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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg He

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Speaker 1: has been someone interesting in the regimes of the Federal

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Speaker 1: Reserve in Philadelphia at a A. Michael McKee and James Bullard,

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Speaker 1: Good morning to everybody on Bloomberg Television and radio worldwide.

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Speaker 1: From frosty Philadelphia, a party of the fields. Like temperature

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Speaker 1: about six degrees, so we really thank Jim Bullard for

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Speaker 1: getting up early this morning and joining us here slogging

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Speaker 1: through the snow and sleet and high winds. You're one

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Speaker 1: of the few people, it seems to have made it

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Speaker 1: to Philly. Well, I'm originally from Minnesota, so this is nothing.

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Speaker 1: This is true. You're well known for your regime view

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Speaker 1: of the economy. You're the guy with the dot at

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Speaker 1: the bottom of the dot plot because you don't think

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Speaker 1: there's any reason to raise rates. The economy is picking up,

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Speaker 1: we're starting to see a few wage gains. We're going

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Speaker 1: to get tax cut stimulus of one sort or another.

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Speaker 1: So are you any closer to changing your regime and

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Speaker 1: then looking at the need for additional rate cut increases. Well,

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Speaker 1: we're certainly keeping our eyes open on this, But I

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Speaker 1: think on the tax cut issue the um you know,

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Speaker 1: I'm very much less of a person that thinks that

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Speaker 1: a lot of deficit spending, you know, has a lot

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Speaker 1: of impact on the economy, or if it does, it's

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Speaker 1: usually temporary. So I think the interesting part about the

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Speaker 1: tax cut is whether it will drive productivity higher in

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Speaker 1: the US, drive business investment higher in the US. And

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Speaker 1: if it does, I think we could get some games

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Speaker 1: out of that, because that would move up the trend

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Speaker 1: growth rate for the US economy. So that would be

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Speaker 1: good if we can get that. But I feel like

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Speaker 1: for now we can be wait and see as far

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Speaker 1: as monetary policy makers on that. And also in the

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Speaker 1: in the trend growth world, a couple of tents on

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Speaker 1: the trend growth rate is a big deal, But in

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Speaker 1: the world of watching g d P from quarter to quarter,

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Speaker 1: a couple of tempts doesn't really register. So um, So

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Speaker 1: I think it'll be hard to disentangle over the next

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Speaker 1: couple of years whether you're getting a couple of tents

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Speaker 1: on the trend growth rate or not, and if you are,

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Speaker 1: that would be important, but it'll be it'll be hard

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Speaker 1: to disentangle it from the data. So you're still locked

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Speaker 1: into the same regime and no rate, and we're we've

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Speaker 1: got the low regime, but you know, certainly keeping eye open.

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Speaker 1: I think my baseline cases that we're still in the

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Speaker 1: same regime. I think there's some possibility that this could

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Speaker 1: light a fire under investment and really drive growth higher,

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Speaker 1: and if that happens, I would certainly take note of

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Speaker 1: that and and adjust policy appropriately. Well, that begs the

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Speaker 1: question of what your growth forecast is for two you know,

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Speaker 1: for we were surprised at the upside on growth. It

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Speaker 1: now looks like the first half was just a little

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Speaker 1: over two percent, but the second half now looking like

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Speaker 1: it's going to come in at three percent. So you're

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Speaker 1: gonna get two and a half or maybe a little

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Speaker 1: better for the year. And this is in a world

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Speaker 1: wherever the trend growth rate is only only two percent,

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Speaker 1: So this is good. We're late in the expansion, so

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Speaker 1: I think that the natural thing to forecast is that

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Speaker 1: you would slow down from here. But then you've got

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Speaker 1: this Uh, this tax effect coming on, so maybe maybe

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Speaker 1: you get a little bit from that. So so we're

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Speaker 1: keeping we're still in the low twos for uhen and

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Speaker 1: then slowing down to trend as you go forward. Well

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Speaker 1: raises the question then of whether we're going to get

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Speaker 1: any inflation of any significance, any oleeration that would create

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Speaker 1: a need for the fit to move faster or more steeply. Yeah.

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Speaker 1: I think on inflation we're below target. We really made

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Speaker 1: no progress in the last two years towards our inflation target,

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Speaker 1: at least based on smooth type measures of inflation core

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Speaker 1: PC less food and energies one and a half year

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Speaker 1: over year. That's a low number. It's the same as

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Speaker 1: it wasn't twenty fifteen. Unemployment went below five percent in

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Speaker 1: the fall of so we've been two years in the

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Speaker 1: fours and uh, I really haven't made any progress at all.

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Speaker 1: So I don't really think we're getting the kinds of

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Speaker 1: Phillips curve effects that people so emphasized. You know, one time,

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Speaker 1: not that long ago, you had the natural rate of

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Speaker 1: unemployment setting up at five and a half percent. We're

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Speaker 1: now at four point one percent. We've got a job's

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Speaker 1: report coming out this morning. We haven't really seen any

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Speaker 1: inflation out of that, and I think, you know, we've

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Speaker 1: got a modifier. Story about the Phillips curve is just

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Speaker 1: not it's either non existent or whatever it is, the

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Speaker 1: power there is very very small compared to what it

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Speaker 1: has been historically. Well, Jenny Allen and j Powe have

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Speaker 1: both said maybe we need to look at the Phillips curve,

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Speaker 1: maybe we need to look at our models of inflation dynamics.

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Speaker 1: Do you think something has changed that would lead the

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Speaker 1: FIT to change the way it looks at making policy. Yeah.

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Speaker 1: If you look at a graph I used yesterday about

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Speaker 1: the disappearing Phillips curve, that you know, the coefficient unemployment

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Speaker 1: has been declining towards zeros ever since in the nineteen eighties.

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Speaker 1: So that's from an analysis by the Bank for International

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Speaker 1: Settlements in their annual report. So I think, uh, there's

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Speaker 1: widespread agreement on the empirics of this, that the Phillips

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Speaker 1: curve is you know, very flat, and that you know,

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Speaker 1: might have there might be no relationship at all at

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Speaker 1: this point, and so I think you really have to

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Speaker 1: pay more attention to inflation expectations in this environment. Those

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Speaker 1: are also low, although I will say they've moved up

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Speaker 1: slightly in the last sixty days or so, So keep

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Speaker 1: an eye on that. What are CEOs telling you about

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Speaker 1: your optimistic about the possibility of some additional investment. What

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Speaker 1: are CEOs in your district saying about that and about

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Speaker 1: what they're going to pay their workers. Yeah, I think

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Speaker 1: that the CEOs are very um positive on the tax bill.

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Speaker 1: They think it's UH and it makes total sense. It was.

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Speaker 1: It was all focused on corporate tax reform. So the

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Speaker 1: if you're going to tax the earnings at a different rate,

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Speaker 1: this is going to raise the value of the company.

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Speaker 1: This is why the SMP is up at least part

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Speaker 1: of the reason why it was up in twenty seventeen

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Speaker 1: and anticipation of this, And so I have some sympathy

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Speaker 1: for the idea that you would get this investment boom

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Speaker 1: coming out of this UH, this tax policy. The only

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Speaker 1: hesitation I have is that the firms also had a

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Speaker 1: lot of cash already and they could have done it before,

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Speaker 1: and they really weren't investing at the same pace they

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Speaker 1: have historically, And so we'll see which way it goes.

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Speaker 1: But as I say, from as a monetary policy maker,

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Speaker 1: I feel like with inflation pretty low, I can afford

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Speaker 1: to wait and see and see see if that really

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Speaker 1: happens or not. Cap utilization is maybe running two present

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Speaker 1: lower than its historical average. Is anybody in your district

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Speaker 1: telling you we need to expand? Uh? There's certainly some

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Speaker 1: have expansion plans. Are certainly some that you know, do

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Speaker 1: want to go ahead. I could. I could see the

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Speaker 1: corporate sector saying to themselves, this is a good chance

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Speaker 1: to make make money and take a you know, take

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Speaker 1: a risk on the big billion dollar project that I

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Speaker 1: wasn't going to do before. And they may go ahead,

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Speaker 1: may well go ahead with that, but I'm I'm in

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Speaker 1: wait and see mode to see if it really happens.

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Speaker 1: The other aspect of the text bill that has concerned

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Speaker 1: some of your colleagues is the large deficits it will create.

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Speaker 1: Are you afraid of crowding out a rise in interest rates? Uh?

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Speaker 1: A lack of capital available for the private sector. Now,

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Speaker 1: I mean the one point five trillion numbers over ten years,

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Speaker 1: so you're talking a hundred and fifty billion per year.

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Speaker 1: There's some front loading. Um. I'm not a big one

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Speaker 1: for the you know the effects of deficits on rates.

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Speaker 1: I think those are that's hard to find. Um. Also,

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Speaker 1: it's a global environment, so you've got this uh, this

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Speaker 1: global debt story. You have a shortage of safe assets

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Speaker 1: globally that's having a big impact. You've got low rates

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Speaker 1: around the world that's having a big impact. So UM.

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Speaker 1: I think the biggest issue with rates is the that

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Speaker 1: the ten year has traded in arrange for quite a while,

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Speaker 1: quite a few years here. I guess today it's me

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Speaker 1: too forty something, um. And then you've got the two

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Speaker 1: year rising pretty dramatically, So the yield curves flattening here?

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Speaker 1: Are you concerned about that? Some people are worried about diversion.

