1 00:00:03,080 --> 00:00:06,880 Speaker 1: This is Bloomberg Surveillance. And some of the European market 2 00:00:07,000 --> 00:00:09,559 Speaker 1: brexited a huge deal, and when that sort of U 3 00:00:09,600 --> 00:00:11,800 Speaker 1: sud Peter moved, you would see a rally. And you're 4 00:00:12,080 --> 00:00:14,720 Speaker 1: a lot of the fluid dynamic things that has made 5 00:00:14,760 --> 00:00:19,560 Speaker 1: the American economy so successful aren't working quite as well anymore. 6 00:00:19,640 --> 00:00:22,520 Speaker 1: Growth is not great, but it's certainly running above potential 7 00:00:22,600 --> 00:00:24,960 Speaker 1: right now. So I think the last thing it's economy 8 00:00:25,000 --> 00:00:28,160 Speaker 1: needs is for the Fed cut rates. Bloomberg Surveillance your 9 00:00:28,200 --> 00:00:31,840 Speaker 1: link to the world of economics, finance, and investment on 10 00:00:31,960 --> 00:00:36,320 Speaker 1: Bloomberg Radio. Good morning, It is seven am on Wall Street. 11 00:00:36,360 --> 00:00:39,200 Speaker 1: It is six am in St. Louis, where St. Louis 12 00:00:39,200 --> 00:00:42,479 Speaker 1: Fed President Jim Bullard has solved the mystery of the 13 00:00:42,520 --> 00:00:48,440 Speaker 1: FEDS missing dots. Breaking news now from the St. Louis Fed. St. 14 00:00:48,479 --> 00:00:52,840 Speaker 1: Louis Fed President Jim Bullard did not submit dots long 15 00:00:52,960 --> 00:00:55,680 Speaker 1: range dots to the FED dot plot because the Fed 16 00:00:56,440 --> 00:01:01,280 Speaker 1: Bank is changing the way it forecasts the economy. A 17 00:01:01,680 --> 00:01:07,399 Speaker 1: very interesting change in Fed orthodoxy. Uh. He is switching 18 00:01:07,440 --> 00:01:10,160 Speaker 1: to a regime based outlook, and we'll talk about that 19 00:01:10,720 --> 00:01:13,880 Speaker 1: in just a moment. A quick check of the markets 20 00:01:14,440 --> 00:01:18,800 Speaker 1: US features are lower, SMP features down by four, down 21 00:01:18,800 --> 00:01:23,720 Speaker 1: features by seventeen, NAZZAC features by four. European markets higher, 22 00:01:24,000 --> 00:01:28,400 Speaker 1: the tragic murder of British MP Joe Cox has suspended 23 00:01:28,440 --> 00:01:31,959 Speaker 1: campaigning on the Brexit and at the moment that has 24 00:01:32,000 --> 00:01:35,319 Speaker 1: the footsy higher by seventy three points, the pound trading 25 00:01:35,400 --> 00:01:40,399 Speaker 1: higher one forty two forty six. The stock six is 26 00:01:40,560 --> 00:01:42,399 Speaker 1: up by four. Here in the US, the tenure note 27 00:01:42,440 --> 00:01:46,160 Speaker 1: yield one point six one point one for the five year, 28 00:01:46,240 --> 00:01:50,240 Speaker 1: the two year sixty nine basis points. The German tenure 29 00:01:50,280 --> 00:01:54,000 Speaker 1: note yield has turned just barely positive this morning. So 30 00:01:54,600 --> 00:01:57,080 Speaker 1: here's where we are with the St. Louis Fed and 31 00:01:57,120 --> 00:01:59,960 Speaker 1: the mystery of the dot plot and an interesting challenge 32 00:02:00,120 --> 00:02:02,800 Speaker 1: to the way the Fed does business. The dot pod, 33 00:02:02,840 --> 00:02:05,320 Speaker 1: of course, compiles Fed officials views of where the funds 34 00:02:05,400 --> 00:02:09,920 Speaker 1: rate will be given their individual economic forecasts. On Wednesday, 35 00:02:10,280 --> 00:02:13,040 Speaker 1: the dot pod that came out showed one policymaker suggesting 36 00:02:13,400 --> 00:02:15,760 Speaker 1: one rate move this year, then nothing in two thousand, 37 00:02:15,840 --> 00:02:18,720 Speaker 1: seventeen or eighteen, give