WEBVTT - Former Treasury Official Skanke Says Fed Acted `Decisively' 0:00:00.120 --> 0:00:03.680 You're listening to Bloomberg Business Week with Carol Messer and 0:00:03.800 --> 0:00:07.000 Jason Kelly on Bloomberg Radio. So we do want to 0:00:07.000 --> 0:00:09.119 get to our next guest um. In terms of news 0:00:09.160 --> 0:00:11.760 out of the FED today, the Federal Reserve said, when 0:00:11.760 --> 0:00:14.360 we start a financial crisis error program to help US 0:00:14.440 --> 0:00:17.600 companies borrow through the commercial paper market after it came 0:00:17.680 --> 0:00:21.239 under considerable strain due to the coronavirus pandemic, and this, 0:00:21.320 --> 0:00:23.480 of course after a second emergency rate cut that took 0:00:23.520 --> 0:00:26.680 rates down to zero. We got that second emergency cut 0:00:26.760 --> 0:00:30.560 on Sunday. Stephen Skanky, his chief economic advisor at keel Point, 0:00:30.920 --> 0:00:33.239 his former U. S. Treasury and White House National Security 0:00:33.240 --> 0:00:36.839 Council staff member, based typically in Washington, but joining us 0:00:36.840 --> 0:00:40.479 from Cape Canaveral, Florida. Stephen, really good to have you 0:00:40.520 --> 0:00:42.360 here with us. Steve, tell us a little bit about 0:00:42.720 --> 0:00:46.720 what you've seen from the FED so far. Logical makes 0:00:46.840 --> 0:00:51.280 sense and is it what we needed? Well? Carol, thanks 0:00:51.280 --> 0:00:53.440 and sorry, it's great to be with you. And it's 0:00:53.479 --> 0:00:58.240 been interesting to watch the FED act decisively and preemptively 0:00:58.560 --> 0:01:02.279 over this this past week. It's interesting that what they 0:01:02.320 --> 0:01:06.000 did on Sunday night didn't seemed to please the markets 0:01:06.120 --> 0:01:11.959 very much when they sold off incredibly yesterday. Why did 0:01:11.959 --> 0:01:15.679 the market sell often your view, why did they? I 0:01:15.720 --> 0:01:19.440 think it was two things. That one is, Uh, the 0:01:19.480 --> 0:01:22.200 Fed took a lot of actions and it's hard to 0:01:22.280 --> 0:01:25.160 understand what all of them mean in a short period 0:01:25.200 --> 0:01:29.080 of time. And because it was so was significant and 0:01:29.200 --> 0:01:33.640 happened on a Sunday evening, I think markets were afraid 0:01:33.840 --> 0:01:36.800 that maybe the freid the Fed was afraid of something 0:01:37.120 --> 0:01:40.399 that wasn't apparent to them. So it was really fearing 0:01:40.480 --> 0:01:44.920 what the Fed was fearing to uh, to be so 0:01:45.000 --> 0:01:48.760 preemptive on a Sunday evening. I think the second thing 0:01:49.040 --> 0:01:53.560 is that, uh, everyone is still waiting to hear what 0:01:53.640 --> 0:01:56.520 the fiscal support and stimulus is going to be. There's 0:01:56.560 --> 0:01:58.720 been a lot of talk about it. The House passed 0:01:58.720 --> 0:02:04.040 to bill last Friday. UH, they continue to talk about it. Obviously, 0:02:04.080 --> 0:02:07.960 after the announcements and some of the comments made yesterday 0:02:08.080 --> 0:02:11.240 from the White House, the markets took a beat, a 0:02:11.280 --> 0:02:14.880 big dive after that. I think I got a concern 0:02:15.000 --> 0:02:21.680 that good discussion, but a more prolonged period from the 0:02:21.760 --> 0:02:24.680 views of the policy managers of the White House. I 0:02:24.680 --> 0:02:28.520 think that folks have been expecting and no specific action 0:02:29.160 --> 0:02:34.200 on caring for consumers, supporting consumers, spending and doing the 0:02:34.280 --> 0:02:36.520 things that the government needs to do on the fiscal 0:02:36.639 --> 0:02:39.600 side in addition to what they're trying to do on 0:02:39.680 --> 0:02:44.760 the care side. Yeah, and and so Steve, let's talk 0:02:44.760 --> 0:02:46.680 a little bit about that. I mean, you've worked inside 0:02:46.680 --> 0:02:49.440 the Treasure you understand sort of all the levers that 0:02:49.520 --> 0:02:51.840 can be pulled. We have seen we were talking about 0:02:51.840 --> 0:02:54.160 this with one of our colleagues earlier. We've