1 00:00:09,720 --> 00:00:12,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 2 00:00:13,560 --> 00:00:16,520 Speaker 1: David Gura. Daily we bring you insight from the best 3 00:00:16,560 --> 00:00:22,279 Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance 4 00:00:22,320 --> 00:00:27,000 Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,320 --> 00:00:33,839 Speaker 1: on the Bloomberg Good Morning on this Friday morning. This 6 00:00:33,840 --> 00:00:36,680 Speaker 1: is Bloomberg Surveillance on Bloomberg Radio. David Gura in New York, 7 00:00:36,680 --> 00:00:40,479 Speaker 1: Francy Laqua in London, Michael McKee out in Jackson Whole, Wyoming. 8 00:00:40,560 --> 00:00:42,680 Speaker 1: He and his production team making sure all the bison 9 00:00:42,840 --> 00:00:44,519 Speaker 1: and elk are in place for the start of his 10 00:00:44,560 --> 00:00:46,760 Speaker 1: interview with the Robert Kaplan, the President and CEO of 11 00:00:46,760 --> 00:00:49,080 Speaker 1: the Fed Reserve Bank of Dallas. We're gonna be carrying 12 00:00:49,080 --> 00:00:51,760 Speaker 1: that interview for you live here in just a few minutes. Again, 13 00:00:51,800 --> 00:00:55,040 Speaker 1: our focus here this morning really on the economic policy conference. 14 00:00:55,080 --> 00:00:58,360 Speaker 1: Said that the Kansas City Fed convenes annually at Grandtetown 15 00:00:58,440 --> 00:01:00,920 Speaker 1: National Park in Jackson Hole, Wyoming. A number of our 16 00:01:00,920 --> 00:01:03,400 Speaker 1: colleagues are out there now. Really things get under way 17 00:01:03,480 --> 00:01:06,479 Speaker 1: this morning with a big speech by Fed chair Janet Yellen. 18 00:01:06,520 --> 00:01:09,360 Speaker 1: She's speaking this morning at ten o'clock at Wall Street time. 19 00:01:09,920 --> 00:01:12,520 Speaker 1: She's expected to talk about financial stability. Of course, that's 20 00:01:12,560 --> 00:01:14,560 Speaker 1: what it's being billed as. That's the headline, the big 21 00:01:14,560 --> 00:01:17,160 Speaker 1: descriptor that the Federal Reserve has given us. We'll see 22 00:01:17,160 --> 00:01:18,840 Speaker 1: if she she sticks to it. This has been an 23 00:01:18,840 --> 00:01:21,759 Speaker 1: event where there is the agenda. We get that about 24 00:01:21,800 --> 00:01:24,360 Speaker 1: a day in advance. Yet you've had some big speeches 25 00:01:24,400 --> 00:01:28,160 Speaker 1: and pivotal moments in Jackson Hole as central bankers veer 26 00:01:28,200 --> 00:01:30,800 Speaker 1: off script a little bit and maybe take the opportunity 27 00:01:30,840 --> 00:01:32,880 Speaker 1: to talk about what's going to be happening here in 28 00:01:32,920 --> 00:01:35,319 Speaker 1: the near term. And you've got three big central bank 29 00:01:35,800 --> 00:01:37,760 Speaker 1: heads out in Jackson Hole right now, as I mentioned, 30 00:01:37,800 --> 00:01:40,000 Speaker 1: fed Cher Jenny Ellen speaking this morning. Mario drag the 31 00:01:40,040 --> 00:01:42,319 Speaker 1: President of the e c B, schedule to take the 32 00:01:42,360 --> 00:01:45,880 Speaker 1: stage with a lectern inside the Jackson Lake Lodge UH 33 00:01:45,880 --> 00:01:48,680 Speaker 1: this afternoon at three o'clock a Wall Street time, and 34 00:01:48,960 --> 00:01:51,680 Speaker 1: Governor Coroda of the Bank of Japan is in Wyoming 35 00:01:51,720 --> 00:01:54,200 Speaker 1: as well. He's not on the official schedule, He's not 36 00:01:54,240 --> 00:01:57,000 Speaker 1: delivering a speech or speaking on a panel, but he 37 00:01:57,120 --> 00:01:59,440 Speaker 1: is there as a participant, mixing and mingling with other 38 00:02:00,000 --> 00:02:04,640 Speaker 1: monetary policy makers and academics who study macroeconomics who are 39 00:02:04,640 --> 00:02:06,800 Speaker 1: out in Jackson, holl Michael mckeys I mentioned out there. 40 00:02:06,800 --> 00:02:08,880 Speaker 1: Now he's sitting down with the President and CEO of 41 00:02:08,880 --> 00:02:12,400 Speaker 1: the Federal Reserve Bank of Dallas, Robert Kaplan. Good morning, 42 00:02:12,400 --> 00:02:14,920 Speaker 1: and we'd like to welcome all of our viewers to 43 00:02:15,000 --> 00:02:17,640 Speaker 1: Bloomberg Television and listeners to Bloomberg Radio. As we speak 44 00:02:17,680 --> 00:02:19,799 Speaker 1: with Robert Kaplan, who is the President of the Federal 45 00:02:19,840 --> 00:02:23,520 Speaker 1: Reserve Bank of Dallas. You've given a number of speeches 46 00:02:23,919 --> 00:02:27,000 Speaker 1: in recent days and interviews in which you've said you 47 00:02:27,120 --> 00:02:30,400 Speaker 1: want to be cautious about monetary policy. So let me 48 00:02:30,400 --> 00:02:32,280 Speaker 1: put it bluntly, what are you afraid of? What are 49 00:02:32,280 --> 00:02:37,079 Speaker 1: you being cautious about? Uh? It's what I've said. The 50 00:02:37,120 --> 00:02:39,359 Speaker 1: word I've used is actually patient. And here's the reason 51 00:02:39,440 --> 00:02:42,600 Speaker 1: I said patient. I've been a strong advocate that we 52 00:02:42,680 --> 00:02:46,080 Speaker 1: raised the Fed funds rate twice this year. UH. And 53 00:02:46,240 --> 00:02:50,839 Speaker 1: that gets us to my own judgment is that we're 54 00:02:50,840 --> 00:02:55,600 Speaker 1: making progress on reaching full employment. UH. GDP should grow 55 00:02:55,600 --> 00:02:58,120 Speaker 1: in excess to two percent this year. We're obviously not 56 00:02:58,160 --> 00:03:01,200 Speaker 1: meeting our inflation target. But the bigger, bigger thing I 57 00:03:01,200 --> 00:03:03,720 Speaker 1: would say is we're a little closer to the neutral 58 00:03:03,840 --> 00:03:06,720 Speaker 1: rate than people might think. I think ten years ago 59 00:03:06,760 --> 00:03:08,640 Speaker 1: I might have said the neutral rate of viewers might 60 00:03:08,680 --> 00:03:10,480 Speaker 1: have thought the neutral rate the rate which were neither 61 00:03:10,480 --> 00:03:14,280 Speaker 1: accommodative or restrictive, maybe four or five percent. Today I 62 00:03:14,320 --> 00:03:17,200 Speaker 1: think that number maybe as closer to the mid two's, 63 00:03:17,760 --> 00:03:22,040 Speaker 1: between two and three. That means that we're accommodative, but 64 00:03:22,120 --> 00:03:25,359 Speaker 1: not quite as accommodative as people think. And I think 65 00:03:25,360 --> 00:03:28,360 Speaker 1: there are a number of structural forces in the economy 66 00:03:28,520 --> 00:03:31,600 Speaker 1: that are creating a muting effect on inflation. So I 67 00:03:31,639 --> 00:03:34,239 Speaker 1: think we should be removing accommodation, but I think it 68 00:03:34,240 --> 00:03:37,000 Speaker 1: should be done gradually and patiently. And I think we 69 00:03:37,040 --> 00:03:39,480 Speaker 1: can afford to do it gradually impatiently. And that's all 70 00:03:39,520 --> 00:03:42,240 Speaker 1: I've been advocating. I want to be patient and see 71 00:03:42,240 --> 00:03:46,560 Speaker 1: how these forces are unfolding regarding inflation. And I think 72 00:03:46,560 --> 00:03:49,240 Speaker 1: we can afford to be patient. And that doesn't mean 73 00:03:49,240 --> 00:03:51,240 Speaker 1: we might not raise one more time this year, but 74 00:03:51,280 --> 00:03:53,520 Speaker 1: I'd like to see more data that we're making progress 75 00:03:53,520 --> 00:03:55,600 Speaker 1: in our inflation mandate, and I think we have the 76 00:03:55,600 --> 00:03:58,320 Speaker 1: ability to do that. If inflation stays about where it is, 77 00:03:58,400 --> 00:04:01,600 Speaker 1: does that rule out December for you? I don't want 78 00:04:01,600 --> 00:04:04,760 Speaker 1: to pre judge it. I still believe that the cyclical forces, 79 00:04:04,840 --> 00:04:07,800 Speaker 1: you know, as as we're as we're removing slack from 80 00:04:07,800 --> 00:04:10,920 Speaker 1: the labor force, more people are employed, we're creating, uh. 81 00:04:11,480 --> 00:04:14,560 Speaker 1: Some wage pressure we're creating were likely to create with 82 00:04:14,600 --> 00:04:16,600 Speaker 1: a lack of some price pressure, not the way we 83 00:04:16,600 --> 00:04:19,080 Speaker 1: would have seen historically. So I think it won't be 84 00:04:19,120 --> 00:04:21,800 Speaker 1: as binary as the inflation doesn't move. I think inflation 85 00:04:21,839 --> 00:04:24,840 Speaker 1: pressures are moving. I just think they're moving gradually, and 86 00:04:24,880 --> 00:04:28,279 Speaker 1: I think the FED can afford to remove accommodation therefore 87 00:04:28,560 --> 00:04:32,120 Speaker 1: gradually impatiently. Do you think at the current level of 88 00:04:32,279 --> 00:04:35,240 Speaker 1: interest rates there's any danger to the economy that the 89 00:04:35,279 --> 00:04:40,400 Speaker 1: FED could slow things down? Can can currently? If you 90 00:04:40,640 --> 00:04:43,520 Speaker 1: leave rates where they are, is that going to actually 91 00:04:43,800 --> 00:04:46,760 Speaker 1: help bring inflation up? I think we're the key The 92 00:04:46,839 --> 00:04:49,200 Speaker 1: key judgment you make when you're talking about it is 93 00:04:49,200 --> 00:04:52,080 Speaker 1: are we accommodated? And I think we clearly are. Let's 94 00:04:52,080 --> 00:04:54,800 Speaker 1: say the neutral rate today, for example, is in the 95 00:04:54,839 --> 00:05:00,159 Speaker 1: mid twos and word, we're still accommodative. And so I 96 00:05:00,160 --> 00:05:03,080 Speaker 1: think that should, all things being equal, be stimulative the economy, 97 00:05:03,080 --> 00:05:04,599 Speaker 1: and I think that's where we are. And I think 98 00:05:04,600 --> 00:05:08,400 Speaker 1: the uh, the performance of the economy is consistent with 99 00:05:08,400 --> 00:05:12,039 Speaker 1: with that view. Jenny Yellen talking about financial stability today, 100 00:05:12,040 --> 00:05:13,960 Speaker 1: we don't know what she's gonna say, but one aspect 101 00:05:14,040 --> 00:05:17,560 Speaker 1: of that is whether or not asset prices are overvalued. 