1
00:00:02,360 --> 00:00:06,680
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

2
00:00:06,880 --> 00:00:08,520
Speaker 2: Okay, we're gonna go walk on you now as you

3
00:00:08,560 --> 00:00:11,960
Speaker 2: go to Richard Clareda, who changed Columbia economics forever now

4
00:00:11,960 --> 00:00:15,400
Speaker 2: at pimcoh and we're thrilled the Vice Sherman could join

5
00:00:15,520 --> 00:00:19,160
Speaker 2: us this morning. What an honorative Michael Spence and the

6
00:00:19,280 --> 00:00:22,640
Speaker 2: laureate and Richard Porters of London Business School talking about

7
00:00:22,720 --> 00:00:25,200
Speaker 2: John Hicks and long ago there was a thing that

8
00:00:25,239 --> 00:00:28,280
Speaker 2: was invented called the Hicks Hanson model, which now we

9
00:00:28,360 --> 00:00:31,040
Speaker 2: call the ISLM model. And the bottom line is the

10
00:00:31,080 --> 00:00:36,880
Speaker 2: financial media completely focuses on financial LM dynamics money this

11
00:00:37,120 --> 00:00:40,200
Speaker 2: you know, the interest rate? What's inflation can do? Oh yeah,

12
00:00:40,240 --> 00:00:42,840
Speaker 2: there's an is curve which has to ask some zab

13
00:00:43,280 --> 00:00:46,600
Speaker 2: the real economy on it. Rich Clareda, is this fed

14
00:00:46,720 --> 00:00:50,879
Speaker 2: completely riveted to inflation or can they perchance look at

15
00:00:50,880 --> 00:00:54,279
Speaker 2: the American leader of me. If you'd asked me.

16
00:00:54,240 --> 00:00:56,160
Speaker 3: That question, which I think you did two years ago,

17
00:00:56,240 --> 00:00:59,120
Speaker 3: I'd say they're focused on inflation because it was too

18
00:00:59,160 --> 00:01:03,720
Speaker 3: damn high for to today they're saying, and I believe

19
00:01:03,840 --> 00:01:06,440
Speaker 3: that they do see the risk as two sided. I

20
00:01:06,480 --> 00:01:08,520
Speaker 3: think if we did see a sharp slowing in the

21
00:01:08,600 --> 00:01:12,280
Speaker 3: labor market, they would respond because inflation is now close

22
00:01:12,400 --> 00:01:15,440
Speaker 3: enough to target, they can afford to be flexible two

23
00:01:15,480 --> 00:01:17,440
Speaker 3: years ago when inflation was six seven percent.

24
00:01:17,800 --> 00:01:20,640
Speaker 2: Now with the fancy PhD is often Columbia at the

25
00:01:20,720 --> 00:01:25,200
Speaker 2: Eckles Building when you quote unquote focus on labor by

26
00:01:25,280 --> 00:01:28,520
Speaker 2: definition your ex post you have to wait for the

27
00:01:28,600 --> 00:01:32,280
Speaker 2: labor economy to break. You can't anticipate it in a

28
00:01:32,319 --> 00:01:33,440
Speaker 2: given central bank.

29
00:01:34,640 --> 00:01:39,440
Speaker 3: That's a very fundamental question because ideally central bankers, and

30
00:01:39,480 --> 00:01:42,279
Speaker 3: based on including on my own research with Gertler and Galley,

31
00:01:42,360 --> 00:01:44,800
Speaker 3: in a perfect world, you would anticipate if you saw

32
00:01:44,800 --> 00:01:47,560
Speaker 3: the labor market slowing, you try to get ahead. That's

33
00:01:47,600 --> 00:01:51,880
Speaker 3: forwardlooking monetary policy, as I learned in practice. However, the

34
00:01:51,920 --> 00:01:54,520
Speaker 3: economy is always changing, and what was a good model

35
00:01:54,600 --> 00:01:56,640
Speaker 3: five years ago it may not be a good model now.

36
00:01:56,640 --> 00:01:59,680
Speaker 3: So there's a real element of risk management as well.

37
00:01:59,680 --> 00:02:02,320
Speaker 3: But I well a good example of that Tom when

38
00:02:02,360 --> 00:02:05,480
Speaker 3: during my time there, the models were saying, you guys

39
00:02:05,520 --> 00:02:07,880
Speaker 3: are got to keep hiking rates because the unemployment rates

40
00:02:07,920 --> 00:02:10,680
Speaker 3: at four point two percent. In our models say inflation's coming.

