Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Farrell and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg termainment. Let's get right
Speaker 1: to it right now. He is the Vice Chairman of
Speaker 1: the Federal Reserve System, Richard Clarida, of course of Columbia
Speaker 1: University and truly one of our noted academics on monetary policy,
Speaker 1: assisting Jerome Powell at every step of the way. Vice
Speaker 1: Chairman John Farrell and Tom can good morning to you.
Speaker 1: Good morning. I look, Richard Claida, where we are, and
Speaker 1: I want to go back to your important paper The
Speaker 1: Science of Monetary Policy with Galli and Galli and Girdler
Speaker 1: of years ago. And you lead with a quote from
Speaker 1: another Vice Chairman, Alan Blinder, who talks about the practicing
Speaker 1: of the dark art. Give us the state of the
Speaker 1: practicing of the dark art of the FED, given this
Speaker 1: original moment in American history. Well, thank you, Tom and
Speaker 1: and as Alan and we all and I certainly believe
Speaker 1: there's there's as much or probably much more art than
Speaker 1: science and monetary policy, but it's good to refer to
Speaker 1: some of that UH as well. I think I think
Speaker 1: that the Federal Reserve in August adopted a new framework.
Speaker 1: It's an evolution, but it's a robust evolution, and primarily
Speaker 1: it is outcome based UM our goals our maximum employment
Speaker 1: and price stability, and we want our policy to be robust.
Speaker 1: If our models break down UM and we can still
Speaker 1: do monetary policy, but we're gonna be more outcome based
Speaker 1: and less outlook based. And I think that served us
Speaker 1: well in the pandemic, and I think it will service
Speaker 1: well in the years ahead. Could you count arise that
Speaker 1: as a commitment to being late instead of being guly well.
Speaker 1: What we've said in September of last year, following our
Speaker 1: framework announcement in August is that we are we do
Speaker 1: not expect to lift off until a three conditions are met. First,
Speaker 1: that inflation actually gets to two percent. We want to
Speaker 1: see actual inflation for at least a year or two
Speaker 1: per cent, and we want that to be sustained, not
Speaker 1: just one and done. Secondly, we want to be UH
Speaker 1: looking at labor market indicators that are consistent with a
Speaker 1: fully employed um economy. And third, we want that to
Speaker 1: be sustained. We think that's appropriate since we've hit the
Speaker 1: effective lower bound, inflation has been below our target for
Speaker 1: most of the last ten years, and under those circumstances,
Speaker 1: that is a good UH policy. You are correct that
Speaker 1: in the past the FED was more preemptive, and indeed,
Speaker 1: my research suggested that if you've got good models, you
Speaker 1: want to be preemptive. But if the models are not
Speaker 1: serving you, well, you're more robust if you're looking at
Speaker 1: actual data. So that's that's the way I chacterize the job.
Speaker 1: The conversation, as you know, vice check clouded right now,
Speaker 1: is over what substantial progress actually is. You're familiar with
Speaker 1: the debate. We talk about it almost every single down
Speaker 1: programs like this. Do you think it's necessary to define
Speaker 1: what substantial progress actually is? Well, first of all, it's
Speaker 1: actual progress. I think that's an important point. It's not
Speaker 1: projective progress. It's it's hard numbers on the labor market
Speaker 1: and on prices. That's the first point. Secondly, Um, you
Speaker 1: know we're early on in this year. I know we've
Speaker 1: already sort of penciled in six or seven percent growth
Speaker 1: and a big ball and unemployment. But under outcome based policy,
Speaker 1: we really want to see that as as share power
Speaker 1: is indicated and I've under indicated, as we go through
Speaker 1: the year, as the data comes in, as we release
Speaker 1: our SEP projections based on that incoming data, we will
Speaker 1: have a sense on on where we are relative to
Speaker 1: that progress. And as share pal is also indicated. Um,
Speaker 1: as we think we are making that progress, we will
Speaker 1: communicate that to UH people who listen to our communication.
Speaker 1: And so I think that this is really where we
Speaker 1: want to be. It's actual progress, it's not projective progress.
Speaker 1: And as we go through the year, we will be
Speaker 1: informing the public about our views on that progress. So Rich,
Speaker 1: let's talk about it right now. You've talked about the
Speaker 1: conditions needed for lift off, but we haven't ready defined
Speaker 1: them conditions consistent with full employment. I don't know what
Speaker 1: that is. I have no idea. If you'll tell me,
Speaker 1: we're talking about substantial progress, but it needs to be actual,
Speaker 1: not forecast. But I still don't know what progress actually is.
Speaker 1: So you don't plan to define what substantial further progress is.
Speaker 1: You've promised to give markets warning before changing policy. How
Speaker 1: exactly do you plan to do that? Well, certainly we have.
