WEBVTT - Surveillance: Fed Messaging With Kelly 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jailey. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com 0:00:23.920 --> 0:00:30.880 and of course on the Bloomberg terminal. David Kelly joins 0:00:30.920 --> 0:00:33.440 us sound JP Morgan Asset Management, and he knows his 0:00:33.560 --> 0:00:36.680 beloved Liverpool finishing strong have be least third in the 0:00:36.680 --> 0:00:40.440 Premier League, certainly doing better than the Tots. And David Kelly, 0:00:40.520 --> 0:00:43.360 you know, well, there's the yellow card in the red card, 0:00:43.880 --> 0:00:46.520 and what you look back is to your Catholic upbringing 0:00:46.880 --> 0:00:49.800 all those bees and sees you earned an attempt to 0:00:49.880 --> 0:00:53.040 a pink card. You do a mid year review and 0:00:53.080 --> 0:00:58.280 you've got a pinkish a plus tone to the American economy. Well, yes, 0:00:58.560 --> 0:01:01.960 and and this latest out of exam results I think 0:01:02.040 --> 0:01:05.880 will if anything improved that we didn't see GDP move up. 0:01:05.880 --> 0:01:08.440 But what we did see as inventories actually felt even 0:01:08.480 --> 0:01:11.600 more in the first quarter than initially reported. And what 0:01:11.640 --> 0:01:13.800 that means is you get a big inventory bounce in 0:01:13.840 --> 0:01:16.919 the second quarter along with everything else, and then obviously 0:01:16.959 --> 0:01:20.119 seeing unemployment claims coming down towards four hundred thousand, there's 0:01:20.120 --> 0:01:22.360 a lot of improvement there. I also very much like 0:01:22.440 --> 0:01:26.279 seeing this growth in capital goods orders, so investment spending 0:01:26.280 --> 0:01:28.400 looks strong. So this is really an economy that is 0:01:28.800 --> 0:01:31.920 just you know, growing in terms of momentum, and you know, 0:01:32.000 --> 0:01:34.960 I think it just does poison pose a question, why 0:01:34.959 --> 0:01:37.800 are interest rates not higher given how strong the economy is? 0:01:39.560 --> 0:01:43.840 What's sixty nine? Um it is someone mysterious. I mean, 0:01:44.120 --> 0:01:48.040 it seems like the fixed income markets are believe the 0:01:48.240 --> 0:01:51.559 very devilish tone coming out of the Federal Reserve. But um, 0:01:51.600 --> 0:01:53.600 I don't know that they should believe the Federal Reserve 0:01:53.680 --> 0:01:56.360 in this because I think when the data change, particularly 0:01:56.480 --> 0:02:00.000 you get those higher inflation numbers, and provided the economy 0:02:00.000 --> 0:02:02.160 continues to recover through the through the fourth quarter of 0:02:02.200 --> 0:02:03.920 this year, I think the Fed is going to change 0:02:03.920 --> 0:02:05.760 it too, and it's gonna taper a little earlier than 0:02:05.800 --> 0:02:07.640 they expecting. Things, going to raise short term rates a 0:02:07.680 --> 0:02:09.760 little earlier than many people expect. So I do think 0:02:09.760 --> 0:02:12.639 we'll see higher long term interest rates by the end 0:02:12.639 --> 0:02:14.720 of the year. It's just surprising we haven't seen more 0:02:15.160 --> 0:02:17.440 so far. You just said you think they'll raise interest 0:02:17.560 --> 0:02:21.760 rates sooner than most people expect. David, when is that, well, 0:02:21.760 --> 0:02:23.440 I think what they're going to do is, first of all, 0:02:23.440 --> 0:02:26.760 I think they'll start tapering bond purchases at the start 0:02:26.840 --> 0:02:29.399 of next year, or maybe even in December of this year, 0:02:29.520 --> 0:02:31.280 and I think they'll have to raise a federal funds 0:02:31.360 --> 0:02:35.960 rate either at the end of two maybe the December 0:02:35.960 --> 0:02:40.119 meeting in two or else the January meeting in three. 