41
00:02:11,040 --> 00:02:13,240
Speaker 3: And Jay Pall and I the committee didn't see inflation

42
00:02:13,400 --> 00:02:15,519
Speaker 3: so we didn't hike rates in twenty nineteen. In fact,

43
00:02:15,520 --> 00:02:18,200
Speaker 3: we cut a little bit so the economy could keep going.

44
00:02:18,280 --> 00:02:20,679
Speaker 3: So there's risk on both sides, and I think good

45
00:02:20,720 --> 00:02:23,560
Speaker 3: monetary policy needs to be nimble and assess that.

46
00:02:23,880 --> 00:02:26,560
Speaker 1: You know, central bank inflation targeting I mean, Richard, I

47
00:02:26,560 --> 00:02:29,079
Speaker 1: mean this is something that you know. I mean, we felt,

48
00:02:29,160 --> 00:02:32,040
Speaker 1: at least in emerging markets that central banks had found religion.

49
00:02:32,080 --> 00:02:34,280
Speaker 1: And here we are, and we're seeing central banks cutting

50
00:02:34,320 --> 00:02:35,960
Speaker 1: in the face of a FED on hold. And my

51
00:02:36,080 --> 00:02:38,520
Speaker 1: question for you is how long can that last?

52
00:02:40,000 --> 00:02:43,320
Speaker 3: This divergence? Certainly, I think there was some talk at

53
00:02:43,360 --> 00:02:45,480
Speaker 3: the beginning of the year other countries would not even

54
00:02:45,520 --> 00:02:48,120
Speaker 3: begin to cut until the FED diad. I never believe that,

55
00:02:48,160 --> 00:02:51,360
Speaker 3: And I see, we've already seen Sweden, We've seen Switzerland.

56
00:02:51,360 --> 00:02:54,680
Speaker 3: We're almost certainly going to see Madame Leguarde and the

57
00:02:54,760 --> 00:02:58,720
Speaker 3: ECB tomorrow. So I think certainly central banks can get

58
00:02:58,760 --> 00:03:02,520
Speaker 3: those rate cuts, and I think they could proceed much

59
00:03:02,560 --> 00:03:06,480
Speaker 3: further than the FED if their inflation data supports that decision.

60
00:03:06,560 --> 00:03:09,280
Speaker 3: I think the challenge right now in Europe and the

61
00:03:09,400 --> 00:03:13,800
Speaker 3: UK is the inflation data at best is moving sideways,

62
00:03:13,840 --> 00:03:17,480
Speaker 3: and some measures is moving up, so that may limit

63
00:03:17,840 --> 00:03:19,560
Speaker 3: the number of cuts they get in this year, not

64
00:03:19,600 --> 00:03:21,959
Speaker 3: because they're focused on the FED, but because inflation is

65
00:03:22,000 --> 00:03:22,680
Speaker 3: not cooperating.

66
00:03:22,680 --> 00:03:23,880
Speaker 1: I mean, you just hit the nail on the head.

67
00:03:23,919 --> 00:03:26,160
Speaker 1: I mean, look, this inflation is not cooperating right now

68
00:03:26,160 --> 00:03:28,000
Speaker 1: with the ECB and Madam lecguard is this is an

69
00:03:28,000 --> 00:03:30,640
Speaker 1: interesting experiment, Tom, I mean, can the ECB, I mean

70
00:03:30,680 --> 00:03:32,080
Speaker 1: it's twenty five BIPs? What are they going to cut

71
00:03:32,080 --> 00:03:33,919
Speaker 1: the deeper way to four seventy five? Is that really

72
00:03:34,320 --> 00:03:37,280
Speaker 1: going to juice growth in the Eurozone? I mean, do

73
00:03:37,280 --> 00:03:38,720
Speaker 1: you think that's enough? Do you think they're going to

74
00:03:38,800 --> 00:03:40,640
Speaker 1: have to continue to go more or can they cut

75
00:03:40,920 --> 00:03:42,720
Speaker 1: pause and wait and see what the FED does.

76
00:03:44,720 --> 00:03:47,600
Speaker 3: My guess now is that that that they will pause

77
00:03:47,600 --> 00:03:49,480
Speaker 3: in the sense I don't see them moving at the

78
00:03:49,560 --> 00:03:53,120
Speaker 3: meeting after the June meeting based upon on the data. Now.