Speaker 1: We have eight meetings a year. The Chair does a
Speaker 1: press conference at at each of those meetings. We release
Speaker 1: the summary of economic projections at four of those meetings,
Speaker 1: and so we will have apple opportunity. And again the
Speaker 1: Chair would not have been making those comments publicly if
Speaker 1: if he was not committed to it. So we'll have
Speaker 1: many opportunities as as the actual data ms en uh
Speaker 1: to to inform uh fat observers about our assessment of
Speaker 1: are we making that progress? Vice Chairman. The critics, and
Speaker 1: as you know, there are many critics. They have a
Speaker 1: habit of coming out Friday for weekend consumption. Have a
Speaker 1: true fear of inflation? You're Andrea Aella running your research
Speaker 1: for monetary affairs. Is a fabulous phrase of the core
Speaker 1: and the crust. Looking at core inflation, looking at the
Speaker 1: dynamics of energy, It gets to the visceral fear that
Speaker 1: our radio and TV listeners have. Are you afraid of inflation?
Speaker 1: Should we fear inflation? Well, the reality is we have
Speaker 1: a dual mandate and and half of that is price
Speaker 1: stability um and so the federal reserve, every federal reserve
Speaker 1: since Paul Wolker's leadership has been committed to that the
Speaker 1: pal fit is too But but tom um two percent
Speaker 1: as a ceiling, which is in effect the way many
Speaker 1: thought of our prior policy, also does not serve the
Speaker 1: economy well. It has in fact serious implications for the
Speaker 1: labor market and prosperity. And so essentially what we've said
Speaker 1: is that we want inflation outcomes that keep inflation expectations
Speaker 1: anchored at two percent, and that's gonna mean sometimes will
Speaker 1: be above two and sometimes will be UM below uh.
Speaker 1: We focus on inflation expectations UH intensely. We have a
Speaker 1: new index of common inflation expectations, I would say, and
Speaker 1: we've indicated tom uh that because of the nature of
Speaker 1: the pandemic shock a year ago, as we moved through
Speaker 1: one on a year over a year basis, headline inflation
Speaker 1: is gonna likely move above two percent because we're gonna
Speaker 1: be comparing this year's prices with last year's collapsing prices.
Speaker 1: But we expect in our baseline most of that to
Speaker 1: be transitory and for inflation to return later this year
Speaker 1: to around uh two. That's our that's our baseline. Let
Speaker 1: me also say that around the baseline, there are risks
Speaker 1: on both sides, uh, and in the risk case and
Speaker 1: inflation were to begin to move above a level consistent
Speaker 1: with price stability, we would have the tools to address that,
Speaker 1: and I'm confident that we would under that under that
Speaker 1: wrist scenario fold in the balance sheet and that can
Speaker 1: be the twin deficits, a comparison of the fiscal situation
Speaker 1: to g d P and of course trade dynamics as well.
Speaker 1: What do we do with the sixth standard deviation move
Speaker 1: and the twin deficit oout say two years. Are you
Speaker 1: optimistic we can stabilize that terrible trend? Are you optimistic
Speaker 1: that we can somehow revert to a better outcome? Well,
Speaker 1: you are correct, Tom, and I think this was pointed
Speaker 1: out in the I m F World Bank meetings this week.
Speaker 1: UM that because the US, for a variety of reasons,
Speaker 1: including better progress on vaccination and very robust policy support,
Speaker 1: is going to be growing rapidly this year compared to
Speaker 1: other countries. And what we tend to see historically is
Speaker 1: that when the US grows faster than most of the
Speaker 1: rest of the world, some of that spills into our
Speaker 1: imports and we have a bigger trade deficit. From the
Speaker 1: point of view of the rest of the world, that's
Speaker 1: a good thing that we're more of a locomotive than caboose,
Speaker 1: and so I would expect the current account deficit to
Speaker 1: widen this year and next under the baseline scenario. It's
Speaker 1: not something now that that is a concern because capital
Speaker 1: flows into the US in part because of our our
Speaker 1: rage relative to the rest of the world. So no,
Speaker 1: it's not a concern. Obviously, any circumstance with a big
Speaker 1: imbalance can become a concern, but it's not a concern
Speaker 1: now to me. Colleague and good friend Michael McKee reached
Speaker 1: down early this morning Rich and indicated that Lorie Logan,
Speaker 1: who I'm sure you're familiar with, of course over the
Speaker 1: New York Fed, suggested last night that they'll be changing
Speaker 1: the composition of his QUEI purchases to match the outstanding
Speaker 1: US debt profile. Can you elaborate a little bit on
Speaker 1: the objectives behind that, Ridge, Sure, And look, Laurie is
Speaker 1: a fine colleague and and has done a fabulous job
Speaker 1: in my three years at the at the board, so
Speaker 1: I'm lucky to be able to work with her. Well,
Speaker 1: we're said in those remarks is essentially restarting what has
Speaker 1: been our policy for some time now, which is that
Speaker 1: as we're purchasing treasury securities, we're doing so in the
Speaker 1: secondary market, and we'd like those purchases to roughly match
Speaker 1: the outstanding, the supply of treasuries in the market according
Speaker 1: to different maturities, and so, you know, as the Treasury
Speaker 1: changes its issuance patterns, then we would of course adapt
Speaker 1: our program to match those those outstanding. So I don't
Speaker 1: think she was really trying to make news there. It's
Speaker 1: really just articulating what our policy has been for for
Speaker 1: some time. You wouldn't characterize this is operation twist, then
Speaker 1: I would not characterize the as operation twists. Michael mckill
Speaker 1: be happy that we address that particular question, said, I
Speaker 1: think John that was on the edge of the route,
Speaker 1: just so you know, have to bring it up. At
Speaker 1: one of the conversation, Rich you mentioned transit tree, and
Speaker 1: we've been playing the drinking game transit tree every time
Speaker 1: the vice chairman is South speaks. Every time the chairman
Speaker 1: speaks transitory, transity transitory. Say, here's my question. Riches the
Speaker 1: Epograms says, how would you know if you're wronk that
Speaker 1: it's not just transit treat How would you know if
Speaker 1: you're wronk. Well, the simplest answer is that of inflation
Speaker 1: at the end of the year, is has not declined
Speaker 1: from where it is in the middle of the year,
Speaker 1: that will be some good evidence. Um. I also think
Speaker 1: that you know, we look at both headline and core measures.
