WEBVTT - Equity Outlook and an iPhone and iPad Boost for Apple 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen, and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.320 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:46.800 --> 0:00:50.360 We are thrilled to Emily Rowland here with John Hancock 0:00:50.440 --> 0:00:53.720 of Boston. And I should also point out she's got 0:00:53.720 --> 0:00:57.480 the best call, which is just own America, own quality, 0:00:58.080 --> 0:00:59.880 screwing around. Do you stay with? 0:01:01.280 --> 0:01:04.080 We do, Tom, And it's really all about following the 0:01:04.120 --> 0:01:08.720 earnings and following where the best fundamentals are, follow the 0:01:08.760 --> 0:01:09.440 cash flow. 0:01:09.600 --> 0:01:10.520 And not only are. 0:01:10.360 --> 0:01:15.080 We seeing us megacap tech companies. Yes they're overvalued, but 0:01:15.120 --> 0:01:17.440 they're doing the bulk of the heavy lifting right now 0:01:17.480 --> 0:01:19.080 as far as earnings growth goes. 0:01:19.120 --> 0:01:20.000 It's a key reason that. 0:01:19.920 --> 0:01:23.280 We've had a preference for US equities. We're also following 0:01:23.280 --> 0:01:26.320 where the money's going. We are spending like crazy in 0:01:26.360 --> 0:01:29.240 the United States right now, and not a political opinion, 0:01:29.319 --> 0:01:32.800 it's just happening. And it's really unusual that we're employing 0:01:32.840 --> 0:01:35.720 fiscal stimulus and increasing the size of the deficit at 0:01:35.760 --> 0:01:38.920 a time where the unemployment rate is less than four percent, 0:01:38.959 --> 0:01:43.440 but it's being funneled into industrial production. There's a manufacturing 0:01:43.520 --> 0:01:47.360 renaissance taking place across the US Midwest right now, so 0:01:47.360 --> 0:01:51.640 we're playing that by emphasizing things like MidCap industrials and portfolios. 0:01:52.040 --> 0:01:55.160 So we're pretty much eighty eighty five percent away through 0:01:55.200 --> 0:01:57.520 earning share What have you seen so far that's either 0:01:58.000 --> 0:02:00.320 giving you conviction in that call or maybe said, oh, 0:02:00.400 --> 0:02:01.200 we got some headwinds. 0:02:01.360 --> 0:02:04.840 Yeah, I mean, earnings have been okay. You know, they 0:02:04.880 --> 0:02:07.400 remind me a little bit of my son's grades. He's 0:02:07.400 --> 0:02:10.880 in eighth grade. His report cards like not very good, 0:02:10.960 --> 0:02:13.160 but he's still on the lacrosse team right now. 0:02:13.080 --> 0:02:13.919 Go marblehead. 0:02:14.960 --> 0:02:17.680 So you know they've been fine, you know, but when 0:02:17.720 --> 0:02:19.800 you look at it, it's almost like I picture like 0:02:19.840 --> 0:02:22.040 a glacier, right, you know, how only the very top 0:02:22.080 --> 0:02:24.360 part of it is showing and it again, it's really 0:02:24.760 --> 0:02:28.760 those megacap tech names, Communications services, consumer discretionary. 0:02:28.800 --> 0:02:30.880 Those sectors are up thirty forty. 0:02:30.520 --> 0:02:34.200 Percent your over year, handily out pacing the S and 0:02:34.240 --> 0:02:36.760 P five hundred, which broadly is up only about two 0:02:36.760 --> 0:02:39.680 percent when you take those sectors out. So earnings has 0:02:39.720 --> 0:02:43.200 been fine, but again they're dominated by select groups of companies. 0:02:43.760 --> 0:02:45.679 So how do you think about valuation? 0:02:45.800 --> 0:02:46.200 Then? Do we? 0:02:46.760 --> 0:02:48.600 I mean, two ways to look at it. When you 0:02:48.600 --> 0:02:50.359 just kind of look at the broad market, maybe we're 0:02:50.360 --> 0:02:52.160 a little bit rich. A lot of folks say, hey, 0:02:52.160 --> 0:02:54.320 pull out some of those magnificent however they are is 0:02:54.320 --> 0:02:56.440 and it's we're okay, How do you guys think about it? 0:02:56.520 --> 0:02:58.519 Yeah, I mean it's really about a balance. 