Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg William Dudley,
Speaker 1: writing for Bloomberg Opinion and Yes, the former President of
Speaker 1: the New York Federal Reserve, has been quite clear in
Speaker 1: his essays on the path forward, and one of them
Speaker 1: is that the FED will have to change on inflation.
Speaker 1: Bill Dudley and your important essay yesterday, near the bottom
Speaker 1: of the essay, you made clear this is a FED
Speaker 1: that needs to be malleable and supple in their thinking.
Speaker 1: Describe that right now, it's you know, all all hands
Speaker 1: on deck quick making the economy as stimulative as possible.
Speaker 1: You got Entrey policy basically interest rates in zero. That's
Speaker 1: doing quantitative using large fistal package coming. So that's great
Speaker 1: for now. We are probably gonna, you know, if the
Speaker 1: vaccine dissemination works, we're going to see a very strong
Speaker 1: recovery in the second half of the year. And I
Speaker 1: think we're gonna see pressure on resources faster than what
Speaker 1: people participate. I understand why the Fed is doing what
Speaker 1: they're doing. I mean, they don't want to prematurely change
Speaker 1: expectations about future Maentrey policy and thereby tighten financial market conditions.
Speaker 1: But we have to recognize that if they're successful, they
Speaker 1: are going to have to change financial conditions, are going
Speaker 1: to have to tighten. There's only a number of ways
Speaker 1: to go here, Bill Dudley. But I think the heart
Speaker 1: of it is a broad public that looks at the
Speaker 1: fact of inflation is seen in their monthly payments. I
Speaker 1: would note folks rents down lower here and the last
Speaker 1: inflation report, and Bill Dudley pros like you looking at
Speaker 1: the expectation of the expectations of inflation. What are we
Speaker 1: expecting right now? What's been interest staying over the last
Speaker 1: three months or so, is that inflation expectations. If you
Speaker 1: look at the spread between ten your Treasury note yields
Speaker 1: and ten your tipsules, that's gone up by half a
Speaker 1: percentage point, that the tenure break even now is running
Speaker 1: two point two percent. That's not really very far away
Speaker 1: from the Fed's long term targets. So you know, the
Speaker 1: argument that we had to keep Monterrey policy easy to
Speaker 1: support inflation expectations that things still already have been mostly accomplished.
Speaker 1: You've lived in break this though, Bill, would you look
Speaker 1: at that as a market pricing in the risk of
Speaker 1: more inflation or actually pricing inflation? Do you see that
Speaker 1: as the outlook for inflation or just the market pricing
Speaker 1: in the risk of it you see outlook. I think
Speaker 1: it's the outlook because it's about what's going to happen
Speaker 1: over the next tenuere I mean, I think people recognize
Speaker 1: that the FED is all in. They're gonna be very accommodative.
Speaker 1: The new Mont policy regime means that they're going to
Speaker 1: push inflation above two. People find that credible, and cheer
Speaker 1: Pole is reinforcing that through its statements, and so essentially
Speaker 1: the FED is accomplishing its mission of keeping inflation expectations
Speaker 1: angry around to present. So, but what I need to
Speaker 1: understand is what they'd respond to. So, as you remember,
Speaker 1: Governor King go over the Bank of England, we had
Speaker 1: inflation north of five and twenty eleven we had it
Speaker 1: north of three percent. Under Governor County, they looked through it.
Speaker 1: They used that word transitory. But what's the kind of
Speaker 1: situation you think the FED responds to in the kind
Speaker 1: of situation they look through so to speak, Well, I
Speaker 1: think they'll look through it. If there's a little bit
Speaker 1: of a bubble of inflation, you know, the second half
Speaker 1: of the year, just because you have the surgeon activity
Speaker 1: and prices go up in some service areas, I think
Speaker 1: they look through that. I think what they're gonna watch
Speaker 1: is the labor market. I mean, at the end of
Speaker 1: the day, inflation is about pressure on resources, and so
Speaker 1: I think they'll watch the labor market. I think the
Speaker 1: thing that's different about this expansion compared to one following
Speaker 1: the Great Financial Crisis, his households have a lot more
Speaker 1: abilities spending. Businesses have a lot more ability to spend.
