1
00:00:02,600 --> 00:00:08,200
Speaker 1: Bloomberg Audio Studios, podcasts, radio news. But we begin with

2
00:00:08,280 --> 00:00:10,959
Speaker 1: our very special contribut Larry Summers of Harvard, as we

3
00:00:11,000 --> 00:00:12,960
Speaker 1: address what the FED decided this week, what we've heard

4
00:00:12,960 --> 00:00:16,120
Speaker 1: from JPOM, and also maybe a little microeconomics before we're done.

5
00:00:16,200 --> 00:00:18,040
Speaker 1: So Luri, thanks for being back with us. Let's start

6
00:00:18,079 --> 00:00:21,239
Speaker 1: with the Fed. Though what we heard, I heard more growth,

7
00:00:21,360 --> 00:00:24,079
Speaker 1: less inflation, low unemployment. That sounds pretty good to me.

8
00:00:24,360 --> 00:00:26,000
Speaker 1: Is it too good to be true?

9
00:00:26,160 --> 00:00:26,800
Speaker 2: I don't know.

10
00:00:27,000 --> 00:00:31,000
Speaker 3: Certainly there's been some encouraging data flow during twenty twenty three,

11
00:00:31,160 --> 00:00:34,880
Speaker 3: though the last two months haven't been quite so encouraging.

12
00:00:35,440 --> 00:00:38,280
Speaker 3: It's great and right to hope for the best, but

13
00:00:38,880 --> 00:00:43,880
Speaker 3: hoping isn't planning, And certainly, from that scenario laid out

14
00:00:43,880 --> 00:00:46,400
Speaker 3: in the dot plots, I think there's more room for

15
00:00:46,479 --> 00:00:50,720
Speaker 3: things to surprise on the bad side than to surprise

16
00:00:51,120 --> 00:00:56,800
Speaker 3: on the better side. We may have the path that's

17
00:00:56,880 --> 00:01:01,560
Speaker 3: described there materialized. Certainly got to be recognized as a

18
00:01:01,680 --> 00:01:07,000
Speaker 3: very real possibility. My sense is still that the Fed

19
00:01:07,120 --> 00:01:11,880
Speaker 3: is itchy fingers to start cutting rates, and I don't

20
00:01:11,920 --> 00:01:17,240
Speaker 3: fully get it. We've got unemployment if anything below what

21
00:01:17,280 --> 00:01:23,040
Speaker 3: they think is full capacity. We've got inflation clearly even

22
00:01:23,080 --> 00:01:27,039
Speaker 3: in their forecast for the next two years above target.

23
00:01:27,480 --> 00:01:32,800
Speaker 3: We've got GDP growth rising, if anything, faster than potential.

24
00:01:33,319 --> 00:01:37,800
Speaker 3: We have financial conditions the holistic measure of monetary policy

25
00:01:38,319 --> 00:01:41,400
Speaker 3: at a very loose level. I don't know why we're

26
00:01:41,760 --> 00:01:46,080
Speaker 3: in such a hurry to be talking about moving to moving.

27
00:01:45,840 --> 00:01:48,240
Speaker 2: Towards the accelerator.

28
00:01:49,160 --> 00:01:51,680
Speaker 1: So we heard from a chair pal that in fact

29
00:01:51,760 --> 00:01:54,800
Speaker 1: he thinks these conditions are restrictive right now they are

30
00:01:54,840 --> 00:01:57,240
Speaker 1: decidedly even if we're not seeing a lot of restriction.

31
00:01:57,760 --> 00:02:00,000
Speaker 1: But that depends in part on where the neutral rate is,

32
00:02:00,080 --> 00:02:03,080
Speaker 1: something we've talked about before. I still don't get a

33
00:02:03,120 --> 00:02:04,920
Speaker 1: sense from the FED that they figured out where they

34
00:02:04,960 --> 00:02:06,960
Speaker 1: think the neutral is, and do they need to know

35
00:02:07,000 --> 00:02:09,040
Speaker 1: that before they can decide where they're going.