0:02:58.639 --> 0:03:01.960 So we have evaluation an issue with those megacab tech names. 0:03:02.000 --> 0:03:04.120 In fact, right now the S and P five hundred 0:03:04.160 --> 0:03:07.080 growth Index is trading at a forty five percent premium 0:03:07.160 --> 0:03:08.440 to its twenty year average. 0:03:08.480 --> 0:03:09.880 So we still like tech. 0:03:09.919 --> 0:03:12.440 We're not downgrading it, but you've got to balance that 0:03:12.520 --> 0:03:13.880 with stuff that's actually trading. 0:03:13.960 --> 0:03:17.880 Can sales JOHNY Hancock, with its venerable tradition, actually sticks 0:03:17.880 --> 0:03:24.040 to prospectus. Are your large cap portfolios forced to sell 0:03:24.120 --> 0:03:26.560 big tech because it's going up so much. 0:03:26.639 --> 0:03:29.360 Well, it's now that's a big problem for active managers 0:03:29.360 --> 0:03:32.200 because it's hard to be overweight those stocks. So I 0:03:32.200 --> 0:03:35.960 think there's some limitations there as far as sector construction. 0:03:36.800 --> 0:03:40.120 What we're doing is we're balancing that with carefully. 0:03:39.720 --> 0:03:40.800 Selected parts value. 0:03:40.840 --> 0:03:43.240 Think of it as like quality at a reasonable price. 0:03:43.600 --> 0:03:45.280 Those are the types of stocks we want to own, 0:03:45.360 --> 0:03:46.920 ones with great balance. 0:03:46.560 --> 0:03:50.320 Sheets such as these sectors. Come on. 0:03:50.520 --> 0:03:54.200 Yeah, so we're overweight the information technology sector. We also 0:03:54.960 --> 0:03:57.400 like things like industrials, which we talked about, which have 0:03:57.480 --> 0:04:00.800 good earnings prospects, their high quality, great retire and on equity. 0:04:01.600 --> 0:04:05.200 We do like healthcare sometimes I don't love talking about 0:04:05.240 --> 0:04:06.520 it because it's been an area. 0:04:07.320 --> 0:04:10.080 Healthcare try to go. I mean you and I were younger, Paul, 0:04:10.080 --> 0:04:13.720 when people started talking about this, Why won't healthcare pop? 0:04:13.920 --> 0:04:16.400 I think you just need to see that rotation into 0:04:16.400 --> 0:04:18.720 more defensive parts of the market and think about what's 0:04:18.720 --> 0:04:24.160 outperforming right now. You look at bitcoin, cryptomnor small cap equities, 0:04:24.240 --> 0:04:27.800 Chinese equities, it's like there's this massive momentum trade that's 0:04:27.839 --> 0:04:30.640 been spurred by this risk on sentiment, and it's really 0:04:30.680 --> 0:04:34.839 been just around the FED hinting last fall that that 0:04:34.920 --> 0:04:36.760 we were going to cut raids, and then kind of 0:04:36.839 --> 0:04:39.560 reiterating that message a bit last week when we heard 0:04:39.560 --> 0:04:41.760 that we're going to you know, kind of start reducing 0:04:42.240 --> 0:04:45.880 quantitative tightening and those other, you know, measures that are 0:04:45.880 --> 0:04:49.039 more dubvish. So I think it's we've been thinking about 0:04:49.080 --> 0:04:51.920 this environment like a phase, and I've been thinking about 0:04:51.920 --> 0:04:54.040 I don't know if anybody's ever had teenagers in their 0:04:54.040 --> 0:04:58.240 house can go through these like phases, which can be 0:04:58.320 --> 0:05:01.560 weird and erratic and hard to un understand. And that's 0:05:01.640 --> 0:05:03.680 kind of what it feels like right now in markets, 0:05:03.800 --> 0:05:07.560 is you're having decelerating economic growth. The April data are 0:05:07.600 --> 0:05:11.599 not that great, but markets are rejoicing because it's reviving 0:05:11.720 --> 0:05:14.520 hopes that the FED can start cutting. So we're in 0:05:14.600 --> 0:05:18.080 a phase that we're trying to get through and kind 0:05:18.080 --> 0:05:20.440 of ride out right now with those higher quality stocks. 