Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course, on the Bloomberg Termament. Lawyer Going Far
Speaker 1: Away Jan Hat has made his name at Goldban Sacks
Speaker 1: with a strange phrase called mortgage equity withdrawal. He brought
Speaker 1: market economics to a complete stand still by figuring out
Speaker 1: the flows of our housing market long ago and far
Speaker 1: away in a boom. He is the Golden Sax Chief
Speaker 1: Economist and head of Global Economics. John. We're riveted on
Speaker 1: the FED meeting today. John's going to go to that,
Speaker 1: but I need to go to you on this boom economy.
Speaker 1: You and I have never seen. How does a boom economy?
Speaker 1: How do you perceive? At Golden Sacks, did eight percent
Speaker 1: g d P fades away? Will it be abrupt or
Speaker 1: will it be far more gradual and prosperous than we
Speaker 1: can imagine? I mean, the eight percent forecast is for
Speaker 1: the fourth quarter, and the fourth quarter number in two
Speaker 1: thousand and twenty one, and that's the way the FED
Speaker 1: looks at these numbers as well. We think they will
Speaker 1: obviously upgrade their forecasts sharply as well. We don't think
Speaker 1: as high as that, maybe a little bit over six.
Speaker 1: But in our forecasts two thousand twenty one, very rapid recovery.
Speaker 1: As you say, we've we've never seen these kinds of
Speaker 1: growth rates. But then afterwards, I think the economy is
Speaker 1: going to be much closer to full employment by late
Speaker 1: this year early next year, and so in two thousand,
Speaker 1: twenty two, twenty three we will see no meaningful deceleration. Think,
Speaker 1: you know, maybe three instead of eight on a on
Speaker 1: a que four the Q four basis next year, but
Speaker 1: with an unemployment rate that's then the low four percent
Speaker 1: in all forecasts, and employment rates that have mostly recovered
Speaker 1: the big slot. Just to build on what Tom is
Speaker 1: talking about, this idea of faster and hotter boom but
Speaker 1: a much quicker cycle that Andrew Sheets of Morgan Stanley
Speaker 1: was talking about earlier on the show. What is the
Speaker 1: anatomy of an economy like that? Given the fact that
Speaker 1: markets and frankly economy is often don't move in straight lines,
Speaker 1: that there can be accelerations and there can be busts,
Speaker 1: especially with how high asset prices are. I mean, what
Speaker 1: do you foresee over the next few years as we
Speaker 1: get back to this low flation normal. Well, I think
Speaker 1: we'll see a very frontloaded recovery and then something that's
Speaker 1: more similar to the growth rates that we had pre
Speaker 1: pre pandemic, with potential growth in the two percent range,
Speaker 1: maybe a little bit the law two percent, but that's
Speaker 1: not really the constraint at the moment because we still
Speaker 1: have a lot of spare capacity in the in the economy.
Speaker 1: There could be future shocks, of course post pandemic. There
Speaker 1: will be future shocks post pandemic, but I think in
Speaker 1: the neo darm it's really about making up the lost
Speaker 1: ground from the from the shock of two thousand and twenty,
Speaker 1: and I think we're all positioned for that. So yeah,
Speaker 1: let's have a clinic approaching this conversation a little bit
Speaker 1: later today the decision, the Summary of Economic Projections, the
Speaker 1: news conference as well, youth forecasting above target inflation then
Speaker 1: above two percent at least in the next three years
Speaker 1: at some point in this SEP that comes out a
Speaker 1: little bit later. Yes, we do expect the two thousand
Speaker 1: twenty three number for core PC to go up a tenth.
Speaker 1: Currently as of December showing two point zero. We think
Speaker 1: that probably goes to two point one percent, could even
Speaker 1: go to two point two percent, but I'd be very
Speaker 1: surprised if it's stayed at two. I think they will
Speaker 1: show something above the medium charm target, and that I
Speaker 1: think is then also going to be a reason to
Speaker 1: show one hike by the end of two vols and
Speaker 1: then twenty three. Again, I'm focusing on the medium projection here,
Speaker 1: and of course it's going to be a range of
Speaker 1: different views that will take some time to you know,
Speaker 1: figure out exactly what it means. But I think the
Speaker 1: first in the first instance, markets are going to be
Speaker 1: focused on the medians. So core p c a at
Speaker 1: two one two two for three, the median dot comes
Speaker 1: up one, one hike for three. Then the news conference
Speaker 1: Jan how do you think the chairman shapes the narrative
Speaker 1: coming off the back of those forecasts. I mean, I
Speaker 1: don't think that the story from from Powell is going
Speaker 1: to be all that different from you know, what he
Speaker 1: said a couple of weeks ago in the in the
Speaker 1: in the Wall Street Journal interview where he basically didn't
Speaker 1: want to provide calendar guidance for either tapering or rate
Speaker 1: hikes because the committee has decided to phrase all this
Speaker 1: and outcome based terms. But he did use quite a
Speaker 1: lot of calendar like language about tapering. He said patient,
Speaker 1: he said sometime. He said that there would be plenty
Speaker 1: of notice before they would start the taper. So to me,
Speaker 1: that says tapering in the next couple of quarters very unlikely.
