Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We're going to stay tim on the US economy. We're
Speaker 2: going to broaden out as well, especially when it comes
Speaker 2: to geopolitics and the global economy, something we talked about
Speaker 2: with our Stu Paul yesterday.
Speaker 1: We got a great voice to do this, Doctor Adam
Speaker 1: Posen joins US, President of the Peterson Institute for International Economics,
Speaker 1: joining us this afternoon from Washington, DC. Before we broaden out,
Speaker 1: doctor Posen, want to talk about the US economy coming
Speaker 1: off of that inflation print that we just talked about
Speaker 1: with Mike McKee. Where do you see the US economy heading?
Speaker 3: Well, thank you for having me back.
Speaker 4: The main thing I think your investor listeners should be
Speaker 4: thinking about is that if your plus or minus zero
Speaker 4: point one, zero point two from expectation on any given
Speaker 4: months print, it's not worth real information. I mean, nobody
Speaker 4: has their expectations that precise. So you have to look
Speaker 4: at the bigger stories. And to me, the bigger stories
Speaker 4: in the are that we have a labor market that
Speaker 4: isn't cratering as people used to worry about, that has
Speaker 4: solid retention of employment, not huge employment growth, but solid retention.
Speaker 4: We have potentially some very stimulative fiscal policies coming down
Speaker 4: the pike, in that the Republican majorities in the Congress
Speaker 4: may give President Trump checks to hand out ahead of
Speaker 4: the midterm elections in November. They may, I hope they
Speaker 4: will restore some of the funding for Obamacare insurance subsidies
Speaker 4: that we're taken out in last year's bill.
Speaker 3: And we've got in the end.
Speaker 4: A bunch of things on the Tara front and even
Speaker 4: more so on the anti migration front, that are percolating
Speaker 4: through the economy. And people were premature to say, oh,
Speaker 4: it all must have happened by now, or it won't happen.
Speaker 4: That's not right. It takes time for businesses and households
Speaker 4: and migrants to make decisions. So I with Mike, I'm
Speaker 4: with a lot of people. I think the pricing of
Speaker 4: three FED cuts this year is much too many.
Speaker 2: So this explains, or I'm assuming this kind of explains,
Speaker 2: doctor Posen, that you and Lazard CEO Peter or Zag
Speaker 2: of course, formerly Director of the Office of Management and
Speaker 2: Budget and director of the CBO. You guys put out
Speaker 2: a column in January that the FEDS two percent inflation
Speaker 2: target could be totally left in the dust. You think
Speaker 2: inflation could quote surprise to the upside, potentially exceeding four
Speaker 2: percent by the end of twenty twenty six. Is it
Speaker 2: because of what you just laid out in terms of,
Speaker 2: you know, tax cuts, federal government spending. These are things
Speaker 2: that are going to be stimulative.
Speaker 4: Stimulation Carols exactly and Peter and I. And I was
Speaker 4: glad the co author with Peter because he knows the
Speaker 4: fiscal stuff. So if he and I agree that these
Speaker 4: are real likely risks to more stimulus out of fiscal
Speaker 4: I'm willing to buy it or willing to sell it.
Speaker 3: Actually.
Speaker 4: But I think the other things that we're talking about
Speaker 4: is the lagged effect of tariffs and anti migration. I
Speaker 4: wrote about this in a column for Business Week magazine
Speaker 4: earlier this month. I think we're talking about in Peter
Speaker 4: points too from his Purchaselizard various corporate CEOs I got
Speaker 4: Amazon and or the Beije books from the FED that
Speaker 4: say companies are only just now passing through some of
Speaker 4: these adjustments. I think there's also just the bottom line
Speaker 4: that the labor market is more solid, and so if
Speaker 4: we get any inflation, it's in a more tidy economy.
Speaker 4: And then finally whether or not we get into the
Speaker 4: new leadership at the FED. After all the attacks on
Speaker 4: the FED over the last year since President Trump came
Speaker 4: back into office, you have to be a little more
Speaker 4: worried that the FED will not react quickly if there
Speaker 4: is inflation, and that to some degree becomes self fulfilling.
