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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: This morning, President Donald trumpigs standing an invitation to the
Speaker 2: Chinese President Jujinping, the two leaders participating in a state banquet.
Speaker 2: Following discussing trade and Iran last night, Former Senior White
Speaker 2: House Trade advisor Kelly and Shaw writes the following, we
Speaker 2: have a long way to go in terms of navigating
Speaker 2: the future of US China relations. Many of these conversations
Speaker 2: will continue well past September when the two leaders meet
Speaker 2: again on newba Soil. Kelly an joined us now for
Speaker 2: more Kelly and welcome to the program. An Marie has
Speaker 2: alluded to this a few times that this leader in
Speaker 2: China has taken a more assertive stance on Taiwan at
Speaker 2: this meeting. With that in mind, how sustainable is this
Speaker 2: more stable phase of relations between the two countries.
Speaker 1: Yeah, good morning.
Speaker 3: I think this is the most highly anticipated leader to
Speaker 3: leader conversation of the year. Now, certainly there have been
Speaker 3: a number of mentions of Taiwan, predominantly on the Chinese
Speaker 3: side as part of the readout, and this was some
Speaker 3: of the fear on the US side going into this
Speaker 3: meeting that we might see President She lean on President
Speaker 3: Trump to get some sort of concession when it comes
Speaker 3: to Taiwan. But what I'll say about She's comments is
Speaker 3: this is not unusual. And I think back to the
Speaker 3: last phone call that the two leaders had. The Chinese
Speaker 3: readout was almost entirely focused on Taiwan and weapons sales.
Speaker 3: It again, it is not unusual for the Chinese to
Speaker 3: emphasize this. The US on the other side is basically
Speaker 3: not saying anything at all as part of the formal readout.
Speaker 3: And then you had Secretary Rubio just a few moments
Speaker 3: ago talking about the fact that the policy on the
Speaker 3: US side has not changed. So while this will continue
Speaker 3: to be a pressure point, and it's one that we're
Speaker 3: watching very closely. I don't think anything has shifted, at
Speaker 3: least not yet.
Speaker 2: Let's talk about things that might be shifting right now.
Speaker 2: The Chinese leader talked about China opening more to trade.
Speaker 2: We've been talking about that for ages. The more intriguing
Speaker 2: part of this is everyone else shutting the door to them.
Speaker 2: We heard from the Treasury Secretary speaking to the press
Speaker 2: earlier on this morning, who talked about Chinese investment and
Speaker 2: saying this, what we want to do is make sure
Speaker 2: that some of these investments don't get referred to Syphius Caana.
Speaker 2: Things changing on that front.
Speaker 3: Yeah, and this is one of the points that I
Speaker 3: was watching the most carefully in terms of what would
Speaker 3: come out.
Speaker 2: Of this summit.
Speaker 3: There have been a lot of talk about the Board
Speaker 3: of Trade and trying to manage the flow of goods
Speaker 3: going back and forth between the two economies, but there
Speaker 3: was really not a lot of clarity about what the
Speaker 3: investment commitments would look like, and frankly, a lot of
Speaker 3: concerned by US lawmakers, by stakeholders that the President might
Speaker 3: allow more Chinese investment into the United States. And so
Speaker 3: I found this comment really curious as well, now, to
Speaker 3: the extent they are talking about investment, to the extent
Speaker 3: they're talking about the fact that there may be some
Speaker 3: transactions where there's really no national security nexus. They want
Speaker 3: to make sure that Siphius is being used and calibrated appropriately.
Speaker 3: Maybe that's less concerning, But if what we're talking about
Speaker 3: is allowing large Chinese investments into strategic sectors in the
Speaker 3: United States, that's going to be very concerning for the
Speaker 3: President if he gets back home to that kind of outcome.
Speaker 4: We've also heard that there is some sort of early
Speaker 4: speculation from the likes of Julian Emmanuel earlier on the show,
Speaker 4: that there could be some sort of trade tech for
Speaker 4: oil technology investments, both into China in the form of
Speaker 4: selling chips and possibly China in the US in favor
Speaker 4: of some sort of help with the Strait of Ramos.
Speaker 4: Are you expecting anything on that front?
