WEBVTT - Surveillance: Capitalism Works, Langone Says 0:00:00.080 --> 0:00:12.960 Ye. Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.920 Bloomberg dot Com, and of course, on the Bloomberg Do 0:00:29.000 --> 0:00:31.000 you want to us now, I'm pleased to say. Is 0:00:31.000 --> 0:00:34.920 Alan Ruskin, Deutsche Bank chief international strategist. Good morning to 0:00:35.080 --> 0:00:37.720 Allen on this payrolls Friday morning, John, what are you 0:00:37.760 --> 0:00:39.920 looking for? The estimate and our survey a hundred and 0:00:40.000 --> 0:00:42.440 ninety thousand for the month of April they call at 0:00:42.440 --> 0:00:47.120 Deutsche Bank one sixty thousand strong basically for this point 0:00:47.120 --> 0:00:48.960 in the cycle. Really, I don't want to emphasize that 0:00:49.000 --> 0:00:50.920 it's you know, weaken in the prime month or anything 0:00:50.960 --> 0:00:54.000 like that. This is strong data all around. Women into 0:00:54.000 --> 0:00:55.840 the show. I've gotta get the juvenile question out the way. 0:00:55.960 --> 0:00:58.440 It's good data good news today, or it's good data 0:00:58.520 --> 0:01:01.600 bad news good question always. Really, I think, you know, 0:01:02.000 --> 0:01:03.760 we don't want too good a data, right, So we 0:01:03.760 --> 0:01:09.000 don't really want strong enough data that it tests the 0:01:09.000 --> 0:01:12.319 FEDS patients. Yeah, so a number, say, for example, like 0:01:12.360 --> 0:01:15.200 to seventy five k like the a DP number. I 0:01:15.240 --> 0:01:18.039 think would be in the realms where people start to 0:01:18.040 --> 0:01:19.880 have to think, wait a minute, we're pricing in rate 0:01:19.920 --> 0:01:22.479 cuts when we maybe should be thinking about rate hikes. 0:01:22.760 --> 0:01:25.119 I thought I was in charge of driven questions. Well, 0:01:25.120 --> 0:01:26.680 I just thought to get it out of the way, Okay, 0:01:26.680 --> 0:01:30.320 please continue. Federal Reserve speakers through the day really really busy, 0:01:30.319 --> 0:01:34.080 including Vice Chairman Richard Clarada. What do we need to 0:01:34.120 --> 0:01:39.240 hear from Mr Clarada today? Clarification? I had hesitated to say, really, 0:01:39.280 --> 0:01:43.760 I think clarification of the comments that chair and Powell 0:01:43.840 --> 0:01:45.840 put out really in a way, so you know, he 0:01:45.880 --> 0:01:49.320 took a very non doctrinaire approach to things, with a 0:01:49.320 --> 0:01:52.720 little fuzzy in terms of what would provoke a rate cut. 0:01:53.080 --> 0:01:55.680 Didn't want to get pushed into the terrain of saying, 0:01:55.920 --> 0:01:59.680 look here, if coinflation is below target for X number 0:01:59.720 --> 0:02:02.880 of my etcetera, we'll have to respond. I think you're 0:02:02.880 --> 0:02:05.600 going to get the same message from Richard Clarida, but 0:02:05.640 --> 0:02:08.000 I think it would be useful for the market. You see, 0:02:08.000 --> 0:02:11.640 they're on the same John Neils yesterday frankly as well, folks. 0:02:11.720 --> 0:02:15.079 I can't say enough, folks, how important this cycle of 0:02:15.160 --> 0:02:19.160 speeches is eleanor we one step away from the Vice 0:02:19.240 --> 0:02:22.239 chairman or anybody else is gonna say, you know what, 0:02:22.320 --> 0:02:24.320 this is all wrong. We're going to lift rate when 0:02:24.320 --> 0:02:27.000 we go next and we get a tantrum. I mean, 0:02:27.040 --> 0:02:30.440 that's the arch fear of institutional Wall Street. No, so 0:02:30.520 --> 0:02:32.280 I think we're not going to get there very quickly, 0:02:32.800 --> 0:02:35.839 not certainly, not today. I thought that if you got 0:02:35.880 --> 0:02:40.720 anything from Chairman Powell's comments, it was very sharply neutral. 