1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,280 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Peter Roppenheimer of 10 00:00:37,320 --> 00:00:41,159 Speaker 2: Goldman Sax, writing, while US fundamentals remain solid, the valuation 11 00:00:41,320 --> 00:00:45,080 Speaker 2: premium is increasingly difficult to justify. Peter joins us now 12 00:00:45,120 --> 00:00:47,199 Speaker 2: for more. Peter, Welcome to the program sir. Let's talk 13 00:00:47,200 --> 00:00:50,159 Speaker 2: about the valuation fredium and the why. The data this 14 00:00:50,200 --> 00:00:53,000 Speaker 2: week is good. The errings have been okay, We've got 15 00:00:53,000 --> 00:00:56,040 Speaker 2: an FMC slowly leaning towards a rake cut. 16 00:00:56,240 --> 00:00:57,000 Speaker 3: What's not to like? 17 00:00:59,280 --> 00:01:02,400 Speaker 4: Well, John, this is a relative rather than an absolute story. 18 00:01:02,400 --> 00:01:04,760 Speaker 4: You're right if interest rates are coming down, and we 19 00:01:04,800 --> 00:01:08,240 Speaker 4: think they are, and the economy continues to grow, if 20 00:01:08,440 --> 00:01:11,119 Speaker 4: even at a more moderate rate. Generally, that's a good 21 00:01:11,200 --> 00:01:14,319 Speaker 4: backdrop for risk assets and for equities, and the US 22 00:01:14,440 --> 00:01:19,080 Speaker 4: is no exception, particularly as it's increasingly again dominated by 23 00:01:19,480 --> 00:01:23,520 Speaker 4: its biggest tech stocks, which are generating really strong earnings growth. 24 00:01:23,800 --> 00:01:27,800 Speaker 4: But it's really the relative premium against other markets which 25 00:01:27,840 --> 00:01:31,759 Speaker 4: has reached a record high, which is harder to justify 26 00:01:32,120 --> 00:01:36,200 Speaker 4: when other markets are beginning to see their own tailwinds. Europe, 27 00:01:36,200 --> 00:01:40,520 Speaker 4: for example, is enjoying stronger growth. You know, we think 28 00:01:40,560 --> 00:01:43,640 Speaker 4: about last year, the US economy was growing at only 29 00:01:43,720 --> 00:01:48,480 Speaker 4: three percent, Germany was stagnant. By next year they'd likely 30 00:01:48,560 --> 00:01:52,600 Speaker 4: be growing at relatively similar rates, and yet the valuation 31 00:01:52,720 --> 00:01:57,240 Speaker 4: gaps are extremely wide, and that's an opportunity we think 32 00:01:57,240 --> 00:01:58,000 Speaker 4: to diversify. 33 00:01:58,240 --> 00:01:59,040 Speaker 3: It is a question of. 34 00:01:59,040 --> 00:02:01,360 Speaker 5: Where you diversify given the fact that a lot of 35 00:02:01,400 --> 00:02:04,160 Speaker 5: people are expressing it through the currency, and the currency 36 00:02:04,240 --> 00:02:06,680 Speaker 5: is having a balancing effect in so many ways, Given 37 00:02:06,720 --> 00:02:09,360 Speaker 5: the fact that it might actually be a tailwind for 38 00:02:09,520 --> 00:02:13,320 Speaker 5: US corporate earnings and a headwind for European ones, how 39 00:02:13,320 --> 00:02:15,480 Speaker 5: do you factor that into this equation. 40 00:02:17,160 --> 00:02:20,160 Speaker 4: That's a very good point and absolutely right, and particularly 41 00:02:20,160 --> 00:02:22,760 Speaker 4: for the dominant tech stocks, which are very global in 42 00:02:22,880 --> 00:02:26,400 Speaker 4: terms of their revenue streams, and they have very strong 43 00:02:26,480 --> 00:02:29,680 Speaker 4: balance sheets. A week of dollar will help them. 44 00:02:29,760 --> 00:02:30,520 Speaker 3: So that is. 45 00:02:30,480 --> 00:02:34,040 Speaker 4: Good indeed for the dominant companies in the US, and 46 00:02:34,120 --> 00:02:38,000 Speaker 4: from an earning translation perspective, it's a headwind in Europe 47 00:02:38,120 --> 00:02:42,519 Speaker 4: or indeed Asia. But on the other hand, in terms 48 00:02:42,520 --> 00:02:45,920 Speaker 4: of flows, what we're beginning to see is more appetite 49 00:02:46,000 --> 00:02:50,080 Speaker 4: for US investors to spread their risks, to diversify, to 50 00:02:50,200 --> 00:02:53,800 Speaker 4: benefit from some currency gains that they may get in 51 00:02:53,919 --> 00:02:58,080 Speaker 4: cheaper markets like Europe or emerging markets for example. And 52 00:02:58,240 --> 00:03:02,800 Speaker 4: indeed it's also an increase incentive for investors in Europe 53 00:03:02,960 --> 00:03:05,799 Speaker 4: to keep more of their funds at home. So from 54 00:03:05,800 --> 00:03:09,480 Speaker 4: an earning translation perspective, it's a headwind in Europe, it's 55 00:03:09,480 --> 00:03:13,680 Speaker 4: a tailwind in the US. But from a diversification perspective 56 00:03:13,760 --> 00:03:17,760 Speaker 4: for investors, I think this is likely to encourage a 57 00:03:17,800 --> 00:03:21,280 Speaker 4: broader spread of assets than we've generally seen over the 58 00:03:21,360 --> 00:03:22,160 Speaker 4: last decade. 59 00:03:22,320 --> 00:03:25,080 Speaker 5: How interest rate sensitive is a story at a time 60 00:03:25,120 --> 00:03:28,480 Speaker 5: where some people are talking about possibly an ECB cutting 61 00:03:28,560 --> 00:03:30,520 Speaker 5: rates more quickly than a FED, and then a question 62 00:03:30,600 --> 00:03:32,920 Speaker 5: of whether maybe the FED will cut rates just as 63 00:03:33,000 --> 00:03:37,080 Speaker 5: quickly in perhaps a different composition at the FED. 64 00:03:39,520 --> 00:03:44,480 Speaker 4: Well we're more mature through the interest rate cycle in Europe, 65 00:03:44,480 --> 00:03:46,760 Speaker 4: at least in the euro Zone, we're expecting one more 66 00:03:46,840 --> 00:03:50,640 Speaker 4: rate cut getting policy rates down to one on three quarters. 67 00:03:50,680 --> 00:03:53,240 Speaker 4: We think we have a series of rate cuts to 68 00:03:53,240 --> 00:03:57,040 Speaker 4: look forward to in the US to get policy rates 69 00:03:57,040 --> 00:04:00,480 Speaker 4: down to three to three in a quarter. What I 70 00:04:00,520 --> 00:04:04,000 Speaker 4: think is worth also emphasizing, though, is that while there 71 00:04:04,000 --> 00:04:07,040 Speaker 4: are prospects for bigger rate cuts from a higher level 72 00:04:07,200 --> 00:04:10,560 Speaker 4: in the US than perhaps in Europe, long term interest 73 00:04:10,640 --> 00:04:13,280 Speaker 4: rates are not really coming down, and that's a reflection, 74 00:04:13,440 --> 00:04:18,159 Speaker 4: of course, of concerns about debt sustainability and debt financing, 75 00:04:18,200 --> 00:04:20,440 Speaker 4: not just in the US but in other countries as well. 76 00:04:20,839 --> 00:04:24,040 Speaker 4: Bear in mind, in Germany, while we're getting these policy 77 00:04:24,120 --> 00:04:27,040 Speaker 4: rate cuts, long term interest rates are actually edging up 78 00:04:27,080 --> 00:04:33,680 Speaker 4: as it also finally increases its borrowing and fiscal spending, 79 00:04:33,720 --> 00:04:36,279 Speaker 4: which is good for growth, good for the ecty market, 80 00:04:36,600 --> 00:04:39,440 Speaker 4: but of course puts upward pressure on long term interest rates. 81 00:04:39,640 --> 00:04:42,640 Speaker 1: Peter, speaking of Germany, the Bundesbank president, today came out 82 00:04:42,680 --> 00:04:46,200 Speaker 1: and said that challenges to FED independence, which he calls 83 00:04:46,480 --> 00:04:50,080 Speaker 1: in the DNA the autonomy of good central banking, would 84 00:04:50,160 --> 00:04:53,040 Speaker 1: resonate beyond the shores of the United States. What kind 85 00:04:53,080 --> 00:04:56,200 Speaker 1: of impact could we see if we were to see 86 00:04:56,240 --> 00:04:58,279 Speaker 1: the President of United States get rid of Jpowe and 87 00:04:58,360 --> 00:05:02,000 Speaker 1: fire him in Europe or inside Asia and emerging markets. 88 00:05:04,120 --> 00:05:09,520 Speaker 4: Well, look, we shouldn't forget that independent central banks have 89 00:05:09,680 --> 00:05:13,200 Speaker 4: not always been the norm throughout history, and this was 90 00:05:13,279 --> 00:05:17,400 Speaker 4: something that really gained prominence in the nineteen nineties and beyond, 91 00:05:18,560 --> 00:05:23,479 Speaker 4: and of course that has helped both to bring down inflation, 92 00:05:24,080 --> 00:05:27,440 Speaker 4: to bring down inflation risk premia as investors have become 93 00:05:27,480 --> 00:05:32,120 Speaker 4: more confident instability, and we've brought down risk premia and 94 00:05:32,160 --> 00:05:34,840 Speaker 4: the cost of capital in general. I think anything that 95 00:05:34,960 --> 00:05:39,599 Speaker 4: challenges the independence of the central bank will be reflected 96 00:05:39,720 --> 00:05:41,640 Speaker 4: in high risk premia. But I think we're a long 97 00:05:41,680 --> 00:05:44,880 Speaker 4: way away from that. And as you've been saying in 98 00:05:44,920 --> 00:05:48,760 Speaker 4: your report, the conditions in the US are favoring interest 99 00:05:48,839 --> 00:05:52,719 Speaker 4: rate cuts. Anyway, we're getting into a more benign phase 100 00:05:52,720 --> 00:05:55,320 Speaker 4: of the cycle. After the big inflation rises that we 101 00:05:55,360 --> 00:05:59,240 Speaker 4: saw following the pandemic, unemployments edging up a little bit, 102 00:05:59,480 --> 00:06:01,520 Speaker 4: and there is room to cut rates. That's true in 103 00:06:01,560 --> 00:06:04,360 Speaker 4: the US, it's true across Europe, the UK and other 104 00:06:04,440 --> 00:06:07,000 Speaker 4: areas as well. And by the way, some weakness in 105 00:06:07,040 --> 00:06:10,000 Speaker 4: the dollar and interest rates coming down in the US 106 00:06:10,440 --> 00:06:15,320 Speaker 4: will resonate and be positive. I think beyond US shores 107 00:06:15,839 --> 00:06:19,360 Speaker 4: very beneficial, for example, for emerging markets also, which have 108 00:06:19,480 --> 00:06:21,560 Speaker 4: tended to lag behind over a long period of time. 109 00:06:21,720 --> 00:06:25,240 Speaker 4: So I think there's a long way. We're a long 110 00:06:25,279 --> 00:06:30,840 Speaker 4: way away yet from people really worrying about central bank independence. 