Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer pricing,
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: utter reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's mind inflation through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary,
Speaker 1: Bryan Wynahan back of America, willmar Ceo of Charlie Sharp.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio proceed.
Speaker 1: We have cautioned confusing reports on the delta variant and
Speaker 1: mixed numbers on the economy make us think again about
Speaker 1: that rush to reopen. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston, and the markets this week seemed to
Speaker 1: reflect all of it the hope, with stronger than expected
Speaker 1: jobs numbers out on Friday taking the SMP record highs
Speaker 1: as well as the trupidation, with the NASTAC actually down
Speaker 1: on Friday a bit, even though it was overall up
Speaker 1: a bit for the week, and the ten year yields
Speaker 1: struggled to get back to one point three after falling
Speaker 1: as low as one point one three earlier in the week.
Speaker 1: To help us put this all together, we have with
Speaker 1: this David Kelly, JP Morgan Asset Management Chief Global Strategist,
Speaker 1: and Laura Tyson, Professor at the Has School of Business
Speaker 1: at University of California, Berkeley. Dr Tyson served as chair
Speaker 1: of the Council of Economic Advisors under President Obama. So
Speaker 1: Dr Tyson, thank you so much for being with us,
Speaker 1: give us a sense of while you interpreted those employment numbers.
Speaker 1: It seemed to be strong pretty much across the board.
Speaker 1: But did it take into account the delta variant? Well,
Speaker 1: it was strong, and I certainly think it's important to
Speaker 1: look at the three months average. If you get a
Speaker 1: three months average of adding eight hundred thousand, uh eight
Speaker 1: hundred thousand jobs a month, those are strong numbers and
Speaker 1: and show continued strengthening of the labor market. That's the
Speaker 1: first thing. The second thing is it is true that
Speaker 1: a lot of the employment growth in July was what
Speaker 1: I would call in person activities. It was leisure, retail,
Speaker 1: hospital totality, people going to restaurants, people going out to
Speaker 1: personal services. What is a little unclear, and by the way,
Speaker 1: also education, what is a little unclear is what is
Speaker 1: the course of delta going into the fall and will
Speaker 1: that slow that momentum for those kinds of jobs and
Speaker 1: services death. And I think that's a legitimate question, and
Speaker 1: I'm not sure. We don't We don't know the answer. Therefore,
Speaker 1: I think that's one of the reasons why the market
Speaker 1: is saying hard to interpret, hard to interpret. So let's
Speaker 1: go to the markets. Actually, David, it's over to you here.
Speaker 1: And what happened, because when I came in and looked
Speaker 1: at the numbers of that, boy, these are great numbers
Speaker 1: and markets are really going to go up, they didn't
Speaker 1: go up that much. It was mixed. In fact, the
Speaker 1: NASTAC was down a little bit. Is that because, as
Speaker 1: Laura said, this is some doubts about delta iron or
Speaker 1: is it really fear that may cause the FED to
Speaker 1: increase rates sooner. I don't really think it's either of those.
Speaker 1: I mean, the markets are very there. I mean, we're
Speaker 1: going up for a very long time. We are for
Speaker 1: these heights. It's it's you know, it's hard to justify
Speaker 1: moving up quickly from here. But on the delta variant.
Speaker 1: I mean, look, I know that the virus is mutating,
Speaker 1: but you know what, in some ways, the economy is
Speaker 1: mutating also. I think it is really interesting that, you know,
Speaker 1: we had a huge crash in the economy last year
Speaker 1: and then and then a rebound in the third quarter,
Speaker 1: but every quarter since then we've grown. We were on
Speaker 1: our fourth wave of COVID here, but the economy is
Speaker 1: really adapting to it. So I do think the delta
Speaker 1: variant will slow things down a little bit over the
Speaker 1: next month or two. Um, you know, I think hopefully
Speaker 1: it will. He can come down again. But you know,
Speaker 1: as I look at the economy, it looks like people
Speaker 1: are adapting to it. Yes, we're gonna have to. We're
Speaker 1: gonna get much more serious about vaccine mandates. You know,
Speaker 1: you want to work here, you gotta have a vaccine.
Speaker 1: We're gonna get more serious about wearing masks, but it's
Speaker 1: not going to stop people from the open. The schools
Speaker 1: are getting back to doing the things that want to do.
Speaker 1: We're just gonna have to do them in a different way.
