WEBVTT - Surveillance: Biden's Budget With Ramamurti 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Farrell and Lisa Bramowitz Jaily. We bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:31.240 and of course, on the Bloomberg terminal. Right now on 0:00:31.320 --> 0:00:35.400 the budget, Barrett Ramamurdi joins Lisa Brammo's Romaine Bostka myself 0:00:35.440 --> 0:00:39.960 here on Bloomberg Surveillance. He is National Economic Council Deputy Director. 0:00:40.440 --> 0:00:43.040 He's also a member of one of the most distinguished 0:00:43.080 --> 0:00:46.360 Indian families in America. I'm not going to go through 0:00:46.400 --> 0:00:49.680 the details because of time, but Barad had been dying 0:00:49.720 --> 0:00:52.440 to talk to you. No pun intended in the tragedy 0:00:52.920 --> 0:00:56.320 of Tamil Nadu, so close to Ceylon, so close to 0:00:56.360 --> 0:00:59.800 syrit Lanca. Your parents came in from there. What have 0:01:00.040 --> 0:01:03.480 you heard from southern India in the last number of 0:01:03.480 --> 0:01:08.800 weeks with their pandemic challenge. Well, look at uh, it's 0:01:08.800 --> 0:01:10.920 tragic what's going on in India. A lot of my 0:01:10.959 --> 0:01:13.759 family is still there, especially a lot of my older relatives. 0:01:13.760 --> 0:01:16.319 So you know, we're on pins and needles hoping that 0:01:16.360 --> 0:01:19.240 they make it through. Okay. I know that the United 0:01:19.240 --> 0:01:23.720 States has taken steps to assist India in uh dealing 0:01:23.720 --> 0:01:27.720 with the pandemic, including sending oxygen which is badly necessary there, 0:01:28.280 --> 0:01:30.040 and of course taking the steps that it did um 0:01:30.319 --> 0:01:33.680 on on the vaccine patents, and so I know the 0:01:33.680 --> 0:01:36.280 administration is looking at all we can do to help 0:01:37.120 --> 0:01:39.760 our brothers and sisters abroad, including those in India. I 0:01:39.800 --> 0:01:41.720 would be pleased to talk to you about this further, 0:01:41.800 --> 0:01:44.040 but just because of time in the news flow today, 0:01:44.080 --> 0:01:47.760 we cannot let us go to our economy. Republicans will 0:01:47.800 --> 0:01:51.920 say this budget will break America, that is nondoable, the 0:01:52.040 --> 0:01:56.960 taxes can't be had. Responded, well, Actually, I think that 0:01:57.000 --> 0:02:00.040 the budget demonstrates that there's a fiscally responsible way of 0:02:00.200 --> 0:02:03.960 ensuring long term, sustainable economic growth in the United States. 0:02:04.720 --> 0:02:07.280 What the budget calls for is a series of investments 0:02:07.280 --> 0:02:10.600 in our infrastructure, as a series of investments in our 0:02:10.639 --> 0:02:13.360 families and in four additional years of school, all of 0:02:13.400 --> 0:02:17.160 which are about improving and increasing the productive capacity of 0:02:17.200 --> 0:02:19.480 our economy over the long term. Consider the fact that 0:02:20.000 --> 0:02:22.880 thirty million Americans don't have access to high speed internet 0:02:22.960 --> 0:02:24.280 right now? What do you think it does for the 0:02:24.280 --> 0:02:27.600 economy to go ahead and connect those folks in rural areas, 0:02:27.639 --> 0:02:31.560 on tribal lands and elsewhere. Right now, there are four 0:02:31.639 --> 0:02:34.240 hundred thousand schools and childcare centers to get access to 0:02:34.360 --> 0:02:36.880 water through lead pipes, even though we know that that 0:02:36.919 --> 0:02:39.440 poses a danger to the long term health and safety 0:02:39.440 --> 0:02:42.360 of our children. The Presidens plan would call for ripping 0:02:42.400 --> 0:02:44.400 out and replacing all of those pipes, which not only 0:02:44.400 --> 0:02:47.480 creates good jobs in the short term, creates long term 0:02:47.680 --> 0:02:50.440 success in the economy, and the budget lays out a 0:02:50.639 --> 0:02:54.240 physically responsible way of paying for all of these investments, 0:02:54.240 --> 0:02:57.280 such that from year fifteen onwards, the deficit and the 0:02:57.320 --> 0:03:00.200 debt actually starts to reduce over the long term. So 0:03:01.480 --> 0:03:03.200 