1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:29,200 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberger. We're 5 00:00:29,280 --> 00:00:32,480 Speaker 1: live from Bloomberg's world headquarters in New York. I'm Scarlet Food. 6 00:00:32,560 --> 00:00:41,000 Speaker 1: This is the FED decides. The Federal Reserve will announce 7 00:00:41,000 --> 00:00:44,159 Speaker 1: its latest monetary policy decision. Here's what you need to know. 8 00:00:45,040 --> 00:00:47,680 Speaker 1: Janet Yellen signs off. The FED chair may strike a 9 00:00:47,680 --> 00:00:50,440 Speaker 1: more hawkish note with an upbeat appraisal of the economy 10 00:00:50,479 --> 00:00:53,960 Speaker 1: in her swan song, and the Powell era arrives. The 11 00:00:54,040 --> 00:00:57,400 Speaker 1: leadership transition at the world's most powerful central bank comes 12 00:00:57,480 --> 00:01:00,240 Speaker 1: just in time for a fresh approach. How will Ellen 13 00:01:00,320 --> 00:01:05,399 Speaker 1: successor tackle the inflation puzzle? Plus March move fund managers 14 00:01:05,400 --> 00:01:07,800 Speaker 1: placing their bets on the fence next policy action. We'll 15 00:01:07,840 --> 00:01:13,880 Speaker 1: speak with Bill gross Up, Janice Henderson, and my co 16 00:01:14,000 --> 00:01:16,160 Speaker 1: host Today and every Fed Day is Tom Keen of 17 00:01:16,160 --> 00:01:19,119 Speaker 1: Bloomberg Surveillance. We convinced him to Stanley and hang out 18 00:01:19,160 --> 00:01:22,800 Speaker 1: with us. Tom. Thank you, Yeah, data check good to 19 00:01:22,800 --> 00:01:25,759 Speaker 1: be here on an important day and historic day right now, 20 00:01:25,840 --> 00:01:29,080 Speaker 1: to get some thoughts before we see this. I guess nondecision. 21 00:01:29,120 --> 00:01:32,959 Speaker 1: Michael McKee with this Bloomer's International Economics and poly correspondent 22 00:01:33,600 --> 00:01:36,480 Speaker 1: in Montreal the last couple of days on the NAFTA 23 00:01:36,640 --> 00:01:39,080 Speaker 1: UH discussions, and I am Jersey with us, our chief 24 00:01:39,200 --> 00:01:43,160 Speaker 1: US rate strategist for Bloomberg Intelligence. Michael McKee with the 25 00:01:43,200 --> 00:01:47,640 Speaker 1: sartorials blended this morning. Yeah, that picture that we ran 26 00:01:47,720 --> 00:01:49,320 Speaker 1: at the top of the show, Jenny Ellen. I don't 27 00:01:49,320 --> 00:01:51,520 Speaker 1: think you can pull that up again. Jenny Ellen? Where's 28 00:01:51,520 --> 00:01:55,600 Speaker 1: her collars? Pop? Today's her last meeting and there is 29 00:01:55,640 --> 00:01:57,920 Speaker 1: a tribute going on at the FED where everybody's walking 30 00:01:57,920 --> 00:02:01,240 Speaker 1: around with their pop collars. So I I would join 31 00:02:01,400 --> 00:02:04,400 Speaker 1: in like everyone else, and we can we can salute 32 00:02:04,440 --> 00:02:07,960 Speaker 1: Janet yelling as she every funnel there her collars popped. 33 00:02:08,160 --> 00:02:10,440 Speaker 1: So there's a there's a thing going on popular collar today. 34 00:02:10,520 --> 00:02:12,600 Speaker 1: It's Janet Hillen's last meeting. We gotta post you on 35 00:02:12,639 --> 00:02:15,880 Speaker 1: social media so you can join the party. Are our jersey? 36 00:02:15,919 --> 00:02:18,320 Speaker 1: No popped collar for you? I don't know. I just 37 00:02:18,320 --> 00:02:20,960 Speaker 1: don't think I can pull it off. Like Mike Ken well, 38 00:02:21,000 --> 00:02:23,560 Speaker 1: it's gonna be her last day. She's not gonna make 39 00:02:23,560 --> 00:02:26,040 Speaker 1: an appearance. She's not going to give any kind of speech, right, 40 00:02:26,080 --> 00:02:28,800 Speaker 1: and we don't see her. It's very quiet, right they 41 00:02:28,880 --> 00:02:31,680 Speaker 1: have by now, they have finished their meeting and they've 42 00:02:32,000 --> 00:02:35,360 Speaker 1: sent over the press release that they will give to 43 00:02:35,400 --> 00:02:37,760 Speaker 1: the reporters. They've already given it to them, and we'll 44 00:02:37,760 --> 00:02:40,120 Speaker 1: get the data in about two minutes and they'll tell 45 00:02:40,160 --> 00:02:42,520 Speaker 1: us what happened. But it's done for her now and 46 00:02:42,560 --> 00:02:45,360 Speaker 1: it is going to be J pals fit. Why aren't 47 00:02:45,400 --> 00:02:48,160 Speaker 1: they raising rates? So many people are saying, we have 48 00:02:48,240 --> 00:02:49,799 Speaker 1: to wait till March. Why do we have to wait 49 00:02:49,840 --> 00:02:52,000 Speaker 1: till March on? Well, you start with the fact it's 50 00:02:52,080 --> 00:02:54,920 Speaker 1: a non news conference, meaning but also there are no 51 00:02:54,960 --> 00:02:57,640 Speaker 1: inflationary pressures. They're not pushing up right now on us. 52 00:02:57,680 --> 00:03:00,079 Speaker 1: We're seeing break evens move a little bit, which is 53 00:03:00,120 --> 00:03:02,320 Speaker 1: your reason to think we're going into March, we'll have 54 00:03:02,400 --> 00:03:04,799 Speaker 1: more data. They could do that. She also doesn't want 55 00:03:04,800 --> 00:03:08,160 Speaker 1: to bind J. Powell in the future with a decision today, 56 00:03:08,200 --> 00:03:10,360 Speaker 1: so they'll leave it up to him. They'll leave their 57 00:03:10,400 --> 00:03:13,760 Speaker 1: options open, say as little as possible. Is there a 58 00:03:13,760 --> 00:03:16,160 Speaker 1: potential for a surprise here, I don't think so. I 59 00:03:16,160 --> 00:03:18,079 Speaker 1: agree with Mike, but I also think that one of 60 00:03:18,120 --> 00:03:19,920 Speaker 1: the reasons Tom that they're not going to hike today 61 00:03:20,000 --> 00:03:21,560 Speaker 1: is because they hiked in December and they want to 62 00:03:21,600 --> 00:03:24,320 Speaker 1: go slow. They want to go measured in order to 63 00:03:24,400 --> 00:03:26,760 Speaker 1: do that at the pace that they want to go 64 00:03:26,800 --> 00:03:29,880 Speaker 1: with three hikes this year. If they hike in January, 65 00:03:29,919 --> 00:03:31,760 Speaker 1: that means that if there is a blip in the data, 66 00:03:31,760 --> 00:03:34,000 Speaker 1: if there is some exogenous event, they can't take that 67 00:03:34,040 --> 00:03:36,920 Speaker 1: back in March. And part of this is the idea 68 00:03:37,000 --> 00:03:39,560 Speaker 1: of measured. We have Chairman Greenspan coming up later. A 69 00:03:39,600 --> 00:03:42,040 Speaker 1: great honor to have them with us this last day 70 00:03:42,040 --> 00:03:45,200 Speaker 1: for chure yelling, this last meeting for chair Yelling, might 71 00:03:45,320 --> 00:03:49,360 Speaker 1: define for our audience what measured actually means. Well. He 72 00:03:49,440 --> 00:03:51,440 Speaker 1: was the one who said, basically, what you want to 73 00:03:51,440 --> 00:03:55,200 Speaker 1: do is raise rates slowly and keep inflation as flat 74 00:03:55,280 --> 00:03:58,320 Speaker 1: as possible, not below two percent, but you don't want 75 00:03:58,320 --> 00:04:00,680 Speaker 1: a lot of volatility. And that is the legacy of 76 00:04:00,720 --> 00:04:03,040 Speaker 1: the green Span years. Some say it led to the 77 00:04:03,080 --> 00:04:06,080 Speaker 1: Great Financial Crisis because it was two predictable rates were 78 00:04:06,120 --> 00:04:10,040 Speaker 1: too low for too long, and now they're questioning the level. 79 00:04:10,360 --> 00:04:12,480 Speaker 1: So under J. Powell We're probably gonna have a rethink 80 00:04:12,480 --> 00:04:15,720 Speaker 1: of the way thing the FED does its monetary policy business, 81 00:04:15,760 --> 00:04:19,040 Speaker 1: But not until two thousand nineteen will that rethink include 82 00:04:19,040 --> 00:04:21,440 Speaker 1: a different way of looking at market behavior and market 83 00:04:21,440 --> 00:04:24,440 Speaker 1: pricing action. Well, so, J Powell, we we don't know 84 00:04:24,520 --> 00:04:26,280 Speaker 1: exactly how he's going to run this FED, and that'll 85 00:04:26,320 --> 00:04:28,200 Speaker 1: be interesting to hear his first press conference and his 86 00:04:28,320 --> 00:04:30,080 Speaker 1: first couple of meetings. This share is going to be 87 00:04:30,080 --> 00:04:32,919 Speaker 1: important for how the markets take him and should they 88 00:04:32,920 --> 00:04:35,039 Speaker 1: take him at face value or should they we read 89 00:04:35,040 --> 00:04:37,960 Speaker 1: more into exactly what he's saying. All right, I Jersey 90 00:04:38,040 --> 00:04:39,839 Speaker 1: mentioned the markets there, So let's get you a market 91 00:04:39,920 --> 00:04:42,960 Speaker 1: check right now. The Dow recovering after a two day slide, 92 00:04:42,960 --> 00:04:46,200 Speaker 1: actually the biggest to day spot since September of twenty six, 93 00:04:46,440 --> 00:04:49,160 Speaker 1: before Donald Trump was elected. Let's also take a look 94 00:04:49,200 --> 00:04:51,599 Speaker 1: at the tenure yield. You could see there, Uh, the 95 00:04:51,680 --> 00:04:54,640 Speaker 1: bond prices are moving higher or I should say lower, 96 00:04:54,640 --> 00:04:57,719 Speaker 1: and therefore the yields are moving higher. The yield broke 97 00:04:57,760 --> 00:05:00,640 Speaker 1: above two point seven percent on Monday the next because three, 98 00:05:01,320 --> 00:05:03,520 Speaker 1: let's go down to Chris Condon at the Federal Reserve 99 00:05:03,720 --> 00:05:06,760 Speaker 1: with the announcement from the Fed on Jenny Ellen's last 100 00:05:06,839 --> 00:05:11,719 Speaker 1: day Chris no rate change from the Federal Reserve, no 101 00:05:11,839 --> 00:05:16,000 Speaker 1: surprise there. The Federal Open Market Committee unanimously voted to 102 00:05:16,120 --> 00:05:18,839 Speaker 1: leave the target range for the Fed funds rate unchanged 103 00:05:19,120 --> 00:05:21,000 Speaker 1: at one and a quarter percent to one and a 104 00:05:21,080 --> 00:05:24,480 Speaker 1: half percent. There were some subtle but important changes in 105 00:05:24,520 --> 00:05:28,600 Speaker 1: the Fed statement compared to December, where they twice referred 106 00:05:28,640 --> 00:05:32,880 Speaker 1: to expectations for a gradual adjustment of policy and to 107 00:05:33,120 --> 00:05:36,560 Speaker 1: gradually increases in the Federal funds rate. This time they 108 00:05:36,600 --> 00:05:41,760 Speaker 1: added some emphasis referring to further gradual adjustments and further 109 00:05:42,080 --> 00:05:45,799 Speaker 1: gradual increases. That doesn't seem really to change the meaning 110 00:05:45,839 --> 00:05:48,839 Speaker 1: of those sentences, but does serve to attract attention and 111 00:05:48,920 --> 00:05:54,920 Speaker 1: perhaps emphasizes their expectations for further rate increases this year. UH. 112 00:05:55,120 --> 00:05:57,279 Speaker 1: At the same time, however, there was no change to 113 00:05:57,480 --> 00:06:00,560 Speaker 1: the so called balance of risk statements, that is, the 114 00:06:00,640 --> 00:06:04,960 Speaker 1: risk for their economic outlook was again described as roughly balanced. 115 00:06:05,320 --> 00:06:11,040 Speaker 1: Their language and describing economic condition was also slightly upgraded. 116 00:06:11,120 --> 00:06:15,640 Speaker 1: Things like household spending and business fixed investment were described 117 00:06:15,680 --> 00:06:19,360 Speaker 1: as solid this time around, So none of these really 118 00:06:19,440 --> 00:06:24,000 Speaker 1: dramatic in on themselves, but a several subtle but important upgrades, 119 00:06:24,040 --> 00:06:28,120 Speaker 1: perhaps a slightly more hawkish tone from this statement compared 120 00:06:28,200 --> 00:06:30,840 Speaker 1: to December Scarlett. All right, bloombergs Chris content at the 121 00:06:30,839 --> 00:06:33,640 Speaker 1: Federal Reserve, Thank you very much. Michael McKee and Iro 122 00:06:33,760 --> 00:06:36,640 Speaker 1: Jersey still with us. Michael, you heard Chris talk about 123 00:06:36,720 --> 00:06:41,159 Speaker 1: a subtle upgrade, uh in the FEDS report. In the 124 00:06:41,200 --> 00:06:43,800 Speaker 1: FEDS statement, what struck out at you? Well? Two things. 125 00:06:43,880 --> 00:06:47,720 Speaker 1: One they talk about inflation market based measures of inflation 126 00:06:47,720 --> 00:06:50,520 Speaker 1: compensation have increased in recent months, a nod to the 127 00:06:50,520 --> 00:06:53,360 Speaker 1: break evens going up, and that sort of supports the 128 00:06:53,400 --> 00:06:57,320 Speaker 1: idea of this word further inserted into it. I don't 129 00:06:57,320 --> 00:06:58,880 Speaker 1: think there's any question that the FED is gonna be 130 00:06:58,920 --> 00:07:00,760 Speaker 1: raising rates this year. It's only a matter of how 131 00:07:00,760 --> 00:07:04,680 Speaker 1: many times, So it may not be that dramatic a change. 