0:02:40.160 --> 0:02:42.960 But right now their forecasts, they don't think they're going 0:02:43.000 --> 0:02:46.440 to raise the shorter federal funds rate until four at 0:02:46.440 --> 0:02:49.840 the earliest. I think that's just not realistic, given you know, 0:02:49.840 --> 0:02:51.720 the economy is basically going to be fully healed as 0:02:51.760 --> 0:02:53.960 far as we can see from a macroeconomic perspective by 0:02:54.000 --> 0:02:57.480 early next year, and that just doesn't justify rates at 0:02:57.480 --> 0:03:00.799 close to zero. David. How much does the FED policy 0:03:00.919 --> 0:03:03.520 really hinge on what type of spending plan the US 0:03:03.600 --> 0:03:06.799 government decides to pass? This idea that we're looking right now, 0:03:07.120 --> 0:03:09.320 under the Biden's new budget that was just released, or 0:03:09.320 --> 0:03:11.800 at least as reported by The New York Times, the 0:03:11.840 --> 0:03:13.880 total US debt held by the public would rise to 0:03:13.880 --> 0:03:17.440 a hundred and seventeen percent of the size of the economy. One. 0:03:17.720 --> 0:03:20.720 That's what Tom was talking about earlier. Can the Feds 0:03:20.720 --> 0:03:23.320 start to taper, we're starting to talk about borrowing that 0:03:23.440 --> 0:03:27.400 much more money in the near term. Well, well they'd 0:03:27.440 --> 0:03:30.200 better because you know, we need to figure out how 0:03:30.240 --> 0:03:33.560 do we finance that at normal interest rates, Because for 0:03:33.600 --> 0:03:35.680 as long as you keep interest rates are close to zero, 0:03:35.800 --> 0:03:39.000 you're distorting everything in capital markets. You know, you feed 0:03:39.000 --> 0:03:42.000 good businesses, but you allow bad businesses to stay alive, 0:03:42.080 --> 0:03:45.200 allows speculation to run rampants. So it's very important the 0:03:45.200 --> 0:03:47.880 federal reserve normalizes. And if that means that the federal 0:03:47.880 --> 0:03:49.800 government has to be a little bit more picky about 0:03:49.840 --> 0:03:52.200 what it spends money on, that's probably a good thing. 0:03:52.400 --> 0:03:54.800 So I don't think the federal reserves should get scared 0:03:54.800 --> 0:03:57.040 by the level of the debt. Frankly, they're encouraging this 0:03:57.120 --> 0:03:59.720 growth in debt by keeping rates so low. Well, but 0:03:59.760 --> 0:04:02.080 we're are normal rates at this point. I mean through 0:04:02.160 --> 0:04:05.320 every cycle we were talking about before that that rates 0:04:05.320 --> 0:04:08.160 have come lower and lower, and the more debt you incur, 0:04:08.320 --> 0:04:11.360 the slower growth is so some people, including HSBC is 0:04:11.360 --> 0:04:14.240 Stephen Major says it's a natural path of interest rates. 0:04:14.240 --> 0:04:17.000 If benchmark borrowing costs should be lower for the US 0:04:17.080 --> 0:04:20.640 government just based on that slower growth trajectory. Why is 0:04:20.680 --> 0:04:23.800 that not the case. Well, I don't think it should 0:04:23.800 --> 0:04:25.960 be the case. I think it's it's been caused by 0:04:25.960 --> 0:04:29.279 by a federal reserve which is really flooded the economy 0:04:29.320 --> 0:04:31.400 with liquidity. And the key thing is that flooding with 0:04:31.440 --> 0:04:34.680 liquidity doesn't actually stimulate aggregate demand. I think this is 0:04:34.680 --> 0:04:37.839 what they've missed all along. That's why big reason why 0:04:37.720 --> 0:04:40.960 the last expansion was so slow. But what's a good 0:04:41.120 --> 0:04:43.279 level of interest rates? A normal level, it's got to 0:04:43.279 --> 0:04:46.600 be a positive long term real interest rate. If you 0:04:47.120 --> 0:04:49.520 lend money in the long run, you should get a 0:04:49.520 --> 0:04:52.479 positive return after inflation. If you borrow money in the 0:04:52.520 --> 0:04:54.440 long run, it should because you expect to invest in 0:04:54.520 --> 0:04:57.760 something that will generate a positive return after inflation. If 0:04:57.800 --> 0:04:59.600 you don't have an economy that's operating that way, you've 0:04:59.640 --> 0:05:01.919 got to only that's heading in the wrong direction. And 0:05:01.920 --> 0:05:04.440 so I think at least positive real rates. So that 0:05:04.480 --> 0:05:08.000 means tenure treasury eels well above the rate of inflation, 0:05:08.240 --> 0:05:10.599 which you know, even by the FEDS measure is close 0:05:10.640 --> 0:05:12.640 to three percent year over year based on