0:02:40.880 --> 0:02:43.600 I mean he really said that not there's not a 0:02:43.639 --> 0:02:46.880 strong case for rate hike or rate cut. You know, 0:02:47.160 --> 0:02:49.160 that is very different of course from what's been priced 0:02:49.200 --> 0:02:51.079 in the marketplace, but it's also a long way from 0:02:51.080 --> 0:02:52.920 a rate hike. Well, what I'm looking for from the 0:02:53.000 --> 0:02:55.600 very long list of Federal Reserve speakers through today, there 0:02:55.680 --> 0:02:58.600 is a conference happening, the Hoover Institute Policy Conference, so 0:02:58.680 --> 0:03:00.359 look out for it all through the damp leaf that 0:03:00.800 --> 0:03:04.120 Mr Clarada will be speaking at eleven thirty Eastern time. Personally, 0:03:04.160 --> 0:03:06.519 what I'm looking for Alan is to whether there is 0:03:06.600 --> 0:03:10.440 any daylight between the chairman and the people closest to him, 0:03:10.480 --> 0:03:12.480 because there are some people out there listening that think 0:03:12.480 --> 0:03:15.720 there might be do you and there might be some 0:03:15.880 --> 0:03:21.440 daylight to the extent that I think both Clarada and Williams, 0:03:21.440 --> 0:03:24.560 I think, take perhaps as somewhat more theoretical approach to 0:03:24.680 --> 0:03:27.079 things in terms of and and and sort of lay 0:03:27.200 --> 0:03:30.040 things out in theoretical terms in a way which the 0:03:30.160 --> 0:03:33.919 chair the chairman doesn't. So I think there's sometimes differences 0:03:34.000 --> 0:03:37.360 that come through there. They're largely nuanced. I don't think 0:03:37.600 --> 0:03:42.080 right now there would have a different view on what 0:03:42.160 --> 0:03:45.800 policy should be. But as for signals going on in 0:03:45.800 --> 0:03:48.720 the future, yes, there's there's a there's a hint to daylight. Ellan, 0:03:48.760 --> 0:03:51.720 you are so diplomatic. I thought that was incredibly diplomatical. 0:03:52.040 --> 0:03:56.360 The State Department with Mr let me translate what Sir 0:03:56.440 --> 0:04:01.040 Alan Ruskin just said. Powell's not a PhD economists. These 0:04:01.040 --> 0:04:06.560 guys have underlying theories and piles basically saying, yeah, right, okay, 0:04:06.600 --> 0:04:10.160 what is the theory of the pH d economists right now? 0:04:10.320 --> 0:04:14.400 Is a traditional Phillips curve? Is it completely data depending? 0:04:14.520 --> 0:04:18.000 I mean at a graduate level, what is their theory 0:04:18.160 --> 0:04:21.520 right now? I think the problem, Tom is that the 0:04:21.520 --> 0:04:24.640 theory in terms of creation of inflation has nowhere better 0:04:24.760 --> 0:04:27.880 to really turn than some sort of output gap framework. 0:04:27.920 --> 0:04:31.520 But as we know, the Phillips curve looks extraordinary flat. 0:04:32.080 --> 0:04:33.760 We may be at the point where there's a little 0:04:33.800 --> 0:04:36.240 kink where it gets a little you know, steeper, but 0:04:36.320 --> 0:04:39.320 we don't know. And that's all we have to hang 0:04:39.320 --> 0:04:42.320 our hats on in a sense. And that that's a big, big, 0:04:43.720 --> 0:04:47.320 extremely well said. But the issue I there, Ferrell is 0:04:47.360 --> 0:04:51.159 better at this, I am is the output gap has plugins. 0:04:51.720 --> 0:04:55.719 Some of them are accountable and tangible. In what German Pilcher, 0:04:56.000 --> 0:04:58.440 Yelling and the rest are dealing with is so many 0:04:58.480 --> 0:05:03.120 of those plugins are almost intangible, aren't they? Maybe even 0:05:03.120 --> 0:05:05.960 worse than that time, I think we'll do a better 0:05:06.040 --> 0:05:10.039 job using inflation to forecast the output gap where we 0:05:10.080 --> 0:05:12.160 are in the output gap, that we use the output 0:05:12.240 --> 0:05:15.840 gap to forecast inflation. Thank you, Well, let's talk about 0:05:15.839 --> 0:05:18.160 the reaction function after FED you've pointed out yourself, we 0:05:18.240 --> 0:05:21.680 spent months looking at this evolving policy reaction function. The 0:05:21.680 --> 0:05:25.680 place is greater emphasis on a symmetric inflation target. That's 0:05:25.680 --> 0:05:29.640 why so many people were expecting a rate cut, because 0:05:29.720 --> 0:05:32.400 they thought the Federal Reserve was setting us up for 0:05:32.520 --> 0:05:37.320 slowly adjusting the reaction function of policy do you think 0:05:37.320 --> 0:05:39.400 that is still the effort, the underlying effort of the 0:05:39.400 --> 0:05:42.080 