79
00:03:53,160 --> 00:03:55,760
Speaker 3: In fact, maybe I just a venture there could be

80
00:03:55,800 --> 00:03:59,760
Speaker 3: a little bit of seller's remorse because they really signals

81
00:03:59,800 --> 00:04:02,960
Speaker 3: this rate cut beginning in March, and I think they're

82
00:04:03,000 --> 00:04:04,520
Speaker 3: going to get it in, and I think it makes

83
00:04:04,520 --> 00:04:07,080
Speaker 3: sense to get it in, But I would not extrapolate

84
00:04:07,160 --> 00:04:09,240
Speaker 3: from this that it's going to be every meeting, I

85
00:04:09,280 --> 00:04:11,800
Speaker 3: really do think. And I saw a wonderful speech that

86
00:04:11,920 --> 00:04:15,960
Speaker 3: Madame Leguard gave at the ECB Watchers, where I also

87
00:04:16,040 --> 00:04:18,200
Speaker 3: spoke in March. It was one of her best speeches,

88
00:04:18,200 --> 00:04:20,760
Speaker 3: and the message I got from that is she is

89
00:04:20,960 --> 00:04:24,000
Speaker 3: very data dependent and if the data doesn't cooperate, right,

90
00:04:24,120 --> 00:04:25,159
Speaker 3: that's going to be a factor.

91
00:04:25,240 --> 00:04:29,239
Speaker 2: Inner jackson whole speech, which recovered was the same ideas, Okay,

92
00:04:29,240 --> 00:04:33,160
Speaker 2: we're data dependent, but let's have a longer vision as well.

93
00:04:33,279 --> 00:04:36,080
Speaker 2: Richard Clarita, I have to have a nerd book of

94
00:04:36,120 --> 00:04:39,159
Speaker 2: the summer. And it's Adam Posen's fault. We'll blame him

95
00:04:39,200 --> 00:04:43,040
Speaker 2: out of Peterson Institute, Marie Sobsfeld and Douger when talking

96
00:04:43,080 --> 00:04:47,320
Speaker 2: about trade, talking about what's out there and all of this,

97
00:04:47,400 --> 00:04:49,160
Speaker 2: and we're going to get Brad Setzer in here. But

98
00:04:49,600 --> 00:04:53,599
Speaker 2: I deglobalization. Defen's got to worry about the rest of

99
00:04:53,640 --> 00:04:57,640
Speaker 2: the world as well. Do they work within regional trading

100
00:04:57,680 --> 00:05:00,800
Speaker 2: blocks now or do we still have a hybrid trade

101
00:05:00,839 --> 00:05:03,320
Speaker 2: economy that can be part of our growth.

102
00:05:04,640 --> 00:05:08,240
Speaker 3: Well, obviously globalization, I think it's clear has peaked, and

103
00:05:08,279 --> 00:05:10,520
Speaker 3: so the real question for the next five, ten, fifteen,

104
00:05:10,600 --> 00:05:14,840
Speaker 3: twenty years is what does on sharing, friends, sharing, supply

105
00:05:15,000 --> 00:05:17,840
Speaker 3: chain rethink. How does that translate? But I will say

106
00:05:17,880 --> 00:05:21,080
Speaker 3: it's very relevant tom to monetary policy because in the

107
00:05:21,120 --> 00:05:25,960
Speaker 3: thirty years before the pandemic, globalization made the FED job

108
00:05:26,040 --> 00:05:29,040
Speaker 3: easier because it put dowur rice pressure on goods and

109
00:05:29,080 --> 00:05:31,640
Speaker 3: in labor markets. And if it reverses, that means that

110
00:05:31,760 --> 00:05:33,360
Speaker 3: the margin that does jobs harder.

111
00:05:33,520 --> 00:05:35,560
Speaker 2: Right now, and this goes to the meeting next week,

112
00:05:35,960 --> 00:05:38,880
Speaker 2: You've got a partition of domestic final sales which are

113
00:05:38,920 --> 00:05:41,800
Speaker 2: actually pretty good. But I'm sorry you bolt on a

114
00:05:41,839 --> 00:05:45,200
Speaker 2: few other statistics, including trade, and it's a sub two

115
00:05:45,240 --> 00:05:47,440
Speaker 2: percent economy. Yeah, which is it?