Speaker 1: There you don't have the kind of you know, overhang
Speaker 1: of mortgage debt that you had following the Great Financial Crisis.
Speaker 1: You don't have the So I think that the colomy
Speaker 1: could bounce back much faster than people will anticipate. Sure,
Speaker 1: Polos are absolutely right. There are about ten million people
Speaker 1: out out of a job, so the unemployer rate understates
Speaker 1: the amount of slack in the liver market. But at
Speaker 1: the same time, if we actually do conquer the pandemic
Speaker 1: allow opening up and getting people back to work. Uh,
Speaker 1: you know this could this could be a bounced much
Speaker 1: faster than people anticipate. I will say. Jared Bernstein of
Speaker 1: the White House Economic Council did say that people are
Speaker 1: saving some of that cash that they people say they're
Speaker 1: going to spend in order to make all of the
Speaker 1: debt payments that have been deferred. So there could be
Speaker 1: a little bit of that hangover as well. But it
Speaker 1: goes to a key point that you're talking about, which
Speaker 1: is the difference between reflation that a lot of people
Speaker 1: are saying is what we're seeing right now, versus inflation,
Speaker 1: which is what you're seeing we should expect later. And
Speaker 1: what a lot of people are saying, when do we
Speaker 1: shift from reflation to inflation? What do we have to
Speaker 1: see for this to be more sustainable. Well, end of
Speaker 1: the day, it's gonna be about how long does it
Speaker 1: take the economy get to get back to four percent
Speaker 1: three and a percent type of unemployer rate. I think
Speaker 1: that could actually happen a little bit faster than people think.
Speaker 1: Janet Yellen, the Treachery Secretaries, the last we talked about
Speaker 1: how if we get the fiscal package we could be
Speaker 1: at full employment next year, so this could happen much
Speaker 1: more quickly than the Fed's current forecasts. FEDS current forecast,
Speaker 1: but we don't get back to full employment until three
Speaker 1: The said doesn't even tighten until after So I think
Speaker 1: the risk to to the market is that just happened
Speaker 1: in a more compressed time frame than people are expecting.
Speaker 1: But I just want to finish on something important just quickly.
Speaker 1: We could wrap things up just how the reputation of
Speaker 1: the Federal Reserve has evolved in the last several years,
Speaker 1: and how there is now an increasing willingness to focus
Speaker 1: on society and perceived injustices as well. And I was
Speaker 1: familiar with the kind of response where a central bank
Speaker 1: would turn around and say, we can't address inequality with
Speaker 1: the brunt tool of interest rates, And now the approach
Speaker 1: feels very different. That speech yesterday from Chairman pal felt different.
Speaker 1: Do you sent a change too? And what's behind it? Bill?
Speaker 1: I think there's two things that are driving. At Number One,
Speaker 1: current FED policy is benefiting rich people more than more people, right,
Speaker 1: So it's a FED it is very aware of that
Speaker 1: and wants to make it clear that that's not really
Speaker 1: the goal of policy. The global policy is not going
Speaker 1: make people more wealthy. We're already wealthy. And the second
Speaker 1: thing I think is the fact that the last cycle,
Speaker 1: the FED pushed the one point rate very low and
Speaker 1: there was no inflation. So the Fed realizes that he
Speaker 1: wouldn't go further on the labor market than we thought
Speaker 1: and get more people employed than we thought before, And
Speaker 1: so they don't want to make the same risk of
Speaker 1: being too cautious about pushing the labor markets to a
Speaker 1: high degree of tightness, because maybe they can go further
Speaker 1: than they thought. Makes you wonder what it would look
Speaker 1: like if they have to come back in and hike
Speaker 1: sooner than people think too. Bill, that's for the next conversation,
Speaker 1: Bill adupting that former New York Fed president. There's a
Speaker 1: lot of bulls on technology, but Daniel Ives has been
Speaker 1: the most persistent, most cogent bull at web Bush on
Speaker 1: Apple and all the rest of the beasts as well.
