Speaker 1: This is Bloomberg Wall st Week. What's the state of
Speaker 1: corporate governance? The defresent is a real issue. The US
Speaker 1: economy continues to send mixed signals, the financial stories that
Speaker 1: cheap our world fed action to con concerns over dollar
Speaker 1: in liquidity and encouraging China data the five hundred wealthiest
Speaker 1: people in the world. Through the eyes of the most
Speaker 1: influential voices Larry Summers, the former Treasury Secretary, star Ward CEO,
Speaker 1: Kevin Johnson sec Chairman J Clayton. Bloomberg Wall Street Week
Speaker 1: with David Weston from Bloomberg Radio from Central China to
Speaker 1: Northern Italy to Washington. It's all about the coronavirus. This
Speaker 1: is Wall Street Week. I'm David Weston. Welcome back. In
Speaker 1: the beginning, the world took the coronavirus in stride. Sure
Speaker 1: there'd be some hit to Chinese economic growth for a bit,
Speaker 1: but soon President g would have things back on track.
Speaker 1: We'd make sure any hit was limited to the first
Speaker 1: quarter and limited to China. But then this week the
Speaker 1: virus broke through whatever firewalls we'd hoped for. So now
Speaker 1: the question is how much death and destruction are we
Speaker 1: really looking at? How can we plan for a very
Speaker 1: different than the one we had expected to help us
Speaker 1: assess the damage done and what maybe yet to come,
Speaker 1: and we can lean now our Wall Street Week roundtable
Speaker 1: of James Tish, CEO of Lowe's running a business spanning hotels,
Speaker 1: energy and financial institutions, and Michelle Meyer, head of US
Speaker 1: Economics for Bank of America Securities. Welcome both. You're good
Speaker 1: to have you here here. Michelle, you're the economist to
Speaker 1: start with. You give us a sense of what we
Speaker 1: know what we don't know about the scale of the
Speaker 1: economic damage thus far. I think a good place to
Speaker 1: start is to think about the direct hit to the
Speaker 1: global economy from the coronavirus, and that would largely be
Speaker 1: through supply chains. So the coronavirus clearly led to significant
Speaker 1: economic damage and China factories are shut down. That's not
Speaker 1: bleeding into other countries Southeast Asia. You're seeing it in Italy.
Speaker 1: So the fact that factories can't produce, the fact that
Speaker 1: you're not able to see the flow of goods through
Speaker 1: the global economy is clearly a damage. It's going to
Speaker 1: hit multinational companies and you hear it in in in earnings,
Speaker 1: you hear from from corporates already. The second way that
Speaker 1: the coronavirus impacts the economy, and this is what we
Speaker 1: got tastes of this week, is through fear. And this
Speaker 1: is where it can get really problematic. Is if you
Speaker 1: have this adverse feedback loop between consumer and business confidence
Speaker 1: and markets um where markets react negatively as they have
Speaker 1: this week, that spurs additional concern on the part of consumers,
Speaker 1: and consumers change their behavior. They decide they're not going
Speaker 1: to go and take that trip, They're not going to
Speaker 1: go to restaurants, the're not going to go to movie theaters,
Speaker 1: and they're gonna stay home. They're going to hunker down,
Speaker 1: and that could be a significant hit to economic performance. Luckily,
Speaker 1: we're not seeing that in full blown by any means yet,
Speaker 1: but that is the risk factor in this war. Paying
Speaker 1: attention to Jim as a businessman, what do you think
Speaker 1: about the supply chain issue before we get to the
Speaker 1: confidence issue, This probably chain issue. How long will it linger?
