Speaker 1: Bloomberg Audio Studios, podcasts, radio news joining.
Speaker 2: Us around the table potential candidate, they form a wealth
Speaker 2: Bank President David Mountcas David and Morning, Good Mornington, would
Speaker 2: you like to be considered?
Speaker 3: Of course. So it's a huge job and really important,
Speaker 3: really important to the Trump changeover that's going on in
Speaker 3: the world, saving the country. Uh so, But it means
Speaker 3: a lot of change at the FED. I think they've
Speaker 3: been making many mistakes and we can enumerate them and
Speaker 3: correct them, and that will mean more growth and especially
Speaker 3: more growth and median income. If the FED were allowing
Speaker 3: more small business growth, there'd be more jobs. That are
Speaker 3: that are new jobs for people across the across the country,
Speaker 3: not just in urban areas.
Speaker 2: Let's get into some of the details. Walk us through
Speaker 2: a couple of the examples. Why you think they've made
Speaker 2: mistakes and the remedies for them, how it correct course.
Speaker 3: You know, I didn't like que think about that. The FED,
Speaker 3: in its wisdom, is going to go buy bonds. So
Speaker 3: how did that work out? They've lost a trillion dollars,
Speaker 3: they'll lose much more than that before they're done with
Speaker 3: the losses on the bonds. In addition to that, remember
Speaker 3: they've paid out in interest constantly since two thousand and nine.
Speaker 3: They've paid one point three trillion dollars of tax payer
Speaker 3: money to banks and to money market funds. That's the
Speaker 3: source of funding that they have to buy the bonds.
Speaker 3: So this has been the worst hedge trade in history.
Speaker 3: So that's a big mistake. It's also led to inflation
Speaker 3: because the FED really allowed a merger of fiscal policy
Speaker 3: and central banking or monetary policy by buying bonds as
Speaker 3: the government was really jacking up the deficit.
Speaker 2: So you're rather running go ready because I have to say,
Speaker 2: isn't that exactly what the president would like to say?
Speaker 3: What would he like?
Speaker 2: President Donal Trump would very much like to see monty
Speaker 2: policy and fiscal policy very well alowed.
Speaker 3: No, I think he wants to see them both improved,
Speaker 3: and is already doing that. The Reconciliation Bill improves fiscal
Speaker 3: policy and the separation. What we need is lower interest rates,
Speaker 3: and you can't do that if you've got the FED
Speaker 3: carrying the load of all this fiscal deficit that Congress
Speaker 3: is generated.
Speaker 1: So in the near term, as a candidate yourself, what
Speaker 1: do you do as a potential new fedhair to the
Speaker 1: composition of the FED and the approach that you think
Speaker 1: right size is.
Speaker 3: I think really important is people to see the flaws
Speaker 3: of the inflation targeting model. I've been writing about this
Speaker 3: since the literally since the eighties, that if you target
Speaker 3: inflation as your goal, it's backward looking and it doesn't
Speaker 3: comprehend all of the prices within the economy. It's just
Speaker 3: a flawed indicator. But that is the basis of how
Speaker 3: the FED sets interest rates. So one of the things
Speaker 3: is you switch and you say the dual mandate is
Speaker 3: to have price stability. That's very different from CPI inflation,
Speaker 3: which waivers around and gives you false signals. That's what's
Speaker 3: happening right now. So you need lower interest rates because
Speaker 3: of the strength of the US economy. I think that's
Speaker 3: something that I understand a lot from working all over
Speaker 3: the world and in Wall Street in financial markets, that
Speaker 3: the US is the giant power and people want to
Speaker 3: invest in the US even at lower interest rate.
Speaker 1: Okay, this is a fascinating argument. It's one that President
Speaker 1: Trump has talked about. The idea that it should be
Speaker 1: almost a credit rating of the United States that backs
Speaker 1: what our interest rates should be. So like Microsoft or
Speaker 1: an apple. The borrowing costs should.
Speaker 2: Be very low.
Speaker 1: People are pegging it to inflation, and they're pegging it
Speaker 1: to growth. I'm just wondering the market doesn't see it
Speaker 1: that way.
Speaker 3: Right.
Speaker 1: We're not there yet, So at this point, how potentially
Speaker 1: perilous is this discussion at a time with the market
Speaker 1: associates lower interustrates with faster inflation and frankly higher borrowing costs.
Speaker 3: For the United States, the market's inbred with the FED,
Speaker 3: and so as long as the FED is the sheriff
Speaker 3: of the land, the market is going to say, oh,
Speaker 3: we operate on that model. But as you change to
Speaker 3: a model that makes more sense, one that's based on
Speaker 3: the growth and credit of the US has something to
Speaker 3: say about what the interest rates are that we should pay.
Speaker 3: That can be a smooth, safe transition, but it has
Speaker 3: to be explained markets as think of what's going on
Speaker 3: on tariffs now, there was a giant panic that didn't materialize.
Speaker 3: The change in the FED system is as big as
Speaker 3: the change that we need in the trading system, and
Speaker 3: it will work better for growth and especially better for
Speaker 3: the forgotten man. The median income has been doing very
Speaker 3: poorly over these maybe twenty years and so if you
Speaker 3: have a new system that's very focused on defending the dollar,
Speaker 3: the dollar is the global reserve currency, and then people
Speaker 3: flooding into dollars, that's actually supportive of markets.
Speaker 2: Seconds left? Have you spoken to the president about the role?
Speaker 3: I don't want to talk about the process. What I
Speaker 3: really want people to focus on is the models that
Speaker 3: need to be changed. We can have a much faster
Speaker 3: growth economy with different FED models, and it can be
Speaker 3: done with the confidence that is absolutely necessary.
Speaker 2: We can have a longer conversation about that next time,
Speaker 2: So appreciate your time. Thanks invest the luck. The former
Speaker 2: World Bank President David Malpass