Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, SoundCloud, Bloomberg dot Com,
Speaker 1: and of course, on the Bloomberg Terminal. Adam Posen should
Speaker 1: always be with us in Washington. He's president of the
Speaker 1: Peterson Institute, former Bank of England Policy Committee member, and
Speaker 1: with the Peterson Institute has provided terrific economic leadership and
Speaker 1: right now timely Brexit leadership as well. He had a
Speaker 1: root canal done at the Royal College of Surgeons recently
Speaker 1: with the Peterson Institute and gave an important speech. You
Speaker 1: spoke what Prime Minister Johnson wants to do, which is
Speaker 1: making a global Britain. How much damage as Prime Minister
Speaker 1: caused and the effort of the United Kingdom to move forward.
Speaker 1: Thanks for having me, Tom, and this president excuse me,
Speaker 1: this prime minister who thinks he's a president, has caused
Speaker 1: untold damage the Brexit situation by doing brinksmanship with the
Speaker 1: EU over Northern Ireland was huge. Undermines trust and undermine
Speaker 1: certainty for investment. It shows how damaging Brexit is that
Speaker 1: on the one hand, Northern Ireland is doing better than
Speaker 1: the rest of the UK because of the non implementation.
Speaker 1: And even as crazy Briggs and Minister Rhese Moggs said,
Speaker 1: I can't fully implement brexitause it will just make inflation
Speaker 1: go higher. Can the parliamentary system, the present structure, survive
Speaker 1: modern news flow, modern acuity, the speed of information today?
Speaker 1: It seems I make a joke about the wars of
Speaker 1: the Roses. This is not funny. Lancasters in New York.
Speaker 1: York has had time to breathe. Yeah, this glorious summer
Speaker 1: of the Son of York is already coming to an end.
Speaker 1: And as Jonathan was just saying, you've got turnover and
Speaker 1: prime ministers so repeatedly fast. But it's not just there, right,
Speaker 1: I mean, we have politicians disliked on both parties in
Speaker 1: the US. We have in France mccron go from a
Speaker 1: win to a few weeks later a complete setback in parliament.
Speaker 1: We have a genuine like the seventies crisis of democracy.
Speaker 1: There was a famous report Tom, You're two young, but
Speaker 1: Sam Huntington and others wrote for the Trial Atteral Commission
Speaker 1: back in the seventy three about the crisis. You're just
Speaker 1: killing me. You're clashing with me. I'm gonna save you both.
Speaker 1: You don't clash anymore. On the policy front. On fiscal policy,
Speaker 1: there's a mechanism to deal with this. Yeah, you understand
Speaker 1: the perspective here. There will be a new leader of
Speaker 1: the party, there will be a new Prime minister, there
Speaker 1: will be immense pressure to call for an election. I
Speaker 1: have no idea if that's going to happen. What we
Speaker 1: need to work out from the fiscal side is what
Speaker 1: is the optimal fiscal policy right now to address the
Speaker 1: problems we have in this economic problems that are not
Speaker 1: just unique to the UK, that's similar to Europe and
Speaker 1: in the United States as well. I can't work out
Speaker 1: what that policy setting should actually look like, what we
Speaker 1: should be asking from the next government. It's a tough situation, Johnathan.
Speaker 1: You're absolutely right. In the UK, because it's shrunk itself
Speaker 1: through Brexit, it's more vulnerable to being an echo chamber
Speaker 1: for shocks. So, as I argued last month, when the
Speaker 1: inflation hits the same as everybody else gets the inflation,
Speaker 1: it resonates more and amplifies more in rattling around in
Speaker 1: the UK because you've got a more limited labor market
Speaker 1: because they've shut out the EU workers. You've got less
Speaker 1: inputs and more expense to get inputs because of the
Speaker 1: Brexit red tape as well as the pricing. So what
Speaker 1: you need is a fiscal policy that simply has to
Speaker 1: accept that that's the reality. And the biggest thing that
Speaker 1: they can do is keep the fiscal balance on the
Speaker 1: right track. Because they are small now and you can
Speaker 1: see the pressure on the pound. It may have popped
Speaker 1: up a little with the prospect of Boris Johnson's departure,
Speaker 1: but in the end they're not gonna They have to
Speaker 1: avoid overheating more than anybody else of this size. The
Speaker 1: Governor County I remember bringing up a few years ago
Speaker 1: he said the speed limit of the UK the British
Speaker 1: economy has changed that once you become supply constraint, and
Speaker 1: perhaps permanently so, then you start to bump against this
Speaker 1: inflation problem, perhaps more often than not. And I wonder
Speaker 1: whether we've broken into perhaps a new regime that's going
Speaker 1: to stick around. And I'm just wondering how you're thinking
Speaker 1: about that dynamic and whether that's unique to the UK
Speaker 1: or is that a problem we all share. No, I
Speaker 1: think it's more unique to the UK. More unique isn't
Speaker 1: a real word, but anyway, I think it's primarily UK
Speaker 1: and not US or Europe. I think people are making
Speaker 1: a mistake if they think we're in a new inflation regime.
Speaker 1: In general, I think we're going to fall back, but
Speaker 1: in the UK you've fallen back towards the seventies, so
Speaker 1: it is a new regime and they have to worry more.
Speaker 1: I've been saying this since Brexit. The Bank of England
Speaker 1: and we're seeing it now has to keep one eye
Speaker 1: on the pound, one eye on inflation expectations in a
Speaker 1: way that they didn't before. I want to coach up
Speaker 1: here under the real ad imposing theme of the last
Speaker 1: couple of years. And no one has captured this more
Speaker 1: than you. Olivier Blanchard had the courage at the I
Speaker 1: M F. Stiglet's to begin to consider four percent inflation
Speaker 1: is a goose out of the great financial crisis. You
Speaker 1: carry that forward to say the new two percent is
Speaker 1: three percent, And I see an entire world and entire
Speaker 1: zeiteguys catching up with that. Imposing refresh that. Right now,
Speaker 1: does your own Powell have to go to three percent
Speaker 1: or institutionally does he have to stick with two percent?
