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Speaker 1: This is Bloomberg Wall st Week. What's the state of

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Speaker 1: corporate governance? The defresent is a real issue. The US

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Speaker 1: economy continues to send mixed signals, the financial stories that

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Speaker 1: cheap our world fed action to con concerns over dollar

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Speaker 1: in liquidity and encouraging China data the five hundred wealthiest

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Speaker 1: people in the world. Through the eyes of the most

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Speaker 1: influential voices Larry Summers, the former Treasury Secretary, star Ward CEO,

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Speaker 1: Kevin Johnson sec Chairman J Clayton. Bloomberg Wall Street Week

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Speaker 1: with David Weston from Bloomberg Radio from Central China to

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Speaker 1: Northern Italy to Washington. It's all about the coronavirus. This

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Speaker 1: is Wall Street Week. I'm David Weston. Welcome back. In

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Speaker 1: the beginning, the world took the coronavirus in stride. Sure

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Speaker 1: there'd be some hit to Chinese economic growth for a bit,

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Speaker 1: but soon President g would have things back on track.

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Speaker 1: We'd make sure any hit was limited to the first

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Speaker 1: quarter and limited to China. But then this week the

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Speaker 1: virus broke through whatever firewalls we'd hoped for. So now

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Speaker 1: the question is how much death and destruction are we

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Speaker 1: really looking at? How can we plan for a very

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Speaker 1: different than the one we had expected to help us

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Speaker 1: assess the damage done and what maybe yet to come,

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Speaker 1: and we can lean now our Wall Street Week roundtable

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Speaker 1: of James Tish, CEO of Lowe's running a business spanning hotels,

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Speaker 1: energy and financial institutions, and Michelle Meyer, head of US

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Speaker 1: Economics for Bank of America Securities. Welcome both. You're good

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Speaker 1: to have you here here. Michelle, you're the economist to

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Speaker 1: start with. You give us a sense of what we

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Speaker 1: know what we don't know about the scale of the

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Speaker 1: economic damage thus far. I think a good place to

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Speaker 1: start is to think about the direct hit to the

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Speaker 1: global economy from the coronavirus, and that would largely be

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Speaker 1: through supply chains. So the coronavirus clearly led to significant

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Speaker 1: economic damage and China factories are shut down. That's not

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Speaker 1: bleeding into other countries Southeast Asia. You're seeing it in Italy.

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Speaker 1: So the fact that factories can't produce, the fact that

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Speaker 1: you're not able to see the flow of goods through

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Speaker 1: the global economy is clearly a damage. It's going to

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Speaker 1: hit multinational companies and you hear it in in in earnings,

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Speaker 1: you hear from from corporates already. The second way that

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Speaker 1: the coronavirus impacts the economy, and this is what we

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Speaker 1: got tastes of this week, is through fear. And this

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Speaker 1: is where it can get really problematic. Is if you

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Speaker 1: have this adverse feedback loop between consumer and business confidence

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Speaker 1: and markets um where markets react negatively as they have

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Speaker 1: this week, that spurs additional concern on the part of consumers,

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Speaker 1: and consumers change their behavior. They decide they're not going

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Speaker 1: to go and take that trip, They're not going to

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Speaker 1: go to restaurants, the're not going to go to movie theaters,

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Speaker 1: and they're gonna stay home. They're going to hunker down,

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Speaker 1: and that could be a significant hit to economic performance. Luckily,

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Speaker 1: we're not seeing that in full blown by any means yet,

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Speaker 1: but that is the risk factor in this war. Paying

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Speaker 1: attention to Jim as a businessman, what do you think

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Speaker 1: about the supply chain issue before we get to the

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Speaker 1: confidence issue, This probably chain issue. How long will it linger?

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Speaker 1: How long could it linger? What kind of damage could

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Speaker 1: that do? So as I think about this, it's like

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Speaker 1: having a Category six hurricane a thousand miles offshore off

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Speaker 1: in thet the ocean and we don't know for sure

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Speaker 1: if it's going to hit the East coast or if

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Speaker 1: we don't know if it's going to blow out of

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Speaker 1: the way, and so everybody now is panicked about what

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Speaker 1: can happen. Generally they assume the worst. Nobody knows for

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Speaker 1: sure what's going to happen, and so there's just an

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Speaker 1: enormous amount of uncertainty. And I think that's what's on

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Speaker 1: gluing the markets, and I think that's why this topic

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Speaker 1: is the only topic in the news. So we're in

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Speaker 1: better shape going into this we might have been, Michelle,

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Speaker 1: because we did have some stimulus into the economy, and

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Speaker 1: we've got some economic numbers even this week that are

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Speaker 1: sort of indicating we're doing okay at least a messed

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Speaker 1: within the US. How much headwind, how and how much

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Speaker 1: tailwind do we have? Yeah, So the hard data in

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Speaker 1: the US, which is not going to yet pick up

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Speaker 1: the coronavirus, has been strong. It's been good, right, The

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Speaker 1: labor market was improving, consumers have been spending, the housing

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Speaker 1: data has been really showing nice recovery. But that all

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Speaker 1: can change quickly, right, So as economists we have to

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Speaker 1: look at for looking indicators, we have to rely on

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Speaker 1: survey data. We have to lie on what financial conditions

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Speaker 1: are telling us. That's a much better indicator of what's

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Speaker 1: to come now. Of course, those can change rapidly, right Um,

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Speaker 1: So we have been nimble in terms of how we're

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Speaker 1: thinking about the outlook, um, but it's going to take

