1 00:00:02,520 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,880 --> 00:00:09,840 Speaker 2: We're going to stay tim on the US economy. We're 3 00:00:09,840 --> 00:00:12,280 Speaker 2: going to broaden out as well, especially when it comes 4 00:00:12,320 --> 00:00:15,640 Speaker 2: to geopolitics and the global economy, something we talked about 5 00:00:15,680 --> 00:00:17,040 Speaker 2: with our Stu Paul yesterday. 6 00:00:17,160 --> 00:00:18,840 Speaker 1: We got a great voice to do this, Doctor Adam 7 00:00:18,880 --> 00:00:22,560 Speaker 1: Posen joins US, President of the Peterson Institute for International Economics, 8 00:00:22,840 --> 00:00:26,840 Speaker 1: joining us this afternoon from Washington, DC. Before we broaden out, 9 00:00:26,880 --> 00:00:29,840 Speaker 1: doctor Posen, want to talk about the US economy coming 10 00:00:29,880 --> 00:00:32,120 Speaker 1: off of that inflation print that we just talked about 11 00:00:32,280 --> 00:00:35,800 Speaker 1: with Mike McKee. Where do you see the US economy heading? 12 00:00:36,880 --> 00:00:38,240 Speaker 3: Well, thank you for having me back. 13 00:00:38,320 --> 00:00:40,920 Speaker 4: The main thing I think your investor listeners should be 14 00:00:40,920 --> 00:00:44,560 Speaker 4: thinking about is that if your plus or minus zero 15 00:00:44,600 --> 00:00:48,040 Speaker 4: point one, zero point two from expectation on any given 16 00:00:48,120 --> 00:00:53,280 Speaker 4: months print, it's not worth real information. I mean, nobody 17 00:00:53,360 --> 00:00:56,959 Speaker 4: has their expectations that precise. So you have to look 18 00:00:57,000 --> 00:00:59,640 Speaker 4: at the bigger stories. And to me, the bigger stories 19 00:00:59,720 --> 00:01:02,640 Speaker 4: in the are that we have a labor market that 20 00:01:02,840 --> 00:01:06,720 Speaker 4: isn't cratering as people used to worry about, that has 21 00:01:07,440 --> 00:01:11,920 Speaker 4: solid retention of employment, not huge employment growth, but solid retention. 22 00:01:12,640 --> 00:01:16,640 Speaker 4: We have potentially some very stimulative fiscal policies coming down 23 00:01:16,680 --> 00:01:21,240 Speaker 4: the pike, in that the Republican majorities in the Congress 24 00:01:21,280 --> 00:01:24,039 Speaker 4: may give President Trump checks to hand out ahead of 25 00:01:24,080 --> 00:01:27,960 Speaker 4: the midterm elections in November. They may, I hope they 26 00:01:28,040 --> 00:01:32,920 Speaker 4: will restore some of the funding for Obamacare insurance subsidies 27 00:01:32,959 --> 00:01:35,479 Speaker 4: that we're taken out in last year's bill. 28 00:01:35,560 --> 00:01:37,640 Speaker 3: And we've got in the end. 29 00:01:39,080 --> 00:01:42,000 Speaker 4: A bunch of things on the Tara front and even 30 00:01:42,000 --> 00:01:45,520 Speaker 4: more so on the anti migration front, that are percolating 31 00:01:45,600 --> 00:01:49,840 Speaker 4: through the economy. And people were premature to say, oh, 32 00:01:49,880 --> 00:01:52,320 Speaker 4: it all must have happened by now, or it won't happen. 33 00:01:52,440 --> 00:01:56,240 Speaker 4: That's not right. It takes time for businesses and households 34 00:01:56,280 --> 00:02:01,160 Speaker 4: and migrants to make decisions. So I with Mike, I'm 35 00:02:01,160 --> 00:02:04,440 Speaker 4: with a lot of people. I think the pricing of 36 00:02:04,600 --> 00:02:07,680 Speaker 4: three FED cuts this year is much too many. 37 00:02:08,000 --> 00:02:10,880 Speaker 2: So this explains, or I'm assuming this kind of explains, 38 00:02:11,200 --> 00:02:15,200 Speaker 2: doctor Posen, that you and Lazard CEO Peter or Zag 39 00:02:15,280 --> 00:02:17,840 Speaker 2: of course, formerly Director of the Office of Management and 40 00:02:17,840 --> 00:02:21,040 Speaker 2: Budget and