effortm C to take us somewhere in that directional it. 0:05:42.839 --> 0:05:45.680 I think there's some genuine attempt to emphasize the idea 0:05:45.720 --> 0:05:49.640 of a symmetry. I think the symmetric argument made an 0:05:49.680 --> 0:05:51.640 awful lot of sense at the turn of the year, 0:05:52.000 --> 0:05:54.320 insomuch as I think the FED looked over the abbess 0:05:54.360 --> 0:05:56.400 and they saw, wait a minute, you know, we've got 0:05:56.520 --> 0:05:59.760 inflation that is barely a target really, and now we 0:05:59.800 --> 0:06:02.239 have we could be into the downswing and that's the peak, 0:06:02.640 --> 0:06:05.400 and you know, therefore we're definitely going down to zero 0:06:05.520 --> 0:06:09.080 rates again. Inflation is really peaked, and I think that's 0:06:09.080 --> 0:06:11.880 that's a problem. The zero bounding rates is really you know, 0:06:12.000 --> 0:06:14.600 creating a lot of the problems. So underpending the big 0:06:14.640 --> 0:06:18.919 ralliant risk assets was undoubtedly the Federal Reserve pivot back 0:06:19.120 --> 0:06:20.880 three or four months ago. There was a belief that 0:06:20.920 --> 0:06:23.600 maybe the Federal Reserve was making a policy mistake by 0:06:23.640 --> 0:06:26.400 hiking interest rates FED back away. I'm going to test 0:06:26.400 --> 0:06:28.680 the extreme end of this narrative right now. Alan, So 0:06:28.720 --> 0:06:31.920 I forgive me. Do you think there are some pockets 0:06:31.960 --> 0:06:34.599 of this market groups of investors substantial enough to have 0:06:34.640 --> 0:06:36.880 an impact that believe that if the FED does not 0:06:36.960 --> 0:06:40.440 cut interest rates, that is equally a policy mistake. Have 0:06:40.560 --> 0:06:43.800 we gone that far? Now? Put it this way, I 0:06:43.839 --> 0:06:46.880 think there's enough uncertainty out there just talking to clients, 0:06:47.120 --> 0:06:49.160 and there are enough people who think that the FED 0:06:49.320 --> 0:06:52.839 is signal that the next move would be a rate cut, 0:06:53.640 --> 0:06:56.600 obviously premised on inflation remaining low. But I think they'd 0:06:56.600 --> 0:06:59.080 be quite disappointed if you didn't get that. So that 0:06:59.160 --> 0:07:02.520 changes if in the coming days months the market has 0:07:02.640 --> 0:07:04.960 to readjust the reality that the next move may well 0:07:05.000 --> 0:07:08.320 be an increase. What happens to this market? How does 0:07:08.360 --> 0:07:11.360 price adjust? How do risk assets with risk respond to that? Well, 0:07:11.360 --> 0:07:13.559 I think we're first going to adjust to the idea 0:07:13.600 --> 0:07:16.560 of neutrality. Really, so FED is on hold for a 0:07:16.600 --> 0:07:19.560 long period of time. If we jumped from rate cut 0:07:19.600 --> 0:07:23.640 expectations to rate hike expectations, I think I'd be usually disruptive. 0:07:23.680 --> 0:07:27.200 But I think if we slowly take back the fifteen 0:07:27.320 --> 0:07:30.320 beaps of rate cuts that we have for two thousand 0:07:30.400 --> 0:07:32.680 and nineteen, then I think it's gonna be too disruptive. 0:07:33.160 --> 0:07:37.600 Let's go to Sonoda synodal dampening functions. If dragging has 0:07:37.600 --> 0:07:41.120 a dampening function where he does nothing out to whenever, 0:07:41.520 --> 0:07:44.560 if you're suggesting Powell and whoever after him has a 0:07:44.640 --> 0:07:49.000 dampening function of rate out to forever. Is that French 0:07:49.040 --> 0:07:52.320 for lethargy? I mean, are we really talking here about 0:07:52.640 --> 0:07:57.840 lethargic policy and a lethargic American economy? Look, I think 0:07:57.840 --> 0:08:00.400 actually one of the big mistakes of the dot was 0:08:00.440 --> 0:08:03.160 the idea that you hiked interest rates and then the 0:08:03.240 --> 0:08:07.680 dots sort of you know, peaked elements and stayed at equilibrium. 