Speaker 1: In name, he's going to have to stick with two percent. Tom.
Speaker 1: What I had been hoping was we would have a
Speaker 1: little bit of inflation and that would allow them to
Speaker 1: opportunistically say, Okay, we're above three. We're not going to
Speaker 1: go all the way down the two. Given the credibility concerns,
Speaker 1: which I think are overdone but for the moment are real.
Speaker 1: They're not gonna be able to say that. They probably
Speaker 1: can't say that until the next strategic review, which is
Speaker 1: what What they can do, however, is what's likely to happen,
Speaker 1: which is they're going to bring inflation and down it.
Speaker 1: Maybe second quarter of twenty three and maybe third quarter
Speaker 1: of twenty three. They'll get it down, so it starting
Speaker 1: with a three handle, and there may be a recession
Speaker 1: that goes with it, and at that point they're not
Speaker 1: going to ease up before then. That they'll ease up
Speaker 1: then and it will be de facto looking like three
Speaker 1: for Global Wall Street. And I've got to be very careful,
Speaker 1: your folks. We have a cardinal surveillance rule We do
Speaker 1: not do differential equations with the White House in the
Speaker 1: background ever. All but the math here is really important.
Speaker 1: We're it's a nine percent inflation. It's highly non linear,
Speaker 1: highly non smooth to bring it down. Which inflation point
Speaker 1: matters to you right now? Is it getting to five percent?
Speaker 1: Is it making that first tick down or do we
Speaker 1: have to wait, wait, wait to get down to three
Speaker 1: percent to get any sense of market calm. No. I
Speaker 1: think once you're on five and it's clearly trend below
Speaker 1: five and it's clearly trending down, you should have the
Speaker 1: market calm. And you're already seeing the calm frankly in
Speaker 1: the long bond um. Not calm about the recession, but
Speaker 1: calm about inflation in the forwards. That's what you're seeing.
Speaker 1: And so I think they just have to The big issue,
Speaker 1: which goes to my colleague Blanchard and Summers, is how
Speaker 1: much wage inflation is there going to be? The big
Speaker 1: difference right now is not that we all got that
Speaker 1: right in Peterson that the inflation was gonna be much higher,
Speaker 1: and Larry and Olivier did their job great and did
Speaker 1: that Um. But the issue is how costly it is
Speaker 1: to bring it down how high the terminal rate has
Speaker 1: to be. And I still take the under versus Larry
Speaker 1: and Olivier because I think the wage inflation is going
Speaker 1: to tail off now. If it turns out unit labor
Speaker 1: costs are still going up, you know, in a few months,
Speaker 1: rather than starting to trend down, then Olivia and Larry
Speaker 1: are probably right, in which case we're going to see
Speaker 1: real You're gonna have to have positive real rates. They
Speaker 1: still hope we don't have to go all the way
Speaker 1: there the payrolls tomorrow, let's talk about the incoming danks
Speaker 1: rather than last several months. What we have said is
Speaker 1: decent gangs on the payrolls front. Unemployment has actually still
Speaker 1: coming down even as we've achieved that, and white just
Speaker 1: haven't accelerates it. Some paper sitting cab might say, maybe
Speaker 1: this labor market is not as tight as we perhaps
Speaker 1: thought it was. What would your take me from just
Speaker 1: looking at data the last couple of months. Well, to
Speaker 1: be honest, just looking at the data, das and it's
Speaker 1: it's screwy data. I mean, what we've got is the
Speaker 1: labor market numbers, which generally have been the most reliable
Speaker 1: data for the US or any major economy. You rely
Speaker 1: on your labor market numbers and tell you what's going on,
Speaker 1: and they've been really completely out of whack because remember
Speaker 1: we had at least on paper contraction in the first quarter,
Speaker 1: and yet we see these incredible labor market numbers. So
Speaker 1: we see vacancy ratios too, meaning number of jobs available
Speaker 1: to job seekers at levels we've never seen before. We
Speaker 1: have a new paper, as it happens, coming up from Peterson,
Speaker 1: from Blanchard and Summer's looking at this. It will be
Speaker 1: out probably next week um and they basically say, you've
Speaker 1: got to take this seriously. Labor market is genuinely very tight.
Speaker 1: I'm more of the persuasion. You look at the numbers.
Speaker 1: If they don't make sense, there's something wrong with the numbers.
Speaker 1: So if you're a policy make for again, how would
Speaker 1: you interpret the account information? What would you look at
Speaker 1: We've had from Chaman Pal who's looked at things like
Speaker 1: consumer expectations on inflation, and you, Mitch, that's new to
Speaker 1: all of us. That's a little thing in a day
Speaker 1: to point that we kind of use the pad attention to.
Speaker 1: And that's the difference between fifty basis points and Steff
Speaker 1: I think I think that focusing on that one data
Speaker 1: point and using that to explain the vers fifty, I
Speaker 1: think it was a mistake in communication. Frankly, I think
Speaker 1: what they've got to be focused on are two things.
Speaker 1: They've got to be focused on, trends and unit labor
Speaker 1: cross meaning productivity wages net of productivity. And the second
Speaker 1: thing they've got to be looking at is the longer
Speaker 1: term expectations in the bond market. Both of those are
Speaker 1: looking flattish to down very quickly. Here we have an
Speaker 1: experiment underway behind us, a central bank or Secretary of Treasury.
Speaker 1: How's the yellowing experiment going. I think her signature issue,
Speaker 1: which is the International corporate tax deal is was the
Speaker 1: right priority for her and for this country. I think
Speaker 1: she did a good job of getting as far as
Speaker 1: it has gone, but now somehow you have to get
Speaker 1: the Senate to buy it. I think the American rescue
Speaker 1: package was too big and too short a time, but
Speaker 1: that was for ordained. I don't I don't talk about individuals.