Speaker 1: Late this year as a possibility, but our best guests
Speaker 1: would be early two thousand and twenty two. What would
Speaker 1: you have to see on to change your forecast for
Speaker 1: longer term inflation at a time when you've got the
Speaker 1: likes of Ray Dalio coming out and saying the cash
Speaker 1: is trash and the longer term bonds are going to
Speaker 1: be worthless in the face of accelerating inflation. Well, I
Speaker 1: think there are a number of things to watch. So
Speaker 1: our baseline scenario is that inflation goes up substantially in
Speaker 1: the in the short term that's driven by lapping the
Speaker 1: big declines of early two thousand and twenty. We got
Speaker 1: we get to two point three percent for CORPC in April,
Speaker 1: then it comes back down, and then after that you
Speaker 1: see sort of a gradual acceleration a little above two
Speaker 1: percent by two thousand twenty three, and then somewhere in
Speaker 1: the two and a quarter percent range beyond that, maybe
Speaker 1: a little bit above. So relative to that sort of
Speaker 1: baseline scenario, if you had, you know, a sharp increase
Speaker 1: in inflation expectations, that would certainly be a warning sign,
Speaker 1: probably something that would have to be visible in a
Speaker 1: number of indicators, not just break evens in the bond
Speaker 1: market or or or or household expectations, but but a
Speaker 1: combination of that. You'd certainly be focused on that. If
Speaker 1: you had a really big overheating of the economy with
Speaker 1: you know, employment rates that are far beyond the sort
Speaker 1: of cyclical heights that we've seen in the in the
Speaker 1: past couple of decades, yeah, I think then you'd be
Speaker 1: more worried about bigger wage rice spirals. In our forecast,
Speaker 1: we basically see the sizeable current output gap, the slack
Speaker 1: in the economy being filled in and maybe beyond normal,
Speaker 1: but not dramatically. But if that try not be wrong,
Speaker 1: then obviously we'd have to do that. You're reading my
Speaker 1: mind exactly, And this goes back to the hallmark work
Speaker 1: at Dudley mckelviy you and the rest of the Goldman
Speaker 1: Sex team. Is there a complete underestimation of the elasticity
Speaker 1: of supplies coming on You get a boom economy, the
Speaker 1: animal spirits pick up, the output cap closes up, and
Speaker 1: that's a good and normal thing, right, Yes, absolutely, that's
Speaker 1: a good and normal thing. And there can be too
Speaker 1: much of a good thing, of course, that's that's always
Speaker 1: a possibility you have to consider in our forecasts. It
Speaker 1: doesn't it's not too much of a good thing, it's
Speaker 1: it is a good thing. But I also think you
Speaker 1: make a good point about the potential for supply to
Speaker 1: you know, proved to be a little bit stronger than
Speaker 1: people have built in. I think that's a good point
Speaker 1: as well. And so far the supply side information that
Speaker 1: we've gotten during the pandemic has been I think better
Speaker 1: than than most people would have expected a year ago
Speaker 1: and my months ago. Yeah, we gotta squeeze one more
Speaker 1: in for Chairman Pound in this news conference for you,
Speaker 1: how Michael McKee out a question for the chairman what
Speaker 1: is it right now top of the mind for the
Speaker 1: team of government. I think asking about the you know,
Speaker 1: threshold for for for rate hikes in terms of you
Speaker 1: know where core PC inflation is. I think that is
Speaker 1: going to be the biggest questions or people. Of course
Speaker 1: I've focused on the on the dot plot per se,
Speaker 1: but but even more so perhaps on where rate hikes
Speaker 1: are as a function of where the where the inflation
Speaker 1: numbers are. So, for example, if you had two point
Speaker 1: zero for core PC and the hike, that would be
Speaker 1: viewed as very hawk ish. If you had two point
Speaker 1: two or two point three percent for CORPC and the hike,
Speaker 1: that would actually be pretty devilish. And so I think
Speaker 1: getting into that that relationship, I think it's going to
Speaker 1: be important. John. What's so important here again is I've
Speaker 1: got to get the hats look going. I mean, I'm
Speaker 1: working on it right now. It's the problem. Put it
Speaker 1: back on a catch up. We want to do it again.