Speaker 1: How long could it linger? What kind of damage could
Speaker 1: that do? So as I think about this, it's like
Speaker 1: having a Category six hurricane a thousand miles offshore off
Speaker 1: in thet the ocean and we don't know for sure
Speaker 1: if it's going to hit the East coast or if
Speaker 1: we don't know if it's going to blow out of
Speaker 1: the way, and so everybody now is panicked about what
Speaker 1: can happen. Generally they assume the worst. Nobody knows for
Speaker 1: sure what's going to happen, and so there's just an
Speaker 1: enormous amount of uncertainty. And I think that's what's on
Speaker 1: gluing the markets, and I think that's why this topic
Speaker 1: is the only topic in the news. So we're in
Speaker 1: better shape going into this we might have been, Michelle,
Speaker 1: because we did have some stimulus into the economy, and
Speaker 1: we've got some economic numbers even this week that are
Speaker 1: sort of indicating we're doing okay at least a messed
Speaker 1: within the US. How much headwind, how and how much
Speaker 1: tailwind do we have? Yeah, So the hard data in
Speaker 1: the US, which is not going to yet pick up
Speaker 1: the coronavirus, has been strong. It's been good, right, The
Speaker 1: labor market was improving, consumers have been spending, the housing
Speaker 1: data has been really showing nice recovery. But that all
Speaker 1: can change quickly, right, So as economists we have to
Speaker 1: look at for looking indicators, we have to rely on
Speaker 1: survey data. We have to lie on what financial conditions
Speaker 1: are telling us. That's a much better indicator of what's
Speaker 1: to come now. Of course, those can change rapidly, right Um,
Speaker 1: So we have been nimble in terms of how we're
Speaker 1: thinking about the outlook, um, but it's going to take
Speaker 1: some time before we get confirmation one way or the
Speaker 1: other in the hard data. Are you seeing the economy
Speaker 1: is pretty strong right now, John, Yes, Uh, definitely strong,
Speaker 1: and it's been strong for a long time. We're we've
Speaker 1: got between two and two and a half percent growth
Speaker 1: real growth, So when you combine that with inflation, GDP
Speaker 1: is growing close to five percent nominally, which is really
Speaker 1: pretty good. Unemployment is very low, Unemployment claims are low,
Speaker 1: the business environment is very good right now, and sometime
Speaker 1: we pumped a fair amount of stimulus in the economy
Speaker 1: through task cuts and things. Are you surprised it isn't
Speaker 1: even stronger than it is? No? Not, not really be
Speaker 1: because the unemployment numbers are so low. Uh So, I think, uh,
Speaker 1: the place where we're going to get more real economic
Speaker 1: growth is through productivity gains, and I think we saw
Speaker 1: that last quarter, and I think we're going to see
Speaker 1: more and more of it going forward. You know, on
Speaker 1: productivity gains, do you think that there's been a change
Speaker 1: in how businesses are investing, because presumably in order to
Speaker 1: get significant productivity games, you need to have a greater
Speaker 1: willingness amongst the business committee to invest. And do you
Speaker 1: think that that's potentially in factor You see that all
Speaker 1: specifically in your space. We see it in terms of
Speaker 1: our using robotics in our plastic manufacturing. We see it
Speaker 1: in in terms of just computer systems in our insurance business.
Speaker 1: We're seeing you know, it's it's been thirty or forty
Speaker 1: years that that we've had this I T revolution, and
Speaker 1: until a few years ago, we really didn't get much
Speaker 1: measured productivity from it. But now we're really I think
Speaker 1: we're really starting to see great opportunities for productivity gains.
Speaker 1: At the same time, the expensing of capital investment should
Speaker 1: have made it take off like a rocket ship, shouldn't it.
Speaker 1: It's really interesting this disconnect that you see from what
Speaker 1: people say in the business community on the ground around
Speaker 1: I T and the ability for productivity to pick up
Speaker 1: and greater efficiency, because it feels like there's a lot
Speaker 1: more efficiency, but yet in the aggregate numbers that we
Speaker 1: get reported in GDP, the proctivity numbers have been so
Speaker 1: surpar so. Maybe it is just a function of time.
Speaker 1: Maybe it's a function of you know, the investment lasts
Speaker 1: long enough, the innovation continues, and you do realize this
Speaker 1: really impressive productivity boom, which is quite an optimistic story
Speaker 1: that people are not talking about, especially right now when
Speaker 1: there's so much fear out there in terms of the
Speaker 1: risks we're all telling about coronavirus. Our contributors will be
Speaker 1: staying with us. Coming up the week that was in markets.
Speaker 1: This is Wals Free Brief. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. We canvean now
Speaker 1: our Wall Street Week roundtable of James Tish, CEO of Lowes,
Speaker 1: and Michelle Meyer, head of US Economics for Bank of
Speaker 1: America Securities. Equity markets had a particularly rough week this
Speaker 1: week as risk investors headed for the hills, or at
Speaker 1: least for bonds and for gold. For our Wall Street
Speaker 1: Week interview on equities this week, Welcome Gino Martin Adams.