really seen 0:02:54.200 --> 0:02:57.520 the Secretary of the Treasury step into this in a 0:02:57.560 --> 0:03:02.119 clear leadership role. The chief negotiator with the Congress, Stephen Manuchin, 0:03:02.639 --> 0:03:06.800 has been Is that something you expected? How needed is 0:03:06.919 --> 0:03:11.440 that element? At this point? It's been very needed. He 0:03:11.520 --> 0:03:14.360 was He was very present in the negotiations last week 0:03:14.360 --> 0:03:17.600 with a House and with Speaker Pelosi, and they came 0:03:17.639 --> 0:03:22.760 to a good first step agreement and I think that 0:03:22.760 --> 0:03:25.400 that was well received and it got pasted on Friday. 0:03:25.440 --> 0:03:28.080 But nothing happened with the Senate over the weekend, and 0:03:28.120 --> 0:03:31.079 there was a lot of conversation and the Secretary Manuchin 0:03:31.200 --> 0:03:37.040 was not part of the discussion yesterday, which focused on 0:03:37.080 --> 0:03:42.800 the epidemiology and care and testing UH and The President 0:03:43.120 --> 0:03:47.280 clearly said that you know this, this could continue with 0:03:47.400 --> 0:03:50.680 us through July and August, and I think he was 0:03:50.720 --> 0:03:54.040 being wise in saying that, but it was said with 0:03:54.120 --> 0:04:00.240 a little bit of imprecision, without sort of articulating that 0:04:00.360 --> 0:04:03.240 might mean in terms of what the government could do 0:04:03.360 --> 0:04:06.760 the Congress from the White House on the fiscal support 0:04:06.840 --> 0:04:11.840 side of things. And so that was missed yesterday at markets. 0:04:12.840 --> 0:04:16.279 Markets closed in the midst of that. They kind of 0:04:16.320 --> 0:04:19.720 made it pay for that lack of detail, didn't they yesterday? 0:04:19.400 --> 0:04:24.200 They really did. They extracted a big price, uh, as 0:04:24.240 --> 0:04:28.120 a result of that lack of clarity on that point. Right, So, 0:04:28.400 --> 0:04:31.520 how what are you telling your team at keel point? 0:04:31.640 --> 0:04:34.839 I mean, we're seeing lots of stories come out about 0:04:35.240 --> 0:04:38.480 you know, big Wall Street firms saying okay, Morgan Stanley 0:04:38.480 --> 0:04:43.279 Goldman declared global recession is underway. You know, um, how 0:04:43.279 --> 0:04:44.920 do you see it? What are you telling your team? 0:04:44.960 --> 0:04:47.440 Is it a case of it's it's two quarters and 0:04:47.480 --> 0:04:49.960 then we do bounce back pretty quickly once we get 0:04:49.960 --> 0:04:53.720 through it. How do you see it? Steve? It's going 0:04:53.760 --> 0:04:56.800 to depend significantly on on what happens in this next 0:04:56.880 --> 0:05:01.120 quarter and what we also see from U China's uh 0:05:01.640 --> 0:05:04.760 dive in this uh this first quarter. You know, they're 0:05:04.760 --> 0:05:06.640 about two and a half months ahead of the rest 0:05:06.720 --> 0:05:10.120 of us. They really they really started to feel the 0:05:10.160 --> 0:05:13.760 effects and try to do something about this in early 0:05:13.839 --> 0:05:17.159 to mid January. UH. And and so here we are, 0:05:17.600 --> 0:05:20.039 I'll just say, two and a half months later, and 0:05:20.080 --> 0:05:23.400 they're starting to come out the other side. They're reopenings 0:05:23.400 --> 0:05:26.840 and factories, they're starting to refill the supply chain, and 0:05:27.360 --> 0:05:32.280 and that's actually quite encouraging to see that. Steve, I 0:05:32.520 --> 0:05:35.039 want to pick up where we left off, which is 0:05:35.279 --> 0:05:37.960 this whole notion of understanding the rest of the world 0:05:38.040 --> 0:05:41.479 and specifically China. You know, Carol raised this possibility that 0:05:41.520 --> 0:05:44.000 we've heard from some of our reporting that you know, 0:05:44.000 --> 0:05:46.480 maybe China, as they tend to do, is gaming the 0:05:46.600 --> 0:05:49.599 data a little bit to show an improvement. How much 0:05:49.600 --> 0:05:52.520 do you worry about that, especially as you model out 0:05:52.560 --> 0:05:57.600 a global economic recovery from this virus. Well, we