Speaker 1: Dan i've uh, Dan I've Howard ward the acclaimed growth
Speaker 1: ga belly stop traffic a few days ago by saying
Speaker 1: we grossly underestimate the new technology knock on to other stocks?
Speaker 1: How does the Dan Ives world knock on to the
Speaker 1: rest of the stock market that leads you to a
Speaker 1: bullmarket that is underestimated. Yeah. I mean that continues to
Speaker 1: be our theme, transformational growth themes and cloud, cybersecurity, five
Speaker 1: G e commerce. It's still underestimated by the street. We're
Speaker 1: going through a massive golden age and a rereading for
Speaker 1: tech stocks. I only think we're a third of the
Speaker 1: way through, which why we think tech stocks are up
Speaker 1: another tent this year despite some of these risk off
Speaker 1: moments that we've seen, even went to Reddit robin hood situation.
Speaker 1: I look where we are and I want to dovetail
Speaker 1: dan ives into the conservative tone of the acclaim Mr Ward.
Speaker 1: Does that enthusiasm fold over into stocks we don't associate
Speaker 1: with you, like say the banking industry. But I think
Speaker 1: what you're starting to see is technology is bleeding into
Speaker 1: other areas, whether it's on healthcare, whether it's on the
Speaker 1: fine ends. And I think you're starting to see that
Speaker 1: and even on some of the dating apps and others.
Speaker 1: As we're seeing some of these I pos come out.
Speaker 1: Because right now, investors take a step back craving for growth,
Speaker 1: and that's why these tech stocks continue get rerated higher.
Speaker 1: It's a scarcity value and we're going through so many
Speaker 1: transformational growth teams, which is why we continue to see
Speaker 1: a bright green light to continue in tech stocks. Here
Speaker 1: just going through some of your kills right now, dan
Speaker 1: By holds six sound zero. One of the holds Tesla
Speaker 1: neutral and Tesla white, and oh that that continues to
Speaker 1: be one where you know, we view it as a neutral,
Speaker 1: but a bold cases twelve fifty base case nine fifty,
Speaker 1: that continues to be one. We continue to sort of
Speaker 1: put the goal posts out for investors. Overall EV we
Speaker 1: continue to be bullish, whereas one of our key teams
Speaker 1: over the next years. I also think that Chinese players,
Speaker 1: Neo x Ping and others or great play is on
Speaker 1: e V and my view is it's a you know,
Speaker 1: we're talking a trillion dollar market next three to four years.
Speaker 1: Tessa continues to be the leader of the pack. It
Speaker 1: told to me about the supply chain and what's happening
Speaker 1: in the semi space at the moment. Don Could this
Speaker 1: spa production lost, sales lost or sales delayed? What is it? Well?
Speaker 1: Could that rain on the parade? I think that's really
Speaker 1: the main question that we're getting. Whether it's across chips
Speaker 1: on supply chain on the on the car Manufacturers saw
Speaker 1: A GM said yesterday, I think it's a contained risk
Speaker 1: at this point. I think it could crimp growth a
Speaker 1: bit as we get into the next few quarters, but
Speaker 1: ultimately I still think the demand continues to be there
Speaker 1: and supply chain will normalize over the coming quarters, and
Speaker 1: investors continue to look at forestry treats and that continues
Speaker 1: to be our thesis on the supercycle with Apple and
Speaker 1: everything cook in terms of that playing out. And that's
Speaker 1: why to me, you know, across the board, whether it's
Speaker 1: on fangs, on cloud and cybersecurity, we're further bullish come
Speaker 1: being out of this earning season. That continues to be
Speaker 1: the theme. Perhaps it's a temporary disruption the supply chain issue,
Speaker 1: but it's definitely causing chief executive officers to rethink how
Speaker 1: they deal with and source their chips. Today, the CEOs
Speaker 1: of Intel, Qualcom, and Advanced micro Devices sent a letter
Speaker 1: to President Biden saying, please support the creation of chips,
Speaker 1: the development of chips on US soil because of some
Speaker 1: of the concerns having to do with security, etcetera. How
Speaker 1: much could that crimp their margins if they have to
Speaker 1: invest that much more on creating a domestic program of
Speaker 1: chip manufacturing. Given some of these concerns, it would be
Speaker 1: a massive shift. And right now, the supply chain continues
Speaker 1: to be supplanted, you know, and it continues to really
Speaker 1: be built in Asia, and I don't really see any
Speaker 1: changes there. But it also speaks to the broader issues
Speaker 1: that we're seeing with US China. Biden coming in our brands,
Speaker 1: lowering ratcheting down the tensions with China. But no doubt
Speaker 1: from a supply chain perspective, I think that continue used
Speaker 1: to be a game of high stakes pokers. You want
Speaker 1: to see more in the US, but realistically, I think
Speaker 1: that's not going to change for the foreseeable future. Age
Speaker 1: it continues to be where the supply chain is. Dan,
Speaker 1: what's the body language under conference calls on use of cash?