116
00:05:49,520 --> 00:05:51,920
Speaker 3: My own sense is that we're heading down to around

117
00:05:51,920 --> 00:05:54,400
Speaker 3: a two percent economy, with a risk that we could

118
00:05:54,560 --> 00:05:58,040
Speaker 3: overshoot in the other direction. I think it's too soon

119
00:05:58,080 --> 00:05:59,960
Speaker 3: to tell, but some of the data, including the Bloomber

120
00:06:00,240 --> 00:06:04,480
Speaker 3: Surprise indest it has moved into negative territory. We saw

121
00:06:04,520 --> 00:06:07,120
Speaker 3: Atlanta FED marked down from four to one eight in

122
00:06:07,160 --> 00:06:11,000
Speaker 3: the last couple of weeks, so Bear's watching rich.

123
00:06:11,080 --> 00:06:12,960
Speaker 1: We talk about data dependence here in the US, and

124
00:06:12,960 --> 00:06:14,640
Speaker 1: we have two big data points coming out. We have

125
00:06:14,680 --> 00:06:17,440
Speaker 1: the ISM services coming up tomorrow and then followed by payrolls.

126
00:06:17,440 --> 00:06:19,600
Speaker 1: But I think it's those sub components. So I'm asking you,

127
00:06:19,600 --> 00:06:21,920
Speaker 1: what are you really looking at? Within the data, You're

128
00:06:21,920 --> 00:06:24,280
Speaker 1: looking at prices, paid, new orders. In the ising data

129
00:06:24,360 --> 00:06:28,719
Speaker 1: you looking at you know, libor force size, average hourly earnings.

130
00:06:28,760 --> 00:06:30,160
Speaker 1: I mean, what are you most focused on over the

131
00:06:30,200 --> 00:06:30,880
Speaker 1: next couple of years.

132
00:06:31,520 --> 00:06:33,440
Speaker 3: At some level, the flip answer would be all the

133
00:06:33,640 --> 00:06:36,680
Speaker 3: all the above. You know, certainly when you're at the FED,

134
00:06:36,720 --> 00:06:39,839
Speaker 3: you are looking at everything. But I would say that,

135
00:06:39,920 --> 00:06:43,240
Speaker 3: if I had to prioritize, I'm focused more on the

136
00:06:43,279 --> 00:06:46,839
Speaker 3: cost side of the economy right now, in the sense

137
00:06:46,880 --> 00:06:52,080
Speaker 3: that everyone agrees that the labor market needs to adjust

138
00:06:52,120 --> 00:06:54,479
Speaker 3: to be consistent with the inflation mandate, and I would

139
00:06:54,560 --> 00:06:57,880
Speaker 3: say that the numbers there are are encouraging. We've seen

140
00:06:57,920 --> 00:07:01,039
Speaker 3: a big disceleration and wage inflation that may create some

141
00:07:01,080 --> 00:07:04,479
Speaker 3: political problems for the incumbent, but from the Fed's point

142
00:07:04,520 --> 00:07:07,919
Speaker 3: of view, it's moving wage inflation in the direction of

143
00:07:08,440 --> 00:07:11,080
Speaker 3: consistent with price to ability, unlike, for example, what we're

144
00:07:11,080 --> 00:07:13,040
Speaker 3: seeing in the year Zone in the UK. So I

145
00:07:13,080 --> 00:07:15,640
Speaker 3: think labor market and the cost side of the economy

146
00:07:15,680 --> 00:07:18,440
Speaker 3: is what I be focused on. I think the demand

147
00:07:18,520 --> 00:07:20,200
Speaker 3: side will take care of itself.

148
00:07:20,640 --> 00:07:23,160
Speaker 2: I'm out of time. Can you come back, of course

149
00:07:24,320 --> 00:07:26,080
Speaker 2: if we can get you in for fed DA great,

150
00:07:27,280 --> 00:07:29,440
Speaker 2: Thank you so much so, former vice chairman of the fed.

151
00:07:29,520 --> 00:07:32,200
Speaker 2: I can't say enough about what he did to rebuild

152
00:07:32,240 --> 00:07:35,520
Speaker 2: Columbia economics a number of years ago. He's at a

153
00:07:35,600 --> 00:07:39,280
Speaker 2: small shop or they play golf. Pimo Small West Coast,

154
00:07:39,360 --> 00:07:39,600
Speaker 2: Coast