no value at all for the 38 00:02:18,760 --> 00:02:20,840 Speaker 1: long run rate. Where the FED funds will be when 39 00:02:20,840 --> 00:02:23,839 Speaker 1: they stop raising turned out to be St. Louis Fed 40 00:02:23,880 --> 00:02:27,120 Speaker 1: President Jim Bullard, generally seen as a centrist on policy, 41 00:02:27,200 --> 00:02:31,200 Speaker 1: somewhat of a rebel ud orthodoxy. In a statement just out, 42 00:02:31,560 --> 00:02:34,119 Speaker 1: Bullard announcing the St. Louis FED is changing the way 43 00:02:34,280 --> 00:02:38,680 Speaker 1: it forecasts the economy and therefore rates. Instead of a 44 00:02:38,720 --> 00:02:43,120 Speaker 1: converging outlook, where the forecast changes based on expected movements 45 00:02:43,120 --> 00:02:46,400 Speaker 1: in growth, unemployment, and inflation, the bank is now using 46 00:02:46,440 --> 00:02:49,680 Speaker 1: what they call a regime based method. This assumes that 47 00:02:50,160 --> 00:02:55,040 Speaker 1: current conditions will persist in a regime with components changing little, 48 00:02:55,440 --> 00:02:58,560 Speaker 1: and that implies a certain FED policy rate. If the 49 00:02:58,720 --> 00:03:02,480 Speaker 1: regime changes, the outlook for rates would change, but a 50 00:03:02,600 --> 00:03:05,800 Speaker 1: change in the regime isn't forecastable, so Bullet is no 51 00:03:05,840 --> 00:03:09,959 Speaker 1: longer providing a rates forecast beyond the one basis point move. 52 00:03:10,040 --> 00:03:13,440 Speaker 1: He says, the current regime calls for here's a quote. 53 00:03:13,840 --> 00:03:16,720 Speaker 1: Of course, the situation can and will change in the future, 54 00:03:16,720 --> 00:03:20,079 Speaker 1: but exactly how it is difficult to predict. Therefore, the 55 00:03:20,120 --> 00:03:22,680 Speaker 1: best we can do today is forecast the current regime 56 00:03:22,720 --> 00:03:28,080 Speaker 1: will persist and set policy appropriately for this regime. We're 57 00:03:28,440 --> 00:03:30,400 Speaker 1: backing off the idea. He says that we have a 58 00:03:30,440 --> 00:03:35,080 Speaker 1: dogmatic certainty about where the US economy is well Mike, 59 00:03:35,120 --> 00:03:37,760 Speaker 1: this is a huge deal to me, and you go 60 00:03:37,920 --> 00:03:40,800 Speaker 1: right to the right idea, which is regime. I don't 61 00:03:40,840 --> 00:03:45,000 Speaker 1: want to conflate this, Mike, with the raging debate over 62 00:03:45,080 --> 00:03:49,520 Speaker 1: to America's This is about timing and about moving along 63 00:03:49,560 --> 00:03:53,240 Speaker 1: the X axis and moving from a certain regime to 64 00:03:53,280 --> 00:03:57,800 Speaker 1: the jump condition either way of a new regime. It's 65 00:03:57,920 --> 00:04:02,520 Speaker 1: not the same as discussing whether the macroeconomics is Steve 66 00:04:02,640 --> 00:04:06,520 Speaker 1: roach er James Boyard should be a one analysis of 67 00:04:06,560 --> 00:04:09,800 Speaker 1: a one modal America or whether it should be bimodal 68 00:04:09,880 --> 00:04:13,080 Speaker 1: or trimodal, etcetera. So I don't want to conflate this. 69 00:04:13,480 --> 00:04:15,320 Speaker 1: I would say some of the debates we've heard from 70 00:04:15,360 --> 00:04:19,000 Speaker 1: Alan Krueger. No, this doesn't have anything to do with 71 00:04:19,120 --> 00:04:24,120 Speaker 1: current conditions beyond adapting those conditions into a forecast. But 72 00:04:24,279 --> 00:04:27,680 Speaker 1: Steve roach is with us, and you have been looking 73 00:04:27,720 --> 00:04:31,559 Speaker 1: through uh, this is ten page paper from Jim Bode. 74 00:04:31,560 --> 00:04:35,440 Speaker 1: You've been looking through this, Steve as a long time forecaster. 