Speaker 1: This is Bloomberg Wall Street Week. We turn our attention
Speaker 1: to the markets this week. U S CPI nevers, reinforcing
Speaker 1: concerns about inflation. The financial stories that chiep are worth
Speaker 1: a really different reaction to Mark. It's more indications of
Speaker 1: just how hot the U. S. Economy really is. Through
Speaker 1: the eyes of the most influential voices Larry Summers, the
Speaker 1: former Trickery Secretary, Katherine Keating, CEO of the n Y Moms,
Speaker 1: Sam's l Sharmon and founder of Equatic Group Investment in
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 1: Hoping for better days, but not before we get through
Speaker 1: the fear of more gun violence, of keeping our democracy safe,
Speaker 1: and of a recession. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. This week's special contributor Larry Summers on
Speaker 1: just how bad that recession could get and whether there
Speaker 1: could be something worse coming. I still do think we
Speaker 1: have a meaningful amount of inflation that we have to
Speaker 1: get out of the system. And Rick Reader of Black
Speaker 1: Rock on how we could use the expected down turn
Speaker 1: to make sure we come back stronger. It's a very
Speaker 1: challenging period to think through when you're trying to evaluate
Speaker 1: risk versus reward. This week, there was a lot of
Speaker 1: talk about what could go wrong in Ukraine, as European
Speaker 1: leaders like Italy's Mario Draggy traveled to Kiev to say
Speaker 1: Ukraine should join the European Union. A Cristo propos to
Speaker 1: this purpose. I want to say today that the most
Speaker 1: important message of our visit is that Italy wants Ukraine
Speaker 1: in the European Union. While in the United States, concerns
Speaker 1: over more gun violence led Republicans and Democrats finally to
Speaker 1: come together on gun legislation, driven as Republicans Senator Cornin explained,
Speaker 1: by constituents demanding action since shooting my officers received because
Speaker 1: I'm sure many other members of Congers have have received
Speaker 1: tens of thousands of calls and letters and emails with
Speaker 1: a singular message. Do some Even as the Supreme Court
Speaker 1: came down with a landmark decision striking down as unconstitutional
Speaker 1: New York's license requirement for carrying concealed weapons and having
Speaker 1: a gun out in the open, these like it's incendiary.
Speaker 1: It will only add to fear, it will only add
Speaker 1: to conflict and the potential for violence and when Congress
Speaker 1: wasn't doing something to address people's fears about guns, it
Speaker 1: was investigating a day when lawmakers fear for their own
Speaker 1: safety as rioters came within feet of Vice President Pence,
Speaker 1: approximately forty ft. That's all there was between the Vice
Speaker 1: president and the mob. But the fear most investors were
Speaker 1: talking about it was the fear of recession. As FED
Speaker 1: Chair Powell traveled to Capitol Hill to say it was possible,
Speaker 1: but not inevitable. It's not our intended outcome at all,
Speaker 1: but it's certainly a possibility, And many investors said it
Speaker 1: was more than just possible, the essentially as inevitable. At
Speaker 1: some point, it's almost unavoidable. I got to think that
Speaker 1: the odds side, I think there's going to be a recession.
Speaker 1: Our economist, as you've noted this morning, had increased their
Speaker 1: odds of the recession this year. This inflation is quite bad.
Speaker 1: It's it's intransigent, it's not transitory, and the consequence will
Speaker 1: be the recession. And if all that weren't enough, on Friday,
Speaker 1: the Supreme Court came down with its monumental decision, overturning
Speaker 1: fifty years of president deciding the Constitution does not protect
Speaker 1: any right to abortion, something President Biden called a tragic
Speaker 1: mistake to day to Sutreme courts in the United States
Speaker 1: expressly took away the conscious right from the American people
Speaker 1: that it has already recognized. They didn't limit it, they
Speaker 1: simply took it away. That's never been done to write
Speaker 1: so important to so many Americans, but they did it.
Speaker 1: It's a sad day for the court and for the country.
Speaker 1: While Republican House Minority of Leader Kevin McCarthy found the
Speaker 1: ultimate affirmation of American values, the voiceless finally a voice.