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Speaker 1: some time before we get confirmation one way or the

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Speaker 1: other in the hard data. Are you seeing the economy

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Speaker 1: is pretty strong right now, John, Yes, Uh, definitely strong,

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Speaker 1: and it's been strong for a long time. We're we've

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Speaker 1: got between two and two and a half percent growth

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Speaker 1: real growth, So when you combine that with inflation, GDP

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Speaker 1: is growing close to five percent nominally, which is really

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Speaker 1: pretty good. Unemployment is very low, Unemployment claims are low,

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Speaker 1: the business environment is very good right now, and sometime

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Speaker 1: we pumped a fair amount of stimulus in the economy

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Speaker 1: through task cuts and things. Are you surprised it isn't

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Speaker 1: even stronger than it is? No? Not, not really be

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Speaker 1: because the unemployment numbers are so low. Uh So, I think, uh,

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Speaker 1: the place where we're going to get more real economic

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Speaker 1: growth is through productivity gains, and I think we saw

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Speaker 1: that last quarter, and I think we're going to see

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Speaker 1: more and more of it going forward. You know, on

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Speaker 1: productivity gains, do you think that there's been a change

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Speaker 1: in how businesses are investing, because presumably in order to

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Speaker 1: get significant productivity games, you need to have a greater

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Speaker 1: willingness amongst the business committee to invest. And do you

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Speaker 1: think that that's potentially in factor You see that all

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Speaker 1: specifically in your space. We see it in terms of

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Speaker 1: our using robotics in our plastic manufacturing. We see it

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Speaker 1: in in terms of just computer systems in our insurance business.

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Speaker 1: We're seeing you know, it's it's been thirty or forty

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Speaker 1: years that that we've had this I T revolution, and

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Speaker 1: until a few years ago, we really didn't get much

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Speaker 1: measured productivity from it. But now we're really I think

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Speaker 1: we're really starting to see great opportunities for productivity gains.

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Speaker 1: At the same time, the expensing of capital investment should

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Speaker 1: have made it take off like a rocket ship, shouldn't it.

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Speaker 1: It's really interesting this disconnect that you see from what

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Speaker 1: people say in the business community on the ground around

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Speaker 1: I T and the ability for productivity to pick up

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Speaker 1: and greater efficiency, because it feels like there's a lot

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Speaker 1: more efficiency, but yet in the aggregate numbers that we

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Speaker 1: get reported in GDP, the proctivity numbers have been so

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Speaker 1: surpar so. Maybe it is just a function of time.

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Speaker 1: Maybe it's a function of you know, the investment lasts

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Speaker 1: long enough, the innovation continues, and you do realize this

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Speaker 1: really impressive productivity boom, which is quite an optimistic story

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Speaker 1: that people are not talking about, especially right now when

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Speaker 1: there's so much fear out there in terms of the

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Speaker 1: risks we're all telling about coronavirus. Our contributors will be

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Speaker 1: staying with us. Coming up the week that was in markets.

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Speaker 1: This is Wals Free Brief. This is Bloomberg Wall Street

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Speaker 1: Week with David Weston from Bloomberg Radio. We canvean now

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Speaker 1: our Wall Street Week roundtable of James Tish, CEO of Lowes,

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Speaker 1: and Michelle Meyer, head of US Economics for Bank of

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Speaker 1: America Securities. Equity markets had a particularly rough week this

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Speaker 1: week as risk investors headed for the hills, or at

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Speaker 1: least for bonds and for gold. For our Wall Street

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Speaker 1: Week interview on equities this week, Welcome Gino Martin Adams.

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Speaker 1: She's Bloomberg Chief Equity Strategies. Welcome to you. Good to

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Speaker 1: have you here. Thank you so I must say you

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Speaker 1: and your team were sort of saying, we're not totally

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Speaker 1: shocked that that can be sold off. Well, there were

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Speaker 1: a lot of signs suggesting that we were headed for

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Speaker 1: some period of weakness. Now, I don't think anybody could

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Speaker 1: have predicted we were headed for a ten percent crush.

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Speaker 1: You did have a lot of rotation into very very

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Speaker 1: defensive strategies occur for the vast majority of this year.

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Speaker 1: Utility stocks at the equity market peak, we're trading three

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Speaker 1: standard deviations above their long term average. Is a good

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Speaker 1: example of that. Low volatility stocks dramatically outperforming high valet

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Speaker 1: atility stocks. These are kinds of symptoms that you look

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Speaker 1: for for a market that is running on fumes. Momentum

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Speaker 1: was running out. There was just a lot of signals

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Speaker 1: suggesting we were due for some period of correction. We

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Speaker 1: got it. It was interesting because for a while it

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Speaker 1: seemed like there was this big disconnect between the bond

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Speaker 1: market and the equa market, which is presumably what you're

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Speaker 1: speaking of. I mean, the bond market, so dramatic decrease

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Speaker 1: and interest rates. You're starting to see the flattening or

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Speaker 1: even points of inversion of the yield curve. Which are

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Speaker 1: always indicative of a gloomy outlook. But yet for a

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Speaker 1: while the equity market helds up quite resilient up until

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Speaker 1: this week. Yes, so what was the trigger? Why this

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Speaker 1: week did you see such a dramatic replacing in the

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Speaker 1: stock market. Now, I think it's a great point because

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Speaker 1: portions of the equity market absolutely reflected that sort of

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Speaker 1: flight to quality in the bond market, and the bond

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Speaker 1: market signals were reflected in things like the utilities premium

