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Speaker 2: so much to talk about with James Bullard. Of course,
Speaker 2: original is Saint Louis Fed with all the research heritage
Speaker 2: of the Saint Louis Fed his PhD from Indiana University,
Speaker 2: and he's wearing a boiler of Purdue pin today with
Speaker 2: this wonderful challenge taken on what's the difference between I
Speaker 2: you in Purdue.
Speaker 3: Purdue is number four engineering school in the country. So
Speaker 3: it's MIT Stanford.
Speaker 2: Berkeley out in the Midwest.
Speaker 3: Yeah, and so the medical school is down at IU,
Speaker 3: but engineering is at Produce. So it's a great Technical
Speaker 3: University and the business school is aiming to combine even
Speaker 3: better than we have with the engineering school and get
Speaker 3: great graduate school.
Speaker 2: You're enjoying the private life.
Speaker 3: Oh I am, and it's going very well. It's great
Speaker 3: to be back on campus and around the students and
Speaker 3: hanging out.
Speaker 2: I want to go back to I believe it was
Speaker 2: twenty sixteen and doctor Bullard, you had a profoundly important
Speaker 2: paper saying, as Leguard is saying at the ECB, we
Speaker 2: got to get off this idiot media micro analysis of
Speaker 2: data and look at the regimes that we live in.
Speaker 2: Is we go to this FED meeting today within disinflation,
Speaker 2: with the FED, with the ECB leading and of the
Speaker 2: rate cut for Jim Bullard, Is there a new regime
Speaker 2: out there right now post pandemic.
Speaker 3: I do think we've switched regimes. We're in a higher
Speaker 3: nominal interest rate, higher inflation environment, and I think that
Speaker 3: means that comparison should be made more to the second
Speaker 3: half of the nineteen nineties in the first part of
Speaker 3: the two thousands than to the twenty nine to twenty
Speaker 3: nineteen period, which was a low noight, low inflation regime.
Speaker 2: Paul wants to get here We're going to tie the
Speaker 2: bow here if I can. It's critical. Is this the
Speaker 2: press conference where we get some form of hint or
Speaker 2: statement to where Bullard and Clarida are, which is away
Speaker 2: from the slavery of two point zero percent? Do we
Speaker 2: get a higher an understanding of higher run rate for
Speaker 2: our start or for inflation.
Speaker 3: Inflation. No, the inflation target will stay at two percent.
Speaker 3: But inflation itself, I think that ideal policy would guide
Speaker 3: inflation to two percent. But assom tote a word that
Speaker 3: you love, Tom assum tote to two percent. So you
Speaker 3: want this gentle reduction inflation right down to two percent.
Speaker 3: You don't want to be bouncing above them below two percent.
Speaker 3: I think you want this nice glide path into two percent.
Speaker 3: So hopefully that's what we'll get here. And this report
Speaker 3: today is very encouraging.
Speaker 4: And so Jim, there are folks out there in academia,
Speaker 4: in practice, in the marketplace. I think this fit of
Speaker 4: reserve is already behind the curve that they should have
Speaker 4: already been cutting. Now, how do you think about that?
Speaker 3: So I've argued that earlier this year we did get
Speaker 3: tremendous reduction and core pc inflation in the second half
Speaker 3: of twenty twenty three, it was four point eight percent.
Speaker 3: Last summer, on a twelve month basis, it came all
Speaker 3: the way down to two point eight percent. So in
Speaker 3: this world, in this game, two hundred basis points of
Speaker 3: inflation reduction over six months or so, this is fantastically large.
Speaker 3: So you should be taking that into account. You should
Speaker 3: be reducing the policy rate. But the committee just couldn't
Speaker 3: find the right moment to do that because all the
Speaker 3: inflation reports up to now we were mixed or even
Speaker 3: even negative. So unfortunately didn't find the right moment to
Speaker 3: do that. But this idea that the policy rate is
Speaker 3: a little too high for where the economy is today,
Speaker 3: I think makes a lot of sense. So I've advocated
Speaker 3: for like a technical adjustment. You know, you want to
Speaker 3: get this idea across that because inflation isn't near five
Speaker 3: percent anymore. Core inflation it's now under three percent, we
Speaker 3: can afford to reduce the policy rate, still be restrictive
Speaker 3: and get this glide path into two percent, the two
Speaker 3: percent target.
Speaker 4: Look to get your opinion on another topic that investors
Speaker 4: are thinking about, which is this is an election year
Speaker 4: and what does that mean for the FIT Reserve to timing.
Speaker 4: I mean, a lot of folks are saying, you don't
Speaker 4: want to be too close to the election, so maybe
Speaker 4: a September might not be the right time.
Speaker 3: I think the first of all, I don't think anybody
Speaker 3: ever won an election based on whether the FED did
Speaker 3: something at the September meeting, so I don't think it
Speaker 3: matters for actual election outcomes. I don't think the median
Speaker 3: voter is voting on that. They're voting on much broader issues.
Speaker 3: So I think that the Committee feels in boldened to
Speaker 3: do whatever it thinks is right at that meeting or
Speaker 3: any of the other meetings and lead up to the election.
Speaker 3: And they have moved in the past during the election cycle,
Speaker 3: and I think they can do that if they wish
Speaker 3: this time.
Speaker 4: When the FED does begin to cut rates, how should
Speaker 4: we think about the next three, six nine meetings after that?
Speaker 4: How will they proceed in what may be a prolonged
Speaker 4: rate reduction move. How will that procede?
Speaker 2: You think?
Speaker 3: I think it'd be slow. I think that you know,
Speaker 3: at least as up today, you would think that the
Speaker 3: inflation rate would come down slowly towards two percent, But
Speaker 3: it would depend on the data and what else is
Speaker 3: going on, as it always does.
Speaker 2: I look at the FED and I'm going to be honest,
Speaker 2: Jim Buller, do you have prodigious economic chops. There's a
Speaker 2: few other people out there as well, but the fact
Speaker 2: is on this program we've had more than a few
Speaker 2: guests take a shot at a central bank that seems
Speaker 2: to be in love with non economists. Do we need
Speaker 2: a representation at the governor's level and at the senior
Speaker 2: levels of the FED that includes prodigious PhD macroeconomics or
Speaker 2: can we go with a more generalist approach.