I'm not going to take a lecture from the same 0:03:03.240 --> 0:03:05.760 Republicans who voted for a two trillion dollar tax cut 0:03:06.000 --> 0:03:08.280 a few years ago that had no discernible impact on 0:03:08.360 --> 0:03:11.560 business investment, and that exploded the deficit by between one 0:03:11.600 --> 0:03:13.720 and two trillion dollars. But there is a question, though, 0:03:13.800 --> 0:03:15.960 especially if you're counting on this plan to start to 0:03:15.960 --> 0:03:19.160 pay for itself with respect to economic gains, what role 0:03:19.200 --> 0:03:22.360 the Federal Reserve plays in keeping borrowing costs low. A 0:03:22.360 --> 0:03:24.240 lot of people talk to the servicing costs of the 0:03:24.320 --> 0:03:27.280 US government dead say it's pretty low because of how 0:03:27.320 --> 0:03:30.040 low interest rates are. How much you're relying on the 0:03:30.040 --> 0:03:35.480 Fed to be an active player in keeping rates down. Well, look, 0:03:35.520 --> 0:03:37.640 the budget assumes a certain level of interest rates over 0:03:37.640 --> 0:03:40.280 the long term that I think is entirely reasonable. The 0:03:40.320 --> 0:03:43.280 other part of this is that there are new tax 0:03:43.320 --> 0:03:47.640 revenue coming from large corporations, uh and from wealthy individuals. 0:03:47.960 --> 0:03:51.920 You know, the effective tax rate paid by US multinational 0:03:51.960 --> 0:03:55.040 corporations was eight percent, and compare that to the tax 0:03:55.120 --> 0:03:57.720 rate that small businesses pay. Compare that to the tax 0:03:57.800 --> 0:04:00.480 rate that your average middle class family pays. There's clearly 0:04:00.520 --> 0:04:04.200 capacity for these companies to pay more in taxes to 0:04:04.280 --> 0:04:06.400 help finance the investments that, by the way, are going 0:04:06.440 --> 0:04:08.080 to be good for those companies in the long run, 0:04:08.200 --> 0:04:10.480 that are roads and bridges, broadband internet and so on. 0:04:10.760 --> 0:04:12.920 This is a win win scenario. A lot of people 0:04:12.960 --> 0:04:16.040 say that higher taxes leads to slower growth. What would 0:04:16.040 --> 0:04:19.800 you How would you respond? I just don't think that 0:04:19.839 --> 0:04:22.719 there is a strong empirical case that the taxes that 0:04:22.760 --> 0:04:25.400 the President has put on the table when paired with 0:04:25.440 --> 0:04:27.919 the investments that he is proposing, are going to have 0:04:27.920 --> 0:04:30.039 a negative effect on growth. In fact, quite the opposite. 0:04:30.560 --> 0:04:33.520 Uh the independent analyses are shown that they produce more 0:04:33.560 --> 0:04:36.080 economic growth in the short term and the medium term, 0:04:36.600 --> 0:04:39.680 They create more jobs, and that they also create high 0:04:39.760 --> 0:04:42.680 quality jobs, which is central to the President's message here. 0:04:42.680 --> 0:04:45.760 If you listen to his speech yesterday, his main point 0:04:46.000 --> 0:04:48.960 was that we should start looking at the health of 0:04:48.960 --> 0:04:51.360 the economy. We should measure the success of our economy 0:04:51.680 --> 0:04:53.919 based on how working families are doing. Are they getting 0:04:53.920 --> 0:04:56.559 a wage that allows them to support themselves in their family, 0:04:56.600 --> 0:04:58.839 Are they able to work at a job with dignity, 0:04:58.880 --> 0:05:01.159 do they have choices and they enter the labor market. 0:05:01.560 --> 0:05:03.520 That's the kind of economy the President wants to build, 0:05:03.520 --> 0:05:05.360 and that's the kind of economy that we are starting 0:05:05.400 --> 0:05:07.960 to see emerge coming out of this pandemic thanks to 0:05:07.960 --> 0:05:10.640 the President's Actually, so, then do you dismiss I guess 0:05:10.680 --> 0:05:12.280 some of the more normal metrics that a lot of 0:05:12.279 --> 0:05:14.880 people would look at with regards to debt, to GDP 0:05:15.080 --> 0:05:18.400 ratios and deficit financing. Is that not part of the 0:05:18.440 --> 0:05:22.520 calculus inside the White House? Well, I think it's relevant 0:05:22.560 --> 0:05:24.600 to look