WEBVTT - Surveillance: Yield Curve Control With Fed's Bullard 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.720 Bloomberg dot Com, and of course, on the Bloomberg Time 0:00:27.760 --> 0:00:30.960 flies when you're rooting for the St. Louis Cardinals. It 0:00:30.960 --> 0:00:34.760 has been twelve years. Twelve years, says Jim Bullard is 0:00:34.840 --> 0:00:38.720 held court in St. Louis. It has been an extraordinary 0:00:38.760 --> 0:00:42.040 set of opinions by Mr Bullard over those twelve years. 0:00:42.320 --> 0:00:45.480 And of course landmark was his a number of years 0:00:45.479 --> 0:00:49.199 ago discussion of regime change and what that means for 0:00:49.240 --> 0:00:52.440 the FED. What can be said of every other president, 0:00:52.960 --> 0:00:56.600 every other governor, indeed of the various and sundry chairman, 0:00:57.200 --> 0:01:01.680 nobody nailed the dot plot like Jim Bullard. What you 0:01:01.720 --> 0:01:04.480 see now in the lousy dot plot, and everybody knows 0:01:04.520 --> 0:01:07.280 my opinion on it is right where Jim Billard thought 0:01:07.360 --> 0:01:11.560 we would be, with some real worries of disinflation and deflation. 0:01:11.680 --> 0:01:14.600 Jim Bullard joins us today, the president of the St. 0:01:14.680 --> 0:01:18.959 Louis Fed, Jim Bullard, are we so messed up? Right now? 0:01:19.440 --> 0:01:22.480 That we're finally wanting and for all going to shift 0:01:22.880 --> 0:01:26.920 to the targeting of nominal GDP instead of a real 0:01:27.000 --> 0:01:31.960 GDP analysis. I bet an advocate as you know, nominal 0:01:32.040 --> 0:01:37.400 GDP targeting and it's close cousin price level targeting. UH. 0:01:37.600 --> 0:01:42.759 The Committee is still formulating about its framework review and 0:01:42.959 --> 0:01:48.240 hopefully we'll get some statement out on that UH sometime 0:01:48.320 --> 0:01:50.000 during the rest of this year. But it's up to 0:01:50.040 --> 0:01:53.440 the Chairman to drive that process. Mr Orfan nineties year 0:01:53.520 --> 0:01:56.720 ago wrote a landmark paper I believe in the Greenspan 0:01:56.840 --> 0:01:59.840 FED about the tool kits that are out there and 0:02:00.080 --> 0:02:03.160 tool kits that are available. What does the bullard in 0:02:03.240 --> 0:02:06.600 the FED tool kit look right now? It seems like 0:02:06.640 --> 0:02:10.280 you've exhausted an awful lot of the useful tools, and 0:02:10.880 --> 0:02:14.480 I think there are other things we can still do UM, 0:02:14.520 --> 0:02:18.840 but we have deployed a lot of good tools for 0:02:18.880 --> 0:02:22.680 this situation. I think the policy response has been quite 0:02:22.760 --> 0:02:26.800 good to the pandemic, both on the monetary policy side 0:02:27.480 --> 0:02:32.919 the liquidity programs, plus a good response from the political 0:02:33.040 --> 0:02:38.640 side to get fiscal relief to those that are disrupted 0:02:38.680 --> 0:02:41.320 by the pandemic. So I think all of this has 0:02:41.360 --> 0:02:44.720 actually gone given the nature of this shock and the 0:02:44.760 --> 0:02:47.800 depth of the shock is all gone pretty well so far, 0:02:48.960 --> 0:02:51.760 and I think July onet is a good checkpoint because 0:02:51.760 --> 0:02:54.519 I've long advocated that this is the main impact would 0:02:54.520 --> 0:02:58.760 be the second quarter of and it's a third quarter 0:02:58.760 --> 0:03:02.320 will be um kind of the opposite of the first 0:03:02.360 --> 0:03:04.960 quarter first cars, a big declined third quarter will be 0:03:04.960 --> 0:03:10.079 a big increase as many businesses come back online safely 0:03:10.320 --> 0:03:13.600 in a way that keeps the pandemic under control. Jams 0:03:13.680 --> 0:03:15.840 Jonathan here. Another committee is thinking a little bit more 0:03:15.880 --> 0:03:18.800 about forward guidance. A quarta with President Meister and President 0:03:18.840 --> 0:03:21.359 Williams in the last month, and yield curve control was 0:03:21.400 --> 0:03:23.880 a bigger part of the conversation. Can you walk me 0:03:23.919 --> 0:03:26.880 through how you would characterize yeld curve control from your perspective? 