Speaker 3: I think it's great to have a mix of voices
Speaker 3: and a mix of backgrounds on the committee. I think
Speaker 3: it really helps. You get too many people like me
Speaker 3: and you get in too much in the weeds about analysis.
Speaker 3: But if you don't have enough of that, then you
Speaker 3: know you can't do a good job either, and so
Speaker 3: a good mix is the right way to go. I've
Speaker 3: learned a lot from my colleagues that have markets experience,
Speaker 3: and now there's a couple of new people coming on
Speaker 3: that have a lot of markets.
Speaker 2: Jim Bullard was this week continue he's a purdue of
Speaker 2: course at Crannerton White The Mitch Daniels combine out there
Speaker 2: of their great graduate and undergraduate programs. Here's the history,
Speaker 2: and you're never going to admit it, but there was
Speaker 2: a rogue dot there and you don't know which dot is.
Speaker 2: You don't know which dot Janet Yellen was, but you
Speaker 2: knew which dot Bullard was because there was a roague dot.
Speaker 2: If the dots lost their meaning, as you protested with
Speaker 2: your rogue dot, you could barely fit on the Bloomberg screen.
Speaker 2: Tom Secunda is over in Bloomberg LP aging because you
Speaker 2: ruined the dot screen.
Speaker 3: That's yeah, Well, it was a different era. You know,
Speaker 3: we were talking about regimes earlier. It was definitely a situation
Speaker 3: where uh interest rates were low around the world. You
Speaker 3: had negative nominal rates around the world, and I just thought,
Speaker 3: why don't we just admit that we're in this low
Speaker 3: nominal intright low inflation regime and project based on that
Speaker 3: and not project not try to project that we're going
Speaker 3: to swing if.
Speaker 2: The dots loss are sell by date, I mean, is
Speaker 2: there any efficacy to the dots now?
Speaker 3: I think there could be great reforms on the on
Speaker 3: the dot plot, but the committee has just not wanted
Speaker 3: to make those reforms. One thing that's very strange about
Speaker 3: the dots is that the horizon shortens up as you
Speaker 3: go through the year. So now you've got a dot
Speaker 3: plot that really isn't comparable to the previous dot plots
Speaker 3: because now you've only got six months left in the year.
Speaker 3: Was when you started, you had a whole year out
Speaker 3: in the future.
Speaker 2: So I just saw this stuff. I think it's all
Speaker 2: just I don't vote, I don't focus on the dots.
Speaker 2: It's a great fun say well save me.
Speaker 4: I'm trying to explain to my offspring Jim, that about
Speaker 4: this is a more normalized interest rate environment. This is
Speaker 4: where most of the time, this society, this economy lives,
Speaker 4: and they're trying to figure out how to borrow for
Speaker 4: cars and houses and things like that. Is this, in
Speaker 4: fact where we're going to be for some time? Do
Speaker 4: you think this kind of No?
Speaker 3: I do think we're in this higher interest rate regime,
Speaker 3: and I do think that it's better on the whole.
Speaker 3: If you think about the second half of the nineties,
Speaker 3: which was really the best period for the US economy
Speaker 3: in the post war era that had interest rates like
Speaker 3: we have today broadly speaking, and the economy can grow
Speaker 3: very rapidly. You know, we had a great run at
Speaker 3: that time, and I do think you probably get a
Speaker 3: little bit better allocation of capital because it's more of
Speaker 3: a decision about it's my project really worth it or not,
Speaker 3: And you don't get this kind of experimenting around with
Speaker 3: kind of projects that probably have low payoff.
Speaker 2: You're West Lafayette, Indiana, Yes, has a three point zero
Speaker 2: percent unemployment rate. They're fully employed at Harry's Chocolate Shop.
Speaker 2: I mean, there's no question about it. What does urban America?
Speaker 2: I mean, you and I have talked about this in
Speaker 2: your offices in Saint Louis years ago. What is urban
Speaker 2: America missing about the vibrancy of the Midwest of this nation?
Speaker 3: I think the Midwest is extremely powerful, very populous. It
Speaker 3: might not all be in one place like it is
Speaker 3: here in New York City, but really a lot of people,
Speaker 3: a lot of great manufacturing, a lot of great businesses
Speaker 3: spread out across the Midwest, and it's a great place
Speaker 3: to live. And that because you're more spread out, you
Speaker 3: have better housing markets, a better option.
Speaker 2: Is there a labor arbitrage still going on right now
Speaker 2: where I'm sorry, we're gonna We're gonna take the Biden
Speaker 2: Investment Program, and that's where we're going to find the
Speaker 2: jobs because the labor total cost all in it.
Speaker 3: There's a lot happening in Indiana. And one thing that's
Speaker 3: happening is this I sixty five cord or between Lafayette
Speaker 3: and Indianapolis. If you drive up and down that you'll
Speaker 3: see lot to launch of businesses locating there. And we
Speaker 3: just had a deal with South Korean chip maker that's
Speaker 3: going to move to West Lafayette to Purdue.
Speaker 2: In studio where there's a former president of Saint Louis
Speaker 2: Feller Reserve System, James Bullard, he of Indiana University. He
Speaker 2: have a profoundly important paper I'm guessing twenty sixteen on
Speaker 2: the regimes that we face within our monetary policy. Paul
Speaker 2: I can report to you at his Purdue at Harry's
Speaker 2: chocolate shop right at the top of the menu domestic cans.
Speaker 2: They have Budweiser. I know, very important.
Speaker 4: Well, Tom, I found another place we're gonna have to
Speaker 4: go through. This could be a busy time for us
Speaker 4: there Lynnwood Tavern.
Speaker 2: Yeah, and grille. I've heard Rachel's mentioned this.
Speaker 4: Z I mean exactly three days Walmash rivers right there.
Speaker 2: You study when you do all nighters in mathematics.
Speaker 4: That's my kind of place.
Speaker 2: Having Jim Billard with us. Jim, I got to go
Speaker 2: to monetary policy or in the measurement of the inflation
Speaker 2: adjusted yield. As you mentioned, we had negative rates nominally
Speaker 2: as completely wacko when you were you know, doing the
Speaker 2: same Los FED. We're now back to a two percent
Speaker 2: is ten year real yield. Does that impinge an investment
Speaker 2: in America?
Speaker 3: I think it does, And like we were saying earlier,
Speaker 3: I think it makes people think more carefully about their projects.
