WEBVTT - Surveillance: Fed Course with Susan Collins 0:00:05.080 --> 0:00:08.440 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.480 --> 0:00:12.320 with Jonathan Faroe and Lisa Abramowitz. Join us each day 0:00:12.320 --> 0:00:16.800 for insight from the best and economics, geopolitics, financing, investment. 0:00:17.239 --> 0:00:22.000 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.239 --> 0:00:26.560 anywhere you get your podcasts and always I'm Bloomberg dot Com, 0:00:26.600 --> 0:00:31.080 the Bloomberg Terminal, and the Bloomberg Business app. Right now, 0:00:31.120 --> 0:00:33.760 and we're going to do this quickly because every second matters. 0:00:33.760 --> 0:00:37.480 With Susan Collins, it's very simple. She is associated with 0:00:37.520 --> 0:00:41.920 the University of Michigan, but far more her sterling academics 0:00:41.960 --> 0:00:45.120 that we've seen from Susan Collins at Harvard and then 0:00:45.200 --> 0:00:48.800 deep down the Charles River to Mit and of course, 0:00:48.840 --> 0:00:52.720 as Michael mckeeg goes plunging across to near South Station 0:00:52.800 --> 0:00:56.360 and the Federal Reserve Bank of Boston, Michael McKee was 0:00:56.520 --> 0:01:00.680 Susan Collins. Thank you very much. Time. We have the 0:01:00.680 --> 0:01:03.560 Boston Fed President here with us in Washington, and we'd 0:01:03.560 --> 0:01:06.640 like to thank you for joining us today here at 0:01:06.680 --> 0:01:10.200 Bloomberg and to our audience around the world on Bloomberg 0:01:10.240 --> 0:01:13.360 Radio and television. Thank you for joining us. Let's start 0:01:13.360 --> 0:01:16.360 with the numbers, because they just came out. Personal income 0:01:16.440 --> 0:01:19.760 up three tenths, personal spending two tenths, and then the 0:01:19.800 --> 0:01:22.720 PC indicator, which of course is the Fed's favorite. Three 0:01:22.720 --> 0:01:26.840 tenths for the headline, three tenths for the core. What 0:01:26.920 --> 0:01:29.520 does this tell you about the state of the economy 0:01:29.600 --> 0:01:33.080 and where the FED is in its inflation fight? So 0:01:33.520 --> 0:01:35.840 let me start by saying, just absolutely delighted to be 0:01:35.959 --> 0:01:39.000 here with you. Look forward to our conversation, and of 0:01:39.040 --> 0:01:41.520 course I haven't had a chance to dig deeply into 0:01:41.600 --> 0:01:45.520 the numbers yet, and sometimes the you know, the details 0:01:45.560 --> 0:01:48.600 actually are important in terms of understanding the story. But 0:01:48.840 --> 0:01:53.400 starting with the PC inflation, that's about what was expected, 0:01:54.640 --> 0:01:59.800 and so that is some positive news. At the same time, 0:02:00.040 --> 0:02:02.040 let me say two things about that. Once, that the 0:02:02.080 --> 0:02:06.640 monthly data really noisy. We've seen that, and so one 0:02:06.720 --> 0:02:11.160 month of move in a kind of more helpful direction 0:02:11.760 --> 0:02:16.200 is not something that really indicates a sustained change. And 0:02:16.240 --> 0:02:19.240 the other thing I'll say is that if you recognizing 0:02:19.639 --> 0:02:23.240 the high the elevated numbers we saw in December and January, 0:02:23.760 --> 0:02:27.240 this a bit lower number that we expected just means 0:02:27.240 --> 0:02:29.440 that the three month average is about what the twelve 0:02:29.440 --> 0:02:33.400 month average is, and so that's not a lot of progress. 0:02:33.440 --> 0:02:36.880 We still do have more work to do and more 0:02:36.960 --> 0:02:39.480 to see to know that inflation is really on a 0:02:39.520 --> 0:02:42.440 sustained downward path. Well, you're on record is saying your 0:02:42.440 --> 0:02:45.480 favorite at least one more move by the Fed. Does 0:02:45.480 --> 0:02:48.080 this sort of lock it in for May, that you 0:02:48.200 --> 0:02:51.000 do it because inflation is still at a high level, 0:02:51.240 --> 0:02:53.639 and you don't pause for a month to see how 0:02:53.639 --> 0:02:56.880 things are going. Well. Actually, what I think I'm on 0:02:56.960 --> 0:03:00.200 record as saying is that I'm highly data dependent, and 0:03:00.280 --> 0:03:05.200 