0:03:27.120 --> 0:03:29.760 Is that a compliment to forward guidance or is that 0:03:29.880 --> 0:03:33.160 something bold up where you cap you to the longer end. Yeah, 0:03:33.200 --> 0:03:38.200 the US had yeld curve control during World War two UH, 0:03:38.240 --> 0:03:42.880 and then after the war UH, the exit from the 0:03:42.960 --> 0:03:46.080 yold curve control was very difficult, so it kind of 0:03:46.160 --> 0:03:49.600 ended in tears. So I think that's one of the 0:03:49.640 --> 0:03:53.280 main concerns about going in this direction. Japan as we know, 0:03:54.040 --> 0:03:56.120 has done you know, curve control. But one of the 0:03:56.160 --> 0:04:00.480 things that they wanted to do was it out of 0:04:00.520 --> 0:04:04.680 the quantitative easing program. They've they've scaled that back dramatically 0:04:04.720 --> 0:04:08.320 by just targeting yields directly. So I think there are 0:04:08.360 --> 0:04:11.680 a lot more questions and answers around the control right now. 0:04:12.120 --> 0:04:14.240 What do you think the ulptimate approach to forward godess 0:04:14.320 --> 0:04:17.120 is then, Jim Well, I think we're giving great forward 0:04:17.120 --> 0:04:20.200 guidance right now, and I think there's really no problem 0:04:21.320 --> 0:04:24.000 with where we are today. We're projecting low rates of 0:04:24.360 --> 0:04:27.520 you know, policy rate far out into the future. Longer 0:04:27.600 --> 0:04:31.200 term yields are also quite low. Global yields are quite low, 0:04:31.279 --> 0:04:34.960 so and we have the advantage in the current situation 0:04:35.760 --> 0:04:38.719 that we already built up credibility for low rates and 0:04:38.760 --> 0:04:42.320 commitments to low rates through the last crisis. In the 0:04:42.360 --> 0:04:45.400 last crisis, there was, as you might recall, coming out 0:04:45.400 --> 0:04:49.920 of that in twelve, the markets were always expecting that 0:04:50.480 --> 0:04:53.520 yields would leak back higher at any moment, and the 0:04:53.760 --> 0:04:57.280 Committee tried to fight back against that and keep yields 0:04:57.640 --> 0:05:01.960 low all up by by promising low rates further into 0:05:02.040 --> 0:05:04.880 the future. But in the end we built up a 0:05:04.880 --> 0:05:07.159 lot of credibility that we really meant it that we're 0:05:07.160 --> 0:05:09.839 going to keep rates low. And so this time we 0:05:09.920 --> 0:05:12.680 have a lot of credibility on this issue. And I think, 0:05:12.920 --> 0:05:14.799 I just think we're in great shape for right now 0:05:14.880 --> 0:05:18.240 because of the credible we built up last time around. Jim, 0:05:18.279 --> 0:05:21.000 the market definitely is buying the rates will remain low 0:05:21.040 --> 0:05:24.240 for a long time. Back in you raise the issue 0:05:24.240 --> 0:05:27.200 of asset bubbles that will come on the heels potentially 0:05:27.279 --> 0:05:30.520 of leaving rates so low for so long, given how 0:05:30.560 --> 0:05:34.600 much corporate debt issuance we have seen. What's different now? Yeah, 0:05:34.640 --> 0:05:38.400 I mean, bubbles is always always an issue, and I 0:05:38.440 --> 0:05:41.039 do keep my eye on it. But again, I'm just 0:05:41.160 --> 0:05:44.360 not seeing things that are on the same magnitude as 0:05:44.520 --> 0:05:47.600 as what happened in the late nineteen nineties. Uh, the 0:05:47.600 --> 0:05:50.480 internet so called dot com bubble that that blew up 0:05:50.520 --> 0:05:53.400 on us, and then the much more serious housing bubble 0:05:53.560 --> 0:05:56.480 in the mid two thousands that also blew up and 0:05:56.839 --> 0:05:59.280 turned into a global crisis. But I'm not seeing anything 0:05:59.400 --> 0:06:04.159 like that right now. Do keep we do watch it closely. Uh. 0:06:04.320 --> 0:06:06.719 You know, I understand that companies are taking on debt. 0:06:06.760 --> 0:06:09.880 Some of that, you know, liquidity driven to get through 0:06:09.920 --> 0:06:14.520 the pandemic. Here Um, they're drawing on lines of credit 0:06:14.640 --> 0:06:17.720 and and other sources to make sure that they can 0:06:18.160 --> 