Speaker 1: She's Bloomberg Chief Equity Strategies. Welcome to you. Good to
Speaker 1: have you here. Thank you so I must say you
Speaker 1: and your team were sort of saying, we're not totally
Speaker 1: shocked that that can be sold off. Well, there were
Speaker 1: a lot of signs suggesting that we were headed for
Speaker 1: some period of weakness. Now, I don't think anybody could
Speaker 1: have predicted we were headed for a ten percent crush.
Speaker 1: You did have a lot of rotation into very very
Speaker 1: defensive strategies occur for the vast majority of this year.
Speaker 1: Utility stocks at the equity market peak, we're trading three
Speaker 1: standard deviations above their long term average. Is a good
Speaker 1: example of that. Low volatility stocks dramatically outperforming high valet
Speaker 1: atility stocks. These are kinds of symptoms that you look
Speaker 1: for for a market that is running on fumes. Momentum
Speaker 1: was running out. There was just a lot of signals
Speaker 1: suggesting we were due for some period of correction. We
Speaker 1: got it. It was interesting because for a while it
Speaker 1: seemed like there was this big disconnect between the bond
Speaker 1: market and the equa market, which is presumably what you're
Speaker 1: speaking of. I mean, the bond market, so dramatic decrease
Speaker 1: and interest rates. You're starting to see the flattening or
Speaker 1: even points of inversion of the yield curve. Which are
Speaker 1: always indicative of a gloomy outlook. But yet for a
Speaker 1: while the equity market helds up quite resilient up until
Speaker 1: this week. Yes, so what was the trigger? Why this
Speaker 1: week did you see such a dramatic replacing in the
Speaker 1: stock market. Now, I think it's a great point because
Speaker 1: portions of the equity market absolutely reflected that sort of
Speaker 1: flight to quality in the bond market, and the bond
Speaker 1: market signals were reflected in things like the utilities premium
Speaker 1: and the defensive share sort of outperformance, but not all
Speaker 1: of the equity market reflected and created this bit of
Speaker 1: a conundrum. However, I think what happened in the equity
Speaker 1: market is this me no effect. You saw global stocks
Speaker 1: underperformed dramatically in the prior in the prior month, that
Speaker 1: suggested to us that there was a rotation out of
Speaker 1: global shares and into US shares. Is sort of a
Speaker 1: flight to quality. But I don't want to really eliminate
Speaker 1: all of my equity exposure because I don't know how
Speaker 1: bad coronavirus is going to be. Right, So US shares
Speaker 1: held up very very well, especially Facebook, Amazon, Microsoft, Google,
Speaker 1: the biggest of the big cap shares with the best
Speaker 1: sort of perceived structural growth prospects and then defensives. But
Speaker 1: what happened over the course of the last week is
Speaker 1: we got a lot more news that the coronavirus was
Speaker 1: spreading right all of a sudden, It's spreading to Japan,
Speaker 1: it's going to Italy, it's in South Korea, it's in
Speaker 1: the Middle East. That kind of information didn't exist two
Speaker 1: weeks ago, so investors started to capitulate on their overall
Speaker 1: equity portfolios. At the same time, you've got those big
Speaker 1: names like Apple and Microsoft coming out and suggesting, hey,
Speaker 1: we're going to see some learnings damage from this too,
Speaker 1: and investors had to capitulate on the near term learnings
Speaker 1: outlook gonna say, there's I think a lot of this
Speaker 1: is due to the shock that, oh my god, coronavirus
Speaker 1: is coming to the United States. What's it? What's it
Speaker 1: going to do to earnings? As as I look at
Speaker 1: stocks in general, though they seem pretty cheap to me,
Speaker 1: we have tenure notes at under a one thirty yield,
Speaker 1: which if you converted into a pe is over seventy five,
Speaker 1: and you have the stock market trading at seventeen or
Speaker 1: eighteen times earnings, So in the context of such low
Speaker 1: term interest rates, stocks seem to me a veritable bargain.
Speaker 1: And in fact, more than two thirds of stocks traded
Speaker 1: a higher yield than the ten year note, so you
Speaker 1: can earn the same as the ten year note and
Speaker 1: hopefully get the appreciation that you would expect to get
Speaker 1: in stocks. So I think they're actually a pretty a
Speaker 1: good value here. I wouldn't disagree. As a matter of fact,
Speaker 1: we wrote a note just this week suggesting that with
Speaker 1: the capitulation that we've seen in the equity market this week,
Speaker 1: stocks are finally back to what are fair value models
Speaker 1: suggests they should trade at in terms of valuation multiples.