0:08:08.120 --> 0:08:10.480 We know that the Fed Funds doesn't behave like that. 0:08:10.560 --> 0:08:14.040 There's a cycle out there. We go up and we overshoot, 0:08:14.080 --> 0:08:16.280 and then we go down and undershoot, and I don't 0:08:16.280 --> 0:08:18.200 think the cycle is going to be any different really, 0:08:18.800 --> 0:08:20.840 So there's a cycle out there. Great to catch you 0:08:20.880 --> 0:08:24.440 up with you one that was a little sophisticated. Your 0:08:24.480 --> 0:08:40.520 bank chief International on this payrolls Friday get rights. In 0:08:40.559 --> 0:08:43.679 the Wall Street Journal today, Narrianna coach O Dakota of 0:08:43.840 --> 0:08:48.720 Rochester and Minneapolis writes of Steven Moore today, why don't 0:08:48.720 --> 0:08:52.360 we listen to our conversation yesterday? To Mr Moore, this 0:08:52.559 --> 0:08:55.440 is gonna be probably a three month process, so a lot, 0:08:55.640 --> 0:08:58.360 you know what, what the situation today, I think it's 0:08:58.360 --> 0:09:00.160 gonna be a lot of different three months from now 0:09:00.160 --> 0:09:03.000 when I go before the Senate and the Banking Committee 0:09:03.000 --> 0:09:05.839 and the full Senate. So I'm not too concerned about 0:09:05.880 --> 0:09:09.120 this UM. I actually think if we can steer the 0:09:09.960 --> 0:09:14.120 UH the discussion away from things I wrote five years 0:09:14.120 --> 0:09:17.160 ago and more towards what I believe in terms of 0:09:17.160 --> 0:09:20.160 the economy and FED policy and how to create growth 0:09:20.160 --> 0:09:22.560 and stable prices, I think I'm going to win a 0:09:22.559 --> 0:09:25.200 big majority. Stephen Moore, if we fill the punch bowl 0:09:25.240 --> 0:09:27.480 to the peak, if we get half or all of 0:09:27.520 --> 0:09:30.440 the rate cut that the President demands, what will that 0:09:30.520 --> 0:09:33.120 do to dollars stability? And what will that do to 0:09:33.240 --> 0:09:36.400 price stability? Now that's a good question. I think I 0:09:36.400 --> 0:09:40.480 could make a case for having UH, you know, repealed 0:09:40.520 --> 0:09:43.720 the rate hike in that took place in December. I 0:09:43.720 --> 0:09:45.520 remember I was the one who one of the first 0:09:45.520 --> 0:09:48.960 people although there are many who called that a tragic mistake, 0:09:49.040 --> 0:09:51.400 and of course now everyone acknowledges that it was a 0:09:51.440 --> 0:09:54.400 big mistake. You know, I would probably be in favor 0:09:54.480 --> 0:09:57.280 of repealing that rate hike, which was what I think, 0:09:57.320 --> 0:10:00.400 twenty five basis points. I'm not so sure I I 0:10:00.440 --> 0:10:02.920 agree with the White House that we should cut race 0:10:03.040 --> 0:10:05.280 by an entire percentage point. I mean I don't. I 0:10:05.360 --> 0:10:08.960 just don't see the case for that right now. Stephen 0:10:09.000 --> 0:10:12.000 Moore yesterday, and of course events afterwards, John I, I 0:10:12.000 --> 0:10:14.600 don't know two hours later, an hour and a half later, 0:10:15.400 --> 0:10:21.839 if he was either he stepped aside or whatever. We'll 0:10:21.840 --> 0:10:24.000 go away from that soap proper. We're advantaged to do 0:10:24.040 --> 0:10:28.319 it now with Jeffrey Sachs. He's university professor. Columbia University 0:10:28.720 --> 0:10:30.920 has any number of topics we could talk on for 0:10:30.960 --> 0:10:33.200 the next three hours, So we're gonna squeeze it in 0:10:33.240 --> 0:10:36.559 here in three minutes. What would happen if the President 0:10:37.679 --> 0:10:41.040 got his hundred basis point rate cut. Take us into 0:10:41.080 --> 0:10:44.559 the classroom freshman year, you know you're there. You've got 0:10:44.559 --> 0:10:47.760 a young turk up at Harvard, Alberta, Elasina or Michael 0:10:47.760 --> 0:10:50.559 Berta or whatever. How do you teach a hundred basis 0:10:50.600 --> 0:10:54.040 point rate cut. Well, you don't put the FED in 0:10:54.080 --> 0:10:56.680 the hands of politicians and expect to come out with 0:10:56.760 --> 0:11:00.920 the stable economy. So that's the basic point. We need 0:11:00.920 --> 0:11:04.840 a professional FED, we need an independent central bank, and 0:11:04.920 --> 0:11:08.800 we need a monetary policy that is not at the 0:11:08.840 --> 0:11:12.679 whim of any politician. Frankly, do you think we're putting 0:11:12.720 --> 0:11:15.360 something that is what do you believe to be quite precious? 