the numbers 0:05:12.640 --> 0:05:14.680 we're gonna get tomorrow. Dr Kelly, I want to take 0:05:14.680 --> 0:05:17.120 your JP Morgan work in dovetail with your work at 0:05:17.160 --> 0:05:19.920 Putnam years ago with the iconic Bob Goodman who was 0:05:19.960 --> 0:05:22.960 the great optimist, and that is in the sum of 0:05:23.000 --> 0:05:27.480 the David Kelly analysis. Are you worried about the gloom 0:05:27.680 --> 0:05:31.599 of jump conditions given what we're doing with our fiscal 0:05:31.640 --> 0:05:35.720 and monetary policy new theories? Maybe see to the pants 0:05:35.720 --> 0:05:39.640 approach or do you see a smoothness where investors can 0:05:40.080 --> 0:05:42.800 say this will work out, will get to the other 0:05:42.839 --> 0:05:46.080 side of the bridge. Well, I don't. I don't lose 0:05:46.279 --> 0:05:48.320 much sleepover because I think it will take a long 0:05:48.400 --> 0:05:51.040 time for the for any crisis to unfold if we 0:05:51.120 --> 0:05:54.239 have a crisis. But where I don't believe in modern 0:05:54.240 --> 0:05:56.800 monetary theory, I think it's nonsense um and I think 0:05:56.800 --> 0:05:59.240 in the long run, the key thing is if you spend, 0:05:59.320 --> 0:06:02.080 if you run big budget depths, and if it actually 0:06:02.080 --> 0:06:04.880 helps the economy, then this level of debt will cause 0:06:04.880 --> 0:06:07.760 the economy to blow up. It's your modern monetrade theory 0:06:07.839 --> 0:06:10.719 only works if it fails to actually achieve any improvement 0:06:10.720 --> 0:06:14.159 in human welfare. So it's it's it's it's a bad idea. 0:06:14.160 --> 0:06:15.640 I think you've got to try to get to normal 0:06:15.640 --> 0:06:18.320 interest rates. If you set interest rates at the correct level, 0:06:18.480 --> 0:06:21.720 then the economy will operate optimally. David always going to 0:06:21.760 --> 0:06:23.560 get here for you, don't hold back, David Kelly that 0:06:23.800 --> 0:06:31.640 if JP Morgan Asset Management, the chief global strategists right now, 0:06:31.720 --> 0:06:34.960 Peter Cheer joins us from Academy Securities on what we 0:06:35.040 --> 0:06:37.640 see in the markets, Peter, it's the question we've all 0:06:37.640 --> 0:06:40.920 been yammered about. But you're the pro Why are yields 0:06:41.080 --> 0:06:46.520 moving given our fiscal stance, our fiscal numbers. I think 0:06:46.520 --> 0:06:48.680 there's three things. One is the fact continues to buy 0:06:48.680 --> 0:06:51.119 a lot of debts, so that's offsetting it. We're seeing 0:06:51.120 --> 0:06:53.599 corporations able to defease their pension plans so they are 0:06:53.680 --> 0:06:56.880 net sellers of equities to buy debt. And then I 0:06:56.920 --> 0:06:58.960 think just no one really believes that either we're going 0:06:59.000 --> 0:07:00.880 to get the fiscal stimm Tho said, it's full extent 0:07:00.920 --> 0:07:05.239 because that bipartisan feeling is gone. And also quite frankly, 0:07:05.279 --> 0:07:07.240 no one really seems to believe that inflation is going 0:07:07.279 --> 0:07:09.880 to be anything but transitory. I do think it's going 0:07:09.920 --> 0:07:11.920 to be persistent. But right now the market hasn't seen 0:07:11.960 --> 0:07:15.040 inflation for so long that they're downplaying that potential. I 0:07:15.080 --> 0:07:17.160 don't think the number one question has changed that much. 0:07:17.400 --> 0:07:19.160 Pay When it comes to a treasury sell off, How 0:07:19.200 --> 0:07:22.640 self limiting would treasury market set off big? How self 0:07:22.680 --> 0:07:25.840 limiting would it be? I think it would be very limiting. 0:07:26.040 --> 0:07:27.800 You know, when we go back and people want to 0:07:27.800 --> 0:07:31.000 talk about a paper tantrum, you see much much different positioning. 