102 00:05:17,560 --> 00:05:19,520 Speaker 1: And there are colleagues of yours who make the case 103 00:05:19,839 --> 00:05:23,919 Speaker 1: that with the FED rate tightenings we've seen financial conditions 104 00:05:23,920 --> 00:05:26,760 Speaker 1: are still going down getting looser, and that justifies a 105 00:05:26,880 --> 00:05:29,960 Speaker 1: rate increase. So the thing I look for, and I've 106 00:05:30,000 --> 00:05:31,480 Speaker 1: spent my career, as you know, on the market, so 107 00:05:31,520 --> 00:05:35,040 Speaker 1: I'm not a PhD economist. I'm a business person. Uh. 108 00:05:35,360 --> 00:05:40,080 Speaker 1: It's not that high market valuations pose the threat high pees, 109 00:05:40,400 --> 00:05:42,839 Speaker 1: low cap rates for real estate. What I'm looking for 110 00:05:43,360 --> 00:05:47,279 Speaker 1: is debt build up associated with those high valuations, and 111 00:05:47,320 --> 00:05:49,799 Speaker 1: that's what I'm watching for. I think a market correction 112 00:05:50,839 --> 00:05:54,040 Speaker 1: or real estate correction is not necessarily going to create 113 00:05:54,080 --> 00:05:56,120 Speaker 1: a systemic risk or slow the economy. I think it 114 00:05:56,200 --> 00:05:59,440 Speaker 1: might even be healthy. But I'm looking for debt build 115 00:05:59,480 --> 00:06:02,480 Speaker 1: up is so seated with it. So far, I don't 116 00:06:02,600 --> 00:06:04,720 Speaker 1: see that, but I'm watching for it. I think one 117 00:06:04,720 --> 00:06:06,720 Speaker 1: of the reasons I haven't seen it is we've had 118 00:06:06,880 --> 00:06:11,000 Speaker 1: very strong macropudential policies for big banks, annual stress testing 119 00:06:11,279 --> 00:06:14,080 Speaker 1: and other strong measures that have served as well. So 120 00:06:14,560 --> 00:06:17,960 Speaker 1: I'm more focused on debt build up and other excesses 121 00:06:18,200 --> 00:06:21,200 Speaker 1: than i am valuation. But I think as you get 122 00:06:21,279 --> 00:06:24,880 Speaker 1: higher valuations and tighter credit spreads, it tends to encourage 123 00:06:24,880 --> 00:06:27,440 Speaker 1: people to take more risk, to use more leverage, reach 124 00:06:27,480 --> 00:06:29,760 Speaker 1: for a liquid assets. So I'm watching for that. Are 125 00:06:29,800 --> 00:06:32,000 Speaker 1: there any areas that you are concerned about? If you're 126 00:06:32,040 --> 00:06:34,479 Speaker 1: not worried about equity prices in general, but are there 127 00:06:34,520 --> 00:06:37,560 Speaker 1: are other asset classes? Well, I've come in a lot 128 00:06:37,600 --> 00:06:41,320 Speaker 1: this year. I've I'm watching for either excess debt build 129 00:06:41,400 --> 00:06:44,680 Speaker 1: up or people in asset classes that look liquid that 130 00:06:44,800 --> 00:06:49,160 Speaker 1: in a crisis become illiquid. So, for example, I've been scrutinizing, 131 00:06:49,200 --> 00:06:51,640 Speaker 1: and I've said this publicly, the high yield funds that 132 00:06:51,680 --> 00:06:54,360 Speaker 1: offer daily liquidity equidity. I used to run the high 133 00:06:54,400 --> 00:06:57,640 Speaker 1: yield business in my business career before I did other things, 134 00:06:58,000 --> 00:06:59,719 Speaker 1: and I know that a high yield bond is a 135 00:06:59,720 --> 00:07:02,000 Speaker 1: great example of an asset class that might be liquid 136 00:07:02,000 --> 00:07:05,599 Speaker 1: today but in a crisis is very illiquid, and so 137 00:07:05,760 --> 00:07:08,560 Speaker 1: to offer daily liquidity creates a mismatch. I think the 138 00:07:08,600 --> 00:07:11,320 Speaker 1: industry has worked to try to address that. But that's 139 00:07:11,360 --> 00:07:14,320 Speaker 1: an example of an excess that I'm watching. I think 140 00:07:14,360 --> 00:07:18,080 Speaker 1: it's manageable, though, uh, And I'm looking for things like 141 00:07:18,160 --> 00:07:22,600 Speaker 1: that obviously, credit default swaps, counterparty exposure and those things. 142 00:07:22,840 --> 00:07:25,000 Speaker 1: I think we now have a better grip on because 143 00:07:25,000 --> 00:07:27,720 Speaker 1: we have good stress testing. We didn't have good stress 144 00:07:27,760 --> 00:07:30,320 Speaker 1: testing pre crisis, and I think it's the main thing. 145 00:07:30,320 --> 00:07:32,560 Speaker 1: And all this talk about regulatory review, which I think 146 00:07:32,640 --> 00:07:35,600 Speaker 1: is healthy, we need to maintain though, for big banks, 147 00:07:35,840 --> 00:07:38,720 Speaker 1: annual stress testing, and I think that's why you get out, 148 00:07:38,880 --> 00:07:41,400 Speaker 1: That's how you get at in a stress scenario, whether 149 00:07:41,440 --> 00:07:44,640 Speaker 1: you've got these embedded imbalances. Do you think investors are 150 00:07:44,640 --> 00:07:48,840 Speaker 1: too complacent these days? I think the investors have gotten 151 00:07:48,920 --> 00:07:50,320 Speaker 1: used to the idea that rates are going to be 152 00:07:50,320 --> 00:07:53,720 Speaker 1: lower for longer, you know, with a tenure treasury at 153 00:07:53,840 --> 00:07:58,960 Speaker 1: T twenty approximately and global interest rates much lower, I 154 00:07:59,000 --> 00:08:02,040 Speaker 1: think people are starting to get comfortable with the idea 155 00:08:02,560 --> 00:08:05,880 Speaker 1: that maybe we should get used to these low rates. 156 00:08:05,920 --> 00:08:08,000 Speaker 1: And the reason I think they're getting used to it 157 00:08:08,080 --> 00:08:12,760 Speaker 1: is perspective growth. While it's solid, it doesn't it doesn't 158 00:08:12,760 --> 00:08:15,520 Speaker 1: look like it's gonna get meaningfully better. One of those 159 00:08:15,560 --> 00:08:20,600 Speaker 1: reasons is aging, aging population, slower workforce growth, which is 160 00:08:20,640 --> 00:08:24,040 Speaker 1: a headwind for all Western economies. So ironically, even though 161 00:08:24,280 --> 00:08:28,160 Speaker 1: aging demographics and other headwinds should slow GDP growth, they 162 00:08:28,240 --> 00:08:31,840 Speaker 1: keep rates low, and so investors are started starting to 163 00:08:31,880 --> 00:08:35,319 Speaker 1: get comfortable with low cap rates for real estate. Higher 164 00:08:35,400 --> 00:08:37,720 Speaker 1: p s might be justified because we could be in 165 00:08:37,760 --> 00:08:40,439 Speaker 1: this regime for an extended period of time. So does 166 00:08:40,440 --> 00:08:42,800 Speaker 1: that argue in favor of going ahead with the balance 167 00:08:42,840 --> 00:08:45,160 Speaker 1: sheet reduction? As a voting member this year, is there 168 00:08:45,160 --> 00:08:47,240 Speaker 1: any reason to think you won't do it? Announce it 169 00:08:47,280 --> 00:08:49,480 Speaker 1: in September. So while I've said I want to be 170 00:08:49,520 --> 00:08:51,720 Speaker 1: patient and gradual and interest rates, I believe we should 171 00:08:51,760 --> 00:08:54,280 Speaker 1: be moving on the balance sheet UH as soon as 172 00:08:54,320 --> 00:08:58,000 Speaker 1: possible in the very near future. And I think beginning 173 00:08:58,000 --> 00:09:01,319 Speaker 1: this balance sheet reduction is a hell the thing. It's 174 00:09:01,360 --> 00:09:03,679 Speaker 1: a good thing. Central banks around the world owned now 175 00:09:03,720 --> 00:09:07,679 Speaker 1: a substantial percentage of government bonds. It may be having 176 00:09:07,840 --> 00:09:12,280 Speaker 1: some effect on the tenure and the term premium UH, 177 00:09:12,320 --> 00:09:13,880 Speaker 1: and so I think that would be a good thing. 