0:05:20.440 --> 0:05:22.120 How about on the fixed income side, do I sit 0:05:22.160 --> 0:05:24.719 in my two year treasury at four point eight four 0:05:24.720 --> 0:05:26.560 percent or do I take some credit risk out there. 0:05:26.600 --> 0:05:29.200 I'm so glad you asked that Bloomberg is the place 0:05:29.240 --> 0:05:32.520 to talk about bonds, and I love that you know, 0:05:32.520 --> 0:05:35.719 it's pretty remarkable to see some of the volatility and rates. 0:05:35.760 --> 0:05:37.440 I don't think it's been talked about much. 0:05:37.480 --> 0:05:39.720 We just saw the ten year treasury yield fall by 0:05:39.720 --> 0:05:43.360 about twenty twenty five basis points in just over a week. 0:05:44.040 --> 0:05:47.480 We look at any backup in bond yields is really attractive. 0:05:47.600 --> 0:05:49.320 Right now, you think about. 0:05:49.160 --> 0:05:52.720 The aggregate bond indext yielding five point three percent, that's 0:05:52.839 --> 0:05:55.640 pretty awesome. I mean that's actually close to the twenty 0:05:55.680 --> 0:05:58.760 year high of about five point nine percent, and well 0:05:58.800 --> 0:06:00.800 above the twenty year average of three and a quarter. 0:06:00.880 --> 0:06:01.720 We like income. 0:06:01.839 --> 0:06:03.880 Now you're doing a lacrosse at Marblehead? Is that what 0:06:03.920 --> 0:06:07.680 is just right? Yeah? How many summer camps? Is a 0:06:07.760 --> 0:06:09.680 child going to? What a racket? 0:06:09.760 --> 0:06:09.960 Yeah? 0:06:10.080 --> 0:06:12.200 They got to walk diusy? Are they going to Dartmouth 0:06:12.240 --> 0:06:13.120 to the mountain dog? 0:06:13.520 --> 0:06:15.520 We are looking at some lacrosse camp. 0:06:15.560 --> 0:06:17.360 We're looking do you have a consultant? 0:06:17.839 --> 0:06:21.039 I know, right, it's unbelievable. I need another job. 0:06:21.440 --> 0:06:24.840 You do, yes, you do, trust me? Yeah, But you're 0:06:24.880 --> 0:06:27.159 looking at you know, three or four camps. 0:06:27.240 --> 0:06:29.880 Yes, all the elite colleges of course, will take your 0:06:29.920 --> 0:06:31.679 children for a week of lacrosse instruction. 0:06:31.760 --> 0:06:32.960 Doesn't even matter if they're good by. 0:06:33.080 --> 0:06:34.400 Textbooks not included. 0:06:34.800 --> 0:06:35.960 Exactly does this. 0:06:37.760 --> 0:06:40.159 Marnsball does it? They all do it? Yeah, yeah, got 0:06:40.160 --> 0:06:40.600 to keep it. 0:06:40.760 --> 0:06:42.880 I looked up Taber. I figure the track from marble 0:06:42.920 --> 0:06:45.000 Head down to Tabor in your cape. God, wouldn't be 0:06:45.000 --> 0:06:47.039 too much. They don't have a lex cap. They take 0:06:47.040 --> 0:06:49.360 your money in ice hockey. 0:06:48.680 --> 0:06:51.680 Exactly, so Marblehead that it was only forty five minute 0:06:51.760 --> 0:06:53.640 drive hour drive to the Boston. 0:06:53.440 --> 0:06:56.120 Well and on a Sunday morning it's about twenty minutes. 0:06:56.240 --> 0:06:59.080 But on a Monday morning it's a different story. 0:06:59.160 --> 0:07:05.560 They got to agree. Folky coffeehouse up there, it's up there, like, yeah, 0:07:05.600 --> 0:07:08.760 exactly it gets warm about July exact. 0:07:08.960 --> 0:07:10.600 For the sailing capital of the world. 0:07:10.720 --> 0:07:11.240 Is that right? 0:07:11.280 --> 0:07:13.080 Well, some people say Newport. 0:07:12.760 --> 0:07:18.000 But mar it's like the real you know, Hankly and 0:07:18.040 --> 0:07:18.360 all that. 0:07:18.480 --> 0:07:18.720 You know. 0:07:20.160 --> 0:07:21.360 Do you have the picnic boat? 0:07:21.640 --> 0:07:25.239 I mean that's like my dream boat. Picnic boat. 0:07:25.520 --> 0:07:28.320 Yeah. Tom Purcelly when he took his job at Pigeon, 0:07:28.920 --> 0:07:31.520 he demands. He didn't demand, he asked, and they give. 0:07:31.600 --> 0:07:33.680 He takes a picnic boat down the Hudson. 