Speaker 3: So my expectations overall for the summer were relatively low
Speaker 3: in terms of outcomes. I think the administration has forecasted
Speaker 3: for weeks not much to see here. We're enforcing the
Speaker 3: Busan deal, and the fact that Johnson Wand was not
Speaker 3: included on the initial delegation list made it seem more
Speaker 3: likely than not that export controls would not be part
Speaker 3: of any sort of outcome. But of course it wouldn't
Speaker 3: be a G two summit, a Trump She summit without
Speaker 3: a little bit of drama and some surprising deliverables at
Speaker 3: the end of this. So we could see some sort
Speaker 3: of broke or deal around these things, but it wasn't
Speaker 3: part of the formal negotiating agenda going in. So I'll
Speaker 3: also be curious to see what comes out of a
Speaker 3: potential transaction that way.
Speaker 4: Right now, how much do you expect China to reciprocate
Speaker 4: and come to the United States and September twenty fourth,
Speaker 4: as a president has requested or invited, Yeah.
Speaker 3: I think this has been on the calendar for a while.
Speaker 3: These two leaders will likely meet face to face four
Speaker 3: times this year, so I have re expectation that President
Speaker 3: She will come to the United States this fall. The
Speaker 3: two leaders will meet again later in the year as well.
Speaker 3: This is a very robust year in terms of potential developments.
Speaker 3: But what I will say is this is about managing
Speaker 3: the relationship. It's about keeping an otherwise rocky situation as
Speaker 3: stable as possible. These two economies are still going in
Speaker 3: very different directions, particularly in strategic sectors, and so having
Speaker 3: that leader to leader touch point keeps the connectivity, keeps
Speaker 3: the stability without this whole thing falling off a cliff.
Speaker 3: And I think that's in the interest of both sides,
Speaker 3: and that's where both leaders are thinking.
Speaker 2: Kelly and I go one step further, it's in the
Speaker 2: interest of the world to make sure there is never
Speaker 2: a direct conflict militarily between these two superpowers. But we
Speaker 2: have to face the reality. The reality is this has
Speaker 2: been an adversary, the supports adversaries of the United States,
Speaker 2: including Iran. How do we tackle that issue this year?
Speaker 3: Yeah, I mean, Ron, I'm not really expecting any sort
Speaker 3: of jointnouncement by President Trump and President Hian Iran other
Speaker 3: than the fact that they are both seeking some sort
Speaker 3: of de escalation and opening up the strait of removes
Speaker 3: and something to try to address the energy costs as
Speaker 3: well as the ongoing conflict and to prevent it from spreading.
Speaker 3: Now that said, both sides do have an interest in
Speaker 3: de escalation, and so I think that behind the scenes
Speaker 3: and in non public ways, we are going to see
Speaker 3: some cooperation come on the back of this. I completely
Speaker 3: agree with you that it is in the interests of
Speaker 3: the world to not have any of this breakout into
Speaker 3: broader direct conflict. And I think that's what both sides
Speaker 3: are trying to do in their own way while continuing
Speaker 3: to compete on economic and national security areas where it
Speaker 3: matters as well.
Speaker 2: Stay with us. Multiple IMPAG surveillance coming up.
Speaker 1: Off to this.
Speaker 2: NAT the Richardson of ABPA joins is now from more
Speaker 2: NATA goodmarnicline. What avoid that conversation. We'll talk about the
Speaker 2: dates that we just call retail sales and jembless claims.
Speaker 2: Is this thy to do an all?
Speaker 1: Right?
Speaker 2: Is this economy okay?
Speaker 5: The headline numbers are all okay. You look at those
Speaker 5: retail sales impervious in some ways to recent shocks, in
Speaker 5: previous to downbeat sentiment. You have a jobs market that's
Speaker 5: still functional, still producing jobs, and you have wage growth
Speaker 5: that's still holding its own. The interesting parts is underneath
Speaker 5: the surface always so going a level deeper, you know
Speaker 5: just how much did energy prices impact retail sales? That
Speaker 5: iPhone is now a durable good, not something we switch
Speaker 5: out every two years, so there is some change in
Speaker 5: consumer spending. And then you got some data from the
Speaker 5: BLS saying that real wages actually edged down, they declined,
Speaker 5: And so you put all that together, Yeah, it's a
Speaker 5: pretty good economy. But that doesn't mean there's not tensions
Speaker 5: underneath you.