178 00:09:14,000 --> 00:09:17,520 Speaker 1: I think we've articulated a very clear plan publicly on 179 00:09:17,559 --> 00:09:19,719 Speaker 1: how we're going to reduce the balance sheet. I think 180 00:09:19,760 --> 00:09:22,319 Speaker 1: it's now time to get started, uh, and I think 181 00:09:22,360 --> 00:09:25,200 Speaker 1: we can do this in an appropriate way UH and 182 00:09:25,240 --> 00:09:27,200 Speaker 1: get our balance sheets smaller. And I think that's a 183 00:09:27,200 --> 00:09:29,680 Speaker 1: healthy thing. We should begin as soon. We are live 184 00:09:29,760 --> 00:09:33,160 Speaker 1: in Jackson Hole with Robert Kaplan as the president of 185 00:09:33,240 --> 00:09:35,480 Speaker 1: the Dallas Federal Reserve Bank. We're live around the world 186 00:09:35,480 --> 00:09:38,880 Speaker 1: on Bloomberg Television and radio. Let's continue talking about the 187 00:09:38,880 --> 00:09:41,680 Speaker 1: balance sheet. What impact do you think it is going 188 00:09:41,720 --> 00:09:45,800 Speaker 1: to have on markets? Uh? When you blew up the 189 00:09:45,800 --> 00:09:48,520 Speaker 1: balance sheet, asset prices rose, We're going to see the 190 00:09:48,559 --> 00:09:52,760 Speaker 1: same thing happen in reverse. So here's what's changed from 191 00:09:52,800 --> 00:09:55,679 Speaker 1: the time. And I was an observer in infecting in 192 00:09:55,720 --> 00:09:58,280 Speaker 1: the business world watching this when we did it, because 193 00:09:58,280 --> 00:10:01,400 Speaker 1: I wasn't at the FED UM at the time. At 194 00:10:01,400 --> 00:10:04,280 Speaker 1: the time the Feds started to do QUEI and buy 195 00:10:05,240 --> 00:10:08,520 Speaker 1: buy bonds, Uh, it was in the early stages globally 196 00:10:09,040 --> 00:10:12,440 Speaker 1: of central banks buying more government bonds. Uh. We're now 197 00:10:12,520 --> 00:10:15,720 Speaker 1: at the period today where there's an enormous amount of liquidity. 198 00:10:15,800 --> 00:10:18,360 Speaker 1: Not just the FED, but the e c B and 199 00:10:18,440 --> 00:10:22,280 Speaker 1: many other central banks have participated in this. So I 200 00:10:22,320 --> 00:10:25,320 Speaker 1: actually believe that we will be able. We've crafted a 201 00:10:25,320 --> 00:10:28,719 Speaker 1: plan where we'll be able to we're not selling these securities, 202 00:10:28,840 --> 00:10:33,040 Speaker 1: mortgage backed and treasuries were simply not replacing maturities as 203 00:10:33,080 --> 00:10:36,000 Speaker 1: they as they come to. And we've said we're going 204 00:10:36,040 --> 00:10:38,880 Speaker 1: to do this in a phased in way. We've articulated 205 00:10:38,920 --> 00:10:41,760 Speaker 1: that it's out in the market. Market participants are well 206 00:10:41,800 --> 00:10:44,559 Speaker 1: aware of it. You haven't seen, if anything, the tenure 207 00:10:44,600 --> 00:10:47,200 Speaker 1: and the third year have trended down since we've announced 208 00:10:47,200 --> 00:10:49,680 Speaker 1: the plan. So I'm pretty confident that we can do 209 00:10:49,720 --> 00:10:52,520 Speaker 1: this in a way that minimizes the impact on the 210 00:10:52,520 --> 00:10:55,800 Speaker 1: treasury market and the mortgage backed securities market and UM. 211 00:10:56,280 --> 00:10:58,959 Speaker 1: And I think this has been a plan that's been 212 00:10:58,960 --> 00:11:02,360 Speaker 1: well communicated, and I think it should be effective. We 213 00:11:02,360 --> 00:11:04,080 Speaker 1: don't know what Mario jog is going to say, but 214 00:11:04,480 --> 00:11:08,120 Speaker 1: essentially the ECB has said they will stop buying by 215 00:11:08,120 --> 00:11:10,800 Speaker 1: the end of the year UH and their QUI program. 216 00:11:11,320 --> 00:11:13,640 Speaker 1: How do you think the combination of the FED and 217 00:11:13,679 --> 00:11:16,480 Speaker 1: the ECB is going to affect bond yields? Do you 218 00:11:16,480 --> 00:11:19,319 Speaker 1: have any kind of forecast for what we might see 219 00:11:19,360 --> 00:11:23,000 Speaker 1: and whether we get a de facto tightening. So there's 220 00:11:23,040 --> 00:11:26,480 Speaker 1: no there's no textbook. There was no textbook for building 221 00:11:26,520 --> 00:11:29,840 Speaker 1: up the balance sheet, and there's no textbook for winding 222 00:11:29,880 --> 00:11:32,559 Speaker 1: it down other than what I tend to look at 223 00:11:32,600 --> 00:11:35,679 Speaker 1: in treasuries and mortgage backed securities is what's the daily 224 00:11:35,760 --> 00:11:39,440 Speaker 1: volume and what's the size we're talking about running down 225 00:11:39,440 --> 00:11:42,720 Speaker 1: as a percentage of daily volume. To my I, UH, 226 00:11:42,760 --> 00:11:45,840 Speaker 1: this plan is very manageable. I would believe the e 227 00:11:45,960 --> 00:11:49,240 Speaker 1: c B would look at the same factors if they 228 00:11:49,240 --> 00:11:51,600 Speaker 1: were going to actually start shrinking their balance sheet. Right now, 229 00:11:51,640 --> 00:11:54,240 Speaker 1: they're just talking about slowing the growth, and so I 230 00:11:54,280 --> 00:11:57,720 Speaker 1: think right now, relative to the volume in these markets, 231 00:11:57,760 --> 00:12:01,600 Speaker 1: this plan should be very manageable, and I believe we've 232 00:12:01,600 --> 00:12:03,920 Speaker 1: done in a way that will minimize impacts to the market. 233 00:12:04,360 --> 00:12:06,559 Speaker 1: If you think that the neutral rate is lower than 234 00:12:07,000 --> 00:12:10,200 Speaker 1: we might otherwise think, does that imply that you're gonna 235 00:12:10,240 --> 00:12:13,200 Speaker 1: be ratcheting down your forecast when you get to UH 236 00:12:13,400 --> 00:12:17,600 Speaker 1: the next Summary of economic projections in September. Well, over 237 00:12:17,640 --> 00:12:21,240 Speaker 1: the years, as you know, the UH, the terminal rate, 238 00:12:21,320 --> 00:12:23,160 Speaker 1: which is what you're referring to, which is the rate 239 00:12:23,200 --> 00:12:26,280 Speaker 1: at which central bankers and all of us are saying 240 00:12:26,280 --> 00:12:29,839 Speaker 1: we're going to stop, or the natural rate we should 241 00:12:29,840 --> 00:12:32,760 Speaker 1: get to. It's been inching down over the last number 242 00:12:32,760 --> 00:12:36,200 Speaker 1: of years. UH. It may have a little bit further Togo. 243 00:12:36,320 --> 00:12:38,720 Speaker 1: I'll just speak for myself, not for others around the table. 244 00:12:39,640 --> 00:12:43,160 Speaker 1: I'm of the view that the terminal rate is lower. 245 00:12:43,720 --> 00:12:46,120 Speaker 1: My views on what the terminal rate is is probably 246 00:12:46,120 --> 00:12:49,720 Speaker 1: lower today than it was certainly uh two years ago. 247 00:12:49,960 --> 00:12:52,520 Speaker 1: My views are that it's down somewhat. And I'll have 248 00:12:52,600 --> 00:12:54,760 Speaker 1: to see. I'll be submitting this in September. I don't 249 00:12:54,760 --> 00:12:58,520 Speaker 1: want to pre preview that because it's not appropriate, but yeah, 250 00:12:58,600 --> 00:13:00,559 Speaker 1: I think I think it's close or to the two 251 00:13:00,600 --> 00:13:02,280 Speaker 1: and a half range than it is to three. Well, 252 00:13:02,280 --> 00:13:04,080 Speaker 1: you ask you this way, are you closer to the 253 00:13:04,120 --> 00:13:06,559 Speaker 1: markets now than to what the consensus and the FED 254 00:13:06,640 --> 00:13:12,640 Speaker 1: has been Uh. I mean, it looks like the market 255 00:13:12,760 --> 00:13:16,079 Speaker 1: is basically assuming that the neutral rate is somewhat lower 256 00:13:16,080 --> 00:13:18,800 Speaker 1: than we might have said. But the truth is, uh. 257 00:13:19,040 --> 00:13:21,840 Speaker 1: You look at the tenure treasury. Some of that might 258 00:13:21,920 --> 00:13:25,880 Speaker 1: be central bank liquidity, but it tells you something about 259 00:13:26,520 --> 00:13:29,760 Speaker 1: the expectations of future growth. Uh. To have a tenure 260 00:13:29,840 --> 00:13:32,360 Speaker 1: that's to twenty And I think, like everything else in 261 00:13:32,400 --> 00:13:36,360 Speaker 1: my life and career, I like to I don't always uh, 262 00:13:36,480 --> 00:13:38,679 Speaker 1: I don't always understand what the markets saying, but always 263 00:13:38,720 --> 00:13:40,440 Speaker 1: try to pay attention to what the market saying a 264 00:13:40,440 --> 00:13:43,320 Speaker 1: tenure to twenty is telling me something. Well, we have 265 00:13:43,360 --> 00:13:45,360 Speaker 1: a question from a viewer that goes along those lines. 