0:07:33.400 --> 0:07:36.240 River every morning, every day to the fisherman. Then so 0:07:36.320 --> 0:07:37.120 he can't have that. 0:07:37.480 --> 0:07:40.320 Okay, well yeah, but for the picnic boat, I could 0:07:40.360 --> 0:07:42.760 see you when right, Yeah, you. 0:07:42.720 --> 0:07:45.800 Know Augusto. 0:07:46.720 --> 0:07:47.280 Broadcast. 0:07:47.480 --> 0:07:51.000 Yes, yeah, Emily Rowland, Johnny Hancock road trip, thank you 0:07:51.080 --> 0:08:03.840 so much showing us now the former vice chairman of 0:08:03.840 --> 0:08:07.720 the Federal Reserve System with pimcoh and of course forever 0:08:08.440 --> 0:08:13.320 herder of cats at Columbia University within their Department of Economics. 0:08:14.040 --> 0:08:16.360 I've got it's going to be a four hour conversation 0:08:16.480 --> 0:08:18.440 and we're only doing it a short block this time 0:08:18.480 --> 0:08:20.600 with the Vice Chairman Clarita, but we'll make it a 0:08:20.640 --> 0:08:24.040 much longer conversation next time. I want you to reaffirm, 0:08:24.160 --> 0:08:28.200 recapitulate your Economist article of seven eight, nine months ago 0:08:28.280 --> 0:08:31.960 where you shook the industry by saying, forget about two 0:08:31.960 --> 0:08:35.640 point zero zero percent, it's going to be some number higher. 0:08:35.760 --> 0:08:36.960 Revisit that right now. 0:08:37.760 --> 0:08:39.439 Well, thank you, Tom, and always great to be on 0:08:39.559 --> 0:08:41.400 the show, especially in studio. 0:08:41.480 --> 0:08:41.720 Yeah. 0:08:41.720 --> 0:08:45.280 In that essay I highlighted that that I thought the 0:08:45.280 --> 0:08:48.880 pal FED and really global central banks we're really aiming 0:08:48.920 --> 0:08:51.559 to get inflation down to what I called two points something, 0:08:52.559 --> 0:08:55.280 and the idea was inflation was up to five six 0:08:55.480 --> 0:08:57.920 or seven at the peak, and the goal would be 0:08:57.960 --> 0:09:01.160 to get it in the zip code the inflation target, 0:09:01.240 --> 0:09:04.160 but in terms of dealing with the last mile, to 0:09:04.280 --> 0:09:07.040 let the economy sort of get to the last mile 0:09:07.080 --> 0:09:09.920 on its own without another leg up in rate hikes. 0:09:09.920 --> 0:09:12.040 And that's what I think we're seeing in the US 0:09:12.080 --> 0:09:13.720 and really around the world. 0:09:14.000 --> 0:09:18.000 Is the FED restrictive? Now? The polarity of market economists 0:09:18.000 --> 0:09:20.600 we speak to is there's a select group saying, you 0:09:20.600 --> 0:09:22.959 know what, they could go up further and then come down, 0:09:23.400 --> 0:09:26.280 and know those others saying stop it. They're way above 0:09:26.280 --> 0:09:29.040 the real rate, bring it down now. Which is it? 0:09:30.160 --> 0:09:33.719 They think they're restrictive. I think they're restrictive. I think 0:09:33.760 --> 0:09:36.760 there can be a debate on how restrictive the Fed's thinking, 0:09:36.800 --> 0:09:39.800 which I think makes sense, Tom, is that the longer 0:09:39.800 --> 0:09:42.640 they keep rates here, and importantly, the longer they signal 0:09:42.679 --> 0:09:46.240 they're going to keep rates here, they will become more restrictive. 0:09:46.280 --> 0:09:48.320 And so yes, I'm certainly in the camp that they've 0:09:48.360 --> 0:09:50.880 done enough and the real question is how long do 0:09:50.920 --> 0:09:52.960 they have to keep rates at this level? 0:09:53.360 --> 0:09:55.960 Richual, Tom and I will speak to people both in 0:09:56.000 --> 0:09:59.280 academia and in practice that says the FET should be 0:09:59.360 --> 0:10:01.480 cutting now. If you look at the real time data, 0:10:01.520 --> 0:10:04.880 inflation is maybe not whipped, but we're pretty darn close. 