Speaker 1: But I've I've confidence. You know, Yeah, the virus mutates,
Speaker 1: but we mutate too, and I think the economy is
Speaker 1: actually going to keep on growing through this. So so
Speaker 1: we're back to you. What does that say to the
Speaker 1: Fed and monetary policies a practic matter? But is I
Speaker 1: think what I just heard from David is we're learning
Speaker 1: to adapt to it. It's not going to be as
Speaker 1: robust as we thought. It will be more tempered. But
Speaker 1: does that mean actually the FED can be a bit
Speaker 1: more leaning with monetary policy longer? So I look, I
Speaker 1: think the said is it was very clear you You
Speaker 1: had a comment from Vice Chair Claradon, but we also
Speaker 1: had a comment last week from Jerome Pell And basically,
Speaker 1: what they're saying, is it right now, given the advanced guidance,
Speaker 1: they continue to to continue to issue um with a
Speaker 1: goal of maximum employment and a long run target of
Speaker 1: inflation of two percent with some overshoot for some period
Speaker 1: of time. Yeah. The the conditions in the economy, I
Speaker 1: think continue to indicate that that meeting those conditions may
Speaker 1: sometimes may occur sometime in two or early twenty three.
Speaker 1: I don't think there's any news here in this report
Speaker 1: which would suggest what the SAID has been saying. The
Speaker 1: SED has believes, and I believe that most of the
Speaker 1: significant increase in inflation over the past few months has
Speaker 1: been the result of transitory factors. Those factors won't die out,
Speaker 1: and we will end up with a perhaps a somewhat
Speaker 1: higher inflation rate over two percent, but not much, and
Speaker 1: that will be consistent with the Fed's guidance on what
Speaker 1: its policy is going to be. So David's that means
Speaker 1: the sky's the limit. As far as equity is scary
Speaker 1: concern because it seems like almost no matter what happens,
Speaker 1: equity markets just go up. How much of that is
Speaker 1: just supported by the FED as opposed to fundamental underlying growth. Well,
Speaker 1: I think a lot of it is. But of course
Speaker 1: the Federal Reserve has been fueling asset price increases all
Speaker 1: over the place for years, ready for a decade now.
Speaker 1: And my real concern is not so much the FED
Speaker 1: is fueling inflation, but it's just causing assetprises to rise
Speaker 1: much faster than the economy overall, and that could cause
Speaker 1: asset bubbles, are generalized asset bubbles, So I think the
Speaker 1: Federal Reserve needs to begin to normalize. I agree with Laura,
Speaker 1: I don't think they're going to We're looking at hyper
Speaker 1: inflation are very high inflation. I think most of its transitory,
Speaker 1: but we have seen big increases in asset prices, and
Speaker 1: I'm you know, I think what's going on is these
Speaker 1: very low interest rates are fueling a lot of nefarious
Speaker 1: things in the economy that we really don't want to see.
Speaker 1: You very high increases in home prices, a lot of
Speaker 1: spectors of assets, and you're drawing money in. So I
Speaker 1: think the Federal Reserve really needs to think about normalizing
Speaker 1: and they also have to think about timetables. Here. You're
Speaker 1: supposed to get ahead of this, not not react late
Speaker 1: to it. So I'm worried that they're they're taking too
Speaker 1: much time getting to tapering and talking about raising interest
Speaker 1: rates from essentially zero levels in an economy which is
Speaker 1: really barreling towards full employment. That's former Chair of the
Speaker 1: Council of Economic Advisors Laura Tyson and David Kelly from
Speaker 1: JP Morgan Asset Management. Coming up, we hear from legendary
Speaker 1: investor Leon Cooperman. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. This week's another chapter in the drama of Washington,
Speaker 1: with the Senate apparently getting closer to a major bipartisan
Speaker 1: infrastructure package, coming on top of over five trillion dollars
Speaker 1: in fiscal stimulus already pumped in the system, and more
Speaker 1: on the way if Democrats have their way. Leon Koperman
Speaker 1: has been a key investor for many years, first of
Speaker 1: Goldman Sachs and then his head of his own firm,
Speaker 1: Omega Advisors. And we welcome now to Wall Street Week.
Speaker 1: So Lee, thank you so much for joining us. So
Speaker 1: many people look to you for investment advice. I've heard
Speaker 1: you described as a fully invested bear. Could you tell
Speaker 1: us what that means and why? Yeah, Well, let me
Speaker 1: first say, you know, it's a pleasure to be with you.