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Speaker 1: and the defensive share sort of outperformance, but not all

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Speaker 1: of the equity market reflected and created this bit of

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Speaker 1: a conundrum. However, I think what happened in the equity

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Speaker 1: market is this me no effect. You saw global stocks

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Speaker 1: underperformed dramatically in the prior in the prior month, that

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Speaker 1: suggested to us that there was a rotation out of

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Speaker 1: global shares and into US shares. Is sort of a

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Speaker 1: flight to quality. But I don't want to really eliminate

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Speaker 1: all of my equity exposure because I don't know how

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Speaker 1: bad coronavirus is going to be. Right, So US shares

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Speaker 1: held up very very well, especially Facebook, Amazon, Microsoft, Google,

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Speaker 1: the biggest of the big cap shares with the best

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Speaker 1: sort of perceived structural growth prospects and then defensives. But

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Speaker 1: what happened over the course of the last week is

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Speaker 1: we got a lot more news that the coronavirus was

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Speaker 1: spreading right all of a sudden, It's spreading to Japan,

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Speaker 1: it's going to Italy, it's in South Korea, it's in

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Speaker 1: the Middle East. That kind of information didn't exist two

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Speaker 1: weeks ago, so investors started to capitulate on their overall

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Speaker 1: equity portfolios. At the same time, you've got those big

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Speaker 1: names like Apple and Microsoft coming out and suggesting, hey,

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Speaker 1: we're going to see some learnings damage from this too,

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Speaker 1: and investors had to capitulate on the near term learnings

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Speaker 1: outlook gonna say, there's I think a lot of this

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Speaker 1: is due to the shock that, oh my god, coronavirus

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Speaker 1: is coming to the United States. What's it? What's it

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Speaker 1: going to do to earnings? As as I look at

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Speaker 1: stocks in general, though they seem pretty cheap to me,

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Speaker 1: we have tenure notes at under a one thirty yield,

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Speaker 1: which if you converted into a pe is over seventy five,

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Speaker 1: and you have the stock market trading at seventeen or

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Speaker 1: eighteen times earnings, So in the context of such low

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Speaker 1: term interest rates, stocks seem to me a veritable bargain.

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Speaker 1: And in fact, more than two thirds of stocks traded

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Speaker 1: a higher yield than the ten year note, so you

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Speaker 1: can earn the same as the ten year note and

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Speaker 1: hopefully get the appreciation that you would expect to get

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Speaker 1: in stocks. So I think they're actually a pretty a

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Speaker 1: good value here. I wouldn't disagree. As a matter of fact,

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Speaker 1: we wrote a note just this week suggesting that with

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Speaker 1: the capitulation that we've seen in the equity market this week,

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Speaker 1: stocks are finally back to what are fair value models

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Speaker 1: suggests they should trade at in terms of valuation multiples.

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Speaker 1: The question going forward is well, where will those earnings go?

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Speaker 1: Because when you sign a seventeen handle on SPE you're

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Speaker 1: suggesting that, okay, we're paying for future earnings growth that

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Speaker 1: is certain. If that earnings number comes down, suddenly that

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Speaker 1: pe looks a little more expensive. And that's the situation

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Speaker 1: valuations right now look cheap, but we don't know where

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Speaker 1: the denominator of that ratio is headed. And until we

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Speaker 1: get a little bit more certainty with respect to where

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Speaker 1: policymakers suggesting there will be some firepower supporting the financial markets.

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Speaker 1: Stocks are likely to waffle around. But it does reuse

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Speaker 1: the question of the V versus you or something pretty quickly.

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Speaker 1: Because there's a V, then that's pretty good bargain. If

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Speaker 1: it's not, maybe that's sort of such a good boardroom. Yeah,

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Speaker 1: And what we're finding is increasingly analysts are starting to

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Speaker 1: price in more of a U, hopefully not an L.

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Speaker 1: We haven't seen that occur yet, and that's certainly not

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Speaker 1: our forecast, but the macro indicators that we follow would

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Speaker 1: suggest SMP five earning earnings are likely to grow two

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Speaker 1: percent this year. That's a decline in Q one, followed

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Speaker 1: by a modest bounce back through the rest of the year,

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Speaker 1: finishing the year in more normalized condition. It's a macro model,

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Speaker 1: so it doesn't fully capture all the nuances of every

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Speaker 1: company in the SMP five. Nonetheless, it does sort of

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Speaker 1: fit with the analyst decrease in estimates that we're seeing

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Speaker 1: across the board. What we've seen over the last month

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Speaker 1: now they're starting to take out expectations for Q two

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Speaker 1: and a little bit of the third quarter as well,

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Speaker 1: And I think that forms more of a U shaped recovery,

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Speaker 1: which is frankly a little bit more realistic considering we

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Speaker 1: just don't know how far this is going to spread.

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Speaker 1: You rob something part which is a federal reserve. So

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Speaker 1: markets have loved federers ave easing. Um. There's the power

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Speaker 1: put as many legs to talk about it. Um. So

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Speaker 1: I think there's a questions at what point does a

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Speaker 1: FED step in and support the markets and support the economy.