Speaker 1: I don't even individuals I respect greatly, or because individuals
Speaker 1: ask me every day. I ask you that someone's going
Speaker 1: It's like Trump, They're gonna have to drag him out,
Speaker 1: kicking into it, tims like Trump and we can we
Speaker 1: clip that just like that out for the rest of
Speaker 1: this day. I just wonder at him and just briefly,
Speaker 1: would you even call the American rescue plan the yelling experiment? No,
Speaker 1: it was, it was. That was exactly my point. I'm
Speaker 1: sorry I didn't get it out. Really, it was Pelosi
Speaker 1: and humor with Biden's acceptance that that was the plan.
Speaker 1: It whether or not I have no idea what went
Speaker 1: on in the White House and Treasury and the decision.
Speaker 1: But the biggest issue was once that plan was clear,
Speaker 1: it falls on the feed. The feed should have been
Speaker 1: tightening and worrying more and forecasting more inflation once that plan.
Speaker 1: This has been a wonderful kind of the Institute. Adam,
Speaker 1: thank you. We need to drive for the conversation on
Speaker 1: the nation. We do so with Briandese's National Economic Council Director,
Speaker 1: of course, working for years with Gene Sperling. And what
Speaker 1: is most important here and part of the act of
Speaker 1: Bloomberg surveillance and what we did with Bloomberg on the
Speaker 1: economy is microeconomics matters. There's too many people out there
Speaker 1: blathering the big picture without the foundations under it. Mr
Speaker 1: d snows some Middlebury one economics micro economics matters. I
Speaker 1: would suggest the price theory is going in your direction.
Speaker 1: There's little indications that maybe the pain is over. Not
Speaker 1: all clear, but you can you say there's some constructive
Speaker 1: elements out there that you see, we'll look to start.
Speaker 1: Prices are unacceptably high, we are also seeing some moderation,
Speaker 1: and that moderation is important. You've seen it in core
Speaker 1: PCE that that that the metric that the Fed traditionally
Speaker 1: relies on moderation over the last three months, particularly compared
Speaker 1: to the prior and as you mentioned, we're seeing for
Speaker 1: the typical American consumer a little bit of relief at
Speaker 1: the gas pump, prices down to about four seventy five,
Speaker 1: down from you know, down more than five cents. But
Speaker 1: let's be let's be clear, they're still unacceptably I we've
Speaker 1: got a long way to go, and so we've got
Speaker 1: to keep our head down and keep a focus on
Speaker 1: bringing prices down while not giving up all the economic
Speaker 1: gains that we've made. One of our wonderful guests, Jim Bion,
Speaker 1: Uncle of Chicago, or a whip inflation now button on
Speaker 1: the show the other day, you people have avoided the
Speaker 1: idiocy of the early nineties seventies. But with that, the
Speaker 1: president has to provide a morale boost two people hammered
Speaker 1: by inflation. How do you do that. It's not just
Speaker 1: a morale boost, and we have to act, and we
Speaker 1: have to show action on bath of the American people.
Speaker 1: And that's exactly what the president is doing. He's saying,
Speaker 1: bringing prices down is his trap priority, and every day
Speaker 1: he's focused on practical things that he can do. So
Speaker 1: the release of oil from the Strategic Petroleum Reserve sounds
Speaker 1: esoteric to people, but you know, oil market analysts you've
Speaker 1: had on this show will say it was single handedly responsible.
Speaker 1: From keeping keeping oil prices going higher, moving to work
Speaker 1: with the refineries to try to keep refinery capacity online,
Speaker 1: that is important. It makes a difference, and as we're seeing,
Speaker 1: we're starting to see a little bit of that moderation
Speaker 1: at the pump. The President is saying, let's do more,
Speaker 1: Let's do everything we possibly can. He called for a
Speaker 1: temporary holiday for the gas tax. That's not going to
Speaker 1: solve every issue. That would make a little bit of
Speaker 1: difference as well. So you need a president who's going
Speaker 1: to keep at it and who's going to communicate clear
Speaker 1: to the American people that we are making progress, that
Speaker 1: we have made enormous economic progress, but that he's not satisfied,
Speaker 1: and we're gonna stay at it. You know, satisfied either.
Speaker 1: But you've talked about a high aggult. You've talked about
Speaker 1: defending the world lived for Lauder and that we had
Speaker 1: to stand firm. What did you mean by that, Well,
Speaker 1: let's be very clear, that's a concept that Republicans and
Speaker 1: Democrats have embraced four years and it's about democracy. It's
Speaker 1: about the democracy and the democratic tradition that grew out
Speaker 1: of World War Two, and it has served our national
Speaker 1: security interests, in economic interests well. And standing up for
Speaker 1: democracy is something that this president feels strongly about. And
Speaker 1: so we are going to fight to bring prices down,
Speaker 1: We're going to fight to get increased oil supply on
Speaker 1: the market. But what we're not going to do is
Speaker 1: to suggest that the only way to do that is
Speaker 1: to actually step away from the Ukrainian people, to step
Speaker 1: away from fighting for democracy and everything that that if
Speaker 1: standing up for democracy is tritty paramount, and you've quite
Speaker 1: clearly just suggested, it is, why is this administration considering
Speaker 1: removing tariffs on the Chinese Communist Party, which is anything
Speaker 1: but a democracy, and it's also a government that you've
Speaker 1: accused of genocide. Why is that a consideration and how
Speaker 1: does that reconcile with this view that this is about
Speaker 1: standing up for democracy. Our economic policy should be about
Speaker 1: promoting economic security for American workers, American businesses, American families,
Speaker 1: and so we have to look at everything through that lens.
Speaker 1: In the prior administration, they took an approach to escalating
Speaker 1: trade tensions and a trade war with China that ultimately
Speaker 1: what didn't serve the perfect that purpose, didn't help our
Speaker 1: farmers and our ranchers, didn't help many sectors of the economy.