at the interest payments that the United States 0:05:24.680 --> 0:05:26.520 is going to make as a as a proportion of 0:05:26.520 --> 0:05:29.040 g d P. If you look at that metric, it's 0:05:29.080 --> 0:05:32.960 clear that by historical standards, were actually very well positioned. UH, 0:05:33.040 --> 0:05:36.239 in part because interest rates are low, as as you noted, 0:05:36.600 --> 0:05:39.719 and so from our perspective, this is the right time 0:05:39.760 --> 0:05:42.160 to make these investments, not only because of that factor, 0:05:42.600 --> 0:05:45.800 but because we have a unique opportunity as we are 0:05:45.800 --> 0:05:48.599 emerging from the pandemic to rebuild certain parts of our 0:05:48.640 --> 0:05:50.800 economy that are gonna need rebuilding anyway. And I would 0:05:50.800 --> 0:05:54.000 just make one one final point here. Our international competitors 0:05:54.000 --> 0:05:58.040 aren't holding back. China is making enormous investments in its infrastructure. 0:05:58.400 --> 0:06:02.840 The EU announced a significant investments in its infrastructure. Japan. UH, 0:06:02.920 --> 0:06:05.719 there is a race to win the twenty one century. 0:06:05.760 --> 0:06:08.400 The other countries are starting to run. We can't just 0:06:08.480 --> 0:06:10.520 be sitting on our hands. Brought. The messaging that we've 0:06:10.520 --> 0:06:12.320 gotten from you and other folks at the White House 0:06:12.360 --> 0:06:15.560 has certainly been compelling. I'm curious, do you guys have 0:06:16.240 --> 0:06:19.719 a clear ally on Capitol Hill to actually shepherd this 0:06:19.800 --> 0:06:23.640 through a powerful ally. Look, I think that there is 0:06:24.040 --> 0:06:26.520 broad bypartisan support for many of the elements of the 0:06:26.520 --> 0:06:29.599 plan that we are talking about, first and most importantly 0:06:29.960 --> 0:06:33.240 among the public, where the President's plans are pulling consistently 0:06:33.279 --> 0:06:36.560 at sixty or sevent And I think that many of 0:06:36.560 --> 0:06:38.520 the elements that the President has put into his plan 0:06:39.440 --> 0:06:42.880 emerge from existing by partisan legislation. So, for example, the 0:06:42.880 --> 0:06:47.040 President has proposed investments in affordable housing, there's broad bypartisan 0:06:47.080 --> 0:06:51.880 support for expanding tax credits that promote affordable housing. So, uh, 0:06:52.040 --> 0:06:55.360 if folks are going to be consistent with their previous positions, 0:06:55.400 --> 0:06:56.600 I think that there should be a lot of by 0:06:56.600 --> 0:06:59.760 partisan support for these provisions. Broad Thank you so much, 0:07:00.279 --> 0:07:03.240 Rama Murdy of the National Economic Council, Deputy Director. This 0:07:03.279 --> 0:07:11.920 morning from the White House. The only one in the 0:07:12.000 --> 0:07:14.440 room that remembers Anna Kon of Copper besides me, would 0:07:14.440 --> 0:07:17.360 be Edward Morrise. Of course iconic. It's City Group. Dr 0:07:17.440 --> 0:07:21.520 Morris on oil, on the mecroeconomics of geopolitics of oil. 0:07:21.880 --> 0:07:25.600 But this morning we focus on commodities at Morris. It's 0:07:25.640 --> 0:07:27.680 not in the headlines, it's not above the fold in 0:07:27.720 --> 0:07:30.680 the New York Times or the Washington Post, but it 0:07:30.880 --> 0:07:34.160 is China ascendant we see, are you want making a 0:07:34.240 --> 0:07:38.400 jump condition? Do you want strength? Does it signal finally 0:07:38.440 --> 0:07:42.720 a commodity boom? Well, there is a commodity boom. I 0:07:42.760 --> 0:07:45.200 don't know whether that's signaling it. I think what's really 0:07:45.240 --> 0:07:48.119 signaling it is getting out of a recession. We're having 0:07:48.160 --> 0:07:52.920 the most remarkable recovery following the most remarkable recession given 0:07:52.960 --> 0:07:57.320 the pandemic, and all recoveries are commodity intensive and the 0:07:57.400 --> 0:08:00.160 demand side, and this one is especially so. Give the 0:08:00.200 --> 0:08:03.840 depths to which demanded fallen last year. Tell me the 0:08:03.880 --> 0:08:07.200 inventory rebuild that's out there right now. It's always a 0:08:07.240 --> 0:08:10.440 mystery in China, but they loaded up. What's the dynamic 0:08:10.560 --> 0:08:13.000 of inventory of copper, iron, and the rest of it 0:08:13.280 --> 0:08:17.800 in China? Right now? Inventories are really low. Whether you 0:08:17.840 --> 0:08:22.800 look at iron or or steel or copper or aluminum, 0:08:23.120 --> 0:08:26.640 inventories are really really low. And the question is how 0:08:26.680 --> 0:08:28.440 low can they stay in for how long? And it 0:08:28.480 --> 0:08:30.760 looks like they will stay low for a long time. 0:08:30.800 --> 0:08:34.000 We look at the scrap market for steel, the scrap 0:08:34.080 --> 0:08:37.520 market for copper, and their their their record levels. So 0:08:38.000 --> 0:08:40.760 that's an indication that the inventory of things that go 0:08:40.800 --> 0:08:43.600 into those products are just not available. Taking a step back, 0:08:43.960 --> 0:08:46.760 just to sort of dovetail both of Tom's questions together. 0:08:46.800 --> 0:08:49.079 There is a question of how much pricing power China 0:08:49.120 --> 0:08:52.319 still has over the commodities complex, Goldman Sacks coming out 0:08:52.320 --> 0:08:55.520 and saying that they've lost that power, especially as developed 0:08:55.520 --> 0:09:01.079 markets the US Europe engage in infrastructure spending. Do you agree, Uh, yes, 0:09:01.120 --> 0:09:04.320 I do agree. And we've seen it in the Chinese 0:09:04.400 --> 0:09:08.079 effort to damp down on speculation. Uh, they announce they're 0:09:08.120 --> 0:09:10.360 going to damp down on speculation, They announced that they're 0:09:10.360 --> 0:09:13.600 going to damp down on volatility. Prices go down, but 0:09:13.679 --> 0:09:17.080 then the real inventory situation, the real supply demand balance 0:09:17.400 --> 0:09:20.840 picks up. So China is looking for lower, lower priced 0:09:21.120 --> 0:09:23.400 commodities and they don't have the power to do that. 0:09:23.760 --> 0:09:25.520 There's also a question of whether you can have a 0:09:25.520 --> 0:09:28.760 commodity supercycle, as many people have been calling this, without 0:09:28.800 --> 0:09:31.800 the participation of oil. And could you have the participation 0:09:31.880 --> 0:09:35.640 of oil if you have such pushback by investors on 0:09:35.840 --> 0:09:39.640 likes of Exxon and Shell on becoming a greener operation, 0:09:39.800 --> 0:09:43.640 on adapting to a world trying to flight fight climate change. 0:09:43.920 --> 0:09:47.800 What's your view on the outlook for oil given that backdrop, well, 0:09:47.840 --> 0:09:49.880 First of all, I agree with the view that you 0:09:49.920 --> 0:09:52.800 can't have a supercycle for that oil being part of it. 0:09:53.200 --> 0:09:56.760 Uh And all the supercycles we've seen have had massive 0:09:56.800 --> 0:10:00.120 disruptions and oil supply as a real kicker U. And 0:10:00.160 --> 0:10:02.920 the reason that is important is that all commodities are 0:10:03.000 --> 0:10:06.199 energy intensive to a dramatic degree, whether you look at 0:10:06.240 --> 0:10:09.160 eggs or metals. UH. Any you pick a commodity and 0:10:09.160 --> 0:10:13.240 it's going to be energy intensive. Aluminum is particularly energy intensive. 0:10:14.080 --> 0:10:15.840 But then we look at the horizon and there are 0:10:15.840 --> 0:10:19.319 two things that are fighting each other. One is demand 0:10:19.480 --> 0:10:22.000 is not growing the way it used to grow. Yes, 0:10:22.200 --> 0:10:24.760 we're in a we're in a recovery, and that's a 0:10:24.840 --> 0:10:29.440 very robust short term phenomenon. But we look at and 0:10:29.480 --> 0:10:31.880 the big debate is how far away from the historical 0:10:32.240 --> 0:10:34.920 growth level and demand? How far down is it going 0:10:34.960 --> 0:10:37.200 to be? And then we look at the supply side, 0:10:37.880 --> 0:10:42.240 both medium and longer term. We have we have opeque countries, 0:10:42.640 --> 0:10:45.440 Saudi Arabia and the UA in particular, that are doing 0:10:45.480 --> 0:10:49.440 what they're increasing their production capacity. We have a ran 0:10:49.880 --> 0:10:53.920 off the market teetering maybe at the at the at 0:10:53.920 --> 0:10:56.600 the cusp of an agreement with the United States, they 0:10:56.880 --> 0:10:59.920 have one eight million barrels a day of oil offline. 0:11:00.000 --> 0:11:03.040 It's coming back at some point between now and a 0:11:03.120 --> 0:11:06.199 year and a half from now. Uh, And then we 0:11:06.280 --> 0:11:10.880 have oil oil everywhere and the prices lower because of 0:11:10.920 --> 0:11:14.200 the technological revolution that took place with the last supercycle. 0:11:14.360 --> 0:11:18.000 So I wouldn't say that this is gonna be right 0:11:18.080 --> 0:11:21.080 off of oil. Depends on who has it, where it is, 0:11:21.440 --> 0:11:23.079 and no matter where you find it, it's going to 0:11:23.200 --> 0:11:25.960 be fairly easy to produce. So it may not be 0:11:26.000 --> 0:11:28.600 a right offul oil here. Ed. But to Lisa's point 0:11:28.640 --> 0:11:30.920 that she was making in her question as well, with 0:11:30.960 --> 0:11:32.839 regards to the pressure that is now on a lot 0:11:32.840 --> 0:11:35.640 of these fossil fuel companies, UH, the idea that they 0:11:35.640 --> 0:11:38.640 should be pivoting more to renewable energy in some way, 0:11:38.760 --> 0:11:41.000 or at least kind of edging their bets with regards 0:11:41.000 --> 0:11:43.560 to the outlook for oil demand. Is it a little 0:11:43.640 --> 0:11:46.320 premature now for these companies, for those companies that have 0:11:46.360 --> 0:11:49.040 traditionally sort of relied on fossil fuels and made their 0:11:49.040 --> 0:11:52.719 profits off of fossil fuels, to make that pivot, Well, 0:11:52.760 --> 0:11:55.640 it's not. It's not premature to make the pivot to decarbonize. 0:11:56.000 --> 0:11:59.600 How that decarbonization works is another matter. But we we 0:11:59.720 --> 0:12:03.400 have massive amount of capital going into carbon capture and sequestration, 0:12:04.120 --> 0:12:09.200 decarbonizing what's needed, and fossil fuels are needed. It is 0:12:09.480 --> 0:12:13.320 a uh, it is it is uh uh. You know, 0:12:13.960 --> 0:12:16.800 it's wishful thinking to think that the world is going 0:12:16.840 --> 0:12:22.439 to grow power generation that's non interruptible based on renewables. 0:12:22.760 --> 0:12:24.640 That's not going to happen in the next ten or 0:12:24.640 --> 0:12:27.560 fifteen years. So we're in the world where we have 0:12:27.640 --> 0:12:30.240 to live with fossil fues whether we like it or not. 0:12:31.080 --> 0:12:33.640 And at the moment, the unfortunate part of the way 0:12:33.640 --> 0:12:38.240 things are pricing is that oil is pricing below its 0:12:38.280 --> 0:12:43.160 social contribution. Yeah, definitely with regards so though the push 0:12:43.200 --> 0:12:46.440 into more renewable forms of energy, and particularly all of 0:12:46.440 --> 0:12:48.960 the talk we have here about e v S, part 0:12:48.960 --> 0:12:51.880 of the commodity boom that we've seen as of late 0:12:52.000 --> 0:12:54.920 has been if I'm not mistaken, directly tied to that, 0:12:54.960 --> 0:13:00.320 particularly with some of the industrial metals and minerals. Undoubtedly, uh, 0:13:00.400 --> 0:13:03.520 the demand for power generation is ubiquitous. You take the 0:13:03.600 --> 0:13:07.439 three largest economies in the world, the European Union economy, 0:13:07.760 --> 0:13:11.400 the U S and China. They're all moving towards that, 0:13:11.400 --> 0:13:15.120 that evy world in a in an accelerating way. Uh. 0:13:15.160 --> 0:13:18.480 And that requires more power generation. And what do you 0:13:18.480 --> 0:13:20.720 need to do that? You need batteries, and what do 0:13:20.760 --> 0:13:23.280 you need to make batteries? You need an array of metals. 0:13:23.320 --> 0:13:26.400 You need nickel, you need lithium, you need copper, you 0:13:26.400 --> 0:13:30.520 need aluminum, you need UH, cobalt and manganese. So it's 0:13:30.600 --> 0:13:35.080 a it's a commodity intensive environment, particularly metal intensive, right 0:13:35.800 --> 0:13:37.640 for most. I got one question, and this comes off 0:13:37.679 --> 0:13:40.000 for an important interview with Andrew Force, the giant of 0:13:40.080 --> 0:13:44.480 Perth in West Australia, on green hydrogen. He's got more 0:13:44.520 --> 0:13:47.080 money than God and he's putting it into green hydrogen. 