36
00:02:09,639 --> 00:02:12,560
Speaker 3: They need to take a view, because if you don't

37
00:02:12,600 --> 00:02:16,880
Speaker 3: know what's neutral, you don't know how expansionary or restrictive

38
00:02:18,000 --> 00:02:22,120
Speaker 3: your big and I find their view that the ultimate

39
00:02:22,240 --> 00:02:27,240
Speaker 3: neutral rate is two point six to be bizarre in

40
00:02:28,200 --> 00:02:33,560
Speaker 3: current circumstances. Here's what we have relative to a few

41
00:02:33,639 --> 00:02:36,520
Speaker 3: years ago when they said it was two point five.

42
00:02:37,240 --> 00:02:41,079
Speaker 3: We've got fiscal policy in a much much more expansionary

43
00:02:41,200 --> 00:02:46,000
Speaker 3: place with much higher deficits, much larger role of debt

44
00:02:46,400 --> 00:02:50,120
Speaker 3: that puts pressure on credit markets. We've got a huge

45
00:02:50,360 --> 00:02:54,919
Speaker 3: set of new private sector investments going on with respect

46
00:02:55,000 --> 00:03:00,280
Speaker 3: to green investment in the IRA going on with respec

47
00:03:00,480 --> 00:03:08,799
Speaker 3: to resilience and reducing dependence on single sources. We've got

48
00:03:08,800 --> 00:03:14,080
Speaker 3: a potential huge source of demand for chips and for

49
00:03:14,400 --> 00:03:20,520
Speaker 3: electricity coming out of the AI Revolution. And we've got

50
00:03:20,560 --> 00:03:24,760
Speaker 3: a huge wealth effect as markets in for both housing

51
00:03:24,840 --> 00:03:28,640
Speaker 3: and stocks have run way up for the last few years.

52
00:03:29,320 --> 00:03:34,200
Speaker 3: So with all of those impulses to demand, I cannot

53
00:03:34,360 --> 00:03:40,040
Speaker 3: understand why someone would form the view that the neutral

54
00:03:40,160 --> 00:03:44,720
Speaker 3: rate was essentially the same as they thought it was

55
00:03:45,680 --> 00:03:49,520
Speaker 3: four years ago. And I think the neutral rate is

56
00:03:49,640 --> 00:03:52,680
Speaker 3: far more likely to have a forehandle on it right

57
00:03:52,720 --> 00:03:56,800
Speaker 3: now than it is to have a two handle on it.

58
00:03:57,000 --> 00:04:00,240
Speaker 3: And from that perspective, I'm not at a wulshe were

59
00:04:00,680 --> 00:04:05,760
Speaker 3: how restrictive monetary policy really is and the proofs really

60
00:04:05,800 --> 00:04:10,040
Speaker 3: in the putting monetary policies by now had a very

61
00:04:10,080 --> 00:04:11,240
Speaker 3: long time.

62
00:04:11,240 --> 00:04:13,040
Speaker 2: For the lags to work through.

63
00:04:13,720 --> 00:04:20,360
Speaker 3: The transmission variables, stock prices, interest rates, long term interest rates,

64
00:04:20,800 --> 00:04:28,960
Speaker 3: credit spreads are flashing green and loose, and the economy

65
00:04:29,080 --> 00:04:31,240
Speaker 3: keeps surprising on the high side.

66
00:04:31,720 --> 00:04:34,960
Speaker 2: So either if you look at the fundamental.

67
00:04:34,400 --> 00:04:39,080
Speaker 3: Determinants of neutral interest rates or you look at how

68
00:04:39,240 --> 00:04:42,680
Speaker 3: fast the economy is growing, seems to me you've got

69
00:04:42,720 --> 00:04:47,960
Speaker 3: to read a high neutral interest rate. And I just

70
00:04:48,040 --> 00:04:52,240
Speaker 3: can't understand why the Fed is talking about two point.

71
00:04:51,920 --> 00:04:53,440
Speaker 2: Six as a best guess.

72
00:04:54,000 --> 00:04:57,159
Speaker 3: I would be the first to recognize that this is

73
00:04:57,200 --> 00:05:01,599
Speaker 3: a number that fluctuates that we can't gain precisely that

74
00:05:01,720 --> 00:05:05,279
Speaker 3: economists don't have great models.

75
00:05:05,320 --> 00:05:09,279
Speaker 2: So I'm not saying that I'm sure that they're wrong.