Speaker 1: The question going forward is well, where will those earnings go?
Speaker 1: Because when you sign a seventeen handle on SPE you're
Speaker 1: suggesting that, okay, we're paying for future earnings growth that
Speaker 1: is certain. If that earnings number comes down, suddenly that
Speaker 1: pe looks a little more expensive. And that's the situation
Speaker 1: we're in right now, is sort of grappling with Yes,
Speaker 1: valuations right now look cheap, but we don't know where
Speaker 1: the denominator of that ratio is headed. And until we
Speaker 1: get a little bit more certainty with respect to where
Speaker 1: that denominator is headed, or we get more support from
Speaker 1: policymakers suggesting there will be some firepower supporting the financial markets.
Speaker 1: Stocks are likely to waffle around. But it does reuse
Speaker 1: the question of the V versus you or something pretty quickly.
Speaker 1: Because there's a V, then that's pretty good bargain. If
Speaker 1: it's not, maybe that's sort of such a good boardroom. Yeah,
Speaker 1: And what we're finding is increasingly analysts are starting to
Speaker 1: price in more of a U, hopefully not an L.
Speaker 1: We haven't seen that occur yet, and that's certainly not
Speaker 1: our forecast, but the macro indicators that we follow would
Speaker 1: suggest SMP five earning earnings are likely to grow two
Speaker 1: percent this year. That's a decline in Q one, followed
Speaker 1: by a modest bounce back through the rest of the year,
Speaker 1: finishing the year in more normalized condition. It's a macro model,
Speaker 1: so it doesn't fully capture all the nuances of every
Speaker 1: company in the SMP five. Nonetheless, it does sort of
Speaker 1: fit with the analyst decrease in estimates that we're seeing
Speaker 1: across the board. What we've seen over the last month
Speaker 1: is analyst expectations for Q one fall really quickly, but
Speaker 1: now they're starting to take out expectations for Q two
Speaker 1: and a little bit of the third quarter as well,
Speaker 1: And I think that forms more of a U shaped recovery,
Speaker 1: which is frankly a little bit more realistic considering we
Speaker 1: just don't know how far this is going to spread.
Speaker 1: You rob something part which is a federal reserve. So
Speaker 1: markets have loved federers ave easing. Um. There's the power
Speaker 1: put as many legs to talk about it. Um. So
Speaker 1: I think there's a questions at what point does a
Speaker 1: FED step in and support the markets and support the economy.
Speaker 1: But let's say the FED does come in and ease
Speaker 1: at the next meeting, the March meetings, they don't do
Speaker 1: an inter meeting the ease and March meeting. Do you
Speaker 1: think markets are going to get much relief from that
Speaker 1: or are they concerned about the bigger picture given how
Speaker 1: much uncertainty there is just simply about the coronavirus and
Speaker 1: how it might spread. Um. You know, I really loathe
Speaker 1: the words this time is different, because I don't think
Speaker 1: this time is different, And so you have to err
Speaker 1: on the side of history, right, And every time the
Speaker 1: FED has started an using cycle, the stock market has reacted,
Speaker 1: So you have to acknowledge that, even though the feed
Speaker 1: is usually easing in times of great uncertainty, when we
Speaker 1: don't know where the economic environment is going to go
Speaker 1: and we're really skeptical as to whether that policy has
Speaker 1: any efficacy in creating economic growth going forward, the market
Speaker 1: always reacts. The reason the market always reacts goes back
Speaker 1: to evaluations. The way the FED implement The way the
Speaker 1: Fed actually impacts the equity market is through real interest rates,
Speaker 1: and it's through the pe multiple less so than through
Speaker 1: earnings growth. Yes, eventually you're hopefully going to see some
Speaker 1: pickup and business investments, some pickup and earnings growth that
Speaker 1: follows along with you know, the anticipation that comes after
Speaker 1: the FED starts to reduce the policy rate that the
Speaker 1: initial reaction the equity market is all about the multiple.