111 00:06:31,000 --> 00:06:32,720 Speaker 2: Let's hope you're right, sir, it's going to catch out. 112 00:06:32,720 --> 00:06:44,920 Speaker 2: With Peter Roppenheimer, I've gone as SANX making the case 113 00:06:45,120 --> 00:06:47,479 Speaker 2: for a raid cup Fed Governor Chris Waller tannag an 114 00:06:47,520 --> 00:06:50,040 Speaker 2: audience here in New York. Looking across the soft and 115 00:06:50,080 --> 00:06:52,520 Speaker 2: hard data, I get a picture of a labor market 116 00:06:52,760 --> 00:06:55,000 Speaker 2: on the edge joining us now here in New York City, 117 00:06:55,120 --> 00:06:57,920 Speaker 2: the Federal Reserve Governor Chris Waller, Governor Walla. 118 00:06:57,680 --> 00:07:00,839 Speaker 6: Good Monica, say, Henry, nice to be here. 119 00:07:00,880 --> 00:07:03,000 Speaker 2: It's good to see you, sir. Let's talk about why 120 00:07:03,000 --> 00:07:05,520 Speaker 2: we're losing the luxury of white sink. Have we lost 121 00:07:05,560 --> 00:07:06,520 Speaker 2: that already? 122 00:07:06,960 --> 00:07:07,680 Speaker 6: No? I think we have. 123 00:07:07,920 --> 00:07:10,880 Speaker 7: Like I said last night, the headline numbers for the 124 00:07:10,960 --> 00:07:14,160 Speaker 7: lay remark what we're seeing are okay, But it's like 125 00:07:14,160 --> 00:07:16,440 Speaker 7: when you get underneath and start looking at the data, 126 00:07:16,600 --> 00:07:19,600 Speaker 7: the private sector is not doing as well as everybody thinks. 127 00:07:19,640 --> 00:07:22,600 Speaker 7: It is, like most of the half of the employment 128 00:07:22,640 --> 00:07:25,120 Speaker 7: growth we saw last month was in the public sector, 129 00:07:25,680 --> 00:07:28,360 Speaker 7: and that means the private sector is not doing particularly well. 130 00:07:28,480 --> 00:07:32,760 Speaker 7: So I was just joking that, you know, if you're 131 00:07:32,800 --> 00:07:35,200 Speaker 7: walking on a lake and the ice is frozen and 132 00:07:35,360 --> 00:07:38,400 Speaker 7: sound safe, but when you start hearing cracks, and that's 133 00:07:38,440 --> 00:07:40,880 Speaker 7: what I feel like, it's too late once you go 134 00:07:40,920 --> 00:07:43,160 Speaker 7: through the ice. So you've got to start prepping in 135 00:07:43,200 --> 00:07:45,360 Speaker 7: advance before you have that happen. 136 00:07:45,480 --> 00:07:47,160 Speaker 2: How do you squan that with what we've had from 137 00:07:47,160 --> 00:07:50,920 Speaker 2: Corporate America so far, what Coporate America has told Lisa 138 00:07:51,080 --> 00:07:53,600 Speaker 2: sitting down with Skull Kebby, if you United headlines talking 139 00:07:53,600 --> 00:07:56,320 Speaker 2: about a rebound in the second half, what we've had 140 00:07:56,320 --> 00:07:58,160 Speaker 2: from the big banks so far this week, how do 141 00:07:58,160 --> 00:08:00,440 Speaker 2: you scamb what you'll see in the data, what we're 142 00:08:00,480 --> 00:08:01,840 Speaker 2: hearing from CEOs. 143 00:08:02,120 --> 00:08:03,880 Speaker 7: Yeah, I mean when I talked to CEOs, I get 144 00:08:03,920 --> 00:08:07,000 Speaker 7: the same thing. We're in just hold pattern in terms 145 00:08:07,000 --> 00:08:10,840 Speaker 7: of certainly the labor market. They're not hiring, they're not firing, 146 00:08:10,840 --> 00:08:12,760 Speaker 7: they're just watching. And that's kind of what you see 147 00:08:12,800 --> 00:08:16,080 Speaker 7: in this underlying private sector data. There's not much happening, 148 00:08:16,440 --> 00:08:18,360 Speaker 7: so it wouldn't take much sort of tippet. 149 00:08:18,880 --> 00:08:20,640 Speaker 6: Now, could I be wrong? Absolutely? 150 00:08:20,760 --> 00:08:22,920 Speaker 7: I mean last year we got a couple of week 151 00:08:23,320 --> 00:08:25,720 Speaker 7: labor market reports allowed us to cut in September, and 152 00:08:25,760 --> 00:08:28,320 Speaker 7: then everything kind of reversed and went back up. 153 00:08:28,800 --> 00:08:32,040 Speaker 6: So I'm not saying that couldn't happen again. 154 00:08:32,559 --> 00:08:35,319 Speaker 7: But it's just we've constantly seen little bits of day 155 00:08:35,440 --> 00:08:39,120 Speaker 7: continually coming down the page book. Yesterday came out some 156 00:08:39,240 --> 00:08:41,520 Speaker 7: other stuff that we get out of the Joelts quits. 157 00:08:41,320 --> 00:08:42,280 Speaker 6: Rates, hiring rates. 158 00:08:42,280 --> 00:08:44,800 Speaker 7: So these things are not indicating a super healthy private 159 00:08:44,840 --> 00:08:45,720 Speaker 7: sector labor market. 160 00:08:45,800 --> 00:08:48,760 Speaker 2: As you know, you're facing potentially and I stress, potentially 161 00:08:48,840 --> 00:08:51,880 Speaker 2: negative supply shels on both sides of the mandate. I 162 00:08:51,920 --> 00:08:53,760 Speaker 2: want to say, on the labor market, just for one 163 00:08:53,800 --> 00:08:57,199 Speaker 2: further night, immigration, how are you thinking about that when 164 00:08:57,240 --> 00:08:58,760 Speaker 2: you look at a labor market at the moment when 165 00:08:58,800 --> 00:09:01,000 Speaker 2: we have people coming on the program on Blindbecks event 166 00:09:01,040 --> 00:09:03,600 Speaker 2: and some bloomback TV every single morning six till nine 167 00:09:03,800 --> 00:09:06,839 Speaker 2: coming on here and saying look at the data, unemployment 168 00:09:06,880 --> 00:09:09,320 Speaker 2: could stand these levels even with jump gains of fifty 169 00:09:09,360 --> 00:09:12,319 Speaker 2: to one hundred thousand because of tightst immigration. How does 170 00:09:12,360 --> 00:09:14,400 Speaker 2: that factor into your thinking as you look at the 171 00:09:14,480 --> 00:09:15,360 Speaker 2: US slip amoun kit. 172 00:09:15,559 --> 00:09:17,920 Speaker 7: Well, yeah, the labor market doesn't necessarily have to be 173 00:09:18,080 --> 00:09:21,360 Speaker 7: affected by it because if workers flow in and they 174 00:09:21,360 --> 00:09:24,360 Speaker 7: get jobs at roughly the same rate as the existing workers, 175 00:09:24,360 --> 00:09:26,760 Speaker 7: the unemployment rate doesn't change even though the labor force 176 00:09:26,800 --> 00:09:28,920 Speaker 7: is higher. And when they go back out, the same 177 00:09:28,960 --> 00:09:31,679 Speaker 7: thing happens. If they leave the employment and leave the 178 00:09:31,720 --> 00:09:35,160 Speaker 7: labor force, you don't see a big change. The inflationing 179 00:09:35,440 --> 00:09:38,480 Speaker 7: now can potentially affect the break even rate that. 180 00:09:38,480 --> 00:09:41,079 Speaker 6: You would need to have the market going well. 181 00:09:41,480 --> 00:09:43,160 Speaker 7: And that's why we're still trying to kind of get 182 00:09:43,320 --> 00:09:45,920 Speaker 7: a sense of because you basically brought five years of 183 00:09:45,960 --> 00:09:50,200 Speaker 7: immigration forward and you know, of that eight or nine million, 184 00:09:50,280 --> 00:09:53,080 Speaker 7: most of them haven't disappeared. So they're still here somewhere, 185 00:09:53,520 --> 00:09:55,120 Speaker 7: whether they're going to work, they're not going to work, 186 00:09:55,200 --> 00:09:58,480 Speaker 7: but they're still here. I don't where I think the 187 00:09:58,520 --> 00:10:00,960 Speaker 7: immigration stuff. If immigration it was a big factory, you'd 188 00:10:00,960 --> 00:10:04,120 Speaker 7: be seeing shortages and you might see some in you know, 189 00:10:04,200 --> 00:10:07,680 Speaker 7: some industries. But like I pointed out that if you 190 00:10:07,760 --> 00:10:13,800 Speaker 7: look at the new college graduate unemployment rate, it's seven percent, it's. 191 00:10:13,800 --> 00:10:15,920 Speaker 6: Much higher than it has These are not. 192 00:10:15,960 --> 00:10:20,400 Speaker 7: Jobs are being opened up because immigrants are not coming in. 193 00:10:21,240 --> 00:10:23,320 Speaker 7: That it should be just the opposite, if immigrants are 194 00:10:23,400 --> 00:10:25,719 Speaker 7: leaving and these jobs are open, and then the ounemployment 195 00:10:25,760 --> 00:10:27,880 Speaker 7: right should go the other way. So that unemployment rate, 196 00:10:27,920 --> 00:10:29,960 Speaker 7: to me, is telling me the immigration is not the 197 00:10:30,000 --> 00:10:30,760 Speaker 7: source of the problem. 198 00:10:31,040 --> 00:10:32,000 Speaker 6: Firms are just. 199 00:10:32,400 --> 00:10:35,559 Speaker 7: Holding off on hiring decisions even if their earnings are 200 00:10:35,559 --> 00:10:36,000 Speaker 7: doing well. 201 00:10:36,080 --> 00:10:38,199 Speaker 6: That's That's just what I'm saying they're doing on the 202 00:10:38,240 --> 00:10:38,679 Speaker 6: labor side. 203 00:10:38,720 --> 00:10:40,160 Speaker 3: I wanted to sign as a mutual friend of Oance. 204 00:10:40,200 --> 00:10:41,760 Speaker 2: That feels like he's missing out this morning, so I 205 00:10:41,760 --> 00:10:42,880 Speaker 2: wanted to catch show with you as well. 206 00:10:42,960 --> 00:10:45,120 Speaker 7: Now he's out Victor Idom always having a good time, 207 00:10:45,200 --> 00:10:45,640 Speaker 7: isn't it. 208 00:10:45,760 --> 00:10:47,640 Speaker 3: My McKay joined us now, Good one to Mike. 209 00:10:50,040 --> 00:10:52,439 Speaker 8: Good morning John, and good morning Governor Waller. I would say, 210 00:10:52,480 --> 00:10:54,319 Speaker 8: I'm sorry I'm not there with you, But I bet 211 00:10:54,400 --> 00:10:56,200 Speaker 8: you're sorry you're not here with me. I know you 212 00:10:56,320 --> 00:10:56,640 Speaker 8: got it. 213 00:10:57,000 --> 00:10:58,800 Speaker 6: I've been there before. It's a nice place. 214 00:11:01,559 --> 00:11:03,680 Speaker 8: You've made the case now a couple of times for 215 00:11:03,920 --> 00:11:07,559 Speaker 8: a July rate cut, But how committed are you? Are 216 00:11:07,559 --> 00:11:10,400 Speaker 8: you willing to dissent at this meeting if the majority 217 00:11:10,480 --> 00:11:11,200 Speaker 8: votes the other way. 218 00:11:11,880 --> 00:11:14,440 Speaker 7: Well, I never want to commit to an action before 219 00:11:14,480 --> 00:11:17,440 Speaker 7: the meeting. Otherwise, if everybody committed before, you don't even 220 00:11:17,440 --> 00:11:20,520 Speaker 7: need to have the meeting have a discussion. So the 221 00:11:20,559 --> 00:11:22,760 Speaker 7: goal is to always go to the meeting, sit down, 222 00:11:22,960 --> 00:11:24,000 Speaker 7: listen to all sides. 223 00:11:24,679 --> 00:11:26,320 Speaker 6: People will try to convince me of their view. 224 00:11:26,360 --> 00:11:28,800 Speaker 7: I'll try to convince some of my views, and in 225 00:11:28,920 --> 00:11:30,760 Speaker 7: the end of the day, you make the decisions on 226 00:11:30,800 --> 00:11:34,480 Speaker 7: what you think is the right outcome and the right data, 227 00:11:35,360 --> 00:11:37,439 Speaker 7: how the data is coming in and right now I 228 00:11:37,520 --> 00:11:39,400 Speaker 7: laid out my case last I don't think I could 229 00:11:39,400 --> 00:11:42,200 Speaker 7: be any more clear, I hope, as to what my 230 00:11:42,240 --> 00:11:44,760 Speaker 7: position is and why I think we need to do this. 231 00:11:45,000 --> 00:11:47,200 Speaker 7: It's just how I read the data and how I 232 00:11:47,240 --> 00:11:49,880 Speaker 7: think about going forward. How you respond to anything that 233 00:11:49,920 --> 00:11:50,920 Speaker 7: involves tariffs. 234 00:11:53,880 --> 00:11:56,719 Speaker 8: There's a lot of politics in this decision coming up, 235 00:11:58,000 --> 00:12:01,960 Speaker 8: more than usual, and I'm wondering. Governor Bowman has also 236 00:12:02,080 --> 00:12:05,480 Speaker 8: suggested she would prefer a rate cut in July. If 237 00:12:05,520 --> 00:12:08,480 Speaker 8: two of you vote for a rate cut, if two 238 00:12:08,480 --> 00:12:10,840 Speaker 8: of you were to descend, would you worry about the 239 00:12:10,880 --> 00:12:12,040 Speaker 8: market reaction to that? 240 00:12:13,200 --> 00:12:13,440 Speaker 6: You know. 241 00:12:13,559 --> 00:12:15,400 Speaker 7: One of the things that has always bothered me since 242 00:12:15,400 --> 00:12:17,600 Speaker 7: I took this job is the criticism that we are 243 00:12:17,679 --> 00:12:20,760 Speaker 7: nothing but group think. All the meanings are the same, 244 00:12:20,920 --> 00:12:25,160 Speaker 7: nobody does sense, nobody does anything, And I think this 245 00:12:25,240 --> 00:12:27,360 Speaker 7: is healthy. I think this is a turning point in 246 00:12:27,400 --> 00:12:30,120 Speaker 7: the way we want to think about policy. Some people 247 00:12:30,160 --> 00:12:32,200 Speaker 7: don't want to cut, some do want to cut, but 248 00:12:32,800 --> 00:12:36,280 Speaker 7: coming out and making the case either side, that's good 249 00:12:36,320 --> 00:12:38,800 Speaker 7: healthy debate. Otherwise, if we're always going to do the same, 250 00:12:38,880 --> 00:12:40,880 Speaker 7: the joke is, why don't you just have one person 251 00:12:40,920 --> 00:12:43,720 Speaker 7: set policy and some of the other eighteen FMC members home. 252 00:12:44,320 --> 00:12:46,000 Speaker 7: So this is healthy. I think this is what you 253 00:12:46,040 --> 00:12:47,840 Speaker 7: want to see in a democracy. You want to see 254 00:12:47,880 --> 00:12:51,880 Speaker 7: policy makers have serious, open discussion about where policies should go. 255 00:12:52,120 --> 00:12:54,520 Speaker 7: It doesn't mean anything about politics or anything else. Is 256 00:12:54,800 --> 00:12:57,520 Speaker 7: make the economic argument and then see if you can 257 00:12:57,520 --> 00:12:58,880 Speaker 7: convince others to go along with you. 258 00:12:59,000 --> 00:12:59,920 Speaker 6: And that's all I'm trying to do. 259 00:13:00,000 --> 00:13:02,679 Speaker 2: We totally agree with you for the re code. We 260 00:13:02,720 --> 00:13:04,000 Speaker 2: was sick of the grief think and it's good to 261 00:13:04,000 --> 00:13:06,280 Speaker 2: have descent, you know. Mike essentially is asking if you 262 00:13:06,320 --> 00:13:08,160 Speaker 2: will descent at the end of this month. Is there 263 00:13:08,240 --> 00:13:10,559 Speaker 2: value and dissentic on the f web site. 264 00:13:11,120 --> 00:13:15,160 Speaker 7: Well, I mean it's it's often the case that you dissent, 265 00:13:15,320 --> 00:13:17,640 Speaker 7: if you make it very clear you think, at this 266 00:13:17,720 --> 00:13:19,800 Speaker 7: moment in time, this is an important thing to do. 267 00:13:20,520 --> 00:13:22,319 Speaker 7: If you were to go in and do kind of 268 00:13:22,400 --> 00:13:25,240 Speaker 7: a jihadist I'm gonna dissent at every single meeting no 269 00:13:25,280 --> 00:13:26,200 Speaker 7: matter what happens. 270 00:13:26,280 --> 00:13:28,480 Speaker 6: Then you don't even have to show up. Everybody knows 271 00:13:28,520 --> 00:13:29,200 Speaker 6: what you're gonna do. 272 00:13:29,880 --> 00:13:34,200 Speaker 7: So it is important to make sure that if you dissent, 273 00:13:34,400 --> 00:13:37,960 Speaker 7: you do it carefully and you have the right reasons, 274 00:13:38,320 --> 00:13:41,600 Speaker 7: and it's not gonna turn into a serial dissenting potential case. 275 00:13:42,080 --> 00:13:44,920 Speaker 7: I mean, that's how I take my job seriously and responsibly, 276 00:13:45,120 --> 00:13:47,640 Speaker 7: so I only would think about doing this. I dissented 277 00:13:47,640 --> 00:13:50,040 Speaker 7: on the balance sheet slowed down earlier this year because 278 00:13:50,080 --> 00:13:54,079 Speaker 7: I felt like that was not needed. And that's kind 279 00:13:54,120 --> 00:13:55,319 Speaker 7: of the situation we're in now. 280 00:13:59,360 --> 00:14:03,920 Speaker 8: Uh, if you do cut, the markets will go one way. 281 00:14:03,960 --> 00:14:08,920 Speaker 8: If you don't, they'll go another. Perhaps, are how critical 282 00:14:09,040 --> 00:14:12,320 Speaker 8: is it to get to a rate cut fairly quickly? 283 00:14:12,360 --> 00:14:14,800 Speaker 8: You've mentioned the danger to the labor market, But if 284 00:14:14,800 --> 00:14:17,400 Speaker 8: you do wait till September, is that going to be 285 00:14:17,480 --> 00:14:17,960 Speaker 8: too late? 286 00:14:18,600 --> 00:14:21,720 Speaker 7: Well that's kind of the debate. What does it mean 287 00:14:21,840 --> 00:14:25,800 Speaker 7: to wait six weeks. Is it that critical? And the 288 00:14:25,880 --> 00:14:28,360 Speaker 7: answer is probably not. It could be, but it's also 289 00:14:28,400 --> 00:14:31,920 Speaker 7: the reverse. Why wait till September? If it's just six weeks, 290 00:14:32,560 --> 00:14:35,680 Speaker 7: that's exactly the thing. It doesn't kind of matter. Just 291 00:14:35,720 --> 00:14:37,960 Speaker 7: start thinking about do I want to wait and risk 292 00:14:38,040 --> 00:14:40,400 Speaker 7: something happening. This is what we saw last summer. By 293 00:14:40,440 --> 00:14:44,120 Speaker 7: the way we left July, we left rates and then boom, 294 00:14:44,160 --> 00:14:48,360 Speaker 7: we got a very weak bad labor market. Reports and 295 00:14:48,480 --> 00:14:51,960 Speaker 7: unemployment rate jumped two tenths. Payrolls were way down from 296 00:14:51,960 --> 00:14:54,760 Speaker 7: where they were, and people were screaming at us last August. 297 00:14:54,800 --> 00:14:58,040 Speaker 7: You guys should have cut in July. So one month? 298 00:14:58,120 --> 00:15:01,080 Speaker 7: Can it always is one month? Just remember that it's 299 00:15:01,120 --> 00:15:03,120 Speaker 7: just one month. But we live in a world in 300 00:15:03,160 --> 00:15:05,280 Speaker 7: which we have to respond to real time data to 301 00:15:05,360 --> 00:15:07,840 Speaker 7: kind of sense of where the economy is going. And 302 00:15:08,080 --> 00:15:10,920 Speaker 7: I've always said, if you worry about long and variable lags, 303 00:15:10,920 --> 00:15:14,040 Speaker 7: which everybody always talks about, the whole point of that is. 304 00:15:14,000 --> 00:15:16,560 Speaker 6: To get ahead of it, not wait for it to happen. 305 00:15:16,280 --> 00:15:19,640 Speaker 7: And then hike a policy action that takes quarters or 306 00:15:19,680 --> 00:15:21,320 Speaker 7: months down the road to actually. 307 00:15:21,040 --> 00:15:21,800 Speaker 6: Have any impact. 