1
00:00:00,200 --> 00:00:12,760
Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

2
00:00:12,800 --> 00:00:16,239
Speaker 1: with David Gura. Daily we bring you insight from the

3
00:00:16,239 --> 00:00:21,640
Speaker 1: best of economics, finance, investment, and international relations. Find Bloomberg

4
00:00:21,720 --> 00:00:27,000
Speaker 1: Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,

5
00:00:27,320 --> 00:00:34,919
Speaker 1: on the Bloomberg We welcome all. I'm Bloomberg Television. I'm

6
00:00:34,920 --> 00:00:37,879
Speaker 1: Bloomberg Radio. To a conversation with Stanley Fisher. He has

7
00:00:37,880 --> 00:00:41,400
Speaker 1: announced his retirement from the Fellow Reserve System on October.

8
00:00:42,159 --> 00:00:44,600
Speaker 1: Mr Vis Chrema, thank you so much for joining Bloomberg

9
00:00:44,600 --> 00:00:47,880
Speaker 1: this morning. I want to bring up a chart which

10
00:00:47,920 --> 00:00:49,680
Speaker 1: I think goes back and we like to do this

11
00:00:49,760 --> 00:00:52,040
Speaker 1: with anybody of your stature. Can we go back to

12
00:00:52,159 --> 00:00:55,600
Speaker 1: nineteen sixty nine in a chart that Mrs Fisher made

13
00:00:55,880 --> 00:00:58,160
Speaker 1: in your thesis at M I T. I have no

14
00:00:58,240 --> 00:01:01,680
Speaker 1: idea what this chart is. It's from your original thesis

15
00:01:01,680 --> 00:01:05,920
Speaker 1: of the X y Z space on contingent commodities. Whatever

16
00:01:05,959 --> 00:01:08,720
Speaker 1: that chart is, it's in the textbooks. It's in your

17
00:01:08,760 --> 00:01:13,080
Speaker 1: classic textbook dorn Bush Fisher Stars is the economics of

18
00:01:13,120 --> 00:01:19,680
Speaker 1: today in the textbook or in that thesis of n Well.

19
00:01:19,720 --> 00:01:25,040
Speaker 1: The basic, the basic economics hasn't changed that much. The

20
00:01:25,080 --> 00:01:28,680
Speaker 1: sort of understanding of what the fundamental forces in the

21
00:01:28,720 --> 00:01:32,720
Speaker 1: macro economy are hasn't changed that much, but what those

22
00:01:32,760 --> 00:01:35,880
Speaker 1: forces are have changed a lot over time, and we're

23
00:01:35,880 --> 00:01:40,160
Speaker 1: operating in a much more globally integrated not fully integrated

24
00:01:40,160 --> 00:01:44,240
Speaker 1: by any means, uh economy. By the way, I don't

25
00:01:44,400 --> 00:01:48,120
Speaker 1: recall doing that chart, but you say in your notes

26
00:01:48,160 --> 00:01:50,920
Speaker 1: that Mrs Fisher did that chart for you a few

27
00:01:51,000 --> 00:01:54,720
Speaker 1: years ago. I'd be surprised. But if that's what it is,

28
00:01:54,920 --> 00:01:58,160
Speaker 1: what is the next chairman and the committee as a whole,

29
00:01:58,200 --> 00:02:02,320
Speaker 1: the Federal Open Market Committee? What type of economics do

30
00:02:02,400 --> 00:02:04,120
Speaker 1: they have to do? May I suggest that it needs

31
00:02:04,160 --> 00:02:09,519
Speaker 1: to be a more malleable economics. Yes, it's not as

32
00:02:09,560 --> 00:02:11,400
Speaker 1: simple as it used to be, and you've got to

33
00:02:11,440 --> 00:02:16,360
Speaker 1: take more forces and more changes into into account. With

34
00:02:16,560 --> 00:02:21,240
Speaker 1: us being very close to a global globally integrated economy.

