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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. Hello and welcome to

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Speaker 1: another episode of The Odd Laws podcast.

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Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway.

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Speaker 1: Tracy, you know, future economy, it's always uncertain, path of

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Speaker 1: the path of inflation, path of employment, always big debates.

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Speaker 1: I think what's really interesting right now compared to a

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Speaker 1: few years ago maybe is, you know, at various times

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Speaker 1: it's like inflation is going to come down, but there's

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Speaker 1: a fight over how fast. Right And now you have

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Speaker 1: a situation which there are people who argue both sides.

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Speaker 1: Some peoples like, oh, no, we're on a you know,

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Speaker 1: we're heading down the sort of camp, et cetera. And

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Speaker 1: others are like, look, we're reaccelerating. It's going to get

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Speaker 1: hot again. And we're recording this February eleventh. We just

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Speaker 1: had a fairly strong jobs print, et cetera. And so

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Speaker 1: some people are making the reacceleration argument.

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Speaker 3: We are so back. So yeah, well that job's report,

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Speaker 3: I mean it was a blowout numbers. Yeah, one hundred

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Speaker 3: and thirty thousand jobs added in January versus expectations for

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Speaker 3: sixty five thousand, and even if you drill down into it, like,

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Speaker 3: it looks pretty good.

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Speaker 4: Right, But you're absolutely right.

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Speaker 3: So we used to argue about how far we would

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Speaker 3: travel in one direction, you know, inflation. Is it going

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Speaker 3: to be four percent, is it going to be five percent? Whatever,

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Speaker 3: And now we're sort of arguing about which direction we're actually.

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Speaker 1: Going to go totally. And I think, like, if you

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Speaker 1: just look like, okay, one jobs report, can't you know,

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Speaker 1: I take it with a grain of salt. There is

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Speaker 1: there does seem to be a lot of evidence of

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Speaker 1: some softening in the labor market by a lot of

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Speaker 1: different measures, et cetera. Housing market continues to be fairly soft.

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Speaker 1: On the other hand, look at various commodities, you know,

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Speaker 1: look at copper, look at a bunch of other stuff,

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Speaker 1: Look at trucking prices, freight picking back up, et cetera.

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Speaker 3: I wrote about this in the AU Thoughts newsletter.

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Speaker 1: Yeah, there's lots of things that are going in the

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Speaker 1: other direction. And you say, look, this looks like reflation.

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Speaker 3: Yeah, so we are going to be speaking with someone

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Speaker 3: who had a non consensus call about a month ago.

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Speaker 3: But again, I think it's becoming maybe more consensus by

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Speaker 3: the day, by the hour, as we get these types

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Speaker 3: of reports totally.

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Speaker 1: Well, we really do have the perfect guest to sort

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Speaker 1: of give us a different take, a sort of I

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Speaker 1: would say it's still a little bit out of consensus call,

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Speaker 1: but definitely not the direction that a lot of people

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Speaker 1: want to see. Definitely not the direction if you think

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Speaker 1: that the FED should cut rapidly this year. Maybe we'll

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Speaker 1: talk some FED stuff. We're going to be speaking, of course,

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Speaker 1: to Adam Posen, here's the president of the Peterson Institute,

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Speaker 1: recently co author at apiece with Peter Orsag four percent inflation.

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Speaker 1: What Adam, thanks for coming back and joining us here

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Speaker 1: in studio four percent inflation?

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Speaker 4: Really, thanks Tracy, Thanks Joe for having me back. Yeah.

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Speaker 4: I mean I've got friends who say I should have

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Speaker 4: just said three point five and the exactly, but I

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Speaker 4: think it's realistic to think about four percent by the

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Speaker 4: end of the year. On headline CPI and just going

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Speaker 4: to the spirit of what both of you were saying,

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Speaker 4: I think the direction of travel is up, not down,

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Speaker 4: and pretty clearly that way. There's obviously, like you just said,

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Speaker 4: today's job report, but I think there's a broader pattern.

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Speaker 4: The issue isn't you know, like you say, one month,

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Speaker 4: it's more about why the job's report looks the way

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Speaker 4: it does. And if you look at prime age, like

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Speaker 4: Tracy was saying about drilling down in the numbers, if

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Speaker 4: you look at prime age labor force participation, which to

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Speaker 4: me is one of the most important statistics you can

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Speaker 4: look at, it's still pretty high. And there's this risk

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Speaker 4: of women dropping out of the labor force to look

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Speaker 4: after kids and elderly and sick people if they don't

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Speaker 4: restore some of the Obamacare insurance subsidies. And there is

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Speaker 4: a conundrum that if you're either they haven't deported yet

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Speaker 4: or managed to drive out yet as many migrants as

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Speaker 4: they think, or you're losing labor there too. So it's

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Speaker 4: hard for me to see this as a very weak

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Speaker 4: job market. The kinds of things people point to, like

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Speaker 4: the slowing of wage growth or the vacancies over as

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Speaker 4: compared to unemployment, I think, are not indicative of a

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Speaker 4: demand side slowdown. They're indicative of what economists called mismatch,

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Speaker 4: meaning less good functioning in the labor market. So just

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Speaker 4: give you two quick examples. African American unemployment is up

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Speaker 4: relative to average unemployment historically for both nasty and good reasons.

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Speaker 4: That's been the case, but it'd come way down. So

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Speaker 4: the question is is it going up because they're the

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Speaker 4: canary in the coal mine, or is it because something

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Speaker 4: specific hit African Americans. And unfortunately, I think it's something

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Speaker 4: specific contributed to African American unemployment, which is DOSEE may

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Speaker 4: not have cut overall government spending, but it massively reallocated

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Speaker 4: where our government's spent. So Department of Education gone, a

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Speaker 4: lot of environmental gone, a lot of health and human

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Speaker 4: services gone. And these are things where you had a

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Speaker 4: lot of government contractors that were African American owned or

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Speaker 4: run or heavily populated. And so I think part of

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Speaker 4: the reason African American unemployment is up, and that doesn't

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Speaker 4: mean it's okay, it just means it's not a sign

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Speaker 4: of demand shock or declining or soft market is because

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Speaker 4: of this hit to this specific part of the workforce. Similarly,

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Speaker 4: and I know you have had episodes talking about this issue,

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Speaker 4: we see the phenomenon of young people having less hiring,

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Speaker 4: particularly college educated people, young people not getting hired as much.

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Speaker 4: And I think there's two things going on there. One

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Speaker 4: is I mean it's real. Again, like with African American employment,

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Speaker 4: I'm not saying it's not real. I'm just saying it's

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Speaker 4: not telling you about the demand situation. So it is

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Speaker 4: incredibly right well said, very tech speak. So you know,

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Speaker 4: I think part of it is that we've the the

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Speaker 4: rise in you, younger people unemployment college as younger people

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Speaker 4: unemployment has been a very steady rise for a few years.

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Speaker 4: It's actually a very it's not like suddenly, oh it

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Speaker 4: got soft. It's been coming up slowly since roughly twenty

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Speaker 4: twenty three. And to me, that has to do with

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Speaker 4: the hiring and rematching coming out of COVID. That people

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Speaker 4: moved a lot, companies moved a lot of people into

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Speaker 4: new jobs, and they hired extra people in some sense,

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Speaker 4: and so there's this overhang and that's particularly affecting young people.

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Speaker 4: I mean, AI's in there. I'm just that's not so anyway.

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Speaker 4: I'm not trying to cherry pick data, but I'm just

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Speaker 4: trying to say that if you match that with the

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Speaker 4: more well known data, the layoffs are relatively low, the

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Speaker 4: wage growth is slowing but it's not going to zero,

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Speaker 4: That participation rate is high, that the monthly job numbers

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Speaker 4: are fluctuating. But on the new baseline that we all

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Speaker 4: rightly should be looking at solid. I don't see it

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Speaker 4: as a week week labor market.

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Speaker 3: So you just talked about the labor side, but your

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Speaker 3: forecast for four percent inflation by the end of this

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Speaker 3: year is comprised of many different things. So walk us

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Speaker 3: through what exactly you're looking at to get that call.

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Speaker 4: Thanks Tracy for the opportunity, which odd lots gives to

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Speaker 4: give more than two points. But I think the message

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Speaker 4: is there are I want to start with. Those are

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Speaker 4: so many points if you kind of step back right

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Speaker 4: and you say, all right, if I'm making a forecast

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Speaker 4: for inflation over the next year or two, there's how

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Speaker 4: softer typed the labor market is. There's how hot the

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Speaker 4: economy is running, and those two obviously overlap. There's are

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Speaker 4: we getting supply shocks like tariffs or anti migration policy.

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Speaker 4: There's what's fiscal policy is doing, and then there's what's

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Speaker 4: monetary policy doing, and very importantly, how credible is it?

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Speaker 4: How is it being transmitted? So you go down that

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Speaker 4: list and there's, to me, there's just an awful lot

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Speaker 4: of inflationary stories. So tariff's, anti migration policy, there was

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Speaker 4: a debate, or at least a bunch of people asserting, Oh,

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Speaker 4: it didn't really matter, Look, inflation's not up that much. Well,

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Speaker 4: my view, and I argued this in a Bloomberg Business

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Speaker 4: Week piece a few weeks ago, is that we never

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Speaker 4: should have expected the impact of these policies to be

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Speaker 4: so fast. And in fact, if you go back, I'm

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Speaker 4: not that we forecast it perfectly by any means, but

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Speaker 4: if you go back to the stuff my colleagues McKinnon

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Speaker 4: and Nolan and others at Peterson's who published a year

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Speaker 4: and a half ago on what would be the likely

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Speaker 4: effect of the tariffs or the migration policies, they were

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Speaker 4: building in a one year lag from when the policies

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Speaker 4: took effect, and so you know, roughly next quarter is

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Speaker 4: when we should start to really see the policy hit.

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Speaker 4: And we're seeing anecdotally in the beige books from the FED,

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Speaker 4: in statements by the Amazon CEO, and my co author

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Speaker 4: and part of this, Peter Orzag who runs Loizard, has

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Speaker 4: many contacts in the business community who are talking about this.

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Speaker 4: It takes time to make up your mind what you're

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Speaker 4: going to do, even if you're a big company, let

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Speaker 4: alone if you're a small company. It's very hard. So

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Speaker 4: like do I get a new supplier. Do I move

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Speaker 4: production to China? Out of China? Do I move it

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Speaker 4: into Mexico? Do I move it into the US? Can

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Speaker 4: I find a substitute? Do I raise prices now? Do

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Speaker 4: I wait till my competitors raise prices? Can I get

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Speaker 4: an exemption from the terrace? If I go meet with

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Speaker 4: Howard Luttnik? You know, all this stuff takes time to

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Speaker 4: work through. And the same thing is true for that's

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Speaker 4: even before you factor in like inventories of imported goods.

