WEBVTT - Surveillance Special: The Fed Decides, Jan. 31, 2018 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jailey. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:29.200 Bloomberg dot Com, and of course, on the Bloomberger. We're 0:00:29.280 --> 0:00:32.480 live from Bloomberg's world headquarters in New York. I'm Scarlet Food. 0:00:32.560 --> 0:00:41.000 This is the FED decides. The Federal Reserve will announce 0:00:41.000 --> 0:00:44.159 its latest monetary policy decision. Here's what you need to know. 0:00:45.040 --> 0:00:47.680 Janet Yellen signs off. The FED chair may strike a 0:00:47.680 --> 0:00:50.440 more hawkish note with an upbeat appraisal of the economy 0:00:50.479 --> 0:00:53.960 in her swan song, and the Powell era arrives. The 0:00:54.040 --> 0:00:57.400 leadership transition at the world's most powerful central bank comes 0:00:57.480 --> 0:01:00.240 just in time for a fresh approach. How will Ellen 0:01:00.320 --> 0:01:05.399 successor tackle the inflation puzzle? Plus March move fund managers 0:01:05.400 --> 0:01:07.800 placing their bets on the fence next policy action. We'll 0:01:07.840 --> 0:01:13.880 speak with Bill gross Up, Janice Henderson, and my co 0:01:14.000 --> 0:01:16.160 host Today and every Fed Day is Tom Keen of 0:01:16.160 --> 0:01:19.119 Bloomberg Surveillance. We convinced him to Stanley and hang out 0:01:19.160 --> 0:01:22.800 with us. Tom. Thank you, Yeah, data check good to 0:01:22.800 --> 0:01:25.759 be here on an important day and historic day right now, 0:01:25.840 --> 0:01:29.080 to get some thoughts before we see this. I guess nondecision. 0:01:29.120 --> 0:01:32.959 Michael McKee with this Bloomer's International Economics and poly correspondent 0:01:33.600 --> 0:01:36.480 in Montreal the last couple of days on the NAFTA 0:01:36.640 --> 0:01:39.080 UH discussions, and I am Jersey with us, our chief 0:01:39.200 --> 0:01:43.160 US rate strategist for Bloomberg Intelligence. Michael McKee with the 0:01:43.200 --> 0:01:47.640 sartorials blended this morning. Yeah, that picture that we ran 0:01:47.720 --> 0:01:49.320 at the top of the show, Jenny Ellen. I don't 0:01:49.320 --> 0:01:51.520 think you can pull that up again. Jenny Ellen? Where's 0:01:51.520 --> 0:01:55.600 her collars? Pop? Today's her last meeting and there is 0:01:55.640 --> 0:01:57.920 a tribute going on at the FED where everybody's walking 0:01:57.920 --> 0:02:01.240 around with their pop collars. So I I would join 0:02:01.400 --> 0:02:04.400 in like everyone else, and we can we can salute 0:02:04.440 --> 0:02:07.960 Janet yelling as she every funnel there her collars popped. 0:02:08.160 --> 0:02:10.440 So there's a there's a thing going on popular collar today. 0:02:10.520 --> 0:02:12.600 It's Janet Hillen's last meeting. We gotta post you on 0:02:12.639 --> 0:02:15.880 social media so you can join the party. Are our jersey? 0:02:15.919 --> 0:02:18.320 No popped collar for you? I don't know. I just 0:02:18.320 --> 0:02:20.960 don't think I can pull it off. Like Mike Ken well, 0:02:21.000 --> 0:02:23.560 it's gonna be her last day. She's not gonna make 0:02:23.560 --> 0:02:26.040 an appearance. She's not going to give any kind of speech, right, 0:02:26.080 --> 0:02:28.800 and we don't see her. It's very quiet, right they 0:02:28.880 --> 0:02:31.680 have by now, they have finished their meeting and they've 0:02:32.000 --> 0:02:35.360 sent over the press release that they will give to 0:02:35.400 --> 0:02:37.760 the reporters. They've already given it to them, and we'll 0:02:37.760 --> 0:02:40.120 get the data in about two minutes and they'll tell 0:02:40.160 --> 0:02:42.520 us what happened. But it's done for her now and 0:02:42.560 --> 0:02:45.360 it is going to be J pals fit. Why aren't 0:02:45.400 --> 0:02:48.160 they raising rates? So many people are saying, we have 0:02:48.240 --> 0:02:49.799 to wait till March. Why do we have to wait 0:02:49.840 --> 0:02:52.000 till March on? Well, you start with the fact it's 0:02:52.080 --> 0:02:54.920 a non news conference, meaning but also there are no 0:02:54.960 --> 0:02:57.640 inflationary pressures. They're not pushing up right