266 00:13:45,760 --> 00:13:48,000 Speaker 1: What are the forces that have changed the neutral rate? 267 00:13:48,280 --> 00:13:52,840 Speaker 1: I think the biggest driver um UH is prospects for 268 00:13:52,920 --> 00:13:56,480 Speaker 1: future growth, And the biggest issue for me that that 269 00:13:56,720 --> 00:14:01,240 Speaker 1: is affecting perspective growth is democra graphic. It's probably not 270 00:14:01,280 --> 00:14:04,920 Speaker 1: talked about near enough. The US population is aging, the 271 00:14:05,000 --> 00:14:08,520 Speaker 1: workforce growth is slowing. This is not just going on 272 00:14:08,559 --> 00:14:10,600 Speaker 1: the nights going in Japan, is going on in Germany, 273 00:14:10,600 --> 00:14:13,040 Speaker 1: It's going on most of the developed world. It's also 274 00:14:13,440 --> 00:14:17,160 Speaker 1: issue facing China. Uh. They've offset that by increasing their leverage, 275 00:14:17,200 --> 00:14:21,320 Speaker 1: but there they've got a population issue. G DP is 276 00:14:21,360 --> 00:14:25,120 Speaker 1: made up of growth in the workforce and growth in productivity, 277 00:14:25,720 --> 00:14:29,520 Speaker 1: and UH so if you've got slow growing workforce, you 278 00:14:29,560 --> 00:14:33,000 Speaker 1: can deal with that more getting more women into the workforce, 279 00:14:33,040 --> 00:14:36,840 Speaker 1: people working longer, closing the skills gap, banding people, more 280 00:14:36,880 --> 00:14:39,200 Speaker 1: people trained, which I've been a big advocate of. And 281 00:14:39,240 --> 00:14:42,160 Speaker 1: immigration is part of growing the workforce, and it has 282 00:14:42,160 --> 00:14:47,080 Speaker 1: been historically in the United States. But where we stand now, UH, 283 00:14:47,400 --> 00:14:49,920 Speaker 1: slower neutral rate is a function of slower growth and 284 00:14:49,920 --> 00:14:52,440 Speaker 1: I think slower growth has been heavily a function of 285 00:14:52,560 --> 00:14:56,920 Speaker 1: sluggish demographic trends that are going to go on for 286 00:14:56,960 --> 00:14:59,320 Speaker 1: a number of years. We can do some things to 287 00:14:59,360 --> 00:15:02,440 Speaker 1: deal with them, but the reality is workforce growth is 288 00:15:02,480 --> 00:15:05,320 Speaker 1: projected to slow further over the next ten years. What 289 00:15:05,440 --> 00:15:07,760 Speaker 1: gets done will depend to a great extent on what 290 00:15:07,800 --> 00:15:11,040 Speaker 1: happens in Washington. UH, what do you think of the 291 00:15:11,120 --> 00:15:13,440 Speaker 1: Are you optimistic or pessimistic? Let me put it that 292 00:15:13,560 --> 00:15:16,000 Speaker 1: way about what's going to happen on the fiscal side, 293 00:15:16,040 --> 00:15:20,200 Speaker 1: and are you concerned at all about a debt ceiling crisis? So? UH, 294 00:15:20,280 --> 00:15:24,440 Speaker 1: As a central banker, I'm careful about publicly handicapping. As 295 00:15:24,440 --> 00:15:27,320 Speaker 1: a business person, I've regularly tried to handicap what was 296 00:15:27,360 --> 00:15:29,400 Speaker 1: like to happened. As a central banker, I talked more 297 00:15:29,440 --> 00:15:32,160 Speaker 1: about what I think should happen. So I think regulatory 298 00:15:32,240 --> 00:15:35,040 Speaker 1: review is positive and that's ongoing if it's done in 299 00:15:35,080 --> 00:15:38,200 Speaker 1: a sensible way. UH. Infrastructure spending I think could be 300 00:15:38,320 --> 00:15:43,760 Speaker 1: very helpful. UH. Tax reform underlying reform could be positive 301 00:15:44,000 --> 00:15:47,960 Speaker 1: as long as it's not a deficit financed tax reduction. UH. 302 00:15:48,120 --> 00:15:52,320 Speaker 1: I'm a little more concerned about policies relating to trade 303 00:15:52,400 --> 00:15:56,440 Speaker 1: and immigration, because I actually think uh, trading immigration could 304 00:15:56,440 --> 00:15:59,640 Speaker 1: be a source of growth. And so I'm watching these 305 00:15:59,680 --> 00:16:02,000 Speaker 1: different policies and I try to speak out on which 306 00:16:02,000 --> 00:16:03,720 Speaker 1: ones I think will help and which ones I think 307 00:16:03,840 --> 00:16:07,240 Speaker 1: may actually create more heads headwinds. Robert Caplan, President of 308 00:16:07,280 --> 00:16:09,320 Speaker 1: the Dallas Federal Reserve Bank, thank you for joining us. 309 00:16:09,400 --> 00:16:12,520 Speaker 1: Thanks worldwide on Bloomberg Television and Radio. We'll send it 310 00:16:12,600 --> 00:16:14,440 Speaker 1: back to you in the studio. Mike Vickie, thank you 311 00:16:14,480 --> 00:16:16,040 Speaker 1: very much. One of several in reviews Michael's gonna be 312 00:16:16,040 --> 00:16:18,640 Speaker 1: doing throughout the day from the Economic Policy Forum in 313 00:16:18,720 --> 00:16:21,600 Speaker 1: Jackson Whole Wireman convened by the Kansas City had Robert 314 00:16:21,640 --> 00:16:24,560 Speaker 1: Kaplan there the photos Bank of Dallas a very interesting 315 00:16:24,640 --> 00:16:28,480 Speaker 1: perspective given his career. He mentioned his background is in business. 316 00:16:28,720 --> 00:16:30,560 Speaker 1: He was a professor at Harvard Business School and before 317 00:16:30,560 --> 00:16:33,400 Speaker 1: that spent many decades at Goldman Sacks. No doubt we'll 318 00:16:33,400 --> 00:16:35,480 Speaker 1: be talking about what he had to say here as 319 00:16:35,520 --> 00:16:49,440 Speaker 1: the show continues. Taken d in New York, Francy and 320 00:16:49,440 --> 00:16:52,040 Speaker 1: Lockwood in London. Glen Hubard now joins us from Jackson Hole. 321 00:16:52,080 --> 00:16:54,120 Speaker 1: He's a dean of course at the Columbia University Graduate 322 00:16:54,120 --> 00:16:56,200 Speaker 1: School of Business. I served some time in the Treasury 323 00:16:56,200 --> 00:16:59,840 Speaker 1: Department down in Washington as well. He's a participant UH 324 00:16:59,840 --> 00:17:03,120 Speaker 1: in this week's uh A symposium on Monetary Policy convened 325 00:17:03,160 --> 00:17:05,960 Speaker 1: by the Kansas City Fed taking place at Grantina National 326 00:17:06,000 --> 00:17:08,119 Speaker 1: Park in Why. I'm in great to have you with us, 327 00:17:08,119 --> 00:17:10,120 Speaker 1: and a lot to talk about here as I look 328 00:17:10,160 --> 00:17:12,560 Speaker 1: through the agenda for for the conference ahead, let me 329 00:17:12,600 --> 00:17:14,199 Speaker 1: ask you first just to react to a couple of 330 00:17:14,240 --> 00:17:16,800 Speaker 1: things that Robert Kaplan said to our colleague Michael McKee 331 00:17:16,880 --> 00:17:19,040 Speaker 1: just a moment ago. He asked him if we are 332 00:17:19,040 --> 00:17:22,360 Speaker 1: accommodative at this point? Robert Kaplan said, we clearly are. 333 00:17:22,560 --> 00:17:26,040 Speaker 1: Is it your sense this FED is still accommodative. I 334 00:17:26,040 --> 00:17:29,200 Speaker 1: think the FED is, yes, quite accommodative, and I think 335 00:17:29,200 --> 00:17:33,560 Speaker 1: there's remains an argument for monetary policy normalization. The debate 336 00:17:33,640 --> 00:17:37,159 Speaker 1: is really over how fast and in what form on 337 00:17:37,200 --> 00:17:40,040 Speaker 1: the issue of the sort of regulatory landscape. A lot 338 00:17:40,080 --> 00:17:42,680 Speaker 1: has been made by this administration of changes they could 339 00:17:42,720 --> 00:17:45,840 Speaker 1: make to the regulatory landscape in Washington, d C. What 340 00:17:45,960 --> 00:17:48,680 Speaker 1: what changes the Treasury Department could make, What the Fed 341 00:17:48,760 --> 00:17:51,200 Speaker 1: Reserve could do Differently, Robert Kaplan said he thinks that 342 00:17:51,280 --> 00:17:55,280 Speaker 1: strong macripudential policies for big banks have quote served us, well, 343 00:17:55,359 --> 00:17:56,800 Speaker 1: do you agree with him? Do do you think we 344 00:17:57,040 --> 00:17:59,200 Speaker 1: still need the kind of annual stress test the FED 345 00:17:59,280 --> 00:18:01,880 Speaker 1: has overseen? You think that the policy is put into 346 00:18:01,880 --> 00:18:06,760 Speaker 1: place after the financial crisis thus far have worked. I 347 00:18:06,760 --> 00:18:09,439 Speaker 1: think many of those policies have been very constructive. The 348 00:18:09,520 --> 00:18:11,680 Speaker 1: question is are we doing the best job we can? 349 00:18:11,760 --> 00:18:14,760 Speaker 1: And the answer to that's no. The stress tests remain 350 00:18:14,800 --> 00:18:17,280 Speaker 1: a black box. There's much more the FED could do 351 00:18:17,359 --> 00:18:19,680 Speaker 1: to be open and I think it's not a matter 352 00:18:19,720 --> 00:18:21,720 Speaker 1: of more or less. But do we have the right 353 00:18:21,840 --> 00:18:25,920 Speaker 1: kind of regulation? I hope that's where the administration