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Speaker 1: Global business news twenty four hours a day at Bloomberg

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Speaker 1: dot Com, the radio, plus Globo lact and on your radio.

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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters

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Speaker 1: on Katherine Cownderie. Stocks are headed for a three week

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Speaker 1: low as concern about global economic growth sends equities lower

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Speaker 1: around the world. The SMP five hundred is down for

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Speaker 1: the fourth time in five days, with industrial shares losing

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Speaker 1: more than one percent and eighteen percent rally from February

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Speaker 1: lows is faltering. Reports today showed service companies expanded last

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Speaker 1: month at the fastest pace in four months, while fewer

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Speaker 1: jobs were added than projected, which have the markets every

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Speaker 1: fifteen minutes throughout the trading day down, Bloomberg Radio down.

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Speaker 1: Industrial average is down one hundred thirty points three quarters

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Speaker 1: of a percent, trading at seventeen thousand, six hundred twenty.

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Speaker 1: SMP f ive foundered down sixteen point three quarters of

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Speaker 1: a percent to two thousand forty seven. The NASDACT is

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Speaker 1: down forty five points nearly one percent at forty seven eighteen.

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Speaker 1: West Texas Intermediate cord oil down thirty four to barrel

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Speaker 1: at forte Spot gold is down sixteen dollars eighty cents

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Speaker 1: anounce at twelve seventy five and the tenure Treasury is

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Speaker 1: up three thirty seconds with the yield of one point

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Speaker 1: seven eight percent. And that's a Bloomberg business splash. This

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Speaker 1: is taking Stock with Kathleen Hayes and Pin Fox on

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Speaker 1: Bloomberg Radio. What's it take to get for Federal Reserve

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Speaker 1: Bank presidents in one place on one day to debate

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Speaker 1: a very contentious, very hot topic and monetary policy. Well,

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Speaker 1: if your name is John Taylor, and you have a

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Speaker 1: rule named after the Taylor Rule, and if you are

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Speaker 1: holding a monetary policy conference for the third year in

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Speaker 1: a row, that's what you can get. John Taylor is

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Speaker 1: with us here at the Hoover Institution at Stanford University. John,

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Speaker 1: of course the George P. Schult's Senior Fellow in Economics

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Speaker 1: at Hoover. He's the Mary and Robert Raymond Professor of

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Speaker 1: ECON at Stanford University, and so much more. In this

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Speaker 1: year the conference is entitled International Monetary Stability, Past, Present

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Speaker 1: and Future. So John, thank you for inviting me back

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Speaker 1: to the conference. It's great to be here. Glad you

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Speaker 1: could could become Glad you could be here and I

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Speaker 1: wanted to have you on the show today. The conference

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Speaker 1: officially kicks off tomorrow, but I wanted to get you

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Speaker 1: on the show today so we could really take our

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Speaker 1: time to put the issues on the table, so our

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Speaker 1: listeners will be already for tomorrow. So the monetary policy

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Speaker 1: rule that you have, the Taylor rule, in essence, takes

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Speaker 1: a look at unemployment and inflation, a couple of coefficients

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Speaker 1: and then says, what what what a central bank should do.

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Speaker 1: You say, we're not even we're not exactly applying to

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Speaker 1: the United States, but you say, it's really important now

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Speaker 1: to apply that rule overseas for starters. What's the rule?

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Speaker 1: Why is it so important? Well, when when they fed

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Speaker 1: another central banks came close to using this type of

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Speaker 1: rule or procedure, things work really well. They moved the

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Speaker 1: interest rate around in a pretty predictable way, and the

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Speaker 1: economy was good. Is it's a good time, And when

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Speaker 1: other center banks do the same thing. So there's a

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Speaker 1: lot of evidence both in economics and experience that this

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Speaker 1: kind of thing works and read sutly central banks have

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Speaker 1: gone different directions, and in some sense that's the purpose.