always 0:05:57.640 --> 0:06:00.360 have to be concerned about that. And as you know, 0:06:00.440 --> 0:06:03.960 and as Carol pointed out, we're always looking at alternative 0:06:04.640 --> 0:06:10.719 indicators of Chinese economic activity. The rest of the world 0:06:10.760 --> 0:06:14.880 has typically has one estimate of China GDP growth and 0:06:15.360 --> 0:06:18.960 China has another one that it reports. But what I was, 0:06:19.320 --> 0:06:23.479 what I was mentioning earlier, is that even though no 0:06:23.560 --> 0:06:27.200 doubt there is, there is some amount of turning on 0:06:27.279 --> 0:06:32.840 the lights and trying to suggests that there's economic activity 0:06:32.880 --> 0:06:37.159 when there's not there. There is also some anecdotal information 0:06:37.240 --> 0:06:41.479 that just floats by UM, some of which probably is credible, 0:06:41.560 --> 0:06:45.719 so maybe not, but indicates that there is a restarting 0:06:46.560 --> 0:06:52.200 of the production process and feeling this the supplying UH 0:06:52.279 --> 0:06:56.560 from China and to the extent that that's happening, that's 0:06:56.600 --> 0:07:02.039 just helpful information in terms of but dating what we 0:07:02.160 --> 0:07:08.320 might think to be the timeline of this cycle UH. 0:07:08.440 --> 0:07:11.280 Where the United States is the in it compared to 0:07:11.320 --> 0:07:14.800 where China was and how they processed through maybe completely different. 0:07:15.640 --> 0:07:20.200 But it's one thing to think that you can come 0:07:20.280 --> 0:07:25.480 through the illness part of it in two and a 0:07:25.480 --> 0:07:28.040 half months that it is to think that it might 0:07:28.080 --> 0:07:31.720 be five or six months. And so the more we 0:07:31.720 --> 0:07:34.800 can get out of China that that gives us insight 0:07:34.880 --> 0:07:38.920 into that, the more it will be helpful to economic 0:07:38.960 --> 0:07:42.520 planners and throughly the financial markets and trying to gauge 0:07:43.160 --> 0:07:47.680 is this going to be in the United States. A 0:07:47.760 --> 0:07:53.880 deep dive for economic growth and economic indicators and corporate 0:07:53.880 --> 0:07:58.840 earnings in the second quarter and then start to come 0:07:58.840 --> 0:08:02.240 out of it in the bard UM. I think it's 0:08:02.240 --> 0:08:06.560 pretty clear that earnings are going to suffer, certainly in 0:08:06.600 --> 0:08:09.360 the second and third quarter. Uh. Can they come out 0:08:09.360 --> 0:08:12.960 on the fourth Maybe It all depends on how quickly 0:08:13.440 --> 0:08:18.320 production and spending rebound, But those are things that we're 0:08:18.320 --> 0:08:23.160 watching for. You probably saw that consumer spending numbers came 0:08:23.200 --> 0:08:27.440 in fairly positive for the month of February. That was encouraging. 0:08:28.120 --> 0:08:30.160 They were off a little bit because of auto sales 0:08:30.280 --> 0:08:34.719 and lower gasoline prices. The consumer competence numbers that came 0:08:34.720 --> 0:08:39.480 out a few days ago still from early March and 0:08:39.640 --> 0:08:42.800 UH and not fully reflecting what we're what we're experiencing, 0:08:42.880 --> 0:08:48.120 but but relatively positive. All to say that we're coming 0:08:48.200 --> 0:08:53.560 into this very challenging period of time with a pretty 0:08:53.559 --> 0:08:58.560 strong face. Do you feel like the financial markets accurately 0:08:58.640 --> 0:09:08.200 reflect what's going on? Um? The financial markets have so 0:09:08.280 --> 0:09:13.040 much information coming at them. It's really hard to digest 0:09:13.360 --> 0:09:18.719 and act um in real time with all that we're 0:09:18.720 --> 0:09:23.200 seeing and experiencing, and that's part of what contributes to 0:09:23.360 --> 0:09:26.040 the markets being off twelve yesterday and up six today, 0:09:26.160 --> 0:09:29.440 And if you sort of go back, it's almost every 0:09:29.480 --> 0:09:32.240 other day or every other two days that we get 0:09:32.280 --> 0:09:34.959 a rebound. And part of the rebound that we had 0:09:35.000 --> 