35
00:02:22,040 --> 00:02:24,560
Speaker 1: Are Michael McKee was talking about you teaching at m

36
00:02:24,639 --> 00:02:27,440
Speaker 1: I T with Chairman Bernankey as a student, with President

37
00:02:27,480 --> 00:02:30,480
Speaker 1: drag as a student as well. How would you teach

38
00:02:30,560 --> 00:02:33,480
Speaker 1: the PhDs today? Would you teach them differently than you

39
00:02:33,520 --> 00:02:39,000
Speaker 1: taught Bernanke and drag well as just saying that science proceeds,

40
00:02:39,480 --> 00:02:43,240
Speaker 1: uh progress as funeral by funerals. So I think I'd

41
00:02:43,240 --> 00:02:46,440
Speaker 1: be teaching more or less the same things, and the

42
00:02:46,520 --> 00:02:51,400
Speaker 1: next generation would have something more more advanced, more different

43
00:02:51,560 --> 00:02:54,320
Speaker 1: than I would have had. Let me dive into the

44
00:02:54,840 --> 00:02:57,440
Speaker 1: economics today. You spoke to the Economic Club of New

45
00:02:57,520 --> 00:03:00,359
Speaker 1: York in October of a bit ago. Uh and it

46
00:03:00,400 --> 00:03:03,520
Speaker 1: was about ultra accommodative. I'm going to say that Stanley

47
00:03:03,560 --> 00:03:06,519
Speaker 1: Fisher gave us this phrase, alter commendator. Bring up the

48
00:03:06,600 --> 00:03:08,520
Speaker 1: chart in New York if you would, And this is

49
00:03:08,520 --> 00:03:13,000
Speaker 1: a terrific chart of the inflation adjusted FED Funds target rate,

50
00:03:13,040 --> 00:03:15,280
Speaker 1: and we still haven't gotten back to the zero level

51
00:03:15,320 --> 00:03:17,920
Speaker 1: the yellow circles. You're Economic Club of New York speech.

52
00:03:18,160 --> 00:03:20,680
Speaker 1: Are you happy with the pace that we're on to

53
00:03:20,800 --> 00:03:25,040
Speaker 1: get back to a normal FED Well, I'd rather that

54
00:03:25,160 --> 00:03:28,840
Speaker 1: the real interest rate became positive, which we expect to

55
00:03:28,919 --> 00:03:34,240
Speaker 1: happen sometime in mid two thousand and eighteen. Uh So

56
00:03:34,440 --> 00:03:37,720
Speaker 1: the pace is okay, it's not terrific. But this is

57
00:03:37,800 --> 00:03:41,760
Speaker 1: a very complex issue which is related to the decline

58
00:03:41,760 --> 00:03:47,520
Speaker 1: in productivity growth, among other things, and it's related also

59
00:03:47,600 --> 00:03:51,760
Speaker 1: to decisions that the government would make. The real interest

60
00:03:51,840 --> 00:03:54,400
Speaker 1: rate rose quite a bit when it was expected that

61
00:03:54,400 --> 00:03:58,400
Speaker 1: there be a big fiscal stimulus, and it went down

62
00:03:59,200 --> 00:04:03,880
Speaker 1: off towards when the expectation of the stimulus was reduced.

63
00:04:04,480 --> 00:04:09,119
Speaker 1: Expectation is an important word across all of Stanley Fisher Economics.

64
00:04:09,160 --> 00:04:12,040
Speaker 1: Good morning to professor Lucas of Chicago, and of course

65
00:04:12,040 --> 00:04:15,880
Speaker 1: you taught at Chicago years ago. Are we expecting too

66
00:04:16,000 --> 00:04:19,560
Speaker 1: much in our guestimates of inflation? Do we have too

67
00:04:19,640 --> 00:04:25,279
Speaker 1: much of a belief that we will have a higher inflation? Well,

68
00:04:25,360 --> 00:04:30,400
Speaker 1: I still believe we will have higher inflation. Sort of.