0:06:21.719 survive and thrive through a time of low UH, low 0:06:21.800 --> 0:06:25.200 revenue for their business. So um, so far, so good, 0:06:25.240 --> 0:06:28.400 But we certainly certainly watched this closely, Jim. Are there 0:06:28.400 --> 0:06:32.320 no negative consequences then to keeping rates basically at zero 0:06:32.400 --> 0:06:36.120 for the indefinite future? Yeah, you know, there's always inflation 0:06:36.240 --> 0:06:39.200 risk lurking out there, but we haven't had an inflation 0:06:39.279 --> 0:06:44.040 problem in the US or globally UH since UH, longer 0:06:44.080 --> 0:06:47.480 than most of us can remember sitting here. So um, 0:06:47.680 --> 0:06:49.800 the problem has been on the low side and the 0:06:49.880 --> 0:06:55.120 threat of disinflation or deflation on that score, I think 0:06:55.120 --> 0:06:58.159 we're also avoiding that risk, at least for now. I 0:06:58.200 --> 0:07:03.120 see tips break even moving back up in in recent weeks, UH, 0:07:03.560 --> 0:07:07.320 which seems to suggest that the Committee retains credibility around 0:07:07.360 --> 0:07:10.400 its two percent inflation target. Even though we've missed that 0:07:10.440 --> 0:07:13.400 target somewhat to the low side. It hasn't been as 0:07:13.440 --> 0:07:16.920 good as we wanted, but we have kept it relatively close, 0:07:17.000 --> 0:07:18.400 and I think we we'll be able to do that 0:07:18.440 --> 0:07:21.360 this time as well. Jim, it's not the presence of 0:07:21.400 --> 0:07:24.040 bubbles that I think gets my attention. It's the absence 0:07:24.040 --> 0:07:26.520 of creative destruction. And I want to ask you an 0:07:26.520 --> 0:07:29.920 important question, why the FETE seems to have lost confidence 0:07:30.360 --> 0:07:34.160 in the transformational powers of capitalism. Well, you'll have to 0:07:34.200 --> 0:07:37.360 talk to others. I have not lost faith in the 0:07:37.400 --> 0:07:42.160 transforational powers of capitalism. I think. Uh, what you're seeing 0:07:42.160 --> 0:07:50.000 today is tremendous adjustment by so many businesses, too unwelcome development. 0:07:50.040 --> 0:07:53.400 Where we had this disease to send upon us. We've 0:07:53.480 --> 0:07:56.760 learned a lot about it in the last ninety days. Uh. 0:07:57.440 --> 0:08:00.400 We're figuring out how to run businesses, deliver goods and 0:08:00.440 --> 0:08:03.640 services in all kinds of nooks and crannies around the 0:08:03.680 --> 0:08:07.559 economy in ways that keep everybody healthy, keep the customers safe, 0:08:07.680 --> 0:08:12.120 keep the workers safe, and still uh you know, keep 0:08:12.160 --> 0:08:16.480 household incomes up, and keep people employed. Uh. So I 0:08:16.520 --> 0:08:18.880 think we can be successful in this. To measure, there 0:08:18.880 --> 0:08:22.720 are a few businesses where where the pandemic is really 0:08:22.760 --> 0:08:24.680 throwing them a curve ball and they really have to 0:08:24.720 --> 0:08:27.760 hustle all their sleeves in order to think about how 0:08:27.800 --> 0:08:30.160 they can deliver their product in this new environment. But 0:08:31.040 --> 0:08:33.720 most businesses. I think they'll be up and running in 0:08:33.760 --> 0:08:35.839 the second half of the year. Jim might tell we 0:08:35.880 --> 0:08:39.000 appreciate the motives of the Federal Reserve to do what 0:08:39.040 --> 0:08:41.440 the committee has done over the last couple of months, 0:08:41.440 --> 0:08:43.520 but I think we do need to talk about the consequences. 0:08:43.800 --> 0:08:47.440 Once you introduce the price incentitive buyer into the credit market, 0:08:47.880 --> 0:08:51.839 you are interfering in the transformational powers of capitalism. You 0:08:51.880 --> 0:08:54.480 are stopping the money from flowing away from bad businesses 0:08:54.520 --> 0:08:57.000 the good ones. Do you not appreciate that, Jim? No, 0:08:57.120 --> 0:08:59.840 I do. But I think the key question here is 0:09:00.240 --> 0:09:03.440 UH is you know bad businesses? What do you mean 0:09:03.440 --> 0:09:07.360 by bad businesses? If they were if they were viable 0:09:07.520 --> 0:09:12.000 and