0:13:47.120 --> 0:13:49.960 We're gonna crack ammonia and come up with a free 0:13:50.040 --> 0:13:53.560 launch here. Do you buy, as a carbon guy, the 0:13:53.600 --> 0:13:57.440 future of green hydrogen or is it a myth? Oh no, 0:13:57.559 --> 0:14:00.079 it's by no means a myth. The question is how 0:14:00.160 --> 0:14:02.920 quickly when we see the cost structure coming down? There 0:14:02.920 --> 0:14:06.079 are two major cost structures there. One is the cost 0:14:06.160 --> 0:14:09.360 of renewables. They are going down and we're seeing what 0:14:09.480 --> 0:14:13.640 about but the electricalizers the other one and UH and 0:14:14.320 --> 0:14:18.240 The big thing that we're waiting for is economies of scale. Uh. 0:14:18.320 --> 0:14:22.440 We're seeing electricalizers really made by they're not quite mon 0:14:22.480 --> 0:14:25.440 Poe companies, but we haven't seen the build out of 0:14:25.480 --> 0:14:28.280 the economies of scale that are required. Uh. And that's 0:14:28.320 --> 0:14:30.240 going to be there. And then the question is going 0:14:30.280 --> 0:14:33.440 to be location, location, location, Where is it going to 0:14:33.560 --> 0:14:38.680 be the combination of electricalizer availability and non interruptible when 0:14:38.840 --> 0:14:42.560 non interruptable solar in Australia is very well positioned on 0:14:42.960 --> 0:14:45.560 the renewable side. Edward Morris, thank you so much. With 0:14:45.640 --> 0:14:47.640 City Group, we look forward to speaking to you as 0:14:47.640 --> 0:14:56.920 we launched through the summer a commodity boom. There is 0:14:56.920 --> 0:14:59.720 a question of does this data matter or do we 0:14:59.800 --> 0:15:03.240 just really have to wait until September, October, November to 0:15:03.280 --> 0:15:06.600 determine whether this is transitory or not. Stephen Stanley has 0:15:06.640 --> 0:15:09.920 been passing through all of this. Mhirst pier Punt, Chief Economist. 0:15:10.280 --> 0:15:13.920 Does it matter that the PC deflator, the key indication 0:15:14.040 --> 0:15:16.440 of inflation that the Federal Reserve looks at, came in 0:15:16.520 --> 0:15:19.720 higher than expectation at the highest levels in a year 0:15:19.720 --> 0:15:23.880 over year basis since the ninety nineties. Good morning, li 0:15:23.960 --> 0:15:26.080 So yeah, I think it does matter. I mean, I 0:15:26.160 --> 0:15:27.800 think you're right. The FED is going to try to 0:15:27.880 --> 0:15:30.120 wait it out. And there's no question if you look 0:15:30.120 --> 0:15:32.520 at the detail of the April data that most of 0:15:32.560 --> 0:15:35.200 the uptick in inflation is what the FED would call 0:15:35.200 --> 0:15:38.560 temporary factors. Um, but that can get embedded in the 0:15:38.920 --> 0:15:42.120 in the fabric. And I think you rightly highlighted those 0:15:42.200 --> 0:15:45.560 University of Michigan inflation expectations numbers because it was pretty 0:15:45.560 --> 0:15:48.160 shocking a couple of weeks ago when the long term 0:15:48.200 --> 0:15:51.480 inflation expectation number ratcheted up quite a bit. I think 0:15:51.480 --> 0:15:55.120 the FED is confident that inflation expectations aren't going to move, 0:15:55.160 --> 0:15:57.960 but you know, we haven't seen these sorts of inflation 0:15:58.040 --> 0:15:59.680 rates in a very long time, and I think it's 0:16:00.080 --> 0:16:02.440 you know, the reaction of people in the in the 0:16:02.480 --> 0:16:05.280 economy could be very unpredictable. Stephen, could you talk a 0:16:05.280 --> 0:16:08.720 little bit about why inflation expectations are so important in 0:16:08.760 --> 0:16:13.080 determining the true path of inflation? Right, Well, I mean, 0:16:13.320 --> 0:16:16.600 if people expect inflation, then they're more willing to accept it, 0:16:16.880 --> 0:16:20.080 and they're also more willing to demand higher wages to 0:16:20.360 --> 0:16:22.920 make up for it. So, um, you know, back in 0:16:22.960 --> 0:16:26.120 the