0:07:31.000 --> 0:07:32.280 All you even have to do is look at some 0:07:32.320 --> 0:07:33.840 of the e t f s like an l QT, 0:07:33.920 --> 0:07:36.680 which is along dated investment grade bond t LT lawn 0:07:36.760 --> 0:07:40.040 dated treasuries. They've all had significant outflows, so they market 0:07:40.160 --> 0:07:44.160 is much more prepared for a tapering type event. And 0:07:44.320 --> 0:07:46.520 if the that needed to, they had things like Operation 0:07:46.560 --> 0:07:48.840 Twists that they could pull out. So I think we 0:07:48.840 --> 0:07:50.840 can get to two percent on the tenure of this quarter, 0:07:51.080 --> 0:07:53.320 But it's going to be a struggle and nothing's going 0:07:53.360 --> 0:07:56.000 to gap a lot higher. It's very much under control 0:07:56.040 --> 0:07:57.280 at the moment. Do you think we could see a 0:07:57.320 --> 0:07:59.520 cycle high and I know it certainly days and it's 0:07:59.520 --> 0:08:01.360 hard to make the scalpaid, but you can envision a 0:08:01.440 --> 0:08:05.080 psycho high of two on a tenure. I think we're 0:08:05.160 --> 0:08:07.200 ultimately going to push up towards two and a quarter 0:08:07.240 --> 0:08:09.400 two and a half percent, but that maybe later this year, 0:08:09.520 --> 0:08:11.920 next year, and that's only once I think this inflation 0:08:11.960 --> 0:08:15.080 story becomes embedded. And I'm a little bit suspicious about 0:08:15.080 --> 0:08:17.200 what China was saying today. For example, I do believe 0:08:17.280 --> 0:08:20.000 China is working towards that shift to a domestic economy, 0:08:20.360 --> 0:08:23.320 so they care less about providing us with cheap exports. 0:08:23.360 --> 0:08:25.760 So I think there's all sorts of inflation stories out 0:08:25.760 --> 0:08:28.960 there away from this commodity rise that people aren't talking 0:08:29.080 --> 0:08:32.360 enough about. And we'll start focusing focusing on the summer. 0:08:32.760 --> 0:08:35.160 So what does that mean in terms of investing? This 0:08:35.280 --> 0:08:37.680 idea that there is a sort of a self limiting 0:08:37.720 --> 0:08:41.640 factor to the treasury UH sell off that could potentially happen, 0:08:41.960 --> 0:08:44.120 And yet we do have price to perfection when you 0:08:44.160 --> 0:08:46.360 look at certain aspects of credit markets and when you 0:08:46.360 --> 0:08:49.240 look at certain slices of equity markets, where are you 0:08:49.320 --> 0:08:51.880 seeing value? You know, I think it's going to be 0:08:51.920 --> 0:08:54.800 about a domestic growth story, right, we are going to 0:08:54.840 --> 0:08:57.600 see supply chains shift. I think there's going to be 0:08:57.640 --> 0:09:00.079 a real push to help build up our five G 0:09:00.240 --> 0:09:02.120 and anything that we're kind of on that tech side 0:09:02.320 --> 0:09:05.360 competing with China, look for infrastructure spending and a real 0:09:05.400 --> 0:09:08.440 domestic focus. So I think that industry is really exciting. 0:09:08.600 --> 0:09:10.440 I think you're gonna see a push to bring back 0:09:10.440 --> 0:09:14.480 a lot more healthcare, you know, medicine's pharmaceuticals that can't 0:09:14.480 --> 0:09:16.960 be all sourced from China given this kind of level 0:09:16.960 --> 0:09:20.240 of friction and competition. So we're gonna see that brought around. 0:09:20.240 --> 0:09:24.200 That's gonna change supply chains, change where things are, you know, made. 0:09:24.400 --> 0:09:26.520 I think that's the real opportunity figuring out what this 0:09:26.600 --> 0:09:28.920 economy is gonna look like in two years with this 0:09:28.960 --> 0:09:32.520 push towards sustainability, with bringing back some of these industries, 0:09:32.720 --> 0:09:35.400 and that's where the real opportunity is going to be. Peter, 0:09:35.760 --> 0:09:38.720 the full faith in credit space is not so much 0:09:38.840 --> 0:09:43.120 yield but the price. There's somebody bidding on this paper. Now, 0:09:43.160 --> 0:09:46.120 you mentioned the government in the US government in as well. 0:09:46.400 --> 0:09:50.439 Do you see within your macro economics that the foreigners 0:09:50.559 --> 0:09:53.360 will walk away and all of a sudden the price 0:09:53.640 --> 0:09:59.360 will drift down and yield will drift up. I think 0:09:59.360 --> 0:10:01.560 we're actually a okay on that even when foreigners are 0:10:01.600 --> 0:10:03.959 stepping away, which is become a little bit more likely 0:10:04.040 --> 0:10:06.679 given that we have