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Speaker 1: You suggested that if the Fed goes too far in

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Speaker 1: two thousand eighteen, we could see that. Yeah, the ten

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Speaker 1: year two year UH spread is now under fifty basis points,

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Speaker 1: and the reason it's falling is because the Fed is

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Speaker 1: raising rates. So I'm not very interested in trying to

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Speaker 1: raise rates all the way to the point where we

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Speaker 1: invert the Yolk curve, especially with inflation below target. I mean,

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Speaker 1: if inflation was three percent and headed to four I'd

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Speaker 1: be all over it, and I'd be I'd be wanting

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Speaker 1: to get out in front of that. But we haven't

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Speaker 1: made any progress on inflation the last two years, you know,

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Speaker 1: even with the low unemployment rates. So I think, uh,

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Speaker 1: I think this yeld curve issue is important. Uh. There

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Speaker 1: are a lot of opinions about it, but we should

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Speaker 1: we should definitely be looking at We should give it

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Speaker 1: due consideration, and we should have that debate now, not

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Speaker 1: later this year when it's even flatter. Well, do you

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Speaker 1: think that it is a sign that a recession is imminent? Well?

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Speaker 1: It it has predicted the last three recessions. I have

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Speaker 1: a graph on that as in a December speech. Um,

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Speaker 1: you know is imminent that Well, it's certainly not right now.

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Speaker 1: I mean, everything is fine right now. The question is

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Speaker 1: how are you going to play this through? Are you

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Speaker 1: going to raise the policy rate all the way to

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Speaker 1: the point where you're willing to have a completely flat

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Speaker 1: yield curve or invert the yield curve? Now, a lot

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Speaker 1: of things could happen. You could raise rates and it's

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Speaker 1: not a problem because tenure rate goes up in tandem

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Speaker 1: and the slope of the slope of the yield curve

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Speaker 1: stays the same. That would be fine if that's what happens.

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Speaker 1: But if you look at the last uh four years

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Speaker 1: that the tenure really hasn't been um, you know, very high,

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Speaker 1: and you kind of wonder in your mind, how are

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Speaker 1: you going to get that rate to be meaningfully higher

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Speaker 1: than what it is and the rest of the developed world.

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Speaker 1: Before we let you go, obviously we have to ask

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Speaker 1: about the changes that are coming to the Federal Reserve

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Speaker 1: at two thousand eighteen. Do you expect any change in

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Speaker 1: policymaking or communication during j Powl regime. I don't know

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Speaker 1: what JA is gonna do, but I would think any

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Speaker 1: time you get this kind of turnover, that's a great

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Speaker 1: time to re examine what the committee is doing. I

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Speaker 1: think j would have probably have some sympathy for that,

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Speaker 1: but I don't know what direction he would I wouldn't

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Speaker 1: certainly want to want to put him down on what

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Speaker 1: direction he's actually going to go in. But we've got

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Speaker 1: that plot. For instance, you've got press conference issue, So

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Speaker 1: I think there are are things that could be considered here.

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Speaker 1: There was a big conference in Washington a Monday asking

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Speaker 1: whether the two percent inflation target is still a worthwhile

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Speaker 1: FED policy? How would you feel about that? Yeah, I

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Speaker 1: think the two percent target is quite important and has

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Speaker 1: been very beneficial in keeping inflation low and stable, if anything,

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Speaker 1: keeping it too low to stable. But um, yeah, I

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Speaker 1: wouldn't want to mess with that. I think what we

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Speaker 1: could do is put a process in place where every

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Speaker 1: five years we thoroughly review the inflation target it and

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Speaker 1: think about why we have it and what we think

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Speaker 1: it should be. The Bank of Canada does this, and

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Speaker 1: I think that's best practice right now. So the FACT

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Speaker 1: could adopt that. But you do that on a calendar

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Speaker 1: basis and and not let it interfere with the day

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Speaker 1: to day monetary policy decision. You would do it in

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Speaker 1: a way that is a thoughtful couple of day retreat,

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Speaker 1: reflecting on it or something like that, and then come

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Speaker 1: to another decision about it. If we're going to do

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Speaker 1: a retreat, do it someplace warm. Yeah, I'm thinking the

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Speaker 1: southern part of the US. Jim Butler, who is originally

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Speaker 1: from Minnesota, so he says he's used to this, called

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Speaker 1: thanks for joining us today, we'll send it back to you.

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Speaker 1: On Bloomberg Radio television worldwide. Alan Krueger goes deeper. I

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Speaker 1: say this. Every single month he reads the report in

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Speaker 1: its entirety it's Princeton University economics professor and world renowned

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Speaker 1: labor market economists, and it's always great to catch up

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Speaker 1: with you. Just walk me through what you're looking for

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Speaker 1: from today's report. Well, of course, I will look at

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Speaker 1: the headline number, and I expect it will be strong.

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Speaker 1: I think the consensus is the best estimate you have.

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Speaker 1: But under the headline, one looks at labor forest participation,

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Speaker 1: at different industries, what's happening with manufacturing employment. I always

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Speaker 1: look at temporary help employment because that's a leading indicator.

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Speaker 1: Often when temporary help was strong, the job growth in

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Speaker 1: the coming months will be strong as well. Uh, look

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Speaker 1: at hours the work week. Often you could add more

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Speaker 1: labor through increasing hours than hiring more workers. And then

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Speaker 1: of course look at wage rates, because if we're going

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Speaker 1: to get pressure on inflation, I think it will come

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Speaker 1: from the job market. Alan Krueger, you are at the

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Speaker 1: American Economic Association and they will talk there a lot

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Speaker 1: of highbrow academic economics. If you go back to Solo

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Speaker 1: nineteen seven, he talks about technical change, or maybe it's

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Speaker 1: just simply technology. How do you synthesize all of the

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Speaker 1: new technologies we have into the labor and wage dynamics

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Speaker 1: of this United States. You know, it's interesting. Tom Bob

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Speaker 1: Solo once famously said you could see the computer revolution

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Speaker 1: everywhere except in the productivity statistics. And I think we

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Speaker 1: probably see the technological change in the job statistics more

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Speaker 1: strongly than we do in the productivity statistics. I think

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Speaker 1: in major reason why we've seen uh such weak wage

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Speaker 1: growth for workers with low level of skills, middle level

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Speaker 1: of skills is because of technological change um and I

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Speaker 1: think that's probably caused labor share overall to decline. But

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Speaker 1: interestingly it is i'd had as much impact as one

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Speaker 1: might expect on productivity growth. Alan The question for me

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Speaker 1: away from productivity growth, away from all of that, it's

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Speaker 1: just how do we know when we're actually a full employment?

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Speaker 1: How do we know when you know, a couple of

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Speaker 1: years ago, I've said we'd be down at four point

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Speaker 1: one percent and wages would only be trending it two

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Speaker 1: and a half percent. I don't think many people would

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Speaker 1: have expected that. How do I really know when the

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Speaker 1: US economy is is that full employment? Well, first of all, Jonathan,

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Speaker 1: I think we need to look more at real wages,

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Speaker 1: that at nominal wages, because there are some external factors

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Speaker 1: that are keeping price inflation low, and we are seeing

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Speaker 1: a pickup in real wage growth. It's been over percent

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Speaker 1: UH for the last say three or four years. So UM,

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Speaker 1: I think the job market is getting tight. Is it

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Speaker 1: too tight? Um? I think that's a much more difficult

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Speaker 1: question to answer. Uh. And I think there are also

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Speaker 1: some forces in the economy today that are suppressing wages

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Speaker 1: that we didn't have before all this name too UH. First,

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Speaker 1: the federal minimum wage remains stuck at seven dollars and

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Speaker 1: twenty five cents an hour, where it's been since two

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Speaker 1: thousand and ten. UM. Eighteen states are raising their state

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Speaker 1: minimum wages this year. UH. Historically that would put upward

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Speaker 1: pressure on wages when the job market would get tight.

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Speaker 1: And then secondly, we're seeing lots of changes in corporate

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Speaker 1: practices like no poaching agreements, where of fast food restaurants

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Speaker 1: have an agreement within your chain that they won't hire

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Speaker 1: workers away from another fast food restaurant in the chain.

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Speaker 1: We've see noncompete agreements running a muck, and I think

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Speaker 1: that's suppressing competition in the job market. And even though

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Speaker 1: when that levels historically associated with full employment, employers are

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Speaker 1: able to resist the pay increases. Um is you well known?

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Speaker 1: Professor Krueger The classic nineteen thirty three in the Depression

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Speaker 1: book by Joan Robinson, The Economics of imperfect Competition changed

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Speaker 1: how we think about jobs. In part of that is

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Speaker 1: a classic rubber plantation outside Singapore, where there's one employer

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Speaker 1: in control of what the labor makes. Now, that's not

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Speaker 1: the case of American monopsity, but boy, are we getting

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Speaker 1: close to that where labor has no power. Let's start

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Speaker 1: with the why why does labor have no power today?

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Speaker 1: I think there are a number of reasons. One, UH,

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Speaker 1: union membership is down to below seven in the private sector,

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Speaker 1: so union power used to offset employer power, but that's

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Speaker 1: not taking place today the way that it used to.

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Speaker 1: We're also seeing employers use practices which reduce competition, so

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Speaker 1: you can have monopsony. Monopsony is the flip side of monopoly.

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Speaker 1: It's the job market side of monopoly. But you can

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Speaker 1: have monopsony power when you actually have many employers, as

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Speaker 1: long as each employer is something of an island, as

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Speaker 1: long as it's costly for workers to switch from one

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Speaker 1: job to another. Here and we don't have perfect mobility today.

