WEBVTT - Fed's Kaplan on Rate Hike: We Can Afford To Be Patient (Audio)

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<v Speaker 1>You're listening to taking stock line from the Jackson Hole

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<v Speaker 1>Economic Symposium on Bloomberg Radio. Robert Kaplan as President and

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<v Speaker 1>CEO of the Fed to Reserve Bank of Dallas. He

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<v Speaker 1>was an investment banker at Goldman Sachs, Professor of Management

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<v Speaker 1>at Harvard and UH. In his new role just over

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<v Speaker 1>a year now, Rob Kaplan has definitely made his mark

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<v Speaker 1>at the Federal Reserve UH, covering the district of Dallas

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<v Speaker 1>here at Jackson Hall, Wyoming for the Kansas City FEDS

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<v Speaker 1>Annual Symposium. The theme this year designing Resilient Monetary policy

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<v Speaker 1>Frameworks for the future at a time uncertainty over the

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<v Speaker 1>course of rate hikes and policy. This is so important, Rob, Welcome,

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<v Speaker 1>Thank you, good to be here. Well, let's get right

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<v Speaker 1>into some things you have said about where you see

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<v Speaker 1>UH the FED going. Just recently UH Bloomberg Reporting, you

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<v Speaker 1>spoke UH and said that you thought, watching the data,

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<v Speaker 1>depending how it goes, especially the labor market, you could

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<v Speaker 1>see an interest rate increase next month September twenty one

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<v Speaker 1>odds of a hike as measured by the FED funds

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<v Speaker 1>features up to about now and and so let me

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<v Speaker 1>correct that a little bit. What I was asked, is

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<v Speaker 1>is September off the table? And I said, it's not

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<v Speaker 1>off the table, but we need to wait and see.

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<v Speaker 1>So I've been one of the FED presidents who has

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<v Speaker 1>been reluctant to speculate on individual meetings because I don't

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<v Speaker 1>think it's productive. But I do think the case for

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<v Speaker 1>removing accommodation is strengthening um and for a lot number

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<v Speaker 1>of reasons, which we can go into, but that's all

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<v Speaker 1>in the context of I think any removal of accommodation

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<v Speaker 1>should be patient, slow, gradual, because we've got a number

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<v Speaker 1>of persistent headwinds that we have to adjust to. But yes,

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<v Speaker 1>I think the strength the case for removing some amount

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<v Speaker 1>of accommodation it has strengthened. So when you say you

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<v Speaker 1>see the reasons, what's the number one? Is it the

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<v Speaker 1>fact that labor market is strengthened the number one pro reason? Yeah,

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<v Speaker 1>as we're making good progress on our on our employment objective,

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<v Speaker 1>we're making frustratingly slow but still some progress on UM

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<v Speaker 1>on our inflation target. And even though first half and

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<v Speaker 1>specifically second quarter GDP was disappointing, a lot of the

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<v Speaker 1>reason for it was a big inventory adjustment. Consumer is strong.

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<v Speaker 1>Final demand in the second quarter was strong, and we

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<v Speaker 1>think the consumer will be strong for this year, So

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<v Speaker 1>we think you're gonna see GDP growth rebound in the

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<v Speaker 1>second half. All right, Well, there's certainly from the fom

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<v Speaker 1>C minutes of the last meeting, we saw people said

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<v Speaker 1>a divided fed, some people more worried about low inflation,

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<v Speaker 1>some people saying, hey, no, things are picking up, but

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<v Speaker 1>there's a lot of uncertainty about the outlook, and many

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<v Speaker 1>people have spoken about that. So with uncertain outlook, a

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<v Speaker 1>labor market average job growth flowing about a hundred fifty

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<v Speaker 1>thousand a month from over two hundred thousand previously. Uh,

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<v Speaker 1>what's the rush? Why why do we even need to

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<v Speaker 1>have September on the table? In my own view, and

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<v Speaker 1>I've said this publicly, I don't think there is a rush.

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<v Speaker 1>We can afford to be patient. The reason we can

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<v Speaker 1>afford to be patient is to be a little wonky

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<v Speaker 1>than neutral rate. The neutral rate that we're neither accommodative

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<v Speaker 1>or restricted is lower, and it's certainly lower than is

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<v Speaker 1>widely understood. So while the fet is right now we're accommodative,

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<v Speaker 1>we're not as accommodative as people think. And because the

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<v Speaker 1>neutral rate is lower, and the primary reason for that

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<v Speaker 1>is slower growth and particularly because of aging demographics, I

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<v Speaker 1>think we can afford to be patient. But even within

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<v Speaker 1>that rates this low are not free. There's a cost

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<v Speaker 1>to savers. It creates distortions for investment, it can create

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<v Speaker 1>other distortions. And that's the reason why, uh, I think

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<v Speaker 1>we should be moving towards removing some amount of accommodation.