Speaker 3: You know what is really going to pay off, and
Speaker 3: you get probably rid of some of the malinvestment or
Speaker 3: the misinvestment that might otherwise occur with very cheap money available.
Speaker 4: Hey, Jim does to what extent is a FED think
Speaker 4: about the consumer here, because you think about the American consumer,
Speaker 4: we probably have two at least two sets of consumers
Speaker 4: out there. The folks that are maybe you know, do
Speaker 4: have some assets, whether it's stocks, bonds, real estate doing well,
Speaker 4: maybe even benefiting from a higher instrate environment. Everybody else
Speaker 4: who may not have those types of assets or economic support,
Speaker 4: they're really filling the impact of inflation how does it
Speaker 4: fed think about that?
Speaker 3: Yeah, I think inflation is very pernicious and punishes the
Speaker 3: lower end of the income distribution very heavily. And you're
Speaker 3: certainly seeing that and hearing that when you talk to
Speaker 3: people in surveys, they do not like the inflation at all.
Speaker 3: They do not like the fact that the price level
Speaker 3: is up some nineteen percent since twenty twenty one, and
Speaker 3: they're very upset about that.
Speaker 2: One final question, blistering question s k heinins they're going
Speaker 2: to invest in Purdue Research Park. Yes. The number one
Speaker 2: thing in the zeitgeist is America doesn't have the employees
Speaker 2: to be labor in those factories. Are you confident we
Speaker 2: can develop highly motivated, skilled labor as we perceive in Asia. No.
Speaker 3: No, I think we'll have no trouble pulling in the
Speaker 3: right workforce for the South Korean company, and that'll be
Speaker 3: a major chip manufacturing facility who tried to reshore a
Speaker 3: lot of our chip making as you know, across the country.
Speaker 3: So this is part of that effort.
Speaker 2: Jim Buller to future governors of the Federal Reserve System,
Speaker 2: Constant Hunter and Julia cordn Otto are here on your
Speaker 2: way out, saying Hello, you're hugely go Jim Bullard, thank
Speaker 2: you so much, greatly appreciated. With the Saint Louis FED,
Speaker 2: we had a huge response. The last time he was on.
Speaker 2: Doctor Mark Zandi joins us from Moody's. He was definitive
Speaker 2: in the Great Financial Crisis for perspective and optimism on
Speaker 2: the American economy, Doctor Xandy. These results was there the
Speaker 2: undershoot A select few talked about. Did they finally show
Speaker 2: to a FED a disinflationary America.
Speaker 5: I hope so, Tom.
Speaker 6: I mean, it feels like all the trend lines are
Speaker 6: moving in the right direction. Inflation's coming in. You know,
Speaker 6: the only thing that's keeping overall inflation from the Fed's
Speaker 6: two percent target is the cost of housing, the implicit
Speaker 6: cost of home ownership. And you know, if I were
Speaker 6: king for the day, I wouldn't be looking at that.
Speaker 6: I'd be looking at inflation x oeer owner's equivalent rent.
Speaker 6: And we're there. So, you know, hopefully the FED takes
Speaker 6: solace in this, and they're not going to move today,
Speaker 6: but hopefully they move relatively move in the next few months.
Speaker 5: We need intertrates to come down.
Speaker 4: Mark, I'm just looking at Bloomberg Red headline across the
Speaker 4: terminal fed swaps fully pricing quarter point rate cut in November.
Speaker 4: Does that make sense to you?
Speaker 6: Yeah, it feels like a preponderance investors probably feel like
Speaker 6: Septembers when they'll start to move.
Speaker 5: And by November.
Speaker 6: Yeah, I think that very high profit that they'll have
Speaker 6: cut rates by that point in time. I mean, everything
Speaker 6: is where they want it to be, right, I mean,
Speaker 6: the economy is at full employment, four percent unemployment rate,
Speaker 6: the libor market is cooled off sufficiently, so wage growth
Speaker 6: has come in, which is consistent with getting inflation back
Speaker 6: in the bottle. You got inflation coming back in, you know,
Speaker 6: in a very graceful way. Financial conditions are you know,
Speaker 6: I think they're right where they wanted them. The stock
Speaker 6: market is up, credits presurren with the dollars strong, you know,
Speaker 6: you add it all up, it feels like they're there.
Speaker 5: They VI should declare victory and move on.
Speaker 6: So yeah, by November, I would be surprised if they
Speaker 6: haven't cut rates.
Speaker 2: Out on YouTube, the live chat a really smart observation.
Speaker 2: Thank you so much for this. I am glad I
Speaker 2: was able to roll over a bunch of CDs. So, Paul,
Speaker 2: you've talked about this. If you get a Zamdi disinflation
Speaker 2: in place, when does it finally crack that five point
Speaker 2: percent money market?
Speaker 4: That's why this Sweeny offspring one bee. She was very
Speaker 4: smart getting in the her CD at five. I'm very
Speaker 4: proud of her for that mark. Are you in a
Speaker 4: camp that says, maybe even that this FED is behind
Speaker 4: the curve that they should be cutting already?
Speaker 6: Yeah, I would have argued that they should be cutting rates.
Speaker 6: I think they have achieved their objectives properly measured, and
Speaker 6: you know, five and a half percent federal fund rate
Speaker 6: target where we are today is just not necessary. I mean,
Speaker 6: there's a lot of reasonable debate. Is to excuse me,
Speaker 6: what the equilibrium rate is? You know, the rate that
Speaker 6: neither that's neither restraining or supporting growth. You know, it's
Speaker 6: higher than it has been historically, but it's not five
Speaker 6: and a half percent. So why such high interest rates
Speaker 6: when you've achieved what.
Speaker 5: You set out to do?
Speaker 6: So in the economy, I think the economy is going
Speaker 6: to soft land, that's most likely scenario, but the risks
Speaker 6: of it going off the rails are not inconsequential. The
Speaker 6: longer you keep rates, you know, unusually high. So yeah,
Speaker 6: I would have argued that they should be cutting rates.
Speaker 2: Alright, Marks, Andy with us with the Moodies. We will
Speaker 2: continue with them. We're commercial free this entire hour for you.
Speaker 2: Thank you so much to Commonwealth, to con Residant, to
Speaker 2: interactive brokers for their support of our discussion of economics.