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Speaker 4: And they're waiting to see whether Trump actually sticks with

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Speaker 4: the tariffs or not before they make a decision. And

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Speaker 4: I would argue that the SAME's true for migrant families

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Speaker 4: or migrant workers, undocumented migrant workers that they have hard

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Speaker 4: to leave aside the human aspect, which is amazingly horrible,

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Speaker 4: but eat just on the economics. They have to make

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Speaker 4: up their minds. Is ice really coming for me? Are

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Speaker 4: they coming to my town? Is my employer going to

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Speaker 4: protect me? How long do I have before they get

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Speaker 4: here to accumulate dollar pay before I have to leave?

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Speaker 4: Can I hide and keep working if I go? Do

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Speaker 4: I go legally? Do I take my kids with me?

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Speaker 4: Do I not take my kid, do I try to

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Speaker 4: come back again. These are irreversible decisions. It takes time,

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Speaker 4: and you want to see uncertainty change or at least

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Speaker 4: get settled before you make the decision. So to me,

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Speaker 4: I think these inflationary pressures from the anti migration policy

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Speaker 4: of tariffs are already here, but that they're going to

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Speaker 4: accelerate and be more visible then to be much quicker.

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Speaker 4: With the other points. Fiscal policy, I think the Republican

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Speaker 4: majorities in the Congress and the President are going to

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Speaker 4: want to pass a big blowout checks to people ahead

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Speaker 4: of the midterm election. I think they are going to

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Speaker 4: pass some restoration of the lower middle class subsidies for

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Speaker 4: Obamacare insurance because it's really hurting people and it's really

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Speaker 4: making people angry. You put those two together, that's well

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Speaker 4: towards two percent of GDP in additional deficit. So say

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Speaker 4: you risk weight it. Say you put a fifty percent

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Speaker 4: chance on the checks being handed out, and you put

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Speaker 4: i'd say an eighty to ninety percent chance on some

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Speaker 4: amount of Obamacare subsidies coming back. You put in that

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Speaker 4: weighted average, that still get you an additional percent plus

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Speaker 4: of GDP on the deficit that people weren't figuring. Then

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Speaker 4: you got a week er dollar. Then you've got the FED.

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Speaker 4: And this is something we've talked about a few times

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Speaker 4: when you've been kind enough to have me on the

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Speaker 4: interest rate. For all Trump talking constantly about it and

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Speaker 4: pressuring the FED doesn't summarize sufficiently the state of monetary

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Speaker 4: conditions in the economy. So you've got all this private credit,

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Speaker 4: You've got all the AI investment being funded either out

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Speaker 4: of retained earnings or out of issued bonds, not based

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Speaker 4: on credit, not based on normal bank borrowing or big stuff.

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Speaker 4: And as Joe says, you have a soft housing market,

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Speaker 4: but mortgage rates and real terms have been coming down,

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Speaker 4: and it's not like mortgage money is unavailable, so it's

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Speaker 4: not a tight credit environment. And so then finally, regret,

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Speaker 4: we have to take into account all the attacks on

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Speaker 4: the FED and the changes at the FED. And I'm

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Speaker 4: not too into personalities. I don't think it matters that

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Speaker 4: much which individual, but the structural forces on the FED

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Speaker 4: for change, and you have to believe that makes the credibility,

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Speaker 4: the likelihood that they're going to react in the right

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Speaker 4: direction to this inflation soon enough lower, So Boom boom

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Speaker 4: boom boom boom boom.

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Speaker 1: So there was a great summary or overview of your view,

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Speaker 1: and there's plenty of follow ups to ask about that. Well,

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Speaker 1: let's just talk about the tariffs. So I certainly take

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Speaker 1: your point that it would take any company a while

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Speaker 1: before they decide their pricing strategy. Incidentally, not you know,

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Speaker 1: some companies you know about almost a year after the

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Speaker 1: tariffs are going in the other direction, for example, so

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Speaker 1: they cut prices. So clearly like some companies are decided

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Speaker 1: they cut but just don't tariffs, you know, even theoretically, like, yes,

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Speaker 1: I can understand the argument there is a good reason

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Speaker 1: to raise prices. On the other hand, tariffs are attacks,

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Speaker 1: and generally we think of taxes as disinflationary. They take

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Speaker 1: money out of the economy. Here's I guess the question

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Speaker 1: is every company would love to be able to pass

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Speaker 1: on higher costs. Does there need to be something on

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Speaker 1: the demand side for them to be able to because

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Speaker 1: another possibility is they just have to eat it in

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Speaker 1: margins because the consumer is not willing or you know,

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Speaker 1: as the pepsi consumer. Evidently they don't want to continue

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Speaker 1: to pay high prices and goods like are tariffs per

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Speaker 1: se inflationary or they only inflationary if there's sort of

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Speaker 1: a demand boost something for like the checks or the

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Speaker 1: Obamacare subsidies coming back, et cetera.

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Speaker 4: That's a really good added layer sophistication to this, Joe,

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Speaker 4: And you're absolutely right. It varies from company to company,

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Speaker 4: from industry to industry. The decisions. Part of the decision

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Speaker 4: making process is what is the competitive landscape, and we

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Speaker 4: do see. I'm proud to say PepsiCo was one of

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Speaker 4: the many corporate supporters of the Peterson Institute, a big

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Speaker 4: fan and no, no, I have to be honest, and

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Speaker 4: I'm proud to be honest. All our donors are listed

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Speaker 4: on our website. But anyway, PepsiCo is arguably facing a

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Speaker 4: lot of fundamental trends in the food industry and having

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Speaker 4: to do with goops, having to do with health perceptions

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Speaker 4: and things that of course are going to overwhelm for them.

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Speaker 4: And they actually are not that exposed to tariffs compared

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Speaker 4: to some other companies because they're not importing sugar and

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Speaker 4: they're not importing inputs the way say auto company is.

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Speaker 4: But anyway, but just that just illustrates your point that

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Speaker 4: it is going to vary from company to company, And

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Speaker 4: my argument was just that as a general thing, for

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Speaker 4: any given company, it's not a trivial decision. You don't

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Speaker 4: just go. But your point, your further point, Joe, that

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Speaker 4: it's sort of conditional on demand, is absolutely right. So

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Speaker 4: there there's two aspects to that. One is just literally

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Speaker 4: what you said that if it turns out their slack demand,

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Speaker 4: you may not see the rise in pricing as much

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Speaker 4: because you're just the company. Any given company additionally has

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Speaker 4: to decide, you know, how much am I going to

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Speaker 4: lose market share if I raise prices. But additionally, there

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Speaker 4: is an interactive effect that when you are when this

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Speaker 4: is why I made so much about the labor market

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Speaker 4: initially with Tracy. It's it's a question of not so

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Speaker 4: much the demand side as your input side. Right, are

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Speaker 4: we in a tight labor market? Are we in a

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Speaker 4: tight supplies market for commodities? Do these things matter? And

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Speaker 4: our expectations about inflation in the economy more broadly moving

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Speaker 4: towards the high side, and so again, just to come

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Speaker 4: back your bottom line point is right, it's interactive, and

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Speaker 4: that's why when you talk about inflation, you want to

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Speaker 4: have all these components.

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Speaker 3: I have to say I spent thirty five dollars on

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Speaker 3: three bags of chips and two dips on the weekend

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Speaker 3: for the Super Bowl. To be fair, I got them

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Speaker 3: from a gas station, so there was a markup, but

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Speaker 3: it was so worth it, so good. I don't eat

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Speaker 3: chips that often, but when I do.

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Speaker 4: Yeah, yeah, yeah, no, we had, we had, we had

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Speaker 4: Freedom scoops and uh they're so good. Yeah, I think

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Speaker 4: super Bowl.

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Speaker 3: Now we're just talking about stack food, which is fine. Okay,

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Speaker 3: what about tariff's tariff inflation?

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Speaker 4: That's yeah, that's true.

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Speaker 3: Just from a math perspective, what you often hear is that, well,

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Speaker 3: you know, you might have a price impact from tariffs,

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Speaker 3: but it doesn't matter that much because it's a one

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Speaker 3: off and then you know, the next year the base

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Speaker 3: effect kind of goes away. But does it matter if

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Speaker 3: we get four percent at the end of the year

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Speaker 3: or would you expect this to be a sort of

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Speaker 3: the start of a durable price increase cycle.

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Speaker 4: Well, I think yes, it is a start of a durable,

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Speaker 4: as you put, a price increased cycle. And again, it's

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Speaker 4: partly to do with the general conditions, and it's partly

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Speaker 4: to do with the nature of the tariffs and the shock.

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Speaker 4: So I think in a world where the labor market

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Speaker 4: is not high unemployment, lots of slack, whatever anybody says,

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Speaker 4: in a world where they are going to be putting

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Speaker 4: fiscal fuel on the fire, in a world where, whatever

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Speaker 4: you think about the transition from J. Powell to nominated

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Speaker 4: Kevin Moorsh and the attacks on the FED, you cannot

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Speaker 4: believe that the Fed's credibility of commitment to low inflation

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Speaker 4: is as strong as it was a few years ago.

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Speaker 4: All of those things suggests that any given shock, any

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Speaker 4: given price shock, will to me translate into higher and

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Speaker 4: more persistent inflation than it would, say a few years

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Speaker 4: ago in a different circumstance. The second point is, and

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Speaker 4: there's this, I forget what it's now called, but there

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Speaker 4: used to be the Million Prices project at Harford Business

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Speaker 4: School that's been looking at the price pass through, and

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Speaker 4: there've been others looking at it, and people at Peterson

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Speaker 4: as well. The second thing is the migration shock, if

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Speaker 4: it turns out they do drive out a million people,

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Speaker 4: million workers, is going to have much bigger first round

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Speaker 4: effects than the TARF shock. The TARRAF shock. I think

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Speaker 4: reasonable listmates are they've already had one point year's worth

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Speaker 4: of CPI effects roughly over the past year. I think

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Speaker 4: if they really are pushing out the migrants, and we

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Speaker 4: can go to why I keep putting it conditionally and

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Speaker 4: saying I'm not sure they have yet, but if they

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Speaker 4: really are, we're talking about something potentially four to six

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Speaker 4: times as large. But then the final thing I want

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Speaker 4: to emphasize, Tracy, is on the when you say about

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Speaker 4: the durable size of inflation, it is a question of

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Speaker 4: what people expect the monetary policy response to be. And

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Speaker 4: so we have a very important lesson from the eighties,

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Speaker 4: from forty years ago. Last time we had high inflation

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Speaker 4: in the US, even under Paul Volker, they disinflated in

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Speaker 4: nineteen eighty two after an oil shock, but they didn't

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Speaker 4: take it all the way down. They stopped when it

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Speaker 4: got to around four percent. And so then when the

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Speaker 4: inflation came back in eighty five, it turned out to

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Speaker 4: be more persistent and higher, and Volker and the FED

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Speaker 4: had to do more to race rates. Most people would argue,

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Speaker 4: I mean, clearly they did race rates more, but most

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Speaker 4: of us would argue part of the reason for that

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Speaker 4: was because it was the second round of inflation and

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Speaker 4: they hadn't fully stamped it out the first time. And

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Speaker 4: I think you can make the case again this is speculative,

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Speaker 4: but I think there's a historical parallel here. If we

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Speaker 4: get this kind of inflation shock now coming, it's five

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Speaker 4: years or four years instead of three years, but four

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Speaker 4: years after the last inflation, having again the inflation not

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Speaker 4: come all the way down to two percent target. In

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Speaker 4: this case, I think the upside risk is higher.

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Speaker 1: So this is interesting. You know when we were Rejection

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Speaker 1: Hall of the last time we saw you, or that

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Speaker 1: we did an episode with I mean Nachamara and talking

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Speaker 1: about this idea of like the value of central credibility

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Speaker 1: and there's like kind of a fixed stock of it,

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Speaker 1: or the stock of credibility can deplete over time and

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Speaker 1: it might take allow to refill the reservoir, so to speak.

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Speaker 1: So what you're saying is sort of dovetails with that

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Speaker 1: we just said that if you don't sort of in

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Speaker 1: fairly short order smash it back to two percent, that

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Speaker 1: there is this sort of like persistent cost that you

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Speaker 1: might pay the next time there's a shock.

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Speaker 4: That's that's generally what we see in the data and

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Speaker 4: Professor Ackamar may have a different take on this, but

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Speaker 4: but to my understanding of the research, including by a

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Speaker 4: colleague of mine at Peterson, Joseph Kaniel, on some of

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Speaker 4: these issues is if you fail to stomp it down,

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Speaker 4: the anchoring as the phrases of inflation expectations is lower.

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Speaker 4: And so a lot of people focus on the U

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Speaker 4: Michigan Survey of inflation expectations or the New York Fed

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Speaker 4: survey we had god I can her name, I apologize

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Speaker 4: from you Michigan who runs that survey speak at Peterson's

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Speaker 4: to last Friday. There's a video if you want to hear,

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Speaker 4: and she can point to the fact that the long

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Speaker 4: term inflation expectations haven't moved that much. My view is

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Speaker 4: that only tells you so much because it's people have

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Speaker 4: rational inattention. They don't spend their lives thinking about inflation

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Speaker 4: unless they have to spend their lives thinking about inflation.

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Speaker 4: And so the question is more when inflation comes out,

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Speaker 4: do they react? And so besides the work of my

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Speaker 4: colleague Joseph Gannon, there's a professor at Berkeley urigorod Nikschenko

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Speaker 4: and his co authors who did a really interesting paper

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Speaker 4: last summer, I think ahead of Jackson Hall at a

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Speaker 4: different FED conference, showing that there was this persistently higher

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Speaker 4: upside risk on inflation expectations.

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Speaker 3: Since we're on monetary policy. You touched on this earlier,

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Speaker 3: but one of the very interesting things in your argument is,

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Speaker 3: you know, you contend that the transmission mechanism isn't quite

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Speaker 3: what it used to be, possibly because of the expansion

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Speaker 3: of private debt, it's less linked to bank right bank

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Speaker 3: lending rates. Talk more about that, because if I see

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Speaker 3: an inflationary environment and you say the durability of that

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Speaker 3: inflation depends on what the central bank does in response,

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Speaker 3: even if they raise rates, is that going to be

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Speaker 3: enough to stamp it out? Because as we've seen, and

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Speaker 3: we've asked a number of central bankers this question at

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Speaker 3: this point, but financial conditions are still really really exactly exactly.

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Speaker 4: No. I think you're absolutely right, And I know you

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Speaker 4: recently did an episode with former FED Vice chair Rich Clarina,

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Speaker 4: and when he was vice chair, he tried to promote

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Speaker 4: this idea of I think I don't know if they

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Speaker 4: actually called it. This was essentially monetary conditions index. I

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Speaker 4: think it had fourteen pieces to it, but basically trying

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Speaker 4: to get at what you just said conceptually that if

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Speaker 4: you in the textbook, the central bank has three channels

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Speaker 4: through which it tightens policy. One is it directly affects

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Speaker 4: the amount of deposits and bank lending. The second is

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Speaker 4: there are repercussions through the Yeo curve that if you

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Speaker 4: move the short end of the Yeld curve, it decreases

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Speaker 4: the further out the yeocurve and duration you go, but

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Speaker 4: there is some repercussions along the curve. And then the

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Speaker 4: third is this expectations channel. Does do people believe ultimately

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Speaker 4: that the Fed will get things under control? But at

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Speaker 4: the same time that's the textbook the working central bankers,

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Speaker 4: and this overlap somewhat with the people who wrote the textbooks,

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Speaker 4: although I'm not one of them, but the working central bankers,

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Speaker 4: going back again, Voke Paul Volker, are very concerned about

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Speaker 4: monetary transmission in the plumbing, meaning which parts of the

432
00:25:46,240 --> 00:25:49,919
Speaker 4: financial system get affected how much by moves and interest

433
00:25:50,000 --> 00:25:55,720
Speaker 4: rates or quantitative tightening or regulatory rules, and so. Vulgar

434
00:25:55,800 --> 00:25:59,040
Speaker 4: famously was very upset when money market mutual funds came

435
00:25:59,080 --> 00:26:02,320
Speaker 4: into play because the idea was those wouldn't be as

436
00:26:02,359 --> 00:26:06,520
Speaker 4: affected by FED interest rate moves. I think a much

437
00:26:06,560 --> 00:26:12,199
Speaker 4: more serious issue right now is the existence of private credit,

438
00:26:12,280 --> 00:26:16,800
Speaker 4: where not only it exists, but it is growing and

439
00:26:16,840 --> 00:26:21,320
Speaker 4: it's growing, but that we have very little supervisory or

440
00:26:21,359 --> 00:26:26,399
Speaker 4: regulatory transparency into it, so the central bank or anybody

441
00:26:26,600 --> 00:26:29,639
Speaker 4: doesn't really know how much is out there, where it's going,

442
00:26:29,760 --> 00:26:34,720
Speaker 4: what terms, how shaky some of it might be. But anyway,

443
00:26:34,800 --> 00:26:37,040
Speaker 4: so the point is, think about it again with the

444
00:26:37,080 --> 00:26:39,920
Speaker 4: respect of the housing market. So we had a very

445
00:26:39,960 --> 00:26:43,720
Speaker 4: strong FED tightening a couple of years ago, and normally

446
00:26:44,080 --> 00:26:46,520
Speaker 4: up until a couple of years ago, one of the

447
00:26:46,560 --> 00:26:50,399
Speaker 4: first places you would see that would be that there

448
00:26:50,440 --> 00:26:54,399
Speaker 4: would be layoffs in single family and general residential construction,

449
00:26:54,520 --> 00:26:56,640
Speaker 4: because these tend to be small firms that are very

450
00:26:56,680 --> 00:27:01,959
Speaker 4: credit dependent, very both demand their customers are dependent on

451
00:27:02,080 --> 00:27:06,480
Speaker 4: mortgages and supply. They need credit to do what they do.

452
00:27:07,119 --> 00:27:11,480
Speaker 4: And usually the first, one of the very first effects

453
00:27:11,480 --> 00:27:14,719
Speaker 4: on the real economy of a FED tightening would be

454
00:27:15,119 --> 00:27:18,680
Speaker 4: contraction in that sector. We didn't see it. We saw

455
00:27:18,840 --> 00:27:23,280
Speaker 4: very large FED tightening and essentially no unemployment rise in

456
00:27:23,880 --> 00:27:27,520
Speaker 4: housing and not very much change in housing starts. And

457
00:27:27,560 --> 00:27:30,440
Speaker 4: that's been replicated across a number of sectors what used

458
00:27:30,440 --> 00:27:33,320
Speaker 4: to be called interest rate sensitive sectors in the economy.

459
00:27:34,000 --> 00:27:36,600
Speaker 4: And so if you go back to where I started

460
00:27:36,600 --> 00:27:39,040
Speaker 4: and you say there are these multiple channels, right, so

461
00:27:39,160 --> 00:27:41,919
Speaker 4: two of the three channels arguably are weaker than they

462
00:27:42,040 --> 00:27:46,920
Speaker 4: used to be. So the impact on the banking system

463
00:27:47,080 --> 00:27:51,439
Speaker 4: is less representative of the impact on credit availability in

464
00:27:51,440 --> 00:27:56,680
Speaker 4: the economy. The impact on expectations or reasons we were

465
00:27:56,720 --> 00:28:00,639
Speaker 4: just talking about may not be as rapid or as strong. Again,

466
00:28:00,720 --> 00:28:02,720
Speaker 4: the fact can get it back, going to how Joe

467
00:28:02,720 --> 00:28:05,960
Speaker 4: summarized Emmy's work, I mean, you can get it back,

468
00:28:05,960 --> 00:28:08,040
Speaker 4: but you probably have to do something to get it back.

469
00:28:08,560 --> 00:28:11,040
Speaker 4: So you're left with this middle channel, which is the

470
00:28:11,080 --> 00:28:18,240
Speaker 4: yield curve. And even in normal times or less chaotic times,

471
00:28:19,000 --> 00:28:21,800
Speaker 4: there never was a lock step between what happened at

472
00:28:21,800 --> 00:28:23,600
Speaker 4: the short end of the curve and what happens at

473
00:28:23,640 --> 00:28:27,480
Speaker 4: the long end of the curve. And Dallas President Laurie

474
00:28:27,520 --> 00:28:29,720
Speaker 4: Logan gave a speech a few weeks ago, I think

475
00:28:29,760 --> 00:28:32,240
Speaker 4: on some of the aspects of this where she's an expert,

476
00:28:33,040 --> 00:28:36,719
Speaker 4: But the bottom line, I keep using that phrase, sorry,

477
00:28:36,760 --> 00:28:41,640
Speaker 4: but the bottom line is you again, directionally, if the

478
00:28:41,720 --> 00:28:45,160
Speaker 4: fed tightens. All three of these channels will have some

479
00:28:45,240 --> 00:28:48,560
Speaker 4: tightening effect, but there's good reason to think that none

480
00:28:48,600 --> 00:28:51,560
Speaker 4: of these effects will be as powerful bang for your

481
00:28:52,200 --> 00:28:55,640
Speaker 4: rate hike as it used to be.

482
00:29:10,320 --> 00:29:15,000
Speaker 1: Let's talk about AI spend. The numbers were already gonna

483
00:29:15,000 --> 00:29:17,840
Speaker 1: be eyewatering for twenty twenty six, and now they're going

484
00:29:17,880 --> 00:29:20,320
Speaker 1: to be more eyewatering than that. And we got numbers

485
00:29:20,320 --> 00:29:23,040
Speaker 1: from Alphabet and Amazon. They were just much higher than right.

486
00:29:23,360 --> 00:29:25,520
Speaker 1: I mean, we're talking like, you know this moves GDP

487
00:29:25,960 --> 00:29:28,920
Speaker 1: GDP altering numbers, like talk to us about how you

488
00:29:28,960 --> 00:29:30,960
Speaker 1: see the ripple out effects from that spending.

489
00:29:31,400 --> 00:29:34,320
Speaker 4: So it's fascinating and I actually listen to you all

490
00:29:34,440 --> 00:29:36,880
Speaker 4: for some of your insights when you talk to people

491
00:29:36,880 --> 00:29:39,000
Speaker 4: more in that space than I am as a macro

492
00:29:39,080 --> 00:29:43,000
Speaker 4: economist thinking about it. So the first point starting game

493
00:29:43,040 --> 00:29:46,480
Speaker 4: with the monetary transmission aspect is so much of this

494
00:29:46,760 --> 00:29:50,120
Speaker 4: is self finance or easily financed. So so Google's now

495
00:29:50,280 --> 00:29:53,600
Speaker 4: is showing I guess this one hundred year pond. Yeah,

496
00:29:53,920 --> 00:29:56,600
Speaker 4: I hope, so in the sense of I hope everybody's

497
00:29:56,600 --> 00:29:58,760
Speaker 4: still around in one hundred years and gets paid back,

498
00:29:58,760 --> 00:29:59,680
Speaker 4: and that would be nice.

499
00:30:00,400 --> 00:30:01,080
Speaker 3: I'm pretty sure.

500
00:30:01,200 --> 00:30:04,400
Speaker 1: Yeah, well, you know, it's it's a British bond, it's

501
00:30:04,440 --> 00:30:07,920
Speaker 1: a sterling base because of those Yeah, the LDIA the

502
00:30:08,040 --> 00:30:09,760
Speaker 1: longer yeah yeah, yeah, they're fortunate.

503
00:30:09,840 --> 00:30:11,760
Speaker 3: Hold that mean is like most of it has been

504
00:30:11,960 --> 00:30:13,240
Speaker 3: cash of course.

505
00:30:13,600 --> 00:30:16,720
Speaker 4: Yeah. So my point was even the parts that are

506
00:30:16,760 --> 00:30:21,680
Speaker 4: not cash financed are being very easily financed. So that's

507
00:30:21,760 --> 00:30:24,920
Speaker 4: the first point there. There is no credit crowding out

508
00:30:24,920 --> 00:30:27,640
Speaker 4: in the rest of the economy because of this, there

509
00:30:27,720 --> 00:30:32,120
Speaker 4: is no credit constraint on them doing this. That has

510
00:30:32,160 --> 00:30:36,160
Speaker 4: an interesting implication, which I've mentioned at various times in

511
00:30:36,280 --> 00:30:39,960
Speaker 4: recent months, that makes it all the more striking how

512
00:30:40,160 --> 00:30:42,840
Speaker 4: little investment we're getting from the rest of the economy.

513
00:30:43,240 --> 00:30:45,200
Speaker 4: I mean, so if you think about sort of the

514
00:30:45,240 --> 00:30:49,560
Speaker 4: litany of reasons that a Trump administration official ex ante

515
00:30:49,640 --> 00:30:52,920
Speaker 4: could give for why there should be investment boom beyond AI. Right,

516
00:30:53,000 --> 00:30:56,600
Speaker 4: We've made permanent the tax cuts that are favorable to

517
00:30:56,680 --> 00:31:00,840
Speaker 4: corporate investment. We are deregulating, we are doing things to

518
00:31:00,880 --> 00:31:04,240
Speaker 4: make the labor market more friendly to employers. We've got

519
00:31:04,320 --> 00:31:07,959
Speaker 4: cheaper energy prices until AI pushes up some of that,

520
00:31:08,040 --> 00:31:12,720
Speaker 4: but broadly speaking, cheaper domestic energy supply, and we got

521
00:31:12,720 --> 00:31:15,520
Speaker 4: a FED that until recently looked like it was cutting rates.

522
00:31:15,960 --> 00:31:19,719
Speaker 4: So beyond AI, there should have been an investment boom.

523
00:31:20,640 --> 00:31:24,880
Speaker 4: And my view is that a lot of the Trump

524
00:31:24,880 --> 00:31:29,440
Speaker 4: administration's creation of massive uncertainty, including through the terraffs and

525
00:31:29,440 --> 00:31:32,520
Speaker 4: the anti migration policy, but in other fields as well,

526
00:31:33,280 --> 00:31:36,680
Speaker 4: is why you don't have an investment boom outside of AI.

527
00:31:37,200 --> 00:31:40,840
Speaker 4: And it's not because of tight credit, and people should

528
00:31:40,840 --> 00:31:43,600
Speaker 4: be taking that more seriously. Again, that doesn't change what

529
00:31:43,640 --> 00:31:46,280
Speaker 4: you just said, Joe. It's eyewatering what AI does, So

530
00:31:46,320 --> 00:31:49,800
Speaker 4: that doesn't mean the total GDP has to contract, But

531
00:31:49,920 --> 00:31:53,000
Speaker 4: I think people should notice the fact that we haven't

532
00:31:53,040 --> 00:31:56,040
Speaker 4: had an investment boom. My colleague Karen Dinah and Peterson

533
00:31:56,400 --> 00:32:00,000
Speaker 4: presented on some of this in her forecast in October.

534
00:32:00,160 --> 00:32:04,280
Speaker 4: We haven't had the investment boom outside of AI. Then

535
00:32:04,720 --> 00:32:06,360
Speaker 4: the big ticket. There are a number of things we

536
00:32:06,400 --> 00:32:10,560
Speaker 4: can think about, but the big ticket issue, which some

537
00:32:10,640 --> 00:32:13,360
Speaker 4: FED officials and Trump officials have been talking about, is

538
00:32:13,640 --> 00:32:19,120
Speaker 4: productivity growth. How much does this generate productivity growth? How soon?

539
00:32:19,240 --> 00:32:23,160
Speaker 4: How job displacing is it, What's the effect on inflation?

540
00:32:24,120 --> 00:32:27,320
Speaker 4: So let me give you my take. My view is

541
00:32:27,920 --> 00:32:30,800
Speaker 4: we're in the process of the baton sort of being

542
00:32:30,880 --> 00:32:34,920
Speaker 4: handed in the in the imagine a summer Olympics, a

543
00:32:35,160 --> 00:32:37,760
Speaker 4: relay race and the one runner hands the baton. I

544
00:32:37,800 --> 00:32:41,760
Speaker 4: think a lot of the labor market changes that took

545
00:32:41,800 --> 00:32:45,480
Speaker 4: place during and after COVID, nobody knew they would be

546
00:32:45,720 --> 00:32:48,200
Speaker 4: x anti but ex posts they turned out to be

547
00:32:48,560 --> 00:32:51,320
Speaker 4: pro productivity growth. There was a lot of good reallocation

548
00:32:51,440 --> 00:32:54,320
Speaker 4: of workers, and I think that's running out because that

549
00:32:54,400 --> 00:32:56,680
Speaker 4: was a one off thing, and so now the AI

550
00:32:56,880 --> 00:32:59,360
Speaker 4: is the main is increasingly the main source of the

551
00:32:59,360 --> 00:33:03,040
Speaker 4: productivity growth growth. But I also think, going back to

552
00:33:03,040 --> 00:33:06,280
Speaker 4: something you were saying earlier about the tariffs, when you

553
00:33:06,360 --> 00:33:13,120
Speaker 4: have a supply shock, positive or negative, it's indeterminate how

554
00:33:13,200 --> 00:33:16,200
Speaker 4: much of that shows up in prices versus real things.

555
00:33:16,440 --> 00:33:18,720
Speaker 4: So like we've had this discussion of tariffs. Could it

556
00:33:18,760 --> 00:33:21,520
Speaker 4: be a one off? Could it be recessionary from the

557
00:33:21,560 --> 00:33:26,440
Speaker 4: tariffs and therefore not price inflationary. We can go into why.

558
00:33:26,480 --> 00:33:28,480
Speaker 4: I don't think that's right, But you have to do

559
00:33:28,560 --> 00:33:32,280
Speaker 4: the same process thinking about productivity growth. It's a positive

560
00:33:32,280 --> 00:33:34,640
Speaker 4: supply shock, but how much of it shows up as

561
00:33:34,680 --> 00:33:36,880
Speaker 4: real income gains and how much of it shows up

562
00:33:36,880 --> 00:33:41,160
Speaker 4: as disinflation has to be determined. And my reading of

563
00:33:41,200 --> 00:33:46,040
Speaker 4: the history is when you get a leap forward in

564
00:33:46,120 --> 00:33:51,240
Speaker 4: a general purpose technology, you get the real income grains

565
00:33:51,400 --> 00:33:56,160
Speaker 4: up front, and you get the disinflationary part later, because

566
00:33:56,200 --> 00:33:58,040
Speaker 4: I mean not all the real income gains, but it's

567
00:33:58,160 --> 00:34:02,920
Speaker 4: primarily real income gains initially. Because what happens again, going

568
00:34:02,960 --> 00:34:05,920
Speaker 4: back to stuff we were talking about, it takes businesses

569
00:34:05,960 --> 00:34:09,920
Speaker 4: a while to figure out how do I use this technology,

570
00:34:09,960 --> 00:34:12,160
Speaker 4: how do I change my production process, how do I

571
00:34:12,239 --> 00:34:15,120
Speaker 4: change my hiring and training process? What are the new

572
00:34:15,160 --> 00:34:19,800
Speaker 4: products I can offer? But there's cool products that people

573
00:34:19,880 --> 00:34:24,080
Speaker 4: want and use right away. So if you think about

574
00:34:24,080 --> 00:34:27,239
Speaker 4: the Internet in the nineties when Solo famously said the

575
00:34:27,239 --> 00:34:30,000
Speaker 4: computers are everywhere but in the statistics, well, you know,

576
00:34:30,040 --> 00:34:32,720
Speaker 4: a bunch of us were starting to use computers getting

577
00:34:32,760 --> 00:34:36,640
Speaker 4: productivity gains, but it took several years before Walmart and

578
00:34:36,760 --> 00:34:41,440
Speaker 4: ups and science firms figured out how to make use

579
00:34:41,480 --> 00:34:46,080
Speaker 4: of this and to change their processes. So sorry to

580
00:34:46,160 --> 00:34:49,279
Speaker 4: be so long winded, but I think this is overlaps

581
00:34:49,320 --> 00:34:51,040
Speaker 4: with a lot of stuff that you hear a lot

582
00:34:51,080 --> 00:34:53,359
Speaker 4: to talk about with some of you, some of your

583
00:34:53,400 --> 00:34:58,600
Speaker 4: other guests. These are non trivial business decisions, non trivial

584
00:34:58,640 --> 00:35:02,520
Speaker 4: investment decisions. So if I'm sitting at the FED, yes,

585
00:35:02,600 --> 00:35:06,400
Speaker 4: in theory, I don't know whether terriffs are going to

586
00:35:06,440 --> 00:35:12,600
Speaker 4: be mostly recessionary or mostly inflationary. For the reasons we've discussed,

587
00:35:12,640 --> 00:35:15,319
Speaker 4: I think they're going to be mostly inflationary starting now,

588
00:35:15,400 --> 00:35:21,359
Speaker 4: unless recessionary. If you're talking about AI. I think if

589
00:35:21,880 --> 00:35:23,960
Speaker 4: I were a central banker again and I had to

590
00:35:23,960 --> 00:35:26,480
Speaker 4: make a call, or I am making a forecast call now,

591
00:35:27,320 --> 00:35:29,759
Speaker 4: I think you're going to see the real income effects

592
00:35:30,320 --> 00:35:33,239
Speaker 4: in the next couple of years predominantly and not so

593
00:35:33,320 --> 00:35:38,440
Speaker 4: much the disinflationary effects. Then they're coming. They're coming, but

594
00:35:38,480 --> 00:35:39,359
Speaker 4: they're not there yet.

595
00:35:40,520 --> 00:35:43,239
Speaker 3: Can we go back to the transmission mechanism and the

596
00:35:43,280 --> 00:35:44,880
Speaker 3: re old curve for a second, because one of the

597
00:35:44,920 --> 00:35:47,520
Speaker 3: reasons we wanted to talk to you, it's not just

598
00:35:47,560 --> 00:35:51,200
Speaker 3: because of the report, but also because you're a former

599
00:35:51,400 --> 00:35:53,520
Speaker 3: central banker, used to be with the Bank of England.

600
00:35:53,600 --> 00:35:57,279
Speaker 3: The Monetary Policy Committee over there. There is talk at

601
00:35:57,280 --> 00:36:02,160
Speaker 3: the moment of a new Treasury accord and Warsh has

602
00:36:02,239 --> 00:36:05,520
Speaker 3: kind of signaled some interest in this, So that would

603
00:36:05,520 --> 00:36:10,960
Speaker 3: basically be tying the Fed's balance sheet to Treasury finance

604
00:36:11,000 --> 00:36:14,280
Speaker 3: and in some way coordinating presumably to you know, lower

605
00:36:14,320 --> 00:36:16,680
Speaker 3: short term rates and allow the Treasury to issue more

606
00:36:16,719 --> 00:36:18,840
Speaker 3: bills and thereby lower the deficit.

607
00:36:20,000 --> 00:36:20,800
Speaker 2: Is that a good idea?

608
00:36:21,000 --> 00:36:26,879
Speaker 4: No, okay, explain Yeah. So during the euro crisis, when

609
00:36:26,880 --> 00:36:29,160
Speaker 4: I was at Bank of England, I gave a speech

610
00:36:29,360 --> 00:36:33,719
Speaker 4: that central bank independence is about the power to say no.

611
00:36:33,840 --> 00:36:36,719
Speaker 4: But you didn't have to always say no, right, so

612
00:36:36,760 --> 00:36:38,480
Speaker 4: you don't want to be I made the analogy a

613
00:36:38,520 --> 00:36:41,320
Speaker 4: teenager or a toddler, but I think I used teenager.

614
00:36:41,800 --> 00:36:45,200
Speaker 4: You know, you don't assert your independence by no matter

615
00:36:45,280 --> 00:36:49,320
Speaker 4: what your parents says to you disagreeing. So the idea

616
00:36:49,400 --> 00:36:53,640
Speaker 4: that there should be some coordination between Treasury and FED,

617
00:36:53,760 --> 00:36:56,920
Speaker 4: or between the central Bank and the finance ministry is

618
00:36:56,960 --> 00:37:00,440
Speaker 4: not unreasonable. But the idea that there should be an

619
00:37:00,480 --> 00:37:04,759
Speaker 4: ongoing accord, as opposed to say, an emergency response during

620
00:37:04,760 --> 00:37:09,680
Speaker 4: the financial crisis during COVID, is what's scared. And it's

621
00:37:09,680 --> 00:37:12,480
Speaker 4: scary because if you go back to the work on

622
00:37:12,560 --> 00:37:16,000
Speaker 4: central bank independence, there's a huge amount of data analysis

623
00:37:16,040 --> 00:37:18,680
Speaker 4: on this and historical records, and I was one of

624
00:37:18,719 --> 00:37:23,239
Speaker 4: the many contributors to that literature. Turns out there are

625
00:37:23,280 --> 00:37:29,400
Speaker 4: two things that predict whether a central bank is inflationary

626
00:37:29,560 --> 00:37:35,359
Speaker 4: or not, And one is does the governor or the

627
00:37:35,440 --> 00:37:40,520
Speaker 4: chair get fired and replaced a lot out of turn

628
00:37:40,640 --> 00:37:43,959
Speaker 4: out of the normal sequence. And the other is does

629
00:37:44,120 --> 00:37:49,440
Speaker 4: the central bank buy bonds pretty directly from the treasury.

630
00:37:50,160 --> 00:37:52,279
Speaker 4: And there's whole list of all these other aspects of

631
00:37:52,320 --> 00:37:56,719
Speaker 4: central bank independence about voting rules and transparency, and those

632
00:37:56,719 --> 00:38:01,360
Speaker 4: don't have any predictive power. But those two things, do

633
00:38:01,080 --> 00:38:05,040
Speaker 4: you do you directly by government bonds? And do you

634
00:38:05,719 --> 00:38:09,480
Speaker 4: have a lot of turnover at the top leadership? Do

635
00:38:09,640 --> 00:38:13,600
Speaker 4: predict higher inflation? And we saw this on the leadership

636
00:38:13,680 --> 00:38:17,400
Speaker 4: side with air Doowan and Turkey and Mody in India

637
00:38:17,440 --> 00:38:21,120
Speaker 4: in recent years where they forced rapid turnover.

638
00:38:21,840 --> 00:38:24,879
Speaker 3: How many central bank heads did Turkey actually go through?

639
00:38:24,960 --> 00:38:28,080
Speaker 4: Doesign It was four or five? I think in India's

640
00:38:28,080 --> 00:38:31,040
Speaker 4: case it was like three, and again in very short

641
00:38:31,040 --> 00:38:34,120
Speaker 4: spans of time. So you know, the idea that we

642
00:38:34,160 --> 00:38:37,719
Speaker 4: have an orderly transition from Powell to warsh at the

643
00:38:37,800 --> 00:38:39,920
Speaker 4: end of Pal's term is chair. I mean, that's not

644
00:38:40,040 --> 00:38:43,080
Speaker 4: what we're talking about, but I think it is important

645
00:38:43,120 --> 00:38:46,880
Speaker 4: to contextualize the things that Treasury Secretary of Bessent and

646
00:38:46,920 --> 00:38:50,440
Speaker 4: the administration are talking about visa via FED are things

647
00:38:50,440 --> 00:38:54,400
Speaker 4: that historically, over time in other countries have produced high inflation.

648
00:38:55,320 --> 00:38:57,640
Speaker 4: So I mean, I can make it more complicated than that,

649
00:38:57,680 --> 00:39:02,120
Speaker 4: but just full stop. So then there comes the question

650
00:39:02,280 --> 00:39:05,439
Speaker 4: of how much can you fix a fiscal problem through

651
00:39:05,560 --> 00:39:09,279
Speaker 4: short term debt management and financial engineering, and the answer

652
00:39:09,320 --> 00:39:15,720
Speaker 4: as you can so generally. And this goes to stuff

653
00:39:15,760 --> 00:39:20,080
Speaker 4: that both worship be Sent complained about in public going

654
00:39:20,120 --> 00:39:24,120
Speaker 4: into the elections in twenty twenty four, which was they

655
00:39:24,120 --> 00:39:26,400
Speaker 4: complained that the Yellen Treasury.

656
00:39:26,200 --> 00:39:30,279
Speaker 3: Was finance Treasury issuance. Yeah, and then they still kept

657
00:39:30,320 --> 00:39:31,280
Speaker 3: issuing lots of bills.

658
00:39:31,440 --> 00:39:35,479
Speaker 4: You did the same thing, yeah, And I beyond pointing

659
00:39:35,520 --> 00:39:38,040
Speaker 4: out the hypocrisy, which I guess is par for the course,

660
00:39:38,760 --> 00:39:41,399
Speaker 4: I think they had more validity with what they were

661
00:39:41,440 --> 00:39:45,600
Speaker 4: saying before than what they're saying now. And again it's

662
00:39:45,640 --> 00:39:48,720
Speaker 4: not a good sign about the fiscal sustainability of the US.

663
00:39:48,920 --> 00:39:51,000
Speaker 4: If what you're trying to do is, you know, get

664
00:39:51,040 --> 00:39:54,600
Speaker 4: the loan with a free toaster to bridge over your

665
00:39:54,640 --> 00:39:58,680
Speaker 4: monthly credit card bill, there is risk to doing more

666
00:39:58,719 --> 00:40:02,200
Speaker 4: short term issuance. So I mean it's worth thinking back

667
00:40:02,760 --> 00:40:05,560
Speaker 4: a few years ago, right when rates were incredibly low,

668
00:40:06,400 --> 00:40:10,000
Speaker 4: and the Treasury started considering issuing one hundred year bonds

669
00:40:10,080 --> 00:40:12,600
Speaker 4: or very long term bonds, or at least increasing the

670
00:40:12,640 --> 00:40:17,400
Speaker 4: issuance of thirty years versus short bills to fund infrastructure,

671
00:40:17,440 --> 00:40:21,760
Speaker 4: to fund long term investment, and there was pushback from

672
00:40:21,880 --> 00:40:26,920
Speaker 4: something called the Treasury bar Advisory Committee t back exactly

673
00:40:27,400 --> 00:40:30,120
Speaker 4: and the Treasury Secretary at the time, I think was

674
00:40:30,200 --> 00:40:32,360
Speaker 4: Jack Blue said, Okay, we're not going to do it.

675
00:40:32,400 --> 00:40:36,919
Speaker 4: And the pushback was twofold. First, the general principle that

676
00:40:37,239 --> 00:40:43,440
Speaker 4: the US government should be issuing across the range of

677
00:40:43,520 --> 00:40:48,320
Speaker 4: maturities on a very deliberate basis to continue to maintain

678
00:40:49,440 --> 00:40:55,040
Speaker 4: the US Treasury's international and national role as the most liquid,

679
00:40:55,200 --> 00:40:58,480
Speaker 4: most deep, most stable asset in the world, and that

680
00:40:58,600 --> 00:41:03,400
Speaker 4: if you start aiming it for short term advantage, you

681
00:41:03,520 --> 00:41:06,120
Speaker 4: lose that, and that will show up in higher borrowing

682
00:41:06,200 --> 00:41:09,680
Speaker 4: costs because then the number of people park in treasuries

683
00:41:09,719 --> 00:41:14,200
Speaker 4: because it's the domestic inform because it's the safe, stable asset,

684
00:41:14,280 --> 00:41:17,200
Speaker 4: goes down because it's less safe and less stable. But

685
00:41:17,239 --> 00:41:23,719
Speaker 4: then there was also the rationale that you don't know

686
00:41:23,840 --> 00:41:26,359
Speaker 4: what's going to happen. I mean, look at the fluctuations

687
00:41:26,400 --> 00:41:30,200
Speaker 4: we had from surplus at the end of the nineties

688
00:41:30,360 --> 00:41:33,719
Speaker 4: to rising interest rates in the early two thousands, to

689
00:41:34,320 --> 00:41:38,320
Speaker 4: incredibly low interest rates for a decade after the financial crisis,

690
00:41:38,400 --> 00:41:43,680
Speaker 4: to now rising. You know this is not smart if

691
00:41:43,760 --> 00:41:46,120
Speaker 4: you can borrow long to borrow short.

692
00:41:46,920 --> 00:41:48,960
Speaker 3: We are recording this on Jobs Day, of course, the

693
00:41:49,000 --> 00:41:52,440
Speaker 3: New Jobs Day, which is Wednesday, Yeah, February.

694
00:41:53,040 --> 00:41:53,839
Speaker 4: My mind.

695
00:41:54,600 --> 00:41:55,120
Speaker 2: I don't like it.

696
00:41:55,160 --> 00:41:55,920
Speaker 1: I don't like it.

697
00:41:55,920 --> 00:41:59,040
Speaker 3: It feels weird. But we just got some truth social

698
00:41:59,080 --> 00:42:03,560
Speaker 3: posts out of saying these are great job numbers, much

699
00:42:03,600 --> 00:42:07,600
Speaker 3: better than expected. America should therefore be paying the lowest

700
00:42:07,600 --> 00:42:08,000
Speaker 3: interest r.

701
00:42:08,200 --> 00:42:11,719
Speaker 1: Yeah, and I see the views rates is like a reward, Yeah,

702
00:42:12,120 --> 00:42:14,279
Speaker 1: reward for good work. We could go and I have

703
00:42:14,320 --> 00:42:16,840
Speaker 1: so many questions gone long time, but I wanted to

704
00:42:16,840 --> 00:42:20,040
Speaker 1: sort of get your take on, especially like around Davos,

705
00:42:20,080 --> 00:42:22,359
Speaker 1: some of the tensions around Greenland and Europe and all that.

706
00:42:22,440 --> 00:42:24,720
Speaker 1: And it occurs to me like one of the themes

707
00:42:24,760 --> 00:42:28,040
Speaker 1: of this conversation, particularly as it relates to tariffs and

708
00:42:28,080 --> 00:42:30,800
Speaker 1: also immigration, is that people don't make up their minds

709
00:42:30,800 --> 00:42:33,440
Speaker 1: at once, right. Corporate leaders don't just say okay, tariff's

710
00:42:33,440 --> 00:42:33,799
Speaker 1: are up.

711
00:42:33,800 --> 00:42:36,359
Speaker 4: Because these are big decisions and they're uncertain. You don't

712
00:42:36,360 --> 00:42:37,960
Speaker 4: know if Trump's going to give it away or yeah,

713
00:42:38,000 --> 00:42:38,319
Speaker 4: that's right.

714
00:42:38,320 --> 00:42:40,680
Speaker 1: There's a huge lag and then once you make the decision,

715
00:42:40,880 --> 00:42:44,000
Speaker 1: that's like your big mistakes. And I've been thinking about this,

716
00:42:44,160 --> 00:42:47,399
Speaker 1: like in the context of Europe, because obviously Europe still

717
00:42:47,400 --> 00:42:51,000
Speaker 1: has this very tight economic and security relationship with the

718
00:42:51,120 --> 00:42:53,640
Speaker 1: United States, and the European leaders kind of have to

719
00:42:53,640 --> 00:42:56,280
Speaker 1: make a bet, which is is Trump the new normal

720
00:42:56,400 --> 00:42:59,040
Speaker 1: here in the United States or will the next president

721
00:43:00,040 --> 00:43:03,480
Speaker 1: I have adopt a posture, an economic and security posture

722
00:43:03,480 --> 00:43:05,400
Speaker 1: that's sort of like the old president. So no one

723
00:43:05,840 --> 00:43:08,040
Speaker 1: really knows for sure, but this is like a high

724
00:43:08,080 --> 00:43:11,600
Speaker 1: consequence choice to make, because if the next president is

725
00:43:11,640 --> 00:43:13,640
Speaker 1: going to be sort of a you know, more normy

726
00:43:13,680 --> 00:43:15,520
Speaker 1: on this stuff, then maybe you know it. You just

727
00:43:15,600 --> 00:43:17,680
Speaker 1: sort of grinn and Barrett for the next few years

728
00:43:17,680 --> 00:43:20,840
Speaker 1: and then or at some point, if the relationship is

729
00:43:20,840 --> 00:43:24,240
Speaker 1: going to be dramatically changed, Europe really needs to rethink

730
00:43:24,320 --> 00:43:27,120
Speaker 1: like how much it spends on military and maybe rethink

731
00:43:27,120 --> 00:43:29,800
Speaker 1: about do we want a closer orientation with China whatever

732
00:43:29,840 --> 00:43:33,280
Speaker 1: it is. And this big decision to make, So I'm curious,

733
00:43:33,280 --> 00:43:37,360
Speaker 1: like your take. Like European leaders right now, they haven't

734
00:43:37,360 --> 00:43:39,400
Speaker 1: pulled the ripcord yet on the United States. There's a

735
00:43:39,400 --> 00:43:41,920
Speaker 1: lot of frustration, but they haven't. We still have this

736
00:43:42,000 --> 00:43:43,480
Speaker 1: type relationship.

737
00:43:43,120 --> 00:43:43,279
Speaker 2: Is it.

738
00:43:43,480 --> 00:43:46,720
Speaker 1: Are we getting closer to where European leaders might think, Look,

739
00:43:47,160 --> 00:43:49,160
Speaker 1: this is never going to go back maybe sort of

740
00:43:49,200 --> 00:43:51,239
Speaker 1: the Carness pachures like, we're never going to go back

741
00:43:51,280 --> 00:43:53,200
Speaker 1: to the old relationship with the United States. We're in

742
00:43:53,239 --> 00:43:53,720
Speaker 1: a new world.

743
00:43:54,719 --> 00:43:58,080
Speaker 4: It is the great big picture question. Joe and I

744
00:43:58,160 --> 00:44:01,080
Speaker 4: have been writing on this and talking with European leaders

745
00:44:01,120 --> 00:44:05,680
Speaker 4: on this. I published a piece in Foreign Affairs in

746
00:44:05,680 --> 00:44:09,120
Speaker 4: September called the New Economic Geography, in which I talked

747
00:44:09,120 --> 00:44:14,200
Speaker 4: about if I argued that this is a fundamental, lasting

748
00:44:14,320 --> 00:44:18,200
Speaker 4: change because the US is ceasing to be the insurance

749
00:44:18,239 --> 00:44:22,319
Speaker 4: provider in both security and economic terms that it was,

750
00:44:23,160 --> 00:44:28,080
Speaker 4: and that I think it's very fair to say unrealistic

751
00:44:28,560 --> 00:44:32,360
Speaker 4: whatever happens in terms of successor to the current administration.

752
00:44:32,719 --> 00:44:39,960
Speaker 4: Even if the success administration, whether it's another Republican, a Democrat,

753
00:44:40,200 --> 00:44:43,680
Speaker 4: some kind of new party centrist, whatever it is, is

754
00:44:43,719 --> 00:44:47,959
Speaker 4: not going to immediately credibly reverse everything that's been said.

755
00:44:48,000 --> 00:44:53,600
Speaker 4: And so it's analogous the parallel you were giving. I

756
00:44:53,640 --> 00:44:56,759
Speaker 4: think is right, and there's a fundamental economic theory by

757
00:44:56,760 --> 00:45:02,360
Speaker 4: Dixon and Pindick called about investment that investment under uncertainty

758
00:45:02,400 --> 00:45:06,800
Speaker 4: you delay because in a sense it's irreversible once once,

759
00:45:06,920 --> 00:45:09,520
Speaker 4: once something happens and you commit down a certain path.

760
00:45:10,080 --> 00:45:14,759
Speaker 4: It's not literally irreversible, but it locks you in. It's

761
00:45:14,760 --> 00:45:19,120
Speaker 4: not just sunk cost fallacy. It's rational. So going from

762
00:45:19,160 --> 00:45:22,000
Speaker 4: the abstract to the real. We're coming up on the

763
00:45:22,080 --> 00:45:26,040
Speaker 4: new Munich Security Conference, annual Munich Security Conference, and in

764
00:45:26,080 --> 00:45:29,880
Speaker 4: March twenty twenty four, Vice president of j d Vance

765
00:45:30,000 --> 00:45:33,040
Speaker 4: gave a speech there in the preceding week in Paris

766
00:45:33,400 --> 00:45:37,040
Speaker 4: in which he basically twenty fty five. Sorry, right, we're

767
00:45:37,040 --> 00:45:39,879
Speaker 4: in twenty twenty six. You're absolutely right March twenty twenty five,

768
00:45:40,600 --> 00:45:44,880
Speaker 4: in which he basically said, you know, NATO Ukraine, but

769
00:45:45,000 --> 00:45:47,560
Speaker 4: NATO cannot count on us the way they used to.

770
00:45:47,760 --> 00:45:50,279
Speaker 4: And he gave arguments for why that was good for

771
00:45:50,400 --> 00:45:52,160
Speaker 4: NATO and good for the US and all that, and

772
00:45:52,160 --> 00:45:55,200
Speaker 4: we can debate that, but it was a very shocking,

773
00:45:55,239 --> 00:45:59,000
Speaker 4: big shift. And then, as you mentioned, Prime Minister Carney,

774
00:45:59,400 --> 00:46:01,960
Speaker 4: now the most famous ex central banker in the world,

775
00:46:04,440 --> 00:46:08,120
Speaker 4: gave a speech in Davos a few weeks ago which

776
00:46:08,280 --> 00:46:11,480
Speaker 4: was very much about the trying to say for Canada,

777
00:46:11,560 --> 00:46:15,520
Speaker 4: it was a general loss of this framework that we've

778
00:46:15,520 --> 00:46:19,880
Speaker 4: all functioned in. And interestingly, almost exactly a year ago,

779
00:46:20,000 --> 00:46:22,720
Speaker 4: I was in Ottawa, brought in by the Canadian government

780
00:46:22,800 --> 00:46:26,080
Speaker 4: to brief them on the likely implications of the Trump

781
00:46:26,560 --> 00:46:29,279
Speaker 4: It was right before the election where Carney moved from

782
00:46:29,400 --> 00:46:33,480
Speaker 4: appointed to ongoing Prime Minister. But anyway, at that time,

783
00:46:33,600 --> 00:46:37,640
Speaker 4: I you know, I was dealing with absolutely shocked Canadians

784
00:46:38,280 --> 00:46:41,080
Speaker 4: and like you said, right, so the first time during

785
00:46:41,120 --> 00:46:44,879
Speaker 4: Trump's one, people said, discounting the adults are in the room,

786
00:46:45,080 --> 00:46:49,640
Speaker 4: maybe it'll change. Under Biden, things did change, but on

787
00:46:49,760 --> 00:46:51,759
Speaker 4: tariffs and a lot of things that had been a

788
00:46:51,800 --> 00:46:56,200
Speaker 4: one way ratchet, they didn't go back. I stuff absolutely

789
00:46:56,520 --> 00:47:01,040
Speaker 4: and it was unilateral and I think excited. But anyway,

790
00:47:01,080 --> 00:47:04,279
Speaker 4: and the Biden team did a lot of bad things,

791
00:47:04,320 --> 00:47:06,040
Speaker 4: continued a lot of bad things, and did a lot

792
00:47:06,080 --> 00:47:09,319
Speaker 4: of bad things. They weren't as hostile on the security front,

793
00:47:09,320 --> 00:47:12,560
Speaker 4: they were Transatlantis is there, but on the economic front

794
00:47:12,560 --> 00:47:14,560
Speaker 4: they didn't really roll back, and in some ways they

795
00:47:14,600 --> 00:47:16,960
Speaker 4: made worse some of what Trump won did, and so

796
00:47:17,040 --> 00:47:20,280
Speaker 4: by the time you get to a year ago, which

797
00:47:20,320 --> 00:47:24,880
Speaker 4: is even before Advance's Munich speech, the Canadians are saying themselves,

798
00:47:24,920 --> 00:47:28,840
Speaker 4: oh my god, we did a perfect example. We just

799
00:47:28,920 --> 00:47:32,759
Speaker 4: realized we have no Internet pipes that don't run through

800
00:47:32,760 --> 00:47:35,000
Speaker 4: the US. We either have US satellites or we have

801
00:47:35,120 --> 00:47:38,000
Speaker 4: US cables. We literally have no access to the Internet

802
00:47:38,040 --> 00:47:42,880
Speaker 4: without the US permission. And that encapsulates what's going on

803
00:47:43,000 --> 00:47:45,839
Speaker 4: right that you took for granted that if you were

804
00:47:45,880 --> 00:47:49,600
Speaker 4: not Russia or Iran, the US would not weaponize things

805
00:47:49,600 --> 00:47:53,239
Speaker 4: against you, and that's no longer a feasible thing. So,

806
00:47:53,280 --> 00:47:59,000
Speaker 4: going specifically to Europe, this is the biggest challenge to

807
00:47:59,160 --> 00:48:04,920
Speaker 4: Europe since the war. This is a situation where a

808
00:48:04,960 --> 00:48:10,200
Speaker 4: lot of European officials, very much in line with your characterization, Joe,

809
00:48:10,400 --> 00:48:13,120
Speaker 4: a year ago, we're still in denial, or we're still

810
00:48:13,160 --> 00:48:15,920
Speaker 4: having a lot of conversations with people like me about

811
00:48:16,360 --> 00:48:18,439
Speaker 4: is this going to last? Can we wait it out?

812
00:48:18,480 --> 00:48:21,280
Speaker 4: Is this going to turn around? At this point, nobody

813
00:48:21,320 --> 00:48:24,240
Speaker 4: believes it's going to turn around, or at least nobody

814
00:48:24,239 --> 00:48:27,000
Speaker 4: believes it is going to turn around sufficiently and last

815
00:48:28,200 --> 00:48:31,800
Speaker 4: in a way that the Europeans can count on whoever's next,

816
00:48:32,320 --> 00:48:35,359
Speaker 4: the same way they took for granted. Now the Trump

817
00:48:35,440 --> 00:48:38,120
Speaker 4: people would say that's good, they're not taking us for granted,

818
00:48:38,680 --> 00:48:41,799
Speaker 4: but from an economic point of view that it was

819
00:48:41,840 --> 00:48:45,320
Speaker 4: a good thing. The large parts of the world could

820
00:48:45,360 --> 00:48:48,360
Speaker 4: take the US enforcing the rules of the game, providing

821
00:48:48,400 --> 00:48:52,960
Speaker 4: some basic security of navigating the seas, and property rights

822
00:48:53,400 --> 00:48:57,680
Speaker 4: and trade relations and access in and out of treasuries,

823
00:48:57,719 --> 00:49:00,640
Speaker 4: access in and out of US markets. We took all

824
00:49:00,680 --> 00:49:03,160
Speaker 4: that for granted. Was a huge boon to business. It

825
00:49:03,280 --> 00:49:05,680
Speaker 4: was a huge boon to investment. It was a huge

826
00:49:05,680 --> 00:49:09,239
Speaker 4: boon to two way train. So it is a very

827
00:49:09,280 --> 00:49:11,600
Speaker 4: big deal. And so a number of people in Europe

828
00:49:11,640 --> 00:49:14,319
Speaker 4: are involved in various projects trying to come up with

829
00:49:14,400 --> 00:49:18,040
Speaker 4: what's next. And two colleagues of mine at Peterson are

830
00:49:18,160 --> 00:49:22,480
Speaker 4: very active. Olivier Blanchard, the famous French economist who's now

831
00:49:22,520 --> 00:49:26,240
Speaker 4: back in France, is leading an effort on what future

832
00:49:26,320 --> 00:49:30,520
Speaker 4: for Europe. My colleague Jacob kirka Gard, who's based in Brussels,

833
00:49:30,719 --> 00:49:33,640
Speaker 4: does a lot of work on how much common European

834
00:49:33,719 --> 00:49:37,000
Speaker 4: funding is going into the military and how sustainable is

835
00:49:37,080 --> 00:49:41,400
Speaker 4: that the big thing. One of the things Jacob points

836
00:49:41,440 --> 00:49:44,319
Speaker 4: out is you do have a split in Europe, not

837
00:49:44,400 --> 00:49:48,719
Speaker 4: so much about how much they distrust Trump or distrust

838
00:49:48,719 --> 00:49:51,640
Speaker 4: the US, lost faith in the US, but over how

839
00:49:51,719 --> 00:49:55,719
Speaker 4: imminent they see the military threat from Saint Putin. So

840
00:49:55,800 --> 00:50:00,160
Speaker 4: the amount of spending that these countries are doing on

841
00:50:00,280 --> 00:50:03,399
Speaker 4: military is a declining function of how close they are

842
00:50:03,440 --> 00:50:07,000
Speaker 4: to Russian I mean, you can literally do the scatterplot.

843
00:50:07,080 --> 00:50:11,160
Speaker 4: Poland and the Baltics, and Swedes and the Norwegians, Norways

844
00:50:11,280 --> 00:50:14,240
Speaker 4: not part of Europe, it's part of anyway are spending

845
00:50:14,239 --> 00:50:16,760
Speaker 4: a lot more. Germany's in the middle, Spain and Portugal

846
00:50:16,760 --> 00:50:19,560
Speaker 4: are not spending. But you're back in a world of

847
00:50:19,560 --> 00:50:24,520
Speaker 4: that kind of geo in geopolitics really mattering. The final

848
00:50:24,560 --> 00:50:26,400
Speaker 4: thing I would say in this, because we're coming up

849
00:50:26,400 --> 00:50:30,839
Speaker 4: in the Munich Security Conference, is ahead of this. There

850
00:50:30,960 --> 00:50:35,360
Speaker 4: was an announcement of a new idea backed by Meritz

851
00:50:35,400 --> 00:50:38,719
Speaker 4: in Germany and Macron and France of sort of a

852
00:50:38,880 --> 00:50:45,800
Speaker 4: leadership committee in Europe moving ahead. So it would be Germany, France, Poland, Spain,

853
00:50:46,000 --> 00:50:51,440
Speaker 4: Italy basically the big countries plus Netherlands, and that was

854
00:50:51,480 --> 00:50:57,480
Speaker 4: a no go for decades in Europe that things had

855
00:50:57,520 --> 00:51:00,360
Speaker 4: to be done by involving everybody. Things had to be

856
00:51:00,360 --> 00:51:05,120
Speaker 4: done by qualified majority or unanimity. And this is a statement.

857
00:51:05,760 --> 00:51:09,040
Speaker 4: Problems are moving too fast. We have to stand up.

858
00:51:09,400 --> 00:51:13,719
Speaker 4: And so my view, which is ultimately more optimistic than

859
00:51:13,719 --> 00:51:17,600
Speaker 4: a lot of Europeans, is that what Europe chooses to do,

860
00:51:18,600 --> 00:51:21,360
Speaker 4: they have a lot of agency. They will have a

861
00:51:21,360 --> 00:51:24,080
Speaker 4: lot to determine the outcome of how bad things go

862
00:51:24,200 --> 00:51:27,000
Speaker 4: for them and for the rest of the world, as

863
00:51:27,280 --> 00:51:31,960
Speaker 4: Trump and She end up pursuing similar bad economic policies.

864
00:51:33,320 --> 00:51:36,840
Speaker 3: I mean, it is very telling about our current moment

865
00:51:37,000 --> 00:51:39,600
Speaker 3: in time that we're talking about the Munich Security Conference

866
00:51:39,640 --> 00:51:42,319
Speaker 3: as like a macroecademic at all.

867
00:51:42,480 --> 00:51:43,640
Speaker 4: Right, right, absolutely right.

868
00:51:43,640 --> 00:51:46,360
Speaker 3: It used to be just for foreign policy monks exactly.

869
00:51:46,520 --> 00:51:48,919
Speaker 4: Now it's for econ wnks yah.

870
00:51:49,200 --> 00:51:51,480
Speaker 3: That's right. Also, why are they holding it on Valentine's

871
00:51:51,560 --> 00:51:52,040
Speaker 3: Day weekend?

872
00:51:52,360 --> 00:51:54,960
Speaker 4: No, they do all these things. It's like the ECV

873
00:51:55,160 --> 00:51:58,600
Speaker 4: CenTra conference is always on July fourth weekend. It's just

874
00:51:58,760 --> 00:52:02,640
Speaker 4: they ostentatiously don't watch the Hallmark channel. It's just no good.

875
00:52:03,640 --> 00:52:06,360
Speaker 1: Adam Posen, thank you, that was fantastic. That was a

876
00:52:06,360 --> 00:52:08,520
Speaker 1: great conversation. We could ask you so much more, but

877
00:52:08,640 --> 00:52:10,640
Speaker 1: really appreciate you coming on odd Lots again.

878
00:52:10,960 --> 00:52:12,960
Speaker 4: Really glad to be with you both in odd lots.

879
00:52:13,080 --> 00:52:14,960
Speaker 4: Keep up the good work and thank you for having

880
00:52:14,960 --> 00:52:16,240
Speaker 4: me all right, take care.

881
00:52:16,200 --> 00:52:30,000
Speaker 2: Thanks so much, Adam Tracy.

882
00:52:30,040 --> 00:52:33,279
Speaker 1: I thought that was a great conversation. Your point there

883
00:52:33,320 --> 00:52:35,880
Speaker 1: at the end of tailed with something else he said

884
00:52:36,080 --> 00:52:39,560
Speaker 1: about the sort of the link now between security and macro.

885
00:52:40,000 --> 00:52:42,640
Speaker 1: I was thinking about that observation. We should definitely do

886
00:52:42,719 --> 00:52:45,759
Speaker 1: more on this. You know, Canada not having access to

887
00:52:45,800 --> 00:52:48,239
Speaker 1: the Internet unless it's through the US. So how do

888
00:52:48,280 --> 00:52:51,160
Speaker 1: you solve it? Well, like you spend, you build new pipes,

889
00:52:51,200 --> 00:52:53,600
Speaker 1: you build new under C cables, you build more satellites.

890
00:52:53,760 --> 00:52:57,000
Speaker 1: But that's spending, right, that's inflation. Yeah, and so you

891
00:52:57,040 --> 00:52:59,359
Speaker 1: know again it's the same thing with we talked about

892
00:52:59,360 --> 00:53:03,200
Speaker 1: it with Jeff Curry. E're spending trillions on defense. These

893
00:53:03,280 --> 00:53:06,960
Speaker 1: concerns about whether the degree to which countries can rely

894
00:53:07,120 --> 00:53:09,440
Speaker 1: on the US anymore. The way you address to these

895
00:53:09,480 --> 00:53:10,640
Speaker 1: concern there's a lot more spending.

896
00:53:10,760 --> 00:53:14,920
Speaker 3: Absolutely, to me, we are saying some inflationary science, right,

897
00:53:15,000 --> 00:53:17,239
Speaker 3: like we talked about them at the beginning, and you

898
00:53:17,280 --> 00:53:19,839
Speaker 3: can't really ignore them. I guess the big question is

899
00:53:19,920 --> 00:53:22,760
Speaker 3: how much of this is like a temporary like blit

900
00:53:23,040 --> 00:53:26,160
Speaker 3: in terms of building back inventories. Yeah, you know, maybe

901
00:53:26,200 --> 00:53:29,160
Speaker 3: people ran them down all last year because they didn't

902
00:53:29,200 --> 00:53:31,239
Speaker 3: know exactly what was going to happen with tariffs. But

903
00:53:31,320 --> 00:53:34,440
Speaker 3: now now they really have to stalk back up. And

904
00:53:34,480 --> 00:53:40,080
Speaker 3: so you're getting this like one time inflationary hike or

905
00:53:40,440 --> 00:53:43,200
Speaker 3: is this the start of something that's kind of I

906
00:53:43,239 --> 00:53:44,800
Speaker 3: know we keep using the word durable.

907
00:53:45,600 --> 00:53:47,480
Speaker 1: Oh, but it is the right question, is the right Yeah?

908
00:53:47,520 --> 00:53:47,920
Speaker 4: Totally.

909
00:53:48,160 --> 00:53:50,960
Speaker 3: And like if you look at something like trucking rates,

910
00:53:51,400 --> 00:53:53,680
Speaker 3: and again, like we're interested in trucking rates, we did

911
00:53:53,680 --> 00:53:55,560
Speaker 3: a lot of episodes on it, but also they're just

912
00:53:55,560 --> 00:53:59,680
Speaker 3: a good macroeconomic indicator. We've seen some glimmers of a

913
00:53:59,719 --> 00:54:02,560
Speaker 3: record there, so freight rates are starting to go up,

914
00:54:02,640 --> 00:54:05,080
Speaker 3: but everyone's kind of saying, well, we need to see

915
00:54:05,120 --> 00:54:09,120
Speaker 3: like six weeks of sustained improvement. So I think that's

916
00:54:09,239 --> 00:54:14,040
Speaker 3: kind of like the question right now, February eleventh, do

917
00:54:14,080 --> 00:54:18,439
Speaker 3: we get more sustained inflationary indicators over the next month

918
00:54:18,520 --> 00:54:18,879
Speaker 3: or two?

919
00:54:20,560 --> 00:54:24,279
Speaker 1: Absolutely? And you know, again, you know it's interesting even

920
00:54:24,280 --> 00:54:27,040
Speaker 1: if we had had this conversation, say a month ago

921
00:54:27,320 --> 00:54:29,880
Speaker 1: something like that, when you know, it looked like maybe

922
00:54:29,920 --> 00:54:32,560
Speaker 1: there was more, you know, the story of job market

923
00:54:32,640 --> 00:54:36,319
Speaker 1: softening was less unambiguous or something like that. When you

924
00:54:36,320 --> 00:54:38,160
Speaker 1: think about the new fed shair, it's like, okay, do

925
00:54:38,200 --> 00:54:40,959
Speaker 1: we need rate cuts right away? It's like twenty five

926
00:54:41,080 --> 00:54:43,719
Speaker 1: basis points fifty baits a point. Maybe they could be

927
00:54:43,719 --> 00:54:45,360
Speaker 1: a little lower. It's not the end of the world

928
00:54:45,560 --> 00:54:48,840
Speaker 1: if there is a reacceleration, if we actually are seeing

929
00:54:49,320 --> 00:54:53,160
Speaker 1: gathering steam again, and the incoming fedshair still has this

930
00:54:53,320 --> 00:54:56,120
Speaker 1: impulse that like you have to like cut rates, you

931
00:54:56,120 --> 00:54:58,279
Speaker 1: have to establish I mean Trump joked, but not really

932
00:54:58,320 --> 00:55:00,800
Speaker 1: a joke. He's like, oh, i'd sue if Kevin worsh

933
00:55:00,840 --> 00:55:03,359
Speaker 1: doesn't cut raids. If you have the sort of rate

934
00:55:03,400 --> 00:55:06,640
Speaker 1: cut into a period of we're actually sitting re acceleration,

935
00:55:06,760 --> 00:55:10,960
Speaker 1: that's like a very different story and put more fuel

936
00:55:11,000 --> 00:55:13,080
Speaker 1: on the fire. So a lot of sort of interesting

937
00:55:13,160 --> 00:55:13,799
Speaker 1: risks out there.

938
00:55:13,920 --> 00:55:16,720
Speaker 3: Yeah, people were kind of ambivalent about a rate cut

939
00:55:16,880 --> 00:55:19,960
Speaker 3: even when the labor market was softening. Yeah, and then

940
00:55:19,960 --> 00:55:22,120
Speaker 3: if you say you're going to cut rates when it's reaccelerating,

941
00:55:22,160 --> 00:55:23,680
Speaker 3: well we could go on.

942
00:55:23,920 --> 00:55:25,879
Speaker 2: Go on. Shall we leave it there, Let's leave it there.

943
00:55:26,080 --> 00:55:28,440
Speaker 3: This has been another episode of the odd Lots podcast.

944
00:55:28,560 --> 00:55:31,280
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.

945
00:55:31,440 --> 00:55:34,480
Speaker 1: And I'm Joe Wisenthal. You can follow me at the Stalwart.

946
00:55:34,760 --> 00:55:37,680
Speaker 1: Follow our guest Adam Posen. He's at Adam Posen. Follow

947
00:55:37,760 --> 00:55:41,239
Speaker 1: our producers Carmen Rodriguez at Carmen armand Dash'll Bennett at

948
00:55:41,320 --> 00:55:44,920
Speaker 1: Dashbod and kel Brooks at Kelbrooks. For more Odd Lots content,

949
00:55:44,960 --> 00:55:47,160
Speaker 1: go to Bloomberg dot com slash odd Lots or have

950
00:55:47,160 --> 00:55:50,000
Speaker 1: a daily newsletter and all of our episodes, and you

951
00:55:50,040 --> 00:55:52,000
Speaker 1: can chat about all of these topics twenty four to

952
00:55:52,000 --> 00:55:55,560
Speaker 1: seven in our discord discord gg slash out Lots.

953
00:55:55,600 --> 00:55:57,640
Speaker 3: And if you enjoy Odd Lots, if you like it

954
00:55:57,680 --> 00:56:00,360
Speaker 3: when we talk about the Munich Security Conference as a

955
00:56:00,400 --> 00:56:03,759
Speaker 3: macroeconomic indicator, then please leave us a positive review on

956
00:56:03,800 --> 00:56:06,759
Speaker 3: your favorite podcast platform. And remember, if you are a

957
00:56:06,800 --> 00:56:09,960
Speaker 3: Bloomberg subscriber, you can listen to all of our episodes

958
00:56:10,080 --> 00:56:12,440
Speaker 3: absolutely add free. All you need to do is find

959
00:56:12,480 --> 00:56:15,879
Speaker 3: the Bloomberg channel on Apple Podcasts and follow the instructions there.

960
00:56:16,360 --> 00:56:32,840
Speaker 2: Thanks for listening