focuses. Yeah, 354 00:18:25,960 --> 00:18:28,320 Speaker 1: and do we Your answer to that would be professor what? 355 00:18:29,840 --> 00:18:33,560 Speaker 1: To me? The focus is on systemic risk and contagion, 356 00:18:34,080 --> 00:18:36,399 Speaker 1: and that's keeping the FED is a strong lender of 357 00:18:36,480 --> 00:18:39,639 Speaker 1: last resort. It's yes, doing the stress tests, but we 358 00:18:39,640 --> 00:18:44,040 Speaker 1: shouldn't kid ourselves that capital adequacy and an individual bank 359 00:18:44,119 --> 00:18:47,600 Speaker 1: can prevent a crisis. It can't. But professor what, I 360 00:18:47,760 --> 00:18:49,840 Speaker 1: you know? I live, I'm currently in London. We talk 361 00:18:49,880 --> 00:18:52,480 Speaker 1: a lot about stress tests. Were stress testing for things 362 00:18:52,560 --> 00:18:55,480 Speaker 1: that to have already happened. We're modeling things where there's 363 00:18:55,480 --> 00:18:58,480 Speaker 1: a muscle memory. Is the next crisis or the next 364 00:18:58,840 --> 00:19:01,639 Speaker 1: something ugly happened, name in banks, not going to come 365 00:19:01,680 --> 00:19:06,919 Speaker 1: from something we've never seen before. Well, yes and no, 366 00:19:07,040 --> 00:19:10,240 Speaker 1: I mean yes, every crisis is different. But frankly, banks 367 00:19:10,400 --> 00:19:13,840 Speaker 1: familiarly get into trouble by just holding dodgy things on 368 00:19:13,880 --> 00:19:17,200 Speaker 1: their balance sheet. It's a different dodgy thing, but that's 369 00:19:17,240 --> 00:19:20,800 Speaker 1: the familiar path. So really a focus on good macro 370 00:19:20,920 --> 00:19:25,479 Speaker 1: prudential regulation is the right answer, and a regulatory system 371 00:19:25,520 --> 00:19:28,200 Speaker 1: that balances that with the need to grow the economy 372 00:19:28,240 --> 00:19:30,720 Speaker 1: and provide credit. How consider you when you when you 373 00:19:30,760 --> 00:19:33,600 Speaker 1: look at Washington today about the vacancies we threw. So 374 00:19:33,680 --> 00:19:35,879 Speaker 1: we see throughout government. As I said, you've served in 375 00:19:35,920 --> 00:19:38,639 Speaker 1: the Treasury Department before. You know intimately who does what 376 00:19:38,720 --> 00:19:40,400 Speaker 1: and how important it is to have a fully staffed 377 00:19:40,680 --> 00:19:43,320 Speaker 1: Department of the Treasury. Say, are are you concerned that 378 00:19:43,320 --> 00:19:47,560 Speaker 1: we're handicapped regulatorily policy wise by not having enough principles 379 00:19:47,560 --> 00:19:51,399 Speaker 1: in place? I really am. I've had the privilege of 380 00:19:51,400 --> 00:19:53,560 Speaker 1: working on the Treasury and the White House, and you 381 00:19:53,560 --> 00:19:57,000 Speaker 1: know the old adage that personnel is policy is true. 382 00:19:57,440 --> 00:19:59,960 Speaker 1: The President, of course sets the tone, but you need 383 00:20:00,160 --> 00:20:02,920 Speaker 1: arms and legs to carry out his agenda. So I 384 00:20:03,240 --> 00:20:05,679 Speaker 1: think that the administration needs to continue to pick up 385 00:20:05,720 --> 00:20:09,000 Speaker 1: a pace. We've seen Steve Manuchian, the Treasury Secretary, takeover 386 00:20:09,040 --> 00:20:11,840 Speaker 1: responsibilities for the financials, to build the Oversight Council, that's 387 00:20:11,840 --> 00:20:14,120 Speaker 1: the sort of grand council of of of the heads 388 00:20:14,119 --> 00:20:16,520 Speaker 1: of a lot of these these agencies. How much power 389 00:20:16,560 --> 00:20:19,280 Speaker 1: does he have, in your estimation or by your understanding, 390 00:20:19,720 --> 00:20:22,719 Speaker 1: to shape the direction of regulatory policy in that capacity, 391 00:20:22,760 --> 00:20:24,560 Speaker 1: and do you have a sense of where he might 392 00:20:24,600 --> 00:20:29,239 Speaker 1: be taking things? Well? I think Secretary Manuchin really has 393 00:20:29,320 --> 00:20:33,080 Speaker 1: two sources of influence. Formally, his chair, he has some 394 00:20:33,280 --> 00:20:36,160 Speaker 1: des jury power as a result of the Dodd Frank Dock, 395 00:20:36,720 --> 00:20:39,840 Speaker 1: but frankly, he has enormous persuasive power. He is the 396 00:20:39,920 --> 00:20:43,440 Speaker 1: Secretary of the Treasury. Treasury should be playing a lead 397 00:20:43,560 --> 00:20:48,160 Speaker 1: role here, and I think under his leadership it is um, Professor, 398 00:20:48,200 --> 00:20:50,160 Speaker 1: What is the one thing that concerns you? So you're 399 00:20:50,200 --> 00:20:52,800 Speaker 1: in Jackson Hall, we look at monetary policy. You talked 400 00:20:52,800 --> 00:20:55,679 Speaker 1: a little bit about inflation with David, but actually is 401 00:20:55,680 --> 00:20:58,639 Speaker 1: there something is there a huge distortion? I don't know 402 00:20:58,640 --> 00:21:00,639 Speaker 1: whether it's in the markets or the global economy that 403 00:21:00,720 --> 00:21:05,840 Speaker 1: central banks can't quite cope with. Apart from inflation, well, 404 00:21:05,880 --> 00:21:08,960 Speaker 1: I think inflation obviously, figuring out why inflation so low 405 00:21:09,040 --> 00:21:11,280 Speaker 1: is a big issue, But I think in terms of 406 00:21:11,359 --> 00:21:15,400 Speaker 1: the future, being prepared to fight a future financial crisis 407 00:21:15,480 --> 00:21:19,280 Speaker 1: or economic crisis remains important. And with monetary policy being 408 00:21:19,280 --> 00:21:22,399 Speaker 1: as accommodative as it is now, the FED, other than 409 00:21:22,440 --> 00:21:25,200 Speaker 1: being a strong lender of last resort, will not play 410 00:21:25,240 --> 00:21:27,320 Speaker 1: perhaps as big a role as they did last time. 411 00:21:27,400 --> 00:21:30,600 Speaker 1: That puts more attention on getting fiscal policy right. And 412 00:21:30,680 --> 00:21:34,520 Speaker 1: that's my worry. Do you worry that the central bank, 413 00:21:34,600 --> 00:21:37,360 Speaker 1: the FED, is a little bit seen to be following 414 00:21:37,440 --> 00:21:40,800 Speaker 1: markets that markets didn't believe they could raise as many 415 00:21:40,840 --> 00:21:43,439 Speaker 1: times that FED officials were saying at the beginning of 416 00:21:43,480 --> 00:21:48,000 Speaker 1: the year, and the markets were proven right. Well, I 417 00:21:48,000 --> 00:21:51,560 Speaker 1: think FED officials should pay attention to markets obviously, but 418 00:21:51,600 --> 00:21:54,920 Speaker 1: they shouldn't be led by them. My concern is more 419 00:21:55,000 --> 00:21:58,840 Speaker 1: the FED needs to articulate where we're going here. You know, 420 00:21:58,880 --> 00:22:02,280 Speaker 1: what is the FEDS to either on what the long 421 00:22:02,359 --> 00:22:04,720 Speaker 1: run rate of interest thought to be, what the size 422 00:22:04,720 --> 00:22:06,840 Speaker 1: and scope of the balance sheet ought to be. We 423 00:22:06,880 --> 00:22:09,080 Speaker 1: need more of that discussion from the Fed. Do you 424 00:22:09,119 --> 00:22:10,840 Speaker 1: get a sense of the FED here he's paying adequate 425 00:22:10,840 --> 00:22:12,840 Speaker 1: attention to the markets. What's your sense of the level 426 00:22:12,840 --> 00:22:15,399 Speaker 1: of engagement this FED reserve has with what's going on 427 00:22:15,440 --> 00:22:19,120 Speaker 1: in the markets. Well, I think the FED definitely pays 428 00:22:19,160 --> 00:22:22,560 Speaker 1: attention to the markets. Personally, I'd like to see FED 429 00:22:22,640 --> 00:22:27,200 Speaker 1: officials spend good quality time with market participants to understand 430 00:22:27,240 --> 00:22:30,360 Speaker 1: how they think. But that's very different than saying, let 431 00:22:30,440 --> 00:22:34,040 Speaker 1: the market participant tail wag the FED dog. That's a 432 00:22:34,119 --> 00:22:36,560 Speaker 1: very different thing. The FED needs to have its own 433 00:22:36,640 --> 00:22:38,600 Speaker 1: view of the economy in the world and needs to 434 00:22:38,600 --> 00:22:40,919 Speaker 1: share that view with the Congress and the American people. 435 00:22:41,160 --> 00:22:43,000 Speaker 1: Do you expect that we're gonna hear something from Maria 436 00:22:43,040 --> 00:22:45,440 Speaker 1: drug today on the strength of the era. What power 437 00:22:45,520 --> 00:22:49,840 Speaker 1: does he have here to job bone the Euro? Well, 438 00:22:49,880 --> 00:22:55,680 Speaker 1: obviously President Druggy has a great deal of influence. Uh. Normally, 439 00:22:55,800 --> 00:22:58,760 Speaker 1: speeches here are not designed to make news, So I 440 00:22:58,800 --> 00:23:01,960 Speaker 1: would be surprised is if it's something totally earth shattering, 441 00:23:01,960 --> 00:23:04,080 Speaker 1: But it will be very interesting is remarks from him, 442 00:23:04,080 --> 00:23:06,639 Speaker 1: as all always are. I was thinking how coyly I 443 00:23:06,680 --> 00:23:08,240 Speaker 1: could ask you about whether or not you were weighing 444 00:23:08,320 --> 00:23:11,000 Speaker 1: or entertaining moving down to Washington, perhaps trading your office 445 00:23:11,000 --> 00:23:13,359 Speaker 1: in the Euroths Building for one in the Equals Building. 