0:10:04.920 --> 0:10:07.520 We should be cutting rates now. How do you think 0:10:07.520 --> 0:10:07.880 about that? 0:10:09.080 --> 0:10:11.080 If I were still in the building, I would not 0:10:11.160 --> 0:10:13.319 be in the camp to be cutting now. It certainly 0:10:13.360 --> 0:10:15.800 looked like that was feasible coming into the year, but 0:10:15.880 --> 0:10:18.560 you know, since the beginning of the year, the inflation 0:10:18.640 --> 0:10:22.240 numbers have been going in the wrong direction. And also 0:10:23.320 --> 0:10:27.200 I think that especially, I think what's relevant here is 0:10:27.200 --> 0:10:29.720 an element of risk management. So I think there is 0:10:29.840 --> 0:10:33.040 path dependence. The fact that the last three years inflation 0:10:33.160 --> 0:10:35.880 has been well above target. I think it makes it 0:10:36.120 --> 0:10:39.440 a harder call to cut preemptively. So I do think, 0:10:39.559 --> 0:10:42.880 you know, sometimes central banks say they're data dependent, and 0:10:42.920 --> 0:10:45.000 they're not. I do think the Paler FED now is 0:10:45.120 --> 0:10:48.000 data dependent, and I think they're ready to cut if 0:10:48.000 --> 0:10:51.080 the inflation data starts to proceed as they expect. 0:10:51.520 --> 0:10:53.760 How do you think this FED is looking at the 0:10:53.880 --> 0:10:55.960 labor market? I mean, Tom and I we kind of 0:10:55.960 --> 0:10:58.160 throughout this term it feels like we're at full employment. 0:10:58.440 --> 0:11:00.880 Everybody wants a jomp kind of has job. Wages are 0:11:00.880 --> 0:11:04.160 going on at a pretty reasonable pace. How do you 0:11:04.160 --> 0:11:05.839 think the FED looks at the labor market today. 0:11:06.760 --> 0:11:09.520 I think they see a labor market that is robust 0:11:10.000 --> 0:11:13.080 by a variety of measures, not just the unemployment rate, 0:11:13.200 --> 0:11:16.880 but other indications, and that's a good thing. Indeed, I 0:11:16.920 --> 0:11:19.240 think one of the first speeches I gave is Vice chairs, 0:11:19.280 --> 0:11:21.000 I made the point, you know, the FED is not 0:11:21.040 --> 0:11:24.280 targeting wage inflation. It actually likes it when folks get 0:11:24.280 --> 0:11:27.280 a nice raise, but raises have to be consistent with 0:11:27.360 --> 0:11:29.640 the inflation target. And you know, we've gotten some good 0:11:29.720 --> 0:11:33.760 news on productivity in the last year. Productivity growth is 0:11:33.800 --> 0:11:37.360 now around two percent, and two percent productivity growth with 0:11:37.480 --> 0:11:41.000 four percent wage increases have sustained gets some pretty close 0:11:41.040 --> 0:11:42.480 to where they want to be. So I don't think 0:11:42.480 --> 0:11:45.160 there's a lot of adjustment required in the labor market. 0:11:45.200 --> 0:11:48.000 From here. You're joining us right now, Richard Clarida from 0:11:48.000 --> 0:11:50.520 a vice chairman of the FED, and of course with 0:11:50.640 --> 0:11:55.800 Columbia University, you're a certain kind of monetary economist. Of 0:11:55.840 --> 0:12:01.600 course with DSG, with DSGE, with GLLY, and I think 0:12:01.600 --> 0:12:04.439 of Megnum decigh Over at the London School of Economics 0:12:04.440 --> 0:12:07.880 coming from a totally different world. Megnan got Lord Desai 0:12:08.520 --> 0:12:12.040 got so upset about our fiction of equilibrium that he 0:12:12.080 --> 0:12:13.960 wrote a book about it two thousand and eight, two 0:12:14.000 --> 0:12:18.400 thousand and nine. In d SGE, there's a respect for 0:12:18.600 --> 0:12:23.040 vulrus in some form of normal equilibrium. How can we 0:12:23.160 --> 0:12:26.440 measure equilibrium now if we don't have a clue what 0:12:26.600 --> 0:12:28.920 productivity is doing? I just don't buy it. 0:12:29.800 --> 0:12:32.439 Well, I think we measure it with pretty big error, Tom, 0:12:32.559 --> 0:12:35.240 And you're absolutely right that not just productivity, but a 0:12:35.240 --> 0:12:41.000 lot of inputs into theoretical DSGE models are star term premium, equity, 0:12:41.040 --> 0:12:45.160 premium are all unobserved and measured with air. So I 0:12:45.200 --> 0:12:47.240 always thought, and I've said this on your show, and 0:12:47.280 --> 0:12:49.840 I've said this in the halls of the FED. You know, 0:12:49.960 --> 0:12:52.240 models are a place to start, but not to end 0:12:52.240 --> 0:12:56.480 the conversation. And in particular, you know folks would criticize 0:12:56.520 --> 0:12:59.280 say DSGE that there are three equation models. Well, I 0:12:59.280 --> 0:13:02.520 think every economy needs to have at least three equations, 0:13:02.520 --> 0:13:05.080 but they're a lot more so, Tom. It's a starting point, 0:13:05.080 --> 0:13:07.600 but it's not a destination to get to the d the. 0:13:07.559 --> 0:13:11.160 Two hundred and fifty PhDs, whatever it is. Fat they've 0:13:11.200 --> 0:13:15.200 all studied Clarida Gally Girtler and the rest of it. 0:13:15.640 --> 0:13:19.800 I get it. They've studied this stuff. Yeah, isn't germane 0:13:19.880 --> 0:13:23.040 right now? Our listeners say, you've got to be kidding me. 0:13:23.400 --> 0:13:26.960 After the shock of a pandemic, Yeah, a triple stimulus? 0:13:27.280 --> 0:13:31.160 Throw the equations out. Does Chairman Paul have equations now 0:13:31.200 --> 0:13:34.920 that are effective? Are that have some form of use? 0:13:36.600 --> 0:13:39.400 My sense, obviously from public comments of not only the 0:13:39.480 --> 0:13:42.120 chair but the committee, is that they've understood Tom for 0:13:42.200 --> 0:13:46.600 some time that the shock was sufficiently unusual and substantial 0:13:47.600 --> 0:13:49.880 that they need they can, and they are relying less 0:13:49.920 --> 0:13:53.840 on models and more on the way the data evolves. 0:13:53.840 --> 0:13:55.880 You know, Tom, on one hand, you know, the models 0:13:55.880 --> 0:13:58.240 were telling them that to get inflation down from five 0:13:58.280 --> 0:14:00.680 and a half to two points something, they need to 0:14:00.720 --> 0:14:03.520 have a big increase in the unemployment rate. And both 0:14:03.600 --> 0:14:06.880 Governor Waller, Sharp Pell and others said, look, the economy 0:14:06.880 --> 0:14:09.040 may be different this time. We don't have to assume 0:14:09.360 --> 0:14:11.400 a big cratering in the labor market. And that was 0:14:11.440 --> 0:14:12.600 actually a positive device. 0:14:12.679 --> 0:14:15.360 I can't say enough, Paul, how I agree with this? 0:14:15.600 --> 0:14:18.600 And then this is Paul Powell's been hit like a pinata. 0:14:19.160 --> 0:14:23.760 Powell led saying do we really trust these equations? And 0:14:23.920 --> 0:14:29.440 Clarida who invented the equations in Colombia, you know, Stiglitz, 0:14:29.760 --> 0:14:32.160 they got their equations. Some of them are real simple 0:14:32.240 --> 0:14:35.880 like Stiglitz Engrossmen and others like Clara Edg's Greek to me. 0:14:36.440 --> 0:14:38.680 But the answer is do they matter right now? And 0:14:38.760 --> 0:14:39.600 Powell's let. 0:14:39.520 --> 0:14:42.000 On this, I know, and Tom, one of the key 0:14:42.000 --> 0:14:44.640 issues for a lot of folks is the consumer here. 0:14:44.720 --> 0:14:46.920 I mean, you know, there's a tale of two cities, 0:14:46.920 --> 0:14:49.120 if not more out there with the US consumer. 0:14:49.120 --> 0:14:51.440 A lot of folks are really struggling. 0:14:51.040 --> 0:14:54.040 Particularly they don't own assets, whether it's real estate or 0:14:54.280 --> 0:14:56.400 you know, stocks or bonds and things like that. And 0:14:57.040 --> 0:14:59.480 how does the FED think about the consumer here? How 0:14:59.520 --> 0:15:01.800 did they gain how the consumer's dove? They look at 0:15:01.800 --> 0:15:05.400 the earnings from Walmart? I mean, what do they do well? 0:15:05.520 --> 0:15:08.720 The FED staff has devotes a lot of resources to 0:15:08.760 --> 0:15:11.080 the consumer, not only at the aggregate level what is 0:15:11.120 --> 0:15:14.640 total consumption, but also increasingly during the time I was there, 0:15:15.000 --> 0:15:18.040 focusing on the on the distribution in both income and 0:15:18.040 --> 0:15:21.640 consumption distribution across the population. And there are a lot 0:15:21.720 --> 0:15:24.359 of things that that can you can monitor, in particular, 0:15:24.800 --> 0:15:27.200 how many households are laid in their car payments or 0:15:27.240 --> 0:15:30.440 credit card payments, and so certainly, certainly the FED spends 0:15:30.480 --> 0:15:32.600 a lot of time on the bottom up analysis of 0:15:32.640 --> 0:15:33.320 the consumer. 0:15:34.040 --> 0:15:36.760 So again, we came into the year, Richard, I mean 0:15:36.800 --> 0:15:39.520 the market was discounting six rate cuts. Now we're down 0:15:39.600 --> 0:15:41.360 the lesson to I mean, the market has no idea 0:15:41.400 --> 0:15:45.240 what's going on out there? Is the Fed? From your perspective, 0:15:46.280 --> 0:15:48.080 are they happy to say, Hey, we've done a lot 0:15:48.120 --> 0:15:51.160 of work here, We've raised rates, we had a major 0:15:51.200 --> 0:15:54.200 impact on this economy. Let's just wait and see how 0:15:54.280 --> 0:15:56.080 our work plays out. Is that kind of where we are? 0:15:56.160 --> 0:15:58.080 Do you think that's exactly where they are? 0:15:58.080 --> 0:16:00.640 In fact, that the chair got that quietest at the 0:16:00.680 --> 0:16:03.960 press conference, and I'm paraphrasing that his answer was along 0:16:03.960 --> 0:16:07.400 the lines of, we judge that policy is restrictive, and 0:16:07.440 --> 0:16:09.520 we judge that if we keep it here long enough, 0:16:09.560 --> 0:16:11.600 it will be sufficiently restrictive. 0:16:11.640 --> 0:16:13.240 So that's definitely their mindset. 0:16:13.440 --> 0:16:16.040 Their data dependent in terms of when the cut and 0:16:16.080 --> 0:16:19.800 how many cuts are going to happen, but they certainly 0:16:19.880 --> 0:16:23.440 judge that policy is restrictive here and they just have 0:16:23.520 --> 0:16:24.200 to keep it here. 0:16:24.600 --> 0:16:28.520 Well, one of the great moments now in economics, Professor 0:16:28.840 --> 0:16:33.400 Clarita is your colleague and crime at Columbia, Joseph Stiglitz, 0:16:33.520 --> 0:16:36.400 Nobel Prizer. He's out with a wonderful new book, very 0:16:36.480 --> 0:16:40.160 thought provoking, should be read by conservatives, The Road to Freedom, 0:16:40.720 --> 0:16:44.880 Economics and the Good Society. You two are both victims 0:16:45.000 --> 0:16:49.120 of the Midwest. One of the great great advantages here 0:16:49.240 --> 0:16:53.800 is Clarita and Stiglitz are like, what, everybody, calm down, 0:16:54.120 --> 0:16:57.120 There's a whole other country out there. Yeah, tell me 0:16:57.200 --> 0:17:03.080 about policing. As Dean of Colombia, Joe Stiglitz, I can't 0:17:03.200 --> 0:17:05.919 fathom that is your day job. What was it like 0:17:06.040 --> 0:17:08.960 telling Joe Stiglitz you will teach this course? 0:17:09.160 --> 0:17:11.879 Well, no, Joe is a treasure and I'm actually proud 0:17:11.880 --> 0:17:13.960 of the fact that when I was department chair back 0:17:14.000 --> 0:17:18.359 in two thousand and one, I recruited Joe to Columbia. 0:17:18.800 --> 0:17:22.080 It was one of my big, big accomplishments. I'm an 0:17:22.200 --> 0:17:27.639 enormous fan of his research. He's an incredible colleague, incredibly creative, 0:17:28.320 --> 0:17:30.360 and you know, I just wish we had fifty more 0:17:30.440 --> 0:17:33.320 Joe Stiglitz. Whether without the Nobel problem. 