so my assessment at the last meeting just last week 0:03:05.639 --> 0:03:10.040 with the summary of economic projections did suggest an additional 0:03:10.840 --> 0:03:13.519 rate hike and then pausing and holding over the year. 0:03:13.600 --> 0:03:15.960 But I need to assess all of the data that's 0:03:16.000 --> 0:03:18.080 going to come in between now and when our next 0:03:18.120 --> 0:03:22.600 meeting is in early May. And you know where I 0:03:22.639 --> 0:03:25.160 am at the moment. The new data that I've seen 0:03:25.280 --> 0:03:28.800 just in the past week has not materially changed how 0:03:28.840 --> 0:03:30.920 I'm thinking about things. But I certainly don't make a 0:03:30.919 --> 0:03:33.600 decision this far in advance about what I'm going to 0:03:33.639 --> 0:03:36.160 think is the right thing to do. Well, the markets 0:03:36.200 --> 0:03:37.800 have looked at all the data and they're pricing in 0:03:37.920 --> 0:03:42.960 four rate cuts this year. Are traders crazy? What I 0:03:43.000 --> 0:03:45.680 would say is obviously there's a range of views about 0:03:45.720 --> 0:03:47.920 these things. I mean, look, inflation is just really too 0:03:48.000 --> 0:03:52.320 high when we talk about price stability. To me, what 0:03:52.400 --> 0:03:55.520 that means is a level of low stable inflation. When 0:03:55.640 --> 0:03:59.200 I was thinking about inflation, well, everybody is thinking about inflation, 0:03:59.280 --> 0:04:01.960 and that really does mean we have more work to do. 0:04:02.000 --> 0:04:04.800 And what history has told us is that you need 0:04:04.840 --> 0:04:08.840 to have conditions sufficiently tight and then really hold the 0:04:08.880 --> 0:04:12.480 course in order to know that you have in a 0:04:12.520 --> 0:04:17.360 sustainable way gotten inflation. Going back to what the target is, well, 0:04:17.400 --> 0:04:22.440 spending was down during not down, but decelerated significantly during 0:04:22.480 --> 0:04:25.120 the month of February according to this report. Do you 0:04:25.160 --> 0:04:29.039 worry about going too far and tipping the country into recession? 0:04:29.080 --> 0:04:33.440 That's the standard view of what the FED does. It 0:04:33.600 --> 0:04:37.279 is absolutely a balance, and I think it's important to 0:04:37.320 --> 0:04:41.880 recognize that there are uncertainties, there are risks, and in particular, 0:04:42.279 --> 0:04:45.960 we do need to balance the risk that we don't 0:04:46.000 --> 0:04:49.200 do enough, that we're not sustained, don't hold the course 0:04:49.640 --> 0:04:53.480 and don't bring inflation down. And again, as I mentioned before, 0:04:53.640 --> 0:04:56.520 inflation is really costly to businesses and households, and so 0:04:56.560 --> 0:05:00.599 that's important. At the same time, you're absolut right. I 0:05:00.640 --> 0:05:05.960 do monitor the data looking at the when we might 0:05:06.040 --> 0:05:10.039 see the economy turning, and some of the slower data 0:05:10.120 --> 0:05:12.240 I think is helpful in that context. That's what we 0:05:12.279 --> 0:05:15.839 would help to hope to see at the same time 0:05:16.600 --> 0:05:19.719 early days. Yet in terms of assessing whether we really 0:05:19.760 --> 0:05:21.800 have gone as far as we need to go, well, 0:05:21.839 --> 0:05:24.400 in terms of assessing, have you got any assessment of 0:05:24.400 --> 0:05:28.239 what impact the recent banking issues will have on the economy. 0:05:28.279 --> 0:05:30.440 There's a theory out there thanks are going to tighten 0:05:30.480 --> 0:05:33.240 credit and do some of your work for you, and 0:05:33.279 --> 0:05:35.760 that could also send us into recession. That is certainly 0:05:35.800 --> 0:05:39.040 an important factor. There's absolutely a theory out there, and 0:05:39.800 --> 0:05:43.919 we could see some of that. My expectation is that 0:05:43.920 --> 0:05:46.080 we're likely to see at least some, but we'll have 0:05:46.120 --> 0:05:49.560 to continue to really monitor the data and see what 0:05:49.640 --> 0:05:54.240 happens in terms of how things evolve. But you knows. 