Speaker 1: Thank you. There's some important stuff there. We decided a
Speaker 1: number of days ago that our team would go out
Speaker 1: and get the best voices we can. Yantius will join
Speaker 1: us here in a bit. As we move forward to
Speaker 1: the FED Show two PM this afternoon, we start Strong
Speaker 1: or Strongest with Glenn Hubbard of Columbia University to say
Speaker 1: is professor of economics, former consul of Economic Advisors. Chairman,
Speaker 1: doesn't do credit to what he did at the Columbia
Speaker 1: Business School. Is his his tenure there is well. He
Speaker 1: is the most articulate supply side conservative out there. And
Speaker 1: we start strong with Glenn Hubbard. Diana Hubbard, I am
Speaker 1: thrilled to have you on the show to talk about
Speaker 1: the assumption that growth will save us. Your lawyer, colleague,
Speaker 1: Joe Stiglets, would say, over time, over the years, we
Speaker 1: can grow our way out of a five standard deviation deficit.
Speaker 1: Does that math work Well, it really doesn't. For two reasons.
Speaker 1: We will grow very rapidly this year six plus percent.
Speaker 1: That's a challenge for the BED to change its own
Speaker 1: forecast going forward. With the fiscal impulse reversed, we're back
Speaker 1: to more normal rates of growth. Second point, A lot
Speaker 1: of our problems in fiscal policy are a programs that
Speaker 1: just grow on autopop so called entitlement programs. Growth alan
Speaker 1: doesn't save you there. We are going to have to
Speaker 1: have some kind of fiscal consolidation in spending, in taxes
Speaker 1: or dare I say it, inflation. Glen Hoummard, I remember
Speaker 1: in August Thursday of two thousand seven, where we all
Speaker 1: looked at four standard deviation three month T bill four
Speaker 1: standard deviation lieb or we're way out over that, We're
Speaker 1: out to a medical chart of moving on our fiscal policy.
Speaker 1: Does its signal crisis that we're out near six standard
Speaker 1: deviations on deficit to GDP? I don't think it signals
Speaker 1: a crisis, but I think it signals a warning. It's
Speaker 1: not a crisis to the extent this is largely one
Speaker 1: time borrowing, although even there it needs to be smart,
Speaker 1: which I can't entirely say for what we what we've
Speaker 1: just done. Going forward, though, we have to have a
Speaker 1: more sustainable fiscal policy, and that requires taking a hard
Speaker 1: look at promises we're making. For example, many promises being
Speaker 1: made in American Rescue Plan Act aren't paid for going forward.
Speaker 1: Ask what are we gonna do about alright now? Recent
Speaker 1: Washington Post article that you wrote with Alan Blinder, you
Speaker 1: said there are good reasons for running large deficits now
Speaker 1: as long as the spending is well targeted. I get
Speaker 1: the sense that you have some criticisms about what was
Speaker 1: just passed at one point nine trillion dollar stimulus. What
Speaker 1: in there is targeted do you think is appropriate? And
Speaker 1: what do you think is not? Why think a smaller
Speaker 1: bill probably would have done the trick. About a trick,
Speaker 1: I mean making sure we've shored up unemployment insurance, modest
Speaker 1: aid to states, aid to businesses for continuity. Those sorts
Speaker 1: of things make sense to me. Writing checks to people
Speaker 1: who didn't lose their jobs and his wages didn't go
Speaker 1: down is hardly targeting, and it risks ruining firepower for later.