Speaker 1: It's all about the fact that rates are now lower
Speaker 1: and perceived to be going lower, which elevates multiples and
Speaker 1: the willingness of investors to take on a little bit
Speaker 1: of risk. Source of Jim Tish, Michelle Meyer, and of
Speaker 1: course Jean and Martin Adams of Bloomberg Intelligence. We'll be
Speaker 1: back with our contributors head to Bloomberg dot com for
Speaker 1: more exclusive thoughts from our weekly contributors, along with full
Speaker 1: episodes in the official Bloomberg Wall Street Week podcast. This
Speaker 1: is Bloomberg Wall Street Week. This is Bloomberg Wall Street
Speaker 1: Week with David Westing from Bloomberg Radio. In case of emergency,
Speaker 1: break glass glass, that is that will trigger the alarm
Speaker 1: calling for lower interest rates from the Federal Reserve. That's
Speaker 1: been the standard play, at least since the Great Financial
Speaker 1: Crisis of two thousand and eight. But this time central
Speaker 1: bankers are taking a weight and see attitude. As we
Speaker 1: heard from FED Vice Chair Rich Clarida just this week,
Speaker 1: they are closely monitoring the emergence of the coronavirus, which
Speaker 1: is likely to have a noticeable impact on Chinese growth
Speaker 1: at least in the first quarter of this year. The
Speaker 1: disruptions there could spill over to the rest of the
Speaker 1: global economy, but it is still too soon to even
Speaker 1: speculate about either the size or the persistence of these effects.
Speaker 1: But even if central banks decided to step up in
Speaker 1: the face of the virus, are we sure it will
Speaker 1: work this time? Will lower interest rates do anything about
Speaker 1: a potential pandemic? Let's ask our Wall Street Week roundtable
Speaker 1: of Michelle Meyer of Bank of America and James Tish,
Speaker 1: CEO of SO. I'll ask you first, Michelle, we're seeing
Speaker 1: lower interest rates help in various ways. What they help
Speaker 1: this problem? Well, this is a supply shock. Um So.
Speaker 1: Mon Terrey policy has a hard time addressing supply shocks.
Speaker 1: They do a whole lot better when it's a demand shock,
Speaker 1: when it's a demand in efficiency. Um. The other major challenge,
Speaker 1: of course, is that it's a virus that has could
Speaker 1: have cannot spread quickly. Um. You know, we could change
Speaker 1: behavior or not. I mean, the reality is is that
Speaker 1: we don't know. Central bankers don't know. Um. That said,
Speaker 1: what central bankers do know, and what they are looking
Speaker 1: at right carefully is what markets are telling them. And
Speaker 1: that's a really important piece of data for them. It's
Speaker 1: early indications that there's something problematic um, and certainly something
Speaker 1: that's worrying market investor market participants. Um. So. I think
Speaker 1: from the first point of view, a right cut is
Speaker 1: on the table. It is on the table because financial
Speaker 1: conditions are deteriorated. If they see credit freezing up, if
Speaker 1: they see um, you know, further sell off in the market,
Speaker 1: further increase in volatility um, further inversion of the yield curve,
Speaker 1: and if the bond markets starts to really pressure the
Speaker 1: Fed to move, more likely than that they will deliver,
Speaker 1: even if they don't see the hard evidence in the economy.
Speaker 1: So if the Fed page attention of the markets, one
Speaker 1: of the things the markets telling right now is they
Speaker 1: should cut rates. If you look at the markets are
Speaker 1: saying they're expecting maybe three rate cuts this week this year,
Speaker 1: that's true. I think we're what the stock market and
Speaker 1: the bond market is telling you is that, uh, they're
Speaker 1: afraid that people are not going to want to come
Speaker 1: out of their homes. They're going to self quarantine. And
Speaker 1: if the issue is people self quarantining, then lower interest
Speaker 1: rates aren't going to make a difference. People are afraid
Speaker 1: of walking on the street and getting sick. No matter
Speaker 1: how low interest rates are, they're not going to come out.
Speaker 1: So I think the Fed needs to be very careful
Speaker 1: to think about exactly what they're solving for and what
Speaker 1: they think their rate actions are going to do. What
Speaker 1: should they be doing even apart from the coronavirus. Apart
Speaker 1: from the coronavirus, my own view is that interest rates
Speaker 1: are too low. As I said before, ten year notes
Speaker 1: are one thirty yield um. The c p I is
Speaker 1: a hundred basis points higher. In the old days. Uh,
Speaker 1: you know, years ago people got to find benefit pensions.
