Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Okay, we're gonna go walk on you now as you
Speaker 2: go to Richard Clareda, who changed Columbia economics forever now
Speaker 2: at pimcoh and we're thrilled the Vice Sherman could join
Speaker 2: us this morning. What an honorative Michael Spence and the
Speaker 2: laureate and Richard Porters of London Business School talking about
Speaker 2: John Hicks and long ago there was a thing that
Speaker 2: was invented called the Hicks Hanson model, which now we
Speaker 2: call the ISLM model. And the bottom line is the
Speaker 2: financial media completely focuses on financial LM dynamics money this
Speaker 2: you know, the interest rate? What's inflation can do? Oh yeah,
Speaker 2: there's an is curve which has to ask some zab
Speaker 2: the real economy on it. Rich Clareda, is this fed
Speaker 2: completely riveted to inflation or can they perchance look at
Speaker 2: the American leader of me. If you'd asked me.
Speaker 3: That question, which I think you did two years ago,
Speaker 3: I'd say they're focused on inflation because it was too
Speaker 3: damn high for to today they're saying, and I believe
Speaker 3: that they do see the risk as two sided. I
Speaker 3: think if we did see a sharp slowing in the
Speaker 3: labor market, they would respond because inflation is now close
Speaker 3: enough to target, they can afford to be flexible two
Speaker 3: years ago when inflation was six seven percent.
Speaker 2: Now with the fancy PhD is often Columbia at the
Speaker 2: Eckles Building when you quote unquote focus on labor by
Speaker 2: definition your ex post you have to wait for the
Speaker 2: labor economy to break. You can't anticipate it in a
Speaker 2: given central bank.
Speaker 3: That's a very fundamental question because ideally central bankers, and
Speaker 3: based on including on my own research with Gertler and Galley,
Speaker 3: in a perfect world, you would anticipate if you saw
Speaker 3: the labor market slowing, you try to get ahead. That's
Speaker 3: forwardlooking monetary policy, as I learned in practice. However, the
Speaker 3: economy is always changing, and what was a good model
Speaker 3: five years ago it may not be a good model now.
Speaker 3: So there's a real element of risk management as well.
Speaker 3: But I well a good example of that Tom when
Speaker 3: during my time there, the models were saying, you guys
Speaker 3: are got to keep hiking rates because the unemployment rates
Speaker 3: at four point two percent. In our models say inflation's coming.
Speaker 3: And Jay Pall and I the committee didn't see inflation
Speaker 3: so we didn't hike rates in twenty nineteen. In fact,
Speaker 3: we cut a little bit so the economy could keep going.
Speaker 3: So there's risk on both sides, and I think good
Speaker 3: monetary policy needs to be nimble and assess that.
Speaker 1: You know, central bank inflation targeting I mean, Richard, I
Speaker 1: mean this is something that you know. I mean, we felt,
Speaker 1: at least in emerging markets that central banks had found religion.
Speaker 1: And here we are, and we're seeing central banks cutting
Speaker 1: in the face of a FED on hold. And my
Speaker 1: question for you is how long can that last?
Speaker 3: This divergence? Certainly, I think there was some talk at
Speaker 3: the beginning of the year other countries would not even
Speaker 3: begin to cut until the FED diad. I never believe that,
Speaker 3: And I see, we've already seen Sweden, We've seen Switzerland.
Speaker 3: We're almost certainly going to see Madame Leguarde and the
Speaker 3: ECB tomorrow. So I think certainly central banks can get
Speaker 3: those rate cuts, and I think they could proceed much
Speaker 3: further than the FED if their inflation data supports that decision.
Speaker 3: I think the challenge right now in Europe and the
Speaker 3: UK is the inflation data at best is moving sideways,
Speaker 3: and some measures is moving up, so that may limit
Speaker 3: the number of cuts they get in this year, not
Speaker 3: because they're focused on the FED, but because inflation is
Speaker 3: not cooperating.
Speaker 1: I mean, you just hit the nail on the head.
Speaker 1: I mean, look, this inflation is not cooperating right now
Speaker 1: with the ECB and Madam lecguard is this is an
Speaker 1: interesting experiment, Tom, I mean, can the ECB, I mean
Speaker 1: it's twenty five BIPs? What are they going to cut
Speaker 1: the deeper way to four seventy five? Is that really
Speaker 1: going to juice growth in the Eurozone? I mean, do
Speaker 1: you think that's enough? Do you think they're going to
Speaker 1: have to continue to go more or can they cut
Speaker 1: pause and wait and see what the FED does.
Speaker 3: My guess now is that that that they will pause
Speaker 3: in the sense I don't see them moving at the
Speaker 3: meeting after the June meeting based upon on the data. Now.
Speaker 3: In fact, maybe I just a venture there could be
Speaker 3: a little bit of seller's remorse because they really signals
Speaker 3: this rate cut beginning in March, and I think they're
Speaker 3: going to get it in, and I think it makes
Speaker 3: sense to get it in, But I would not extrapolate
Speaker 3: from this that it's going to be every meeting, I
Speaker 3: really do think. And I saw a wonderful speech that
Speaker 3: Madame Leguard gave at the ECB Watchers, where I also
Speaker 3: spoke in March. It was one of her best speeches,
Speaker 3: and the message I got from that is she is
Speaker 3: very data dependent and if the data doesn't cooperate, right,
Speaker 3: that's going to be a factor.
Speaker 2: Inner jackson whole speech, which recovered was the same ideas, Okay,
Speaker 2: we're data dependent, but let's have a longer vision as well.
Speaker 2: Richard Clarita, I have to have a nerd book of
Speaker 2: the summer. And it's Adam Posen's fault. We'll blame him
Speaker 2: out of Peterson Institute, Marie Sobsfeld and Douger when talking
Speaker 2: about trade, talking about what's out there and all of this,
Speaker 2: and we're going to get Brad Setzer in here. But
Speaker 2: I deglobalization. Defen's got to worry about the rest of
Speaker 2: the world as well. Do they work within regional trading
Speaker 2: blocks now or do we still have a hybrid trade
Speaker 2: economy that can be part of our growth.
Speaker 3: Well, obviously globalization, I think it's clear has peaked, and
Speaker 3: so the real question for the next five, ten, fifteen,
Speaker 3: twenty years is what does on sharing, friends, sharing, supply
Speaker 3: chain rethink. How does that translate? But I will say
Speaker 3: it's very relevant tom to monetary policy because in the
Speaker 3: thirty years before the pandemic, globalization made the FED job
Speaker 3: easier because it put dowur rice pressure on goods and
Speaker 3: in labor markets. And if it reverses, that means that
Speaker 3: the margin that does jobs harder.
Speaker 2: Right now, and this goes to the meeting next week,
Speaker 2: You've got a partition of domestic final sales which are
Speaker 2: actually pretty good. But I'm sorry you bolt on a
Speaker 2: few other statistics, including trade, and it's a sub two
Speaker 2: percent economy. Yeah, which is it?
Speaker 3: My own sense is that we're heading down to around
Speaker 3: a two percent economy, with a risk that we could
Speaker 3: overshoot in the other direction. I think it's too soon
Speaker 3: to tell, but some of the data, including the Bloomber
Speaker 3: Surprise indest it has moved into negative territory. We saw
Speaker 3: Atlanta FED marked down from four to one eight in
Speaker 3: the last couple of weeks, so Bear's watching rich.
Speaker 1: We talk about data dependence here in the US, and
Speaker 1: we have two big data points coming out. We have
Speaker 1: the ISM services coming up tomorrow and then followed by payrolls.
Speaker 1: But I think it's those sub components. So I'm asking you,
Speaker 1: what are you really looking at? Within the data, You're
Speaker 1: looking at prices, paid, new orders. In the ising data
Speaker 1: you looking at you know, libor force size, average hourly earnings.
Speaker 1: I mean, what are you most focused on over the
Speaker 1: next couple of years.
Speaker 3: At some level, the flip answer would be all the
Speaker 3: all the above. You know, certainly when you're at the FED,
Speaker 3: you are looking at everything. But I would say that,
Speaker 3: if I had to prioritize, I'm focused more on the
Speaker 3: cost side of the economy right now, in the sense
Speaker 3: that everyone agrees that the labor market needs to adjust
Speaker 3: to be consistent with the inflation mandate, and I would
Speaker 3: say that the numbers there are are encouraging. We've seen
Speaker 3: a big disceleration and wage inflation that may create some
Speaker 3: political problems for the incumbent, but from the Fed's point
Speaker 3: of view, it's moving wage inflation in the direction of
Speaker 3: consistent with price to ability, unlike, for example, what we're
Speaker 3: seeing in the year Zone in the UK. So I
Speaker 3: think labor market and the cost side of the economy
Speaker 3: is what I be focused on. I think the demand
Speaker 3: side will take care of itself.
Speaker 2: I'm out of time. Can you come back, of course
Speaker 2: if we can get you in for fed DA great,
Speaker 2: Thank you so much so, former vice chairman of the fed.
Speaker 2: I can't say enough about what he did to rebuild
Speaker 2: Columbia economics a number of years ago. He's at a
Speaker 2: small shop or they play golf. Pimo Small West Coast,
Speaker 2: Coast