Speaker 1: And of course, part of what's in the bill has
Speaker 1: little to do with the pandemic and is a set
Speaker 1: of social policies. And they may be good, they may
Speaker 1: be bad, but they're not really part of a stimulus,
Speaker 1: limiting firepower for later. Are you talking about possibly the
Speaker 1: Fed's hand being forced with higher inflation than expected? Are
Speaker 1: you talking about it sucking the oxygen out of Washington,
Speaker 1: d C for infrastructure spending in other initiatives. I'm talking
Speaker 1: more of the ladder. I don't expect to fit there
Speaker 1: will be a transitory burst in inflation. I don't expect
Speaker 1: the FED to confront and inflation and crisis as a
Speaker 1: result of this. I think it's a warning and communication
Speaker 1: is important, but I do think it puts at risk
Speaker 1: other physical agenda's President Biden might have, whether it's physical infrastructure,
Speaker 1: whether it's training initiatives to help workers prepare for a
Speaker 1: new economy, all of that could be put at risk
Speaker 1: because of overdoing it here, Glenn, pre pandemic, we lived
Speaker 1: in a world that was very, very shallow growth, and
Speaker 1: it was a very extended cycle as well, low trend growth,
Speaker 1: low inflation, certainly not the kind of inflation to worry about.
Speaker 1: Is there anything in this bill that really disrupts the
Speaker 1: existing trend before the pandemic? Coming out of the pandemic,
Speaker 1: I don't think so much A built this bill, but
Speaker 1: I do think we could be on the verge of
Speaker 1: much better productivity growth going forward, which would presage a
Speaker 1: better growth rate. The risk in this bill and what
Speaker 1: follows on, is that a combination of excessive spending in
Speaker 1: some areas and tax increases to pay for it limit
Speaker 1: that growth. I think that's the risk we're going to
Speaker 1: hear about in the next couple of years. The reason
Speaker 1: I asked this, Glen, is because the last cycle was
Speaker 1: so long and so shallowed, and I'm trying to understand
Speaker 1: as we move three, this one really quickly, particularly in
Speaker 1: financial markets, and if we see that snap back just
Speaker 1: as fast, whether we need to be prepared for short
Speaker 1: psychos again and maybe look past the history of the
Speaker 1: last ten years and looked at what came before. Well,
Speaker 1: I think a law will depend on how policy response
Speaker 1: has developed. So after the global financial prices crisis, we
Speaker 1: did have a fairly sluggish and eventually large policy response,
Speaker 1: but it didn't really reset business people's expectations. Fairly anti
Speaker 1: business regulatory and tax agenda, And so the question is
Speaker 1: will we do that again? I hope not, and I
Speaker 1: don't necessarily think so. I think President Biden has a
Speaker 1: somewhat different agenda, but we'll have to see. Glenn Harberg,
Speaker 1: can we close the inequality that we have? Can we
Speaker 1: close the pandemic induced inequality given modern technology? This is
Speaker 1: something you did at the business school. You lead on
Speaker 1: this for years. We completely understand the technic would not
Speaker 1: understand the technological impulse right now. Are we asking for
Speaker 1: too much from our authorities to close the inequality gap? No?
Speaker 1: I don't think we are. I don't think we can
Speaker 1: quote close it, but I think we can start by
Speaker 1: asking a big question. Given the technological changes, you put
Speaker 1: In and also globalization have disadvantaged some kinds of workers
Speaker 1: while they've advantage most of the rest of us. What
Speaker 1: can we do about that? If I were President Biden
Speaker 1: thinking about quote, infrastructure, I would think about preparing people,
Speaker 1: So that would be focusing on community college and focusing
Speaker 1: on distress communities in a meaningful way. That to me
Speaker 1: is preparation to compete. That's what Adam spitballs all right, Glenn,
Speaker 1: Just to wrap this all together, the underlying fear and markets,
Speaker 1: the underlying debate is really on inflation. And you touched
Speaker 1: on this earlier where you said that you do see
Speaker 1: this more as a transitory phase, or at least that
Speaker 1: that's how the feder will look at it. What would
Speaker 1: you see or what would you have to see to
Speaker 1: shift your opinion to say this time really is different
Speaker 1: in terms of a new inflationary regime where suddenly prices
Speaker 1: start going up at a substantially faster clip for a
Speaker 1: prolonged period. Well, I think exactly as you said, you
Speaker 1: need to see working its way through the system that
Speaker 1: sustained priced increases at all levels and wage pressures to
Speaker 1: follow it. But I'm more worried about in the near
Speaker 1: term is a spill over in the financial fraud in
Speaker 1: the markets more than goods prices and services prices getting
Speaker 1: out of hand. Glenn, always great to catch up, so
Speaker 1: appreciate your time. Thanks for being with us, Glen Hubbard.
Speaker 1: They're the former Council of Economic Advisors chairman, and of
Speaker 1: course Columbia University Professor of economics Andrew Sheets joins us.