Speaker 1: I mean, everybody's up to their eyeballs and cash. They've
Speaker 1: got ample cash flow. They're all trying to pretend their
Speaker 1: blue chip stocks, but they're still growthy stocks from a
Speaker 1: time long ago. What are they gonna do with cash?
Speaker 1: I think it's M and A. I think we are
Speaker 1: going to go to four. They're buying bitcoin, Tom, No, No, No,
Speaker 1: that's just tessel. That's just must seriously, Dan, what are
Speaker 1: they what are they waiting for? It's a tidal wave
Speaker 1: of M and A that we're going to see him
Speaker 1: and you see reports and Microsoft pinches and and I
Speaker 1: think ultimately in cybersecurity and cloud you're going to continue
Speaker 1: to see many, many marriages because we're going to only
Speaker 1: of workload during the cloud. Today it's a two horse
Speaker 1: raised Microsoft Amazon. I believe you're gonna see aggressive M
Speaker 1: and A across the board and even financial buyers as well.
Speaker 1: And it's gonna con Can you drive these stocks higher?
Speaker 1: Ten seconds? Stand eyes, it's all the time we've got.
Speaker 1: Can Amazon increase its market share in the cloud from
Speaker 1: at thirty four percent statistic? If it wasn't for that
Speaker 1: company in Redmond, Microsoft, they would be I think right
Speaker 1: now there's a share shift when the della leading the
Speaker 1: way in Microsoft any time, we can't let you go.
Speaker 1: Not yet, not yet, a tidal wave of M and
Speaker 1: A and some of the big place participating that's got
Speaker 1: a green light from this administration. Well, I mean, I
Speaker 1: think you look at fang names, they're going to continue
Speaker 1: to be constrained. But you look at Microsoft, you look
Speaker 1: at IBM, s A P. Across the board, you can
Speaker 1: see merging of industries on financial and software. I think
Speaker 1: that's that continues to be the theme here is that
Speaker 1: you're gonna see really a tide away the M and A.
Speaker 1: That's where a lot of that cash is gonna go
Speaker 1: wet Bush down. I'm gonna say so thank you as
Speaker 1: a wife. Greg Bottle with us now B and P
Speaker 1: very about this is an important conversation to look at
Speaker 1: the dynamics of the market. Greg, I want to begin
Speaker 1: with the normalization of VIX. Johann has beat me up
Speaker 1: because to me, this is a huge deal. I got
Speaker 1: a twenty one zero VIX and it ought to be
Speaker 1: at nineteen or dare I say sixteen as well? Let's
Speaker 1: begin with the why why is the VIX unnormalized right now? Well,
Speaker 1: I mean we'll start with the most obvious response, which
Speaker 1: is that we had a massively volatile year last year.
Speaker 1: Not only was the drawdown in March extremely volatile, but
Speaker 1: the subsequent rally backup has been as well. So owning
Speaker 1: optionality paying for premium so far has paid out for investors.
Speaker 1: Just Away and Greg on a situation with the VIX
Speaker 1: right now sub twenty we haven't seen it. We haven't
Speaker 1: seen a post pandemic. We haven't closed below that twenty level.