Speaker 2: Now the one tension is real. Why just disguace if
Speaker 2: you worried about that.
Speaker 5: Yeah, and here's why I'm worried. So when we look
Speaker 5: at our data at ADP and we are able to
Speaker 5: match individuals over time, we're seeing a couple things. The
Speaker 5: first thing we're seeing is very robust wage growth. Even
Speaker 5: when we put divided into the bottom quartile and the
Speaker 5: top quartile of income earners, wage growth is robusts. But
Speaker 5: here's the rub. There is this widening inequality gap. We're
Speaker 5: tracking it in real time. Last year, the wealthiest twenty
Speaker 5: five percent made about five hundred times with the lowest
Speaker 5: bottom twenty five percent. I know, you raise your eye
Speaker 5: a lot. This year, it's more like six hundred and
Speaker 5: forty percent more. So we're seeing this widening gap. And
Speaker 5: that's an issue because the wealthier, the higher income you are,
Speaker 5: you start saving, you start investing. Good for you, not
Speaker 5: so great for the economy. Consumers at that bottom end,
Speaker 5: they spend more, and when you don't have that savings
Speaker 5: lever and things prices go up, you start can stop
Speaker 5: consuming as much. And that is the concern when it
Speaker 5: comes to wages.
Speaker 4: This has been the conundrum when we talk about this
Speaker 4: all the time. It really is an increasing issue and
Speaker 4: you're seeing it politically, but you're not seeing it in
Speaker 4: the overall averages from economic data. At what point does
Speaker 4: it become more of a concern on the averages not
Speaker 4: just a political problem but a market problem.
Speaker 5: Yeah, wage in equality is really just it's a long
Speaker 5: term drag on economic potential. For the reasons, we are
Speaker 5: not as savings and investment economy. We are a consumption
Speaker 5: driven economy. And if you have a significant proportion of
Speaker 5: the new jobs, remember a lot of jobs that are
Speaker 5: coming on under those low paid hourly working jobs. So
Speaker 5: our labor market is being fueled by low paid.
Speaker 2: Jobs right now.
Speaker 5: And then you have those very sane people who traditionally
Speaker 5: spend more out of their income not consuming as much
Speaker 5: because of higher energy prices. So if I could bottle
Speaker 5: this up and then like a tagline, monetary policy is
Speaker 5: really concerned with core Consumers are concerned with headline, and
Speaker 5: this wage in equality hits right at that headline difference
Speaker 5: and higher income and lower income when it comes to spending.
Speaker 4: What would help the lower income consumer more? A rate
Speaker 4: hike or a rate cut, that's.
Speaker 5: A great question if you're in the bottom coure tile. Unfortunately,
Speaker 5: buying a house is probably not on your horizon. It's
Speaker 5: just too expensive now. So borrowing money it would help
Speaker 5: with credit card fees, if you're putting more and more
Speaker 5: of your consumption and debt or that would be helpful.
Speaker 5: But that's not the way to increase growth. The way
Speaker 5: to increase wages is through productivity enhancement. So if you
Speaker 5: can get an economy that invests in a way that
Speaker 5: creates more jobs and increases wages and standards of living,
Speaker 5: that's wonderful. But will you know a couple basis points
Speaker 5: downward or a couple of rate cuts actually lead to
Speaker 5: those changes. It would be hard to see that.
Speaker 2: In real time we see the standard of living climb
Speaker 2: for everyone. This whole conversation, and forgive me for sort
Speaker 2: of digressing a bit, reminds me of an address from
Speaker 2: Margaret Thatcher to Parliament, and she went at the left
Speaker 2: wing of Parliament at the time, and she talked about
Speaker 2: the gap between the rich and the poor, and her
Speaker 2: accusation to people on the left in Parliament at the
Speaker 2: time was that the only thing you care about is
Speaker 2: making the gap smaller, and you don't care if the
Speaker 2: poor get poorer. Do you remember that line from Margaret Thatcher. Now,
Speaker 2: for me, the gap alone is not concerning so long
Speaker 2: as everyone's living standards are improving. So if you see
Speaker 2: the upper income cohorts get a lot richer than lower
Speaker 2: income but living standards for everyone climbs, you've got an
Speaker 2: argument to make that maybe we're moving in the right direction.