now on us. 0:02:57.680 --> 0:03:00.079 We're seeing break evens move a little bit, which is 0:03:00.120 --> 0:03:02.320 your reason to think we're going into March, we'll have 0:03:02.400 --> 0:03:04.799 more data. They could do that. She also doesn't want 0:03:04.800 --> 0:03:08.160 to bind J. Powell in the future with a decision today, 0:03:08.200 --> 0:03:10.360 so they'll leave it up to him. They'll leave their 0:03:10.400 --> 0:03:13.760 options open, say as little as possible. Is there a 0:03:13.760 --> 0:03:16.160 potential for a surprise here, I don't think so. I 0:03:16.160 --> 0:03:18.079 agree with Mike, but I also think that one of 0:03:18.120 --> 0:03:19.920 the reasons Tom that they're not going to hike today 0:03:20.000 --> 0:03:21.560 is because they hiked in December and they want to 0:03:21.600 --> 0:03:24.320 go slow. They want to go measured in order to 0:03:24.400 --> 0:03:26.760 do that at the pace that they want to go 0:03:26.800 --> 0:03:29.880 with three hikes this year. If they hike in January, 0:03:29.919 --> 0:03:31.760 that means that if there is a blip in the data, 0:03:31.760 --> 0:03:34.000 if there is some exogenous event, they can't take that 0:03:34.040 --> 0:03:36.920 back in March. And part of this is the idea 0:03:37.000 --> 0:03:39.560 of measured. We have Chairman Greenspan coming up later. A 0:03:39.600 --> 0:03:42.040 great honor to have them with us this last day 0:03:42.040 --> 0:03:45.200 for chure yelling, this last meeting for chair Yelling, might 0:03:45.320 --> 0:03:49.360 define for our audience what measured actually means. Well. He 0:03:49.440 --> 0:03:51.440 was the one who said, basically, what you want to 0:03:51.440 --> 0:03:55.200 do is raise rates slowly and keep inflation as flat 0:03:55.280 --> 0:03:58.320 as possible, not below two percent, but you don't want 0:03:58.320 --> 0:04:00.680 a lot of volatility. And that is the legacy of 0:04:00.720 --> 0:04:03.040 the green Span years. Some say it led to the 0:04:03.080 --> 0:04:06.080 Great Financial Crisis because it was two predictable rates were 0:04:06.120 --> 0:04:10.040 too low for too long, and now they're questioning the level. 0:04:10.360 --> 0:04:12.480 So under J. Powell We're probably gonna have a rethink 0:04:12.480 --> 0:04:15.720 of the way thing the FED does its monetary policy business, 0:04:15.760 --> 0:04:19.040 But not until two thousand nineteen will that rethink include 0:04:19.040 --> 0:04:21.440 a different way of looking at market behavior and market 0:04:21.440 --> 0:04:24.440 pricing action. Well, so, J Powell, we we don't know 0:04:24.520 --> 0:04:26.280 exactly how he's going to run this FED, and that'll 0:04:26.320 --> 0:04:28.200 be interesting to hear his first press conference and his 0:04:28.320 --> 0:04:30.080 first couple of meetings. This share is going to be 0:04:30.080 --> 0:04:32.919 important for how the markets take him and should they 0:04:32.920 --> 0:04:35.039 take him at face value or should they we read 0:04:35.040 --> 0:04:37.960 more into exactly what he's saying. All right, I Jersey 0:04:38.040 --> 0:04:39.839 mentioned the markets there, So let's get you a market 0:04:39.920 --> 0:04:42.960 check right now. The Dow recovering after a two day slide, 0:04:42.960 --> 0:04:46.200 actually the biggest to day spot since September of twenty six, 0:04:46.440 --> 0:04:49.160 before Donald Trump was elected. Let's also take a look 0:04:49.200 --> 0:04:51.599 at the tenure yield. You could see there, Uh, the 0:04:51.680 --> 0:04:54.640 bond prices are moving higher or I should say lower, 0:04:54.640 --> 0:04:57.719 and therefore the yields are moving higher. The yield broke 0:04:57.760 --> 0:05:00.640 above two point seven percent on Monday the next because three, 0:05:01.320 --> 0:05:03.520 let's go down to Chris Condon at the Federal Reserve 0:05:03.720 --> 0:05:06.760 with the announcement from the Fed on Jenny Ellen's last 0:05:06.839 --> 0:05:11.719 day Chris no rate change from the Federal Reserve, no 0:05:11.839 --> 0:05:16.000 surprise there. The Federal Open Market Committee unanimously voted to 0:05:16.120 --> 0:05:18.839 leave the target range