0:05:54.360 --> 0:05:58.239 As I've said, I had expected early in March that 0:05:58.360 --> 0:06:00.960 I might think we would need to do more work 0:06:01.040 --> 0:06:05.000 and the banking stresses and what I think is at 0:06:05.080 --> 0:06:08.719 least a possible response of banks in terms of their 0:06:08.720 --> 0:06:12.320 own liquidity needs has influenced that, and so it's certainly 0:06:12.320 --> 0:06:15.040 one of the important things to factor. You know, one 0:06:15.040 --> 0:06:17.279 of the things I do want to just emphasize is 0:06:17.320 --> 0:06:20.400 I continue to see, given the resilience in our economy, 0:06:20.680 --> 0:06:23.200 that there's a pathway that we can bring inflation down 0:06:23.240 --> 0:06:28.440 without a significant downturn, and so monitoring holistically the range 0:06:28.480 --> 0:06:31.039 of data and that balance that we just talked about 0:06:31.120 --> 0:06:34.720 is a really important factor in that outlook. Do you 0:06:34.720 --> 0:06:37.279 think the FED bears any responsibility for what happened with 0:06:37.279 --> 0:06:40.640 the banks because they raise rates interest rates so fast 0:06:40.720 --> 0:06:44.520 and so far. I think that there were a number 0:06:44.600 --> 0:06:48.400 of mistakes and challenges that were made. I also think 0:06:48.440 --> 0:06:52.040 it's really important that the review that Vice share Bar 0:06:52.640 --> 0:06:58.000 is conducting that's underway be thorough unfettered, and that we 0:06:58.160 --> 0:07:01.640 not kind of prejudge what lessons and findings from that 0:07:01.680 --> 0:07:04.120 report are going to be, but we commit with a 0:07:04.120 --> 0:07:06.680 bit of a sense of humility, that we will take 0:07:06.720 --> 0:07:10.600 those findings really seriously and act on them to continue 0:07:10.640 --> 0:07:13.880 to strengthen what I see as already a sound and 0:07:14.080 --> 0:07:17.160 resilient banking system. Well, what are banks in your district 0:07:17.200 --> 0:07:21.760 telling you about their situation. So of course we monitor 0:07:21.920 --> 0:07:25.240 very closely and we are in close contact with the 0:07:25.280 --> 0:07:29.200 banks throughout the first district, which is most of New England, 0:07:29.680 --> 0:07:33.120 and what we're seeing is that they are very focused 0:07:33.240 --> 0:07:39.360 on the their activities to really support the communities throughout 0:07:39.480 --> 0:07:42.400 our district. The you know, as you know, small and 0:07:42.480 --> 0:07:45.880 medium banks play a critical role in a vibrant economy, 0:07:46.160 --> 0:07:49.960 and they also, you know, are particularly focused on what 0:07:50.080 --> 0:07:52.680 some of the risks might be, especially in the aftermath 0:07:52.680 --> 0:07:54.560 of some of the stresses that we've seen, and so 0:07:54.720 --> 0:07:59.840 we very much work to support those activities and appreciate 0:07:59.880 --> 0:08:02.880 the work that they're doing. You and your colleagues talk 0:08:02.920 --> 0:08:06.520 a lot about the cumulative impact of your rate increases. 0:08:07.320 --> 0:08:10.120 Is that hitting now? Has that hit? When do we 0:08:10.240 --> 0:08:15.960 really see five percent fed funds rate have an impact? Yeah, 0:08:16.000 --> 0:08:19.600 so that's a really important question. And the way that 0:08:19.680 --> 0:08:22.640 I think about it is that there are absolutely lags. 0:08:22.720 --> 0:08:26.080 There's some sectors, some parts of the economy that see 0:08:26.120 --> 0:08:29.520 the increase in rates and they respond relatively quickly, and 0:08:29.600 --> 0:08:33.960 I would put housing markets there. We certainly saw responses 0:08:33.960 --> 0:08:37.200 in housing markets to tighter financial conditions relatively quickly, and 0:08:37.200 --> 0:08:40.240 that's what we would expect at the same time, other markets, 0:08:40.280 --> 0:08:43.840 such as labor markets often are impacted over time, and 0:08:43.880 --> 0:08:46.520 it really is only in the second half of twenty 0:08:46.559 --> 0:08:51.120 twenty two that our interest rates got to a broader 0:08:51.240 --> 0:08:54.720 range that we're quite restrictive, and so my assessment is 0:08:54.760 --> 0:08:57.920 that it