Speaker 2: Is that happening?
Speaker 1: Now?
Speaker 2: Has that been happening?
Speaker 5: Actually, you uncovered attention that I have because you are
Speaker 5: seeing really robust wage growth even at the bottom quartile.
Speaker 5: So it's not that lower income people are not seeing
Speaker 5: their wages increase faster than higher income people.
Speaker 1: It's quite the opposite.
Speaker 2: The problem is it's still not enough, and.
Speaker 5: You still continue to see this gap widening. If the
Speaker 5: gap stayed the same or narrowed, there's an argument right
Speaker 5: in line with Thatcher, but the fact that is widening
Speaker 5: is problematic in terms of economic growth long term.
Speaker 2: Stay with us more Bloomberg Surveillance coming up after this.
Speaker 2: We begin this hour with stocks adding to record highs
Speaker 2: at a pivotal moment for the Federal Reserve, rising inflation
Speaker 2: complicating the rate outlookers. A new regime takes hold at
Speaker 2: the top of the Central Bank tomorrow, joining us now
Speaker 2: in his final broadcast interview as a member of the
Speaker 2: Federal Reserve Board of Governors, Stephen Myron, Governor Maron, good
Speaker 2: to see you, sir.
Speaker 1: Good to see you. Thanks for having me back.
Speaker 2: We've got a moment to step back and sort of
Speaker 2: reflect on your experience at this institution. We've talked lots
Speaker 2: about how you've been received externally. Can we just start
Speaker 2: with how you've been received internally over the last few months.
Speaker 1: Sure, this has actually.
Speaker 6: Been one of the biggest surprises, you know, given what
Speaker 6: all the drama at the beginning. I've been perceived internally,
Speaker 6: I think very very politely, very cordially, and very kindly.
Speaker 6: And I think folks have largely enjoyed some of the
Speaker 6: some of the intellectual conversations, some of the challenges that
Speaker 6: I've leveled against, some of the ways that they had
Speaker 6: been thinking beforehand. And I think that the overall response
Speaker 6: has been, you know, very welcoming and very kind, and
Speaker 6: that's one of the things that I'm most grateful for.
Speaker 2: One of the kind of ideas that have been received well,
Speaker 2: that are shaping debates right now that will linger and
Speaker 2: continue beyond your departure.
Speaker 1: Yeah, sure, so one, you know.
Speaker 6: So an example of one of those things is the
Speaker 6: importance of regulations for determining the supply side of the economy.
Speaker 6: I mean, we spend a lot of time, you know,
Speaker 6: out in the financial world at in policy discussing the
Speaker 6: effects of a thirty three versus thirty five percent marginal
Speaker 6: tax rate.
Speaker 1: But the truth is that regulations.
Speaker 6: Are often infinite taxes, and being told you're not allowed
Speaker 6: to do something versus you are allowed to do something
Speaker 6: is a very very strong difference. And this had played
Speaker 6: a very small role in a lot of the modeling
Speaker 6: discussions happening at the FED, in a lot of the
Speaker 6: outlooks that that I heard people present, and I came
Speaker 6: in and really hammered that idea, and I think sort
Speaker 6: of moved it forward. And now a lot of people
Speaker 6: talk about it very often internally and externally, and you know.
Speaker 1: Sort of talk a lot about supply shocks.
Speaker 6: This is a positive supply shock that is unfolding and
Speaker 6: continues to unfold, and will I hope mitigate some of
Speaker 6: the negative supply shocks we also get hit by.
Speaker 2: Well, let's talk about another supply shock. And I think
Speaker 2: it's been central to some of the arguments you've made
Speaker 2: on the committee, and that's population growth, the negative population
Speaker 2: growth that we've seen, which is lower the break even
Speaker 2: rate for the labor market, and contribute it to arguments
Speaker 2: in some places for hotter, stickier inflation. You've taken the
Speaker 2: other side of that. Can you just explain that for us?
Speaker 6: Yeah, So, I think this is a really subtle issue
Speaker 6: with a lot of moving parts. Now at a very
Speaker 6: high level, what I would say historically is that we've
Speaker 6: seen a lot of countries in different places have declines
Speaker 6: in population growth rates and stagnant populations or shrinking populations.