the worst negative real yields. I 0:10:06.679 --> 0:10:09.640 always get confused talking about negative real yields, but you 0:10:09.679 --> 0:10:12.360 can actually earn more on an after inflation basis in 0:10:12.440 --> 0:10:15.640 Japan right now, probably even in Germany, which seems bizarre 0:10:15.679 --> 0:10:18.480 given that they have word lower negative yields than usum. 0:10:18.559 --> 0:10:20.640 But it's that real yields. I think it goes away, 0:10:20.679 --> 0:10:23.920 but there's just so much support from corporate pension plans, 0:10:23.960 --> 0:10:28.120 from pension plans in general, from retirees. I don't see 0:10:28.160 --> 0:10:30.760 it getting out of control. People are too positioned for 0:10:30.760 --> 0:10:33.520 it to get out of control. And finally, the FED 0:10:33.679 --> 0:10:36.040 has a lot of tools that it can bring out 0:10:36.080 --> 0:10:38.240 if it starts seeing that risk. So I think we 0:10:38.280 --> 0:10:40.439 see yields go higher, but it's more of base deepening 0:10:40.480 --> 0:10:42.880 and it's relatively gradual and it's not going to be 0:10:42.920 --> 0:10:46.120 an impediment for stock market either. Get back to New 0:10:46.200 --> 0:10:47.720 York City. We need to can't s up it's gonna 0:10:47.760 --> 0:10:50.360 hit from me, sir, account of my security's head of 0:10:50.440 --> 0:10:59.839 MACROI strategy. This is with our question, our conversation of 0:10:59.880 --> 0:11:03.160 the Day on the state of the American economy, high 0:11:03.160 --> 0:11:07.800 frequency economics, Rights, brilliant sharp notes on global economics, interest 0:11:07.880 --> 0:11:12.520 rate dynamics, and with Reveala Ferouki Rights on the American economy. 0:11:12.800 --> 0:11:15.440 She joins us this morning, Reveal, I've really been looking 0:11:15.480 --> 0:11:17.520 forward to this. You move from a ten percent boom 0:11:17.520 --> 0:11:21.480 economy down to something in the vicinity of five percent economy. 0:11:21.559 --> 0:11:24.840 When you and Karl Weinberg look at that sudden shock 0:11:25.000 --> 0:11:29.079 of deceleration from a boom economy, what are the inertial 0:11:29.160 --> 0:11:34.400 forces we're gonna experience as we slow down? Good morning, 0:11:34.440 --> 0:11:36.240 Thank you for having me. So, you know, there are 0:11:36.240 --> 0:11:39.480 a lot of dynamics and play over here. What we're 0:11:39.520 --> 0:11:41.960 looking at right now is you know, peak growth rate, 0:11:42.000 --> 0:11:44.560 which we expect to be around ten percent in the 0:11:44.600 --> 0:11:47.800 second quarter. But after that is where the uncertainty lies. 0:11:47.840 --> 0:11:50.480 We don't really know what a post pandemic economy looks like, 0:11:50.720 --> 0:11:56.600 what we expect as a decederation as these fiscal measures expire. Uh, 0:11:56.640 --> 0:11:59.080 and you know, if there is a lot of uncertainty 0:11:59.559 --> 0:12:02.880 about how the labor market proceeds from here, and I 0:12:02.920 --> 0:12:05.640 think until we get to that point, until we get 0:12:05.679 --> 0:12:08.160 to say September you know, there is a lot of 0:12:08.240 --> 0:12:12.360 uncertainty surrounding what will happen in the second half. It's 0:12:12.559 --> 0:12:14.960 it's an interesting dynamic because we can't really say that 0:12:14.960 --> 0:12:17.160 we're going to go back to a two percent or 0:12:17.160 --> 0:12:20.200 whether we're going to keep above potential. What we'll see 0:12:20.240 --> 0:12:24.360 class officers do. How will corporations adapted adjust to a 0:12:24.440 --> 0:12:30.080 decelerated economy we've never witnessed before. Well, I think, you know, 0:12:30.200 --> 0:12:33.280 there's been a lot of preparation for this. It's not 0:12:33.320 --> 0:12:35.160 like this is going to be a surprise. We don't 0:12:35.200 --> 0:12:37.920 expect to grow at a ten percent growth rate. That's 0:12:38.040 --> 0:12:41.640 you know, it's not exactly possible without uh, you know, 0:12:41.760 --> 0:12:46.120 continued support from fiscal and monetary policy. So I don't 0:12:46.160 --> 0:12:48.440 think this is going to be a shock. It's just 0:12:48.520 --> 