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Speaker 1: You know, the traditional model requires that if you just

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Speaker 1: change the wage by a tiny bit, workers will leave

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Speaker 1: all or they'll flood into those jobs. And that's not

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Speaker 1: the way the job market works. By the way, you

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Speaker 1: mentioned Joan Robinson, Tom if you go back and look

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Speaker 1: at that book, it was the first book written that

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Speaker 1: I'm aware of with a color graph, and it showed

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Speaker 1: how mon optimistic power can replace the supply curve in

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Speaker 1: in the traditional supply and demand model. And what was

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Speaker 1: amazing about it was the red line was drawn in

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Speaker 1: by hand in the book. It's really important. And you know,

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Speaker 1: this is what we love about what we do here

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Speaker 1: at Surveillance is trying to pull some of the history

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Speaker 1: of economics, financial investment out to you in a modern

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Speaker 1: day where we're so a historical here's the modern day reality,

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Speaker 1: Professor Krueger. It's a tight labor economy. Businesses are saying,

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Speaker 1: we need people, but we can't rage ways raise wages.

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Speaker 1: That's blowny. If you need bodies, you raise wages. Why

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Speaker 1: can't that happen? Well, I think what they really mean

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Speaker 1: is they don't want to raise wages. I think many

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Speaker 1: employers became accustomed to a situation where there was excess supply,

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Speaker 1: where unemployment was high, they became a bit spoiled where

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Speaker 1: they could choose workers they want at relatively low wages.

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Speaker 1: And now that the job market is tightened, they're looking

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Speaker 1: for ways that they can uh prevent the pay scales

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Speaker 1: from rising. That's one of the reasons why companies use

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Speaker 1: so many temporary health workers. If if they hit a

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Speaker 1: bottleneck in one area, they'll reach out, they'll outsource, they'll

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Speaker 1: use temporary help, and they don't have to raise the

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Speaker 1: whole wage scale for everybody else. So I think it's

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Speaker 1: more a matter of of desire rather than they can't

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Speaker 1: pay more. I mean, we're seeing you just were reporting

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Speaker 1: on how well the stock markets doing. We're seeing profits

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Speaker 1: to quite well. Um, it's just that they're not being

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Speaker 1: shared as much as they used to with the workforce. Alany,

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Speaker 1: you disappointed that corporates who have received a permanent tax

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Speaker 1: cuts have chosen to give employees a one off bonus

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Speaker 1: instead of a permanent material wage increase. Look, it's not surprising,

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Speaker 1: am I disappointed? Um? I think that the tax cut

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Speaker 1: goes too far. In the corporate tax cut, I think

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Speaker 1: what we're seeing is exactly what you would expect. And

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Speaker 1: it's what we've seen historically when we had changes in

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Speaker 1: tax law which was favorable to companies. The money went

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Speaker 1: out in dividends or was used to raise stock prices

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Speaker 1: and buy backs rather than filtering through, especially to lower

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Speaker 1: paid workers. Do you see any signs of the corporate

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Speaker 1: response so far out and it gives you any confidence

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Speaker 1: that that corporate tax reduction will result in the wage

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Speaker 1: growth that this administration would like to see. I haven't

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Speaker 1: seen those signed yet. Um Now, by the way, to

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Speaker 1: be fair to the administration, the model that they have

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Speaker 1: in mind is that the tax change they should lead

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Speaker 1: to more investment, more capital, and that'll take time before

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Speaker 1: it leads the higher wages. We'll see if that capital

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Speaker 1: investment takes place, and then we'll see if wage growth

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Speaker 1: takes place. Can I jump in air? I mean, is

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Speaker 1: might you might chart of the year I had on

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Speaker 1: the VIX and like the slowdown Professor Krueger, and then

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Speaker 1: I had to go over to Paul Krugman's highly detailed

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Speaker 1: chart on how capital folds into wage growth. And and

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Speaker 1: not to get too nerdy here, particularly on radio words,

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Speaker 1: we love the charts on radio, but Professor Krueger. The

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Speaker 1: basic idea is, it's not economy. It's not even you know,

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Speaker 1: nineteen whatever's economy. It's a new modern economy of international

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Speaker 1: capital flows. What's foreign money gonna do with a better

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Speaker 1: tax environment in America? Well, you know the way that

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Speaker 1: this corporate tax cut works. They're also strong incentives for

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Speaker 1: American companies to invest abroad because the tax rates they

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Speaker 1: face are going to be lower for income earned abroad.

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Speaker 1: So it's not obvious to me it's going to lead

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Speaker 1: foreigners to invest more in the US. And I think

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Speaker 1: because of the tax bill, we're gonna see less infrastructure investment.

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Speaker 1: It makes it hard government. Let's go invest, Let's rip

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Speaker 1: up the scripture. You've been in those meetings at the

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Speaker 1: White House. Can you explain to our audience why we

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Speaker 1: can't get better infrastructure in America, whether it's a Democrat

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Speaker 1: or a Republican. Its Pennsylvania Avenue. Well, we did have

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Speaker 1: an increase during the Recovery Acts, So we did have

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Speaker 1: a period in two thousand nine, two thousand and ten

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Speaker 1: where we had a bump up, and then since then

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Speaker 1: there's been no support coming from Congress when it comes

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Speaker 1: to infrastructure. Investment. And we used to say there are

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Speaker 1: no Republican roads, there's no Democratic roads, There's just American roads.

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Speaker 1: But the philosophy of the Republican Congress was to turn

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Speaker 1: every request from President Obama down. And we'll see what

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Speaker 1: happens going forward. But I think it's long overdue that

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Speaker 1: we reinvigorate our infrastructure in the U S. Allen, there's

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Speaker 1: an argument that we're moving away from the U. S

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Speaker 1: economy to a blue state versus red state economy. Do

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Speaker 1: you see a divide emerging between the growth that could

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Speaker 1: be achieved in New York, the state of California and elsewhere?

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Speaker 1: And I asked this question because I caught up with

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Speaker 1: the r D North America President. He said to me,

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Speaker 1: is expecting now flat growth in sales in New York

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Speaker 1: and California and a pickup in a place like Texas.

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Speaker 1: And it just made me think that maybe we're going

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Speaker 1: to see a divergence in within the United States of

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Speaker 1: America from state to state. Is that something you're keeping

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Speaker 1: an on. Uh, Yes, very much so. And you know

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Speaker 1: we've had that take place in the past. We've had

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Speaker 1: a lot of investment going the South where wages were

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Speaker 1: lower We've seen California do very well. Uh. I think

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Speaker 1: because they had a policy of uh investing in people

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Speaker 1: in an infrastructure in spite of the high taxes, they've

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Speaker 1: done quite well. I think the tax bill that passed

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Speaker 1: in a very stealthy fashion is going to cause a

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Speaker 1: greater divide across regions in the US. UM Capping the

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Speaker 1: state and local tax deduction at a low level is

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Speaker 1: going to hurt the Blue states. UM. What was done

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Speaker 1: to universities is another example, you know, singling out university

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Speaker 1: endowments for attacks. UM. So I think that uh, those

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Speaker 1: those tax for forms, I think we're gonna further polarize

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Speaker 1: the country. I think if you look in the smaller print, Professor,

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Speaker 1: they singled out the economics department of Princeton University. You

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Speaker 1: know they're also there there. That's also the case if

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Speaker 1: you look at funding for research, it's it's it's it's

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Speaker 1: uh targeting economics. This is the price of working with

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Speaker 1: Alan Blinder. Allen Krueger, thank you so much. He's a

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Speaker 1: former chair and of President Obama's Council of Economic Advisors.

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Speaker 1: That were honored that he attends every job's day and

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Speaker 1: now we welcome Bloomberg Radio, Bloomberg Television worldwide. We say

431
00:25:24,119 --> 00:25:26,600
Speaker 1: good morning to you off this Job's Report, some of

432
00:25:26,600 --> 00:25:29,199
Speaker 1: the data that we see moving, and as always we

433
00:25:29,280 --> 00:25:33,080
Speaker 1: speak here with William Gross of Jane's Capital, as we're

434
00:25:33,160 --> 00:25:35,960
Speaker 1: thrilled that he's with us each and every Job's day.

435
00:25:35,960 --> 00:25:39,439
Speaker 1: Bill Gross, good morning to you. I guess it's a

436
00:25:39,520 --> 00:25:46,439
Speaker 1: fully employed America. Do you see a fully employed America? No?

437
00:25:46,680 --> 00:25:48,480
Speaker 1: And uh, you know, as you've talked about in the

438
00:25:48,560 --> 00:25:51,399
Speaker 1: last thirty minutes, there's a lot of underemployed people that

439
00:25:51,440 --> 00:25:54,879
Speaker 1: are still out there, perhaps maybe in the low wage category.

440
00:25:54,960 --> 00:25:58,240
Speaker 1: But I don't think we're yet at unemployment the U

441
00:25:58,400 --> 00:26:01,280
Speaker 1: six as opposed to the youth freeze. I think what

442
00:26:01,359 --> 00:26:04,640
Speaker 1: the critical number is. It was at eight percent last month,

443
00:26:04,680 --> 00:26:06,800
Speaker 1: and I didn't see the number this month, but it's

444
00:26:07,160 --> 00:26:10,120
Speaker 1: it's probably about the same. I think the important thing

445
00:26:10,160 --> 00:26:13,159
Speaker 1: Thomas wages. Uh, you know, I came into a uh

446
00:26:13,280 --> 00:26:16,840
Speaker 1: the number the jobs creation, Fine, it's the wages. It

447
00:26:16,960 --> 00:26:20,600
Speaker 1: was point three with a revision back down to point one,

448
00:26:20,640 --> 00:26:23,360
Speaker 1: so a point two per month um. That's what we're

449
00:26:23,359 --> 00:26:25,480
Speaker 1: really looking at. If you can get wages going, then

450
00:26:25,880 --> 00:26:28,000
Speaker 1: you know you can get inflation going, which is what

451
00:26:28,080 --> 00:26:30,680
Speaker 1: the FED wants to get going. Bill Gross, You're enough

452
00:26:30,720 --> 00:26:34,359
Speaker 1: of an antiquity that you remember technological change. There was

453
00:26:34,400 --> 00:26:37,600
Speaker 1: a day where you had a Monroe Trader on your

454
00:26:37,720 --> 00:26:42,040
Speaker 1: bond desk and Michael Bloomberg showed up with a Bloomberg terminal.

