Speaker 1: Global business news twenty four hours a day at Bloomberg
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Speaker 1: This is a Bloomberg Business Flash from Bloomberg World Headquarters
Speaker 1: on Katherine Cownderie. Stocks are headed for a three week
Speaker 1: low as concern about global economic growth sends equities lower
Speaker 1: around the world. The SMP five hundred is down for
Speaker 1: the fourth time in five days, with industrial shares losing
Speaker 1: more than one percent and eighteen percent rally from February
Speaker 1: lows is faltering. Reports today showed service companies expanded last
Speaker 1: month at the fastest pace in four months, while fewer
Speaker 1: jobs were added than projected, which have the markets every
Speaker 1: fifteen minutes throughout the trading day down, Bloomberg Radio down.
Speaker 1: Industrial average is down one hundred thirty points three quarters
Speaker 1: of a percent, trading at seventeen thousand, six hundred twenty.
Speaker 1: SMP f ive foundered down sixteen point three quarters of
Speaker 1: a percent to two thousand forty seven. The NASDACT is
Speaker 1: down forty five points nearly one percent at forty seven eighteen.
Speaker 1: West Texas Intermediate cord oil down thirty four to barrel
Speaker 1: at forte Spot gold is down sixteen dollars eighty cents
Speaker 1: anounce at twelve seventy five and the tenure Treasury is
Speaker 1: up three thirty seconds with the yield of one point
Speaker 1: seven eight percent. And that's a Bloomberg business splash. This
Speaker 1: is taking Stock with Kathleen Hayes and Pin Fox on
Speaker 1: Bloomberg Radio. What's it take to get for Federal Reserve
Speaker 1: Bank presidents in one place on one day to debate
Speaker 1: a very contentious, very hot topic and monetary policy. Well,
Speaker 1: if your name is John Taylor, and you have a
Speaker 1: rule named after the Taylor Rule, and if you are
Speaker 1: holding a monetary policy conference for the third year in
Speaker 1: a row, that's what you can get. John Taylor is
Speaker 1: with us here at the Hoover Institution at Stanford University. John,
Speaker 1: of course the George P. Schult's Senior Fellow in Economics
Speaker 1: at Hoover. He's the Mary and Robert Raymond Professor of
Speaker 1: ECON at Stanford University, and so much more. In this
Speaker 1: year the conference is entitled International Monetary Stability, Past, Present
Speaker 1: and Future. So John, thank you for inviting me back
Speaker 1: to the conference. It's great to be here. Glad you
Speaker 1: could could become Glad you could be here and I
Speaker 1: wanted to have you on the show today. The conference
Speaker 1: officially kicks off tomorrow, but I wanted to get you
Speaker 1: on the show today so we could really take our
Speaker 1: time to put the issues on the table, so our
Speaker 1: listeners will be already for tomorrow. So the monetary policy
Speaker 1: rule that you have, the Taylor rule, in essence, takes
Speaker 1: a look at unemployment and inflation, a couple of coefficients
Speaker 1: and then says, what what what a central bank should do.
Speaker 1: You say, we're not even we're not exactly applying to
Speaker 1: the United States, but you say, it's really important now
Speaker 1: to apply that rule overseas for starters. What's the rule?
Speaker 1: Why is it so important? Well, when when they fed
Speaker 1: another central banks came close to using this type of
Speaker 1: rule or procedure, things work really well. They moved the
Speaker 1: interest rate around in a pretty predictable way, and the
Speaker 1: economy was good. Is it's a good time, And when
Speaker 1: other center banks do the same thing. So there's a
Speaker 1: lot of evidence both in economics and experience that this
Speaker 1: kind of thing works and read sutly central banks have
Speaker 1: gone different directions, and in some sense that's the purpose.
Speaker 1: Our conferences say, why is there so much difference in
Speaker 1: exchange rates are moving and capital flows are moving, and
Speaker 1: that's the instability that we're concerned about. And the thought
Speaker 1: is of central banks and the sense got back to
Speaker 1: a more normal approach, which is a policy rule approach
Speaker 1: that they could eliminate a lot of this instability. John Taylor,
Speaker 1: I don't know whether you're familiar with Bill Maher, the
Speaker 1: television interviewer, but he has a segment where he says
Speaker 1: new rules, and I'm wondering if you could talk about
Speaker 1: new rules based systems or a new rules based world economy.