Speaker 1: This great nation can now live up to its core
Speaker 1: principle that all are created equal, not for an EU
Speaker 1: created equal, and a good part of American business was
Speaker 1: quick to respond, with companies like Amazon, Apple, Disney, and
Speaker 1: JP Morgan pledging to do all that they could to
Speaker 1: support their employees getting abortions in states that still permit them.
Speaker 1: Here to sort through it all with us are Jim McDonald,
Speaker 1: Northern Trust chief investment strategist and Christina Hooper, chief Global
Speaker 1: strategist at Investo. So welcome, Jim and Christina. Great to
Speaker 1: have your Christina, let me start with you on what
Speaker 1: happened with bond yields because they had been really ramping up.
Speaker 1: There's been a lot of all today they settled down
Speaker 1: a bit today this week. Is that because of a
Speaker 1: fear of recession. I do think that it is what
Speaker 1: we're seeing is concerns about at least a slowdown. I
Speaker 1: don't know if it's exactly a recession. I would argue
Speaker 1: that we'll still be able to avoid a recession in
Speaker 1: the United States. And one could argue that that's what
Speaker 1: the bond market telling us. So, Jimmy, isn't that exactly
Speaker 1: what the Fed wants? Is a slowdown maybe short of recession. Absolutely,
Speaker 1: And so I think the softives and commodity prices in
Speaker 1: recent days has also contributed to the moderation and bond yields.
Speaker 1: And the Fed is tightened financial conditions dramatically. And all
Speaker 1: you have to do is look at what's happened to
Speaker 1: mortgage rates and the impact and the housing market that
Speaker 1: that is starting to have to understand that the Fed's
Speaker 1: impact is already starting to make a difference. Well, I
Speaker 1: wonder if we got a University of Michigan consumer sentiment
Speaker 1: numbers out on Friday and they came off a little
Speaker 1: bit actually on the longer term five to ten year
Speaker 1: expectation and inflation. Are we starting to see some effect
Speaker 1: of the FED, do you think? I do think we are.
Speaker 1: I mean, but we're also just starting to see a
Speaker 1: reflection of some commodity prices. Energy prices easing a bit
Speaker 1: in the last several weeks, so I think that is
Speaker 1: reflected in it. I mean. J Powell even said in
Speaker 1: in that FOMC press conference that there is a pretty
Speaker 1: strong correlation between energy prices headline CPI essentially, and inflation
Speaker 1: expectations for consumers. Jim, how much they concerned about inflation
Speaker 1: actually comes right off of energy, just straight off energy.
Speaker 1: I think it's extremely high. I think if you look
Speaker 1: at the correlation between gas prices and the Michigan survey,
Speaker 1: it's really high. It's the most visible demonstration of what
Speaker 1: energy costs are to the consumer. And so I think
Speaker 1: it's going to be a critical point to inflation expectations
Speaker 1: and bond yields over the next year that we see
Speaker 1: at least a flattening, if not some moderation in gasoline prices. Okay,
Speaker 1: Christina Hooper of Invesco and Jim McDonald of Northern Trust
Speaker 1: We'll stay with us as we take take a look
Speaker 1: at the market, at what they did to us last
Speaker 1: week as opposed to what they can do for us
Speaker 1: next week. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Everyone's looking at housing and saying it's too
Speaker 1: high priced, and labor costs too much in the material,
Speaker 1: that too much on the land, is too much, and
Speaker 1: they all sit there and say it isn't that terrible?
Speaker 1: What are they gonna do about it? That was Pierre
Speaker 1: Renfred of Rentfred Boston appearing on Wall Street. We way
Speaker 1: back in nineteen seventy six, and it looks like we're
Speaker 1: back to some version of that world again, with higher
Speaker 1: prices and higher input costs for housing, but a slowing
Speaker 1: economy and FED chair j Poale told us this week
Speaker 1: a slowing housing market as well. Still with us our
Speaker 1: Christina Hooper of Invesco and Jim McDonald of Northern Trust. Jim,
Speaker 1: this is exactly where you left us off on the
Speaker 1: housing market. We heard j Pale this week say, yes,
Speaker 1: it is slowing. We could even have housing prices go
Speaker 1: down at least in some markets. How big a drag,
Speaker 1: potentially even a danger of the economy is the housing market.