Speaker 1: You know, I reside with Ruis Lewis Luckyser on Direct
Speaker 1: and the initial Wall Street Week four or five times.
Speaker 1: This is a lot more convenient. You know, I'm sitting
Speaker 1: in my home in New Jersey and I didn't have
Speaker 1: to travel Owens Mills, Maryland, so it's a pretty painless experience.
Speaker 1: Fully invested bear is uh explained by the fact that
Speaker 1: is a cyclical and secular outlook. The cyclical conditions are
Speaker 1: not uh suggestive of a bear market. You know, basically,
Speaker 1: bear markets don't come about through a maculate conception. To
Speaker 1: come about for certain fundamental reasons. Number one, celebrating problematic inflation.
Speaker 1: We're heading in that direction. We're not there yet, mainly
Speaker 1: because the FED speak hostile FED, which you don't have.
Speaker 1: In fact, I'm critical of the FED, and I'll talk
Speaker 1: about that in the moment. Uh an oncoming recession. We're
Speaker 1: just coming out of recession or a exhuberantly braced price market.
Speaker 1: I have to say, even though I'm conservative in my outlook,
Speaker 1: I have to admit the stock market has been very
Speaker 1: self corrective. The area of the market has been most
Speaker 1: exploited and overvalued has had a very big decline. So cyclically,
Speaker 1: the conditions are big decline on present and that explains
Speaker 1: my positive view. My long term concerns are I think
Speaker 1: we're's kind of barring from the future. You know, Laura
Speaker 1: Tyson is a very distinguished economists. I know if you're
Speaker 1: still listening, But I would say, if I lined up
Speaker 1: a hundred economists and they asked him, what is the
Speaker 1: potential real growth of the U S economy? Responsively centered
Speaker 1: around two percent real and that's been a function of
Speaker 1: labor force growth, which is about a half and one
Speaker 1: percent per antum, and productivity growth was about one and
Speaker 1: a half percent peratum. So that determines real growth in
Speaker 1: any economy. So two percent real if you're economic bull,
Speaker 1: you say two and a half of your bear, you
Speaker 1: say one and a half. Add to that about two
Speaker 1: percent for inflation. So nominal GDP grows four percent. We
Speaker 1: have real growth this year of four times potential. Yet
Speaker 1: the fittest holding interest rates in near zero. Makes no
Speaker 1: sense to me, and I understand what they're doing or
Speaker 1: why they're doing it, but I think it's going to
Speaker 1: have a bad end to it. Secondly, you just referenced
Speaker 1: in a minute ago. You know we've already injected into
Speaker 1: the economy a trillion dollars of stimulus and excess of
Speaker 1: wage is lost. Yet they're trying to do another two
Speaker 1: it's for trillion on top of that. And so you
Speaker 1: know this nation was found two and forty five years ago.
Speaker 1: We had no national debt. Three years ago is about
Speaker 1: twenty trillion. I think now it's not going to do
Speaker 1: a twenty eight trillion is growing at a rate foreign
Speaker 1: nexus the growth rate the economy, and when this party ends. Basically,
Speaker 1: it's not gonna end well, and nobody knows is gonna end.
Speaker 1: You know, Socrates around I think four BC said he
Speaker 1: was the wisest man alive. He knows one thing, and
Speaker 1: that is I know nothing. And then a few thousand
Speaker 1: years later, Warren Buffetts at Forecast of the Future, tell
Speaker 1: you more about the forecast, and they tell you about
Speaker 1: the future. So we're all guessing. But I think we
Speaker 1: have a bad end to this. I think we've been
Speaker 1: borrowing from the future. I think bonds are totally totally mispriced.
Speaker 1: You know, if I told you historically, attending US government
Speaker 1: bond is yielded in line with nominal GDP. So let's
Speaker 1: say nominal GDP on trend basis grows at four percent,
Speaker 1: so that would imply a four percent ten year bond. Okay,
Speaker 1: this year, I think in the third court of nominal
Speaker 1: GDP is expected to grow with thirteen percent. Yet we
Speaker 1: have a one point three percent tenure government bond rate.
Speaker 1: You're an investor, you pay taxes, you keep sixty percent
Speaker 1: of the one point three that's what seventy eight basis
Speaker 1: points called eighty basis points inflation. Your rates running four
Speaker 1: or five. So you know, stocks make all the sense
Speaker 1: in the world relative to bonds. The bonds make no sense.