successful before the pandemic came. Most of those I 0:09:12.040 --> 0:09:14.880 think are going to continue to be viable and successful 0:09:15.040 --> 0:09:18.640 in the UH in the world ahead where we have 0:09:18.720 --> 0:09:21.000 to deal with the with the disease. There maybe a 0:09:21.040 --> 0:09:24.320 few that don't manage to make that transition. I don't know, 0:09:25.280 --> 0:09:28.400 but the demand for those products is still there, and 0:09:28.920 --> 0:09:32.960 I would say for most firms there, they want to 0:09:33.040 --> 0:09:36.560 maintain liquidity during the crisis here, and they'll be able 0:09:36.600 --> 0:09:41.400 to get back up and running UH with some changes 0:09:41.440 --> 0:09:44.320 to how they deliver goods and services. In the second half, 0:09:44.640 --> 0:09:48.319 we welcome all of you extended conversation with Jim Bullard 0:09:48.360 --> 0:09:52.000 here under simulcast on Bloomberg Television in Bloomberg Radio. He 0:09:52.080 --> 0:09:54.800 is the president of St. Louis FED and has been 0:09:54.880 --> 0:09:59.439 exceptionally acute in his research over his twelve years at 0:09:59.440 --> 0:10:03.760 the FED, advancing not controversy, but just the argument of 0:10:03.800 --> 0:10:05.920 the moment. That argument of the moment, I have to 0:10:05.960 --> 0:10:09.200 revisit a dr bullet his yield curve control. And what 0:10:09.320 --> 0:10:13.160 I find so distortive here is the FED will make 0:10:13.240 --> 0:10:16.800 an action. The FED will make a statement, There'll be 0:10:16.840 --> 0:10:20.559 a speech, there'll be some form of announcement, and you 0:10:20.640 --> 0:10:23.680 know better than anyone, the market will react to that. 0:10:24.240 --> 0:10:28.560 Can't the markets adapt to yield crook curve control and 0:10:28.640 --> 0:10:32.160 diffuse any benefit of it, diminish any benefit of it. 0:10:33.800 --> 0:10:38.120 I do not think that the markets would undo what 0:10:38.240 --> 0:10:41.080 the FED is trying to do. I think it's an equilibrium. 0:10:41.520 --> 0:10:44.600 I think we've enforced that equilibrium by trying to be 0:10:44.679 --> 0:10:48.440 more transparent about the debates and ideas that are going 0:10:48.480 --> 0:10:50.880 on on the on the committee. In the analysis, I 0:10:50.880 --> 0:10:54.760 think there's a lot of give and take between markets 0:10:54.760 --> 0:10:57.760 and policymakers much different than it would have been in 0:10:57.800 --> 0:11:01.160 the very shrouded days and then I teen eighties, we 0:11:01.360 --> 0:11:06.000 barely barely said anything um to infer what was going on. 0:11:06.080 --> 0:11:10.000 So I think I think that transparency is useful. Um. 0:11:10.040 --> 0:11:12.959 I think we're wrestling with these ideas just like everyone else. 0:11:13.960 --> 0:11:17.040 But but I think that it helps inform the equilibrium 0:11:17.080 --> 0:11:20.439 to be as transparent ast But this extremely well said 0:11:20.559 --> 0:11:22.720 Dr Bullard. Now we have Dr Williams of the New 0:11:22.800 --> 0:11:25.480 York Fed and Governor Brainerd, and they've made some comments 0:11:25.480 --> 0:11:28.160 on the efficacy of yield capped. I look at you 0:11:28.200 --> 0:11:32.080 and others more circumspect as well. If we do yield 0:11:32.120 --> 0:11:35.600 curve control and we distribute that out the yield curve, 0:11:35.679 --> 0:11:37.920 and I don't know what year or month or day 0:11:37.960 --> 0:11:41.720 you're gonna extend it out to, do we set ourselves 0:11:41.920 --> 0:11:46.520 up to be more vulnerable to any given exogen is 0:11:46.600 --> 0:11:50.640 shock Uh, I'm not sure about that. You you'd have 0:11:50.720 --> 0:11:53.679 to you know, it kind of depends how you interpret 0:11:53.800 --> 0:11:59.520 the Japanese experience of the last few years, a few 0:11:59.520 --> 0:12:02.160 other kind trees that have have tried this in the 0:12:02.200 --> 0:12:06.400 modern era. UM. You know, I just think you know, 0:12:06.520 --> 0:12:09.520 right now there are more questions than answers about this, 0:12:09.600 --> 0:12:13.079 and I don't really think, uh, this is a pending 