69
00:04:30,440 --> 00:04:35,119
Speaker 1: There are basic mechanisms, and the basic mechanism hereas where

70
00:04:35,200 --> 00:04:39,800
Speaker 1: unemployment is declining all the time, wages will start going

71
00:04:39,880 --> 00:04:43,880
Speaker 1: up at some stage. And the experience many of us have,

72
00:04:44,040 --> 00:04:47,680
Speaker 1: including myself, is you have to wait a long time,

73
00:04:47,880 --> 00:04:51,280
Speaker 1: usually longer than you expected to wait for something to happen.

74
00:04:51,320 --> 00:04:55,320
Speaker 1: But then if it's a very basic force, namely increase

75
00:04:55,400 --> 00:05:00,640
Speaker 1: in employment increasing wages, it will show up. And ones

76
00:05:00,720 --> 00:05:03,120
Speaker 1: that shows up, we will say, oh, yeah, that's what

77
00:05:03,279 --> 00:05:07,320
Speaker 1: we expected. I spoke to our Bloomberg Economics team about

78
00:05:07,320 --> 00:05:09,600
Speaker 1: what to speak de Vice Chairman Fisher about and there's

79
00:05:09,640 --> 00:05:14,080
Speaker 1: so much uncertainty about the future of this important global institution,

80
00:05:14,160 --> 00:05:17,320
Speaker 1: the Federal Reserve System. Let's start with the idea of

81
00:05:17,360 --> 00:05:20,279
Speaker 1: a low rate psychology. The joke is low rate Janet,

82
00:05:20,320 --> 00:05:23,200
Speaker 1: with great respect to the chair. The reality is we

83
00:05:23,240 --> 00:05:26,240
Speaker 1: have low rate Donald. We have a president who seems

84
00:05:26,279 --> 00:05:29,400
Speaker 1: to be wired for the comfort of low rates. Is

85
00:05:29,440 --> 00:05:34,799
Speaker 1: that a mistake, Well, there are reasons to want low rates,

86
00:05:34,920 --> 00:05:38,719
Speaker 1: especially when growth is so slow. An investment has been

87
00:05:40,279 --> 00:05:44,920
Speaker 1: smaller than expected for quite some time, So low rates

88
00:05:45,080 --> 00:05:50,279
Speaker 1: are to encourage investment or to encourage growth. They have

89
00:05:50,560 --> 00:05:53,600
Speaker 1: been less successful in that than we expected, but they've

90
00:05:53,600 --> 00:05:59,120
Speaker 1: been very successful and encouraging employment. And the miracle of

91
00:05:59,200 --> 00:06:04,120
Speaker 1: thiscovery is that it did not generate that the crisis

92
00:06:04,160 --> 00:06:08,960
Speaker 1: did not generate long term massive unemployment. We're basically back

93
00:06:09,600 --> 00:06:25,000
Speaker 1: to something close to full employment. I would ask your mentor,

94
00:06:25,040 --> 00:06:28,440
Speaker 1: Paul Simelson, who should be the next FED chair. Won't

95
00:06:28,480 --> 00:06:31,480
Speaker 1: do that with you about the politics of this person

96
00:06:31,600 --> 00:06:35,320
Speaker 1: or that person, but it's obviously a critical appointment to

97
00:06:35,360 --> 00:06:38,360
Speaker 1: have a new chairman explain to the American public how

98
00:06:38,400 --> 00:06:41,400
Speaker 1: the new chairman or chair will be different from what

99
00:06:41,440 --> 00:06:47,279
Speaker 1: we've seen in previous leaders of our fed Oh, this

100
00:06:47,360 --> 00:06:51,200
Speaker 1: is a choice clearly of the president and the administration,

101
00:06:51,520 --> 00:06:55,560
Speaker 1: and uh, that's decision is up to them. They are

102
00:06:56,320 --> 00:06:59,039
Speaker 1: candidates whose names are in the newspapers. You don't know

103
00:06:59,120 --> 00:07:04,000
Speaker 1: how important are and it's really not appropriate for for

104
00:07:04,040 --> 00:07:06,359
Speaker 1: me to get into deciding who's going to be the

105
00:07:06,440 --> 00:07:09,920
Speaker 1: next chairman. I would suggest that's probably true. Maybe I disagreement.