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Speaker 1: Our conferences say, why is there so much difference in

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Speaker 1: exchange rates are moving and capital flows are moving, and

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Speaker 1: that's the instability that we're concerned about. And the thought

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Speaker 1: is of central banks and the sense got back to

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Speaker 1: a more normal approach, which is a policy rule approach

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Speaker 1: that they could eliminate a lot of this instability. John Taylor,

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Speaker 1: I don't know whether you're familiar with Bill Maher, the

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Speaker 1: television interviewer, but he has a segment where he says

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Speaker 1: new rules, and I'm wondering if you could talk about

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Speaker 1: new rules based systems or a new rules based world economy.

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Speaker 1: Tell us about how a rules based system would work. Well,

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Speaker 1: what we've seen with experiences when central banks have more

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Speaker 1: predictable policies, so people know what they're doing when they're

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Speaker 1: moving the interest rate around, which is what they usually do,

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Speaker 1: then it provides more stability. And so a rules base

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Speaker 1: means you kind of know what's up, what the government's

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Speaker 1: up to, what the center banks are up to, and

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Speaker 1: they around the world know what each other is up to,

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Speaker 1: so it provides a real sort of sense of guidance

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Speaker 1: and stability. It's kind of natural you know what your

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Speaker 1: counterparts are doing. Other parts of the world. We've sent

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Speaker 1: We've seen it work in other areas of international policy,

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Speaker 1: trade policy. Rules based strategies have been out there a

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Speaker 1: long time and experienced people people like poll Vocal used

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Speaker 1: to run the FED, people like George SCHULTZU many cabinet

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Speaker 1: posts recognize this importance of a strategy and advocating we

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Speaker 1: moved back to this kind of thing. It's really not

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Speaker 1: so new. The world is different, but it's it's something

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Speaker 1: that's worked in the past and it will work again. Well,

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Speaker 1: is there really a rules for all season though? John?

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Speaker 1: It doesn't discretion have a role because there a certain center.

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Speaker 1: Feds always sid inflation rises, raise rates, you know, job

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Speaker 1: the job market gets too tight, going to start headquarter recession,

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Speaker 1: you cut rates and there's a certain then there's something

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Speaker 1: discretion based around your evaluation of those numbers and what

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Speaker 1: they're with the trends are where they're going. Well, the

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Speaker 1: advantage of a rule of procedures, you know when they're

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Speaker 1: going to do it and by how much, And it's

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Speaker 1: not just winging it and saying we're going to move

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Speaker 1: by this amount when we think we will and and

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Speaker 1: get off of it. So there's quite a bit of

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Speaker 1: difference and and of course in any situation, you need

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Speaker 1: to have some discretion. All the proposals that I've certainly

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Speaker 1: worked on that are being proposed now allow for some

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Speaker 1: discretion in a case of emergency, In case of a panic,

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Speaker 1: of course you have to have that, but that doesn't

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Speaker 1: mean you do it all the time. That doesn't mean

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Speaker 1: you don't have a system or a strategy in place. Again,

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Speaker 1: so people know what you're up to. Interest rates. Are

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Speaker 1: interest rates too low? Yes? I think they are at

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Speaker 1: this point. There has been a real effort to try

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Speaker 1: to raise them in the US last year they took

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Speaker 1: a stab at into somebody seem to be backing off.

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Speaker 1: At this point, they've been near zero for a law

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Speaker 1: a long time. Other central banks have followed the FED

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Speaker 1: down quite frankly, and it's become more of a global things.

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Speaker 1: So a good fraction of the center banks in the

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Speaker 1: world have rates which are nears are or even slightly

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Speaker 1: less than zero. Very unusual situation, and I think that's

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Speaker 1: part of the sense in which it's it's unusual and

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Speaker 1: therefore not rule like. So the idea that that's what

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Speaker 1: will be you're discussing at this conference with real practitioners

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Speaker 1: and people have been working at this for many, many

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Speaker 1: years to see why are we in this unusual situation.

