Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene
Speaker 1: with David Gura. Daily we bring you insight from the
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Speaker 1: on the Bloomberg We welcome all. I'm Bloomberg Television. I'm
Speaker 1: Bloomberg Radio. To a conversation with Stanley Fisher. He has
Speaker 1: announced his retirement from the Fellow Reserve System on October.
Speaker 1: Mr Vis Chrema, thank you so much for joining Bloomberg
Speaker 1: this morning. I want to bring up a chart which
Speaker 1: I think goes back and we like to do this
Speaker 1: with anybody of your stature. Can we go back to
Speaker 1: nineteen sixty nine in a chart that Mrs Fisher made
Speaker 1: in your thesis at M I T. I have no
Speaker 1: idea what this chart is. It's from your original thesis
Speaker 1: of the X y Z space on contingent commodities. Whatever
Speaker 1: that chart is, it's in the textbooks. It's in your
Speaker 1: classic textbook dorn Bush Fisher Stars is the economics of
Speaker 1: today in the textbook or in that thesis of n Well.
Speaker 1: The basic, the basic economics hasn't changed that much. The
Speaker 1: sort of understanding of what the fundamental forces in the
Speaker 1: macro economy are hasn't changed that much, but what those
Speaker 1: forces are have changed a lot over time, and we're
Speaker 1: operating in a much more globally integrated not fully integrated
Speaker 1: by any means, uh economy. By the way, I don't
Speaker 1: recall doing that chart, but you say in your notes
Speaker 1: that Mrs Fisher did that chart for you a few
Speaker 1: years ago. I'd be surprised. But if that's what it is,
Speaker 1: what is the next chairman and the committee as a whole,
Speaker 1: the Federal Open Market Committee? What type of economics do
Speaker 1: they have to do? May I suggest that it needs
Speaker 1: to be a more malleable economics. Yes, it's not as
Speaker 1: simple as it used to be, and you've got to
Speaker 1: take more forces and more changes into into account. With
Speaker 1: us being very close to a global globally integrated economy.
Speaker 1: Are Michael McKee was talking about you teaching at m
Speaker 1: I T with Chairman Bernankey as a student, with President
Speaker 1: drag as a student as well. How would you teach
Speaker 1: the PhDs today? Would you teach them differently than you
Speaker 1: taught Bernanke and drag well as just saying that science proceeds,
Speaker 1: uh progress as funeral by funerals. So I think I'd
Speaker 1: be teaching more or less the same things, and the
Speaker 1: next generation would have something more more advanced, more different
Speaker 1: than I would have had. Let me dive into the
Speaker 1: economics today. You spoke to the Economic Club of New
Speaker 1: York in October of a bit ago. Uh and it
Speaker 1: was about ultra accommodative. I'm going to say that Stanley
Speaker 1: Fisher gave us this phrase, alter commendator. Bring up the
Speaker 1: chart in New York if you would, And this is
Speaker 1: a terrific chart of the inflation adjusted FED Funds target rate,
Speaker 1: and we still haven't gotten back to the zero level
Speaker 1: the yellow circles. You're Economic Club of New York speech.
Speaker 1: Are you happy with the pace that we're on to
Speaker 1: get back to a normal FED Well, I'd rather that
Speaker 1: the real interest rate became positive, which we expect to
Speaker 1: happen sometime in mid two thousand and eighteen. Uh So
Speaker 1: the pace is okay, it's not terrific. But this is
Speaker 1: a very complex issue which is related to the decline
Speaker 1: in productivity growth, among other things, and it's related also
Speaker 1: to decisions that the government would make. The real interest
Speaker 1: rate rose quite a bit when it was expected that
Speaker 1: there be a big fiscal stimulus, and it went down
Speaker 1: off towards when the expectation of the stimulus was reduced.
Speaker 1: Expectation is an important word across all of Stanley Fisher Economics.
Speaker 1: Good morning to professor Lucas of Chicago, and of course
Speaker 1: you taught at Chicago years ago. Are we expecting too
Speaker 1: much in our guestimates of inflation? Do we have too
Speaker 1: much of a belief that we will have a higher inflation? Well,
Speaker 1: I still believe we will have higher inflation. Sort of.
Speaker 1: There are basic mechanisms, and the basic mechanism hereas where
Speaker 1: unemployment is declining all the time, wages will start going
Speaker 1: up at some stage. And the experience many of us have,
Speaker 1: including myself, is you have to wait a long time,
Speaker 1: usually longer than you expected to wait for something to happen.
Speaker 1: But then if it's a very basic force, namely increase
Speaker 1: in employment increasing wages, it will show up. And ones
Speaker 1: that shows up, we will say, oh, yeah, that's what
Speaker 1: we expected. I spoke to our Bloomberg Economics team about
Speaker 1: what to speak de Vice Chairman Fisher about and there's
Speaker 1: so much uncertainty about the future of this important global institution,
Speaker 1: the Federal Reserve System. Let's start with the idea of
Speaker 1: a low rate psychology. The joke is low rate Janet,
Speaker 1: with great respect to the chair. The reality is we
Speaker 1: have low rate Donald. We have a president who seems
Speaker 1: to be wired for the comfort of low rates. Is
Speaker 1: that a mistake, Well, there are reasons to want low rates,
Speaker 1: especially when growth is so slow. An investment has been
Speaker 1: smaller than expected for quite some time, So low rates
Speaker 1: are to encourage investment or to encourage growth. They have
Speaker 1: been less successful in that than we expected, but they've
Speaker 1: been very successful and encouraging employment. And the miracle of
Speaker 1: thiscovery is that it did not generate that the crisis
Speaker 1: did not generate long term massive unemployment. We're basically back
Speaker 1: to something close to full employment. I would ask your mentor,
Speaker 1: Paul Simelson, who should be the next FED chair. Won't
Speaker 1: do that with you about the politics of this person
Speaker 1: or that person, but it's obviously a critical appointment to
Speaker 1: have a new chairman explain to the American public how
Speaker 1: the new chairman or chair will be different from what
Speaker 1: we've seen in previous leaders of our fed Oh, this
Speaker 1: is a choice clearly of the president and the administration,
Speaker 1: and uh, that's decision is up to them. They are
Speaker 1: candidates whose names are in the newspapers. You don't know
Speaker 1: how important are and it's really not appropriate for for
Speaker 1: me to get into deciding who's going to be the
Speaker 1: next chairman. I would suggest that's probably true. Maybe I disagreement.
Speaker 1: Brendan Murray would disagree with you and want to know name,
Speaker 1: rank and serial number. But the basic idea here of
Speaker 1: if we have the turmoil we have in America and
Speaker 1: the economic uncertainty in our theories, will that migrate us
Speaker 1: towards a more rule based system and away from discretion
Speaker 1: over the coming years. I think the attraction of a
Speaker 1: rule based system is very large. I think that in
Speaker 1: practice you'd find yourself having to define all the time
Speaker 1: when it's appropriate to diverge from the rule, because the
Speaker 1: rules do not anticipate the many strange things that can
Speaker 1: happen in an economy, even such things as three hurricanes
Speaker 1: in a row, which is not a huge surprise, but
Speaker 1: it happened, and it changes policy, and the many other
Speaker 1: things that will change policy. So I think rules are
Speaker 1: a good guideline to the basic pot you're taking. Where
Speaker 1: are you trying to go? But I wouldn't run monetary
Speaker 1: policy on the basis of rules where you strictly go down,
Speaker 1: look at this equation, say that's it, and let's get
Speaker 1: rid of the central bank. I believe you're in Zambia
Speaker 1: years ago. In your first book was Maynard Keynes oft six.