Speaker 1: So President Biden came into office committed to the proposition
Speaker 1: that we need to get tough on China. There are
Speaker 1: places where we need to be tougher and clearer about
Speaker 1: their non market practices, about their human rights abuses, but
Speaker 1: we also need to be smarter about how to do
Speaker 1: this as well. Why is that smarter? And let's got
Speaker 1: back to the question again and let things out. Clearly,
Speaker 1: you've accused the Chinese Communist Party of genocide. You're saying
Speaker 1: that what is paramount here is defending democracy and the
Speaker 1: defending the liberal world order is more important than the
Speaker 1: pain that people fail at the pump, and ultimately this
Speaker 1: administration is considering removing town riffs. I wasn't convinced by
Speaker 1: the last dounce, so I don't think many of us
Speaker 1: will either. This is an awkward moment, I know, but
Speaker 1: I really need to understand from you what makes sense
Speaker 1: for this administration to consider removing tariffs on a country
Speaker 1: that you're accusing of genocide. First of all, I want
Speaker 1: to be you, you miscaraschist. My positions are want to
Speaker 1: clarify faced bringing prices down for American people as the
Speaker 1: President's top priority. He's focused on it every day, and
Speaker 1: it's because he understands the pain that people are feeling
Speaker 1: at the gas plump and around the kitchen table. At
Speaker 1: the same time, he does not believe that the way
Speaker 1: to do that would be to step back from our
Speaker 1: democratic values or to step back from protecting UH the
Speaker 1: Ukrainians against the invasion from Vladimir Putin. He does not
Speaker 1: believe that that is an acceptable or an appropriate choice. So,
Speaker 1: given that our focus is on how can we actually
Speaker 1: advance the ball And you're seeing the President in action
Speaker 1: right now doing that. The actions that he's taken around
Speaker 1: oil supply, the actions that he has taken around refineries,
Speaker 1: the actions that he has calling for around tax productions,
Speaker 1: they all would make a difference, and they make a
Speaker 1: difference for American family. Let's sit on Chinese just for
Speaker 1: one final question and try and focus on policy. And
Speaker 1: I appreciate you follow up as let's talk about what
Speaker 1: you can do, because what we understand is that you're
Speaker 1: looking to remove some tariffs on certain goods, but perhaps
Speaker 1: double down the effort elsewhere. Can you give me a
Speaker 1: deeper understanding of where the current thinking of this White
Speaker 1: House is and the direction of travel for policy, Well,
Speaker 1: there's no question that if you look at what the
Speaker 1: Chinese economy and the non market practices that the Chinese
Speaker 1: uh the Chinese leadership are undertaking, that there are sectors
Speaker 1: of the economy where they are engaged in on acceptable activities,
Speaker 1: and that those are present a strategic risk to our
Speaker 1: economy and our national security. And so those are the
Speaker 1: places where we need to focus on using all of
Speaker 1: the tools at our disposal. Tariffs are one tool but
Speaker 1: we have other tools as well to make sure that
Speaker 1: we are protecting key sectors of the American economy and
Speaker 1: that we are holding to account for those. You look
Speaker 1: at something like semi conductors, which we've talked about before
Speaker 1: and which is incredibly salient. We of course need to
Speaker 1: act here in the United States to invest in building
Speaker 1: our own domestic resilience, but we also have to take
Speaker 1: seriously that some of the actions that China are taking
Speaker 1: expose us more deeply, and we need to counter those.
Speaker 1: Brande's wanted for to catch up the director of the
Speaker 1: National Economic Council. We need to talk about this market,
Speaker 1: and we can do that with the LEFIA. Door Wada,
Speaker 1: the managing director of Rock Creep Group A Lefia. Can
Speaker 1: we start here the Everything pain portfolio. I mean, it's
Speaker 1: anything working this year. I mean you talked about uncertainty
Speaker 1: polit on the political front just as much in the markets, right.
Speaker 1: I mean, there's three themes that everyone's talking about, and
Speaker 1: it used to be short term themes. Now it's going
Speaker 1: to affect the portfolio for the next two, three or
Speaker 1: four years. Right, slowing global economy, monetary tightening and inflation,
Speaker 1: and the impact from the Ukraine Russia War. Nothing has
Speaker 1: been resolved there, We're still in the same oil hundred
Speaker 1: dollars hundred and five? Does matter? You and a Shani
Speaker 1: are too young to remember seventy nine and the glory
Speaker 1: of the bond bear market. Then you people advise on
Speaker 1: quiet money. You have never seen bond losses like this.
Speaker 1: How does quiet money recover in bonds price up, yield down?
Speaker 1: What is the actual mechanism to do that? Well, you know,
Speaker 1: it's very interesting, and so thank you for calling me
Speaker 1: so young. First of all, I appreciate that. I don't
Speaker 1: know if some of my colleagues will be flattered. I
Speaker 1: think a lot of us can remember some of the
Speaker 1: pain points in the markets though, And I think one
Speaker 1: of the interesting things about the fixed income markets today
Speaker 1: is we're very looking, very very closely at where is
Speaker 1: the ten uere yield going to go? What time line
Speaker 1: do we have, and how do we start to manage
Speaker 1: our fixed in You're engaging very institutionally of full faith
Speaker 1: and credit. Yes, for now, we haven't started to see
Speaker 1: a ton of signs of distress, but there are a
Speaker 1: lot of indicies that we're looking at, a lot of metrics.
Speaker 1: We're looking at to see if the corporate bond market
Speaker 1: is starting to crap? Would you describe in we've taken
Speaker 1: out the wides of like about five fifty through those levels.
Speaker 1: That was enough for this Federal reserve back then to pivot. Clearly,
Speaker 1: different world, different inflation level. How do you judge what
Speaker 1: is stressful this time compared to what was stressful then? Yeah? Well,
Speaker 1: you know, we have the benefit of investing in a
Speaker 1: lot of debt financing types of strategies, right, so we're
Speaker 1: looking to see what is the underwriting, has it loosened?
Speaker 1: We're looking to see where will the cracks be. We're
Speaker 1: looking at the high yield market, I mean spreads up
Speaker 1: wide and over five hundred basis points right in the
Speaker 1: last few months. We're looking to see where the relative
Speaker 1: opportunities and are you getting paid for that risk? There's
Speaker 1: going to be risk in the market, right but defaults
Speaker 1: would have to double if we wanted to see a
Speaker 1: huge loss in our high yield portfolio. So is it
Speaker 1: the right time to start stepping in. I'm not saying
Speaker 1: we're doing anything right now. I think it's a wait
Speaker 1: and see moment, and I think we're gonna have to
Speaker 1: wait and see where things you know, shake out. But
Speaker 1: there are pockets of opportunity that we are starting to see.
Speaker 1: And I don't think we have to worry as much
Speaker 1: about credit risk in our fixting come portfolio as we
Speaker 1: do about duration. What are you waiting for? Talking about
Speaker 1: what you're waiting for? You stress we're not doing anything
Speaker 1: right now? Went off inflation. I think it's been clear
Speaker 1: by the FED that that is their target. They're looking
Speaker 1: at inflation, and everything's hinging around inflation, and consumer demand
Speaker 1: is going to hinge around inflation. We have a huge
Speaker 1: earning season coming up right, I mean July is going
Speaker 1: to be a bellweather of inflation. UM expectations, what our
Speaker 1: companies seeing, what our corporates pricing in Q one was
Speaker 1: pretty good. Everyone can I can admit to that Q
Speaker 1: two probably not as good. Q three expectations are going
Speaker 1: to be worse. If consumer demand starts to fall, then
Speaker 1: I think that we will continue to see pain in
Speaker 1: the market, and where we want to see the market
Speaker 1: shake out a little more in pain before we start
Speaker 1: making real investment. The heritage of Rock Creek, when we
Speaker 1: meet with Asani and Davos, is natural gas. She owns
Speaker 1: the high ground on the dynamics of gas and hydrocarbons
Speaker 1: as well. What is your response to the surge that
Speaker 1: they're living in continental Europe about natural gas? I mean,
Speaker 1: it's it's standard deviations out, isn't it. The entire energy
Speaker 1: complex were in a different world right, and there are
Speaker 1: a ton of investment opportunities, as you've heard from us before,
Speaker 1: in terms of the energy complex, in terms of natural gas,
Speaker 1: in terms of the tail winds for renewable energy, wind solar,
Speaker 1: There is so much that we can look at in
Speaker 1: terms of the next five ten years, and we're positioning
Speaker 1: our portfolios to take advantage of all of that, and
Speaker 1: unfortunately Europe is going to take the pain in the interim.
Speaker 1: You're you're advising Rock Creek wanders into the White House
Speaker 1: to day to meet with almost and President Biden here
Speaker 1: on Llergy. Can you be optimistic that Lergy can rescue
Speaker 1: Europe by December? Not by December? I think that's a
Speaker 1: that's a heavy task. I think that everything that is
Speaker 1: going on within Russia and Europe is going to dictate
Speaker 1: whether Europe comes out ahead at the end of the year.
Speaker 1: But I'll tell you we're not, you know, bullish on
Speaker 1: Europe despite valuations, and it's because of the geopolitical tensions
Speaker 1: and the energy complex. How can you really be overweight
Speaker 1: Europe today? That's the difficult question that a lot of
Speaker 1: people have, and some of that mats to the right.
Speaker 1: Differentials even matter to the year when you count. Tell
Speaker 1: me where the proces gast this year? Rent, you know
Speaker 1: where I feel on this differentials and spreads. Heather Bauchet
Speaker 1: with us right now. To say she's a member of
Speaker 1: the Council of Economic Advisors doesn't describe how important her
Speaker 1: position is. Her book Unbound stopped economic traffic a number
Speaker 1: of years ago and looking at the inequalities of the nation.
Speaker 1: And she has an economic pedigree very different from most,
Speaker 1: including working at the University of Hile, Bronner and Bernstein,
Speaker 1: the New School of Social Research in Washington. Are you
Speaker 1: treated how are you treated by the fancy academics from
Speaker 1: fancy schools. They wouldn't know that, you know, the New
Speaker 1: School of Social Research if it hit him over the head. Well,
Speaker 1: you know, in econ circles, I think what matters is,
Speaker 1: you know, how will we talked about the economy? And
Speaker 1: I think I have not experienced discrimination based on my pedigree.
Speaker 1: We're ALcom to talk about jobs claims. That's inappropriate right
Speaker 1: now given the policies of the White House. But we
Speaker 1: can talk about the state of inequality in this nation
Speaker 1: when you speak to the President, when you advise others
Speaker 1: in the White House. What is the character of our
Speaker 1: labor inequality right now? Well, one of the things that
Speaker 1: we've seen since the President took office is in large
Speaker 1: part due to policies like the American Rescue Plan, like
Speaker 1: making sure that we wrapped our hands around the pandemic
Speaker 1: and got the job market back in motion. We've actually
Speaker 1: seen that this has been good for addressing inequality over
Speaker 1: the past over the past or year and a half.
Speaker 1: What remains to be seen is whether or not we
Speaker 1: can continue those trends. But certainly the President was focused
Speaker 1: first and foremost on getting people back to work. And
Speaker 1: we know that for the vast majority of Americans, the
Speaker 1: vast majority of their income comes from their job. So
Speaker 1: if people have jobs, and especially jobs in an economic
Speaker 1: or wages arising, that is that is so important. We
Speaker 1: don't we forget, we're so jaded in our Bloomberg world.
Speaker 1: If you're open two or three hundred thousand jobs a month,
Speaker 1: nine farm payrolls. For any president, that's a success. I
Speaker 1: would say the difference between Wall Streight and Main Street,
Speaker 1: and there are many, Let's be clear about that. On
Speaker 1: Wall Street is an addiction to trying off headline numbers
Speaker 1: and not talking about the disparity beneath those headline numbers.
Speaker 1: We hear phrases like the consumers strong, the labor market
Speaker 1: is is tight. Do you characterize those two things quite
Speaker 1: the same way. I think what we are looking at,
Speaker 1: and certainly what the Council of Economic Advisors is looking
Speaker 1: at more generally, is you know, how how many people
Speaker 1: have jobs? Where are those jobs? What does that look
Speaker 1: like for people? What is family economic security? Because that's
Speaker 1: the foundation of spending across our economy, consumer spending GDP,
Speaker 1: So making sure that we are attending to that basic
Speaker 1: fundamental fact. You know, the President said it so many
Speaker 1: times now that his goal is to build an economy
Speaker 1: from the bottom up, in middle out and that's a
Speaker 1: promise that he has made to the American people and
Speaker 1: one that he's working each and every day to keep.
Speaker 1: This is a difficult question to answer to grant it,
Speaker 1: but I imagine you've done so research on this. When
Speaker 1: you look at incomes right now, particularly for lower income Americans,
Speaker 1: what proportion of that wallet are they now spending on energy?
Speaker 1: Just how bad is it out there for them? Certainly
Speaker 1: the high prices and energy and also food affect lower
Speaker 1: income families more so than hiring compliments because a big
Speaker 1: portion of their income. And it's also money that they
Speaker 1: have to spend. If you have to put gas in
Speaker 1: your car in order to get to your job, that's
Speaker 1: not that's not something that you have a choice over.
Speaker 1: So this is one of the reasons why the President
Speaker 1: has prioritized doing everything he can to get inflation down
Speaker 1: and to doing everything he can to get gas prices down,
Speaker 1: noting that we are here because we've been recovering from
Speaker 1: a global pandemic that has led to supply chain challenges
Speaker 1: around the world. This inflation is global, it's not just
Speaker 1: in the United States. And of course you add to
Speaker 1: that the war in the Ukraine that Putin is waging.
Speaker 1: All of these things are making it harder for especially
Speaker 1: moderate and low income Americans. What they can do is
Speaker 1: a question that we've been asking or morning, what can
Speaker 1: you do? What can you do to actually offset any
Speaker 1: of this pain? For Americans right now. We've talked about
Speaker 1: the trial balloons that are floating outside the White House
Speaker 1: on almost the weekly basis right now. We've heard about
Speaker 1: a fuel rebate, We've heard about all kinds of things,
Speaker 1: removal of Chinese tariffs, proposals that aren't being executed on
Speaker 1: at least I haven't seen them. What can you do
Speaker 1: and what do you expect to happen? Well, so the
Speaker 1: President has been very clear and focusing on what he
Speaker 1: has control over. So one of the things that he
Speaker 1: did early on that I think it's been incredibly important
Speaker 1: has been releasing oil from the Strategic Petroleum Reserve, so
Speaker 1: working with our allies around the world, making sure that
Speaker 1: oil was available in this time of need when we
Speaker 1: do have the supply chain supply side shortages. The President
Speaker 1: is also over the past couple of weeks been working
Speaker 1: with refiners. We know that one of the challenges is
Speaker 1: that many refineries, too many shut down over the pandemic.
Speaker 1: Capacity has been constrained. The President is working and is
Speaker 1: and is asked his Energy secretary to work with refiners
Speaker 1: to see what they can do to get things flowing again,
Speaker 1: but also noting that because of high oil prices because
Speaker 1: of my gas prices. These folks are making a lot
Speaker 1: of money, so they have resources to make those investments.
Speaker 1: On the hall from your office in the White House
Speaker 1: is a political raging battle oversay. How to take Pennsylvania
Speaker 1: at the mid terms, How to take Pennsylvania in two
Speaker 1: thousand twenty four. All of that is about the rage
Speaker 1: of the middle class, either Republican or Democrat, or the
Speaker 1: inequalities which you've written about in your claim book Unbound.
Speaker 1: How do we address in this nation the idea that
Speaker 1: technology benefits the havels. Technology maybe benefits all of society,
Speaker 1: but technology burdens and lowers the outcome the standard of
Speaker 1: living for the great middle class. How do we make
Speaker 1: technology a friend of people that want to vote Democrat. Well,
Speaker 1: a number of things that the President has focused on
Speaker 1: are about that um and maybe your your viewers don't
Speaker 1: quite see the connection, and so let me like outline
Speaker 1: of them. So one of them is early on the
Speaker 1: President put out an all of government effort around market
Speaker 1: structure and competition. Let's make sure that markets are fair
Speaker 1: and that they deliver for the American people, including But
Speaker 1: this is important. There's a huge body of people of
Speaker 1: all political persuasions who feel it's rigged. It's rigged here
Speaker 1: at Lafayette Square, it's rigged in the inner Northwest district
Speaker 1: of Washington as well. How do we regain the trust
Speaker 1: of the middle class that institutions can lead to a
Speaker 1: better life. You do You do it by delivering. So
Speaker 1: you think of some of the things that the presidents
Speaker 1: delivered on just in recent months, things like making sure
Speaker 1: that prices on ocean shipping are fair. And so many
Speaker 1: of the things that we buy come on a ship
Speaker 1: that comes from overseas, but that process has been circumscribed
Speaker 1: by a small number firms. So the President is using
Speaker 1: his tools to say, let's make sure that those prices
Speaker 1: that people are paying are fair. Is he blocked by Republicans.
Speaker 1: So here's the thing. The get A branch does have
Speaker 1: a lot of power when it comes to enforcing antitrust laws.
Speaker 1: The President is made clear that that that price fairness
Speaker 1: is a number one goal and that feeds to the
Speaker 1: whole economy. And he's also prioritized making sure that if
Speaker 1: you are a worker in a market where there are
Speaker 1: few employers for your services, that those markets can be
Speaker 1: more fair, more open. And I think That's one of
Speaker 1: the ways that you can see the role of technology
Speaker 1: in the kinds of algorithms that affect who's hired, who's fired,
Speaker 1: what pay is. These are issues that the President is
Speaker 1: bringing is brought to the fore. But the other thing
Speaker 1: that he's prioritized day in and day out is allowing
Speaker 1: workers to join unions. That's one of the ways that
Speaker 1: we address in equality. It's one of the ways that
Speaker 1: we think about how the economy can deliver for working
Speaker 1: people and how it can be fair and build that
Speaker 1: trust through democratic institutions on the ground, in workplaces all across.
Speaker 1: That word fair and you and I have had this
Speaker 1: conversation before. It sometimes makes it sound like something nefarious
Speaker 1: has in certain places. The President of the weekend said this,
Speaker 1: My message to the companies running gas stations and setting
Speaker 1: prices at the pump is simple. This is a time
Speaker 1: of war and global peril. Bring down the price you
Speaker 1: are charging at the pump to reflect the cost you're
Speaker 1: paying for the product, and do it now. Jeff Bezos
Speaker 1: came out and tweeted the following up, Sure you read it.
Speaker 1: Inflation is far too important a problem for the White
Speaker 1: House to keep making statements like this. It's either straight
Speaker 1: ahead misdirection or a deep misunderstanding of basic market dynamics.
Speaker 1: I'm not going to accuse you of the latter. I
Speaker 1: want to talk about the former. Where's that messaging coming
Speaker 1: from the President has made clear that his number one
Speaker 1: goal is delivering for the American people. We are in
Speaker 1: a time of crisis. We are in a time of
Speaker 1: war where where the president or allies we are supporting
Speaker 1: the Ukrainian people. Congress has engaged in this effort, both
Speaker 1: says the Aisle to say, this is an important priority
Speaker 1: and one of the consequences is this high price of
Speaker 1: oil because of global trans answer his important should everyone
Speaker 1: either everyone in the nation wants to know the answer
Speaker 1: to the question Mr Ferrell just asked you, which is
Speaker 1: who is advising the president unshockingly naive price theory over
Speaker 1: a gallon of gas? So the President is not shockingly naive,
Speaker 1: and we are in this moment of global crisis in
Speaker 1: terms of energy, and he is using the tools at
Speaker 1: his disposable disposal to make sure that the prices that
Speaker 1: people pay at the prompt are fair. So what we
Speaker 1: know in oil prices is that the prices can they
Speaker 1: can rise very quickly. It can take a long time
Speaker 1: for those prices to recalibrate and to come back down.
Speaker 1: And he's saying, do that faster. You have the capacity
Speaker 1: to do so you're making profits. But the important thing
Speaker 1: is that he's using the tools at his disposal given
Speaker 1: this very challenging central planning. Now, is that what this
Speaker 1: has come to, that central planing to sit here and
Speaker 1: decide what's fair, what's not fair, and then go on
Speaker 1: Twitter and say this is unfair, bring your prices down.
Speaker 1: But it's markets or is it not markets as a
Speaker 1: capitalism or is it central planning? Where's this warehouse going.
Speaker 1: One of the things that the President has prioritized is
Speaker 1: understanding the way the concentration across markets has affected the
Speaker 1: American people. Is affecting markets. We know when there are
Speaker 1: very few players, this is econ one O one. You
Speaker 1: know when there's a monopoly that that there is more
Speaker 1: price setting power. And that's one of the things that
Speaker 1: we know about what I think on a calendarful what
Speaker 1: I want? Had a fantastic at the catch up with you,
Speaker 1: Stephanie Aaronson had of economics at Brookings and of course
Speaker 1: at Brookings Institution. That stopped the world of think tanks
Speaker 1: a number of years ago, when down one hallway you
Speaker 1: had a shingle that said Bernanke and a shingle that
Speaker 1: said yelling as well. What was it like for you
Speaker 1: to wander in a daily basis and have a cup
Speaker 1: of coffee with the Bernankey yelling access. It's funny because
Speaker 1: I'd had the opportunity to work with both of them
Speaker 1: when I worked at the Federal Reserve, and then to
Speaker 1: see them in this context was really a treaty once?
Speaker 1: Was it a talk where Bernanke once said I announced him,
Speaker 1: introduced him at the conference, and then he said, Stephanie
Speaker 1: used to work for me, and now I work for Stephanie.
Speaker 1: So the climate yellow now Secretary yelling? Is this word
Speaker 1: slack the measurement of the inefficiencies within the American economy.
Speaker 1: Many in society, including those that support President Biden, would say,
Speaker 1: there is still slack in our labor economy? Is there?
Speaker 1: I think by some measures there is some slack. In particular,
Speaker 1: the labor force participation rate is still a bit low
Speaker 1: relative to where we would think, even given the fact
Speaker 1: that the trend in participation is going down. But unfortunately,
Speaker 1: now the Fed also has to worry about inflation, and
Speaker 1: so they can't, you know, make the labor market perfect.
Speaker 1: I think at this point back a company is we
Speaker 1: were talking about getting back to where we were, getting
Speaker 1: that employment to population ratio back to where we were.
Speaker 1: Clearly inflation has interrupted that ultimate objective that so many
Speaker 1: of these people had. But what has happened? Do you
Speaker 1: think there was wild and I was part of the
Speaker 1: conversation used to ask the question is it the benefits
Speaker 1: the excess benefits with sending to people that are keeping
Speaker 1: them out of the labor force. Doesn't seem like it
Speaker 1: was that we asked that question a million times. What
Speaker 1: do you think it is? My McKay, they're just talking
Speaker 1: about the I S M services yesterday. Send them with
Speaker 1: I have a demand problem, we still have a supply problem.