Speaker 1: What do you make of that? Yeah, it's been a
Speaker 1: real support level for the market. But it's interesting you
Speaker 1: think about the equity spot market, the SMP. The SMP
Speaker 1: is about fifteen percent higher than where it was pre
Speaker 1: the pandemic. VIX is about ten points higher than where
Speaker 1: it was pre January February last year, so there's much
Speaker 1: more premium still in the volatility market. Twenty has been
Speaker 1: a bit of a psychological floor. If we break through that,
Speaker 1: I think it could drive an accelerated move on the downside.
Speaker 1: So help us understand this, correct the relationship between the
Speaker 1: VIX and risk assets and how you expect that to
Speaker 1: reconcile it it's all in the months quarters to come. Yeah,
Speaker 1: So clearly we normally have an inverse relationship between risky
Speaker 1: assets like equities and the VIX. When equities sell off,
Speaker 1: the VIX tends to go higher. When equities rally, the
Speaker 1: VIX tends to come off. But you have to also
Speaker 1: consider the pace of it. The VIX is a volatility index,
Speaker 1: so when you see equities moving higher at a very
Speaker 1: aggressive pace, as we saw in Q four last year,
Speaker 1: and indeed it's continued at the start of this year.
Speaker 1: That can help keep the VIX somewhat supported. So the
Speaker 1: environment where the VIX is really going to normalize, I think,
Speaker 1: is when the equity market continues to go higher, but
Speaker 1: goes higher much slower pace. Greg just to zoomer out
Speaker 1: a little bit. Perhaps the story of the week is
Speaker 1: bit coin, but the theme of the year is very
Speaker 1: much the shortage of assets, the shortage of both dead
Speaker 1: and equity instruments from people to buy because of the
Speaker 1: cash that's been created. In some ways, what we're talking
Speaker 1: about with the VIX is very much related to that
Speaker 1: that people want to hedge against declines because they can
Speaker 1: do so cheaply or more cheaply through derivatives than parting
Speaker 1: with assets, parting with their equities that they still want
Speaker 1: to hang onto for this ride because they believe in it.
Speaker 1: How much is that driving a lot of the action?
Speaker 1: How much will that keep propelling equities higher regardless of
Speaker 1: anything fundamental, I think it's the biggest single drive in
Speaker 1: the fact we have such easy monetary policy at the
Speaker 1: time we're expecting a large cyclic l up swing in
Speaker 1: the second half of the year. It creates a great
Speaker 1: environment for equity markets. But we have had some very
Speaker 1: rapid moves in equities. We've seen some big inflows. Last
Speaker 1: week in the e TP space, there was almost thirty
Speaker 1: billion dollars put to work, a three standard deviation inflow
Speaker 1: for equity markets. And that does keep volatility bid. It
Speaker 1: does give investors the incentive to and to chase upside
Speaker 1: through optionality. But if we do see a slowing rate
Speaker 1: of gain in the SMP, the risk reward of hedging,
Speaker 1: the risk reward of owning optionality becomes much less appealing.
Speaker 1: We've been talking a lot when we talk about equities
Speaker 1: of the game stop phenomenon and the meme starks, and
Speaker 1: I'm wondering how much that's representative of increasing retail participation.
Speaker 1: You talk about the e t F flows, I mean,
Speaker 1: how much we're getting a capitulation of retail investors that
Speaker 1: have been sitting on the sidelines for a decade that
Speaker 1: are finally saying we're all in. I mean, there are
Speaker 1: certainly a lot of signs of it. You see it
Speaker 1: in the e t F flows, but you also see
Speaker 1: in the option market. There's been an absolute explosion and
Speaker 1: call option activity over the last six months, and I
Speaker 1: think this is rational in some degree. We go back
Speaker 1: to the TMT bubble. If you took your money out
Speaker 1: of the equity market at the peak, then you can
Speaker 1: put it in short term rates. What like five guys
Speaker 1: been talking this morning about where short term rates are now.