0:12:13.160 --> 0:12:16.400 thing for the committee because we're already expecting rates to 0:12:16.440 --> 0:12:19.400 be low for quite a while. So I'm not sure 0:12:19.440 --> 0:12:23.840 that you need to put caps in everything else. You've 0:12:23.880 --> 0:12:27.360 already got the lower expected rates that you desire for 0:12:27.400 --> 0:12:31.120 this situation. Very quickly. Dr Bullard, what does yield curve 0:12:31.200 --> 0:12:36.800 control mean to retirees and savers in the St. Louis District? Yeah, 0:12:36.960 --> 0:12:40.600 longstanding issue is that, uh, we should be thinking about 0:12:40.720 --> 0:12:44.280 the correct interest rates, not the lowest interest rates. And 0:12:44.400 --> 0:12:48.320 a lot of the discussion, popular discussion always always seems 0:12:48.320 --> 0:12:51.160 to assume lower rates are better. I think you do 0:12:51.240 --> 0:12:54.760 want to get to the uh, the equilibrium rate that 0:12:54.800 --> 0:12:58.320 makes sense for the current environment. Um, But the current 0:12:58.400 --> 0:13:02.160 environment is one globally a very low rates all around 0:13:02.160 --> 0:13:05.320 the world, and that's the world we're living in. I 0:13:05.320 --> 0:13:07.840 think people have adjusted to that since it's been around 0:13:08.559 --> 0:13:12.040 since two thousand, two thousand nine. President. A lot of 0:13:12.120 --> 0:13:14.680 questions coming through on the Bloomberg terminal that many people 0:13:14.720 --> 0:13:18.240 want to ask, including Mr Gaping over at Barclays, who 0:13:18.280 --> 0:13:20.800 I think recognizes what a lot of people pointed out 0:13:20.840 --> 0:13:23.240 after the last fat decision in the dot plot, why 0:13:23.280 --> 0:13:26.680 the long term dot was still at to fifty? President, 0:13:26.720 --> 0:13:29.320 But why wasn't that adjusted? And you anticipate it will 0:13:29.360 --> 0:13:33.079 be in the coming meetings. Yeah, you guys may remember, 0:13:33.120 --> 0:13:35.320 I don't put in a long term dot. I'm the 0:13:35.320 --> 0:13:38.160 only guy that doesn't do it. So I'm a rebel, 0:13:38.400 --> 0:13:41.480 maybe without a cause here, but I don't don't think 0:13:41.559 --> 0:13:45.000 we know enough to put down that long term dot, 0:13:45.200 --> 0:13:50.480 and it it affects expectations, and it affects thinking in markets. Um. 0:13:51.160 --> 0:13:53.920 But it's also the object for which there is the 0:13:53.920 --> 0:13:58.040 most uncertainty. So I would prefer not to put down uh, 0:13:59.040 --> 0:14:01.400 some kind of gas about where we're gonna be ten 0:14:01.480 --> 0:14:04.959 years from now no one knows, and talk more about 0:14:05.000 --> 0:14:08.440 the relevant time horizon for monetary policy, which is probably 0:14:08.440 --> 0:14:12.840 about two years, possibly three years at the very most. So. Um, 0:14:12.880 --> 0:14:15.560 So I'm the wrong guy to talk about the long run. 0:14:16.040 --> 0:14:18.760 President Bollard. You are the right person to talk about inflation, 0:14:18.800 --> 0:14:21.160 and you said that the FED does retain its credibility 0:14:21.200 --> 0:14:25.400 around a two percent inflation goal. Are we measuring inflation 0:14:25.560 --> 0:14:28.680 right or should we be taking into account asset price inflation, 0:14:29.040 --> 0:14:33.120 the inflation, housing costs, the inflation and medical and education 0:14:33.240 --> 0:14:38.880 costs and even food. Yeah, great, great question. The measurement 0:14:38.960 --> 0:14:44.560 issues around inflation are very serious at hashment studied extensively, 0:14:44.680 --> 0:14:47.000 but if you really get into the issues about how 0:14:47.000 --> 0:14:51.880 to construct a price index, it gets very hairy, very fast. 0:14:51.960 --> 0:14:55.400 And one thing I've just mentioned on this measurement issue 0:14:55.640 --> 0:14:59.040 but right now is that during the second quarter, you 0:14:59.080 --> 0:15:01.760 have a lot of good that were trade we're really 0:15:01.800 --> 0:15:05.160 not traded, uh, you know, in in the normal volumes 0:15:05.160 --> 0:15:07.440 that they would have been or violunes went all the 0:15:07.480 --> 0:15:09.760 way to zero. So what should you do with those 0:15:09.880 --> 0:15:13.560 in the price index? You know, because they're always weighted 0:15:13.560 --> 0:15:16.880 by the shares of expenditure. Well, the share of expenditure 0:15:16.960 --> 0:15:18.800 went to zero, so you're not going to count those 0:15:18.840 --> 0:15:22.280 prices or what are you gonna do because you have 0:15:22.400 --> 0:15:25.920 markets that kind of shut down completely in that environment. 