director of the CBO. You guys put out 41 00:02:21,120 --> 00:02:23,800 Speaker 2: a column in January that the FEDS two percent inflation 42 00:02:23,840 --> 00:02:26,440 Speaker 2: target could be totally left in the dust. You think 43 00:02:26,440 --> 00:02:31,280 Speaker 2: inflation could quote surprise to the upside, potentially exceeding four 44 00:02:31,400 --> 00:02:35,680 Speaker 2: percent by the end of twenty twenty six. Is it 45 00:02:35,720 --> 00:02:38,240 Speaker 2: because of what you just laid out in terms of, 46 00:02:39,720 --> 00:02:42,600 Speaker 2: you know, tax cuts, federal government spending. These are things 47 00:02:42,639 --> 00:02:44,480 Speaker 2: that are going to be stimulative. 48 00:02:45,040 --> 00:02:48,400 Speaker 4: Stimulation Carols exactly and Peter and I. And I was 49 00:02:48,440 --> 00:02:50,960 Speaker 4: glad the co author with Peter because he knows the 50 00:02:50,960 --> 00:02:54,400 Speaker 4: fiscal stuff. So if he and I agree that these 51 00:02:54,440 --> 00:02:58,400 Speaker 4: are real likely risks to more stimulus out of fiscal 52 00:02:58,600 --> 00:03:02,240 Speaker 4: I'm willing to buy it or willing to sell it. 53 00:03:02,320 --> 00:03:02,799 Speaker 3: Actually. 54 00:03:03,400 --> 00:03:06,240 Speaker 4: But I think the other things that we're talking about 55 00:03:06,440 --> 00:03:10,040 Speaker 4: is the lagged effect of tariffs and anti migration. I 56 00:03:10,080 --> 00:03:12,720 Speaker 4: wrote about this in a column for Business Week magazine 57 00:03:12,760 --> 00:03:16,080 Speaker 4: earlier this month. I think we're talking about in Peter 58 00:03:16,200 --> 00:03:20,119 Speaker 4: points too from his Purchaselizard various corporate CEOs I got 59 00:03:20,160 --> 00:03:23,320 Speaker 4: Amazon and or the Beije books from the FED that 60 00:03:23,480 --> 00:03:27,040 Speaker 4: say companies are only just now passing through some of 61 00:03:27,040 --> 00:03:30,679 Speaker 4: these adjustments. I think there's also just the bottom line 62 00:03:30,720 --> 00:03:33,440 Speaker 4: that the labor market is more solid, and so if 63 00:03:33,520 --> 00:03:37,240 Speaker 4: we get any inflation, it's in a more tidy economy. 64 00:03:37,560 --> 00:03:41,120 Speaker 4: And then finally whether or not we get into the 65 00:03:41,160 --> 00:03:44,520 Speaker 4: new leadership at the FED. After all the attacks on 66 00:03:44,560 --> 00:03:47,320 Speaker 4: the FED over the last year since President Trump came 67 00:03:47,360 --> 00:03:50,440 Speaker 4: back into office, you have to be a little more 68 00:03:50,480 --> 00:03:53,880 Speaker 4: worried that the FED will not react quickly if there 69 00:03:53,960 --> 00:03:57,160 Speaker 4: is inflation, and that to some degree becomes self fulfilling. 70 00:03:57,680 --> 00:03:59,720 Speaker 4: So I think there's a lot of things going on. 71 00:04:00,120 --> 00:04:02,880 Speaker 4: Could be a recession. It could be that the migrants 72 00:04:02,960 --> 00:04:06,520 Speaker 4: really haven't left yet. They could be that the government 73 00:04:06,560 --> 00:04:09,600 Speaker 4: breaks down and doesn't pass these stimulus, in which case 74 00:04:09,880 --> 00:04:12,800 Speaker 4: inflation won't be that high. But I think each of 75 00:04:12,840 --> 00:04:16,080 Speaker 4: these is pretty darn likely, and cumulatively they get you 76 00:04:16,200 --> 00:04:18,160 Speaker 4: up to high inflation by end of the year. 77 00:04:18,440 --> 00:04:19,880 Speaker 1: You mentioned the FED, so I want to go there, 78 00:04:20,279 --> 00:04:23,040 Speaker 1: and then I want to do some demographic stuff because 79 00:04:23,040 --> 00:04:25,640 Speaker 1: there's a lot of questions about what the economy looks 80 00:04:25,680 --> 00:04:28,279 Speaker 1: like in the next few years with the decline and immigration. 81 00:04:28,800 --> 00:04:31,360 Speaker 1: On the FED, you said if the FED is less 82 00:04:31,400 --> 00:04:35,000 Speaker 1: reactive moving forward. Is that a result you think of 83 00:04:35,400 --> 00:04:38,360 Speaker 1: Kevin Walsh being nominated as chair of the FED. 84 00:04:39,560 --> 00:04:43,800 Speaker 4: I think it's a result of the desires expressed so 85 00:04:44,120 --> 00:04:47,960 Speaker 4: strongly by President Trump and by Secretary bessent and by 86 00:04:48,040 --> 00:04:50,680 Speaker 4: not just Kevin Warsh to the nominee, but all the 87 00:04:50,960 --> 00:04:54,599 Speaker 4: shortlisted people who would be fed chair in favor of 88 00:04:55,160 --> 00:04:59,479 Speaker 4: loosening policy quite a bit, and doing so in the 89 00:04:59,520 --> 00:05:02,920 Speaker 4: face of data which the vast majority of the Federal 90 00:05:02,960 --> 00:05:05,800 Speaker 4: Open Market Committee has publicly said leads them to want 91 00:05:05,839 --> 00:05:10,200 Speaker 4: to pause. I think should give people pause. So I 92 00:05:10,240 --> 00:05:12,640 Speaker 4: think there is a real issue there. I think there's 93 00:05:12,720 --> 00:05:19,120 Speaker 4: also genuine debate to be had. Nominee Warsh, Governor Waller 94 00:05:19,200 --> 00:05:22,960 Speaker 4: and others have said that some of these tariff and 95 00:05:23,000 --> 00:05:25,440 Speaker 4: other effects are one time shocks. They're not going to 96 00:05:25,480 --> 00:05:28,640 Speaker 4: be passed on We'll see. That would be very unusual. 97 00:05:28,760 --> 00:05:32,320 Speaker 4: But maybe they've also said or started to say that 98 00:05:32,640 --> 00:05:36,120 Speaker 4: productivity growth will bail us out, will be able to 99 00:05:36,160 --> 00:05:40,200 Speaker 4: have more growth with less inflation. That's more plausible to me, 100 00:05:40,440 --> 00:05:42,920 Speaker 4: But even there that's by no means for sure. There 101 00:05:42,960 --> 00:05:45,040 Speaker 4: was a nice piece by Jason Furman and the Wall 102 00:05:45,080 --> 00:05:48,400 Speaker 4: Street Journal discussing this. The angle I would take is, 103 00:05:48,640 --> 00:05:51,719 Speaker 4: just as Governor Waller or Kevin worsh says, with the tariffs, 104 00:05:52,360 --> 00:05:55,159 Speaker 4: you get a real income shock, in this case positive 105 00:05:55,240 --> 00:05:58,919 Speaker 4: from AI. It's indeterminate ahead of time to use a 106 00:05:58,960 --> 00:06:02,400 Speaker 4: fancy word. How much of that shows up as income 107 00:06:02,560 --> 00:06:05,160 Speaker 4: and how much of that shows up as price disinflation. 108 00:06:05,880 --> 00:06:08,760 Speaker 4: And my reading of the historical evidence is when you 109 00:06:08,760 --> 00:06:12,320 Speaker 4: get a new technology, most of the disinflation stuff comes 110 00:06:12,360 --> 00:06:16,560 Speaker 4: with a lag, because that only comes when companies start restructuring, 111 00:06:16,760 --> 00:06:19,960 Speaker 4: changing their workforces, figure out how to use this stuff, 112 00:06:20,240 --> 00:06:22,919 Speaker 4: whereas some of the income growth, the productivity growth you 113 00:06:22,960 --> 00:06:26,880 Speaker 4: get upfront just because we've all got a new toy. So, yeah, 114 00:06:26,960 --> 00:06:30,000 Speaker 4: I think there's room for me to be plenty wrong, 115 00:06:30,240 --> 00:06:33,800 Speaker 4: but I think we're going to end up pretty high 116 00:06:33,839 --> 00:06:36,080 Speaker 4: inflation that's behind the curve. 117 00:06:36,360 --> 00:06:40,000 Speaker 2: So is that the biggest realistic risk to the US economy? 