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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane

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Speaker 1: Jay Lee. We bring you insight from the best in economics, finance,

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Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com and of course on the Bloomberg Right now.

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Speaker 1: On Brexit, it has been an extraordinary forty eight hours

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Speaker 1: for the United Kingdom. Too much complexity even to know

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Speaker 1: where to begin. And we must go to the true

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Speaker 1: expert for Bloomberg News, and that is Anna Edwards on

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Speaker 1: the Green in Westminster. Anna, the eight amendments. I tried

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Speaker 1: to memorize them. I only got to two amendments. I'm sorry,

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Speaker 1: that's okay, you've forgiven. Tom. Well, all you needed to

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Speaker 1: know was most of them went the government's way, I suppose,

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Speaker 1: so most things did go the government's way, at least

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Speaker 1: in the very short term. She won a victory of sorts,

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Speaker 1: didn't she. She goes to back to Brussels to try

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Speaker 1: and to renegotiate the backstop. Brussels and said no, they

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Speaker 1: keep saying no. The UK that says, that's just a

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Speaker 1: negotiating position. So we wait to see what can possibly

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Speaker 1: be achieved. In two weeks. That has not been achieved

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Speaker 1: over the last two years. And could we be all

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Speaker 1: back here on Valentine's Day looking at amendments once again. Tom,

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Speaker 1: You know, I'm reading the newspapers and it's real simple.

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Speaker 1: The Irish Prime ministers asked the European Union to hold

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Speaker 1: their nerve. I believe somebody over in Brussels at some

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Speaker 1: point said nothing's open for renegotiation. What is prime minister

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Speaker 1: made trying to accomplish in Brussels given that immediate response. Yeah,

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Speaker 1: the immediate response has been very negative. I suppose the

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Speaker 1: linguists have been passing the language and trying to work

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Speaker 1: out if there is a room between the two to

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Speaker 1: find some sort of compromise. So the EU has said

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Speaker 1: no change to the withdrawal agreement. Absolutely not the words

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Speaker 1: used by Thereason May yesterday whether she was looking for

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Speaker 1: legally binding changes, She didn't say she wanted to actually

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Speaker 1: replace the backstop. So is that code for can we

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Speaker 1: write on a different piece of paper some legally binding words,

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Speaker 1: a code of sill as it's called to satisfy both sides?

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Speaker 1: Would that satisfy the European Research Group, though the far

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Speaker 1: Brexit here side of the Conservative Party. They've come together

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Speaker 1: over the last twenty four hours in an act of unity,

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Speaker 1: and they're sending her back to Brussels to try and

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Speaker 1: seek something. But whatever she comes back from Brussels with,

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Speaker 1: would it be satisfactory to them? As I say, in

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Speaker 1: two weeks, we could be back here again doing this

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Speaker 1: all again, looking at amendments, just like we did last

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Speaker 1: night around Article fifty extensions and and blocking no deal.

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Speaker 1: So we could still be talking about those things. Um

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Speaker 1: so I know where's labor and all of this well

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Speaker 1: in incident into one of the interesting things happened last

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Speaker 1: night in the in the Commons when Theresa May stood

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Speaker 1: up to speak after the results of all of these

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Speaker 1: amendments were voted on, and Labor in the shape of

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Speaker 1: Jeremy Corbyn did say, okay, I'll come and meet you.

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Speaker 1: And remember he had refused to do that for some time,

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Speaker 1: so it seems as if he is willing to at

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Speaker 1: least go and speak to Thereason May. He will be

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Speaker 1: a bit of a bystander though for the next two weeks. Also,

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Speaker 1: I want to assumes, because she is the one who's

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Speaker 1: going to go back to Brussels and see what she

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Speaker 1: can come back with in terms of rewriting that backstop.

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Speaker 1: But but he is at least going to meet her,

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Speaker 1: which is progress compared to the last few weeks. Stephen

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Speaker 1: Stanley dropping by the studio Amherst Pierpont Economists. Good morning

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Speaker 1: to Stephen. What is the FED decision day guide over

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Speaker 1: at your shop? Good morning? Well, I think you know,

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Speaker 1: the FED has declared themselves on pause, so um, and

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Speaker 1: it actually is kind of a good time for that,

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Speaker 1: given that we haven't really had much data over the

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Speaker 1: last month. So I think really the FED wants to

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Speaker 1: emphasize that they're being flexible, that they're listening. I think

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Speaker 1: the markets viewed, uh for for better for worse in

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Speaker 1: December that the Fed was somehow not listening to what

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Speaker 1: the markets were trying to tell them, and so the

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Speaker 1: Fed wants to uh lend a sympathetic ear even though ultimately,

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Speaker 1: you know, they may end up having to raise rates

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Speaker 1: further later in the year. So Stephen, we could talk

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Speaker 1: about they're going to reclaim optionality. I'm just wondering whether

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Speaker 1: that come to formalize patients on rates and flexibility on

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Speaker 1: the balance sheet. In the statement in the news conference,

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Speaker 1: do you expect that to happen. Well, I think, you know,

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Speaker 1: in terms of the statement, you've got the forward guidance

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Speaker 1: about continued gradual rate hikes, and the question is, really

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Speaker 1: are they going to continue to soften that? Are they

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Speaker 1: going to take it out altogether in January? Worry? Um,

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Speaker 1: they starting at the November f MC minutes, they started

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Speaker 1: UH with the idea that they do want to get

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Speaker 1: away from forward guidance, So that does lend itself toward

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Speaker 1: a more flexible UH stance. I don't know that they're

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Speaker 1: gonna want to talk too much about the balance sheet. Um.