455
00:26:42,440 --> 00:26:45,679
Speaker 1: You know about technological progress. Is the reason we're not

456
00:26:45,720 --> 00:26:52,000
Speaker 1: seeing wage growth is because of a new technological progress. Yeah.

457
00:26:52,000 --> 00:26:54,600
Speaker 1: I think to some extent, you know, um, you know,

458
00:26:54,720 --> 00:26:58,160
Speaker 1: wages are a function. Obviously they play back and forth

459
00:26:58,200 --> 00:27:00,840
Speaker 1: in terms of productivity and technology. He plays into that.

460
00:27:01,080 --> 00:27:03,280
Speaker 1: I think there are other long term secular factors that

461
00:27:03,320 --> 00:27:06,080
Speaker 1: have been part of this for three or four or five,

462
00:27:06,680 --> 00:27:10,040
Speaker 1: maybe even ten years, and that refers to demographics, and

463
00:27:10,080 --> 00:27:14,320
Speaker 1: it refers to you know, de globalization now and it

464
00:27:14,400 --> 00:27:18,280
Speaker 1: refers to um, you know, other factors which tend to

465
00:27:18,480 --> 00:27:23,560
Speaker 1: dampen wage growth. Aside from the cyclical types of numbers,

466
00:27:23,560 --> 00:27:27,159
Speaker 1: I think demographics importantly are key. We see that in

467
00:27:27,240 --> 00:27:29,640
Speaker 1: Japan and I've seen that for the past decade, where

468
00:27:30,000 --> 00:27:33,240
Speaker 1: a static labor force or a decline in labor force

469
00:27:33,320 --> 00:27:36,280
Speaker 1: basically puts a puts a lid on wages. And we're

470
00:27:36,400 --> 00:27:39,920
Speaker 1: beginning to see that the boomers here in the United States.

471
00:27:39,960 --> 00:27:41,640
Speaker 1: I'm gonna go to John Farrell here and it course

472
00:27:41,720 --> 00:27:44,760
Speaker 1: John Farroll talking with Gary Cone here in the nine

473
00:27:44,760 --> 00:27:47,400
Speaker 1: o'clock our. Let me make this clear, folks. If one

474
00:27:47,440 --> 00:27:50,800
Speaker 1: line sticks out in the report, it's the collapse of

475
00:27:50,960 --> 00:27:56,880
Speaker 1: retail employment in America. John Farrell another negative statistic today

476
00:27:57,000 --> 00:27:59,160
Speaker 1: on that. Yeah, away from the detail of the jobs

477
00:27:59,160 --> 00:28:00,480
Speaker 1: are pulled. But I just want to dates from you

478
00:28:00,760 --> 00:28:03,040
Speaker 1: U S two's tens at the fifty basis points at

479
00:28:03,080 --> 00:28:05,360
Speaker 1: forty nine right now, how you positioned in terms of

480
00:28:05,520 --> 00:28:07,560
Speaker 1: how you expect the curve to evolve through this year.

481
00:28:09,400 --> 00:28:11,480
Speaker 1: You know, I don't seem much flattening, No, No, I

482
00:28:11,520 --> 00:28:13,800
Speaker 1: know that's the fear and the potential for a recession

483
00:28:13,800 --> 00:28:16,639
Speaker 1: if it flattens. I think that's an old type of

484
00:28:16,680 --> 00:28:19,199
Speaker 1: model that's sort of out of date. But you know

485
00:28:19,240 --> 00:28:21,639
Speaker 1: what I see is is that central banks and not

486
00:28:21,800 --> 00:28:24,600
Speaker 1: just the US in terms of um, you know, liquid

487
00:28:24,640 --> 00:28:27,200
Speaker 1: eating fives and tens now as they move the other

488
00:28:27,240 --> 00:28:29,200
Speaker 1: way on q E, but also the E c B

489
00:28:29,400 --> 00:28:32,479
Speaker 1: as they reduced stairs and so there'll be more supply

490
00:28:32,520 --> 00:28:34,760
Speaker 1: in the fives and tens than there has been for

491
00:28:34,800 --> 00:28:36,879
Speaker 1: the last several years. And I think that tends to

492
00:28:36,960 --> 00:28:40,120
Speaker 1: keep the curb relatively steep. The important thing for me

493
00:28:40,280 --> 00:28:43,240
Speaker 1: is where central banks, and certainly the Fed, where they

494
00:28:43,280 --> 00:28:46,200
Speaker 1: stop in terms of the policy rate and the real

495
00:28:46,400 --> 00:28:49,400
Speaker 1: policy rate. You had discussions, you know, thirty minutes ago

496
00:28:49,480 --> 00:28:52,640
Speaker 1: about perhaps one percent on the real rate, which would

497
00:28:52,640 --> 00:28:54,680
Speaker 1: be three percent on the FED funds rate. I think

498
00:28:54,680 --> 00:28:57,480
Speaker 1: that's too high. I'm with cash car around, you know,

499
00:28:57,560 --> 00:28:59,680
Speaker 1: two percent or two and a quarter percent. And if

500
00:29:00,200 --> 00:29:02,640
Speaker 1: central banks cut back on those fives and tens, then

501
00:29:02,680 --> 00:29:07,800
Speaker 1: you would see in my opinion of two tenure perhaps

502
00:29:07,840 --> 00:29:11,000
Speaker 1: now you know, moving to two sixty sixty five and

503
00:29:11,000 --> 00:29:14,680
Speaker 1: and basically, uh, you know, the curve not flattening as

504
00:29:14,680 --> 00:29:17,320
Speaker 1: opposed to what is expected to be cleared out. Bill,

505
00:29:17,360 --> 00:29:19,000
Speaker 1: do you see an opportunity short in the belly of

506
00:29:19,040 --> 00:29:24,240
Speaker 1: the curve um not shortening. I don't think there's much there.

507
00:29:24,320 --> 00:29:27,720
Speaker 1: I just don't think that there's uh, there's a significant

508
00:29:27,880 --> 00:29:31,160
Speaker 1: tightening coming. You know. The critical function again is where

509
00:29:31,160 --> 00:29:33,720
Speaker 1: are short term rates? When we had a flat curve

510
00:29:33,880 --> 00:29:37,680
Speaker 1: during pre recessions and over the past twenty or thirty years,

511
00:29:37,720 --> 00:29:40,480
Speaker 1: it's really the function of short term rates as opposed

512
00:29:40,520 --> 00:29:43,760
Speaker 1: to long term rates flattening out that curve, and if

513
00:29:43,800 --> 00:29:46,840
Speaker 1: short term rates don't move up above a certain real

514
00:29:47,240 --> 00:29:50,560
Speaker 1: interest rate level, then we don't have that much to fear. Okay,

515
00:29:50,600 --> 00:29:52,600
Speaker 1: I want to translate what I just heard, folks, is

516
00:29:52,680 --> 00:29:54,920
Speaker 1: John Farrow went all jargon on us with the belly

517
00:29:54,920 --> 00:29:57,400
Speaker 1: of the curve. Our camera guy in here, Ramy looked

518
00:29:57,400 --> 00:29:59,880
Speaker 1: at my belly as we were talking about the bell.

519
00:30:00,320 --> 00:30:03,640
Speaker 1: That's the five to seven year period, Bill Gross. Let's

520
00:30:03,680 --> 00:30:07,360
Speaker 1: make this clear. I believe that means yield up is

521
00:30:07,400 --> 00:30:10,920
Speaker 1: what you just said, and price down. Do we need

522
00:30:10,960 --> 00:30:14,640
Speaker 1: to prepare for a bond bear market where we see

523
00:30:14,680 --> 00:30:20,640
Speaker 1: price loss amid this yield increase? Yeah, well I think so, Tom,

524
00:30:20,640 --> 00:30:23,160
Speaker 1: And I've been a mild one. You know. I've talked

525
00:30:23,160 --> 00:30:26,440
Speaker 1: in the past about a two level and we're above

526
00:30:26,480 --> 00:30:28,400
Speaker 1: that now. I don't know what's happening in the last

527
00:30:28,680 --> 00:30:31,240
Speaker 1: few seconds, but in any case, um, you know, the

528
00:30:31,240 --> 00:30:35,160
Speaker 1: long term secular trend at these levels is about to

529
00:30:35,200 --> 00:30:37,560
Speaker 1: be broken. And what does that mean. It means that

530
00:30:37,600 --> 00:30:40,880
Speaker 1: the economy can support itself, you know, with a two

531
00:30:40,920 --> 00:30:44,400
Speaker 1: fifty two seventy five type of ten year treasury as

532
00:30:44,440 --> 00:30:47,280
Speaker 1: opposed to what it required in the past five years,

533
00:30:47,280 --> 00:30:49,400
Speaker 1: and so you know, is that a bear market should

534
00:30:49,480 --> 00:30:52,000
Speaker 1: get out. What it basically means that if you hold

535
00:30:52,000 --> 00:30:53,640
Speaker 1: a ten yere and it goes from two fifty to

536
00:30:53,680 --> 00:30:56,200
Speaker 1: two seventy five, that's twenty five basis points. It's got

537
00:30:56,200 --> 00:30:58,720
Speaker 1: an eight year duration. Now that's a loss of two points.