Speaker 2: If you're just joining us worldwide on YouTube across this nation.
Speaker 2: A stunning report. It is what a few wrote about.
Speaker 2: Good Morning Goldbin Sachson on Hatzias, who really parsed this?
Speaker 2: I thought, well, what if it comes in with an
Speaker 2: undertone headline? CPI three point four percent came in three
Speaker 2: point three percent, futures of forty two, the Sweeney yield here,
Speaker 2: the two year yield in fourteen fourteen basis points four
Speaker 2: point seven zero percent.
Speaker 4: Paul, Hey, Mark, what do you think the Federal Reserve
Speaker 4: is really keying on here? And what kind of message
Speaker 4: do you think they want to get across today?
Speaker 6: Well, I think with this report they have a strong
Speaker 6: case to make that the interest rates are coming. I
Speaker 6: think they will still make the case make the argument
Speaker 6: that they want to see more inflation, good inflation numbers,
Speaker 6: things that are very consistent inflation numbers are very consistent
Speaker 6: with their two percent target. But with today's numbers like today,
Speaker 6: what joggers well for the consumer expenditure deflator, which we're
Speaker 6: going to get here in a couple of weeks, which
Speaker 6: is what their target is based on.
Speaker 5: I think they want to signal.
Speaker 6: That another month two or three of good inflation satistics,
Speaker 6: they'll they'll cut the numbers like this really makes the
Speaker 6: case very easily for a race cut.
Speaker 2: Okay, Mark, I'm looking at inflation back pre pandemic, and
Speaker 2: we had an immense stability core CPI. We were two
Speaker 2: percent two point two percent the two standard deviation band.
Speaker 2: I don't want to get too mathey here was extremely narrow,
Speaker 2: extremely predictable. We had an upset of disinflation, deflation down
Speaker 2: to one point x percent with the pandemic, and then
Speaker 2: boom the stimulus up over six percent. Of course CPI.
Speaker 2: I see almost doctor Zandy in inertial force of disinflation
Speaker 2: now almost with what I'm gonna call convexity or acceleration
Speaker 2: in the form of disinflation. Explain to our audience why
Speaker 2: this central bank that you should think should cut this afternoon.
Speaker 2: That's a joke. I'm putting words in doctor Sandy's book.
Speaker 2: But Mark Zandy, why are they such a slave to
Speaker 2: an ex post strategy? What are they afraid of.
Speaker 5: Losing credibility? Tom?
Speaker 6: I think they've got a target two percent on the
Speaker 6: consumer expenditure to flavor. They feel like if they don't
Speaker 6: hit that target, they'll lose credibility, and credibilities really is important.
Speaker 6: That's key to keeping inflation expectations down.
Speaker 5: People have to believe.
Speaker 6: Investors have to believe the BED is going to do
Speaker 6: you know what it says it's going to do.
Speaker 5: So I think that's that's the motivation here.
Speaker 7: Now.
Speaker 6: Having said that, I do think once they hit the
Speaker 6: two percent target and they do start cutting and you
Speaker 6: kind of rethink their framework for monetary policy going forward.
Speaker 5: That they should they should come up with a better
Speaker 5: mouse trap.
Speaker 6: That the two percent target on consumer expenditi flavor is
Speaker 6: probably not the target they want or the way they
Speaker 6: want people.
Speaker 5: To think about it.
Speaker 6: So once they've gotten there, they've established credibility, then they
Speaker 6: really need to think about their framework and how they
Speaker 6: want to do this going forward. Two percent is not
Speaker 6: the right number and the pcees not the right to flavor.
Speaker 2: Zandy Paul, this is so important. You're going to see
Speaker 2: a tweet someday Zamdi National Bureau of Economic Research nb ER.
Speaker 2: It's going to be a paper by Mark Zamdy, The
Speaker 2: FED and the Better mouse Trap.
Speaker 4: All right, Yeah, Like, hey, Mark, what do you think
Speaker 4: about I mean, when you see an inflation print like today,
Speaker 4: what do you think about the US consumer? Because the
Speaker 4: US consumer, you go out there and ask the consumer
Speaker 4: out on the street in South Philadelphia or you know, Peoria,
Speaker 4: They're gonna say, boy, I'm paying a lot for a
Speaker 4: lot of the key things I have in my cart
Speaker 4: every day. How do you think about the consumer these days?
Speaker 5: Well, there there, You're right.
Speaker 6: They're feeling they're still feeling the financial pain from the
Speaker 6: surgeon inflation that Tom mentioned back a couple three years ago,
Speaker 6: particularly for staples, for food, for rent, for gasoline. But
Speaker 6: I do think the sting of that higher, those higher
Speaker 6: inflation numbers are starting to fade and to continue to
Speaker 6: be going forward, because look at food prices today, they
Speaker 6: barely rose on the month on year over year of
Speaker 6: food at home is up one percent. Rents have been
Speaker 6: flat for a couple of years, you know, market rents
Speaker 6: have been flat for a couple of years. Gasoline prices
Speaker 6: are back down to about fifty per gallon regular and
Speaker 6: leaded mart.
Speaker 5: And wages are growing more strongly. So I think they should.
Speaker 6: You know, there's no game changing event here in terms
Speaker 6: to help people think about things, but I think with
Speaker 6: each passing month they should feel better.
Speaker 2: Doctor Zandy got time for one more question. I want
Speaker 2: to go to University of Pennsylvania and your inbred optimism
Speaker 2: on the American economy. Are we underestimating American growth given
Speaker 2: new productivity, new technology? Joe Wisenthal would say, ai ai eio,
Speaker 2: Mark Sandy, do we underestimate American growth? Very possible, Tom.
Speaker 6: I think a prudent planner would say, okay, we're going
Speaker 6: to grow two percent real GDP. I think that we
Speaker 6: should count on that. That should be baked into our
Speaker 6: budget forecasts and planning as business people and as government.
Speaker 6: But I do think there are risks on both sides
Speaker 6: of that. But I think there is a good argument
Speaker 6: to be made that the economy is going to perform
Speaker 6: better here.
Speaker 5: Than people anticipate.
Speaker 6: We did that last year in twenty twenty three, much
Speaker 6: better than folks thought. A lot of folks thought recession
Speaker 6: we got even not only not a recession, but a
Speaker 6: very strong economy because of those supply side that you
Speaker 6: talked about and that could continue.