Speaker 1: And I think the FED is over staying in their position,
Speaker 1: and that that bothers me greatly. So also in troubled
Speaker 1: by the shift to the leftist taking place in the country.
Speaker 1: You know, of the young people today, I think socialism
Speaker 1: is prefer insistance to capitalism. They don't have a clue.
Speaker 1: My good buddy who I admired greatly, cal and go
Speaker 1: and says it, well, he'd like to put a bunch
Speaker 1: of people in his private plane flight to Venezuela, Cuba
Speaker 1: and let them see what socialism is all about. So
Speaker 1: let me ask you one specific question. If you're putting
Speaker 1: money to work right now, how do you take into
Speaker 1: account the fact that some people have said the referee
Speaker 1: is now playing in the game, whether it's on the
Speaker 1: monetary policy side or or the fiscal policy side. You
Speaker 1: referred to long term growth patterns, but thus far the
Speaker 1: government and this, by the way, it's true under President
Speaker 1: Trump as well. I could argue Goose is up the
Speaker 1: nominal growth rate by really intervening. Absolutely, Trump was no hero.
Speaker 1: In my opinion. We were running a trillion dollar deficit
Speaker 1: in early UM while he was president and we had
Speaker 1: all the employed economy. Well, really what happened is prior
Speaker 1: prior to COVID, hitting the unemployed, when there's about five
Speaker 1: and a half million people, it balloon to twenty three
Speaker 1: million people and uh at the peak, and now we're
Speaker 1: down about eight million. And we're conducting fiscal monetary policy
Speaker 1: with the idea of getting unemployment that back down to
Speaker 1: it was pre COVID, and so, you know, not a
Speaker 1: worthwhile objective. But I think the combination very similar to
Speaker 1: fiscal monetary policy, it will turn out to be problematic.
Speaker 1: So so let me ask you one last question here,
Speaker 1: which goes to a fundamental issue. Historically, historically the best
Speaker 1: and the brightest have gone to Wall Street. Is that
Speaker 1: still true? Or is Wall Streets struggling to attract the
Speaker 1: best talent these days because they're going off to other sources,
Speaker 1: including tech as well as maybe biotech. I don't know.
Speaker 1: In all honesty, David, I've always advocated I do a
Speaker 1: lot of speaking to young people in high school and colleges,
Speaker 1: and I tell them the only way to be successful,
Speaker 1: he said, do what you love and love what you do,
Speaker 1: so you know, don't go into a field to make
Speaker 1: a lot of money. Go into a field because you
Speaker 1: have a passion for it. And I think wolf Streets
Speaker 1: a place where uh, I love every minute I worked there.
Speaker 1: I had a great twenty five year un a Golden Stacks,
Speaker 1: terrific firm, had a great run, and O make it
Speaker 1: for another twenty five years. And then in two thousand
Speaker 1: and eighteen, I decided to I tell everybody, I'm like
Speaker 1: uh Hyman Roth and Godfather too. You know if I
Speaker 1: saw the movie a hundred times, but it's a scene
Speaker 1: at the airport right before they shoot him. He professed
Speaker 1: to be retired executive living in a pension. I'm a
Speaker 1: retired money manager living on investment income. The bad news
Speaker 1: is they have no active income, no wages, no salaries.
Speaker 1: You know. All my income has differences an interest. I
Speaker 1: have enough of it. Don't worry about me. Uh. And
Speaker 1: the good news is I have no pressure. So at
Speaker 1: a seventy eight I decided to swept pressure for income.
Speaker 1: You know, pressure, uh for income, let's pressure more income.
Speaker 1: I like to make money because my goal is to
Speaker 1: give it away, and I like to have more money giveaway.
Speaker 1: But basically I love what I'm doing, so wals she
Speaker 1: will get its share of good people, and the legal
Speaker 1: profession is gonna get its share of good people. And
Speaker 1: you know, money goes the money streeted best. But I
Speaker 1: think the way to be successful is to go we
Speaker 1: have a passion and you know, uh And that's kind
Speaker 1: of what got me to Wall Street. I I just
Speaker 1: I look at my career. I say, you know, uh uh,
Speaker 1: it was luck, hard work and intuition that made for
Speaker 1: my success. Hard work, intuition. That's Omega Family Office Chairman
Speaker 1: Leon Cooperman. Coming up. The CEO of True America, Robert Hart,
Speaker 1: on the extension of the eviction moratorium that's next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. Millions of Americans
Speaker 1: were exposed to possible eviction because of the pandemic, but
Speaker 1: we're protected by Congress. When that moratorium on evictions lapsed,
Speaker 1: than they were exposed, along with hundreds of thousands of landlords.
