06.040 --> 0:16:08.080 they had been, and here comes the FED wants to 0:16:08.200 --> 0:16:11.880 squash them down again and cut the wage increases in 0:16:11.960 --> 0:16:14.000 order to bring down inflation. What do you say to 0:16:14.360 --> 0:16:18.440 those people, Well, what are they talking about? Real wages 0:16:18.480 --> 0:16:21.760 have gone down for most people, so the inflation is 0:16:21.840 --> 0:16:26.080 hurting them. So inflation is hurting the average worker. So 0:16:26.120 --> 0:16:28.480 you don't think the FED has a perception problem with 0:16:28.560 --> 0:16:30.760 America these days? You'd like to get rid of the 0:16:30.800 --> 0:16:34.080 inflation so that people can get there, get a better 0:16:35.320 --> 0:16:37.800 labor market outcome, and be able to afford the goods 0:16:37.840 --> 0:16:41.480 if they have to purchase. So I think there's been 0:16:41.480 --> 0:16:44.600 a lot of confusion around this issue. It's true that 0:16:44.760 --> 0:16:51.840 some workers and some categories got more than the increase 0:16:51.880 --> 0:16:54.080 in wages that more than made up for inflation, but 0:16:54.200 --> 0:16:57.640 for many workers that hasn't been the case. They've been 0:16:57.720 --> 0:17:01.920 lagging behind in real wages. And that's why you'd like 0:17:01.960 --> 0:17:05.119 to bring inflation under control and get a better outcome 0:17:05.160 --> 0:17:09.920 for the labor market. Markets have been struggling this morning 0:17:09.920 --> 0:17:12.119 to figure out what's going to happen going forward with 0:17:12.200 --> 0:17:17.000 the oil price headlines. But going into this weekend they 0:17:17.000 --> 0:17:21.000 were pricing four rake cuts over the coming year. Why 0:17:21.000 --> 0:17:23.960 are you when wall streets so far apart in what 0:17:24.000 --> 0:17:26.879 you say is likely to happen? They should listen to me. 0:17:27.600 --> 0:17:31.359 So here's what I think. I think I put eighty 0:17:31.359 --> 0:17:35.720 percent probability that the financial stress will decline and then 0:17:35.880 --> 0:17:39.800 make that your base baseline forecast. I think that's for 0:17:39.880 --> 0:17:43.879 low growth, but growth continued, pretty strong, labor market and 0:17:43.960 --> 0:17:48.440 inflation coming down. That's got eighty percent probability. Maybe now 0:17:48.440 --> 0:17:51.360 I'd go to eighty five percent probability or something, and 0:17:51.400 --> 0:17:57.920 then the other branch where financial stress gets worse. Then, 0:17:59.119 --> 0:18:00.960 you know, then we'll have to bring up more macro 0:18:01.080 --> 0:18:04.480 prudential tools and it'll be a stressful situation, and all 0:18:04.520 --> 0:18:07.240 bets are off in that situation. The problem with Wall 0:18:07.280 --> 0:18:09.760 Street is they've got too much probability on that branch 0:18:09.920 --> 0:18:12.200 and not enough probability on the other branch. I think 0:18:12.200 --> 0:18:16.480 they're going to reprice to the slow growth scenario, and 0:18:16.520 --> 0:18:18.720 so I think we'll see this change in the weeks. 0:18:18.720 --> 0:18:20.600 I had here go back to the banks for a second. 0:18:20.640 --> 0:18:24.800 In February, the staff at the Open Market Committee presented 0:18:24.840 --> 0:18:28.760 on the idea of these asset mismatches on bank balance sheets. 0:18:29.160 --> 0:18:31.639 So you were kind of aware that this could be 0:18:31.720 --> 0:18:35.119 a problem. Was there something that the FED missed or 0:18:35.160 --> 0:18:39.919 didn't do, or should have done to keep the bank situation, 0:18:40.000 --> 0:18:44.400 we'll call it from developing as it has. I can't 0:18:44.400 --> 0:18:48.000 talk about what was presented at their homes, so I 0:18:48.040 --> 0:18:52.639 will neither confirm nor deny that. But my own staff 0:18:52.720 --> 0:18:57.680 here was certainly well aware of issues with banks. We 0:18:57.840 --> 0:19:01.840 talked to bankers all the time, where a regulator of banks, 0:19:01.960 --> 0:19:06.120 and so we knew that there were issues about let's say, 0:19:07.280 --> 0:19:14.240 some deposits running off to non bank entities that wanted 0:19:14.240 --> 0:19:19.200 to pay a higher rate. That's occurring, but I think 0:19:19.440 --> 0:19:22.480 at a rate that's certainly manageable for at least for 0:19:22.520 --> 0:19:28.840 the banks that we talked to. They've got some securities 0:19:28.880 --> 0:19:32.520 holdings that have lost value as interest rates have gone up, 0:19:32.640 --> 0:19:36.720 but that also, I think is manageable for nearly all institutions. 