for the Fed funds rate unchanged 0:05:19.120 --> 0:05:21.000 at one and a quarter percent to one and a 0:05:21.080 --> 0:05:24.480 half percent. There were some subtle but important changes in 0:05:24.520 --> 0:05:28.600 the Fed statement compared to December, where they twice referred 0:05:28.640 --> 0:05:32.880 to expectations for a gradual adjustment of policy and to 0:05:33.120 --> 0:05:36.560 gradually increases in the Federal funds rate. This time they 0:05:36.600 --> 0:05:41.760 added some emphasis referring to further gradual adjustments and further 0:05:42.080 --> 0:05:45.799 gradual increases. That doesn't seem really to change the meaning 0:05:45.839 --> 0:05:48.839 of those sentences, but does serve to attract attention and 0:05:48.920 --> 0:05:54.920 perhaps emphasizes their expectations for further rate increases this year. UH. 0:05:55.120 --> 0:05:57.279 At the same time, however, there was no change to 0:05:57.480 --> 0:06:00.560 the so called balance of risk statements, that is, the 0:06:00.640 --> 0:06:04.960 risk for their economic outlook was again described as roughly balanced. 0:06:05.320 --> 0:06:11.040 Their language and describing economic condition was also slightly upgraded. 0:06:11.120 --> 0:06:15.640 Things like household spending and business fixed investment were described 0:06:15.680 --> 0:06:19.360 as solid this time around, So none of these really 0:06:19.440 --> 0:06:24.000 dramatic in on themselves, but a several subtle but important upgrades, 0:06:24.040 --> 0:06:28.120 perhaps a slightly more hawkish tone from this statement compared 0:06:28.200 --> 0:06:30.840 to December Scarlett. All right, bloombergs Chris content at the 0:06:30.839 --> 0:06:33.640 Federal Reserve, Thank you very much. Michael McKee and Iro 0:06:33.760 --> 0:06:36.640 Jersey still with us. Michael, you heard Chris talk about 0:06:36.720 --> 0:06:41.159 a subtle upgrade, uh in the FEDS report. In the 0:06:41.200 --> 0:06:43.800 FEDS statement, what struck out at you? Well? Two things. 0:06:43.880 --> 0:06:47.720 One they talk about inflation market based measures of inflation 0:06:47.720 --> 0:06:50.520 compensation have increased in recent months, a nod to the 0:06:50.520 --> 0:06:53.360 break evens going up, and that sort of supports the 0:06:53.400 --> 0:06:57.320 idea of this word further inserted into it. I don't 0:06:57.320 --> 0:06:58.880 think there's any question that the FED is gonna be 0:06:58.920 --> 0:07:00.760 raising rates this year. It's only a matter of how 0:07:00.760 --> 0:07:04.680 many times, So it may not be that dramatic a change. 0:07:04.760 --> 0:07:07.520 But it does say that Jpal FED is going to 0:07:07.560 --> 0:07:09.680 be raising rates and he had to have signed off 0:07:09.720 --> 0:07:11.480 on it. What we do here at Bloomberg when we 0:07:11.520 --> 0:07:13.800 have a FED day, and particularly one that is historic, 0:07:14.000 --> 0:07:18.240 is this is go to Ira Jersey for proper rate translation. 0:07:18.920 --> 0:07:25.040 Market based inflation compensation gauges rose. Recent in recent months 0:07:25.120 --> 0:07:28.360 was that Cherry Yellin's recent shopping trip to the grocery store. 0:07:28.720 --> 0:07:33.400 What are we talking about in market based inflation? Compensation 0:07:33.560 --> 0:07:36.680 gauges translate, so so what that means is what Michael 0:07:36.760 --> 0:07:39.320 just talking about. You're talking about tips break evens moving higher. 0:07:39.360 --> 0:07:41.040 So when they talk about market based, one of their 0:07:41.080 --> 0:07:44.240 favorite measures is the five year five year forward tips 0:07:44.280 --> 0:07:46.760 break evens and those have gone up about forty basis 0:07:46.800 --> 0:07:49.280 points since the last meeting, which is is a lot 0:07:49.360 --> 0:07:52.840 and actually contributes to almost all of the move in 0:07:53.240 --> 0:07:55.080 uh an interst rate market. So when you look at 0:07:55.080 --> 0:07:57.240 what's happened to ten year treasury is how they've broken 0:07:57.440 --> 0:08:00.400 to sixty five and now at two seventy one. That's 0:08:00.480 --> 0:08:04.640 mostly been driven by higher