Speaker 1: Now more Can Stanley, chief cross assets strategist. That's not
Speaker 1: where we'll start, and true, we're going to start with
Speaker 1: the cycle because you guys have put out a note
Speaker 1: in the last twenty four hours and I touched on
Speaker 1: with Mike Wilson, your colleague, yesterday, and I think it's
Speaker 1: really really important to understand that you are already talking
Speaker 1: about mid cycle dynamics in this market before this economy
Speaker 1: is even reopened and gotten started. Yeah. Thanks, Well, good morning,
Speaker 1: um everyone. And I think that's a really important theme. Obviously,
Speaker 1: there are some near term events, key events today that
Speaker 1: are going on that matter a lot for the market,
Speaker 1: but we do think it's s important to step back
Speaker 1: and think about this cycle. And I do think there
Speaker 1: are a lot of reasons why this cycle could burn hotter,
Speaker 1: but because of that also burned shorter. And that's a
Speaker 1: key theme from us at Morgan Stanley. That's what what
Speaker 1: my colleague Michael Wilson was talking about the other day.
Speaker 1: And I think that means that, you know, the market
Speaker 1: might have to transition from early cycle trades and investment
Speaker 1: strategies to mid cycle or even late cycle strategies much
Speaker 1: faster than one would have done in kind of past
Speaker 1: past market cycles. Andrew, do you agree with me that
Speaker 1: the heart of the matter to the take it to
Speaker 1: the House of Gorman is the calculation by Ellen Zetner
Speaker 1: of when and how the g d P fade occurs.
Speaker 1: That's really the first order condition here, isn't it? Well?
Speaker 1: I I do, and I so think you know, to
Speaker 1: a point you guys were mentioning earlier. I think there
Speaker 1: is a lot of unprecedented um elements of this, right.
Speaker 1: I think you have in some ways a really unique
Speaker 1: demand and supply shock happening together. Right. If I think,
Speaker 1: if you think about that demand curve, you have a
Speaker 1: record high savings rate, You've had a record amount of
Speaker 1: physical stimulus put into the economy in the form of
Speaker 1: checks and other other transfers, and then you have a
Speaker 1: lot of people who for the first time will be
Speaker 1: able to consume goods and services that they have not
Speaker 1: been able to consume before and might be more more willing,
Speaker 1: might be less price sensitive to doing that. So, you know,
Speaker 1: ellen Is Forecasting has an above consensus kind of eight
Speaker 1: point one percent growth number for for for this year. Um,
Speaker 1: you know, we we we're very optimistic around the US
Speaker 1: growth outlook. But but indeed, I think some of the
Speaker 1: question for the outyears is does that start to come
Speaker 1: does that start to come back? And then also I
Speaker 1: think for companies, you know, a very normal cycle dynamic
Speaker 1: is that as the cycle progresses, sometimes you get margin pressure.
Speaker 1: These costs that come through with the economic expansion start
Speaker 1: to hit the bottom line. And so whereas early in
Speaker 1: the cycle, things like small caps do very very well
Speaker 1: because they have very strong operating leverage, they start to
Speaker 1: do less well as the cycle progresses because of some
Speaker 1: of those cost pressures. Andrew, this is a fantastic explanation
Speaker 1: of how we can see that incredible growth that you're
Speaker 1: calling for the Goldman Sacks is calling for well, also
Speaker 1: not seeing long term inflation pick up. When you say
Speaker 1: burn hotter but burn shorter, there is a question when
Speaker 1: do treasury is ten ure Treasury has become a buy
Speaker 1: because of the expectations to this reversion to a slow
Speaker 1: growth world of perhaps even a downturn on the heels
Speaker 1: of this very fast and very hot expansion. Yeah, no,
Speaker 1: I think that's absolutely the right question. So so at
Speaker 1: the moment, you know, our our asset allocation is still
Speaker 1: underweight duration. That being said, are our interest rate strategists,
Speaker 1: you know are forecasting the US tenure to in the
Speaker 1: year at at one point seven percent, so we're very
Speaker 1: close to that number. So I certainly think it's it's
Speaker 1: the right question to ask. And as the yield curve
Speaker 1: is steepened, that the carry the economics of holding treasuries
Speaker 1: is getting a lot better. So you know, I do
Speaker 1: think there's important things to watch. Obviously what we get
Speaker 1: today and what we get out of this question around
Speaker 1: the SLR exemption as I think important, but also I
Speaker 1: think stepping back, I mean to me, one of the
Speaker 1: most fascinating charts is in the entire market is what
Speaker 1: the break even expectation curve looks like. And at the
Speaker 1: moment you know that is the FED could not ask
Speaker 1: for a better set of break even expectations. Inflation expectations
Speaker 1: right there, they're high over the next five years, but
Speaker 1: then they're lower over the next ten years, they're lower
Speaker 1: over the next thirties. So that is not telling the
Speaker 1: story of inflation run out of control. And I think
Speaker 1: that's important for the bond you know, for the bond
Speaker 1: buying story, because I think, you know, essential to kind
Speaker 1: of bonds being a buy for some of those those
Speaker 1: yield curve dynamics to come into play, is the idea
Speaker 1: that we're not going to get something to run out
Speaker 1: of control. I think certainly at the moment, the inflation
Speaker 1: curve is still forecasting and we've got to go to this.