0:12:51.480 going to be an adjustment. And again, we are still 0:12:51.520 --> 0:12:53.760 looking at a pretty strong growth rate with a lot 0:12:53.760 --> 0:12:58.320 of uncertainty surrounding that. Outlook, Rubella, let's talk about taper, 0:12:58.360 --> 0:13:00.960 and I just talk about talking about Kathy Joe and 0:13:00.960 --> 0:13:03.520 said yesterday I came on and she said that actually 0:13:03.559 --> 0:13:07.720 the bond market is responding logically to taper talk, which 0:13:07.720 --> 0:13:10.280 means yields down price higher. This is now when people 0:13:10.320 --> 0:13:13.280 are expecting. They were expecting the FED to allow yields 0:13:13.320 --> 0:13:16.520 to climb. Yet the indication is that if they taper 0:13:16.600 --> 0:13:19.800 some of the stimulus, it leads to slower growth, Which 0:13:19.960 --> 0:13:22.040 is is this time different or we're going to fall 0:13:22.040 --> 0:13:27.520 back into that traditional paradigm. So what we're really seeing is, uh, 0:13:27.640 --> 0:13:30.079 the confidence in the FED right and what they're doing 0:13:30.120 --> 0:13:32.120 and what they are messaging. That is what this is 0:13:32.160 --> 0:13:35.120 all about. So if the FED wanted to avoid a 0:13:35.200 --> 0:13:38.160 taper tantrum, this is exactly what they're accomplishing, and the 0:13:38.240 --> 0:13:41.200 messaging has been actually very good so far. I was 0:13:41.200 --> 0:13:43.880 surprised to see mention of tapering in the minutes, but 0:13:44.080 --> 0:13:47.280 it seems to me that that is exactly what they're doing. 0:13:47.480 --> 0:13:51.240 Is is really preparing for a range of possibilities. If 0:13:51.280 --> 0:13:54.480 things are stronger than expected, that the markets will expect 0:13:54.480 --> 0:13:56.920 that the FED will start talking about different But if 0:13:56.960 --> 0:13:59.600 things are not, then you know it's a more delayed process. 0:13:59.640 --> 0:14:03.080 So it's really uh, I do think it's different this time, 0:14:03.400 --> 0:14:06.320 and I think what what the feds objective right now 0:14:06.559 --> 0:14:09.680 is managing expectations and they're doing a great job with that. 0:14:09.840 --> 0:14:12.320 We keep talking about how boring it is this week, 0:14:12.360 --> 0:14:15.840 and how it's even boring amid a pivotal moment in 0:14:15.880 --> 0:14:18.400 the economy. What are we looking for? What are we 0:14:18.480 --> 0:14:21.960 waiting for to determine the trajectory of whether it's very 0:14:22.000 --> 0:14:24.080 hot or whether it's a little bit cooler than people 0:14:24.080 --> 0:14:27.680 are currently pricing in. Well, it's all about the consumer, 0:14:27.800 --> 0:14:30.280 it's all about the labor market, it's all about incomes. 0:14:30.320 --> 0:14:32.680 So what we're seeing right now is the effect of 0:14:32.720 --> 0:14:35.080 what has happened so far, and what we have to 0:14:35.120 --> 0:14:38.080 consider is that we are starting We started the third 0:14:38.120 --> 0:14:40.000 quarter on a very high base, so even if we 0:14:40.040 --> 0:14:42.560 had very little progression, we would have still seen a 0:14:42.640 --> 0:14:45.440 very strong growth growth rate, which we expect to see now. 0:14:45.960 --> 0:14:49.080 Now what happens beyond that is a very different thing. 0:14:49.200 --> 0:14:52.800 We saw a huge deceleration last year because when fiscal 0:14:52.840 --> 0:14:55.200 measures expired, But this time around we will be in 0:14:55.200 --> 0:14:58.160 a different situation, hopefully because the labor market will have 0:14:58.200 --> 0:15:00.520 made progress and we have made a huge proggress on 0:15:00.560 --> 0:15:03.840 the health front. So while there's a lot of uncertainty, 0:15:03.880 --> 0:15:06.120 you know, our focus remains on the labor market. Because 0:15:06.120 --> 0:15:08.560 if you think that is the FEDS focus as well, 0:15:08.720 --> 0:15:12.040 they would rather tolerate a little bit of inflation for 0:15:12.120 --> 0:15:14.760 a little bit of better outcome on the libor market. 0:15:14.800 --> 0:15:16.240 I mean reveal. I know you don't want to talk 0:15:16.240 --> 0:15:17.640 about this, but you know I don't want to get 0:15:17.640 --> 0:15:20.240 you in the Carl Weinberg time out chair. Let's link 0:15:20.320 --> 0:15:23.280 Carl's work together with your work. And that is the 0:15:23.320 --> 0:15:26.840 trade deficit, the fiscal deficit as well. Do you see 0:15:26.840 --> 0:15:30.640 any relief there? Do you just assume an expanding trade 0:15:30.680 --> 0:15:36.760 deficit to GDP a stable or expanding fiscal deficit to GDP. Well, 0:15:36.880 --> 0:15:39.560 if you think about the trade deficit right now, what 0:15:39.640 --> 0:15:42.600 we're seeing are imbalances, right, I mean, the US economy 0:15:42.720 --> 0:15:45.720 is open to the European economy is getting there, not 0:15:45.840 --> 0:15:48.640 quite there. So therefore you have, you know, goods deficit 0:15:48.680 --> 0:15:51.480 in the record. I do expect some adjustment back as 0:15:51.560 --> 0:15:55.080 other economies reopen. So I don't expect that this trade 0:15:55.120 --> 0:15:57.920 deficit issue is going to be us, you know, it's 0:15:58.000 --> 0:16:00.520 just going to persist. I do think we're going to 0:16:00.560 --> 0:16:04.000 see adjustments, but uh, you know on the on the 0:16:04.960 --> 0:16:10.160 on the fiscal on the deficit side, uh, budget deficit side. 0:16:10.200 --> 0:16:13.760 I do think that what happens with these negotiations is 0:16:13.840 --> 0:16:16.880 very important, and especially when we look at you know, 0:16:17.520 --> 0:16:20.200 the Widen administrations push that this is not going to 0:16:20.240 --> 0:16:23.040 be a deficit finance. This is going to be uh, 0:16:23.080 --> 0:16:24.960 you know, this is going to be paid for. So 0:16:25.280 --> 0:16:27.280 you know, there's a lot of uncertainty. But I do 0:16:27.360 --> 0:16:30.040 think that we could come out on the other side 0:16:30.040 --> 0:16:32.400 of this, you know, maybe not as in bad a 0:16:32.480 --> 0:16:35.440 situation as a lot of people are expecting. Before we 0:16:35.520 --> 0:16:37.880 let you go over about two hours away from the 0:16:37.880 --> 0:16:41.480 initial jobless claims that we get every week, increasingly they 0:16:41.520 --> 0:16:43.800 are going down, and yet people say that they're very 0:16:43.880 --> 0:16:46.120 noisy and markets tend not to trade off them. Are 0:16:46.120 --> 0:16:49.160 they basically useless as any kind of indicator at this point? 0:16:50.280 --> 0:16:53.640 It's it's really I mean, we we still follow it, 0:16:53.720 --> 0:16:55.320 but they're like you said, there is a lot of 0:16:55.360 --> 0:16:58.360 noise in the data. It's really surprising. It's puzzling why 0:16:58.920 --> 0:17:01.720 we would see four thousand people get laid off each week, 0:17:01.760 --> 0:17:04.120 and you know, these filings what we are looking at 0:17:04.240 --> 0:17:07.399 is the continuing claim sample. They are also you know, 0:17:07.960 --> 0:17:11.600 extremely high, but we do see value in it, you know, 0:17:11.680 --> 0:17:14.800 in terms of the you know, it's a high frequency indicator, 0:17:15.200 --> 0:17:18.240 but I do play less less weight on it because 0:17:18.280 --> 0:17:21.000 of the fact that it doesn't really seem to be 0:17:21.000 --> 0:17:25.119 connecting right now with what's happening with the economy. Okay, 0:17:25.280 --> 0:17:27.560 of high frequency it can almost the chief US economist. 0:17:27.560 --> 0:17:35.280 We've gotta leave it there. We get lucky with a 0:17:35.320 --> 0:17:39.119 gentleman from Arkansas on the second Congressional District, the Republican 0:17:39.160 --> 0:17:42.160 French will joins us on four or five other topics, 0:17:42.160 --> 0:17:45.879 which you discard to talk about six trillion dollars, a 0:17:45.960 --> 0:17:48.879 trillion here, a trillion there. Congressman Hill, I want you 0:17:48.960 --> 0:17:51.480 to go all ever dirks and on us and give 0:17:51.520 --> 0:17:55.040 me forget about modern monetary theory, give me the modern 0:17:55.160 --> 0:18:00.600 French kill theory about how all Americans adapt to a 0:18:00.760 --> 0:18:06.440 hundred sevent total debt of g d P ten years out. 0:18:06.640 --> 0:18:11.280 Can we do