inflation expectations, not necessarily real rate, 0:08:04.720 --> 0:08:07.120 so not kind of this risk premium being built into 0:08:07.120 --> 0:08:11.080 the market. Now Mike McKie has the step Offston because 0:08:11.080 --> 0:08:12.880 he has an important interview to conduct. I wanted to 0:08:12.920 --> 0:08:15.920 ask you, is there anything that can derail a March 0:08:16.040 --> 0:08:19.680 rate hike from Jerome pell Uh? Probably not. I mean, 0:08:19.960 --> 0:08:24.280 there could be, of course, a very surprising drop in inflation, 0:08:24.680 --> 0:08:27.440 but we're expecting Friday to see the unemployment rate unchanged 0:08:27.520 --> 0:08:30.040 or a little lower. We're expecting if you look at 0:08:30.080 --> 0:08:32.480 a DP gains of about two hundred thousand or more 0:08:32.520 --> 0:08:34.520 in terms of jobs, and that's a sign of the FED. 0:08:34.960 --> 0:08:37.160 They don't believe the Phillips curve is dead, that we 0:08:37.200 --> 0:08:40.160 are going to see wage inflation. They'll look past the 0:08:40.200 --> 0:08:42.880 idea of all these bonuses being given out by companies 0:08:42.960 --> 0:08:45.480 because those are one time things. But we are seeing 0:08:45.520 --> 0:08:48.760 in wage inflation moving up. It was in the employment 0:08:48.760 --> 0:08:53.600 cost index today. We're seeing commodity prices rise higher, labor 0:08:53.600 --> 0:08:56.840 market slack. Commodity prices higher, you should get inflation. So 0:08:57.040 --> 0:08:59.240 the market is going to focus on that idea going 0:08:59.360 --> 0:09:01.520 forward that the feed is going to react to that. 0:09:01.679 --> 0:09:03.600 Michael McKie, thank you so much. If you go to 0:09:03.640 --> 0:09:07.880 an important interview and discussion right now on this FET day. 0:09:07.880 --> 0:09:11.760 He's our international economics and policy correspondent. Mr Jersey will 0:09:11.760 --> 0:09:14.600 stay with us to translate various items fixed income. But 0:09:14.720 --> 0:09:17.600 right now we bring in someone with a real handle 0:09:17.679 --> 0:09:20.760 on the American economy and of course always with a 0:09:20.800 --> 0:09:24.720 different view from Chicago. Diane Swank is chief economist at 0:09:24.720 --> 0:09:28.760 Grant Sworton. Diane, what is the state of the American economy? 0:09:28.800 --> 0:09:32.000 Martin Feldstein to say? He said, said he doesn't think 0:09:32.040 --> 0:09:35.120 we can get to a three percent run rate. Where 0:09:35.160 --> 0:09:39.000 exactly is the American economy right now? Well, we are 0:09:39.000 --> 0:09:41.280 seeing an acceleration in growth, and that's good, and I 0:09:41.320 --> 0:09:43.640 think what Marty's trying to emphasize is to get to 0:09:43.640 --> 0:09:47.800 a sustained over ten years, you need to see a 0:09:47.960 --> 0:09:52.200 major upward movement and productivity growth and another upward movement 0:09:52.240 --> 0:09:55.400 that's also commensurate in labor force growth, and right now 0:09:55.679 --> 0:09:57.800 we don't have either of those. And so that's what 0:09:57.920 --> 0:10:00.760 the sustained issue is. You can get for while close 0:10:00.800 --> 0:10:02.920 to three percent. I think we'll probably get there this year, 0:10:03.120 --> 0:10:05.440 but the question is at what price? And does it 0:10:05.480 --> 0:10:08.280 borrow from growth down the road? Is the Fed behind? 0:10:09.360 --> 0:10:11.680 I don't think they're behind. I think the real challenge 0:10:11.679 --> 0:10:14.680 going forward is the Federal Reserve is tightening in two 0:10:14.679 --> 0:10:18.600 ways or easying up on the um monetary policy tightening 0:10:18.600 --> 0:10:21.840 into in two ways, and that is one through rate hikes, 0:10:21.880 --> 0:10:24.719 getting that normalizing that process, but also they're shrinking their 0:10:24.720 --> 0:10:27.280 balance sheet and that's you know, going to get more 0:10:27.320 --> 0:10:30.160 and more complicated because it's sort of on automatic pilot. 