Speaker 1: John Ferrell mentioned it earlier. I mean, I look at
Speaker 1: the heritage of John Randolphin Brown Ultimate Frisbee. Andrew, did
Speaker 1: you do a Brown Ultimate when you were there? I did.
Speaker 1: I'm I'm happy, happy to say I did very good.
Speaker 1: Andrew Sheets, thank you so much, and thank you all
Speaker 1: American Brown Texas was a really important match. Said right now,
Speaker 1: on this FED day, we get perspective from a former
Speaker 1: governor of the Fellow Reserve System, Randall Krosner, at the
Speaker 1: Chicago Booth School, and he has steeped in the history
Speaker 1: of Chicago, from Night to Stigler onto Milton Friedman and
Speaker 1: all of the good work of the modern age. Randy,
Speaker 1: we have fought a pandemic war. Out of World War Two,
Speaker 1: we had fourteen percent inflation, and in nineteen forties seven,
Speaker 1: all of a sudden one percent inflation five six years
Speaker 1: later in nineteen fifty three, the inflation of Trueman. Can
Speaker 1: it be the inflation of Powell? Where we get back
Speaker 1: to normal quicker than we think? Well, I don't think
Speaker 1: that we are going to be seeing some inflationary pressure.
Speaker 1: We certainly see a very very strong, extraordinarily strong fiscal
Speaker 1: stimulus and and obviously a lot of support from the Fed.
Speaker 1: Are we gonna see numbers anywhere close to what you
Speaker 1: just quoted on the highside. I don't think so. But
Speaker 1: I can see a boost up. Well, we see a
Speaker 1: boost up in inflation, and there's this god awful fear
Speaker 1: it's the sixties and seventies inflation of a sustained inflation.
Speaker 1: What is that likelihood? Well, this is this is the
Speaker 1: thing where we u we don't know. Um, We're in
Speaker 1: the unusual situation where the central bank is trying to
Speaker 1: push up inflation expectations and shop inflation. In this context
Speaker 1: of now a potential for a strong boom in the
Speaker 1: economy with the fiscal stimulus, the question is could inflation
Speaker 1: expectations become un angry. The FED has been trying to
Speaker 1: move them up to two. They've been persistently below too
Speaker 1: for the last decade. But when you start moving them up,
Speaker 1: they continue to move up. And that's the uncertainty. So
Speaker 1: much uncertainty right now. Randy, and I want to touch
Speaker 1: on your experience in the Federal Reserve as well. Do
Speaker 1: you think it's the correct approach to take the lessons
Speaker 1: learned from the previous crisis and apply them to this crisis. Well, um,
Speaker 1: there are some things that are similar and some things
Speaker 1: that are different. So I think some of the lessons
Speaker 1: that the FED learners it's incredibly important to provide liquidity.
Speaker 1: So when I was there, we had created all these
Speaker 1: you know, we did the large scale asset purposes and
Speaker 1: all the lending programs. FED immediately stood those up about
Speaker 1: a year ago and it's actually almost the exactly a
Speaker 1: year ago and provided that to the treasure markets were
Speaker 1: functioning to make sure that we were avoiding a financial meltdown.