Speaker 1: And let me also say, John, because not surprisingly it's
Speaker 1: a good question that the show tends to ask good questions. Um,
Speaker 1: the reality the real sometimes not not always, But I
Speaker 1: would say that that an important point to note, and
Speaker 1: I've made this point several times, so let me repeat it.
Speaker 1: Show there is a there is a lot of pent
Speaker 1: up demand in the economy. We have a lot of
Speaker 1: fiscal support, monetary policy has been all in for thirteen months.
Speaker 1: But there's a lot of pent up supply in the economy.
Speaker 1: Eight and a half million jobs short of where we
Speaker 1: were thirteen months ago. A lot of small businesses shut down,
Speaker 1: and so we do think the economy is going to reopen.
Speaker 1: So both supply and demand will be in play, and
Speaker 1: there could be some temporary and balances in certain sectors
Speaker 1: um so called bottle nuck bottleneck effects. But again we
Speaker 1: would expect those to be transitory, and there's the year progressive,
Speaker 1: and there's we go into next year. If they're not,
Speaker 1: then we'll have to take that into account, certainly, John,
Speaker 1: I should also say that. I should also say that
Speaker 1: I consult my Bloomberg regularly, UH and my favorite, one
Speaker 1: of my favorite screens is e CFC, where you accumulate
Speaker 1: all the individual forecast for the economy UH, and your
Speaker 1: entire Bloomberg panel shows a similar projection. Now, again, forecasting
Speaker 1: is hard, That's why we do it a lot. But
Speaker 1: the baseline view, even given the fiscal package, is that
Speaker 1: most of the move above two percent inflation we see
Speaker 1: the spring should revert back later this year. I'm looking
Speaker 1: at a CFC right now at two point one, twenty one,
Speaker 1: twenty two point twenty three. You mentioned something important, Nut Rich,
Speaker 1: and it wasn't lost on me until about that turn
Speaker 1: from twenty one into twenty two. Is that the ultimate
Speaker 1: test for you? But you won't really know until we
Speaker 1: get a little bit deeper into early twenty two. To
Speaker 1: draw that distinction between whether something is transitory or perhaps
Speaker 1: a little bit more persistent, Well, sure, I think I
Speaker 1: just think as as time, you know, as time goes on,
Speaker 1: you you learn more about about how the economy is
Speaker 1: going to a depth. I think I saw heard some
Speaker 1: sound you must have had my good friend Ken Rugoff
Speaker 1: on at one point, and I think Kenna's usual brings
Speaker 1: up an excellent observation, which is that this is a
Speaker 1: very unusual shock, a global shutdown, shutdown of the global
Speaker 1: economy through a true, truly exhaugenous event. I think it's
Speaker 1: never happened to my professional career because it impacted both
Speaker 1: supply and demand. So we're gonna be learning as sectors
Speaker 1: come back online, and I'm sure there'll be surprises along
Speaker 1: the way, and we need to be attuned and attentive
Speaker 1: to the data flow. But yes, of course, and also
Speaker 1: John Um, you know, yes, we we welcome the nine
Speaker 1: thousand plus jobs that are gained, but there's a a
Speaker 1: hole in the in the labor market, and will begin
Speaker 1: to get a better sense as we go through this
Speaker 1: calendar year about how how rapid that progress is and
Speaker 1: how that is showing up another indicators of the labor market.
Speaker 1: So of course, I think, yeah, Vice Chairman, a final question,
Speaker 1: if we could, we did speak with Kenneth Rogoff of
Speaker 1: Harvard today, and he traced a path in our academics
Speaker 1: back to UH Dr Mundell Robert Mandel passing at this week,
Speaker 1: Richard Clarida, you had the privilege of not only reading
Speaker 1: Mundel and doing Mundel, but working with Mundel at Columbia University.
Speaker 1: Your thoughts on what he gave to Kenneth Rogoff, Richard
Speaker 1: Clarida and the rest of us, well, it's uh. I
Speaker 1: was very saddened when I heard the news this week.
