WEBVTT - There's Slack in the Labor Market, Kashkari Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:16.960 Daily we bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.480 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.480 Bloomberg dot Com, and of course on the Bloomberg John 0:00:33.520 --> 0:00:35.280 Farrell and Tom Keane and we welcome all of you, 0:00:35.360 --> 0:00:39.000 particularly and serious in examy in Texas and in the 0:00:39.040 --> 0:00:42.320 district of the Federal Reserve System of Texas with us 0:00:42.400 --> 0:00:44.639 Robert Kapp and he is President of the Chief Executive 0:00:44.680 --> 0:00:48.120 Officer of the Federal Reserve Bank of Dallas. One of 0:00:48.120 --> 0:00:51.000 the high points for my year was our extended conversation 0:00:51.400 --> 0:00:54.040 at the Council on Foreign Relations. Also one of the 0:00:54.120 --> 0:00:56.600 high points of my year was when Michael McKee was 0:00:56.640 --> 0:00:59.400 given the honor of final questions that chare yelling an 0:00:59.440 --> 0:01:02.160 insulted the chair by asking her which dot was her? 0:01:02.280 --> 0:01:07.760 Did you ask President Caplan of Dallas which dot was his? Did? Actually, 0:01:08.959 --> 0:01:14.080 we'll do it again, because, uh, you know, the idea 0:01:14.120 --> 0:01:16.720 of how many rate increases from the Fed next year 0:01:16.959 --> 0:01:20.440 is paramount uh on everybody's mind on Wall Street. So 0:01:20.520 --> 0:01:23.480 why don't we why don't we start with that oddly. 0:01:23.640 --> 0:01:26.560 For some reason, Rob Kaplan has always been a longtime 0:01:26.600 --> 0:01:29.000 fan of Bloomberg surveillance, so maybe he'll let us get 0:01:29.040 --> 0:01:31.760 away with this. Um. It's one of the My father 0:01:32.280 --> 0:01:35.480 darkened the door of a small college and college station, 0:01:35.920 --> 0:01:41.360 Texas where there were no girls at the time. Anyway, 0:01:41.440 --> 0:01:45.440 leaving all that aside, UH, where is your dot? And 0:01:45.680 --> 0:01:48.240 uh do you think three rate moves in two thousand 0:01:48.280 --> 0:01:53.000 eighteen is a reasonable assumption? Well, and I said to you, Uh, 0:01:53.080 --> 0:01:57.600 and we've talked before. UM, gradual and patient is my 0:01:58.000 --> 0:02:02.280 is my key comment. My own dot was three h 0:02:02.560 --> 0:02:06.080 Whether it will turn out that way, we'll have to see. Um. 0:02:06.160 --> 0:02:08.840 And and what would change? The economy could grow faster 0:02:09.520 --> 0:02:13.520 than I expect. Uh, we can make more progress on unemployment. 0:02:13.520 --> 0:02:17.920 Inflation might cause me to be higher than three or um. Uh. 0:02:18.160 --> 0:02:21.000 The tenure treasury is something I'll be watching. And what 0:02:21.120 --> 0:02:24.160 the tenure does will also influence how many rate increases 0:02:24.200 --> 0:02:27.959 next year. Yeld curve is something I'll be watching carefully, 0:02:28.000 --> 0:02:30.359 so that could augur the other way. The yield curve 0:02:30.440 --> 0:02:33.280 is flattening. UM, and I wonder whether what the signal 0:02:33.560 --> 0:02:35.880 really is there because most people would say there's a 0:02:35.880 --> 0:02:38.840 massive balance sheet over the ECB. There's a massive balance 0:02:38.880 --> 0:02:41.320 sheet over the b J, and that's why we've got 0:02:41.320 --> 0:02:43.480 this flattening. That's why the tenure yield's not rising. Do 0:02:43.480 --> 0:02:45.480 you see anything in that does that? Aren't you resonate 0:02:45.480 --> 0:02:48.280 with you? So it's a part of it, and by 0:02:48.320 --> 0:02:49.960 the way, I wish it was. I wish that was 0:02:50.000 --> 0:02:52.280 all of it. But my my own view is a 0:02:52.360 --> 0:02:55.400 part of what's going on is global liquidity. But I 0:02:55.440 --> 0:02:58.160 think the bigger part of why the tenure is muted 0:02:58.760 --> 0:03:04.400 is sluggish expectations for out year GDP growth. And what 0:03:04.440 --> 0:03:06.359 I mean by that if you look at what potential 0:03:06.400 --> 0:03:09.520 GDP growth is five years from now, I think it 0:03:09.680 --> 0:03:13.040 is actually declining from where we are today. Why is 0:03:13.080 --> 0:03:18.359 that happening? Aging demographic slowing workforce growth, and sluggish productivity 0:03:18.760 --> 0:03:23.480 unless the United States improves early childhood literacy, college readiness, 0:03:23.560 --> 0:03:26.440 and middle skills training. So I think the tenure treasury 0:03:26.480 --> 0:03:30.359 tells you more about expectations for future growth, which are sluggish. 0:03:30.680 --> 0:03:32.120 And so if you told me we were going to 0:03:32.240 --> 0:03:35.080 have solid GDP growth the next two or three years, 0:03:35.160 --> 0:03:38.839 trailing off to maybe below two percent five years from now, 0:03:39.160 --> 0:03:42.000 I would have expected a flatish yield curve, and that's 0:03:42.000 --> 0:03:44.920 what you're seeing. But you expect the need to address 0:03:44.960 --> 0:03:47.960 structural issues from your response just that. So what's the 0:03:47.960 --> 0:03:50.920 Fed's role in this? Fed? FED has a part in this, 0:03:51.160 --> 0:03:53.240 but not all of it. And I've been a big 0:03:53.280 --> 0:03:56.120 advocate of saying monetary policy is going to be a 0:03:56.200 --> 0:03:59.000 key part of economic policy the next five years. But 0:03:59.120 --> 0:04:01.520 structural reform. Worms were at the stage where we need 0:04:01.560 --> 0:04:04.360 structure re forms. What do I mean regulatory review is 0:04:04.360 --> 0:04:07.120 a good thing. Uh, the corporate The elements of the 0:04:07.160 --> 0:04:10.200 tax bill that involve corporate tax reform I think are constructive. 0:04:11.000 --> 0:04:13.320 We'll come back to the rest of it. I think 0:04:14.320 --> 0:04:17.240 beefing up education. We are lagging in this country in 0:04:17.320 --> 0:04:21.960 terms of educational attainment. It's hurting productivity. And lastly, middle 0:04:21.960 --> 0:04:25.799 skills training is going to be essential, particularly an economy 0:04:25.800 --> 0:04:29.400 where technology enabled disruption is accelerating, and I think we're 0:04:29.480 --> 0:04:31.960 lagging in those areas. You're talking about the tenure as 0:04:31.960 --> 0:04:36.320 an indicator of the market's view of long term potential growth. 0:04:36.839 --> 0:04:39.640 That is completely different than the man down in Washington 0:04:39.720 --> 0:04:41.800 who seems to think the tax cut is going to 0:04:41.920 --> 0:04:45.400 change the whole fundamental picture for the United States? Is 0:04:45.440 --> 0:04:49.480 the market wrong or is the president wrong? So let 0:04:49.480 --> 0:04:52.160 me answer it this way. I've been in the markets 0:04:52.200 --> 0:04:54.760 my entire adult life and been watching them since I 0:04:54.880 --> 0:04:57.320 was before I was an adult, And what I learned 0:04:57.400 --> 0:04:59.679 is I don't always know what the market is saying, 0:04:59.720 --> 0:05:02.040 but I know it always pays attention to try to 0:05:02.080 --> 0:05:05.720 decipher what it's saying. And I think the market is 0:05:05.800 --> 0:05:09.240 saying the bond market is saying expectations for future growth 0:05:09.279 --> 0:05:12.040 are sluggish, and I think it's worth paying attention to that. 0:05:12.240 --> 0:05:14.440 We know Chairman Paul is not listening this morning. He's 0:05:14.440 --> 0:05:19.040 at the dentist. Getting a root can help. I believe 0:05:19.440 --> 0:05:21.440 in Chris Kringle, You're gonna be giving the gift that 0:05:21.520 --> 0:05:24.640 keeps on giving to Jerome Powell, and that would be 0:05:24.680 --> 0:05:26.640 I know what you told me, what you're gonna buy you. 0:05:27.080 --> 0:05:29.559 You're gonna get him a copy of What you really 0:05:29.600 --> 0:05:31.960 Need to lead your heart, your wonderful book. You no 0:05:32.040 --> 0:05:35.280 doubt bought it off Amazon, Chapter four. You can't do 0:05:35.360 --> 0:05:39.599 this alone. Learning to build relationships and harness the power 0:05:39.680 --> 0:05:43.239 of a group Blogny. There were two cents. Every chairman 0:05:43.320 --> 0:05:46.039 is different. What do you presume will be the method 0:05:46.520 --> 0:05:49.440 of Governor Paul as he becomes chairman. So the good 0:05:49.440 --> 0:05:53.280 thing j Pale is outstanding. We've been working together for 0:05:53.400 --> 0:05:55.480 I've been working together with him for more than two years. 