Speaker 1: The CDC this week stepped in and imposed a new moratorium.
Speaker 1: But the issue still remains. And we turn now to
Speaker 1: Bob Heart. He's the CEO of True America Multi Family,
Speaker 1: which manages some forty seven thousand units around the country. So, Bob,
Speaker 1: thank you so much. Welcome to Wall Street. We're good
Speaker 1: to have you here. Give us a sense about this industry,
Speaker 1: because some of us may not have followed that closely.
Speaker 1: How many people really are behind on their rent? How
Speaker 1: many people do you have in your units who are behind? Well,
Speaker 1: David Um, there's quite a number of people in America
Speaker 1: that are behind right now. It's about fifteen percent of
Speaker 1: the total rental population of about forty four million households,
Speaker 1: and either they're currently behind or they have some pass
Speaker 1: through form of rent um. However, the situation has improved
Speaker 1: for many many of us because more people are are
Speaker 1: working as the economy has improved. And I think if
Speaker 1: you look at current statistics, it's probably less than five
Speaker 1: per cent of the rent of population that is currently
Speaker 1: not paying, either because you're choosing not to pay due
Speaker 1: to the eviction mortorim or they simply cannot pay. So
Speaker 1: the situation has improved, but there is a lot of
Speaker 1: past do rent that's affecting particularly the small landlord. The
Speaker 1: corporate landlords are hurting as well. But to the extent
Speaker 1: UH this problem is really partially affecting a small landlord.
Speaker 1: It's deriving uh passive income or or retirement income from
Speaker 1: the rental of apartments. Congress has enacted various rental assistant programs.
Speaker 1: How much have they helped and why haven't they've taken
Speaker 1: care of the problem. It just began a few months ago.
Speaker 1: The programs have traveled from the federal government to the
Speaker 1: state government down the local government, and the administration lies
Speaker 1: with local government. So it's spotty in California. And we
Speaker 1: have areas like Sacramento that are doing really, really well,
Speaker 1: Orange County that's doing really well and paying folks. Los
Speaker 1: Angeles City not so much. It depends on the local jurisdiction.
Speaker 1: So there's a lot of hope. But the landlord has
Speaker 1: to do the work. The landlord has to work with
Speaker 1: the individual household and get them to cooperate with the
Speaker 1: submission of an application to the municipal authority in order
Speaker 1: to get in the line. And then you have to
Speaker 1: get in line after that. And wait, isn't your impression
Speaker 1: this is a timing issue, as we might say in business,
Speaker 1: or a fundamental issue is to say billion dollars has
Speaker 1: been appropriate. I think three or four billion has been spent.
Speaker 1: When it comes out, that's gonna really address much of
Speaker 1: the problem. I think it will address a lot of
Speaker 1: the past two problem and a little bit of the
Speaker 1: current problem. It's not a permanent solution. We've got to
Speaker 1: get people back to work and we've got to get
Speaker 1: into a normalized economic situation as far as rendership goes,
Speaker 1: and we are moving in that direction because more and
Speaker 1: more people are paying their rent. So the headlines always
Speaker 1: talk about the folks that aren't, but we have to
Speaker 1: remember that over the people are paying their rent. They
Speaker 1: are protecting their livelihoods, their households, and their families, and
Speaker 1: they're doing the right thing. As I listened to you,
Speaker 1: as I read about this, it sounds like this is
Speaker 1: a somewhat troubled business right now. Is investing in and
Speaker 1: owning rental units right now? Is that a good business?
Speaker 1: If you read the headlines, you would say it's not.
Speaker 1: But there's really two different worlds. The investment world, uh
Speaker 1: seems to be running counter to the headlines, and multi
Speaker 1: family investment is extremely robust in the country right now
Speaker 1: because the landlords and the corporate owners and folks believe
Speaker 1: that things will normalize. Things have improved, Rents are going
Speaker 1: up in certain areas UH, and the business model is
Speaker 1: very very sound, so the investment climate is quite robust.