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Speaker 1: Some people think it's just right. I don't, but I

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Speaker 1: think we're gonna explore that, and I believe see that

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Speaker 1: there's an advantage of normalizing rates at this point in

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Speaker 1: time if you're a country like Japan which has had deflation.

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Speaker 1: Europe's with with the deflation, are negative interest rates consistent

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Speaker 1: with the Taylor rule? Well, at this point in Japan's situation,

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Speaker 1: they've tried everything they could. They have had a new

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Speaker 1: central bank with a gigantic amount of quantitative easy and

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Speaker 1: that means purchases of security. So it's it's much more

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Speaker 1: in the zero or negative rates, and and it really

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Speaker 1: hasn't worked. I think that's the concern. These policies don't

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Speaker 1: seem to be working, and they're basically exchanged the exchange rates.

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Speaker 1: They make a big difference on that, and that's that's

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Speaker 1: what really the attention is at this point is exchange

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Speaker 1: rates moving around and capital flows moving around, and they're

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Speaker 1: really not helping the Japanese economy. If anything, they're going

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Speaker 1: the wrong way. We're going to continue the conversation with

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Speaker 1: John Taylor. He is the Professor of Economics at Stanford University,

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Speaker 1: Senior Fellow in Economics at the Hoover Institution. You're listening

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Speaker 1: to taking Stock. I'm Kim Fox, my co host, Kathleen Hayes,

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Speaker 1: and this is Bloomberg Radio. Coming up on taking Stock.

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Speaker 1: Roger mcmeee, founding partner of the venture capital firm Elevation

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Speaker 1: Partners on Facebook, Apple, and cannabis. That's next broadcasting live

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Speaker 1: to New York, Bloomberg eleven, Rio to Washington, d C,

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Speaker 1: Bloomber to Boston, Bloomberg dwell Under to San Francisco, Bloomberg

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Speaker 1: nine six to the country's series Exam General one nine

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Speaker 1: and around the globe the Bloomberg Radio plus Appen Bloomberg

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Speaker 1: dot Com. This is taking Stock. I'm Kathleen Hayes at

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Speaker 1: the Hoover Institution at Stanford University, along with Pim Fox

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Speaker 1: at Bloomberg le headquarters in New York City. But a

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Speaker 1: lot of global market instability, a lot of economist, a

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Speaker 1: lot economies having trouble. Could it have something to do

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Speaker 1: with a monetary policy situation that could use some more

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Speaker 1: rule based procedures. We're gonna look at the international aspect

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Speaker 1: of John Taylor's rule. Pim with John Taylor of the

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Speaker 1: Hoover Institution, and will also be talking about Donald Trump,

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Speaker 1: who seems to be taking over the Republican nomination for president.

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Speaker 1: Bill Bes come up with the Mark Halpern John Hilman

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Speaker 1: of with all due respect or right now, with all

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Speaker 1: due respect, let's go to Katherine Cowndery in the Bloomberg

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Speaker 1: news room. Thank you, pam Well. Stocks are declining. Mixed

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Speaker 1: economic reports are weighing on the market. One report showed

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Speaker 1: service companies expanded in April at the fastest pace in

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Speaker 1: four months. Another from the Payrolls Processor a DP showed

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Speaker 1: companies hired fewer workers in April than estimated. Peter Dickson,

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Speaker 1: Global Equities Economy as at Commerce Bank, told Bloomberg Radio

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Speaker 1: that investors are not getting much direction from economic data.

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Speaker 1: They're not really getting an awful lot of steer from

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Speaker 1: central banks either. There was a sense of there at

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Speaker 1: central banks is from the kitchen sink up to the problem.