538
00:30:58,720 --> 00:31:01,960
Speaker 1: You lose all of your income. And so bear market, yes,

539
00:31:02,040 --> 00:31:04,960
Speaker 1: but you know I lose a lot of money. Probably not.

540
00:31:05,120 --> 00:31:06,560
Speaker 1: I just want to get ave you on credit bill.

541
00:31:06,640 --> 00:31:08,960
Speaker 1: Last year was a big year for equities. Junk though

542
00:31:09,160 --> 00:31:11,080
Speaker 1: just kind of did nothing. It kind of treaded water

543
00:31:11,120 --> 00:31:14,560
Speaker 1: throughout seventeen. Morgan Stanley Mouth yesterday saying we're getting out,

544
00:31:14,760 --> 00:31:17,320
Speaker 1: We're pairing all of our exposure to high yield debt.

545
00:31:17,360 --> 00:31:18,840
Speaker 1: What would you do here in the United States in

546
00:31:18,920 --> 00:31:22,880
Speaker 1: terms of your exposure to high yield? Yeah, I'm not

547
00:31:22,920 --> 00:31:25,080
Speaker 1: exposed to high yeld. A matter of fact, I'm short

548
00:31:25,760 --> 00:31:28,200
Speaker 1: h y c d X. You know, spreads are very

549
00:31:28,320 --> 00:31:30,800
Speaker 1: very narrow, and they follow the stock market. It's almost

550
00:31:31,280 --> 00:31:34,400
Speaker 1: wonder four correlation. If the stock market goes up one percent,

551
00:31:34,520 --> 00:31:38,000
Speaker 1: then uh, spreads in the price of the c d

552
00:31:38,280 --> 00:31:41,320
Speaker 1: X goes up by uh, you know, by a quarter

553
00:31:41,320 --> 00:31:44,320
Speaker 1: of that. And so Um, you know, stocks up, how

554
00:31:44,440 --> 00:31:47,680
Speaker 1: you'ld spreads down, and how yield prices up. There's a

555
00:31:47,680 --> 00:31:52,280
Speaker 1: certain limit. I mean, how yield yields can't go down

556
00:31:52,360 --> 00:31:55,000
Speaker 1: below zero? I don't think they can, um, And and

557
00:31:55,040 --> 00:31:58,440
Speaker 1: so as we approach lower and lower levels, I think

558
00:31:58,480 --> 00:32:02,120
Speaker 1: the correlation between stocks and how you bonds disappears. And yeah,

559
00:32:02,200 --> 00:32:05,520
Speaker 1: I think we're overdone here, certainly in terms of the

560
00:32:05,800 --> 00:32:09,520
Speaker 1: low levels of how yield very quickly here bill grows

561
00:32:09,600 --> 00:32:13,480
Speaker 1: if you're unconstrained, and if you say bear market, yes,

562
00:32:13,520 --> 00:32:15,640
Speaker 1: but we won't lose a lot of money. What is

563
00:32:15,720 --> 00:32:21,760
Speaker 1: your strategy for two thousand eighteen in being Janison constrained? Well,

564
00:32:21,800 --> 00:32:25,480
Speaker 1: you've got to find the least over valued area. I

565
00:32:25,520 --> 00:32:28,440
Speaker 1: think almost all assets are overvalued based upon KIWI and

566
00:32:28,520 --> 00:32:31,440
Speaker 1: based upon the negative real interest rates that we see

567
00:32:31,480 --> 00:32:33,400
Speaker 1: around the world. The question is how long does it

568
00:32:33,440 --> 00:32:38,640
Speaker 1: continue on which area is the most undervalued relative to

569
00:32:38,720 --> 00:32:42,880
Speaker 1: the rest? And I still think it's volatility, Tom. I'm

570
00:32:42,920 --> 00:32:46,560
Speaker 1: a seller of volatility in certain areas and currencies in

571
00:32:46,680 --> 00:32:51,440
Speaker 1: the oil and gold hasn't the last week or two.

572
00:32:51,880 --> 00:32:54,880
Speaker 1: So I'd sell volatile where this william gross of Jenna's capital.

573
00:32:54,920 --> 00:32:58,560
Speaker 1: And as we celebrate our twenty five anniversary on Bloomberg Radio.

574
00:32:59,080 --> 00:33:02,240
Speaker 1: Very few of ours have been is determined to join

575
00:33:02,360 --> 00:33:05,200
Speaker 1: us as Bill Gross, and we greatly appreciate that over

576
00:33:05,240 --> 00:33:07,840
Speaker 1: the years, Mr Gross, when I look at two point

577
00:33:07,880 --> 00:33:10,760
Speaker 1: six percent down to two point four percent, and as

578
00:33:10,760 --> 00:33:14,160
Speaker 1: you mentioned earlier, out to two point five percent right now,

579
00:33:14,680 --> 00:33:19,680
Speaker 1: as we mentioned yield up, price down, you are unconstrained.

580
00:33:20,320 --> 00:33:24,800
Speaker 1: What part of the bond market will harm our listeners most.

581
00:33:25,160 --> 00:33:27,760
Speaker 1: What is the part of the bond market where you

582
00:33:28,040 --> 00:33:34,360
Speaker 1: don't want to be well, I don't think in the US, Tom,

583
00:33:34,400 --> 00:33:37,800
Speaker 1: I don't think you want anything longer than five years,

584
00:33:37,880 --> 00:33:41,040
Speaker 1: because that's when duration extends and where you get hurt

585
00:33:41,080 --> 00:33:43,520
Speaker 1: the most if fields go up and prices go down.

586
00:33:43,560 --> 00:33:47,280
Speaker 1: That's the old Teeter Tetter. That's what you just explained. Um, So,

587
00:33:47,280 --> 00:33:49,720
Speaker 1: so in the US stay away from the longer term

588
00:33:49,800 --> 00:33:53,280
Speaker 1: issues in the world on a global basis. You know,

589
00:33:53,320 --> 00:33:57,120
Speaker 1: I'm especially negative not only on buns but on guilts.

590
00:33:57,160 --> 00:34:00,120
Speaker 1: And let me tell you why. Um you know, the

591
00:34:00,160 --> 00:34:03,200
Speaker 1: bun spread to treasuries on the tenure level is about

592
00:34:03,200 --> 00:34:06,080
Speaker 1: two hundred and three basis points, and that's where it's

593
00:34:06,080 --> 00:34:08,600
Speaker 1: been for the past a few months. I suppose, but

594
00:34:08,880 --> 00:34:12,360
Speaker 1: it's a nice pickup even on a currency hedge basis

595
00:34:12,719 --> 00:34:16,120
Speaker 1: uh in terms of the Japanese en. You know, Japanese

596
00:34:16,160 --> 00:34:18,920
Speaker 1: investors by US treasuries and they hedged them back into

597
00:34:19,600 --> 00:34:23,440
Speaker 1: g gps. Right now, you can hedge a tenure treasury.

598
00:34:23,520 --> 00:34:25,920
Speaker 1: You can buy a tenure treasury and the end terms

599
00:34:25,920 --> 00:34:28,600
Speaker 1: hedge it back and pick up fifty five basis points

600
00:34:28,760 --> 00:34:32,560
Speaker 1: US treasuries versus japan And so what I'm saying is

601
00:34:32,600 --> 00:34:35,480
Speaker 1: that j gps and buns and guilts you know, are

602
00:34:35,560 --> 00:34:38,960
Speaker 1: all much more overvalued than treasuries. And so if I

603
00:34:38,960 --> 00:34:41,600
Speaker 1: was going to get negative, I wouldn't start with even

604
00:34:41,600 --> 00:34:45,600
Speaker 1: the longer term side of treasures. I'd start with buns, guilts,

605
00:34:45,600 --> 00:34:49,160
Speaker 1: and j gps. When I look at this bill and

606
00:34:49,480 --> 00:34:51,920
Speaker 1: I look at like to make money. It's been a

607
00:34:52,000 --> 00:34:54,239
Speaker 1: wonderful and you know what I mean to diminish it,

608
00:34:54,320 --> 00:34:57,640
Speaker 1: But everybody's made money. Double digit stock market return, double

609
00:34:57,680 --> 00:35:02,000
Speaker 1: digit bond market return. Are we in for dynamics within

610
00:35:02,040 --> 00:35:05,680
Speaker 1: the market or malaise within the market. We forget those

611
00:35:05,760 --> 00:35:10,200
Speaker 1: trading range eras were not much happened. Is that the

612
00:35:10,239 --> 00:35:14,480
Speaker 1: surprise for this year? Well, I think it is, and

613
00:35:14,560 --> 00:35:16,759
Speaker 1: for the next several years as well. And it's a

614
00:35:16,800 --> 00:35:19,120
Speaker 1: setup tom obviously, if you look at it a longer

615
00:35:19,280 --> 00:35:22,080
Speaker 1: term basis, over the next ten years with a tenure treasury,

616
00:35:22,080 --> 00:35:24,200
Speaker 1: you're only going to get two point four or five percent.

617
00:35:24,360 --> 00:35:27,920
Speaker 1: And is that malaise? I think it probably is relative

618
00:35:27,960 --> 00:35:29,640
Speaker 1: to what we've seen in the past. I mean the

619
00:35:30,120 --> 00:35:33,520
Speaker 1: bull market in one that that began with the thirty

620
00:35:33,600 --> 00:35:36,400
Speaker 1: year treasury, you know, produced close to double digit returns,

621
00:35:36,400 --> 00:35:38,920
Speaker 1: and if investors are expecting that there and for a

622
00:35:38,960 --> 00:35:42,880
Speaker 1: you know, sorry disappointment, So malaise is probably a decent word.

623
00:35:43,239 --> 00:35:47,320
Speaker 1: I suggested a mild bear market, which, uh, if prices

624
00:35:47,360 --> 00:35:51,280
Speaker 1: go down on longer term treasuries, then you're probably getting

625
00:35:51,320 --> 00:35:55,399
Speaker 1: close to zero or maybe a minus level. And so yeah,

626
00:35:55,480 --> 00:35:58,480
Speaker 1: bonds are not what they were. And to my way

627
00:35:58,520 --> 00:36:01,440
Speaker 1: of thinking, you know, once we get through these uh,

628
00:36:01,680 --> 00:36:05,520
Speaker 1: tax implications, and once we get through the you know,

629
00:36:05,880 --> 00:36:10,440
Speaker 1: the push from the fiscal side that perhaps they'll induce.

630
00:36:11,120 --> 00:36:14,880
Speaker 1: I think stocks are in the same kettle because the

631
00:36:15,160 --> 00:36:20,800
Speaker 1: two are tied together. Like I mean, we made international headlines,

632
00:36:20,840 --> 00:36:22,560
Speaker 1: do you and me? Bill Gross a few years ago

633
00:36:22,719 --> 00:36:26,360
Speaker 1: talking about Procter and Gambles dividend can you acquire equity

634
00:36:26,480 --> 00:36:33,440
Speaker 1: shares in Dow five thousand, seventy five um. Yeah, in

635
00:36:33,480 --> 00:36:37,400
Speaker 1: some cases, you know, utilities yield four percent plus or minus.

636
00:36:37,440 --> 00:36:40,400
Speaker 1: You can, uh, you know, get levered types of closed

637
00:36:40,480 --> 00:36:43,520
Speaker 1: in funds which I own either on the municipal side

638
00:36:43,560 --> 00:36:47,319
Speaker 1: or on the corporate side, which yield municipal wise five

639
00:36:47,360 --> 00:36:50,720
Speaker 1: percent and corporate wise about eight percent. And so um,

640
00:36:50,760 --> 00:36:53,640
Speaker 1: if those are considered equities, yes, you can do that.

641
00:36:53,800 --> 00:36:56,920
Speaker 1: And you know, a decent dividend with a T and

642
00:36:57,000 --> 00:36:59,399
Speaker 1: T or Verizon, you know in the four or five

643
00:36:59,440 --> 00:37:03,120
Speaker 1: percent agre, yes you can. But uh, certainly the industrials

644
00:37:03,120 --> 00:37:05,560
Speaker 1: and the high tech you know, don't produce that. They

645
00:37:05,680 --> 00:37:08,360
Speaker 1: depended on growth and it's growth that it's driving this.

646
00:37:08,960 --> 00:37:11,240
Speaker 1: Let's go back to the Central Bank. Are Michael McKee

647
00:37:11,320 --> 00:37:13,640
Speaker 1: just spoke with James Bullard of St. Louis. As you

648
00:37:13,640 --> 00:37:16,480
Speaker 1: well know, Bill Gross, he's been an outlier. He was

649
00:37:16,640 --> 00:37:21,279
Speaker 1: really heated about the idea of we don't have to

650
00:37:21,360 --> 00:37:23,760
Speaker 1: raise rates right now. I don't want to put words

651
00:37:23,760 --> 00:37:26,920
Speaker 1: in Mr Bullard's mouth, but that was a tone you mentioned.

652
00:37:27,000 --> 00:37:30,720
Speaker 1: Mr cash carry. Is chairman Powell going to be chairman yelling?

653
00:37:31,080 --> 00:37:35,840
Speaker 1: And are they way out front on raising rates. No,

654
00:37:35,960 --> 00:37:37,920
Speaker 1: I don't think so, and you know I've been so

655
00:37:38,280 --> 00:37:41,080
Speaker 1: I'm sort of uh for climped here. I guess in

656
00:37:41,400 --> 00:37:44,200
Speaker 1: terms of this issue, I think that servants have been

657
00:37:44,239 --> 00:37:48,080
Speaker 1: disadvantaged for the past five years in terms of negative

658
00:37:48,120 --> 00:37:50,680
Speaker 1: real interest rates, and I think in order for our

659
00:37:50,719 --> 00:37:54,520
Speaker 1: economy to adjust ultimately that the real rate has to

660
00:37:54,560 --> 00:37:56,920
Speaker 1: move up to at least zero, and so that would

661
00:37:57,400 --> 00:38:01,719
Speaker 1: mean a rise of basis points. So I'm for that,

662
00:38:01,960 --> 00:38:04,280
Speaker 1: But I do think that cash Cary has a point

663
00:38:04,840 --> 00:38:06,680
Speaker 1: that you can't raise it too high. That it's a

664
00:38:06,760 --> 00:38:09,880
Speaker 1: highly leveled economy and things have to be just right

665
00:38:09,920 --> 00:38:13,360
Speaker 1: in terms of goldilocks in order to keep us going

666
00:38:13,760 --> 00:38:17,520
Speaker 1: at these levels. And so, yeah, fifty seventy basis points,

667
00:38:17,520 --> 00:38:19,799
Speaker 1: and if that's what the fit has built in, look

668
00:38:19,840 --> 00:38:23,040
Speaker 1: it is a little bit less. Um. Yeah, that that's fine,

669
00:38:23,120 --> 00:38:26,360
Speaker 1: But I'm with Cascary. When you start to exceed to

670
00:38:26,640 --> 00:38:29,720
Speaker 1: two and a quarter percent, well, of course, our jargon

671
00:38:29,840 --> 00:38:32,640
Speaker 1: free here at Bloomberg Surveillance, Mr Gross using a word

672
00:38:32,680 --> 00:38:35,919
Speaker 1: for clump, which is from the Yiddish. And it's too

673
00:38:35,920 --> 00:38:39,320
Speaker 1: emotional to speak, Bill Gross, too emotional to speak about

674
00:38:39,360 --> 00:38:43,399
Speaker 1: too much of FED policy what's your exogen is shock

675
00:38:43,520 --> 00:38:45,759
Speaker 1: for this year? Bill? As you know, one day you

676
00:38:45,840 --> 00:38:48,719
Speaker 1: walk in the office and things can change. What's the

677
00:38:48,760 --> 00:38:52,320
Speaker 1: exogen is shock you're attuned to right now? I'm thinking

678
00:38:52,440 --> 00:38:56,759
Speaker 1: Italian elections, something in China. Maybe it's the idea of

679
00:38:56,760 --> 00:38:59,959
Speaker 1: that San Francisco Fortys are gonna win every game, which

680
00:39:00,000 --> 00:39:02,920
Speaker 1: in me until forever. What's the exoggit of shock that

681
00:39:03,000 --> 00:39:09,800
Speaker 1: has your attention? Well, politics and geopolitics are always important

682
00:39:09,800 --> 00:39:13,600
Speaker 1: and hard to predict, and I've been early and constant.

683
00:39:13,640 --> 00:39:17,680
Speaker 1: I guess in terms of my fear of China, and uh,

684
00:39:17,760 --> 00:39:20,160
Speaker 1: it's leverage. You know, whenever you have a problem, and

685
00:39:20,239 --> 00:39:23,440
Speaker 1: we had that in the Great Recession and all recessions

686
00:39:23,480 --> 00:39:25,400
Speaker 1: prior to that, it's been a function of leverage and

687
00:39:25,440 --> 00:39:29,080
Speaker 1: an interest rate that isn't a matched to that increasing leverage.

688
00:39:29,080 --> 00:39:32,600
Speaker 1: And certainly that's the case in China. There's arguments that

689
00:39:32,960 --> 00:39:34,600
Speaker 1: say that they can take care of that, they have

690
00:39:34,760 --> 00:39:37,520
Speaker 1: trillions of dollars of reserves and the state can take

691
00:39:37,560 --> 00:39:41,759
Speaker 1: care of the smaller companies. But I I worry about it.

692
00:39:42,480 --> 00:39:44,960
Speaker 1: I worry about leverage and China and how it will

693
00:39:45,000 --> 00:39:48,040
Speaker 1: be resolved, and so I look for that at some

694
00:39:48,120 --> 00:39:50,520
Speaker 1: point to create a problem. What do we need to

695
00:39:50,560 --> 00:39:53,719
Speaker 1: do in Washington to find stability? I assume you did

696
00:39:53,719 --> 00:39:56,480
Speaker 1: not get an advanced copy of Mr Wolf's book Fire

697
00:39:56,880 --> 00:39:59,160
Speaker 1: and Fury. I believe it's out in six minutes on

698
00:39:59,320 --> 00:40:03,399
Speaker 1: Kindle on Amazon. But Bill Gross, the last twenty four

699
00:40:03,440 --> 00:40:06,200
Speaker 1: hours have been crazy. Some would say the last year

700
00:40:06,239 --> 00:40:09,520
Speaker 1: has been crazy. Do you need a more stable Washington

701
00:40:09,840 --> 00:40:14,960
Speaker 1: or do you ignore the follies? Well, the market has

702
00:40:15,000 --> 00:40:18,200
Speaker 1: been ignoring, right, all of the events with the North

703
00:40:18,280 --> 00:40:21,600
Speaker 1: Korea and all of the tweets wherever they go, you know,

704
00:40:21,640 --> 00:40:24,520
Speaker 1: seem to be ignored now. But I think I think

705
00:40:24,560 --> 00:40:27,680
Speaker 1: we do. I mean stability in Washington. Stability and government

706
00:40:27,800 --> 00:40:31,200
Speaker 1: is an important factor long term in terms of markets

707
00:40:31,239 --> 00:40:35,040
Speaker 1: and and so markets and prices for markets are dependent

708
00:40:35,120 --> 00:40:38,319
Speaker 1: upon less volatility. That's really what the Fed has been

709
00:40:38,320 --> 00:40:40,799
Speaker 1: trying to do on the monetary side. Yeah, let's see

710
00:40:40,800 --> 00:40:44,520
Speaker 1: some stability in Washington in terms of policy, um, and

711
00:40:44,800 --> 00:40:47,560
Speaker 1: we might just you know, be able to maintain these

712
00:40:47,640 --> 00:40:51,080
Speaker 1: levels in terms of risk asset prices. Bill Gross, thank

713
00:40:51,080 --> 00:40:54,000
Speaker 1: you so much, greatly appreciated. He's a Jana's capital, generous

714
00:40:54,000 --> 00:41:13,280
Speaker 1: of his time. UH this morning, and here is John

715
00:41:13,280 --> 00:41:17,440
Speaker 1: Farrell and administration's views on the jobs report were now

716
00:41:17,520 --> 00:41:21,080
Speaker 1: joined on Blueberg Television and Radio from Washington by Gary Kung,

717
00:41:21,520 --> 00:41:25,080
Speaker 1: National Economic Council Director. Gary, it's always greater cash out

718
00:41:25,080 --> 00:41:26,759
Speaker 1: with the assert So thank you very much for giving

719
00:41:26,840 --> 00:41:29,120
Speaker 1: us your time. Let's start with a payrolls report. A

720
00:41:29,200 --> 00:41:31,360
Speaker 1: slight disappointment, but I just wonder whether we've got to

721
00:41:31,360 --> 00:41:34,319
Speaker 1: start getting used to numbers while south the two hundred k.

722
00:41:34,520 --> 00:41:37,719
Speaker 1: What are your thoughts, so, Jonathan, thanks for having no Look,

723
00:41:37,760 --> 00:41:40,560
Speaker 1: I don't think we should get used to numbers below

724
00:41:40,600 --> 00:41:43,719
Speaker 1: two K. I think what we're seeing here is a

725
00:41:43,760 --> 00:41:47,480
Speaker 1: continuation of a trend that we've seen in the retail industry,

726
00:41:47,960 --> 00:41:50,000
Speaker 1: and that's something, you know, that we've got to get

727
00:41:50,120 --> 00:41:53,040
Speaker 1: used to. You know, had had we had a traditional

728
00:41:53,600 --> 00:41:57,680
Speaker 1: um in store retail Christmas and we would have added

729
00:41:57,719 --> 00:42:00,960
Speaker 1: the traditional twenty or thirty thousand jobs in store retail

730
00:42:01,239 --> 00:42:04,320
Speaker 1: versus losing twenty thousand jobs in retail for for the month,

731
00:42:04,560 --> 00:42:07,279
Speaker 1: we would have had a two thousand number. Again, So

732
00:42:07,320 --> 00:42:09,719
Speaker 1: if you really that that's the one number in here

733
00:42:10,120 --> 00:42:12,880
Speaker 1: that I think a lot of people missed. You obviously

734
00:42:12,960 --> 00:42:15,680
Speaker 1: saw some numbers come back in the transportation sector, in

735
00:42:15,680 --> 00:42:18,520
Speaker 1: the driving sector. You heard from some of the transportation

736
00:42:18,640 --> 00:42:21,280
Speaker 1: logistics companies that they couldn't hire enough people. They actually

737
00:42:21,280 --> 00:42:25,160
Speaker 1: had managers out delivering and driving trucks because they couldn't

738
00:42:25,200 --> 00:42:27,960
Speaker 1: put people on fast enough. But no, we we see

739
00:42:28,400 --> 00:42:33,960
Speaker 1: the economy continuously growing and and continuously adding jobs on.

740
00:42:34,239 --> 00:42:38,200
Speaker 1: And remember, tax reform is now five days old, and

741
00:42:38,239 --> 00:42:40,400
Speaker 1: the input that that's going to have into the economy

742
00:42:40,560 --> 00:42:43,319
Speaker 1: is just starting, just barely starting to have an effect. Gary,

743
00:42:43,360 --> 00:42:46,040
Speaker 1: let's talk about the initial reaction of corporate America to

744
00:42:46,239 --> 00:42:49,040
Speaker 1: the tax cut. The tax cut is permanent, but what

745
00:42:49,080 --> 00:42:52,440
Speaker 1: I'm seeing is companies to choose to pay one off bonuses.

746
00:42:52,760 --> 00:42:55,280
Speaker 1: Are you disappointed by that that they take a permanent

747
00:42:55,320 --> 00:42:58,279
Speaker 1: tax cut and just give a one off bonus. Look,

748
00:42:58,320 --> 00:43:00,440
Speaker 1: I I don't think that's completely true. I think companies

749
00:43:00,440 --> 00:43:02,520
Speaker 1: have chosen to do a lot of different things. You

750
00:43:02,640 --> 00:43:05,480
Speaker 1: did see a lot of companies raise minimum wages up

751
00:43:05,520 --> 00:43:08,800
Speaker 1: to fifteen fiftifty an hour for their lowest wage workers,

752
00:43:08,960 --> 00:43:12,320
Speaker 1: which is exactly what we wanted to see. Those those

753
00:43:12,440 --> 00:43:16,680
Speaker 1: changes in the minimum wage workers in these companies are

754
00:43:16,800 --> 00:43:20,880
Speaker 1: permanent changes to the wage system. As the economy continues

755
00:43:20,920 --> 00:43:24,000
Speaker 1: to grow and as the labor force continues to tighten. Remember,

756
00:43:24,400 --> 00:43:28,000
Speaker 1: unemployment rate is still four point one percent, it's seventeen

757
00:43:28,040 --> 00:43:31,440
Speaker 1: year lows. We are going to see real wage pressure

758
00:43:31,440 --> 00:43:33,720
Speaker 1: in here. I've been telling you for the last year

759
00:43:33,840 --> 00:43:36,680
Speaker 1: that the one disappointing number that we see month after

760
00:43:36,760 --> 00:43:39,399
Speaker 1: month after month is we saw wage growth of two

761
00:43:39,440 --> 00:43:41,480
Speaker 1: and a half percent against c p I of two

762
00:43:41,560 --> 00:43:44,200
Speaker 1: point two point two. So you see a real wage

763
00:43:44,200 --> 00:43:46,520
Speaker 1: growth in here at three tens of percent. That's just

764
00:43:46,640 --> 00:43:50,040
Speaker 1: not good enough. And we are committed to get real

765
00:43:50,120 --> 00:43:52,440
Speaker 1: wage growth in this country, and we do believe you

766
00:43:52,480 --> 00:43:54,719
Speaker 1: will see it over the course of the next year

767
00:43:54,800 --> 00:43:56,400
Speaker 1: or two. And to be fair, Gary, you've owned that.

768
00:43:56,480 --> 00:43:58,759
Speaker 1: But I wonder whether you support the following thing. New

769
00:43:58,840 --> 00:44:02,000
Speaker 1: York and California a looking to shield their residents from

770
00:44:02,000 --> 00:44:05,279
Speaker 1: the loss of state and local tax deductions if they

771
00:44:05,320 --> 00:44:09,960
Speaker 1: can do that, Is that something actually your administration would support. Look,

772
00:44:10,040 --> 00:44:13,240
Speaker 1: I I've read the articles of what they're trying to do.

773
00:44:13,680 --> 00:44:15,840
Speaker 1: I mean, I understand what they're trying to do for

774
00:44:15,880 --> 00:44:18,920
Speaker 1: their for their cities and their states and their taxpayers.

775
00:44:19,320 --> 00:44:22,400
Speaker 1: We at the federal government still have to collect revenue,

776
00:44:22,680 --> 00:44:25,640
Speaker 1: so we're going to have to evaluate what decisions they

777
00:44:25,680 --> 00:44:29,759
Speaker 1: make in terms of what it does for overall collections

778
00:44:29,800 --> 00:44:32,200
Speaker 1: at the federal level in the federal tax system. So

779
00:44:32,239 --> 00:44:34,120
Speaker 1: what would happen, Gary, if they were able to do that?

780
00:44:34,120 --> 00:44:35,279
Speaker 1: Would that put you in a little bit of a

781
00:44:35,280 --> 00:44:37,560
Speaker 1: troublesome spot. We'd actually actually think about why you could

782
00:44:37,600 --> 00:44:41,239
Speaker 1: raise revenue elsewhere. Look, you know what, what what will

783
00:44:41,280 --> 00:44:44,200
Speaker 1: deal with it when we have to? Hopefully will grow

784
00:44:44,239 --> 00:44:48,319
Speaker 1: the economy fast enough that the tax revenues will see

785
00:44:48,360 --> 00:44:51,120
Speaker 1: everyone's expectation based on economic growth. That would be the

786
00:44:51,200 --> 00:44:54,359
Speaker 1: ultimate answer. That's the answer that we're looking for. We're

787
00:44:54,440 --> 00:44:57,840
Speaker 1: looking for capital reinvestment. We're looking for businesses to return

788
00:44:58,080 --> 00:45:00,799
Speaker 1: to America. We're looking for p able to spend money

789
00:45:00,800 --> 00:45:03,920
Speaker 1: and hire people so we can tax a broader economy.

790
00:45:04,000 --> 00:45:06,960
Speaker 1: That's the right answer for every American to grow jobs

791
00:45:07,160 --> 00:45:09,279
Speaker 1: at every level and grow incomes at every level, and

792
00:45:09,280 --> 00:45:11,200
Speaker 1: tax more of the economy and tax more of the

793
00:45:11,200 --> 00:45:13,839
Speaker 1: economy at a lower rate. Gary. That would beautiful, of course,

794
00:45:13,880 --> 00:45:15,560
Speaker 1: if growth paid for all of this. So caught up

795
00:45:15,560 --> 00:45:17,719
Speaker 1: with the former Treasury Secretary Jack Liewally in the week.

796
00:45:17,719 --> 00:45:19,840
Speaker 1: He thinks, actually the United States runs the risk of

797
00:45:19,920 --> 00:45:23,239
Speaker 1: going broke. That is a pretty dramatic statement. What do

798
00:45:23,320 --> 00:45:27,040
Speaker 1: you say back to it? Look, what I say back

799
00:45:27,040 --> 00:45:28,840
Speaker 1: to him is he is they had their chance of

800
00:45:28,920 --> 00:45:30,719
Speaker 1: running the economy, and when they ran it during the

801
00:45:30,719 --> 00:45:34,680
Speaker 1: Obama administration, I think they added billions upon the I'm sorry,

802
00:45:34,719 --> 00:45:37,799
Speaker 1: trillions upon trillions of dollars of debt. We come in

803
00:45:37,800 --> 00:45:40,480
Speaker 1: with twenty trillion dollars of debt. Um You're gonna have

804
00:45:40,520 --> 00:45:42,359
Speaker 1: to judge us on what we do. We're pretty we're

805
00:45:42,360 --> 00:45:44,960
Speaker 1: pretty optimistic what we can do here. Well, the President

806
00:45:44,960 --> 00:45:46,880
Speaker 1: of United States would like us to to judge us

807
00:45:46,880 --> 00:45:49,560
Speaker 1: on the on the market reaction, the down through twenty

808
00:45:49,600 --> 00:45:53,520
Speaker 1: five thousand celebrating that, Gary, would you caution the president

809
00:45:53,600 --> 00:45:55,040
Speaker 1: to be a little bit careful at these kind of

810
00:45:55,120 --> 00:45:57,120
Speaker 1: levels of owning the upside. Are you're prepared to on

811
00:45:57,239 --> 00:46:00,239
Speaker 1: the downside as well? Look, I was just list into

812
00:46:00,239 --> 00:46:03,480
Speaker 1: Bob doll. Hi, Bob, how are you? And I agree?

813
00:46:03,520 --> 00:46:05,960
Speaker 1: I agree with with with everything he was saying. If

814
00:46:06,000 --> 00:46:08,960
Speaker 1: you look at what's going on in the stock market,

815
00:46:09,000 --> 00:46:12,240
Speaker 1: the stock market is a reflection of what is going

816
00:46:12,280 --> 00:46:15,759
Speaker 1: on in the global economies, what companies are doing from

817
00:46:15,760 --> 00:46:19,920
Speaker 1: an earnings perspective. And again, I'm not sure people really

818
00:46:20,040 --> 00:46:23,480
Speaker 1: understand the effective tax reform in the stock market, and

819
00:46:23,520 --> 00:46:26,200
Speaker 1: we have yet to see the capital expenditure that's going

820
00:46:26,239 --> 00:46:29,600
Speaker 1: to come through for five years of expensing. I think

821
00:46:29,600 --> 00:46:32,359
Speaker 1: the stock market and some other pretty famous investments over

822
00:46:32,360 --> 00:46:35,800
Speaker 1: the last hours have agreed with us that the stock

823
00:46:35,840 --> 00:46:39,279
Speaker 1: market is not expensive. Right now, Gary, let's make some news.

824
00:46:39,280 --> 00:46:40,839
Speaker 1: When can I find out who the next vice chair

825
00:46:40,880 --> 00:46:42,480
Speaker 1: the Federals? It's gonna bea Do I get it before

826
00:46:42,520 --> 00:46:46,640
Speaker 1: the end of the month? Um? Possibly, but I wouldn't

827
00:46:46,640 --> 00:46:49,240
Speaker 1: bet on it. What about market deregulation for the banks,

828
00:46:49,239 --> 00:46:51,760
Speaker 1: the financials? When are we gonna take some concrete steps?

829
00:46:51,840 --> 00:46:54,440
Speaker 1: Is it a story of less regulation or a story

830
00:46:54,440 --> 00:46:58,960
Speaker 1: of none more regulation? Um? It's so so. We we

831
00:46:59,040 --> 00:47:04,680
Speaker 1: are making enormous progress on a bipartisan basis on bank deregulation.

832
00:47:04,800 --> 00:47:06,799
Speaker 1: We've we've got a bill in the Senate that has

833
00:47:06,840 --> 00:47:12,160
Speaker 1: bipartisan support to really change the regulatory environment for the vast,

834
00:47:12,280 --> 00:47:15,439
Speaker 1: vast majority of banks in the United States, and that

835
00:47:15,600 --> 00:47:19,160
Speaker 1: is going to see floor time, hopefully in January, and

836
00:47:19,200 --> 00:47:22,360
Speaker 1: we can get that built through Congress um in the

837
00:47:22,400 --> 00:47:24,480
Speaker 1: first quarter of this year, which is going to really

838
00:47:24,600 --> 00:47:27,040
Speaker 1: free up, you know, the vast majority of banks in

839
00:47:27,080 --> 00:47:29,400
Speaker 1: the United States to get back to their core business

840
00:47:29,600 --> 00:47:33,560
Speaker 1: and serving their communities and serving their customers. Gary my Blimberg,

841
00:47:33,600 --> 00:47:35,920
Speaker 1: radiocanets Tom Kaine to myself. We're having a conversation a

842
00:47:35,960 --> 00:47:38,680
Speaker 1: little bit earlier about confidence on Wall Street, and we

843
00:47:38,760 --> 00:47:42,200
Speaker 1: thought about the current battle between the President United States

844
00:47:42,200 --> 00:47:46,240
Speaker 1: and Mr Bannon. It's confidence being lost at this point.

845
00:47:46,280 --> 00:47:47,880
Speaker 1: You talked to me about how difficult it is to

846
00:47:47,920 --> 00:47:50,359
Speaker 1: work in the White House currently. The perception is there's

847
00:47:50,360 --> 00:47:54,160
Speaker 1: a lot of drama to kickoff. What's the reality, Gary,

848
00:47:54,760 --> 00:47:58,720
Speaker 1: The reality is the White House is operating smoothly. Everything

849
00:47:58,800 --> 00:48:01,440
Speaker 1: is going well. Look at what we just accomplished. Let's

850
00:48:01,480 --> 00:48:05,720
Speaker 1: look at the facts. We just signed. Literally the last

851
00:48:05,840 --> 00:48:07,719
Speaker 1: working day in the White House of last year is

852
00:48:07,760 --> 00:48:11,400
Speaker 1: less than two weeks ago. We just signed major tax

853
00:48:11,480 --> 00:48:15,760
Speaker 1: reform simplification, something that has not been done for thirty

854
00:48:15,880 --> 00:48:18,640
Speaker 1: one years. We got that done in the White House

855
00:48:18,680 --> 00:48:22,359
Speaker 1: with the President's leadership. Think about that. That tells you

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00:48:22,440 --> 00:48:25,759
Speaker 1: how the White House is operating. We're now working aggressively

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Speaker 1: on our new plan for this year. We've got a

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00:48:27,920 --> 00:48:30,719
Speaker 1: big meeting at Camp David this weekend with the legislative

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Speaker 1: leaders where we're gonna map out our legislative plan for

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Speaker 1: for two thousand eighteen. I think we're working quite effectively

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Speaker 1: and efficiently. I got it just to to wrap things up.

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Speaker 1: A lot of weight in that last statement, And there

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00:48:41,280 --> 00:48:43,520
Speaker 1: was a lot of people on Wall Street that expected

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00:48:43,560 --> 00:48:45,759
Speaker 1: you to kind of like fight away and disappear after

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Speaker 1: the tax bill got signed, self delivered. Is it gonna

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Speaker 1: be way for a long long time? You're sticking with

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Speaker 1: this for the long rundown in a Washington day say, look,

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Speaker 1: there's a lot to be done on the economic agenda.

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Speaker 1: President Trump has a very strong view on how we

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00:48:59,600 --> 00:49:02,200
Speaker 1: can draw this economy, and I'm happy to be proud

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Speaker 1: of his economic plan. Is that a yes? Thank Gary,

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Speaker 1: you're sticking with it. I'm happy to be part of

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00:49:07,280 --> 00:49:09,759
Speaker 1: his economic agenda. Okay, we're not getting an answer. It

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Speaker 1: on me. Gary Cone has always got to catch out

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Speaker 1: with the U S National economic Concept's alright? The thank

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Speaker 1: you said thanks for listening to the Bloomberg Surveillance podcast.

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00:49:24,440 --> 00:49:29,480
Speaker 1: Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or

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00:49:29,560 --> 00:49:33,839
Speaker 1: whichever podcast platform you prefer. I'm on Twitter at Tom

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00:49:33,960 --> 00:49:37,839
Speaker 1: Keane before the podcast. You can always catch us worldwide

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00:49:38,280 --> 00:49:39,360
Speaker 1: I'm Bloomberg Radio