Speaker 1: That's extremely important. What's new is that m uh, this
Speaker 1: the extent of the fiscal stimulus, and that the restriction
Speaker 1: on on consumption was really policy induced because of all
Speaker 1: the restrictions associated with the pandemic. When those come off
Speaker 1: and combined with the fiscal stimulus, this is really something
Speaker 1: we haven't seen before. So the reason I raised this
Speaker 1: around is because, as you know, your former colleagues have
Speaker 1: been conditioned by the previous cycle to believe they need
Speaker 1: to run this hotter and I'm just wondering whether you
Speaker 1: think they'll be surprised by how quickly things snapped back
Speaker 1: well exactly. That's why this is something that's unusual to
Speaker 1: have a consumption being pent up because policy choices made
Speaker 1: people stay home um and because of concerns about infection
Speaker 1: with the rollout of the vaccine. With people feeling more
Speaker 1: profitable out with policy restrictions being relaxed, plus an unprecedented stimulus,
Speaker 1: you couldn't stand back quite quickly. Professor. There's also a
Speaker 1: concern that the FEDS policy of holding monetary conditions so
Speaker 1: easy do threaten financial stability over the near and frankly
Speaker 1: over the longer term. This idea that asset price inflation
Speaker 1: is very real and very hot. At what point does
Speaker 1: this pose a financial stability risk that the FED really
Speaker 1: cannot ignore? So I think this is something that that
Speaker 1: they're thinking about, but is not the main thing that
Speaker 1: they're focusing on right now. They're they're really focusing on
Speaker 1: making sure that we do have a firm foundation for recovery.
Speaker 1: The less thing that the Chairman Paul wants to do
Speaker 1: is to to sort of spook the markets and have
Speaker 1: financial conditions tight and dramatically have the markets turned south
Speaker 1: before we actually see the boom coming. I think they say, well,
Speaker 1: if we have a boom, then we'll deal with it. Um.
Speaker 1: That could be a very good approach, but it could
Speaker 1: also be one where you're taking a lot of risk
Speaker 1: for infliction expectations to get out of control. Brey, tell
Speaker 1: me about the multipliers. I mean, it's not the micro
Speaker 1: economics of Chicago, but we can go there. Do we
Speaker 1: have any understanding of the multipliers of consumption and the
Speaker 1: rest of the equation or is that truly a mystery
Speaker 1: at this unique time. I think there's a lot of
Speaker 1: uncertainty a path when people make very strong assertions about
Speaker 1: what so called multipliers are that is, when the government
Speaker 1: spends a dollar, how much does that turned into additional
Speaker 1: g D p UM. But again, we don't have a
Speaker 1: lot of experience with this type of UH. This type
Speaker 1: of condition where poised for potentially very big consumption as
Speaker 1: well as production group. Randy, we gotta lead to that,
Speaker 1: Randy Crowson to that University of Chicago, both School of Business,
Speaker 1: Professor of Economics. Thank you, sir. We had a historic
Speaker 1: conversation yesterday with a Mesha Dolgo. He was scathing on
Speaker 1: the European vaccine response. We go American today with Laurence
Speaker 1: Sauer with JOHNS. Hopkins as well, Associate Professor of Emergency Medicine. Lauren,
Speaker 1: I see a lot of percolation that as we open
Speaker 1: up society we may quote unquote Plateau and ours statistics.
Speaker 1: Is that fear valid? I think that fear is valid.
Speaker 1: I think the key is to open up safely exactly.
Speaker 1: You know those words are so important, right. We still
Speaker 1: want to use all of those tools that we've been
Speaker 1: developing over the last year in fighting this pandemic. So
Speaker 1: when we're reopening businesses, can we do it safely with
Speaker 1: good practices about distancing between UM patrons. Can we continue
Speaker 1: to use masks? Can we continue to reinforce those face
Speaker 1: covering requirements even if we're reopening bars, restaurants, other businesses
Speaker 1: in society and especially in schools. Yesterday, Mare de Blasio
Speaker 1: of New York City came out and said, it's really
Speaker 1: unfortunate that cities aren't receiving vaccines directly from the federal government,
Speaker 1: that it has to go through the state. Yes, this
Speaker 1: has to do with the tiff between Andrew Cuomo and
Speaker 1: Mayor to Blasio, and yet this also does highlight a
Speaker 1: key question. Should cities be getting the vaccine directly? Should
Speaker 1: we be getting a better distribution mechanism from the federal government. Yeah,
Speaker 1: I think this is a challenge, not just with the
Speaker 1: vaccine distribution. We saw it with testing. We've seen it
Speaker 1: with a lot of the other health care activities associated
Speaker 1: with this pandemic and healthcare more broadly. In the US,
Speaker 1: we do not have a federal system for healthcare. We
Speaker 1: have a disaggregated healthcare system. It makes national strategies for
Speaker 1: anything really challenging UM and we're seeing that play out
Speaker 1: in real time, and it will only be exacerbated an emergency, right,
Speaker 1: because you have to make rapid decisions, you have to
Speaker 1: rapidly distribute, but you still have to use these existing chains,
Speaker 1: these existing pipelines. And so if you want to get
Speaker 1: vaccine into the hands of the community that has the
Speaker 1: greatest need and can um it knows how to work
Speaker 1: with that community to access them, absolutely go through these processes.