0:19:37.840 --> 0:19:40.879 So that you know, they're running businesses and they've got challenges, 0:19:40.960 --> 0:19:44.840 but they've also they're also competitive, and they'll they figure 0:19:44.880 --> 0:19:49.680 out ways to manage the situation. I would also say 0:19:49.720 --> 0:19:54.680 anecdotally that most banks say loan demand is strong and 0:19:54.800 --> 0:19:57.160 they actually have incentives to make loans at the higher 0:19:57.240 --> 0:20:01.720 interest rates if they can in order to offset some 0:20:01.840 --> 0:20:03.639 of the older loans that they have that are that 0:20:03.760 --> 0:20:05.880 are at lower interest rates. Well, we got to send 0:20:05.880 --> 0:20:08.439 it back to Tom. But given how Tom introduced us, 0:20:09.720 --> 0:20:12.480 you've got predictions for interest rates growth GDP, the end 0:20:12.520 --> 0:20:16.119 of the year Cardinals prediction. I'm sure it'll be a 0:20:16.200 --> 0:20:17.920 great year for the Cardinals. I think they'll win the 0:20:18.000 --> 0:20:21.840 division and they'll do very well. Another victory yesterday, so excellent. 0:20:22.680 --> 0:20:25.000 All right, Tom Keane, we'll send it back to you 0:20:25.640 --> 0:20:28.240 and the folks in New York. Given the fact that 0:20:28.960 --> 0:20:31.840 Jim Bullard is so optimistic about the Cardinals, will take 0:20:31.920 --> 0:20:34.200 that as a good sign for the economy. And we 0:20:34.359 --> 0:20:36.600 like the pitcher's clock as well. Michael McKee, thank you 0:20:36.640 --> 0:20:39.120 so much for getting back to a National League baseball. 0:20:39.160 --> 0:20:53.400 Here James Bullard of the Fed. Right now, the big 0:20:53.480 --> 0:20:55.920 deal is to speak with John Writing. He's a chief 0:20:56.000 --> 0:20:59.879 economic advisor at Breen Capital, and there's any number of 0:21:00.040 --> 0:21:01.639 ways ago here to go here, John, I want to 0:21:01.680 --> 0:21:04.440 talk with James Bullard of Saint Louis. I'm going to 0:21:04.480 --> 0:21:06.600 say you have been in the camp with Bullard looking 0:21:06.680 --> 0:21:10.000 for some form of not sustained inflation, but that the 0:21:10.080 --> 0:21:14.040 inflation worry won't go away. Bullard making clear we're putting 0:21:14.080 --> 0:21:16.840 too much focus on the banking crisis and not enough 0:21:17.240 --> 0:21:20.680 a monetary policy. One oh one. Do you agree? I 0:21:20.840 --> 0:21:25.760 do agree. I think it's very important to you just 0:21:26.240 --> 0:21:32.120 realize that the US is a very strong capital markets 0:21:32.400 --> 0:21:36.119 and banking system, and it's a very different situation than 0:21:36.240 --> 0:21:41.280 back in two thousand seven, two thousand and eight, and 0:21:41.400 --> 0:21:47.760 the financial crisis that took down bear Stearns, Lehman Brothers, AIG. 0:21:49.000 --> 0:21:51.840 It's a it's a very different world. So I think 0:21:51.880 --> 0:21:54.840 there is too much focus on that. The responses have 0:21:54.960 --> 0:21:59.600 been very swift, very strong. We can argue what the 0:21:59.840 --> 0:22:02.840 r origins of this is, but we do know that 0:22:05.000 --> 0:22:09.560 in effect there's an implicit guarantee of all deposits, regardless 0:22:09.560 --> 0:22:11.600 of deposit insurance. There's some reform that needs to be 0:22:11.680 --> 0:22:15.800 considered later, but that was essentially what Powell promised the 0:22:16.240 --> 0:22:19.840 last FMC press conference. We're going to rip up the 0:22:19.880 --> 0:22:23.800 script here with John writing, who lived the bear Stearns crisis. 