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Speaker 1: We're not seeing any real signs of significant recovery, and

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Speaker 1: I think as a consequence, investors just feel a little

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Speaker 1: bit chitch you right now. We jacked the markets every

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Speaker 1: fifteen minutes throughout the trading day. Down Industrial average is

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Speaker 1: currently down one hundred points six tenths of a percent,

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Speaker 1: trading at seventeen thousand, six hundred fifty. The S and

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Speaker 1: P five foundered down twelve point six tenths of a cent,

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Speaker 1: trading at two thousand fifty. Then NASTAC is down thirty

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Speaker 1: six points three quarters of a percent, trading at forty

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Speaker 1: seven twenty seven. West Texas West Texas an immediate crude

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Speaker 1: oil is up twenty six cents of barrel at two,

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Speaker 1: spout golled down sixteen dollars seventy cents an ounce at

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Speaker 1: twelve seventy, and the tenure Treasury is of one thirty

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Speaker 1: second with the yield of one point seven nine percent.

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Speaker 1: Among today's talk business stories, the trade deficit fellon March

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Speaker 1: to the lowest level in sixteen months. Imports plunged by

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Speaker 1: the largest amount since the depths of the recession seven

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Speaker 1: years ago. The trade deficit narrative forty point four billion

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Speaker 1: dollars in March. That's a drop of thirteen point nine

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Speaker 1: percent from February. It was the smallest trade gap since November.

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Speaker 1: And now let's get an update of some of the

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Speaker 1: other stories. We're following today. Thank you, Katherine from the

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Speaker 1: Bloomberg News room. I'm Ramie in essentio. John Kazik, last

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Speaker 1: man standing in Donald Trump's path to the Republican nomination,

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Speaker 1: will end his campaign later today, making Trump the party's

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Speaker 1: presumptive nominee. Two people close to the campaign tell Bloomberg

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Speaker 1: News the Ohio governor will suspend his campaign in a

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Speaker 1: speech at five pm Eastern Time. In columns Ohio. Despite

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Speaker 1: his inability to win any contest beyond his state, Kasik

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Speaker 1: held onto becoming the last candidate battling Trump, if only

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Speaker 1: for a few hours. Since Ted Cruz dropped out last night.

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Speaker 1: As the presumptive nominee, Trump is now looking toward the

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Speaker 1: general election and thinking about a running mate. Trump tells

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Speaker 1: ABC News his pick for VP will be someone with

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Speaker 1: political experience. I would like to have somebody that could

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Speaker 1: truly be good with respect to dealing with the Senate,

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Speaker 1: dealing with Congress, getting legislation passed, working towards something where

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Speaker 1: we're not signing executive orders every three days like President

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Speaker 1: Obama does. On the Democratic side, Bernie Sanders says the

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Speaker 1: race is not over after beating Hillary Clemson in Indiana. Yesterday,

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Speaker 1: Defense Secretary Ash Carter is warning the war against Islamic

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Speaker 1: state is quote far from over. Carter said, the death

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Speaker 1: of a Navy seal in a rock at the hands

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Speaker 1: of extremists, it's evidence of the fight that remains. These

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Speaker 1: risks will continue you and we greatly regret his loss.

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Speaker 1: Carter spoke today in Stuttgart, Germany, and Governor Andrew Cuomo says,

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Speaker 1: quote justice was served in the Sheldon Silver case and

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Speaker 1: the former Assembly speakers twelve years sentence sends a message

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Speaker 1: to officials who abuse the public's trust. Silver was convicted

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Speaker 1: in a five million dollar corruption case. Global News twenty

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Speaker 1: four hours a day, powered by our journalists in more

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Speaker 1: than one fifty news bureaus around the world. From the

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Speaker 1: Bloomberg newsroom, I'm Ramy and a cent Cio gatherin. Thank you,

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Speaker 1: and now let's get a quick update of the equity benchmarks.

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Speaker 1: Del Industrial Average is down one one point at seventeen thousand,

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Speaker 1: six hundred fifty s and p f F foundered down

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Speaker 1: twelve points to two thousand fifty one. Then Naztac is

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Speaker 1: down thirty six points at forty seven. And that's a

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Speaker 1: Bloomberg Business flash. He is taking Stock The FED in

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Speaker 1: focus on Bloombird Radio. The FED in focuses Rachi Bay

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Speaker 1: Willoughby since eight, New York City's boutique camera store for

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Speaker 1: precision crafted, Hazzle, blood and Like a cameras, plus a

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Speaker 1: full selection of go pro action adventure cameras. Willoughby's corner

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Speaker 1: of Fifth Avenue and thirty first Street. You're listening to

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Speaker 1: taking Stock, I'm pim Fox. My co host Kathleen Hayes.

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Speaker 1: Joining us now is John Taylor for a continuing conversation

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Speaker 1: about economics. He's a professor of economics at Stanford University

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Speaker 1: has also Senior Fellow in Economics at the Hoover Institution.

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Speaker 1: Professor Taylor. And denying that something is true just because

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Speaker 1: it suits your fancy doesn't make it any less true.

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Speaker 1: And what I mean by that is if you ask

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Speaker 1: a child if something happens in another part of the country,

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Speaker 1: and will it affect them, many of them understand yes,

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Speaker 1: it will global warming, various types of things. Why our

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Speaker 1: economists seemingly immune to this connection, Well, I don't or

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Speaker 1: that or FED officials, I guess I should say more specifically, Well,

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Speaker 1: I think you know quite candidly, a lot of FED

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Speaker 1: officials think too much about what's happening all over the place,

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Speaker 1: and maybe just the opposite of what you're saying that

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Speaker 1: there's a sense in which if they react to every

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Speaker 1: little wiggle and every little movement all around the world,

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Speaker 1: they're going to be doing too many things. So the

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Speaker 1: trick is to find the big things that are really

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Speaker 1: moving the economy or require some response, and and that

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Speaker 1: does take judgment, but it also takes experience. That's why

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Speaker 1: I think these rules or strategies which shay which is

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Speaker 1: the things you're gonna react to and which are not,

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Speaker 1: isn't so important. So let's take a look a couple

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Speaker 1: of papers that are coming up at the conference tomorrow, John,

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Speaker 1: particularly for our listeners who are FED nerds like us,

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Speaker 1: and I really want to dive into these which will

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Speaker 1: be accessible as well. Um the fan often says when

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Speaker 1: it comes to its moves that sure it could impact

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Speaker 1: emerging markets, but remember a very extensive analysis that FED

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Speaker 1: had a couple of years ago about oh, there are

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Speaker 1: all these other things in markets are reacting to when

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Speaker 1: they sold off, not FED moves, right. But Sebastian Edwards,

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Speaker 1: actually economist has done a paper which suggests that there's

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Speaker 1: direct links and direct impact of the FEDS moves on

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Speaker 1: the rest of the world. Yes, he is one of

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Speaker 1: the people giving papers a dis conference which he studied

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Speaker 1: carefully and saw these impacts in Latin American countries, but

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Speaker 1: you can see them in other countries as well, and

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Speaker 1: so it's there, and you know, you you think that

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Speaker 1: there's reasons the exchange rates could move, interest rates couldn't move,

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Speaker 1: and the US is a powerful federal reserve, has a

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Speaker 1: powerful set of reserves, so that's going to have these impacts.

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Speaker 1: So the question is how do we deal with that?

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Speaker 1: And that's why that's why I think you need to

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Speaker 1: have some sense of cooperation or some sense of global

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Speaker 1: aspects of this. One of the most outspoken central bankers

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Speaker 1: in the world these days as the central banker runs India,

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Speaker 1: ragu Rajan, and he can see some of these impacts

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Speaker 1: on his own country. So I think it's important for

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Speaker 1: the world to take these into account. Does the world

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Speaker 1: pay too much attention to the Federal Reserve? The Federal

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Speaker 1: Reserve is the most significant central bank. The dollar is

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Speaker 1: the most significant currency, so they have to pay attention

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Speaker 1: to the Federal Reserve. I think what we need to

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Speaker 1: do is find a way for the Bank of the

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Speaker 1: United States, the FED, to integrate its policy and think

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Speaker 1: more about its impact on the world, because the world

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Speaker 1: does feedback on the United States. Even if you're just

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Speaker 1: concerned about the United States, if you're mandated to be

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Speaker 1: concerned about US inflation and unemployment, you've got to think

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Speaker 1: about the impacts on the rest of the world because

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Speaker 1: it can come back and hurt you. So the FED

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Speaker 1: as a superpower that maybe he has gotten too powerful.

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Speaker 1: That's also being addressed at the conference tomorrow. John. Yeah,

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Speaker 1: one of the interesting papers David Beckworth is giving is

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Speaker 1: about the FED as a superpower. That reflects the reality

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Speaker 1: that the Federal Reserve is a is a a power

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Speaker 1: full central bank and superpower. Is maybe wanted to underline that,

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Speaker 1: but you need to take that into account and the

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Speaker 1: dollar its role. The dollar is important. It's not disappearing.

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Speaker 1: There's lots of people talking about the Chinese currency can

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Speaker 1: be more important, but it's still the dollar, and we

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Speaker 1: need to think about how to make that work. How

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Speaker 1: would you debate or how would you push forward the

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Speaker 1: idea of interest rate increases to the Federal Reserve Bank

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Speaker 1: presidents that vote against them, how would you convince them? Well,

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Speaker 1: the main thing is in the past, when we've had

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Speaker 1: policies with higher interest rates, in these circumstances, things that

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Speaker 1: work much better. And there are colleagues of those people

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Speaker 1: at the FED who think exactly the same. They've seen

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Speaker 1: history and they can see it works. Economics is a

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Speaker 1: confusing science for lots of people, so there's different viewpoints.

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Speaker 1: That's the way it is. So you've got to persuade,

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Speaker 1: you gotta talk, and you know, there are times where

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Speaker 1: policy is not great. You've got to find a way

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Speaker 1: to get back to good policy. It'll be better for

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Speaker 1: the economy. John, what would you change about the federalssor

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Speaker 1: of Peter Fisher, who was the head of the Market's

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Speaker 1: Desk of the New York Fed, gave a talk just

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Speaker 1: a few days ago saying that the size of the

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Speaker 1: f o MC, the Board of Governors plus the Fed

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Speaker 1: Bank President should be cut back. I think he wants

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Speaker 1: to get rid of the board, have fewer Fedbank presidents,

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Speaker 1: to have more transparency. It's a good idea. Well, you know,

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Speaker 1: just step back. There's an enormous number of proposals put

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Speaker 1: out there right now, and Peters is one of them.

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Speaker 1: I think it's it's worth thinking about, and that reflects

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Speaker 1: the fact that policy is not working so well and

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Speaker 1: there's some problems, and there's legislation in Congress to actually

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Speaker 1: make some changes. I think some of that legislation's promising,

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Speaker 1: maybe more promising than what Peter is referring to what

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Speaker 1: we discussed it and that really requires the FED to

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Speaker 1: simply report it strategy, to simply say what they're doing

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Speaker 1: as clearly as they can. I think that would be

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Speaker 1: uge improvement. John Taylor, thank you so very much, joining

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Speaker 1: us here at the Hoover Institution at Stanford University on

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Speaker 1: the eve of his third annual Monetary Policy conference. This

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Speaker 1: year it's International Monetary Stability, Past, Present and Future. We're

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Speaker 1: speaking a lot more about the conference today and tomorrow.

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Speaker 1: This is taking Stock on Bloomberg Radio. The FED Hour

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Speaker 1: on Taking Stock is brought to you by Commonwealth Financial Network.

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