132 00:07:04,760 --> 00:07:07,520 Speaker 1: But it does say that Jpal FED is going to 133 00:07:07,560 --> 00:07:09,680 Speaker 1: be raising rates and he had to have signed off 134 00:07:09,720 --> 00:07:11,480 Speaker 1: on it. What we do here at Bloomberg when we 135 00:07:11,520 --> 00:07:13,800 Speaker 1: have a FED day, and particularly one that is historic, 136 00:07:14,000 --> 00:07:18,240 Speaker 1: is this is go to Ira Jersey for proper rate translation. 137 00:07:18,920 --> 00:07:25,040 Speaker 1: Market based inflation compensation gauges rose. Recent in recent months 138 00:07:25,120 --> 00:07:28,360 Speaker 1: was that Cherry Yellin's recent shopping trip to the grocery store. 139 00:07:28,720 --> 00:07:33,400 Speaker 1: What are we talking about in market based inflation? Compensation 140 00:07:33,560 --> 00:07:36,680 Speaker 1: gauges translate, so so what that means is what Michael 141 00:07:36,760 --> 00:07:39,320 Speaker 1: just talking about. You're talking about tips break evens moving higher. 142 00:07:39,360 --> 00:07:41,040 Speaker 1: So when they talk about market based, one of their 143 00:07:41,080 --> 00:07:44,240 Speaker 1: favorite measures is the five year five year forward tips 144 00:07:44,280 --> 00:07:46,760 Speaker 1: break evens and those have gone up about forty basis 145 00:07:46,800 --> 00:07:49,280 Speaker 1: points since the last meeting, which is is a lot 146 00:07:49,360 --> 00:07:52,840 Speaker 1: and actually contributes to almost all of the move in 147 00:07:53,240 --> 00:07:55,080 Speaker 1: uh an interst rate market. So when you look at 148 00:07:55,080 --> 00:07:57,240 Speaker 1: what's happened to ten year treasury is how they've broken 149 00:07:57,440 --> 00:08:00,400 Speaker 1: to sixty five and now at two seventy one. That's 150 00:08:00,480 --> 00:08:04,640 Speaker 1: mostly been driven by higher inflation expectations, not necessarily real rate, 151 00:08:04,720 --> 00:08:07,120 Speaker 1: so not kind of this risk premium being built into 152 00:08:07,120 --> 00:08:11,080 Speaker 1: the market. Now Mike McKie has the step Offston because 153 00:08:11,080 --> 00:08:12,880 Speaker 1: he has an important interview to conduct. I wanted to 154 00:08:12,920 --> 00:08:15,920 Speaker 1: ask you, is there anything that can derail a March 155 00:08:16,040 --> 00:08:19,680 Speaker 1: rate hike from Jerome pell Uh? Probably not. I mean, 156 00:08:19,960 --> 00:08:24,280 Speaker 1: there could be, of course, a very surprising drop in inflation, 157 00:08:24,680 --> 00:08:27,440 Speaker 1: but we're expecting Friday to see the unemployment rate unchanged 158 00:08:27,520 --> 00:08:30,040 Speaker 1: or a little lower. We're expecting if you look at 159 00:08:30,080 --> 00:08:32,480 Speaker 1: a DP gains of about two hundred thousand or more 160 00:08:32,520 --> 00:08:34,520 Speaker 1: in terms of jobs, and that's a sign of the FED. 161 00:08:34,960 --> 00:08:37,160 Speaker 1: They don't believe the Phillips curve is dead, that we 162 00:08:37,200 --> 00:08:40,160 Speaker 1: are going to see wage inflation. They'll look past the 163 00:08:40,200 --> 00:08:42,880 Speaker 1: idea of all these bonuses being given out by companies 164 00:08:42,960 --> 00:08:45,480 Speaker 1: because those are one time things. But we are seeing 165 00:08:45,520 --> 00:08:48,760 Speaker 1: in wage inflation moving up. It was in the employment 166 00:08:48,760 --> 00:08:53,600 Speaker 1: cost index today. We're seeing commodity prices rise higher, labor 167 00:08:53,600 --> 00:08:56,840 Speaker 1: market slack. Commodity prices higher, you should get inflation. So 168 00:08:57,040 --> 00:08:59,240 Speaker 1: the market is going to focus on that idea going 169 00:08:59,360 --> 00:09:01,520 Speaker 1: forward that the feed is going to react to that. 170 00:09:01,679 --> 00:09:03,600 Speaker 1: Michael McKie, thank you so much. If you go to 171 00:09:03,640 --> 00:09:07,880 Speaker 1: an important interview and discussion right now on this FET day. 172 00:09:07,880 --> 00:09:11,760 Speaker 1: He's our international economics and policy correspondent. Mr Jersey will 173 00:09:11,760 --> 00:09:14,600 Speaker 1: stay with us to translate various items fixed income. But 174 00:09:14,720 --> 00:09:17,600 Speaker 1: right now we bring in someone with a real handle 175 00:09:17,679 --> 00:09:20,760 Speaker 1: on the American economy and of course always with a 176 00:09:20,800 --> 00:09:24,720 Speaker 1: different view from Chicago. Diane Swank is chief economist at 177 00:09:24,720 --> 00:09:28,760 Speaker 1: Grant Sworton. Diane, what is the state of the American economy? 178 00:09:28,800 --> 00:09:32,000 Speaker 1: Martin Feldstein to say? He said, said he doesn't think 179 00:09:32,040 --> 00:09:35,120 Speaker 1: we can get to a three percent run rate. Where 180 00:09:35,160 --> 00:09:39,000 Speaker 1: exactly is the American economy right now? Well, we are 181 00:09:39,000 --> 00:09:41,280 Speaker 1: seeing an acceleration in growth, and that's good, and I 182 00:09:41,320 --> 00:09:43,640 Speaker 1: think what Marty's trying to emphasize is to get to 183 00:09:43,640 --> 00:09:47,800 Speaker 1: a sustained over ten years, you need to see a 184 00:09:47,960 --> 00:09:52,200 Speaker 1: major upward movement and productivity growth and another upward movement 185 00:09:52,240 --> 00:09:55,400 Speaker 1: that's also commensurate in labor force growth, and right now 186 00:09:55,679 --> 00:09:57,800 Speaker 1: we don't have either of those. And so that's what 187 00:09:57,920 --> 00:10:00,760 Speaker 1: the sustained issue is. You can get for while close 188 00:10:00,800 --> 00:10:02,920 Speaker 1: to three percent. I think we'll probably get there this year, 189 00:10:03,120 --> 00:10:05,440 Speaker 1: but the question is at what price? And does it 190 00:10:05,480 --> 00:10:08,280 Speaker 1: borrow from growth down the road? Is the Fed behind? 191 00:10:09,360 --> 00:10:11,680 Speaker 1: I don't think they're behind. I think the real challenge 192 00:10:11,679 --> 00:10:14,680 Speaker 1: going forward is the Federal Reserve is tightening in two 193 00:10:14,679 --> 00:10:18,600 Speaker 1: ways or easying up on the um monetary policy tightening 194 00:10:18,600 --> 00:10:21,840 Speaker 1: into in two ways, and that is one through rate hikes, 195 00:10:21,880 --> 00:10:24,719 Speaker 1: getting that normalizing that process, but also they're shrinking their 196 00:10:24,720 --> 00:10:27,280 Speaker 1: balance sheet and that's you know, going to get more 197 00:10:27,320 --> 00:10:30,160 Speaker 1: and more complicated because it's sort of on automatic pilot. 198 00:10:30,200 --> 00:10:32,760 Speaker 1: But every quarter they're going to be allowing more and 199 00:10:32,760 --> 00:10:35,120 Speaker 1: more of their balance sheet to roll off. That means 200 00:10:35,240 --> 00:10:37,720 Speaker 1: less support for long term rates from the Federal Reserve 201 00:10:37,920 --> 00:10:39,920 Speaker 1: throughout the entire year at the same time that they're 202 00:10:39,960 --> 00:10:43,120 Speaker 1: raising short term rates. And that's something that markets so 203 00:10:43,160 --> 00:10:45,680 Speaker 1: far have not reacted to at all. But as the 204 00:10:45,720 --> 00:10:48,200 Speaker 1: FED steps that up, we could see some reaction to 205 00:10:48,240 --> 00:10:51,040 Speaker 1: the interesting So it could get more complicated if the 206 00:10:51,080 --> 00:10:54,360 Speaker 1: market does react. Believe that the FED could then change 207 00:10:54,400 --> 00:10:57,760 Speaker 1: its approach to how it reduces its balance sheet. It 208 00:10:57,880 --> 00:11:00,240 Speaker 1: certainly could. I mean, one of the things that Martin 209 00:11:00,320 --> 00:11:03,160 Speaker 1: good Friend is Marvin good Friend is very known for 210 00:11:03,559 --> 00:11:06,480 Speaker 1: his thoughts on the Fed's balance sheet how he thinks 211 00:11:06,520 --> 00:11:08,000 Speaker 1: it is, and a lot of people within the FED 212 00:11:08,040 --> 00:11:11,000 Speaker 1: system are looking forward to what he brings the table 213 00:11:11,000 --> 00:11:13,480 Speaker 1: on his expertise on the balance sheet. They will be 214 00:11:13,520 --> 00:11:15,400 Speaker 1: looking at that very closely. And even though it's on 215 00:11:15,440 --> 00:11:18,240 Speaker 1: automatic pilot, the arkets can give it as automatic pilot, 216 00:11:18,440 --> 00:11:20,480 Speaker 1: it is complicated because it's at the same time that 217 00:11:20,559 --> 00:11:23,080 Speaker 1: deficits are going to be rising and Treasury is gonna 218 00:11:23,080 --> 00:11:26,160 Speaker 1: have to issue more debt. Right Jersey, what's the inflation 219 00:11:26,280 --> 00:11:29,560 Speaker 1: NESTA representation on the FED now now? And for the 220 00:11:29,559 --> 00:11:32,240 Speaker 1: Power Fed as well. Yeah, Well, there's show some presidents 221 00:11:32,240 --> 00:11:35,080 Speaker 1: in particular, who I think are worried that there's going 222 00:11:35,120 --> 00:11:37,080 Speaker 1: to be inflation in the future because of the size 223 00:11:37,080 --> 00:11:39,360 Speaker 1: of the Fed's balance sheet. But now that they're um 224 00:11:39,400 --> 00:11:41,520 Speaker 1: they're starting to reduce it. I think that some of 225 00:11:41,559 --> 00:11:43,880 Speaker 1: those fears and some of those inflation east to kind 226 00:11:43,880 --> 00:11:46,280 Speaker 1: of arguments have to go away a little bit. One 227 00:11:46,320 --> 00:11:49,280 Speaker 1: thing that that Diane mentioned was that you know, there's 228 00:11:49,280 --> 00:11:51,480 Speaker 1: a FED balance sheet expert. I'm not sure any of 229 00:11:51,600 --> 00:11:53,920 Speaker 1: us really can claim, like anyone in the world can 230 00:11:53,920 --> 00:11:55,480 Speaker 1: claim to be an expert on this, because no one's 231 00:11:55,480 --> 00:11:57,719 Speaker 1: trying to unwind a balance sheet of the size so 232 00:11:58,160 --> 00:12:00,000 Speaker 1: um so. So I think that that's a risk, especially 233 00:12:00,080 --> 00:12:02,200 Speaker 1: to change from what they've already said the Diana. I 234 00:12:02,200 --> 00:12:04,720 Speaker 1: like what David Rubinstein said up my panel and Davos 235 00:12:04,760 --> 00:12:07,320 Speaker 1: he called it the Science Fair experiment. I guess that 236 00:12:07,440 --> 00:12:10,120 Speaker 1: maybe gets to the closest as we can and watch 237 00:12:11,320 --> 00:12:13,920 Speaker 1: as I found out myself, yes it was. Yes, we 238 00:12:14,000 --> 00:12:17,640 Speaker 1: all remember our disastrous Science Fair experiments. Diane, I want 239 00:12:17,640 --> 00:12:19,600 Speaker 1: to go to the heritage of Janet Yell and let 240 00:12:19,640 --> 00:12:22,600 Speaker 1: us go back to our important Economic Club of New 241 00:12:22,679 --> 00:12:26,400 Speaker 1: York speech. Here a good number of years ago. Let's 242 00:12:26,400 --> 00:12:28,640 Speaker 1: try it. I can't believe his four years coming up 243 00:12:28,880 --> 00:12:32,920 Speaker 1: April as well. We anticipate that his labor market slack diminishes, 244 00:12:33,600 --> 00:12:37,320 Speaker 1: it will is less of a drag on inflation. However, 245 00:12:37,520 --> 00:12:40,440 Speaker 1: during the recovery, and we certainly saw that folks with 246 00:12:40,559 --> 00:12:44,079 Speaker 1: cherry yelling, very high levels of slack of seemingly not 247 00:12:44,480 --> 00:12:49,199 Speaker 1: generated strong downward pressure on inflation. We must therefore watch 248 00:12:49,280 --> 00:12:53,360 Speaker 1: carefully to see whether diminishing slack. I think that's what 249 00:12:53,440 --> 00:12:57,520 Speaker 1: we're in right now is helping return inflation to our 250 00:12:57,600 --> 00:13:01,920 Speaker 1: objective dayan swack. This really go four years ago remarkably 251 00:13:01,960 --> 00:13:05,760 Speaker 1: pressing um idea from chair yelling, and we really don't 252 00:13:05,760 --> 00:13:08,679 Speaker 1: know anymore the linkage of inflation into this. Do you 253 00:13:08,800 --> 00:13:13,480 Speaker 1: have a confidence in where inflation is right now versus 254 00:13:13,480 --> 00:13:17,600 Speaker 1: an almost fully employed America? There's we know where the 255 00:13:17,640 --> 