106
00:07:10,000 --> 00:07:12,080
Speaker 1: Brendan Murray would disagree with you and want to know name,

107
00:07:12,520 --> 00:07:16,080
Speaker 1: rank and serial number. But the basic idea here of

108
00:07:16,240 --> 00:07:18,840
Speaker 1: if we have the turmoil we have in America and

109
00:07:18,880 --> 00:07:22,840
Speaker 1: the economic uncertainty in our theories, will that migrate us

110
00:07:22,880 --> 00:07:27,120
Speaker 1: towards a more rule based system and away from discretion

111
00:07:27,200 --> 00:07:30,840
Speaker 1: over the coming years. I think the attraction of a

112
00:07:30,920 --> 00:07:33,600
Speaker 1: rule based system is very large. I think that in

113
00:07:33,680 --> 00:07:37,040
Speaker 1: practice you'd find yourself having to define all the time

114
00:07:37,080 --> 00:07:40,800
Speaker 1: when it's appropriate to diverge from the rule, because the

115
00:07:40,880 --> 00:07:44,320
Speaker 1: rules do not anticipate the many strange things that can

116
00:07:44,400 --> 00:07:48,040
Speaker 1: happen in an economy, even such things as three hurricanes

117
00:07:48,080 --> 00:07:51,840
Speaker 1: in a row, which is not a huge surprise, but

118
00:07:51,920 --> 00:07:54,720
Speaker 1: it happened, and it changes policy, and the many other

119
00:07:54,800 --> 00:08:00,200
Speaker 1: things that will change policy. So I think rules are

120
00:08:00,000 --> 00:08:04,840
Speaker 1: a good guideline to the basic pot you're taking. Where

121
00:08:04,840 --> 00:08:08,280
Speaker 1: are you trying to go? But I wouldn't run monetary

122
00:08:08,280 --> 00:08:11,679
Speaker 1: policy on the basis of rules where you strictly go down,

123
00:08:12,120 --> 00:08:16,200
Speaker 1: look at this equation, say that's it, and let's get

124
00:08:16,280 --> 00:08:18,560
Speaker 1: rid of the central bank. I believe you're in Zambia

125
00:08:18,680 --> 00:08:22,440
Speaker 1: years ago. In your first book was Maynard Keynes oft six.

126
00:08:22,760 --> 00:08:26,120
Speaker 1: Do we need a FED chair like Chair Yellen, who

127
00:08:26,200 --> 00:08:29,520
Speaker 1: has read Maynard Keynesty six. I believe we have a

128
00:08:29,600 --> 00:08:33,080
Speaker 1: number of candidates that probably haven't even gone through those

129
00:08:33,160 --> 00:08:37,520
Speaker 1: few key chapters which are considered the cannon today. They

130
00:08:37,520 --> 00:08:39,440
Speaker 1: should read it, and they should read the whole book

131
00:08:39,520 --> 00:08:42,000
Speaker 1: because at the end of the general theory Knes as

132
00:08:42,040 --> 00:08:44,840
Speaker 1: a chapter on what happens when the interest rate gets

133
00:08:44,880 --> 00:08:50,640
Speaker 1: too low? And it's it's worth reading even today. What's

134
00:08:50,640 --> 00:08:53,160
Speaker 1: in there? Can we have a new set up with

135
00:08:53,240 --> 00:08:56,400
Speaker 1: someone like William Miller of Pastimes in places, a non