308 00:15:21,960 --> 00:15:24,240 Speaker 2: The new worries tariffs, We've just had a six minute 309 00:15:24,240 --> 00:15:26,120 Speaker 2: conversation with you at that month. As your policy if 310 00:15:26,160 --> 00:15:27,640 Speaker 2: built a case for lot of interest rights and no 311 00:15:27,640 --> 00:15:30,720 Speaker 2: one's talked about trade or inflation. Two assumptions in your 312 00:15:30,720 --> 00:15:33,520 Speaker 2: speech yesterday, and I think they are important assumptions. A 313 00:15:33,600 --> 00:15:36,400 Speaker 2: large share of tariff increases won't be past threates consumers. 314 00:15:37,280 --> 00:15:40,320 Speaker 2: Any increase would fink over the next yeeroside. What data 315 00:15:40,400 --> 00:15:41,960 Speaker 2: underpinds that conclusion. 316 00:15:42,520 --> 00:15:46,120 Speaker 7: Well, one, it's just first, it's just economic theory. So 317 00:15:46,400 --> 00:15:48,560 Speaker 7: you put on a care as long as it's a 318 00:15:48,560 --> 00:15:52,000 Speaker 7: one time tariff, and that's it. That's a one time 319 00:15:52,000 --> 00:15:54,160 Speaker 7: price effect. I mean, this is economic theory. You could 320 00:15:54,240 --> 00:15:58,880 Speaker 7: not get in any serious economic model persistent inflation from that. 321 00:15:59,240 --> 00:16:02,720 Speaker 7: You would have to look up some other amplification mechanisms, 322 00:16:02,760 --> 00:16:04,760 Speaker 7: and that's what people talk about. Wages will start going 323 00:16:04,840 --> 00:16:06,400 Speaker 7: up and everything will get out of control. 324 00:16:06,920 --> 00:16:08,200 Speaker 6: You're not seeing that at all. 325 00:16:08,320 --> 00:16:11,200 Speaker 7: This is just not those kind of amplification mechanism there. 326 00:16:11,280 --> 00:16:17,280 Speaker 7: Wage price spirals aren't happening. Tariffs are attacks, and in 327 00:16:17,360 --> 00:16:20,640 Speaker 7: public finance you learn that you may levy attacks on 328 00:16:20,680 --> 00:16:22,520 Speaker 7: a firm, but who bears the incidents? 329 00:16:22,880 --> 00:16:24,400 Speaker 6: The burden of that tax. 330 00:16:24,520 --> 00:16:27,920 Speaker 7: Can be a group of people or one person, not 331 00:16:28,120 --> 00:16:30,400 Speaker 7: shore of the firm. So this is what I've heard 332 00:16:30,440 --> 00:16:32,680 Speaker 7: from a lot of firms. If there's a ten percent tax, 333 00:16:33,120 --> 00:16:35,960 Speaker 7: they'll force their suppliers to eat some of that cost 334 00:16:36,120 --> 00:16:38,680 Speaker 7: workers meet some of that costs in terms of less 335 00:16:38,760 --> 00:16:41,280 Speaker 7: hiring and things like that. The firm will take it 336 00:16:41,320 --> 00:16:44,480 Speaker 7: out of their profit margins, and then lastly, some of 337 00:16:44,520 --> 00:16:47,120 Speaker 7: it will get passed on. And as I mentioned last night, 338 00:16:47,120 --> 00:16:49,560 Speaker 7: I've heard this for months now. Like the rule is 339 00:16:49,640 --> 00:16:52,120 Speaker 7: ten percent, it's sorefully rule. If i'mb is a third 340 00:16:52,160 --> 00:16:55,560 Speaker 7: to third a third suppliers of late to third firms 341 00:16:55,680 --> 00:16:57,400 Speaker 7: lead to third consumer is going to eat a third 342 00:16:57,400 --> 00:16:59,760 Speaker 7: of that tariff. So if you eat a third of it, 343 00:16:59,800 --> 00:17:02,200 Speaker 7: and that's ten percent, like I've been arguing, this is 344 00:17:02,240 --> 00:17:06,280 Speaker 7: like three tenths of a in three basic three tenths 345 00:17:06,320 --> 00:17:09,840 Speaker 7: on the inflation rate for a few months, and that's it, 346 00:17:10,680 --> 00:17:13,080 Speaker 7: and it'll persist. If you do twelve month over twelve month, 347 00:17:13,160 --> 00:17:15,440 Speaker 7: that base effect will not go away for a while 348 00:17:15,440 --> 00:17:17,760 Speaker 7: and then it'll just drop off a cliff. So that's 349 00:17:17,800 --> 00:17:19,199 Speaker 7: why I've been arguing, you want to look at like 350 00:17:19,240 --> 00:17:22,520 Speaker 7: three months and six months to see if these tariff effects. 351 00:17:22,640 --> 00:17:25,159 Speaker 6: Pop up, and then go away, and so that's more 352 00:17:25,160 --> 00:17:26,560 Speaker 6: than critical. We're looking at twelve month. 353 00:17:29,960 --> 00:17:32,520 Speaker 8: Yes, but the way the president is putting these tariffs 354 00:17:32,560 --> 00:17:36,240 Speaker 8: on might not match up with theory. Chris, the smooth 355 00:17:36,280 --> 00:17:38,919 Speaker 8: hol attacks was passed and came into effect on a 356 00:17:38,920 --> 00:17:43,120 Speaker 8: certain date. The president is not yet put on most 357 00:17:43,160 --> 00:17:45,439 Speaker 8: of these tarffs they're in. Theory is still coming and 358 00:17:45,480 --> 00:17:47,960 Speaker 8: we still haven't seen the Section two thirty two tariffs 359 00:17:47,960 --> 00:17:50,280 Speaker 8: for the most part, the National defense tariffs that he 360 00:17:50,280 --> 00:17:53,560 Speaker 8: wants to put on semiconductors and pharmaceuticals, et cetera. So 361 00:17:53,600 --> 00:17:57,000 Speaker 8: if the process is stretched out, consumers could be hit 362 00:17:57,160 --> 00:18:00,800 Speaker 8: by a series an ongoing series of tariff increases. And 363 00:18:00,840 --> 00:18:03,639 Speaker 8: given what they've just been through, isn't there danger that 364 00:18:03,760 --> 00:18:05,960 Speaker 8: inflation psychology starts to seep in? 365 00:18:06,600 --> 00:18:07,960 Speaker 6: Well, that's exactly the point. 366 00:18:08,560 --> 00:18:10,520 Speaker 7: All my example has been is if you put the 367 00:18:10,560 --> 00:18:13,119 Speaker 7: ten percent uniform tariff on and keep it roughly in 368 00:18:13,200 --> 00:18:16,760 Speaker 7: that range, than what I've described as will happen. If 369 00:18:16,800 --> 00:18:20,480 Speaker 7: there's constantly a sequence of higher and higher and higher tariffs, 370 00:18:20,520 --> 00:18:23,719 Speaker 7: then you are going to get this rolling potential impact 371 00:18:23,800 --> 00:18:25,399 Speaker 7: on prices. 372 00:18:24,720 --> 00:18:26,160 Speaker 6: That's true. 373 00:18:27,000 --> 00:18:30,120 Speaker 7: If it's still just a question of delaying it, that 374 00:18:30,160 --> 00:18:32,879 Speaker 7: doesn't change my argument. Whether you see the spike in 375 00:18:32,960 --> 00:18:36,680 Speaker 7: July or it happens in June or Army, August or September. 376 00:18:37,240 --> 00:18:40,680 Speaker 7: When it happens is irrelevant for the economics. 377 00:18:40,720 --> 00:18:42,560 Speaker 6: That's a non start of an argument. 378 00:18:43,359 --> 00:18:46,280 Speaker 7: Firms could also just spread it out in smaller increments 379 00:18:46,280 --> 00:18:49,000 Speaker 7: over several months. The total effects still ends of being 380 00:18:49,000 --> 00:18:51,480 Speaker 7: the same. They just get there in a later fashion 381 00:18:51,520 --> 00:18:54,359 Speaker 7: and it'll be smaller amounts. So the bigger thing is 382 00:18:54,359 --> 00:18:57,000 Speaker 7: if we just continually get another wave of tariffs, another 383 00:18:57,000 --> 00:18:59,800 Speaker 7: wave of tariffs and other waves of tariffs, that's when 384 00:18:59,800 --> 00:19:02,600 Speaker 7: things has become more problematic thinking about what's going to 385 00:19:02,640 --> 00:19:03,480 Speaker 7: happen with the inflation. 386 00:19:03,760 --> 00:19:05,679 Speaker 2: You don't think the feder was a should wait, I 387 00:19:05,720 --> 00:19:07,520 Speaker 2: just want to talk about the experience of last year. 388 00:19:07,680 --> 00:19:09,639 Speaker 2: I think LESA has done a fantastic job of covering 389 00:19:09,640 --> 00:19:12,240 Speaker 2: this over the last six seven eight months. The move 390 00:19:12,280 --> 00:19:14,720 Speaker 2: we saw last year one hundred basis point reduction in 391 00:19:14,720 --> 00:19:17,040 Speaker 2: interest rates on Fed funds, and then we saw a 392 00:19:17,080 --> 00:19:20,320 Speaker 2: corresponding move one hundred basis points higher at the long 393 00:19:20,400 --> 00:19:23,800 Speaker 2: end of the yield curve. Yields down did not happen. 394 00:19:23,960 --> 00:19:26,280 Speaker 2: It was yields up and mortgage costs up as well. 395 00:19:26,359 --> 00:19:29,040 Speaker 2: How do you think one informed the other and how 396 00:19:29,119 --> 00:19:31,120 Speaker 2: might that shape your approach to kind of interest rates 397 00:19:31,119 --> 00:19:32,080 Speaker 2: this time around? 398 00:19:32,320 --> 00:19:34,240 Speaker 7: Well, I think last September there was a lot of 399 00:19:34,240 --> 00:19:37,960 Speaker 7: Remember the long term rates were going down through August 400 00:19:38,080 --> 00:19:42,280 Speaker 7: in early September. This was not any contradiction of what 401 00:19:42,320 --> 00:19:45,320 Speaker 7: we were doing. It's just after the September meeting that 402 00:19:45,440 --> 00:19:48,000 Speaker 7: data just came back and the opposite way growth was 403 00:19:48,240 --> 00:19:51,840 Speaker 7: productivity was employment suddenly took back off, and then you 404 00:19:51,920 --> 00:19:55,760 Speaker 7: have real growth expectations being much higher. We were seeing 405 00:19:55,760 --> 00:19:58,240 Speaker 7: productivity growth and GDP growth are close to three percent. 406 00:19:58,880 --> 00:20:01,399 Speaker 7: So in that case, long rates go up anyway, So 407 00:20:01,480 --> 00:20:04,320 Speaker 7: it's not necessarily there was some counter reaction to what 408 00:20:04,359 --> 00:20:07,880 Speaker 7: we were doing. I never saw inflation expectations adjust. It 409 00:20:07,920 --> 00:20:08,440 Speaker 7: caused all that. 410 00:20:08,520 --> 00:20:10,440 Speaker 2: You don't think it was a market questioning you'll commitment 411 00:20:10,440 --> 00:20:11,399 Speaker 2: to the inflation mandate. 