Speaker 1: Where are they? I mean, I think one of the
Speaker 1: things is that when the pandemic hit, a lot of
Speaker 1: people were forced to leave the labor force, and then
Speaker 1: they make decisions that are keeping them out now. So
Speaker 1: people can decide to stay home and take care of
Speaker 1: their children or their elderly parents, they go back to school.
Speaker 1: And I like to say that these decisions are sticky
Speaker 1: and so you know, even though maybe there are more
Speaker 1: opportunities in the labor force now, people have just changed
Speaker 1: their behavior in a way that is causing them not
Speaker 1: to look for employment. Now. It may be over time
Speaker 1: if the you know, employment continues to expand, unemployment rates
Speaker 1: days low, some of these people will be brought back
Speaker 1: into the labor force, but that will just take time.
Speaker 1: How high does the price need to go to change
Speaker 1: that behavior? I'm not talking about inflation, I'm talking about whites.
Speaker 1: How high does that need to go to ultimately get
Speaker 1: that supply side response that we just haven't seen in
Speaker 1: a profound way. Yeah, I think no one knows the number.
Speaker 1: But it's clear that workers in the United States are underpaid.
Speaker 1: They hadn't had you know, wage gains in real terms
Speaker 1: for decades, and we're making up for some lost time now,
Speaker 1: but it's clear we haven't made up enough. I got
Speaker 1: eight ways to go here. I'm gonna go to the
Speaker 1: lawyer Paul Romer at n y U and the idea
Speaker 1: of technology and the impact of compensation. Where executives now
Speaker 1: are salary and bonus, and you'd say, over fifteen years,
Speaker 1: they know they don't get that bonus if labor gets
Speaker 1: that pay raise. Are we at, as Bullard would say,
Speaker 1: are we at a regime change now in labor and
Speaker 1: finally lower deciles can begin to catch up. That's certainly
Speaker 1: what it has seemed like in the wake of the pandemic.
Speaker 1: I think one of the big questions is whether that
Speaker 1: will persist as the economy slows. But the basic observation
Speaker 1: John and I get tons of mail on this all
Speaker 1: the time. Chee's we can't hire name the job shortstops
Speaker 1: for for the Washington Nationals, whatever. If that's the case,
Speaker 1: just pay them more. If you pay them more, do
Speaker 1: they show up? Workers show up if you paid them more?
Speaker 1: And I agree, I think you have identified a big puzzle.
Speaker 1: It's often in surveys of businesses they say they can't
Speaker 1: hire workers, and then when you know, the question comes
Speaker 1: to have you raised wages, they say no, what do
Speaker 1: they expect? It's to me generationalizes are with this in mind?
Speaker 1: What do you make of what the Federals is trying
Speaker 1: to achieve. I think they're trying to achieve something very difficult.
Speaker 1: I think it's not impossible. You know, clearly they need
Speaker 1: to slow the economy in order to bring down inflation.
Speaker 1: Part of the problem is that a lot of the
Speaker 1: you know, causes of inflation right now are on the
Speaker 1: supply side, and the FITS tools are not really good
Speaker 1: for lowering oil prices or food prices. You know. All
Speaker 1: they can do is try to slow demand. So I
Speaker 1: think that it will be difficult for them to do,
Speaker 1: but it's certainly not impossible. I'm just bringing up their
Speaker 1: forecasts for unemployment on the Blimberg terminal three point two
Speaker 1: twenty three. It ticks up to three point nine, then
Speaker 1: four point one. We've asked the million guests this question.
Speaker 1: Is that aspirational overly optimistic? Some people might say fanciful,
Speaker 1: what do you call it? I think that they would
Speaker 1: have to be very lucky to achieve that. The truth is,
Speaker 1: at times when the FED has really wanted to bring
Speaker 1: down inflation, they've ended up causing a recession. And I
Speaker 1: don't expect if we do, you know, go that route.
Speaker 1: I don't expect it to be very deep. We're not
Speaker 1: looking at, you know, the vulgar recession of the early
Speaker 1: nineteen eighties or the Great Recession. But I think it
Speaker 1: will be hard for them to substantially slow the economy.
Speaker 1: You know, typically when the employment rate rises like that, right,
Speaker 1: you want to get a quote on a ten ure
Speaker 1: to you at a four decimal places, But we won't
Speaker 1: do that. Instead, we'll say, does someone fancy like you
Speaker 1: look at jobless claims? I think the jobless claims are
Speaker 1: not that helpful. I think, I mean, part of it
Speaker 1: is that a lot of the slowing early on comes
Speaker 1: from firms stopping to hire. So the first thing we're
Speaker 1: gonna see if we're really you know, the the labor
Speaker 1: market cools is firms are going to reduce their hiring
Speaker 1: and job openings should go down, and we know the
Speaker 1: FED is counting on that, and then eventually firms do
Speaker 1: start to lay off workers and the claims numbers will
Speaker 1: go up. You know, we've seen a little bit of
Speaker 1: an increase, But I don't put too much weight on
Speaker 1: that five. I mean perspective, hits set five historically something well,
Speaker 1: not even not even number. What's your favorite chart right now?
Speaker 1: What's the chart that tells the greatest story right now
Speaker 1: of the American labor economy? I mean, actually I have
Speaker 1: to side with yelling here and say I really like
Speaker 1: the quits because I think the quits rate says something
Speaker 1: about how confident workers are feeling in the economy, and
Speaker 1: the quits rate is high and in May the latest
Speaker 1: data we have it kind of side ways. So the
Speaker 1: confidence right now is still there. They feel good about
Speaker 1: quitting the job, but ultimately they're not happy with the economy.
Speaker 1: Can you reconcile? No, I can't. I go to a
Speaker 1: death sile's time for this, but I go to a
Speaker 1: dec sile analysis. We should extend the decile is different,
Speaker 1: Stephanie Alison Stefanitely. Thanks you. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
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Speaker 1: Tom keene In. This is Bloomberg m