Speaker 1: If you don't have money invested in the equity market,
Speaker 1: then where do you put up? I want to go
Speaker 1: on radio on television now, folks, a little technical with
Speaker 1: Mr Bible. We can do this with other gentleman from
Speaker 1: derivatives at BNP Perry bar Greg. I've always felt THET
Speaker 1: has been ignored, the passage of time of an option
Speaker 1: and a derivative in your world, has the theta changed?
Speaker 1: I mean is is theta is a Greek letter? Change
Speaker 1: the way Global Wall Street does business? Well. I think
Speaker 1: that decay is another word for yield. In some ways,
Speaker 1: you can think of the theater on an option if
Speaker 1: you sell an option is similar to the yield that
Speaker 1: you might take on in a bond. So what we
Speaker 1: saw over the last decade with QUEI and very low
Speaker 1: rate is that there has been more demand for sure
Speaker 1: optionality strategies. But Unfortunately, what we saw last year was
Speaker 1: the flip side to that trade, which is that in
Speaker 1: a risk of environment, it acts very different to a
Speaker 1: classic yielding um safe asset. So what we've seen so
Speaker 1: far over the last nine months is equity markets have recovered,
Speaker 1: is that there's been effectively less harvesting of theater. Investors
Speaker 1: seem less willing to be short convexity, short volatility to
Speaker 1: take in that yield that you can get from what
Speaker 1: is a very steep vixed curve brilliant. So if they
Speaker 1: don't want to take in that premium that yield, as
Speaker 1: you say, what do they want to do? Well, at
Speaker 1: the moment, it's been using optionality to participate for the
Speaker 1: equity rally. Whether that's to get asymmetry to protect your portfolio,
Speaker 1: or whether indeed is to do the opposite and inject
Speaker 1: leverage into your portfolio. That's a buying optionality flow and
Speaker 1: we've seen more prevalence of that since the pandemic versus
Speaker 1: the volatility harvesting and the hunt for yield, which is
Speaker 1: something that I think could start to creep back into
Speaker 1: the markets in the coming months. Greg, great to catch
Speaker 1: you up, appreciate you so I'm always good to see you.
Speaker 1: Great battle there of bempreparent butt. Thank you, sir. How
Speaker 1: do you share holes of the Economic Policy Institute publishes
Speaker 1: and any and all read it? She joins us this morning, Hi,
Speaker 1: do I really want to die into the history of
Speaker 1: the moment? How bad is it? Mike McKee just alluded
Speaker 1: to the worst of oh seven, oh eight, oh nine.
Speaker 1: How bad are we right now? Within the e p
Speaker 1: I historical framework, It's bad. The unemployment insurance claims, the
Speaker 1: number of people who need unemployment insurance benefits to get
Speaker 1: it through right, to get through this right now, we're
Speaker 1: still at historically high level. So we just to put
Speaker 1: some numbers on that. We are at the forty seventh
Speaker 1: week in a row where we have had unemployment insurance
Speaker 1: claims higher than the highest week of the Great Recession.
Speaker 1: There's all sorts of certitudes wheach here. I don't mean
Speaker 1: in a party, but this is really important. There's all
Speaker 1: sorts of certitudes that are out in the media. Were
Speaker 1: guilty of that A team surveillance like everybody else. If
Speaker 1: you could say one thing about the character of the
Speaker 1: unemployed right now, what would it be that they are
Speaker 1: people who are out of work through no fault of
Speaker 1: their during a global pandemic, people desperately need the relief
Speaker 1: of unemployment insurance benefits to get through. Until we have
Speaker 1: a vaccine that's widely distributed, the economy can fully get
Speaker 1: going again, and we can we can get things back
Speaker 1: on track. I d We've been sort of hinting at
Speaker 1: this broader issue right now. The Federal Reserve wants to
Speaker 1: run the economy hot to allow the labor market to heal,
Speaker 1: possibly and hopefully with some fiscal support from Washington d C.