Speaker 6: And I think the cross country and historical evidence is
Speaker 6: that it's unambiguously disinflationary or even eventually deflationary. Now, there's
Speaker 6: a few ways that that works. One is by reducing sorry,
Speaker 6: there's a few consequence of lower population growth. One is
Speaker 6: it does reduce the break even in payroll growth. Rate,
Speaker 6: so the number of jobs you need to create every
Speaker 6: month to hold the uneplomary constant that does come down.
Speaker 6: That's a mildly hawkish implication because it means you shouldn't
Speaker 6: get so concerned about very very low job creation rates. However,
Speaker 6: there's also there's also duffish implications as well, which are
Speaker 6: that it lowers the neutral rate, it brings interest rates
Speaker 6: down over time, and we've sort of seen that across
Speaker 6: countries and historically and historically to be the case. And
Speaker 6: it's also disinflationary through long lived capital and consumer goods.
Speaker 6: And if you think about something like housing, right, the
Speaker 6: supply of houses is relatively fixed in the short run,
Speaker 6: and if you throw millions of new people into an economy,
Speaker 6: you're going to drive up the price of rents because
Speaker 6: they need places to live, right, You're going to create inflation.
Speaker 6: And that inflation is very very persistent because of the
Speaker 6: way that housing inflation is calculated.
Speaker 1: It's very very sticky.
Speaker 6: If you have declining population growth, you don't need as much,
Speaker 6: you don't need as much home price growth, and that
Speaker 6: very inflationary tailwind gets taken away and ceases to be
Speaker 6: a major driver inflation. I think you've been seeing that
Speaker 6: start to play out in the data market. Rents in
Speaker 6: this country have been growing at a one percent rate
Speaker 6: for the last few years. This is one of the
Speaker 6: biggest components of the inflation in disease, and I think
Speaker 6: you're going to continue seeing measured measured PCE and CPI
Speaker 6: rents and measured pc and CPI shelter inflation continue to
Speaker 6: converge down to those very low levels. So I think
Speaker 6: there's one hawkish implication, which is the lower break even
Speaker 6: peril rate, But there's also some very dublish implications because
Speaker 6: that it reduces the neutral rate and it brings down
Speaker 6: inflation through some of these long lived capital and investment goods.
Speaker 4: This is a longer term structure for how to think
Speaker 4: about inflation and the benchmark rate of the Federal Reserve
Speaker 4: and how it sort of it works with the sort
Speaker 4: of long term inflation rate. Near term though, one thing
Speaker 4: that you've been known for a hallmark of your time
Speaker 4: on the FED was that you voted to cut rates
Speaker 4: at least once at every single meeting. Do you think
Speaker 4: that that still holds even though in the short term
Speaker 4: it does seem like the inflationary shock is overwhelming potential
Speaker 4: structural changes that could lead inflation.
Speaker 6: I do, and I think I think this is maybe
Speaker 6: one of the biggest differences between me and a lot
Speaker 6: of other folks is that I take very seriously the
Speaker 6: idea of Montera policy lacks, very very seriously.
Speaker 1: Mantera policy doesn't hit the economy right now.
Speaker 6: If we changed interest rates today, it wouldn't flow through
Speaker 6: into the economy until twelve to eighteen months from now.
Speaker 6: Right now, there's some disagreement of exactly how long those
Speaker 6: lags are, but I think twelve to eighteen is the
Speaker 6: consensus view. And therefore, for any shock that's hitting the
Speaker 6: economy today, you can't think about what the effect in
Speaker 6: the next few months is. You need to think about
Speaker 6: what the effect in the next twelve to eighteen months is,
Speaker 6: and sorry, the effect twelve to eighteen months out. So
Speaker 6: if oil goes higher, it's a supply shock. Straits of
Speaker 6: hore moves are closed, right, that's going to boost the
Speaker 6: oil price today. And with a bunch of other stuff
Speaker 6: that's very tightly tied to energy prices like airfares, right,
Speaker 6: that's going to go higher very quickly within the course
Speaker 6: of a few months. And we've been living through that,
Speaker 6: and that is very real, right, there's no way that
Speaker 6: is very real inflation. But it is not inflation that
Speaker 6: montera policy can affect. Montera policy can affect twelve to
Speaker 6: eighteen months from now. So there's got to be a
Speaker 6: reason that you think airfares and oil prices are going
Speaker 6: to be moving higher in the summer of twenty twenty seven,
Speaker 6: in the fall of twenty twenty seven, not the summer
Speaker 6: and fall of twenty twenty six.