0:10:30.200 --> 0:10:32.760 But every quarter they're going to be allowing more and 0:10:32.760 --> 0:10:35.120 more of their balance sheet to roll off. That means 0:10:35.240 --> 0:10:37.720 less support for long term rates from the Federal Reserve 0:10:37.920 --> 0:10:39.920 throughout the entire year at the same time that they're 0:10:39.960 --> 0:10:43.120 raising short term rates. And that's something that markets so 0:10:43.160 --> 0:10:45.680 far have not reacted to at all. But as the 0:10:45.720 --> 0:10:48.200 FED steps that up, we could see some reaction to 0:10:48.240 --> 0:10:51.040 the interesting So it could get more complicated if the 0:10:51.080 --> 0:10:54.360 market does react. Believe that the FED could then change 0:10:54.400 --> 0:10:57.760 its approach to how it reduces its balance sheet. It 0:10:57.880 --> 0:11:00.240 certainly could. I mean, one of the things that Martin 0:11:00.320 --> 0:11:03.160 good Friend is Marvin good Friend is very known for 0:11:03.559 --> 0:11:06.480 his thoughts on the Fed's balance sheet how he thinks 0:11:06.520 --> 0:11:08.000 it is, and a lot of people within the FED 0:11:08.040 --> 0:11:11.000 system are looking forward to what he brings the table 0:11:11.000 --> 0:11:13.480 on his expertise on the balance sheet. They will be 0:11:13.520 --> 0:11:15.400 looking at that very closely. And even though it's on 0:11:15.440 --> 0:11:18.240 automatic pilot, the arkets can give it as automatic pilot, 0:11:18.440 --> 0:11:20.480 it is complicated because it's at the same time that 0:11:20.559 --> 0:11:23.080 deficits are going to be rising and Treasury is gonna 0:11:23.080 --> 0:11:26.160 have to issue more debt. Right Jersey, what's the inflation 0:11:26.280 --> 0:11:29.560 NESTA representation on the FED now now? And for the 0:11:29.559 --> 0:11:32.240 Power Fed as well. Yeah, Well, there's show some presidents 0:11:32.240 --> 0:11:35.080 in particular, who I think are worried that there's going 0:11:35.120 --> 0:11:37.080 to be inflation in the future because of the size 0:11:37.080 --> 0:11:39.360 of the Fed's balance sheet. But now that they're um 0:11:39.400 --> 0:11:41.520 they're starting to reduce it. I think that some of 0:11:41.559 --> 0:11:43.880 those fears and some of those inflation east to kind 0:11:43.880 --> 0:11:46.280 of arguments have to go away a little bit. One 0:11:46.320 --> 0:11:49.280 thing that that Diane mentioned was that you know, there's 0:11:49.280 --> 0:11:51.480 a FED balance sheet expert. I'm not sure any of 0:11:51.600 --> 0:11:53.920 us really can claim, like anyone in the world can 0:11:53.920 --> 0:11:55.480 claim to be an expert on this, because no one's 0:11:55.480 --> 0:11:57.719 trying to unwind a balance sheet of the size so 0:11:58.160 --> 0:12:00.000 um so. So I think that that's a risk, especially 0:12:00.080 --> 0:12:02.200 to change from what they've already said the Diana. I 0:12:02.200 --> 0:12:04.720 like what David Rubinstein said up my panel and Davos 0:12:04.760 --> 0:12:07.320 he called it the Science Fair experiment. I guess that 0:12:07.440 --> 0:12:10.120 maybe gets to the closest as we can and watch 0:12:11.320 --> 0:12:13.920 as I found out myself, yes it was. Yes, we 0:12:14.000 --> 0:12:17.640 all remember our disastrous Science Fair experiments. Diane, I want 0:12:17.640 --> 0:12:19.600 to go to the heritage of Janet Yell and let 0:12:19.640 --> 0:12:22.600 us go back to our important Economic Club of New 0:12:22.679 --> 0:12:26.400 York speech. Here a good number of years ago. Let's 0:12:26.400 --> 0:12:28.640 try it. I can't believe his four years coming up 0:12:28.880 --> 0:12:32.920 April as well. We anticipate that his labor market slack diminishes, 0:12:33.600 --> 0:12:37.320 it will is less of a drag on inflation. However, 0:12:37.520 --> 0:12:40.440 during the recovery, and we certainly saw that folks with 0:12:40.559 --> 0:12:44.079 cherry yelling, very high levels of slack of seemingly not 0:12:44.480 --> 0:12:49.199 generated strong downward pressure on inflation. We must therefore watch 0:12:49.280 --> 0:12:53.360 carefully to see whether diminishing slack. I think that's what 0:12:53.440 --> 0:12:57.520 we're in right now is helping return inflation to our 0:12:57.600 --> 0:13:01.920 objective dayan swack. This really go four years ago