00:13:20,480 Speaker 1: unemployment rate is. It's it's not the same unemployment rate, 256 00:13:20,520 --> 00:13:22,320 Speaker 1: even though it's at a seventeen or low as what 257 00:13:22,360 --> 00:13:24,840 Speaker 1: it was seventeen years ago. And it's really not where 258 00:13:24,880 --> 00:13:27,480 Speaker 1: it was during the boom of the nineties. And I 259 00:13:27,480 --> 00:13:31,000 Speaker 1: think that things have changed. During the boom of the nineties, 260 00:13:31,040 --> 00:13:33,720 Speaker 1: we had falling computer prices that we're helping us to 261 00:13:33,880 --> 00:13:37,600 Speaker 1: keep inflation in check and productivity growth. But there was 262 00:13:37,679 --> 00:13:40,880 Speaker 1: this sense. There was a famous FED Beige book March 263 00:13:41,040 --> 00:13:46,000 Speaker 1: two thousand that highlighted um now hiring pulse required. We're 264 00:13:46,080 --> 00:13:49,199 Speaker 1: clearly not at that stage right now, and so we're 265 00:13:49,200 --> 00:13:51,680 Speaker 1: not getting the wage pressures, we don't have the productivity 266 00:13:51,679 --> 00:13:53,120 Speaker 1: growth to back them up. We're going to see an 267 00:13:53,120 --> 00:13:56,080 Speaker 1: acceleration of wages, some of it um just from the 268 00:13:56,080 --> 00:13:58,920 Speaker 1: minimum wages alone that are coming through in January. That'll 269 00:13:58,960 --> 00:14:02,280 Speaker 1: add two tenths year every year, two leisure and hospitality wages, 270 00:14:02,480 --> 00:14:05,319 Speaker 1: which will help edge up the read on the employment 271 00:14:05,360 --> 00:14:08,520 Speaker 1: figures on wages on Friday. But the real issue is 272 00:14:08,559 --> 00:14:11,920 Speaker 1: when are we really going to see firms really stopped 273 00:14:11,920 --> 00:14:14,840 Speaker 1: treating people like commodities and treat them were like a 274 00:14:14,880 --> 00:14:16,839 Speaker 1: diamond in the rough and they have to polish them 275 00:14:16,880 --> 00:14:18,840 Speaker 1: up and invest in them and really push a little 276 00:14:18,840 --> 00:14:21,360 Speaker 1: bit to get them to sparkle and have an enduring 277 00:14:21,840 --> 00:14:25,120 Speaker 1: um impact on their human capital. Was you and Tom mentioned? 278 00:14:25,360 --> 00:14:27,920 Speaker 1: Jenny Allen broke new ground and conceding that inflation is 279 00:14:27,960 --> 00:14:30,040 Speaker 1: a mystery here. She also broke new ground as just 280 00:14:30,080 --> 00:14:33,080 Speaker 1: being the first US female central banker. Talk a little 281 00:14:33,080 --> 00:14:37,320 Speaker 1: bit Diane about her biggest achievements and also her biggest missteps. Well, 282 00:14:37,320 --> 00:14:39,160 Speaker 1: I think one of her biggest achievements is this is 283 00:14:39,200 --> 00:14:41,760 Speaker 1: someone who started in the FED during stagflation in the 284 00:14:41,840 --> 00:14:45,000 Speaker 1: nineteen seventies, then was there during the boom with Chair 285 00:14:45,000 --> 00:14:48,560 Speaker 1: green Span in the nine nineties. Then you know, was 286 00:14:48,600 --> 00:14:51,000 Speaker 1: a FED president, then came back as vice chair, gave 287 00:14:51,080 --> 00:14:53,920 Speaker 1: up money to do that, um went through the crisis. 288 00:14:54,360 --> 00:14:56,840 Speaker 1: In all those shifts in the foundation of the economy, 289 00:14:56,880 --> 00:14:59,880 Speaker 1: she kept her footing. She didn't was not an ideal log. 290 00:15:00,040 --> 00:15:03,040 Speaker 1: She actually was able to rethink and say, you know what, 291 00:15:03,160 --> 00:15:05,520 Speaker 1: the old rules may not apply the way we once thought. 292 00:15:05,760 --> 00:15:07,720 Speaker 1: And she didn't get caught in that sort of group 293 00:15:07,840 --> 00:15:10,400 Speaker 1: think of you know, hey, we're increasing the money supplice, 294 00:15:10,400 --> 00:15:12,040 Speaker 1: so we're gonna have a flair and inflation. Said let's 295 00:15:12,080 --> 00:15:14,720 Speaker 1: figure this out. And so I think that's our greatest strength. 296 00:15:14,960 --> 00:15:16,920 Speaker 1: You know, we've seen her, she's been on a learning 297 00:15:16,920 --> 00:15:19,480 Speaker 1: curve over time. Do I think that she could have 298 00:15:20,080 --> 00:15:23,720 Speaker 1: pushed Congress more in terms of relations with Congress. I 299 00:15:23,760 --> 00:15:26,360 Speaker 1: wish she had had even stronger relations with Congress. I 300 00:15:26,360 --> 00:15:29,000 Speaker 1: think she did the best she could given the circumstances 301 00:15:29,000 --> 00:15:31,360 Speaker 1: she was in that said, you know the best we kind, 302 00:15:31,400 --> 00:15:33,520 Speaker 1: we can always do better. And that's where I really 303 00:15:33,520 --> 00:15:35,720 Speaker 1: think the FED is under a lot of pressure. Dani's 304 00:15:35,760 --> 00:15:37,880 Speaker 1: walk with us in Chicago with Grant Thorte, and we're 305 00:15:37,920 --> 00:15:40,440 Speaker 1: thrilled to have Ira Jersey with us today. Of course 306 00:15:40,600 --> 00:15:44,080 Speaker 1: with Bloomberg. Right now we go to the thirteenth chairman 307 00:15:44,080 --> 00:15:47,360 Speaker 1: of the Federal Reserve System. March six is a special day. 308 00:15:47,400 --> 00:15:50,280 Speaker 1: He will play tennis on March six, no doubt, in 309 00:15:50,400 --> 00:15:54,360 Speaker 1: celebration of a birthday. Alan Greenspan, honor that you would 310 00:15:54,400 --> 00:15:56,880 Speaker 1: join us here. Chairman Greenspan. When you look at the 311 00:15:57,000 --> 00:16:00,600 Speaker 1: tenure of Janet Yellen, what sticks out to you? What 312 00:16:00,800 --> 00:16:04,680 Speaker 1: is the most important historical note of the years of 313 00:16:04,760 --> 00:16:08,920 Speaker 1: Janet yelling at the Fed? Well, Tom, let me suggest 314 00:16:09,080 --> 00:16:12,360 Speaker 1: something which you probably are not aware of. It's been 315 00:16:12,840 --> 00:16:17,120 Speaker 1: a fairly well adhered to a notion on the part 316 00:16:17,200 --> 00:16:22,400 Speaker 1: of Federal Reserve chairman when they retire, they don't have 317 00:16:22,600 --> 00:16:27,280 Speaker 1: comments to be made on their predecessors. Paul Voker, for 318 00:16:27,440 --> 00:16:32,680 Speaker 1: eighteen and a half years never once commented pro con 319 00:16:33,600 --> 00:16:36,600 Speaker 1: on the monetary policy I was involved with, and I 320 00:16:36,640 --> 00:16:41,640 Speaker 1: think it's a very important notion. It's a very important issue, 321 00:16:42,160 --> 00:16:44,160 Speaker 1: and I'd like to adhere to it. Well. I am 322 00:16:44,200 --> 00:16:46,320 Speaker 1: glad that you're adhering to it. I thought maybe on 323 00:16:46,360 --> 00:16:48,560 Speaker 1: this day of our final meeting we could get a comment, 324 00:16:48,640 --> 00:16:52,840 Speaker 1: but we will await that down the road. Sherman Greenspan. 325 00:16:52,920 --> 00:16:54,440 Speaker 1: One of the things that we're talking about, and I 326 00:16:54,440 --> 00:16:58,480 Speaker 1: spoke to Martin Feldstein about, is our expanding debt and 327 00:16:58,600 --> 00:17:01,320 Speaker 1: our expanding deficit. It gives pause that we will go 328 00:17:01,360 --> 00:17:05,560 Speaker 1: to one trillion dollars in deficit here in the near future. 329 00:17:05,920 --> 00:17:11,199 Speaker 1: What are those debts and deficits mean to Alan Greenspan? Uh, 330 00:17:11,440 --> 00:17:16,280 Speaker 1: they mean what it's meaning to everybody else, namely that 331 00:17:16,359 --> 00:17:21,040 Speaker 1: we're dealing with a fistly unstable long term outlook in 332 00:17:21,080 --> 00:17:26,080 Speaker 1: which inflation will take hold. In fact, I was very 333 00:17:26,160 --> 00:17:30,080 Speaker 1: much surprised that in the State of the Union message, Yes, 334 00:17:30,119 --> 00:17:36,480 Speaker 1: they all those new initiatives who are not funded. And 335 00:17:36,600 --> 00:17:40,240 Speaker 1: I think we're getting to the point now where the 336 00:17:40,320 --> 00:17:44,080 Speaker 1: breakout is going to be on the inflation upside. The 337 00:17:44,160 --> 00:17:49,280 Speaker 1: only question is when we've been through almost a decade 338 00:17:49,320 --> 00:17:55,440 Speaker 1: now of stagnation and we're working our way towards stagflation, which, 339 00:17:55,600 --> 00:17:58,840 Speaker 1: as you know, is a combination of both of those. 340 00:17:59,480 --> 00:18:04,320 Speaker 1: That's a very difficult type of monetary policy to be in. 341 00:18:05,080 --> 00:18:10,360 Speaker 1: But I think what we're seeing eventually here is an 342 00:18:10,400 --> 00:18:15,119 Speaker 1: issue where we've got to confront the deficit. In fact, 343 00:18:15,160 --> 00:18:17,520 Speaker 1: I've been arguing for quite a long period of time 344 00:18:18,240 --> 00:18:23,840 Speaker 1: that entitlements are eating into gross domestic savings, and they've 345 00:18:23,880 --> 00:18:30,199 Speaker 1: been doing that consistently dollar for dollar since nineteen. You 346 00:18:30,320 --> 00:18:40,760 Speaker 1: knock down gross domestic savings and inevitably domestic debt. Uh, 347 00:18:40,119 --> 00:18:50,359 Speaker 1: basically every type of debt tends to rise, and we 348 00:18:50,480 --> 00:18:52,879 Speaker 1: have to get out of this loop. We aren't a 349 00:18:52,880 --> 00:18:56,040 Speaker 1: bit of a vicious circle here, Sherman Greenspan. You mentioned 350 00:18:56,040 --> 00:18:58,800 Speaker 1: a fiscally unstabled long term outlook in which inflation will 351 00:18:58,840 --> 00:19:01,320 Speaker 1: take hold. We are looking a weaker dollar. It's been 352 00:19:01,400 --> 00:19:04,560 Speaker 1: weakening for a while now, and the administration has talked 353 00:19:04,600 --> 00:19:08,639 Speaker 1: up the benefits of a further weakening dollar helping our exports. 354 00:19:09,040 --> 00:19:13,639 Speaker 1: To what extent will that contribute to inflation? At what 355 00:19:13,760 --> 00:19:16,440 Speaker 1: point does that start to carry over and we see 356 00:19:16,440 --> 00:19:23,840 Speaker 1: that that subsequent price rise sooner rather than later, very 357 00:19:24,000 --> 00:19:26,720 Speaker 1: well said sooner rather than later. Is there a risk 358 00:19:27,520 --> 00:19:30,119 Speaker 1: of a weaker US dollar that we are not seeing 359 00:19:30,160 --> 00:19:32,280 Speaker 1: just yet. I mean, as we await for inflation, what 360 00:19:32,320 --> 00:19:35,040 Speaker 1: are the risks that it's creating in the financial system 361 00:19:35,119 --> 00:19:39,280 Speaker 1: right now we look just remember that the UH with 362 00:19:39,440 --> 00:19:44,840 Speaker 1: the size of the international system UH, the value of 363 00:19:44,880 --> 00:19:47,520 Speaker 1: the dollar of easily all other currencies is a critical 364 00:19:47,560 --> 00:19:51,320 Speaker 1: issue in the domestic price outlook in the United States. 