0:17:33.040 --> 0:17:37.400 Why should conservatives read Stiglitz The Road to Freedom. 0:17:37.720 --> 0:17:40.960 Well, I'm reading it now. I listened to a podcast 0:17:41.200 --> 0:17:44.800 the other day. Look it's It gives I think, an 0:17:44.800 --> 0:17:49.720 informed and nuanced assessment of the power that economics can 0:17:49.800 --> 0:17:52.240 have about thinking about the world if you're willing to 0:17:52.320 --> 0:17:55.960 step away from the oversimplifying assumptions. And much of Joe's 0:17:56.000 --> 0:17:59.000 career has been driven by a curiosity about the world 0:17:59.040 --> 0:18:02.040 and providing a structure to think about it. 0:18:02.760 --> 0:18:05.640 How do you think about this US economy? A lot 0:18:05.680 --> 0:18:09.360 of we hear recently about the exceptionalism of the US 0:18:09.440 --> 0:18:13.320 economy vis a vis Europe. Let's think Germany or Asia, 0:18:13.359 --> 0:18:18.200 Let's think China. Is this something as unusual, this kind 0:18:18.200 --> 0:18:21.280 of decoupling, if you will, in terms of performance. 0:18:22.040 --> 0:18:24.240 You know that term means different things to different people. 0:18:24.280 --> 0:18:26.920 What is clear, I think is through the rear view 0:18:26.920 --> 0:18:31.560 mirror last year many predictions of a recession. Not only 0:18:31.600 --> 0:18:34.600 did a recession not happen, but growth was a point 0:18:34.600 --> 0:18:38.880 above a trend, a very hot labor market. I think 0:18:38.920 --> 0:18:42.399 part of the exceptionalism theme relates to excitement about AI. 0:18:42.880 --> 0:18:44.760 AI is a big deal. 0:18:44.920 --> 0:18:46.520 It's not clear if it'll be a big deal in 0:18:46.520 --> 0:18:48.359 the next six months or six years, but it is 0:18:48.400 --> 0:18:52.000 a big deal, and obviously US companies in US innovation 0:18:52.160 --> 0:18:55.720 are poised to benefit from that. But there's another dimension 0:18:55.760 --> 0:18:58.959 I would argue in which the US is exceptional, exceptional 0:18:59.040 --> 0:19:01.520 but in a poor direction, which is that we have 0:19:01.560 --> 0:19:06.359 an exceptionally irresponsible fiscal policy. And if you look at 0:19:06.359 --> 0:19:11.400 the CBO numbers, they are they are frightening, essentially deficits 0:19:11.760 --> 0:19:14.120 of five six seven percent of GDP as far as 0:19:14.160 --> 0:19:15.520 the I can see, so. 0:19:15.600 --> 0:19:18.640 Exceptional in multiple directions. I would say. 0:19:18.560 --> 0:19:22.560 One final question, Yeah, we have a presidential candidate, a 0:19:22.640 --> 0:19:26.280 former president who basically wants to take the independence of 0:19:26.280 --> 0:19:29.960 the FED away from your reading of our political economy. 0:19:30.040 --> 0:19:34.600 Can an individual Can a single president remove FED independence? 0:19:35.240 --> 0:19:38.439 Certainly not, I think I think the legal standing of 0:19:38.480 --> 0:19:42.920 that issue is clear and decided, and I would coup 0:19:42.960 --> 0:19:45.480 points one. Jerome Powell will serve out his term, which 0:19:45.480 --> 0:19:47.480 goes through May of twenty six. Secondly, there are no 0:19:47.600 --> 0:19:52.639 vacancies on the federal reserve right now, so for the 0:19:52.680 --> 0:19:56.560 foreseeable future, there's there's no nothing for a future president 0:19:56.600 --> 0:19:58.080 to do on that account. 0:19:58.240 --> 0:19:59.680 This is this has been fun. 0:20:00.280 --> 0:20:04.840 Okay, yeah, you know quality c Yeah, yeah, gentlemanly see 0:20:04.840 --> 0:20:05.399 I'll take that. 0:20:05.680 --> 0:20:08.960 Richard Claridath, thank you so much of Columbia University and 0:20:09.000 --> 0:20:17.359 of course the FED and with Pimco as well joining 0:20:17.440 --> 0:20:21.080