Speaker 2: The heritage of our guests are important. I can't say
Speaker 2: enough Paul for how Mark Zandy was a nearly lone
Speaker 2: optimistic vote think spring of two thousand and eight. He
Speaker 2: was we will clear the markets. Yep, we will do
Speaker 2: fine on this, doctor Sandy, thank you so much, always
Speaker 2: with Moody's as well. This is a joy. This is
Speaker 2: something Paul's demanded that we get from macro policy perspectives.
Speaker 2: Constant Hunter in here with Julia Cornado and Taviam Paul
Speaker 2: in this day is just you know, I just think
Speaker 2: that killer Julia does this shift Powell's discussion of the
Speaker 2: character of our disinflation. This stunning report.
Speaker 8: I think it's an important report. I think Chair Powell
Speaker 8: is likely to express some optimism that progress has resumed
Speaker 8: after a disappointing first quarter and that the plan to
Speaker 8: lower rates is on track. We think that will come
Speaker 8: out with a two cut baseline. This report sort of
Speaker 8: solidifies that we think that Shairpowell sort of has that
Speaker 8: control over the median and the message, and that he
Speaker 8: can sort of credibly express optimism, say that we saw
Speaker 8: some broad based progress in today's report after a decent April,
Speaker 8: So if we get a few more prints like that,
Speaker 8: then they can begin a process. The FED is now
Speaker 8: having to deal with the decision of do we start
Speaker 8: early so that we can go slow, or do we
Speaker 8: wait till weakness arrives, which is the track record of
Speaker 8: central banks right, wait till weakness arrives, and then cut quickly.
Speaker 8: This is a new approach, or a relatively untested left.
Speaker 2: Roach, because she knows I'm going to go mental. Yes,
Speaker 2: put the surveillance.
Speaker 4: There's a lot of folks out there that says this
Speaker 4: FED is already behind the curve, that they should be
Speaker 4: cutting already.
Speaker 7: Do you, guys, how do you think about that?
Speaker 1: I think that that is a valid perspective. Of course,
Speaker 1: they also have there's people who are saying that there's
Speaker 1: going to be no landing, that the FED isn't going
Speaker 1: to cut it all this year. So I think I
Speaker 1: understand the perspective of the FED of deciding to wait,
Speaker 1: given the prints that we had in the beginning of
Speaker 1: the year, and given the fact that we're seeing anomalies
Speaker 1: in the CPI data that we didn't see prior to
Speaker 1: the pandemic, and so I think from their perspective, you know,
Speaker 1: caution is the better part of valor. On the other hand,
Speaker 1: as Julia said, historically they are late, and so I
Speaker 1: think that they do run that risk. Fortunately, the jobs
Speaker 1: print last week was stronger than expected. But our big
Speaker 1: concern if they're late is that labor market starts to weaken.
Speaker 1: And once you see that, it's too late, because it
Speaker 1: is at best a coincident indicator.
Speaker 4: Right, And Julie, I mean Joe Wisenthal from a Bloomberg
Speaker 4: Onlins podcast just moments ago, said, you know, raising some
Speaker 4: concerns about the labor market here that we you know,
Speaker 4: four percent, you get pay attention to that kind of number.
Speaker 8: So how do you feel about the labor pook? Yeah, no,
Speaker 8: I think that the the the May employment report was
Speaker 8: truly mixed.
Speaker 2: Right.
Speaker 8: The payroll number is strong, it was broad based, but
Speaker 8: the household survey is showing rising slack. You have to
Speaker 8: take that message at face value. The fact that we
Speaker 8: have gone from a low of three point four to
Speaker 8: four point zero. It's still a low unemployment rates, still
Speaker 8: a healthy job market, but you know it is not
Speaker 8: at is more balanced than it was before. There are
Speaker 8: risks on both sides now, and as Constance said, if
Speaker 8: you keep restrictive policy in place for too long, then
Speaker 8: you're going to lose that resilience. So even actually Governor
Speaker 8: Waller said this earlier this year. He said, you know,
Speaker 8: the low hanging fruit of bringing down job openings, you know,
Speaker 8: without a rise in unemployment is probably behind us. To
Speaker 8: really see a decline in labor demand from here, you're
Speaker 8: going to get that alongside a rise in unemployment.
Speaker 2: Yeah, we're going to come back. It's just a joy
Speaker 2: to have Constance Hunter and Julia Coronatti with us. But
Speaker 2: I got one fundamental question. Are we more than ever
Speaker 2: John Edwards in Louisiana as you were studying in Texas?
Speaker 2: Are we more than ever? Two Americas? And the idea
Speaker 2: idea of aggregate analysis that the Eccles building is just quaint.
Speaker 8: You know, I think there are always lots of Americas.
Speaker 2: But is there more now? Is it more polarized now
Speaker 2: in terms of politically?
Speaker 8: Absolutely, we're in a very economize economically. No, I would
Speaker 8: say Tom, Actually the good news is that we're less
Speaker 8: polarized economically in a sense that the lower wage workers
Speaker 8: have the best labor market they've seen in generations this cycle,
Speaker 8: and it hasn't cracked yet. Really, the weakness we see
Speaker 8: in the labor market is at the top is the
Speaker 8: professional service sector jobs that are experiencing the weakness. So no,
Speaker 8: I would say, actually, we've seen in a narrowing and
Speaker 8: wage inequality this cycle that we haven't seen in thirty years.
Speaker 2: It's just a bang update here, folks. If Jim Bullard
Speaker 2: with us, the former president of Saint Louis FED, and
Speaker 2: here for a half hour, Julia Cornado with us in
Speaker 2: Constance hunder a micro policy perspectives to get us towards
Speaker 2: the FED meeting this afternoon, most importantly at ten o'clock,
Speaker 2: Paul Sweeney will drive forward with Alex Steele. I mean,
Speaker 2: you got you got something to talk about to this
Speaker 2: inflation report. They got it.
Speaker 4: Get a very interesting inflation report, very something very important
Speaker 4: for the FED to take into consideration here as we
Speaker 4: hear from the Fed. And you're gonna have full coverage
Speaker 4: this afternoon, right tom starting.
Speaker 2: Can I go? Can I go? Odd? Sure? Mexican pace
Speaker 2: of weakness, I'll buy.
Speaker 5: I don't know where to go.
Speaker 2: There is just stunning. We have Julia Cornado in the room.
Speaker 2: You think we should go all Mexican, pa, I want
Speaker 2: to do that.
Speaker 8: Yeah, there it is political risk for you, yes, exactly.
Speaker 8: And the bond market action we saw in France yesterday,
Speaker 8: you know, on just a rumor, there's a lot of uncertainty.
Speaker 2: What a joy to have us here for a half hour,
Speaker 2: Julia Cornado and Constance Hunter of Macro Policy Perspectives. Constant,
Speaker 2: You know I love Neil Duddy. He doesn't mince words.
Speaker 2: May I quote Paul? It does not take a rocket
Speaker 2: scientist to figure out what needs to be done. Yeah,
Speaker 2: and he's like, let's go. Fed needs to get on
Speaker 2: with it. Constance, what are they waiting for? I mean
Speaker 2: I get at their ex post. You know within that
Speaker 2: we all know this. Can we really hope for a
Speaker 2: new regime where they get on with it?
Speaker 1: I mean one thing that is holding going to hold
Speaker 1: them back is that shelter print now that was isolated
Speaker 1: to New York rents, which went up and played an
Speaker 1: oversized part.
Speaker 2: No, no, no, no, how much did two blocks in New
Speaker 2: Jersey play? Paul?
Speaker 8: Yes, step in here?
Speaker 2: Are you telling me? National inflation was Paul Sweeney's housing fault.
Speaker 1: I think it was Paul Swen's fault in particular.
Speaker 8: Yeah, yeah, he used to blame.
Speaker 1: You should get all the hate mail, you know, But seriously,
Speaker 1: they're gonna need to see that shelter number come down
Speaker 1: a bit, and you know, but I don't disagree. Look
Speaker 1: that September has to be firmly on the table. The
Speaker 1: markets believe it's firmly on the table, and even I
Speaker 1: FED that's a little bit behind, should be able to
Speaker 1: move in September.
Speaker 4: Jowey, how do you think about the US consumer here?
Speaker 4: Because we're getting inflation's coming down, but it's still at
Speaker 4: that high reset level of nineteen percent versus twenty nineteen.
Speaker 5: How's the US consumer doing today?
Speaker 8: Look, I'll reframe it this way. We should thank the
Speaker 8: US consumer because one thing we keep hearing in earnings
Speaker 8: reports and in the fed's Beige book is that consumers
Speaker 8: are priced sensitive. Again when we look at things like
Speaker 8: goods prices broad based deflation, consumers want deals and they're
Speaker 8: getting them on cars, on furniture, and on apparel. This month,
Speaker 8: so on airfares. On airfares, airfares plunged, So consumers are
Speaker 8: back to that norm that they had before the pandemic
Speaker 8: of to part with my money, you're going to have
Speaker 8: to offer me value, and that is helping restore healthy
Speaker 8: inflation dynamics. So they might still be grumpy from what
Speaker 8: we've all been through. And we also, as Tom had alluded,
Speaker 8: to see a lot of polarization in those sentiment numbers.
Speaker 8: But you know the reality is that consumers have taken
Speaker 8: control back. That pricing power that companies enjoyed during the
Speaker 8: pandemic has evaporated, and now they need to deliver values.
Speaker 8: So some of those margins are going to get pressed.
Speaker 2: We had a GDP number first quarter. Where are we
Speaker 2: one point three one point four percent? Whatever Atlanta GDP
Speaker 2: balloons out four percent, they bring it back. Now we're
Speaker 2: running what's the run rate? To both of you? What's
Speaker 2: do you? I mean, do you guys argue about this?
Speaker 2: What's the run rate? Unreal? GDP? Are you that far
Speaker 2: apart the two of you? I don't know.
Speaker 1: I think so. I think we're at both at about two
Speaker 1: point four two point five. I mean, you have to
Speaker 1: look at GDI when you look at this, and last
Speaker 1: last quarter was really trade in inventories, right, and so
Speaker 1: the question is how much are those inventories going to
Speaker 1: be rebuilt. That's a very tricky thing to forecast. And
Speaker 1: then obviously we have this strong dollar which is hurting
Speaker 1: trade in some respects, but we also see tailwinds from
Speaker 1: the global economy that we haven't seen for four years
Speaker 1: that could slightly help our trade numbers.
Speaker 2: I mean it comes down to domestic final sales. What's
Speaker 2: twelve months for me, Julie, you were a BMP PARI
Speaker 2: bout years ago making headlines on this. What's domestic final
Speaker 2: sales look like one year out? Don't give me this
Speaker 2: gloom stuff.
Speaker 8: No, it's not gloomy. I think we're both very constructive
Speaker 8: on a better productivity cycle, not just because of AI.
Speaker 8: AI hasn't even begun to enter the room yet. This
Speaker 8: is about a healthier labor market. We'll entered the stock
Speaker 8: market room, but not necessarily the productivity numbers. It is
Speaker 8: a bit. We've had a strong investment cycle, we've had
Speaker 8: a good labor market, good matching of employers and employees,
Speaker 8: and it's we're not deleveraging. Last cycle was all about
Speaker 8: deleveraging and global fragility and find ancial fragilities. And we
Speaker 8: have strong balance sheets and a healthy, broad based economy.
Speaker 8: So I think we are pretty constructive. That we've got
Speaker 8: a better productivity trend. We've got immigration, at least for now.
Speaker 8: That's going to be a big policy different differentiator in
Speaker 8: twenty twenty five. But for now, the US economy looks
Speaker 8: like it can run, you know, above two percent, uh,
Speaker 8: and not generate inflation.
Speaker 2: Apple's up nine since the gloom of the AI presence.
Speaker 4: Actually that's true.
Speaker 2: Nine.
Speaker 4: This is just the AI bump that everybody was looking for,
Speaker 4: and they got it. I probably did too extensive, But
Speaker 4: here we go up higher again.
Speaker 8: It constant navidia.
Speaker 2: So there you go. Very good, very good.
Speaker 8: Yeahile, actually good. Now I need to start trimming that position.
Speaker 4: Just loading and up by the momentum constance. What do
Speaker 4: you what would you like to hear from the FED
Speaker 4: chairman today versus maybe what do you think we will
Speaker 4: hear from the FED chairman?
Speaker 1: Yeah, that's that's a great question. I mean, I'd like
Speaker 1: to hear him say that they as long as inflation
Speaker 1: is making progress towards two percent, that it will be
Speaker 1: appropriate for them to take away some policy tightness. And
Speaker 1: let's remember where where is our star. Let's say it's higher.
Speaker 1: Let's say it's three and a half, right in say
Speaker 1: two and a half, let's say it's there. They can
Speaker 1: start cutting and still be restrictive. And so I'd like
Speaker 1: that message of we can start cutting and policy will
Speaker 1: still be restrictive.
Speaker 2: Okay, So economic historian from the University of Texas, is
Speaker 2: there any heritage that we do that besides a green
Speaker 2: spanning and measured after the fact, I don't observe. I
Speaker 2: mean Richard Timberlake at Georgia or mcteera Dallas Fed years ago.
Speaker 8: No, Yeah, there's no history. The history of what you
Speaker 8: you just noted is green span is the mid nineties,
Speaker 8: mid and late nineties where they kind of ebbed and
Speaker 8: flowed the FED funds right, it went up, it went down,
Speaker 8: it went up, it went down, and without a recession,
Speaker 8: and it was about fine tuning and keeping the experience.
Speaker 2: Does he have to address that today? Is the garden
Speaker 2: company he addressed it.
Speaker 7: It is.
Speaker 8: The Bloomberg reporters in the room and asked him that
Speaker 8: very question, because they need to have a strategy. That's
Speaker 8: the one they've been rich.
Speaker 2: Take a memo. Corn Ota wants to tell me what
Speaker 2: to say.
Speaker 1: Well, and you brought up McTeer and he was the
Speaker 1: one arguing for the productivity revolution.
Speaker 8: He was the one.
Speaker 1: Arguing saying, we're going to be getting productivity and we
Speaker 1: need to we need to make sure that we don't
Speaker 1: raise race into this stronger GDP, because if you recall
Speaker 1: in the second half of the nineties, GDP started to
Speaker 1: gain momentum after those three races while inflation fell.
Speaker 4: The nineties late nineties were very good.
Speaker 2: To me.
Speaker 4: They were good I don't to young so Julia, you know,
Speaker 4: I'm trying to explain to my kids are in the
Speaker 4: workforce now that this is a more normalized rate environment.
Speaker 4: That's your stuff we live through before. Is that kind
Speaker 4: of where we are now, we're back back to normal?
Speaker 8: I guess so. I mean, I think we've got or
Speaker 8: in a positive real rate environment. It looks like the
Speaker 8: economy can handle that. So I agree, our star is
Speaker 8: probably higher. That's where we wanted to end up, right,
Speaker 8: That's what the whole idea of the last strategy review
Speaker 8: at the FED was about engineering a somewhat higher run
Speaker 8: rate on inflation and gaining some policy space. And I
Speaker 8: think signs are that we're that's exactly where we're heading
Speaker 8: that will give them better trade offs. I know I'm
Speaker 8: going to say this, and people's heads aren't going to explode.
Speaker 8: We've got a better mix of fiscal and monetary policy. Now,
Speaker 8: of course, six percent deficits are not sustainable forever. But
Speaker 8: you know what we have had is better state in
Speaker 8: local government, better fiscal participation. The FED isn't carrying all
Speaker 8: the water for the economy.
Speaker 2: You guys aren't allowed to travel together for safety. But
Speaker 2: and you guys talked about how you adjust your FED
Speaker 2: calls seriously to the end of the year. Did you
Speaker 2: make a switch this morning when you publish for macro
Speaker 2: policy perspectives? Know switched this morning.
Speaker 8: I think what we've been flagging for our clients is that,
Speaker 8: you know, the outcome of today's meeting and the tone
Speaker 8: and the tenor is going to depend on this morning's data.
Speaker 8: It is an important data point, and if we get
Speaker 8: what we we were below consensus on inflation. It came
Speaker 8: in at our actually even a little bit below our forecast,
Speaker 8: but that that would lean towards a more positive, constructive
Speaker 8: message that we're going to start in September. So I
Speaker 8: think that that's where we're at. The data has ratified
Speaker 8: that orientation, and now it's up to share Powell to
Speaker 8: deliver the message.
Speaker 2: And I Lingen is a third of a way to
Speaker 2: a stunning call in the ten year yield YEP four
Speaker 2: point two eight percent. I'm not saying it's going to
Speaker 2: drive lower, but that's what BEMO Capital Markets is saying.
Speaker 2: Yep exactly.
Speaker 8: So where's constance.
Speaker 4: Where are you guys thinking about GDP this year? Next year?
Speaker 4: How's this economy going to be growing?
Speaker 2: Yeah?
Speaker 1: So we had originally been thinking we would have a
Speaker 1: soft patch this year because high race would begin to
Speaker 1: take a bite out of growth, and now we're thinking
Speaker 1: that if the FED can act and then in time,
Speaker 1: that that may be able to be avoided. And part
Speaker 1: of the reason that's going to be avoided is this
Speaker 1: productivity story that Julia was talking about earlier, right, and
Speaker 1: all of the aspects of that that are playing out
Speaker 1: in the economy. So we're looking for a little softer
Speaker 1: than last year, and then a little bit of a
Speaker 1: pickup probably in the second half of twenty twenty five
Speaker 1: as lower rates continue and feed into growth.
Speaker 2: Way too optimistic constant condo micro policy perspectives. Can we
Speaker 2: do this again? Yeah? Thank you. Thank you so much.
Speaker 2: Right now, we've really been anticipating this. If you get
Speaker 2: off a plane at Heathrow and you take the road
Speaker 2: in and the green they have these taxi kepts Paul
Speaker 2: that drive like a Bentley like electric taxicabs that are spectacular,
Speaker 2: And if you drive into Jonathan Maxwell's London, it's immediately
Speaker 2: evident that it's different than here. And then you take
Speaker 2: that over to the recent elections in Europe and you've
Speaker 2: got a green Europe, a green United Kingdom compared to
Speaker 2: the United States. And this is front and center now
Speaker 2: with all the politics of France mccroon, Frankly of Germany
Speaker 2: as well Jonathan Maxwell's CEO, It's Sustainable Development Capital heritage
Speaker 2: of HSBC Infrastructure. Jonathan thrilled to have you on the show.