this? Tom Lisa, good to be with you. 0:18:11.400 --> 0:18:13.880 We haven't seen that since the end of World War two, 0:18:13.920 --> 0:18:17.800 when America was fifty of global GDP, and that debt 0:18:18.160 --> 0:18:21.200 way over g d P was a result of fighting 0:18:21.200 --> 0:18:25.399 and winning a world war. Now we have embedded deficits 0:18:25.600 --> 0:18:28.920 for all the out years from our social safety net 0:18:29.000 --> 0:18:32.520 systems and by government growing as a percentage of GDP. 0:18:33.119 --> 0:18:36.240 I don't believe it's sustainable, and my biggest concerns are 0:18:36.920 --> 0:18:40.359 the potential for creating inflation once again going back to 0:18:40.480 --> 0:18:44.680 high inflation expectations. Secondly, the value of the dollar connected 0:18:44.720 --> 0:18:48.480 to that obviously, and the ability of servicing that debt 0:18:48.560 --> 0:18:54.719 as interest rates inevitably rise from their historically below zero 0:18:54.880 --> 0:18:58.600 level today. Other than winning in two thousand twenty two, 0:18:58.640 --> 0:19:03.800 what is the appropriate Republican response to this budget is proposed? 0:19:03.840 --> 0:19:07.200 And again I don't mean the one year fiscal budget, Congressmen, 0:19:07.320 --> 0:19:14.320 but the idea out ten years. What's a cogent GOP response. Well, look, 0:19:14.400 --> 0:19:19.040 starting in nineteen before the pandemic, as you will recall, 0:19:19.160 --> 0:19:22.840 the budget for discretionary spending was essentially flat. In fact, 0:19:22.840 --> 0:19:26.960 it declined in real terms. So Congress has the ability 0:19:27.400 --> 0:19:31.800 to control discretionary spending and better reform our mandatory spending 0:19:31.800 --> 0:19:35.159 programs like Medicare and Social Security. And we need to 0:19:35.359 --> 0:19:40.000 come back to reality after the pandemic, Tom focus our spending, 0:19:40.200 --> 0:19:44.280 target our spending, reform our mandatory spending programs, and in 0:19:44.320 --> 0:19:47.520 my view as a House Republican, not expand the role 0:19:47.600 --> 0:19:51.560 of government in our daily lives, which this budget does 0:19:52.040 --> 0:19:55.280 in spades. There is a question though, about useful spending 0:19:55.320 --> 0:19:58.120 and the idea that sometimes if you spend, you generate 0:19:58.160 --> 0:20:01.560 more growth. We saw that certainly from the nineteen nineties 0:20:01.600 --> 0:20:04.240 and the Clinton era. We've seen this over time. If 0:20:04.280 --> 0:20:08.080 you borrow, you can actually generate a more positive future. 0:20:08.560 --> 0:20:11.840 What is the distinction between good spending and bad spending 0:20:11.920 --> 0:20:14.760 right now? Well, first of all, I think there's a 0:20:14.840 --> 0:20:19.160 rational level of spending too much, too fast, on two 0:20:19.720 --> 0:20:23.199 on too many things that are not rational spending. And 0:20:23.240 --> 0:20:27.320 you look at the nineteen nineties, President Bush and President 0:20:27.359 --> 0:20:30.520 Clinton had some modest tax increases, that's true, but you 0:20:30.600 --> 0:20:34.000 also had the peace dividend as the Soviet Union unraveled, 0:20:34.160 --> 0:20:36.679 and it allowed President Clinton to work with Congress to 0:20:36.760 --> 0:20:39.560 balance the budget by the end of the decade. And 0:20:39.600 --> 0:20:43.359 they did that through reform, including mandatory spending programs and 0:20:43.160 --> 0:20:47.440 and other social spending. So again, it's targeting, it's reformed 0:20:47.440 --> 0:20:50.600 those programs, it's look at ways to build our country. 0:20:51.000 --> 0:20:53.040 And when it comes to infrastructure, that would be a 0:20:53.119 --> 0:20:56.720 rational spending of public money that needs to be done 0:20:56.760 --> 0:20:59.920 in a targeted way, with a principal focus on things 0:21:00.000 --> 0:21:03.760 that are really in need of repair and reform. Inflation 0:21:03.760 --> 0:21:05.280 has been an interesting debate, and that was one of 0:21:05.320 --> 0:21:08.840 the biggest arguments against running the deficit this deeply a 0:21:08.840 --> 0:21:10.520