0:05:55.600 --> 0:05:58.200 He's been on the FED board for a number of years. 0:05:58.680 --> 0:06:01.240 And the most important thing, and I think Jay will 0:06:01.279 --> 0:06:05.960 be a great leader for this is debate, disagreement, UH 0:06:06.000 --> 0:06:11.160 and UM and to extend humanly policy possible a lack 0:06:11.160 --> 0:06:13.600 of politics, and I think Jay will take that approach. 0:06:13.800 --> 0:06:16.159 Give us a window of what happens at that long 0:06:16.200 --> 0:06:19.480 wooden table. So here here's what happens. We meet on 0:06:19.520 --> 0:06:23.239 Monday UH in d C, and we normally have committee meetings. 0:06:23.720 --> 0:06:26.720 The f O m C starts on Tuesday, and we 0:06:26.760 --> 0:06:29.120 sit around the table. Each of us talks for ten 0:06:29.160 --> 0:06:32.520 minutes and gives our views of the economy and and 0:06:32.600 --> 0:06:36.320 we debated out on day one, that's Tuesday. And on Wednesday, 0:06:36.360 --> 0:06:39.440 we each for ten minutes give our view on monetary policy. 0:06:40.040 --> 0:06:43.160 The chair goes last, as they do on Tuesday, and 0:06:43.360 --> 0:06:46.160 the chair goes last. We debate that out and then 0:06:46.200 --> 0:06:48.800 in the last thirteen seconds of the meeting we vote. 0:06:49.279 --> 0:06:51.920 And so the nice thing about the f O m 0:06:51.960 --> 0:06:54.960 C process, the federal up a market committee process is 0:06:55.040 --> 0:06:57.600 we debate, we disagree, and if someone in the room 0:06:57.680 --> 0:06:59.840 says something, regardless who they are, and I don't agree 0:06:59.880 --> 0:07:02.679 with it, I'm gonna raise my hand, and vice versa. 0:07:02.920 --> 0:07:06.800 And we're each trying to listen, carefully, learn and add insight. 0:07:07.000 --> 0:07:09.159 And so I think it's a pretty healthy dynamic. So 0:07:09.200 --> 0:07:12.360 the man from Minneapolis turns around on Wednesday afternoon and 0:07:12.440 --> 0:07:16.000 says to you guys, no, no, because there's a message 0:07:16.000 --> 0:07:18.640 in the bond market to slow down. You guys should 0:07:18.640 --> 0:07:20.400 slow down. What do you say back to the man 0:07:20.440 --> 0:07:23.000 from Minneapolis. So I think the nice thing, and I 0:07:23.040 --> 0:07:25.360 think it's it's excellent. I think it's a good thing 0:07:25.720 --> 0:07:29.400 that we have disagreement, we have people willing to dissent. Uh. 0:07:29.560 --> 0:07:33.280 We gotta remember, we've been debating. We've been debating around 0:07:33.320 --> 0:07:36.400 the table each of our views. So what happens in 0:07:36.400 --> 0:07:38.560 the last thirteen seconds of the meeting when we vote 0:07:38.600 --> 0:07:40.720 is not a surprise. We already know every each other's 0:07:40.760 --> 0:07:43.400 views and we debate amount and we disagree. Some of 0:07:43.440 --> 0:07:46.560 the disagreements get resolved and some go unresolved. And I 0:07:46.600 --> 0:07:51.240 think that's a good thing. If you my my, my 0:07:51.480 --> 0:07:54.640 rebuttal though, just so you know, is I believe we 0:07:54.680 --> 0:07:57.480 need to take a balanced approach to monetary policy. I'm 0:07:57.480 --> 0:08:00.480 more of a centrist. That means you you look at 0:08:00.480 --> 0:08:03.440 the degree of the full employment overshoot, which I think 0:08:03.480 --> 0:08:06.360 is going to be substantial in two thousand eighteen. You 0:08:06.400 --> 0:08:09.880 look at the degree of the inflation undershoot, which I've 0:08:09.880 --> 0:08:12.920 been a big advocate of, saying part of it is cyclical, 0:08:13.000 --> 0:08:15.400 but bigger part of it is structural. And when I 0:08:15.480 --> 0:08:18.760 weigh those two, I think we'd be well served here 0:08:19.000 --> 0:08:21.400 to remove accommodation, because what you don't want to do 0:08:21.600 --> 0:08:24.960 is wait too long to where your playing catch up. Michael, 0:08:25.000 --> 0:08:28.360 get one last one. Not in the Denver brodcast or 0:08:28.440 --> 0:08:32.520 the Dallas Cowboys, neither one having a season to remember. Um, 0:08:33.679 --> 0:08:36.880 although cowboys getting a little better. Well, the broadcast will 0:08:36.920 --> 0:08:40.360 debate that outside the studio, right. Uh back to that debate, 0:08:40.360 --> 0:08:44.520 though you say we get a substantial overshooting undershoot in 0:08:44.600 --> 0:08:47.439 terms of that unemployment rate, you got a number for that. 0:08:48.400 --> 0:08:53.400 Uh No, I mean there the full employment what is 0:08:53.440 --> 0:08:57.000 theory is a theotal radical level will know it in hindsight, 0:08:57.720 --> 0:09:00.000 But our judgment of the Dallas Fed is we're already 0:09:00.360 --> 0:09:02.680 either there or we're under it. Here's the number I 0:09:02.720 --> 0:09:05.240 look at. I like to look not at the unemployment rate. 0:09:05.280 --> 0:09:08.320 I look at you six. As we've mentioned before, unemployed 0:09:08.360 --> 0:09:11.400 plus discourage workers plus people working part time for economic 0:09:11.440 --> 0:09:15.480 reasons is eight percent, the prerecession low. We're basically at 0:09:15.480 --> 0:09:19.040 the prerecession. That's the number I watch quickly. Does the 0:09:19.120 --> 0:09:27.240 text legislation make the American economy more Texas Like? Uh, 0:09:27.480 --> 0:09:31.959 here's my here, here's there's here's the positive of them 0:09:32.440 --> 0:09:35.560 of this legislation. I think corporate tax reform, incentives for 0:09:35.600 --> 0:09:40.199 people to locate their businesses in the United States are positive. 0:09:40.240 --> 0:09:42.720 I think one of the posities of Texas why people 0:09:42.720 --> 0:09:45.920 are coming. It's a very attractive place to locate your business, 0:09:46.040 --> 0:09:50.199 and a lot of other things, uh no, no state tax, etcetera. 0:09:50.440 --> 0:09:53.800 The part that I'm concerned about is the part that's 0:09:53.800 --> 0:09:57.800 a tax cut financed by increasing the deficit makes a 0:09:57.920 --> 0:10:03.160 problem that's already unsustainable more challenging, and that's my concernin 0:10:03.200 --> 0:10:05.079 Thank you so much, Michael McKee, Thank you so much 0:10:05.120 --> 0:10:08.120 as well. Dr Caplin, Thank you with the Dallas Fed 0:10:08.240 --> 0:10:29.040 as well, Champ Farron, Tom King's this is Bloomberg and 0:10:29.120 --> 0:10:33.240 now for the Minneapolis Fed the dissenter Neil cush Curry, Neil, 0:10:33.280 --> 0:10:36.839 wonderful to have you with us this morning. Is there 0:10:36.880 --> 0:10:40.640 a distinction between your descent and that of the descent 0:10:40.760 --> 0:10:43.640 of Mr Evans of Chicago or are they saying the 0:10:43.720 --> 0:10:48.080 same thing? First of all, Tom, nice to chat with you. 0:10:48.120 --> 0:10:50.840 Thanks for having me. I think Charlie Evans and I 0:10:50.880 --> 0:10:53.040 are probably in the same place. We're both worried about 0:10:53.360 --> 0:10:56.760 low inflation and low inflation expectations and the risk that 0:10:56.840 --> 0:10:59.800 that could become anchored in the economy, and how difficult 0:10:59.800 --> 0:11:03.280 that is to deal with if it does become anchored. Neil, 0:11:03.480 --> 0:11:05.360 why is there a message in the bond market this 0:11:05.440 --> 0:11:07.640 time around, when there was such big balance sheets at 0:11:07.640 --> 0:11:09.599 the e c P and b l J keeping a 0:11:09.720 --> 0:11:12.240 lid on long term yields. Why did you still see 0:11:12.240 --> 0:11:15.920 a message in the yield curve? Well, I think the 0:11:15.960 --> 0:11:19.000 fact that I mean there's I mean, I agree term 0:11:19.000 --> 0:11:22.000 premiums are low now, and so some people say, well, 0:11:22.040 --> 0:11:24.599 this is different because of the big quis and the 0:11:24.640 --> 0:11:26.760 balance sheets that are out there. But the fact that 0:11:26.840 --> 0:11:28.960 the long end of the curve is not responding to 0:11:29.000 --> 0:11:32.120 our rate increases and not responding to the tax cut 0:11:32.120 --> 0:11:34.560 package that has now come together. I think there is 0:11:34.600 --> 0:11:38.120 information contained in that. I mean, even if the quees 0:11:38.160 --> 0:11:40.800 are still having some effect, I would still expect to 0:11:40.800 --> 0:11:42.680 see some movement in the long end of the curve 0:11:43.000 --> 0:11:45.800 in response to this new information. The fact that it's 0:11:45.840 --> 0:11:48.520 not and we're, in my opinion, we're sending a very 0:11:48.559 --> 0:11:51.640 hawkish signal by raising rates at a time of low 0:11:52.000 --> 0:11:55.359 and seemingly falling inflation. I think the FED is responsible 0:11:55.360 --> 0:11:57.600 for pushing up the front end and keeping a lid 0:11:57.600 --> 0:11:59.959 on the back end, so going full ward. I just 0:12:00.040 --> 0:12:01.839 wonder what this means for policy. It's the message in 0:12:01.880 --> 0:12:04.120 the yield curve recession risk, because most people would say 0:12:04.160 --> 0:12:06.440 it's not that, it's the message slowed down. Is that 0:12:06.440 --> 0:12:09.520 what you've taken away from its slowed down or recession risk? 0:12:11.280 --> 0:12:13.360 I think it's Look, it could be both. I mean, 0:12:13.559 --> 0:12:15.840 you know, every time somebody says this time is different, 0:12:16.080 --> 0:12:18.960 they usually end up regretting saying that because it ends up. 0:12:19.120 --> 0:12:21.559 You know, the future looks more like history than we 0:12:22.000 --> 0:12:25.080 maybe we recognize at the time. Number one. Number two, 0:12:25.320 --> 0:12:27.600 the fact is, if the bond market is telling us 0:12:27.640 --> 0:12:31.200 that they've got low inflation expectations, or they're pricing in 0:12:31.240 --> 0:12:34.199 a local low neutral real interest rate, a low our 0:12:34.280 --> 0:12:36.920 star as we call it. Both of those should be 0:12:36.960 --> 0:12:39.680 telling us, hey, we should be cautious about raising interest 0:12:39.760 --> 0:12:43.360 rates further until we actually see the inflationary pressures building. 0:12:43.600 --> 0:12:46.040 You know, when I first dissented in March, I was 0:12:46.120 --> 0:12:49.000 just saying, I don't see any inflationary pressures building. Why 0:12:49.040 --> 0:12:51.880 are we raising rates. What's happened since then, inflation has 0:12:51.880 --> 0:12:55.160 actually fallen, not gone up. I think we should take 0:12:55.200 --> 0:13:01.280 these signals seriously. Each voice is just inctive. You are 0:13:01.679 --> 0:13:05.080 the engineer at the FED. Twenty years ago, you were 0:13:05.120 --> 0:13:09.480 in the acclaimed Sun Race, which was an intercollegiate solar 0:13:09.559 --> 0:13:13.280 car race Illinois. I believe did better than good within 0:13:13.440 --> 0:13:16.840 that race. Is there physics envy at the FED? Do 0:13:16.880 --> 0:13:20.000 you look around, you know, from a Newtonian standpoint of 0:13:20.000 --> 0:13:22.400 where you are, do you look around at people being 0:13:22.520 --> 0:13:26.679 too mathy, too certain in their physics versus what you 0:13:26.760 --> 0:13:31.080 observe within the economy. Well, I I do think there's 0:13:31.080 --> 0:13:33.000 some of that, and I think I've described it as 0:13:33.000 --> 0:13:36.200 a as a tension between faith and data. I think 0:13:36.200 --> 0:13:38.880 there's some folks who have tremendous faith in the Phillips 0:13:38.880 --> 0:13:41.559 curve that this is the way the economy works. Labor 0:13:41.600 --> 0:13:44.600 markets get tight, wages go up. That leads to inflation 0:13:45.520 --> 0:13:48.120 versus looking at the data. And I I keep coming 0:13:48.120 --> 0:13:50.520 back to what is the data actually telling us? And 0:13:50.520 --> 0:13:53.280 we're trying to assess supply and demand in the labor market. 0:13:53.559 --> 0:13:56.040 If you want to assess supply and demand in a market, 0:13:56.360 --> 0:13:58.720 let's start by looking at the price. What is the 0:13:58.760 --> 0:14:01.360 price telling us, Well, we know that wage growth is 0:14:01.400 --> 0:14:04.280 not accelerating. We've been expecting it to accelerate, but it's 0:14:04.320 --> 0:14:07.640 not accelerating. That tells me there's probably still more slack 0:14:07.679 --> 0:14:09.920 in the labor market and that's why we're not seeing 0:14:09.920 --> 0:14:11.800 these pressures building. Now, do you have any on data 0:14:11.800 --> 0:14:14.199 on how much lower unemployment can gug because we're in 0:14:14.240 --> 0:14:15.840 the low full as you're looking for something in the 0:14:15.840 --> 0:14:20.840 low threes. Well, I think that that number is uh, 0:14:21.000 --> 0:14:23.840 probably somewhat distorted right now because if you look at 0:14:24.240 --> 0:14:28.360 prime age labor force participation, so workers roughly fifty five, 0:14:28.800 --> 0:14:31.960 there are still more than a million workers on the sidelines. 0:14:32.280 --> 0:14:34.760 If you look at labor force participation and employment to 0:14:34.840 --> 0:14:38.040 population ratios. Now, can all million be brought back in? 0:14:38.280 --> 0:14:40.760 I don't know, but it does seem to be that 0:14:40.800 --> 0:14:43.680 there's more slack in the labor market than that headline 0:14:43.720 --> 0:14:46.200 unemployment rates suggests. I mean, what we're learning is that 0:14:46.520 --> 0:14:50.080 the deep that the Great Recession was so destructive to 0:14:50.120 --> 0:14:53.360 the labor market, some of these measures are a little 0:14:53.480 --> 0:14:56.160 broken right now, that the measures themselves seem to be 0:14:56.160 --> 0:14:58.920 flawed right now. A lot of people are criticizing you, 0:14:59.400 --> 0:15:04.120 MR because you're looking simplistically at the dynamics of the 0:15:04.200 --> 0:15:08.200 yield curve in your essay on the Minieapolis FED website. 0:15:08.480 --> 0:15:11.040 You go right to it and you say, what is new? 0:15:11.840 --> 0:15:15.720 Is the flattening yield curve? Is it new in the 0:15:15.840 --> 0:15:19.800 recent months or is it new in FED history that 0:15:19.840 --> 0:15:25.000 we're getting these odds fixed income dynamics. No, it's new recently. 0:15:25.080 --> 0:15:27.360 I mean we've seen flattening yield curves before. We saw 0:15:27.400 --> 0:15:29.560 it in the mid two thousands, we saw it in 0:15:29.560 --> 0:15:32.880 the late nine nineties, and by the way, look at 0:15:32.880 --> 0:15:34.920 both of those periods. In the late nineties and in 0:15:34.960 --> 0:15:38.240 the mid two thousand's, the stock market was rocketing. So 0:15:38.320 --> 0:15:40.080 I don't take any comfort from the fact that the 0:15:40.160 --> 0:15:42.920 yield curve is flattening and the stock market is rocketing 0:15:42.960 --> 0:15:45.120 because it's done it in the past, and the bond 0:15:45.160 --> 0:15:47.920 market was right and the stock market was wrong. And 0:15:48.000 --> 0:15:51.400 I'm not predicting a recession. I'm simply saying inflation is low. 0:15:51.840 --> 0:15:54.880 It's been falling this year. Why are we in such 0:15:54.920 --> 0:15:57.840 a rush to go raise rates? Why not actually allow 0:15:57.960 --> 0:16:00.960 that inflation to reveal itself. Well, you know, we have 0:16:01.120 --> 0:16:03.880 very powerful tools to deal with high inflation. We are 0:16:04.000 --> 0:16:06.680 very limited tools to deal with low inflation soil, So 0:16:06.760 --> 0:16:09.400 why are we jumping the gun? The pushback will be 0:16:09.760 --> 0:16:13.800 financial distortions, negative yielding debt north and nine trillion dollars worldwide. 0:16:14.040 --> 0:16:16.560 There's a tradeoff here, and it's a tradeoff over about 0:16:16.600 --> 0:16:19.640 fifty basis points on PC. If you wait for inflation 0:16:19.640 --> 0:16:22.480 to get up towards two, financial distortions are going to 0:16:22.560 --> 0:16:25.560 get even bigger. You're not sensitive to the trade off 0:16:25.560 --> 0:16:28.240 between what's happening in financial markets and what might happen 0:16:28.240 --> 0:16:32.520 with PC. Well, this goes back to UH and I 0:16:32.520 --> 0:16:35.040 wrote a long piece on my website about this. This 0:16:35.120 --> 0:16:37.560 goes back to using interest rates to try to deal 0:16:37.600 --> 0:16:40.280 with the stock market bubble and how costly. That is 0:16:41.720 --> 0:16:44.280 you both know Alan Green's band declared that we had 0:16:44.320 --> 0:16:48.400 a rational exuberance. If he had used monetary policy to 0:16:48.440 --> 0:16:51.240 try to stop the stock market from rising, I think 0:16:51.240 --> 0:16:54.359 that would have been much more costly to the economy 0:16:54.360 --> 0:16:57.680 into workers than the actual correction that took place in 0:16:57.720 --> 0:17:00.720 two thousand and the fairly mild recession and that followed. 0:17:00.960 --> 0:17:02.840 So to me, we have to look out for financial 0:17:02.840 --> 0:17:06.440 stability risks like two thous the tech bubble, the tech 0:17:06.480 --> 0:17:10.119 bubble bursting was not a financial stability event. Neil Cosh Curry, 0:17:10.240 --> 0:17:12.760 thank you so much, greatly appreciated. He is a president 0:17:13.119 --> 0:17:16.080 of the Filler Reserve Bank of Minneapolis. Greatly appreciate his 0:17:16.119 --> 0:17:19.359 attendance today. That's pretty good, John Capital and Cash Curry. 0:17:19.440 --> 0:17:21.560 That's quite a morning. That's quite a morning. Thank you 0:17:21.600 --> 0:17:38.000 to Michael McKee. This is Bloomberg. This is a joint 0:17:38.040 --> 0:17:40.919 and honor. He's out of Purdue and Penn State. His 0:17:41.000 --> 0:17:45.919 name is William Hoblin. And his experience in Washington with 0:17:45.960 --> 0:17:49.480 Alice Rivlett at CBO a few years ago and was 0:17:49.560 --> 0:17:53.360 senators first of Tennessee Senator to Manici as well, has 0:17:53.400 --> 0:17:58.000 been extraordinary and he is deeply experienced in the realities 0:17:58.119 --> 0:18:04.480 of text legislation. William Hoglan is UH very important voice 0:18:04.480 --> 0:18:09.439 at the Bipartisan Policy Center in Washington. I'm gonna give 0:18:09.440 --> 0:18:12.320 you an open question, Bill, because you've got such experience, 0:18:12.560 --> 0:18:17.240 breadth and depth. Is you look at the different scenarios, 0:18:18.200 --> 0:18:22.119 the analysis of the last three or four days. What's 0:18:22.200 --> 0:18:25.959 the thing that sticks out to you in this website, 0:18:26.040 --> 0:18:30.879 this website and that website. Well, first of all, thank you, 0:18:30.960 --> 0:18:34.080 You're very kind of your introductions. Tom. What stands out 0:18:34.119 --> 0:18:36.440 to me, I guess as I look at this is 0:18:37.000 --> 0:18:40.640 the fact that the American public, in terms of polling 0:18:40.720 --> 0:18:44.399 on this particular UH piece of legislation, seems to be 0:18:44.480 --> 0:18:48.720 somewhat negative. That they perceive it as a privately probably 0:18:49.480 --> 0:18:52.800 mostly a benefit to the upper income and corporate America, 0:18:52.960 --> 0:18:56.120 no benefit to them. And I see this as juxtaposed 0:18:56.200 --> 0:18:58.960 up against a president who says, this is a cut 0:18:59.000 --> 0:19:02.000 for the middle This the reduction in tacts for middle class, 0:19:02.040 --> 0:19:05.200 it will grow the economy, and the and the benefits 0:19:05.200 --> 0:19:07.760 are straight. So there seems to be a real disconnect 0:19:07.760 --> 0:19:10.560 what Congress is doing and what the American public believe 0:19:10.640 --> 0:19:13.480 this legislation will do. I'm assuming William Hogan is going 0:19:13.520 --> 0:19:15.840 to tell us there's gray in the middle. Well, where's 0:19:15.880 --> 0:19:18.359 the gray? Is it towards the president or is it 0:19:18.440 --> 0:19:22.120 towards our listeners? Well, I think that that's a very 0:19:22.119 --> 0:19:24.520 good question. I think it's gray. I think there have 0:19:24.600 --> 0:19:26.200 been I think first of all, when you look at 0:19:26.280 --> 0:19:30.040 what will what is likely to happen when this is enacted, 0:19:30.080 --> 0:19:32.320 And as I understand, the Secretary of Minution and the 0:19:33.040 --> 0:19:35.960 Treasury Department are moving in I R. S is moving 0:19:36.000 --> 0:19:39.040 to change the withholding tables so that they will have 0:19:39.160 --> 0:19:45.440 an impact upon twenty withholding. It should be some benefits there. 0:19:45.640 --> 0:19:49.439 When you look at the legislation, it does have reductions 0:19:49.520 --> 0:19:52.000 across the board. It seems now some people will benefit, 0:19:52.080 --> 0:19:55.280 some people won't, but overall there will be a reduction 0:19:55.400 --> 0:19:59.359 in average tax take out there from the American public. 0:19:59.720 --> 0:20:02.080 How Ever, the big problem is, as I see it, 0:20:02.160 --> 0:20:04.920 is that a number of these and particularly the rate 0:20:05.000 --> 0:20:07.680 cuts and the child credits and things that the middle 0:20:07.720 --> 0:20:12.600 class America are looking for, go away in and so 0:20:12.960 --> 0:20:16.200 and yet the corporate tax cuts and the other larger 0:20:16.280 --> 0:20:19.560 tax cuts for for business continue on. So there is 0:20:19.800 --> 0:20:23.640 what I'm afraid this legislation is not going to unite 0:20:23.840 --> 0:20:26.359 UH the American public. I think it will continue to 0:20:26.440 --> 0:20:29.440 divide us and continue to add to the polarization that 0:20:29.800 --> 0:20:34.160 seems to be somewhat rather pervasive throughout the country today, Bill, 0:20:34.200 --> 0:20:36.600 I want to dig into the polarization and maybe draw 0:20:36.640 --> 0:20:40.480 distinction between perception and reality. On the perception. Is this 0:20:40.520 --> 0:20:43.679 a communication problem with this administration? Have they sold this 0:20:43.800 --> 0:20:48.920 plan badly over the last couple of months? Um, listen, 0:20:48.960 --> 0:20:51.240 I I I believe that we need a tax reform. 0:20:51.280 --> 0:20:54.680 I believe the President UH and the administration in Republican 0:20:55.200 --> 0:20:58.640 Democrats believe that we need tax reform. I think what's 0:20:58.680 --> 0:21:01.959 been done where they missed on this is and I 0:21:02.280 --> 0:21:05.720 no no surprise coming from the Bipartisan Policy Center where 0:21:05.720 --> 0:21:07.679 I worked today that I think it would have been 0:21:07.720 --> 0:21:11.840 a much more acceptable plan had they had. Republicans chose 0:21:11.920 --> 0:21:15.159 not to go the route of using what we call 0:21:15.200 --> 0:21:18.480 the budget reconciliation process. It requires them to only have 0:21:18.520 --> 0:21:21.159 a simple majority in the Senate to passage. Like the 0:21:22.680 --> 0:21:25.159 tax reform bill was done in a biparson way and 0:21:25.200 --> 0:21:29.760 it had sustainability in it. I think this particular legislation 0:21:30.200 --> 0:21:32.760 will have for Republicans. It will be similar to what 0:21:32.920 --> 0:21:36.320 President Obama had with the Affordable Care Act, where it 0:21:36.440 --> 0:21:40.000 was not passed with any Republican support, only Democratic support. 0:21:40.080 --> 0:21:42.880 Now we have a legislation only passing with Republican support. 0:21:43.160 --> 0:21:45.440 That means, from my perspective, we're going to be debating 0:21:45.480 --> 0:21:49.080 tax reform all the way through the next midterm and 0:21:49.200 --> 0:21:51.439 into the presidential election. Bill Hope. Then I want you 0:21:51.480 --> 0:21:55.040 to take this out to your perdue in the Lafayette 0:21:55.320 --> 0:21:58.560 zip code for seven nine o nine. Good morning, Pretty Materials. 0:21:58.800 --> 0:22:02.600 You've got a concrete come pretty out in western northern Illinois, 0:22:02.720 --> 0:22:05.720 south of Gary where perdue as I get it, okay, 0:22:05.920 --> 0:22:09.199 Pretty Materials. What does this mean to a normal small business, 0:22:09.240 --> 0:22:12.479 not some real estate tycoon on Fifth Avenue. What does 0:22:12.480 --> 0:22:15.560 it mean to a company like Pretty Materials? Well, I 0:22:15.600 --> 0:22:19.600 do think that the pass through changes that the changes 0:22:19.640 --> 0:22:21.520 in the past through the S corporation. I think the 0:22:21.560 --> 0:22:23.920 reductions there. I do think that there is a benefit 0:22:24.480 --> 0:22:27.480 to some of the smaller businesses and small business out there, 0:22:27.520 --> 0:22:31.240 the individuals and entrepreneurship. I do think that that is positive. 0:22:31.640 --> 0:22:35.679 I also think generally that that there that as we 0:22:35.720 --> 0:22:39.760 get into this and we start to see the implementation 0:22:39.840 --> 0:22:45.159