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Speaker 1: But let's say the FED does come in and ease

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Speaker 1: at the next meeting, the March meetings, they don't do

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Speaker 1: an inter meeting the ease and March meeting. Do you

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Speaker 1: think markets are going to get much relief from that

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Speaker 1: or are they concerned about the bigger picture given how

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Speaker 1: much uncertainty there is just simply about the coronavirus and

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Speaker 1: how it might spread. Um. You know, I really loathe

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Speaker 1: the words this time is different, because I don't think

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Speaker 1: this time is different, And so you have to err

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Speaker 1: on the side of history, right, And every time the

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Speaker 1: FED has started an using cycle, the stock market has reacted,

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Speaker 1: So you have to acknowledge that, even though the feed

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Speaker 1: is usually easing in times of great uncertainty, when we

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Speaker 1: don't know where the economic environment is going to go

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Speaker 1: and we're really skeptical as to whether that policy has

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Speaker 1: any efficacy in creating economic growth going forward, the market

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Speaker 1: always reacts. The reason the market always reacts goes back

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Speaker 1: to evaluations. The way the FED implement The way the

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Speaker 1: Fed actually impacts the equity market is through real interest rates,

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Speaker 1: and it's through the pe multiple less so than through

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Speaker 1: earnings growth. Yes, eventually you're hopefully going to see some

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Speaker 1: pickup and business investments, some pickup and earnings growth that

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Speaker 1: follows along with you know, the anticipation that comes after

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Speaker 1: the FED starts to reduce the policy rate that the

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Speaker 1: initial reaction the equity market is all about the multiple.

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Speaker 1: It's all about the fact that rates are now lower

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Speaker 1: and perceived to be going lower, which elevates multiples and

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Speaker 1: the willingness of investors to take on a little bit

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Speaker 1: of risk. Source of Jim Tish, Michelle Meyer, and of

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Speaker 1: course Jean and Martin Adams of Bloomberg Intelligence. We'll be

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Speaker 1: back with our contributors head to Bloomberg dot com for

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Speaker 1: more exclusive thoughts from our weekly contributors, along with full

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Speaker 1: episodes in the official Bloomberg Wall Street Week podcast. This

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Speaker 1: is Bloomberg Wall Street Week. This is Bloomberg Wall Street

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Speaker 1: Week with David Westing from Bloomberg Radio. In case of emergency,

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Speaker 1: break glass glass, that is that will trigger the alarm

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Speaker 1: calling for lower interest rates from the Federal Reserve. That's

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Speaker 1: been the standard play, at least since the Great Financial

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Speaker 1: Crisis of two thousand and eight. But this time central

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Speaker 1: bankers are taking a weight and see attitude. As we

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Speaker 1: heard from FED Vice Chair Rich Clarida just this week,

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Speaker 1: they are closely monitoring the emergence of the coronavirus, which

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Speaker 1: is likely to have a noticeable impact on Chinese growth

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Speaker 1: at least in the first quarter of this year. The

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Speaker 1: disruptions there could spill over to the rest of the

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Speaker 1: global economy, but it is still too soon to even

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Speaker 1: speculate about either the size or the persistence of these effects.

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Speaker 1: But even if central banks decided to step up in

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Speaker 1: the face of the virus, are we sure it will

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Speaker 1: work this time? Will lower interest rates do anything about

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Speaker 1: a potential pandemic? Let's ask our Wall Street Week roundtable

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Speaker 1: of Michelle Meyer of Bank of America and James Tish,

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Speaker 1: CEO of SO. I'll ask you first, Michelle, we're seeing

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Speaker 1: lower interest rates help in various ways. What they help

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Speaker 1: this problem? Well, this is a supply shock. Um So.

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Speaker 1: Mon Terrey policy has a hard time addressing supply shocks.

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Speaker 1: They do a whole lot better when it's a demand shock,

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Speaker 1: when it's a demand in efficiency. Um. The other major challenge,

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Speaker 1: of course, is that it's a virus that has could

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Speaker 1: have cannot spread quickly. Um. You know, we could change

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Speaker 1: behavior or not. I mean, the reality is is that

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Speaker 1: we don't know. Central bankers don't know. Um. That said,

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Speaker 1: what central bankers do know, and what they are looking

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Speaker 1: at right carefully is what markets are telling them. And

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Speaker 1: that's a really important piece of data for them. It's

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Speaker 1: early indications that there's something problematic um, and certainly something

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Speaker 1: that's worrying market investor market participants. Um. So. I think

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Speaker 1: from the first point of view, a right cut is

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Speaker 1: on the table. It is on the table because financial

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Speaker 1: conditions are deteriorated. If they see credit freezing up, if

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Speaker 1: they see um, you know, further sell off in the market,

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Speaker 1: further increase in volatility um, further inversion of the yield curve,

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Speaker 1: and if the bond markets starts to really pressure the

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Speaker 1: Fed to move, more likely than that they will deliver,

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Speaker 1: even if they don't see the hard evidence in the economy.

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Speaker 1: So if the Fed page attention of the markets, one

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Speaker 1: of the things the markets telling right now is they

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Speaker 1: should cut rates. If you look at the markets are

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Speaker 1: saying they're expecting maybe three rate cuts this week this year,

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Speaker 1: that's true. I think we're what the stock market and

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Speaker 1: the bond market is telling you is that, uh, they're

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Speaker 1: afraid that people are not going to want to come

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Speaker 1: out of their homes. They're going to self quarantine. And

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Speaker 1: if the issue is people self quarantining, then lower interest

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Speaker 1: rates aren't going to make a difference. People are afraid

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Speaker 1: of walking on the street and getting sick. No matter

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Speaker 1: how low interest rates are, they're not going to come out.

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Speaker 1: So I think the Fed needs to be very careful

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Speaker 1: to think about exactly what they're solving for and what

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Speaker 1: they think their rate actions are going to do. What

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Speaker 1: should they be doing even apart from the coronavirus. Apart

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Speaker 1: from the coronavirus, my own view is that interest rates

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Speaker 1: are too low. As I said before, ten year notes

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Speaker 1: are one thirty yield um. The c p I is

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Speaker 1: a hundred basis points higher. In the old days. Uh,

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Speaker 1: you know, years ago people got to find benefit pensions.

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Speaker 1: Today they've got to find contribution uh pensions. So they're

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Speaker 1: saving for their retirement. When we used to have two

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Speaker 1: hundred basis points of real return, you have the magic

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Speaker 1: of compound interest working for the savers. So they'd have

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Speaker 1: a lot more money when they retired because they were

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Speaker 1: able to earn two hundred basis points over the inflation

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Speaker 1: rate for many years. Today, when you can even earn

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Speaker 1: the inflation rate, that means savers have to save dollar

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Speaker 1: for dollar for their retirement. And what that means is

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Speaker 1: that instead of retiring at sixty three, sixty five, sixty seven,

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Speaker 1: they're going to have to wait to seventy five or

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Speaker 1: eighty in order to retire. And that is going to

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Speaker 1: be quite a shock to a lot of younger workers.

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Speaker 1: And yet, Michelle, if anything, I think we've seen as

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Speaker 1: savings rates go up, actually as the rates have gone down,

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Speaker 1: people save more and more and more. There was a

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Speaker 1: time we were worried about capital formation and not having

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Speaker 1: enough savings as a country to invest. Now it looks

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Speaker 1: like there's plenty of money to invest, it's not clear

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Speaker 1: we have enough things to invest in. Yeah, I mean,

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Speaker 1: part of the reason you can make the argument that

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Speaker 1: the savings rate has gone up is that you need

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Speaker 1: to just put more dollars away in order to get

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Speaker 1: the same return because Jim's point, interest rates are so low. Um.

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Speaker 1: But yeah, I think that you know, certainly you've seen

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Speaker 1: distortions in the economy and markets as a result of

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Speaker 1: central bank policy. Some of those distortions are intentional, right.

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Speaker 1: The way that montary policy works when you're so close

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Speaker 1: as you're a little bound and you've expanded your balance

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Speaker 1: sheets and much is by forcing investors into other asset

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Speaker 1: classes to take on risk um. And in theory, that

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Speaker 1: creates wealth and then that bleeds more, you know, into

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Speaker 1: the broader economy. Um. But that also means that it

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Speaker 1: could change behavior in a way that maybe is damaging,

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Speaker 1: and maybe it does have these consequences down the line

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Speaker 1: that we just don't know about right now. Okay, our

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Speaker 1: contributors will be staying with us. Next we'll get a

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Speaker 1: second opinion from Claudia Assam Washington Center for Equital Growth,

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Speaker 1: Director of macro Economic Policy. This is Bloomberg Wall Street Week.

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Speaker 1: This is Bloomberg Wall Street Week with David Weston from

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Speaker 1: Bloomberg Radio. We can clean now our Wall Street Week

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Speaker 1: roundtable of James Tish, CEO of Lowes and Michelle Meyer,

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Speaker 1: head of US Economics for Bank of America Securities. Well,

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Speaker 1: center backers maybe standing pat in the face of the coronavirus,

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Speaker 1: but should they be For that matter, should fiscal authorities

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Speaker 1: be stepping up to the plate when we need them?

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Speaker 1: Right now here for a second opinion on the role

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Speaker 1: of monetary policy and fiscal policy is Claudia sam She

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Speaker 1: is the director of macro Economic Policy at the Washington

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Speaker 1: Center for Equital Growth. She was previously at the Federal

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Speaker 1: Reserve Board and is the author, of course, of the

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Speaker 1: some Rule, which she devised as an early recession indicator

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Speaker 1: your claim to fame, among others. Claudia, great to have

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Speaker 1: you with us, Thanks for joining us. So so first you,

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Speaker 1: first of all, start with the monetary part. We'll get

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Speaker 1: to the fiscal part. Start with the monetary part. We've

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Speaker 1: just been talking about what could center bickers, particularly the

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Speaker 1: Federal Reserve due in response to this coronavirus. Well, first,

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Speaker 1: I think the response that they're taking in terms of

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Speaker 1: paying a lot of attentions seeing what the effects are

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Speaker 1: on the economy, that that is the right step for

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Speaker 1: them to be doing right now. I think they have

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Speaker 1: a lot of tools to be able to do this.

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Speaker 1: One one of the areas, and I worked on this

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Speaker 1: when I was at the Federal Reserve, was developing much

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Speaker 1: more granular data on consumer spending in the United States,

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Speaker 1: so very timely daily data available within three days, and

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Speaker 1: with a lot of geographic detail, so they can look

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Speaker 1: at metro areas if and when any kind of an

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Speaker 1: outbreak of the virus shows up and see what's happening

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Speaker 1: in terms of spending, which would be one of the

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Speaker 1: signs of an economic impact. That's sort of reassuring. So

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Speaker 1: as a practical matter, do they have that on their

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Speaker 1: dashboard right now? They can be looking in a given

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Speaker 1: area if there's an outbreak and say, we can see

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Speaker 1: within three days what's happening and spending. Yeah, these are

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Speaker 1: data that the Federal Reserve has developed and has tested.