Speaker 1: I think the danger is more from the volume standpoint
Speaker 1: than it is from the price standpoint. If you think
Speaker 1: of out housing today, it's about four and a half
Speaker 1: percent of the economy. It got to six and a
Speaker 1: half during the bubble, so we're nowhere closed to that
Speaker 1: level of an impact. And what I think will provide
Speaker 1: some cushion to the downside on prices is an inventory
Speaker 1: is incredibly low, Vacancies are very low, So while the
Speaker 1: jump and mortgage rates really hurts affordability, there is just
Speaker 1: a mismatch between demand and supply that I think we'll
Speaker 1: put some downside underneath prices. And I think it's going
Speaker 1: to take a long time to work through that and
Speaker 1: get to the point where supply meets demand, especially given
Speaker 1: all the supply chain issues were currently experiencing. It's just
Speaker 1: not an environment in which we're going to see a
Speaker 1: lot of homes built, especially first time home buyers homes.
Speaker 1: So Christina, give us a little investment advice here, right,
Speaker 1: that's what we really want. We're saying we're clearly going
Speaker 1: into a downturn. We don't know how bad it will be.
Speaker 1: At the same time, we know we'll come out of
Speaker 1: at some point. As an investor, what do I do
Speaker 1: in the short intermediate term to make sure I'm protected,
Speaker 1: But as important, perhaps more important, what I do to
Speaker 1: position myself to come out of that downturn stronger than ever. Well.
Speaker 1: I think it's a great question. I think it's great
Speaker 1: to look at it essentially in two phases, because what
Speaker 1: we're experiencing right now is this significant drop in the
Speaker 1: stock market and actually a significant stop drop for some
Speaker 1: fixed income um And what has driven that is expectations
Speaker 1: about uh an economic slowdown, whether or not it's an
Speaker 1: actual recession a slowdown. We know that markets tend to
Speaker 1: signal economic events before they happen, So I think that
Speaker 1: before long, certainly before the end of the year, we'll
Speaker 1: start to see a start stock market recovery in anticipation
Speaker 1: of an economic recovery next year, and so I think
Speaker 1: we have to keep that in mind. Too often investors
Speaker 1: have gotten spooped. Look at the global financial crisis. How
Speaker 1: many people got out towards the bottom locked in losses.
Speaker 1: I think it's critical to be forward looking and think
Speaker 1: of this time frame as actually a time to start
Speaker 1: um looking for opportunities to start dollar cost averaging. I
Speaker 1: think you want over the shorter term to have a
Speaker 1: pretty neutral stance when it comes to risk, but start
Speaker 1: to look and start to allocate for that recovery because
Speaker 1: the recovery I think is going to be longer lived
Speaker 1: than the downturn Jim. Right now, a lot of people
Speaker 1: are talking about high yield because of their turns. You're
Speaker 1: getting on high yield right now over seven percent, maybe
Speaker 1: eight per cents on the event. Is that a place
Speaker 1: we want to be right now? I think it is.
Speaker 1: And if you want to be defensive in this environment,
Speaker 1: HW yield bonds provide about one third of the downside
Speaker 1: risk that equities do. And an important distinction is do
Speaker 1: you think of high yield is a fixed income alternative
Speaker 1: or a risk asseid alternative? And we think of it
Speaker 1: as a risk asset alternative. So if we go into recession,
Speaker 1: hi yield bonds on average have declined just four and
Speaker 1: a half percent during the past six recessions, whereas US
Speaker 1: equities are down over twelve and you're getting a current
Speaker 1: yield to worse of roughly eight and a half percent.
Speaker 1: So would people say how can you buy how you
Speaker 1: old bonds for going into recession? The answer is if
Speaker 1: you're trading out of equities into them, it's a less
Speaker 1: offensive position. But you don't want to trade out of
Speaker 1: investment grade bonds into how yield if you expect we're
Speaker 1: going to go into recession because investment grade bonds have
Speaker 1: historically done very well in that environment. What about that
Speaker 1: defensives in equities. Yeah. So the one nuance I would
Speaker 1: add to that is that we still like the natural
Speaker 1: resources sector and commodities oriented energy stocks for example, there
Speaker 1: are a nice hedge against our number one risk case,
Speaker 1: which is sticky inflation. We don't know when these supply
Speaker 1: chain problems are going to get fixed. You keep hearing
Speaker 1: about more issues in the energy patch. For example, what's
Speaker 1: going on in the Ukraine and the big steel production
Speaker 1: facility in Mariuple that is probably shut down and so
Speaker 1: they're not able to provide the steel tubing that goes
Speaker 1: into well exploration. All of those things tell us we
Speaker 1: want to have some hedge in energy, and we do
Speaker 1: like technology. That's a recent upgrade for us for the
Speaker 1: secular growth reasons. We expect technology to grow its share
Speaker 1: of GDP over the next decade by roughly double. Well,
Speaker 1: that's really interesting because there's sort of the bloom has
Speaker 1: been off the roads of a lot of technology recently
Speaker 1: after a really great run, sort to come off again.
