1 00:00:03,880 --> 00:00:06,519 Speaker 1: And we welcome all of you worldwide on Bloomberg Television 2 00:00:06,519 --> 00:00:09,240 Speaker 1: and Bloomberg Radio. A very special moment for my colleague 3 00:00:09,320 --> 00:00:12,880 Speaker 1: John Farrell and myself a conversation with William Dudley, and 4 00:00:12,880 --> 00:00:16,160 Speaker 1: I'll take you back John, fourteen years to build Dudley. 5 00:00:16,320 --> 00:00:19,119 Speaker 1: There is not a moment to lose. He was shockingly 6 00:00:19,239 --> 00:00:22,279 Speaker 1: prescient at Goldman Sachs on the path of our fiscal 7 00:00:22,360 --> 00:00:25,520 Speaker 1: deficit out to one trillion dollars. But that was a 8 00:00:25,560 --> 00:00:29,560 Speaker 1: little preparation for two thousand seven when Tim Geitner said, 9 00:00:29,600 --> 00:00:31,960 Speaker 1: come over to the Fed desk at the New York 10 00:00:32,000 --> 00:00:34,400 Speaker 1: Fed and help us with a short term market. What 11 00:00:34,520 --> 00:00:36,760 Speaker 1: was stunning about this? John, You and I were killing 12 00:00:36,800 --> 00:00:39,279 Speaker 1: to get bees in school. The only bee he ever 13 00:00:39,360 --> 00:00:42,240 Speaker 1: got in his PhD program at Berkeley was that b 14 00:00:42,479 --> 00:00:45,840 Speaker 1: from Lauria acre Loft on microeconomics. So I'm not sure 15 00:00:45,840 --> 00:00:49,159 Speaker 1: he's qualified. Is Jannet Yellen's husband. I'm not sure if 16 00:00:49,159 --> 00:00:50,880 Speaker 1: you want to go there about his greats from Janet 17 00:00:50,920 --> 00:00:52,559 Speaker 1: Yellen's husband, but we might want to find out what 18 00:00:52,600 --> 00:00:55,200 Speaker 1: his great is for the New York Fed performers from 19 00:00:55,240 --> 00:00:58,319 Speaker 1: last week. This was built Outley on Bloomberg Opinion last week, 20 00:00:58,360 --> 00:01:00,160 Speaker 1: and I want to bring you the lead at a 21 00:01:00,200 --> 00:01:03,760 Speaker 1: carib The FED can handle the repo market, Mr Dudley 22 00:01:03,880 --> 00:01:06,400 Speaker 1: saying the following, one of the world's most important interest 23 00:01:06,520 --> 00:01:09,640 Speaker 1: rates has had a tumultuous week. The operation has generated 24 00:01:09,680 --> 00:01:12,560 Speaker 1: a lot of concern. My advice, don't worry. The Fed 25 00:01:13,000 --> 00:01:14,880 Speaker 1: can handle it. Belt great to have you with us 26 00:01:14,920 --> 00:01:19,120 Speaker 1: on the program. Let's just start with what happened last week. 27 00:01:19,520 --> 00:01:22,520 Speaker 1: So what happened last week was on Monday. There are 28 00:01:22,520 --> 00:01:27,280 Speaker 1: two things happened, corporate tax payments September and settlement of 29 00:01:27,319 --> 00:01:30,360 Speaker 1: Treasury auctions, and both those things basically move money from 30 00:01:30,680 --> 00:01:33,720 Speaker 1: the private sector from banks to the treasuries account at 31 00:01:33,720 --> 00:01:37,200 Speaker 1: the FED. That drain bank reserves from the system. And 32 00:01:37,440 --> 00:01:40,440 Speaker 1: later later in the day and Monday, you start see 33 00:01:40,520 --> 00:01:43,120 Speaker 1: quite a bit of upward pressure on repo rates, and 34 00:01:43,160 --> 00:01:46,360 Speaker 1: that's spilled into Tuesday. In fact, and Tuesday the pressure 35 00:01:46,400 --> 00:01:49,160 Speaker 1: was significant enough to actually push the federal fund rate, 36 00:01:49,200 --> 00:01:51,640 Speaker 1: which the federal reserved targets had a range at the 37 00:01:51,640 --> 00:01:53,800 Speaker 1: time of two to two and a quarter percent, pushed 38 00:01:53,800 --> 00:01:56,560 Speaker 1: it to two point three percent. So the federal fundrate 39 00:01:56,680 --> 00:01:59,120 Speaker 1: was actually trading for one day outside of its range 40 00:01:59,160 --> 00:02:01,000 Speaker 1: we're trying to work out whether it was a compliments 41 00:02:01,040 --> 00:02:04,640 Speaker 1: events things happening all at the same time, temporary, idiosyncratic, 42 00:02:04,720 --> 00:02:06,840 Speaker 1: or something more structural, Whether the Central Bank has got 43 00:02:06,880 --> 00:02:09,519 Speaker 1: to find out the appropriate level of reserves. Is that 44 00:02:09,560 --> 00:02:11,200 Speaker 1: what we're still working through a bill. Well, there was 45 00:02:11,280 --> 00:02:13,919 Speaker 1: a structural underlying issue, which is the FED has shrunk 46 00:02:13,960 --> 00:02:17,640 Speaker 1: its balance sheet over time. Uh currency is growing, the 47 00:02:17,680 --> 00:02:19,880 Speaker 1: Treasury is cash balance, the FED is growing now that 48 00:02:19,880 --> 00:02:22,880 Speaker 1: the debt liment issue is being resolved, and so it's 49 00:02:22,919 --> 00:02:25,480 Speaker 1: a consequence the number of reserves in the banking system 50 00:02:25,560 --> 00:02:28,240 Speaker 1: has been shrinking. And this is tricky because the Federal 51 00:02:28,240 --> 00:02:32,800 Speaker 1: Reserve doesn't really know how much bank reserves banks aren't 52 00:02:32,840 --> 00:02:37,120 Speaker 1: need to satisfy the new liquidity coverage ratial requirements. These 53 00:02:37,120 --> 00:02:40,920 Speaker 1: are liquidity requirements, and and how much demand is going 54 00:02:40,919 --> 00:02:42,880 Speaker 1: to be generated by the fact that interest is now 55 00:02:42,919 --> 00:02:45,519 Speaker 1: paid on reserves. So the FED, you know, for years 56 00:02:45,520 --> 00:02:48,440 Speaker 1: there's plenty of reserves in the system, but now they're 57 00:02:48,480 --> 00:02:50,720 Speaker 1: getting to the point where they're getting to that point 58 00:02:50,720 --> 00:02:53,800 Speaker 1: where reserves demand is the gabbling reserves supply, and so 59 00:02:53,840 --> 00:02:55,840 Speaker 1: if there's a little bit of a shock to the 60 00:02:55,840 --> 00:02:58,120 Speaker 1: system that can put upwards but you just said the 61 00:02:58,120 --> 00:03:00,080 Speaker 1: heart of the matter, this is the trust more are 62 00:03:00,080 --> 00:03:02,160 Speaker 1: going to short term paper. You worked for years in 63 00:03:02,200 --> 00:03:05,840 Speaker 1: the trenches of this with your Golden Sex market experience 64 00:03:06,080 --> 00:03:08,160 Speaker 1: over to the New York Fed with Geitner, and you 65 00:03:08,200 --> 00:03:11,600 Speaker 1: just said it. The Fed doesn't really know that. The 66 00:03:11,600 --> 00:03:16,480 Speaker 1: Fed doesn't really know. Does that potentially affect trust in 67 00:03:16,520 --> 00:03:18,120 Speaker 1: this No, I don't think so. I mean, I think 68 00:03:18,160 --> 00:03:21,639 Speaker 1: we always knew that there was some desired demand for reserves, 69 00:03:21,919 --> 00:03:24,720 Speaker 1: but we couldn't observe how much that demand was because 70 00:03:24,760 --> 00:03:27,080 Speaker 1: there was more than sufficient reserves in the system. So 71 00:03:27,120 --> 00:03:28,720 Speaker 1: there was always going to be a point where the 72 00:03:28,720 --> 00:03:30,839 Speaker 1: reserves supplies shrank to the point that we would see 73 00:03:30,880 --> 00:03:33,720 Speaker 1: upward pressure on short term rates. And when when we 74 00:03:33,760 --> 00:03:35,720 Speaker 1: reached that point, the FED would know what do they 75 00:03:35,760 --> 00:03:37,800 Speaker 1: need to do? They need to add more reserves to 76 00:03:37,800 --> 00:03:39,760 Speaker 1: the system, and that's what we saw over the past week. 77 00:03:39,880 --> 00:03:42,000 Speaker 1: One complaint we have had is that they were light, 78 00:03:42,360 --> 00:03:44,840 Speaker 1: they weren't quick enough. What's your response to that. Well, 79 00:03:44,880 --> 00:03:48,119 Speaker 1: in the scheme of things, maybe one day with night nights, 80 00:03:48,160 --> 00:03:50,160 Speaker 1: if they had responded, maybe a little bit more quickly. 81 00:03:50,200 --> 00:03:53,480 Speaker 1: But in the scheme of things, this is an event 82 00:03:53,520 --> 00:03:55,760 Speaker 1: for markets. It's not an event for the economy at all. 83 00:03:55,800 --> 00:03:57,600 Speaker 1: But you know what the narrative is, that's the magic 84 00:03:57,720 --> 00:03:59,160 Speaker 1: over the last couple of weeks. In fact, it's been 85 00:03:59,160 --> 00:04:01,400 Speaker 1: emerging for the last off months. Bill is that you 86 00:04:01,520 --> 00:04:04,960 Speaker 1: left Simon Potter reportedly was squeezed out. And this New 87 00:04:05,000 --> 00:04:08,120 Speaker 1: York FET is different under Williams than it was to you. 88 00:04:08,480 --> 00:04:10,839 Speaker 1: That this New York FET isn't as sensitive as what's 89 00:04:10,840 --> 00:04:14,360 Speaker 1: happening with markets. Don't accept that. We'll defend John Williams 90 00:04:14,360 --> 00:04:16,920 Speaker 1: and the foot please. Well, we knew that there was 91 00:04:16,920 --> 00:04:20,160 Speaker 1: going to be some point where reserves were shrunk to 92 00:04:20,200 --> 00:04:23,440 Speaker 1: the point where demand for reserves was gonna equal supply, 93 00:04:23,800 --> 00:04:25,679 Speaker 1: and when that happened, we're gonna see some up repressure 94 00:04:25,680 --> 00:04:27,880 Speaker 1: on rates. That's what what what that's what happened that 95 00:04:27,960 --> 00:04:30,560 Speaker 1: last week. No surprise there. That The other thing that 96 00:04:30,600 --> 00:04:33,440 Speaker 1: people I think don't really appreciate it's not one person 97 00:04:33,480 --> 00:04:35,320 Speaker 1: at the top of the Fed Reserve that does. It's 98 00:04:35,600 --> 00:04:37,640 Speaker 1: you know, I think there's there's really hundreds and hundreds 99 00:04:37,640 --> 00:04:41,680 Speaker 1: of really qualified people that execute monetary policy on behalf 100 00:04:41,680 --> 00:04:44,040 Speaker 1: of the of the of the Federal Reserve. And where 101 00:04:44,040 --> 00:04:46,719 Speaker 1: where are we today? We're in a good place. Report 102 00:04:46,800 --> 00:04:48,600 Speaker 1: rates are now back down to where they should be, 103 00:04:48,640 --> 00:04:51,360 Speaker 1: the federal funds rate as well within its range. So 104 00:04:51,640 --> 00:04:54,120 Speaker 1: mission accomplished. As far like John and I talked to 105 00:04:54,200 --> 00:04:56,560 Speaker 1: Villain Body of City Group. That's a small bank, you 106 00:04:56,600 --> 00:04:59,960 Speaker 1: may be familiar with it, and and Bill Dudley Boundary 107 00:05:00,040 --> 00:05:03,280 Speaker 1: said the same thing. Everything's fine. It's a kerfuffle. There's 108 00:05:03,320 --> 00:05:07,000 Speaker 1: a sizeable part of our Bloomberg surveillance audience that flat 109 00:05:07,000 --> 00:05:11,320 Speaker 1: out are worried or they even don't agree with the 110 00:05:11,360 --> 00:05:13,600 Speaker 1: idea that the balance sheet of the e c B, 111 00:05:13,800 --> 00:05:16,240 Speaker 1: the b O J, and the Fed is moved from 112 00:05:16,560 --> 00:05:20,200 Speaker 1: x up to fourteen some trillion dollars. They want to 113 00:05:20,279 --> 00:05:24,719 Speaker 1: reassurance that that is a good place to be rather 114 00:05:24,760 --> 00:05:28,560 Speaker 1: than the nostalgia of moving back to a previous balance 115 00:05:28,600 --> 00:05:30,839 Speaker 1: sheet regime. Well, if we move back to the previous 116 00:05:30,880 --> 00:05:32,640 Speaker 1: balance sheet regime, what you'd have to do then, as 117 00:05:32,680 --> 00:05:36,120 Speaker 1: the Federal Reserve, would have to interview massively in markets 118 00:05:36,160 --> 00:05:38,200 Speaker 1: on a day to daily basis. And I don't think 119 00:05:38,240 --> 00:05:41,080 Speaker 1: that's a good regime. In the current regime, if you 120 00:05:41,120 --> 00:05:43,520 Speaker 1: have enough reserves in the system, you don't have to 121 00:05:43,560 --> 00:05:46,640 Speaker 1: do anything day to day. The interest rate you pay 122 00:05:46,640 --> 00:05:49,920 Speaker 1: on access reserves essentially sets the level of money market rates, 123 00:05:50,080 --> 00:05:52,240 Speaker 1: the federal reserve, the federal fund rate. Trades within this 124 00:05:52,400 --> 00:05:54,320 Speaker 1: ranging are done, so it's a much simpler regime. And 125 00:05:54,400 --> 00:05:56,600 Speaker 1: I right John, that we need like four billion is 126 00:05:56,640 --> 00:05:59,400 Speaker 1: the plug in number. Right now we're three billion. People 127 00:05:59,440 --> 00:06:01,640 Speaker 1: don't really know exactly how much reserve you need to 128 00:06:01,680 --> 00:06:03,200 Speaker 1: have a sufficient but I think the Fed is going 129 00:06:03,240 --> 00:06:05,400 Speaker 1: to build up a little bit bigger buffer. They're doing 130 00:06:05,440 --> 00:06:08,240 Speaker 1: it by doing repo operations, and I think in the 131 00:06:08,279 --> 00:06:11,280 Speaker 1: fullness of time, there's there's a prospect of two things happening. 