Speaker 1: But if inflation does take up faster than people expect
Speaker 1: and the Fed is forced to hike, is forced to
Speaker 1: stop the rally in the markets, that could cause a
Speaker 1: big setback in the labor market that will hit the
Speaker 1: lowest income the hardest. Can you talk a little bit
Speaker 1: about the disproportionate effect of a market disruption of something
Speaker 1: that the Fed could potentially incite if they're forced to
Speaker 1: hike too soon. Yeah, that's a really good point, and
Speaker 1: I think the key message here is that the risks
Speaker 1: of doing too little are far worse for the most
Speaker 1: vulnerable people, for people at the low middle end of
Speaker 1: the wage of the wage distribution. Then the FED doing
Speaker 1: too much. That's really important. Right now, we see a
Speaker 1: huge hit that lower middle income people are taking. They're
Speaker 1: just there's been a massive disruption to their labor market.
Speaker 1: People are facing massive unemployment. That is a really dire
Speaker 1: thing right now. And then the longer it goes on,
Speaker 1: the sort of lasting consequences play out. So if we
Speaker 1: can get on top of this quickly, that will make
Speaker 1: those folks really like a lot better off. And then
Speaker 1: the question is if they do go too far, what
Speaker 1: are the risks? And that's easy to pull back. They
Speaker 1: have levers they can really easily pull to to to
Speaker 1: keep the economy from overheating. So doing the so I
Speaker 1: think that's the upshot here. The risk of doing too
Speaker 1: little are far far greater to the to the people
Speaker 1: of this economy who who depend on the labor market
Speaker 1: the most to get through week to week. The risk
Speaker 1: of doing too little are far greater than the risk
Speaker 1: of doing too much. And there's a huge pain out there.
Speaker 1: It's clear, and the labor market has hit a complete roadblock.
Speaker 1: We've got now bigger than expected jobless claims. We're going
Speaker 1: in the wrong direction. We have Drone Powell yesterday as
Speaker 1: John was saying, it's the ten number. We've got ten
Speaker 1: million who are a fewer jobs in the market than
Speaker 1: last February ten percent unemployment rate. If you were to
Speaker 1: pick out some of the other elements, what are we
Speaker 1: doing in terms of bridging this gap? What can be
Speaker 1: done given how much change has happened in the fundamental
Speaker 1: labor market, the acceleration to technology, the reduction and manufacturing
Speaker 1: jobs that we see ongoing that is somewhat independent of
Speaker 1: the pandemic. Those are really good questions. I think one
Speaker 1: thing that we're seeing here, unlike any recession we've ever
Speaker 1: seen before, this this idea of the K shaped recovery
Speaker 1: that really is going on. Lyle Brainer, a Federal Reserve governor,
Speaker 1: had an estimate out a couple of weeks ago that
Speaker 1: the unemployment rate for workers in the bottom quartile of wages,
Speaker 1: the lowest income workers, is likely over twenty percent, where
Speaker 1: people in the highest income, highest wage earners likely under five.
Speaker 1: We're just five. We're just having this huge pulling apart.
Speaker 1: It creates just an enormous imbalance. We're really seeing this
Speaker 1: recession of this downturn exacerbate existing in equality. So it's
Speaker 1: just incredibly important we get the relief and recovery people
Speaker 1: need while we're still in this this sort of dark
Speaker 1: days of the of the widespread pandemic, until we can
Speaker 1: get out of that um and and see widespread vaccine
Speaker 1: distribution get the economy going again. I think this seems
Speaker 1: to be something about cycles in both the downturn and
Speaker 1: the recovery. Whether the weakest get hit first in the
Speaker 1: downturn and they recover last in the recovery. Now, I'm
Speaker 1: trying to understand if that's a national order of events,
Speaker 1: or whether policy amplifies that, especially the federal Reserve, which
Speaker 1: boost sasset prices almost immediately a markets priced in bank
Speaker 1: just like that, or whether there's something else going on
Speaker 1: here that we can address. What do you think it is, Heidi,
Speaker 1: this You're absolutely right. We always see recessions exacerbate inequality.
Speaker 1: This one is worse than we have ever seen before,
Speaker 1: and that's because of the nature of this thing. It
Speaker 1: really hit face to face. Services just shut down, and
Speaker 1: even if they reopened, reopened at much lower rates and so,
Speaker 1: and workers in those industries tend to be lower wage workers.