75 00:04:35,600 --> 00:04:39,640 Speaker 1: What do you think, well, Mike, and I mean, I'm 76 00:04:39,680 --> 00:04:41,680 Speaker 1: a fast reader, but you know it takes me more 77 00:04:41,760 --> 00:04:48,960 Speaker 1: that UM absorb this. Um. You know, the idea though 78 00:04:49,000 --> 00:04:53,159 Speaker 1: of discreet regime changes where you sort of cruise along 79 00:04:53,400 --> 00:04:56,440 Speaker 1: for a you know, seemingly indefinite period of time and 80 00:04:56,440 --> 00:04:59,000 Speaker 1: then paw, you pull the switch and you jump to 81 00:04:59,080 --> 00:05:04,479 Speaker 1: another trajectory. Um, you know it's possible, but I think 82 00:05:04,480 --> 00:05:10,200 Speaker 1: the likelihood of that is is low. Um. You know, 83 00:05:10,279 --> 00:05:13,800 Speaker 1: I'm I'm clearly sensitive to the notion that we've been 84 00:05:13,880 --> 00:05:19,400 Speaker 1: locked in a a really difficult economic scenario now for 85 00:05:19,440 --> 00:05:23,760 Speaker 1: the last uh seven years, and the inertia of that 86 00:05:23,800 --> 00:05:27,640 Speaker 1: scenario is hard to crack in terms of growth uh 87 00:05:27,680 --> 00:05:31,400 Speaker 1: and inflation so on, you know, on on that point, 88 00:05:31,920 --> 00:05:35,520 Speaker 1: you know, sort of extrapolation and auto aggressive world uh 89 00:05:35,760 --> 00:05:38,760 Speaker 1: makes makes some sense, But in terms of framing the 90 00:05:38,880 --> 00:05:43,120 Speaker 1: longer term outlook, I'm a little less confident that this 91 00:05:43,520 --> 00:05:48,360 Speaker 1: regime switching model it provides the you know, the magic 92 00:05:49,160 --> 00:05:52,720 Speaker 1: uh breakthrough to forecasting that we've all been looking for. Well, 93 00:05:52,760 --> 00:05:55,159 Speaker 1: it almost seems and I know that you're at the 94 00:05:55,320 --> 00:05:57,599 Speaker 1: disadvantage because you haven't had just to absorb it. And 95 00:05:57,640 --> 00:06:01,080 Speaker 1: I've been struggling to get through all this with everything 96 00:06:01,080 --> 00:06:04,280 Speaker 1: else I'm doing. Uh. He seems to be saying, there 97 00:06:04,360 --> 00:06:07,200 Speaker 1: isn't a magic bullet, There isn't a magic way to 98 00:06:07,320 --> 00:06:10,479 Speaker 1: make a forecast that what we have seen is a 99 00:06:10,600 --> 00:06:15,160 Speaker 1: very persistent steady state. And under that steady state, you 100 00:06:15,240 --> 00:06:19,039 Speaker 1: can make a forecast for a rate, but you don't 101 00:06:19,080 --> 00:06:21,440 Speaker 1: know when that's going to change. So why would you 102 00:06:21,520 --> 00:06:26,159 Speaker 1: do a dot plot that assumes a change out there? Well, 103 00:06:26,200 --> 00:06:29,599 Speaker 1: you know because I'll tell you why. Uh, And that 104 00:06:29,760 --> 00:06:34,880 Speaker 1: is because we know that UM monetary policy operates with 105 00:06:34,920 --> 00:06:39,479 Speaker 1: a lag. So when policymakers make a change, they're making 106 00:06:39,520 --> 00:06:43,680 Speaker 1: a change that will affect the economy of the future, 107 00:06:43,760 --> 00:06:49,720 Speaker 1: not the economy of the past. And under this particular model, uh, 108 00:06:50,520 --> 00:06:54,160 Speaker 1: the assumption that has made is that the policy the 109 00:06:54,400 --> 00:07:00,560 Speaker 1: economy of the past uh persists and that what what 110 00:07:00,680 --> 00:07:02,600 Speaker 1: it does, I think is it sets the FED up 111 00:07:03,000 --> 00:07:07,840 Speaker 1: to be reactive as opposed to proactive. Uh. And uh. 112 00:07:08,120 --> 00:07:12,960 Speaker 1: You know, if if things UH do for unexpected reasons 113 00:07:13,080 --> 00:07:16,840 Speaker 1: change quickly, the FED will then find itself uncomfortably behind 114 00:07:16,840 --> 00:07:19,480 Speaker 1: the curve. But haven't we at this point, to this 115 00:07:19,560 --> 00:07:23,360 Speaker 1: point seen a FED that is totally reactive. They haven't 116 00:07:23,400 --> 00:07:27,160 Speaker 1: been proactive at all. Yeah, this would make I think 117 00:07:27,160 --> 00:07:33,120 Speaker 1: this would make them even um actually more more reactive, 118 00:07:33,160 --> 00:07:36,760 Speaker 1: because again they would they would only move on the 119 00:07:36,800 --> 00:07:41,160 Speaker 1: basis of concrete evidence of a regime change, and that 120 00:07:41,360 --> 00:07:44,560 Speaker 1: is usually based on backward looking dat as opposed to 121 00:07:44,640 --> 00:07:48,160 Speaker 1: forward looking data. But Bullard argues that's what they have 122 00:07:48,240 --> 00:07:52,559 Speaker 1: been telling people they're doing, that they are dated dependent. Well, 123 00:07:52,600 --> 00:07:56,400 Speaker 1: you know again, what is not clear to me, and 124 00:07:56,400 --> 00:08:00,880 Speaker 1: I haven't read this um carefully enough to really render 125 00:08:00,880 --> 00:08:03,320 Speaker 1: a judgment, is what is the evidence they're going to 126 00:08:03,560 --> 00:08:07,800 Speaker 1: use to determine if the regime is actually shifting? And 127 00:08:08,000 --> 00:08:09,880 Speaker 1: the other idea here and I go to Rick Michigan 128 00:08:09,880 --> 00:08:13,320 Speaker 1: of Colombia and his wonderful textbook which is heavily weighted 129 00:08:13,360 --> 00:08:15,520 Speaker 1: towards Okay, what are you gonna do with this when 130 00:08:15,520 --> 00:08:19,400 Speaker 1: you apply to policy. Is there any central bank out 131 00:08:19,440 --> 00:08:22,840 Speaker 1: there that you can think of who is doing anything 132 00:08:22,880 --> 00:08:27,120 Speaker 1: but working on a timeline of making linear forecasts out 133 00:08:27,280 --> 00:08:30,080 Speaker 1: in terms of time and looking at the short and 134 00:08:30,200 --> 00:08:34,320 Speaker 1: maybe the medium or a gu estimate of a long term. 135 00:08:34,760 --> 00:08:37,520 Speaker 1: Or are we going to have a central bank which 136 00:08:37,559 --> 00:08:40,800 Speaker 1: says here is where we are, this is our regime, 137 00:08:41,480 --> 00:08:44,600 Speaker 1: and then out the X axis we'll find a new 138 00:08:44,679 --> 00:08:47,880 Speaker 1: regime at some point. I mean, that's to me essentially 139 00:08:48,160 --> 00:08:51,480 Speaker 1: what Mr Bullets saying has changing the X axis if 140 00:08:51,520 --> 00:08:56,440 Speaker 1: he if he can make a convincing case that's a 141 00:08:56,600 --> 00:09:00,199 Speaker 1: twelve months out from now, we're moving from regime one 142 00:09:00,320 --> 00:09:02,679 Speaker 1: to regime too, and here are five reasons why, and 143 00:09:02,720 --> 00:09:05,319 Speaker 1: we're going to frame policy with that in mind. Then 144 00:09:05,360 --> 00:09:07,840 Speaker 1: I give them all the credit in the world. But 145 00:09:08,240 --> 00:09:11,120 Speaker 1: it's not clear to me in in a casual read 146 00:09:11,120 --> 00:09:13,920 Speaker 1: of this paper that that's pretty much what they're laying out. 147 00:09:14,000 --> 00:09:17,200 Speaker 1: It seems to me to be um, you know, a 148 00:09:17,240 --> 00:09:21,079 Speaker 1: framework that says the regime remains in place until we're 149 00:09:21,120 --> 00:09:26,440 Speaker 1: convinced otherwise, and that transition from one regime to another 150 00:09:26,679 --> 00:09:30,079 Speaker 1: is tricking. And critically mike both of these analyzes on 151 00:09:30,200 --> 00:09:34,319 Speaker 1: the X axis the timeline, folks, work from an ex 152 00:09:34,400 --> 00:09:40,280 Speaker 1: post analysis, and institution has to observe the present. Am 153 00:09:40,280 --> 00:09:42,480 Speaker 1: I don't am I speaking at a turner dr roach. 154 00:09:42,520 --> 00:09:44,160 Speaker 1: I don't want to throw a piece of chalk at me. 155 00:09:45,160 --> 00:09:48,960 Speaker 1: But it's an ex post analysis. Under both a conventional 156 00:09:49,040 --> 00:09:53,680 Speaker 1: dot plot timeline or a regime jump condition condition X 157 00:09:53,720 --> 00:09:57,920 Speaker 1: axis look low inflation, which is, you know, the dominant 158 00:09:57,960 --> 00:10:01,200 Speaker 1: feature of the current regime. Give central banks, you know, 159 00:10:01,280 --> 00:10:05,880 Speaker 1: the luxury to fiddle around with uh contemplating one regime 160 00:10:06,040 --> 00:10:11,800 Speaker 1: or another once inflation or if inflation begins to bump 161 00:10:11,880 --> 00:10:16,120 Speaker 1: up against this um you know, a threshold that that 162 00:10:16,200 --> 00:10:18,880 Speaker 1: makes them more then they don't have the luxury anymore, 163 00:10:18,920 --> 00:10:21,720 Speaker 1: and they have to be much more nimble, uh in 164 00:10:22,200 --> 00:10:26,080 Speaker 1: deciding what the operative scenario is. So I'd like to 165 00:10:26,080 --> 00:10:28,720 Speaker 1: know more and and maybe it's in this paper or 166 00:10:28,760 --> 00:10:32,640 Speaker 1: maybe there's you know, UMU further follow up work that 167 00:10:32,679 --> 00:10:35,480 Speaker 1: needs to be done about how they analyze the shift 168 00:10:35,559 --> 00:10:38,160 Speaker 1: from one scenario to another. I mean, we've all been 169 00:10:38,160 --> 00:10:41,200 Speaker 1: doing scenario. Now let's come back. Stephen Roach with as 170 00:10:41,320 --> 00:10:45,800 Speaker 1: Yale University and Mike McKee with Jim Bullard's new paper 171 00:10:45,920 --> 00:10:52,640 Speaker 1: on regime change. This morning. This our Surveillance brought to 172 00:10:52,640 --> 00:10:55,440 Speaker 1: you by Monkisco Volvo is at Montcisco Volvo dot com. 173 00:10:55,480 --> 00:10:59,040 Speaker 1: Here's Michael Barr with the latest world at National Headlines. Mike, Tom, 174 00:10:59,080 --> 00:11:01,079 Speaker 1: thank you very much of you. It's continued to come 175 00:11:01,120 --> 00:11:04,079 Speaker 1: in for a British lawmaker who was shot and stabbed 176 00:11:04,080 --> 00:11:08,079 Speaker 1: to death yesterday ahead of next week's Brexit referendum. Labor 177 00:11:08,120 --> 00:11:11,080 Speaker 1: lawmaker Joe Cox, who was forty one, was a strong 178 00:11:11,120 --> 00:11:15,000 Speaker 1: advocate of Britain remaining in the EU, campaigning on both 179 00:11:15,080 --> 00:11:18,400 Speaker 1: sides of the Brexit issue have been suspended for a 180 00:11:18,480 --> 00:11:21,360 Speaker 1: second day today. Bernie Sanders says he will work with 181 00:11:21,440 --> 00:11:24,720 Speaker 1: Hillary Clinton to defeat Donald Trump at the fall presidential election. 182 00:11:25,120 --> 00:11:27,760 Speaker 1: Sanders spoke during a live stream address from his home 183 00:11:27,800 --> 00:11:31,720 Speaker 1: in Vermont last night. Analysis has begun of the only 184 00:11:31,760 --> 00:11:35,320 Speaker 1: so called black box recovered thus far from an egypt 185 00:11:35,360 --> 00:11:38,800 Speaker 1: airplane that crashed in the Mediterranean Sea last month, killing 186 00:11:38,800 --> 00:11:41,760 Speaker 1: all sixty six people on board. Global News twenty four 187 00:11:41,760 --> 00:11:45,000 Speaker 1: hours a day, powered by our twenty four hundred journalists 188 00:11:45,000 --> 00:11:47,520 Speaker 1: more than a hundred fifty news bureaus around the world. 189 00:11:47,600 --> 00:11:50,640 Speaker 1: On Michael bar to Michael, thanks so much. Oil with 190 00:11:50,679 --> 00:11:54,079 Speaker 1: a bid today forty seven even on West Texas Burnt 191 00:11:54,080 --> 00:11:59,920 Speaker 1: Crew Golden Sacks calling for lower oil prices over an 192 00:12:00,240 --> 00:12:07,560 Speaker 1: Bloomberg Surveillance. 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Among the most actively traded 209 00:13:09,320 --> 00:13:12,640 Speaker 1: shares in the pre market, we have shares of Apple UH. 210 00:13:12,679 --> 00:13:15,520 Speaker 1: They are down about half a percent. Ninety seven O four. 211 00:13:15,840 --> 00:13:19,920 Speaker 1: Apple violated the design patents of a Chinese divy device maker. 212 00:13:20,240 --> 00:13:22,840 Speaker 1: They may have to halt sales of their latest iPhones 213 00:13:22,920 --> 00:13:28,240 Speaker 1: in Beijing's according to the city's Intellectual Property authority handing 214 00:13:28,280 --> 00:13:31,360 Speaker 1: the U S company. It's latest sent back into Pivotal 215 00:13:31,520 --> 00:13:33,960 Speaker 1: market and we check the markets for you every fifteen 216 00:13:33,960 --> 00:13:38,080 Speaker 1: minutes during the trading day right here on Bloomberg Radio. 217 00:13:38,520 --> 00:13:42,439 Speaker 1: And back to UH Michael and Tom. Good morning, Good morning, 218 00:13:42,480 --> 00:13:46,839 Speaker 1: John Tucker. Great to hear from you, Bloomberg Surveillance. Of 219 00:13:46,920 --> 00:13:50,199 Speaker 1: course you're brought by Investco looking for investment views investcos 220 00:13:50,640 --> 00:13:54,880 Speaker 1: high conviction portfolio managers. Just to click away, go to 221 00:13:54,960 --> 00:13:58,800 Speaker 1: investco dot com, slash us to subscribe to the investco 222 00:13:58,880 --> 00:14:03,160 Speaker 1: blog and follow at investco US on Twitter, at I 223 00:14:03,360 --> 00:14:07,880 Speaker 1: n V s CEO and investo US. Do that on Twitter. 224 00:14:08,480 --> 00:14:10,960 Speaker 1: Stephen wrote with me in a great fortune if Steve 225 00:14:11,040 --> 00:14:15,000 Speaker 1: Roach here as Jim Bullard releases a very important thought 226 00:14:15,080 --> 00:14:19,360 Speaker 1: provoking paper and Steve, you and I touched on this 227 00:14:19,600 --> 00:14:23,520 Speaker 1: an hour and a half ago. Here's the key sentence. 228 00:14:23,960 --> 00:14:26,320 Speaker 1: They've got a benchmark out of a number of years 229 00:14:26,320 --> 00:14:30,160 Speaker 1: out that they're trying to get to. This is Bullard quote. 230 00:14:30,480 --> 00:14:34,600 Speaker 1: If the committee moved at a pace of basis points 231 00:14:34,640 --> 00:14:39,040 Speaker 1: per year, it would take fourteen years to reach their 232 00:14:39,160 --> 00:14:43,280 Speaker 1: terminal value. And the idea here is a protest against measured. 233 00:14:43,400 --> 00:14:50,000 Speaker 1: Let's back up, did measured work? It hasn't yet, Tom 234 00:14:50,200 --> 00:14:53,280 Speaker 1: and Um, you know, I think to me, you know 235 00:14:53,400 --> 00:14:59,200 Speaker 1: that's the lesson of the pre crisis period where the fan, 236 00:14:59,280 --> 00:15:02,480 Speaker 1: if you might remember, member started um with a one 237 00:15:02,520 --> 00:15:06,000 Speaker 1: percent federal funds rate after the equity bubble burst, and 238 00:15:06,040 --> 00:15:11,000 Speaker 1: in these measured um moves of basis points a shot, 239 00:15:11,520 --> 00:15:14,360 Speaker 1: I think there were seventeen or eighteen of them. Uh, 240 00:15:14,360 --> 00:15:17,680 Speaker 1: they finally got the funds rate up to five and 241 00:15:17,680 --> 00:15:23,400 Speaker 1: a half percent. But then during that period of measured normalization, 242 00:15:24,080 --> 00:15:29,320 Speaker 1: the biggest bubbles and distortions in US economic history built up. 243 00:15:29,360 --> 00:15:33,480 Speaker 1: And when the bubbles burst, Uh, they they brought the 244 00:15:33,680 --> 00:15:37,720 Speaker 1: unbalanced US economy closer to the ABYSS than ever. So 245 00:15:38,480 --> 00:15:41,640 Speaker 1: if if that's what's you know at stake here and 246 00:15:41,680 --> 00:15:45,080 Speaker 1: what um Bullard and his colleagues are offering, that the 247 00:15:45,120 --> 00:15:50,440 Speaker 1: Fed would be inclined, inclined to be more aggressive in 248 00:15:50,520 --> 00:15:55,080 Speaker 1: shifting policy immediately to quote a new regime than I 249 00:15:55,120 --> 00:15:58,160 Speaker 1: would be in favor of that. What's missing for me, 250 00:15:58,280 --> 00:16:02,240 Speaker 1: and again in a very casual to this paper, is 251 00:16:02,240 --> 00:16:06,320 Speaker 1: is an understanding of what they're thinking about and how 252 00:16:06,360 --> 00:16:10,680 Speaker 1: to determine in going from regime to regime. I totally 253 00:16:10,680 --> 00:16:13,280 Speaker 1: agree with that, and and to use the languages of 254 00:16:13,360 --> 00:16:17,680 Speaker 1: rules and discretion even with a regime change where we're 255 00:16:17,720 --> 00:16:21,280 Speaker 1: maybe going back to it. Arthur Burns central banking of 256 00:16:21,320 --> 00:16:25,320 Speaker 1: a little more abruptness, the basic idea here is you 257 00:16:25,360 --> 00:16:30,200 Speaker 1: still have to have rules to affect the end of 258 00:16:30,240 --> 00:16:34,440 Speaker 1: the given regime as you guess out to the new regime, 259 00:16:35,240 --> 00:16:38,600 Speaker 1: you gotta have rules. I think the most important thing, though, 260 00:16:38,640 --> 00:16:41,720 Speaker 1: is you have to have discipline. Uh you could you 261 00:16:41,760 --> 00:16:45,440 Speaker 1: could call that rules um to to really stick with 262 00:16:47,200 --> 00:16:50,760 Speaker 1: a strong view are irrespective of the political blowback that 263 00:16:50,880 --> 00:16:58,080 Speaker 1: comes when you are making um seemingly unpopular adjustments, uh, 264 00:16:58,320 --> 00:17:03,240 Speaker 1: vulgar if we look back on history, is really unique 265 00:17:03,280 --> 00:17:07,679 Speaker 1: in in in his willingness to take on the politically 266 00:17:07,800 --> 00:17:12,760 Speaker 1: correct response to the central banking. Others have just been 267 00:17:12,880 --> 00:17:16,760 Speaker 1: very reluctant to um to buck the tide. But he 268 00:17:16,840 --> 00:17:21,120 Speaker 1: did it within a time of excess is a time 269 00:17:21,160 --> 00:17:24,920 Speaker 1: of excess inflation, the time of excess money illusion and 270 00:17:25,800 --> 00:17:29,320 Speaker 1: Titanic nominal GDP. But there were howls of protests. I'm 271 00:17:29,480 --> 00:17:32,479 Speaker 1: working at the FED. Then the FED was encircled and 272 00:17:32,520 --> 00:17:36,159 Speaker 1: blockaded by farmers who had driven their fancy tractors in 273 00:17:36,200 --> 00:17:38,680 Speaker 1: from the Midwest. Congress wanted his scalp, even though he 274 00:17:38,720 --> 00:17:42,840 Speaker 1: didn't have much hair. Uh. He was hugely unpopular in 275 00:17:42,920 --> 00:17:46,000 Speaker 1: many quarters. But yet he knew there was an interest 276 00:17:46,080 --> 00:17:50,080 Speaker 1: rate that would be required much higher than anybody thought 277 00:17:50,280 --> 00:17:53,000 Speaker 1: himself included his squeeze inflation out of this in today, 278 00:17:53,080 --> 00:17:56,600 Speaker 1: Janet Yelling would be encircled by howls of uh the 279 00:17:56,720 --> 00:18:01,040 Speaker 1: affluent in their Mercedes. Ben's right, Well, it's you know, 280 00:18:01,640 --> 00:18:06,040 Speaker 1: independent central banking is very important. You need leaders at 281 00:18:06,040 --> 00:18:11,240 Speaker 1: a central bank. We're willing to take on the body politics. Mike. 282 00:18:11,280 --> 00:18:15,000 Speaker 1: Further thoughts from you as you break worldwide This story 283 00:18:15,040 --> 00:18:18,399 Speaker 1: of James Bullard with an important new paper, Mike, what 284 00:18:18,400 --> 00:18:20,600 Speaker 1: do you see with us? We mentioned the idea takes 285 00:18:20,600 --> 00:18:24,960 Speaker 1: fourteen years to get a measured path up to wherever 286 00:18:24,960 --> 00:18:30,000 Speaker 1: they're heading. Depends, in Jim Bullard's words, and whether the 287 00:18:30,040 --> 00:18:33,520 Speaker 1: regime changes or not. One of the interesting things he 288 00:18:33,640 --> 00:18:37,560 Speaker 1: raised questions He raises Steve is as a risk to 289 00:18:38,480 --> 00:18:43,520 Speaker 1: his regime forecast inflation. He is betting that the Phillips 290 00:18:43,560 --> 00:18:47,800 Speaker 1: curve relationship has broken down and that if it comes 291 00:18:47,880 --> 00:18:54,320 Speaker 1: back that can obviously change things. Leaving aside whether it 292 00:18:54,320 --> 00:18:57,200 Speaker 1: works for Jim Bullard or not, does the Phillips curve 293 00:18:57,320 --> 00:19:01,080 Speaker 1: still work for Steve Roach? He note the bullet notes 294 00:19:01,160 --> 00:19:07,720 Speaker 1: that we've got four unemployment and no inflation. Yeah, it's 295 00:19:07,880 --> 00:19:09,520 Speaker 1: a question is whether or not the four point seven 296 00:19:09,560 --> 00:19:14,080 Speaker 1: percent really accurately gauges the supply demand balance in the 297 00:19:14,160 --> 00:19:17,280 Speaker 1: labor market. Um You know, I do think that that's 298 00:19:17,320 --> 00:19:22,880 Speaker 1: a important question, Mike, in that um uh. Inflation remains 299 00:19:23,040 --> 00:19:27,960 Speaker 1: quiescent around the world, and yet in central banks around 300 00:19:28,000 --> 00:19:31,400 Speaker 1: the world are absolutely convinced that the single most important 301 00:19:31,400 --> 00:19:36,239 Speaker 1: thing they need to do is inflation targeting. What this 302 00:19:36,320 --> 00:19:38,960 Speaker 1: paper I did pick up, you know, one phrase in 303 00:19:39,000 --> 00:19:42,359 Speaker 1: this paper. It says, this approach presented here has little 304 00:19:42,440 --> 00:19:46,960 Speaker 1: to say about asset price bubble risk. And that's the 305 00:19:47,000 --> 00:19:51,000 Speaker 1: flip side of what happens when you have easy money 306 00:19:51,040 --> 00:19:53,879 Speaker 1: on inflation less world. And so this is a big 307 00:19:54,440 --> 00:19:57,200 Speaker 1: issue that needs to be addressing. Thank you so much. 308 00:19:57,280 --> 00:19:59,920 Speaker 1: We are out of time with Dr Roach. 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