Speaker 1: What makes it a good business is it a cash business?
Speaker 1: That is to say, you don't have to invest very
Speaker 1: much more. You can sort of really receive rents ongoing
Speaker 1: from the current investments. What's always made apartments of good
Speaker 1: business is what you just said, the durability of the
Speaker 1: cash flow streams. People can invest twenty or thirty percent
Speaker 1: of the value of a building and borrow at at
Speaker 1: rates today that are very very attractive UH fixed rate
Speaker 1: loans or in the sub four percent range and variable
Speaker 1: rate loans or as low as three percent or even lower.
Speaker 1: And if they can buy UH at a cash on
Speaker 1: cash return of say five or six percent, they're making
Speaker 1: a spread of their money. Rents do grow and there
Speaker 1: is economic benefits through depreciation and other factors that improve
Speaker 1: that durability of cash flow over a long period of time.
Speaker 1: And finally, Bob, are you seeing inflation because we hear
Speaker 1: some economists concerned about the possibility of rising housing prices,
Speaker 1: both on the ownership side on the world side. Are
Speaker 1: you seeing that in your units are you raising prices?
Speaker 1: We are. We're trying to do so thoughtfully because we
Speaker 1: don't want to price out the renter. But we're facing
Speaker 1: higher labor costs, higher costs of goods when we're renovating
Speaker 1: and and so forth. So we are in fact seeing
Speaker 1: core inflation. It's not spiraling, but we are seeing inflation. Okay, Bob,
Speaker 1: thank you so very much, Really appreciate you being with
Speaker 1: us today. On Wall Street Week. That is Bob Hart.
Speaker 1: He is CEO of True America. Coming up staffing the FED.
Speaker 1: We ask our special contributor Larry Summers about what leadership
Speaker 1: the FED needs going forward as President Biden considers whether
Speaker 1: to make some changes at the top. That's next on
Speaker 1: Wall Street Week on Bloomberg. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. No one ever
Speaker 1: said that the job of fit share is an easy one.
Speaker 1: But when J. Powell moved up to the big chair,
Speaker 1: he couldn't have known that he'd be faced with a pandemic,
Speaker 1: an economy brought to an abrupt stop, and that he'd
Speaker 1: have to step in and help save the day by
Speaker 1: keeping the financial system alive while lawmakers worked out a
Speaker 1: series of stimulus packages. We are deploying these lending powers
Speaker 1: to an unprecedented extent, enabled in large part by the
Speaker 1: financial backing from the Congress and the Treasury. It was
Speaker 1: President Obama who first named Pole to the FED Board
Speaker 1: back in two twelve, and then President Trump who elevated
Speaker 1: him to be chair in two seventeen. Accordingly, it is
Speaker 1: my pleasure and my honor to announce my nomination of
Speaker 1: Jerome Powell to be the next Chairman of the Federal Reserve. Congratulations,
Speaker 1: I'm both honored and humbled by this opportunity to serve
Speaker 1: our great country. Powell's term as chair expires just over
Speaker 1: six months from now, in February two two, and though
Speaker 1: he has been praised for his bold action on monetary
Speaker 1: stimulus when we need it most, naming his own chair
Speaker 1: could give President Biden an opportunity to put his stamp
Speaker 1: on monetary policy in the only way he can, by
Speaker 1: choosing who will set that policy. My administration understands that
Speaker 1: if we were to ever experience unchecked inflation over the
Speaker 1: long term, that would pose a real challenge to our economy.
Speaker 1: The FED is independent to take whatever steps it deems
Speaker 1: necessary to support a strong, durable economic recovery. And it's
Speaker 1: not just the FED chair whom President Biden has the
Speaker 1: opportunity to choose. The terms for vice chairs Richard Clarida
Speaker 1: and Randall Coral's also expire in the coming months, and
Speaker 1: that's in addition to one vacancy on the seven member
Speaker 1: board here's Clarida. There are risk to any outlook, and
Speaker 1: I do believe that the risk to my outlook for
Speaker 1: inflation are to the upside. It may not be monetary
Speaker 1: policy that will inform the president's decision. Some Democrats want
Speaker 1: tougher regulation of banks, more attention to climate change, and
Speaker 1: greater focus on reducing economic inequality. My concern is that
Speaker 1: over and over he has weakened a regulation. Here, he
Speaker 1: has led the FED to ease up. There, he has
Speaker 1: led the FED to help protect the biggest financial institutions
Speaker 1: UH and there have been de sens against that that.
Speaker 1: Senator Elizabeth Warren one member of the Board who has
Speaker 1: been an aggressive advocate for big bank oversight, and his
Speaker 1: voice or opposition to some of Paul's track record on
Speaker 1: regulation is Leole Brainerd. A number of common sense reforms
Speaker 1: can be put in place to address the unresolved structural vulnerabilities,
Speaker 1: particularly in non bank financial intermediation and short term funding markets.
Speaker 1: One of the shrewdest observers of the Federal Reserve has
Speaker 1: been Larry Summers, former Treasury Secretary now at Harvard, and
Speaker 1: of course a special contribute right here at Wall Street Week.
Speaker 1: So Larry, give us your sins. As President, Biden looks
Speaker 1: forward to the possibility of perhaps appointing the chair and
Speaker 1: two vice chairs the Third Reserve, without regard to who
Speaker 1: it might be, whether the present people or others. What
Speaker 1: do we need? What are the choose the FEDS likely
Speaker 1: to have to address it in the next three, four
Speaker 1: or five years. Look, the most fundamental choice the Fens
Speaker 1: gonna face involve monetary policy. They involve making judgments about
Speaker 1: the inflation risks UH that I've expressed concern about going forward,
Speaker 1: whether those whatever the right UH view is. And they
Speaker 1: involved the monetary policy challenge of a long run environment
Speaker 1: where we're gonna have exceptionally low real interest rates at
Speaker 1: least if one looks at markets and a variety of
Speaker 1: other UH indicators. So I think it's the macroeconomic policy
Speaker 1: that's at the center of the FEDS responsibilities and that's
Speaker 1: really the core task. Clearly, you need someone with a
Speaker 1: deep commitment UH to a stable financial system who understands
Speaker 1: that Dodd Frank was a big getting and UH not
Speaker 1: UH an end. So for me, monetary policy followed closely
Speaker 1: by UH financial stability. I believe that it's government's job
Speaker 1: to deal with the environment, it's government's job to deal
Speaker 1: with social justice, and I don't think that trying to
Speaker 1: push those responsibilities UH to the Fed UH should be
Speaker 1: a priority. So my hope is that it will be
Speaker 1: UH someone who can provide guidance with the right wisdom
Speaker 1: and the right character on monetary policy and also on
Speaker 1: the maintenance of UH financial stability. So you mentioned first
Speaker 1: and foremost monetary policy. Give us a sense of where
Speaker 1: we are right now on monetary policy. And let's be honest,
Speaker 1: most people talk right now about called tapering when they
Speaker 1: started backing off of the bond purchases and then eventually
Speaker 1: some interest rate raised. We just got this week new
Speaker 1: jobs numbers that were better than expected. The unapointment rate
Speaker 1: fell the the lowest rate has been since before the pandemic.
Speaker 1: Does that tell us anything about that question about monetary
Speaker 1: policy and tapering? Look, I think the FED has misjudged
Speaker 1: the overheating risk. I think, given that they have an
Speaker 1: instrument that operates with lags, given the level of inflationary
Speaker 1: pressure in our economy, given prospective growth and closure of
Speaker 1: the GDP gap, given the extent of inflation and housing markets,
Speaker 1: given record levels of job openings, I don't think they
Speaker 1: should be buying anything like forty billion dollars a month
Speaker 1: of mortgage backed securities or a hundred twenty billion dollars
Speaker 1: a month of treasuries. What they are doing is shifting
Speaker 1: America's funding structure towards being shorter term rather than longer term.
Speaker 1: There was ever a moment to be locking in long
Speaker 1: term funding, I think it's this moment. So I think
Speaker 1: the Fed should be moving with all deliberate speed to tapering.
Speaker 1: It should be signaling its concern about overheating. It should
Speaker 1: be recognizing that there may well need to be UH
Speaker 1: a tightening UH in terms of raising rates UH well
Speaker 1: before what's now embodied in the dot plot or what's
Speaker 1: embodied in UH market expectations. So let's wrap up, as
Speaker 1: we do every week, with a rapid round. As Summer says,
Speaker 1: I got three of them for you, this week, Larry.
Speaker 1: First of all, cryptocurrency very much in the news in
Speaker 1: all sorts of different ways. But my question to you is,
Speaker 1: from where you sit, is the greater risk over regulating
Speaker 1: cryptocurrency or under regulating it? Greater risk is under regular
Speaker 1: writing it. If we regulate it right, will protect a
Speaker 1: lot of people, will be able to enforce against financial
Speaker 1: crime of various sorts, and ultimately, by regularizing and making
Speaker 1: more trustworthy uh, cryptocurrencies will enable the benefits of cryptocurrency
Speaker 1: and the success of the cryptocurrency industry to grow. Okay.
Speaker 1: Second one, also much in the news this week is
Speaker 1: Robin Hood and what it means about retail investors. As
Speaker 1: you look at the overall financial system, is that more
Speaker 1: of a risk or more of an opportunity. It's on
Speaker 1: the one hand, democratizing it. On the other hand, there's
Speaker 1: a lot of volatili associated with it. We're seeing some
Speaker 1: version of the errors of the nineteen twenties. Uh. There,
Speaker 1: this is as clearer case for enhanced regulation as uh
Speaker 1: I've ever as I've ever seen, and we need much
Speaker 1: more serious coaches to meme stocks, to the marketing of stocks,
Speaker 1: to problematic retail investors. UH. This whole meme stock phenomenon
Speaker 1: is not going to end well. And finally, let's get
Speaker 1: back to employment. When do you think we will reach
Speaker 1: full employment at the rate we're going I think we're
Speaker 1: pretty close, uh, David. Uh. If you look at job vacancies,
Speaker 1: we're at record levels, higher than we've ever been. If
Speaker 1: you look at the rate at which people are quitting,
Speaker 1: which is an indicator of how secure they feel in
Speaker 1: the labor market, that is at historically UH records UH rates.
Speaker 1: If you take account of the fact that because of
Speaker 1: COVID and everybody's moving to different places and thinking differently
Speaker 1: about the kinds of jobs are gonna do and we're
Speaker 1: gonna do them, we've got much more structural UH change.
Speaker 1: I think we're not far from full employment, and certainly
Speaker 1: the tendency of wage growth to be accelerating, especially when
Speaker 1: you adjust from the quality of UH workers. Larry, thank
Speaker 1: you so very much as Larry Summers our special Wall
Speaker 1: Street we contribute and of course from Harvard University. Finally,
Speaker 1: one more thought, let's make a deal. Workers around the
Speaker 1: country are coming to terms slowly with the need to
Speaker 1: come back to the office as employers coax them back
Speaker 1: or just play and say they have to come back.
Speaker 1: But it turns out that for a whole lot of us,
Speaker 1: we sort of like the idea of working from home
Speaker 1: if we could eliminating those long commutes and having the
Speaker 1: flexibility to fit our personal life around the office rather
Speaker 1: than the other way around. Some employers may insist people
Speaker 1: come back in person, and some workers may just refuse,
Speaker 1: although the work from home camp may be able to
Speaker 1: delay their sacrifices for a few more months as the
Speaker 1: list of companies to laying plans to bring workers back
Speaker 1: to physical offices is growing. But in between is where
Speaker 1: negotiation may be taking place. After all, there's always a
Speaker 1: price for everything, right, and some surveys are starting to
Speaker 1: set the market price in the bid and the ask
Speaker 1: for returning to the office. The insurance company Breeze did
Speaker 1: an online survey showing two thirds of those whose jobs
Speaker 1: could be done from home would accept the pay cut
Speaker 1: of five and another survey done by pole Fish pointed
Speaker 1: to fift percent of people who were willing to take
Speaker 1: a much deeper cut, as much as a quarter of
Speaker 1: their pay or all of their paid time off. But
Speaker 1: maybe the most disturbing result was what else people would
Speaker 1: give up to work from home. Giving up Netflix or
Speaker 1: social media for a year isn't so shocking. It could
Speaker 1: do some of us some good after all. But more
Speaker 1: troubling is the third respondents who said that they would
Speaker 1: give up the right to vote in all future national
Speaker 1: and local elections if they could just work from home forever.
Speaker 1: So I'll leave it up to you to think about
Speaker 1: whether that's or about the pain of community, or about
Speaker 1: how deeply we are discounting our role in choosing our leaders.
Speaker 1: That does it for this episode of Wall Street Week.
Speaker 1: I'm David Weston. This is Bloomberg. Say you next week.