Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane
Speaker 1: Jay Lee. We bring you insight from the best in economics, finance,
Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg Right now.
Speaker 1: On Brexit, it has been an extraordinary forty eight hours
Speaker 1: for the United Kingdom. Too much complexity even to know
Speaker 1: where to begin. And we must go to the true
Speaker 1: expert for Bloomberg News, and that is Anna Edwards on
Speaker 1: the Green in Westminster. Anna, the eight amendments. I tried
Speaker 1: to memorize them. I only got to two amendments. I'm sorry,
Speaker 1: that's okay, you've forgiven. Tom. Well, all you needed to
Speaker 1: know was most of them went the government's way, I suppose,
Speaker 1: so most things did go the government's way, at least
Speaker 1: in the very short term. She won a victory of sorts,
Speaker 1: didn't she. She goes to back to Brussels to try
Speaker 1: and to renegotiate the backstop. Brussels and said no, they
Speaker 1: keep saying no. The UK that says, that's just a
Speaker 1: negotiating position. So we wait to see what can possibly
Speaker 1: be achieved. In two weeks. That has not been achieved
Speaker 1: over the last two years. And could we be all
Speaker 1: back here on Valentine's Day looking at amendments once again. Tom,
Speaker 1: You know, I'm reading the newspapers and it's real simple.
Speaker 1: The Irish Prime ministers asked the European Union to hold
Speaker 1: their nerve. I believe somebody over in Brussels at some
Speaker 1: point said nothing's open for renegotiation. What is prime minister
Speaker 1: made trying to accomplish in Brussels given that immediate response. Yeah,
Speaker 1: the immediate response has been very negative. I suppose the
Speaker 1: linguists have been passing the language and trying to work
Speaker 1: out if there is a room between the two to
Speaker 1: find some sort of compromise. So the EU has said
Speaker 1: no change to the withdrawal agreement. Absolutely not the words
Speaker 1: used by Thereason May yesterday whether she was looking for
Speaker 1: legally binding changes, She didn't say she wanted to actually
Speaker 1: replace the backstop. So is that code for can we
Speaker 1: write on a different piece of paper some legally binding words,
Speaker 1: a code of sill as it's called to satisfy both sides?
Speaker 1: Would that satisfy the European Research Group, though the far
Speaker 1: Brexit here side of the Conservative Party. They've come together
Speaker 1: over the last twenty four hours in an act of unity,
Speaker 1: and they're sending her back to Brussels to try and
Speaker 1: seek something. But whatever she comes back from Brussels with,
Speaker 1: would it be satisfactory to them? As I say, in
Speaker 1: two weeks, we could be back here again doing this
Speaker 1: all again, looking at amendments, just like we did last
Speaker 1: night around Article fifty extensions and and blocking no deal.
Speaker 1: So we could still be talking about those things. Um
Speaker 1: so I know where's labor and all of this well
Speaker 1: in incident into one of the interesting things happened last
Speaker 1: night in the in the Commons when Theresa May stood
Speaker 1: up to speak after the results of all of these
Speaker 1: amendments were voted on, and Labor in the shape of
Speaker 1: Jeremy Corbyn did say, okay, I'll come and meet you.
Speaker 1: And remember he had refused to do that for some time,
Speaker 1: so it seems as if he is willing to at
Speaker 1: least go and speak to Thereason May. He will be
Speaker 1: a bit of a bystander though for the next two weeks. Also,
Speaker 1: I want to assumes, because she is the one who's
Speaker 1: going to go back to Brussels and see what she
Speaker 1: can come back with in terms of rewriting that backstop.
Speaker 1: But but he is at least going to meet her,
Speaker 1: which is progress compared to the last few weeks. Stephen
Speaker 1: Stanley dropping by the studio Amherst Pierpont Economists. Good morning
Speaker 1: to Stephen. What is the FED decision day guide over
Speaker 1: at your shop? Good morning? Well, I think you know,
Speaker 1: the FED has declared themselves on pause, so um, and
Speaker 1: it actually is kind of a good time for that,
Speaker 1: given that we haven't really had much data over the
Speaker 1: last month. So I think really the FED wants to
Speaker 1: emphasize that they're being flexible, that they're listening. I think
Speaker 1: the markets viewed, uh for for better for worse in
Speaker 1: December that the Fed was somehow not listening to what
Speaker 1: the markets were trying to tell them, and so the
Speaker 1: Fed wants to uh lend a sympathetic ear even though ultimately,
Speaker 1: you know, they may end up having to raise rates
Speaker 1: further later in the year. So Stephen, we could talk
Speaker 1: about they're going to reclaim optionality. I'm just wondering whether
Speaker 1: that come to formalize patients on rates and flexibility on
Speaker 1: the balance sheet. In the statement in the news conference,
Speaker 1: do you expect that to happen. Well, I think, you know,
Speaker 1: in terms of the statement, you've got the forward guidance
Speaker 1: about continued gradual rate hikes, and the question is, really
Speaker 1: are they going to continue to soften that? Are they
Speaker 1: going to take it out altogether in January? Worry? Um,
Speaker 1: they starting at the November f MC minutes, they started
Speaker 1: UH with the idea that they do want to get
Speaker 1: away from forward guidance, So that does lend itself toward
Speaker 1: a more flexible UH stance. I don't know that they're
Speaker 1: gonna want to talk too much about the balance sheet. Um.
Speaker 1: My guess is that you're gonna have to ask UH
Speaker 1: Chairman pala question to get much out of him. On
Speaker 1: the balance sheet. What's the effect right now the economy
Speaker 1: on the fiction of real yields that we still have?
Speaker 1: What's the effect right now? I've just diminished real yields
Speaker 1: from any of our experience. Well, I mean, I think
Speaker 1: you know, the the UH we have peaked just above
Speaker 1: zero in terms of where yields are um relative to inflation. Yeah,
Speaker 1: but we're still very low historically. And you know, for
Speaker 1: my money, I I still think the economy as a result,
Speaker 1: I think policies relatively easy in the economy, UH still
Speaker 1: should have a lot of momentum, and certainly we've seen
Speaker 1: that in the UH jobs numbers that we've gotten and
Speaker 1: I think everything we haven't gotten a lot data, but
Speaker 1: the consumer seems to be still well. The hard data,
Speaker 1: let's be clear and jord distinction, if we count the
Speaker 1: hard data has still being absolutely fantastic in many aspects
Speaker 1: of this U S economy. The soft data has just
Speaker 1: started to roll over a little bit. A lot of
Speaker 1: people latched onto the consumer confidence numbers we had yesterday,
Speaker 1: and just to paint the picture for us here on radio,
Speaker 1: there was a bigger spread between the confidence in the
Speaker 1: here and now and the confidence about the future, and
Speaker 1: the confidence in the here and now substantially higher than
Speaker 1: the way people feel about the future. And a lot
Speaker 1: of people are concerned about that spread. Should they be well,
Speaker 1: you know, I would say, let's wait a month and
Speaker 1: see what happens, because the survey was taken right in
Speaker 1: the middle of the government shutdown, and that clearly had
Speaker 1: an effect on the way people were thinking about the future. Um,
Speaker 1: so you know, factors, we could be in another government
Speaker 1: shutdown in a month's time. So I'm not sure we
Speaker 1: we have full resolution on that, but I would say, um,
Speaker 1: that the fact that people are still feeling good about
Speaker 1: their actual situations is a good sign. We've talked about
Speaker 1: the tension between the market and the data. Chairman Pal
Speaker 1: talked about that very tension, and I'm wondering whether the
Speaker 1: chairman can sit there today inside that tension has resolved itself.
Speaker 1: Do you think it's too eady to tell? It's way
Speaker 1: too early? UM? I think the markets again, the markets
Speaker 1: are still talking about a recession either this year or next. Um.
Speaker 1: And I just you know the Fed obviously we've seen
Speaker 1: their projections. They don't believe that. They don't believe. Let's
Speaker 1: go to the y that because I would see just
Speaker 1: a lot of our listeners worldwide and coast to coast,
Speaker 1: coast of frozen coast, I should say, actually believe in
Speaker 1: maybe not an n b our recession, but some form
Speaker 1: of lesser growth off of make America great again growth.
Speaker 1: That's the the zeitgeist right now. You don't agree, right? Yeah?
Speaker 1: I think what the market is seeing is they say, okay,
Speaker 1: we think that growth topped out last year, so the
Speaker 1: pace of growth is going to slow down. In two
Speaker 1: thousand and nineteen versus two thousand and eighteen, and and
Speaker 1: I don't think that there's a I think most people
Speaker 1: feel that it's a straight line. Once it starts on
Speaker 1: a downward path, it's inevitable that it's gonna make its
Speaker 1: way into negative territory. So Stephen, global uncertainty has increased,
Speaker 1: inflation is low enough that it gives them some space
Speaker 1: to be patient. I understand all of that. What I
Speaker 1: don't understand really is to what degree the trade debate
Speaker 1: down in Washington could open the door for the Federal
Speaker 1: Reserve later this year. Is it a big factor, a
Speaker 1: small factor. How much weight do you assign to the
Speaker 1: importance of that. I think it's a pretty big factor.
Speaker 1: I think what the markets are focused on is really
Speaker 1: the tariff situation, right because we've got the big issues
Speaker 1: that I think are going to be that certainly the U.
Speaker 1: S Side wants to deal with this week around intellectual
Speaker 1: property protection and some of these broad structural issues that
Speaker 1: are going to take years to hash out. But what
Speaker 1: the markets are really worried about is the possibility that
Speaker 1: tears are going to ratchet up in them. Okay, that's
Speaker 1: n X. I believe on white calls C plus I
Speaker 1: plus G plus n X, how much of growth is
Speaker 1: terroiffs or trade or n X? What percentages it? Well,
Speaker 1: I mean exports are about twelve percentage DP, imports about
Speaker 1: fifteen UM. But from one year to the next, in
Speaker 1: terms of looking at the growth um that exports tends
Speaker 1: to be very volatile, so it can have a big
Speaker 1: positive or negative contribution to GDP. It was pretty negative
Speaker 1: last year, and I think part of that was because
Speaker 1: firms were trying to front load imports. But does it
Speaker 1: does it threaten the sea which is well, I think
Speaker 1: that's a great question. In one Yeah, I think that
Speaker 1: the that the consumer is in pretty good shape. I mean,
Speaker 1: the labor market is strong, wages around. Can I digress here?
Speaker 1: You want to claims we were in Davos. No, we
Speaker 1: were in Davos, Steve Pharrells too young to understand this.
Speaker 1: You and I have never thought about that statists, right, Yeah,
Speaker 1: we're never John, that's the outlier of outliers. We've been
Speaker 1: near multi decade lows for a long long time on
Speaker 1: initial jobless claims. What I do think is interesting, Stephen,
Speaker 1: we're not even factoring in population change from decades ago.
Speaker 1: Excuse me, I had that it's even for really more
Speaker 1: stunning now relative to the size of the population. Sure, sure,
Speaker 1: I mean up until this cycle, anything below three hundred
Speaker 1: was considered extraordinary. Now we're talking about two hundred amazing statements. Stanny,
Speaker 1: great to catch up with you please, consumer shopping, Uh,
Speaker 1: probably not so great in the short run. On a
Speaker 1: FED day, it is always our joy, indeed our academic
Speaker 1: honor to speak with Randall Crossing in the booth schools
Speaker 1: Chicago joins us. Now the former FED governor is well
Speaker 1: Randy within all your experience, And it comes down to
Speaker 1: a choice set, an opportunity set, did any chairman face?
Speaker 1: Is how constrained is Chairman Powell into this meeting, or
Speaker 1: for that matter, is a set into the next two
Speaker 1: or three meetings? Does he have a wide set of
Speaker 1: choices or is he limited? Well? I think, um, well,
Speaker 1: he has choices open to him. But I don't think
Speaker 1: he's going to exercise those. I think he's going to
Speaker 1: stay in a in a pretty limited lane. I think
Speaker 1: they're gonna emphasize that they're going to be patient. I
Speaker 1: think they're going to emphasize that they see some some
Speaker 1: clouds on the horizon, and as they had mentioned in
Speaker 1: their December statement, that they're downside risks, although they probably
Speaker 1: will still say that the balance of risks is is
Speaker 1: relatively or the risks are relatively balanced. But I think
Speaker 1: they're going to leave themselves a little bit more wiggle
Speaker 1: room for maybe not moving quite as much as they
Speaker 1: were suggesting back in December. Grandy, A lot of people
Speaker 1: are drawing parallels with the O five, O six period
Speaker 1: m of a decade or so ago. You were on
Speaker 1: the f MC around that time, Randy, Does it feel
Speaker 1: like that to you? Are there any kind of parallels
Speaker 1: that you would draw and what lesson would you have
Speaker 1: learned from that period that the Federal Reserve can apply today?
Speaker 1: So I think that, uh, the FIT feels that they've
Speaker 1: raised rates to roughly the area where they are neither
Speaker 1: being expansionary nor contractionary, the so called neutral range. And
Speaker 1: you know, now there's debating, well, should they go a
Speaker 1: little bit further or not? Are they seeing inflation pressure
Speaker 1: or not? And so far they really haven't seen a
Speaker 1: lot of inflation pressure. But there's a lot of uncertainty
Speaker 1: about whether the hot labor market will lead to more
Speaker 1: inflation or not and um, and that's why they continue
Speaker 1: to debate. And that's why I think that the markets
Speaker 1: were unsure of where they would be because people were
Speaker 1: a supposing different different points of view. Randy, there is
Speaker 1: this belief that the Federal Reserve is now done that,
Speaker 1: so why be how belief on Wall Street that perhaps
Speaker 1: there is nothing left for this cycle? Do you think
Speaker 1: Federal Reserve has a duty to reclaim some optionality at
Speaker 1: today's mating? That's well said. Yeah, So I don't think
Speaker 1: they need to reclaim the optionality. I think they still
Speaker 1: have it and sometimes the markets just need to sort
Speaker 1: of u catch up to it. Is Uh. Certainly the
Speaker 1: you know, expectations of interesting increases and uh uh have
Speaker 1: have changed quite a bit over time. Uh, and so
Speaker 1: make an increase or decrease depending on underlying inflation and
Speaker 1: underlying economic activity. So I don't think he's going to
Speaker 1: try to push that. I think he feels that he
Speaker 1: has the option if he needed, if the underlying data
Speaker 1: would want to push them to do more. But I
Speaker 1: don't think he's going to push that today. Professor Krasner,
Speaker 1: we really enjoy you and Davos, we thought you were
Speaker 1: great there when you got yourself out of the snow
Speaker 1: bank to talk to us, that you missed it, Randy.
Speaker 1: The theme in Davos was about the effect of low
Speaker 1: real rates on the banking system. Okay, Europe, we all
Speaker 1: get with negative interest rates is hugely distorted. How distorted
Speaker 1: is our world right now with these low real rates
Speaker 1: that we enjoy in the United States? Are is the
Speaker 1: FED looking at it in the meeting that we're significantly
Speaker 1: distorted or is it a non event? Well, that's it's
Speaker 1: a very interesting question because if you look over a
Speaker 1: longer horizon, like from back thirty years, real interest rates
Speaker 1: that is the inflation adjustor rates have been falling globally
Speaker 1: for for for decades, really since the nineteen eighties, so
Speaker 1: thirty forty years. And so a lot of people say, well,
Speaker 1: it's just a recent thing that central banks have pushed
Speaker 1: rates down so low, but it's really been part of
Speaker 1: a longer, longer term trend. And and I think that
Speaker 1: has to do with the supply and demand of savings
Speaker 1: and really introducing an enormous amounts of UH savings from
Speaker 1: China into the world world economy. The US has now
Speaker 1: raised rates um and so we're at least having a
Speaker 1: real rate of slightly positive, unlike most countries of the world.
Speaker 1: So I don't think the FIT is worried that we're
Speaker 1: sort of out of step with the rest of the world.