Speaker 1: Who are you in technology, Christina? I'm very positive on
Speaker 1: technology now. I think we need to be selective. We
Speaker 1: want to stay away from what I would call spec tech,
Speaker 1: which was actually the first leg of technology to fall.
Speaker 1: But there are a lot of great names in that space,
Speaker 1: some of which look like very good buys right now. Um,
Speaker 1: given where valuations are and given strong cash flow, just
Speaker 1: solid fundamentals in general, because whatever the longer term trends again,
Speaker 1: coming out of whatever downturn there is here, what do
Speaker 1: you think is promising? Are we talking about things like
Speaker 1: green energy? What are we talking about? So? I certainly
Speaker 1: think there are a lot of different themes that are
Speaker 1: very exciting. Some are smaller than others. Green energy is
Speaker 1: certainly one of them. Cyber security is one of them.
Speaker 1: But I think I would take a step back and
Speaker 1: say the bigger picture is that we're returning to a
Speaker 1: more normal environment. And when I say more normal, more
Speaker 1: normal relative to longer term history, Jim, more normal certainly
Speaker 1: sounds pretty good to me right now. At the same time,
Speaker 1: how much of that depends upon the FED not overreacting
Speaker 1: because some people say the FITS hads a really big
Speaker 1: say in the markets. Thus far, getting back to neutral, fine,
Speaker 1: little above neutral, fine, But we're really going well above that,
Speaker 1: to four or five percent. What is that going to do?
Speaker 1: So I would define overreacting a little differently. I would
Speaker 1: say that if they end up doing that, it's because
Speaker 1: inflation has proven to be more persistent, and so their
Speaker 1: action is actually justified, and that is not going to
Speaker 1: be a good circumstance for the market. If you think
Speaker 1: about bearer markets, there really are three categories. An event
Speaker 1: driven one, which is the least damaging. Secondly, you can
Speaker 1: have one that is more cyclical oriented, and then you
Speaker 1: could have one that's driven by a financial crisis where
Speaker 1: credit creation is impaled. If FED hikes rates too much,
Speaker 1: we're definitely going to go from what's an event driven
Speaker 1: to a cyclical type of recovery. But if you look
Speaker 1: at the FED stress test results over the last twenty
Speaker 1: four hours, and the banking systems in really good shape,
Speaker 1: so we are very unlikely to get into a structural
Speaker 1: bear market, which could be really damaged. Okay, that's pretty
Speaker 1: encouraging me. I'll take that to the bank, no question
Speaker 1: about it. Really appreciate Jim McDonald, Northan Trust and Christina
Speaker 1: Hooper of Vesco being with us here today to really
Speaker 1: give us an insight into what the markets have done,
Speaker 1: but also what they're likely to do in the future
Speaker 1: coming up. We know things are rough and likely to
Speaker 1: get rougher. But what can investors and policymakers do to
Speaker 1: make sure we come back stronger than ever when things
Speaker 1: do turn around? We asked Rick Reader of black Rock.
Speaker 1: That's next on Wall Street Week on Bloomberg. This is
Speaker 1: Bloomberg Wolves Street Week with David Weston from Bloomberg Radio. Okay,
Speaker 1: we can disagree about just how bad it will get.
Speaker 1: There's a chance that we are already in a recession.
Speaker 1: Is it severe? Is it drawn out? The shallow recession?