will still be some time, but over the 0:08:57.960 --> 0:09:02.040 coming quarters we really should see other sectors of the 0:09:02.080 --> 0:09:06.680 economy respond to the tightening that is already kind of 0:09:06.679 --> 0:09:08.880 factoring through the system. Well, I guess we'll check back 0:09:08.880 --> 0:09:12.040 with you with the fall. One last question, Tom Kane, 0:09:12.640 --> 0:09:15.120 Since I know the Red Sox lost yesterday and uron 0:09:15.240 --> 0:09:19.000 record is saying that the season is over, let me 0:09:19.040 --> 0:09:22.600 ask the Boston Fedbank president one loss? Is the season 0:09:22.640 --> 0:09:26.400 over for the resolutely not? And we look forward to 0:09:26.520 --> 0:09:30.119 our Red Sox and our other teams having a wonderful 0:09:30.360 --> 0:09:34.520 season and many exciting games ahead. All right, Tom, Somebody 0:09:35.400 --> 0:09:48.560 she absolutely nailed that. Michael Zelden is described by that 0:09:48.760 --> 0:09:54.280 adjunct professor at American University Washington College of Law. Michael, 0:09:54.320 --> 0:09:57.000 thank you so much for joining us. What was your 0:09:57.040 --> 0:10:01.600 first day at Justice? Like ages ago? Is a Justice 0:10:01.679 --> 0:10:06.000 department now? The same Justice department where you walked in 0:10:06.040 --> 0:10:10.440 out of Binghamton in your legal practice years ago. I 0:10:10.480 --> 0:10:13.880 believe it is. I believe that under Merrick Garland they 0:10:13.920 --> 0:10:16.960 are committed to the rule of law and to following 0:10:17.000 --> 0:10:22.199 the facts and the law, and to dispense justice even handedly. 0:10:22.280 --> 0:10:25.760 So yes, I think they are. What will we see Tuesday? 0:10:25.840 --> 0:10:30.520 If we have a presumed arrayment of X number of items? 0:10:31.160 --> 0:10:36.360 Can you prejudge that or pre analyze that? Well, we 0:10:36.480 --> 0:10:39.760 can guess that Trump is going to be charged with 0:10:40.600 --> 0:10:46.480 a campaign violation, campaign law violation, and the business records violation. 0:10:46.760 --> 0:10:50.439 The business records will probably be ten or twelve different 0:10:51.000 --> 0:10:55.720 business entries that reflect payment to Michael Cohen as legal fees, 0:10:56.040 --> 0:11:00.360 which were in fact repayment of the Stormy Daniels thirty 0:11:00.400 --> 0:11:04.199 thousand dollars hush money payment. So we might see a 0:11:04.280 --> 0:11:07.000 ten or twelve count entitement, but really it boils down 0:11:07.080 --> 0:11:11.000 to one hush money payment by Cohen to Stormy Daniels, 0:11:11.240 --> 0:11:14.280 and that a ten part or twelve part reimbursement of 0:11:14.360 --> 0:11:18.679 Cohen for that. That is a business crimes offense in 0:11:18.720 --> 0:11:22.640 New York and it is a misdemeanor. They can make 0:11:22.679 --> 0:11:25.360 it a felony if they say that those payments were 0:11:25.400 --> 0:11:29.320 made as part of a other crime, and that other 0:11:29.360 --> 0:11:34.280 crime is a federal campaign elections crime, a theory not 0:11:34.480 --> 0:11:38.839 previously tested in New York. So it's not a simple case, 0:11:39.280 --> 0:11:41.120 but that I think will be the outline of what 0:11:41.200 --> 0:11:44.520 we'll see on Tuesday, Michael. There are people who are watching, 0:11:44.520 --> 0:11:47.199 those who are frustrated to be dragged back into wall 0:11:47.280 --> 0:11:50.120 to all circus coverage of this question of you know, 0:11:50.280 --> 0:11:53.480 hush money paid to people who may or may not 0:11:53.600 --> 0:11:58.280 have had affairs. This is really one consequence of an 0:11:58.280 --> 0:12:01.199 era that a lot of people want to perhaps move on, 0:12:01.640 --> 0:12:04.680 move forward, and yet the erosion of the trust in 0:12:04.720 --> 0:12:09.200 the judicial system continues. How much do prosecutors away this 0:12:09.240 --> 0:12:12.280 type of social response when deciding whether to go forward. 0:12:13.679 --> 0:12:16.200 It's part of the calculus, but it shouldn't be the 0:12:16.280 --> 0:12:20.600 primary calculus. The primary aunt calculus has to be war 0:12:20.760 --> 0:12:26.720 laws violated and is accountability required for that law violation? 0:12:26.760 --> 0:12:29.319 And I think that in this case, though it's an 0:12:29.320 --> 0:12:33.720 old case by current standards, it is a case that 0:12:33.880 --> 0:12:38.120 I think the Manhattan disc Aturney's office felt accountability was 0:12:38.240 --> 0:12:41.920 required and therefore they brought it. Now. Yes, it's true 0:12:41.960 --> 0:12:44.280 that people would like to move on from this, but 0:12:44.360 --> 0:12:47.040 people would like to move on from January sixth, and 0:12:47.080 --> 0:12:49.400 there needs to be accountability there and people want to 0:12:49.400 --> 0:12:52.400 be moving on from all sorts of things in the 0:12:52.440 --> 0:12:56.640 Trump error, but we still need a reconciliation with what 0:12:56.760 --> 0:12:59.680 occurred so that we can learn from it and move 0:12:59.720 --> 0:13:03.040 forward as a country away from it. Given the fact 0:13:03.040 --> 0:13:07.080 that you just talked about the nature of this particular crime, 0:13:07.720 --> 0:13:10.200 do you think that there will be blowback The New 0:13:10.280 --> 0:13:14.480 York prosecutor is going forward with us there already is. 0:13:14.720 --> 0:13:18.439 I mean, he's already been labeled as a sorrows funded 0:13:19.280 --> 0:13:25.840 liberal and a racist by the former president. So yes, 0:13:26.200 --> 0:13:29.240 I think that part of the strategy in the court 0:13:29.240 --> 0:13:33.000 of public opinion is going to be to demonize Bragg 0:13:33.600 --> 0:13:38.880 and try to delegitimize the prosecution. Oh, Michael, and the 0:13:39.000 --> 0:13:42.319 honest thing, folks, I remember exactly where I was standing 0:13:42.679 --> 0:13:45.800 on the oj decision years ago, and you provided the 0:13:45.880 --> 0:13:50.240 nation with legal coverage at that time, Michael Zelda and 0:13:50.320 --> 0:13:53.200 Donald Trump was twenty seven, twenty eight years old in 0:13:53.280 --> 0:13:56.760 nineteen seventy four, were Wilbe Mills, and you know it 0:13:56.880 --> 0:13:59.719 was in the Jefferson title basin and the scandal and 0:14:00.240 --> 0:14:04.280 or then and the fourteen other scandals you've followed. Is 0:14:04.320 --> 0:14:09.400 the job change for federal prosecutors because of the cultural 0:14:10.200 --> 0:14:14.319 acceptance of this or that vice along the way? Is 0:14:14.360 --> 0:14:17.480 a job now of your world totally different than it 0:14:17.720 --> 0:14:22.800 was in nineteen seventy four, Well, yes and no. So 0:14:22.840 --> 0:14:27.000 when Wilbur Mills and Fanny Fox fall into the title basin, 0:14:27.440 --> 0:14:31.680 I don't think people were talking then in me too terms. 0:14:31.800 --> 0:14:34.640 I think that was thought of as well. That's just 0:14:34.720 --> 0:14:39.200 the way the system works now in the aftermath of 0:14:39.240 --> 0:14:42.120 the me too movement. I think that sort of behavior 0:14:42.600 --> 0:14:46.320 is intolerable and that's good, and so I think, for example, 0:14:46.920 --> 0:14:52.040 had Bill Clinton done what he did with Monica Lewinsky now, 0:14:52.440 --> 0:14:55.400 he would have been removed from the office of president. 0:14:56.120 --> 0:14:59.080 I think that we're in a better time now than 0:14:59.120 --> 0:15:03.120 we were then with respect to this misogynistic behavior. Michael Zelden, 0:15:03.200 --> 0:15:07.280 for our audience international, what should they look for on 0:15:07.280 --> 0:15:10.760 Tuesday when we get this arrayment? How should we approach 0:15:11.040 --> 0:15:14.640 the news frenzy that we're going to see. I really 0:15:14.680 --> 0:15:17.760 think that a lot of that depends on how Donald 0:15:17.760 --> 0:15:20.760 Trump wants to play this. That is to say, if 0:15:20.760 --> 0:15:23.200 he wants to do what the Justice Department would like 0:15:23.240 --> 0:15:25.880 to do, or the Department the Manhattan disc Attorney's Office 0:15:25.880 --> 0:15:28.080 would like to do. He'll come in through a private 0:15:28.240 --> 0:15:31.680 entrance in a car. He'll go up in the judge's elevator. 0:15:32.000 --> 0:15:36.320 He'll go into the courtroom, he'll make his not guilty plea, 0:15:36.400 --> 0:15:39.440 He'll be fingerprinted and mugshot. He'll go back down that 0:15:39.480 --> 0:15:42.680 elevator and leave, and that will be the end of 0:15:42.680 --> 0:15:46.200 the day, a one hour process. If he elects to 0:15:46.280 --> 0:15:49.800 make a spectacle of it, wanting to be handcuffed or 0:15:50.080 --> 0:15:52.360 go out in front of the court and talk about 0:15:52.440 --> 0:15:56.920 how he's the most persecuted person in the history of America, 0:15:57.040 --> 0:16:00.720 then you'll have a street scene that really won't be 0:16:00.800 --> 0:16:04.920 controllable as easily. So hopefully he'll do the right thing 0:16:04.920 --> 0:16:07.720 and just try this case in the court of law. 0:16:07.920 --> 0:16:10.360 But you know, Donald Trump is Donald Trump, and he'll 0:16:10.360 --> 0:16:12.760 do what he thinks is in his best interest, irrespective 0:16:12.760 --> 0:16:15.760 of whether it's in the national or the city's best interest. 0:16:15.880 --> 0:16:18.760 Michael Zolden, thank you for joining Bloomberg Surveillance this morning. 0:16:18.800 --> 0:16:21.880 He is a former federal prosecutor years of public service 0:16:22.200 --> 0:16:30.880 in our Department of Justice. Elon Musk meet Jim Bianco 0:16:31.240 --> 0:16:34.160 Jim Bianco is what Twitter is all about, and he 0:16:34.320 --> 0:16:38.680 is definitively led on Twitter in this banking crisis with 0:16:38.800 --> 0:16:42.640 intelligence threads. He joins us, right now, have the flows stopped, 0:16:42.720 --> 0:16:45.760 the deposit flows, the money market flows? Where are we 0:16:45.840 --> 0:16:48.720 right now? It hasn't stopped, but it has slowed down 0:16:48.760 --> 0:16:51.200 a little bit, but it is still If you go 0:16:51.280 --> 0:16:54.960 back to prior to Marches, a huge number of money 0:16:55.320 --> 0:16:59.360 is moving from the banks to higher yielding alternatives, whether 0:16:59.400 --> 0:17:04.560 it's money market funds or it's treasury bills or ETFs 0:17:04.640 --> 0:17:07.560 that are a very short term. The public has woken up. 0:17:08.040 --> 0:17:10.480 They've found out that I'm getting zero at the bank, 0:17:10.880 --> 0:17:13.359 I can get four and a half in something else. 0:17:14.080 --> 0:17:16.480 If you have two or fifty thousand dollars that's in 0:17:16.560 --> 0:17:18.879 the bank, that's like fifteen grand a year or fourteen 0:17:18.920 --> 0:17:21.600 grand a year. And they're making that move. They have been, 0:17:21.640 --> 0:17:24.680 and they're not stopping. Is it still destabilizing? There seems 0:17:24.720 --> 0:17:26.920 to be a zeitgeist out there that well, that was harsh, 0:17:26.960 --> 0:17:29.479 silicon veil and all that, But we're through that and 0:17:29.560 --> 0:17:32.520 now there'll be a lesser instability. Do you buy it? 0:17:33.200 --> 0:17:38.080 Yes and no? Yes. The initial response that is another 0:17:38.119 --> 0:17:40.920 bank going to fail, Probably not at this point. Is 0:17:40.960 --> 0:17:44.320 there gonna be another hemorrhage? Hopefully not? But is the 0:17:44.400 --> 0:17:47.280 public going to slow down? Are they gonna say, I'm 0:17:47.320 --> 0:17:50.080 fine with two basis points literally at my Chase account, 0:17:50.080 --> 0:17:52.240 and now'll just leave my money there. No, they're not 0:17:52.240 --> 0:17:54.280 going to do that either. So the flow I think 0:17:54.440 --> 0:17:58.200 away from the low yielding bank deposits to high yielding 0:17:58.240 --> 0:18:01.600 alternatives will continue. That will continue to press your banks 0:18:01.880 --> 0:18:04.920 as they struggle to understand their deposit base. So let's 0:18:04.960 --> 0:18:07.720 talk about those money market funds, which reached five point 0:18:07.720 --> 0:18:10.320 two trillion dollars is the latest data from ICI that 0:18:10.400 --> 0:18:13.520 came out on Wednesday. We have seen it increase at 0:18:13.560 --> 0:18:16.040 an astronomical pace over the past two weeks, with one 0:18:16.119 --> 0:18:18.480 hundred billion dollars alone. Over the past four weeks, more 0:18:18.520 --> 0:18:21.720 than three hundred billion dollars of inflows, which is taking 0:18:21.800 --> 0:18:25.040 us back to the pandemic era. Where do you expect 0:18:25.040 --> 0:18:27.240 this to go? What are you looking for for when 0:18:27.240 --> 0:18:29.400 this hits the breaking point at a time when you're 0:18:29.440 --> 0:18:33.160 also starting potentially to see the ramifications of the rate 0:18:33.200 --> 0:18:35.879 hikes and other capacities. I think once you see the 0:18:36.960 --> 0:18:40.800 spread between deposit rates and market rates collapse and basically 0:18:40.840 --> 0:18:43.119 offer the same deal as long as I said, as 0:18:43.160 --> 0:18:45.080 long as you get one percent or less in the bank, 0:18:45.280 --> 0:18:47.199 and you can get four more than four in a 0:18:47.200 --> 0:18:50.160 money market fund, that is going to continue. Also keep 0:18:50.200 --> 0:18:54.640 in mind, in the post financial crisis era, seventy five 0:18:54.680 --> 0:18:57.600 percent of the money that is invested by a money 0:18:57.600 --> 0:19:00.240 market fund is either in a T bill or FED 0:19:00.280 --> 0:19:03.240 reverse repo. So in the old days, pre two thousand 0:19:03.280 --> 0:19:04.960 and nine, you say, well, the money's going to money 0:19:05.000 --> 0:19:07.879 market funds, they buy commercial paper, and they still fund 0:19:08.080 --> 0:19:11.560 Corporate America and they still do that, but not nearly 0:19:11.600 --> 0:19:13.800 to the degree that they used to. They're funding the 0:19:13.880 --> 0:19:16.760 government and they're funding the FED now. So translate this 0:19:16.840 --> 0:19:18.960 into six months from now, and what this means in 0:19:19.080 --> 0:19:22.840 terms of access to credit either defaults or simply firings 0:19:22.960 --> 0:19:26.320 and sort of straint a restraint with respect to business plans. 0:19:26.520 --> 0:19:28.760 How much more do you see that than perhaps is 0:19:28.800 --> 0:19:32.160 getting priced in. Well, I do worry about that. Collectively, 0:19:32.160 --> 0:19:35.719 the regional banks are six point eight trillion in assets. Collectively, 0:19:35.760 --> 0:19:38.520 they're larger than JP Morgan and Bank of America combined, 0:19:38.880 --> 0:19:42.720 so collectively they matter. They fund eighty percent of commercial 0:19:42.760 --> 0:19:47.240 real estate, fifty percent of personal loans, forty of commercial 0:19:47.280 --> 0:19:50.920 industrial loans. If they've lost visibility on their deposit base 0:19:51.160 --> 0:19:53.479 and they don't know what striving their depositors, and their 0:19:53.520 --> 0:19:56.040 positors are leaving and going somewhere else, they're going to 0:19:56.080 --> 0:19:59.399 pull back on their lending. A quick point when you 0:19:59.440 --> 0:20:01.480 ask whe we talk about banks, I would like to 0:20:01.520 --> 0:20:03.280 ask people what do you think a bank is? And 0:20:03.440 --> 0:20:05.640 most people would say, it's a warehouse where I keep 0:20:05.640 --> 0:20:07.960 my money and I get an interest rate. Okay, that 0:20:08.080 --> 0:20:10.560 is a definition of a bank. But for regulators and 0:20:10.600 --> 0:20:14.520 bankers and everybody else's it's a credit intermediation. It's a 0:20:14.560 --> 0:20:16.320 way to get a loan, it's a way to extend 0:20:16.320 --> 0:20:19.120 a business. And if the warehouse of money is going 0:20:19.160 --> 0:20:23.359 somewhere else, that lending action is going to really change. 0:20:23.440 --> 0:20:26.119 We're seeing in the price of bank stocks. Where are 0:20:26.119 --> 0:20:28.840 we not seeing this priced in? Well? The thing about 0:20:28.880 --> 0:20:31.639 bank stocks is there's two things about them. Is it 0:20:31.720 --> 0:20:34.800 are they pricing in potential more defaults or to failure, 0:20:35.280 --> 0:20:38.919 or what I think they're pricing in is a squeeze 0:20:38.920 --> 0:20:41.080 of their margins because they're going to have to raise 0:20:41.119 --> 0:20:44.280 deposit rates and their profitability is going to be under pressure. 0:20:44.520 --> 0:20:48.360 That's why the bank stocks have not really recovered, because 0:20:48.400 --> 0:20:51.000 there's a worry that in order to get past this 0:20:51.119 --> 0:20:54.159 problem they have to start making less money. Let's bring 0:20:54.240 --> 0:20:56.440 them back to the FED economic data here. In seven minutes, 0:20:56.520 --> 0:21:00.720 Michael mckew will join us with a Jim beyond the 0:21:00.760 --> 0:21:04.320 Fed here, and we had no landing. This landing dot 0:21:03.800 --> 0:21:07.439 dot dot hair landing, whatever the landing is. What's the 0:21:07.480 --> 0:21:09.960 efficacy of a pause right now? Or as I mentioned 0:21:10.000 --> 0:21:13.720 earlier in the show, how about three pauses? Pause, pause, pause, 0:21:14.119 --> 0:21:15.840 just to wait to see to get to July, to 0:21:15.920 --> 0:21:17.560 see where we are. Is a pause a good thing 0:21:18.880 --> 0:21:21.119 if if we continue to have a credit crisis or 0:21:21.160 --> 0:21:24.440 credit problem. Yes, but the Fed is not thinking pause 0:21:24.560 --> 0:21:28.080 right now. They're thinking about inflation. They're thinking about a 0:21:28.119 --> 0:21:31.320 pre March eighth world and whether or not we are 0:21:31.400 --> 0:21:35.879 going to continue to see you know, high inflation, persistent inflation, 0:21:36.200 --> 0:21:39.880 a no landing, a strong economy. If that's what they believe, 0:21:40.200 --> 0:21:42.520 they're going to continue to move forward with their rate hikes. 0:21:42.680 --> 0:21:44.879 But if we start to see a slowdown in credit, 0:21:45.520 --> 0:21:48.719 that should lead them to a pause. Cubs, white socks, 0:21:48.800 --> 0:21:51.160 what do you think, what's the story in Chicago this year? 0:21:51.320 --> 0:21:53.840 And now they're both one hundred percent right now one 0:21:53.880 --> 0:21:56.919 and oh, and we're at the Cody Bellinger era in 0:21:56.960 --> 0:21:58.920 the in the north side of town, and we're still 0:21:58.920 --> 0:22:01.199 in the Tim Anderson era outside of town. Which way 0:22:01.200 --> 0:22:03.440 are you, Tilton? I mean, who are you going to see? 0:22:03.520 --> 0:22:06.520 This is a hugely important Midwest thing. It really is 0:22:06.640 --> 0:22:09.160 at this point. I hate to say it, but I'm 0:22:09.240 --> 0:22:11.679 kind of leaning towards the Cubs. I've always kind of 0:22:11.720 --> 0:22:13.399 had a bias for the white side of what. The 0:22:13.440 --> 0:22:15.800 Cubs are the more interesting team right now. So we've 0:22:15.800 --> 0:22:18.480 got news we can use there. You see that South Side. 0:22:18.640 --> 0:22:21.960 Let's go Jim beyond can think and Jim congratulations on 0:22:22.080 --> 0:22:24.880 being definitive on Twitter. I mean, if Elon Musk needs 0:22:24.880 --> 0:22:28.119 to know anything about the communicative thrust in the crisis 0:22:28.520 --> 0:22:30.639 of Twitter, there's other people out there as well. But 0:22:30.920 --> 0:22:33.480 Bianco's doing these threads. You can just feel all of 0:22:33.520 --> 0:22:36.280 Twitter just stops. He goes, I've got another block. I 0:22:36.280 --> 0:22:39.120 got to read it. It's a continuation of the amazing 0:22:39.160 --> 0:22:41.480 notes and the amazing reports that he's put out for decades. 0:22:50.960 --> 0:22:53.960 Joining us now and all timely as Matt Luzatti's chief 0:22:54.000 --> 0:22:57.520 yours economist at Deutsche Bank, who had a shocking call 0:22:57.720 --> 0:23:00.399 long ago and far away of economic slow down, but 0:23:00.560 --> 0:23:04.639 was emphasizing it would be out there somewhere where so 0:23:04.680 --> 0:23:07.960 many others we're looking for immediate economic slowdown. We could 0:23:07.960 --> 0:23:12.320 recalibrate this morning with Matt Lozzetti. I guess we see 0:23:12.359 --> 0:23:18.000 disinflation out there. Can you establish off this data disinflationary 0:23:18.080 --> 0:23:20.679 vectors and goods and services? Yeah, I think we need 0:23:20.720 --> 0:23:23.000 to put the disinflation into context. It's still a point 0:23:23.040 --> 0:23:26.600 three percent core PC month on month print, still well 0:23:26.640 --> 0:23:29.000 above the FED subjective. Four point six percent year on 0:23:29.080 --> 0:23:31.960 year is well above the FEDS objective. We were expecting 0:23:32.000 --> 0:23:34.360