remarkably 0:13:01.960 --> 0:13:05.760 pressing um idea from chair yelling, and we really don't 0:13:05.760 --> 0:13:08.679 know anymore the linkage of inflation into this. Do you 0:13:08.800 --> 0:13:13.480 have a confidence in where inflation is right now versus 0:13:13.480 --> 0:13:17.600 an almost fully employed America? There's we know where the 0:13:17.640 --> 0:13:20.480 unemployment rate is. It's it's not the same unemployment rate, 0:13:20.520 --> 0:13:22.320 even though it's at a seventeen or low as what 0:13:22.360 --> 0:13:24.840 it was seventeen years ago. And it's really not where 0:13:24.880 --> 0:13:27.480 it was during the boom of the nineties. And I 0:13:27.480 --> 0:13:31.000 think that things have changed. During the boom of the nineties, 0:13:31.040 --> 0:13:33.720 we had falling computer prices that we're helping us to 0:13:33.880 --> 0:13:37.600 keep inflation in check and productivity growth. But there was 0:13:37.679 --> 0:13:40.880 this sense. There was a famous FED Beige book March 0:13:41.040 --> 0:13:46.000 two thousand that highlighted um now hiring pulse required. We're 0:13:46.080 --> 0:13:49.199 clearly not at that stage right now, and so we're 0:13:49.200 --> 0:13:51.680 not getting the wage pressures, we don't have the productivity 0:13:51.679 --> 0:13:53.120 growth to back them up. We're going to see an 0:13:53.120 --> 0:13:56.080 acceleration of wages, some of it um just from the 0:13:56.080 --> 0:13:58.920 minimum wages alone that are coming through in January. That'll 0:13:58.960 --> 0:14:02.280 add two tenths year every year, two leisure and hospitality wages, 0:14:02.480 --> 0:14:05.319 which will help edge up the read on the employment 0:14:05.360 --> 0:14:08.520 figures on wages on Friday. But the real issue is 0:14:08.559 --> 0:14:11.920 when are we really going to see firms really stopped 0:14:11.920 --> 0:14:14.840 treating people like commodities and treat them were like a 0:14:14.880 --> 0:14:16.839 diamond in the rough and they have to polish them 0:14:16.880 --> 0:14:18.840 up and invest in them and really push a little 0:14:18.840 --> 0:14:21.360 bit to get them to sparkle and have an enduring 0:14:21.840 --> 0:14:25.120 um impact on their human capital. Was you and Tom mentioned? 0:14:25.360 --> 0:14:27.920 Jenny Allen broke new ground and conceding that inflation is 0:14:27.960 --> 0:14:30.040 a mystery here. She also broke new ground as just 0:14:30.080 --> 0:14:33.080 being the first US female central banker. Talk a little 0:14:33.080 --> 0:14:37.320 bit Diane about her biggest achievements and also her biggest missteps. Well, 0:14:37.320 --> 0:14:39.160 I think one of her biggest achievements is this is 0:14:39.200 --> 0:14:41.760 someone who started in the FED during stagflation in the 0:14:41.840 --> 0:14:45.000 nineteen seventies, then was there during the boom with Chair 0:14:45.000 --> 0:14:48.560 green Span in the nine nineties. Then you know, was 0:14:48.600 --> 0:14:51.000 a FED president, then came back as vice chair, gave 0:14:51.080 --> 0:14:53.920 up money to do that, um went through the crisis. 0:14:54.360 --> 0:14:56.840 In all those shifts in the foundation of the economy, 0:14:56.880 --> 0:14:59.880 she kept her footing. She didn't was not an ideal log. 0:15:00.040 --> 0:15:03.040 She actually was able to rethink and say, you know what, 0:15:03.160 --> 0:15:05.520 the old rules may not apply the way we once thought. 0:15:05.760 --> 0:15:07.720 And she didn't get caught in that sort of group 0:15:07.840 --> 0:15:10.400 think of you know, hey, we're increasing the money supplice, 0:15:10.400 --> 0:15:12.040 so we're gonna have a flair and inflation. Said let's 0:15:12.080 --> 0:15:14.720 figure this out. And so I think that's our greatest strength. 