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Speaker 1: So we use this, for example, looking at the effects

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Speaker 1: of Hurricane Harvey and IRMA in real time, and so

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Speaker 1: the Federal Reserve has had these data, they know how

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Speaker 1: to use them, and I think this is exactly the

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Speaker 1: kind of application to be able to see if these

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Speaker 1: are temporary, if they're more persistent effects, and if they're

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Speaker 1: spreading in the economy, and if they if they see

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Speaker 1: that an area of the country is slowed down for

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Speaker 1: because of the coronavirus, what specifically can the FED do

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Speaker 1: to to try to counter that. Well, I think the

433
00:23:02,320 --> 00:23:05,959
Speaker 1: first tool they have is to ease lower the federal

434
00:23:06,000 --> 00:23:09,240
Speaker 1: fronts rate, lower interest rates, and they do have room

435
00:23:09,320 --> 00:23:13,919
Speaker 1: to do that at this point. Uh So, I think

436
00:23:13,960 --> 00:23:17,920
Speaker 1: I think that's the next obvious step. There are definite

437
00:23:18,000 --> 00:23:23,200
Speaker 1: questions if this becomes a much more severe economic event,

438
00:23:23,760 --> 00:23:26,359
Speaker 1: which I think at this point we have nothing to

439
00:23:26,400 --> 00:23:28,639
Speaker 1: say that's going to happen. That's something we need to

440
00:23:28,640 --> 00:23:32,159
Speaker 1: be on the watch for. Uh If if say this

441
00:23:32,600 --> 00:23:35,280
Speaker 1: word to turn into something that's much more widespread in

442
00:23:35,400 --> 00:23:38,200
Speaker 1: terms of an economic contraction, then I think we're back

443
00:23:38,240 --> 00:23:40,480
Speaker 1: to the debate of whether the FED is ready for

444
00:23:40,520 --> 00:23:45,280
Speaker 1: the next recession, and there I am much less sanguine

445
00:23:45,720 --> 00:23:49,399
Speaker 1: about the tools that they have. And Claudia, do you

446
00:23:49,440 --> 00:23:51,440
Speaker 1: think that the FEB would want to wait to see

447
00:23:51,560 --> 00:23:54,640
Speaker 1: greater evidence in the hard data, so statistics like job

448
00:23:54,680 --> 00:23:58,240
Speaker 1: creation or for you, you've clearly highlighting importance of the

449
00:23:58,280 --> 00:24:00,480
Speaker 1: unemployee rate in terms of that starting to turn, or

450
00:24:00,520 --> 00:24:02,840
Speaker 1: maybe even more leading would be initial jobless claims to

451
00:24:02,840 --> 00:24:06,080
Speaker 1: see if companies are actually changing their investment in labor

452
00:24:06,359 --> 00:24:09,320
Speaker 1: or can they rely on some of these regional pockets

453
00:24:09,440 --> 00:24:11,919
Speaker 1: as a subset of what might come on a national

454
00:24:11,960 --> 00:24:15,400
Speaker 1: basis and want to get ahead of that, right, So,

455
00:24:15,520 --> 00:24:19,000
Speaker 1: I think they're going to be watching economic impacts, whether

456
00:24:19,040 --> 00:24:23,040
Speaker 1: that's in consumer spending, in the employment numbers. They're obviously

457
00:24:23,119 --> 00:24:26,320
Speaker 1: paying attention to what's happening in financial markets this week,

458
00:24:26,840 --> 00:24:30,160
Speaker 1: so that that can financial conditions can have their own

459
00:24:30,200 --> 00:24:32,840
Speaker 1: feed through the economy, and the Federals are would take

460
00:24:32,880 --> 00:24:35,439
Speaker 1: those seriously and that could be a game changer in

461
00:24:35,560 --> 00:24:38,600
Speaker 1: terms of what they do next. So regardless of whether

462
00:24:38,640 --> 00:24:41,960
Speaker 1: they're seeing it right now in the spending data, I

463
00:24:42,000 --> 00:24:46,680
Speaker 1: think that that raises the possibility more that they're starting

464
00:24:46,680 --> 00:24:50,280
Speaker 1: to think seriously about a rate cut. So would you

465
00:24:50,320 --> 00:24:52,359
Speaker 1: would you call would you consider this to be the

466
00:24:52,400 --> 00:24:58,200
Speaker 1: power put that when when the Fed sees stock prices

467
00:24:58,280 --> 00:25:01,000
Speaker 1: go down ten they say, oh my god, we've got

468
00:25:01,080 --> 00:25:06,800
Speaker 1: to cut interest rates. So I wouldn't ascribe this necessarily

469
00:25:06,880 --> 00:25:11,560
Speaker 1: to Pow. We've seen other examples where financial markets get

470
00:25:11,560 --> 00:25:14,600
Speaker 1: into a wobbly place and the FED steps in and

471
00:25:14,600 --> 00:25:18,120
Speaker 1: cuts rates. So there are examples from early twenties sixteen,

472
00:25:18,200 --> 00:25:21,920
Speaker 1: their examples from last year, and that can be a

473
00:25:22,040 --> 00:25:26,920
Speaker 1: very effective way to short circuit some of the pessimism

474
00:25:26,920 --> 00:25:29,040
Speaker 1: of the kind of downward spile that can get going

475
00:25:29,080 --> 00:25:32,280
Speaker 1: in financial markets. There aren't big costs the economy if

476
00:25:32,280 --> 00:25:34,080
Speaker 1: the FED does that, and in the past it has

477
00:25:34,160 --> 00:25:38,080
Speaker 1: proved successful. Well, what if we need more than the Fed?

478
00:25:38,160 --> 00:25:40,240
Speaker 1: What if we need more than monetary policy? Talking to

479
00:25:40,400 --> 00:25:42,479
Speaker 1: us about fiscal policy, as you've talked a lot about that.

480
00:25:43,080 --> 00:25:46,879
Speaker 1: M Yeah, So I I firmly believe, and there's a

481
00:25:46,920 --> 00:25:49,840
Speaker 1: lot more conversation in the economic policy and in the

482
00:25:50,000 --> 00:25:53,960
Speaker 1: academic community that fiscal policy needs to be ready to

483
00:25:54,040 --> 00:25:57,400
Speaker 1: step up at any point that we have a widespread

484
00:25:57,480 --> 00:26:01,360
Speaker 1: contraction economic activity. The FED is going to act. They

485
00:26:01,400 --> 00:26:06,400
Speaker 1: need to act. They have real constraints on what they

486
00:26:06,440 --> 00:26:09,000
Speaker 1: can do, or at least how effective it can do.

487
00:26:09,160 --> 00:26:12,440
Speaker 1: So interest rates are very low, that is likely not

488
00:26:12,560 --> 00:26:16,520
Speaker 1: what's holding back spending, and that would be true also

489
00:26:16,560 --> 00:26:18,760
Speaker 1: in a recession. So the FED needs to do what

490
00:26:18,880 --> 00:26:22,080
Speaker 1: it knows how to do, and federal government, state and

491
00:26:22,119 --> 00:26:25,200
Speaker 1: local governments they have an important role to play too,

492
00:26:26,119 --> 00:26:30,520
Speaker 1: And is that basically getting money into people's pockets. So

493
00:26:30,680 --> 00:26:34,080
Speaker 1: I think the most important thing is that fiscal policy

494
00:26:34,200 --> 00:26:38,119
Speaker 1: moves fast. So any kind of support to the economy,

495
00:26:38,240 --> 00:26:42,000
Speaker 1: if it comes early, it has the chance to make

496
00:26:42,040 --> 00:26:45,680
Speaker 1: the recession or whatever contraction is happening in the economy,

497
00:26:45,920 --> 00:26:48,919
Speaker 1: to make it shorter and less severe. And it is

498
00:26:49,000 --> 00:26:51,600
Speaker 1: so important to take that opportunity as soon as the

499
00:26:51,640 --> 00:26:54,560
Speaker 1: recession starts to act. And there's a lot of tools

500
00:26:54,600 --> 00:26:57,080
Speaker 1: that they can get money out to people, to businesses,

501
00:26:57,119 --> 00:26:59,720
Speaker 1: to state governments. But I know one of the things

502
00:26:59,720 --> 00:27:01,639
Speaker 1: that you like to look at in your your research

503
00:27:01,720 --> 00:27:04,119
Speaker 1: more broadly as the micro story, right, not just the

504
00:27:04,160 --> 00:27:07,960
Speaker 1: macro picture, but what can you glean from the micro

505
00:27:08,480 --> 00:27:10,040
Speaker 1: um and would you make the case that on the

506
00:27:10,040 --> 00:27:12,520
Speaker 1: fiscal side, they actually can be more micro that maybe

507
00:27:12,520 --> 00:27:16,960
Speaker 1: monetary policies to blunt of an instrument to address UM

508
00:27:17,000 --> 00:27:19,640
Speaker 1: some of some of the challenges to econty, particularly one

509
00:27:19,680 --> 00:27:22,840
Speaker 1: like this, that that fiscal policy UM can be more

510
00:27:22,880 --> 00:27:26,600
Speaker 1: targeted UM and and and specifically today with the coronavirus,

511
00:27:26,680 --> 00:27:30,119
Speaker 1: how would you maybe see that playing out. Yes, so

512
00:27:30,240 --> 00:27:33,600
Speaker 1: I completely agree that fiscal policy has the ability to

513
00:27:33,680 --> 00:27:37,080
Speaker 1: be targeted, and I think that is really the application

514
00:27:37,200 --> 00:27:40,040
Speaker 1: that I would think about with the coronavirus. It makes

515
00:27:40,080 --> 00:27:42,480
Speaker 1: a lot of sense to get financial to support to

516
00:27:42,680 --> 00:27:46,119
Speaker 1: individuals who end up being infected with the virus aren't

517
00:27:46,160 --> 00:27:49,399
Speaker 1: able to go to work. They're the ones that need help.

518
00:27:49,720 --> 00:27:52,520
Speaker 1: And if you think about it, the federal government, if

519
00:27:52,600 --> 00:27:57,040
Speaker 1: there's a natural disaster emergency area declared, they get money

520
00:27:57,080 --> 00:28:00,879
Speaker 1: to individuals whose homes were destroyed. It makes sense that

521
00:28:01,000 --> 00:28:03,199
Speaker 1: you should give money and support to the people who

522
00:28:03,280 --> 00:28:06,760
Speaker 1: are directly affected, and the government knows how to do that.

523
00:28:07,160 --> 00:28:09,560
Speaker 1: The Fed does not have those kind of tools. They have,

524
00:28:09,760 --> 00:28:11,919
Speaker 1: as you said, a much blunt or instrument. They have

525
00:28:12,000 --> 00:28:14,600
Speaker 1: ways to affect the economy as a whole, and frankly,

526
00:28:14,640 --> 00:28:17,120
Speaker 1: there is no guarantee what they do would actually help

527
00:28:17,200 --> 00:28:20,480
Speaker 1: the people with the virus. Mclaudie, you said you have

528
00:28:20,560 --> 00:28:23,960
Speaker 1: to do it fast. I don't normally think about Congress

529
00:28:23,960 --> 00:28:27,240
Speaker 1: and fast in the same sentence. Forgive me. You're in Washington,

530
00:28:27,320 --> 00:28:29,600
Speaker 1: you know the way the place works is this realistic.

531
00:28:31,640 --> 00:28:34,960
Speaker 1: So with a policy change, with a change in mindset.

532
00:28:35,240 --> 00:28:37,600
Speaker 1: So the work that I have done and several other

533
00:28:37,640 --> 00:28:41,200
Speaker 1: colleagues is to think about how could we make fiscal

534
00:28:41,280 --> 00:28:44,880
Speaker 1: policy automatic, how could we make it move fast? Now

535
00:28:44,920 --> 00:28:48,200
Speaker 1: we have an excellent opportunity because right now we are

536
00:28:48,280 --> 00:28:50,640
Speaker 1: not in a recession. A recession is not on the

537
00:28:50,680 --> 00:28:53,880
Speaker 1: horizon in my opinion, and now is the time that

538
00:28:53,960 --> 00:28:58,280
Speaker 1: Congress and sit down draft legislation, come up with a plan,

539
00:28:59,000 --> 00:29:03,080
Speaker 1: and get it agreed to make a commitment build up

540
00:29:03,080 --> 00:29:07,120
Speaker 1: the infrastructure, and so when that recession hits, physical policy

541
00:29:07,200 --> 00:29:11,440
Speaker 1: can move out the door. Would you agree with that, Jim,

542
00:29:11,480 --> 00:29:14,280
Speaker 1: would you favor that? I'm in favor of it. But

543
00:29:14,840 --> 00:29:17,560
Speaker 1: there's nothing that I've seen that leads me to believe

544
00:29:17,640 --> 00:29:20,800
Speaker 1: that there's going to be a cooperation in Congress and

545
00:29:20,920 --> 00:29:25,880
Speaker 1: that they can get anything done quickly, especially now for

546
00:29:25,880 --> 00:29:30,800
Speaker 1: for the next eight months as we're going into presidential

547
00:29:30,840 --> 00:29:35,880
Speaker 1: election season. I personally had had been hopeful that with

548
00:29:36,040 --> 00:29:40,080
Speaker 1: this coronavirus thing, that that you would see the parties

549
00:29:40,280 --> 00:29:45,560
Speaker 1: come together, that the political bickering would would uh sort

550
00:29:45,560 --> 00:29:49,200
Speaker 1: of come to a standstill. And I haven't seen any

551
00:29:49,240 --> 00:29:51,280
Speaker 1: evidence of that. We didn't see it this week, if anything,

552
00:29:51,280 --> 00:29:53,560
Speaker 1: we saw the reverse starting to make it a political

553
00:29:53,560 --> 00:29:55,760
Speaker 1: football basically about how much money is being appropriated and

554
00:29:55,800 --> 00:29:59,680
Speaker 1: whether it's fast enough and the right people, things like that. Exactly. Yeah, okay,

555
00:30:00,440 --> 00:30:04,240
Speaker 1: And I would add one point to that, and why

556
00:30:04,240 --> 00:30:07,360
Speaker 1: I agree with you. It is a very optimistic, overly

557
00:30:07,360 --> 00:30:10,920
Speaker 1: optimistic scenario to think this legislation would pass this year.

558
00:30:11,240 --> 00:30:14,680
Speaker 1: But there is a real benefit for legislation being drafted,

559
00:30:15,480 --> 00:30:17,920
Speaker 1: brought to the House, brought to the Senate, because if

560
00:30:17,960 --> 00:30:21,760
Speaker 1: nothing else, that creates a conversation, it lets the details

561
00:30:21,840 --> 00:30:26,840
Speaker 1: be hammered out and that text that legislation is sitting there.

562
00:30:27,440 --> 00:30:30,160
Speaker 1: And when we get into recession, I think that is

563
00:30:30,200 --> 00:30:33,760
Speaker 1: a time where you see by bipartisan support to fight

564
00:30:33,800 --> 00:30:37,320
Speaker 1: back and help people. So there could be benefits. I

565
00:30:37,360 --> 00:30:40,160
Speaker 1: think there really are benefits from the preparation we could

566
00:30:40,160 --> 00:30:42,960
Speaker 1: be doing right now. And it could be that other

567
00:30:43,040 --> 00:30:47,840
Speaker 1: disruptions like the coronavirus, light of fire under Congress people,

568
00:30:48,760 --> 00:30:52,840
Speaker 1: light of fire under policymakers and get them started planning

569
00:30:53,160 --> 00:30:56,200
Speaker 1: and drafting legislation. It's a good wish, there's no question

570
00:30:56,280 --> 00:30:58,760
Speaker 1: about that. Okay, thank you so much. Quality that's quality

571
00:30:58,760 --> 00:31:01,440
Speaker 1: of sam of the Washing Center for Equitable Growth. And

572
00:31:01,480 --> 00:31:03,880
Speaker 1: if you missed an episode of Bloomberg Wall Street Week,

573
00:31:04,120 --> 00:31:07,320
Speaker 1: full episodes are now available on YouTube, the Bloomberg Terminal,

574
00:31:07,560 --> 00:31:10,760
Speaker 1: and Bloomberg dot Com. This has been another edition of

575
00:31:10,800 --> 00:31:13,360
Speaker 1: Wall Street Week. See you next week.