0:15:26.000 --> 0:15:29.280 So um so, I think they're fascinating issues right now, 0:15:29.680 --> 0:15:31.800 just in the last few months about how to interpret 0:15:31.840 --> 0:15:34.840 the inflation numbers. If you look at something like the 0:15:34.880 --> 0:15:38.760 Dallas Fed trimming, which throws out the most extreme observations, 0:15:38.840 --> 0:15:42.000 is still hanging right around two percent, and I think 0:15:42.040 --> 0:15:45.560 that's probably informing the market expectations about where they think 0:15:45.600 --> 0:15:48.800 we're going to end up with inflation. Well, there's a 0:15:48.840 --> 0:15:51.160 question also about good inflation and bad inflation. A lot 0:15:51.160 --> 0:15:53.600 of people looking at the fact that wages are not 0:15:53.680 --> 0:15:56.880 increasing as quickly as some of these necessary costs that 0:15:56.920 --> 0:16:00.920 everybody faces on a regular basis. Are you seeing more 0:16:01.000 --> 0:16:04.680 bad inflation than good inflate inflation, especially as there is 0:16:04.720 --> 0:16:09.760 this protectionist shift and people do bring supply chain back home. Yeah, 0:16:09.800 --> 0:16:14.480 I think we were getting better wage growth before the pandemic. 0:16:14.600 --> 0:16:18.560 I think during the pandemic here obviously, we've asked people 0:16:18.640 --> 0:16:22.040 to stay at home invest in the national health. We've 0:16:22.080 --> 0:16:26.160 asked businesses to temporarily shut down to invest in the 0:16:26.240 --> 0:16:33.200 national health. They've received uh, probably somewhat inefficiently, but they've 0:16:33.520 --> 0:16:36.720 generally speaking, they have received relief from the federal government 0:16:36.840 --> 0:16:41.400 for their efforts to to slow down the economy. Um. 0:16:41.520 --> 0:16:45.120 So it's a little hard to measure wages or total 0:16:45.160 --> 0:16:48.680 income of households and businesses really during this time period. 0:16:49.120 --> 0:16:50.600 So I didn't think we have to wait for the 0:16:50.680 --> 0:16:53.520 dust to settle. I think the third quarter will be 0:16:53.560 --> 0:16:56.760 a transition quarter. Like I said, I think most businesses 0:16:56.800 --> 0:17:00.280 will get backed up and running and be uh actually 0:17:00.360 --> 0:17:02.880 be close to the kind of production that they had 0:17:03.360 --> 0:17:06.480 previous to the pandemic. And then a few businesses will 0:17:06.480 --> 0:17:09.600 struggle more than that. But so far, so good. I 0:17:09.600 --> 0:17:12.400 actually I think we're I think we're doing all right 0:17:13.119 --> 0:17:16.040 given the nature and size of this shock. I would 0:17:16.080 --> 0:17:18.399 say one other thing I just wanted to mention, and 0:17:18.400 --> 0:17:19.879 I don't know if you guys want to talk about that. 0:17:20.480 --> 0:17:23.160 I actually think for a public policy point of view, 0:17:23.160 --> 0:17:28.080 we should not be emphasizing vaccines and therapeutics. I hope 0:17:28.119 --> 0:17:31.919 they get they happen, and uh, you know, you know, 0:17:32.000 --> 0:17:35.280 God bless people that are working on I think they're uh, 0:17:35.320 --> 0:17:37.520 they're doing great work and everything, but these are tough 0:17:37.560 --> 0:17:41.120 scientific problems, and that affects from my point of view. 0:17:41.119 --> 0:17:45.320 I'm the I'm the economics guy that's affecting expectations and 0:17:45.440 --> 0:17:48.200 affects how people behave. So I think what you should 0:17:48.200 --> 0:17:52.440 tell people instead is, uh, we're gonna have to manage 0:17:52.440 --> 0:17:55.000 the disease. We're gonna have to