446 00:23:14,040 --> 00:23:15,560 Speaker 1: Assuming that you're not going to give me an answer 447 00:23:15,560 --> 00:23:17,439 Speaker 1: on that, let me just ask you about what difference 448 00:23:17,480 --> 00:23:19,840 Speaker 1: it might make to have somebody with the market's background 449 00:23:20,119 --> 00:23:22,800 Speaker 1: or a non academic background leading the FED Reserve. Do 450 00:23:22,720 --> 00:23:24,520 Speaker 1: you do you think that that would make a difference 451 00:23:24,520 --> 00:23:28,320 Speaker 1: when it comes to monetary policy in this country. I 452 00:23:28,359 --> 00:23:30,879 Speaker 1: think it obviously depends on the person. The real question 453 00:23:30,920 --> 00:23:33,640 Speaker 1: at the beginning in picking a FED chair or any 454 00:23:33,680 --> 00:23:35,800 Speaker 1: FED governors, what do you want the FED to do? 455 00:23:36,400 --> 00:23:38,600 Speaker 1: When you know the answer to that question, you'll be 456 00:23:38,640 --> 00:23:41,080 Speaker 1: able to fill in the who. I think the FED 457 00:23:41,119 --> 00:23:45,040 Speaker 1: benefits from having diverse perspectives, but monetary policy is a 458 00:23:45,119 --> 00:23:48,560 Speaker 1: highly technical subject, so economists will obviously be part of 459 00:23:48,560 --> 00:23:50,960 Speaker 1: that discussion. Do you get a sense that this administration 460 00:23:51,000 --> 00:23:52,720 Speaker 1: does have a sense of who or what type of 461 00:23:52,760 --> 00:23:54,600 Speaker 1: person at once in that role. I go back to 462 00:23:54,640 --> 00:23:56,600 Speaker 1: that recent interview that the President did with the Wall 463 00:23:56,600 --> 00:23:59,320 Speaker 1: Street Journal in which a reporter asked him who he 464 00:23:59,400 --> 00:24:00,960 Speaker 1: might be consider it ring, and I think that he 465 00:24:01,000 --> 00:24:02,800 Speaker 1: said something to the effective I don't have to make 466 00:24:02,840 --> 00:24:05,480 Speaker 1: that decision until February when when Janet Yellen steps down, 467 00:24:05,600 --> 00:24:07,440 Speaker 1: leading me to think that is and something that he's 468 00:24:07,840 --> 00:24:10,440 Speaker 1: really wrestled with. Yet. Do you get a sense though, 469 00:24:10,480 --> 00:24:12,720 Speaker 1: that the President Trump and those around him have begun 470 00:24:12,800 --> 00:24:15,199 Speaker 1: to think about who they might like to lead the 471 00:24:15,200 --> 00:24:19,760 Speaker 1: FED going forward? Well, President Trump is on top of 472 00:24:19,800 --> 00:24:22,879 Speaker 1: all of those. I'm I'm sure the real question, again, 473 00:24:22,960 --> 00:24:25,840 Speaker 1: I would ask, is before you get to who, talk 474 00:24:25,920 --> 00:24:27,760 Speaker 1: about the what. And I would hope that's what the 475 00:24:27,760 --> 00:24:30,600 Speaker 1: administration's focused on, all right, professor, So talk to me 476 00:24:30,600 --> 00:24:33,080 Speaker 1: about the one who would you put in charge? Not 477 00:24:33,160 --> 00:24:34,560 Speaker 1: a person I don't want to name. I mean, I 478 00:24:34,600 --> 00:24:36,119 Speaker 1: want to name Tube, but not right now. But just 479 00:24:36,160 --> 00:24:39,040 Speaker 1: give me a sense of what kind of personality, what 480 00:24:39,200 --> 00:24:43,480 Speaker 1: kind of I guess background they need to have. Well, 481 00:24:43,520 --> 00:24:46,800 Speaker 1: I think if you want the FED to be clearer 482 00:24:46,920 --> 00:24:50,399 Speaker 1: with the Congress and the American people both about the 483 00:24:50,480 --> 00:24:53,879 Speaker 1: conduct of monetary policy and the conduct of financial regulation, 484 00:24:54,320 --> 00:24:57,159 Speaker 1: you need somebody who's very comfortable in those worlds, not 485 00:24:57,320 --> 00:25:01,080 Speaker 1: just as the chair, but as governor. Says chairs. And 486 00:25:01,119 --> 00:25:03,960 Speaker 1: I think the question for the President is really, what 487 00:25:04,040 --> 00:25:07,400 Speaker 1: do you want the Federal Reserve to do? I think 488 00:25:07,400 --> 00:25:09,800 Speaker 1: it's good to have technical knowledge, it's good to have 489 00:25:10,000 --> 00:25:13,000 Speaker 1: market knowledge. All of those things are desirable, right, But 490 00:25:13,040 --> 00:25:16,480 Speaker 1: if you have to choose between technical knowledge and market knowledge, 491 00:25:17,000 --> 00:25:20,320 Speaker 1: given that we're seeing boundaries which we hadn't seen before, 492 00:25:20,359 --> 00:25:24,040 Speaker 1: which one would you choose? I don't think you have 493 00:25:24,080 --> 00:25:27,280 Speaker 1: to choose. There are many people with substantial technical knowledge 494 00:25:27,280 --> 00:25:30,360 Speaker 1: who are not strangers to market, so I don't think 495 00:25:30,400 --> 00:25:33,800 Speaker 1: you really have to choose. The reason I put substantial 496 00:25:33,800 --> 00:25:36,719 Speaker 1: weight on technical knowledge is that you know, is your 497 00:25:36,800 --> 00:25:39,560 Speaker 1: question earlier asked? We don't really know where the sources 498 00:25:39,600 --> 00:25:42,720 Speaker 1: of future trouble come from, and so it's very important 499 00:25:42,720 --> 00:25:45,960 Speaker 1: to understand how the economy works. Do we overplay the 500 00:25:46,280 --> 00:25:48,680 Speaker 1: change that would come from more rules based approach to 501 00:25:48,680 --> 00:25:51,680 Speaker 1: to monetary policy? You have John Taylor and others saying 502 00:25:51,680 --> 00:25:53,480 Speaker 1: we could use more of that. Do we think of 503 00:25:53,480 --> 00:25:56,280 Speaker 1: it into slavish term? In other words? Uh? Do do 504 00:25:56,320 --> 00:25:58,040 Speaker 1: we see it as something that would be devoid from 505 00:25:58,040 --> 00:26:00,800 Speaker 1: from emotion that we wouldn't have a that officials looking 506 00:26:00,840 --> 00:26:03,480 Speaker 1: at sort of the the feel of the qualitative data. 507 00:26:03,560 --> 00:26:08,440 Speaker 1: Are we overplaying that? I think in many respects we are. 508 00:26:08,560 --> 00:26:12,080 Speaker 1: And I always say the word framework more than I 509 00:26:12,119 --> 00:26:15,520 Speaker 1: say the word rule simply because you want to articulate 510 00:26:15,640 --> 00:26:18,439 Speaker 1: what you're looking at, where you're going, and what the 511 00:26:18,480 --> 00:26:22,600 Speaker 1: path to get there is. Obviously you'll deviate as you 512 00:26:22,760 --> 00:26:26,600 Speaker 1: explain to markets, uh, and of the Congress that you've 513 00:26:26,640 --> 00:26:29,680 Speaker 1: gotten new information that blows you off course. So I 514 00:26:29,720 --> 00:26:33,160 Speaker 1: think it's a matter of explaining I to me it's 515 00:26:33,200 --> 00:26:37,280 Speaker 1: maintained and explain you maintain a framework, but you explain 516 00:26:37,520 --> 00:26:41,159 Speaker 1: why you depart when you depart. Present time, the FEDS 517 00:26:41,200 --> 00:26:44,159 Speaker 1: doing neither one. Our colleague Michael McKee asked to President 518 00:26:44,200 --> 00:26:46,840 Speaker 1: Kaplan about the balance sheet unwind the plan that we've 519 00:26:46,880 --> 00:26:50,480 Speaker 1: seen thus far. Uh. President Kaplan said he's eager to 520 00:26:50,480 --> 00:26:52,840 Speaker 1: see this get underway as soon as possible. It's high 521 00:26:52,840 --> 00:26:55,680 Speaker 1: time that we start to see some effort towards normalization. 522 00:26:56,200 --> 00:26:58,399 Speaker 1: That sort of market effect should we expect from that. 523 00:26:58,440 --> 00:27:00,480 Speaker 1: What are you looking to see happen here in light 524 00:27:00,520 --> 00:27:04,399 Speaker 1: of what the Fed is outlined. Well, I think if 525 00:27:04,440 --> 00:27:06,919 Speaker 1: the Fed were to take an approach of explaining what 526 00:27:07,240 --> 00:27:09,440 Speaker 1: size and scope of the balance sheet in the long 527 00:27:09,520 --> 00:27:12,479 Speaker 1: run is optimal for its purposes, and then how it 528 00:27:12,520 --> 00:27:15,400 Speaker 1: gets there, the market reaction is not going to be 529 00:27:15,480 --> 00:27:19,480 Speaker 1: that significant. Professor, when you look at inflation. Does it 530 00:27:19,520 --> 00:27:21,400 Speaker 1: really need to be at two percent? This is one 531 00:27:21,400 --> 00:27:23,119 Speaker 1: of you know, it goes back to the Phillips curve. 