76
00:05:09,360 --> 00:05:13,560
Speaker 3: I'm not, but I think the challenge in policy making

77
00:05:13,760 --> 00:05:17,840
Speaker 3: is to try to make best estimates where you're equally

78
00:05:18,000 --> 00:05:21,960
Speaker 3: likely to be wrong in both directions. And the chance

79
00:05:22,040 --> 00:05:24,440
Speaker 3: that the number is much greater than two point six

80
00:05:24,920 --> 00:05:27,800
Speaker 3: seems to me far greater than the chance that the

81
00:05:27,880 --> 00:05:29,679
Speaker 3: number is much less than two point six.

82
00:05:30,040 --> 00:05:32,880
Speaker 1: Larry, you mentioned the effect of fiscal policy. We also

83
00:05:32,920 --> 00:05:35,239
Speaker 1: have a new budget that's at right now. It doesn't

84
00:05:35,279 --> 00:05:38,040
Speaker 1: look like we're going to constrain our spending anytime soon,

85
00:05:38,440 --> 00:05:42,200
Speaker 1: So how does that figure into anticipation of future inflation.

86
00:05:42,600 --> 00:05:48,600
Speaker 3: Look, I think when you have more expansionary policy you're

87
00:05:49,040 --> 00:05:55,960
Speaker 3: tending to have more pressure for high inflation. I'm also

88
00:05:56,400 --> 00:06:02,359
Speaker 3: very worried about the shared assumptions around national security spending

89
00:06:03,520 --> 00:06:08,679
Speaker 3: that are reflected in all the various budget blueprints around.

90
00:06:09,120 --> 00:06:13,000
Speaker 3: I can't really believe that, with all the things we're

91
00:06:13,080 --> 00:06:17,480
Speaker 3: learning about national security threats over the last year or two,

92
00:06:18,200 --> 00:06:23,920
Speaker 3: that the right medium term budget plan calls for defense

93
00:06:23,960 --> 00:06:28,760
Speaker 3: spending adjusted for inflation to fall over the next couple

94
00:06:28,800 --> 00:06:33,159
Speaker 3: of years, or for it to stay constant and decline

95
00:06:33,240 --> 00:06:38,320
Speaker 3: substantially as a PDP over the full ten year budget horizon.

96
00:06:38,920 --> 00:06:42,920
Speaker 3: So I think we've got a kind of implicit liability

97
00:06:43,440 --> 00:06:47,279
Speaker 3: and an absolute need for our national security to be

98
00:06:47,400 --> 00:06:51,839
Speaker 3: thinking about more robust defense spending and building up the

99
00:06:51,920 --> 00:06:56,640
Speaker 3: defense industrial base in the years ahead.

100
00:06:57,279 --> 00:07:00,600
Speaker 1: Larry Tocursmi, there are policies going beyond monitor policy that

101
00:07:00,640 --> 00:07:04,120
Speaker 1: could well affect future inflation. I'll mention a couple of them,

102
00:07:04,440 --> 00:07:08,640
Speaker 1: trade and tariffs, which tend to be inflationary. President Biden

103
00:07:08,680 --> 00:07:10,960
Speaker 1: really didn't back off of what President Trump did very much.

104
00:07:10,960 --> 00:07:13,040
Speaker 1: Now we have a Canada Trump which is by going

105
00:07:13,040 --> 00:07:15,760
Speaker 1: even further, and by the way, immigration it seems like

106
00:07:15,800 --> 00:07:19,040
Speaker 1: we're going to constrain immigration, and if you really constrain

107
00:07:19,240 --> 00:07:21,560
Speaker 1: the growth of the workforce. As I understand it, that

108
00:07:21,680 --> 00:07:23,760
Speaker 1: is inflationary. What are the other factors that might be

109
00:07:23,880 --> 00:07:25,120
Speaker 1: driving inflation.

110
00:07:25,000 --> 00:07:29,480
Speaker 3: Look, David, part of the story of the great moderation

111
00:07:29,760 --> 00:07:33,280
Speaker 3: of low inflation for forty years hash to have been

112
00:07:33,320 --> 00:07:38,880
Speaker 3: the ways in which globalization held down prices. Flows of

113
00:07:38,920 --> 00:07:43,920
Speaker 3: capital that promoted productivity, enhancing investment, flows of workers that

114
00:07:44,160 --> 00:07:49,960
Speaker 3: enhanced labor supply, lower priced goods.

115
00:07:49,480 --> 00:07:51,600
Speaker 2: That provided competition.