0:11:15.360 --> 0:11:18.160 Do you think we're putting that under risk at the moment. Well, 0:11:18.240 --> 0:11:22.400 the disdain for this institution the President Trump has shown 0:11:23.640 --> 0:11:28.679 in his direct attacks, in his flagrant violation of the 0:11:28.760 --> 0:11:33.280 norms of how monetary policy is considered and should be discussed, 0:11:33.320 --> 0:11:39.199 and in his proposals for FED governors has been really dismaying, 0:11:39.320 --> 0:11:42.679 but not unlike what we're seeing across the board in 0:11:42.920 --> 0:11:46.960 our federal institutions were they're falling apart in a lot 0:11:46.960 --> 0:11:50.000 of ways because they're treated with disdain, because the people 0:11:50.040 --> 0:11:53.480 that are filling them are not qualified to fill them, 0:11:53.520 --> 0:11:57.679 because everything has become hyper political rather than professional. Before 0:11:58.080 --> 0:12:01.520 Kine and More, we actually had some quite conventional nominations 0:12:01.600 --> 0:12:03.760 from this administration. In fact, it was what I considered 0:12:03.760 --> 0:12:06.280 by most of our guests that they had nominated really 0:12:06.320 --> 0:12:08.720 good candidates for the Federal Reserve. Two of them didn't 0:12:08.720 --> 0:12:11.880 even get a hearing. Has something changed within the administration 0:12:11.920 --> 0:12:14.720 where we've gone from the likes of good Friend and 0:12:14.880 --> 0:12:19.800 others to the likes of Canaan More. I am not 0:12:19.920 --> 0:12:22.520 an insider to this administration to say the least, but 0:12:22.880 --> 0:12:27.439 it does seem that the president is more more in 0:12:27.440 --> 0:12:32.120 in control. He's not listening to advisers. I presume that 0:12:32.160 --> 0:12:35.960 this is what this is, but definitely we're seeing a 0:12:36.040 --> 0:12:40.920 deterioration in policy making in general. I don't this is 0:12:40.960 --> 0:12:43.720 not a secret. There is no policy because there's whims, 0:12:43.760 --> 0:12:47.800 there's tweets, and Jeff this is important. What John brings 0:12:47.840 --> 0:12:49.960 up is really really important. Take us into the American 0:12:50.000 --> 0:12:53.920 Economic Association meetings, and the fact is Jeffrey Sachs is 0:12:53.960 --> 0:12:57.040 on the same page with John Taylor Stanford or Marvin 0:12:57.040 --> 0:13:00.199 good Friend of Carnegie Mellon much more than people think. 0:13:00.400 --> 0:13:04.120 The media loves to show the liberal and conservative polarity, 0:13:04.160 --> 0:13:08.520 but Marvin good Friend is one example. Would be some 0:13:08.679 --> 0:13:13.240 form of a centrist a candidate, wouldn't. I think the 0:13:13.400 --> 0:13:18.000 key actually is professionalism, because when you have trained professionals 0:13:18.000 --> 0:13:21.199 that are not hacks, they sit around, they talk, they 0:13:21.240 --> 0:13:24.600 analyze the data. They may not agree on everything, but 0:13:24.679 --> 0:13:28.920 it really is the way that a complex twenty trillion 0:13:28.960 --> 0:13:34.800 dollar economy should be addressed, not by these wild swings 0:13:34.880 --> 0:13:39.320 of whim and it's a little bit frightening what's happening 0:13:39.320 --> 0:13:42.160 to our institutions across the board. Again, I think the 0:13:42.200 --> 0:13:46.319 FED is just one dramatic case. It's a stark case 0:13:46.400 --> 0:13:50.320 because the world depends on FED stability, because we have 0:13:50.480 --> 0:13:55.200 seen already what goes wrong when monetary policy goes wrong. 0:13:55.240 --> 0:13:58.320 The whole world goes into crisis. We're out of time. 0:13:58.440 --> 0:14:00.760 What we'd love to do a professor secs John, and 0:14:00.800 --> 0:14:03.120 I would love to get you back for an entire 0:14:03.280 --> 0:14:06.840 hour to talk about five, six or seven themes. I 0:14:06.880 --> 0:14:10.400 will be absolutely you know that I will be happy 0:14:10.440 --> 0:14:13.600 to be here anytime, Jess, Thank you so much. University Professor, 0:14:13.640 --> 0:14:31.200 Columbia University. We all know this, Ellen Zentner, Morgan Stanley 0:14:31.280 --> 0:14:34.920 joining us right now. Ellen, like all of us, has 0:14:35.000 --> 0:14:41.680 an email incoming box that has junk emails. John Farroh 0:14:41.920 --> 0:14:45.840 just got the mother of all junk emails. John, This 0:14:45.920 --> 0:14:48.440 is brilliant and it really points to a Farrell like future. 