412 00:20:11,640 --> 00:20:13,320 Speaker 7: If it would have been, you're just seeing in inflation 413 00:20:13,440 --> 00:20:16,520 Speaker 7: expectations in the market, not the Michigan thing. 414 00:20:17,160 --> 00:20:18,240 Speaker 6: But we didn't see it. 415 00:20:18,720 --> 00:20:22,120 Speaker 7: I mean, inflation expectations stayed praily anchored all through this rise. 416 00:20:22,200 --> 00:20:24,600 Speaker 7: So I think the increase the longer it was just 417 00:20:24,720 --> 00:20:27,359 Speaker 7: all the data was coming in for a better, stronger economy. 418 00:20:27,560 --> 00:20:29,440 Speaker 7: Then we thought it was going to be in September. 419 00:20:29,640 --> 00:20:32,240 Speaker 7: That's fine with me, you know. I sometimes you're going 420 00:20:32,320 --> 00:20:34,520 Speaker 7: to do these things taking a shot that I want 421 00:20:34,560 --> 00:20:35,520 Speaker 7: to make sure we don't have. 422 00:20:35,480 --> 00:20:36,840 Speaker 6: A hard landing. 423 00:20:37,440 --> 00:20:40,200 Speaker 7: And as I said, with any kind of an insurance cut, 424 00:20:40,400 --> 00:20:41,960 Speaker 7: sometimes you don't need the insurance. 425 00:20:42,280 --> 00:20:43,320 Speaker 6: It didn't work. 426 00:20:43,119 --> 00:20:44,840 Speaker 7: Out, But that doesn't mean you go back and say, oh, 427 00:20:44,840 --> 00:20:46,280 Speaker 7: that was a stupid decision. 428 00:20:45,960 --> 00:20:48,919 Speaker 2: To make market bysed expectations of inflation. Let's say on 429 00:20:49,000 --> 00:20:51,760 Speaker 2: this there are clear and obvious threats to the central 430 00:20:51,760 --> 00:20:55,199 Speaker 2: banks independence right now, every single down this program, we're 431 00:20:55,240 --> 00:20:58,080 Speaker 2: quoting the President, quoting the chairman too late and govern 432 00:20:58,119 --> 00:21:00,720 Speaker 2: off the lower interest rights. Kaway that you and I 433 00:21:00,720 --> 00:21:04,480 Speaker 2: can have this conversation without addressing those those coasts directly 434 00:21:04,680 --> 00:21:07,880 Speaker 2: is to think about what's happening with inflection expectations. Did 435 00:21:07,880 --> 00:21:12,879 Speaker 2: these threats threats into deanca market based inflection expectations? And 436 00:21:12,880 --> 00:21:16,160 Speaker 2: it's not something even the Committee might become increasingly sensitive 437 00:21:16,160 --> 00:21:17,000 Speaker 2: too in the months to come. 438 00:21:18,000 --> 00:21:20,600 Speaker 7: Well, like I said, I look at the after the 439 00:21:20,640 --> 00:21:24,120 Speaker 7: tariffs coming on, everybody was worried about de anchoring the expectations, 440 00:21:24,160 --> 00:21:26,840 Speaker 7: particularly after some of these Michigan surveys came out. When 441 00:21:26,880 --> 00:21:30,160 Speaker 7: I always look at the market based expectation because money 442 00:21:30,240 --> 00:21:33,080 Speaker 7: people have money in the game, firms are making decisions 443 00:21:33,200 --> 00:21:35,800 Speaker 7: or what they're cheap economists are saying, and if those 444 00:21:35,880 --> 00:21:37,960 Speaker 7: things are wrong, they're gonna lose a lot of money. 445 00:21:38,200 --> 00:21:39,520 Speaker 6: So I've always paid more attention. 446 00:21:39,760 --> 00:21:43,080 Speaker 7: I haven't seen much in the way of market expectations 447 00:21:43,119 --> 00:21:45,760 Speaker 7: being unanchored in any ways you want to measure them 448 00:21:45,880 --> 00:21:46,560 Speaker 7: any forwarder. 449 00:21:46,760 --> 00:21:46,920 Speaker 6: Now. 450 00:21:46,920 --> 00:21:48,560 Speaker 7: In the near term, of course, they might go up 451 00:21:48,600 --> 00:21:51,520 Speaker 7: because you would see inflation in the short term, but 452 00:21:51,560 --> 00:21:54,919 Speaker 7: in the longer term ones I'm not seeing it. So 453 00:21:55,080 --> 00:21:57,640 Speaker 7: either the market is just dismissing all of this as 454 00:21:57,800 --> 00:22:01,360 Speaker 7: chattering noise, or at some point is something happens such 455 00:22:01,440 --> 00:22:03,760 Speaker 7: that it becomes much more serious than you might see 456 00:22:03,760 --> 00:22:07,840 Speaker 7: a discreete jump, and then that's gonna be a problem 457 00:22:07,840 --> 00:22:08,480 Speaker 7: for everybody. 458 00:22:12,359 --> 00:22:15,320 Speaker 8: One of the questions that we get all the time, Chris, 459 00:22:15,560 --> 00:22:18,200 Speaker 8: from people on Wall Street is or one of the 460 00:22:18,720 --> 00:22:21,639 Speaker 8: posits they make is that all this criticism of the 461 00:22:21,680 --> 00:22:25,480 Speaker 8: FED is hurting FED credibility, and that the next chairman 462 00:22:25,600 --> 00:22:27,320 Speaker 8: is going to have a tough job because there are 463 00:22:27,359 --> 00:22:31,439 Speaker 8: going to be expectations for the next chairman set by 464 00:22:31,480 --> 00:22:35,000 Speaker 8: the White House rather than by the economy. Do you 465 00:22:35,240 --> 00:22:38,480 Speaker 8: feel that inside the building now? 466 00:22:38,680 --> 00:22:40,760 Speaker 6: To be absolutely honest, we just do our job. 467 00:22:40,840 --> 00:22:44,600 Speaker 7: Every day I go in, I just focus on my 468 00:22:45,040 --> 00:22:47,680 Speaker 7: work on monetary policy, payments. 469 00:22:47,240 --> 00:22:49,840 Speaker 6: And oversight of the reserve banks. That's what I do. 470 00:22:50,080 --> 00:22:52,480 Speaker 7: I let this stuff go and then just try to 471 00:22:52,520 --> 00:22:55,320 Speaker 7: focus on my job. And I think that's how all 472 00:22:55,359 --> 00:22:58,080 Speaker 7: of us are proceeding with this. I mean, at the 473 00:22:58,160 --> 00:23:00,440 Speaker 7: end of the day, the president winning whoever they you're 474 00:23:00,480 --> 00:23:02,280 Speaker 7: going to have to have somebody has credibility with the 475 00:23:02,320 --> 00:23:04,960 Speaker 7: markets or you will see as Jonathan was just talking about, 476 00:23:04,960 --> 00:23:07,760 Speaker 7: and you're going to see inflation expectations bike. You will 477 00:23:07,800 --> 00:23:10,640 Speaker 7: not get lower interest rates, you will get higher interest rates. 478 00:23:10,800 --> 00:23:11,640 Speaker 6: This is well known. 479 00:23:11,760 --> 00:23:14,560 Speaker 7: We've seen this everywhere around the world when this happens, 480 00:23:15,040 --> 00:23:18,440 Speaker 7: and I know Scott Doson knows this, So this is 481 00:23:18,480 --> 00:23:21,560 Speaker 7: not something that is lost on anybody. 482 00:23:21,840 --> 00:23:24,000 Speaker 2: You've been nominated by this president for the seat on 483 00:23:24,040 --> 00:23:26,679 Speaker 2: the board. Yes, you were a previously director of research 484 00:23:26,680 --> 00:23:28,920 Speaker 2: for Jim Bill out White back then. Is it a 485 00:23:28,960 --> 00:23:31,720 Speaker 2: position you would like is it something you would like 486 00:23:31,760 --> 00:23:33,040 Speaker 2: to do in the future. 487 00:23:33,480 --> 00:23:36,080 Speaker 7: Look in twenty nineteen, the President contact me and say 488 00:23:36,119 --> 00:23:36,680 Speaker 7: would you serve? 489 00:23:36,760 --> 00:23:38,879 Speaker 6: And I said yes. If the President contacted me and 490 00:23:38,920 --> 00:23:40,440 Speaker 6: so I want you to serve, I would do it. 491 00:23:41,560 --> 00:23:42,919 Speaker 6: But he's not contacting me. 492 00:23:43,720 --> 00:23:44,520 Speaker 3: What say he does. 493 00:23:46,280 --> 00:23:48,160 Speaker 7: If he says, Chris, I want you to do the job, 494 00:23:48,200 --> 00:23:49,040 Speaker 7: I'll say yes. 495 00:23:50,040 --> 00:23:52,400 Speaker 6: But he's not talking to me. So that's it. 496 00:23:52,560 --> 00:23:56,920 Speaker 7: That much hypothetical that. 497 00:23:55,400 --> 00:23:57,359 Speaker 3: That might change. It's going to see it. 498 00:23:57,520 --> 00:23:59,840 Speaker 2: We appreciate your time, all right, I've been very generous 499 00:23:59,840 --> 00:24:02,320 Speaker 2: with Thank you very much. The Federal Reserve governor there, 500 00:24:02,640 --> 00:24:05,160 Speaker 2: Christopher Waller, Mike McKee, thanks as well to you, sir. 501 00:24:05,440 --> 00:24:19,560 Speaker 2: As always, Congress passing the first federal legislation to regulate 502 00:24:19,600 --> 00:24:22,280 Speaker 2: stable coins in a major win for the crypto market. 503 00:24:22,400 --> 00:24:24,040 Speaker 2: Joining us now, I'm really pleased to say, for a 504 00:24:24,080 --> 00:24:26,679 Speaker 2: first time here on Bloomberg TV, on Bloomberg surveyment's the 505 00:24:26,680 --> 00:24:28,320 Speaker 2: SEC Chairman, Paul Adkins. 506 00:24:28,359 --> 00:24:30,439 Speaker 3: Chair Atkins. Welcome to the program, sir. It's good to 507 00:24:30,440 --> 00:24:30,760 Speaker 3: see it. 508 00:24:31,200 --> 00:24:33,119 Speaker 6: Well, good to see you. Thank you very much for 509 00:24:33,119 --> 00:24:33,600 Speaker 6: having me. 510 00:24:33,520 --> 00:24:34,440 Speaker 3: Well, thank you for being here. 511 00:24:34,480 --> 00:24:36,000 Speaker 2: Before we get into it, I wanted to offer you 512 00:24:36,080 --> 00:24:38,879 Speaker 2: the opportunity, sir, to talk about your philosophy in this 513 00:24:39,000 --> 00:24:41,639 Speaker 2: seed versus what came before you and the difference maybe 514 00:24:41,640 --> 00:24:44,480 Speaker 2: between deregulation and just innovation. 515 00:24:46,920 --> 00:24:48,120 Speaker 6: Well, well, thank you very much. 516 00:24:48,440 --> 00:24:53,040 Speaker 9: We are out to, you know, obviously, change direction at 517 00:24:53,040 --> 00:24:54,920 Speaker 9: the SEC, and I think we've already done that here 518 00:24:54,960 --> 00:24:57,040 Speaker 9: in my first two and a half or so. 519 00:24:57,440 --> 00:25:00,600 Speaker 6: Months of the agency. But we're moving away from. 520 00:25:02,040 --> 00:25:06,240 Speaker 9: Regulation through enforcement and uncertainty in the markets, especially with 521 00:25:06,320 --> 00:25:10,320 Speaker 9: respect to cryptocurrencies and digital assets in general, and we're 522 00:25:10,359 --> 00:25:15,080 Speaker 9: looking to set firm clear rules of the road for 523 00:25:15,240 --> 00:25:19,240 Speaker 9: people who are operating in that environment so that innovators 524 00:25:19,320 --> 00:25:23,520 Speaker 9: can innovate. They can rely on their advisors to tell them, 525 00:25:23,720 --> 00:25:26,080 Speaker 9: you know, which is the right direction and how they 526 00:25:26,080 --> 00:25:26,720 Speaker 9: can build. 527 00:25:26,520 --> 00:25:27,359 Speaker 6: On solid ground. 528 00:25:27,800 --> 00:25:33,359 Speaker 1: Regulators, though, can step in without explicit action from Congress. 529 00:25:33,400 --> 00:25:35,960 Speaker 1: So when it comes to cryptocurrencies in the SEC, what 530 00:25:36,080 --> 00:25:36,960 Speaker 1: actually comes next? 531 00:25:36,960 --> 00:25:37,760 Speaker 6: What are your plans? 532 00:25:39,440 --> 00:25:44,000 Speaker 9: Well, so even before I got to the SEC, Hester Purse, 533 00:25:44,040 --> 00:25:47,399 Speaker 9: who's one of the commissioners and she used to be 534 00:25:47,560 --> 00:25:51,760 Speaker 9: my counsel when I was a commissioner back in. 535 00:25:51,240 --> 00:25:53,160 Speaker 6: To one thousand and two to two thousand and eight, 536 00:25:54,520 --> 00:25:54,920 Speaker 6: was in. 537 00:25:54,880 --> 00:25:58,120 Speaker 9: Charge of a crypto task force that we're calling it, 538 00:25:58,440 --> 00:26:00,000 Speaker 9: and they are focusing on. 539 00:26:01,400 --> 00:26:03,800 Speaker 6: Making clear rules for the industry. 540 00:26:03,880 --> 00:26:08,160 Speaker 9: So for example, things like mean coins and stable coins 541 00:26:08,200 --> 00:26:11,560 Speaker 9: that was just the subject of the bill that was 542 00:26:12,040 --> 00:26:17,600 Speaker 9: passed yesterday are not securities, and before that was not 543 00:26:17,720 --> 00:26:21,400 Speaker 9: necessarily clear. And so that's an example of how we're 544 00:26:21,400 --> 00:26:24,679 Speaker 9: trying to put people at ease in the marketplace so 545 00:26:24,720 --> 00:26:27,879 Speaker 9: that they can innovate and they can move forward with 546 00:26:27,960 --> 00:26:31,200 Speaker 9: their plans and not have to look over their shoulder. 547 00:26:31,359 --> 00:26:34,120 Speaker 1: When you were talking to reporters yesterday after the passing 548 00:26:34,160 --> 00:26:36,040 Speaker 1: of this legislation, I believe you'll be at the White 549 00:26:36,040 --> 00:26:38,400 Speaker 1: House today with the President when he signs it. You said, 550 00:26:38,440 --> 00:26:42,800 Speaker 1: the SEC is considering a quote innovative exemption from regulations 551 00:26:42,840 --> 00:26:47,960 Speaker 1: to incentifize tokenization. What does that exactly mean innovated exemption 552 00:26:48,440 --> 00:26:50,359 Speaker 1: and how long does this process take? 553 00:26:52,240 --> 00:26:54,240 Speaker 9: Well, it'll be an iterative process. 554 00:26:54,359 --> 00:26:59,680 Speaker 6: And right now we are working on setting forth. 555 00:27:01,040 --> 00:27:06,560 Speaker 9: Different things that can again make it clear for people 556 00:27:06,600 --> 00:27:10,800 Speaker 9: in the marketplace, you know, which way is the true 557 00:27:10,840 --> 00:27:13,440 Speaker 9: north for them. Let's just say so that they don't 558 00:27:13,480 --> 00:27:16,760 Speaker 9: have to worry about falling off the ditch and you know, 559 00:27:16,800 --> 00:27:21,160 Speaker 9: falling into the ditch and getting in trouble with the regulators. 560 00:27:21,200 --> 00:27:23,760 Speaker 9: And so part of that will be working with our 561 00:27:23,840 --> 00:27:28,240 Speaker 9: colleagues of the other regulators and especially the Commodity Futures 562 00:27:28,280 --> 00:27:31,560 Speaker 9: Training Commission. But let's just say that as we go 563 00:27:31,720 --> 00:27:35,000 Speaker 9: forth and as we interact with the marketplace, we've had 564 00:27:35,359 --> 00:27:40,360 Speaker 9: five roundtables now looking at various aspects of the digital 565 00:27:40,359 --> 00:27:44,680 Speaker 9: asset space. So we are working hard at coming up 566 00:27:44,760 --> 00:27:49,359 Speaker 9: with guidance and rules and we'll use every tool in 567 00:27:49,400 --> 00:27:54,600 Speaker 9: our toolbox to help people understand what is you know, 568 00:27:54,600 --> 00:27:55,639 Speaker 9: how to stay out of trouble. 569 00:27:55,680 --> 00:27:58,320 Speaker 5: Basically, Jack's one of the big concern is that a 570 00:27:58,400 --> 00:28:01,120 Speaker 5: number of the stable coin issue are are not going 571 00:28:01,160 --> 00:28:03,919 Speaker 5: to have the sufficient number of hard currency reserves on 572 00:28:04,040 --> 00:28:07,639 Speaker 5: hand to really back those notes in a way that 573 00:28:07,920 --> 00:28:11,320 Speaker 5: is as advertised. How are you prepared to really counter that? 574 00:28:11,480 --> 00:28:14,080 Speaker 5: Is that something that's in your list of concerns? If 575 00:28:14,119 --> 00:28:16,240 Speaker 5: the sec is going to be monitoring. 576 00:28:17,440 --> 00:28:21,639 Speaker 9: Well, one thing that I think the new to be 577 00:28:21,800 --> 00:28:26,000 Speaker 9: signed a bill into law makes clear is that these 578 00:28:26,000 --> 00:28:30,040 Speaker 9: are not securities and the whole it's the banking regulators 579 00:28:30,040 --> 00:28:31,879 Speaker 9: who are going to be looking after them. And I 580 00:28:31,920 --> 00:28:35,280 Speaker 9: think that's appropriate because of the role that stable coins 581 00:28:36,080 --> 00:28:38,520 Speaker 9: play and I think will play in the future. Because 582 00:28:38,800 --> 00:28:43,000 Speaker 9: part of the role promise I think digital of a 583 00:28:43,120 --> 00:28:50,360 Speaker 9: distributed ledger technology is immediate payment as part of the 584 00:28:50,400 --> 00:28:55,040 Speaker 9: process of transactions, so settlement coming down to in effect 585 00:28:55,200 --> 00:28:59,960 Speaker 9: almost heapless zero and to do it on the trade date, 586 00:29:00,160 --> 00:29:03,400 Speaker 9: and that will make things much more efficient in the marketplace, 587 00:29:03,720 --> 00:29:07,600 Speaker 9: save money, reduced to risk in our financial system. 588 00:29:07,720 --> 00:29:10,240 Speaker 6: So this stable coins. 589 00:29:09,840 --> 00:29:12,800 Speaker 9: Are in the realm of the bank regulators and they 590 00:29:12,840 --> 00:29:16,880 Speaker 9: will look after to make sure that there is adequate 591 00:29:16,960 --> 00:29:21,240 Speaker 9: and as advertise, adequate backing. 592 00:29:21,000 --> 00:29:22,080 Speaker 6: To the stable coins. 593 00:29:22,240 --> 00:29:25,320 Speaker 5: Suakins just sort of switching gears a little bit. There's 594 00:29:25,360 --> 00:29:29,000 Speaker 5: been a lot of discussion around Congress and the President 595 00:29:29,120 --> 00:29:32,959 Speaker 5: passing legislation that would open the door for people to 596 00:29:33,000 --> 00:29:35,280 Speaker 5: take their money from the four to one case and 597 00:29:35,320 --> 00:29:38,920 Speaker 5: put it into private assets, in particular private equity. How 598 00:29:38,920 --> 00:29:41,160 Speaker 5: do you plan to oversee and make sure that that's 599 00:29:41,200 --> 00:29:44,200 Speaker 5: done in a way that isn't potentially punitive for people 600 00:29:44,560 --> 00:29:47,120 Speaker 5: who are retiring at ages where they need a lot 601 00:29:47,200 --> 00:29:47,680 Speaker 5: more money for. 602 00:29:47,680 --> 00:29:48,400 Speaker 6: A lot longer. 603 00:29:50,280 --> 00:29:54,800 Speaker 9: Well, on that issue, we've heard a lot of input 604 00:29:55,000 --> 00:29:59,880 Speaker 9: from both the investors who want access to private the 605 00:30:00,040 --> 00:30:03,520 Speaker 9: private markets and to those sorts of products, and obviously 606 00:30:03,560 --> 00:30:08,320 Speaker 9: from the people who are producing the products who are 607 00:30:08,360 --> 00:30:11,240 Speaker 9: about to meet that demand. So but we have to 608 00:30:11,280 --> 00:30:14,040 Speaker 9: do it carefully, I think, because of course the private 609 00:30:14,040 --> 00:30:16,320 Speaker 9: markets are a lot different than the public markets. 