Speaker 2: The protest against green in the recent elections is that
Speaker 2: about green or is that about the cost of green
Speaker 2: to citizens?
Speaker 7: It's mostly about economics. I mean there have been some
Speaker 7: there's a statement by the Italian Prime Minister ushy Back,
Speaker 7: for example, on one of Italy's greatest industries, the motor industry,
Speaker 7: and the European proposals to phase out petrol diesel class
Speaker 7: by twenty thirty five saying that was an ideological mistake
Speaker 7: or an ideologically lead right. But the yes, I think
Speaker 7: that the economics is one of the very big factors that's.
Speaker 2: Going on here.
Speaker 7: What Look, two three years ago in Europe, you'd be
Speaker 7: accused of greenwash, you know that is, you know, you're
Speaker 7: trying to put yourself out as green as a government
Speaker 7: or a company and you're not as green as you
Speaker 7: could or should be. Then it got into kind of
Speaker 7: green hush. You know, people got sued of a state. Interesting,
Speaker 7: now we're in this kind of what the European councilor
Speaker 7: relationships green lash, green lash, backlash against the economics.
Speaker 2: It doesn't that way. You're encyclopedica on this. And I'm
Speaker 2: fascinated if green in Europe comes towards what I'm going
Speaker 2: to call the anti climate change of America, or does
Speaker 2: America come towards the green of Europe? Which is it?
Speaker 7: Look, there are three big things going on here. The
Speaker 7: biggest one is about economics, and I'll come back to
Speaker 7: that because I think it's just completely misunderstood how the
Speaker 7: economics of the energy system can and should work and
Speaker 7: does work.
Speaker 2: Today.
Speaker 7: There are a couple of other bits that are going
Speaker 7: on in Europe. We've got a huge problem with energy.
Speaker 7: Security and resilience in Europe is a very big difference
Speaker 7: from America in Europe, which is that you make energy.
Speaker 7: In fact, you're a net exporty of the world's larger
Speaker 7: soil and gas producer and exporter. Going forward, Europe doesn't.
Speaker 7: It imports energy, right, It depends by and large on
Speaker 7: other countries. In fact, after the Russian Ukraine crisis cut
Speaker 7: off gas to most of Europe, actually Europe's now dependent
Speaker 7: on the United States as much as other regions like
Speaker 7: Kattern and so on. So there's a big difference. You know,
Speaker 7: you export, we import a gweeb in Europe, right, But
Speaker 7: resilience and then security is now a massive feature. The
Speaker 7: second massive feature obviously is environment and carbon And yes,
Speaker 7: there have been some really quite progressive policies in Europe.
Speaker 7: But you've got the Inflation Reduction Act. It's dollar for dollar,
Speaker 7: it's about the same amount if you look at the
Speaker 7: amount of money that's been put in, so to speak,
Speaker 7: the green or climate economy in America versus Yeah, but
Speaker 7: it's about the same. It's about the same. We had
Speaker 7: about a seven hundred and fifty billion dollar post COVID
Speaker 7: stimulus package. Biggest part of it, which is now the
Speaker 7: controversial bit, is the Green Deal. It's about the same
Speaker 7: as the as the Inflation Reduction Act. But here's the
Speaker 7: big one. And this is why I think it's SAIDs understood.
Speaker 7: If people are perbasuring back in Europe on the energy
Speaker 7: or clean energy sector for cost, it just misunderstands the
Speaker 7: biggest problem of the energy sector. Most of it's wasted.
Speaker 2: You know, in.
Speaker 7: America, about seventy percent of all the primary energy, that
Speaker 7: is all the original natural resource is lost. What it
Speaker 7: gets to the point of views through conversion, generation, and
Speaker 7: distribution and transmission. It's about the same in Europe. So
Speaker 7: what actually the European real policy is on energy. It's
Speaker 7: actually very very interesting and possibly more progressive than America
Speaker 7: at this stage. And it basically says energy efficiency first,
Speaker 7: what happens if you use less energy to do the
Speaker 7: same job when you become productive more competitive. So actually, yep,
Speaker 7: being there is some strange and maybe over egged policies
Speaker 7: where you know, doing things like maybe people got a
Speaker 7: bit too excited about technologies like hydrogen from time to
Speaker 7: batteries don't necessarily help them cost more, But there's an
Speaker 7: awful lot we can do that costs less.
Speaker 4: Right, And Jonathan, I you know General Atlantic Fund. I
Speaker 4: mean these are financial players. They just bought a stake
Speaker 4: in your company. I mean that tells me that, I
Speaker 4: don't know, some smart money is still pursuing these types
Speaker 4: of policies. Talk to us about that transaction.
Speaker 7: So, I mean our firm, our company is Sustainable Development
Speaker 7: Capital fundamentally looks at the world and says, what's the
Speaker 7: most resorts sufficient way of doing business? Why do we
Speaker 7: care about being resource sufficient? Because you can use less
Speaker 7: and do the same or more. That's more competitive, more productive, more.
Speaker 2: Part of it. But in the time, I'm going to
Speaker 2: interrupt you here because I think, Jonathan, this is really
Speaker 2: really important and the time that we've got left. Is
Speaker 2: it simple to say that with these set of elections,
Speaker 2: there's been a massive protest against Green. Is that correct
Speaker 2: or not?
Speaker 7: I think that there's been a protest. There were seventy
Speaker 7: three seats out of seven hundred and five that were Green.
Speaker 7: It's now fifty three seats. The biggest story is the
Speaker 7: fact that the real opportunity for Europe and the real
Speaker 7: problem is how do you manage cost and reliability and
Speaker 7: carbon and energy. The real solution to that is be
Speaker 7: more productive, more efficient, more competitive, and it's efficiency first.
Speaker 7: That's the European policy, that's the business plan, and that's
Speaker 7: what General Atlantic have backed in US because that's everything
Speaker 7: that we did will when we make in the mabket.
Speaker 7: We're looking for project companies, opportunities that are more energy
Speaker 7: efficient because you can deliver the same or better outcome
Speaker 7: economically using less energy. That's the biggest bang from the
Speaker 7: back from the carbon emission. But doctor expect Jan that's
Speaker 7: Atlantic of backing.
Speaker 2: I have to go, Jonathan, Thank you so much. Jonathan
Speaker 2: Maxwell with US is Sustainable Development Capital. This is the
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