0:14:48.520 --> 0:14:51.480 This is beautiful. This is from LinkedIn, and every now 0:14:51.520 --> 0:14:53.640 and then they send me my top jump picks. These 0:14:53.680 --> 0:14:59.800 are sometimes Morgan Stanley comes up picks for you this week, 0:15:00.120 --> 0:15:05.240 Private Equity Associate, Strategy associate McKenzie, etcetera, etcetera. And then 0:15:05.880 --> 0:15:09.600 Governor of the Bank of England. Come comes up on 0:15:09.720 --> 0:15:13.560 my top job picks because I've got three company alumni 0:15:13.600 --> 0:15:16.840 at work there. I mean, come on, what's the alt 0:15:16.840 --> 0:15:18.800 go behind there? Ye all go behind that? I don't know. 0:15:18.800 --> 0:15:21.400 It's Ellen Zentner's fall. Let's bring in the chief economists 0:15:22.120 --> 0:15:25.360 of Morgan Stanley. Ellen enter doing a wonderful job on 0:15:25.840 --> 0:15:28.840 framing the path of the American economy and once again 0:15:28.960 --> 0:15:33.520 dead on about the sustained low rates and inflation as well. Ellen, 0:15:33.560 --> 0:15:35.960 you got an opportunity for John Farrell this morning at 0:15:35.960 --> 0:15:39.280 Morgan Stanley. Yeah, you know what, John, comes see me. 0:15:39.720 --> 0:15:42.760 You can work for me. I'll do the summer internship 0:15:42.800 --> 0:15:44.720 with you, guy. You can you can work for me, 0:15:46.560 --> 0:15:52.520 my coffee boy, coffee boy for the rest of the 0:15:52.600 --> 0:15:57.040 show today. Coffee boy, Ellen, let me get this out 0:15:57.080 --> 0:15:58.960 of the way, because there's so much important to talk 0:15:59.000 --> 0:16:02.480 about your You're one of the great market economists out there. 0:16:02.560 --> 0:16:06.160 How do you synthesize the struggle we are in? Filling 0:16:06.400 --> 0:16:10.000 slot for Governor of the Federal Reserve System how do 0:16:10.080 --> 0:16:14.960 you in the trenches, UM process what we observed yesterday? 0:16:15.840 --> 0:16:19.000 Uh well, you know, I look at it from the 0:16:19.040 --> 0:16:21.120 thirty thousand foot levels, So I try not to get 0:16:21.200 --> 0:16:25.480 dragged down into uh you know, discussions of whether someone 0:16:25.560 --> 0:16:28.920 is qualified or not to be a board governor. Um. 0:16:28.960 --> 0:16:31.160 You know. And sometimes you can sit back and look 0:16:31.200 --> 0:16:33.680 at this with amusement, and sometimes you can look at 0:16:33.760 --> 0:16:37.440 back at it in horror and watch as it as 0:16:37.480 --> 0:16:40.480 it plays out. But UM, certainly some relief that the 0:16:40.520 --> 0:16:45.120 nomination um was pulled. Uh you know, I'd like to 0:16:45.160 --> 0:16:50.360 see more qualified people uh nominated to the board governors. 0:16:51.200 --> 0:16:54.640 I think it's not necessary. We've been working too shy 0:16:54.840 --> 0:16:59.320 to positions, shy of a full uh deck for you know, 0:16:59.400 --> 0:17:02.200 a decade now. UM, So it's not necessary to get 0:17:02.240 --> 0:17:05.479 two more board governors appointed. UM. So we don't have 0:17:05.520 --> 0:17:08.959 to rush it. UM. But I would like to see actual, 0:17:09.160 --> 0:17:13.880 viable nominations of people that could actually do the job. Um. 0:17:13.920 --> 0:17:16.080 You know, because the questions I get from clients that 0:17:16.160 --> 0:17:19.359 I feel most often is how would this person shape 0:17:19.720 --> 0:17:22.840 monetary policy? Uh? You know, would they get on the 0:17:22.840 --> 0:17:25.800 board and just immediately the stance on rates would change? 