Speaker 1: Bob was a mentor and a friend for thirty years.
Speaker 1: It was one of the thrills of my career too,
Speaker 1: to be a colleague of his. Because as a global Mackerel,
Speaker 1: all global and Mackerel columns today are either students of
Speaker 1: Mundeal or the students of Mundal in one way or
Speaker 1: the other. And that was certainly true with me. He's
Speaker 1: truly the father of the euro expansive, creative, a wonderful gentleman,
Speaker 1: UH and really one of the great great economists of
Speaker 1: the second half of the twentieth century. Will be sorely missed,
Speaker 1: both as a human being UH and as a scholar.
Speaker 1: And I think everyone here at Blomberg's of violence and
Speaker 1: a tame across the Blimberg universe at those comments, Rachel
Speaker 1: always trying to catch out these. I think we're all
Speaker 1: looking forward to just getting into the same room again
Speaker 1: and look forward to doing that soon. Maybe, Like Danny D. C.
Speaker 1: Richard kod Of, Vice Chair of the Federals, Eve Kenneth
Speaker 1: Rogoff of Hervard University on the dollar in the place
Speaker 1: within our global system, Professor Rogoff I mentioned to Catherine
Speaker 1: Mann this line that goes from modern economics of you
Speaker 1: and Obsfeld, back through Jacob Frankel to the founding of
Speaker 1: Robert Mundel. In all of that is the politician velleries
Speaker 1: you started to staying of France who aked about the
Speaker 1: US dollar exorbitant privilege. Mundell talked about this for years
Speaker 1: and years. Are we finally here where we could lose
Speaker 1: our exorbitant privilege? Well, first, let me say it's a
Speaker 1: great tragedy that we've lost Robert Mandel. I regard him
Speaker 1: as my intellectual grandfather. He was my thesis advisor, Rudy
Speaker 1: Dornbush's thesis advisor, and certainly an incredibly original scholar. Uh No,
Speaker 1: I don't think we're about to lose our exorbitant privilege tomorrow.
Speaker 1: But there's no question that part of what strengthened it
Speaker 1: over the last ten twenty years is that China has
Speaker 1: had a very dollar centric policy. They stabilized against the dollar.
Speaker 1: Now it's a mix of the dollar in the year
Speaker 1: with the dollar in the year aren't moving that much.
Speaker 1: And as long as that holds up, I think the
Speaker 1: US exorbitan privilege is solid, but it might not hold
Speaker 1: up forever. It's really not an optimal policy for China.
Speaker 1: And I might add that if you look at the
Speaker 1: longer end of five year ten year debt UH and
Speaker 1: look at say the covered comparisons, the US no longer
Speaker 1: gets any exorbitant privilege. It's really only on short debt.
Speaker 1: Can we will go if the basic theme of the
Speaker 1: less sophisticated is it China not as it war with US,
Speaker 1: but certainly has a different political system and as a
Speaker 1: new robust offense. Can they use remimbi as a weapon?
Speaker 1: Can you weaponize a currency? Look, they view themselves as
Speaker 1: doing very well and they're not looking to rock the boat.
Speaker 1: Their technocrats have been telling them for two decades almost
Speaker 1: now you really should have an inflation targeting regime like
Speaker 1: everybody else. Let us be a little bit more independent
Speaker 1: central bank. We can keep thinks stable. We shouldn't be
Speaker 1: following around the dollar for lots of reasons. Uh, the
Speaker 1: politicians have said, you know, things are going great, let's
Speaker 1: not do that. Uh. They are looking at the longer run,
Speaker 1: and they thoroughly intend for the NIMBI first to be
Speaker 1: coequal with the dollar, at least with the Euro, and
Speaker 1: maybe eventually take over. Uh. If we look at a
Speaker 1: long enough horizon, trying to continues to rise, that would
Speaker 1: be hard to stop. But I don't think they're looking
Speaker 1: to do anything quickly. That said, they put out this
Speaker 1: new starting to put out a new digital central bank
Speaker 1: currency which certainly has the seeds of being able to
Speaker 1: replace the dollar. Can as you see things right now,
Speaker 1: what do you think is the biggest threat to dollar hegemony?
Speaker 1: Is it a decision that America could make, or decision
Speaker 1: that could be made out of sweat. I think it
Speaker 1: would come from, you know, a shock to the system.
Speaker 1: Dollar hegemony is not something that's going to go away overnight. Typically,
Speaker 1: when you get on top, you keep it for a
Speaker 1: century or more. We've had it for a century. Uh,
Speaker 1: certainly since we'll under World War One. So it's But
Speaker 1: on the other hand, if you're let's say, piling up
Speaker 1: sixty percent of the global public and corporate debt UH
Speaker 1: in the world, as the US is sort of doing,
Speaker 1: it just dominates UH debt issuance markets, and you're counting
Speaker 1: on that, and that can't go away quickly. It's a fragility.