Speaker 4: So I think there's a lot of things going on.
Speaker 4: Could be a recession. It could be that the migrants
Speaker 4: really haven't left yet. They could be that the government
Speaker 4: breaks down and doesn't pass these stimulus, in which case
Speaker 4: inflation won't be that high. But I think each of
Speaker 4: these is pretty darn likely, and cumulatively they get you
Speaker 4: up to high inflation by end of the year.
Speaker 1: You mentioned the FED, so I want to go there,
Speaker 1: and then I want to do some demographic stuff because
Speaker 1: there's a lot of questions about what the economy looks
Speaker 1: like in the next few years with the decline and immigration.
Speaker 1: On the FED, you said if the FED is less
Speaker 1: reactive moving forward. Is that a result you think of
Speaker 1: Kevin Walsh being nominated as chair of the FED.
Speaker 4: I think it's a result of the desires expressed so
Speaker 4: strongly by President Trump and by Secretary bessent and by
Speaker 4: not just Kevin Warsh to the nominee, but all the
Speaker 4: shortlisted people who would be fed chair in favor of
Speaker 4: loosening policy quite a bit, and doing so in the
Speaker 4: face of data which the vast majority of the Federal
Speaker 4: Open Market Committee has publicly said leads them to want
Speaker 4: to pause. I think should give people pause. So I
Speaker 4: think there is a real issue there. I think there's
Speaker 4: also genuine debate to be had. Nominee Warsh, Governor Waller
Speaker 4: and others have said that some of these tariff and
Speaker 4: other effects are one time shocks. They're not going to
Speaker 4: be passed on We'll see. That would be very unusual.
Speaker 4: But maybe they've also said or started to say that
Speaker 4: productivity growth will bail us out, will be able to
Speaker 4: have more growth with less inflation. That's more plausible to me,
Speaker 4: But even there that's by no means for sure. There
Speaker 4: was a nice piece by Jason Furman and the Wall
Speaker 4: Street Journal discussing this. The angle I would take is,
Speaker 4: just as Governor Waller or Kevin worsh says, with the tariffs,
Speaker 4: you get a real income shock, in this case positive
Speaker 4: from AI. It's indeterminate ahead of time to use a
Speaker 4: fancy word. How much of that shows up as income
Speaker 4: and how much of that shows up as price disinflation.
Speaker 4: And my reading of the historical evidence is when you
Speaker 4: get a new technology, most of the disinflation stuff comes
Speaker 4: with a lag, because that only comes when companies start restructuring,
Speaker 4: changing their workforces, figure out how to use this stuff,
Speaker 4: whereas some of the income growth, the productivity growth you
Speaker 4: get upfront just because we've all got a new toy. So, yeah,
Speaker 4: I think there's room for me to be plenty wrong,
Speaker 4: but I think we're going to end up pretty high
Speaker 4: inflation that's behind the curve.
Speaker 2: So is that the biggest realistic risk to the US economy?
Speaker 2: I wanted to insert that word realistic because I think
Speaker 2: we talk about risks all the time, and there's a list,
Speaker 2: you know, as long as my arm and then some.
Speaker 2: But I'm just curious. Is it higher inflation, is a
Speaker 2: higher interest rates? Is it demographics and older population folks
Speaker 2: not having babies. Is it less immigration? Is it rising debt?
Speaker 2: Is it China? US tech?
Speaker 4: Like?
Speaker 2: What do you think is the biggest realistic risk to
Speaker 2: the US economy? Maybe to the global economy?
Speaker 4: Yeah, well, thank you for putting it that with Carol,
Speaker 4: I would sort the risks by two categories, the realistic
Speaker 4: and unrealistic, as you said, But then at what time
Speaker 4: frame they hit. I think the realistic risk for the
Speaker 4: US in the next three to twelve months is probably
Speaker 4: inflation is the biggest risk. I'm not that worried about
Speaker 4: a downside unemployment. I'm not that worried about trade wars
Speaker 4: turning it to hot wars with China. I mean, I'm
Speaker 4: worried about it. It'd be terrible, but I'm not that
Speaker 4: worried it's likely. But if we start looking out one
Speaker 4: two years, then to me, the realistic risk starts to
Speaker 4: get into some of those demographic issues you and Tim
Speaker 4: just mentioned, because we are cutting off a lot of
Speaker 4: people from the workforce by excluding or deporting migrants, and
Speaker 4: there's a lot of things that happen, for example, the
Speaker 4: female labor force participation in prime age women. If you
Speaker 4: don't have cheap available healthcare and cheap available childcare, and
Speaker 4: the budget doesn't support that out of the federal government,
Speaker 4: and healthcare is cut back if they don't pass the
Speaker 4: subsidies for Obamacare, and even if they do, it's still
Speaker 4: cut back. So those are the things in the next
Speaker 4: couple of years. But then when we think beyond that,
Speaker 4: then you've got a tug of war between the positive
Speaker 4: impact of AI and the potential for large scale unemployment
Speaker 4: as people adjust to AI. And there I got to say,
Speaker 4: not only I, but the economics profession has no clear idea.
Speaker 4: There are a few people out there are very strong opinions,
Speaker 4: but there's no consensus and we're still working on that.
Speaker 1: What's your best bet there? What's there's no cons We
Speaker 1: don't know what's going to happen. We can't see the future.
Speaker 1: But what's realistic.
Speaker 4: What's realistic is productivity growth stays up as high as
Speaker 4: it's now starting the trend, maybe even goes a little higher,
Speaker 4: and unemployment shoots up in a couple of years, but
Speaker 4: doesn't shoot up enormously, and it is disproportionately on younger people.
Speaker 4: And that you get some decline in labor force participation
Speaker 4: because people figure out different ways of living their lives.
Speaker 4: And so the unemployment number are under states how many
Speaker 4: people feel displaced?
Speaker 2: Yeah, gosh, a million questions. I want to ask you,
Speaker 2: when do we are we seeing kind of the fruits
Speaker 2: of the gaps in wealth playing out globally and is
Speaker 2: it kind of where we are? It's amazing to me
Speaker 2: where people point to stock market highs. We've talked about
Speaker 2: the K shaped economy a lot, but how many conversations
Speaker 2: I have on a regular basis with so many Americans
Speaker 2: that just find it difficult and ones that I wouldn't
Speaker 2: even think so, that are probably in a decent income bracket,
Speaker 2: but it's just doesn't feel so good. No.
Speaker 4: I think as economists, you all are anchors. You cover everything,
Speaker 4: but as economists have got to be a little bit
Speaker 4: modest that sometimes when people don't feel so good, it's
Speaker 4: not about the economic numbers. They may say it's about that,
Speaker 4: but it's about their relative position in life. It's about uncertainty.
Speaker 4: It's about through an ideological lens, is their party in power,
Speaker 4: not in power?
Speaker 3: Are their kids?
Speaker 4: So it's not that people's feelings are unimportant, but obviously not.
Speaker 4: They can vote, they can choose. But the connection, and
Speaker 4: there's very clear data on this, the connection between surveys
Speaker 4: of how good people feel or how confident people feel
Speaker 4: has become much more tenuous in terms of linking it
Speaker 4: to actual economic outcomes than it used to be. That's
Speaker 4: interesting what I what I would say, Carol.
Speaker 2: We have to run though, yeah quickly.
Speaker 4: Yeah no, no, no, sorry, Just to say that the
Speaker 4: global situation.
Speaker 3: Is similar to the US. There's a lot of youth.
Speaker 4: Unemployment in China and in Europe, and that we got
Speaker 4: to think about.
Speaker 2: Just means you want to have you come back real soon,
Speaker 2: doctor Pos, and be well. Have a great weekend.