0:17:25.840 --> 0:17:28.639 And and we're sort of missing the forest for the 0:17:28.840 --> 0:17:31.480 for the trees. You know, there's a reason why monetary 0:17:31.520 --> 0:17:34.840 policy is made by committee so that no one person 0:17:35.600 --> 0:17:39.440 has outsized influence. And so you know, if we if 0:17:39.440 --> 0:17:43.879 we do get someone that maybe not as so qualified 0:17:43.920 --> 0:17:45.840 to be a board governor, at least we can take 0:17:45.840 --> 0:17:48.600 comfort and the fact that they'll be in discussions with 0:17:48.680 --> 0:17:51.800 a with a broad committee. Uh, and it's not just 0:17:51.840 --> 0:17:53.479 solely up to them. Well, and then I think you've 0:17:53.520 --> 0:17:56.040 touched on something really important. The process in the system 0:17:56.040 --> 0:17:59.760 in place at the moment works. It stops people from 0:17:59.800 --> 0:18:02.679 the while unqualified, getting gone to the federal reserve, and 0:18:02.680 --> 0:18:04.479 even if they do get there, it's gonna be very 0:18:04.480 --> 0:18:07.720 difficult for them to have influence, isn't it. Yeah? Yeah, 0:18:08.040 --> 0:18:10.200 And so I think that's what we've seen play out 0:18:10.680 --> 0:18:13.360 um with both the Cane nomination um and the more 0:18:13.480 --> 0:18:17.680 nomination um. You nominate and give a period of time 0:18:17.760 --> 0:18:21.199 for people to react to that, and you're able to 0:18:21.240 --> 0:18:24.280 gauge whether they actually have a chance of passing a 0:18:24.400 --> 0:18:28.200 uh Senate getting to Senate confirmation. And if it looks 0:18:28.240 --> 0:18:30.800 like it's just a no go, then either the president 0:18:30.920 --> 0:18:35.680 or the the nominee themselves pull that nomination. Uh, And 0:18:35.800 --> 0:18:38.919 so you know, sometimes that's for good reasons, in the 0:18:38.960 --> 0:18:42.600 case of Cain and Moore. Sometimes it's for not so 0:18:42.680 --> 0:18:45.000 good reasons, like the case of Nellie Ling, who would 0:18:45.000 --> 0:18:48.199 have been a phenomenal Board governor but would not have 0:18:48.240 --> 0:18:50.480 been able to pass Uh you know the gut word 0:18:50.480 --> 0:18:53.040 that she was not able to pass Senate confirmation. So 0:18:53.119 --> 0:18:56.200 you certainly don't want to continue going down that road. 0:18:56.880 --> 0:18:58.879 So if your clients have confusion about the prospect of 0:18:58.880 --> 0:19:01.359 a main of a cane more FED, how do they 0:19:01.359 --> 0:19:02.960 feel about the Fed? We have gone, what have we 0:19:03.040 --> 0:19:04.760 learned this week? And what you tell them about what 0:19:04.840 --> 0:19:08.000 Chairman pounded just a couple of days ago. Yeah, So 0:19:08.000 --> 0:19:09.760 I think it's a mixed bag for clients. I mean 0:19:09.800 --> 0:19:11.760 I have uh, you know, clients that I talked to 0:19:11.840 --> 0:19:15.920 that are frustrated, um at mixed messages that they feel 0:19:15.960 --> 0:19:18.560 like they're getting out of the FED. You know that, Uh, 0:19:19.040 --> 0:19:23.679 that Evans and Caplan sending a message that inflation is 0:19:23.720 --> 0:19:26.280 low and they could be considering insurance cuts. You could 0:19:26.320 --> 0:19:29.000 throw Cleared into that mix. And then you get chair 0:19:29.080 --> 0:19:32.119 Pal that sounds like they are so far from consensus 0:19:32.160 --> 0:19:35.160 on it now. Uh. You know if you're a Fed watcher, 0:19:35.720 --> 0:19:38.679 we knew that there was there were nowhere near consensus 0:19:38.720 --> 0:19:40.680 on an insurance cut. And if you if you step 0:19:40.760 --> 0:19:45.400 back and just read or listen to what all four 0:19:45.440 --> 0:19:48.520 of those men have said, Um, they're all saying the 0:19:48.600 --> 0:19:52.400 same thing. Inflation is low. We're frustrated by it. If 0:19:52.440 --> 0:19:55.720 it persists at at these very low levels or moves lower, 0:19:55.760 --> 0:19:57.920 we would certainly be concerned and would need to adjust 0:19:57.920 --> 0:20:02.960 policy around that. All four sent to consent a consistent message. UM. 0:20:03.000 --> 0:20:06.920 I think what I've noticed is missing from Pal's uh, 0:20:07.119 --> 0:20:10.159 from the conversations that Pal has with us and with 0:20:10.280 --> 0:20:13.320 the markets, is that and this goes back to when 0:20:13.359 --> 0:20:15.720 he was communicating around the balance sheet as well. He's 0:20:15.760 --> 0:20:20.760 missing that standard boilerplate language that monetary policy makers historically 0:20:20.760 --> 0:20:24.160 have used those if then scenarios. Here's our baseline, here's 0:20:24.160 --> 0:20:26.919 what we expect to do. If the data comes in 0:20:26.960 --> 0:20:29.240 worse than we expect, we would we would cut. If 0:20:29.240 --> 0:20:31.560 the data comes in better than expect, we could hike. 0:20:32.119 --> 0:20:36.760 And it's it's a simple, it's a fact. It's boilerplate language. 