0:09:40.240 today was just uh coming back to to a more 0:09:40.440 --> 0:09:47.360 logical point from over selling off yesterday and the information 0:09:47.400 --> 0:09:50.959 that comes in real time. I mean, yesterday the White 0:09:50.960 --> 0:09:54.079 House press conference with the President and and that other 0:09:54.280 --> 0:10:00.480 array of UH talnge and senior leaders in government was 0:10:00.520 --> 0:10:04.400 happening in the last hour of the market. You know, 0:10:05.000 --> 0:10:09.440 how can you expect the market to process that, uh 0:10:09.559 --> 0:10:13.440 in a way that fully incorporates uh, the information that 0:10:13.480 --> 0:10:16.079 they're getting and that they just have a different perspective 0:10:16.120 --> 0:10:19.760 on overnight. Right. Well, and it's clear that also, and 0:10:19.800 --> 0:10:22.000 there's been a lot written by us and others about this, 0:10:22.120 --> 0:10:25.080 that you also have humans fighting machines in the market 0:10:25.120 --> 0:10:27.800 to to be honest, and and that is in part 0:10:27.800 --> 0:10:30.360 accounting for a lot of these wild swings. You know, Steve, 0:10:30.360 --> 0:10:32.160 before we let you go, I just got to ask you. 0:10:32.160 --> 0:10:34.160 I feel like we'd be remiss if we didn't you 0:10:34.600 --> 0:10:38.040 help staff the White House, a National Security Council, you 0:10:38.080 --> 0:10:40.800 worked in the in the Treasury. What do you make 0:10:41.080 --> 0:10:44.400 of this administration's response. At this point, you've been in 0:10:44.440 --> 0:10:48.880 those rooms. You understand the high stakes, UH that are 0:10:48.920 --> 0:10:53.440 involved here. Where are we in terms of the administration's response. 0:10:55.679 --> 0:11:00.320 I think the administration is is is struggling and what 0:11:00.520 --> 0:11:04.400 is a very difficult situation. We don't encounter these things 0:11:04.440 --> 0:11:06.920 all the time. But but one of the things that 0:11:07.000 --> 0:11:10.640 I would say that I see that's different, UM, is 0:11:10.800 --> 0:11:17.599 the resources, the intellectual talent and capacity of the U. S. 0:11:17.679 --> 0:11:22.840 Government is extraordinary and well beyond what is for the 0:11:22.880 --> 0:11:27.160 most part, ever tapped into U And I do think 0:11:27.800 --> 0:11:32.679 if we if we just sort of look at it objectively, UM, 0:11:32.800 --> 0:11:36.360 the the leadership in the executive branch, I think was 0:11:36.400 --> 0:11:42.280 a little bit slow to get fully tapped into all 0:11:42.280 --> 0:11:46.280 of that talent and resources to as quickly as they 0:11:46.360 --> 0:11:49.240 might have. And so we're a little bit slow out 0:11:49.240 --> 0:11:52.160 of the gate. And when when you saw the team 0:11:52.240 --> 0:11:56.439 that they had a read there yesterday, top talent that 0:11:56.720 --> 0:11:59.680 they but they may be started a little bit late 0:11:59.800 --> 0:12:03.640 and to and so they're an overdrive to UH to 0:12:03.760 --> 0:12:08.880 catch up. And that's just hard anytime you're in government 0:12:08.960 --> 0:12:11.840 and you're behind the you're behind the curve, and you've 0:12:12.000 --> 0:12:16.439 got you've got indicators that are just pummeling you daily, 0:12:17.240 --> 0:12:20.760 and and you're trying to create a sense of calm 0:12:21.520 --> 0:12:25.839 when it's very hard to do that from behind the wave. Yeah, 0:12:26.040 --> 0:12:28.160 all right, we're gonna leave it there. Really enjoyed catching 0:12:28.240 --> 0:12:31.880 up the great perspective as always. Dr Steven Skanky is 0:12:31.920 --> 0:12:35.880 chief economic advisor for a keel Point Johns from Florida. 0:12:36.080 --> 0:12:39.760 He also worked in the Treasury and helps staff the 0:12:39.760 --> 0:12:43.080 White House National Security Council. He knows what he's talking about, folks, 0:12:43.080 --> 0:12:46.160 and some really good insights in and Carol, I daresay 0:12:46.160 --> 0:12:49.839 a little bit of optimism there that maybe we're starting 0:12:49.880 --> 0:12:53.079 to get our arms around where we may go from here.