Speaker 1: So you have a ton of people who didn't have
Speaker 1: a lot before don't have, didn't have a lot build
Speaker 1: up to fall back on, getting just slammed in this recession,
Speaker 1: and so that the that we always see those workers
Speaker 1: get hit harder, but it's just more than ever before
Speaker 1: because of the nature of this thing. So it really
Speaker 1: does underscore the importance of doing a lot to get
Speaker 1: the recovery back on track. That's what I want to
Speaker 1: build on though. Is it nature this word nature, just
Speaker 1: the natural order of events, or is it something about
Speaker 1: policy that's just wrong because typically that first response, we
Speaker 1: address the downturn through financial conditions almost exclusively, and financial
Speaker 1: conditions can address can adjust really really quickly, so if
Speaker 1: you hold assets, you'll recover quickly as well. Now I'm
Speaker 1: just trying to work out what we can do for
Speaker 1: the next time we have a downturn, the time after that,
Speaker 1: the time after that, because we'll be experiencing the same
Speaker 1: thing again and again and again. What's the policy prescription
Speaker 1: here we need to do. We need to have the
Speaker 1: FED do everything they can to get the economy back
Speaker 1: on track. That's going to help people at the high end,
Speaker 1: but it also really helps people at the low end.
Speaker 1: We know that the you know, the FED getting the
Speaker 1: economy going is a key part of a recovery that
Speaker 1: adds jobs. Since low income people are more likely to
Speaker 1: lose their jobs, they're also more likely to gain them
Speaker 1: as a recovery continue. So that's we we that's a
Speaker 1: really issue. We also need the Congress to step in
Speaker 1: with physical part hy do. I want you to know
Speaker 1: that John Farroll has really provided industry leadership on this
Speaker 1: because he's from England and he's looking at American going.
Speaker 1: You guys are nuts. I want you to go back
Speaker 1: to Michigan economics, that Graham Letch, what Justin Wolfers is
Speaker 1: doing there, and and Bessie Stevenson and all that you
Speaker 1: studied there. You know, you're required a gunpoint in Michigan
Speaker 1: to take a course like Descartes de kant Okay, philosophy.
Speaker 1: Do you sense from the liberal bastion of E p
Speaker 1: I that America is going to change to a more
Speaker 1: European labor aid construct or are we still going to
Speaker 1: maintain an arch individualism of every person for themselves? That
Speaker 1: is a big question. I do think there is a
Speaker 1: big there's a shift happening, particularly in the economics field.
Speaker 1: You see, it used to be a consensus in economics,
Speaker 1: that interventions in the labor market, interventions in the market
Speaker 1: were a real drag on the market, they would hurt
Speaker 1: the very people that they're trying to help. That used
Speaker 1: to be conventional wisdom. We are seeing that conventional wisdom
Speaker 1: really be upended with new empirical evidence coming out that
Speaker 1: things like minimum wage increases they actually don't cause job losses,
Speaker 1: that unions are actually really essential to making sure that
Speaker 1: middle class people get their fair share of overall growth
Speaker 1: in the We're gonna run out of time here, this
Speaker 1: is too important in honor of the late Alan Krueger.
Speaker 1: Why can't we ramp in a time distance minimum wage
Speaker 1: increase to get out to sixteen dollars in twenty three cents?
Speaker 1: Where I believe the horsetoric statistics should be just time. Yes,
Speaker 1: right that you know you're on it. And so the
Speaker 1: fifteen dollar minimum wage bill that's now been introduced in
Speaker 1: the House, well it's in the reconciliation bill, so it
Speaker 1: you know, it definitely has a chance, and it would
Speaker 1: ramp up to fift dollars by in five steps. And
Speaker 1: so that that you got it. The logic that you're
Speaker 1: using there is is sort of right where policymakers are
Speaker 1: I grant to catch up. Thank you, Thank you Ecnomic
Speaker 1: Policy Institute, Senior economist at Director of Policy. Thanks for
Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to
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