532 00:27:23,160 --> 00:27:25,720 Speaker 1: Why it's not increasing as much as we thought it 533 00:27:25,720 --> 00:27:28,040 Speaker 1: would in this level of the cycle. But actually, does 534 00:27:28,119 --> 00:27:31,520 Speaker 1: it really make a difference if inflation is one point six, 535 00:27:31,680 --> 00:27:36,600 Speaker 1: one point seven or two point one percent? Well, I 536 00:27:36,640 --> 00:27:40,520 Speaker 1: think two percent has been the quasi inflation target for 537 00:27:40,600 --> 00:27:43,080 Speaker 1: the FED. I think it's very important to be credible 538 00:27:43,080 --> 00:27:46,040 Speaker 1: when you say something that you're going to conduct policy 539 00:27:46,080 --> 00:27:49,120 Speaker 1: in a way that gets that. I think many economists 540 00:27:49,119 --> 00:27:52,200 Speaker 1: are puzzled as to why inflation hasn't picked up more 541 00:27:52,320 --> 00:27:55,399 Speaker 1: yet and and likely will. But I think two percent 542 00:27:55,520 --> 00:27:57,879 Speaker 1: is still a good number. It's certainly consistent with long 543 00:27:58,000 --> 00:28:01,640 Speaker 1: run price stability the way we measure rice deflators. So 544 00:28:01,760 --> 00:28:04,320 Speaker 1: some people believe that inflation isn't really where it's supposed 545 00:28:04,359 --> 00:28:06,800 Speaker 1: to be, mainly because of regulation, but also all these 546 00:28:06,840 --> 00:28:09,880 Speaker 1: disruptors in the social economy, so uber and the likes. 547 00:28:09,920 --> 00:28:13,480 Speaker 1: Do you believe that do you buy that? Well, those 548 00:28:13,520 --> 00:28:17,240 Speaker 1: are certainly one off factors. The question is going forward, 549 00:28:17,600 --> 00:28:20,200 Speaker 1: will there be a continuation of a series of one 550 00:28:20,240 --> 00:28:25,280 Speaker 1: off factors or eventually wage pressures catch up. Personally, I 551 00:28:25,320 --> 00:28:29,280 Speaker 1: think we will see two inflation in the not too 552 00:28:29,320 --> 00:28:32,520 Speaker 1: distant future, but I'm not worried about a blowout in inflation. 553 00:28:33,000 --> 00:28:34,879 Speaker 1: Let me ask you Tom Keen question. Tom Keen is 554 00:28:35,080 --> 00:28:37,080 Speaker 1: off this week, but I'll step into the four here 555 00:28:37,080 --> 00:28:39,840 Speaker 1: and just ask you about the corpus of academy. Picture 556 00:28:39,840 --> 00:28:41,280 Speaker 1: you in a bow tie. There you go. It is 557 00:28:42,440 --> 00:28:47,480 Speaker 1: I appreciate that that I worry about. What's the corpus 558 00:28:47,480 --> 00:28:50,440 Speaker 1: of academic thought? Now? Say about building up the balance 559 00:28:50,480 --> 00:28:52,640 Speaker 1: sheet and unwinding the balance sheet? Robert Kaplan saying there 560 00:28:52,680 --> 00:28:54,560 Speaker 1: is no textbook for building it up or or or 561 00:28:54,600 --> 00:28:57,520 Speaker 1: winding it down? Are we getting any better at coming 562 00:28:57,520 --> 00:28:59,840 Speaker 1: to conclusions about how this works? And you're there in 563 00:29:00,000 --> 00:29:02,560 Speaker 1: Acts and hold among the head of the FED, the 564 00:29:02,600 --> 00:29:03,920 Speaker 1: head of the e c B, the head of the 565 00:29:03,920 --> 00:29:07,479 Speaker 1: Bank of Japan. What's the dialogue like about this process? 566 00:29:07,480 --> 00:29:10,479 Speaker 1: How much universality is there about this process of building 567 00:29:10,520 --> 00:29:14,320 Speaker 1: something up and then and then tapering it down? Well? 568 00:29:14,400 --> 00:29:17,640 Speaker 1: I think Rod Kaplan's comments are are right, that the 569 00:29:17,640 --> 00:29:21,240 Speaker 1: FED is discussing this a lot. Uh. My own view 570 00:29:21,400 --> 00:29:23,360 Speaker 1: is it would be better to start with a framework, 571 00:29:23,360 --> 00:29:26,120 Speaker 1: actually study what size balance sheet do you think you 572 00:29:26,160 --> 00:29:30,719 Speaker 1: need to conduct monetary policy? And then what's the scope 573 00:29:30,720 --> 00:29:33,800 Speaker 1: of that balance sheet. I'm nervous about the FED holding 574 00:29:33,880 --> 00:29:37,000 Speaker 1: non treasury assets. I understand in a crisis why that 575 00:29:37,080 --> 00:29:39,600 Speaker 1: might be necessary, but in the long run that doesn't 576 00:29:39,600 --> 00:29:41,880 Speaker 1: strike me as desirable. But that's a point of view, 577 00:29:42,400 --> 00:29:44,880 Speaker 1: and the FED needs to have that kind of conversation 578 00:29:44,960 --> 00:29:47,360 Speaker 1: and then determine what it's gonna do with its portfolio. 579 00:29:47,800 --> 00:29:50,360 Speaker 1: So I would like to see a more aggressive discussion 580 00:29:50,400 --> 00:29:53,080 Speaker 1: of that rather than let's see in just a few 581 00:29:53,120 --> 00:29:56,040 Speaker 1: minutes time, you're gonna head into that lodge. Susan Collins, 582 00:29:56,080 --> 00:29:58,320 Speaker 1: the former Deina the Ford School of Public Policy, The 583 00:29:58,480 --> 00:30:00,480 Speaker 1: versus Michigan's gonna deliver some marks in and the FED 584 00:30:00,560 --> 00:30:03,160 Speaker 1: chair is going to step out and talk about financial stability. 585 00:30:03,200 --> 00:30:05,880 Speaker 1: This is something that Cherry Yellen has talked about time 586 00:30:05,880 --> 00:30:09,240 Speaker 1: and time again. Dean Hubbard, what's left unsaid? What would 587 00:30:09,240 --> 00:30:11,160 Speaker 1: you like to hear that would be new or novel 588 00:30:11,320 --> 00:30:13,560 Speaker 1: from the FED chair on the issue of financial stability? 589 00:30:13,560 --> 00:30:15,120 Speaker 1: Predicting that she's not going to say a whole lot 590 00:30:15,160 --> 00:30:19,120 Speaker 1: here about near term policy, yeah, I doubt she will. 591 00:30:19,200 --> 00:30:22,920 Speaker 1: I would expect Chair Yelling to comment on steps the 592 00:30:22,920 --> 00:30:27,080 Speaker 1: FED has taken in her view, to improve financial stability, 593 00:30:27,360 --> 00:30:30,520 Speaker 1: and where she might think asset markets are. My guess 594 00:30:30,520 --> 00:30:33,440 Speaker 1: is that's what she will talk about. Her subject is 595 00:30:33,920 --> 00:30:36,560 Speaker 1: not necessarily the theme of this whole conference, but obviously 596 00:30:36,600 --> 00:30:40,320 Speaker 1: all eyes are on her. Professor, what is the optimum 597 00:30:40,400 --> 00:30:42,440 Speaker 1: level for dollar? I don't know what you want to do, 598 00:30:42,560 --> 00:30:44,200 Speaker 1: you know, if it's dollar euro that you look at. 599 00:30:44,280 --> 00:30:46,920 Speaker 1: But is there a kind of sweet spot, a Goldilock 600 00:30:47,000 --> 00:30:51,200 Speaker 1: spot for the level of dollar? I think it depends 601 00:30:51,200 --> 00:30:53,680 Speaker 1: on what your views are about growth in the two 602 00:30:53,720 --> 00:30:57,040 Speaker 1: regions to know to know that answer. You know, we 603 00:30:57,160 --> 00:31:00,840 Speaker 1: have seen a decline in the dollars, all you in 604 00:31:01,280 --> 00:31:04,960 Speaker 1: recent months? How much of that reflects different changes in 605 00:31:05,000 --> 00:31:11,080 Speaker 1: growth prospects or monetary policy attitudes towards what's happening in Washington. 606 00:31:11,360 --> 00:31:13,480 Speaker 1: It could be all to be above all right, thank 607 00:31:13,520 --> 00:31:15,440 Speaker 1: you so much for joining us. Glenn Hubbard there from 608 00:31:15,520 --> 00:31:29,920 Speaker 1: Jackson Holl, the dean of the Columbia Business School. So 609 00:31:30,120 --> 00:31:32,880 Speaker 1: let's go back to Central Banks and their meeting, of 610 00:31:32,920 --> 00:31:35,440 Speaker 1: course in Jackson Hall. Let's get straight to Mohammad Laria, 611 00:31:35,440 --> 00:31:38,320 Speaker 1: and he's a Bloomberg view communist. Mohammed, good morning, to you. 612 00:31:38,680 --> 00:31:41,480 Speaker 1: Thank you for a brilliant columns all week, because we've 613 00:31:41,480 --> 00:31:43,920 Speaker 1: been using them as our morning must read. I think 614 00:31:43,960 --> 00:31:46,800 Speaker 1: on Tuesday and Wednesday now we just spoke to Federal 615 00:31:46,840 --> 00:31:51,160 Speaker 1: Reserve officials taking opposite sides of the central banks on 616 00:31:51,280 --> 00:31:55,320 Speaker 1: going debate right on how to respond to disappointingly low inflation. 