manage the risk that's 0:17:55.040 --> 0:17:57.960 out there. It's unpleasant, but there's a new mortality risk, 0:17:58.160 --> 0:18:02.520 and businesses have to app Housholts have to adapt, and 0:18:02.560 --> 0:18:05.199 everyone's doing that. We know that, and we see that, 0:18:05.280 --> 0:18:07.760 but we shouldn't promise that there's some kind of goal 0:18:07.840 --> 0:18:10.520 at the end of the rainbow, President Bullard, That's exactly 0:18:10.560 --> 0:18:12.520 where I wanted to go, this idea that we have 0:18:12.600 --> 0:18:14.520 a very long road ahead of us, and there's a 0:18:14.600 --> 0:18:18.080 question about how resilient bank balance sheets are to deal 0:18:18.160 --> 0:18:20.400 with this, and it's something very much at the forefront 0:18:20.400 --> 0:18:22.639 of people's minds ahead of the stress test results that 0:18:22.680 --> 0:18:25.440 are coming out by the Federal Reserve later this week. 0:18:25.480 --> 0:18:29.800 Would you support having banks curb any dividend payments in 0:18:29.920 --> 0:18:32.639 order to shore up their balance sheets further ahead of 0:18:32.680 --> 0:18:37.399 whatever secondary effects tertiary effects we can expect from the pandemic. Yeah, 0:18:37.440 --> 0:18:41.199 this is a decided for the Board of Governors, So uh, 0:18:41.480 --> 0:18:45.639 it's separate from the Open Market Committee, which I'm on, UM, 0:18:45.640 --> 0:18:50.520 so it's not really my purview. I would comment, however, 0:18:50.680 --> 0:18:54.160 that I think markets have probably already priced this end. 0:18:54.760 --> 0:18:57.760 My sense is that, uh, you know, the Europeans have 0:18:57.840 --> 0:19:02.879 already ended dividend payments, and markets finally expect something like 0:19:03.040 --> 0:19:05.719 that to happen in the US. But but it's up 0:19:05.760 --> 0:19:09.040 to the governors onto how they want to look at that. 0:19:09.119 --> 0:19:12.680 We've got the stress test, who's also coming up shortly here, 0:19:13.200 --> 0:19:16.680 and I think that'll inform how how the governors want 0:19:16.720 --> 0:19:19.399 to go on this going forward. Jim Bullard, thank you 0:19:19.480 --> 0:19:21.399 so much, very generous of you to be with us 0:19:21.440 --> 0:19:25.439 for this extended conversation. James Bullard is the president of 0:19:25.520 --> 0:19:32.720 the St. Louis FED. Jonathan got of credit swas moves 0:19:32.720 --> 0:19:36.919 his price target from to thirty two hundred. I'm not 0:19:36.960 --> 0:19:40.040 sure if he'll like that characterization, so we'll let John 0:19:40.040 --> 0:19:42.480 tell his own story. He joins us. Now, Jonathan, good morning, 0:19:42.720 --> 0:19:45.240 Let's start with a short want why well, I mean, 0:19:45.640 --> 0:19:48.480 if there's a simple story here, it's it's not that 0:19:48.600 --> 0:19:53.000 I think that the economy is going to be magnificently better. 0:19:53.560 --> 0:19:57.080 It's that the fact that we've taken out these downside risks, 0:19:57.119 --> 0:20:01.440 all of these government actions have eliminated or at least 0:20:01.440 --> 0:20:05.160 diminished the potential for this thing to double dip down 0:20:05.200 --> 0:20:08.160 to the levels that we've seen before. So I think 0:20:08.200 --> 0:20:10.680 that the upside when we were calling for about three 0:20:11.160 --> 0:20:14.440 upside through your end, I think the upside has been limited, 0:20:14.560 --> 0:20:18.080 but the risk to the downside has been And John, 0:20:18.080 --> 0:20:20.119 you and I were talking about before we got what 0:20:20.240 --> 0:20:23.760 we went live. That the single chart that's important to me. 0:20:24.359 --> 0:20:26.879 On your Bloomberg terminal, you can see the number of 0:20:27.000 --> 0:20:29.879 bankruptcies that have been filed and if you go to 0:20:30.000 --> 0:20:33.680 max on that to see it, you know, including the 0:20:34.240 --> 0:20:38.119 downturn in O eight oh nine, that during big recessions 0:20:38.160 --> 0:20:41.520 you see a massive spike in bankruptcies, and that is 0:20:41.520 --> 0:20:44.480 not happening here at all. Businesses are not going under 0:20:44.800 --> 0:20:47.119 because of all these actions. And that's one of the 0:20:47.160 --> 0:20:50.680 reasons why I think that we're not going to double dip, 0:20:50.840 --> 0:20:53.520 even if the upside is not. There another reason why 0:20:53.520 --> 0:20:56.240 the next thirty days is so important on the policy front. 