136
00:08:56,480 --> 00:09:00,280
Speaker 1: monetary FED chair who has a vice chair of your

137
00:09:00,320 --> 00:09:03,800
Speaker 1: capabilities or Chair Yelling's capabilities, Or do we need to

138
00:09:03,840 --> 00:09:09,920
Speaker 1: have that monetary expertise for crisis and shock as chairman? Well,

139
00:09:10,000 --> 00:09:15,000
Speaker 1: I've I've found in my terms in one place as

140
00:09:15,080 --> 00:09:19,840
Speaker 1: governor in another's as vice chair that having the basic

141
00:09:19,920 --> 00:09:27,520
Speaker 1: economic theory, theoretical knowledge and experience increases your self confidence

142
00:09:27,520 --> 00:09:31,839
Speaker 1: about what you're doing. Uh. Is it essential? I doubt

143
00:09:31,840 --> 00:09:34,120
Speaker 1: that there are very smart people who could figure this

144
00:09:34,240 --> 00:09:39,000
Speaker 1: out in many ways. But is it helpful? Yes? Very

145
00:09:39,080 --> 00:09:42,319
Speaker 1: much like in a four standard deviation shock, you enjoyed.

146
00:09:43,480 --> 00:09:46,959
Speaker 1: You enjoyed the financial crisis, and you've enjoyed the struggles

147
00:09:47,200 --> 00:09:50,000
Speaker 1: forward here for the next chairman, whether it's Kevin Wars

148
00:09:50,120 --> 00:09:54,079
Speaker 1: or it's again chair yelling uh to be reappointed. Uh.

149
00:09:54,679 --> 00:09:58,080
Speaker 1: Many people talking about that. What is the difference of

150
00:09:58,200 --> 00:10:02,040
Speaker 1: people like you in a worse standard deviation shock of

151
00:10:02,080 --> 00:10:05,440
Speaker 1: the moment or set of shocks versus a normal day

152
00:10:05,440 --> 00:10:09,560
Speaker 1: at the eCos building. Well, the difference is is there

153
00:10:09,679 --> 00:10:11,600
Speaker 1: something that you ought to do or should you let

154
00:10:11,640 --> 00:10:14,680
Speaker 1: the markets take care of it? And if you decide

155
00:10:14,720 --> 00:10:16,480
Speaker 1: to leave it to the markets, sort of wait a

156
00:10:16,520 --> 00:10:20,080
Speaker 1: week and see what it really means. Uh. Those are

157
00:10:20,120 --> 00:10:23,120
Speaker 1: things which depend a great deal on the experience you have,

158
00:10:23,360 --> 00:10:26,400
Speaker 1: on your understanding of how the markets work, and that

159
00:10:26,440 --> 00:10:31,199
Speaker 1: you get over the years. Uh. And I've sort of

160
00:10:32,160 --> 00:10:35,360
Speaker 1: the initial to take a simple example, the initial reaction

161
00:10:35,400 --> 00:10:38,240
Speaker 1: of people who haven't thought, is something bad happens you've

162
00:10:38,280 --> 00:10:42,160
Speaker 1: closed the markets, that's terrible. In your final thoughts in

163
00:10:42,240 --> 00:10:45,040
Speaker 1: London and your speech of the other day, wonderful speech

164
00:10:45,120 --> 00:10:47,240
Speaker 1: sort of on the tapestry and history of the Bank

165
00:10:47,280 --> 00:10:51,079
Speaker 1: of England, you talked about never say never events. What

166
00:10:51,200 --> 00:10:54,240
Speaker 1: kind of chairman do we need to be stealed and

167
00:10:54,280 --> 00:10:58,480
Speaker 1: ready for never say never events? You simply need someone

168
00:10:58,559 --> 00:11:03,440
Speaker 1: who has the flexibility of mind to see that that

169
00:11:03,520 --> 00:11:07,079
Speaker 1: he or she needs to take a different route at