Speaker 1: Today they've got to find contribution uh pensions. So they're
Speaker 1: saving for their retirement. When we used to have two
Speaker 1: hundred basis points of real return, you have the magic
Speaker 1: of compound interest working for the savers. So they'd have
Speaker 1: a lot more money when they retired because they were
Speaker 1: able to earn two hundred basis points over the inflation
Speaker 1: rate for many years. Today, when you can even earn
Speaker 1: the inflation rate, that means savers have to save dollar
Speaker 1: for dollar for their retirement. And what that means is
Speaker 1: that instead of retiring at sixty three, sixty five, sixty seven,
Speaker 1: they're going to have to wait to seventy five or
Speaker 1: eighty in order to retire. And that is going to
Speaker 1: be quite a shock to a lot of younger workers.
Speaker 1: And yet, Michelle, if anything, I think we've seen as
Speaker 1: savings rates go up, actually as the rates have gone down,
Speaker 1: people save more and more and more. There was a
Speaker 1: time we were worried about capital formation and not having
Speaker 1: enough savings as a country to invest. Now it looks
Speaker 1: like there's plenty of money to invest, it's not clear
Speaker 1: we have enough things to invest in. Yeah, I mean,
Speaker 1: part of the reason you can make the argument that
Speaker 1: the savings rate has gone up is that you need
Speaker 1: to just put more dollars away in order to get
Speaker 1: the same return because Jim's point, interest rates are so low. Um.
Speaker 1: But yeah, I think that you know, certainly you've seen
Speaker 1: distortions in the economy and markets as a result of
Speaker 1: central bank policy. Some of those distortions are intentional, right.
Speaker 1: The way that montary policy works when you're so close
Speaker 1: as you're a little bound and you've expanded your balance
Speaker 1: sheets and much is by forcing investors into other asset
Speaker 1: classes to take on risk um. And in theory, that
Speaker 1: creates wealth and then that bleeds more, you know, into
Speaker 1: the broader economy. Um. But that also means that it
Speaker 1: could change behavior in a way that maybe is damaging,
Speaker 1: and maybe it does have these consequences down the line
Speaker 1: that we just don't know about right now. Okay, our
Speaker 1: contributors will be staying with us. Next we'll get a
Speaker 1: second opinion from Claudia Assam Washington Center for Equital Growth,
Speaker 1: Director of macro Economic Policy. This is Bloomberg Wall Street Week.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. We can clean now our Wall Street Week
Speaker 1: roundtable of James Tish, CEO of Lowes and Michelle Meyer,
Speaker 1: head of US Economics for Bank of America Securities. Well,
Speaker 1: center backers maybe standing pat in the face of the coronavirus,
Speaker 1: but should they be For that matter, should fiscal authorities
Speaker 1: be stepping up to the plate when we need them?
Speaker 1: Right now here for a second opinion on the role
Speaker 1: of monetary policy and fiscal policy is Claudia sam She
Speaker 1: is the director of macro Economic Policy at the Washington
Speaker 1: Center for Equital Growth. She was previously at the Federal
Speaker 1: Reserve Board and is the author, of course, of the
Speaker 1: some Rule, which she devised as an early recession indicator
Speaker 1: your claim to fame, among others. Claudia, great to have
Speaker 1: you with us, Thanks for joining us. So so first you,
Speaker 1: first of all, start with the monetary part. We'll get
Speaker 1: to the fiscal part. Start with the monetary part. We've
Speaker 1: just been talking about what could center bickers, particularly the
Speaker 1: Federal Reserve due in response to this coronavirus. Well, first,
Speaker 1: I think the response that they're taking in terms of
Speaker 1: paying a lot of attentions seeing what the effects are
Speaker 1: on the economy, that that is the right step for
Speaker 1: them to be doing right now. I think they have
Speaker 1: a lot of tools to be able to do this.
Speaker 1: One one of the areas, and I worked on this
Speaker 1: when I was at the Federal Reserve, was developing much
Speaker 1: more granular data on consumer spending in the United States,
Speaker 1: so very timely daily data available within three days, and
Speaker 1: with a lot of geographic detail, so they can look
Speaker 1: at metro areas if and when any kind of an
Speaker 1: outbreak of the virus shows up and see what's happening
Speaker 1: in terms of spending, which would be one of the
Speaker 1: signs of an economic impact. That's sort of reassuring. So
Speaker 1: as a practical matter, do they have that on their
Speaker 1: dashboard right now? They can be looking in a given
Speaker 1: area if there's an outbreak and say, we can see
Speaker 1: within three days what's happening and spending. Yeah, these are
Speaker 1: data that the Federal Reserve has developed and has tested.
