WEBVTT - A One-On-One with Fed's Stanley Fischer

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<v Speaker 1>Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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<v Speaker 1>with David Gura. Daily we bring you insight from the

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<v Speaker 1>Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,

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<v Speaker 1>on the Bloomberg We welcome all. I'm Bloomberg Television. I'm

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<v Speaker 1>Bloomberg Radio. To a conversation with Stanley Fisher. He has

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<v Speaker 1>announced his retirement from the Fellow Reserve System on October.

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<v Speaker 1>Mr Vis Chrema, thank you so much for joining Bloomberg

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<v Speaker 1>this morning. I want to bring up a chart which

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<v Speaker 1>I think goes back and we like to do this

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<v Speaker 1>with anybody of your stature. Can we go back to

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<v Speaker 1>nineteen sixty nine in a chart that Mrs Fisher made

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<v Speaker 1>in your thesis at M I T. I have no

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<v Speaker 1>idea what this chart is. It's from your original thesis

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<v Speaker 1>of the X y Z space on contingent commodities. Whatever

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<v Speaker 1>that chart is, it's in the textbooks. It's in your

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<v Speaker 1>classic textbook dorn Bush Fisher Stars is the economics of

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<v Speaker 1>today in the textbook or in that thesis of n Well.

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<v Speaker 1>The basic, the basic economics hasn't changed that much. The

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<v Speaker 1>sort of understanding of what the fundamental forces in the

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<v Speaker 1>macro economy are hasn't changed that much, but what those

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<v Speaker 1>forces are have changed a lot over time, and we're

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<v Speaker 1>operating in a much more globally integrated not fully integrated

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<v Speaker 1>by any means, uh economy. By the way, I don't

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<v Speaker 1>recall doing that chart, but you say in your notes

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<v Speaker 1>that Mrs Fisher did that chart for you a few

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<v Speaker 1>years ago. I'd be surprised. But if that's what it is,

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<v Speaker 1>what is the next chairman and the committee as a whole,

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<v Speaker 1>the Federal Open Market Committee? What type of economics do

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<v Speaker 1>they have to do? May I suggest that it needs

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<v Speaker 1>to be a more malleable economics. Yes, it's not as

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<v Speaker 1>simple as it used to be, and you've got to

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<v Speaker 1>take more forces and more changes into into account. With

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<v Speaker 1>us being very close to a global globally integrated economy.

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<v Speaker 1>Are Michael McKee was talking about you teaching at m

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<v Speaker 1>I T with Chairman Bernankey as a student, with President

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<v Speaker 1>drag as a student as well. How would you teach

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<v Speaker 1>the PhDs today? Would you teach them differently than you

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<v Speaker 1>taught Bernanke and drag well as just saying that science proceeds,

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<v Speaker 1>uh progress as funeral by funerals. So I think I'd

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<v Speaker 1>be teaching more or less the same things, and the

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<v Speaker 1>next generation would have something more more advanced, more different

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<v Speaker 1>than I would have had. Let me dive into the

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<v Speaker 1>economics today. You spoke to the Economic Club of New

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<v Speaker 1>York in October of a bit ago. Uh and it

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<v Speaker 1>was about ultra accommodative. I'm going to say that Stanley

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<v Speaker 1>Fisher gave us this phrase, alter commendator. Bring up the

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<v Speaker 1>chart in New York if you would, And this is

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<v Speaker 1>a terrific chart of the inflation adjusted FED Funds target rate,

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<v Speaker 1>and we still haven't gotten back to the zero level

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<v Speaker 1>the yellow circles. You're Economic Club of New York speech.

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<v Speaker 1>Are you happy with the pace that we're on to

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<v Speaker 1>get back to a normal FED Well, I'd rather that

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<v Speaker 1>the real interest rate became positive, which we expect to

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<v Speaker 1>happen sometime in mid two thousand and eighteen. Uh So

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<v Speaker 1>the pace is okay, it's not terrific. But this is

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<v Speaker 1>a very complex issue which is related to the decline

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<v Speaker 1>in productivity growth, among other things, and it's related also

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<v Speaker 1>to decisions that the government would make. The real interest

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<v Speaker 1>rate rose quite a bit when it was expected that

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<v Speaker 1>there be a big fiscal stimulus, and it went down

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<v Speaker 1>off towards when the expectation of the stimulus was reduced.

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<v Speaker 1>Expectation is an important word across all of Stanley Fisher Economics.

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<v Speaker 1>Good morning to professor Lucas of Chicago, and of course

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<v Speaker 1>you taught at Chicago years ago. Are we expecting too

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<v Speaker 1>much in our guestimates of inflation? Do we have too

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<v Speaker 1>much of a belief that we will have a higher inflation? Well,

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<v Speaker 1>I still believe we will have higher inflation. Sort of.

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<v Speaker 1>There are basic mechanisms, and the basic mechanism hereas where

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<v Speaker 1>unemployment is declining all the time, wages will start going

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<v Speaker 1>up at some stage. And the experience many of us have,

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<v Speaker 1>including myself, is you have to wait a long time,

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<v Speaker 1>usually longer than you expected to wait for something to happen.

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<v Speaker 1>But then if it's a very basic force, namely increase

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<v Speaker 1>in employment increasing wages, it will show up. And ones

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<v Speaker 1>that shows up, we will say, oh, yeah, that's what

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<v Speaker 1>we expected. I spoke to our Bloomberg Economics team about

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<v Speaker 1>what to speak de Vice Chairman Fisher about and there's

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<v Speaker 1>so much uncertainty about the future of this important global institution,

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<v Speaker 1>the Federal Reserve System. Let's start with the idea of

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<v Speaker 1>a low rate psychology. The joke is low rate Janet,

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<v Speaker 1>with great respect to the chair. The reality is we

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<v Speaker 1>have low rate Donald. We have a president who seems

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<v Speaker 1>to be wired for the comfort of low rates. Is

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<v Speaker 1>that a mistake, Well, there are reasons to want low rates,

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<v Speaker 1>especially when growth is so slow. An investment has been

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<v Speaker 1>smaller than expected for quite some time, So low rates

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<v Speaker 1>are to encourage investment or to encourage growth. They have

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<v Speaker 1>been less successful in that than we expected, but they've

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<v Speaker 1>been very successful and encouraging employment. And the miracle of

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<v Speaker 1>thiscovery is that it did not generate that the crisis

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<v Speaker 1>did not generate long term massive unemployment. We're basically back

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<v Speaker 1>to something close to full employment. I would ask your mentor,

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<v Speaker 1>Paul Simelson, who should be the next FED chair. Won't

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<v Speaker 1>do that with you about the politics of this person

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<v Speaker 1>or that person, but it's obviously a critical appointment to

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<v Speaker 1>have a new chairman explain to the American public how

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<v Speaker 1>the new chairman or chair will be different from what

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<v Speaker 1>we've seen in previous leaders of our fed Oh, this

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<v Speaker 1>is a choice clearly of the president and the administration,

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<v Speaker 1>and uh, that's decision is up to them. They are

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<v Speaker 1>candidates whose names are in the newspapers. You don't know

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<v Speaker 1>how important are and it's really not appropriate for for

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<v Speaker 1>me to get into deciding who's going to be the

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<v Speaker 1>next chairman. I would suggest that's probably true. Maybe I disagreement.

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<v Speaker 1>Brendan Murray would disagree with you and want to know name,

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<v Speaker 1>rank and serial number. But the basic idea here of

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<v Speaker 1>if we have the turmoil we have in America and

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<v Speaker 1>the economic uncertainty in our theories, will that migrate us

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<v Speaker 1>towards a more rule based system and away from discretion

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<v Speaker 1>over the coming years. I think the attraction of a

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<v Speaker 1>rule based system is very large. I think that in

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<v Speaker 1>practice you'd find yourself having to define all the time

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<v Speaker 1>when it's appropriate to diverge from the rule, because the

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<v Speaker 1>rules do not anticipate the many strange things that can

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<v Speaker 1>happen in an economy, even such things as three hurricanes

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<v Speaker 1>in a row, which is not a huge surprise, but

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<v Speaker 1>it happened, and it changes policy, and the many other

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<v Speaker 1>things that will change policy. So I think rules are

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<v Speaker 1>a good guideline to the basic pot you're taking. Where

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<v Speaker 1>are you trying to go? But I wouldn't run monetary

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<v Speaker 1>policy on the basis of rules where you strictly go down,

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<v Speaker 1>look at this equation, say that's it, and let's get

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<v Speaker 1>rid of the central bank. I believe you're in Zambia

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<v Speaker 1>years ago. In your first book was Maynard Keynes oft six.

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<v Speaker 1>Do we need a FED chair like Chair Yellen, who

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<v Speaker 1>has read Maynard Keynesty six. I believe we have a

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<v Speaker 1>number of candidates that probably haven't even gone through those

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<v Speaker 1>few key chapters which are considered the cannon today. They

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<v Speaker 1>should read it, and they should read the whole book

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<v Speaker 1>because at the end of the general theory Knes as

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<v Speaker 1>a chapter on what happens when the interest rate gets

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<v Speaker 1>too low? And it's it's worth reading even today. What's

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<v Speaker 1>in there? Can we have a new set up with

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<v Speaker 1>someone like William Miller of Pastimes in places, a non

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<v Speaker 1>monetary FED chair who has a vice chair of your

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<v Speaker 1>capabilities or Chair Yelling's capabilities, Or do we need to

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<v Speaker 1>have that monetary expertise for crisis and shock as chairman? Well,

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<v Speaker 1>I've I've found in my terms in one place as

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<v Speaker 1>governor in another's as vice chair that having the basic

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<v Speaker 1>economic theory, theoretical knowledge and experience increases your self confidence

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<v Speaker 1>about what you're doing. Uh. Is it essential? I doubt

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<v Speaker 1>that there are very smart people who could figure this

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<v Speaker 1>out in many ways. But is it helpful? Yes? Very

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<v Speaker 1>much like in a four standard deviation shock, you enjoyed.

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<v Speaker 1>You enjoyed the financial crisis, and you've enjoyed the struggles

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<v Speaker 1>forward here for the next chairman, whether it's Kevin Wars

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<v Speaker 1>or it's again chair yelling uh to be reappointed. Uh.

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<v Speaker 1>Many people talking about that. What is the difference of

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<v Speaker 1>people like you in a worse standard deviation shock of

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<v Speaker 1>the moment or set of shocks versus a normal day

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<v Speaker 1>at the eCos building. Well, the difference is is there

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<v Speaker 1>something that you ought to do or should you let

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<v Speaker 1>the markets take care of it? And if you decide

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<v Speaker 1>to leave it to the markets, sort of wait a

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<v Speaker 1>week and see what it really means. Uh. Those are

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<v Speaker 1>things which depend a great deal on the experience you have,

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<v Speaker 1>on your understanding of how the markets work, and that

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<v Speaker 1>you get over the years. Uh. And I've sort of

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<v Speaker 1>the initial to take a simple example, the initial reaction

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<v Speaker 1>of people who haven't thought, is something bad happens you've

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<v Speaker 1>closed the markets, that's terrible. In your final thoughts in

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<v Speaker 1>London and your speech of the other day, wonderful speech

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<v Speaker 1>sort of on the tapestry and history of the Bank

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<v Speaker 1>of England, you talked about never say never events. What

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<v Speaker 1>kind of chairman do we need to be stealed and

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<v Speaker 1>ready for never say never events? You simply need someone

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<v Speaker 1>who has the flexibility of mind to see that that

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<v Speaker 1>he or she needs to take a different route at

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<v Speaker 1>a particular moment in time or over the next year

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<v Speaker 1>or two. And uh someone who has also the capacity

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<v Speaker 1>to lead a very large, very complex committee, the Open

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<v Speaker 1>Market Committee, to do the to agree with with his

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<v Speaker 1>or thoughts. It seems like you just described John Taylor,

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<v Speaker 1>but I won't put you in the trap of talking

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<v Speaker 1>about Professor Taylor of Stanford or any of the other

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<v Speaker 1>good candidates that we have involved here. I think the

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<v Speaker 1>arch question, and particularly for the Bloomberg world, is is

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<v Speaker 1>Peter orzeg would say out of else that we have

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<v Speaker 1>glide passed, that we have paths of stability as we

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<v Speaker 1>move forward, and then we have these exogenous shocks and

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<v Speaker 1>we have jump conditions. Do you have confidence that the

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<v Speaker 1>two strategies of rate moves and balance sheet can be

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<v Speaker 1>done over smooth glide pass that can be controlled by

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<v Speaker 1>the institutional forces we have, or do we need to

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<v Speaker 1>be steeled for jump conditions to come. Well, we always

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<v Speaker 1>need to be steeled for the possibility that we need

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<v Speaker 1>to change course drastically. Uh. In October two thousand and eight,

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<v Speaker 1>the Fed changed course drastically. That was obviously the thing

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<v Speaker 1>to do after the financial crisis began to develop. So

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<v Speaker 1>you have to waite, watch and wait, and I hope

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<v Speaker 1>you can stay on those smooth paths, but never believe

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<v Speaker 1>yourself that you can stay on those pots forever. You can't.

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<v Speaker 1>It is unimaginable to think of you retired. Do we

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<v Speaker 1>get another edition of Dornbush Fisher Stars, I don't. I

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<v Speaker 1>don't know at this at this stage. Very good, Vice

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<v Speaker 1>Chairman Fisher, Thank you so much, Stanley Fisher. He is

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<v Speaker 1>a vice chairman of the federals Are System. YEA. Thanks

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<v Speaker 1>for listening to the Bloomberg Surveillance podcast. Subscribe and listen

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<v Speaker 1>to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform

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<v Speaker 1>you prefer. I'm on Twitter at Tom Keene David Gura

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<v Speaker 1>is at David Gura Before the podcast, you can always

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<v Speaker 1>catch us worldwide. I'm Bloomberg Radio