170
00:11:07,120 --> 00:11:10,400
Speaker 1: a particular moment in time or over the next year

171
00:11:10,520 --> 00:11:15,439
Speaker 1: or two. And uh someone who has also the capacity

172
00:11:15,520 --> 00:11:18,760
Speaker 1: to lead a very large, very complex committee, the Open

173
00:11:18,800 --> 00:11:23,880
Speaker 1: Market Committee, to do the to agree with with his

174
00:11:24,320 --> 00:11:27,400
Speaker 1: or thoughts. It seems like you just described John Taylor,

175
00:11:27,440 --> 00:11:29,120
Speaker 1: but I won't put you in the trap of talking

176
00:11:29,120 --> 00:11:32,000
Speaker 1: about Professor Taylor of Stanford or any of the other

177
00:11:32,000 --> 00:11:34,840
Speaker 1: good candidates that we have involved here. I think the

178
00:11:35,000 --> 00:11:38,520
Speaker 1: arch question, and particularly for the Bloomberg world, is is

179
00:11:38,559 --> 00:11:41,600
Speaker 1: Peter orzeg would say out of else that we have

180
00:11:41,679 --> 00:11:44,720
Speaker 1: glide passed, that we have paths of stability as we

181
00:11:44,760 --> 00:11:48,160
Speaker 1: move forward, and then we have these exogenous shocks and

182
00:11:48,200 --> 00:11:51,400
Speaker 1: we have jump conditions. Do you have confidence that the

183
00:11:51,440 --> 00:11:55,199
Speaker 1: two strategies of rate moves and balance sheet can be

184
00:11:55,280 --> 00:12:00,400
Speaker 1: done over smooth glide pass that can be controlled by

185
00:12:00,760 --> 00:12:03,880
Speaker 1: the institutional forces we have, or do we need to

186
00:12:03,880 --> 00:12:07,720
Speaker 1: be steeled for jump conditions to come. Well, we always

187
00:12:07,760 --> 00:12:10,600
Speaker 1: need to be steeled for the possibility that we need

188
00:12:10,640 --> 00:12:17,400
Speaker 1: to change course drastically. Uh. In October two thousand and eight,

189
00:12:17,559 --> 00:12:21,040
Speaker 1: the Fed changed course drastically. That was obviously the thing

190
00:12:21,120 --> 00:12:26,120
Speaker 1: to do after the financial crisis began to develop. So

191
00:12:26,240 --> 00:12:29,160
Speaker 1: you have to waite, watch and wait, and I hope

192
00:12:29,200 --> 00:12:32,480
Speaker 1: you can stay on those smooth paths, but never believe

193
00:12:32,800 --> 00:12:36,120
Speaker 1: yourself that you can stay on those pots forever. You can't.

194
00:12:36,480 --> 00:12:39,440
Speaker 1: It is unimaginable to think of you retired. Do we

195
00:12:39,440 --> 00:12:44,800
Speaker 1: get another edition of Dornbush Fisher Stars, I don't. I

196
00:12:44,880 --> 00:12:49,240
Speaker 1: don't know at this at this stage. Very good, Vice

197
00:12:49,320 --> 00:12:51,600
Speaker 1: Chairman Fisher, Thank you so much, Stanley Fisher. He is

198
00:12:51,600 --> 00:13:03,079
Speaker 1: a vice chairman of the federals Are System. YEA. Thanks

199
00:13:03,160 --> 00:13:07,319
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen

200
00:13:07,360 --> 00:13:13,000
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

201
00:13:13,040 --> 00:13:16,559
Speaker 1: you prefer. I'm on Twitter at Tom Keene David Gura

202
00:13:16,920 --> 00:13:20,559
Speaker 1: is at David Gura Before the podcast, you can always

203
00:13:20,640 --> 00:13:23,360
Speaker 1: catch us worldwide. I'm Bloomberg Radio