Speaker 1: Verst stay deep one recession? But no one can deny
Speaker 1: at this point that the economy will slow. Well, I
Speaker 1: expect the economy to slow. Oh, it's been growing at
Speaker 1: a very rapid rate. It's natural now that we expected
Speaker 1: transition to steady and stable growth and the markets could
Speaker 1: continue to fall at least for a while. We've done
Speaker 1: a lot of price damage. Right, we want to be
Speaker 1: investing into the price damage, but we think it's premature
Speaker 1: if the recession is still increasing. But however bad it
Speaker 1: gets and however long it lasts, things will come back,
Speaker 1: raising the question what have we learned from the experience,
Speaker 1: Both in the policies we adapt by most important advice
Speaker 1: to the administrations, don't do anything to shock the economy,
Speaker 1: and in the way we invest. I think we're going
Speaker 1: to see a lot more investors remain on the sidelines,
Speaker 1: remain cautiously positioned, and that actually may lead to some
Speaker 1: interesting opportunities for longer term investors. And to take us
Speaker 1: through where we are and more important, where we are headed,
Speaker 1: We're welcolled now Rick Reader. He is the c i
Speaker 1: O for Global Fixed Income and also ahead of the
Speaker 1: Global Allocation team at black Rock. Rick, thanks so much
Speaker 1: for being here, haven't so before we start about how
Speaker 1: we come out of this stronger, let's talk about where
Speaker 1: we are and now where are we? Listen, I'm for
Speaker 1: markets and for the economy. We're one of the most
Speaker 1: uncertain periods we've been in a long time, and quite
Speaker 1: frankly in a generation. We have never had an experience
Speaker 1: where economy is tangibly slowing across almost every piece of data.
Speaker 1: Economy is slowing. You're starting to see it work through
Speaker 1: in the claims data and unemployment data, and we think,
Speaker 1: go with the next couple of employment parts, you're gonna
Speaker 1: see an economy or hiring dynamic that's different. And you've
Speaker 1: got a central bank that's got as its singular focus
Speaker 1: today despite steel mandate, is full employment and price stability.
Speaker 1: That has got to bring down inflation. So it is
Speaker 1: a construct that the markets have a hard time dealing
Speaker 1: with how much will I let the economy go? How
Speaker 1: much with inflation which we think will come down you're
Speaker 1: seeing you're certainly seeing indications that you're seeing in the
Speaker 1: markets pricing of it. So it's a very challenging period
Speaker 1: to think through when you're trying to evaluate risk versus reward.
Speaker 1: What are interest rates doing a portfolio? What are stocks
Speaker 1: hi yiel bonds doing a portfolio? And I think the
Speaker 1: markets having reconciled the solution of that yet and how
Speaker 1: much of that is the markets and they are not
Speaker 1: economy And how much of his policy I know the
Speaker 1: black Rock has a terrific chart basically indicating it surprised
Speaker 1: me in recent years the volatility and monetary policy has
Speaker 1: driven the investments more than the investments at so day.
Speaker 1: But it's a it's a pretty incredible thing and part
Speaker 1: of what we're trying to illustrate on the support it
Speaker 1: is you've you've been investing twenty years ago. Ten years ago,
Speaker 1: it was all about the central banks reaction function to
Speaker 1: the economy and how the central bank would react when
Speaker 1: inflation or employment moved too far away from normalcy. The
Speaker 1: last ten years and certainly anybody we've hired or work
Speaker 1: for us, it's been there ten years has been an
Speaker 1: environment where the central banks are functually all you have
Speaker 1: to focus on because they are driving the dynamic around
Speaker 1: how prices are moving. Why is that the case? I mean, listen,
Speaker 1: you need aggressive monitoring policy when you go through a
Speaker 1: financial crisis or you go through a pandemic, you need
Speaker 1: aggressive policy. But there's been this process of tweaking to
Speaker 1: get back on the line that I would argue is
Speaker 1: creating more volatility to markets. You know, we, I would argue,
Speaker 1: including this central ban, including the FED, we need to
Speaker 1: get to neutral quickly, get to neutral. The system has
Speaker 1: an ability to recalibrate itself, be flexible. I would say
Speaker 1: high prices are the cure for high prices. The U.
Speaker 1: S economy is incredibly adapted of and you're seeing it.