132 00:06:11,600 --> 00:06:13,960 Speaker 1: Number One, they'll increase the size of their balance sheet, 133 00:06:14,000 --> 00:06:17,760 Speaker 1: so they start to buy treasury securities again and share 134 00:06:17,760 --> 00:06:20,279 Speaker 1: Powell talked about that in his press Companies talked about 135 00:06:20,400 --> 00:06:22,400 Speaker 1: organic balance sheet growth, so the balance she will start 136 00:06:22,440 --> 00:06:24,240 Speaker 1: to grow again. The second thing that they're going to 137 00:06:24,279 --> 00:06:28,760 Speaker 1: strongly consider, I think, is introducing a standing repo facility, 138 00:06:29,000 --> 00:06:32,000 Speaker 1: so whenever there's upward pressure on rates, there's a facility 139 00:06:32,000 --> 00:06:34,279 Speaker 1: that people can come to and do repo with and 140 00:06:34,279 --> 00:06:36,440 Speaker 1: that would sort of take away any risk of a 141 00:06:36,440 --> 00:06:39,280 Speaker 1: big up swing. And short term, many people picking up 142 00:06:39,279 --> 00:06:42,080 Speaker 1: on the expansion of the balance sheet, and a lot 143 00:06:42,080 --> 00:06:44,960 Speaker 1: of people pains to stress that this is different. This 144 00:06:45,000 --> 00:06:47,640 Speaker 1: is not q this is totally different. You've touched on 145 00:06:47,680 --> 00:06:49,640 Speaker 1: the optics of it as well, and I want you 146 00:06:49,720 --> 00:06:51,520 Speaker 1: to run us through why the expansion of the balance 147 00:06:51,560 --> 00:06:55,040 Speaker 1: sheet is definitely not that, and secondly, how you can 148 00:06:55,080 --> 00:06:58,240 Speaker 1: adjust the operation of that balance sheet expansion to ensure 149 00:06:58,279 --> 00:07:01,520 Speaker 1: that people don't believe it is that. So, if you're 150 00:07:01,760 --> 00:07:05,839 Speaker 1: adding reserves to keep short term rates from exhibiting upward pressure, 151 00:07:06,560 --> 00:07:08,919 Speaker 1: that's very different than adding reserves to try to push 152 00:07:08,920 --> 00:07:11,960 Speaker 1: down long term rates. So quantitative easy is about take 153 00:07:12,000 --> 00:07:15,640 Speaker 1: buying longer matority assets to try to push down long 154 00:07:15,720 --> 00:07:19,320 Speaker 1: term interest rates. UH, trying to have enough reserves in 155 00:07:19,320 --> 00:07:21,960 Speaker 1: the system to prevent upper pressure on chart term rates. 156 00:07:22,000 --> 00:07:24,160 Speaker 1: It's about adding reserves to the system. So the goals 157 00:07:24,160 --> 00:07:27,120 Speaker 1: are completely different in both cases. The balance sheet increases. Now, 158 00:07:27,160 --> 00:07:28,880 Speaker 1: one thing the FED could do to make it very 159 00:07:28,880 --> 00:07:31,920 Speaker 1: clear that this isn't QUEI is to expand their balancy, 160 00:07:32,040 --> 00:07:34,640 Speaker 1: not by buying treasury securities across the yield curve, but 161 00:07:34,720 --> 00:07:38,360 Speaker 1: by concentrating on treasury treasury bill security. Is this central 162 00:07:38,360 --> 00:07:41,000 Speaker 1: bank constrained by a trillion dollar deficit I mean we're 163 00:07:41,000 --> 00:07:42,800 Speaker 1: talking John, you're better at this than I am. In 164 00:07:42,840 --> 00:07:46,560 Speaker 1: Germany of a desire for fiscal expansion and another selected 165 00:07:48,280 --> 00:07:53,320 Speaker 1: guys like you limited by a trillion dollar deficits. No, No, 166 00:07:53,400 --> 00:07:55,400 Speaker 1: I don't think the I mean, there's lots of reasons 167 00:07:55,440 --> 00:07:57,320 Speaker 1: why you might want to worry about the long term 168 00:07:57,320 --> 00:08:00,280 Speaker 1: fiscal paths of the unit years ago, for a sample, 169 00:08:00,280 --> 00:08:01,960 Speaker 1: of the fact that debt service costs are going to 170 00:08:02,040 --> 00:08:03,840 Speaker 1: go up over time because interest rates are probably not 171 00:08:03,840 --> 00:08:05,560 Speaker 1: going to stay as low as they are today, and 172 00:08:05,600 --> 00:08:08,040 Speaker 1: the retirement of the Baby Boom generation, so medicure and 173 00:08:08,080 --> 00:08:11,200 Speaker 1: still security costs. But it doesn't put any cornstraints on 174 00:08:11,280 --> 00:08:12,960 Speaker 1: the FED at this point. Have you spoken to the 175 00:08:12,960 --> 00:08:15,480 Speaker 1: New York FED in the last week. No, not a 176 00:08:15,520 --> 00:08:18,240 Speaker 1: single word alone's reached out to you. No. No, I mean, look, 177 00:08:18,400 --> 00:08:22,440 Speaker 1: it's really important for the former presidents FED to let 178 00:08:22,480 --> 00:08:24,400 Speaker 1: the current president and the people on the desk to 179 00:08:24,440 --> 00:08:26,080 Speaker 1: do their jobs. But I have to raise the question 180 00:08:26,080 --> 00:08:27,680 Speaker 1: because I've had people come to me that used to 181 00:08:27,680 --> 00:08:29,640 Speaker 1: work in the New York FED and say the morale 182 00:08:29,800 --> 00:08:31,960 Speaker 1: right now is not very good, that there's a lack 183 00:08:32,000 --> 00:08:37,280 Speaker 1: of leadership. I can't comment on that. Well, the interview 184 00:08:37,320 --> 00:08:38,959 Speaker 1: has come to a screech. Well, no, the reason I 185 00:08:39,040 --> 00:08:41,439 Speaker 1: asked the question. I think a lot of market participants 186 00:08:41,480 --> 00:08:44,240 Speaker 1: were concerned the New York Fed didn't come in on 187 00:08:44,280 --> 00:08:46,280 Speaker 1: the Monday after It's definitely they didn't come in on 188 00:08:46,320 --> 00:08:48,439 Speaker 1: the Monday night, and they went in until the Tuesday morning. 189 00:08:48,559 --> 00:08:51,079 Speaker 1: And build the reason this is really a non story. 190 00:08:51,080 --> 00:08:52,840 Speaker 1: I really do well the reason I raised this. I 191 00:08:52,840 --> 00:08:55,720 Speaker 1: think it's important if the narrative is being shaped, that 192 00:08:55,840 --> 00:08:58,400 Speaker 1: this New York FED under Williams is not on top 193 00:08:58,440 --> 00:09:00,120 Speaker 1: of the markets in the way that it was under you. 194 00:09:00,400 --> 00:09:02,320 Speaker 1: We've got a problem, haven't we. But I don't think 195 00:09:02,320 --> 00:09:04,800 Speaker 1: that's the case. I really don't think what I think. 196 00:09:04,840 --> 00:09:07,040 Speaker 1: I'm not concerned about it in the slightest, Okay, But 197 00:09:07,120 --> 00:09:08,840 Speaker 1: then I want you to tell us what the cases 198 00:09:08,880 --> 00:09:11,480 Speaker 1: for for the FED. We've had this testing within a 199 00:09:11,600 --> 00:09:14,200 Speaker 1: hyper complex market. You mentioned when you went from Golden 200 00:09:14,240 --> 00:09:17,400 Speaker 1: Sex over there. Even Bill Dudley had a learning curve 201 00:09:17,440 --> 00:09:20,920 Speaker 1: and certain elements of the plumbing. Everybody, I want you 202 00:09:20,960 --> 00:09:24,559 Speaker 1: to speak to our audience worldwide right now about our 203 00:09:24,640 --> 00:09:29,080 Speaker 1: confidence and the linkage of this plumbing into global banking 204 00:09:29,240 --> 00:09:32,080 Speaker 1: system trust. How do we get from point A to 205 00:09:32,160 --> 00:09:34,720 Speaker 1: point B, Well, I think we've already gotten to put 206 00:09:34,760 --> 00:09:38,400 Speaker 1: to point B. The report market is behaving well, the 207 00:09:38,440 --> 00:09:40,920 Speaker 1: federal funds raised, trading within this range. I mean, you know, 208 00:09:41,080 --> 00:09:43,719 Speaker 1: at the end of the day, it's all about outcomes, 209 00:09:43,840 --> 00:09:46,679 Speaker 1: and the outcomes we see today are are perfectly fine. 210 00:09:46,800 --> 00:09:48,360 Speaker 1: So I think that I think, I think you look 211 00:09:48,400 --> 00:09:49,920 Speaker 1: at this, you know, a month from now, you'renna have 212 00:09:49,920 --> 00:09:52,240 Speaker 1: a very different view. Over the weekend, there was questions 213 00:09:52,280 --> 00:09:56,800 Speaker 1: about major banks, including maybe some you've been associated with reticent, 214 00:09:57,240 --> 00:10:00,599 Speaker 1: reticent to move out their money or their funds and 215 00:10:00,679 --> 00:10:03,800 Speaker 1: their securities as well. Is that a behavioral aspect? Well, 216 00:10:03,800 --> 00:10:05,920 Speaker 1: looking into the plumbing, I think it's fair to say 217 00:10:05,960 --> 00:10:08,680 Speaker 1: that when there's a shortager reserves in the system relative 218 00:10:08,720 --> 00:10:11,760 Speaker 1: to demand, people were surprised by that. Yeah, And when 219 00:10:11,800 --> 00:10:13,719 Speaker 1: they were surprised by that, they started to think, well, 220 00:10:13,760 --> 00:10:15,760 Speaker 1: maybe I should be more worried about do I have 221 00:10:15,880 --> 00:10:19,120 Speaker 1: enough reserves in my account. So temporarily, when you have 222 00:10:19,160 --> 00:10:22,640 Speaker 1: a little surprise like this, demand for reserves might actually increase, 223 00:10:22,880 --> 00:10:28,000 Speaker 1: and that could extend the period of stress and report market. 224 00:10:28,040 --> 00:10:29,199 Speaker 1: So you'll be happy to know we don't have to 225 00:10:29,200 --> 00:10:31,280 Speaker 1: talk about the new York fet anymore. But the interview 226 00:10:31,280 --> 00:10:32,840 Speaker 1: could get a little bit more tense because we do 227 00:10:32,920 --> 00:10:34,959 Speaker 1: have to reflect on an OpEd that you rode around 228 00:10:34,960 --> 00:10:36,520 Speaker 1: about a month ago. And I want to pick up 229 00:10:36,559 --> 00:10:38,640 Speaker 1: on the quote, which you've since clarified, and I'll ask 230 00:10:38,640 --> 00:10:41,200 Speaker 1: you to clarify it once again. It was the conclusion 231 00:10:41,240 --> 00:10:43,000 Speaker 1: of the original opped that I think got a lot 232 00:10:43,000 --> 00:10:45,240 Speaker 1: of people's backs up, and it's said the following, if 233 00:10:45,240 --> 00:10:47,439 Speaker 1: the goal of monetary policies to achieve the best long 234 00:10:47,520 --> 00:10:50,760 Speaker 1: term econom account come, then Fed officials should consider how 235 00:10:50,800 --> 00:10:55,800 Speaker 1: their decisions will affect the political outcome. When that got published, 236 00:10:56,000 --> 00:10:58,840 Speaker 1: how much pushback did you get from your former colleagues. Look, 237 00:10:58,880 --> 00:11:01,440 Speaker 1: I think there was a misunderstanding about what I was 238 00:11:01,480 --> 00:11:03,560 Speaker 1: really trying to say. What were you trying to say? Well, 239 00:11:03,640 --> 00:11:05,520 Speaker 1: the main thing, the main point of the piece was 240 00:11:05,600 --> 00:11:08,000 Speaker 1: to try to point out the fact that the President 241 00:11:08,000 --> 00:11:09,760 Speaker 1: Trump was trying to start to have it both ways 242 00:11:09,800 --> 00:11:13,240 Speaker 1: on trade. He was pursuing a trade policy with China 243 00:11:13,320 --> 00:11:16,040 Speaker 1: that posed risk for the economy, and at the same 244 00:11:16,040 --> 00:11:18,240 Speaker 1: time he was saying, if the economy performs badly, it's 245 00:11:18,280 --> 00:11:20,480 Speaker 1: it's the Feds. Tovall. And my view is that the 246 00:11:20,480 --> 00:11:23,200 Speaker 1: Fed needed to make it very clear that the major 247 00:11:23,280 --> 00:11:26,720 Speaker 1: risk of the economy is trade policy because creating uncertainty 248 00:11:26,720 --> 00:11:30,520 Speaker 1: about investment and and supply lines and things of that sort. 249 00:11:30,960 --> 00:11:32,480 Speaker 1: And the FED needs to make it clear that that 250 00:11:32,520 --> 00:11:34,880 Speaker 1: Montrey policy can only do so much about that. And 251 00:11:34,920 --> 00:11:37,120 Speaker 1: I think the FED has made it more clear over 252 00:11:37,120 --> 00:11:38,880 Speaker 1: the last few weeks. I think if you look at 253 00:11:39,480 --> 00:11:42,280 Speaker 1: Chairman Paul's press conference that he talked about trade uncertainty 254 00:11:42,280 --> 00:11:44,760 Speaker 1: a lot. He talked about how trade uncertainty is not 255 00:11:44,800 --> 00:11:46,760 Speaker 1: something that the FED can easily address, and that's the 256 00:11:46,800 --> 00:11:49,000 Speaker 1: kind of pushback that I thought was desirable. I think 257 00:11:49,000 --> 00:11:51,120 Speaker 1: a lot of people would be sympathetic with that view, 258 00:11:51,200 --> 00:11:52,360 Speaker 1: and that was the part of the old fact that 259 00:11:52,400 --> 00:11:54,400 Speaker 1: I think a lot of people were sympathetic with. What 260 00:11:54,520 --> 00:11:59,000 Speaker 1: they weren't was the mention of look I was, I 261 00:11:59,080 --> 00:12:01,760 Speaker 1: was trying to be vocketive and what did I what 262 00:12:01,840 --> 00:12:05,080 Speaker 1: I said. To be very precise about it, one could 263 00:12:05,320 --> 00:12:08,400 Speaker 1: if you accept the notion that the Fed's goals are 264 00:12:08,440 --> 00:12:11,920 Speaker 1: to maximum sustainable price and priced ability over long term, 265 00:12:12,240 --> 00:12:16,080 Speaker 1: and one also accepts the premise that this trade war 266 00:12:16,200 --> 00:12:20,040 Speaker 1: might not be good for the economic outlook, then logic 267 00:12:20,080 --> 00:12:22,760 Speaker 1: would say there's a question about should the FED take this? 268 00:12:22,800 --> 00:12:25,120 Speaker 1: Should the FED take this into consideration? Now at the 269 00:12:25,200 --> 00:12:27,440 Speaker 1: end of the day, I made it very clear in 270 00:12:27,480 --> 00:12:29,320 Speaker 1: the second piece that I wrote, I don't think the 271 00:12:29,320 --> 00:12:32,960 Speaker 1: FED should actually take this into consideration in setting policy. 272 00:12:33,600 --> 00:12:37,160 Speaker 1: If the FED were to do that, they would become politicized, 273 00:12:37,520 --> 00:12:40,480 Speaker 1: and people would basically react by reducing the independence, taking 274 00:12:40,480 --> 00:12:42,080 Speaker 1: away the independence of the FED. So you think the 275 00:12:42,080 --> 00:12:44,360 Speaker 1: FED has already become politicized time, Well, well, it has 276 00:12:44,400 --> 00:12:47,079 Speaker 1: become politicized because of the president's attacks on the FED. 277 00:12:47,160 --> 00:12:49,000 Speaker 1: So there was an academic piece that was that came 278 00:12:49,000 --> 00:12:51,680 Speaker 1: out over the last I don't know, seventy two hours 279 00:12:51,880 --> 00:12:54,120 Speaker 1: that I saw it just this morning, and they basically 280 00:12:54,120 --> 00:12:56,839 Speaker 1: did a study of the effect of the president, the 281 00:12:56,960 --> 00:12:59,560 Speaker 1: fact that the president's treats tweets on on the federal 282 00:12:59,559 --> 00:13:02,840 Speaker 1: funds mark it, and what they found was that the tweets, actually, 283 00:13:02,840 --> 00:13:05,720 Speaker 1: we're causing people to reduce their expectations about the Federal 284 00:13:05,760 --> 00:13:08,640 Speaker 1: fund parkut So the fans already politicized in the sense 285 00:13:08,760 --> 00:13:12,040 Speaker 1: that people are not sure. Now, yeah, if the FED 286 00:13:12,240 --> 00:13:15,600 Speaker 1: is easy because that's the appropriate policy path, or because 287 00:13:15,640 --> 00:13:18,680 Speaker 1: of pressure from the President, But that politicization is not 288 00:13:18,720 --> 00:13:21,240 Speaker 1: coming from the Fed. It's coming from the president. But 289 00:13:21,280 --> 00:13:23,800 Speaker 1: that is a really important point. But also that politicization 290 00:13:23,840 --> 00:13:26,480 Speaker 1: in that piece, But it came from you, and earlier 291 00:13:26,520 --> 00:13:28,240 Speaker 1: on this conversation when I asked you to talk about 292 00:13:28,240 --> 00:13:29,920 Speaker 1: the New York Fed, you were keen to say a 293 00:13:29,960 --> 00:13:32,240 Speaker 1: former New York Fed president should not comment on the 294 00:13:32,280 --> 00:13:35,920 Speaker 1: current New York FED president. But by mentioning twenty, can 295 00:13:35,960 --> 00:13:39,040 Speaker 1: you appreciate how you've compromised your former colleagues and the 296 00:13:39,120 --> 00:13:41,559 Speaker 1: optics around the next decision. Look, I think that I 297 00:13:41,640 --> 00:13:44,480 Speaker 1: think they're gonna behave in a political way. They're gonna 298 00:13:44,480 --> 00:13:46,240 Speaker 1: do what they think is appropriate for the communy. And 299 00:13:46,360 --> 00:13:47,800 Speaker 1: if I were sitting in their shoes, I would do 300 00:13:47,920 --> 00:13:51,280 Speaker 1: exactly the same thing. I want to talk about the 301 00:13:51,360 --> 00:13:55,319 Speaker 1: chairman by all accolaide including I think John would agree 302 00:13:55,320 --> 00:13:58,200 Speaker 1: with me. Sherman Paul had a good press conference as well. 303 00:13:58,640 --> 00:14:02,520 Speaker 1: There's still this thing about William Miller and a non 304 00:14:02,640 --> 00:14:06,520 Speaker 1: PhD chairman. How's Chairman Powell doing? And there's there are 305 00:14:06,640 --> 00:14:10,679 Speaker 1: elements there, Well, he's not a PhD and so there 306 00:14:10,760 --> 00:14:13,559 Speaker 1: is a different cadence to what this given chairman says. 307 00:14:14,320 --> 00:14:17,480 Speaker 1: I have said repeatedly that you don't have to have 308 00:14:17,520 --> 00:14:20,440 Speaker 1: a PhD in economics to be a very successful policymaker 309 00:14:20,440 --> 00:14:23,480 Speaker 1: of the FED. And I think Chairman Powell is proving that. 310 00:14:24,200 --> 00:14:27,840 Speaker 1: I think he understands what monetary policy needs to do. 311 00:14:28,600 --> 00:14:30,080 Speaker 1: I think he's very thoughtful. I mean, at the end 312 00:14:30,080 --> 00:14:33,160 Speaker 1: of the day, it's all about judgment and and and 313 00:14:33,200 --> 00:14:36,600 Speaker 1: your confidence in someone's judgment is what's critical, not whether 314 00:14:36,600 --> 00:14:38,200 Speaker 1: they're a PhD e Commerce or not. And I have 315 00:14:38,240 --> 00:14:41,560 Speaker 1: confidence in Chairman Paul. If we assume the probabilistic assumption 316 00:14:41,640 --> 00:14:44,280 Speaker 1: of any given chairman, and of course the President United 317 00:14:44,320 --> 00:14:47,320 Speaker 1: States harping on it every sing I can't imagine presidents 318 00:14:47,320 --> 00:14:49,720 Speaker 1: of tweeting in early two thousand and eight. I mean, 319 00:14:49,760 --> 00:14:53,200 Speaker 1: think about that right now, this this chairman is being 320 00:14:53,240 --> 00:14:55,920 Speaker 1: buffeted from all sides. What does he need to hear 321 00:14:56,520 --> 00:15:00,040 Speaker 1: from Vice Chairman Clarata and the other PhD economist of 322 00:15:00,120 --> 00:15:04,200 Speaker 1: FED right now to drive forward to a better policy. Well, 323 00:15:04,240 --> 00:15:06,640 Speaker 1: I think the important thing is that the core group 324 00:15:06,680 --> 00:15:09,600 Speaker 1: of of of leaders at the FED, so Clarida, Williams 325 00:15:09,640 --> 00:15:12,040 Speaker 1: and Power are all on the same page. I think, 326 00:15:12,080 --> 00:15:15,120 Speaker 1: So what about the dots you love? The dots were 327 00:15:15,160 --> 00:15:17,040 Speaker 1: better than me. I think it's fair to say I'm 328 00:15:17,040 --> 00:15:18,360 Speaker 1: going to speak on behalf of a lot of people 329 00:15:18,400 --> 00:15:20,000 Speaker 1: in the market. I think a lot of people hate 330 00:15:20,000 --> 00:15:21,840 Speaker 1: these dots, and I believe the people on the FED 331 00:15:21,880 --> 00:15:23,400 Speaker 1: are started to go that way as well. Why do 332 00:15:23,480 --> 00:15:25,280 Speaker 1: we still have them build Well, I think it's once 333 00:15:25,360 --> 00:15:27,920 Speaker 1: once you've moved to greater transparency, it's hard to sort 334 00:15:27,920 --> 00:15:30,280 Speaker 1: of pull it back. The problem with the dots are 335 00:15:30,400 --> 00:15:32,200 Speaker 1: not the dots per se, but the fact that how 336 00:15:32,200 --> 00:15:35,680 Speaker 1: people interpret them. It's a it's a modal forecast of 337 00:15:35,760 --> 00:15:37,440 Speaker 1: what you think is going to happen, but it doesn't 338 00:15:37,480 --> 00:15:40,960 Speaker 1: capture all the uncertainty about the economic outlook, and so 339 00:15:41,040 --> 00:15:43,800 Speaker 1: the reality is very seldom are you actually gonna do 340 00:15:44,040 --> 00:15:47,160 Speaker 1: what you say you think is the most likely outcome 341 00:15:47,200 --> 00:15:48,840 Speaker 1: in the dots, because the world will change in a 342 00:15:48,880 --> 00:15:51,120 Speaker 1: way that that pushes you to a different policy. It 343 00:15:51,160 --> 00:15:53,680 Speaker 1: does capture a lot of descent and a fractured FED 344 00:15:53,800 --> 00:15:55,520 Speaker 1: reserve in the at the moment in a way that 345 00:15:55,560 --> 00:15:57,760 Speaker 1: it wasn't maybe twelve months ago. We don't just see 346 00:15:57,760 --> 00:15:59,320 Speaker 1: that the FED. We see that in Europe as one 347 00:15:59,320 --> 00:16:01,720 Speaker 1: of the e c B. It's broad a signal there 348 00:16:01,840 --> 00:16:04,000 Speaker 1: the amount of push back the policy make is at 349 00:16:04,040 --> 00:16:05,640 Speaker 1: the top of the FED and the opening ECP at 350 00:16:05,640 --> 00:16:08,160 Speaker 1: getting in response to this slowdown. I don't think there's 351 00:16:08,160 --> 00:16:09,920 Speaker 1: a big split in the FOS. I mean, the question 352 00:16:10,000 --> 00:16:12,800 Speaker 1: for the FED right now is the economy is doing fine, 353 00:16:13,240 --> 00:16:15,920 Speaker 1: but there are risks to the economic outlook caused primarily 354 00:16:15,960 --> 00:16:20,320 Speaker 1: by trade policy uncertainty. There's not an inflation issue, so 355 00:16:20,480 --> 00:16:22,920 Speaker 1: in that environment you take out some insurance or not. 356 00:16:23,120 --> 00:16:25,120 Speaker 1: And some people think you should take out some insurance, 357 00:16:25,120 --> 00:16:28,120 Speaker 1: and other people are want to see more economic weakness 358 00:16:28,200 --> 00:16:29,640 Speaker 1: before they do that. And yet there's something a lot 359 00:16:29,680 --> 00:16:32,120 Speaker 1: of people still struggle with. And alcoholic Michael McKay has 360 00:16:32,120 --> 00:16:34,960 Speaker 1: asked the question twice. I believe of Chairman Powell, why 361 00:16:35,000 --> 00:16:38,080 Speaker 1: the lower interest rates help to address the tensions that 362 00:16:38,160 --> 00:16:40,440 Speaker 1: have come off the back of the trade dispute. Why 363 00:16:40,480 --> 00:16:43,560 Speaker 1: do they help well? I think they help in a 364 00:16:43,640 --> 00:16:46,840 Speaker 1: number of ways. Number one, they make financial conditions more accommodative, 365 00:16:47,200 --> 00:16:50,920 Speaker 1: so stock market, bond market supports the US economy, probably 366 00:16:50,960 --> 00:16:52,800 Speaker 1: takes a little bit of upward pressure off the dollar, 367 00:16:52,880 --> 00:16:55,920 Speaker 1: which has consequences for US trade performance. So at the 368 00:16:56,040 --> 00:16:58,960 Speaker 1: at the margin, it's not well suited for trade uncertainty. 369 00:16:58,960 --> 00:17:00,680 Speaker 1: It's not like the fig cuts want to fight basis 370 00:17:00,720 --> 00:17:03,400 Speaker 1: points trade uncertain He gets resolved, but it does help 371 00:17:03,440 --> 00:17:05,760 Speaker 1: support the econmy in other ways. We are twelve years 372 00:17:05,800 --> 00:17:09,680 Speaker 1: down the road from Geitner, Dudley and others major major 373 00:17:09,840 --> 00:17:13,040 Speaker 1: tensions of OH seven, oh eight, and oh nine as well. 374 00:17:13,520 --> 00:17:16,840 Speaker 1: When does this end? When does the financial repression end? 375 00:17:17,160 --> 00:17:20,720 Speaker 1: When does the real yield John Show actually become a 376 00:17:20,880 --> 00:17:24,359 Speaker 1: positive real yield in the United States the nominal yield 377 00:17:24,440 --> 00:17:27,080 Speaker 1: in Europe as well. Is you know they're gonna say this, 378 00:17:27,240 --> 00:17:33,080 Speaker 1: Bill Dudley's experiments, Geitner's experience, Bernanke's experiment. It just hasn't 379 00:17:33,119 --> 00:17:36,200 Speaker 1: worked out for the common good. When do we escape 380 00:17:36,280 --> 00:17:39,320 Speaker 1: from this to normality? I think that's a really you know, 381 00:17:39,440 --> 00:17:42,040 Speaker 1: negative interpretation of where we actually are. We're at a 382 00:17:42,359 --> 00:17:45,480 Speaker 1: very low unemployment rate, well below four percent, the Feds 383 00:17:45,560 --> 00:17:49,280 Speaker 1: pretty close to their inflation goal, the corporate personal consumption 384 00:17:49,359 --> 00:17:52,879 Speaker 1: expansion to fairs at one point six percent. So I 385 00:17:52,960 --> 00:17:54,920 Speaker 1: think the reality is if you could just stay here 386 00:17:54,960 --> 00:17:58,280 Speaker 1: in terms of employment and until we clear the trade war, 387 00:17:58,359 --> 00:18:00,119 Speaker 1: is that the key issue for you as president than 388 00:18:00,160 --> 00:18:02,439 Speaker 1: Trump and his trade ward? Well, I think that right 389 00:18:02,480 --> 00:18:04,640 Speaker 1: now that creates the biggest downside risk to the economy 390 00:18:04,720 --> 00:18:06,840 Speaker 1: for sure. This is the third growd scare of the 391 00:18:06,920 --> 00:18:12,480 Speaker 1: last ten years or fifteen sixteen. We now have the 392 00:18:12,560 --> 00:18:14,440 Speaker 1: previous two bill I think it's fair to say I've 393 00:18:14,440 --> 00:18:17,800 Speaker 1: been head faked. We had the manufacturing really soft, didn't 394 00:18:17,840 --> 00:18:20,240 Speaker 1: bleed into the broader economy. And I think you see 395 00:18:20,320 --> 00:18:23,560 Speaker 1: him right now. That is different to the experience of eleven, twelve, 396 00:18:23,800 --> 00:18:26,520 Speaker 1: fifteen sixteen. Well, the difference is that the president has 397 00:18:26,520 --> 00:18:30,959 Speaker 1: a lot of your control over what actually ultimately happens. 398 00:18:31,320 --> 00:18:32,960 Speaker 1: The second thing that I think that's important to really 399 00:18:32,960 --> 00:18:35,879 Speaker 1: stress is the household sector is in really good shape. 