610 00:30:17,120 --> 00:30:19,120 Speaker 6: Their liquidity is not the same. 611 00:30:19,200 --> 00:30:22,800 Speaker 9: There are all sorts of things for people who are 612 00:30:22,800 --> 00:30:25,880 Speaker 9: not aware of the rules of the road where they 613 00:30:25,920 --> 00:30:29,720 Speaker 9: could get hurt. And so we will work very closely 614 00:30:29,840 --> 00:30:33,040 Speaker 9: with our counterparts of the Department of Labor who have 615 00:30:33,760 --> 00:30:37,880 Speaker 9: oversighted Ovarissa accounts to make sure that you know that 616 00:30:37,960 --> 00:30:43,400 Speaker 9: we have appropriate guidelines around these various products. And they're 617 00:30:43,440 --> 00:30:47,440 Speaker 9: really for of course long term investment, especially private equity 618 00:30:47,480 --> 00:30:48,320 Speaker 9: and things like that. 619 00:30:48,760 --> 00:30:51,520 Speaker 6: So we have to do this in a smart way so. 620 00:30:51,480 --> 00:30:57,920 Speaker 9: That individual investors are not inadvertently into something that they 621 00:30:58,040 --> 00:30:59,640 Speaker 9: didn't realize what they were getting into. 622 00:31:00,000 --> 00:31:04,040 Speaker 1: Speaking of, for one, okay, retirement plans, would you allow 623 00:31:04,080 --> 00:31:05,360 Speaker 1: crypto into retirement plans? 624 00:31:05,360 --> 00:31:06,880 Speaker 6: Because the Financial Times is reporting that. 625 00:31:06,800 --> 00:31:09,040 Speaker 1: We could see an executive order from the administration as 626 00:31:09,040 --> 00:31:13,760 Speaker 1: soon as today allowing alternative investments into retirement plans. 627 00:31:15,640 --> 00:31:19,000 Speaker 9: Well, again, you know, I think that you know, disclosure 628 00:31:19,120 --> 00:31:21,680 Speaker 9: is key and that people need to know what they're 629 00:31:21,720 --> 00:31:25,760 Speaker 9: getting into. So things like that are not for everybody, 630 00:31:25,880 --> 00:31:29,680 Speaker 9: and and so especially in retirement plans. 631 00:31:29,680 --> 00:31:32,560 Speaker 6: So we are I look forward. 632 00:31:32,360 --> 00:31:35,400 Speaker 9: To whatever may come out from the President as far 633 00:31:35,440 --> 00:31:38,800 Speaker 9: as direction goes, but we are we need to address 634 00:31:38,840 --> 00:31:43,000 Speaker 9: it because there is a demand out there for these 635 00:31:43,000 --> 00:31:48,280 Speaker 9: sorts of products, and the government should not stand as 636 00:31:48,440 --> 00:31:52,400 Speaker 9: a blocking agent for those sorts of things. But we 637 00:31:52,480 --> 00:31:55,000 Speaker 9: need to enable it in the proper way, with proper 638 00:31:55,040 --> 00:31:57,280 Speaker 9: guidelines and in proper disclosures. 639 00:31:57,400 --> 00:31:59,480 Speaker 1: Sir Atkins, you run an independent agency. 640 00:31:59,680 --> 00:32:00,240 Speaker 4: So to J. 641 00:32:00,400 --> 00:32:02,760 Speaker 1: Powell, I would love to know, are you under any 642 00:32:02,800 --> 00:32:05,360 Speaker 1: pressure from this White House? And what would be your 643 00:32:05,360 --> 00:32:07,160 Speaker 1: advice to J. Powell because it seems like you have 644 00:32:07,240 --> 00:32:09,200 Speaker 1: a better relationship with President Trump. 645 00:32:11,080 --> 00:32:12,480 Speaker 6: Well, I think so. 646 00:32:12,680 --> 00:32:15,040 Speaker 9: I've been at the SEC now this is a third time. 647 00:32:15,520 --> 00:32:17,800 Speaker 9: I was there in the early nineties and the Richard 648 00:32:17,840 --> 00:32:20,880 Speaker 9: Breeden and Arthur Levitt, and then again from two to 649 00:32:21,160 --> 00:32:26,680 Speaker 9: eight and now here in twenty and twenty five. So, frankly, 650 00:32:27,000 --> 00:32:30,400 Speaker 9: I don't see really any difference in operation from back 651 00:32:30,440 --> 00:32:31,240 Speaker 9: then to now. 652 00:32:31,480 --> 00:32:32,480 Speaker 6: I know there's been a lot. 653 00:32:32,400 --> 00:32:35,400 Speaker 9: Of coverage of that, but you know, we are working 654 00:32:35,760 --> 00:32:39,560 Speaker 9: hand in glove with our counterparts in the administration and 655 00:32:39,600 --> 00:32:44,800 Speaker 9: at the Office of Management and Budget and OIRA as 656 00:32:44,840 --> 00:32:49,480 Speaker 9: far as talking to them about rules and other things 657 00:32:49,480 --> 00:32:51,480 Speaker 9: that we are going to be publishing, so you know, 658 00:32:51,560 --> 00:32:53,080 Speaker 9: keeping them up to date, taking. 659 00:32:52,800 --> 00:32:54,440 Speaker 6: Their comments, which are all very good. 660 00:32:54,760 --> 00:32:58,720 Speaker 9: So I don't see any real difference, frankly in the 661 00:32:59,000 --> 00:33:03,080 Speaker 9: ambit of maneuver that we have at the agency. So 662 00:33:03,280 --> 00:33:07,200 Speaker 9: I'll look forward to achieving a lot in the time 663 00:33:07,200 --> 00:33:09,600 Speaker 9: that we have. And because there is so much to do, 664 00:33:10,280 --> 00:33:13,560 Speaker 9: this is what I like to call deferred maintenance. 665 00:33:13,080 --> 00:33:14,160 Speaker 6: That we have to address. 666 00:33:14,280 --> 00:33:17,760 Speaker 9: And so we are moving I think a very quick pace, 667 00:33:18,360 --> 00:33:20,440 Speaker 9: and so the rest of this year I think will 668 00:33:20,440 --> 00:33:23,720 Speaker 9: be churning things out in moving in a different direction. 669 00:33:23,920 --> 00:33:26,800 Speaker 2: Hopefully this is a start of an ongoing conversation. I 670 00:33:26,800 --> 00:33:29,560 Speaker 2: appreciate your time, Chair Ratkins. Thank you, sir, the SEC 671 00:33:29,640 --> 00:33:42,760 Speaker 2: Chair Paul Adkins there down in Washington, d C. So 672 00:33:42,880 --> 00:33:46,280 Speaker 2: I'm desire Franklin Templeton writing. The FMC is already envisioning 673 00:33:46,360 --> 00:33:49,920 Speaker 2: several fifty basis points of rate cuts this year, followed 674 00:33:49,920 --> 00:33:52,720 Speaker 2: by more next. I happen to disagree with the policy, 675 00:33:52,760 --> 00:33:55,400 Speaker 2: but I also think this confirms that the FED already 676 00:33:55,800 --> 00:33:58,720 Speaker 2: has a Dubvish bias. So I'll joined us now for more. 677 00:33:58,880 --> 00:34:00,360 Speaker 2: So now I just want to get into your thoughts 678 00:34:00,400 --> 00:34:02,520 Speaker 2: and why you stand on this rightcout debate at the moment, 679 00:34:02,600 --> 00:34:05,280 Speaker 2: Why don't you think a rate cut currently at least 680 00:34:05,520 --> 00:34:06,120 Speaker 2: is warranted? 681 00:34:07,120 --> 00:34:10,480 Speaker 10: Okay, before I get to that, that statement misstated what 682 00:34:10,520 --> 00:34:13,080 Speaker 10: I was saying. And the FY and c OR sees 683 00:34:13,200 --> 00:34:15,880 Speaker 10: fifty basis points of rate cuts this year and several 684 00:34:15,960 --> 00:34:18,680 Speaker 10: rate cuts next still, and I think that is probably 685 00:34:18,680 --> 00:34:22,040 Speaker 10: not warranted. And really because the economy is kind of 686 00:34:22,320 --> 00:34:25,520 Speaker 10: doing fine. We've talked about this several clients in the past. 687 00:34:25,680 --> 00:34:29,759 Speaker 10: I happen to think that the neutral FED funds rate 688 00:34:29,880 --> 00:34:31,959 Speaker 10: is between four and four twenty five. We've talked about 689 00:34:31,960 --> 00:34:35,000 Speaker 10: this before, to and a quarter of inflation one point 690 00:34:35,040 --> 00:34:40,080 Speaker 10: seventy five or so of for productivity gains. Unless it 691 00:34:40,160 --> 00:34:43,120 Speaker 10: looks like recession is imminent, it's not clear to me 692 00:34:43,120 --> 00:34:45,000 Speaker 10: why the Fed should be cutting rates all the way 693 00:34:45,040 --> 00:34:48,000 Speaker 10: down to close to three percent in this environment. We 694 00:34:48,120 --> 00:34:52,480 Speaker 10: have become used to extremely low rates, and prior to 695 00:34:52,520 --> 00:34:55,719 Speaker 10: the global financial crisis, we had decades of rates being 696 00:34:55,719 --> 00:34:59,200 Speaker 10: more normalized, and that's why I don't think it's needed. 697 00:35:00,000 --> 00:35:02,400 Speaker 5: So that said, a lot of people do expect the 698 00:35:02,440 --> 00:35:05,200 Speaker 5: FED to cut to that level that you're talking about, 699 00:35:05,320 --> 00:35:09,320 Speaker 5: and you're not seeing an unmoored level of inflation expectations 700 00:35:09,360 --> 00:35:12,640 Speaker 5: baked into the market, As Governor Chris Waller was just saying, so, 701 00:35:12,680 --> 00:35:14,600 Speaker 5: do you think that the market right now is underpricing 702 00:35:14,600 --> 00:35:16,000 Speaker 5: the potential for future inflation. 703 00:35:17,200 --> 00:35:19,560 Speaker 10: I think it is, probably, And the point is the 704 00:35:19,560 --> 00:35:24,040 Speaker 10: future inflation that I see is probably not associated. Let 705 00:35:24,040 --> 00:35:27,120 Speaker 10: me be clear with tariffs for a number of reasons. 706 00:35:27,120 --> 00:35:29,560 Speaker 10: It's not just that they're one off. Frankly, tariffs don't 707 00:35:29,600 --> 00:35:32,960 Speaker 10: impact enough with the CPI basket to have a meaningful 708 00:35:33,040 --> 00:35:37,480 Speaker 10: impact on overall inflation. The real reason is fiscal policy 709 00:35:37,680 --> 00:35:41,880 Speaker 10: remains very loose, Monetary policy is not particularly tight, and 710 00:35:41,920 --> 00:35:46,560 Speaker 10: we aren't seeing unemployment do terrible things. Wages aren't doing 711 00:35:46,640 --> 00:35:49,920 Speaker 10: terrible things. This is an economy which remains in relatively 712 00:35:50,040 --> 00:35:53,439 Speaker 10: rude good health right now. And that's why I think 713 00:35:53,480 --> 00:35:57,640 Speaker 10: we aren't seeing the pressures what brings inflation down. Let 714 00:35:57,680 --> 00:35:59,560 Speaker 10: me turn it on its head and say, from its 715 00:35:59,560 --> 00:36:03,000 Speaker 10: current lets, which by the way, are fifty percent higher 716 00:36:03,080 --> 00:36:06,440 Speaker 10: than where the Fed needs needs inflation to be, what 717 00:36:06,520 --> 00:36:09,800 Speaker 10: brings inflation down? Well, I don't see very many factors. 