Speaker 1: And the late Emanuel far He, together with Matteo Monjori
Speaker 1: at Stanford far He was my colleague, I wrote this
Speaker 1: wonderful paper about you know that hedgemon is tempted to
Speaker 1: push things, to take advantage of this exorbitant privilege and
Speaker 1: create fragility. That might be a reasonable calculus for the
Speaker 1: United States, but not for the world as a whole.
Speaker 1: So let me talk about that fragility right now. Ken,
Speaker 1: what's the biggest source of it do you think Do
Speaker 1: you think it is in the debt market? Boy? Um, well,
Speaker 1: certainly if interest rates went up, I just would turn
Speaker 1: the world upside down. I think we'll find out a
Speaker 1: lot when Europe gets out of this. When the vaccines come.
Speaker 1: That's really the biggest difference between the US and Europe.
Speaker 1: The vaccines come as long as Europe, which is roughly
Speaker 1: as big as the United States is sort of stuck
Speaker 1: in the mud. It's very hard to tell what's going
Speaker 1: on with global interest rates, what's going on with inflation.
Speaker 1: So I think I think the US has a while
Speaker 1: to run before that happens, But when it does, I
Speaker 1: don't know what's next. Obviously, this has been a very
Speaker 1: hard pandemic to call, particularly because uh waves of it
Speaker 1: and the vaccines have been vastly more successful. And I
Speaker 1: think almost anyone expected can rogoff. This time is different
Speaker 1: a book from another time in place, and I'll have
Speaker 1: the clearest recommended recollection. I think I was at your
Speaker 1: book party and remember opening and there was that single
Speaker 1: page you put together with Carmen on the finances of
Speaker 1: the Spanish Armada, and it was, you know, the Spanish
Speaker 1: government falling apart. Is our debt structure now span this
Speaker 1: government equivalent when they launched the Armada. I mean, are
Speaker 1: we in that bad a condition? Well, listen, they are.
Speaker 1: If the Armada hadn't crashed because of the weather, we'd
Speaker 1: be living in a different world history now. I think.
Speaker 1: I think it takes a shock to the system, just
Speaker 1: a massive shock of which I can't even imagine. Uh,
Speaker 1: But you know, we've had shocks to the system which
Speaker 1: we can't even imagine, roughly twice at the last twelve years,
Speaker 1: so we're more vulnerable than we were. On the other hand,
Speaker 1: By the way, I just want to be clear, I mean,
Speaker 1: I think it makes perfect sense what President Biden is doing.
Speaker 1: Certainly politically, it makes what he's doing, and uh, you know,
Speaker 1: we're we're in this terrible situation and he's sort of
Speaker 1: getting done what he thinks he can get done. And
Speaker 1: they're parts of the infrastructure bill that make a lot
Speaker 1: of sense. There are a lot of things we could
Speaker 1: do in this country addressing inequality. I will say, at
Speaker 1: the end of the day, you have to raise taxes
Speaker 1: to pay for this. If we're just not the nest
Speaker 1: on the physical infrastructure, but the what they called the
Speaker 1: social infrastructures transfer programs great, but you gotta pay for it.
Speaker 1: Ken rogof James Diamond wrote a sixty six page letter
Speaker 1: this week. He running JP Morgan, and part of the
Speaker 1: discussion is we have two quarters of boom, and then
Speaker 1: there's a question about how we come out of a
Speaker 1: boom the runway. Do we drop off sharply, do we
Speaker 1: as ease out of it? If you will, Mr Diamond
Speaker 1: very optimistic about an extended good g DP in America.
Speaker 1: What is the academic history of how we come off
Speaker 1: a boom economy or are we flying blind? Well? Look,
Speaker 1: we are to some extent flying blind here at this
Speaker 1: pandemic is quite different than the financial crisis. People who
Speaker 1: you know say, there's almost exactly the same thing. That's
Speaker 1: just crazy. We don't know what's next. If I go
Speaker 1: back to I mentioned Robert Bondello, my intellectual grandfather. His
Speaker 1: student Rudy Dorn. But she had a great book twenty Years.
Speaker 1: It's Sebastian AdWords of U. C. L. A. And a
Speaker 1: theme of it is that populism actually works great for
Speaker 1: a while. Uh and their timeline was sort of two
Speaker 1: to four years. You get a boom, but then you
Speaker 1: get problems at the end of the boom. The problem,
Speaker 1: you know, we talked about, will there be inflation? Will
Speaker 1: something go wrong? Larry Summers you mentioned, you know, raise
Speaker 1: the point. I don't think it's an immediate problem, but obviously,
Speaker 1: if at some point you run the war economy and
Speaker 1: don't stop, it will be a problem. And politically it
Speaker 1: may not be that easy to stop. After a couple
Speaker 1: of years. Can't just a fund of question for me?
Speaker 1: If I can on the transitory argument around inflation, will
Speaker 1: catch up with the Federal Serve vice chair a little
Speaker 1: bit later. How will we know if they're wrong? When
Speaker 1: will we know? When's the real test for you. I
Speaker 1: don't think we'll know for a while. I don't think
Speaker 1: it's just going to blow up. That's it's possible. You
Speaker 1: know that some commodity price changes will spike inflation for
Speaker 1: a while, but the the core inflation and expectations are
Speaker 1: very sluggish. They're very slow to move. On the other hand,
Speaker 1: if you keep running a war economy, you just undermine
Speaker 1: all the things underlying those expectations. And people say it's
Speaker 1: never gonna stop, it will change. That was the theme
Speaker 1: of dorn Bush's book, that populism, if you just keep
Speaker 1: doing it for too long, blows up. And that's a
Speaker 1: political question. Uh. You know, if you get a lot
Speaker 1: of stimulus and people say, hey, that worked great, let's
Speaker 1: do it again. Hey that worked great, Let's keep doing it.
Speaker 1: That's how you got into trouble. I ken it's gonna
Speaker 1: catch you up. It's gonna see you John, And I
Speaker 1: think I got the book already up and out on Twitter.
Speaker 1: John Ford in twelve pages dorn Bush Edwards, John, I
Speaker 1: think that's light reading for you this week. Yeah, thanks
Speaker 1: for that film. What are you giving us reading for
Speaker 1: the weekend? I mean, Wilkins me, Kenneth Rogoff that how
Speaker 1: much University professor of Economics and Public Policy, and thank you.
Speaker 1: It has been a terrific day of economics including Professor Rogoff,
Speaker 1: professor to Clarida and now vice Chairman of the Federal
Speaker 1: Reserve System. And we finished strong because Rogolf and Clara.
Speaker 1: To listen to the laureate Angus Deaton, I will not
Speaker 1: mince words. The gentleman from Princeton is our definitive voice
Speaker 1: on our inequalities. It is front and center for all
Speaker 1: of us in our economics and our politics. Is new
Speaker 1: book is also definitive. Also, I should say it is
Speaker 1: Francine Laquise book of the year. And we're thrilled to
Speaker 1: have Angus eaton on with us. He looks as the
Speaker 1: despair that is out there. Professor, Uh, how bad is
Speaker 1: our inequality? What is original about our two thousand twenty
Speaker 1: one inequality? Well, everything's different in the pandemic. So one
Speaker 1: of the things that once most worried about inequality during
Speaker 1: the pandemic. This is the pandemic is affecting different people differently. UM.
Speaker 1: And some people like you and me are staying at
Speaker 1: home and UM talking to each other over the web,
Speaker 1: while others are out there risking their lives. And what
Speaker 1: I'm afraid of is that these splits during covid um
Speaker 1: will exacerbate UM differences that were already there. And we're
Speaker 1: festering in America surrounding the issues that that's of despair,
Speaker 1: that and Case and I have been writing about it.
Speaker 1: Do you believe that we have a political will to
Speaker 1: at least nudge our inequalities in a better direction. Well,
Speaker 1: we certainly have some people, and the current administration to
Speaker 1: Biden administration is much more interested in doing that than
Speaker 1: the previous administration was. But it's very early days yet. UM.
Speaker 1: The American Rescue Acts certainly would help with income inequality
Speaker 1: because so much of it is targeted towards less well
Speaker 1: off people. UM. Whether the measures in the infrastructure plan
Speaker 1: will through is not clear to me right now. What
Speaker 1: do we do with our American individualism? There's a voice
Speaker 1: in America that says inequality comes from our individualistic effort,
Speaker 1: and of course that buttress is up against those more societal,
Speaker 1: those more all encompassing. How do we stand on our
Speaker 1: individualism and how do we move that forward and sustain
Speaker 1: that as we try to get away from this inequality? Well,
Speaker 1: I think the individualism is incredibly important and I don't
Speaker 1: really think it's very much at risk, to tell you
Speaker 1: the truth. Um, We've focused on the individualistic aspect for
Speaker 1: a very long time, and it's brought us great benefits.
Speaker 1: I mean, you know, the wonderful benefits of modern capitalism
Speaker 1: which have helped many. But you know, we've got to
Speaker 1: make sure for those of us suit have done well
Speaker 1: out of this that other people share in that too.
Speaker 1: And one of the biggest divisions in America today and
Speaker 1: one of the riskiest ones, is the an educated elite
Speaker 1: people broadly who have a four year college degree have
Speaker 1: been doing extremely well for the last fifty years, whereas
Speaker 1: for the people without college degree UM, they've seen a
Speaker 1: fifty year trend of downward um wages, downward labor force participation.
Speaker 1: And you know, we'll tear our country apart if we
Speaker 1: don't share angus. What is so important here and I
Speaker 1: believe you and I talked about this at Davos two
Speaker 1: years ago, and I'm going to believe nothing has changed
Speaker 1: here as well is the impute of technology upon this debate?
Speaker 1: We try to look out ten years or twenty years
Speaker 1: or half a century to what this profound technology means.