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Speaker 1: My guess is that you're gonna have to ask UH

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Speaker 1: Chairman pala question to get much out of him. On

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Speaker 1: the balance sheet. What's the effect right now the economy

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Speaker 1: on the fiction of real yields that we still have?

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Speaker 1: What's the effect right now? I've just diminished real yields

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Speaker 1: from any of our experience. Well, I mean, I think

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Speaker 1: you know, the the UH we have peaked just above

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Speaker 1: zero in terms of where yields are um relative to inflation. Yeah,

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Speaker 1: but we're still very low historically. And you know, for

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Speaker 1: my money, I I still think the economy as a result,

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Speaker 1: I think policies relatively easy in the economy, UH still

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Speaker 1: should have a lot of momentum, and certainly we've seen

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Speaker 1: that in the UH jobs numbers that we've gotten and

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Speaker 1: I think everything we haven't gotten a lot data, but

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Speaker 1: the consumer seems to be still well. The hard data,

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Speaker 1: let's be clear and jord distinction, if we count the

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Speaker 1: hard data has still being absolutely fantastic in many aspects

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Speaker 1: of this U S economy. The soft data has just

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Speaker 1: started to roll over a little bit. A lot of

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Speaker 1: people latched onto the consumer confidence numbers we had yesterday,

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Speaker 1: and just to paint the picture for us here on radio,

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Speaker 1: there was a bigger spread between the confidence in the

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Speaker 1: here and now and the confidence about the future, and

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Speaker 1: the confidence in the here and now substantially higher than

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Speaker 1: the way people feel about the future. And a lot

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Speaker 1: of people are concerned about that spread. Should they be well,

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Speaker 1: you know, I would say, let's wait a month and

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Speaker 1: see what happens, because the survey was taken right in

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Speaker 1: the middle of the government shutdown, and that clearly had

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Speaker 1: an effect on the way people were thinking about the future. Um,

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Speaker 1: so you know, factors, we could be in another government

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Speaker 1: shutdown in a month's time. So I'm not sure we

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Speaker 1: we have full resolution on that, but I would say, um,

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Speaker 1: that the fact that people are still feeling good about

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Speaker 1: their actual situations is a good sign. We've talked about

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Speaker 1: the tension between the market and the data. Chairman Pal

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Speaker 1: talked about that very tension, and I'm wondering whether the

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Speaker 1: chairman can sit there today inside that tension has resolved itself.

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Speaker 1: Do you think it's too eady to tell? It's way

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Speaker 1: too early? UM? I think the markets again, the markets

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Speaker 1: are still talking about a recession either this year or next. Um.

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Speaker 1: And I just you know the Fed obviously we've seen

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Speaker 1: their projections. They don't believe that. They don't believe. Let's

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Speaker 1: go to the y that because I would see just

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Speaker 1: a lot of our listeners worldwide and coast to coast,

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Speaker 1: coast of frozen coast, I should say, actually believe in

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Speaker 1: maybe not an n b our recession, but some form

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Speaker 1: of lesser growth off of make America great again growth.

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Speaker 1: That's the the zeitgeist right now. You don't agree, right? Yeah?

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Speaker 1: I think what the market is seeing is they say, okay,

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Speaker 1: we think that growth topped out last year, so the

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Speaker 1: pace of growth is going to slow down. In two

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Speaker 1: thousand and nineteen versus two thousand and eighteen, and and

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Speaker 1: I don't think that there's a I think most people

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Speaker 1: feel that it's a straight line. Once it starts on

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Speaker 1: a downward path, it's inevitable that it's gonna make its

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Speaker 1: way into negative territory. So Stephen, global uncertainty has increased,

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Speaker 1: inflation is low enough that it gives them some space

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Speaker 1: to be patient. I understand all of that. What I

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Speaker 1: don't understand really is to what degree the trade debate

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Speaker 1: down in Washington could open the door for the Federal

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Speaker 1: Reserve later this year. Is it a big factor, a

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Speaker 1: small factor. How much weight do you assign to the

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Speaker 1: importance of that. I think it's a pretty big factor.

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Speaker 1: I think what the markets are focused on is really

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Speaker 1: the tariff situation, right because we've got the big issues

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Speaker 1: that I think are going to be that certainly the U.