0:15:14.960 --> 0:15:16.920 You know, we've seen her, she's been on a learning 0:15:16.920 --> 0:15:19.480 curve over time. Do I think that she could have 0:15:20.080 --> 0:15:23.720 pushed Congress more in terms of relations with Congress. I 0:15:23.760 --> 0:15:26.360 wish she had had even stronger relations with Congress. I 0:15:26.360 --> 0:15:29.000 think she did the best she could given the circumstances 0:15:29.000 --> 0:15:31.360 she was in that said, you know the best we kind, 0:15:31.400 --> 0:15:33.520 we can always do better. And that's where I really 0:15:33.520 --> 0:15:35.720 think the FED is under a lot of pressure. Dani's 0:15:35.760 --> 0:15:37.880 walk with us in Chicago with Grant Thorte, and we're 0:15:37.920 --> 0:15:40.440 thrilled to have Ira Jersey with us today. Of course 0:15:40.600 --> 0:15:44.080 with Bloomberg. Right now we go to the thirteenth chairman 0:15:44.080 --> 0:15:47.360 of the Federal Reserve System. March six is a special day. 0:15:47.400 --> 0:15:50.280 He will play tennis on March six, no doubt, in 0:15:50.400 --> 0:15:54.360 celebration of a birthday. Alan Greenspan, honor that you would 0:15:54.400 --> 0:15:56.880 join us here. Chairman Greenspan. When you look at the 0:15:57.000 --> 0:16:00.600 tenure of Janet Yellen, what sticks out to you? What 0:16:00.800 --> 0:16:04.680 is the most important historical note of the years of 0:16:04.760 --> 0:16:08.920 Janet yelling at the Fed? Well, Tom, let me suggest 0:16:09.080 --> 0:16:12.360 something which you probably are not aware of. It's been 0:16:12.840 --> 0:16:17.120 a fairly well adhered to a notion on the part 0:16:17.200 --> 0:16:22.400 of Federal Reserve chairman when they retire, they don't have 0:16:22.600 --> 0:16:27.280 comments to be made on their predecessors. Paul Voker, for 0:16:27.440 --> 0:16:32.680 eighteen and a half years never once commented pro con 0:16:33.600 --> 0:16:36.600 on the monetary policy I was involved with, and I 0:16:36.640 --> 0:16:41.640 think it's a very important notion. It's a very important issue, 0:16:42.160 --> 0:16:44.160 and I'd like to adhere to it. Well. I am 0:16:44.200 --> 0:16:46.320 glad that you're adhering to it. I thought maybe on 0:16:46.360 --> 0:16:48.560 this day of our final meeting we could get a comment, 0:16:48.640 --> 0:16:52.840 but we will await that down the road. Sherman Greenspan. 0:16:52.920 --> 0:16:54.440 One of the things that we're talking about, and I 0:16:54.440 --> 0:16:58.480 spoke to Martin Feldstein about, is our expanding debt and 0:16:58.600 --> 0:17:01.320 our expanding deficit. It gives pause that we will go 0:17:01.360 --> 0:17:05.560 to one trillion dollars in deficit here in the near future. 0:17:05.920 --> 0:17:11.199 What are those debts and deficits mean to Alan Greenspan? Uh, 0:17:11.440 --> 0:17:16.280 they mean what it's meaning to everybody else, namely that 0:17:16.359 --> 0:17:21.040 we're dealing with a fistly unstable long term outlook in 0:17:21.080 --> 0:17:26.080 which inflation will take hold. In fact, I was very 0:17:26.160 --> 0:17:30.080 much surprised that in the State of the Union message, Yes, 0:17:30.119 --> 0:17:36.480 they all those new initiatives who are not funded. And 0:17:36.600 --> 0:17:40.240 I think we're getting to the point now where the 0:17:40.320 --> 0:17:44.080 breakout is going to be on the inflation upside. The 0:17:44.160 --> 0:17:49.280 only question is when we've been through almost a decade 0:17:49.320 --> 0:17:55.440 now of stagnation and we're working our way towards stagflation, which, 0:17:55.600 --> 0:17:58.840 as you know, is a combination of both of those. 0:17:59.480 --> 0:18:04.320 That's a very difficult type of monetary policy to be in. 0:18:05.080 --> 0:18:10.360 But I think what we're seeing eventually here is an 0:18:10.400 --> 0:18:15.119 issue where we've got to confront the deficit. In fact, 0:18:15.160 --> 0:18:17.520 I've been arguing for quite a long period of time 0:18:18.240 --> 0:18:23.840 that entitlements are eating into gross domestic savings, and they've 0:18:23.880 --> 0:18:30.199 been doing that consistently dollar for dollar since nineteen. You 0:18:30.320 --> 0:18:40.760 knock down gross domestic savings and inevitably domestic debt. Uh, 0:18:40.119 --> 0:18:50.359 basically every type of debt tends to rise, and we 0:18:50.480 --> 0:18:52.879 have to get out of this loop. We aren't a 0:18:52.880 --> 0:18:56.040 bit of a vicious circle here, Sherman Greenspan. You mentioned 0:18:56.040 --> 0:18:58.800 a fiscally unstabled long term outlook in which inflation will 0:18:58.840 --> 0:19:01.320 take hold. We are looking a weaker dollar. It's been 0:19:01.400 --> 0:19:04.560 weakening for a while now, and the administration has talked 0:19:04.600 --> 0:19:08.639 up the benefits of a further weakening dollar helping our exports. 