Speaker 1: What do you think it will mean for society less
Speaker 1: than some people think. I think. I think this vision
Speaker 1: of a world in which there's no jobs at all
Speaker 1: and everything is done by robots is science fiction, was then,
Speaker 1: is now, and probably ever will be. Uh. There's a
Speaker 1: lot of things we can do to help provide good
Speaker 1: jobs for less educated Americans, or to stop destroying good
Speaker 1: jobs for less educated Americans, like subsidizing um the introduction
Speaker 1: of robots, for instance, which we're doing right now, or
Speaker 1: having a healthcare system which is gutting the labor market
Speaker 1: for less educated folks. But I mean, I guess what
Speaker 1: is so important here? And I'm gonna go to a
Speaker 1: chapter in Deaths of Despair, which is things come apart.
Speaker 1: A huge body of our radio and TV audience believe,
Speaker 1: whatever their background, whatever their wealth, maybe they're in the
Speaker 1: highest tax record in New York State. The fact is
Speaker 1: they look at this country and say things are coming apart.
Speaker 1: How do the elites engage this conversation? Given the political
Speaker 1: maelstrom of Washington, I think it would be really good
Speaker 1: for us to talk together a better than we do
Speaker 1: right now. UM. I think it's very important for those
Speaker 1: of us who do belong to the educated to listen
Speaker 1: to the other people. UM. One of the things I
Speaker 1: keep hearing people saying is, do you hear us now
Speaker 1: and you know, um rioting at the capitol or you know,
Speaker 1: voting for someone I regarded as a very destructive president.
Speaker 1: Our house of protests, and perhaps those would be less
Speaker 1: severe if we'd been listening harder and a little longer,
Speaker 1: and not just celebrating the undoubted triumphs of capitalism, but
Speaker 1: understanding that those two thirds of the population who are
Speaker 1: not benefiting very much from it, whose life expectancy is falling,
Speaker 1: even that which is a pretty fundamental thing, even that's
Speaker 1: falling for the last ten years for people without a
Speaker 1: bachelor's degree. Angstein, thank you so much so, Laurian from Princeton,
Speaker 1: And of course the new book does of despair with
Speaker 1: Anne Kate John. We can do the transitory drinking game
Speaker 1: with one Anthony Chrissenzi, we can do that right now,
Speaker 1: Tony percentI joins his film cut portfolio manager Market Strategy
Speaker 1: is Tony right to catch up. Said, you've coded the
Speaker 1: great head fake, the great inflation head fake. If the
Speaker 1: next couple of months, can you walk us through it? Well,
Speaker 1: the inflation rate because of decline in prices that was
Speaker 1: seen last year after COVID hit um that declined will
Speaker 1: be met by a year over year game. We think
Speaker 1: in the consumer price in xs CPI, not the pc
Speaker 1: E that the Fed targets of two point two percent
Speaker 1: or so from the mid ones that we've seen of late,
Speaker 1: but then we see it by year end moving down
Speaker 1: back to one point seven percent or so. It'll climb
Speaker 1: we think by the end of two point to Now.
Speaker 1: The significance of that in terms of FED policy is
Speaker 1: that a two point two percent c p I at
Speaker 1: the end of next year probably means a pc personal
Speaker 1: consumption expensions deflator of something less than two percent. Now.
Speaker 1: The Fed has said it won't raise its policy rate
Speaker 1: until the inflation and rate has been at two percent
Speaker 1: for about a year and show signs of accelerating to
Speaker 1: above two percent for some time and So the market
Speaker 1: now looking at your dollar futures for December twenty two,
Speaker 1: their price today for the BED to raise its policy
Speaker 1: rate by a full quarter point by the end of
Speaker 1: next year. So we would say that it's highly improbable
Speaker 1: and that more likely the first rate hike occurs somewhere
Speaker 1: in the end of SOS. Some value to be harvested
Speaker 1: in the front end of the Yielkert for the debt
Speaker 1: that the market is making on the FED moving early.
Speaker 1: Sounds like you're in line with the feder reserve then
Speaker 1: and their outlook Tony, that the next couple of weeks,
Speaker 1: next few months is going to be a head fake
Speaker 1: that maybe you choose the word transitory. As for substantial
Speaker 1: improvement progress towards their goals, do you think they need
Speaker 1: to define that? Is that necessary? Yes? Uh, it is,
Speaker 1: but the markets will define it for its themselves. Um.
Speaker 1: But the type of improvement that's a little bit more vague,
Speaker 1: it will be more difficult to discern. Is this idea
Speaker 1: of a broad and inclusive gain and employment. It wants
Speaker 1: maximum employment as it's safe stated August last year, and
Speaker 1: it's long statement on longer run goals and monetary policy
Speaker 1: strategy that the pursuit of maximum employment is a broad
Speaker 1: and inclusive goal. This likely means a job irust rate
Speaker 1: of under four percent. Keep in mind, by the way,
Speaker 1: even after last week's strong jobs report, it still remains
Speaker 1: about eight million people unemployed relative to pre COVID, So
Speaker 1: there's a long way to go on that front. End.
Speaker 1: To define broad and inclusive, it means more women in
Speaker 1: the workforce, more minorities, etcetera, etcetera. Uh, that's that'll take
Speaker 1: some time. And this is what this is why that
Speaker 1: December view is wrong headed. Anthony tim King, good morning
Speaker 1: to you. I was just reading last night light reading Stagums.
Speaker 1: I was going through the twelve hundred pages of the
Speaker 1: chrisense Tone and on page Tony, you talk about don't
Speaker 1: fight the FED, follow it. How do we follow a FED?
Speaker 1: If the FED is as exposed as it ben since
Speaker 1: mc chesney Martin, I don't understand. That's the strategic bond investor. Folks.
Speaker 1: Look for that film just signed at the Sunset Tower
Speaker 1: in London, a film you'll see that Memorial Day two
Speaker 1: thousand twenty four. I'm talking about STEMS classic. But Tony,
Speaker 1: how do we how do we react to a FED?
Speaker 1: That's waiting and waiting and waiting and waiting. Well, here's
Speaker 1: how to think about it. Um there are three components
Speaker 1: of a bond shield, expected short rates, expected inflation, and
Speaker 1: what's called the term premium, the extra yield that a
Speaker 1: bond a vesta wants for risk. Not in the past,
Speaker 1: one might say, by the FED keeping by following the Fed,
Speaker 1: you'd say, well, the Fed's keeping the funds very low,
Speaker 1: so shouldn't all yields below? The answer right now, and
Speaker 1: markets have already given their u boat is no, because
Speaker 1: the fact that the Fed will be keeping the short
Speaker 1: ray low means the two other components, so they expected
Speaker 1: short very part is good for the bond market, but
Speaker 1: the two other components are free to go. In other words,
Speaker 1: inflation expectations might rise faster, and so might the term pinion,
Speaker 1: which has come up tally. I think this is so important.
Speaker 1: But what the heart of the matter is for our
Speaker 1: listeners and viewers is out somewhere in twenty three or
Speaker 1: late twenty two of Fed waiting and waiting and waiting,
Speaker 1: and then the market's going to react to it. What
Speaker 1: do you anticipate, Well, this is this. There will be
Speaker 1: numerous tests of the FED that the Fed will have
Speaker 1: to apply to over time. And you'll want to ask
Speaker 1: risch Clara whether he still believes. I'm sure he does
Speaker 1: um in this idea of a new neutral, the new
Speaker 1: neutral thesis that he helped develop it PEMPCO. The new
Speaker 1: neutral means the FED thinks that the neutral policy rate
Speaker 1: is lower than it today than it used to be.
Speaker 1: In the past, it might have been called it three
Speaker 1: percent or so or even four. Today it's probably in
Speaker 1: the low twos. And so we want to know if
Speaker 1: the FED still believes that, and the tests will come
Speaker 1: frequently be is when the inflation rate does, if it
Speaker 1: ever does get back up to the level the FED
Speaker 1: wants low twos. On the PC, the markets will test
Speaker 1: the FED to see if it will react to it,
Speaker 1: because the markets will be worried about inflation. That's where
Speaker 1: those other two components will require a different sort of policeman.
Speaker 1: On the inflation be the bond vigilante might come back,
Speaker 1: as you saw recently, So those um periods like we've
Speaker 1: seen recently will return now and then, But in the end,
Speaker 1: the inflation rate probably won't rise materially, that's our belief.
Speaker 1: And now will the federal funds rate call it somewhere
Speaker 1: and the twos most likely, but that test is yet
Speaker 1: to come. So in your mind, Tony, nothing about this
Speaker 1: pandemic is Shane Shane change the trajectory of the economy
Speaker 1: going against the pandemic. In the next couple of years
Speaker 1: will be back to normal. Well, the in the US
Speaker 1: we're expecting about seven percent quote this year. We called
Speaker 1: three percent next year, and the growth will be the
Speaker 1: best in forty years. But there are aspects of growth
Speaker 1: in this coming decade. Uh you could say this transfer
Speaker 1: nation underway. It will be more digital, more inclusive, and
Speaker 1: more green. So it will be a very different sort
Speaker 1: of economy. You see this benefiting, for example, the semiconductor industry.
Speaker 1: Semi Conductors will be a component of the green economy.
Speaker 1: Think of a charging station for electric vehicle requires semiconductors.
Speaker 1: Cars these days require more semiconductors, So it'll be there
Speaker 1: will be a transformation. It will be more focused on
Speaker 1: the true drivers of growth. Investments in people and in
Speaker 1: things capital those are the major drivers, along with of
Speaker 1: course total factor productivity, how we use people's skills, how
Speaker 1: we use the things in place. So there is a
Speaker 1: major transformation on the way that could mean faster growth
Speaker 1: when we think it may mean about a two tenth
Speaker 1: or so gain in uh GDP this decade relative to
Speaker 1: less simply because we're investing in people and in things.
Speaker 1: But whether that leads to meaningful meniqually more inflation, we
Speaker 1: would doubt it. Right now. It's so manny, good to
Speaker 1: see you. Thanks portfolio manager, a market strategist. This is
Speaker 1: the blue Burg Surveillance Podcast. Thanks for listening. Join us
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Speaker 1: the terminal. I'm Tom keene In. This is Bloomberg