116
00:07:52,320 --> 00:07:55,840
Speaker 3: The best forms of competition we get in the US

117
00:07:55,960 --> 00:08:02,320
Speaker 3: economy are often from imported good and so if globalization

118
00:08:02,560 --> 00:08:07,080
Speaker 3: held prices down, it follows the deglobalization will tend to

119
00:08:07,520 --> 00:08:09,520
Speaker 3: push prices up, which.

120
00:08:09,320 --> 00:08:13,640
Speaker 2: Will mean for some interval higher rates of inflation.

121
00:08:14,320 --> 00:08:20,880
Speaker 3: And I don't think the prospects of tariffing, creases of

122
00:08:21,280 --> 00:08:29,800
Speaker 3: reductions and immigration, of more restriction on foreign foreign investment

123
00:08:29,880 --> 00:08:32,440
Speaker 3: and what that means for the dollar, I don't think

124
00:08:32,440 --> 00:08:39,679
Speaker 3: that in consensus inflation views, and so I think that's

125
00:08:39,720 --> 00:08:44,560
Speaker 3: another upside risk to inflation, and frankly, it's one that

126
00:08:44,600 --> 00:08:51,040
Speaker 3: would be substantially exacerbated if the Trump economic program, at

127
00:08:51,120 --> 00:08:55,200
Speaker 3: least as it's been described in recent months, were to

128
00:08:55,280 --> 00:08:57,000
Speaker 3: be implemented.

129
00:08:57,559 --> 00:09:00,880
Speaker 1: So you mentioned a flow of capital and foreign investment

130
00:09:00,920 --> 00:09:03,679
Speaker 1: in the United States. We have a specific instance right now,

131
00:09:03,720 --> 00:09:06,040
Speaker 1: in the instance of TikTok in the bill that's past

132
00:09:06,120 --> 00:09:09,040
Speaker 1: the House, not past the Senate. What do you make

133
00:09:09,080 --> 00:09:12,600
Speaker 1: of that issue of trying to divest actually TikTok being

134
00:09:12,640 --> 00:09:15,600
Speaker 1: divested by its Chinese partner, in particularly comparing contrast to

135
00:09:15,600 --> 00:09:17,800
Speaker 1: something we've talked about before, which is US steel and

136
00:09:17,840 --> 00:09:19,560
Speaker 1: the Nippon Steele investment into that.

137
00:09:20,120 --> 00:09:25,520
Speaker 3: Look, without access to classified information, it's difficult to make

138
00:09:25,640 --> 00:09:29,240
Speaker 3: a definitive judgment on either.

139
00:09:28,960 --> 00:09:30,760
Speaker 2: Of those cases.

140
00:09:31,400 --> 00:09:35,400
Speaker 3: I would just say this, it seems to me all

141
00:09:35,440 --> 00:09:41,040
Speaker 3: but self evident that the threat to US security from

142
00:09:41,280 --> 00:09:49,520
Speaker 3: our Chinese adversary controlling the news feed that is a

143
00:09:49,559 --> 00:09:53,640
Speaker 3: primary news feed to more than one hundred million Americans

144
00:09:54,679 --> 00:10:00,440
Speaker 3: has to be vastly greater than any risk from our

145
00:10:00,640 --> 00:10:08,240
Speaker 3: staunch ally Japan having a private company own less than

146
00:10:08,320 --> 00:10:13,760
Speaker 3: fifteen percent of US steel production. And so it seems

147
00:10:13,800 --> 00:10:19,960
Speaker 3: to me there's just a very clear disproportion in the

148
00:10:20,120 --> 00:10:24,959
Speaker 3: risks in those two cases, and I hope that will

149
00:10:25,000 --> 00:10:30,840
Speaker 3: factor into our decision making going.

150
00:10:32,240 --> 00:10:32,640
Speaker 2: Forward.

151
00:10:33,240 --> 00:10:36,400
Speaker 1: And finally, Larry, you've talked on this program, so some

152
00:10:36,600 --> 00:10:39,360
Speaker 1: questions you have about anti trust enforcement policy by the

153
00:10:39,360 --> 00:10:43,280
Speaker 1: Biding administration. You've questioned about the allocation of resources, but

154
00:10:43,320 --> 00:10:45,760
Speaker 1: we do have a fascinating instance right now in the

155
00:10:45,800 --> 00:10:48,920
Speaker 1: real estate market being really redone. What do you make

156
00:10:48,960 --> 00:10:51,680
Speaker 1: about the realtor's fees decision.