400 00:18:36,320 --> 00:18:39,560 Speaker 1: You know, jobs are being created, uh, wages are rising 401 00:18:39,560 --> 00:18:43,639 Speaker 1: a little bit more quickly, Household confidence is high, uh. 402 00:18:43,720 --> 00:18:45,760 Speaker 1: And households have not taken out a much debt. I mean, 403 00:18:45,760 --> 00:18:48,280 Speaker 1: if you look at the household debt through the cycle 404 00:18:48,480 --> 00:18:50,480 Speaker 1: is totally different than it was the last cycle. I 405 00:18:50,520 --> 00:18:52,359 Speaker 1: think the reason why people are so nervous, frankly is 406 00:18:52,400 --> 00:18:55,440 Speaker 1: because of the Great Recession. They're like, oh, we're gonna 407 00:18:55,440 --> 00:18:57,480 Speaker 1: go back to that environment. Yeah. The reality is I 408 00:18:57,560 --> 00:18:59,720 Speaker 1: think that that risk is you know, pretty much off 409 00:18:59,760 --> 00:19:01,439 Speaker 1: the tape. It will be for two reasons. The household 410 00:19:01,480 --> 00:19:04,240 Speaker 1: sector is not over extended, and the financial system is 411 00:19:04,280 --> 00:19:07,920 Speaker 1: in much better shape. The thing that I wonder about, 412 00:19:08,000 --> 00:19:10,520 Speaker 1: Bill is all this discussion, and what John and I 413 00:19:10,600 --> 00:19:14,560 Speaker 1: speak of every day on Bloomberg surveillance is the rationalization 414 00:19:14,720 --> 00:19:17,520 Speaker 1: of a new terminal rate. Michael Faroli a JP mo're 415 00:19:17,520 --> 00:19:20,280 Speaker 1: gonna others have been very good about this. Goldman Sachs 416 00:19:20,320 --> 00:19:23,840 Speaker 1: had a house call of lower GDP way out front 417 00:19:23,880 --> 00:19:27,080 Speaker 1: of many others as well. Is all of this a 418 00:19:27,240 --> 00:19:31,080 Speaker 1: rationalization within our greater financial system to get to a 419 00:19:31,359 --> 00:19:34,800 Speaker 1: new nominal rate, a new terminal rate, a new real rate, 420 00:19:35,119 --> 00:19:37,520 Speaker 1: and indeed a new unemployment rate. There's just a different 421 00:19:37,560 --> 00:19:41,240 Speaker 1: statistic from our childhood. Oh, that's very much. That seems 422 00:19:41,240 --> 00:19:43,800 Speaker 1: to be the case that the real interest rate, consistent 423 00:19:43,880 --> 00:19:47,040 Speaker 1: with a neutral mantre policy, seems to be distinctly lower 424 00:19:47,119 --> 00:19:49,199 Speaker 1: today than in the past. In your head, what I mean, 425 00:19:49,200 --> 00:19:51,280 Speaker 1: if you look at the old Taylor Rol formulation, the 426 00:19:51,359 --> 00:19:53,640 Speaker 1: real interest rate that was considered sort of neutral, it's 427 00:19:53,640 --> 00:19:56,320 Speaker 1: two percent. Now people think the real interest rates that's 428 00:19:56,320 --> 00:19:58,880 Speaker 1: considered neutral is closer to you know, maybe it zero 429 00:19:59,080 --> 00:20:02,359 Speaker 1: to a half percent. If you look at the summary 430 00:20:02,359 --> 00:20:05,440 Speaker 1: of economic projections that the Fed publishes their long term 431 00:20:05,760 --> 00:20:09,159 Speaker 1: phenomenal federal funds rate that they expect the median is 432 00:20:09,160 --> 00:20:11,800 Speaker 1: two and a half percent, so to percent inflation plus 433 00:20:11,840 --> 00:20:14,080 Speaker 1: a half percent real rate, So that's much lower than 434 00:20:14,119 --> 00:20:15,960 Speaker 1: it's been in there. Where's your run rate on real 435 00:20:16,040 --> 00:20:18,600 Speaker 1: g d P? And how much is the president affecting 436 00:20:18,680 --> 00:20:21,600 Speaker 1: that with his trade wark. It's hard to know precisely 437 00:20:21,680 --> 00:20:24,320 Speaker 1: how much trade is. The trade uncertain is cutting off growth, 438 00:20:24,560 --> 00:20:27,280 Speaker 1: but we know that it's definitely having a negative consequences 439 00:20:27,320 --> 00:20:30,000 Speaker 1: for investment spending. And if it's we go forward and 440 00:20:30,160 --> 00:20:32,720 Speaker 1: terrorists continue to get ratchet up, it's actually gonna bleed 441 00:20:32,800 --> 00:20:35,480 Speaker 1: over into the consumer as well because terrorists are a 442 00:20:35,600 --> 00:20:38,119 Speaker 1: tightening of fiscal policy. I'm very pleased to say that 443 00:20:38,200 --> 00:20:40,800 Speaker 1: you think the neutral right is zero to zero point 444 00:20:40,840 --> 00:20:42,800 Speaker 1: five percent. At least it's still positive. We're getting a 445 00:20:42,800 --> 00:20:45,320 Speaker 1: lot of questions from our audience about the prospective negative 446 00:20:45,359 --> 00:20:48,080 Speaker 1: interest rights. We have them in Denmark, we have THEMS Switzerland, 447 00:20:48,160 --> 00:20:51,119 Speaker 1: across Europe and Japan as well. Is that something you 448 00:20:51,160 --> 00:20:55,160 Speaker 1: could ever see working just operationally working Kim, They noted, 449 00:20:55,200 --> 00:20:58,119 Speaker 1: states fill, I think you could operationally do it, but 450 00:20:58,280 --> 00:21:00,720 Speaker 1: I think that you saw the Fed not go down 451 00:21:00,800 --> 00:21:03,320 Speaker 1: that path in you know, two thousand and twelve, thirteen, 452 00:21:03,880 --> 00:21:06,600 Speaker 1: And I think the experience with negative interest rates around 453 00:21:06,640 --> 00:21:09,640 Speaker 1: the world has probably been pretty mixed. So I think 454 00:21:09,680 --> 00:21:12,600 Speaker 1: the bar for the Federal Reserve, ever contemplating negative interest 455 00:21:12,720 --> 00:21:14,640 Speaker 1: rates in the US is really really high, especially given 456 00:21:14,640 --> 00:21:17,800 Speaker 1: that there's other tools available to stimulate the economy, namely 457 00:21:17,920 --> 00:21:20,560 Speaker 1: quantitative musing forward guidance, and you can always use to 458 00:21:20,800 --> 00:21:22,480 Speaker 1: the policy as well. It's right where I wanted to go. 459 00:21:22,720 --> 00:21:24,960 Speaker 1: Where's forward guidance? Is it in the is it in 460 00:21:25,040 --> 00:21:27,320 Speaker 1: the economic graveyard? Now? Do we go back to a 461 00:21:27,400 --> 00:21:30,600 Speaker 1: true data dependency? Is Chairman Paul's talked about, well, when 462 00:21:30,640 --> 00:21:32,560 Speaker 1: you need foreign guidance is when you're at the zero 463 00:21:32,640 --> 00:21:34,600 Speaker 1: lower BOUMB for short term interest rates. You don't need 464 00:21:34,640 --> 00:21:36,879 Speaker 1: four guidance. When you have positive interest rates, you can 465 00:21:36,960 --> 00:21:39,840 Speaker 1: just adjust the interest rates as needed as the economy evolves. 466 00:21:39,880 --> 00:21:41,760 Speaker 1: So you know, right now it's you know, I think 467 00:21:41,760 --> 00:21:43,920 Speaker 1: it's Chairman palmated very clear. It's a meeting to meeting, 468 00:21:44,200 --> 00:21:46,159 Speaker 1: and you know he can't tell you what he's going 469 00:21:46,240 --> 00:21:48,880 Speaker 1: to do next because it depends on the economic data. 470 00:21:48,880 --> 00:21:51,480 Speaker 1: And what's interesting about it is. The economic data actually 471 00:21:51,520 --> 00:21:54,879 Speaker 1: looks pretty good. If you look at the city surprise Index, 472 00:21:54,920 --> 00:21:57,959 Speaker 1: for example, it is it's come back tremendously. And if 473 00:21:58,000 --> 00:22:00,760 Speaker 1: you look at the inflation data, see quite Julie core 474 00:22:00,840 --> 00:22:03,920 Speaker 1: inflation is Actually this is the number one male I get. 475 00:22:04,200 --> 00:22:06,480 Speaker 1: I get less mail than feral, but we'll go with it. 476 00:22:06,600 --> 00:22:08,840 Speaker 1: This is the number one male I get in. Chairman 477 00:22:08,880 --> 00:22:11,000 Speaker 1: Paul is on the same page as I am Trim 478 00:22:11,160 --> 00:22:15,600 Speaker 1: Dallas mean Cleveland. FED show high inflation that every viewer 479 00:22:15,760 --> 00:22:19,440 Speaker 1: and every listener's feeling every day. What about the deflation 480 00:22:19,560 --> 00:22:22,520 Speaker 1: bugge with the disinflation worry that we have. Do we 481 00:22:22,680 --> 00:22:26,399 Speaker 1: have a sustained good inflation or do we have to 482 00:22:26,480 --> 00:22:29,600 Speaker 1: worthy worried that little cut Either way, look, I think 483 00:22:29,640 --> 00:22:32,560 Speaker 1: the risk at the at the marginal at inflation actually 484 00:22:32,600 --> 00:22:35,000 Speaker 1: starting to drift a bit higher. Now that's not a 485 00:22:35,040 --> 00:22:37,400 Speaker 1: problem right now because inflation is below the feds two 486 00:22:37,440 --> 00:22:41,000 Speaker 1: percent objective, and inflation expectations have come down a little bit, 487 00:22:41,280 --> 00:22:43,600 Speaker 1: so the Fed wouldn't be unhappy at all if inflation 488 00:22:43,720 --> 00:22:45,800 Speaker 1: drifted up a little bit above two percent. But do 489 00:22:45,920 --> 00:22:47,399 Speaker 1: you have a thing kind of infloment would have to 490 00:22:47,440 --> 00:22:51,679 Speaker 1: get this low and still, we wouldn't say we had 491 00:22:51,760 --> 00:22:54,240 Speaker 1: in a material why we're staying in acceleration. But it's very, 492 00:22:54,320 --> 00:22:56,200 Speaker 1: very gradually. I know. I think it's a surprising. I 493 00:22:56,240 --> 00:22:58,120 Speaker 1: mean that's a good thing though. I mean the fact 494 00:22:58,160 --> 00:23:00,240 Speaker 1: that you can run the economy at this low level 495 00:23:00,400 --> 00:23:03,040 Speaker 1: of the unemployee rate and not have an inflation problem. 496 00:23:03,080 --> 00:23:04,320 Speaker 1: That's not a bad thing. That's a good thing. That 497 00:23:04,400 --> 00:23:07,400 Speaker 1: means literally millions more people can be employed without having 498 00:23:07,440 --> 00:23:09,960 Speaker 1: the fed to us or cut off the expansion. I 499 00:23:10,080 --> 00:23:12,080 Speaker 1: want to go back to what you and Ed mcelvy 500 00:23:12,119 --> 00:23:14,280 Speaker 1: said years ago. There's not a moment to lose. What 501 00:23:14,440 --> 00:23:17,720 Speaker 1: does the economic profession need to do to help this 502 00:23:17,880 --> 00:23:22,320 Speaker 1: president away from an economic mercantilism that borders on Elizabeth 503 00:23:22,359 --> 00:23:24,320 Speaker 1: the first What a guys like you need to do 504 00:23:24,800 --> 00:23:28,320 Speaker 1: to convince this administration to come to a successful outcome. 505 00:23:28,520 --> 00:23:31,760 Speaker 1: Pharaoh speaks with Lawrence Cardlow once a month. What's a month? 506 00:23:31,880 --> 00:23:34,680 Speaker 1: Is it? What's a month? But you are great that 507 00:23:34,800 --> 00:23:36,960 Speaker 1: we need to take on China. You just disagree with 508 00:23:36,960 --> 00:23:39,679 Speaker 1: the approach. Yes, I think. I mean, I think there's sir, 509 00:23:39,840 --> 00:23:43,720 Speaker 1: two problems. Number one, Uh, the president, I don't think 510 00:23:43,800 --> 00:23:47,240 Speaker 1: understands where trade deficits come from. So you know, the 511 00:23:47,320 --> 00:23:49,240 Speaker 1: fact that we have to have trade deficits as a 512 00:23:49,280 --> 00:23:51,320 Speaker 1: country is because we have a short fall of domestic 513 00:23:51,400 --> 00:23:54,840 Speaker 1: savings relative to investment, and nothing you do in terms 514 00:23:54,880 --> 00:23:57,320 Speaker 1: of trade negotiation is going to fundamentally change that. So 515 00:23:57,400 --> 00:23:59,040 Speaker 1: the trade deficits are not going to go away. And 516 00:23:59,160 --> 00:24:01,880 Speaker 1: number two, I think thinks that terrorists are not paid 517 00:24:01,960 --> 00:24:05,400 Speaker 1: by US households and businesses, when in fact the incidents 518 00:24:05,400 --> 00:24:08,159 Speaker 1: of terrorists falls very heavily on US consumers. Find a 519 00:24:08,240 --> 00:24:09,840 Speaker 1: question for your bill, And I've got to reflect on 520 00:24:09,880 --> 00:24:11,560 Speaker 1: it because many people have asked this question of me, 521 00:24:11,640 --> 00:24:13,600 Speaker 1: and I finally got the chance to ask you the question. 522 00:24:14,000 --> 00:24:17,560 Speaker 1: Do you regret right in the out pit and mentioning No? 523 00:24:17,720 --> 00:24:19,080 Speaker 1: I mean, I think I should have made it more 524 00:24:19,200 --> 00:24:22,280 Speaker 1: clear that it was a speculative argument and that I 525 00:24:22,359 --> 00:24:24,600 Speaker 1: don't think the FED should be political in their actions. 526 00:24:24,600 --> 00:24:27,160 Speaker 1: I should have been more clear on that point. But no, Look, 527 00:24:27,359 --> 00:24:30,960 Speaker 1: I think it's important that people be willing to push 528 00:24:31,040 --> 00:24:34,440 Speaker 1: the envelope a little bit, be provocative, not be afraid. 529 00:24:34,800 --> 00:24:36,639 Speaker 1: And so no, I'm gonna keep running up in pieces 530 00:24:36,720 --> 00:24:39,119 Speaker 1: and I wrote one on this past week, and we 531 00:24:39,200 --> 00:24:41,639 Speaker 1: look forwards you're coming back on and clarifying them if 532 00:24:41,640 --> 00:24:43,840 Speaker 1: we get the chance, Builth Dudley, we appreciate your time, 533 00:24:43,880 --> 00:24:46,400 Speaker 1: the privilege of pleasure. The former New York Fed President 534 00:24:46,440 --> 00:24:48,960 Speaker 1: Bill Dudley, joining Tom Kine and myself in a special 535 00:24:49,119 --> 00:24:50,280 Speaker 1: edition of Limberg Surveillance