365 00:19:52,160 --> 00:19:55,240 Speaker 1: And I suspect that if we get a continued drop 366 00:19:55,359 --> 00:19:57,600 Speaker 1: in the dollar, which has not been going on for 367 00:19:57,640 --> 00:20:02,560 Speaker 1: a while, that's going to have some additional effect on 368 00:20:02,600 --> 00:20:06,520 Speaker 1: the price level, the domestic price level, and that's beginning 369 00:20:06,560 --> 00:20:08,520 Speaker 1: to rise for a lot of reasons which you've just 370 00:20:08,640 --> 00:20:14,800 Speaker 1: recently mentioned, namely that UH productivity has been dead in 371 00:20:14,880 --> 00:20:21,440 Speaker 1: the water for the last UH ten years. Almost productivity 372 00:20:21,480 --> 00:20:24,560 Speaker 1: growth has been a half a percent per year when 373 00:20:24,600 --> 00:20:28,800 Speaker 1: it used to be over two. That is a huge difference, 374 00:20:29,280 --> 00:20:31,760 Speaker 1: and that means unit labor costs are not going to 375 00:20:31,840 --> 00:20:36,240 Speaker 1: start to move up. And with profit margins rising, that 376 00:20:36,280 --> 00:20:38,560 Speaker 1: tells you the price level. Charman Greenspan, I know you 377 00:20:38,600 --> 00:20:41,480 Speaker 1: do not want to speak about president and even future 378 00:20:41,560 --> 00:20:44,320 Speaker 1: FED chairman. I don't want you to pontificate on what 379 00:20:44,440 --> 00:20:47,200 Speaker 1: your own powells to do list is, But you can 380 00:20:47,320 --> 00:20:50,679 Speaker 1: talk about the underlying theories of the pH d s 381 00:20:51,160 --> 00:20:54,840 Speaker 1: at the Echoes Building. Does Ellen Greenspan still believe in 382 00:20:54,880 --> 00:21:00,439 Speaker 1: the Phillips curve? I never did well within that. And 383 00:21:00,480 --> 00:21:02,359 Speaker 1: then with the with the with the same hood of 384 00:21:02,359 --> 00:21:04,720 Speaker 1: the Phillips curve right now, or at least it being 385 00:21:05,119 --> 00:21:08,320 Speaker 1: is honored as it is, which model should we use 386 00:21:09,080 --> 00:21:13,200 Speaker 1: is we move into the rest of this decade. Well, 387 00:21:13,280 --> 00:21:15,600 Speaker 1: let me just say this, there was a big dispute 388 00:21:15,640 --> 00:21:20,320 Speaker 1: in the nineties about the Phillips curve. The Phillips curve 389 00:21:20,440 --> 00:21:28,640 Speaker 1: was supposed to basically engender inflation as the unemployment rate fell. Well, 390 00:21:28,680 --> 00:21:33,320 Speaker 1: the unemployment rate kept falling, but productivity was accelerating at 391 00:21:33,359 --> 00:21:37,480 Speaker 1: the time, so a unit labor costs didn't move and 392 00:21:37,800 --> 00:21:40,880 Speaker 1: we had a period where the Phillips curve just did 393 00:21:40,960 --> 00:21:46,359 Speaker 1: not work. The Phillips curve presupposes a certain fixed rate 394 00:21:46,440 --> 00:21:49,280 Speaker 1: in productivity growth, and that is not the way the 395 00:21:49,280 --> 00:21:52,119 Speaker 1: world works. Yeah, we're missing that right now. Now, speaking 396 00:21:52,160 --> 00:21:55,600 Speaker 1: of the Alan, you famously used the term a rational 397 00:21:55,640 --> 00:21:59,440 Speaker 1: exuberance to describe the bullish sentiment that was driving of 398 00:21:59,480 --> 00:22:02,479 Speaker 1: stocks during the dot com bubble. I believe you use 399 00:22:02,560 --> 00:22:06,440 Speaker 1: the term in a speech do you see any signs 400 00:22:06,480 --> 00:22:10,119 Speaker 1: of a rational exuberance in asset prices. Well, let me 401 00:22:10,119 --> 00:22:12,120 Speaker 1: put it to you this way. I think there are 402 00:22:12,119 --> 00:22:15,320 Speaker 1: two bubbles. We have a stock market bubble and we 403 00:22:15,359 --> 00:22:18,440 Speaker 1: have a bond market bubble. I think in the end 404 00:22:18,480 --> 00:22:23,560 Speaker 1: of the day, the bond market bubble will eventually be 405 00:22:23,680 --> 00:22:27,080 Speaker 1: the critical issue. But for the short term it's not 406 00:22:27,200 --> 00:22:31,560 Speaker 1: too bad. But we're working, obviously towards a major increase 407 00:22:32,400 --> 00:22:36,040 Speaker 1: UH in long term interest rates, and that has a 408 00:22:36,200 --> 00:22:39,600 Speaker 1: very important impact, as you know, on the whole structure 409 00:22:39,640 --> 00:22:42,520 Speaker 1: of the economy. So we're in the bond market bubble. 410 00:22:42,560 --> 00:22:46,119 Speaker 1: You don't believe in the proclamations that a bearer market 411 00:22:46,160 --> 00:22:50,080 Speaker 1: has begun in bonds. So this move towards three we're 412 00:22:50,080 --> 00:22:52,680 Speaker 1: not there yet. Obviously, if we do get there, it 413 00:22:52,800 --> 00:22:57,680 Speaker 1: can't sustate itself. What's behind that? What's behind the bubble? Well, 414 00:22:57,720 --> 00:23:03,320 Speaker 1: the fact sense way, that we're beginning to run an 415 00:23:03,359 --> 00:23:08,040 Speaker 1: ever larger government deficit. Remember that we're talking now about 416 00:23:08,119 --> 00:23:12,280 Speaker 1: deficits going to a trision dollars. But debt has been 417 00:23:12,400 --> 00:23:17,520 Speaker 1: rising very significantly, and we are, in fact, if one 418 00:23:17,560 --> 00:23:21,400 Speaker 1: of the technical the Congressional the Congressional Budget Office figures 419 00:23:22,040 --> 00:23:26,639 Speaker 1: at face value, We're gonna run through the peaks of 420 00:23:26,680 --> 00:23:29,520 Speaker 1: where we were during World War Two on the ratio 421 00:23:29,960 --> 00:23:34,880 Speaker 1: of federal debt to GDP, which was extraordinarily high. And 422 00:23:34,920 --> 00:23:37,879 Speaker 1: I think we're just not paying enough attention to that. 423 00:23:38,359 --> 00:23:41,280 Speaker 1: Sherman greens Fan. You've worked with members of the Democratic Party, 424 00:23:41,400 --> 00:23:45,080 Speaker 1: the Republican Party as well, any number of administrations. You've 425 00:23:45,119 --> 00:23:48,879 Speaker 1: advised any and all in Washington. What's different about the 426 00:23:48,960 --> 00:23:52,959 Speaker 1: Republican Party today is the majority party from the times 427 00:23:53,000 --> 00:23:56,520 Speaker 1: of your service. Where did the frugality go? Where did 428 00:23:56,560 --> 00:24:01,160 Speaker 1: the prudence go? Good question? If you find it, let 429 00:24:01,200 --> 00:24:04,840 Speaker 1: me know. Well, you know, there's an acclaimed photo Chairman 430 00:24:04,880 --> 00:24:06,920 Speaker 1: greens Fan of you laying down in the office of 431 00:24:07,040 --> 00:24:09,919 Speaker 1: I think Vice President for you were laying down on 432 00:24:10,000 --> 00:24:11,800 Speaker 1: the job in the Oval Office. If you were to 433 00:24:11,880 --> 00:24:14,719 Speaker 1: lay down in the Oval office today with President Trump, 434 00:24:15,040 --> 00:24:20,240 Speaker 1: what would be your advice to the president? Uh, join 435 00:24:20,320 --> 00:24:23,440 Speaker 1: me on the floor, Mr President, and then what would 436 00:24:23,480 --> 00:24:26,280 Speaker 1: you talk about? I mean, I'm serious. Well, then they 437 00:24:26,400 --> 00:24:30,239 Speaker 1: then the conversation would become classified. So then I'll go 438 00:24:30,280 --> 00:24:32,399 Speaker 1: and do that. It will become I'll go with a 439 00:24:32,480 --> 00:24:35,720 Speaker 1: classified combination. One of the mysteries sir, And what we 440 00:24:35,760 --> 00:24:39,560 Speaker 1: saw in Dabo certainly is the mystery of modern technology. 441 00:24:39,680 --> 00:24:43,240 Speaker 1: You are the archkeeper of data, whether it's railroads or 442 00:24:43,320 --> 00:24:46,520 Speaker 1: airplanes or whatever. Do we have a grasp of how 443 00:24:46,640 --> 00:24:52,440 Speaker 1: technology influences our economic growth? Well already much for having 444 00:24:52,520 --> 00:24:56,480 Speaker 1: a whole series of them. I mean, remember that when 445 00:24:56,480 --> 00:25:01,240 Speaker 1: you disaggregate output per hour, which is the critical long 446 00:25:01,359 --> 00:25:05,200 Speaker 1: term determinant of standards of living, there are many ways 447 00:25:05,240 --> 00:25:07,240 Speaker 1: to come out it. And we now have a very 448 00:25:07,359 --> 00:25:12,080 Speaker 1: large body of data which enables us to see where 449 00:25:12,520 --> 00:25:16,080 Speaker 1: productivity is going. I mean, for example, to slow down 450 00:25:16,119 --> 00:25:20,040 Speaker 1: in productivity over the last decade is very clearly the 451 00:25:20,080 --> 00:25:27,560 Speaker 1: result of entitlements, entitlements crowding out gross domestic savings dollar 452 00:25:27,640 --> 00:25:33,280 Speaker 1: for dollar. And when gross domestic savings declines and we 453 00:25:33,400 --> 00:25:37,480 Speaker 1: can't borrow from abroad anymore, remember we have an eight 454 00:25:37,520 --> 00:25:43,880 Speaker 1: trillion dollar debt to overseas. So the combination of domestic 455 00:25:44,119 --> 00:25:48,200 Speaker 1: gross domestic savings declining as a present of g d 456 00:25:48,359 --> 00:25:58,200 Speaker 1: p UH and entitlements rising UH is the is inevitable 457 00:25:58,480 --> 00:26:01,560 Speaker 1: result that was we've seen in news. It's going to 458 00:26:01,600 --> 00:26:04,520 Speaker 1: be a fiscal challenge, to be sure, Alan green Fan, 459 00:26:04,600 --> 00:26:07,000 Speaker 1: I want to end with the Jerome Powell changing up 460 00:26:07,000 --> 00:26:09,440 Speaker 1: the guard when he takes over as the FED chairman. 461 00:26:10,080 --> 00:26:12,440 Speaker 1: What will be number one on his to do list? 462 00:26:12,480 --> 00:26:16,600 Speaker 1: What does he need to do first? Open this mail? 463 00:26:17,960 --> 00:26:20,760 Speaker 1: Now you're supposed to say, Chairman Greenspan, figure out how 464 00:26:20,800 --> 00:26:23,439 Speaker 1: to use this Bloomberg terminal. That's what we would like 465 00:26:23,480 --> 00:26:26,600 Speaker 1: you to say, Alan green Fan, thank you so much, 466 00:26:26,640 --> 00:26:30,439 Speaker 1: greatly appreciate your time. If we look forward to your 467 00:26:30,480 --> 00:26:34,000 Speaker 1: birthday in early March as well. Diane Swank hanging on 468 00:26:34,160 --> 00:26:38,240 Speaker 1: every word at Grant Thornton. I mean an interesting conversation, uh, 469 00:26:38,560 --> 00:26:41,520 Speaker 1: Diane with Chairman Greenspan. And I think we go back 470 00:26:41,520 --> 00:26:43,520 Speaker 1: to what you see in the Midwest, which is it's 471 00:26:43,520 --> 00:26:47,399 Speaker 1: a different America than the time of Chairman Greenspan. The 472 00:26:47,440 --> 00:26:51,920 Speaker 1: technology overlaid today is extraordinary. How do you interpret a 473 00:26:52,000 --> 00:26:56,879 Speaker 1: Grand Thornton tick by tick, day by day technology into 474 00:26:56,880 --> 00:27:00,560 Speaker 1: this American economy already have no clue or productivity is 475 00:27:00,720 --> 00:27:03,920 Speaker 1: and you really have no clue where GDP is. Well, 476 00:27:04,080 --> 00:27:06,879 Speaker 1: it really is complicated, there's no question about it. And 477 00:27:06,960 --> 00:27:10,000 Speaker 1: it's making it harder and harder for the statistical agencies 478 00:27:10,040 --> 00:27:12,600 Speaker 1: to believe it or not to stay ahead of these 479 00:27:12,640 --> 00:27:15,119 Speaker 1: measurements because they have to get funded to be able 480 00:27:15,240 --> 00:27:18,280 Speaker 1: to get the improvements they need to measure with big data. 481 00:27:18,520 --> 00:27:21,040 Speaker 1: They've been doing a lot of experimentation with it. There 482 00:27:21,040 --> 00:27:24,280 Speaker 1: are some improvements out there. But I think Chair Greenspan 483 00:27:24,359 --> 00:27:26,720 Speaker 1: really made a couple of really good points about one 484 00:27:27,000 --> 00:27:29,280 Speaker 1: the concern about debt and deficits. This is something he's 485 00:27:29,280 --> 00:27:33,359 Speaker 1: always been a deficit hawk, he was on the Security Commission, 486 00:27:33,480 --> 00:27:35,880 Speaker 1: and I think he brings up some very important points 487 00:27:35,920 --> 00:27:38,120 Speaker 1: on that. And before I go into the technology piece, 488 00:27:38,160 --> 00:27:41,240 Speaker 1: I want to point out it's the evidence on what 489 00:27:41,320 --> 00:27:43,960 Speaker 1: happens to interest rates is not just the deficits and 490 00:27:44,000 --> 00:27:47,160 Speaker 1: not just the level of debt. It's the trajectory of debt, 491 00:27:47,440 --> 00:27:49,879 Speaker 1: which he's laying out a very dire scenario in and 492 00:27:49,880 --> 00:27:52,159 Speaker 1: which we do have a very dire scenario on, and 493 00:27:52,160 --> 00:27:55,720 Speaker 1: its subjectory of debt when it goes up, countries eventually pay. 494 00:27:55,920 --> 00:27:59,720 Speaker 1: We've got an extraordinary path so far, but eventually you 495 00:27:59,800 --> 00:28:02,199 Speaker 1: can not escape the fact that bills have to be 496 00:28:02,240 --> 00:28:04,199 Speaker 1: paid and the rest of the world is watching and 497 00:28:04,240 --> 00:28:06,480 Speaker 1: the rest of the world is also dealing with debt 498 00:28:06,480 --> 00:28:09,359 Speaker 1: as well. So this is something that will be an issue, 499 00:28:09,400 --> 00:28:11,280 Speaker 1: and I think he made some very good points on that. 500 00:28:11,560 --> 00:28:15,200 Speaker 1: The other side about technology is that Cher Greenspan also 501 00:28:15,520 --> 00:28:17,560 Speaker 1: sort of went into some areas where we know that 502 00:28:17,720 --> 00:28:20,600 Speaker 1: productivity growth has been high and information technology that's where 503 00:28:20,640 --> 00:28:23,920 Speaker 1: wages have been highest, but very concentrated. It hasn't been 504 00:28:24,000 --> 00:28:26,560 Speaker 1: broad based and spread out all over the economy. And 505 00:28:26,600 --> 00:28:28,240 Speaker 1: that's what we're seeing as well in the data is 506 00:28:28,280 --> 00:28:31,639 Speaker 1: that even though everyone has a smartphone now, that doesn't 507 00:28:31,640 --> 00:28:35,000 Speaker 1: necessarily make them all more productive. And having two millennials 508 00:28:35,000 --> 00:28:37,440 Speaker 1: of my own that are in college, I've seen that 509 00:28:37,440 --> 00:28:40,280 Speaker 1: that can happen, not always more productive. I think we've 510 00:28:40,280 --> 00:28:44,680 Speaker 1: all seen that in person. Actually the inverse of productivity exactly. 