157
00:10:52,600 --> 00:10:58,920
Speaker 3: Look, I've been very critical of competition policy in the

158
00:10:59,000 --> 00:11:06,640
Speaker 3: last few years, but this is a huge win. The

159
00:11:06,720 --> 00:11:10,400
Speaker 3: process of buying and selling houses in the United States

160
00:11:11,080 --> 00:11:16,319
Speaker 3: is probably as egregious an example of special interest politics

161
00:11:17,040 --> 00:11:23,040
Speaker 3: putting huge burdens on consumers as anything else we have,

162
00:11:23,920 --> 00:11:31,000
Speaker 3: and breaking the realtor cartel is something that could have

163
00:11:31,080 --> 00:11:35,080
Speaker 3: benefits that could be one hundred billion dollars or more

164
00:11:36,080 --> 00:11:42,480
Speaker 3: over time to American households, and I'm really.

165
00:11:42,200 --> 00:11:43,760
Speaker 2: Glad to see this start.

166
00:11:44,320 --> 00:11:49,119
Speaker 3: I hope we will build on it in other countries.

167
00:11:49,760 --> 00:11:54,199
Speaker 3: That commission number that is five or six percent in

168
00:11:54,240 --> 00:12:00,640
Speaker 3: the United States is more like two percent. By the way,

169
00:12:01,320 --> 00:12:05,880
Speaker 3: with all the tremendous progress we've made in digital technology,

170
00:12:06,520 --> 00:12:12,960
Speaker 3: the whole need for the personalized service of realtors has

171
00:12:13,040 --> 00:12:18,240
Speaker 3: substantially diminished. So in addition to the international comparison, you

172
00:12:18,320 --> 00:12:24,320
Speaker 3: have the capacity of digital technology. You can now as

173
00:12:24,360 --> 00:12:28,000
Speaker 3: a matter of routine do something that's a pretty good

174
00:12:28,080 --> 00:12:31,680
Speaker 3: tour of a house with a video or with forty

175
00:12:31,760 --> 00:12:37,960
Speaker 3: still photos of every room. That's got to reduce the

176
00:12:38,080 --> 00:12:44,120
Speaker 3: need for realtor services in the era of the electronic signature,

177
00:12:44,600 --> 00:12:51,680
Speaker 3: the whole set of complex rituals associated with making offers

178
00:12:51,720 --> 00:12:55,280
Speaker 3: on houses, associated with house closings.

179
00:12:55,720 --> 00:12:56,920
Speaker 2: There is huge.

180
00:12:56,600 --> 00:13:04,520
Speaker 3: Capacity to take cost out there, and that is a

181
00:13:04,600 --> 00:13:10,120
Speaker 3: place that I think we can do a ton for Americans.

182
00:13:10,640 --> 00:13:14,560
Speaker 3: And when you take the frictions out, here's the important thing, David,

183
00:13:14,880 --> 00:13:18,760
Speaker 3: When you take the frictions out, it's win win, because

184
00:13:18,800 --> 00:13:20,559
Speaker 3: it can mean that the cost.

185
00:13:20,320 --> 00:13:23,000
Speaker 2: Of buying a house is lower.

186
00:13:23,280 --> 00:13:27,320
Speaker 3: At the same time that the cash that an owner

187
00:13:27,400 --> 00:13:31,480
Speaker 3: can get out of their house is higher, because you

188
00:13:31,600 --> 00:13:35,000
Speaker 3: help both of them because you're taking the friction out

189
00:13:35,559 --> 00:13:41,679
Speaker 3: and you're taking the prospect of future frictions out. So

190
00:13:41,760 --> 00:13:47,240
Speaker 3: I think this is a really promising area for public policy.

191
00:13:47,320 --> 00:13:50,400
Speaker 3: I was glad to see the President refer to the

192
00:13:50,440 --> 00:13:54,959
Speaker 3: whole housing area with such emphasis in his State of

193
00:13:55,000 --> 00:13:55,880
Speaker 3: the Undian address.

194
00:13:56,840 --> 00:13:58,920
Speaker 1: Larry, thank you so much for being with us as always.

195
00:13:59,040 --> 00:14:01,760
Speaker 1: That's our special contributor, Larry Summers of Harvard