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Speaker 1: S Side wants to deal with this week around intellectual

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Speaker 1: property protection and some of these broad structural issues that

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Speaker 1: are going to take years to hash out. But what

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Speaker 1: the markets are really worried about is the possibility that

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Speaker 1: tears are going to ratchet up in them. Okay, that's

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Speaker 1: n X. I believe on white calls C plus I

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Speaker 1: plus G plus n X, how much of growth is

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Speaker 1: terroiffs or trade or n X? What percentages it? Well,

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Speaker 1: I mean exports are about twelve percentage DP, imports about

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Speaker 1: fifteen UM. But from one year to the next, in

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Speaker 1: terms of looking at the growth um that exports tends

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Speaker 1: to be very volatile, so it can have a big

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Speaker 1: positive or negative contribution to GDP. It was pretty negative

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Speaker 1: last year, and I think part of that was because

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Speaker 1: firms were trying to front load imports. But does it

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Speaker 1: does it threaten the sea which is well, I think

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Speaker 1: that's a great question. In one Yeah, I think that

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Speaker 1: the that the consumer is in pretty good shape. I mean,

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Speaker 1: the labor market is strong, wages around. Can I digress here?

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Speaker 1: You want to claims we were in Davos. No, we

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Speaker 1: were in Davos, Steve Pharrells too young to understand this.

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Speaker 1: You and I have never thought about that statists, right, Yeah,

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Speaker 1: we're never John, that's the outlier of outliers. We've been

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Speaker 1: near multi decade lows for a long long time on

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Speaker 1: initial jobless claims. What I do think is interesting, Stephen,

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Speaker 1: we're not even factoring in population change from decades ago.

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Speaker 1: Excuse me, I had that it's even for really more

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Speaker 1: stunning now relative to the size of the population. Sure, sure,

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Speaker 1: I mean up until this cycle, anything below three hundred

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Speaker 1: was considered extraordinary. Now we're talking about two hundred amazing statements. Stanny,

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Speaker 1: great to catch up with you please, consumer shopping, Uh,

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Speaker 1: probably not so great in the short run. On a

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Speaker 1: FED day, it is always our joy, indeed our academic

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Speaker 1: honor to speak with Randall Crossing in the booth schools

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Speaker 1: Chicago joins us. Now the former FED governor is well

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Speaker 1: Randy within all your experience, And it comes down to

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Speaker 1: a choice set, an opportunity set, did any chairman face?

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Speaker 1: Is how constrained is Chairman Powell into this meeting, or

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Speaker 1: for that matter, is a set into the next two

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Speaker 1: or three meetings? Does he have a wide set of

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Speaker 1: choices or is he limited? Well? I think, um, well,

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Speaker 1: he has choices open to him. But I don't think

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Speaker 1: he's going to exercise those. I think he's going to

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Speaker 1: stay in a in a pretty limited lane. I think

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Speaker 1: they're gonna emphasize that they're going to be patient. I

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Speaker 1: think they're going to emphasize that they see some some

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Speaker 1: clouds on the horizon, and as they had mentioned in

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Speaker 1: their December statement, that they're downside risks, although they probably

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Speaker 1: will still say that the balance of risks is is

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Speaker 1: relatively or the risks are relatively balanced. But I think

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Speaker 1: they're going to leave themselves a little bit more wiggle

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Speaker 1: room for maybe not moving quite as much as they

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Speaker 1: were suggesting back in December. Grandy, A lot of people

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Speaker 1: are drawing parallels with the O five, O six period

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Speaker 1: m of a decade or so ago. You were on

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Speaker 1: the f MC around that time, Randy, Does it feel

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Speaker 1: like that to you? Are there any kind of parallels

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Speaker 1: that you would draw and what lesson would you have

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Speaker 1: learned from that period that the Federal Reserve can apply today?

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Speaker 1: So I think that, uh, the FIT feels that they've

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Speaker 1: raised rates to roughly the area where they are neither

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Speaker 1: being expansionary nor contractionary, the so called neutral range. And

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Speaker 1: you know, now there's debating, well, should they go a

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Speaker 1: little bit further or not? Are they seeing inflation pressure

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Speaker 1: or not? And so far they really haven't seen a

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Speaker 1: lot of inflation pressure. But there's a lot of uncertainty

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Speaker 1: about whether the hot labor market will lead to more

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Speaker 1: inflation or not and um, and that's why they continue

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Speaker 1: to debate. And that's why I think that the markets

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Speaker 1: were unsure of where they would be because people were

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Speaker 1: a supposing different different points of view. Randy, there is

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Speaker 1: this belief that the Federal Reserve is now done that,

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Speaker 1: so why be how belief on Wall Street that perhaps

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Speaker 1: there is nothing left for this cycle? Do you think

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Speaker 1: Federal Reserve has a duty to reclaim some optionality at

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Speaker 1: today's mating? That's well said. Yeah, So I don't think

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Speaker 1: they need to reclaim the optionality. I think they still

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Speaker 1: have it and sometimes the markets just need to sort

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Speaker 1: of u catch up to it. Is Uh. Certainly the

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Speaker 1: you know, expectations of interesting increases and uh uh have

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Speaker 1: have changed quite a bit over time. Uh, and so

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Speaker 1: make an increase or decrease depending on underlying inflation and

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Speaker 1: underlying economic activity. So I don't think he's going to

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Speaker 1: try to push that. I think he feels that he

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Speaker 1: has the option if he needed, if the underlying data

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Speaker 1: would want to push them to do more. But I

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Speaker 1: don't think he's going to push that today. Professor Krasner,

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Speaker 1: we really enjoy you and Davos, we thought you were

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Speaker 1: great there when you got yourself out of the snow

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Speaker 1: bank to talk to us, that you missed it, Randy.