118 00:06:40,040 --> 00:06:42,320 Speaker 2: I wanted to insert that word realistic because I think 119 00:06:42,360 --> 00:06:44,400 Speaker 2: we talk about risks all the time, and there's a list, 120 00:06:44,680 --> 00:06:46,320 Speaker 2: you know, as long as my arm and then some. 121 00:06:46,680 --> 00:06:50,200 Speaker 2: But I'm just curious. Is it higher inflation, is a 122 00:06:50,279 --> 00:06:53,760 Speaker 2: higher interest rates? Is it demographics and older population folks 123 00:06:53,760 --> 00:06:57,239 Speaker 2: not having babies. Is it less immigration? Is it rising debt? 124 00:06:57,560 --> 00:06:59,760 Speaker 2: Is it China? US tech? 125 00:07:00,120 --> 00:07:00,200 Speaker 4: Like? 126 00:07:00,600 --> 00:07:04,120 Speaker 2: What do you think is the biggest realistic risk to 127 00:07:04,320 --> 00:07:06,520 Speaker 2: the US economy? Maybe to the global economy? 128 00:07:07,200 --> 00:07:09,480 Speaker 4: Yeah, well, thank you for putting it that with Carol, 129 00:07:09,520 --> 00:07:13,640 Speaker 4: I would sort the risks by two categories, the realistic 130 00:07:13,680 --> 00:07:16,800 Speaker 4: and unrealistic, as you said, But then at what time 131 00:07:16,920 --> 00:07:20,600 Speaker 4: frame they hit. I think the realistic risk for the 132 00:07:20,760 --> 00:07:24,520 Speaker 4: US in the next three to twelve months is probably 133 00:07:24,600 --> 00:07:28,400 Speaker 4: inflation is the biggest risk. I'm not that worried about 134 00:07:28,400 --> 00:07:33,280 Speaker 4: a downside unemployment. I'm not that worried about trade wars 135 00:07:33,360 --> 00:07:36,680 Speaker 4: turning it to hot wars with China. I mean, I'm 136 00:07:36,720 --> 00:07:38,720 Speaker 4: worried about it. It'd be terrible, but I'm not that 137 00:07:38,800 --> 00:07:42,720 Speaker 4: worried it's likely. But if we start looking out one 138 00:07:42,880 --> 00:07:46,480 Speaker 4: two years, then to me, the realistic risk starts to 139 00:07:46,520 --> 00:07:49,320 Speaker 4: get into some of those demographic issues you and Tim 140 00:07:49,520 --> 00:07:53,160 Speaker 4: just mentioned, because we are cutting off a lot of 141 00:07:53,200 --> 00:07:58,400 Speaker 4: people from the workforce by excluding or deporting migrants, and 142 00:07:58,440 --> 00:08:00,680 Speaker 4: there's a lot of things that happen, for example, the 143 00:08:00,720 --> 00:08:05,080 Speaker 4: female labor force participation in prime age women. If you 144 00:08:05,160 --> 00:08:10,560 Speaker 4: don't have cheap available healthcare and cheap available childcare, and 145 00:08:10,800 --> 00:08:13,960 Speaker 4: the budget doesn't support that out of the federal government, 146 00:08:14,480 --> 00:08:17,040 Speaker 4: and healthcare is cut back if they don't pass the 147 00:08:17,080 --> 00:08:19,840 Speaker 4: subsidies for Obamacare, and even if they do, it's still 148 00:08:19,840 --> 00:08:22,600 Speaker 4: cut back. So those are the things in the next 149 00:08:22,640 --> 00:08:25,320 Speaker 4: couple of years. But then when we think beyond that, 150 00:08:25,600 --> 00:08:30,280 Speaker 4: then you've got a tug of war between the positive 151 00:08:30,320 --> 00:08:35,360 Speaker 4: impact of AI and the potential for large scale unemployment 152 00:08:35,480 --> 00:08:38,679 Speaker 4: as people adjust to AI. And there I got to say, 153 00:08:38,760 --> 00:08:43,000 Speaker 4: not only I, but the economics profession has no clear idea. 154 00:08:43,040 --> 00:08:45,319 Speaker 4: There are a few people out there are very strong opinions, 155 00:08:45,360 --> 00:08:48,200 Speaker 4: but there's no consensus and we're still working on that. 156 00:08:48,440 --> 00:08:52,599 Speaker 1: What's your best bet there? What's there's no cons We 157 00:08:52,600 --> 00:08:54,360 Speaker 1: don't know what's going to happen. We can't see the future. 158 00:08:54,440 --> 00:08:55,560 Speaker 1: But what's realistic. 159 00:08:56,480 --> 00:08:59,959 Speaker 4: What's realistic is productivity growth stays up as high as 160 00:09:00,120 --> 00:09:03,040 Speaker 4: it's now starting the trend, maybe even goes a little higher, 161 00:09:03,679 --> 00:09:07,600 Speaker 4: and unemployment shoots up in a couple of years, but 162 00:09:07,840 --> 00:09:12,760 Speaker 4: doesn't shoot up enormously, and it is disproportionately on younger people. 163 00:09:14,600 --> 00:09:19,440 Speaker 4: And that you get some decline in labor force participation 164 00:09:19,559 --> 00:09:23,600 Speaker 4: because people figure out different ways of living their lives. 165 00:09:23,679 --> 00:09:27,040 Speaker 4: And so the unemployment number are under states how many 166 00:09:27,040 --> 00:09:28,360 Speaker 4: people feel displaced? 167 00:09:30,280 --> 00:09:35,000 Speaker 2: Yeah, gosh, a million questions. I want to ask you, 168 00:09:35,240 --> 00:09:38,360 Speaker 2: when do we are we seeing kind of the fruits 169 00:09:38,880 --> 00:09:44,360 Speaker 2: of the gaps in wealth playing out globally and is 170 00:09:44,360 --> 00:09:47,120 Speaker 2: it kind of where we are? It's amazing to me 171 00:09:47,240 --> 00:09:51,720 Speaker 2: where people point to stock market highs. We've talked about 172 00:09:51,720 --> 00:09:55,440 Speaker 2: the K shaped economy a lot, but how many conversations 173 00:09:55,440 --> 00:09:58,439 Speaker 2: I have on a regular basis with so many Americans 174 00:09:58,520 --> 00:10:00,960 Speaker 2: that just find it difficult and ones that I wouldn't 175 00:10:00,960 --> 00:10:04,040 Speaker 2: even think so, that are probably in a decent income bracket, 176 00:10:05,360 --> 00:10:08,360 Speaker 2: but it's just doesn't feel so good. No. 177 00:10:09,559 --> 00:10:14,400 Speaker 4: I think as economists, you all are anchors. You cover everything, 178 00:10:14,440 --> 00:10:16,240 Speaker 4: but as economists have got to be a little bit 179 00:10:16,280 --> 00:10:19,320 Speaker 4: modest that sometimes when people don't feel so good, it's 180 00:10:19,360 --> 00:10:22,160 Speaker 4: not about the economic numbers. They may say it's about that, 181 00:10:22,360 --> 00:10:26,959 Speaker 4: but it's about their relative position in life. It's about uncertainty. 182 00:10:27,160 --> 00:10:31,560 Speaker 4: It's about through an ideological lens, is their party in power, 183 00:10:31,640 --> 00:10:32,440 Speaker 4: not in power? 184 00:10:32,800 --> 00:10:33,800 Speaker 3: Are their kids? 185 00:10:34,640 --> 00:10:39,520 Speaker 4: So it's not that people's feelings are unimportant, but obviously not. 186 00:10:39,640 --> 00:10:44,080 Speaker 4: They can vote, they can choose. But the connection, and 187 00:10:44,120 --> 00:10:47,280 Speaker 4: there's very clear data on this, the connection between surveys 188 00:10:47,320 --> 00:10:50,360 Speaker 4: of how good people feel or how confident people feel 189 00:10:50,840 --> 00:10:55,320 Speaker 4: has become much more tenuous in terms of linking it 190 00:10:55,360 --> 00:10:58,360 Speaker 4: to actual economic outcomes than it used to be. That's 191 00:10:58,400 --> 00:11:01,559 Speaker 4: interesting what I what I would say, Carol. 192 00:11:01,400 --> 00:11:02,960 Speaker 2: We have to run though, yeah quickly. 193 00:11:02,800 --> 00:11:06,559 Speaker 4: Yeah no, no, no, sorry, Just to say that the 194 00:11:07,559 --> 00:11:09,280 Speaker 4: global situation. 195 00:11:09,320 --> 00:11:11,880 Speaker 3: Is similar to the US. There's a lot of youth. 196 00:11:11,679 --> 00:11:14,440 Speaker 4: Unemployment in China and in Europe, and that we got 197 00:11:14,440 --> 00:11:15,000 Speaker 4: to think about. 198 00:11:15,600 --> 00:11:17,199 Speaker 2: Just means you want to have you come back real soon, 199 00:11:17,240 --> 00:11:19,199 Speaker 2: doctor Pos, and be well. Have a great weekend.