Speaker 1: And so it's those lags that really should.
Speaker 6: Be driving where you think about forward looking monetary policy
Speaker 6: should be.
Speaker 1: And that's a lot of what I've tried.
Speaker 6: To hone into when thinking about population growth and deregulation
Speaker 6: and saying that the traditional view that we should look
Speaker 6: through in oil shock should prevail. This is very you know,
Speaker 6: vanilla basic traditional mondary policy.
Speaker 1: Part of the.
Speaker 4: Problem is that the market doesn't agree, at least not
Speaker 4: in terms of where longer dated bonds are trading and
Speaker 4: where yields are shifting. Where you see them shifting higher
Speaker 4: even as the front end stays where it is. Do
Speaker 4: you think that in this type of environment it's imperative
Speaker 4: to have some sort of Fed Treasury accord akin to
Speaker 4: what people have been talking about, where the Treasury steps
Speaker 4: into sort of influence the long end while the FED
Speaker 4: cuts rates on the short end.
Speaker 1: So let me address those separately.
Speaker 6: So the market not agreeing is in part a hall
Speaker 6: of mirrors issue, because if you have if the FED
Speaker 6: says we're very backward looking and inflation over the last
Speaker 6: twelve months is going to determine policy that affects twelve
Speaker 6: to eighteen months from now, meaning the economy in twenty
Speaker 6: twenty seven is affected by data in twenty twenty five
Speaker 6: in that world, right, So very very backward looking. If
Speaker 6: that's how the FED communicates that it's setting policy, then
Speaker 6: the market is going to start to reflect that. And
Speaker 6: so the market reflecting a lack of interest rate cuts, right,
Speaker 6: is in part because the FED is telling them we're
Speaker 6: backward looking, right, And so that that's going to create
Speaker 6: a self reinforcement problem. Now on the Fed Treasury accord,
Speaker 6: you know, so first of all, you know, I won't
Speaker 6: be involved in that if it happens, but you know,
Speaker 6: I have done some work on the balance sheet, and
Speaker 6: I do think it is important that one of the
Speaker 6: problems with having a very large balance sheet and lots
Speaker 6: of securities, lots of treasure securities on the Federal Reserve's
Speaker 6: balance sheet. Is it does start to get the FED
Speaker 6: involved in questions that have some fiscal implications. Right, if
Speaker 6: we own a huge chunk of debt, then that means
Speaker 6: that we're impinging on decisions that traditionally are the realm
Speaker 6: of the fiscal authority. What is the distribution of public
Speaker 6: death public death that it issues that that's held by
Speaker 6: the public. And so I do think it is important
Speaker 6: that if you have a large balance sheet, there needs
Speaker 6: to be there needs to be, you know, some clear
Speaker 6: delineation about who's doing what. And to me, these questions
Speaker 6: are really murky and they you know, they implicate independence
Speaker 6: to an extent, and therefore it's one of the reasons
Speaker 6: among many that I would favor having a smaller balance sheet.
Speaker 2: How close do you think the FED should work with
Speaker 2: the Treasury to achieve that? How closely should the FED
Speaker 2: work with the administration?
Speaker 1: Yeah?
Speaker 6: So, so my view is that the FED having a
Speaker 6: big balance sheet starts to implicate a lot of those
Speaker 6: lines and becomes and becomes problematic. So the FED should
Speaker 6: strive to have as small a balance sheet as it
Speaker 6: can right to achieve its goals and implementation framework, and
Speaker 6: if we can sort of improve that implementation framework and
Speaker 6: make it smarter to reduce the minimum size the balance
Speaker 6: sheet that we need, then that's a great thing. And
Speaker 6: that was a major thrust of the paper that I
Speaker 6: wrote in the spring with Alessandra Barbarino and Anthony Dirks and.
Speaker 1: And UH and uh and uh.
Speaker 6: Alyssa Anderson and and so that was a that was
Speaker 6: a major thrust of of of that work. That was
Speaker 6: that was really important now in terms of coordinating, Right,
Speaker 6: the Fed should do what it should do for monetary policy,
Speaker 6: and the Treasury should do what it should do in
Speaker 6: terms of fiscal policy. And the level of coordination should
Speaker 6: I think should I think be you know, sort of separate. Right,
Speaker 6: they should be doing what they what they want to
Speaker 6: do for each of their own priorities. However, there are
Speaker 6: times when there is going to be half when there
Speaker 6: is going to have to be that type of coordination.
Speaker 6: So for example, you know, right now we're doing the
Speaker 6: reserve these reserve management purchases where we're we're expanding our
Speaker 6: balance sheet to sort of provide a minimum level of
Speaker 6: reserves into the economy to meet reserve demand. We're you know,
Speaker 6: we're we're buying treasury bills. We're letting mortgages continue to
Speaker 6: mature off of our balance sheet in place them.
Speaker 1: With treasury bills.
Speaker 6: Right Like in theory, if we did enough, uh, you know,
Speaker 6: sort of conversion of our balance sheet, of our existing
Speaker 6: balance sheet and the treasury bills, we may be absorbing
Speaker 6: all of the supply, right and then some. So this
Speaker 6: is an example of a time where there would have
Speaker 6: to be very tight coordination.
Speaker 2: We've got an administration right now very interested in financial markets.
Speaker 2: The president often looks at where the index level is
Speaker 2: in the equity market. We've got a Treasury secretary that
Speaker 2: used to trade this stuff. Did you speak to them
Speaker 2: in your time at the Federal Reserve. Did the President
Speaker 2: ever pick up the phone and say, hey, Steve, what's happening,
Speaker 2: Tell me what you're saying in the market, in the economy.
Speaker 1: Yeah.
Speaker 6: So I spoke to the president when I got when
Speaker 6: I went to go resign from the Council of Economic Advisors,
Speaker 6: I went to bring my bring my my recom sorry,
Speaker 6: my resignation letter. But you know, he doesn't tell me anything.
Speaker 6: He doesn't tell the whole world, right, this this President
Speaker 6: is very forthright with his views, and he tells journalists
Speaker 6: all the time, including Bloomber journalists, exactly, you know, exactly
Speaker 6: what's on his mind about about policy and where and
Speaker 6: where it should be.
Speaker 1: So, no, I didn't.
Speaker 6: I'm not in receipt of any information that's not that's
Speaker 6: not public.
Speaker 2: Because we've to start this conversation by talking about how
Speaker 2: you were received internally externally, I thought unfairly at times,
Speaker 2: basically everything you said about interest rates and on the
Speaker 2: economy was always described as just doing the president's bidding
Speaker 2: at the institution, at the Federal Reserve. Did people see
Speaker 2: it that way internally when you put your hand up
Speaker 2: and said, I want to write twenty five basis points,
Speaker 2: I'm dissenting, sort of roll of the eyes. Here we go.
Speaker 2: This is the president's guy during the president's bidding.
Speaker 1: Well, thank you for those words.
Speaker 6: I do think it's I do think it's clear that
Speaker 6: I've disagreed with with lots of people on policy and
Speaker 6: on lots of times. There have been times when there
Speaker 6: have been signals out of the White House that they
Speaker 6: wanted policy rates lower than I had my dots. And
Speaker 6: there have been times when there's been signals out of
Speaker 6: the White House where they thought that I was two dubs.
Speaker 2: Right.
Speaker 6: So, for example, the NEC director after my first vote
Speaker 6: said that he would have preferred a twenty five basis
Speaker 6: point god right.
Speaker 1: So I clearly do my.
Speaker 6: Own thing and have my views, and they're all I think,
Speaker 6: grounded in very traditional economics. And we were talking about
Speaker 6: population growth before, like this is not new, right, Like
Speaker 6: six years ago we all have been talking about it
Speaker 6: is everybody becoming Japan? You know, that would have come
Speaker 6: up several times a week, right, Like, none of this
Speaker 6: is new, None of this is heterodox economics. None of
Speaker 6: this sort of says we need to discard with the
Speaker 6: entire framework. It's all within the traditional framework. And this
Speaker 6: is part of why I think the reception internally has
Speaker 6: been has been generally pretty good, is because I'm engaging
Speaker 6: with folks on their ground, right, Like I'm within the
Speaker 6: world of normal economics, and we're talking about what drives
Speaker 6: the interest rate and the neutral interest rate, and does
Speaker 6: population growth drive it? And is it inflationary or disinflationary.
Speaker 6: This is all well within.
Speaker 1: Sort of normal.
Speaker 2: We're trying to figure out what kind of an institution
Speaker 2: Kevin Walsh is walking into how he will be treated,
Speaker 2: how difficult will be to get people on his side
Speaker 2: as he starts to think about changing this institution, particularly
Speaker 2: when the form of FED share. We'll be sitting there
Speaker 2: as a governor on the Board of Governors. Can you
Speaker 2: help us understand that from a man inside the building,
Speaker 2: what that might look like in the next few months.
Speaker 1: Yeah.
Speaker 6: So I think one thing that's important to understand is
Speaker 6: that people have have FED are responsive to arguments and
Speaker 6: as I said before, you know, I've been hammering deregulation
Speaker 6: among other things since the day I got there, and
Speaker 6: you know, they start to respond, but it takes time, right,
Speaker 6: you know, it's it's it's a it's a it's a
Speaker 6: bit of a slow moving, slow moving process.
Speaker 2: Helping them make it harder.
Speaker 6: Well, you know, I don't I don't know about I
Speaker 6: don't know about that. You know, certainly, chairm Powell built
Speaker 6: a lot of the institutions and processes that exist that
Speaker 6: exist there and so you know, so that dynamic may
Speaker 6: you know, sort of may may play into it. I
Speaker 6: don't know, but that'll be an issue for for for Chairman.
Speaker 6: Doesn't it wash to to deal with twenty guests.
Speaker 2: And when you heard the chairman in the news conference
Speaker 2: present to the press and to the world that he
Speaker 2: was staying gone as a governor. Was that the first
Speaker 2: time you heard of it? Or did he tell the
Speaker 2: border governors ahead of time that that was his plan?
Speaker 1: No, he didn't.
Speaker 6: He didn't tell me ahead of time that that was
Speaker 6: his plan. But he he'd always said that, you know,
Speaker 6: publicly and privately there's something that it's something he might do.
Speaker 6: And so it wasn't It wasn't entirely a surprise. What
Speaker 6: was your reaction to it?
Speaker 4: Uh?
Speaker 1: You know.
Speaker 6: Look, my to that is that when I was the
Speaker 6: incoming chairman of the Council of Economic Advisors last year,
Speaker 6: I was very grateful to the previous chairman, Jared Bernstein,
Speaker 6: for spending time with me on the phone, being very
Speaker 6: generous with his time several hours over over over days
Speaker 6: and weeks, giving me advice for how to be a
Speaker 6: good cea chairman. And I really appreciated that and sort
Speaker 6: of how does the place run and what you know,
Speaker 6: what are your responsibilities and how do you do a
Speaker 6: good job? And I thought that that was really generous
Speaker 6: of him, and I was really appreciative of that. And
Speaker 6: then I went out of my way to make sure
Speaker 6: that they very quickly put his portrait on the wall
Speaker 6: of former CEA chairmen in the offices and the Eyes
Speaker 6: and Hower building. You know, it's to make sure that happened,
Speaker 6: that happened quickly, without delay, and I was really grateful. So, look,
Speaker 6: transitions are important, and I think that you know, it
Speaker 6: is maybe helpful to have someone there to give advice.
Speaker 6: Here's how to be an effective chairman, Here's how to
Speaker 6: lead the committee, here's you know, here's how the building works.
Speaker 6: It maybe a little bit different than it was twenty
Speaker 6: years ago, right, I think that can be helpful. But
Speaker 6: I still think it's important that it be a transition
Speaker 6: because you want to have people's loyalties undivided. You want
Speaker 6: to have there be very clearly one chairman. You want
Speaker 6: to have a place where there's no question about no
Speaker 6: question about who's in charge, and there's no talk of
Speaker 6: rival factions and things being split. I think you want
Speaker 6: to have you want to have a sense of unanimity
Speaker 6: and clarity, and so transitions are important, and I think
Speaker 6: it can be helpful to have to have help in transition.
Speaker 6: But I still think it's important that it is a transition.
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