Speaker 1: But um, the way our health care system is set up,
Speaker 1: there are these sort of chains and pipelines that slow
Speaker 1: things down. And let's talk about slot of things down
Speaker 1: right now. The President says, May first, to open up
Speaker 1: eligibility to all adults. Here's what Montana has got to say,
Speaker 1: aprol first high similar story ended a month every other
Speaker 1: state that watches this happen, and I can how you
Speaker 1: living here in New York when I looked in Montana
Speaker 1: at the end of the month and Ohio and start
Speaker 1: to see eligibility wide open for sixteen plus, I'm gonna
Speaker 1: be asking the governor here in New York the same thing.
Speaker 1: Everybody will be asking, why can't we do the same thing.
Speaker 1: What is going gone? What is stopping places like New
Speaker 1: York and others just to do the same thing. Now,
Speaker 1: open up eligibility yeah, I think there's a couple of challenges, right.
Speaker 1: So part of it is the access. How do you
Speaker 1: make sure that you're getting to those most vulnerable communities,
Speaker 1: And that goes back to what we were just talking about.
Speaker 1: Do these states that are that are moving up that timeline,
Speaker 1: do they know how to access their vulnerable populations quicker
Speaker 1: or are they just moving on because they have sort
Speaker 1: of not been able to access those communities and they
Speaker 1: want to get vaccine. More broadly, these disparate decisions about
Speaker 1: how we administer vaccine and how we interpret the A
Speaker 1: C I P guidelines UM are what's leading to these
Speaker 1: changing dates depending on where you are. So it also
Speaker 1: can lead to sort of vaccine shopping, which I think
Speaker 1: we're seeing a little bit in places, especially in more
Speaker 1: well to do play is where people have better access
Speaker 1: because they have multiple residencies, or they meet requirements in
Speaker 1: one area and not on another, and they can relocate
Speaker 1: to access those vaccines. So I think that that may
Speaker 1: first deadline or timeline is exciting and it's reasonable, and
Speaker 1: I think we can get there, but we really have
Speaker 1: to focus on making sure that in communities where access
Speaker 1: is hard or where we're not getting at those most vulnerable,
Speaker 1: hard to reach communities and populations, that that's where we
Speaker 1: target to make sure that we are protecting those who
Speaker 1: need that safety net so much more, Lauren. In some ways,
Speaker 1: these are details, especially when you look at the scene
Speaker 1: in Europe where they're struggling to get even a relatively
Speaker 1: a significant proportion of the population vaccinated. Angela Miracles Advisors
Speaker 1: said today that the biggest economic risk is a third
Speaker 1: wave of the virus in the United States based on
Speaker 1: the vaccination schedule, and that may first pledge, is the
Speaker 1: threat of a third wave off the table. I wouldn't
Speaker 1: say it's off the table. I think we are definitely
Speaker 1: in a better place UM and some would say we're
Speaker 1: in a much better place than UM we thought we
Speaker 1: would be. And especially as we started seeing the B
Speaker 1: one one seven variant enter into the US. UM, we're
Speaker 1: still seeing increasing cases in that variant. And I think
Speaker 1: there's a lot of questions about what will happen in
Speaker 1: the numbers as these rapid reopenings change in places like Texas,
Speaker 1: for example. UM, But right now the numbers are still
Speaker 1: looking good UM and I think the key is to
Speaker 1: hold on to those measures that we have worked so
Speaker 1: hard to implement that we know work as we expand
Speaker 1: vaccination coverage. UM, we're doing a great job I think
Speaker 1: in in getting the numbers of vaccines vaccinees up UM
Speaker 1: and now the key is to do those targeted areas
Speaker 1: that have lower vaccination rates UM to keep those overall
Speaker 1: numbers across the country down. Lauren always appreciate time. Thanks
Speaker 1: for being with us early this morning. Laurence Son that
Speaker 1: John's help Kins a solid ship Professor of emergency to see.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
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Speaker 1: the terminal. I'm Tom Keene and this is Bloomberg