0:20:36.960 --> 0:20:39.760 But just saying that would give people more comfort on 0:20:39.840 --> 0:20:42.280 this job today. Ellen sent here with Morgan Stanley is 0:20:42.359 --> 0:20:45.840 where us Ellen. There's a point with every frontline economist 0:20:45.920 --> 0:20:49.040 where they become oh, who's that? And with you long 0:20:49.080 --> 0:20:53.000 ago and far away. It was productivity analysis the efficiency 0:20:53.480 --> 0:20:56.360 of the American economy. So if I look at capital dynamics, 0:20:56.400 --> 0:20:59.840 labor dynamics, and everything else piled into this new and 0:21:00.080 --> 0:21:04.919 proved productivity that we see, of my audience doesn't buy it. 0:21:05.080 --> 0:21:08.840 They don't buy the new improved productivity. Are we more 0:21:08.880 --> 0:21:11.960 efficient now? Are we more productive? Or is it just 0:21:12.040 --> 0:21:15.520 smoking mirrors? Well, the way I would put it, Thomas, 0:21:15.560 --> 0:21:18.280 that we're more productive, but in a way that it's 0:21:18.280 --> 0:21:21.320 not counted in the in the data like the old 0:21:21.480 --> 0:21:26.800 productive days of your Where is it a gilded age 0:21:26.840 --> 0:21:31.920 and we're being more productive? For Jeff Bezos and Warren Buffett, Well, yes, frankly. 0:21:32.440 --> 0:21:34.440 So what we're seeing is a lot of the capex 0:21:34.480 --> 0:21:36.880 that's going on, a lot of the capital capital deepening 0:21:36.960 --> 0:21:39.600 is all in software. It's an AI, it's an improving 0:21:39.600 --> 0:21:43.840 warehouse processes, UH and the like, And we just don't 0:21:43.920 --> 0:21:46.840 produce as high of a rate of productivity when we're 0:21:47.240 --> 0:21:50.000 investing in services or it's coming from the service sector 0:21:50.080 --> 0:21:51.920 as it is when we're coming when it's coming from 0:21:51.920 --> 0:21:55.080 the manufacturing sector. And so what I would call a 0:21:55.119 --> 0:21:58.359 new day for productivity by the fact that productivity is 0:21:58.400 --> 0:22:01.120 picked up, it's picked up to what is a very 0:22:01.200 --> 0:22:05.240 low underlying trend. And it's just the truth of it. Um. 0:22:05.280 --> 0:22:07.760 We are a service sector led economy, and the service 0:22:07.800 --> 0:22:10.400 side of the economy is not associated with very high 0:22:10.520 --> 0:22:13.360 rates of productivity. Now, on the one hand, that's how 0:22:13.400 --> 0:22:16.520 we can get so many people employed. Uh that we 0:22:16.520 --> 0:22:19.640 we have such a low unemployment rate and we're creating 0:22:19.640 --> 0:22:23.120 two hundred thousand jobs a month on a pretty steady basis. 0:22:23.560 --> 0:22:26.959 You know, we're doing that because productivity is not you know, 0:22:27.680 --> 0:22:31.160 to three like it was when we were manufacturing led economy. 0:22:31.600 --> 0:22:34.119 Productivity to the run rate for productivity we believe is 0:22:34.160 --> 0:22:37.000 more one. And before we let you go, we need 0:22:37.040 --> 0:22:39.280 the Morgan Stanley Guide to pay Rolls in about thirty 0:22:39.280 --> 0:22:41.240 four minutes time. Please what should we be looking for? 0:22:41.560 --> 0:22:43.639 So we're going to be focused on private payrolls. That's 0:22:43.680 --> 0:22:46.120 where everyone should focus their attention. We're looking for one 0:22:46.200 --> 0:22:49.719 ninety four, that's a bit above consensus headline. There's no 0:22:49.760 --> 0:22:51.960 telling where headline comes in. There's going to be a 0:22:52.000 --> 0:22:56.240