Speaker 1: Do we need a FED chair like Chair Yellen, who
Speaker 1: has read Maynard Keynesty six. I believe we have a
Speaker 1: number of candidates that probably haven't even gone through those
Speaker 1: few key chapters which are considered the cannon today. They
Speaker 1: should read it, and they should read the whole book
Speaker 1: because at the end of the general theory Knes as
Speaker 1: a chapter on what happens when the interest rate gets
Speaker 1: too low? And it's it's worth reading even today. What's
Speaker 1: in there? Can we have a new set up with
Speaker 1: someone like William Miller of Pastimes in places, a non
Speaker 1: monetary FED chair who has a vice chair of your
Speaker 1: capabilities or Chair Yelling's capabilities, Or do we need to
Speaker 1: have that monetary expertise for crisis and shock as chairman? Well,
Speaker 1: I've I've found in my terms in one place as
Speaker 1: governor in another's as vice chair that having the basic
Speaker 1: economic theory, theoretical knowledge and experience increases your self confidence
Speaker 1: about what you're doing. Uh. Is it essential? I doubt
Speaker 1: that there are very smart people who could figure this
Speaker 1: out in many ways. But is it helpful? Yes? Very
Speaker 1: much like in a four standard deviation shock, you enjoyed.
Speaker 1: You enjoyed the financial crisis, and you've enjoyed the struggles
Speaker 1: forward here for the next chairman, whether it's Kevin Wars
Speaker 1: or it's again chair yelling uh to be reappointed. Uh.
Speaker 1: Many people talking about that. What is the difference of
Speaker 1: people like you in a worse standard deviation shock of
Speaker 1: the moment or set of shocks versus a normal day
Speaker 1: at the eCos building. Well, the difference is is there
Speaker 1: something that you ought to do or should you let
Speaker 1: the markets take care of it? And if you decide
Speaker 1: to leave it to the markets, sort of wait a
Speaker 1: week and see what it really means. Uh. Those are
Speaker 1: things which depend a great deal on the experience you have,
Speaker 1: on your understanding of how the markets work, and that
Speaker 1: you get over the years. Uh. And I've sort of
Speaker 1: the initial to take a simple example, the initial reaction
Speaker 1: of people who haven't thought, is something bad happens you've
Speaker 1: closed the markets, that's terrible. In your final thoughts in
Speaker 1: London and your speech of the other day, wonderful speech
Speaker 1: sort of on the tapestry and history of the Bank
Speaker 1: of England, you talked about never say never events. What
Speaker 1: kind of chairman do we need to be stealed and
Speaker 1: ready for never say never events? You simply need someone
Speaker 1: who has the flexibility of mind to see that that
Speaker 1: he or she needs to take a different route at
Speaker 1: a particular moment in time or over the next year
Speaker 1: or two. And uh someone who has also the capacity
Speaker 1: to lead a very large, very complex committee, the Open
Speaker 1: Market Committee, to do the to agree with with his
Speaker 1: or thoughts. It seems like you just described John Taylor,
Speaker 1: but I won't put you in the trap of talking
Speaker 1: about Professor Taylor of Stanford or any of the other
Speaker 1: good candidates that we have involved here. I think the
Speaker 1: arch question, and particularly for the Bloomberg world, is is
Speaker 1: Peter orzeg would say out of else that we have
Speaker 1: glide passed, that we have paths of stability as we
Speaker 1: move forward, and then we have these exogenous shocks and
Speaker 1: we have jump conditions. Do you have confidence that the
Speaker 1: two strategies of rate moves and balance sheet can be
Speaker 1: done over smooth glide pass that can be controlled by
Speaker 1: the institutional forces we have, or do we need to
Speaker 1: be steeled for jump conditions to come. Well, we always
Speaker 1: need to be steeled for the possibility that we need
Speaker 1: to change course drastically. Uh. In October two thousand and eight,
Speaker 1: the Fed changed course drastically. That was obviously the thing
Speaker 1: to do after the financial crisis began to develop. So
Speaker 1: you have to waite, watch and wait, and I hope
Speaker 1: you can stay on those smooth paths, but never believe
Speaker 1: yourself that you can stay on those pots forever. You can't.
Speaker 1: It is unimaginable to think of you retired. Do we
Speaker 1: get another edition of Dornbush Fisher Stars, I don't. I
Speaker 1: don't know at this at this stage. Very good, Vice
Speaker 1: Chairman Fisher, Thank you so much, Stanley Fisher. He is
Speaker 1: a vice chairman of the federals Are System. YEA. Thanks
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