0:19:09.040 --> 0:19:13.639 To what extent will that contribute to inflation? At what 0:19:13.760 --> 0:19:16.440 point does that start to carry over and we see 0:19:16.440 --> 0:19:23.840 that that subsequent price rise sooner rather than later, very 0:19:24.000 --> 0:19:26.720 well said sooner rather than later. Is there a risk 0:19:27.520 --> 0:19:30.119 of a weaker US dollar that we are not seeing 0:19:30.160 --> 0:19:32.280 just yet. I mean, as we await for inflation, what 0:19:32.320 --> 0:19:35.040 are the risks that it's creating in the financial system 0:19:35.119 --> 0:19:39.280 right now we look just remember that the UH with 0:19:39.440 --> 0:19:44.840 the size of the international system UH, the value of 0:19:44.880 --> 0:19:47.520 the dollar of easily all other currencies is a critical 0:19:47.560 --> 0:19:51.320 issue in the domestic price outlook in the United States. 0:19:52.160 --> 0:19:55.240 And I suspect that if we get a continued drop 0:19:55.359 --> 0:19:57.600 in the dollar, which has not been going on for 0:19:57.640 --> 0:20:02.560 a while, that's going to have some additional effect on 0:20:02.600 --> 0:20:06.520 the price level, the domestic price level, and that's beginning 0:20:06.560 --> 0:20:08.520 to rise for a lot of reasons which you've just 0:20:08.640 --> 0:20:14.800 recently mentioned, namely that UH productivity has been dead in 0:20:14.880 --> 0:20:21.440 the water for the last UH ten years. Almost productivity 0:20:21.480 --> 0:20:24.560 growth has been a half a percent per year when 0:20:24.600 --> 0:20:28.800 it used to be over two. That is a huge difference, 0:20:29.280 --> 0:20:31.760 and that means unit labor costs are not going to 0:20:31.840 --> 0:20:36.240 start to move up. And with profit margins rising, that 0:20:36.280 --> 0:20:38.560 tells you the price level. Charman Greenspan, I know you 0:20:38.600 --> 0:20:41.480 do not want to speak about president and even future 0:20:41.560 --> 0:20:44.320 FED chairman. I don't want you to pontificate on what 0:20:44.440 --> 0:20:47.200 your own powells to do list is, But you can 0:20:47.320 --> 0:20:50.679 talk about the underlying theories of the pH d s 0:20:51.160 --> 0:20:54.840 at the Echoes Building. Does Ellen Greenspan still believe in 0:20:54.880 --> 0:21:00.439 the Phillips curve? I never did well within that. And 0:21:00.480 --> 0:21:02.359 then with the with the with the same hood of 0:21:02.359 --> 0:21:04.720 the Phillips curve right now, or at least it being 0:21:05.119 --> 0:21:08.320 is honored as it is, which model should we use 0:21:09.080 --> 0:21:13.200 is we move into the rest of this decade. Well, 0:21:13.280 --> 0:21:15.600 let me just say this, there was a big dispute 0:21:15.640 --> 0:21:20.320 in the nineties about the Phillips curve. The Phillips curve 0:21:20.440 --> 0:21:28.640 was supposed to basically engender inflation as the unemployment rate fell. Well, 0:21:28.680 --> 0:21:33.320 the unemployment rate kept falling, but productivity was accelerating at 0:21:33.359 --> 0:21:37.480 the time, so a unit labor costs didn't move and 0:21:37.800 --> 0:21:40.880 we had a period where the Phillips curve just did 0:21:40.960 --> 0:21:46.359 not work. The Phillips curve presupposes a certain fixed rate 0:21:46.440 --> 0:21:49.280 in productivity growth, and that is not the way the 0:21:49.280 --> 0:21:52.119 world works. Yeah, we're missing that right now. Now, speaking 0:21:52.160 --> 0:21:55.600 of the Alan, you famously used the term a rational 0:21:55.640 --> 0:21:59.440 exuberance to describe the bullish sentiment that was driving of 0:21:59.480 --> 0:22:02.479 stocks during the dot com bubble. I believe you use 0:22:02.560 --> 0:22:06.440 the term in a speech do you see any signs 0:22:06.480 --> 0:22:10.119 of a rational exuberance in asset prices. Well, let me 0:22:10.119 --> 0:22:12.120