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Speaker 1: The theme in Davos was about the effect of low

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Speaker 1: real rates on the banking system. Okay, Europe, we all

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Speaker 1: get with negative interest rates is hugely distorted. How distorted

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Speaker 1: is our world right now with these low real rates

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Speaker 1: that we enjoy in the United States? Are is the

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Speaker 1: FED looking at it in the meeting that we're significantly

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Speaker 1: distorted or is it a non event? Well, that's it's

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Speaker 1: a very interesting question because if you look over a

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Speaker 1: longer horizon, like from back thirty years, real interest rates

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Speaker 1: that is the inflation adjustor rates have been falling globally

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Speaker 1: for for for decades, really since the nineteen eighties, so

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Speaker 1: thirty forty years. And so a lot of people say, well,

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Speaker 1: it's just a recent thing that central banks have pushed

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Speaker 1: rates down so low, but it's really been part of

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Speaker 1: a longer, longer term trend. And and I think that

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Speaker 1: has to do with the supply and demand of savings

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Speaker 1: and really introducing an enormous amounts of UH savings from

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Speaker 1: China into the world world economy. The US has now

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Speaker 1: raised rates um and so we're at least having a

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Speaker 1: real rate of slightly positive, unlike most countries of the world.

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Speaker 1: So I don't think the FIT is worried that we're

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Speaker 1: sort of out of step with the rest of the world.

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Speaker 1: And I think they would like to see rates to

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Speaker 1: be a little bit more more positive, real rates to

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Speaker 1: be a bit more positive. But um, I think they're

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Speaker 1: comfortable with where we are at the moment. Brandy, Can

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Speaker 1: we talk about the weather just briefly. You're amand that

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Speaker 1: know Chicago. Well, I understand you're not in Chicago, and

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Speaker 1: imagine you're happy you're not right now, but just your

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Speaker 1: experience with the weather and what it means for the economy.

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Speaker 1: We are going into a real cold snap over the

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Speaker 1: next week and potentially a whole lot longer. Uh. Certainly, Uh,

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Speaker 1: it is not so warm a Chicago. But I am

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Speaker 1: in Hong Kong where we have a new campus and

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Speaker 1: complex here and we just had an opening and through

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Speaker 1: the really spectacular and strictly spectacular because it's not freezing. Um.

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Speaker 1: These cold snaps can have negative impacts on economic actor.

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Speaker 1: It will depend on how long it's sustained. If it's

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Speaker 1: just a day or two, it really won't leave much

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Speaker 1: of the more. Randa Crosser, thank you so much. The

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Speaker 1: former governor of the fellow Reserve Wisconsin, Degree Hong Kong

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Speaker 1: he is John may I stayed editorially, Professor Krasner is

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Speaker 1: smarter than we are. Yes, So let us migrate forward

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Speaker 1: to trade, which is the most important right now. Let

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Speaker 1: us do that with Debra Lett Paulson Institute Vice Chairman. Debora,

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Speaker 1: great to have you with us on the program. High

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Speaker 1: level trade talks commencing in Washington, d C. What is

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Speaker 1: your base case this week? Well, it's a very positive

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Speaker 1: sign that Vice Premier Leoja is here and the chances

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Speaker 1: I think are good that they'll get some kind of

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Speaker 1: framework deal, not not the final deal, but at least

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Speaker 1: enough to have it go to the two presidents to finalize. So, Debor,

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Speaker 1: is that something a little bit more than talks about talks.

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Speaker 1: What do you think the framework will actually look like? Well,

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Speaker 1: there are several components that need to be included in

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Speaker 1: any kind of final deal. One, the President has made

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Speaker 1: clear that he wants to see additional exports from the

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Speaker 1: United States to China, so expect the Chinese to announce

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Speaker 1: purchases of US products they've already announced some in the

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Speaker 1: agricultural area, including commitments on soybeans, and then there needs

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Speaker 1: to be market access for companies. You know, it's it

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Speaker 1: is um It doesn't make sense at all when you've

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Speaker 1: got the largest banks in the world in China and

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Speaker 1: you can't have a hundercent owned securities firm. Where are

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Speaker 1: we on the legal history of joint ventures? If we're

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Speaker 1: going to do more with trade, there has to be combinations, mergers,

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Speaker 1: joint ventures. Can US companies still go in and do

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Speaker 1: jvs to get things done in China? Legally they're allowed,

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Speaker 1: of course to go in and do joint ventures, but

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Speaker 1: I think what the government US government is pushing for

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Speaker 1: is that the voice of a joint venture should be

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Speaker 1: up to the company and based on commercial terms, not

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Speaker 1: to be required by the Chinese government. Obviously, we understand

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Speaker 1: if there are some sectors that are sensitive, but the fact,

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Speaker 1: as I was saying, if you have you know, the

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Speaker 1: Goldman Sacks or JP Working can't have in a hundred

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Speaker 1: percent owned securities firm is just outrageous. Debora. We honor

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Speaker 1: at a point where maybe China is beyond having the

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Speaker 1: standard excuse of an emerging market, where by they need

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Speaker 1: to do these kind of things. But do you think

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Speaker 1: we are passed that point with China? Is China developed

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Speaker 1: enough that they can no longer lean on that emerging

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Speaker 1: market status as an excuse. I think in in some

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Speaker 1: sectors it might be an excuse, but in those we

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Speaker 1: need to see some kind of timetable for opening. But

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Speaker 1: certainly in some sectors, particularly in the financial and technology area,

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Speaker 1: there's no excuse at all. Debora Laerwether, she's vice chairman

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Speaker 1: Pulson Institute, and we get we're we have a run

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Speaker 1: for an hour to talk about some of the questions

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Speaker 1: of antiquity. She's expert in the world's antiquities. Let's dovetail

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Speaker 1: trade into that. All him at trade Deborah Lair, Which

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Speaker 1: is tourism And I can go back to the seventy

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Speaker 1: four and the magic of finding the terra cotta army

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Speaker 1: in China. Everyone goes there, everybody makes a track. It's

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Speaker 1: one of the few reasons to go inland from the

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Speaker 1: Pacific rim for American tourists. Is tourism part of the

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Speaker 1: trade debate? And where is that right now? That's an

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Speaker 1: excellent question. It hasn't really been part of the debate,

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Speaker 1: although It's one of the us is great exports and

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Speaker 1: certainly one of China's great exports. The numbers of Chinese

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Speaker 1: tourists continue to grow significantly, and it's become a huge

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Speaker 1: potential market for you know, countries like France, which is

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Speaker 1: the number one destination, and even now growing for countries

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Speaker 1: in the Middle East. Well, I mean John Farrell sees

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Speaker 1: that when he's in Gucci on Fifth Avenue. I get that,

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Speaker 1: But what about us over there? When Americans go over

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Speaker 1: to China? Has that diminished? With all the uproar of

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Speaker 1: the last couple of years it has there is not

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Speaker 1: the same numbers of American tourists traveling, even though there's

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Speaker 1: a significant number. It's it has been um dropped because

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Speaker 1: there have been concerns, including travel warnings, coming out of

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Speaker 1: the State Department. Recently. Let's talk about something that came

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Speaker 1: out the Department of Justice in the last couple of days.

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Speaker 1: This following paragraph. The alleged conduct described in the indictment

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Speaker 1: occurred from and includes an internal Huawei announcement that the

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Speaker 1: company was offering bonuses to employees who succeeded in stealing

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Speaker 1: confidential information from other companies, ratcheting up the pressure on

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Speaker 1: Huawei ahead of these trade talks. Debora, how does this

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Speaker 1: feature as these individuals sit down in Washington, d C.

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Speaker 1: To try and come up with what you describe as

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Speaker 1: a trade framework. It's Huawei the elephant in the room.

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Speaker 1: I'm not driven to the elephant in the room, but

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Speaker 1: it's certainly like the Chinese government going after Microsoft, IBM,

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Speaker 1: and Apple all at the same time. I mean, it's

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Speaker 1: a it's a national champion in terms of it's a

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Speaker 1: company that people are very proud of. And while Huawei

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Speaker 1: has been under its scrutiny for almost too years, this

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Speaker 1: is the first time they've gone after it in a

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Speaker 1: significant way, and the Justice Department has decided to go

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Speaker 1: after an individual, which is what has really gotten people's

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Speaker 1: attention in China versus just the company like they did

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Speaker 1: with z T. But from where you sit to John's

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Speaker 1: good question, the Chinese at these tables of trade can't

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Speaker 1: ignore that, can they? Given the history and heritage of

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Speaker 1: mss Meng with the Communist Party, No, they can't ignore it.

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Speaker 1: I mean it's a very significant issue, and as I said,

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Speaker 1: it's it's gotten a lot of attention in China because

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Speaker 1: they have gone after an individual versus the company. And

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Speaker 1: while they understand, maybe not completely, but at least a

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Speaker 1: little bit, that our justice system works separately from the

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Speaker 1: political system, the fact that the President did come out

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Speaker 1: and say it could potentially be part of a trade

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Speaker 1: deal led many to believe that this was political. This

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Speaker 1: has been very helpful Debra Laying because so much. She's

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Speaker 1: vice chairman the Pulsit Institute and greatly appreciated John. I

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Speaker 1: thought you phrased that question just perfectly about you know,

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Speaker 1: thinks there's as she said, if it was a T

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Speaker 1: and tier Microsoft or Apple, we'd be in an uproar. Yeah. Best.

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Speaker 1: Let's be clear about something though. The Chinese have blocked

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Speaker 1: many American companies from operating within China, so I know

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Speaker 1: this is a very different It's not it's not apples

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Speaker 1: for apples, but certainly let's not pretend that we have

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Speaker 1: sort of unfettered access into Chinese. That is why they're

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Speaker 1: sitting around the table down in Washington today, because the

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Speaker 1: United States does not. I would say, on and off

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Speaker 1: the record, the thunderous consensus of every CEO of ever

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Speaker 1: talked to is j VS always disappointed China. If you

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Speaker 1: are lucky folks to fed date you can well, you

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Speaker 1: can run the shop at the Richmond Fed for years

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Speaker 1: with Marvin Goodfriend. That's what Mr broad Us did. Or

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Speaker 1: if you're lucky, you can go to one of the

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Speaker 1: coolest schools in the country, Washington Lee, which is basically

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Speaker 1: in the middle of nowhere, where everybody's smart and well attended.

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Speaker 1: But if you're really lucky, you can go to one

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Speaker 1: of the most beautiful high schools in this nation. It

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Speaker 1: is Thomas Jefferson High School. It is on the National

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Speaker 1: Register of Historic Whatever Al brought us, What was it

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Speaker 1: like to be in that building as a kid, to

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Speaker 1: Thomas Jefferson High School? Gosh, just been a long time.

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Speaker 1: Tom graduated in fifty seven. But uh, that building is

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Speaker 1: a magnificent building. Not many people recognize that it's you know,

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Speaker 1: obviously not doesn't look away at that fifty years ago.

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Speaker 1: But it was a huge school at the time. We

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Speaker 1: had about two thousands. Of course, a whole different era,

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Speaker 1: but that was back in another time there. It's back

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Speaker 1: when we built schools like jewels, folks, and that's something

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Speaker 1: maybe we could learn from in the past. Al brought us.

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Speaker 1: I want to go right to inflation, right now you've

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Speaker 1: always been uh, not rigid, but you know, watchful of

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Speaker 1: inflation in the hindsight of a decade. What did the

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Speaker 1: inflation he's just get wrong about this time of disinflation. Uh, yes, well,

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Speaker 1: you know, of course I have. Most of my career,

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Speaker 1: Tom was one of fighting to bring inflation down and

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Speaker 1: establish FED credibility for the ability to do that and

430
00:24:37,560 --> 00:24:40,119
Speaker 1: the commitment to do that for the long run. We

431
00:24:40,200 --> 00:24:42,440
Speaker 1: got there, I think about the end of the of

432
00:24:42,520 --> 00:24:45,720
Speaker 1: the last century and have been dealing with a different

433
00:24:45,800 --> 00:24:49,160
Speaker 1: situation now. Uh. And it's been tough, and it's created

434
00:24:49,240 --> 00:24:53,520
Speaker 1: this this problem of low interest rates. Uh. The zero

435
00:24:53,720 --> 00:24:56,240
Speaker 1: bound is an issue that we've had to deal with them.

436
00:24:56,560 --> 00:24:58,840
Speaker 1: And you know what's come out of that, quantitative easing

437
00:24:58,920 --> 00:25:01,880
Speaker 1: and and all of that, and that's you know, that's

438
00:25:01,920 --> 00:25:04,840
Speaker 1: still a work in progress. And I think, uh, I

439
00:25:04,960 --> 00:25:07,200
Speaker 1: think God I had left the FED by the time

440
00:25:07,280 --> 00:25:10,280
Speaker 1: we got to the crisis in in eight and oh nine.

441
00:25:11,119 --> 00:25:14,119
Speaker 1: My personal belief is that while that was rough and

442
00:25:14,880 --> 00:25:19,119
Speaker 1: ragged in many ways, I believe that bernanke and and

443
00:25:19,480 --> 00:25:21,760
Speaker 1: Janet Yellen and others that the FIT at the time

444
00:25:22,560 --> 00:25:24,720
Speaker 1: did a great job of getting us through that without

445
00:25:25,280 --> 00:25:29,399
Speaker 1: even worse consequences. So now we're settling down and trying

446
00:25:29,480 --> 00:25:32,400
Speaker 1: to still trying to deal with some of the problems

447
00:25:32,440 --> 00:25:35,920
Speaker 1: that that creator dr brought us. We're going to hear

448
00:25:36,000 --> 00:25:39,360
Speaker 1: from the FED later this afternoon. UM, I think most

449
00:25:39,440 --> 00:25:41,600
Speaker 1: people are probably focusing a little bit more on the

450
00:25:41,760 --> 00:25:45,160
Speaker 1: balance sheet management from the Fed. What do you expect

451
00:25:45,280 --> 00:25:50,360
Speaker 1: to hear today? Uh, you know that's I'm not sure

452
00:25:50,440 --> 00:25:53,920
Speaker 1: we're going to hear anything, but we may. Sorry for

453
00:25:54,040 --> 00:25:58,240
Speaker 1: the ambiblit answer, but let let me try to put

454
00:25:58,320 --> 00:26:00,560
Speaker 1: it this way. I think there are a number of

455
00:26:00,680 --> 00:26:04,960
Speaker 1: people out there, uh, some in the political arena of

456
00:26:05,119 --> 00:26:08,960
Speaker 1: some market professionals and traders who would like to see

457
00:26:09,520 --> 00:26:12,680
Speaker 1: some indication from the FED that it will back off

458
00:26:13,000 --> 00:26:16,720
Speaker 1: from its current program of trying to reduce the balance sheet,

459
00:26:16,800 --> 00:26:19,480
Speaker 1: not necessarily in the program, but slow it down maybe

460
00:26:19,560 --> 00:26:24,600
Speaker 1: posit uh those on. From a political perspective, there there's

461
00:26:24,640 --> 00:26:27,440
Speaker 1: some who feel that this is an additional element of

462
00:26:27,560 --> 00:26:31,760
Speaker 1: tightening by the FED that's unwarranted in the current economic situation.

463
00:26:32,200 --> 00:26:35,679
Speaker 1: From the standpoint of the market professional financial market professionals,

464
00:26:35,760 --> 00:26:39,200
Speaker 1: I think there is a view, uh on the part

465
00:26:39,240 --> 00:26:43,040
Speaker 1: of many of these folks that, uh, this is creating

466
00:26:43,040 --> 00:26:47,160
Speaker 1: a liquidity problem, a scarcity of reserves, which is which

467
00:26:47,280 --> 00:26:49,800
Speaker 1: is part of the reason of some of the volatility

468
00:26:49,920 --> 00:26:54,480
Speaker 1: in markets. Okay, against that background, uh, this this would

469
00:26:54,520 --> 00:26:58,160
Speaker 1: be my take. There's something at the FED itself. Within

470
00:26:58,280 --> 00:27:01,680
Speaker 1: the FED, there is a discussion going on that is

471
00:27:01,720 --> 00:27:07,480
Speaker 1: not really about current economic conditions, current monetary policy prospects,

472
00:27:08,040 --> 00:27:12,359
Speaker 1: but about really down the weeds issue, which is how

473
00:27:12,480 --> 00:27:17,080
Speaker 1: the FIT operates its operating procedure for controlling its target

474
00:27:17,160 --> 00:27:20,200
Speaker 1: federal fundery And without trying to go into any of

475
00:27:20,280 --> 00:27:27,000
Speaker 1: the long detail about this recent development, is a growing

476
00:27:27,080 --> 00:27:31,520
Speaker 1: view within the FIT that the that they can, over

477
00:27:31,600 --> 00:27:35,320
Speaker 1: the long run adopt a control procedure which would allow

478
00:27:35,880 --> 00:27:39,119
Speaker 1: the balance sheet to beat larger. In other words, it

479
00:27:39,119 --> 00:27:42,400
Speaker 1: would still be smaller than than uh it is now,

480
00:27:42,920 --> 00:27:47,119
Speaker 1: but would allow the FED not to reduce it so much. Uh.

481
00:27:47,359 --> 00:27:50,320
Speaker 1: If that, I don't think they've made that decision. I

482
00:27:50,400 --> 00:27:53,760
Speaker 1: think it's likely to be discussed at this meeting. If

483
00:27:53,880 --> 00:27:56,680
Speaker 1: they were to reach some sort of consensus that this

484
00:27:56,880 --> 00:28:01,119
Speaker 1: is a good thing, then Chairman Powell more in his

485
00:28:01,920 --> 00:28:05,760
Speaker 1: press conference hint at that and maybe give some sense

486
00:28:05,880 --> 00:28:10,399
Speaker 1: that that the feds terminal balance sheet level will be

487
00:28:10,560 --> 00:28:13,840
Speaker 1: higher than had been thought before, and that might create

488
00:28:13,960 --> 00:28:17,360
Speaker 1: the possibility of some slowing in this process, or even

489
00:28:17,440 --> 00:28:20,320
Speaker 1: some pause on that some sense of a long answer.

490
00:28:20,400 --> 00:28:22,560
Speaker 1: But I hope that answers the question now. Absolutely. I'm

491
00:28:22,560 --> 00:28:24,040
Speaker 1: just kind of I think most people are trying to

492
00:28:24,080 --> 00:28:26,320
Speaker 1: get a sense of where that level might be. It's

493
00:28:26,359 --> 00:28:28,600
Speaker 1: certainly not as low as two and a half trillion,

494
00:28:29,320 --> 00:28:31,560
Speaker 1: is it? Do you have a best guess or where

495
00:28:31,560 --> 00:28:33,399
Speaker 1: you think that might come out? Or they think that

496
00:28:33,560 --> 00:28:36,080
Speaker 1: might be hard to say, but I would I would

497
00:28:36,160 --> 00:28:39,480
Speaker 1: say that it would if they at an earlier stage

498
00:28:39,520 --> 00:28:42,040
Speaker 1: of this, when they when they first began this process,

499
00:28:42,040 --> 00:28:44,000
Speaker 1: and I think the number you just cited two and

500
00:28:44,080 --> 00:28:46,840
Speaker 1: a half maybe a little bit more, was sort of

501
00:28:46,920 --> 00:28:52,360
Speaker 1: thought that would be the endgame under this new development

502
00:28:52,440 --> 00:28:54,520
Speaker 1: that I just described. It could be I guess its

503
00:28:54,600 --> 00:28:58,440
Speaker 1: highest three and a half or maybe somewhat below the

504
00:28:58,560 --> 00:29:02,160
Speaker 1: four trillion, But that's you know, that's a guess. Are

505
00:29:02,200 --> 00:29:06,120
Speaker 1: we gonna see albrought us a history of forward guidance

506
00:29:06,240 --> 00:29:09,200
Speaker 1: anytime soon? Are we are we able to say that

507
00:29:09,320 --> 00:29:12,640
Speaker 1: Ford guidance is done, We're back to data dependency, and

508
00:29:12,680 --> 00:29:15,280
Speaker 1: it's time to write a Richmond fed history like Thomas

509
00:29:15,400 --> 00:29:19,960
Speaker 1: Humphrey would write, well, Uh, you know, I think the

510
00:29:20,080 --> 00:29:23,720
Speaker 1: Ford guidance has has played That's to go back to

511
00:29:23,760 --> 00:29:28,800
Speaker 1: your earlier question, Tom, in this new world, uh more

512
00:29:29,720 --> 00:29:31,880
Speaker 1: deflation is a greater risk than it was in All

513
00:29:31,960 --> 00:29:35,600
Speaker 1: that's from that Ford guidance has has been an important

514
00:29:35,760 --> 00:29:38,520
Speaker 1: tool that the FED has been able to use, uh

515
00:29:38,800 --> 00:29:42,600
Speaker 1: to deal with the challenge face that it faces with

516
00:29:43,000 --> 00:29:46,400
Speaker 1: with the with low interest ration in the zero bound.

517
00:29:47,160 --> 00:29:49,920
Speaker 1: So it's an important, uh tool, and it's one that

518
00:29:50,040 --> 00:29:53,240
Speaker 1: needs to be understood better and analyzed. We really haven't

519
00:29:53,280 --> 00:29:55,720
Speaker 1: gotten that yet, but at some point, I think economic

520
00:29:57,160 --> 00:30:03,000
Speaker 1: historians like Tom Humphrey a wonderful colleague of mine, but

521
00:30:03,160 --> 00:30:07,600
Speaker 1: other people as well. Uh, we'll look at that dish. Yeah,

522
00:30:08,520 --> 00:30:14,200
Speaker 1: evaluate how well it was implemented over the last let's say,

523
00:30:14,240 --> 00:30:17,240
Speaker 1: fifteen years ago, and maybe learn something about how to

524
00:30:17,320 --> 00:30:20,360
Speaker 1: do it better going forward. That's still still all all

525
00:30:20,400 --> 00:30:22,920
Speaker 1: the work in progress. Yeah, thank you so much. I'll

526
00:30:22,960 --> 00:30:25,840
Speaker 1: brought us who really brought history to the FED with

527
00:30:25,960 --> 00:30:28,720
Speaker 1: his term at the Richmond and Fred Tom Humphrey I've

528
00:30:28,720 --> 00:30:30,800
Speaker 1: had the ability to interview. I love what the Giant

529
00:30:30,920 --> 00:30:34,080
Speaker 1: Mark blog said about Thomas Humphrey of the Richmond Fed,

530
00:30:34,560 --> 00:30:39,000
Speaker 1: the undisputed master of the history of monetary economics. I'll

531
00:30:39,040 --> 00:30:42,320
Speaker 1: try to get out on Twitter the wonderful Richmond uh

532
00:30:42,440 --> 00:30:45,480
Speaker 1: compendium of what Tom Humphrey did over his wonderful career

533
00:30:46,000 --> 00:30:57,600
Speaker 1: on economic history. Thanks for listening to the Bloomberg Surveillance podcast.

534
00:30:58,000 --> 00:31:02,880
Speaker 1: Subscribe and listen to reviews on Apple Podcasts, SoundCloud, or

535
00:31:03,080 --> 00:31:07,360
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

536
00:31:07,520 --> 00:31:11,320
Speaker 1: Keene before the podcast. You can always catch us worldwide.

537
00:31:11,840 --> 00:31:12,880
Speaker 1: I'm Bloomberg Radio