0:22:23.960 --> 0:22:26.200 I would say one of the great themes right now, John, 0:22:26.840 --> 0:22:29.400 is it James Diamond standing out front of your bear 0:22:29.480 --> 0:22:34.040 Stearns headquarters on that tumultuous day. His hindsight is he 0:22:34.200 --> 0:22:39.639 made a massive mistake. Are we repeating the foibles of 0:22:39.720 --> 0:22:42.959 bear Stearns and Lehman Brothers or we learned our lessons 0:22:43.000 --> 0:22:46.199 over fifteen years? Well, I think we've learned some lessons. 0:22:46.320 --> 0:22:51.040 There's no doubt about it that the higher capital levels, 0:22:51.240 --> 0:22:54.560 the stress tests have done a lot to strengthen the 0:22:54.680 --> 0:22:59.440 underlying banking system. But you have to have significant questions 0:23:00.119 --> 0:23:05.639 about how that was implemented by supervisors, because if you 0:23:05.720 --> 0:23:08.840 look at the case of Silicon Valley Bank, they had 0:23:08.880 --> 0:23:12.240 over fifteen billion dollars of losses in their health to 0:23:12.320 --> 0:23:14.760 maturity portfolio, which doesn't get run through the P and 0:23:14.880 --> 0:23:18.040 L statement, doesn't get scored against their capital, so they 0:23:18.119 --> 0:23:22.119 had almost all of their capital. The size of their 0:23:22.160 --> 0:23:25.440 capital was almost the same magnitude as the size of 0:23:25.480 --> 0:23:28.800 their losses in the health to maturity portfolio. Now, you 0:23:28.840 --> 0:23:31.600 can only hold something to maturity if you have the 0:23:31.720 --> 0:23:34.359 funding to hold things to maturity. And that's where there 0:23:34.600 --> 0:23:39.639 is a similarity to two thousand and eight, which and 0:23:39.720 --> 0:23:42.960 in many ways what happened there was so much faster. 0:23:46.640 --> 0:23:49.560 But we know how to fix bank runs. Deposit insurance 0:23:50.359 --> 0:23:54.200 fixes bank runs, and we've had that. We've had some 0:23:54.760 --> 0:23:57.840 stabilization in the situation there, and the banking system as 0:23:57.840 --> 0:24:01.480 a whole looks very different rims of the size of 0:24:01.520 --> 0:24:05.080 their health to maturity losses against the overall capital. I 0:24:05.200 --> 0:24:07.399 only get back on script here because the time is 0:24:07.440 --> 0:24:09.560 so important, folks for just joining us on the radio, 0:24:09.680 --> 0:24:13.000 John writing and bring capital with us this morning. And John, 0:24:13.040 --> 0:24:15.959 I've got a dovetail two themes this week, and one 0:24:16.080 --> 0:24:19.920 was Adam Two's is phenomenal essay in the ft, alluding 0:24:20.000 --> 0:24:23.960 to the delusion or the imagery, the illusion that nominal 0:24:24.040 --> 0:24:27.200 GDP gives us. You've written about this for years and 0:24:27.280 --> 0:24:29.800 I pull it over to Dominic constant X credit suite 0:24:29.920 --> 0:24:34.240 now maszooo and the idea of we've got an odd 0:24:34.359 --> 0:24:38.359 nominal GDP because inflation is set high, we have a 0:24:38.600 --> 0:24:42.520 certain form of restriction. And then the Constant's phrase, are 0:24:42.600 --> 0:24:46.159 we super restrictive right now? All the dynamics that are 0:24:46.240 --> 0:24:50.440 going on? Does Powell have a restriction he didn't expect. Well, 0:24:51.080 --> 0:24:53.560 let's start with one definition restrictive, which is do we 0:24:53.640 --> 0:24:56.920 have restrict in monetary policy? And I don't think that 0:24:57.440 --> 0:25:01.120 you know, the fetch seeking that sufficiently restrict level of policy. 0:25:01.880 --> 0:25:05.560 I don't think they're there, ye, I mean, Jim rightly, 0:25:06.160 --> 0:25:09.520 rightly pointed out that the underlying inflation rate is in 0:25:09.640 --> 0:25:13.520 the force, and he cited the Dallas fed all the 0:25:13.600 --> 0:25:17.680 other measures pretty firmly in the mid four percents, which 0:25:17.760 --> 0:25:21.840 means that interest rates, the policy rate adjusted for inflation, 0:25:21.920 --> 0:25:26.280