seventies, we had what economists called a wage price spiral, 0:16:26.160 --> 0:16:29.400 where every time prices went up, workers demanded more higher wages, 0:16:29.440 --> 0:16:32.240 which in turn forced inflation higher, and it just kind 0:16:32.240 --> 0:16:34.960 of fed on itself. And we haven't really seen anything 0:16:35.040 --> 0:16:38.000 like that for several decades, and the FED is confident 0:16:38.040 --> 0:16:40.480 that we're not going to see at this time. But again, 0:16:40.560 --> 0:16:42.800 I in my mind, we're kind of in virgin territory here. 0:16:42.840 --> 0:16:46.720 We haven't had an economy like this where uh supply 0:16:46.920 --> 0:16:49.760 is being outstripped so severely by demand in a very 0:16:49.840 --> 0:16:51.640 long time. We'll talk a little bit more about that 0:16:51.760 --> 0:16:53.800 us being in virgin territory because when you look at 0:16:53.880 --> 0:16:56.760 sort of the past pressure economic pressures that we've been 0:16:56.760 --> 0:16:59.440 through here really hasn't come as much from the supply 0:16:59.480 --> 0:17:01.840 side as a has this time around. And I'm wondering 0:17:01.840 --> 0:17:04.480 if at some point that does actually start to rear 0:17:04.480 --> 0:17:07.720 its head with regards to wages and put that upward pressure, 0:17:07.840 --> 0:17:11.560 that may actually cause some concern for investors right absolutely, 0:17:11.560 --> 0:17:13.199 And I think you know one thing that's going on 0:17:13.320 --> 0:17:16.280 right now is for a combination of factors and and 0:17:16.320 --> 0:17:19.280 certainly the extra underplant benefits have been cited by a 0:17:19.320 --> 0:17:21.480 lot of folks, and and it's probably an important reason, 0:17:21.760 --> 0:17:24.400 but people at the lower end of the wage scale 0:17:24.880 --> 0:17:27.800 UM are very hesitant to go back to work right now, 0:17:27.960 --> 0:17:31.440 and firms are raising wages pretty significantly for those types 0:17:31.480 --> 0:17:35.400 of jobs, and it's hard to take that back UM. 0:17:35.520 --> 0:17:37.439 And certainly many people would look at that and say, hey, 0:17:37.480 --> 0:17:40.520 that's a great thing. People are getting paid more UM, 0:17:40.840 --> 0:17:43.280 and that's that's well and good. But then how does 0:17:43.320 --> 0:17:46.080 that get UM adopted in terms of how the companies 0:17:46.080 --> 0:17:48.679 tend to price. So you know fast food restaurants have 0:17:48.720 --> 0:17:50.840 to pay three or four extra dollars per hour for 0:17:50.880 --> 0:17:53.320 their workers. Does that mean that your dollar value mail 0:17:53.359 --> 0:17:56.400 becomes a two dollar value mal um. That's how inflation 0:17:56.440 --> 0:17:58.760 gets started. So that's I think what the fet is 0:17:58.760 --> 0:18:01.280 going to be watching is how much pricing power do 0:18:01.440 --> 0:18:04.840 firms have UM and does it look like consumers are 0:18:04.840 --> 0:18:08.320 more willing to accept those price increases versus where we've 0:18:08.320 --> 0:18:10.600 been over the last twenty years, where consumers have been 0:18:10.680 --> 0:18:17.280 very resistant to those sorts of price increases. So I 0:18:17.320 --> 0:18:19.040 gotta say, Tom, when you take a look at what 0:18:19.040 --> 0:18:20.840 we're seeing, you do have to wonder at what point 0:18:20.880 --> 0:18:23.119 people look at this and they say, we have to 0:18:23.160 --> 0:18:25.680 look past the noise, and we are looking to something 0:18:25.720 --> 0:18:27.880 that is longer in its nature at least. So what's 0:18:27.880 --> 0:18:30.240 so important here is Michael mcketh points out, and folks 0:18:30.240 --> 0:18:32.119 a job. Mike cas to look at this wall of 0:18:32.200 --> 0:18:35.080 data that comes out and he sifts through it and 0:18:35.200 --> 0:18:38.720 he really mentions their finally declined in the savings rate. 0:18:39.119 --> 0:18:42.919 Stephen Stanley, you are claimed at nailing the market economy. 