Speaker 1: So we use this, for example, looking at the effects
Speaker 1: of Hurricane Harvey and IRMA in real time, and so
Speaker 1: the Federal Reserve has had these data, they know how
Speaker 1: to use them, and I think this is exactly the
Speaker 1: kind of application to be able to see if these
Speaker 1: are temporary, if they're more persistent effects, and if they're
Speaker 1: spreading in the economy, and if they if they see
Speaker 1: that an area of the country is slowed down for
Speaker 1: because of the coronavirus, what specifically can the FED do
Speaker 1: to to try to counter that. Well, I think the
Speaker 1: first tool they have is to ease lower the federal
Speaker 1: fronts rate, lower interest rates, and they do have room
Speaker 1: to do that at this point. Uh So, I think
Speaker 1: I think that's the next obvious step. There are definite
Speaker 1: questions if this becomes a much more severe economic event,
Speaker 1: which I think at this point we have nothing to
Speaker 1: say that's going to happen. That's something we need to
Speaker 1: be on the watch for. Uh If if say this
Speaker 1: word to turn into something that's much more widespread in
Speaker 1: terms of an economic contraction, then I think we're back
Speaker 1: to the debate of whether the FED is ready for
Speaker 1: the next recession, and there I am much less sanguine
Speaker 1: about the tools that they have. And Claudia, do you
Speaker 1: think that the FEB would want to wait to see
Speaker 1: greater evidence in the hard data, so statistics like job
Speaker 1: creation or for you, you've clearly highlighting importance of the
Speaker 1: unemployee rate in terms of that starting to turn, or
Speaker 1: maybe even more leading would be initial jobless claims to
Speaker 1: see if companies are actually changing their investment in labor
Speaker 1: or can they rely on some of these regional pockets
Speaker 1: as a subset of what might come on a national
Speaker 1: basis and want to get ahead of that, right, So,
Speaker 1: I think they're going to be watching economic impacts, whether
Speaker 1: that's in consumer spending, in the employment numbers. They're obviously
Speaker 1: paying attention to what's happening in financial markets this week,
Speaker 1: so that that can financial conditions can have their own
Speaker 1: feed through the economy, and the Federals are would take
Speaker 1: those seriously and that could be a game changer in
Speaker 1: terms of what they do next. So regardless of whether
Speaker 1: they're seeing it right now in the spending data, I
Speaker 1: think that that raises the possibility more that they're starting
Speaker 1: to think seriously about a rate cut. So would you
Speaker 1: would you call would you consider this to be the
Speaker 1: power put that when when the Fed sees stock prices
Speaker 1: go down ten they say, oh my god, we've got
Speaker 1: to cut interest rates. So I wouldn't ascribe this necessarily
Speaker 1: to Pow. We've seen other examples where financial markets get
Speaker 1: into a wobbly place and the FED steps in and
Speaker 1: cuts rates. So there are examples from early twenties sixteen,
Speaker 1: their examples from last year, and that can be a
Speaker 1: very effective way to short circuit some of the pessimism
Speaker 1: of the kind of downward spile that can get going
Speaker 1: in financial markets. There aren't big costs the economy if
Speaker 1: the FED does that, and in the past it has
Speaker 1: proved successful. Well, what if we need more than the Fed?
Speaker 1: What if we need more than monetary policy? Talking to
Speaker 1: us about fiscal policy, as you've talked a lot about that.
Speaker 1: M Yeah, So I I firmly believe, and there's a
Speaker 1: lot more conversation in the economic policy and in the
Speaker 1: academic community that fiscal policy needs to be ready to
Speaker 1: step up at any point that we have a widespread
Speaker 1: contraction economic activity. The FED is going to act. They
Speaker 1: need to act. They have real constraints on what they
Speaker 1: can do, or at least how effective it can do.
Speaker 1: So interest rates are very low, that is likely not
Speaker 1: what's holding back spending, and that would be true also
Speaker 1: in a recession. So the FED needs to do what
Speaker 1: it knows how to do, and federal government, state and
Speaker 1: local governments they have an important role to play too,
Speaker 1: And is that basically getting money into people's pockets. So
Speaker 1: I think the most important thing is that fiscal policy
Speaker 1: moves fast. So any kind of support to the economy,
Speaker 1: if it comes early, it has the chance to make
Speaker 1: the recession or whatever contraction is happening in the economy,
Speaker 1: to make it shorter and less severe. And it is
Speaker 1: so important to take that opportunity as soon as the
Speaker 1: recession starts to act. And there's a lot of tools
Speaker 1: that they can get money out to people, to businesses,
Speaker 1: to state governments. But I know one of the things
Speaker 1: that you like to look at in your your research
Speaker 1: more broadly as the micro story, right, not just the
Speaker 1: macro picture, but what can you glean from the micro
Speaker 1: um and would you make the case that on the
Speaker 1: fiscal side, they actually can be more micro that maybe
Speaker 1: monetary policies to blunt of an instrument to address UM
Speaker 1: some of some of the challenges to econty, particularly one
Speaker 1: like this, that that fiscal policy UM can be more
Speaker 1: targeted UM and and and specifically today with the coronavirus,
Speaker 1: how would you maybe see that playing out. Yes, so
Speaker 1: I completely agree that fiscal policy has the ability to
Speaker 1: be targeted, and I think that is really the application
Speaker 1: that I would think about with the coronavirus. It makes
Speaker 1: a lot of sense to get financial to support to
Speaker 1: individuals who end up being infected with the virus aren't
Speaker 1: able to go to work. They're the ones that need help.
Speaker 1: And if you think about it, the federal government, if
Speaker 1: there's a natural disaster emergency area declared, they get money
Speaker 1: to individuals whose homes were destroyed. It makes sense that
Speaker 1: you should give money and support to the people who
Speaker 1: are directly affected, and the government knows how to do that.
Speaker 1: The Fed does not have those kind of tools. They have,
Speaker 1: as you said, a much blunt or instrument. They have
Speaker 1: ways to affect the economy as a whole, and frankly,
Speaker 1: there is no guarantee what they do would actually help
Speaker 1: the people with the virus. Mclaudie, you said you have
Speaker 1: to do it fast. I don't normally think about Congress
Speaker 1: and fast in the same sentence. Forgive me. You're in Washington,
Speaker 1: you know the way the place works is this realistic.
Speaker 1: So with a policy change, with a change in mindset.
Speaker 1: So the work that I have done and several other
Speaker 1: colleagues is to think about how could we make fiscal
Speaker 1: policy automatic, how could we make it move fast? Now
Speaker 1: we have an excellent opportunity because right now we are
Speaker 1: not in a recession. A recession is not on the
Speaker 1: horizon in my opinion, and now is the time that
Speaker 1: Congress and sit down draft legislation, come up with a plan,
Speaker 1: and get it agreed to make a commitment build up
Speaker 1: the infrastructure, and so when that recession hits, physical policy
Speaker 1: can move out the door. Would you agree with that, Jim,
Speaker 1: would you favor that? I'm in favor of it. But
Speaker 1: there's nothing that I've seen that leads me to believe
Speaker 1: that there's going to be a cooperation in Congress and
Speaker 1: that they can get anything done quickly, especially now for
Speaker 1: for the next eight months as we're going into presidential
Speaker 1: election season. I personally had had been hopeful that with
Speaker 1: this coronavirus thing, that that you would see the parties
Speaker 1: come together, that the political bickering would would uh sort
Speaker 1: of come to a standstill. And I haven't seen any
Speaker 1: evidence of that. We didn't see it this week, if anything,
Speaker 1: we saw the reverse starting to make it a political
Speaker 1: football basically about how much money is being appropriated and
Speaker 1: whether it's fast enough and the right people, things like that. Exactly. Yeah, okay,
Speaker 1: And I would add one point to that, and why
Speaker 1: I agree with you. It is a very optimistic, overly
Speaker 1: optimistic scenario to think this legislation would pass this year.
Speaker 1: But there is a real benefit for legislation being drafted,
Speaker 1: brought to the House, brought to the Senate, because if
Speaker 1: nothing else, that creates a conversation, it lets the details
Speaker 1: be hammered out and that text that legislation is sitting there.
Speaker 1: And when we get into recession, I think that is
Speaker 1: a time where you see by bipartisan support to fight
Speaker 1: back and help people. So there could be benefits. I
Speaker 1: think there really are benefits from the preparation we could
Speaker 1: be doing right now. And it could be that other
Speaker 1: disruptions like the coronavirus, light of fire under Congress people,
Speaker 1: light of fire under policymakers and get them started planning
Speaker 1: and drafting legislation. It's a good wish, there's no question
Speaker 1: about that. Okay, thank you so much. Quality that's quality
Speaker 1: of sam of the Washing Center for Equitable Growth. And
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Speaker 1: Wall Street Week. See you next week.