617 00:31:55,440 --> 00:31:58,040 Speaker 1: What would you do were you would you raise high 618 00:31:58,080 --> 00:32:01,920 Speaker 1: grades or not? So? I think the reason why frand 619 00:32:01,960 --> 00:32:06,280 Speaker 1: scene you hear different views coming about from Fed officials 620 00:32:06,720 --> 00:32:10,960 Speaker 1: is not because they disagree fundamentally on low inflation, but 621 00:32:11,080 --> 00:32:16,760 Speaker 1: they attached different probabilities to financial instability down the road. 622 00:32:17,400 --> 00:32:20,080 Speaker 1: And this is the tension of monetary policy right now. 623 00:32:20,640 --> 00:32:26,200 Speaker 1: Low inflation says, remain luciful longer, concerns about financial stability says, 624 00:32:26,480 --> 00:32:31,760 Speaker 1: take this window and tighten. I would come in towards 625 00:32:31,840 --> 00:32:34,040 Speaker 1: the ladder. I think there is a case to tighten 626 00:32:34,160 --> 00:32:37,760 Speaker 1: in December, especially as the global economy continues to pick up. 627 00:32:38,160 --> 00:32:42,920 Speaker 1: I would be careful about being excessively obsessed with low inflation, 628 00:32:43,080 --> 00:32:46,000 Speaker 1: because there may be structural reasons for that that monetary 629 00:32:46,040 --> 00:32:49,480 Speaker 1: policy cannot address. How much would you hike by? And 630 00:32:49,520 --> 00:32:52,080 Speaker 1: it's twenty five basis points are actually so small that 631 00:32:52,160 --> 00:32:55,640 Speaker 1: it wouldn't really impact. So even if inflation was more 632 00:32:55,680 --> 00:32:59,760 Speaker 1: significant of something you know bad to happen, it wouldn't 633 00:32:59,760 --> 00:33:03,400 Speaker 1: matter so much if it was only basis points. Yeah, 634 00:33:03,440 --> 00:33:05,520 Speaker 1: I think that's right, and the forward guidance that would 635 00:33:05,560 --> 00:33:10,520 Speaker 1: come with that would emphasize that this is a very 636 00:33:10,720 --> 00:33:14,520 Speaker 1: gradual normalization. I wouldn't say that if I was a 637 00:33:14,520 --> 00:33:16,800 Speaker 1: central banker, but I would signal that this will turn 638 00:33:16,840 --> 00:33:19,960 Speaker 1: out to be the loosest tightening of monetary policy in 639 00:33:20,040 --> 00:33:23,120 Speaker 1: the modern history of central banking. So it will be 640 00:33:23,160 --> 00:33:26,440 Speaker 1: twenty five basis points with forward guidance saying that this 641 00:33:26,520 --> 00:33:30,479 Speaker 1: is going to be a very gradual normalization process. How 642 00:33:30,520 --> 00:33:33,120 Speaker 1: much friend mentioned your excellent columns. This week, you wrote 643 00:33:33,120 --> 00:33:34,760 Speaker 1: one about the dead ceiling. Let me ask you a 644 00:33:34,760 --> 00:33:37,560 Speaker 1: bit about that. I've been reading through this interview that 645 00:33:37,600 --> 00:33:40,120 Speaker 1: Gary Cone did with the Financial Times, UH, and he 646 00:33:40,160 --> 00:33:42,560 Speaker 1: talks about how he and the Treasury Secretary are speaking 647 00:33:42,560 --> 00:33:45,160 Speaker 1: with one unified voice. They have to raise the dead ceiling. 648 00:33:45,200 --> 00:33:48,880 Speaker 1: We cannot default. He tells the The f T strikes me. 649 00:33:48,920 --> 00:33:51,400 Speaker 1: I spent many years in Washington, reporting on Washington, and 650 00:33:51,400 --> 00:33:53,520 Speaker 1: whenever I talk with business people in New York, They 651 00:33:53,560 --> 00:33:56,520 Speaker 1: would say, why, why doesn't DC get what's important here 652 00:33:56,520 --> 00:33:58,600 Speaker 1: in New York? Why are they so oblivious to what's 653 00:33:58,640 --> 00:34:01,680 Speaker 1: happening with the market. A lot of people expected that 654 00:34:01,720 --> 00:34:04,000 Speaker 1: to change when Donald Trump became president. They looked at 655 00:34:04,000 --> 00:34:06,120 Speaker 1: who they who he brought in with him to serve 656 00:34:06,160 --> 00:34:08,880 Speaker 1: in the in those economic roles. How much distance is 657 00:34:08,880 --> 00:34:11,120 Speaker 1: there is the White House not getting the message on 658 00:34:11,160 --> 00:34:14,719 Speaker 1: the dead ceiling? Do you think now? I think they are. 659 00:34:14,840 --> 00:34:18,640 Speaker 1: But remember that the dead ceiling tends to trigger all 660 00:34:18,719 --> 00:34:22,880 Speaker 1: sorts of reactions in Washington, first on the size of 661 00:34:22,920 --> 00:34:27,480 Speaker 1: government and the fundamental differences ideological about whether you want 662 00:34:27,480 --> 00:34:31,160 Speaker 1: the big government or small government. Then there are fundamental 663 00:34:31,200 --> 00:34:34,600 Speaker 1: differences about how worried should you be about public debt. 664 00:34:35,000 --> 00:34:37,319 Speaker 1: So the minute you get to a dead ceiling discussion, 665 00:34:37,800 --> 00:34:42,520 Speaker 1: you trigger these underlying differences. Now add to that that 666 00:34:42,680 --> 00:34:47,080 Speaker 1: this one has been linked to the funding of President 667 00:34:47,080 --> 00:34:51,560 Speaker 1: Trump's controversial wall on the Mexican border, and add to 668 00:34:51,680 --> 00:34:54,879 Speaker 1: that that it comes in the midst of divisions within 669 00:34:54,920 --> 00:34:58,040 Speaker 1: the Republican Party, and you get a lot of rhetoric, 670 00:34:58,920 --> 00:35:02,759 Speaker 1: blame game, a game of chicken. But ultimately, David, I 671 00:35:02,840 --> 00:35:05,880 Speaker 1: believe that this is going to be resolved. I do 672 00:35:06,000 --> 00:35:08,920 Speaker 1: not think that either party wants to be seen as 673 00:35:08,960 --> 00:35:13,520 Speaker 1: responsible for an embarrassing downgrade of the US credit rating, 674 00:35:14,200 --> 00:35:19,080 Speaker 1: responsible for an unprecedented tax um that default, and I 675 00:35:19,160 --> 00:35:21,239 Speaker 1: they don't want to also shut down the government. So 676 00:35:21,280 --> 00:35:23,879 Speaker 1: I believe that when push comes to shove, there will 677 00:35:23,920 --> 00:35:26,560 Speaker 1: be an agreement to raise the dead ceiling. You know, 678 00:35:26,760 --> 00:35:28,560 Speaker 1: you point out your piece that we've see the dead 679 00:35:28,560 --> 00:35:31,680 Speaker 1: ceiling race seventy four times in the last fifty five years. 680 00:35:31,680 --> 00:35:34,080 Speaker 1: How used to this is the market? There's always the 681 00:35:34,080 --> 00:35:36,000 Speaker 1: anxiety about whether or not this is going to happen, 682 00:35:36,280 --> 00:35:38,719 Speaker 1: often goes down to the wire. There's a threat that 683 00:35:38,719 --> 00:35:41,280 Speaker 1: it might not happen, that it might not be done cleanly. 684 00:35:41,400 --> 00:35:43,640 Speaker 1: There's the difficulty imposed by the fact that the x 685 00:35:43,719 --> 00:35:46,960 Speaker 1: dat is it's called, is a moving target. How used 686 00:35:47,000 --> 00:35:50,560 Speaker 1: to this is the market? At this point? Pretty used 687 00:35:50,600 --> 00:35:52,920 Speaker 1: but not complete? Why do I mean by that? We 688 00:35:53,000 --> 00:35:57,279 Speaker 1: haven't seen any major reaction of risk assets, and that's 689 00:35:57,320 --> 00:36:02,800 Speaker 1: despite prices being elev aided. But we have seen within 690 00:36:03,600 --> 00:36:07,759 Speaker 1: the bond market some pricing, some strange pricing. So if 691 00:36:07,800 --> 00:36:11,160 Speaker 1: you look at the October Treasury Bill early October relative 692 00:36:11,200 --> 00:36:14,720 Speaker 1: to the November, the early October Treasury bill is trading 693 00:36:14,760 --> 00:36:18,200 Speaker 1: a slightly higher yield than in November. That's unusual, and 694 00:36:18,239 --> 00:36:23,080 Speaker 1: it is around the timing of the dead ceiling, so 695 00:36:23,080 --> 00:36:27,360 Speaker 1: so there is some some concern, but it is pretty 696 00:36:27,440 --> 00:36:30,480 Speaker 1: small right now, and I think rightly so, Momma, great 697 00:36:30,480 --> 00:36:31,920 Speaker 1: to speak with you. Is always too short today. Help 698 00:36:31,920 --> 00:36:34,000 Speaker 1: we can talk again soon here on Bloomberg Serveilance Mumadalarian, 699 00:36:34,040 --> 00:36:37,160 Speaker 1: the Bloomberview columnists and chief Economic Advisor at Ali on sweep, 700 00:36:45,320 --> 00:36:49,520 Speaker 1: thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 701 00:36:49,560 --> 00:36:54,880 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 702 00:36:55,000 --> 00:36:59,080 Speaker 1: platform you prefer. I'm on Twitter at term keen David Gura? 703 00:36:59,400 --> 00:37:02,719 Speaker 1: Is that Dave d Gura? Before the podcast? You can 704 00:37:02,800 --> 00:37:05,880 Speaker 1: always catch us worldwide. I'm Bloomberg Radio