718 00:36:09,880 --> 00:36:12,360 Speaker 5: One thing that people argue is you are seeing I 719 00:36:12,400 --> 00:36:14,200 Speaker 5: don't know if it's cracks in a libor market, but 720 00:36:14,280 --> 00:36:17,319 Speaker 5: a sign that private employment really is coming down, and 721 00:36:17,480 --> 00:36:20,080 Speaker 5: you saw that really in the last lownfarm payrolls report, 722 00:36:20,120 --> 00:36:20,480 Speaker 5: which is. 723 00:36:20,440 --> 00:36:22,520 Speaker 6: What Governor Roller was talking about. 724 00:36:22,600 --> 00:36:25,080 Speaker 5: But you're hearing companies say this as well, that they 725 00:36:25,120 --> 00:36:27,160 Speaker 5: don't have the same kind of pricing power that they 726 00:36:27,200 --> 00:36:30,719 Speaker 5: did in the direct aftermath of the pandemic. So at 727 00:36:30,719 --> 00:36:33,719 Speaker 5: what point will that pushback that you're seeing from the 728 00:36:33,719 --> 00:36:36,560 Speaker 5: consumer act as a check and something that really is 729 00:36:36,560 --> 00:36:38,839 Speaker 5: consistent with what we're hearing from corporate executives. 730 00:36:41,239 --> 00:36:46,600 Speaker 10: Once we see some more once we can hang a 731 00:36:46,640 --> 00:36:49,840 Speaker 10: bit more meat to that particular story, I'd say I 732 00:36:49,880 --> 00:36:53,400 Speaker 10: would agree. So far, it's a data point. It's a 733 00:36:53,400 --> 00:36:56,840 Speaker 10: few data points, and actually we've seen some very decent 734 00:36:56,920 --> 00:36:59,920 Speaker 10: corporate turnings as well. We've got yesterday's retail sales reads on. 735 00:37:00,000 --> 00:37:05,080 Speaker 10: So I really don't know that we're at the cusp 736 00:37:05,280 --> 00:37:10,120 Speaker 10: of something dramatic happening to this economy and getting clarity 737 00:37:10,200 --> 00:37:12,719 Speaker 10: on the fiscal front. Whether you like the bill or 738 00:37:12,800 --> 00:37:16,440 Speaker 10: hate the bill, we do have clarity from the bill 739 00:37:16,840 --> 00:37:19,719 Speaker 10: that actually is a corporate tail wind, not a headwind. 740 00:37:20,120 --> 00:37:24,080 Speaker 10: So I'm not yet prepared to say that we're getting 741 00:37:24,120 --> 00:37:27,920 Speaker 10: to a point of significant weakening of this economy. 742 00:37:28,040 --> 00:37:29,600 Speaker 5: So does that mean to know that you're all in 743 00:37:29,640 --> 00:37:31,799 Speaker 5: on a high yield and you're shorting the thirty year. 744 00:37:32,360 --> 00:37:35,200 Speaker 10: No, I'm aggresivebly neutral on rates in general, and I 745 00:37:35,239 --> 00:37:38,840 Speaker 10: am looking at if I think about all the different 746 00:37:38,880 --> 00:37:42,080 Speaker 10: factors which come into play, I think fair value for 747 00:37:42,120 --> 00:37:45,680 Speaker 10: you as ten years is actually probably around four seventy 748 00:37:45,719 --> 00:37:48,600 Speaker 10: five to five. Do we get there? It's not completely clear. 749 00:37:49,320 --> 00:37:53,000 Speaker 10: Weirdly enough, actually, after being concerned about fiscal for so long, 750 00:37:53,120 --> 00:37:56,640 Speaker 10: I think something that people might be underpricing is that 751 00:37:56,680 --> 00:37:59,799 Speaker 10: if tariffs go through anywhere close to the level we've 752 00:37:59,800 --> 00:38:02,560 Speaker 10: seen so far this year, we actually have an additional 753 00:38:02,600 --> 00:38:06,840 Speaker 10: source of revenue which has not been factored into anybody's calculations, 754 00:38:07,040 --> 00:38:10,160 Speaker 10: and it's quite substantial. Actually, you know, the clack of 755 00:38:10,200 --> 00:38:11,840 Speaker 10: revenue is just coming in, so there are lots of 756 00:38:11,840 --> 00:38:14,160 Speaker 10: fun and loans here. I think that the spreads we're 757 00:38:14,160 --> 00:38:18,359 Speaker 10: seeing on high yield are extremely tight. That's very clear. 758 00:38:18,400 --> 00:38:20,000 Speaker 10: I think you need to be very careful. So it's 759 00:38:20,040 --> 00:38:22,040 Speaker 10: not that I'm all in and just looking at this 760 00:38:22,120 --> 00:38:26,320 Speaker 10: and waiting for some volatility to continue to pick up interesting, 761 00:38:27,280 --> 00:38:30,600 Speaker 10: interesting credits in interesting places. I don't think you can 762 00:38:30,640 --> 00:38:33,160 Speaker 10: buy any indices, which you would do if you were 763 00:38:33,200 --> 00:38:35,560 Speaker 10: all in and spreads were enormously attracted. 764 00:38:35,760 --> 00:38:38,920 Speaker 1: So you also think the markets are just overhyped. When 765 00:38:38,920 --> 00:38:41,200 Speaker 1: it comes to the controversy between Trump and Power, are 766 00:38:41,200 --> 00:38:41,800 Speaker 1: you willing. 767 00:38:41,600 --> 00:38:42,479 Speaker 6: To close that door? 768 00:38:42,560 --> 00:38:42,719 Speaker 10: Then? 769 00:38:43,120 --> 00:38:46,120 Speaker 1: About the White House and Trump potentially firing him, you 770 00:38:46,200 --> 00:38:47,719 Speaker 1: just don't think it's going to happen at all. 771 00:38:48,520 --> 00:38:50,440 Speaker 10: It's not a question of happening or not happening. I 772 00:38:50,440 --> 00:38:53,440 Speaker 10: don't think it matters, is my point. You would get 773 00:38:53,520 --> 00:38:58,400 Speaker 10: volatility if you fired fired Power for cause if some 774 00:38:58,480 --> 00:39:03,480 Speaker 10: of the controversy current controversy results in something meaningful, which 775 00:39:03,480 --> 00:39:06,800 Speaker 10: I'm doubtful about, but supposing it does, and supposing Powell 776 00:39:06,920 --> 00:39:12,040 Speaker 10: is fired, I would just note, what exactly is it 777 00:39:12,200 --> 00:39:16,640 Speaker 10: that we're all terrified about an enormously dubbish FED chair? 778 00:39:17,160 --> 00:39:20,000 Speaker 10: Can I ask everyone on the program today who was 779 00:39:20,040 --> 00:39:24,640 Speaker 10: our last hawkish FED chair? Let me tell you it 780 00:39:24,680 --> 00:39:26,960 Speaker 10: was Paul Volker. You have to go back fifty years. Yeah, 781 00:39:27,239 --> 00:39:30,000 Speaker 10: so let's not act as of getting a dukish Fed 782 00:39:30,120 --> 00:39:33,440 Speaker 10: chair is something none of us have ever encountered. I 783 00:39:33,480 --> 00:39:36,520 Speaker 10: give you Janet Yellen, I give you j Powell, who 784 00:39:36,560 --> 00:39:42,120 Speaker 10: actually did preside together with a supremely dubbish FED over 785 00:39:42,280 --> 00:39:44,799 Speaker 10: one of the biggest policy errors that we've seen in 786 00:39:44,840 --> 00:39:47,799 Speaker 10: a very long time. That policy error was not to 787 00:39:47,840 --> 00:39:52,759 Speaker 10: be overly hawkish, it was to be overly dubbish. So 788 00:39:52,840 --> 00:39:55,680 Speaker 10: I think when I say it's being overhyped, it is 789 00:39:55,760 --> 00:39:59,600 Speaker 10: this notion that somehow we're going to get someone truly 790 00:39:59,640 --> 00:40:02,000 Speaker 10: beyond the peale who is going to come and not 791 00:40:02,600 --> 00:40:08,399 Speaker 10: monetary policy completely. Of course, it's twelve members who get 792 00:40:08,440 --> 00:40:11,880 Speaker 10: to dissent or not to descent. I think that the 793 00:40:11,960 --> 00:40:17,320 Speaker 10: institution has a certain amount of credibility, and no incoming 794 00:40:17,360 --> 00:40:22,040 Speaker 10: FED chair, who, by the way, survives this administration and 795 00:40:22,080 --> 00:40:26,040 Speaker 10: whose term will run into the subsequent administration, would like 796 00:40:26,160 --> 00:40:31,200 Speaker 10: to have his legacy all under that footnote that Arthur 797 00:40:31,200 --> 00:40:33,400 Speaker 10: Burns has in the annals. 798 00:40:33,000 --> 00:40:33,439 Speaker 3: Of the FED. 799 00:40:33,800 --> 00:40:35,680 Speaker 2: You ever seen that scene of a bunch of football 800 00:40:35,719 --> 00:40:38,440 Speaker 2: fans watching the game and they score, and then all 801 00:40:38,440 --> 00:40:40,520 Speaker 2: the bears get thrown into the air. And now people 802 00:40:40,560 --> 00:40:42,680 Speaker 2: have put a different video in that screen and then 803 00:40:42,680 --> 00:40:43,919 Speaker 2: they throw the bears into the air. 804 00:40:44,200 --> 00:40:45,680 Speaker 3: That was son old design. The big screen. 805 00:40:46,360 --> 00:40:48,440 Speaker 2: Start's going on that run about a fat reserve. All 806 00:40:48,440 --> 00:40:50,480 Speaker 2: the bears get thrown into the avone's going crazy. 807 00:40:50,560 --> 00:40:51,399 Speaker 3: Yeah, that's very much. 808 00:40:51,480 --> 00:40:55,000 Speaker 5: There was a fantastic, fantastic explanation and frankly history lesson. 809 00:40:55,040 --> 00:40:58,319 Speaker 2: So now thank you someone designed there, Franklin, Sampertsent. This 810 00:40:58,520 --> 00:41:01,800 Speaker 2: is the bloomberg S Events Cast, bringing you the best 811 00:41:01,800 --> 00:41:05,120 Speaker 2: in markets, economics, and geopolitics. 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