Speaker 1: And I think they would like to see rates to
Speaker 1: be a little bit more more positive, real rates to
Speaker 1: be a bit more positive. But um, I think they're
Speaker 1: comfortable with where we are at the moment. Brandy, Can
Speaker 1: we talk about the weather just briefly. You're amand that
Speaker 1: know Chicago. Well, I understand you're not in Chicago, and
Speaker 1: imagine you're happy you're not right now, but just your
Speaker 1: experience with the weather and what it means for the economy.
Speaker 1: We are going into a real cold snap over the
Speaker 1: next week and potentially a whole lot longer. Uh. Certainly, Uh,
Speaker 1: it is not so warm a Chicago. But I am
Speaker 1: in Hong Kong where we have a new campus and
Speaker 1: complex here and we just had an opening and through
Speaker 1: the really spectacular and strictly spectacular because it's not freezing. Um.
Speaker 1: These cold snaps can have negative impacts on economic actor.
Speaker 1: It will depend on how long it's sustained. If it's
Speaker 1: just a day or two, it really won't leave much
Speaker 1: of the more. Randa Crosser, thank you so much. The
Speaker 1: former governor of the fellow Reserve Wisconsin, Degree Hong Kong
Speaker 1: he is John may I stayed editorially, Professor Krasner is
Speaker 1: smarter than we are. Yes, So let us migrate forward
Speaker 1: to trade, which is the most important right now. Let
Speaker 1: us do that with Debra Lett Paulson Institute Vice Chairman. Debora,
Speaker 1: great to have you with us on the program. High
Speaker 1: level trade talks commencing in Washington, d C. What is
Speaker 1: your base case this week? Well, it's a very positive
Speaker 1: sign that Vice Premier Leoja is here and the chances
Speaker 1: I think are good that they'll get some kind of
Speaker 1: framework deal, not not the final deal, but at least
Speaker 1: enough to have it go to the two presidents to finalize. So, Debor,
Speaker 1: is that something a little bit more than talks about talks.
Speaker 1: What do you think the framework will actually look like? Well,
Speaker 1: there are several components that need to be included in
Speaker 1: any kind of final deal. One, the President has made
Speaker 1: clear that he wants to see additional exports from the
Speaker 1: United States to China, so expect the Chinese to announce
Speaker 1: purchases of US products they've already announced some in the
Speaker 1: agricultural area, including commitments on soybeans, and then there needs
Speaker 1: to be market access for companies. You know, it's it
Speaker 1: is um It doesn't make sense at all when you've
Speaker 1: got the largest banks in the world in China and
Speaker 1: you can't have a hundercent owned securities firm. Where are
Speaker 1: we on the legal history of joint ventures? If we're
Speaker 1: going to do more with trade, there has to be combinations, mergers,
Speaker 1: joint ventures. Can US companies still go in and do
Speaker 1: jvs to get things done in China? Legally they're allowed,
Speaker 1: of course to go in and do joint ventures, but
Speaker 1: I think what the government US government is pushing for
Speaker 1: is that the voice of a joint venture should be
Speaker 1: up to the company and based on commercial terms, not
Speaker 1: to be required by the Chinese government. Obviously, we understand
Speaker 1: if there are some sectors that are sensitive, but the fact,
Speaker 1: as I was saying, if you have you know, the
Speaker 1: Goldman Sacks or JP Working can't have in a hundred
Speaker 1: percent owned securities firm is just outrageous. Debora. We honor
Speaker 1: at a point where maybe China is beyond having the
Speaker 1: standard excuse of an emerging market, where by they need
Speaker 1: to do these kind of things. But do you think
Speaker 1: we are passed that point with China? Is China developed
Speaker 1: enough that they can no longer lean on that emerging
Speaker 1: market status as an excuse. I think in in some
Speaker 1: sectors it might be an excuse, but in those we
Speaker 1: need to see some kind of timetable for opening. But
Speaker 1: certainly in some sectors, particularly in the financial and technology area,