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<v Speaker 1>But we can do it in a patient manner, and

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<v Speaker 1>we've got the ability to do that, I think because

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<v Speaker 1>the reasons I just said. And we're speaking with Robert Kaplan,

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<v Speaker 1>he's president Federals sort of Bank of Dallas here at

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<v Speaker 1>the FED symposium in Jackson Hole, Wyoming. Pim Fox my

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<v Speaker 1>co host in New York. Mr Kaplan, you talked about

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<v Speaker 1>the distortion and the effect of savers because of the

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<v Speaker 1>low interest straits. Is there a point at which the

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<v Speaker 1>Federal Reserve will bluntly recognize and acknowledge the harm that

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<v Speaker 1>they have caused savers over this elongated period of time.

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<v Speaker 1>How do you respond to people that say they cannot

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<v Speaker 1>plan for their future and as a result, they will

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<v Speaker 1>not spend their money until interest rates increase. So you

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<v Speaker 1>asked if there's a point at which will acknowledge that

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<v Speaker 1>we're past that point. We've already if you've heard me

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<v Speaker 1>speak publicly, acknowledge it. In most times I speak, and

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<v Speaker 1>I and I I'm very well aware of it. And

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<v Speaker 1>in an aging population, uh where people rely more savings

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<v Speaker 1>and will increasingly rely on savings. If they can't earn

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<v Speaker 1>a reasonable return on savings, they will either take more

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<v Speaker 1>risk or they'll spend less. So I think there's a

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<v Speaker 1>cost to this, and I think we have to take

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<v Speaker 1>it into account. Well. A lot of talk now about

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<v Speaker 1>a rethink of FED policy. You just mentioned the fact

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<v Speaker 1>that the neutral rate is lower, probably than the FED

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<v Speaker 1>thought that's the rate that doesn't boost the economy or

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<v Speaker 1>slow it down. If it's lower, if it's not at

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<v Speaker 1>four percent or three percent, the FED doesn't have too

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<v Speaker 1>much room to raise interest rates. Now, what is your view?

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<v Speaker 1>Where do you come down on this big rethink? Where

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<v Speaker 1>is it impelling the Fed? Well as it relates to

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<v Speaker 1>the neutral we do a model in which I've talked

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<v Speaker 1>about publicly in Dallas. There's also the law back Williams models.

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<v Speaker 1>There's other model, but the long and short of it

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<v Speaker 1>for most people listening. The longer run neutral rate, according

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<v Speaker 1>to law back William is zero, and our own model

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<v Speaker 1>in Dallas, we think it's somewhat. It's actually even less

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<v Speaker 1>than that. It's negative, so it's not that and then

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<v Speaker 1>you add the inflation rate to that. Okay, so it's

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<v Speaker 1>not that we're not accommodative, but we are less accommodative

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<v Speaker 1>than is widely recognized. And that's the other reason that

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<v Speaker 1>I've said it's very critical that monetary policy shouldn't be

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<v Speaker 1>the only economic tools on the table. We need structure

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<v Speaker 1>reforms fiscal policy because a lot of the reason for

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<v Speaker 1>the slower growth is structural aging. Demographics is a good

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<v Speaker 1>example of a structural issue where the the workforce participation

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<v Speaker 1>is declining and we think will continue to decline over

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<v Speaker 1>the next ten years because the population is aging out

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<v Speaker 1>of the workforce. Rob I've been covering the federal reserve

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<v Speaker 1>since the days of Paul Bulker mid eighties, and that's

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<v Speaker 1>when that's going to keep became so ingrained. Commy picks

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<v Speaker 1>up too much and read about inflation, your raised rates,

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<v Speaker 1>it starts blowing down. You cut them. The neutral rate

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<v Speaker 1>is at zero now or even lower. What does this mean,

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<v Speaker 1>have we come to the end of this decades long

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<v Speaker 1>mode of monetary policy as we know it is? Are

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<v Speaker 1>rnning a new age? And for your listeners, that's the

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<v Speaker 1>real neutral rate, so means the nominal neutral rate would

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<v Speaker 1>be say according to lawback Williams two and so, Yeah,

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<v Speaker 1>I think we have to face a new reality. I

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<v Speaker 1>do believe that. I think for those that are hoping

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<v Speaker 1>or pining for days of your where UH we had

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<v Speaker 1>fiscal policy, we had other policy in the FED out

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<v Speaker 1>a lot more maneuvering room. I think it's important to

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<v Speaker 1>call out this is a new reality. It's a different world.

