1 00:00:02,520 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,360 --> 00:00:09,280 Speaker 2: Let's attempt to get a clear of you on things 3 00:00:09,480 --> 00:00:11,600 Speaker 2: not just my stocks. Let's talk about the future. This 4 00:00:11,680 --> 00:00:14,280 Speaker 2: fed a reserve, the White House casting a wide net 5 00:00:14,280 --> 00:00:17,120 Speaker 2: to replace fed Share. Jaypow, the US Treasury Secretary, scale 6 00:00:17,120 --> 00:00:19,479 Speaker 2: best and praising a quote very good meeting with the 7 00:00:19,600 --> 00:00:22,480 Speaker 2: former Saint Lewis FED President Jim Bullard during his search. 8 00:00:22,840 --> 00:00:25,080 Speaker 2: Jim joined us in the studio for more. Jim, good morning, 9 00:00:25,480 --> 00:00:28,080 Speaker 2: good morning, Thanks for being here. Not many people get 10 00:00:28,120 --> 00:00:30,760 Speaker 2: to experience what you've just experienced, sitting down for a 11 00:00:30,800 --> 00:00:34,320 Speaker 2: conversation to potentially become the fed share. Can you walk 12 00:00:34,360 --> 00:00:36,519 Speaker 2: us through what that was like? What's the process like? 13 00:00:37,960 --> 00:00:40,360 Speaker 3: Well, as you say, they have a lot of a 14 00:00:40,400 --> 00:00:43,360 Speaker 3: lot of people on the list and they're following through. 15 00:00:44,120 --> 00:00:46,760 Speaker 3: It's a transparent process. I think that's good. I think 16 00:00:46,840 --> 00:00:49,600 Speaker 3: all the I know virtually all the people on the list, 17 00:00:49,640 --> 00:00:53,199 Speaker 3: I think they're all good. So I think this was 18 00:00:54,120 --> 00:00:57,640 Speaker 3: a meaning just to talk in broad terms, but I 19 00:00:57,680 --> 00:01:00,600 Speaker 3: can't really report out, you know, details, a word said. 20 00:01:00,520 --> 00:01:04,039 Speaker 2: The Treasury Secretary incredibly talent into the economy and financial markets. 21 00:01:04,040 --> 00:01:06,280 Speaker 2: I'm sure you experienced that in your conversation with him. 22 00:01:06,520 --> 00:01:08,000 Speaker 2: I think you can share with us the kind of 23 00:01:08,040 --> 00:01:10,479 Speaker 2: questions I ammationed that he's asking you when I ask 24 00:01:10,560 --> 00:01:12,840 Speaker 2: them to you, which essentially is, how do you view 25 00:01:12,840 --> 00:01:15,560 Speaker 2: things right now? How do you think about the labor market. 26 00:01:16,480 --> 00:01:19,800 Speaker 3: I thought the Fed's decision was a good one. This 27 00:01:20,000 --> 00:01:23,840 Speaker 3: is looks like a sequence of three moves in a 28 00:01:23,920 --> 00:01:27,000 Speaker 3: row through the end of the year. Of course, you 29 00:01:27,080 --> 00:01:29,920 Speaker 3: want to be data dependent, and the chair stress that 30 00:01:30,200 --> 00:01:33,560 Speaker 3: in the press conference. But I think the committee was 31 00:01:34,280 --> 00:01:41,200 Speaker 3: worried about the non farm payrolls report that you know, 32 00:01:41,400 --> 00:01:46,840 Speaker 3: revised the previous months down considerably. You know, non farm 33 00:01:46,920 --> 00:01:49,920 Speaker 3: payrolls is kind of the key number for the for 34 00:01:50,000 --> 00:01:52,240 Speaker 3: the FED, so I think that made them a little 35 00:01:52,240 --> 00:01:54,880 Speaker 3: bit nervous. There are stories that you can tell about 36 00:01:54,920 --> 00:01:58,320 Speaker 3: why that's happening, But on the other hand, you know 37 00:01:58,360 --> 00:02:01,200 Speaker 3: it could be weakness and market so I think that 38 00:02:01,360 --> 00:02:05,200 Speaker 3: tilted things toward a little bit more dubbish policy. So 39 00:02:05,240 --> 00:02:09,839 Speaker 3: they brought October into the picture, and now you've got 40 00:02:09,880 --> 00:02:13,119 Speaker 3: markets pricing probably seventy five by the end of the year. 41 00:02:13,160 --> 00:02:15,720 Speaker 3: That would be a significant move by the end of 42 00:02:15,760 --> 00:02:17,600 Speaker 3: the year, and they have a little bit of optionality 43 00:02:17,680 --> 00:02:19,519 Speaker 3: if the data goes the other way. So it's a 44 00:02:19,520 --> 00:02:22,560 Speaker 3: pretty good decision from the point of view of how 45 00:02:22,600 --> 00:02:23,079 Speaker 3: this works. 46 00:02:23,240 --> 00:02:25,280 Speaker 1: You said they have optionality if the data goes the 47 00:02:25,320 --> 00:02:27,959 Speaker 1: other way. How high is the bar for strength and 48 00:02:28,000 --> 00:02:30,519 Speaker 1: the economy to really prevent the FED at this point, 49 00:02:30,560 --> 00:02:32,840 Speaker 1: given everything from going three times this year? 50 00:02:33,400 --> 00:02:36,440 Speaker 3: Yeah, I think the committee is also spooked a little 51 00:02:36,440 --> 00:02:40,120 Speaker 3: bit by last year because last year the data looked 52 00:02:40,160 --> 00:02:45,560 Speaker 3: weak but then turned around abruptly, and so they'll be 53 00:02:45,639 --> 00:02:49,359 Speaker 3: nervous about that. It's hard to say exactly how high 54 00:02:49,360 --> 00:02:51,560 Speaker 3: the bar is. Acid judgment callill have to be made 55 00:02:51,639 --> 00:02:53,160 Speaker 3: by members of the committee. 56 00:02:53,280 --> 00:02:56,160 Speaker 1: There's this other disagreement on the FED. Clearly there are 57 00:02:56,160 --> 00:02:58,399 Speaker 1: a lot of them, and understandably because in Wall Street 58 00:02:58,400 --> 00:02:59,799 Speaker 1: there are a lot of disagreements as well as to 59 00:03:00,280 --> 00:03:02,640 Speaker 1: what the economic backdrop is. But you could see a 60 00:03:02,720 --> 00:03:05,520 Speaker 1: spread in terms of where the neutral rate was from 61 00:03:05,560 --> 00:03:07,720 Speaker 1: say three percent in terms of the long term dot 62 00:03:08,440 --> 00:03:11,120 Speaker 1: for some of the FED numbers or four percent for 63 00:03:11,200 --> 00:03:12,839 Speaker 1: some of the others. Where do you sit. 64 00:03:15,040 --> 00:03:18,640 Speaker 3: I think it's still fairly low, So you know, you 65 00:03:18,680 --> 00:03:21,200 Speaker 3: could argue maybe three in a quarter or something like that. 66 00:03:21,360 --> 00:03:25,160 Speaker 3: So if you're still above four percent with the policy rate, 67 00:03:25,160 --> 00:03:29,399 Speaker 3: you're still one hundred basis points above if that's your 68 00:03:29,639 --> 00:03:32,280 Speaker 3: if that's your number. So that's why I've been saying 69 00:03:32,320 --> 00:03:34,440 Speaker 3: they have room to maneuver. They have room to come 70 00:03:34,480 --> 00:03:37,880 Speaker 3: down some on the policy rate and still put downward 71 00:03:37,960 --> 00:03:42,160 Speaker 3: pressure on inflation. Inflation is still above target. And you 72 00:03:42,160 --> 00:03:45,440 Speaker 3: know it has been debated at length over the last 73 00:03:45,720 --> 00:03:50,120 Speaker 3: six months or so, but I think they're in pretty 74 00:03:50,160 --> 00:03:51,360 Speaker 3: good position right now. 75 00:03:51,760 --> 00:03:54,240 Speaker 2: How credible do you think two percent actually is. 76 00:03:56,280 --> 00:03:58,680 Speaker 3: I think the Committee is very dedicated to the two 77 00:03:58,680 --> 00:04:03,520 Speaker 3: percent target. I think it would be foolish to abandon 78 00:04:03,560 --> 00:04:09,120 Speaker 3: that target. It has set an international standard across all 79 00:04:09,120 --> 00:04:12,840 Speaker 3: the countries of the world. And if the lead economy says, oh, 80 00:04:13,160 --> 00:04:15,760 Speaker 3: you know, we're going to back off that, then all 81 00:04:15,800 --> 00:04:17,920 Speaker 3: the other countries would back off. You'd be back into 82 00:04:17,960 --> 00:04:20,600 Speaker 3: the seventies and you'd have a lot of care. So 83 00:04:21,320 --> 00:04:23,760 Speaker 3: that is not a good idea, and the Committee will 84 00:04:23,760 --> 00:04:27,160 Speaker 3: try to get back to two percent. However, I think 85 00:04:27,200 --> 00:04:30,360 Speaker 3: you want to get back on a nice, smooth, asymptotic 86 00:04:30,440 --> 00:04:33,840 Speaker 3: path to two percent, and the forecasts always show that, 87 00:04:33,880 --> 00:04:36,280 Speaker 3: and that's always the way the Fed thinks about it. 88 00:04:36,400 --> 00:04:38,640 Speaker 2: The two year rolling view. Now some people might say 89 00:04:38,680 --> 00:04:42,400 Speaker 2: that's aspirational magical forecasting. It's just we're always forecasting this 90 00:04:42,520 --> 00:04:45,640 Speaker 2: two years out but never actually hits it based on history, 91 00:04:45,680 --> 00:04:48,839 Speaker 2: which raises the credibility question. The federal reserves cunning interest 92 00:04:48,920 --> 00:04:51,599 Speaker 2: rates with inflation closer to three than it is to two, 93 00:04:51,880 --> 00:04:54,080 Speaker 2: with unemployment closer to four than it is to five, 94 00:04:54,400 --> 00:04:56,159 Speaker 2: and but that could ease it all time highs. Is 95 00:04:56,200 --> 00:04:58,920 Speaker 2: this the right time to back away from that restrictive 96 00:04:58,920 --> 00:05:01,440 Speaker 2: monetary policy that's going to lead to that glidepoth back 97 00:05:01,440 --> 00:05:02,240 Speaker 2: towards two percent. 98 00:05:03,200 --> 00:05:06,559 Speaker 3: It's restrictive, but even when they come down, it'll still 99 00:05:06,560 --> 00:05:09,279 Speaker 3: be somewhat restrictive. I think one of the pieces of 100 00:05:09,360 --> 00:05:12,520 Speaker 3: risk management you have to think about here is suppose 101 00:05:13,680 --> 00:05:17,760 Speaker 3: the economy is tipping into a marked slowdown. Then the 102 00:05:17,960 --> 00:05:22,840 Speaker 3: committee would want to be accommodative in that circumstance, and 103 00:05:22,880 --> 00:05:25,200 Speaker 3: you'd want to be below your neutral rate, so you'd 104 00:05:25,240 --> 00:05:26,960 Speaker 3: have a long way to go. You'd have to really 105 00:05:27,000 --> 00:05:30,159 Speaker 3: scramble if that happened. I'm not saying that's the base case, 106 00:05:30,200 --> 00:05:32,920 Speaker 3: but that's a possibility, and so you probably want to 107 00:05:32,960 --> 00:05:34,960 Speaker 3: be a little bit closer to neutral so you didn't 108 00:05:35,000 --> 00:05:38,360 Speaker 3: have to work so hard if you got into that scenario. 109 00:05:38,560 --> 00:05:40,480 Speaker 1: One of the tests for a lot of people is 110 00:05:40,600 --> 00:05:43,039 Speaker 1: if inflation does go up, maybe say at the end 111 00:05:43,080 --> 00:05:45,160 Speaker 1: of this year early next year, which a lot of 112 00:05:45,200 --> 00:05:48,120 Speaker 1: people are expecting that it will, what's the Fed's response. 113 00:05:48,279 --> 00:05:50,440 Speaker 1: Do they keep cutting or do they look past it 114 00:05:50,520 --> 00:05:52,279 Speaker 1: is simply a one time price adjustment. 115 00:05:53,279 --> 00:05:55,279 Speaker 3: I think they've made pretty clear that they're going to 116 00:05:55,279 --> 00:06:02,000 Speaker 3: look through temporary tariff effects and they expect inflation to 117 00:06:02,080 --> 00:06:05,760 Speaker 3: resume its downward trend and the effects have been muted. 118 00:06:06,640 --> 00:06:09,760 Speaker 3: US Trade Representative does not have an inflation target, so 119 00:06:09,960 --> 00:06:13,559 Speaker 3: I think that you know, it's up to the FED 120 00:06:13,640 --> 00:06:17,080 Speaker 3: to determine what the inflation rate is going to be, 121 00:06:17,160 --> 00:06:21,200 Speaker 3: not trade policy, but so lots of things affect inflation, 122 00:06:22,040 --> 00:06:25,080 Speaker 3: and then you know you have to get on your 123 00:06:25,160 --> 00:06:27,400 Speaker 3: sort of medium term path, and I think that's what 124 00:06:27,440 --> 00:06:28,320 Speaker 3: they're doing. 125 00:06:28,440 --> 00:06:31,719 Speaker 1: You mentioned earlier that there is a degree of fear 126 00:06:31,760 --> 00:06:33,800 Speaker 1: of repeating what we saw last year, where the FED 127 00:06:33,800 --> 00:06:35,760 Speaker 1: cut by one hundred basis points and we saw the 128 00:06:35,800 --> 00:06:37,719 Speaker 1: long end of the yield curve rise by one hundred 129 00:06:37,720 --> 00:06:41,440 Speaker 1: basis points and economic data pick back up. And I 130 00:06:41,600 --> 00:06:44,440 Speaker 1: just wonder how much you think the FED is open, 131 00:06:44,800 --> 00:06:46,279 Speaker 1: or you would be open if you are on the 132 00:06:46,320 --> 00:06:51,360 Speaker 1: Fed now to adjust some of the balance sheet composition 133 00:06:51,920 --> 00:06:54,600 Speaker 1: in response to any move in the long end of 134 00:06:54,600 --> 00:06:55,280 Speaker 1: the yield curve. 135 00:06:56,279 --> 00:06:59,120 Speaker 3: I think the balance sheet policy has been in the background. 136 00:06:59,240 --> 00:07:02,640 Speaker 3: I think that's a appropriate. The Committee has been shrinking 137 00:07:02,680 --> 00:07:05,480 Speaker 3: the size of the balance sheet a little bit slower 138 00:07:05,520 --> 00:07:09,880 Speaker 3: pace recently, but I think they're pretty happy with that 139 00:07:10,000 --> 00:07:12,240 Speaker 3: policy for now. They want to get to this ample 140 00:07:12,320 --> 00:07:18,920 Speaker 3: reserves level. There's a good speech by my former colleague 141 00:07:18,960 --> 00:07:22,360 Speaker 3: Chris Waller in Dallas, so if you want some bedtime reading, 142 00:07:22,640 --> 00:07:26,000 Speaker 3: you can read that. But that was actually a very 143 00:07:26,040 --> 00:07:29,400 Speaker 3: good sort of back of the envelope calculation about the 144 00:07:29,440 --> 00:07:31,360 Speaker 3: balance sheet and all the pieces of the balance sheet. 145 00:07:31,440 --> 00:07:33,960 Speaker 3: So I think that's a good place to start for 146 00:07:34,000 --> 00:07:37,840 Speaker 3: those that want to understand current balance sheet policy. The 147 00:07:37,880 --> 00:07:40,000 Speaker 3: mortgage backed securities are going to take a long time 148 00:07:40,040 --> 00:07:41,880 Speaker 3: to go off. I do think the FED made a 149 00:07:41,920 --> 00:07:48,120 Speaker 3: mistake in March April of twenty twenty. We went all 150 00:07:48,160 --> 00:07:52,400 Speaker 3: in on mortgage backed securities, thinking that the pandemic was 151 00:07:52,480 --> 00:07:55,720 Speaker 3: going to harm the housing market, and we got ninety two, 152 00:07:55,760 --> 00:07:58,920 Speaker 3: one hundred and twenty days in and boy, it went 153 00:07:58,960 --> 00:08:02,120 Speaker 3: the other way. Demand for housing was way up, so 154 00:08:02,760 --> 00:08:06,520 Speaker 3: unfortunately we added a lot of mortgage backed securities over 155 00:08:06,560 --> 00:08:09,360 Speaker 3: that two year period. But we're going to have to 156 00:08:09,440 --> 00:08:10,840 Speaker 3: let that gradually go off. 157 00:08:10,920 --> 00:08:12,600 Speaker 2: Would you avote it for fifty this week? 158 00:08:14,560 --> 00:08:16,760 Speaker 3: No, I don't think so. So I thought it was 159 00:08:16,800 --> 00:08:20,440 Speaker 3: a good decision because the Hawks could say that, Okay, 160 00:08:20,440 --> 00:08:23,120 Speaker 3: we only went twenty five, and we got optionality on 161 00:08:23,200 --> 00:08:28,160 Speaker 3: the future moves. But the Doves got the twenty five 162 00:08:28,400 --> 00:08:33,439 Speaker 3: and probably twenty five at October, and that's almost as 163 00:08:33,440 --> 00:08:37,080 Speaker 3: good as getting fifty today. And you do get the 164 00:08:37,120 --> 00:08:37,920 Speaker 3: optionality in there. 165 00:08:37,920 --> 00:08:40,400 Speaker 2: Says when people talk about the institution, you know so well, 166 00:08:40,480 --> 00:08:42,480 Speaker 2: just based on what you've just said, do you think 167 00:08:42,520 --> 00:08:45,520 Speaker 2: people underestimate just how persuases if you need to be 168 00:08:45,559 --> 00:08:48,480 Speaker 2: on the committee, the degree of negotiations that do take 169 00:08:48,520 --> 00:08:50,440 Speaker 2: place about the kind of things you just described. 170 00:08:52,440 --> 00:08:55,560 Speaker 3: It's a you know, it's a big formal meeting, and 171 00:08:55,679 --> 00:09:00,520 Speaker 3: people are very good at making their arguments, and they 172 00:09:00,559 --> 00:09:05,760 Speaker 3: have the presidents have their own staffs. So I mean, 173 00:09:05,800 --> 00:09:08,480 Speaker 3: I love it. I think it's a great uh, it's 174 00:09:08,520 --> 00:09:10,720 Speaker 3: it's a great place to make decisions. I think also 175 00:09:10,800 --> 00:09:14,240 Speaker 3: people have to understand that you're not talking so much 176 00:09:14,240 --> 00:09:16,400 Speaker 3: about what you're going to do on the day, you're 177 00:09:16,440 --> 00:09:19,720 Speaker 3: talking about what should our future path be over the 178 00:09:19,760 --> 00:09:22,160 Speaker 3: next six months and over the next two years, but 179 00:09:22,280 --> 00:09:28,640 Speaker 3: especially over the next six months, because you know you 180 00:09:28,760 --> 00:09:31,440 Speaker 3: have to it's a big committee and you have to 181 00:09:31,520 --> 00:09:34,440 Speaker 3: be basically on board with you know what you're going 182 00:09:34,480 --> 00:09:34,680 Speaker 3: to do. 183 00:09:34,720 --> 00:09:37,559 Speaker 1: On that particular day, you were very vocal about how 184 00:09:37,559 --> 00:09:39,640 Speaker 1: you felt about the dot plot back in the day. 185 00:09:40,360 --> 00:09:41,040 Speaker 1: Didn't like it. 186 00:09:42,360 --> 00:09:42,959 Speaker 3: Bring this up. 187 00:09:47,840 --> 00:09:51,720 Speaker 1: So significant to see your dot always just there at zero? 188 00:09:52,720 --> 00:09:54,160 Speaker 3: Are you going to get rid of it? Would you 189 00:09:54,160 --> 00:09:56,319 Speaker 3: get rid of it? I mean, what use? I think 190 00:09:56,360 --> 00:09:59,480 Speaker 3: we can do better than we have on the dot plot. 191 00:09:59,640 --> 00:10:04,239 Speaker 3: And at one point I talked about you dropping out completely. 192 00:10:04,840 --> 00:10:07,320 Speaker 3: I did drop out of the long long run part. 193 00:10:07,480 --> 00:10:11,440 Speaker 3: But I think we could do something like former chair 194 00:10:11,800 --> 00:10:15,080 Speaker 3: Ben Bernanke outlined in the recent conference that the FED 195 00:10:15,120 --> 00:10:18,840 Speaker 3: had about the framework review, and he mocked up a 196 00:10:18,960 --> 00:10:23,960 Speaker 3: quarterly report that could be put out, and that would 197 00:10:23,960 --> 00:10:27,959 Speaker 3: put out a forecast. That's what other central banks do, 198 00:10:28,200 --> 00:10:31,120 Speaker 3: and then members can talk relative to that forecast. They 199 00:10:31,120 --> 00:10:33,800 Speaker 3: could say, well, no, I'm more optimistic about the economy 200 00:10:33,920 --> 00:10:37,760 Speaker 3: or more pessimistic about inflation, whatever. I think that would 201 00:10:38,000 --> 00:10:41,360 Speaker 3: be closer to an international standard, and that's probably the 202 00:10:41,360 --> 00:10:44,480 Speaker 3: direction this should go, because the dot plot has its problems. 203 00:10:44,559 --> 00:10:46,160 Speaker 2: I remember when you make that move at the time, 204 00:10:46,200 --> 00:10:47,719 Speaker 2: and I can't believe it was about ten years ago, 205 00:10:48,080 --> 00:10:50,719 Speaker 2: which just amazing how quickly time is flying. Jim is 206 00:10:50,720 --> 00:10:53,480 Speaker 2: going to see you. Appreciate you, transparency and good luck 207 00:10:53,480 --> 00:10:55,160 Speaker 2: with the process. Thank you, sir, appreciate it. 208 00:10:55,160 --> 00:10:56,959 Speaker 3: Great to be here. Thank you, Thank you very much. 209 00:10:57,000 --> 00:10:59,280 Speaker 2: The former Sen Lewis FED President Jimpull out there, and 210 00:10:59,360 --> 00:11:01,040 Speaker 2: of course I can d A to B the next 211 00:11:01,040 --> 00:11:01,480 Speaker 2: FED chair