0:20:56.640 --> 0:20:59.480 What do you need to say, John, Uh, yeah, I 0:20:59.800 --> 0:21:04.360 think right, there's um, there's two big issues. I think 0:21:04.359 --> 0:21:06.560 they're important. This p p P program. This is the 0:21:06.600 --> 0:21:10.639 money that's going to small businesses to keep them afloat 0:21:11.080 --> 0:21:14.600 that rolls off at the beginning of July. And then 0:21:14.680 --> 0:21:18.280 you have this government supplement of the six dollars a 0:21:18.320 --> 0:21:22.560 month that's going to people who are unemployed, and both 0:21:22.600 --> 0:21:24.920 of those are rolling off in the month of July, 0:21:24.960 --> 0:21:27.800 the unemployment running at the end of the month. Those 0:21:27.840 --> 0:21:31.280 are going to be a real political football. And if 0:21:31.320 --> 0:21:34.119 they are not rolled over and we see the consumer 0:21:34.440 --> 0:21:37.280 whallet it takes a head that is going to be 0:21:37.400 --> 0:21:40.399 a real big problem for the economy near term, and 0:21:40.440 --> 0:21:43.920 the market will absolutely not take that well. The problem 0:21:44.040 --> 0:21:46.600 is is that Congress is not going to be debating 0:21:46.640 --> 0:21:50.879 these issues until sometime in July, so we're going to 0:21:50.960 --> 0:21:54.600 feel pretty uncomfortable about these before it gets resolved one 0:21:54.600 --> 0:21:56.680 way or another. John Go, I want to cut you 0:21:56.800 --> 0:22:00.000 some major major slack on, you know, the cheap shots 0:22:00.000 --> 0:22:02.320 the media is taken on. He was barishing. Now he's 0:22:02.359 --> 0:22:06.199 bullish and all that. But what I'm fascinated by is 0:22:06.280 --> 0:22:09.639 is what would be the next tronch of optimism from you? 0:22:10.000 --> 0:22:12.440 Where's it come on the income statement? Does it come 0:22:12.760 --> 0:22:16.679 from revenue growth doing better? Or is it corporations adapting 0:22:16.680 --> 0:22:20.280 to this pandemic, to this economic crisis and they make 0:22:20.480 --> 0:22:23.199 margins better. Which is it to get you to the 0:22:23.240 --> 0:22:27.639 next tronch of optimism? If you're asking what what would 0:22:27.720 --> 0:22:30.040 make me if I were to if we were to 0:22:30.080 --> 0:22:33.000 be talking in six months months from now and you 0:22:33.000 --> 0:22:36.679 were to say this is what happened, that that's going 0:22:36.720 --> 0:22:38.679 to make this the upside much more. It's not going 0:22:38.720 --> 0:22:41.160 to be this more liquidity because I think that we've 0:22:41.200 --> 0:22:45.040 already seen the market's response. The question is how quickly 0:22:45.040 --> 0:22:49.640 do we get back to an economy that's running at um? 0:22:49.760 --> 0:22:53.160 And so let's ask a question. When is it that 0:22:53.160 --> 0:22:57.960 that commuters are comfortable going back into New York again? Um? 0:22:58.040 --> 0:23:03.040 When is it that we're comfortable get on airplanes again? Um? 0:23:03.160 --> 0:23:05.359 When you know, when is it that we can get 0:23:05.880 --> 0:23:09.600 over twenty million people that have been unemployed back to work? 0:23:09.600 --> 0:23:12.720 And the answer to each of those is longer than 0:23:12.800 --> 0:23:15.399 you would think. So the worst cases at were the 0:23:15.560 --> 0:23:18.200 improvements equentionally off the bottom. We know that that's gonna 0:23:18.200 --> 0:23:20.879 be good. The p M this morning are gonna be good. 0:23:21.200 --> 0:23:24.080 The question is if you're looking up at the sky, 0:23:24.320 --> 0:23:26.160 not down at where you were when there was when 0:23:26.200 --> 0:23:28.600 we were staying at home, that's what's going to really 0:23:28.680 --> 0:23:31.080 drive the market. What are the banks do here? You 0:23:31.200 --> 0:23:34.840