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<v Speaker 1>And in particular, what's so different than any time during

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<v Speaker 1>my lifetime is the aging workforce. And it's going on

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<v Speaker 1>in every advanced economy in the world, and it affects

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<v Speaker 1>potential growth, and it affects UH interest rates and the

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<v Speaker 1>neutral rate, and we've got to adjust to that. Rather

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<v Speaker 1>than hope it changes, we have to adjust the reality. Well,

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<v Speaker 1>you know, there is a lot more discussion now about

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<v Speaker 1>what happens in the next recession. I was UH at

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<v Speaker 1>at an event and recently where a money manager who's

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<v Speaker 1>worked around the world said, what about the next recession?

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<v Speaker 1>I know how to price in a recession up until now,

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<v Speaker 1>because the FED had room to cut rates maybe by

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<v Speaker 1>about you know, five hundred basis points to get things going.

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<v Speaker 1>That room no longer exists. What does this mean for

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<v Speaker 1>the next recession. So the trade off at the FED

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<v Speaker 1>is we'd like to have we already we have tools,

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<v Speaker 1>even where we are now, we'd like to have more

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<v Speaker 1>more tools. If interest rates were higher, we would have

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<v Speaker 1>more tools. On the other hand, you don't want to

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<v Speaker 1>force interest rate increases because you might actually create the

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<v Speaker 1>recession that you're fearing. And so for me, monetary policy

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<v Speaker 1>will have a role to play if there's another downturn

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<v Speaker 1>or where we are now. But we for most of

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<v Speaker 1>my lifetime, except for the last seven years, we also

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<v Speaker 1>had structural policy. We had fiscal policy, and it gave

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<v Speaker 1>the FED much more operating room. We haven't had it

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<v Speaker 1>in seven years, and the period of so called paralysis

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<v Speaker 1>in fiscal policy probably needs to come to an end.

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<v Speaker 1>We need a broader range of policies in the United

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<v Speaker 1>States to face our challenges, and I've been saying that regularly.

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<v Speaker 1>And the reason I'm saying it it's not that monetary

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<v Speaker 1>policy doesn't have a role, but we need broader policies

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<v Speaker 1>and we've had them in our history, just not for

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<v Speaker 1>the last seven years. Mr Kaplin, do you does the

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<v Speaker 1>Federal Reserve need greater consistency when it comes to its

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<v Speaker 1>public message and its public debate? Uh? I think that, UH,

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<v Speaker 1>improving FED communication is critical. UH. And what I'll just

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<v Speaker 1>I've been on I've now been on the FED, UH

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<v Speaker 1>involved with the FED for a year obviously, and I

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<v Speaker 1>read all the President's speeches, I read all the Governor's speeches.

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<v Speaker 1>I'm in all the FOMC meetings. I think if you

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<v Speaker 1>read the speeches in their entirety and read the minutes

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<v Speaker 1>in their entirety, you get a fairly coherent message. But

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<v Speaker 1>that's not the way these things get filtered out almost

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<v Speaker 1>a quarter century, right, I mean, no one's going to

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<v Speaker 1>button and trade, right. Well, it also used to be

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<v Speaker 1>that the FED was much more muted and much less transparent.

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<v Speaker 1>So in the interest of transparency, the FED communicates more

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<v Speaker 1>than negative with that is, it can create confusion, and

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<v Speaker 1>I think this is an issue that FED needs to

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<v Speaker 1>continue to wrestle with. I want to ask you about

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<v Speaker 1>zero zero interest rate policy. We know to the consumer,

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<v Speaker 1>UH is really about the only big engine of growth

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<v Speaker 1>right now, because business investment has been has been pretty

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<v Speaker 1>weak for the past few quarters. I think a lot

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<v Speaker 1>of people are wondering, could the zero interest rate policy

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<v Speaker 1>and quantitative easy be part of the problem. Um, we

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<v Speaker 1>know borrowing costs are low, that could stimulate growth, but

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<v Speaker 1>the expect of returns are low now too. Would higher

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<v Speaker 1>rates would have switched from that policy? Maybe it's out there,

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<v Speaker 1>but would it incentifies companies to make bigger, longer term investments.

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<v Speaker 1>So I'll speak to this as a as a former

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<v Speaker 1>business person than somebody who who is my entire career

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<v Speaker 1>including now talks extensively to c e O S. I

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<v Speaker 1>think the reason capital spending is low is not because

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<v Speaker 1>interest rates are low. In fact, I think that that

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<v Speaker 1>lower interest rates makes it easier to make capital spending decisions.

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<v Speaker 1>Reason capex is has been sluggish is expected sluggish demand,

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<v Speaker 1>particularly globally. Number two, high rates of disruption in every

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<v Speaker 1>single industry, and we don't talk enough about that that

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<v Speaker 1>you go industry by industry, there are new threats, new competitors.

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<v Speaker 1>You've got the Internet, which reduces pricing power and reduces margins.

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<v Speaker 1>And so I think CEO uncertainty is driven more by

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<v Speaker 1>those issues, and their hesitancy is driven more by those

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<v Speaker 1>issues than monetary policy. I would argue these low rates

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<v Speaker 1>have made it easier UH to do cap capital spending.

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<v Speaker 1>I don't think those I don't think that's the reason.

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<v Speaker 1>Thinking globally, are you worried about and interest rate increase

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<v Speaker 1>potentially boosting the dollar? You know, and and and just

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<v Speaker 1>there's two sides of this. One. Pert's manufacturing the US

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<v Speaker 1>too makes a end stronger, and Japan's trying mighty hard

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<v Speaker 1>to get that y end weaker right now. Well, so

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<v Speaker 1>we have to be cognizant of it. And I've said

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<v Speaker 1>regularly one we need to watch the impact of our

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<v Speaker 1>actions on the dollar one you set it for exports.

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<v Speaker 1>The other thing I would say is I'd look more

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<v Speaker 1>significantly to China, where they've got massive overcapacity, high levels

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<v Speaker 1>of debt, the g d P, fear of capital flight,

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<v Speaker 1>and a lot of that comes out in a weaker currency,

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<v Speaker 1>which can be destabilizing, as we saw in January and February.

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<v Speaker 1>So we're the central banker to the United States. So

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<v Speaker 1>the way I would describe it, we have to be

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<v Speaker 1>aware of these external forces that could spill back over

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<v Speaker 1>in the United States and create a tightening. I wouldn't

0:12:21.600 --> 0:12:24.359
<v Speaker 1>overreact to those issues, but we need to be cognizant

0:12:24.360 --> 0:12:25.840
<v Speaker 1>of them. It wouldn't stop you. I mean, that's not

0:12:25.880 --> 0:12:28.800
<v Speaker 1>a big consideration strong at all. I think the next

0:12:28.800 --> 0:12:32.040
<v Speaker 1>step and if, if, and when we decide to remove accommodation,

0:12:32.400 --> 0:12:35.360
<v Speaker 1>that next step in and of itself, as long as

0:12:35.360 --> 0:12:40.000
<v Speaker 1>we communicate clearly it's in the context of slow, gradual

0:12:40.480 --> 0:12:44.680
<v Speaker 1>removal of accommodation. UM. I think it's manageable. I think

0:12:44.679 --> 0:12:46.600
<v Speaker 1>earlier in the year where the market thought we were

0:12:46.600 --> 0:12:49.559
<v Speaker 1>going to raise four to potentially four times in two

0:12:49.600 --> 0:12:52.439
<v Speaker 1>thousand and sixteen, I think, uh, we saw that did

0:12:52.440 --> 0:12:55.400
<v Speaker 1>not look like slow and gradual. It looked like two accelerated.

0:12:55.640 --> 0:12:58.120
<v Speaker 1>And I think there's a lesson to be learned from that.

0:12:58.920 --> 0:13:02.240
<v Speaker 1>Mr Caplin. To get your thoughts on negative interest rates

0:13:02.400 --> 0:13:08.480
<v Speaker 1>in Europe, Yeah, so, Uh. The issue on negative rates

0:13:08.480 --> 0:13:13.360
<v Speaker 1>in Europe as well as in Japan is UM my concern.

0:13:13.440 --> 0:13:16.440
<v Speaker 1>They do some negative They have some negative impact on

0:13:16.480 --> 0:13:20.560
<v Speaker 1>the financial system, on banking system, which is vital to

0:13:20.640 --> 0:13:24.600
<v Speaker 1>the health of a country or countries. Uh. And while

0:13:24.640 --> 0:13:28.720
<v Speaker 1>they might create incentives to take more risk and buy time.

0:13:29.280 --> 0:13:33.559
<v Speaker 1>They're not going to address fundamental structural issues, and those

0:13:33.679 --> 0:13:38.960
<v Speaker 1>include aging demographics, high levels of debt to GDP UH

0:13:39.160 --> 0:13:42.360
<v Speaker 1>in particular, and so I think there's not going to

0:13:42.440 --> 0:13:47.280
<v Speaker 1>be any getting around. Ultimately, governments in Europe Japan are

0:13:47.320 --> 0:13:51.280
<v Speaker 1>going to have to find ways to address aging demographics

0:13:51.320 --> 0:13:55.200
<v Speaker 1>by increasing the workforce UH and addition, deal with issues

0:13:55.200 --> 0:13:58.120
<v Speaker 1>of high levels of debt to GDP and bring to

0:13:58.200 --> 0:14:02.800
<v Speaker 1>bear fiscal policy to supplement monetary policy, because if you

0:14:02.880 --> 0:14:06.520
<v Speaker 1>go too far with monetary policy, I might argue that

0:14:06.600 --> 0:14:12.839
<v Speaker 1>negative rates might have side effects that may ultimately create

0:14:13.000 --> 0:14:15.800
<v Speaker 1>new challenges for these economies. Well, you know, we've already

0:14:15.840 --> 0:14:18.400
<v Speaker 1>seen in Japan, and you lived in Japan, rob Kaplan

0:14:18.440 --> 0:14:21.760
<v Speaker 1>President Dallas fed UH for five years. One of the

0:14:21.760 --> 0:14:24.040
<v Speaker 1>one of the many stories on Bloomberg was about people

0:14:24.040 --> 0:14:27.000
<v Speaker 1>buying safes to put cash in the safe because they

0:14:27.040 --> 0:14:28.400
<v Speaker 1>don't want to go to a bank and have to

0:14:28.680 --> 0:14:30.920
<v Speaker 1>pay ad bank to hold their money. Can you you know?

0:14:31.160 --> 0:14:35.960
<v Speaker 1>So Japan is a great example two big difficult problems.

0:14:36.680 --> 0:14:39.320
<v Speaker 1>Not only aging demographics, aging to the extent of the

0:14:39.360 --> 0:14:42.800
<v Speaker 1>population is shrinking. Okay, so the country will literally be

0:14:42.920 --> 0:14:46.080
<v Speaker 1>smaller twenty years from now. Than today if nothing is done.

0:14:46.480 --> 0:14:48.320
<v Speaker 1>And then the second issue is very high levels of

0:14:48.360 --> 0:14:51.400
<v Speaker 1>debt to GDP. So how do you solve that? Not easy,

0:14:51.960 --> 0:14:55.680
<v Speaker 1>especially in a country that's not culturally open to immigration.

0:14:56.080 --> 0:14:58.080
<v Speaker 1>So they've tried to get more women into the workforce

0:14:58.160 --> 0:15:01.840
<v Speaker 1>and other things, but there's no getting around Monetary policy

0:15:01.880 --> 0:15:05.320
<v Speaker 1>won't address these issues. They'll ultimately need to deal with

0:15:05.400 --> 0:15:07.800
<v Speaker 1>and you saw this recently by their recent actions, a

0:15:07.920 --> 0:15:12.480
<v Speaker 1>recognition they need fiscal policy and other structural reforms. Monetary

0:15:12.520 --> 0:15:16.040
<v Speaker 1>policy by itself won't address these and I think that's

0:15:16.040 --> 0:15:19.640
<v Speaker 1>a lesson that we should probably learn here and throughout

0:15:19.640 --> 0:15:23.840
<v Speaker 1>the world, and it's important lesson China. The FOMC minutes again,

0:15:23.880 --> 0:15:27.760
<v Speaker 1>they singled out the high debt GDP ratio and a

0:15:27.840 --> 0:15:31.080
<v Speaker 1>certain exchange rate policy. Again, you were just there, you

0:15:31.080 --> 0:15:34.480
<v Speaker 1>were in Shanghai. Why is China such a concern to

0:15:34.560 --> 0:15:37.480
<v Speaker 1>the Federal reservant? To you, Rob Kaplan, Well, the reason

0:15:37.520 --> 0:15:39.360
<v Speaker 1>I went there and the reason I'll continue to go there.

0:15:40.000 --> 0:15:43.440
<v Speaker 1>Number one, I've been going there for thirty years. It

0:15:43.560 --> 0:15:45.840
<v Speaker 1>is it is actually a very significant portion of the

0:15:45.840 --> 0:15:49.760
<v Speaker 1>world economy today. So what goes on there will affect

0:15:49.760 --> 0:15:52.400
<v Speaker 1>the rest of the world. But Number two, they're going

0:15:52.400 --> 0:15:56.080
<v Speaker 1>through an adjustment process where they're trying to wean off

0:15:56.800 --> 0:16:00.200
<v Speaker 1>high levels of government spending on state owned enterprises. Is

0:16:00.560 --> 0:16:04.840
<v Speaker 1>infrastructure real estate that basically they where they use leverage,

0:16:05.200 --> 0:16:07.280
<v Speaker 1>and so they target a GDP number of six and

0:16:07.320 --> 0:16:11.360
<v Speaker 1>a half percent and then they create debt to meet it.

0:16:11.800 --> 0:16:15.480
<v Speaker 1>They can't keep doing that, and so the pressure valve

0:16:15.520 --> 0:16:18.040
<v Speaker 1>for all this is the exchange rate. So we're just

0:16:18.160 --> 0:16:20.800
<v Speaker 1>sensitive at the FED. But I think again we shouldn't

0:16:20.840 --> 0:16:24.040
<v Speaker 1>go too far with this that if there's a stronger

0:16:24.120 --> 0:16:27.080
<v Speaker 1>the stronger the dollar is. If there's a suddening strengthening

0:16:27.120 --> 0:16:30.000
<v Speaker 1>the dollar, as we saw again in January and February,

0:16:30.040 --> 0:16:32.680
<v Speaker 1>where there's a sudden weakening of the end of the

0:16:32.760 --> 0:16:37.160
<v Speaker 1>Chinese currency, it's going to create global instability, potentially tightening

0:16:37.200 --> 0:16:41.000
<v Speaker 1>financial conditions. I again, I think this is an issue

0:16:41.160 --> 0:16:43.000
<v Speaker 1>that's not going to get resolved in the next few quarters.

0:16:43.120 --> 0:16:44.280
<v Speaker 1>Is going to be with us for the next ten

0:16:44.360 --> 0:16:47.680
<v Speaker 1>fifteen years. It will take that long or longer for

0:16:47.760 --> 0:16:50.360
<v Speaker 1>China to work through this transition, and so I just

0:16:50.400 --> 0:16:53.680
<v Speaker 1>think it's something we need to watch over the next

0:16:53.760 --> 0:16:56.880
<v Speaker 1>number of years. Did China's Chinese officials you spoke to

0:16:57.080 --> 0:17:00.680
<v Speaker 1>expressionate concern about the US. Did you anything you share

0:17:00.720 --> 0:17:02.600
<v Speaker 1>with us that they when they look at US and

0:17:02.640 --> 0:17:06.520
<v Speaker 1>the FED what they're saying, Uh, they are very conscious

0:17:06.560 --> 0:17:10.000
<v Speaker 1>there of the transition that they're going through in the

0:17:10.040 --> 0:17:13.639
<v Speaker 1>fragility of it and the big and you notice they've

0:17:13.680 --> 0:17:18.160
<v Speaker 1>they've apply very substantial capital controls in the last six

0:17:18.200 --> 0:17:21.959
<v Speaker 1>months because the thing they are concerned about, they're concerned

0:17:21.960 --> 0:17:26.199
<v Speaker 1>about domestic instability, and they're concerned about capital flight and

0:17:26.200 --> 0:17:30.480
<v Speaker 1>they're trying to staunch it. And so the one thing

0:17:30.520 --> 0:17:33.920
<v Speaker 1>they keep their eye on is the currency. And they

0:17:34.000 --> 0:17:37.440
<v Speaker 1>understand that domestic players would like to take more money

0:17:37.440 --> 0:17:40.399
<v Speaker 1>out than they currently can because they worry that Chinese

0:17:40.480 --> 0:17:43.399
<v Speaker 1>GDP growth is going to need to decline and the

0:17:43.440 --> 0:17:47.720
<v Speaker 1>government cannot continue to leverage up or increase their leverage

0:17:48.119 --> 0:17:51.040
<v Speaker 1>in order to support GDP, and that means a weaker currency.

0:17:51.119 --> 0:17:54.800
<v Speaker 1>So that's what they're cognizant enough. Mr Kaplan, Note, what

0:17:54.880 --> 0:17:57.840
<v Speaker 1>do you ask yourself when you look in the mirror?

0:17:57.840 --> 0:17:59.400
<v Speaker 1>And the reason I put it that way is because

0:17:59.400 --> 0:18:02.040
<v Speaker 1>of course you're book what to ask the person in

0:18:02.080 --> 0:18:04.440
<v Speaker 1>the mirror, And I wonder if you could just answer

0:18:04.480 --> 0:18:07.240
<v Speaker 1>that in the context of many critics of the Federal

0:18:07.280 --> 0:18:11.040
<v Speaker 1>Reserve who say the FED missed the housing crisis and

0:18:11.080 --> 0:18:14.000
<v Speaker 1>they've managed to keep interest rates too low for too long,

0:18:14.480 --> 0:18:18.879
<v Speaker 1>and now we're addicted to low rates. Yeah. So I

0:18:18.960 --> 0:18:21.200
<v Speaker 1>have a little bit of an intellectual benefit that I've

0:18:21.240 --> 0:18:23.320
<v Speaker 1>only been involved with the FED for years, so I can,

0:18:23.840 --> 0:18:26.840
<v Speaker 1>probably as much as anyone who's at the FED look

0:18:26.840 --> 0:18:29.159
<v Speaker 1>at this with an objective point of view. And I

0:18:29.200 --> 0:18:31.240
<v Speaker 1>would say the biggest thing I try to ask when

0:18:31.240 --> 0:18:34.040
<v Speaker 1>I look in the mirror is whether I like it

0:18:34.160 --> 0:18:36.439
<v Speaker 1>or not? What I see? Am I facing? Are we

0:18:36.560 --> 0:18:41.040
<v Speaker 1>facing reality? Let's do the analysis on economic conditions. Let's

0:18:41.160 --> 0:18:44.560
<v Speaker 1>understand what the neutral rate is, even though it's a

0:18:44.760 --> 0:18:46.520
<v Speaker 1>it's a judgment. You're not going to see it on

0:18:46.560 --> 0:18:50.680
<v Speaker 1>a Bloomberg screen. Uh. And what should we be doing

0:18:50.960 --> 0:18:54.640
<v Speaker 1>on monetary policy? And and That's what I'm asking every day.

0:18:54.680 --> 0:18:58.840
<v Speaker 1>And I actually think the reason that rates are lower today,

0:18:59.000 --> 0:19:01.199
<v Speaker 1>a part of it is the FED. But honestly, I

0:19:01.240 --> 0:19:05.120
<v Speaker 1>think the bigger part is slowing global growth, aging demographics,

0:19:05.760 --> 0:19:09.080
<v Speaker 1>demand for safe assets around the world. The neutral rate

0:19:09.119 --> 0:19:13.080
<v Speaker 1>would be is in decline. Uh and uh. And I

0:19:13.119 --> 0:19:15.240
<v Speaker 1>think a part of it's the FED. That people may

0:19:15.320 --> 0:19:18.560
<v Speaker 1>over attribute that decline to the FED. I think a

0:19:18.560 --> 0:19:22.080
<v Speaker 1>lot of it is market determined. Uh well, len's let's

0:19:22.080 --> 0:19:24.120
<v Speaker 1>continue on that vein and circle back to something we're

0:19:24.160 --> 0:19:26.199
<v Speaker 1>just talking to the beginning this conversation. If we have

0:19:26.200 --> 0:19:28.280
<v Speaker 1>a recession in the next several years and rates are

0:19:28.320 --> 0:19:32.080
<v Speaker 1>still low in the US, what is the strategy more quantity,

0:19:32.200 --> 0:19:37.159
<v Speaker 1>dative easing, forward guidance, negative rates, so that we have

0:19:37.280 --> 0:19:40.800
<v Speaker 1>all those tools at our disposal. On the one hand,

0:19:40.840 --> 0:19:44.200
<v Speaker 1>On the other hand, I feel strongly that we need

0:19:45.160 --> 0:19:48.399
<v Speaker 1>soon and I've said this again, I'll keep saying, it's

0:19:48.440 --> 0:19:52.600
<v Speaker 1>truck shure reform. That means, uh, policies that grow the workforce,

0:19:53.080 --> 0:19:57.520
<v Speaker 1>vocational training, the skills mismatch we have in this country. Uh.

0:19:57.600 --> 0:20:00.880
<v Speaker 1>We need to review our regulatory policy at this state, local,

0:20:01.000 --> 0:20:03.840
<v Speaker 1>and national level. We need infrastructure. We need to look

0:20:03.840 --> 0:20:06.639
<v Speaker 1>at our infrastructure which is aging and decaying and is

0:20:06.680 --> 0:20:09.960
<v Speaker 1>a source of negative productivity, and we need to look

0:20:09.960 --> 0:20:12.080
<v Speaker 1>at ways to bolster that. I think we need to

0:20:12.119 --> 0:20:14.320
<v Speaker 1>do those things, and we need to do them soon

0:20:15.320 --> 0:20:18.760
<v Speaker 1>because we need a broader rate of policy tools. And

0:20:18.800 --> 0:20:21.880
<v Speaker 1>so that's that's my answer that if we don't get

0:20:21.880 --> 0:20:24.240
<v Speaker 1>any of those actions, then I think the FED will

0:20:24.240 --> 0:20:26.280
<v Speaker 1>be in a position will have to use its own tools,

0:20:26.320 --> 0:20:30.359
<v Speaker 1>and I think it will be suboptimal for what, uh

0:20:30.560 --> 0:20:34.240
<v Speaker 1>for for addressing the challenges the US faces, and I

0:20:34.280 --> 0:20:37.000
<v Speaker 1>think that would be unfortunate, and that's why I'm calling

0:20:37.000 --> 0:20:40.600
<v Speaker 1>this out now. Mr Kavin. You may be calling it out,

0:20:40.600 --> 0:20:43.520
<v Speaker 1>but as you've also described, that's out of the remit

0:20:43.600 --> 0:20:47.760
<v Speaker 1>really of the Federal Reserve. Um, what do you foresee

0:20:48.200 --> 0:20:51.040
<v Speaker 1>in terms of interest rates? Is it possibly United States

0:20:51.040 --> 0:20:55.680
<v Speaker 1>could have negative interest rates? It is now I'd make

0:20:55.720 --> 0:21:01.240
<v Speaker 1>one point back. I actually think calling out publicly without

0:21:01.280 --> 0:21:04.480
<v Speaker 1>regard to the implications what I see in economic conditions

0:21:04.520 --> 0:21:06.959
<v Speaker 1>and what I think needs to happen is part of

0:21:06.960 --> 0:21:09.080
<v Speaker 1>my job, and I think I'm not doing my job

0:21:09.119 --> 0:21:10.480
<v Speaker 1>if I don't do it. So I think that's a

0:21:10.520 --> 0:21:13.080
<v Speaker 1>big part of our remit, and maybe we haven't done

0:21:13.119 --> 0:21:16.600
<v Speaker 1>it enough. We need to do it more. Actually, But

0:21:16.800 --> 0:21:20.520
<v Speaker 1>back to your point, uh, Well, if you've got to

0:21:20.560 --> 0:21:22.879
<v Speaker 1>face reality, if we get in a future situation, my

0:21:22.920 --> 0:21:26.000
<v Speaker 1>concern is negative rates, for example in the United States,

0:21:26.080 --> 0:21:29.639
<v Speaker 1>will hurt the financial system obviously further penalized savers, and

0:21:29.720 --> 0:21:31.760
<v Speaker 1>my bigger fear a lot of companies in this country

0:21:32.119 --> 0:21:34.800
<v Speaker 1>use the commercial paper market. The money is healthy. Money

0:21:34.800 --> 0:21:39.240
<v Speaker 1>market industry is very critical, and negative rates will uh

0:21:39.600 --> 0:21:43.080
<v Speaker 1>will be negative for all those sources. So we're getting

0:21:43.119 --> 0:21:45.000
<v Speaker 1>to the point where I wouldn't say we're pushing on

0:21:45.040 --> 0:21:48.399
<v Speaker 1>a string, but I think there's real trade offs to

0:21:48.560 --> 0:21:52.520
<v Speaker 1>negative rates that we have to face. Robert Caplin, thank

0:21:52.560 --> 0:21:56.680
<v Speaker 1>you so very much kicking off our special coverage here

0:21:56.880 --> 0:22:01.280
<v Speaker 1>in Jackson Hole, Wyoming the fit of Reserve Can't City's Symposium.

0:22:01.320 --> 0:22:03.840
<v Speaker 1>He's president of the Federal Reserve Bank of Dallas, and

0:22:03.880 --> 0:22:05.880
<v Speaker 1>we thank him so much for taking time for us

0:22:05.880 --> 0:22:08.960
<v Speaker 1>on taking stop and Kathleen Hayes along with Pim Fox

0:22:08.960 --> 0:22:12.760
<v Speaker 1>and this is Bloomberg. Yeah,