Speaker 1: It was a good article today about you know, you
Speaker 1: do look at gas prices. Higher consumption comes down, the
Speaker 1: system recalibrates. But we've become used to the Central Bank
Speaker 1: is kind of trying to put us back on a
Speaker 1: line of two percent inflation and full employment. And I
Speaker 1: would argue it's actually creating more volatility at times than
Speaker 1: is warranted by how much the economy actually actually gyrates.
Speaker 1: We say, get back to neutral. We heard from a
Speaker 1: chair J. Pale, and he's testimony for Congress this week
Speaker 1: saying he still thinks neutrals are around two point five.
Speaker 1: But even he is saying, now we may need to
Speaker 1: go above that. You have other people saying we need
Speaker 1: to go way above it in order to really put
Speaker 1: a stake through the heart of inflation. Is that wrong?
Speaker 1: I said, I don't think you have to go away
Speaker 1: above it. I think the chair is right, and I
Speaker 1: think what they're doing now is exactly the right policy.
Speaker 1: I know, you know, I and others have been critical
Speaker 1: about we waited too long to move, and I think
Speaker 1: the Fat has been clear on that being the case.
Speaker 1: But there's a question of what is the trade off
Speaker 1: from if you get to neutral and in a bit beyond,
Speaker 1: we shouldn't be at e the policy like we are today.
Speaker 1: Get to neutral, do another seventy, get closer to neutral,
Speaker 1: maybe do a fifty on the back side of that,
Speaker 1: You know, you think about what you could do fiscal policy,
Speaker 1: solar battery, You've seen some developments recently, what you could
Speaker 1: do and precision act to help the food market. Multi
Speaker 1: family housing incentives to build more multi family housing affordabilities
Speaker 1: really hard, is really expensive today. Multi family is going
Speaker 1: to be people I can stay in rental. We need
Speaker 1: more development of multi family. These are fiscal initiatives that
Speaker 1: need to come in and can be and by the way,
Speaker 1: have a real velocity to them, create multiplicative economic impacts.
Speaker 1: Just raised just keep raising rates and taking people out
Speaker 1: of work. It's a blunt tool and maybe it doesn't work,
Speaker 1: and maybe it doesn't bring the inflation down. I just
Speaker 1: don't agree. Okay, Rick, thank you so much that care
Speaker 1: Black are always great to talk to. Rick. Coming up,
Speaker 1: we wrap up the week with our special contributor Larry
Speaker 1: Summers of Harvard. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. This is Wall Street Week. I'm David Weston,
Speaker 1: and we welcome back once again our very special contribute
Speaker 1: Larry Summers of Harvard. So, Larry, a good part of
Speaker 1: the week. This week was given over to talk about
Speaker 1: recession on the one hand and inflation on the other.
Speaker 1: We heard from Fed Chair J Powell for two straight
Speaker 1: days up on Capitol Hill. Let me ask you the
Speaker 1: most basic question, as you look forward to the economy,
Speaker 1: what do you think the biggest risk is right now
Speaker 1: we face Look, I think, David, that a recession is
Speaker 1: almost inevitable, probably a chance within the next two years,
Speaker 1: and there's certainly a real risk that it will come sooner.
Speaker 1: That's gonna be a very difficult thing though, as I say,
Speaker 1: I think it may be inevitable given where we are,
Speaker 1: but I think it's going to be very important to
Speaker 1: make sure that, uh, if we're going to go through
Speaker 1: a period of pain, we do slay the inflation dragon.
Speaker 1: You know, there have been many failures, particularly the nineteen
Speaker 1: seventies of the classic example of where economic policymakers did
Speaker 1: the equivalent of stopping their antibiotic when they felt better,
Speaker 1: but before the Tende dose UH was through. And so
Speaker 1: it's a very very difficult set of balances and challenges
Speaker 1: that the FED is going to have, and I very
Speaker 1: much hope that they make UH wise choices. So so
Speaker 1: I take your point that the only thing worse than
Speaker 1: having recession is having one without slaying the inflation dragon
Speaker 1: us to say, but let me ask you, at this point,
Speaker 1: some people are predicting this will be a fairly shortened,
Speaker 1: shallow one. Do we have reason to believe that? I
Speaker 1: hope there. I hope they're right. Um. I think the
Speaker 1: question is gonna be how much recession do you how
Speaker 1: much recession is going to be part of eliminating inflation?
Speaker 1: And that goes back to the whole debate about team transitory.
Speaker 1: If most of inflation is transitory, then we're not going
Speaker 1: to have to live with very much pain to UH
Speaker 1: get the inflation out of the system. If more of
Speaker 1: it is more ingrained, then we're gonna have to live
Speaker 1: with uh more difficulty. I was mildly encouraged by the
Speaker 1: number that came out today suggesting that long term inflation
Speaker 1: expectations as measured in Michigan had gone up a little
Speaker 1: less than people originally thought. But I still do think
Speaker 1: we have a meaningful amount of inflation that we have
Speaker 1: to get out of the system, and I don't think
Speaker 1: we're gonna do that in one or two uh quarters
Speaker 1: of economic uh slack. One of the things that share
Speaker 1: Pile testified about this week was neutral rate that he
Speaker 1: still thinks it's about two point five percent. I wonder
Speaker 1: if you agree with that, and then going to say
Speaker 1: we may have to go someone over that. Some people
Speaker 1: think he has to go well over that word. You look,
Speaker 1: I think that talking about the neutral rate without talking
Speaker 1: about the rate of inflation is basically illogical. And so
Speaker 1: when he says the neutral rate is two and a
Speaker 1: half percent, he's assuming that the inflation rate will be
Speaker 1: two percent, which I don't think is to be assumed,
Speaker 1: uh without the right kinds of policies. So my guess
Speaker 1: is we're gonna have to go well above two and
Speaker 1: a half percent on interest rates ultimately in the long run,
Speaker 1: when we get through this inflation uh episode. I think
Speaker 1: there's a substantial chance that we're going to return to
Speaker 1: the kind of secular stagnation situation we had before COVID,
Speaker 1: which could mean a neutral rate below U two and
Speaker 1: a half percent. So I think we're gonna have to
Speaker 1: be very careful and UH monitor to track UH to
Speaker 1: track what's happening. But I wish Sharmon Powell would start
Speaker 1: framing the new control rate as a real interest rate
Speaker 1: concept that at any moment is dependent on the underlying
Speaker 1: rate of inflation and stop just using a nominal figure
Speaker 1: that assumes so much of what is an issue. Staying
Speaker 1: with chairpiles a testimony again. He also testified a fair
Speaker 1: amount on both days of the hearing is actually about
Speaker 1: the housing industry and the fact that necessarily the increased
Speaker 1: rates are hurting the housing industry. Even suggested that at
Speaker 1: least in some place in the country we may have
Speaker 1: housing prices go down. How big a threat is that
Speaker 1: to the kind of because that is something we saw
Speaker 1: back during the Great Financial Crisis. I think we're in
Speaker 1: a much less precarious situation in housing than we were
Speaker 1: during the Great Financial Crisis, but house prices have run
Speaker 1: way up, and I wouldn't be surprised given what's happened
Speaker 1: to UM more good traits, if at least in many
Speaker 1: parts of the country there was some UH backtrack of
Speaker 1: house price. My assessment is that that's not going to
Speaker 1: oppose the kind of systemic financial risk that it did
Speaker 1: during the Great UH financial Crisis. But as is always true,
Speaker 1: when there's excess, the people who get in last UM
Speaker 1: find it expensive. Larry quite me on any testimony of
Speaker 1: my capital Hill. We also had two very dramatic opinions
Speaker 1: come down from the stream Corp of the United States.
Speaker 1: I know that you're not a constitutional lawyer, at least
Speaker 1: not that I'm aware of. At the same time, I
Speaker 1: wonder what you think about that decision with respect the
Speaker 1: Second A Moendment and guns, and also then at the
Speaker 1: end of the week with respect to abortion. You have
Speaker 1: talked on this program before about your concerns about the
Speaker 1: institutions of democracy in this country. I'm worried about a
Speaker 1: Supreme Court that's so radically breaks with its own precedent,
Speaker 1: that is so fully in UH the life of the country,
Speaker 1: and I wonder if that doesn't raise questions more broadly
Speaker 1: about the predictability and continuity of UH policy. The extent
Speaker 1: to which they're very strong checks and balances UH in
Speaker 1: our democracy. By my personal values, UH, both these uh
Speaker 1: decisions UH were appalling, but you know, everyone has their values,
Speaker 1: and there are other people who would have very different values.
Speaker 1: What I think is, in some ways the more fundamental
Speaker 1: issue is this question of reversing precedent and UH mandating
Speaker 1: UM things that have really not been UM acceptable for
Speaker 1: UH many for many many years. I can't help but
Speaker 1: feel that the decision that it's illegal and unconstitutional to
Speaker 1: stop people from carrying UH concealed weapons that goes a long,
Speaker 1: long uh way UH for for me, and I think
Speaker 1: Roe v. Wade has been so much part of American
Speaker 1: life that UH to remove it completely and in the
Speaker 1: way they did with the divide completely divided course is
Speaker 1: a kind of UH fairly shocking act. And I say
Speaker 1: that as someone who believes very much in UH deference
Speaker 1: UH to the Court. I was not one of those
Speaker 1: who attacked the Court for the Bush Fee Gore decision.
Speaker 1: Though it was not a decision I liked or supported.
Speaker 1: I was not one who was prepared to attack the
Speaker 1: Course for the decision they made in Citizens United, the
Speaker 1: case about corporate funding of politics, though that was a
Speaker 1: decision that I didn't like. Larry, Thank you so very
Speaker 1: much as our special contribute to Larry Summers. He is,
Speaker 1: of course from Harvard University and also an avid golfer. Finally,
Speaker 1: one more thought, everything old is new again. We have
Speaker 1: had more than our fair share of historic moments these
Speaker 1: past few years. From a once in a century pandemic
Speaker 1: it is ten times more lethal than the seasonal flu,
Speaker 1: to an economy falling off a cliff and then bouncing
Speaker 1: right back again, the strongest economic recovery in the world,
Speaker 1: to a ground war in Europe the likes of which
Speaker 1: we have not seen since World War Two. This crisis
Speaker 1: directly affects every member of this Council and every country
Speaker 1: in the world. And inflation higher than it's been in
Speaker 1: at least forty years. Inflation is shating people so hard
Speaker 1: they're coughing up bounds. If all that weren't enough, now
Speaker 1: we have the return of labor unions and even of strikes,
Speaker 1: as this week Great Britain saw unions shut down part
Speaker 1: of its rail system. Britain's biggest rail strike in thirty
Speaker 1: years starts today after unions rejected a last minute offer
Speaker 1: from train companies, bringing back more memories of the nineteen
Speaker 1: eighties and British Prime Minister Thatcher's uncompromising stand. What we
Speaker 1: have seen in this country is the emergence of an
Speaker 1: organized revolutionary minority, how prepared to exploit industrial disputes, but
Speaker 1: whose real aim is the breakdown of law and order
Speaker 1: and the destruction of democratic parliamentary government. But now forty
Speaker 1: years later, the move back toward unions involves businesses that
Speaker 1: we didn't even conceive of in Lady Thatcher's day. Now
Speaker 1: it's our half calf no form lattes that could be
Speaker 1: at the risk. As Starbucks were moved to organize. Starbucks
Speaker 1: has now lost several rounds of this legal fight at
Speaker 1: the labor board. And then there's the question of who's
Speaker 1: going to fix our iPhones if the people at the
Speaker 1: Apple Genius bar all joined the International Association of Machinists
Speaker 1: and Aerospace Workers, a trend that a former nlr B
Speaker 1: chairman says is far from over. I think it's likely
Speaker 1: that it will happen that many more stores. We don't
Speaker 1: know really how many uh it's likely to be, but
Speaker 1: clearly something is happening. It may be no coincidence that
Speaker 1: what we're seeing today comes at a time when we
Speaker 1: have a president deeply committed to organized labor. I'm proud
Speaker 1: of it. You know, workers have a right to determine
Speaker 1: under what conditions were going to work or not work.
Speaker 1: But then again, back in the eighties, when things went
Speaker 1: too far, we managed to do without our air traffic controllers,
Speaker 1: albeit with a very different president. If they do not
Speaker 1: report for work within forty eight hours, they have forfeited
Speaker 1: their jobs and will be terminated. That does it for
Speaker 1: this episode of Wall Street Week. I'm David Weston. This
Speaker 1: is Bloomberg. See you next week.