511 00:28:44,920 --> 00:28:47,760 Speaker 1: I think that's true. Jersey Diane was talking about the 512 00:28:47,760 --> 00:28:50,000 Speaker 1: trajectory of debt. When you look at the sell off 513 00:28:50,040 --> 00:28:52,640 Speaker 1: in treasuries, there's gonna be a lot of supply coming 514 00:28:52,640 --> 00:28:55,000 Speaker 1: to market fairly soon as well. How much of this 515 00:28:55,040 --> 00:28:57,360 Speaker 1: week's sell off is a supply story. I think part 516 00:28:57,360 --> 00:28:59,080 Speaker 1: of it's a supply story, but we've known that that 517 00:28:59,080 --> 00:29:01,840 Speaker 1: supply was coming. This morning, the Treasury Department just told 518 00:29:01,880 --> 00:29:04,640 Speaker 1: us exactly how we'll get it, which is much more 519 00:29:04,680 --> 00:29:06,640 Speaker 1: in two and three year notes and a lot less 520 00:29:06,640 --> 00:29:09,640 Speaker 1: than uh in ten and thirty year notes, but they're 521 00:29:09,680 --> 00:29:12,880 Speaker 1: still increasing issuance throughout the curve. So there's going to 522 00:29:12,960 --> 00:29:15,960 Speaker 1: be you know, trillion dollars of debt coming. We know 523 00:29:16,120 --> 00:29:18,960 Speaker 1: that already. And to Diane's point, I think, you know, 524 00:29:19,000 --> 00:29:20,560 Speaker 1: we we have this push and pull. One of two 525 00:29:20,640 --> 00:29:23,080 Speaker 1: things has to happen in order for us to eventually 526 00:29:23,120 --> 00:29:25,520 Speaker 1: pay our debts. Either um, either we pay more in 527 00:29:25,600 --> 00:29:28,360 Speaker 1: taxes or we have to somehow inflate our way out 528 00:29:28,360 --> 00:29:30,239 Speaker 1: of it and have much faster growth. And it's not 529 00:29:30,280 --> 00:29:33,400 Speaker 1: obvious how you get that part, Diane. I want to 530 00:29:33,400 --> 00:29:35,480 Speaker 1: bring up this chart because you've seen the two year 531 00:29:35,560 --> 00:29:38,600 Speaker 1: leap out to two point one six percent. Do you 532 00:29:38,640 --> 00:29:41,400 Speaker 1: have in your head, Diane Swung, a critical level of 533 00:29:41,480 --> 00:29:45,200 Speaker 1: critical threshold for two year yield or ten year yield 534 00:29:45,400 --> 00:29:49,200 Speaker 1: where it does begin to affect the American economy. I 535 00:29:49,240 --> 00:29:51,160 Speaker 1: don't have an exact threshold, but I think one of 536 00:29:51,280 --> 00:29:53,640 Speaker 1: you know, chere Greenspan has always been really good at 537 00:29:53,640 --> 00:29:55,640 Speaker 1: green speak. And when he said you know when is inflation? 538 00:29:55,680 --> 00:29:58,720 Speaker 1: Company said soon? And he said, um, interest rates are 539 00:29:58,720 --> 00:30:00,520 Speaker 1: going to go up a lot, And it's how much 540 00:30:00,920 --> 00:30:02,760 Speaker 1: I think, you know, you have to remember that from 541 00:30:02,800 --> 00:30:04,680 Speaker 1: these old levels, you get back to three percent, you're 542 00:30:04,720 --> 00:30:08,840 Speaker 1: back in tapered um tantrum territory. That's something we've had recently. 543 00:30:09,120 --> 00:30:11,640 Speaker 1: You get above three and a half percent, you're talking 544 00:30:11,680 --> 00:30:15,400 Speaker 1: about a major percentage increase in long term interest rates. 545 00:30:15,640 --> 00:30:18,200 Speaker 1: And that's not only an increase in interest expense from 546 00:30:18,200 --> 00:30:21,120 Speaker 1: all debtors out there, but the interest expense on our 547 00:30:21,160 --> 00:30:24,240 Speaker 1: debt as well. And so you start to get those 548 00:30:24,320 --> 00:30:26,040 Speaker 1: kinds of interactions. And I think when you start to 549 00:30:26,040 --> 00:30:27,720 Speaker 1: get three and a half three and three quarter percent 550 00:30:27,760 --> 00:30:31,400 Speaker 1: interest rates, even though historically they're low, those are significant, Diane, 551 00:30:31,480 --> 00:30:33,400 Speaker 1: very quickly. Do we get there before the March f 552 00:30:33,640 --> 00:30:36,920 Speaker 1: MC meeting, No, I hope not. If we do, then 553 00:30:36,960 --> 00:30:39,479 Speaker 1: you really have burst the bond market bubble over right. 554 00:30:40,000 --> 00:30:42,480 Speaker 1: So UM, I won't say no for sure because I 555 00:30:42,520 --> 00:30:44,600 Speaker 1: don't know. And if I did, I know to buy 556 00:30:44,600 --> 00:30:47,440 Speaker 1: an island where they don't have hurricanes. But um, other 557 00:30:47,520 --> 00:30:51,520 Speaker 1: than that, I just don't know, all right, Diane Swank, honesty, Uh, 558 00:30:51,840 --> 00:30:54,920 Speaker 1: they're on the markets. Diane Swank of Granthorne in Chicago, 559 00:30:55,000 --> 00:30:56,960 Speaker 1: thank you so much for joining us. Our Jersey of 560 00:30:56,960 --> 00:31:00,400 Speaker 1: Bloomberg Intelligence is sticking with us now. Coming up. Bill 561 00:31:00,480 --> 00:31:04,080 Speaker 1: Gross of Jannis Henderson joins a conversation. We'll talk bond yields, 562 00:31:04,120 --> 00:31:06,920 Speaker 1: we'll talk markets, and we'll talk about the Fed. This 563 00:31:07,280 --> 00:31:20,840 Speaker 1: is the FED decides on Bloomberg TV and radio. This 564 00:31:21,080 --> 00:31:23,760 Speaker 1: is the FED decides on Bloomberg television and radio. I'm 565 00:31:23,800 --> 00:31:26,640 Speaker 1: scarlet food from our world headquarters in New York. Still 566 00:31:26,680 --> 00:31:29,800 Speaker 1: with US is IRA Jersey Bloomberg Intelligence is chief US 567 00:31:29,960 --> 00:31:33,880 Speaker 1: rates Strategists and IRA. When we look at what Jerome Powell, 568 00:31:33,880 --> 00:31:36,240 Speaker 1: who will be sworn in as a new FED chair 569 00:31:36,560 --> 00:31:41,440 Speaker 1: this evening, I believe right, I don't remember tenure begins, 570 00:31:42,240 --> 00:31:45,080 Speaker 1: tenure begins to Okay, his tenure begins soon. Is it 571 00:31:45,080 --> 00:31:47,640 Speaker 1: important for him to establish his independence right away? I mean, 572 00:31:47,800 --> 00:31:50,200 Speaker 1: we're looking at a rate increase anyway in March, but 573 00:31:50,400 --> 00:31:52,560 Speaker 1: is that an important marker to set? So one of 574 00:31:52,560 --> 00:31:54,640 Speaker 1: the things that's gone on with the Federal Reserve over 575 00:31:54,680 --> 00:31:57,040 Speaker 1: the last couple of years is really um, you know, 576 00:31:57,400 --> 00:32:01,440 Speaker 1: more control or more um I don't want to say independence, 577 00:32:01,520 --> 00:32:04,000 Speaker 1: but certainly more input from the other members. So presidents 578 00:32:04,000 --> 00:32:06,040 Speaker 1: and governors, you know, certainly they've been out there. When 579 00:32:06,040 --> 00:32:09,240 Speaker 1: Alan Greenspan was chair, he's what he said that's what 580 00:32:09,320 --> 00:32:12,160 Speaker 1: the FED said, That's what the FED did. The FED 581 00:32:12,200 --> 00:32:14,320 Speaker 1: did everything that he wanted and and the FED chair 582 00:32:14,440 --> 00:32:18,000 Speaker 1: certainly guides things. But Jerome Powell will have his own style. 583 00:32:18,040 --> 00:32:20,440 Speaker 1: And will he try and be like Alan Greenspan and 584 00:32:20,440 --> 00:32:22,840 Speaker 1: and uh, you know, be a little bit less open 585 00:32:22,960 --> 00:32:25,920 Speaker 1: when it comes to taking another people's ideas, or will 586 00:32:25,920 --> 00:32:28,160 Speaker 1: he be consuliatory and say, look, if you really think 587 00:32:28,200 --> 00:32:30,360 Speaker 1: that we should hike rates seven times this year, go 588 00:32:30,360 --> 00:32:32,800 Speaker 1: ahead and say that, but you know that's not my view. 589 00:32:33,000 --> 00:32:35,080 Speaker 1: All right. We also want to bring in Bloomber Economics 590 00:32:35,120 --> 00:32:37,480 Speaker 1: chief you as economist Carl rick O Donna and Carl, 591 00:32:37,560 --> 00:32:40,280 Speaker 1: you came prepared with a chart as well to look 592 00:32:40,320 --> 00:32:42,440 Speaker 1: at some of the things Jerome Power will need to 593 00:32:42,520 --> 00:32:45,560 Speaker 1: confront when he becomes chair. And one of them, of course, 594 00:32:45,640 --> 00:32:48,400 Speaker 1: is this flattening yield curve. Right absolutely so. Well, what 595 00:32:48,480 --> 00:32:50,840 Speaker 1: I show in the chart on the screen here, uh 596 00:32:51,000 --> 00:32:54,560 Speaker 1: is basically the two tens spread relative to FED hikes 597 00:32:54,600 --> 00:32:58,560 Speaker 1: and we can see that under the Greenspan Fed when 598 00:32:58,600 --> 00:33:01,200 Speaker 1: we got about it was probably about seven hikes into 599 00:33:01,240 --> 00:33:04,520 Speaker 1: the tightening cycle, always saw a similar flatness in the 600 00:33:04,560 --> 00:33:06,440 Speaker 1: yield curve. And so this has been a lot of 601 00:33:06,480 --> 00:33:10,200 Speaker 1: discussion in the marketplace lately that because of the flatness 602 00:33:10,240 --> 00:33:12,640 Speaker 1: and the curve, the FED will be constrained. Uh and 603 00:33:12,800 --> 00:33:15,600 Speaker 1: if the power Fed operates anything like the green Span 604 00:33:15,640 --> 00:33:19,040 Speaker 1: FED something. I was alluding to green Span Blue right 605 00:33:19,080 --> 00:33:22,440 Speaker 1: through that and didn't concern himself too much with the 606 00:33:22,600 --> 00:33:26,400 Speaker 1: uh flatness or eventual inversion of the curve. The FED 607 00:33:26,600 --> 00:33:29,440 Speaker 1: tightened at least as much thereafter as they did running 608 00:33:29,480 --> 00:33:30,720 Speaker 1: up to that. You know, one of the things is 609 00:33:30,760 --> 00:33:32,960 Speaker 1: they can't help this, right, So if the federerser wants 610 00:33:32,960 --> 00:33:35,080 Speaker 1: to keep on hiking, they're gonna keep on getting flattening. 611 00:33:35,120 --> 00:33:37,200 Speaker 1: It's just the way that the market is going to work. 612 00:33:37,480 --> 00:33:39,920 Speaker 1: Unless they say that they're going to slow down their hikes, 613 00:33:40,400 --> 00:33:42,800 Speaker 1: you're not likely to see a significant resteepening in the 614 00:33:42,880 --> 00:33:45,040 Speaker 1: yield curve. Right to the extent that the market has 615 00:33:45,120 --> 00:33:49,160 Speaker 1: confidence and the FED keeping inflation under control, then you're 616 00:33:49,200 --> 00:33:53,280 Speaker 1: not going to see that meaningful backup, Where's normal? I 617 00:33:53,320 --> 00:33:55,880 Speaker 1: think none of us know. There's too many plugins to 618 00:33:55,920 --> 00:33:58,200 Speaker 1: get to normal. Whether it's a tailor rule or whatever 619 00:33:58,320 --> 00:34:01,560 Speaker 1: rule you want to use. How far from normal are 620 00:34:01,640 --> 00:34:04,360 Speaker 1: we even if we know where it is? I think 621 00:34:04,440 --> 00:34:08,719 Speaker 1: if we see growth picking up in a more sustained fashion. Uh. 622 00:34:08,719 --> 00:34:10,600 Speaker 1: In mind you we're not at three percent growth yet, 623 00:34:10,680 --> 00:34:14,120 Speaker 1: but we're heading towards probably a sustainable pace of two 624 00:34:14,200 --> 00:34:17,120 Speaker 1: and a half to two and three quarters growth this year, 625 00:34:17,400 --> 00:34:19,920 Speaker 1: and maybe three percent beyond that. That you're going to 626 00:34:19,960 --> 00:34:23,600 Speaker 1: see the FED finally tweaking their longer run growth estimates 627 00:34:23,680 --> 00:34:25,960 Speaker 1: in the other directions. So if we have confidence that 628 00:34:26,000 --> 00:34:29,680 Speaker 1: we can get back to two GDP growth, back to 629 00:34:30,000 --> 00:34:33,720 Speaker 1: two percent inflation, then I think the view of normal, 630 00:34:33,880 --> 00:34:36,560 Speaker 1: be it trend growth in the economy or the normal 631 00:34:36,680 --> 00:34:39,600 Speaker 1: level of the FED funds rate start to creep higher 632 00:34:39,760 --> 00:34:42,160 Speaker 1: as well, then critical over Jersey. What's the markets say 633 00:34:42,200 --> 00:34:43,719 Speaker 1: to that? I mean, does the market agree with that 634 00:34:43,800 --> 00:34:47,560 Speaker 1: assessment or they still far apart from the powle Fed. 635 00:34:47,920 --> 00:34:51,000 Speaker 1: I well, we we I'm not convinced that we exactly 636 00:34:51,000 --> 00:34:52,520 Speaker 1: know what the power FED is going to do, but 637 00:34:52,560 --> 00:34:57,600 Speaker 1: I think the markets anticipating continued continued increases in in hikes. Certainly, 638 00:34:57,800 --> 00:34:59,920 Speaker 1: you know, we're pricing five ish hikes now over the 639 00:35:00,040 --> 00:35:03,080 Speaker 1: next two years. That's you know, more or less the uh, 640 00:35:03,800 --> 00:35:06,160 Speaker 1: the pace that that two year notes is certainly pricing in. 641 00:35:06,239 --> 00:35:08,239 Speaker 1: So the question then becomes, you know how much does 642 00:35:08,280 --> 00:35:11,040 Speaker 1: the other side, how much does supply side wind up 643 00:35:11,160 --> 00:35:14,920 Speaker 1: dripping into bond yields and pricing, and with much more 644 00:35:14,960 --> 00:35:16,960 Speaker 1: supply in twos and threes, I'd have to imagine that 645 00:35:17,000 --> 00:35:19,480 Speaker 1: it's not going to be for a much deeper yield curve. 646 00:35:19,600 --> 00:35:21,640 Speaker 1: Can you get to normal though, Carl, When you've got 647 00:35:21,640 --> 00:35:25,120 Speaker 1: the ECB and the b o J staying so accommodative, well, 648 00:35:25,200 --> 00:35:30,600 Speaker 1: that complicates the you know, potentially. I think, for example, 649 00:35:30,640 --> 00:35:33,799 Speaker 1: the movement we've seen in the dollar to date this 650 00:35:33,880 --> 00:35:36,320 Speaker 1: year has been more determined by b o J, a 651 00:35:36,440 --> 00:35:40,840 Speaker 1: ECB comments, and necessarily any reassessment of the trajectory for 652 00:35:40,880 --> 00:35:43,200 Speaker 1: the FEDS. So that's going to be an important moving 653 00:35:43,280 --> 00:35:47,000 Speaker 1: part in the background. Absolutely, and whether the dollars going 654 00:35:47,040 --> 00:35:51,279 Speaker 1: up or down really influences the impact of how much 655 00:35:51,520 --> 00:35:54,200 Speaker 1: UH normalization the FED has to pursue as well. So 656 00:35:54,239 --> 00:35:56,640 Speaker 1: if we see the dollar which is down about ten 657 00:35:56,719 --> 00:36:00,000 Speaker 1: percent year on year, if that friend is continuing, that's right, 658 00:36:00,040 --> 00:36:02,560 Speaker 1: the inflationary it's gonna be pro growth and it's going 659 00:36:02,600 --> 00:36:04,359 Speaker 1: to mean that the pal FED may have to do 660 00:36:04,480 --> 00:36:06,520 Speaker 1: a little more rather than a little less. I want 661 00:36:06,520 --> 00:36:08,839 Speaker 1: to introduce his chart right now, We're gonna use this 662 00:36:08,880 --> 00:36:10,600 Speaker 1: with Mr gross here in a little bit, but I 663 00:36:10,600 --> 00:36:12,920 Speaker 1: want to use it with Mr Jersey right now. We 664 00:36:13,040 --> 00:36:16,520 Speaker 1: quote yield yield, yield yield at Bloomberg surveillance all day, 665 00:36:16,600 --> 00:36:20,160 Speaker 1: Scarlett screaming at me. Quote price sometime talk to you. 666 00:36:20,280 --> 00:36:23,360 Speaker 1: So here's price. Back to Thanksgiving, the white circle and 667 00:36:23,400 --> 00:36:25,800 Speaker 1: Ira Jersey. I'm sorry. If it is a bear market, 668 00:36:25,840 --> 00:36:27,920 Speaker 1: it looks like a bear market. When is there a 669 00:36:28,000 --> 00:36:32,640 Speaker 1: bear market in bonds? Price down, yield up. It's three 670 00:36:32,680 --> 00:36:36,959 Speaker 1: point six percent down from Thanksgiving and annualized n down. 671 00:36:37,160 --> 00:36:39,640 Speaker 1: How do you know when you're in a bond bear market? Well, so, 672 00:36:39,640 --> 00:36:41,440 Speaker 1: so the price is down, but you also get income 673 00:36:41,480 --> 00:36:44,680 Speaker 1: at the same time. We're we're in a bear market, 674 00:36:44,719 --> 00:36:47,080 Speaker 1: if you want to call it that, because prices will 675 00:36:47,080 --> 00:36:50,319 Speaker 1: probably continue to fall modestly. What's what's interesting is that 676 00:36:50,400 --> 00:36:52,600 Speaker 1: over the last thirty years, we've never had a two 677 00:36:52,680 --> 00:36:56,279 Speaker 1: year period where we've had negative returns for um for 678 00:36:56,280 --> 00:36:59,640 Speaker 1: for treasury securities. And I think that that's important because 679 00:36:59,640 --> 00:37:02,120 Speaker 1: what ten to happen is you get these sharp sell offs, 680 00:37:02,320 --> 00:37:04,680 Speaker 1: they wind up lasting for a couple of months, and 681 00:37:04,719 --> 00:37:07,799 Speaker 1: then you'll and then the bond yield stabilizes, and when 682 00:37:07,840 --> 00:37:10,640 Speaker 1: they as they stabilize, you continue to get interest on it, 683 00:37:10,960 --> 00:37:13,160 Speaker 1: and you wind up building back up some kind of 684 00:37:13,719 --> 00:37:17,640 Speaker 1: some some income. And so so how long will this last? 685 00:37:17,640 --> 00:37:19,560 Speaker 1: It could last a long time. I'm a little skeptical 686 00:37:19,600 --> 00:37:22,600 Speaker 1: that we're going to see this disaster uber high yields. 687 00:37:22,600 --> 00:37:26,080 Speaker 1: We're gonna see four percent ten year fields. I don't 688 00:37:26,120 --> 00:37:29,040 Speaker 1: think that that. Being said, this year has been terrible 689 00:37:29,080 --> 00:37:32,160 Speaker 1: for bond so far. Where are you on the idea 690 00:37:32,280 --> 00:37:35,480 Speaker 1: of the percentage of the strategists you read, the economists 691 00:37:35,520 --> 00:37:38,000 Speaker 1: you read to think we're gonna blow through bill gross 692 00:37:38,120 --> 00:37:41,360 Speaker 1: is two point and go on to a true higher 693 00:37:41,440 --> 00:37:44,759 Speaker 1: yield regime. I don't think we're going into a meaningfully 694 00:37:44,880 --> 00:37:49,560 Speaker 1: higher yield regime now exactly. We have to see a 695 00:37:49,760 --> 00:37:53,360 Speaker 1: much more pronounced uptaket inflation. So what we're trending in 696 00:37:53,400 --> 00:37:56,280 Speaker 1: a positive direction, that doesn't mean we're blowing the doors 697 00:37:56,360 --> 00:38:00,360 Speaker 1: off to any degree that would justify really substantial bartment. 698 00:38:01,840 --> 00:38:04,319 Speaker 1: Mind you, how much debt is out there, whether it's 699 00:38:04,360 --> 00:38:09,680 Speaker 1: household debt at floating great UH, mortgages and whatnot, a 700 00:38:09,840 --> 00:38:12,880 Speaker 1: little bit of backup and rates will really take a 701 00:38:13,000 --> 00:38:17,840 Speaker 1: toll on intersensitive spending in the economy, household or corporate. 702 00:38:18,160 --> 00:38:21,000 Speaker 1: This is the FED desides on Bloomberg Television and Bloomberg Radio. 703 00:38:21,040 --> 00:38:24,040 Speaker 1: We're with Bloomberg Economics chief US economists called Rick and Donna. 704 00:38:24,280 --> 00:38:28,400 Speaker 1: Also with us is our Jersey Bloomberg Intelligence chief rates strategists. 705 00:38:28,640 --> 00:38:30,759 Speaker 1: We were talking about the move higher and yield to 706 00:38:30,800 --> 00:38:33,719 Speaker 1: move down in bond prices. Our wire is going to 707 00:38:33,760 --> 00:38:37,440 Speaker 1: start emerging as the spread between US treasuries and Eurozone 708 00:38:37,480 --> 00:38:40,120 Speaker 1: yields gets wider and wider and we get to that 709 00:38:40,160 --> 00:38:41,839 Speaker 1: three percent, because that's what we've seen in the past. 710 00:38:41,920 --> 00:38:44,799 Speaker 1: It's been a consistent reaction, right, It's what we've seen 711 00:38:44,840 --> 00:38:46,759 Speaker 1: in the past. It's what we saw. Going back to 712 00:38:46,840 --> 00:38:49,319 Speaker 1: the chart I brought with me about the Greenspan FED 713 00:38:49,440 --> 00:38:52,880 Speaker 1: and the flattening of the curve, if not inversion, there 714 00:38:52,960 --> 00:38:56,920 Speaker 1: is a global glut of capital slashing around looking for 715 00:38:57,040 --> 00:38:59,880 Speaker 1: higher returns. UH. And so I think that the you know, 716 00:39:00,200 --> 00:39:02,880 Speaker 1: we talk about economic fundamentals be a growth and inflation 717 00:39:03,560 --> 00:39:06,440 Speaker 1: driving the dynamics of the treasury yield curve, but we 718 00:39:06,520 --> 00:39:09,759 Speaker 1: also have to factor in UH foreign capital flows, and 719 00:39:09,840 --> 00:39:12,759 Speaker 1: I think that could be a very important driver this year. UH. 720 00:39:12,880 --> 00:39:15,200 Speaker 1: Not only given the fluctuations in the currency and that 721 00:39:15,280 --> 00:39:20,279 Speaker 1: surplus of capital. But one particular policy this repatriation of 722 00:39:20,400 --> 00:39:24,400 Speaker 1: foreign earnings, which is incentivized by the tax reforms. And 723 00:39:24,480 --> 00:39:26,759 Speaker 1: so we could look back to, for instance, the two 724 00:39:26,840 --> 00:39:29,880 Speaker 1: thousand one to two thousand seven cycle. The dollar was 725 00:39:30,000 --> 00:39:33,720 Speaker 1: continually weakening over that period, with the exception of two years. 726 00:39:34,000 --> 00:39:35,880 Speaker 1: In those two years were the period where we were 727 00:39:35,920 --> 00:39:40,319 Speaker 1: incentivizing repatriation of foreign earnings in that period as well. 728 00:39:40,440 --> 00:39:42,759 Speaker 1: So I think that all of that cash flowing back 729 00:39:42,800 --> 00:39:47,400 Speaker 1: into the US helps to grease the skids for President 730 00:39:47,440 --> 00:39:50,920 Speaker 1: Trump to uh pursue a more aggressive, more expansive uh 731 00:39:51,080 --> 00:39:53,359 Speaker 1: fiscal I just want to say Scarlett for Bloomberg Radio 732 00:39:53,360 --> 00:39:56,080 Speaker 1: and putting out that boom price chart right now just 733 00:39:56,120 --> 00:40:01,759 Speaker 1: as we get down pricedown pricedown yield up. That's my 734 00:40:01,880 --> 00:40:04,480 Speaker 1: Frobosi moment for the day. Continue while I put this 735 00:40:04,600 --> 00:40:06,839 Speaker 1: out for Bloomberg Radio. So I'd just like to add 736 00:40:06,880 --> 00:40:08,680 Speaker 1: something so we keep on talking about, you know, high 737 00:40:08,719 --> 00:40:10,960 Speaker 1: interest rates, what's going to happen because we have two 738 00:40:11,000 --> 00:40:13,399 Speaker 1: year yields going up. I think it's important to note 739 00:40:13,480 --> 00:40:16,040 Speaker 1: that the structure of the economy has changed over the 740 00:40:16,120 --> 00:40:18,960 Speaker 1: last twenty years, where a lot of both governments in 741 00:40:19,040 --> 00:40:22,839 Speaker 1: the United States and municipal governments as well as corporations 742 00:40:22,920 --> 00:40:25,120 Speaker 1: have extended the amount of depth that they have, so 743 00:40:25,200 --> 00:40:27,959 Speaker 1: they've extended their term and they've really used the last 744 00:40:28,040 --> 00:40:30,239 Speaker 1: seven years or so to do quite a lot of that. 745 00:40:30,560 --> 00:40:32,239 Speaker 1: So I think it might take a little longer than 746 00:40:32,280 --> 00:40:34,960 Speaker 1: some people realize for higher interest rates to really filter 747 00:40:35,120 --> 00:40:37,520 Speaker 1: in to the real economy. So you think, look at 748 00:40:37,560 --> 00:40:41,080 Speaker 1: things like weighted average cost of capital for corporations, that's 749 00:40:41,080 --> 00:40:42,440 Speaker 1: not going to go up the same way as it 750 00:40:42,520 --> 00:40:46,279 Speaker 1: did when they were funded twenty or with like on 751 00:40:46,600 --> 00:40:50,160 Speaker 1: loans in commercial but then with the mergers and acquisitions, 752 00:40:50,200 --> 00:40:52,480 Speaker 1: now you see it was Snapple and the rest of 753 00:40:52,520 --> 00:40:56,040 Speaker 1: them Dr Pepper Snapple in the last number of days. 754 00:40:56,480 --> 00:40:59,000 Speaker 1: Are they looking at yields as a nominal cost or 755 00:40:59,040 --> 00:41:00,960 Speaker 1: they look at it really you which are basically were 756 00:41:01,000 --> 00:41:04,520 Speaker 1: given money away? Well, I think, and they probably use 757 00:41:04,560 --> 00:41:07,400 Speaker 1: a lot of nominal costs, but the fact is real 758 00:41:07,480 --> 00:41:10,000 Speaker 1: yields are next enough. Really yields do matter, yeah, for 759 00:41:10,320 --> 00:41:12,640 Speaker 1: sure in a lot of people's minds, but that only 760 00:41:12,680 --> 00:41:15,720 Speaker 1: in so far as they can actually pass along price increases. 761 00:41:15,760 --> 00:41:18,440 Speaker 1: So the question is how much of the price increases 762 00:41:18,480 --> 00:41:21,600 Speaker 1: and wage pressures, for example, can be passed along the consumer. 763 00:41:21,600 --> 00:41:23,560 Speaker 1: It's certainly one of the things that's been keeping things down. 764 00:41:23,600 --> 00:41:25,360 Speaker 1: But you know, Carl did a great piece today on 765 00:41:25,520 --> 00:41:28,840 Speaker 1: the employment costs index, and you know, maybe, um, you know, 766 00:41:28,920 --> 00:41:31,160 Speaker 1: maybe if if employment costs keep on going up, one 767 00:41:31,200 --> 00:41:32,759 Speaker 1: of two things has to happen. Either you get more 768 00:41:32,760 --> 00:41:36,279 Speaker 1: inflation or you get margin pressure. One is okay for 769 00:41:36,600 --> 00:41:40,320 Speaker 1: things like equity markets and corporate debt. One is not. Yeah, certainly, 770 00:41:40,680 --> 00:41:42,000 Speaker 1: I want to go back to a point about how 771 00:41:42,040 --> 00:41:44,400 Speaker 1: things get pushed out, because structurally the economy is different 772 00:41:44,400 --> 00:41:47,480 Speaker 1: than what it was before. How much time did companies 773 00:41:47,520 --> 00:41:50,879 Speaker 1: did governments buy with the ability to push things out further? Well? 774 00:41:50,960 --> 00:41:54,240 Speaker 1: So so in uh SO the US government, for example, 775 00:41:54,560 --> 00:41:57,120 Speaker 1: they extended their average maturity from about three and a 776 00:41:57,160 --> 00:42:00,359 Speaker 1: half years to almost six years in terms of uh 777 00:42:01,320 --> 00:42:04,640 Speaker 1: in terms of average maturity of their debt, So basically 778 00:42:04,719 --> 00:42:07,360 Speaker 1: they bought themselves a lot of time. They basically said, Okay, 779 00:42:07,400 --> 00:42:09,839 Speaker 1: interest rates are super low, we're going to cut two 780 00:42:09,920 --> 00:42:12,880 Speaker 1: in three year debt. Back in two thousand, thirteen and fourteen, 781 00:42:13,080 --> 00:42:14,799 Speaker 1: they cut the amount of short term debt that they 782 00:42:14,840 --> 00:42:17,239 Speaker 1: were issuing, and they issued a lot of long term debt, 783 00:42:17,400 --> 00:42:20,120 Speaker 1: so their liabilities now are far longer. Now they are 784 00:42:20,239 --> 00:42:23,560 Speaker 1: worried about, you know, certain walls of maturities, and now 785 00:42:23,640 --> 00:42:26,160 Speaker 1: that they're issuing more debt in the front end. Um, 786 00:42:26,640 --> 00:42:28,800 Speaker 1: you know this is a problem, but it gets pushed 787 00:42:28,800 --> 00:42:30,840 Speaker 1: out a little further. So my point there was, you know, 788 00:42:30,920 --> 00:42:33,479 Speaker 1: how much of today's hikes are going to be built 789 00:42:33,520 --> 00:42:35,800 Speaker 1: into the economy in six months. It's not obvious to 790 00:42:35,880 --> 00:42:38,560 Speaker 1: me that six months anymore. These long and variable legs 791 00:42:38,640 --> 00:42:41,279 Speaker 1: that monetary policy takes might be even longer than the 792 00:42:41,320 --> 00:42:44,240 Speaker 1: Fed even things. How worried should we be about funding 793 00:42:44,280 --> 00:42:47,040 Speaker 1: the government and the debt ceiling? Carl, It seems like 794 00:42:47,280 --> 00:42:49,239 Speaker 1: we're really worried about it earlier this month than they 795 00:42:49,320 --> 00:42:51,120 Speaker 1: kicked the can down the road for a couple of 796 00:42:51,160 --> 00:42:53,400 Speaker 1: weeks and we kind of all forgot about it, went 797 00:42:53,440 --> 00:42:55,520 Speaker 1: back to watching the stock market rise. Well, I think 798 00:42:55,719 --> 00:42:57,840 Speaker 1: you know, as we kicked that can closer and closer 799 00:42:57,880 --> 00:43:00,320 Speaker 1: to midterm elections, people are not going to be willing 800 00:43:00,440 --> 00:43:03,160 Speaker 1: to shut down the government and then potentially face the 801 00:43:03,239 --> 00:43:07,480 Speaker 1: comment that uh come November. More broadly, as we think 802 00:43:07,480 --> 00:43:10,080 Speaker 1: about government funding, I mean, if you look at UH, 803 00:43:10,200 --> 00:43:12,279 Speaker 1: you know, and I will say, don't use these at 804 00:43:12,280 --> 00:43:15,160 Speaker 1: traditional models. But if we look at just the nominal 805 00:43:15,239 --> 00:43:19,120 Speaker 1: GDP growth versus a tenure yield, uh, there's a pretty 806 00:43:19,200 --> 00:43:22,640 Speaker 1: good correlation over the broad history of time. UH. And 807 00:43:23,280 --> 00:43:25,320 Speaker 1: if you look in the last five years or so, 808 00:43:25,480 --> 00:43:28,719 Speaker 1: you can see that tenure yields are low relative to 809 00:43:28,920 --> 00:43:32,040 Speaker 1: those economic fundamentals. And that's giving you a free pass 810 00:43:32,400 --> 00:43:34,640 Speaker 1: to increase issue with bring up this chart. I don't 811 00:43:34,640 --> 00:43:35,920 Speaker 1: have a banner for it, but we don't need what 812 00:43:36,000 --> 00:43:38,319 Speaker 1: our jersey helped me here with how distorted we are 813 00:43:38,360 --> 00:43:41,880 Speaker 1: in these times. This is the price of apple paper 814 00:43:42,520 --> 00:43:46,040 Speaker 1: out to two thousand thirty. That's paying three quarters of 815 00:43:46,080 --> 00:43:50,000 Speaker 1: a percent per year in Swiss Frank's. You have to 816 00:43:50,080 --> 00:43:52,920 Speaker 1: pay up a premium to own this thing. It was 817 00:43:53,000 --> 00:43:55,160 Speaker 1: up at one ten, it's done at one one. I mean, 818 00:43:55,200 --> 00:43:58,919 Speaker 1: that's just one example of the distortions in your world. Sure, 819 00:43:59,080 --> 00:44:01,759 Speaker 1: and when you look at places like other currencies, we 820 00:44:01,800 --> 00:44:04,239 Speaker 1: have to remember the funding in those currencies matter, for 821 00:44:04,440 --> 00:44:07,279 Speaker 1: for one thing. So Swiss rates are lower than US 822 00:44:08,120 --> 00:44:10,759 Speaker 1: rates are lower than US rates for example. UM. But 823 00:44:11,239 --> 00:44:12,960 Speaker 1: you know, the question is are you willing to buy 824 00:44:13,040 --> 00:44:15,640 Speaker 1: Swiss francs and make that amount of money, and if 825 00:44:15,760 --> 00:44:17,680 Speaker 1: you do all the hedges that you have to do 826 00:44:17,800 --> 00:44:20,160 Speaker 1: to hedge out your currency risk, you'll realize that if 827 00:44:20,239 --> 00:44:22,160 Speaker 1: you were to buy that Swiss frank that you're only 828 00:44:22,239 --> 00:44:24,160 Speaker 1: making you're only making a little bit less than you 829 00:44:24,200 --> 00:44:26,520 Speaker 1: are to buy treasury. So you know it's not as 830 00:44:26,600 --> 00:44:29,040 Speaker 1: distorted as you might think. Iro Jersey with us in. 831 00:44:29,080 --> 00:44:32,200 Speaker 1: Carl Ricka done as well from Bloomberg. As we discuss 832 00:44:32,360 --> 00:44:37,399 Speaker 1: here these interesting times in economics, investment in finance. When 833 00:44:37,480 --> 00:44:40,880 Speaker 1: Dan Fuss speaks, Bill Gross listens, we know that for certain, 834 00:44:41,000 --> 00:44:45,440 Speaker 1: here is the legend of loomas sales. Assuming our economy 835 00:44:45,560 --> 00:44:49,759 Speaker 1: stays as strong as it seems to be, and assuming 836 00:44:49,880 --> 00:44:54,480 Speaker 1: that inflation rates gradually climb, and I suspect there's a 837 00:44:54,719 --> 00:45:00,319 Speaker 1: slight lay in the inflation rates, uh, then I would 838 00:45:00,360 --> 00:45:04,360 Speaker 1: expect the Fed to keep going the The open question 839 00:45:04,480 --> 00:45:08,120 Speaker 1: then becomes, well, you know how far how long um 840 00:45:08,400 --> 00:45:13,399 Speaker 1: does the jenior go to flour? That's a stretch. Dan 841 00:45:13,560 --> 00:45:16,520 Speaker 1: Fuss speaking the gospel, according to Bill Gross, who were 842 00:45:16,560 --> 00:45:19,160 Speaker 1: pleased that Mr Gross joins us today from Janis Anderson, 843 00:45:19,200 --> 00:45:21,440 Speaker 1: Bill agree with me. It's always good to hear from 844 00:45:21,520 --> 00:45:26,759 Speaker 1: Dan Fuss with the experiment as well is experience. Rather, 845 00:45:26,920 --> 00:45:29,239 Speaker 1: we've seen price down, yield up. Let me cut to 846 00:45:29,280 --> 00:45:34,719 Speaker 1: the shakes bill gross. Are we in a bun bear market? Well, 847 00:45:34,760 --> 00:45:36,400 Speaker 1: I think we all. I think we've been there for 848 00:45:38,200 --> 00:45:41,279 Speaker 1: that a few months ago, and I think there are 849 00:45:41,280 --> 00:45:44,799 Speaker 1: a number of reasons for that time. Although I would, um, 850 00:45:45,480 --> 00:45:47,880 Speaker 1: you know, suggest that the bear market to see is 851 00:45:47,920 --> 00:45:51,200 Speaker 1: probably a mild one with the tenure going to three percent. 852 00:45:51,320 --> 00:45:53,680 Speaker 1: But let's let's put some of the pieces together. In 853 00:45:53,800 --> 00:45:57,520 Speaker 1: terms of the police nominal GDP is moving higher from 854 00:45:57,960 --> 00:46:00,560 Speaker 1: four percent, which is savage for the US five years, 855 00:46:00,600 --> 00:46:05,640 Speaker 1: so about five. Um. You know, inflation is moving slightly higher, 856 00:46:05,719 --> 00:46:10,040 Speaker 1: as the Fed noted today, and I think ultimately, um, 857 00:46:10,680 --> 00:46:13,920 Speaker 1: you know, the treasury in terms of the budget deficit 858 00:46:14,080 --> 00:46:17,239 Speaker 1: is perhaps an important factor as well that many analysts 859 00:46:17,280 --> 00:46:20,239 Speaker 1: have failed to mention. You know, the Treasury is going 860 00:46:20,320 --> 00:46:25,239 Speaker 1: to be issuing about five billion dollars more more this 861 00:46:25,440 --> 00:46:27,880 Speaker 1: year than they did last year, and that's because the 862 00:46:28,000 --> 00:46:31,600 Speaker 1: deficit is moving up to you close to a trillion dollars. 863 00:46:31,640 --> 00:46:36,280 Speaker 1: And that's because you know, basically that the fit itself 864 00:46:36,440 --> 00:46:39,400 Speaker 1: is reducing its balance sheet and so you know, I 865 00:46:39,920 --> 00:46:45,080 Speaker 1: wonder who will buy you know the current level of bonds, uh, 866 00:46:45,560 --> 00:46:48,239 Speaker 1: you know, relative to what has happened in the past, 867 00:46:48,320 --> 00:46:51,360 Speaker 1: because in the past central banks have bought. In the future, 868 00:46:51,960 --> 00:46:53,920 Speaker 1: the private market is going to be forced to buy 869 00:46:54,640 --> 00:46:57,120 Speaker 1: Bill Gross. We've heard from Martin fell Steine today of 870 00:46:57,239 --> 00:47:00,080 Speaker 1: Harvard and also Chairman Greenspan, and both of them have 871 00:47:00,200 --> 00:47:04,359 Speaker 1: great concern over consecutive and maybe even more than consecutive 872 00:47:04,440 --> 00:47:08,440 Speaker 1: trillion dollar deficits. Do you change how you manage money 873 00:47:08,600 --> 00:47:11,279 Speaker 1: because in twenty four months Ill Gross is going to 874 00:47:11,520 --> 00:47:17,440 Speaker 1: enjoy a trillion dollar US deficit? Well, I think you know, 875 00:47:17,560 --> 00:47:20,400 Speaker 1: investor has to do that if you're a vigilante, And 876 00:47:20,520 --> 00:47:23,320 Speaker 1: I would suggest that the bond vigilantes are sort of 877 00:47:23,719 --> 00:47:27,000 Speaker 1: down the list in terms of control or power relative 878 00:47:27,040 --> 00:47:30,160 Speaker 1: to what they used to have. Central banks basically are 879 00:47:30,200 --> 00:47:33,080 Speaker 1: on charge um. But a trillion dollar deficit, to my 880 00:47:33,200 --> 00:47:37,279 Speaker 1: way of thinking, you know, entails a substantial supply, a 881 00:47:37,400 --> 00:47:41,080 Speaker 1: new supply as I just suggested of treasuries. And uh, 882 00:47:41,400 --> 00:47:43,960 Speaker 1: if the FIT is not buying, actually the FIT is 883 00:47:44,200 --> 00:47:47,680 Speaker 1: selling and reducing this balance sheet, then then who will buy? 884 00:47:47,880 --> 00:47:50,800 Speaker 1: And so it takes a higher interest rate to my 885 00:47:50,960 --> 00:47:53,880 Speaker 1: way of thinking, supplying command, It takes a higher interest 886 00:47:54,000 --> 00:47:57,680 Speaker 1: right forward demand to meet supply going forward. Now, I 887 00:47:57,719 --> 00:47:59,400 Speaker 1: want to get your thoughts on what we've seen the 888 00:47:59,520 --> 00:48:03,760 Speaker 1: last days with regards to markets and equity markets. In particular, 889 00:48:03,840 --> 00:48:06,279 Speaker 1: it was, if you want to be generous, a sell 890 00:48:06,320 --> 00:48:07,960 Speaker 1: off in U s Ox because the doubt had its 891 00:48:08,000 --> 00:48:12,040 Speaker 1: biggest two day decline since before President Trump was elected. 892 00:48:12,680 --> 00:48:14,840 Speaker 1: Do you take anything away from that or was this 893 00:48:15,080 --> 00:48:22,239 Speaker 1: a long awaited consolidation? Well, I think some of the latter. 894 00:48:22,320 --> 00:48:25,640 Speaker 1: I suppose along awaited consolidation. But I think what is 895 00:48:25,760 --> 00:48:30,520 Speaker 1: driving that consolidation is the realization that the yields will 896 00:48:30,560 --> 00:48:34,080 Speaker 1: be moving higher on the tenure um. You know, just 897 00:48:34,200 --> 00:48:36,880 Speaker 1: several weeks ago they were at two point five percent, 898 00:48:37,080 --> 00:48:40,759 Speaker 1: now they're at the two point seven And does that matter? 899 00:48:41,120 --> 00:48:44,880 Speaker 1: You know? I think many pundits suggest that, you know, 900 00:48:44,960 --> 00:48:47,960 Speaker 1: it'll take a four percent ten youre treasury to affect 901 00:48:48,000 --> 00:48:50,880 Speaker 1: the market. I don't think so. I think the economy 902 00:48:51,000 --> 00:48:56,920 Speaker 1: is significant. A three percent treasury will begin to affect 903 00:48:57,400 --> 00:49:01,080 Speaker 1: you know, relative valuations in terms of stocks, in terms 904 00:49:01,120 --> 00:49:04,319 Speaker 1: of utility prices, etcetera, etcetera. You know, I think it's 905 00:49:04,360 --> 00:49:06,080 Speaker 1: all due to the bond market. I think there's a 906 00:49:06,080 --> 00:49:09,840 Speaker 1: good correlation now and if treasury yields higher, and perhaps 907 00:49:10,239 --> 00:49:14,239 Speaker 1: stocks will continue to consolidate or move a little bit lower. Right. 908 00:49:14,320 --> 00:49:17,120 Speaker 1: We've also seen Wall Street banks, credit Switee among them 909 00:49:17,360 --> 00:49:21,560 Speaker 1: forecasting this shift from pensions into fixeding comassets from equities, 910 00:49:21,640 --> 00:49:24,040 Speaker 1: especially after the big run up we've seen in US 911 00:49:24,080 --> 00:49:26,520 Speaker 1: stocks this year. Do you see it playing out the 912 00:49:26,560 --> 00:49:28,960 Speaker 1: way that they expect or are the returns and bonds 913 00:49:28,960 --> 00:49:34,040 Speaker 1: still too low for that? Well? I think that's the case, 914 00:49:34,320 --> 00:49:39,080 Speaker 1: you know. I think a astute pension fund manager would 915 00:49:39,080 --> 00:49:42,440 Speaker 1: probably want to take some gains and put some of 916 00:49:42,480 --> 00:49:45,840 Speaker 1: that back into bonds. But the return on bonds just 917 00:49:46,040 --> 00:49:50,240 Speaker 1: the same is probably not attractive to UH pension managers, 918 00:49:50,280 --> 00:49:54,000 Speaker 1: but it helps them to basically, uh, you know, solidify 919 00:49:54,040 --> 00:49:57,120 Speaker 1: their duration or match their durations. Um. You know, what 920 00:49:57,320 --> 00:50:01,320 Speaker 1: is the tenure holder of treasuries or a holder of 921 00:50:01,400 --> 00:50:03,920 Speaker 1: tenure of treasures expect for the next year. You know, 922 00:50:04,280 --> 00:50:06,640 Speaker 1: if it moves to three percent, you're gonna get two 923 00:50:06,680 --> 00:50:09,080 Speaker 1: point seven five percent in terms of interests and lose 924 00:50:09,120 --> 00:50:11,680 Speaker 1: about two point seven five in terms of price. So 925 00:50:12,400 --> 00:50:14,920 Speaker 1: there's nothing there in terms of treasuries either. No, let 926 00:50:15,000 --> 00:50:16,959 Speaker 1: me bring up this chart we showed earlier. Bill Gross, 927 00:50:17,000 --> 00:50:18,960 Speaker 1: we say good morning and a good afternoon to all 928 00:50:19,040 --> 00:50:21,400 Speaker 1: of you around the world. On Bloomberg Television and Radio, 929 00:50:21,520 --> 00:50:24,560 Speaker 1: William Gross of Janis Henderson with us with our Carl, RecA, 930 00:50:24,600 --> 00:50:27,840 Speaker 1: Donna and Ira Jersey as well. Bill. It's just simply 931 00:50:27,880 --> 00:50:30,480 Speaker 1: the ten year yield and down, down we go Bloomberg Radio. 932 00:50:30,520 --> 00:50:33,360 Speaker 1: I put this out on Twitter for you. This is 933 00:50:33,440 --> 00:50:36,600 Speaker 1: price price down bills. Aware of this. It's an unconstrained 934 00:50:36,920 --> 00:50:40,240 Speaker 1: moved down in the price of the ten year yield bill. Gross. 935 00:50:40,320 --> 00:50:43,400 Speaker 1: This is all LinkedIn and correlated to other markets. How 936 00:50:43,480 --> 00:50:46,680 Speaker 1: did you respond to the week dollar policy of Mr Manutian, 937 00:50:47,320 --> 00:50:51,480 Speaker 1: the President's adjustment to an ultimately strong dollar policy, and 938 00:50:51,560 --> 00:50:54,839 Speaker 1: how does that fold into what you do unconstrained every 939 00:50:54,920 --> 00:50:59,759 Speaker 1: day at Janis Henderson, Well, Tom, I I don't listen 940 00:50:59,840 --> 00:51:03,520 Speaker 1: to much to UH, to President Trump or minut in 941 00:51:03,680 --> 00:51:06,640 Speaker 1: terms of what policy they want. I think they speak 942 00:51:06,719 --> 00:51:10,960 Speaker 1: with forked tongue or with UH, you know, different scenarios 943 00:51:11,000 --> 00:51:13,240 Speaker 1: in order to please the market. I think what's important 944 00:51:13,239 --> 00:51:15,239 Speaker 1: in terms of the dollar, and we know the dollar 945 00:51:15,239 --> 00:51:18,360 Speaker 1: has been down ten percent basically over the past twelve 946 00:51:18,440 --> 00:51:23,080 Speaker 1: months relative to other currencies, is the budget deficit If 947 00:51:23,360 --> 00:51:26,759 Speaker 1: if we're moving to a trillion dollars, that's basically you know, 948 00:51:27,040 --> 00:51:30,320 Speaker 1: scares foreign investors in terms of holding dollars because it 949 00:51:30,480 --> 00:51:36,200 Speaker 1: means you know that the fiscal situation is deteriorating. So 950 00:51:36,560 --> 00:51:40,120 Speaker 1: I think I would pay more attention to, you know, 951 00:51:40,280 --> 00:51:44,080 Speaker 1: perhaps the success or lack of success of the infrastructure 952 00:51:44,880 --> 00:51:48,279 Speaker 1: program advanced last night, and the fact that even without that, 953 00:51:48,760 --> 00:51:50,920 Speaker 1: you know, we're headed towards a trillion dollars in terms 954 00:51:50,960 --> 00:51:53,840 Speaker 1: of a deficit, and a week dollar is probably what 955 00:51:53,960 --> 00:51:56,040 Speaker 1: we should expect as opposed to a strong dollar. So 956 00:51:56,120 --> 00:51:58,719 Speaker 1: within that a week dollar in higher yields, maybe up 957 00:51:58,760 --> 00:52:02,000 Speaker 1: to a bracket at two point three percent yield. Does 958 00:52:02,080 --> 00:52:06,520 Speaker 1: Bill Gross just assume more volatility for investors in the 959 00:52:06,600 --> 00:52:10,640 Speaker 1: next twelve months, Yeah, I think a little bit more times, 960 00:52:10,680 --> 00:52:12,800 Speaker 1: certainly on the on the stock side. I mean, the 961 00:52:12,880 --> 00:52:16,120 Speaker 1: vix got so low down to about nine, and now 962 00:52:16,239 --> 00:52:20,600 Speaker 1: it's moving appreciably higher. On the bond market to volatility 963 00:52:20,680 --> 00:52:23,760 Speaker 1: got low. Um. I don't think we're in a period 964 00:52:23,800 --> 00:52:28,320 Speaker 1: of time in which volatility spikes significantly higher because central 965 00:52:28,360 --> 00:52:31,239 Speaker 1: banks are still in control, and if things got out 966 00:52:31,280 --> 00:52:33,239 Speaker 1: of hand in terms of yields are out of hand, 967 00:52:33,320 --> 00:52:36,160 Speaker 1: in terms of lower stock prices than to fit you 968 00:52:36,400 --> 00:52:39,960 Speaker 1: probably wouldn't increase interest rates by the expected three or 969 00:52:40,000 --> 00:52:43,359 Speaker 1: four times. I simply think they're going up by one 970 00:52:43,480 --> 00:52:46,120 Speaker 1: or two times in you know, two thousand and eighteen, 971 00:52:46,200 --> 00:52:49,799 Speaker 1: and that should dampen volatility significantly. Well, we'll see how 972 00:52:49,840 --> 00:52:51,960 Speaker 1: that all plays out. Bill Gross of Janis Henderson, thank 973 00:52:52,000 --> 00:52:54,360 Speaker 1: you for your time. We want to get our final 974 00:52:54,480 --> 00:52:57,600 Speaker 1: thoughts now from our Jersey of Bloomberrick Intelligence and calrickt 975 00:52:57,640 --> 00:53:00,800 Speaker 1: Down of Bloombrick Economics. And I let's start with Jenny 976 00:53:00,800 --> 00:53:04,400 Speaker 1: Allen's legacy because most people great her very highly when 977 00:53:04,480 --> 00:53:07,400 Speaker 1: it comes to managing the economy and managing the transition 978 00:53:07,480 --> 00:53:10,279 Speaker 1: back to normalization. How are you want to define it? 979 00:53:10,640 --> 00:53:13,359 Speaker 1: But there are some criticisms about how Yelling performed at 980 00:53:13,400 --> 00:53:16,000 Speaker 1: the politics of her role. Yeah, so so I think 981 00:53:16,080 --> 00:53:18,120 Speaker 1: Jenny Yellen was great in the fact that she went 982 00:53:18,239 --> 00:53:21,040 Speaker 1: from a uber accommodative policy and said, hey, we don't 983 00:53:21,080 --> 00:53:23,799 Speaker 1: need this ubercommodative policy. When she came in, we all 984 00:53:23,920 --> 00:53:25,840 Speaker 1: thought she was going to be very doublish, because she 985 00:53:26,080 --> 00:53:28,160 Speaker 1: was when she was president of the San Francisco Fed 986 00:53:28,280 --> 00:53:31,120 Speaker 1: so and and she wasn't. But when she brought up 987 00:53:31,200 --> 00:53:34,680 Speaker 1: things to Congress like um typical fiscal type of things 988 00:53:34,840 --> 00:53:37,440 Speaker 1: like income in equality, for example. She was criticized for that, 989 00:53:37,480 --> 00:53:40,080 Speaker 1: and I think that damaged her reputation with some members 990 00:53:40,120 --> 00:53:42,520 Speaker 1: of Congress. Now Jerome Powell is coming in and he 991 00:53:42,600 --> 00:53:44,440 Speaker 1: might have a friendly Congress this year, but we're not 992 00:53:44,560 --> 00:53:46,920 Speaker 1: sure after the midterm elections what will happen next year. 993 00:53:46,960 --> 00:53:50,959 Speaker 1: You agree with Ira Jersey, there's a mystery to German Paul. 994 00:53:52,200 --> 00:53:55,719 Speaker 1: I think that obviously he's untested in the seat, and 995 00:53:55,840 --> 00:53:58,759 Speaker 1: even when he was just a governor, he had a 996 00:53:59,040 --> 00:54:03,560 Speaker 1: sparse public so there is some degree regulatory based, right, 997 00:54:03,760 --> 00:54:06,680 Speaker 1: very regulatory based. Um. What we have heard from him 998 00:54:06,719 --> 00:54:10,080 Speaker 1: on the economy seems very consistent with Yelling's view of 999 00:54:10,120 --> 00:54:13,440 Speaker 1: the world, maybe a tad bit more hawkish than Yelling 1000 00:54:13,520 --> 00:54:16,120 Speaker 1: has been. And we also know that he was a 1001 00:54:16,280 --> 00:54:20,640 Speaker 1: little bit less of a proponent of the unconventional policy 1002 00:54:20,680 --> 00:54:24,640 Speaker 1: of quantitative easing relative to Chair Yelling. So in peacetime 1003 00:54:24,800 --> 00:54:27,759 Speaker 1: that should do the spine. If the economy rolls over 1004 00:54:27,840 --> 00:54:31,880 Speaker 1: in a bad way, then that would be really I 1005 00:54:31,960 --> 00:54:34,440 Speaker 1: love that in peacetime called Rick a donna, don't break 1006 00:54:34,480 --> 00:54:37,640 Speaker 1: economic economics. Chief of US economists of course, Iron Jersey, 1007 00:54:37,760 --> 00:54:40,719 Speaker 1: chief rates strategists here for us at bloom Rick Intelligence. 1008 00:54:40,880 --> 00:54:44,920 Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and 1009 00:54:45,120 --> 00:54:50,400 Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast 1010 00:54:50,480 --> 00:54:54,720 Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before 1011 00:54:54,760 --> 00:54:58,560 Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg 1012 00:54:58,680 --> 00:55:01,920 Speaker 1: Radio a