Speaker 1: Tell us about how a rules based system would work. Well,
Speaker 1: what we've seen with experiences when central banks have more
Speaker 1: predictable policies, so people know what they're doing when they're
Speaker 1: moving the interest rate around, which is what they usually do,
Speaker 1: then it provides more stability. And so a rules base
Speaker 1: means you kind of know what's up, what the government's
Speaker 1: up to, what the center banks are up to, and
Speaker 1: they around the world know what each other is up to,
Speaker 1: so it provides a real sort of sense of guidance
Speaker 1: and stability. It's kind of natural you know what your
Speaker 1: counterparts are doing. Other parts of the world. We've sent
Speaker 1: We've seen it work in other areas of international policy,
Speaker 1: trade policy. Rules based strategies have been out there a
Speaker 1: long time and experienced people people like poll Vocal used
Speaker 1: to run the FED, people like George SCHULTZU many cabinet
Speaker 1: posts recognize this importance of a strategy and advocating we
Speaker 1: moved back to this kind of thing. It's really not
Speaker 1: so new. The world is different, but it's it's something
Speaker 1: that's worked in the past and it will work again. Well,
Speaker 1: is there really a rules for all season though? John?
Speaker 1: It doesn't discretion have a role because there a certain center.
Speaker 1: Feds always sid inflation rises, raise rates, you know, job
Speaker 1: the job market gets too tight, going to start headquarter recession,
Speaker 1: you cut rates and there's a certain then there's something
Speaker 1: discretion based around your evaluation of those numbers and what
Speaker 1: they're with the trends are where they're going. Well, the
Speaker 1: advantage of a rule of procedures, you know when they're
Speaker 1: going to do it and by how much, And it's
Speaker 1: not just winging it and saying we're going to move
Speaker 1: by this amount when we think we will and and
Speaker 1: get off of it. So there's quite a bit of
Speaker 1: difference and and of course in any situation, you need
Speaker 1: to have some discretion. All the proposals that I've certainly
Speaker 1: worked on that are being proposed now allow for some
Speaker 1: discretion in a case of emergency, In case of a panic,
Speaker 1: of course you have to have that, but that doesn't
Speaker 1: mean you do it all the time. That doesn't mean
Speaker 1: you don't have a system or a strategy in place. Again,
Speaker 1: so people know what you're up to. Interest rates. Are
Speaker 1: interest rates too low? Yes? I think they are at
Speaker 1: this point. There has been a real effort to try
Speaker 1: to raise them in the US last year they took
Speaker 1: a stab at into somebody seem to be backing off.
Speaker 1: At this point, they've been near zero for a law
Speaker 1: a long time. Other central banks have followed the FED
Speaker 1: down quite frankly, and it's become more of a global things.
Speaker 1: So a good fraction of the center banks in the
Speaker 1: world have rates which are nears are or even slightly
Speaker 1: less than zero. Very unusual situation, and I think that's
Speaker 1: part of the sense in which it's it's unusual and
Speaker 1: therefore not rule like. So the idea that that's what
Speaker 1: will be you're discussing at this conference with real practitioners
Speaker 1: and people have been working at this for many, many
Speaker 1: years to see why are we in this unusual situation.
Speaker 1: Some people think it's just right. I don't, but I
Speaker 1: think we're gonna explore that, and I believe see that
Speaker 1: there's an advantage of normalizing rates at this point in
Speaker 1: time if you're a country like Japan which has had deflation.
Speaker 1: Europe's with with the deflation, are negative interest rates consistent
Speaker 1: with the Taylor rule? Well, at this point in Japan's situation,
Speaker 1: they've tried everything they could. They have had a new
Speaker 1: central bank with a gigantic amount of quantitative easy and
Speaker 1: that means purchases of security. So it's it's much more
Speaker 1: in the zero or negative rates, and and it really
Speaker 1: hasn't worked. I think that's the concern. These policies don't
Speaker 1: seem to be working, and they're basically exchanged the exchange rates.
Speaker 1: They make a big difference on that, and that's that's
Speaker 1: what really the attention is at this point is exchange
Speaker 1: rates moving around and capital flows moving around, and they're
Speaker 1: really not helping the Japanese economy. If anything, they're going
Speaker 1: the wrong way. We're going to continue the conversation with
Speaker 1: John Taylor. He is the Professor of Economics at Stanford University,
Speaker 1: Senior Fellow in Economics at the Hoover Institution. You're listening
Speaker 1: to taking Stock. I'm Kim Fox, my co host, Kathleen Hayes,
Speaker 1: and this is Bloomberg Radio. Coming up on taking Stock.
Speaker 1: Roger mcmeee, founding partner of the venture capital firm Elevation
Speaker 1: Partners on Facebook, Apple, and cannabis. That's next broadcasting live
Speaker 1: to New York, Bloomberg eleven, Rio to Washington, d C,
Speaker 1: Bloomber to Boston, Bloomberg dwell Under to San Francisco, Bloomberg
Speaker 1: nine six to the country's series Exam General one nine
Speaker 1: and around the globe the Bloomberg Radio plus Appen Bloomberg
Speaker 1: dot Com. This is taking Stock. I'm Kathleen Hayes at
Speaker 1: the Hoover Institution at Stanford University, along with Pim Fox
Speaker 1: at Bloomberg le headquarters in New York City. But a
Speaker 1: lot of global market instability, a lot of economist, a
Speaker 1: lot economies having trouble. Could it have something to do
Speaker 1: with a monetary policy situation that could use some more
Speaker 1: rule based procedures. We're gonna look at the international aspect
Speaker 1: of John Taylor's rule. Pim with John Taylor of the
Speaker 1: Hoover Institution, and will also be talking about Donald Trump,
Speaker 1: who seems to be taking over the Republican nomination for president.
Speaker 1: Bill Bes come up with the Mark Halpern John Hilman
Speaker 1: of with all due respect or right now, with all
Speaker 1: due respect, let's go to Katherine Cowndery in the Bloomberg
Speaker 1: news room. Thank you, pam Well. Stocks are declining. Mixed
Speaker 1: economic reports are weighing on the market. One report showed
Speaker 1: service companies expanded in April at the fastest pace in
Speaker 1: four months. Another from the Payrolls Processor a DP showed
Speaker 1: companies hired fewer workers in April than estimated. Peter Dickson,
Speaker 1: Global Equities Economy as at Commerce Bank, told Bloomberg Radio
Speaker 1: that investors are not getting much direction from economic data.
Speaker 1: They're not really getting an awful lot of steer from
Speaker 1: central banks either. There was a sense of there at
Speaker 1: central banks is from the kitchen sink up to the problem.
Speaker 1: We're not seeing any real signs of significant recovery, and
Speaker 1: I think as a consequence, investors just feel a little
Speaker 1: bit chitch you right now. We jacked the markets every
Speaker 1: fifteen minutes throughout the trading day. Down Industrial average is
Speaker 1: currently down one hundred points six tenths of a percent,
Speaker 1: trading at seventeen thousand, six hundred fifty. The S and
Speaker 1: P five foundered down twelve point six tenths of a cent,
Speaker 1: trading at two thousand fifty. Then NASTAC is down thirty
Speaker 1: six points three quarters of a percent, trading at forty
Speaker 1: seven twenty seven. West Texas West Texas an immediate crude
Speaker 1: oil is up twenty six cents of barrel at two,
Speaker 1: spout golled down sixteen dollars seventy cents an ounce at
Speaker 1: twelve seventy, and the tenure Treasury is of one thirty
Speaker 1: second with the yield of one point seven nine percent.
Speaker 1: Among today's talk business stories, the trade deficit fellon March
Speaker 1: to the lowest level in sixteen months. Imports plunged by
Speaker 1: the largest amount since the depths of the recession seven
Speaker 1: years ago. The trade deficit narrative forty point four billion
Speaker 1: dollars in March. That's a drop of thirteen point nine
Speaker 1: percent from February. It was the smallest trade gap since November.
Speaker 1: And now let's get an update of some of the
Speaker 1: other stories. We're following today. Thank you, Katherine from the
Speaker 1: Bloomberg News room. I'm Ramie in essentio. John Kazik, last
Speaker 1: man standing in Donald Trump's path to the Republican nomination,
Speaker 1: will end his campaign later today, making Trump the party's
Speaker 1: presumptive nominee. Two people close to the campaign tell Bloomberg
Speaker 1: News the Ohio governor will suspend his campaign in a
Speaker 1: speech at five pm Eastern Time. In columns Ohio. Despite
Speaker 1: his inability to win any contest beyond his state, Kasik
Speaker 1: held onto becoming the last candidate battling Trump, if only
Speaker 1: for a few hours. Since Ted Cruz dropped out last night.
Speaker 1: As the presumptive nominee, Trump is now looking toward the
Speaker 1: general election and thinking about a running mate. Trump tells
Speaker 1: ABC News his pick for VP will be someone with
Speaker 1: political experience. I would like to have somebody that could
Speaker 1: truly be good with respect to dealing with the Senate,
Speaker 1: dealing with Congress, getting legislation passed, working towards something where
Speaker 1: we're not signing executive orders every three days like President
Speaker 1: Obama does. On the Democratic side, Bernie Sanders says the
Speaker 1: race is not over after beating Hillary Clemson in Indiana. Yesterday,
Speaker 1: Defense Secretary Ash Carter is warning the war against Islamic
Speaker 1: state is quote far from over. Carter said, the death
Speaker 1: of a Navy seal in a rock at the hands
Speaker 1: of extremists, it's evidence of the fight that remains. These
Speaker 1: risks will continue you and we greatly regret his loss.
Speaker 1: Carter spoke today in Stuttgart, Germany, and Governor Andrew Cuomo says,
Speaker 1: quote justice was served in the Sheldon Silver case and
Speaker 1: the former Assembly speakers twelve years sentence sends a message
Speaker 1: to officials who abuse the public's trust. Silver was convicted
Speaker 1: in a five million dollar corruption case. Global News twenty
Speaker 1: four hours a day, powered by our journalists in more
Speaker 1: than one fifty news bureaus around the world. From the
Speaker 1: Bloomberg newsroom, I'm Ramy and a cent Cio gatherin. Thank you,
Speaker 1: and now let's get a quick update of the equity benchmarks.
Speaker 1: Del Industrial Average is down one one point at seventeen thousand,
Speaker 1: six hundred fifty s and p f F foundered down
Speaker 1: twelve points to two thousand fifty one. Then Naztac is
Speaker 1: down thirty six points at forty seven. And that's a
Speaker 1: Bloomberg Business flash. He is taking Stock The FED in
Speaker 1: focus on Bloombird Radio. The FED in focuses Rachi Bay
Speaker 1: Willoughby since eight, New York City's boutique camera store for
Speaker 1: precision crafted, Hazzle, blood and Like a cameras, plus a
Speaker 1: full selection of go pro action adventure cameras. Willoughby's corner
Speaker 1: of Fifth Avenue and thirty first Street. You're listening to
Speaker 1: taking Stock, I'm pim Fox. My co host Kathleen Hayes.
Speaker 1: Joining us now is John Taylor for a continuing conversation
Speaker 1: about economics. He's a professor of economics at Stanford University
Speaker 1: has also Senior Fellow in Economics at the Hoover Institution.
Speaker 1: Professor Taylor. And denying that something is true just because
Speaker 1: it suits your fancy doesn't make it any less true.
Speaker 1: And what I mean by that is if you ask
Speaker 1: a child if something happens in another part of the country,
Speaker 1: and will it affect them, many of them understand yes,
Speaker 1: it will global warming, various types of things. Why our
Speaker 1: economists seemingly immune to this connection, Well, I don't or
Speaker 1: that or FED officials, I guess I should say more specifically, Well,
Speaker 1: I think you know quite candidly, a lot of FED
Speaker 1: officials think too much about what's happening all over the place,
Speaker 1: and maybe just the opposite of what you're saying that
Speaker 1: there's a sense in which if they react to every
Speaker 1: little wiggle and every little movement all around the world,
Speaker 1: they're going to be doing too many things. So the
Speaker 1: trick is to find the big things that are really
Speaker 1: moving the economy or require some response, and and that
Speaker 1: does take judgment, but it also takes experience. That's why
Speaker 1: I think these rules or strategies which shay which is
Speaker 1: the things you're gonna react to and which are not,
Speaker 1: isn't so important. So let's take a look a couple
Speaker 1: of papers that are coming up at the conference tomorrow, John,
Speaker 1: particularly for our listeners who are FED nerds like us,
Speaker 1: and I really want to dive into these which will
Speaker 1: be accessible as well. Um the fan often says when
Speaker 1: it comes to its moves that sure it could impact
Speaker 1: emerging markets, but remember a very extensive analysis that FED
Speaker 1: had a couple of years ago about oh, there are
Speaker 1: all these other things in markets are reacting to when
Speaker 1: they sold off, not FED moves, right. But Sebastian Edwards,
Speaker 1: actually economist has done a paper which suggests that there's
Speaker 1: direct links and direct impact of the FEDS moves on
Speaker 1: the rest of the world. Yes, he is one of
Speaker 1: the people giving papers a dis conference which he studied
Speaker 1: carefully and saw these impacts in Latin American countries, but
Speaker 1: you can see them in other countries as well, and
Speaker 1: so it's there, and you know, you you think that
Speaker 1: there's reasons the exchange rates could move, interest rates couldn't move,
Speaker 1: and the US is a powerful federal reserve, has a
Speaker 1: powerful set of reserves, so that's going to have these impacts.
Speaker 1: So the question is how do we deal with that?
Speaker 1: And that's why that's why I think you need to
Speaker 1: have some sense of cooperation or some sense of global
Speaker 1: aspects of this. One of the most outspoken central bankers
Speaker 1: in the world these days as the central banker runs India,
Speaker 1: ragu Rajan, and he can see some of these impacts
Speaker 1: on his own country. So I think it's important for
Speaker 1: the world to take these into account. Does the world
Speaker 1: pay too much attention to the Federal Reserve? The Federal
Speaker 1: Reserve is the most significant central bank. The dollar is
Speaker 1: the most significant currency, so they have to pay attention
Speaker 1: to the Federal Reserve. I think what we need to
Speaker 1: do is find a way for the Bank of the
Speaker 1: United States, the FED, to integrate its policy and think
Speaker 1: more about its impact on the world, because the world
Speaker 1: does feedback on the United States. Even if you're just
Speaker 1: concerned about the United States, if you're mandated to be
Speaker 1: concerned about US inflation and unemployment, you've got to think
Speaker 1: about the impacts on the rest of the world because
Speaker 1: it can come back and hurt you. So the FED
Speaker 1: as a superpower that maybe he has gotten too powerful.
Speaker 1: That's also being addressed at the conference tomorrow. John. Yeah,
Speaker 1: one of the interesting papers David Beckworth is giving is
Speaker 1: about the FED as a superpower. That reflects the reality
Speaker 1: that the Federal Reserve is a is a a power
Speaker 1: full central bank and superpower. Is maybe wanted to underline that,
Speaker 1: but you need to take that into account and the
Speaker 1: dollar its role. The dollar is important. It's not disappearing.
Speaker 1: There's lots of people talking about the Chinese currency can
Speaker 1: be more important, but it's still the dollar, and we
Speaker 1: need to think about how to make that work. How
Speaker 1: would you debate or how would you push forward the
Speaker 1: idea of interest rate increases to the Federal Reserve Bank
Speaker 1: presidents that vote against them, how would you convince them? Well,
Speaker 1: the main thing is in the past, when we've had
Speaker 1: policies with higher interest rates, in these circumstances, things that
Speaker 1: work much better. And there are colleagues of those people
Speaker 1: at the FED who think exactly the same. They've seen
Speaker 1: history and they can see it works. Economics is a
Speaker 1: confusing science for lots of people, so there's different viewpoints.
Speaker 1: That's the way it is. So you've got to persuade,
Speaker 1: you gotta talk, and you know, there are times where
Speaker 1: policy is not great. You've got to find a way
Speaker 1: to get back to good policy. It'll be better for
Speaker 1: the economy. John, what would you change about the federalssor
Speaker 1: of Peter Fisher, who was the head of the Market's
Speaker 1: Desk of the New York Fed, gave a talk just
Speaker 1: a few days ago saying that the size of the
Speaker 1: f o MC, the Board of Governors plus the Fed
Speaker 1: Bank President should be cut back. I think he wants
Speaker 1: to get rid of the board, have fewer Fedbank presidents,
Speaker 1: to have more transparency. It's a good idea. Well, you know,
Speaker 1: just step back. There's an enormous number of proposals put
Speaker 1: out there right now, and Peters is one of them.
Speaker 1: I think it's it's worth thinking about, and that reflects
Speaker 1: the fact that policy is not working so well and
Speaker 1: there's some problems, and there's legislation in Congress to actually
Speaker 1: make some changes. I think some of that legislation's promising,
Speaker 1: maybe more promising than what Peter is referring to what
Speaker 1: we discussed it and that really requires the FED to
Speaker 1: simply report it strategy, to simply say what they're doing
Speaker 1: as clearly as they can. I think that would be
Speaker 1: uge improvement. John Taylor, thank you so very much, joining
Speaker 1: us here at the Hoover Institution at Stanford University on
Speaker 1: the eve of his third annual Monetary Policy conference. This
Speaker 1: year it's International Monetary Stability, Past, Present and Future. We're
Speaker 1: speaking a lot more about the conference today and tomorrow.
Speaker 1: This is taking Stock on Bloomberg Radio. The FED Hour
Speaker 1: on Taking Stock is brought to you by Commonwealth Financial Network.
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