0:18:43.480 --> 0:18:47.440 I assume you've never seen savings rates like this explained 0:18:47.480 --> 0:18:51.000 to our radio and TV audience. Why guys like you 0:18:51.119 --> 0:18:54.800 are riveted on a savings rate of twenty whatever percent 0:18:55.160 --> 0:18:59.760 down to fourteen whatever percent. Well, it's important to remember 0:18:59.760 --> 0:19:02.000 that the savings rate is a flow. And the savings 0:19:02.119 --> 0:19:03.959 rate went up a lot in March because there was, 0:19:04.040 --> 0:19:07.200 as Mike said, there was this massive influx of rebate checks. 0:19:07.240 --> 0:19:09.800 So the savings rate goes down in April simply because 0:19:09.840 --> 0:19:12.439 income is not as high because you don't have that 0:19:12.880 --> 0:19:16.280 artificial boost from the stimulus checks. But it's still above 0:19:16.320 --> 0:19:19.000 ten percent. I mean, in normal times, you know, savings 0:19:19.080 --> 0:19:22.240 rates in the mid single digits. And so what's happening 0:19:22.280 --> 0:19:25.479 is every month people are putting away more money than 0:19:25.520 --> 0:19:28.600 they normally would. It made sense for that to happen 0:19:28.600 --> 0:19:31.159 in the pandemic because people simply couldn't spend on everything 0:19:31.200 --> 0:19:34.280 they wanted to buy. Um, now that the economy is reopening, 0:19:34.560 --> 0:19:38.560 households have a tremendous stockpile of dry powder that they 0:19:38.560 --> 0:19:40.720 can deploy. And the question is really does it get 0:19:40.800 --> 0:19:43.400 spent all at once or does it get meted out 0:19:43.440 --> 0:19:45.280 over time. I think it's likely to be the latter, 0:19:45.359 --> 0:19:46.879 which is why I think the consumers can have a 0:19:46.880 --> 0:19:50.160 lot of staying power for quite some time. Well. Actually, 0:19:50.240 --> 0:19:52.719 and this is important, and Michael McKee highlighting this as 0:19:52.760 --> 0:19:54.840 Tom just said that we did see that personal savings 0:19:54.920 --> 0:19:58.120 rate come down to fourteen point nine percent from twenty 0:19:58.200 --> 0:20:01.160 seven percent. It seems like people are out there spending 0:20:01.240 --> 0:20:04.360 in force. At what point, Stephen, do you adjust your 0:20:04.400 --> 0:20:08.119 expectations for GDP, for inflation, for JET, for activity in 0:20:08.119 --> 0:20:13.400 the economy based on the savings rate coming down so rapidly. Well, 0:20:13.480 --> 0:20:15.960 we'll see what it does once the impact that the 0:20:15.960 --> 0:20:19.560 stimulus checks uh starts to you know, once out of 0:20:19.600 --> 0:20:21.760 bates and may or be the first clean month that 0:20:21.800 --> 0:20:24.560 we've had in a while on that front. Um, But look, 0:20:24.600 --> 0:20:27.000 all through last year, the savings rate was still running 0:20:27.480 --> 0:20:30.320 much higher than normal, and so at some point I 0:20:30.320 --> 0:20:32.720 would expect the savings rate should go down, and if anything, 0:20:32.720 --> 0:20:34.840 it should go down to a below normal rate, right 0:20:34.880 --> 0:20:37.320 because people are are kind of flush right now. They 0:20:37.320 --> 0:20:40.040 don't need to save um. They you know, they're probably 0:20:40.040 --> 0:20:42.080 gonna want to be spending. So we're hearing all this 0:20:42.320 --> 0:20:44.679 pent up demand for travel and all the fun stuff 0:20:44.680 --> 0:20:46.480 that we haven't been able to do over the last year. 0:20:46.760 --> 0:20:48.760 So I would expect that as we get later in 0:20:48.760 --> 0:20:50.919 the year, the savings rate will actually go down dramatically. 0:20:51.119 --> 0:20:54.520 Fascinating Steven Stanley, Thank you so much, really interesting economic data, 0:20:54.560 --> 0:21:02.920 and more to come. What's interesting into the Memorial Day 0:21:02.920 --> 0:21:08.399 weekend is the domestic debate over vaccinated and unvaccinated. That debate, 0:21:08.480 --> 0:21:11.600 no doubt will continue into the summer. The new debate, 0:21:12.119 --> 0:21:15.960 or rekindling of the debate is the discussion how did 0:21:15.960 --> 0:21:19.040 this begin? Where did it come from? And Lisa, it's 0:21:19.200 --> 0:21:21.840 really really come up in the last number of days 0:21:22.280 --> 0:21:25.000 on the lab leek theory. Yeah, that theory that was 0:21:25.040 --> 0:21:29.760