Speaker 1: there's no excuse at all. Debora Laerwether, she's vice chairman
Speaker 1: Pulson Institute, and we get we're we have a run
Speaker 1: for an hour to talk about some of the questions
Speaker 1: of antiquity. She's expert in the world's antiquities. Let's dovetail
Speaker 1: trade into that. All him at trade Deborah Lair, Which
Speaker 1: is tourism And I can go back to the seventy
Speaker 1: four and the magic of finding the terra cotta army
Speaker 1: in China. Everyone goes there, everybody makes a track. It's
Speaker 1: one of the few reasons to go inland from the
Speaker 1: Pacific rim for American tourists. Is tourism part of the
Speaker 1: trade debate? And where is that right now? That's an
Speaker 1: excellent question. It hasn't really been part of the debate,
Speaker 1: although It's one of the us is great exports and
Speaker 1: certainly one of China's great exports. The numbers of Chinese
Speaker 1: tourists continue to grow significantly, and it's become a huge
Speaker 1: potential market for you know, countries like France, which is
Speaker 1: the number one destination, and even now growing for countries
Speaker 1: in the Middle East. Well, I mean John Farrell sees
Speaker 1: that when he's in Gucci on Fifth Avenue. I get that,
Speaker 1: But what about us over there? When Americans go over
Speaker 1: to China? Has that diminished? With all the uproar of
Speaker 1: the last couple of years it has there is not
Speaker 1: the same numbers of American tourists traveling, even though there's
Speaker 1: a significant number. It's it has been um dropped because
Speaker 1: there have been concerns, including travel warnings, coming out of
Speaker 1: the State Department. Recently. Let's talk about something that came
Speaker 1: out the Department of Justice in the last couple of days.
Speaker 1: This following paragraph. The alleged conduct described in the indictment
Speaker 1: occurred from and includes an internal Huawei announcement that the
Speaker 1: company was offering bonuses to employees who succeeded in stealing
Speaker 1: confidential information from other companies, ratcheting up the pressure on
Speaker 1: Huawei ahead of these trade talks. Debora, how does this
Speaker 1: feature as these individuals sit down in Washington, d C.
Speaker 1: To try and come up with what you describe as
Speaker 1: a trade framework. It's Huawei the elephant in the room.
Speaker 1: I'm not driven to the elephant in the room, but
Speaker 1: it's certainly like the Chinese government going after Microsoft, IBM,
Speaker 1: and Apple all at the same time. I mean, it's
Speaker 1: a it's a national champion in terms of it's a
Speaker 1: company that people are very proud of. And while Huawei
Speaker 1: has been under its scrutiny for almost too years, this
Speaker 1: is the first time they've gone after it in a
Speaker 1: significant way, and the Justice Department has decided to go
Speaker 1: after an individual, which is what has really gotten people's
Speaker 1: attention in China versus just the company like they did
Speaker 1: with z T. But from where you sit to John's
Speaker 1: good question, the Chinese at these tables of trade can't
Speaker 1: ignore that, can they? Given the history and heritage of
Speaker 1: mss Meng with the Communist Party, No, they can't ignore it.
Speaker 1: I mean it's a very significant issue, and as I said,
Speaker 1: it's it's gotten a lot of attention in China because
Speaker 1: they have gone after an individual versus the company. And
Speaker 1: while they understand, maybe not completely, but at least a
Speaker 1: little bit, that our justice system works separately from the
Speaker 1: political system, the fact that the President did come out
Speaker 1: and say it could potentially be part of a trade
Speaker 1: deal led many to believe that this was political. This
Speaker 1: has been very helpful Debra Laying because so much. She's
Speaker 1: vice chairman the Pulsit Institute and greatly appreciated John. I
Speaker 1: thought you phrased that question just perfectly about you know,
Speaker 1: thinks there's as she said, if it was a T
Speaker 1: and tier Microsoft or Apple, we'd be in an uproar. Yeah. Best.
Speaker 1: Let's be clear about something though. The Chinese have blocked
Speaker 1: many American companies from operating within China, so I know
Speaker 1: this is a very different It's not it's not apples
Speaker 1: for apples, but certainly let's not pretend that we have
Speaker 1: sort of unfettered access into Chinese. That is why they're
Speaker 1: sitting around the table down in Washington today, because the
Speaker 1: United States does not. I would say, on and off
Speaker 1: the record, the thunderous consensus of every CEO of ever
Speaker 1: talked to is j VS always disappointed China. If you
Speaker 1: are lucky folks to fed date you can well, you
Speaker 1: can run the shop at the Richmond Fed for years
Speaker 1: with Marvin Goodfriend. That's what Mr broad Us did. Or
Speaker 1: if you're lucky, you can go to one of the
Speaker 1: coolest schools in the country, Washington Lee, which is basically
Speaker 1: in the middle of nowhere, where everybody's smart and well attended.
Speaker 1: But if you're really lucky, you can go to one
Speaker 1: of the most beautiful high schools in this nation. It
Speaker 1: is Thomas Jefferson High School. It is on the National
Speaker 1: Register of Historic Whatever Al brought us, What was it
Speaker 1: like to be in that building as a kid, to
Speaker 1: Thomas Jefferson High School? Gosh, just been a long time.
Speaker 1: Tom graduated in fifty seven. But uh, that building is
Speaker 1: a magnificent building. Not many people recognize that it's you know,
Speaker 1: obviously not doesn't look away at that fifty years ago.
Speaker 1: But it was a huge school at the time. We
Speaker 1: had about two thousands. Of course, a whole different era,
Speaker 1: but that was back in another time there. It's back
Speaker 1: when we built schools like jewels, folks, and that's something
Speaker 1: maybe we could learn from in the past. Al brought us.
Speaker 1: I want to go right to inflation, right now you've
Speaker 1: always been uh, not rigid, but you know, watchful of
Speaker 1: inflation in the hindsight of a decade. What did the
Speaker 1: inflation he's just get wrong about this time of disinflation. Uh, yes, well,
Speaker 1: you know, of course I have. Most of my career,
Speaker 1: Tom was one of fighting to bring inflation down and
Speaker 1: establish FED credibility for the ability to do that and
Speaker 1: the commitment to do that for the long run. We
Speaker 1: got there, I think about the end of the of
Speaker 1: the last century and have been dealing with a different
Speaker 1: situation now. Uh. And it's been tough, and it's created
Speaker 1: this this problem of low interest rates. Uh. The zero
Speaker 1: bound is an issue that we've had to deal with them.
Speaker 1: And you know what's come out of that, quantitative easing
Speaker 1: and and all of that, and that's you know, that's
Speaker 1: still a work in progress. And I think, uh, I
Speaker 1: think God I had left the FED by the time
Speaker 1: we got to the crisis in in eight and oh nine.
Speaker 1: My personal belief is that while that was rough and
Speaker 1: ragged in many ways, I believe that bernanke and and
Speaker 1: Janet Yellen and others that the FIT at the time
Speaker 1: did a great job of getting us through that without
Speaker 1: even worse consequences. So now we're settling down and trying
Speaker 1: to still trying to deal with some of the problems
Speaker 1: that that creator dr brought us. We're going to hear
Speaker 1: from the FED later this afternoon. UM, I think most
Speaker 1: people are probably focusing a little bit more on the
Speaker 1: balance sheet management from the Fed. What do you expect
Speaker 1: to hear today? Uh, you know that's I'm not sure
Speaker 1: we're going to hear anything, but we may. Sorry for
Speaker 1: the ambiblit answer, but let let me try to put
Speaker 1: it this way. I think there are a number of
Speaker 1: people out there, uh, some in the political arena of
Speaker 1: some market professionals and traders who would like to see
Speaker 1: some indication from the FED that it will back off
Speaker 1: from its current program of trying to reduce the balance sheet,
Speaker 1: not necessarily in the program, but slow it down maybe
Speaker 1: posit uh those on. From a political perspective, there there's
Speaker 1: some who feel that this is an additional element of
Speaker 1: tightening by the FED that's unwarranted in the current economic situation.
Speaker 1: From the standpoint of the market professional financial market professionals,
Speaker 1: I think there is a view, uh on the part
Speaker 1: of many of these folks that, uh, this is creating
Speaker 1: a liquidity problem, a scarcity of reserves, which is which
Speaker 1: is part of the reason of some of the volatility
Speaker 1: in markets. Okay, against that background, uh, this this would
Speaker 1: be my take. There's something at the FED itself. Within
Speaker 1: the FED, there is a discussion going on that is
Speaker 1: not really about current economic conditions, current monetary policy prospects,
Speaker 1: but about really down the weeds issue, which is how
Speaker 1: the FIT operates its operating procedure for controlling its target
Speaker 1: federal fundery And without trying to go into any of
Speaker 1: the long detail about this recent development, is a growing
Speaker 1: view within the FIT that the that they can, over
Speaker 1: the long run adopt a control procedure which would allow
Speaker 1: the balance sheet to beat larger. In other words, it
Speaker 1: would still be smaller than than uh it is now,
Speaker 1: but would allow the FED not to reduce it so much. Uh.
Speaker 1: If that, I don't think they've made that decision. I
Speaker 1: think it's likely to be discussed at this meeting. If
Speaker 1: they were to reach some sort of consensus that this
Speaker 1: is a good thing, then Chairman Powell more in his
Speaker 1: press conference hint at that and maybe give some sense
Speaker 1: that that the feds terminal balance sheet level will be
Speaker 1: higher than had been thought before, and that might create
Speaker 1: the possibility of some slowing in this process, or even
Speaker 1: some pause on that some sense of a long answer.
Speaker 1: But I hope that answers the question now. Absolutely. I'm
Speaker 1: just kind of I think most people are trying to
Speaker 1: get a sense of where that level might be. It's
Speaker 1: certainly not as low as two and a half trillion,
Speaker 1: is it? Do you have a best guess or where
Speaker 1: you think that might come out? Or they think that
Speaker 1: might be hard to say, but I would I would
Speaker 1: say that it would if they at an earlier stage
Speaker 1: of this, when they when they first began this process,
Speaker 1: and I think the number you just cited two and
Speaker 1: a half maybe a little bit more, was sort of
Speaker 1: thought that would be the endgame under this new development
Speaker 1: that I just described. It could be I guess its
Speaker 1: highest three and a half or maybe somewhat below the
Speaker 1: four trillion, But that's you know, that's a guess. Are
Speaker 1: we gonna see albrought us a history of forward guidance
Speaker 1: anytime soon? Are we are we able to say that
Speaker 1: Ford guidance is done, We're back to data dependency, and
Speaker 1: it's time to write a Richmond fed history like Thomas
Speaker 1: Humphrey would write, well, Uh, you know, I think the
Speaker 1: Ford guidance has has played That's to go back to
Speaker 1: your earlier question, Tom, in this new world, uh more
Speaker 1: deflation is a greater risk than it was in All
Speaker 1: that's from that Ford guidance has has been an important
Speaker 1: tool that the FED has been able to use, uh
Speaker 1: to deal with the challenge face that it faces with
Speaker 1: with the with low interest ration in the zero bound.
Speaker 1: So it's an important, uh tool, and it's one that
Speaker 1: needs to be understood better and analyzed. We really haven't
Speaker 1: gotten that yet, but at some point, I think economic
Speaker 1: historians like Tom Humphrey a wonderful colleague of mine, but
Speaker 1: other people as well. Uh, we'll look at that dish. Yeah,
Speaker 1: evaluate how well it was implemented over the last let's say,
Speaker 1: fifteen years ago, and maybe learn something about how to
Speaker 1: do it better going forward. That's still still all all
Speaker 1: the work in progress. Yeah, thank you so much. I'll
Speaker 1: brought us who really brought history to the FED with
Speaker 1: his term at the Richmond and Fred Tom Humphrey I've
Speaker 1: had the ability to interview. I love what the Giant
Speaker 1: Mark blog said about Thomas Humphrey of the Richmond Fed,
Speaker 1: the undisputed master of the history of monetary economics. I'll
Speaker 1: try to get out on Twitter the wonderful Richmond uh
Speaker 1: compendium of what Tom Humphrey did over his wonderful career
Speaker 1: on economic history. Thanks for listening to the Bloomberg Surveillance podcast.
Speaker 1: Subscribe and listen to reviews on Apple Podcasts, SoundCloud, or
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom
Speaker 1: Keene before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio