Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with
Speaker 1: David Gura. Daily we bring you insight from the best
Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance
Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,
Speaker 1: on the Bloomberg Five Things That Need to Know. We're
Speaker 1: gonna a guest fight things and talk about just two
Speaker 1: things here with Alan Krueger. It's Professor Krueger Princeton. Let's
Speaker 1: just do two things here within the time we've got
Speaker 1: how's the minimum wage experiment going in Seattle? I think
Speaker 1: the evidence is quite mixed for Seattle. The way I
Speaker 1: read it, it looks like experience with the minimum wage
Speaker 1: elsewhere has not had an adverse effect on um minimum
Speaker 1: wage employers. You know, if you look at the Seattle
Speaker 1: labor market, it's booming, and I think that makes it
Speaker 1: a little bit harder to tease out effects of the
Speaker 1: minimum wage. But uh, certainly in the aggregate, there's no
Speaker 1: sign that Seattle's high minimum wage has had a negative effect.
Speaker 1: Within this is the crushing reality that wait, if you
Speaker 1: raise the minimum wage, the wages go up above it,
Speaker 1: not way above it. But there's a sequential, almost bucket
Speaker 1: brigade effect. Is that still true? There's a spillover effect
Speaker 1: of the minimum wage there, there's no question about that.
Speaker 1: And that's one of the challenges for one of the studies,
Speaker 1: which cuts off. You know, if people got a raised
Speaker 1: and got promoted and that was a result of the
Speaker 1: minimum wage, it makes it look like it was job loss.
Speaker 1: So I think that's a problem with one of the
Speaker 1: studies that's gotten a lot of attention. The other two
Speaker 1: things we need to know Freenzy and I'm gonna bring
Speaker 1: this in, but jump into your fancy please. I love it.
Speaker 1: Seventy thousand dollars a year, going up to eighty thousand
Speaker 1: next year. Prinston, Hi, dad, what are you doing? Oh?
Speaker 1: I'm taking the economics of rock music? Are you kid me?
Speaker 1: Have you got any hate notes from parents about the
Speaker 1: economics rock music? This is uh the UH. I have
Speaker 1: to say, the best class I've ever taught. The students
Speaker 1: are learning so much, they're so engaged. What better way
Speaker 1: of teaching supply and demand uh than talking about iPods
Speaker 1: and streaming and um, it's a great way of teaching economics.
Speaker 1: I have to say, Yeah, And actually This is a
Speaker 1: serious point. It wasn't Jay Z the first one to
Speaker 1: kind of cut the middleman and going straight to Apple music, right?
Speaker 1: I think it was on surveillance it's Z. Does this
Speaker 1: help explain inflation dynamics? That's actually question? You know what
Speaker 1: are the questions I got from the students is what's
Speaker 1: going on with inflation? Um? And Uh. It's it's a
Speaker 1: freshman course, Tom and um. It a mussel lot of writing,
Speaker 1: which was the goal of the course. And I have
Speaker 1: been talking about disruption and technological change of productivity growth,
Speaker 1: and I think you know, what's going on with being
Speaker 1: able to buy products on the internet had put some
Speaker 1: doward pressure on inflation. I was in a meeting yesterday
Speaker 1: with General worst Span and she turned to me and said, well,
Speaker 1: so what do you think Krueger and Davos? And I said,
Speaker 1: you have to go to Davos precisely because of this.
Speaker 1: The answer is technology is an overlay is evident large
Speaker 1: and it's a mystery, isn't it? It is? And there's
Speaker 1: really no better place to study it than the music industry.
Speaker 1: Think of all the technology that was, including the medium
Speaker 1: what we're using right now, radio and the role radio
Speaker 1: played in music. But go back to uh the gramophone
Speaker 1: and um, Francy can't do that. You and I can
Speaker 1: do that. I only listen well the students. The students
Speaker 1: didn't know what I meant when I said eight track.
Speaker 1: So in the economics world, in Francine's world across the Atlantic,
Speaker 1: their short term, medium term, long term. In American economics,
Speaker 1: with maybe a historic simplicity, there's cheke out, medium term,
Speaker 1: there's a short term, and long term. In Chicago is
Speaker 1: just do more microeconomics, and in Princeton it's like do
Speaker 1: more history. Okay, I get all that. What does transitory mean?
Speaker 1: Transitory isn't in any of the textbooks I would suggest
Speaker 1: Transitory is in Chicago, transitory is in uh Princeton. When
Speaker 1: Cherry Yellen says transitory inflation, what does that mean? Well,
Speaker 1: the way I interpret it is that we're not on
Speaker 1: the path that we think we're on, that the transitory detour,
Speaker 1: but we're gonna get back to the path that we
Speaker 1: think we're on. Is the X axis normal? Is it?
Speaker 1: Is it? Is she thinking short term? Is she's thinking
Speaker 1: long term? Or is it a new invention on the
Speaker 1: X axis. I think it's a short term you know, Uh,
Speaker 1: my interpretation to transitory, which uh the term I probably
Speaker 1: used in some of my papers, is that we have
Speaker 1: shocks which we think are going to fade, and because
Speaker 1: we think the short term shocks, we can consider it
Speaker 1: as transitory. In Francy, that would be the two back
Speaker 1: to back press conferences mentioning wireless cell phone right, and
Speaker 1: I understand that it's transitory unless it isn't anymore, professor.
Speaker 1: In the UK, we had a shock, and of course
Speaker 1: it's pound so you can argue that we have transitory
Speaker 1: inflation here. But in the US, how do we know
Speaker 1: that these phone bills will actually won't stay at the
Speaker 1: same level. I mean, it's it's kind of it could
Speaker 1: be more structural. Well, it could stay at the same level,
Speaker 1: but what's important is the rate of change. So we
Speaker 1: kind of absorbed the transitory shock from from prices dropping
Speaker 1: that that that's I think the argument that one could
Speaker 1: quite plausibly make. Also, you know, the U S economy
Speaker 1: is pretty diverse, and as much as the Phillips curve
Speaker 1: gets criticized, it is the cases the economy gets tighter.
Speaker 1: Traditionally we see wage growth and we see inflation that's
Speaker 1: been more sluggish in this recovery, but I think the
Speaker 1: underlying dynamics are probably there. I think they've probably been
Speaker 1: blunted by changes in the labor market, by weakness of
Speaker 1: labor unions in the US, for example. UM But to
Speaker 1: my mind, that looks like we're seeing some signs of
Speaker 1: that dynamics still still operating. If we see the tax
Speaker 1: overhaul that's been promised to come into something concrete. So
Speaker 1: I don't know whether we see the details, But what
Speaker 1: would that actually change. Does it change dynamics and GDP
Speaker 1: significantly or would that also be transitory. It's a good question. Um.
Speaker 1: I think it could have lasting impacts. Um. Of course,
Speaker 1: it depends upon the shape of the tax changes what's
Speaker 1: been proposed. You know, if the state local tax deduction
Speaker 1: is eliminated, that's going to dramatically affects state local investment
Speaker 1: in infrastructure, hiring of of UM first responders, things like that.
Speaker 1: Other sectors which we'll get tax cut could potentially expand.
Speaker 1: Uh So I think the tax proposal and the broad
Speaker 1: outlines could have substantial effects on the US economy. Also,
Speaker 1: I think we need to take into account in the
Speaker 1: long run, the impact than the deficit. If The proposal
Speaker 1: from the Trump administration adds two and a half trillion
Speaker 1: dollars to US debt over over the next decade. I
Speaker 1: think that's going to affect our borrowing costs. I think
Speaker 1: it's going to crowd out private sector investment. When we
Speaker 1: get to Jobs Day today, obviously it's hurricane adjusted, hurricane
Speaker 1: aberration and the answers smooth out the moving averages? Do
Speaker 1: you do that? Do you take three months and divided
Speaker 1: by three? I believe it's a little too much math
Speaker 1: for me this morning. How do you adjust to a
Speaker 1: one off of hurricane data change? How do you How
Speaker 1: does it pro do that? Well, first of all, I
Speaker 1: think the first thing to look for is going to
Speaker 1: be signs of the hurricane. Um Hurricane Katrina had a
Speaker 1: major impact on employment. Uh, the tropical storm Sandy did
Speaker 1: not have much of an impact unemployment. Surprisingly, So I
Speaker 1: think you look at certain industries that are more weather affected,
Speaker 1: and you look at regions in the country. But on
Speaker 1: a Matthew basis, Professor Krueger that I think the trip
Speaker 1: of the media is to take three months at averaging together.
Speaker 1: And I'm going to suggest a pro like uses no
Speaker 1: wait and get more data and then regress it out
Speaker 1: to see where we are. So a guy like you
Speaker 1: can't go out one or two months, you gotta go
Speaker 1: out six months or twelve months of data and then
Speaker 1: see where the trend is. A. I right on that. Well,
Speaker 1: thanks for giving my answer that that's absolutely right, and
Speaker 1: I think that was an A. That's amazing. I went
Speaker 1: from a C minus up to a quality C plus.
Speaker 1: But you know what, I what I would say is,
Speaker 1: rather than averaging it, I would look for an ad
Speaker 1: factor and say, for this month, what is it that
Speaker 1: we think we need to add to exactly? Yeah, And
Speaker 1: I guess if if you're in the markets, right, which
Speaker 1: is the difference between the markets and maybe the pros
Speaker 1: is that you need to take a shorter term bet
Speaker 1: because otherwise you're gonna lose money, right, professor, Whereas if
Speaker 1: you're an academic you can you can take the longer view.
Speaker 1: Do you believe that the way the markets are working
Speaker 1: are are kind of distorting our economic views? Well, I
Speaker 1: think that's true to some extent, But the markets are
Speaker 1: also trying to figure out how the fetes going to
Speaker 1: interpret the job's report. And I think you know, many
Speaker 1: investors recognized that the fed is going to take a
Speaker 1: longer run view and try to see through the effects
Speaker 1: of the hurricanes. I have done this before with you,
Speaker 1: and I don't like doing it. Professor. Ku're going to
Speaker 1: rip up the script and go to an exceptionally important
Speaker 1: monograph you put out years ago called What Makes a Terrorist?
Speaker 1: I read every word of it, every footnote. I was
Speaker 1: thunderstruck at the time of how you wrote about the
Speaker 1: people that do these terrible things. Can you take your
Speaker 1: historic work who becomes a terrorist? Where does terror emerge?
Speaker 1: What does terrorism accomplish? Can you take that monograph and
Speaker 1: bring it over to domestic terrorism like what we saw
Speaker 1: in Las Vegas? Uh? Well, thank for bringing up the book,
Speaker 1: and you have good timing because the tenth anniversary edition
Speaker 1: is going to come out by the end of the year,
Speaker 1: and I wrote a new quite long introduction asking exactly
Speaker 1: the question you asked me. How the results hold up
Speaker 1: over the last ten years. Does this apply to domestic terrorism?
Speaker 1: I would be hesitant to describe Las Vegas in the
Speaker 1: same language as we talk about other acts of terrorism,
Speaker 1: since we don't know the motives yet of this individual
Speaker 1: and this disturbed individual. Um looking at other incidents of
Speaker 1: domestic terrorism, both in the US and abroad. The domestic
Speaker 1: terrorists look like they're more drawn from the middle rather
Speaker 1: than the elites. They're not the most impoverished, the least educated.
Speaker 1: They look like people who were on a path towards
Speaker 1: middle class, towards college education in many cases, and then
Speaker 1: they fell off that path and became radicalized. UM. So
Speaker 1: it's more pushed to the middle when it comes to
Speaker 1: domestic terrorism. Professor, how has social media changed terrorism in
Speaker 1: the lost enderts? Uh, it has had a profound effect.
Speaker 1: It's made it much easier for terrorist organizations to outsourced terrorism,
Speaker 1: to recruit, uh, to basically franchise terrorism U. UM. I
Speaker 1: think that's changed the nature of terrorist attacks. H. They're
Speaker 1: less catastrophic in their scale um, and they're a little
Speaker 1: bit more sporadic. So I think it's had I think
Speaker 1: it has had a major impact. All right, how will
Speaker 1: it change in the next ten years? Is it actually
Speaker 1: impossible to study this, as you know, with hard data
Speaker 1: like economics, because it has more to do with emotions
Speaker 1: and allegiances. Well, that's a good question. It also has
Speaker 1: to do with counter terrorism activities. UM. You know, I
Speaker 1: think fundamentally terrorist organizations are trying to pursue some type
Speaker 1: of a goal, and they're using the means that they
Speaker 1: think are going to be most effective for them in
Speaker 1: pursuing that goal. I don't think that will change, but
Speaker 1: I think the means that they have at their disposal
Speaker 1: could change as technology changes going forward. This has been wonderful.
Speaker 1: It's so nice to see you. Not after you sat
Speaker 1: having coffee. Coffee in Venice, which was the last time
Speaker 1: You're finally back teaching. I was at a conference. Okay, well,
Speaker 1: we're never gonna forget coffee with Alan Krueger in Venice
Speaker 1: while we're in the sweaty confines of Manhattan. Allen Krueger,
Speaker 1: thank you on this job. Stay always in particularly important
Speaker 1: perspective on the American labor economy. He is with Princeton
Speaker 1: University and look for the new UH addition. I guess
Speaker 1: I should say what makes a terrorist? Now? In Bloomberg
Speaker 1: Radio Bloomberg Television Worldwide, William Gross joins us. He is
Speaker 1: with Janice Henderson as we look at markets on the move.
Speaker 1: I know that on television, John Fare on the team
Speaker 1: have been doing the market movement today, but yields higher dollar,
Speaker 1: stronger Bill gross just simply is at morning in America,
Speaker 1: well at the early morning, the beginning to be morning
Speaker 1: here in Newport Age. I think to the extent that
Speaker 1: your question implies wages are moving higher and that you know,
Speaker 1: the average wage journal will make more and spend more. Um,
Speaker 1: I think that's probably a positive. I note that the
Speaker 1: wages tom were revised higher in terms of the last month,
Speaker 1: as though we have a two point seven percent y
Speaker 1: o Y and perhaps had it higher. So I think
Speaker 1: that's good for American workers. Within this is a pretty
Speaker 1: good revisions. I mean we revised up I guess pre
Speaker 1: hurricane and that how does Janice Henderson and adapt and
Speaker 1: adjust to the hurricane distraction? Well, you basically try and
Speaker 1: throw it out for a month in terms of the
Speaker 1: employment numbers. You know, we're negative asion mentioned in terms
Speaker 1: of the the job growth. So you throw that out.
Speaker 1: You look at the wages and you wonder whether or
Speaker 1: not that to some extent was affected by distortions. Probably
Speaker 1: not as much. And and so uh, this is definitely
Speaker 1: a situation here at Janice with analysis of the Fed.
Speaker 1: Looking at the FED rate hike in December. You know,
Speaker 1: as long as financial markets ring firm, they certainly are
Speaker 1: as long as wages begin to rise towards uh you know,
Speaker 1: three percent, they certainly are. And I think the Fed
Speaker 1: is slam dunk in terms of raising rates in December.
Speaker 1: You know, John H. David Weston has given me great
Speaker 1: charts on Bloomberg Daybreak on television. Folks of weaker Japanese. Yeah,
Speaker 1: you've really got a jump condition to a weaker Japanese
Speaker 1: uh yen. And the idea here of a regime change
Speaker 1: bill gross not. You know what you're gonna do on
Speaker 1: this Friday morning in Newport Beach, But is there going
Speaker 1: to be a regime change within your janus unconstrained fund
Speaker 1: because you're starting to get a little more lift and
Speaker 1: you're starting to get a little more wage growth. Yeah,
Speaker 1: I think, you know, unconstrained basically means that you're not
Speaker 1: constrained in terms of duration. You can do other things
Speaker 1: things as well. Um, you know the beauty of the
Speaker 1: unconstrained fundness that can go negative in terms of duration.
Speaker 1: That is basically looking for higher rates and making money
Speaker 1: off of higher rates as opposed to vice versa. And
Speaker 1: that's what you know we've done over the past few weeks.
Speaker 1: Certainly in Germany, UM and now in the US. You
Speaker 1: know we're approaching critical levels. I think Tom on that
Speaker 1: tenure for instance, now probably at two forty, I haven't
Speaker 1: seen it in the last minute, but now at to forty,
Speaker 1: that we're at a two forty critical level, a long
Speaker 1: term down trend line. Uh since the early nineteen eighties
Speaker 1: were interest rates have formed by twenty basis points on
Speaker 1: average per year, and we're there at two point four percent.
Speaker 1: It basically means to me that, you know, if the
Speaker 1: economy is strong, if wages are intern up moved, then
Speaker 1: you know, perhaps we can break that trend line and
Speaker 1: move above to forty. But for the moment to me,
Speaker 1: technically that's where we stop, at least for this day.
Speaker 1: And this is so critical, folks. The idea of Bill
Speaker 1: Grows previously telling is two point even major of HSBC
Speaker 1: on this morning looking for Yeah, rates could go up,
Speaker 1: but then a damper. Let's take the word transitory. Bill
Speaker 1: grows over from yelling and inflation over to William Gross
Speaker 1: and you gotta run a bond portfolio. Will these higher
Speaker 1: yields be transitory? And is it lower for longer? Whatever?
Speaker 1: That wherever that band maybe? Well, I think we are
Speaker 1: lower for longer. There's no doubt about that, and that
Speaker 1: is what the Fed another Central Banks described as the
Speaker 1: neutral real The FED funds rate supposedly now around zero
Speaker 1: with inflation, you know, somewhere around one point five or
Speaker 1: so um. But but I think it won't be transitory.
Speaker 1: I think if in fact, we move above to forty
Speaker 1: instead of to six. They remember I said that interest
Speaker 1: rates are following by twenty basis points a year, and
Speaker 1: at to sixty was about a year ago. But if
Speaker 1: if we move above two point four, oh, then I
Speaker 1: think there is a chance that this law term bull
Speaker 1: market in bonds is broken and that the bond investors
Speaker 1: should be on the defensive as opposed to the offensive.
Speaker 1: That's an exceptionally important statement you've heard there from Mr
Speaker 1: Gross in the over decade that we've spoken to us.
Speaker 1: Let's dive into that deeper now, where I'm gonna quote
Speaker 1: the four digits two point three eight bill with that
Speaker 1: important statement of a regime change with a two forty print,
Speaker 1: how do we adapt and adjust? Let's start with the
Speaker 1: equity market correlated into bonds. Is the stock market linked
Speaker 1: into your two point four zero percent yield world we'll share.
Speaker 1: They're all linked. And you know, typical questions and responses, um.
Speaker 1: You know, to those types of questions will say, well,
Speaker 1: we're okay on the stock market until we get to
Speaker 1: three percent on the tenure or four percent on the tenure.
Speaker 1: I think we're inexorably linked on a much shorter term basis. Um.
Speaker 1: You know, it's not to say that five basis points
Speaker 1: on the tenure will mean a hundred negative points on
Speaker 1: the Dow. But those things are connected. It's all connected. Um.
Speaker 1: You know, a recent last night article from The Economist
Speaker 1: in terms of the overvaluation of all assets. You know,
Speaker 1: to my way of thinking is true. You know, the
Speaker 1: low interest rates everywhere, and they're negative in many parts
Speaker 1: of the world, still basically have distorted prices in terms
Speaker 1: of equity, in terms of commercial real estate, in terms
Speaker 1: of spreads on high yield bonds, etcetera, etcetera. And so yes,
Speaker 1: this is critically important on the tenure to define other
Speaker 1: asset prices. And if we move significantly higher to forty
Speaker 1: to fifty to sixty, investors have got to understand that
Speaker 1: the connection is a negative influence on their asset holdings.
Speaker 1: Bill Then then one final question. You're when I want
Speaker 1: to come back and really address this important statement for
Speaker 1: Mr Gross folks on the idea of a regime, a
Speaker 1: regime change at two point four zero percent. When we
Speaker 1: do that, will we do it with light paths of
Speaker 1: stability or will it be a lot more volatility in
Speaker 1: those old jump conditions it made you gray years ago.
Speaker 1: Which is it going to be? Bill? I think stability,
Speaker 1: because not many people will believe me in terms of
Speaker 1: the long term downtrend. They look at other things. They'll
Speaker 1: look at the Bollinger band, and they'll look at the
Speaker 1: you know, the near term STA tests, stochastics and so um,
Speaker 1: and the FED will come in and try and talk
Speaker 1: markets down. So you know, I think it will be
Speaker 1: a gradual up move. But to my way of thinking,
Speaker 1: if to forty to forty five, don't let me hedge
Speaker 1: it here. But if five is broken, to me, that's
Speaker 1: a significant sign that the long term bull market is over.
Speaker 1: We're gonna come back with Bill Gross. You just heard
Speaker 1: one of the most important statements I've heard from Mr Growth,
Speaker 1: Mr Gross and well over ten years, the idea of
Speaker 1: a regime change and the great moderation if we go
Speaker 1: above a two forty. I'm a ten year you know,
Speaker 1: give some wiggle room there. I don't want to nail
Speaker 1: him right down to that. But two point three eight
Speaker 1: up three basis points the tenure right now with the
Speaker 1: two year yield up again another three basis points as well.
Speaker 1: This is absolutely critical the idea of a regime change
Speaker 1: off of a twenty year great moderation. We will do
Speaker 1: that with Bill Gross from New York from London this morning.
Speaker 1: This is Bloomberg with us William Gross of Janice Henderson. Bill,
Speaker 1: what you said in our last section is so important
Speaker 1: over this crisis and even before the crisis, it would
Speaker 1: be irresponsible if I didn't have you recapitulated. Let me
Speaker 1: be clear here, Bill. You go from a two sixty
Speaker 1: and if we get to sustain to forty yield, you
Speaker 1: would suggest that breaks the Great moderation. Yeah, above two
Speaker 1: forty time. And let me explain that because it seems
Speaker 1: like a lot of hocus focus. Um. You know that
Speaker 1: the tenures started out at its peak and early eighties
Speaker 1: with the Vulcar around, And the fact is we can
Speaker 1: analyze this, look at it that has come down by
Speaker 1: twenty basis points a year to this point. It got
Speaker 1: a little bit lower a few years ago, of course,
Speaker 1: but that was below trend line. But the trend line
Speaker 1: was moving down at twenty basis points a year. And
Speaker 1: why is that important. It's important because it allowed for
Speaker 1: refinancing of mortgages, allowed for uh more attractive purchases of homes,
Speaker 1: that allowed for corporate interest expense to go lower and
Speaker 1: profits to go higher. It was what the economy needed
Speaker 1: to sustain a four to five percent nominal GDP rate,
Speaker 1: which is really what the FEDS targeting. So that was
Speaker 1: the magic number per year. The FED didn't mandate twenty
Speaker 1: basis points per year, but that um, you know, based
Speaker 1: upon their their FED fund decreases and their quantitative easy purchases,
Speaker 1: you know, is what it produced. Now they were down
Speaker 1: to two point four percent and two point three It
Speaker 1: seems to me that the question is can the economy
Speaker 1: sustain itself without lower and lower interest rates? And that
Speaker 1: will be the question if it breaks two, for investors
Speaker 1: will be at the assumption that perhaps the economy can
Speaker 1: survive on its own with without lower and lower interest ry.
Speaker 1: I know Francine Lakwen London wants to get and really
Speaker 1: take this globally. He wants to get into your bill.
Speaker 1: But one more question for me, and then an ample
Speaker 1: time for miss Laka. This is profoundly important what you're
Speaker 1: saying for the FED. And all I can think of,
Speaker 1: Bill is what you study to do in years and
Speaker 1: years and years, be careful what you wish for. If
Speaker 1: Janet Yellen gets a higher yield structure in a little
Speaker 1: bit higher inflation, what's the outcome that could mess up
Speaker 1: the central bank cart Well, the outcome is that they
Speaker 1: go too far in terms of FED funds. And this
Speaker 1: is where I joined with the Neil kush carry. It's
Speaker 1: probably not the next FED chairman, but he has been
Speaker 1: cautioning for a long time that there's a yeah, there's
Speaker 1: a limit in terms of what the FED can do
Speaker 1: uh and and the economy can survive because on the
Speaker 1: other side of this argument, um into strates can't go
Speaker 1: too high because it's highly levered and highly levered economy
Speaker 1: UH with higher and higher interest rates, you know, runs
Speaker 1: into problems in terms of destruction and infrast rate cover
Speaker 1: and the like and the like, and so um you know,
Speaker 1: a central bank can't go too high right now. Just
Speaker 1: to add one additional point on other central banks, are
Speaker 1: not of the same persuasion. They don't have the same
Speaker 1: stance in terms of raising interest rates, um like the
Speaker 1: FED will do in my opinion in December. So you
Speaker 1: have this this cushioning effect by the e c B
Speaker 1: and by the BOJ where they're putting in a trillion
Speaker 1: dollars worth of money every year. And so that's why
Speaker 1: I say that the increase will probably be gradual as
Speaker 1: opposed to dramatic going forward. Good morning from London, Mr
Speaker 1: Bill Gross. Will the next FED chair actually be central
Speaker 1: bank or to the world or only to the U S? Well, Um,
Speaker 1: I would hope to the world the U S dollars
Speaker 1: still the global currency. And as long as it is,
Speaker 1: you know, there's no doubt in my mind that the
Speaker 1: interest rates in the US is set by the Fed.
Speaker 1: On the short term side, you know, our important consideration
Speaker 1: going forward depends on the chairperson. Of course, I think
Speaker 1: Yellen has treated uh, you know, the fit as the
Speaker 1: global central banker, although she won't acknowledge that. But perhaps
Speaker 1: we'll get a different persuasion of someone like Cohen or um.
Speaker 1: I suppose even Powell, although I'm not a Powell advocate
Speaker 1: going forward, but they seem to be the choices that
Speaker 1: the market is talking about. You deeput in charge? Well,
Speaker 1: I I uh, strangely enough, I joined Jeffrey Gunlock and
Speaker 1: this one it's not going to happen. I don't think
Speaker 1: I won't predict it. But Neil Caskari has got great
Speaker 1: experience in terms of the Layman crisis. We know that
Speaker 1: he's had experience at Goldmen, he's had experience at PEMCO.
Speaker 1: I know him for three years. He's a brilliant man. Uh,
Speaker 1: And he's got ideas that are a little bit different
Speaker 1: than other central bankers. He looks at the market a
Speaker 1: little bit different from a structural standpoint as opposed to
Speaker 1: simply a statistical Taylor model type of rule. And so yeah,
Speaker 1: he's young, he's only been there for a year or two.
Speaker 1: He'd be my choice, but he's not. He's not going
Speaker 1: to read a choice, Franzy, And I'm confused, Bill, who's
Speaker 1: a brilliant man, Jeff Gunlock or Neil cush Carry. Oh
Speaker 1: excuse me, I wasn't quite sure that. Okay, we've got
Speaker 1: Jeff Gunlock, and we've got Jeff Gunlock and Bill Gross
Speaker 1: in the same page, which is always good Benny would
Speaker 1: suggest Mr gross Sir, that you're talking your book, not
Speaker 1: that Mr Gunlock has ever been a challenge with the
Speaker 1: idea of talking his book. What kind of economy would
Speaker 1: Neil cush Cary give us, say, versus a rules based
Speaker 1: John Taylor of Stanford University. Well, that's interesting too, because
Speaker 1: Taylor is a potential choice, and I was looking up
Speaker 1: on your Bloomberg system. There's a model there Taylor t
Speaker 1: Y L O R and you can put in your
Speaker 1: own inputs. It depends on what. It depends on what
Speaker 1: Taylor thinks is the natural rate of unemployment. And it
Speaker 1: makes a huge difference. If the natural rate of unemployment
Speaker 1: is five and a quarter versus four in a quarter,
Speaker 1: which it seems to be at the moment, then FED funds,
Speaker 1: you know, should be a hundred basis points different. In
Speaker 1: other words, at UH at four in a quarter uh
Speaker 1: in terms of a nehru as we call it, and
Speaker 1: the tailor rule with some modifications in your system, you know,
Speaker 1: basically suggests that we're there. And in terms of where
Speaker 1: FED funds should be. So what would Taylor do? Uh,
Speaker 1: he'd probably follow the tailor rule and UH, you know,
Speaker 1: at the moment absent modifications, he'd probably raise interest rates
Speaker 1: a little bit. Cash carry I don't think would Mr Chris.
Speaker 1: I'm looking at dollar yen so it seems to be
Speaker 1: retesting hundred and thirteen. A lot of technical less saying
Speaker 1: if it close is above, it looks like on fourteen
Speaker 1: it's next big level. Actually, if the Fed hikes UM
Speaker 1: in December, what's the hues the central bank that's going
Speaker 1: to have the toughest time. Well, it depends on if
Speaker 1: they're fixated on their currency, and I wouldn't deny that
Speaker 1: they are, although they don't speak to it. UM. I
Speaker 1: don't think the b o J is moving. The b
Speaker 1: o J is the last central bank to move off
Speaker 1: of their stance. The stance at the moment is a
Speaker 1: cap on the tenure of ten basis points and basically
Speaker 1: flat for short term interest rates. They they'll stay there
Speaker 1: until inflation. Uh, you know sees the whites of two
Speaker 1: percent or or hiring. That may not happen. Uh. The
Speaker 1: e c B is changing, as we know, probably will
Speaker 1: reduce quantitative easing. UM. So I I'd say the biggest challenge,
Speaker 1: as your question points out, is uh, just in terms
Speaker 1: of the b o J, the end will gradually weaken
Speaker 1: if they seem firm on the stance, and they, to
Speaker 1: my way of thinking, they will be Bill. One more question,
Speaker 1: if we could, you have been very generous with your
Speaker 1: time this morning. If we get the sea change view
Speaker 1: of Bill gross above a two point four zero, with
Speaker 1: the idea of the great moderation being over, can you
Speaker 1: link that to your historic claim that financial repression will continue?
Speaker 1: Can you now say we may see an end two
Speaker 1: retirees financial repression? No, I don't think so. You know,
Speaker 1: what would it take on the tenure? Would it take
Speaker 1: three percent four percent? Uh, in order to begin to
Speaker 1: compensate savers and not to repress them? You probably, Tom,
Speaker 1: And you know it's it's a it's a shaky definition
Speaker 1: in terms of repression. But you know, financial repression existed
Speaker 1: for thirty or four years after World War Two until
Speaker 1: the Volker era, and I assume that it's going to
Speaker 1: continue for ten twenty thirty years here as well. And
Speaker 1: that means that interest rates aren't going to keep going down,
Speaker 1: That's what I'm talking about, but they may not go up,
Speaker 1: uh significantly. We will continue to be repressed. Savers will
Speaker 1: continue to get the short end of the stick. Bill,
Speaker 1: You've been most generous to your time and over the
Speaker 1: over decade that you and I have worked together. Thank
Speaker 1: you so much for this perspective this morning, Bill Gross,
Speaker 1: of Janice Henderson, there really without what I'm going to
Speaker 1: editorialize as a regime change and what if if we
Speaker 1: get out over sustained higher rates. That was exceptionally interesting.
Speaker 1: Francying just a completely different tone given where we are,
Speaker 1: and as you mentioned, francing equity futures trade down. Is
Speaker 1: Mr Gross suggested that's that correlation. Yeah, it certainly is
Speaker 1: if you look at you know, some of the dynamics
Speaker 1: is currencies seem to be moving one way and actually futures,
Speaker 1: you know, don't not liking the job reports, So I
Speaker 1: wonder whether there's a little bit of dichotomy their tom.
Speaker 1: It is always a well timed conversation, and today a
Speaker 1: more nuanced conversation with our National Economic Director Mr Khne.
Speaker 1: Of course, formerly with Goldman Sachs. Gary Cone has been
Speaker 1: I think, very transparent about the politics. Right now, here's
Speaker 1: David Weston with Home where we're joined by Gary Khne,
Speaker 1: director of the President's Council of Economic Advisers. Welcome back,
Speaker 1: to the program. Very very good for you to join us.
Speaker 1: So we've been reporting extensively on these numbers since they
Speaker 1: came out an hour ago. And we've got the problems
Speaker 1: with the hurricane and affected the overall number of jobs,
Speaker 1: but you've got really strong numbers on unemployment sixteen year
Speaker 1: low and also on wage growth at two point nine
Speaker 1: percent annualized. Let's put these in the larger perspective for us.
Speaker 1: Has there ever been the case in history that we've
Speaker 1: had a massive tax cut with this employment situation, that
Speaker 1: particularly that will involve deficit spending at least in the
Speaker 1: short term. Have we ever done that in this country?
Speaker 1: So so, David, thanks thanks for having me, and I
Speaker 1: appreciate the opportunity to be here. Look, we at the
Speaker 1: White House are very excited about the numbers. You're right,
Speaker 1: there is some some noise in the number because of
Speaker 1: the hurricane, and uh, as you said, you discount that
Speaker 1: noise out and you're looking through the numbers and you're
Speaker 1: looking at the wage growth and you're looking at the
Speaker 1: unemployment number, which is the real bright news here. Look,
Speaker 1: I think what that the numbers are showing you, And
Speaker 1: the question you're asking me is you're asking about President
Speaker 1: and Trump's economic agenda and what he's committed to and
Speaker 1: what we're committed to here in the White House. We
Speaker 1: believe that the tax cut is essential to continue the
Speaker 1: economic growth that we've started. Yes, we've started some real
Speaker 1: economic growth. We've been rolling back regulations, but we need
Speaker 1: to continue the economic growth we can need to continue
Speaker 1: the wage growth here in America. So do you have
Speaker 1: a reason to believe it will not continue? And and
Speaker 1: perhaps more pointedly, in history, we've always had deficit spending
Speaker 1: and tax cuts in in really fallow times, not in
Speaker 1: the robust times. Right now, we have a pretty robust time.
Speaker 1: Why doesn't the President say things are going great. We
Speaker 1: don't need to really intervene, David. We've had a couple
Speaker 1: of good quarters of g d P, but we're still
Speaker 1: not on a sustainable level of growth that we should
Speaker 1: be and want to be here in the United States.
Speaker 1: We've been averaging about two percent growth. The President is
Speaker 1: not happy with two percent growth. He ran on a
Speaker 1: pro growth platform and he wants to deliver a pro
Speaker 1: growth economic agenda. We believe the tax reform is necessary.
Speaker 1: We need to allow American companies to compete on a
Speaker 1: level playing field. Our taxes do not allow American companies,
Speaker 1: American business to compete around the world on a level
Speaker 1: playing field. Our corporate tax structure and our business tax
Speaker 1: structure is just too high today. Hey, Gary, No, when
Speaker 1: we talked to believes you're going to see sustainable two
Speaker 1: point nine percent growth. Okay, that that you're arguing for
Speaker 1: our tax cut. What what what I'm saying with the tax
Speaker 1: cum saying with the tax cut, No one thinks we're
Speaker 1: gonna get sustained that either way. What do you say
Speaker 1: to that? We We completely disagree with that. We completely
Speaker 1: disagree with that. We obviously think and and and if
Speaker 1: you listen to what Kevin Hassett came out yesterday, our
Speaker 1: ce A director, He came out and talked about the
Speaker 1: economic growth that we believe, we strongly believe we will
Speaker 1: have by cutting business taxes and attracting business back to America,
Speaker 1: attracting capital back to America, growing opportunities here for employees
Speaker 1: to be employed, creating wage more wage growth in the
Speaker 1: United States, and keep the sustainable system that we're that
Speaker 1: we're at right now. We believe we can have a
Speaker 1: three plus percent growth with taxes and the regulation that
Speaker 1: we're in the reform that we're aft there. Now, Hey, Gary,
Speaker 1: I want to get your take on a Trump tweet.
Speaker 1: It was about the stock market. He says, the stock
Speaker 1: market hit and all time high. This is President Trump
Speaker 1: tweeting yesterday. Unemployment lois in sixteen years, business and manufacturing
Speaker 1: enthusiasm at the highest level in decades. Do you really
Speaker 1: want a White House that's associated with record highs when
Speaker 1: you know hypercarious that can actually be And we've had
Speaker 1: like are the six of them for the S and
Speaker 1: P so far this year? Look, presidents committed to economic growth.
Speaker 1: He's committed to a pro growth, pro job agenda. The
Speaker 1: stock market is representative of what his agenda is and
Speaker 1: the fact that we're having real impact in tying your success,
Speaker 1: your tying your success to what the stock market does.
Speaker 1: Come on, we're tying our success to jobs, job creation,
Speaker 1: better opportunities for American citizens. The stock market just happens
Speaker 1: to represent that you. You and I both know how
Speaker 1: the stock market is priced. The stock markets price on
Speaker 1: expectations of future earnings of businesses, and those future earnings
Speaker 1: are basically representative of what they think businesses are going
Speaker 1: to be able to accomplish in the future. Gary, I
Speaker 1: just wonder if it is about the market, how this
Speaker 1: bleeds ultimately into the decision making out sweb the next
Speaker 1: FED chair. For instance, as an administration, you're sensitive to
Speaker 1: the way markets would take the next fix FED chair.
Speaker 1: And it might be Look, we as administration are sensitive
Speaker 1: to everything. We're sensitive to all the policies. The President
Speaker 1: thinks about economic growth, and he thinks about middle class
Speaker 1: Americans every day, and middle income Americans every day, and
Speaker 1: hard working Americans every day, and how he can put
Speaker 1: them in a better position economically, how it can help
Speaker 1: improve their life. That's what the President thinks about every day. Gary,
Speaker 1: I want to know what you think about it most
Speaker 1: specifically for the next FED chair. Are you sensitive to
Speaker 1: how the markets may interpret that individual in their policies.
Speaker 1: Like I said, we think holistically about everything. We're not
Speaker 1: myopic on any topic. We in the White House and
Speaker 1: we're along with the President, have to think about all
Speaker 1: of the topics together. That's our job is to think
Speaker 1: holistically about everything. Well, let's think holistically about this, Um,
Speaker 1: did you think the next FED chair requires a PhD
Speaker 1: in economics to really got into the respect of those
Speaker 1: on the f MC. Gary. You know, I'm not going
Speaker 1: to talk about the specifics of a search that's going
Speaker 1: on right now. I don't think that's appropriate. So so
Speaker 1: very cold. I come back to your tax plan for
Speaker 1: a moment um. You say you're gonna get to three
Speaker 1: percent sustained growth. Could you just explain to us exactly
Speaker 1: what the next tax plan will generate that? As you
Speaker 1: know well, economists say growth like that comes from two sources,
Speaker 1: and that is more people working, demographics, uh, and productivity.
Speaker 1: What will those taxes if you get your plan the
Speaker 1: way you want it, how will it either generate more
Speaker 1: people working or increase productivity? David, we couldn't agree with
Speaker 1: you more so. When you lower the business tax rate,
Speaker 1: on the paths through nities, on the corporate rates, we
Speaker 1: make ourselves more competitive. We make it that businesses want
Speaker 1: to locate in the United States. When they locate in
Speaker 1: the United States, they have to hire labor. They go
Speaker 1: out and compete for labor, they hire people. We see
Speaker 1: wages increase because we hire people. We're also going to
Speaker 1: see enormous amount of productivity in these numbers. Because as
Speaker 1: we build new new factories and we build new manufacturing
Speaker 1: a lot of it's gonna be technologically driven, So the
Speaker 1: productivity numbers are really gonna grow by the by leaps
Speaker 1: and bounds because we are a technologicy driven economy here,
Speaker 1: and we think that we can increase productivity dramatically by
Speaker 1: creating a tax code that allows businesses to compete here
Speaker 1: in the United States with their with other countries around
Speaker 1: the world. Of the White House, the National Economic Director,
Speaker 1: they're talking about policy and prescription and also, of course
Speaker 1: always the politics of Washington. Our policy and prescription is
Speaker 1: to give you a data check. Dollars stronger yen one
Speaker 1: eight year old well under one seventeen one, sixteen ninety
Speaker 1: on the euro sterling one gold. I'm watching carefully now
Speaker 1: down eight dollars, make it nine dollars this morning. That's
Speaker 1: really something to watch or I don't have to chart
Speaker 1: in front of me. I worked it up and try
Speaker 1: to give it out to radio first out on social
Speaker 1: tenure yield now rounded up to point forward zero percent.
Speaker 1: We have had a weaker tenure higher tenure yield, I
Speaker 1: should say over the last thirty minutes off the analysis
Speaker 1: of this important jobs report. Francine and Kuen London. I'm
Speaker 1: Tom keenan New York on Jobs Day. This is Bloomberg.
Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and
Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast
Speaker 1: platform you prefer. I'm on Twitter at Tom Keene. David
Speaker 1: Gura is at David Gura. Before the podcast, you can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio