WEBVTT - Surveillance: Virus Impact With Fed's Kaplan 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.240 Bloomberg dot Com, and of course, on the Bloomberg. Good 0:00:27.280 --> 0:00:30.159 Morning to Robert Kaplan. He is the president of the 0:00:30.240 --> 0:00:33.000 Dallas Federal Reserve Bank, and he joins us on Bloomberg 0:00:33.040 --> 0:00:35.480 Radio and Television from their Good Morning to you, sir, 0:00:36.200 --> 0:00:38.160 I might good to see you. We'd like to start 0:00:38.200 --> 0:00:41.120 by asking about what you're seeing in your district. You've 0:00:41.159 --> 0:00:44.879 been at the epicenter of the latest COVID surge in cases. 0:00:45.479 --> 0:00:50.320 What's happening to the economy there now? Uh, probably around 0:00:50.440 --> 0:00:55.800 mid June, the sharp rebound we were seeing started to 0:00:56.120 --> 0:01:00.840 moderate and started to stall. That was coincident. It came 0:01:00.880 --> 0:01:03.840 at the same time and along with the resurgence of 0:01:03.840 --> 0:01:08.160 the virus, and so we saw cases increase, we saw hospitalizations, 0:01:08.959 --> 0:01:14.240 UH steadily increase. That has started to moderate. Based on 0:01:14.280 --> 0:01:16.760 the numbers I see the daily numbers, I get it's 0:01:16.760 --> 0:01:20.840 started to moderate over the last number of days. But 0:01:20.959 --> 0:01:23.399 what you saw the state do is put in and 0:01:23.520 --> 0:01:30.200 cities put in uh in UH a backup or unwinding 0:01:30.200 --> 0:01:33.840 to some of the reopening steps. Re emphasize how important 0:01:33.920 --> 0:01:36.320 is to wear a mask, and we saw we saw 0:01:36.360 --> 0:01:39.319 some effect to that, but you're seeing a rebound that's 0:01:39.319 --> 0:01:43.119 stalling to some extent. That's what we're seeing in in Texas. Well. 0:01:43.560 --> 0:01:46.959 That caused you to do a rethink of your economic forecast. 0:01:47.040 --> 0:01:51.559 What do you see ahead for growth and inflation and unemployment. Well, 0:01:51.800 --> 0:01:54.680 and we're because we were seeing it here and in 0:01:55.240 --> 0:01:59.720 a number of other states. Uh, it's still our view 0:02:00.320 --> 0:02:03.280 that will contract for the year at about four and 0:02:03.280 --> 0:02:05.920 a half to five percent has been our view. After 0:02:05.960 --> 0:02:08.760 a very sharp decline in the second quarter, we'd have 0:02:08.919 --> 0:02:11.200 very healthy rebound in the third and the fourth quarter. 0:02:11.680 --> 0:02:15.680 I think I think uh that rebound is more muted 0:02:15.760 --> 0:02:19.480 in the United States now. UH. And it's caused me 0:02:19.520 --> 0:02:21.520 to think that the unemployment rate, if we don't do 0:02:21.560 --> 0:02:25.280 a better job managing the virus, the unemployment rate is 0:02:25.480 --> 0:02:28.280 likely to be above nine percent, between nine and ten percent. 0:02:28.720 --> 0:02:33.359 So we've we've moved up our unemployment forecast. UH. And 0:02:33.440 --> 0:02:37.400 so UM, I think we've got a rebound, UH, but 0:02:37.600 --> 0:02:40.600 it's it's much more muted than it was and if 0:02:40.639 --> 0:02:44.160 we if we don't do a better job managing the virus, 0:02:44.560 --> 0:02:46.359 we're going to have lower growth and we're gonna have 0:02:46.400 --> 0:02:49.120 a higher unemployment rate. And so I've been spending a 0:02:49.160 --> 0:02:52.040 lot of my time talking more about the virus than 0:02:52.080 --> 0:02:56.440 anything else because it's so critical to the recovery. Well, 0:02:56.440 --> 0:03:01.480 the six extra unemployment bonus and eviction moratorio they're gone now. First, 0:03:01.520 --> 0:03:04.440 has the FED has your staff modeled the impact of 0:03:04.480 --> 0:03:08.120 that on the economy? And second, should we expect a 0:03:08.160 --> 0:03:12.400 wave of defaults that might affect credit markets? We have 0:03:12.600 --> 0:03:15.640 looked at it, and one of the things that's unusual 0:03:15.960 --> 0:03:20.080 about this downturn that we've just had is incomes have 0:03:20.240 --> 0:03:23.120 stayed relatively solid, and a big part of the reason 0:03:23.720 --> 0:03:27.120 is these unemployment benefits. And so we're normally in a 0:03:27.200 --> 0:03:29.920 downturn you see a drop in incomes. We haven't seen 0:03:30.000 --> 0:03:33.760 that here. Uh. It's still my view that in some 0:03:33.880 --> 0:03:38.440 form will get an extension of unemployment benefits. So I'm 0:03:38.520 --> 0:03:42.640 quite hopeful that that will continue. But if it didn't, uh, yeah, 0:03:42.680 --> 0:03:46.000 you would see a further weakening in the economy. And uh, 0:03:46.200 --> 0:03:49.040 in particular because consumers wouldn't have as much money in 0:03:49.080 --> 0:03:52.040 their pocket to spend any business people telling you that 0:03:52.080 --> 0:03:54.760 six dollar bonus was keeping people from coming back to 0:03:54.800 --> 0:03:58.720 the labor force. Uh. A lot of business people were 0:03:58.720 --> 0:04:02.560 telling me that, honestly were they were telling me that, Uh, 0:04:02.640 --> 0:04:06.600 it was challenging to hire people. UH. We've looked at 0:04:06.600 --> 0:04:09.320 a number of studies, We've done our own work. We 0:04:09.360 --> 0:04:11.360 don't see it as much in the data, but I 0:04:11.400 --> 0:04:15.720 can tell you I'm hearing it from business people. UH. 0:04:15.760 --> 0:04:20.560 And So, however, whatever the right answer is, I think 0:04:20.600 --> 0:04:23.280 you still are going to need to see extension of unemployment. 0:04:23.640 --> 0:04:26.280 It may be restructured to some extent from the six 0:04:26.400 --> 0:04:29.320 hundred dollars, but I think it's important that we see 0:04:29.320 --> 0:04:32.360 an extension of it. And I think the increased incomes 0:04:32.640 --> 0:04:34.680 while it may have While it may have made it 0:04:34.720 --> 0:04:38.680 hard for certain individual businesses to hire, it's helped create 0:04:38.800 --> 0:04:43.640 jobs because it's helped bolster consumer spending. So the net 0:04:43.640 --> 0:04:46.400 effect still has probably been positive for the economy and 0:04:46.440 --> 0:04:50.920 for employment. A number of your colleagues, at least number 0:04:50.960 --> 0:04:54.080 of epidemiologists joined by your colleague Neil cash Kari of 0:04:54.080 --> 0:04:58.240 Minneapolis UH say that we need another nationwide lockdown for 0:04:58.279 --> 0:05:00.560 about four weeks to defeat the virus and that that 0:05:00.600 --> 0:05:03.839 should be job one over reopening the economy. What do 0:05:03.880 --> 0:05:07.640 you think of that? UH? I probably have a somewhat 0:05:07.680 --> 0:05:12.479 different view based on my conversations again with epidemiologists locally 0:05:12.520 --> 0:05:17.240 and through the country in that UH. The epidemiologist I've 0:05:17.279 --> 0:05:21.400 spoken with, which has been been widespread conversations, believe we 0:05:21.440 --> 0:05:26.520 could manage UH this economy and the virus and have 0:05:26.640 --> 0:05:31.160 the economy open if all of us wore mass. That's 0:05:31.200 --> 0:05:33.719 first and foremost, and then we need a good testing 0:05:33.760 --> 0:05:37.719 and contact tracing regime. But in particular, if we all 0:05:37.720 --> 0:05:41.159 wore mass, they believe it would substantially mute the transmission 0:05:41.160 --> 0:05:43.480 of the virus and you would not need to do 0:05:43.880 --> 0:05:47.760 widespread lockdown, And in fact, many of them fear if 0:05:47.800 --> 0:05:50.960 you did. If you did more lockdowns, if you still 0:05:51.040 --> 0:05:55.480 don't have good following of the healthcare protocols, the lockdown 0:05:55.520 --> 0:05:58.960 to some extent would be wasted. And so I think 0:05:58.960 --> 0:06:02.840 their advice is as UH, be very careful about the 0:06:02.920 --> 0:06:09.000 reopening enforced a widespread UH practice of wearing mass social distancing. 0:06:09.400 --> 0:06:13.120 Now there might be isolated or localized areas in the 0:06:13.200 --> 0:06:17.839 United States where the virus is become unmanageable and they're 0:06:17.839 --> 0:06:20.760 gonna have to take far more extremee steps like lockdowns. 0:06:21.520 --> 0:06:23.600 But I think we're gonna have to learn to live 0:06:23.640 --> 0:06:27.440 with this virus. Um. We're gonna have to learn to 0:06:27.520 --> 0:06:32.279 re engage in our daily activities but still control the virus. 0:06:32.279 --> 0:06:36.479 But widespread mask wearing is essential to that, and I 0:06:36.520 --> 0:06:40.000 think it's probably the most important practice that maybe has 0:06:40.000 --> 0:06:43.800 been done unevenly, and we've we've lost an opportunity to 0:06:44.240 --> 0:06:48.240 to recover and control the virus and grow faster. We're 0:06:48.279 --> 0:06:51.400 speaking with Dallas FED President Robert Kaplan on Bloomberg Television 0:06:51.440 --> 0:06:55.840 and Radio. Do you anticipate, President Kaplan, the FED will 0:06:55.920 --> 0:06:58.840 change its forward guidance, perhaps as early as September and 0:06:58.920 --> 0:07:01.920 tie it to inflation running a little bit above two 0:07:02.000 --> 0:07:05.840 percent for a while. Um. I'll speak for myself. I 0:07:06.240 --> 0:07:11.440 would not do that. Um Uh. We've already given uh 0:07:11.680 --> 0:07:15.120 fairly specific forward guidance in the form of our Summary 0:07:15.120 --> 0:07:19.320 of Economic Projections the SEP, where we've made clear that 0:07:19.520 --> 0:07:22.040 rates are going to stay around the current levels for 0:07:22.040 --> 0:07:25.840 the next couple of years. I would I would far 0:07:25.960 --> 0:07:29.320 prefer when we do give forward guidance in the future 0:07:29.640 --> 0:07:32.840 that we tie it to our dual mandate uh and 0:07:32.840 --> 0:07:37.040 and particularly tie it to the unemployment along with making 0:07:37.080 --> 0:07:40.520 progress on inflation. But I myself would not be in 0:07:40.600 --> 0:07:45.560 favor of tying forward guidance specifically to inflation. I would 0:07:45.640 --> 0:07:48.800 not want to see us do that. Old guys like 0:07:48.840 --> 0:07:51.280 you and me. Remember we last time the Fed traded 0:07:51.320 --> 0:07:54.320 a little bit of inflation for lower unemployment. Uh, the 0:07:54.440 --> 0:07:57.240 Arthur Burns era. Are you worried at all that that 0:07:57.360 --> 0:08:03.200 might be a mistake? Uh? The the inflation dynamic is 0:08:03.240 --> 0:08:07.200 different now. Uh. Meaning used to be as in the 0:08:07.360 --> 0:08:10.200 in the old days, as you say, UH, when you 0:08:10.320 --> 0:08:12.920 had a very tight labor market and you were at 0:08:12.960 --> 0:08:15.800 or pass full employment, you would see inflation. But the 0:08:15.840 --> 0:08:19.120 world has changed. The structure environment of the of the 0:08:19.160 --> 0:08:24.040 economy has changed with technology, technology enabled disruption, which is 0:08:24.160 --> 0:08:28.520 limited pricing power businesses. That along with globalization, has meant 0:08:29.080 --> 0:08:31.360 that the FED has been able to run the economy 0:08:31.400 --> 0:08:35.640 hotter with more muted inflation. And so we've had to 0:08:35.760 --> 0:08:39.920 change the way we think about inflation unemployment. And we've 0:08:39.960 --> 0:08:44.600 also and I've also been much more cognizant of underrepresentative 0:08:44.640 --> 0:08:49.800 groups uh, lower educated UH, Blacks, Hispanics, women with a 0:08:49.840 --> 0:08:53.400 high school education are less. By running hotter, we've been 0:08:53.480 --> 0:08:56.880 able to get these underrepresented groups back into the economy, 0:08:56.920 --> 0:09:00.000 back into the workforce, and I think that's been very valuable. 0:09:00.880 --> 0:09:03.440 The primary and secondary credit market facilities have up to 0:09:03.480 --> 0:09:07.000 seven and fifty billion dollars available, yet you've bought only 0:09:07.000 --> 0:09:09.959 twelve point three billion in bonds. The main Street program 0:09:10.000 --> 0:09:11.800 you can buy up to six hundred billion, but you've 0:09:11.800 --> 0:09:15.600 bought only eighty two million so far. Why doesn't anybody 0:09:15.640 --> 0:09:19.960 want your money? Yeah, so, I've spent a good amount 0:09:19.960 --> 0:09:22.520 of time. For example, I've got a key role in 0:09:22.559 --> 0:09:25.640 the municipal finance program where we we have a five 0:09:25.679 --> 0:09:28.679 it's a five hundred billion dollar program, and we've put out, 0:09:28.679 --> 0:09:31.800 as you noted, a very small fraction of that. I 0:09:31.840 --> 0:09:36.440 think one of the features of the municipal program, the 0:09:36.480 --> 0:09:40.400 corporate bond program is usage is not an indicator of 0:09:40.440 --> 0:09:44.560 the power of the program. Just by announcing these programs 0:09:44.880 --> 0:09:48.400 and making clear that we would help provide a backstop 0:09:49.000 --> 0:09:53.319 to these markets, you've seen a substantial rally and flow 0:09:53.360 --> 0:09:57.560 of funds into these markets to where the FED pricing 0:09:57.720 --> 0:10:00.560 is less attractive the market than market price. Seene and 0:10:00.600 --> 0:10:04.400 the FED hasn't had to actually purchase securities the way 0:10:04.440 --> 0:10:06.800 we might have thought. I think that's a good outcome. 0:10:07.480 --> 0:10:10.319 UH And I think the programs have served their purpose. 0:10:11.400 --> 0:10:14.199 On programs on the other hand, like p p P, 0:10:15.360 --> 0:10:18.200 I think it's very critical that those programs got used, 0:10:19.040 --> 0:10:23.160 and on the Main Street program, I think over time, 0:10:23.640 --> 0:10:26.280 I think we will want to keep getting feedback and 0:10:26.320 --> 0:10:29.079 looking at ways that that program can get more fully used, 0:10:29.280 --> 0:10:33.119 because I do worry as as healthy as the financial 0:10:33.160 --> 0:10:37.200 markets are and as loose as financial conditions are right now, 0:10:37.679 --> 0:10:40.719 one place they're not loose is for small and mid 0:10:40.800 --> 0:10:44.120 sized companies, particularly if they're in person to person contact 0:10:44.160 --> 0:10:47.559 industries and the Main Street program and if there's another 0:10:47.640 --> 0:10:50.880 round of the p p P, those programs are critical 0:10:51.360 --> 0:10:55.600 to helping those small mid sized companies get credit UH 0:10:55.640 --> 0:10:58.640 and so I I do think usage is important to 0:10:58.679 --> 0:11:02.200 look at their One visible aspect of what the FED 0:11:02.240 --> 0:11:05.440 has done, at least according to investors, is the stock market. 0:11:05.960 --> 0:11:09.080 Do you worry that you're creating a bubble however necessary 0:11:09.120 --> 0:11:11.800 your actions maybe, but that it might pop and take 0:11:11.840 --> 0:11:16.400 the economy down with it. I do think it's wise 0:11:16.559 --> 0:11:22.240 for us whenever we're doing UH asset purchases, and we've 0:11:22.280 --> 0:11:26.880 done something I think even more extraordinary in this downturn, 0:11:27.000 --> 0:11:30.000 and that we've done these thirteen three programs which have 0:11:30.080 --> 0:11:33.720 held backstop these financial markets. Yeah, I think we'd be 0:11:33.800 --> 0:11:38.280 wise to be cognizant and concerned about the impact we 0:11:38.320 --> 0:11:41.560 have on risk assets. I think it's necessary, but I 0:11:41.559 --> 0:11:44.520 think it's very important that these programs have a sunset date, 0:11:45.000 --> 0:11:48.160 that the markets understand they're not going to go on indefinitely. 0:11:48.480 --> 0:11:51.160 I know we we've just extended our thirteen three programs 0:11:51.200 --> 0:11:54.240 to December thirty one, but but I do think it's 0:11:54.280 --> 0:11:58.280 important that we emphasize these programs will sunset, they will 0:11:58.360 --> 0:12:01.680 lapse laps, because I think it's very important that these 0:12:01.760 --> 0:12:07.760 markets are able to function without FED support. And I 0:12:07.800 --> 0:12:11.719 think the FED support creates its own UH fragilities in 0:12:11.800 --> 0:12:13.920 the markets, and I think we should be very cognizant 0:12:13.960 --> 0:12:17.280 of that. UH. Can't let you go without asking about oil. 0:12:17.320 --> 0:12:21.880 Bankruptcies are spreading throughout the industry. Prices started to recover 0:12:21.920 --> 0:12:24.280 but now seem to be rolling over a bit. Gasoline 0:12:24.280 --> 0:12:28.800 demand is falling. What is the outlook? Well, so, actually 0:12:28.880 --> 0:12:32.439 gasoline demand the United States has has recovered now to 0:12:32.720 --> 0:12:36.680 again in the neighborhood Hi eighties nine of a year ago. 0:12:37.040 --> 0:12:40.760 I've actually been surprised how strong demand has been even 0:12:40.800 --> 0:12:43.800 with the resurgence of the virus. People are driving. They're 0:12:43.800 --> 0:12:46.640 not taking mass transit, and they're not flying, but they 0:12:46.679 --> 0:12:50.640 are driving their cars. Uh. I think to your point, though, 0:12:51.080 --> 0:12:54.800 with the resurgence of the virus, the recovery in in 0:12:54.920 --> 0:12:58.440 demand has stalled a little bit and is hovering around. 0:12:59.559 --> 0:13:02.120 And at the same time, we've got all this excess inventory. 0:13:02.160 --> 0:13:04.240 You know, we had all this over supply that have 0:13:04.360 --> 0:13:07.760 been built up because of the drop in demand earlier 0:13:07.800 --> 0:13:10.200 this year, and I think it's gonna take till middle 0:13:10.240 --> 0:13:13.720 of one for that excess inventory to be worked off. 0:13:13.760 --> 0:13:18.040 So you're gonna have a very challenging energy industry and 0:13:18.240 --> 0:13:22.480 oil market probably for the next six twelve months, depending 0:13:22.480 --> 0:13:25.959 on how the virus proceeds and how demand recovers, because 0:13:25.960 --> 0:13:29.320 we've got a lot of excess inventory and oversupply. I 0:13:29.360 --> 0:13:31.960 think it will begin to firm later next year. But 0:13:32.040 --> 0:13:35.320 in the meantime, you're seeing shut ins, I mean people 0:13:35.440 --> 0:13:38.880 who are producing who shut in their wells. You're seeing 0:13:38.920 --> 0:13:42.280 recount drop, precipitous lee and I think you'll see US 0:13:42.360 --> 0:13:45.640 production fall from about twelve point eight million barrels a 0:13:45.720 --> 0:13:49.360 day at the end of two will end this year 0:13:49.400 --> 0:13:52.000 around ten point eight million barrels a day, a big drop. 0:13:52.640 --> 0:13:55.440 And and that's even with reversal of most of the 0:13:55.480 --> 0:13:58.600 shut ends. We're just seeing less drilling activity. And you're 0:13:58.600 --> 0:14:02.520 gonna see and you are seen lots of bankruptcies, restructurings, 0:14:02.679 --> 0:14:07.760 and stress in the energy sector. You're the markets guy 0:14:07.920 --> 0:14:10.120 at the FED. You worked at Goldman Sex for a 0:14:10.160 --> 0:14:13.400 long time. The enormous volatility in the treasury market we 0:14:13.440 --> 0:14:17.320 saw back in March. Did that have to happen? Reports 0:14:17.320 --> 0:14:20.000 are it was caused in part by huge levered bets 0:14:20.040 --> 0:14:24.240 by hedge funds. Do we need significant changes? Do we 0:14:24.320 --> 0:14:29.320 need uh supervision of the shadow banking system? Yeah? So 0:14:29.640 --> 0:14:32.440 I do think part of what's what happened in March, 0:14:32.480 --> 0:14:36.120 which maybe hasn't been talked about enough, is is you 0:14:36.240 --> 0:14:39.280 had in March and in part of April a a 0:14:40.240 --> 0:14:44.360 force selling wave through many financial markets. There was a 0:14:44.440 --> 0:14:49.360 substantial amount of embedded leverage, whether people were leveraging treasuries 0:14:49.440 --> 0:14:53.760 as part of risk parity trades or other strategies. And 0:14:54.080 --> 0:14:58.320 part of what the FED did is facilitate that de leveraging. 0:14:59.120 --> 0:15:01.360 But I think now we've been through it, I do 0:15:01.440 --> 0:15:04.680 think it would be worth doing more study as as 0:15:04.720 --> 0:15:08.040 to what what what was the role of embedded leverage 0:15:08.080 --> 0:15:12.880 in these markets, um, and what are the implications? And 0:15:12.960 --> 0:15:15.320 I think again it means the FED dis needs to 0:15:15.320 --> 0:15:19.680 be cognizant that financial stability considerations are sometimes hard to 0:15:19.720 --> 0:15:23.280 see and they can build up, uh and then when 0:15:23.280 --> 0:15:25.320 you have a stress event like we had this year, 0:15:25.400 --> 0:15:29.040 you see it manifest itself. UM. I'm also very aware 0:15:29.040 --> 0:15:31.960 when you mentioned the treasury market, treasury is not the 0:15:32.080 --> 0:15:36.960 natural uh component of a portfolio that maybe it was 0:15:37.080 --> 0:15:41.440 because rates are so low. Uh. You might find that 0:15:41.440 --> 0:15:44.400 that many people used to buy treasuries naturally as part 0:15:44.440 --> 0:15:48.720 of a portfolio will be buying other assets gold, maybe 0:15:48.800 --> 0:15:51.360 other assets. So that will have also have an effect 0:15:51.360 --> 0:15:53.640 on the treasury market that I think we're gonna have 0:15:53.680 --> 0:15:56.520 to spend more time trying to understand. Well, we'll check 0:15:56.520 --> 0:15:58.360 back with you and see what you've learned in a 0:15:58.360 --> 0:16:01.320 couple of months. Robert Cappel, President of the Dallas FT, 0:16:01.360 --> 0:16:03.320 thank you very much for joining us today on Blueberg 0:16:03.360 --> 0:16:10.160 Radio and television worldwide Right now, to begin, are we 0:16:10.320 --> 0:16:13.080 of economic coverage? Here on the simulcast on radio and 0:16:13.120 --> 0:16:16.280 TV worldwide is Ethan Harris. He's a Bank of America 0:16:16.400 --> 0:16:19.920 with authority on the transfer from Greenspan to Bernick with 0:16:19.960 --> 0:16:25.520 this wonderful book, and also on absolutely nailing the non 0:16:25.680 --> 0:16:29.600 V shaped recovery of two thousand seven two thousand and eight, 0:16:29.840 --> 0:16:33.120 No major house did better than Bank of America on 0:16:33.240 --> 0:16:36.440 that call, Ethan, once again, we don't have a V 0:16:36.560 --> 0:16:41.520 shaped recovery. What kind is it? Well, we have a 0:16:41.600 --> 0:16:44.800 two month V followed probably by three months of l 0:16:45.120 --> 0:16:47.440 That's what it looks like, and then hopefully from there 0:16:48.080 --> 0:16:49.840 we start picking up again. But I mean, if you 0:16:49.880 --> 0:16:53.720 look broadly at the data, clearly the resurgence and the 0:16:53.800 --> 0:16:56.920 virus caused the UH a little bit of pulling back 0:16:56.960 --> 0:17:00.680 in the economy, and July and week affect things to 0:17:00.720 --> 0:17:03.640 be kind of flattish for the next few months. What 0:17:03.800 --> 0:17:06.600 is your unemployment statistic for Friday? I mean people are 0:17:06.680 --> 0:17:10.560 verbaling a tennish percent. How much of a mystery is 0:17:10.640 --> 0:17:15.199 that statistic? Well, I mean the employment report is going 0:17:15.240 --> 0:17:18.560 to be could be anything. As we know, economists have 0:17:18.600 --> 0:17:21.080 done a terrible job of forecasting in the last couple 0:17:21.080 --> 0:17:24.400 of months, and that's because there's so much cross currents 0:17:24.400 --> 0:17:26.919 in terms of firing and hiring in the labor market. 0:17:27.320 --> 0:17:29.840 I mean, our guests at this point, is the unemployment 0:17:29.880 --> 0:17:33.400 A dips below eleven, so it comes down to ten seven. 0:17:34.040 --> 0:17:36.560 But to put that in perspective, that would be worse 0:17:36.600 --> 0:17:39.320 than any month during the Great recession of two thousand 0:17:39.320 --> 0:17:41.880 and eight two thousand nine. So it's great that it's 0:17:41.920 --> 0:17:45.439 coming down, but there's still a long way to go. Ethan, 0:17:45.440 --> 0:17:47.560 did you ever think that you'd have a Pyrose guest 0:17:47.600 --> 0:17:50.280 of positive one million, but then also right in the 0:17:50.320 --> 0:17:53.360 line afterwards there's a risk of a negative print. I mean, 0:17:53.400 --> 0:17:57.680 just how unprecedented is this monument pulled this Friday? Yeah, 0:17:57.720 --> 0:18:00.359 I mean it is a product of the unprecedented nature 0:18:00.400 --> 0:18:03.119 of the crisis you have, uh, you know, companies that 0:18:03.640 --> 0:18:07.080 laid off you know, twenty million people and now they're 0:18:07.119 --> 0:18:10.240 hiring some of them back. Uh. And the data we 0:18:10.280 --> 0:18:12.760 look at, the commist look at that's supposed to tell 0:18:12.840 --> 0:18:15.359 us what these numbers are going to be just doesn't 0:18:15.480 --> 0:18:18.199 really tell the whole story. And so we you know, 0:18:18.240 --> 0:18:20.560 we try hard. I mean, every comes just looking at 0:18:20.560 --> 0:18:24.600 these numbers over time, and we're still getting big forecast errors. 0:18:24.680 --> 0:18:28.320 So it's it's just an unprecedented time and so unprecedented 0:18:28.400 --> 0:18:31.600 volatility ethanannic seasonal quocks that we should be coming into 0:18:31.640 --> 0:18:34.880 this print. Well, you do have a little bit of that. 0:18:35.040 --> 0:18:37.359 You've got, um, you know, you don't have the usual 0:18:37.400 --> 0:18:40.840 shutdown of the auto sector and uh so that that 0:18:40.880 --> 0:18:43.120 could help a little bit. We we've got payrolls coming 0:18:43.160 --> 0:18:45.320 in at a million. I think the consensus is a 0:18:45.320 --> 0:18:48.280 little higher than that, but it but those kind of 0:18:48.320 --> 0:18:52.520 smaller seasonal stories are overshadowed by you know, like I said, 0:18:52.520 --> 0:18:56.120 all the volatility of the number, I would view a millions. Okay, 0:18:56.160 --> 0:18:59.280 I mean this is remember payroll survey has taken fairly 0:18:59.359 --> 0:19:02.880 early in the month, so it's reflecting how the economy 0:19:02.920 --> 0:19:06.520 is doing in late June and early July. Things have 0:19:06.640 --> 0:19:10.440 weakened since then, So it's believing or not. It's slightly 0:19:10.560 --> 0:19:14.560 old news. Uh this this July payroll number. It's quite 0:19:14.560 --> 0:19:16.760 clear that the labor market is weakening, and there's faith 0:19:16.800 --> 0:19:18.879 at Washington will come to some sort of deal to 0:19:18.960 --> 0:19:22.959 extend the enhance unemployment benefits. Let's just assume that they 0:19:22.960 --> 0:19:24.600 will come to a deal does it matter if they 0:19:24.640 --> 0:19:26.919 don't come to a deal in the next two weeks 0:19:27.000 --> 0:19:28.880 or three weeks, if it takes them a month, how 0:19:28.960 --> 0:19:32.960 big will the impact be on the economy? Yeah, I 0:19:33.000 --> 0:19:35.520 mean every week of delay it gets a lot worse. 0:19:35.640 --> 0:19:37.600 I mean, these are not you know, the people are 0:19:37.600 --> 0:19:41.560 getting unemployment benefits are on life support here. Their benefits 0:19:41.600 --> 0:19:46.200 don't expire entirely. It's just this the six dollar bonus. 0:19:46.280 --> 0:19:49.919 But that's been a lifeline for the unemployed and for 0:19:50.280 --> 0:19:53.720 the retail sector, which is done pretty well. Um. Every 0:19:53.760 --> 0:19:57.720 week that passes that there's no extension is another week 0:19:57.880 --> 0:20:01.240 where they're cutting back on spending, getting a little more desperate. 0:20:01.359 --> 0:20:06.240 So uh, the timing is very important. Uh. And UM, 0:20:06.280 --> 0:20:09.359 I would hope that they don't cut them too much, 0:20:09.520 --> 0:20:12.720 that they cut them moderately. And I hope that there's 0:20:13.080 --> 0:20:16.320 more in the package than just that the economy needs 0:20:16.359 --> 0:20:19.600 a lot of support right now. We're only halfway back 0:20:19.640 --> 0:20:22.000 to normal. We need a package. It's about half as 0:20:22.000 --> 0:20:24.320 big as what we got in the spring, So it's 0:20:24.359 --> 0:20:26.880 got to be like one and a half trillion nut 0:20:27.400 --> 0:20:30.520 one trillion, and and it needs to be targeted well 0:20:30.560 --> 0:20:33.239 to the people who are most distressed. They're the ones 0:20:33.240 --> 0:20:36.600 who are going to spend money. So the size, the speed, 0:20:37.960 --> 0:20:41.760 the targeted nature of the package, they're all important. And 0:20:41.920 --> 0:20:45.320 right now I'm quite worried. Well, so you have fiscal 0:20:45.320 --> 0:20:47.920 hawks kind of coming back among some of the Republicans, 0:20:47.960 --> 0:20:50.360 and I have to wonder not all deficits are the same. 0:20:50.359 --> 0:20:52.440 We're gonna get a sense of how deep the deficit 0:20:52.600 --> 0:20:54.880 is going to be getting today when the Treasury Department 0:20:54.920 --> 0:20:58.400 releases their financing needs over the next three months. Can 0:20:58.440 --> 0:21:01.159 you give us a sense of how much lower the 0:21:01.160 --> 0:21:03.479 deficit will be, how much shallower it will be if 0:21:03.520 --> 0:21:07.560 there is a successful stimulus versus say, not having a 0:21:07.600 --> 0:21:12.040 stimulus now and a slower growth trajectory going forward. Well, 0:21:12.080 --> 0:21:14.600 I mean, you have to pick your poison here. We're 0:21:14.600 --> 0:21:17.440 not gonna we're not going to solve the budget deficit 0:21:17.600 --> 0:21:21.720 by cutting spending now. I mean, that's just risking driving 0:21:21.720 --> 0:21:26.000 the economy back into collapse. So there's a balancing act here. 0:21:26.160 --> 0:21:28.439 There's no choice. We either going to have a bigger 0:21:28.480 --> 0:21:31.040 deficit because the economy is terrible. We're gonna have a 0:21:31.080 --> 0:21:35.640 bigger deficit because we're spending more money to support vulnerable 0:21:35.680 --> 0:21:38.359 parts of the economy. Um, you know, you can, on 0:21:38.400 --> 0:21:40.640 the margin, maybe reduce the deficit a little bit by 0:21:40.760 --> 0:21:44.040 by cutting the corners. You certainly can can reduce the 0:21:44.080 --> 0:21:46.400 impact on the deficit if you're smart about the way 0:21:46.440 --> 0:21:50.280 you distribute money. So, for example, these checks that they're 0:21:50.280 --> 0:21:55.560 being sent to households, these stimulus checks, most people get 0:21:55.600 --> 0:21:58.399 those checks unless they're unemployed. They're putting them in the bank. 0:21:58.600 --> 0:22:02.560 That's just a handoff from the government to the private sector. Um, 0:22:02.600 --> 0:22:04.840 if you really want to stimulate activity and get a 0:22:04.880 --> 0:22:07.440 good bang for the buck, send it to the parts 0:22:07.480 --> 0:22:09.240 of the economy that needed give it. Send it to 0:22:09.280 --> 0:22:13.560 the unemployed, state and local governments. Uh, you know, um, 0:22:14.000 --> 0:22:18.560 small businesses that are in distress. But these broader stimulus 0:22:18.800 --> 0:22:21.639 programs just don't work very well. We know from history 0:22:21.720 --> 0:22:25.000 that most of that money doesn't make it into the economy. 0:22:25.040 --> 0:22:28.280 It just goes into people's savings accounts. Ethan was sitting 0:22:28.320 --> 0:22:31.040 here talking about policy risk. Argiably, we've already seen a 0:22:31.040 --> 0:22:35.399 policy mistake. These enhanced unemployment benefits have expired. What's the 0:22:35.480 --> 0:22:37.760 damage that will do to the early August data that 0:22:37.760 --> 0:22:40.680 we've got to see in the next countle of weeks. Yeah, 0:22:40.680 --> 0:22:42.480 I mean, it's gonna take a while to see it 0:22:42.480 --> 0:22:45.440 in the numbers, um and each week that passes, it's 0:22:45.440 --> 0:22:48.480 going to get a lot more noticeable. Presumably people have 0:22:48.520 --> 0:22:51.560 been getting this money because a lot of them are 0:22:51.600 --> 0:22:54.639 getting more in unemployment than they would have even working. 0:22:55.080 --> 0:22:57.720 Hopefully they've saved a small amount of it so they 0:22:57.720 --> 0:23:00.760 can kind of survive a week or two. So I 0:23:00.800 --> 0:23:02.840 don't think things that I don't think you fall off 0:23:02.880 --> 0:23:05.119 a cliff in terms of spending. I think it just 0:23:05.200 --> 0:23:09.000 kind of gradually a weekend, and by the end of August, 0:23:09.080 --> 0:23:11.639 if they still haven't passed it, you're seeing a substantially 0:23:11.760 --> 0:23:17.040 slower consumer. We're talking about a weekly benefit of about 0:23:17.680 --> 0:23:21.239 ten billion dollars. That's even for a big economy like 0:23:21.280 --> 0:23:25.040 the US, that's a big number. Uh So it's going 0:23:25.119 --> 0:23:27.200 to be a kind of a sliding down in terms 0:23:27.240 --> 0:23:30.159 of activity. And those retail sales numbers that look so 0:23:30.240 --> 0:23:35.040 fantastic and really weathered the crisis well because the stimulus 0:23:35.160 --> 0:23:38.840 has been so strong for households, those numbers will start 0:23:38.880 --> 0:23:42.120 to fade just as the month goes on, And ethan 0:23:42.520 --> 0:23:46.359