1 00:00:00,320 --> 00:00:04,160 Speaker 1: Who you put your trust in matters. Investors have put 2 00:00:04,200 --> 00:00:07,640 Speaker 1: their trust in independent registered investment advisors to the tune 3 00:00:07,640 --> 00:00:12,240 Speaker 1: of four trillion dollars. Why learn more and find your 4 00:00:12,240 --> 00:00:27,240 Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast. 5 00:00:27,280 --> 00:00:31,320 Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring 6 00:00:31,360 --> 00:00:35,280 Speaker 1: you insight from the best in economics, finance, investment, and 7 00:00:35,360 --> 00:00:41,519 Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, 8 00:00:41,560 --> 00:00:48,600 Speaker 1: and of course on the Bloomberg David Gerin. Tom Keane, 9 00:00:48,720 --> 00:00:51,640 Speaker 1: it has been too too long. Back when I had 10 00:00:51,680 --> 00:00:54,920 Speaker 1: a real job, I spoke to Professor Taylor of Stanford 11 00:00:54,920 --> 00:00:59,040 Speaker 1: more often. Unfortunately, now we go Can you speak to 12 00:00:59,040 --> 00:01:03,080 Speaker 1: Tom at four in the morning, and Professor Taylor, being sensible, 13 00:01:03,120 --> 00:01:05,520 Speaker 1: goes no, I don't think so. It has been too 14 00:01:05,560 --> 00:01:11,400 Speaker 1: long John Taylor of Stanford University. Professor Taylor, you are 15 00:01:11,480 --> 00:01:16,160 Speaker 1: pleading for a less weird time at Jackson Hole, as 16 00:01:16,200 --> 00:01:18,600 Speaker 1: you're write up in your blog. Did you have a 17 00:01:18,680 --> 00:01:22,920 Speaker 1: less weird time over the weekend in Jackson Hole? There 18 00:01:22,959 --> 00:01:26,920 Speaker 1: was a lot of different ideas thrown around, which I 19 00:01:26,959 --> 00:01:30,600 Speaker 1: think was good and good for debate. But I think 20 00:01:30,640 --> 00:01:34,240 Speaker 1: there was a general feeling that, yeah, we could do 21 00:01:34,280 --> 00:01:37,440 Speaker 1: a little better if our framework was had things like 22 00:01:37,520 --> 00:01:39,520 Speaker 1: we had in the past when things work well. So 23 00:01:40,160 --> 00:01:42,839 Speaker 1: a little mixed, a little mixed on forty two years ago, 24 00:01:42,959 --> 00:01:47,600 Speaker 1: asymptotic properties of multi period control rules in the linear 25 00:01:47,640 --> 00:01:52,080 Speaker 1: regression model. It was a nascent Taylor paper from just 26 00:01:52,120 --> 00:01:56,440 Speaker 1: a few years ago. Is the economics of your early years? 27 00:01:56,480 --> 00:01:59,960 Speaker 1: Professor Taylor? Is it in the classroom that you teach 28 00:02:00,000 --> 00:02:04,240 Speaker 1: should stand for your acclaimed freshman class? Are you working 29 00:02:04,280 --> 00:02:06,240 Speaker 1: out of a textbook? Are you making it up as 30 00:02:06,240 --> 00:02:09,480 Speaker 1: you go? We got a textbook. You know, A lot 31 00:02:09,520 --> 00:02:13,720 Speaker 1: of what we teach the first year students, whether in 32 00:02:13,840 --> 00:02:16,560 Speaker 1: college or graduate school, has been there for a while. 33 00:02:16,639 --> 00:02:20,320 Speaker 1: It's kind of a good subject where there's principles and 34 00:02:20,360 --> 00:02:23,480 Speaker 1: we apply them. The world changes, you find ways to 35 00:02:23,520 --> 00:02:26,720 Speaker 1: apply those principles in different situations. Yeah, so a lot 36 00:02:26,720 --> 00:02:28,880 Speaker 1: of that early stuff is now in the text classroom. 37 00:02:29,440 --> 00:02:32,280 Speaker 1: Referring to that that blog post that Tom just mentioned, 38 00:02:32,840 --> 00:02:34,400 Speaker 1: what I thought was remarkable as you were there at 39 00:02:34,440 --> 00:02:36,440 Speaker 1: the beginning, You were there for the first symposium thirty 40 00:02:36,480 --> 00:02:41,120 Speaker 1: five years ago. Back again, A lot of people listening 41 00:02:41,120 --> 00:02:43,880 Speaker 1: will wonder about the importance of this symposium, the mark 42 00:02:43,919 --> 00:02:47,080 Speaker 1: that it's made on economics here in the late twentie century, 43 00:02:47,080 --> 00:02:50,560 Speaker 1: early twenty three century. How different was this symposium compared 44 00:02:50,600 --> 00:02:52,320 Speaker 1: to the first one you were at, and and and 45 00:02:52,360 --> 00:02:55,440 Speaker 1: how different is the conversation these days? There was a 46 00:02:55,440 --> 00:02:58,639 Speaker 1: big difference the Chair of the Fed with poll Volker. 47 00:02:58,720 --> 00:03:01,600 Speaker 1: Then he came, he did not give an opening address, 48 00:03:01,639 --> 00:03:03,680 Speaker 1: so there wasn't a lot of anticipation of what he 49 00:03:03,720 --> 00:03:07,040 Speaker 1: would say. People knew the policy at that point. It 50 00:03:07,160 --> 00:03:10,520 Speaker 1: was really again getting back on track from a policy 51 00:03:10,639 --> 00:03:12,720 Speaker 1: didn't work in the in the seventies, and it was 52 00:03:12,800 --> 00:03:16,200 Speaker 1: quite successful. I think those conferences helped move the fit 53 00:03:16,720 --> 00:03:20,720 Speaker 1: in this better direction at the time when when you're there, 54 00:03:20,520 --> 00:03:22,800 Speaker 1: you're making known you'd like to to get back to 55 00:03:22,880 --> 00:03:25,919 Speaker 1: something more normal, capital and normal. How much of a 56 00:03:26,280 --> 00:03:28,440 Speaker 1: of an odd man out are you in the mix? There? 57 00:03:28,720 --> 00:03:31,639 Speaker 1: You have all of this conversation about where monetary policies had, 58 00:03:31,680 --> 00:03:33,560 Speaker 1: what could be in the toolkit, what tools might not 59 00:03:33,639 --> 00:03:38,480 Speaker 1: even have been invented yet? Uh, position yourself there among 60 00:03:38,520 --> 00:03:42,040 Speaker 1: the mix in Jackson Hole. Well, I think there's a 61 00:03:42,080 --> 00:03:46,680 Speaker 1: lot of desire to get back to a more normal 62 00:03:46,720 --> 00:03:49,880 Speaker 1: time among central bankers. I think they feel that they've 63 00:03:50,320 --> 00:03:53,560 Speaker 1: moved in a direction. There's various reasons for that, but 64 00:03:54,160 --> 00:03:55,920 Speaker 1: I think there's a sense where they've got to get 65 00:03:55,960 --> 00:03:59,360 Speaker 1: back and and some of the things I say are helpful. 66 00:03:59,400 --> 00:04:02,520 Speaker 1: They're welcome I think by some people, not everybody, but 67 00:04:02,600 --> 00:04:07,320 Speaker 1: I think that word is now Professor Taylor. Paul Krugman 68 00:04:07,360 --> 00:04:12,040 Speaker 1: has written a series of relatively wonky articles on John Hicks. 69 00:04:12,080 --> 00:04:15,600 Speaker 1: Of nine there's Knees. In thirty six we move on 70 00:04:15,640 --> 00:04:20,040 Speaker 1: to I S l M theory. Folks, it's a Euclidean 71 00:04:20,120 --> 00:04:21,960 Speaker 1: space with a big X in the middle of it. 72 00:04:22,279 --> 00:04:24,520 Speaker 1: You flunk at Tance Stanford if you get it wrong 73 00:04:24,560 --> 00:04:29,320 Speaker 1: with John Taylor. Can we hearken back to older models 74 00:04:29,920 --> 00:04:33,760 Speaker 1: or is it a Krugman nostalgia that won't work in 75 00:04:33,800 --> 00:04:38,200 Speaker 1: a modern global economy? Well, that kind of work is 76 00:04:38,200 --> 00:04:41,400 Speaker 1: is quite old. I think there was an important revolution 77 00:04:41,680 --> 00:04:46,200 Speaker 1: in macroeconomic thinking in the seventies and eighties. I think 78 00:04:46,240 --> 00:04:49,960 Speaker 1: that's had an impact. I just added a new handbook 79 00:04:49,960 --> 00:04:54,400 Speaker 1: of macro Economics which got together the most recent thinking, 80 00:04:54,640 --> 00:04:57,200 Speaker 1: and it doesn't hark back to those days. It's really 81 00:04:57,720 --> 00:05:00,800 Speaker 1: much more modern and taking an account that global aspect 82 00:05:00,800 --> 00:05:04,440 Speaker 1: of our economy can we hearken back to rational expectations? 83 00:05:04,480 --> 00:05:08,039 Speaker 1: Can we hearken back to lucas I've been the belief 84 00:05:08,160 --> 00:05:12,719 Speaker 1: in the perfect man. It's not perfect. It's just a 85 00:05:12,720 --> 00:05:14,640 Speaker 1: way of thinking about things. But it's all over the 86 00:05:14,680 --> 00:05:17,680 Speaker 1: place right now. If you think about the impact of 87 00:05:17,720 --> 00:05:20,520 Speaker 1: the FED on long term rates, the explanation of what 88 00:05:20,600 --> 00:05:24,560 Speaker 1: happens to Japanese g g bs and rush L exectations 89 00:05:24,680 --> 00:05:27,000 Speaker 1: is embedded at it all over the place. So that's 90 00:05:27,080 --> 00:05:29,839 Speaker 1: it's the way we do things now. It's it's not perfect. 91 00:05:30,320 --> 00:05:32,960 Speaker 1: It's an improvement and we'll get better at it. I 92 00:05:33,040 --> 00:05:35,800 Speaker 1: heard your conversation with Michael McKee out there in Jackson Hole. 93 00:05:35,839 --> 00:05:38,880 Speaker 1: You guys talked a bit about the equilibrium interest rate. 94 00:05:40,279 --> 00:05:42,159 Speaker 1: For those who don't know the importance of why is 95 00:05:42,200 --> 00:05:46,120 Speaker 1: it so important and where do you see it going? Well, 96 00:05:46,120 --> 00:05:50,440 Speaker 1: it's a description of where monetary policy should be eventually. 97 00:05:50,640 --> 00:05:53,359 Speaker 1: And for many years we thought that the federal funds 98 00:05:53,440 --> 00:05:58,000 Speaker 1: rate should gravitate back to normal around four percentage points. 99 00:05:58,040 --> 00:06:01,320 Speaker 1: That's two real to percent and play four percent nominal. 100 00:06:01,680 --> 00:06:03,719 Speaker 1: But now people think it should be a little lower. 101 00:06:04,440 --> 00:06:06,279 Speaker 1: We don't know how much lower. I don't agree with 102 00:06:06,320 --> 00:06:09,240 Speaker 1: all of that, but there's some evidence for it. So 103 00:06:09,279 --> 00:06:11,320 Speaker 1: the import is where the where it will go eventually. 104 00:06:11,880 --> 00:06:13,840 Speaker 1: There is an argument it doesn't matter so much now, 105 00:06:14,279 --> 00:06:16,760 Speaker 1: it's kind of raise race. What doesn't matter if it's 106 00:06:16,800 --> 00:06:20,520 Speaker 1: three or four eventually? You served the country at a 107 00:06:20,600 --> 00:06:24,039 Speaker 1: time of immense tumult and so much of that was 108 00:06:24,120 --> 00:06:28,599 Speaker 1: communicating message. We all stand in awe of the micro 109 00:06:28,839 --> 00:06:31,839 Speaker 1: analysis of the FED. How do we get back to 110 00:06:32,920 --> 00:06:39,159 Speaker 1: an appropriate communication strategy that benefits our economists and their 111 00:06:39,200 --> 00:06:42,640 Speaker 1: crystal ball? How do we get back to something intelligent 112 00:06:42,720 --> 00:06:46,680 Speaker 1: in communications? The most important things to have a policy 113 00:06:47,160 --> 00:06:51,320 Speaker 1: which is more strategic, less tactical, and then communicate about 114 00:06:51,360 --> 00:06:53,920 Speaker 1: that strategy. A lot of people don't think the FED 115 00:06:54,000 --> 00:06:56,560 Speaker 1: has a framework right now. So if they had a 116 00:06:56,600 --> 00:06:59,359 Speaker 1: strategic framework really like they had in much of the 117 00:06:59,360 --> 00:07:02,400 Speaker 1: eighties and nine, these communication would be easier. What kind 118 00:07:02,440 --> 00:07:05,080 Speaker 1: of framework would it be? Does it border on Taylor rule? 119 00:07:05,160 --> 00:07:08,479 Speaker 1: Does it border on an equivalency to New Zealand or 120 00:07:08,760 --> 00:07:11,640 Speaker 1: others that have been lauded for a more stringent set 121 00:07:11,680 --> 00:07:15,720 Speaker 1: of rules. It's more rule like to be sure what 122 00:07:15,920 --> 00:07:19,000 Speaker 1: whatever rule you want? I think is best of the time. 123 00:07:19,280 --> 00:07:22,680 Speaker 1: I think there's a lot of information out there that 124 00:07:22,760 --> 00:07:25,960 Speaker 1: shows that that works better. People have a sense of 125 00:07:25,960 --> 00:07:28,400 Speaker 1: where the feed is. There's not so much back and forth. 126 00:07:29,320 --> 00:07:31,880 Speaker 1: Is it's strategic? John by Taylor where this he is 127 00:07:31,920 --> 00:07:37,760 Speaker 1: at Stanford University, of course, one of our nation's great economists, 128 00:07:38,000 --> 00:07:41,560 Speaker 1: I'll get it out. Economists of his vintage, but of 129 00:07:41,720 --> 00:07:46,520 Speaker 1: a modern era as well. Professor Taylor, you write beautifully 130 00:07:46,600 --> 00:07:51,760 Speaker 1: about CBO and their crystal clear analysis of our fiscal policy. 131 00:07:51,840 --> 00:07:57,320 Speaker 1: Can we dovetail in mate CBO caution about our fiscal 132 00:07:57,360 --> 00:08:01,840 Speaker 1: future with the primal scream for fiscal authorities to help 133 00:08:01,880 --> 00:08:05,800 Speaker 1: central bankers like yourself. Well, I think some of the 134 00:08:05,920 --> 00:08:10,400 Speaker 1: issues are similar. There's this big increase in the deficit 135 00:08:10,480 --> 00:08:15,440 Speaker 1: this year by th and CBOs projecting it will that 136 00:08:15,520 --> 00:08:17,640 Speaker 1: will go up higher in the future. So that's kind 137 00:08:17,640 --> 00:08:21,320 Speaker 1: of another way in which policy needs to get corrected, 138 00:08:21,880 --> 00:08:24,240 Speaker 1: some kind of reforms on the fiscal side. I think 139 00:08:24,240 --> 00:08:28,160 Speaker 1: it's quite important. We'll bring up again Christopher Sims we've 140 00:08:28,200 --> 00:08:30,440 Speaker 1: been talking about throughout the morning here and and his 141 00:08:31,520 --> 00:08:34,560 Speaker 1: clarion that he sounded at Jackson Hole being you know, 142 00:08:34,600 --> 00:08:37,040 Speaker 1: the more we talk about monetary policy, the more we 143 00:08:37,080 --> 00:08:42,160 Speaker 1: focus on monetary policy, the the the need for policymakers. 144 00:08:42,240 --> 00:08:45,440 Speaker 1: For politicians to focus on fiscal policy diminishes. What's your 145 00:08:45,440 --> 00:08:47,880 Speaker 1: reaction to what what Professor Sims had to say in 146 00:08:47,960 --> 00:08:51,120 Speaker 1: Jackson Home, Well, I think that's what we've seen now 147 00:08:51,160 --> 00:08:54,640 Speaker 1: for for years. People look pointing to central banks is 148 00:08:55,240 --> 00:08:57,960 Speaker 1: being able to do so many things, and you know, 149 00:08:58,040 --> 00:09:00,320 Speaker 1: mo Terrey policy can do a few things that can 150 00:09:00,440 --> 00:09:03,840 Speaker 1: keep inflation in line, but it can't make growth higher 151 00:09:03,960 --> 00:09:07,719 Speaker 1: and growth inducing policies or what we need. It's that 152 00:09:07,880 --> 00:09:10,920 Speaker 1: that's where tax reform comes in. That's where regulatory reform 153 00:09:11,000 --> 00:09:14,160 Speaker 1: comes in. I think many of us have been arguing that, 154 00:09:14,280 --> 00:09:17,720 Speaker 1: and I'm glad to hear this discussions moving in that direction. 155 00:09:17,760 --> 00:09:19,840 Speaker 1: I hope it continues. What's your reaction to what we 156 00:09:19,920 --> 00:09:22,680 Speaker 1: hear from the major party candidates on the campaign trail now? 157 00:09:22,800 --> 00:09:26,320 Speaker 1: Hillary Clinton saying we need about five billion dollars worth 158 00:09:26,320 --> 00:09:29,320 Speaker 1: of spending on infrastructure, Donald Trump saying even more money 159 00:09:29,360 --> 00:09:31,559 Speaker 1: than that. When we talk about jump starting the ecounty, 160 00:09:31,600 --> 00:09:35,600 Speaker 1: jump starting growth is what they're saying making sense. I 161 00:09:35,640 --> 00:09:37,920 Speaker 1: think the way to jump start the economy is to 162 00:09:38,440 --> 00:09:42,760 Speaker 1: is for these tax reforms and regulatory reforms. We had 163 00:09:42,800 --> 00:09:46,600 Speaker 1: a huge experience with fiscal stimulus back in in two 164 00:09:46,640 --> 00:09:49,680 Speaker 1: thousand nine, two ten, it fettered out, it didn't work. 165 00:09:49,679 --> 00:09:51,760 Speaker 1: We have a lot of evidence. So it's not so 166 00:09:51,840 --> 00:09:54,600 Speaker 1: much a stimulus that's important. It's reform and I think 167 00:09:54,840 --> 00:09:58,600 Speaker 1: infrastructure spending reform is part of that. Let us switch 168 00:09:59,360 --> 00:10:02,320 Speaker 1: professor to tailor to where we are now in terms 169 00:10:02,360 --> 00:10:05,720 Speaker 1: of measured long ago and far away, we had measured 170 00:10:05,880 --> 00:10:09,680 Speaker 1: interest rate increases. Where did that come from? In our 171 00:10:09,720 --> 00:10:13,000 Speaker 1: banking history? Did you support measured and where did it 172 00:10:13,040 --> 00:10:17,040 Speaker 1: come from? Well? In term measured usually refers to this 173 00:10:17,120 --> 00:10:20,280 Speaker 1: idea of forward guidance, that the interest rates will increased 174 00:10:20,280 --> 00:10:23,400 Speaker 1: by a certain amount. I think that that what has 175 00:10:23,440 --> 00:10:25,800 Speaker 1: to happen is any kind of forward guidance has to 176 00:10:25,800 --> 00:10:29,679 Speaker 1: be consistent with the policy. It can't try to mislead 177 00:10:29,960 --> 00:10:32,600 Speaker 1: investors and mislead people by this has to be consistent 178 00:10:32,640 --> 00:10:34,960 Speaker 1: with your policy. And and if we move in that 179 00:10:35,000 --> 00:10:37,000 Speaker 1: direction more, I think it'll be good. That's how it 180 00:10:37,120 --> 00:10:39,040 Speaker 1: was and much of the eighties and nineties when things 181 00:10:39,120 --> 00:10:44,160 Speaker 1: working better. You and Stanley Fisher have talked about our 182 00:10:44,240 --> 00:10:49,680 Speaker 1: nominal rigidities we have. We have a thickness within our system. 183 00:10:49,840 --> 00:10:53,440 Speaker 1: Is that evermore so today? Are we in our distortion 184 00:10:53,520 --> 00:10:57,280 Speaker 1: of negative rates and the unique finance we're dealing with. 185 00:10:57,440 --> 00:11:02,240 Speaker 1: Are we ever more nominally rigid? That's a good question. 186 00:11:02,679 --> 00:11:04,720 Speaker 1: I think it's about the same, and I think the 187 00:11:04,760 --> 00:11:08,760 Speaker 1: innovation that occurred in models of the economy was to 188 00:11:08,800 --> 00:11:13,640 Speaker 1: bring that in Because there are rigidities, things don't instantaneously change. 189 00:11:13,920 --> 00:11:16,600 Speaker 1: I don't think it's gotten more severe. If anything, there's 190 00:11:16,640 --> 00:11:21,240 Speaker 1: more flexibility that globalization capital flows. So I don't think 191 00:11:21,280 --> 00:11:23,240 Speaker 1: that's really changed that. That's right where I wanted to go. 192 00:11:23,280 --> 00:11:25,720 Speaker 1: Globalization and capital flows and echoes back to what we 193 00:11:25,800 --> 00:11:30,280 Speaker 1: talked about with Professor Krugman and his yearning for it 194 00:11:30,480 --> 00:11:34,400 Speaker 1: more Hicksie and like model of nine Professor Taylor. Do 195 00:11:34,480 --> 00:11:40,559 Speaker 1: we solve this problem within those global flows with currency adjustment? 196 00:11:40,720 --> 00:11:44,680 Speaker 1: Is that really where we're going five years down the road, Yes, 197 00:11:44,880 --> 00:11:49,800 Speaker 1: if it's not dictated so much by the central bank 198 00:11:49,880 --> 00:11:55,040 Speaker 1: policy we've had a problem with. Sometimes it's called monetary 199 00:11:55,360 --> 00:11:59,600 Speaker 1: policy contagions. Sometimes it's called con beggor the neighbor policy, 200 00:11:59,679 --> 00:12:04,840 Speaker 1: where there's an active attempt to change the exchange rate 201 00:12:05,320 --> 00:12:08,439 Speaker 1: to stimulate the economy, and that really is not productive. 202 00:12:08,559 --> 00:12:11,840 Speaker 1: You get into currency wars and bad policy like that. 203 00:12:11,960 --> 00:12:14,960 Speaker 1: So I think a flexible exchange y system works. Well, 204 00:12:15,000 --> 00:12:18,440 Speaker 1: that's what Milton Friedman argued for. It came into play 205 00:12:18,600 --> 00:12:20,720 Speaker 1: with a lot of work, and I think if we 206 00:12:20,760 --> 00:12:24,480 Speaker 1: combine that with a good strategic Monterey policy and an 207 00:12:24,520 --> 00:12:28,280 Speaker 1: aversion to intervene into capital flows, things could work better. 208 00:12:28,960 --> 00:12:32,800 Speaker 1: What would you make of your local FED president, the 209 00:12:33,160 --> 00:12:36,400 Speaker 1: presidency of the San Francisco Fed, John Williams, who has 210 00:12:36,440 --> 00:12:39,120 Speaker 1: been at the forefront over these last weeks advancing a 211 00:12:39,160 --> 00:12:41,480 Speaker 1: number of different ideas. I think about his call to 212 00:12:41,640 --> 00:12:46,280 Speaker 1: perhaps revise the GDP growth rate targets. Um, what do 213 00:12:46,320 --> 00:12:48,920 Speaker 1: you make of that, Professor Taylor, of of the the 214 00:12:49,160 --> 00:12:51,559 Speaker 1: innovations that John Williams seems to be pushing for here, 215 00:12:51,640 --> 00:12:53,160 Speaker 1: maybe not in the short term, but in the medium 216 00:12:53,200 --> 00:12:56,400 Speaker 1: to long term. Well, John Williams a good friend, He's 217 00:12:56,440 --> 00:12:58,800 Speaker 1: a former student. I think he's doing a good job. 218 00:12:58,840 --> 00:13:00,920 Speaker 1: He also has done much of the research on this 219 00:13:01,760 --> 00:13:04,680 Speaker 1: idea of the real long prem intro strate changing. And 220 00:13:04,800 --> 00:13:07,760 Speaker 1: have some disagreements with that in terms of throwing out 221 00:13:07,880 --> 00:13:10,280 Speaker 1: new kinds of policy as I think most important and 222 00:13:10,559 --> 00:13:12,600 Speaker 1: John's are good for this, as we need a rules 223 00:13:12,640 --> 00:13:16,480 Speaker 1: based policy. He's talking about different kinds of rules. But 224 00:13:16,559 --> 00:13:19,000 Speaker 1: that's what's that's what I think that's good rules based policy. 225 00:13:19,960 --> 00:13:22,920 Speaker 1: We know we Professor Taylor, we know that on a 226 00:13:23,000 --> 00:13:26,840 Speaker 1: rules based policy. Ala John Hilson Wrath in the Journal Friday. 227 00:13:27,120 --> 00:13:29,160 Speaker 1: Did this fed blow it? And they should have raised 228 00:13:29,240 --> 00:13:32,719 Speaker 1: rates a long time ago? I think so. I think 229 00:13:32,840 --> 00:13:34,960 Speaker 1: they got started on this earlier. We would be in 230 00:13:35,000 --> 00:13:39,000 Speaker 1: better shape. Well we're not. That's water under the proverbial 231 00:13:39,080 --> 00:13:42,680 Speaker 1: standing bridge. It's under the water under the Kynsiean bridge. 232 00:13:43,160 --> 00:13:46,199 Speaker 1: Professor Taylor, do they need to raise rates in September? 233 00:13:46,679 --> 00:13:49,120 Speaker 1: And critically, do they do it within a one or 234 00:13:49,160 --> 00:13:53,040 Speaker 1: done strategy to then become more data dependent or would 235 00:13:53,040 --> 00:13:55,960 Speaker 1: you suggest they be so bold as to be measured 236 00:13:56,320 --> 00:13:59,280 Speaker 1: and have a vector out into the future that we 237 00:13:59,320 --> 00:14:02,720 Speaker 1: can hang our add on. Yeah. I think they need 238 00:14:02,720 --> 00:14:05,520 Speaker 1: to say where we're going with the new policy will 239 00:14:05,559 --> 00:14:08,960 Speaker 1: be in this direction, more rules based? Will that cause 240 00:14:09,000 --> 00:14:12,840 Speaker 1: a recession? Will they mean Larry Summers does not agree 241 00:14:12,840 --> 00:14:16,400 Speaker 1: with you on this? Will this cause a stagflation of 242 00:14:16,440 --> 00:14:21,680 Speaker 1: a summer's proportion? Well? What the problem is now policy 243 00:14:21,760 --> 00:14:25,720 Speaker 1: has been confusing to people that people don't think that 244 00:14:25,800 --> 00:14:28,720 Speaker 1: that has a framework when you do surveys, they need 245 00:14:28,760 --> 00:14:30,960 Speaker 1: to do that, and part of that is a is 246 00:14:31,000 --> 00:14:35,680 Speaker 1: a gradual clear a movement of the interest rates up. 247 00:14:35,720 --> 00:14:40,040 Speaker 1: There're still very low my historical standards, and it doesn't 248 00:14:40,040 --> 00:14:41,920 Speaker 1: have to be overnight. It shouldn't be overnighted, but it 249 00:14:41,960 --> 00:14:44,880 Speaker 1: should be gradual, and whether they got started earlier or not, 250 00:14:45,000 --> 00:14:47,120 Speaker 1: they should move in that direction. Now, I think of 251 00:14:47,160 --> 00:14:48,760 Speaker 1: what you're saying, I think of the Hills and Wrath 252 00:14:48,800 --> 00:14:52,080 Speaker 1: piece that Tom just brought up. I sense there is 253 00:14:52,080 --> 00:14:54,080 Speaker 1: is maybe a bit of a tide turning here that 254 00:14:54,120 --> 00:14:57,080 Speaker 1: the public, the public that pays attention to this stuff, 255 00:14:57,160 --> 00:14:59,600 Speaker 1: is getting a bit fed up with the nuance. A 256 00:14:59,600 --> 00:15:01,480 Speaker 1: bit can used about what's going on here. What's going 257 00:15:01,520 --> 00:15:03,840 Speaker 1: to be the turning point, Professor Taylor, What's gonna what's 258 00:15:03,840 --> 00:15:06,880 Speaker 1: gonna make the FED be clearer and more rules focused 259 00:15:06,880 --> 00:15:10,920 Speaker 1: and more regimented as you describe it, I think you 260 00:15:10,920 --> 00:15:13,160 Speaker 1: have to go back to the past to see what happened. 261 00:15:13,240 --> 00:15:15,440 Speaker 1: Quite frankly, because we were in a not such a 262 00:15:15,440 --> 00:15:18,480 Speaker 1: good Monterrey policy in the in the seventies. It changed 263 00:15:18,520 --> 00:15:21,560 Speaker 1: to a new personnel, new ideas. That's what's going to happen. 264 00:15:21,560 --> 00:15:24,200 Speaker 1: And I think discussions like this listen to the piece. 265 00:15:24,360 --> 00:15:27,040 Speaker 1: All those are part of it. It doesn't happen overnight. 266 00:15:27,080 --> 00:15:29,560 Speaker 1: I wisht happened a little sooner, but we keep working 267 00:15:29,560 --> 00:15:31,320 Speaker 1: at it and it will change. Are you going to 268 00:15:31,400 --> 00:15:35,120 Speaker 1: teach this fall at Stanford? I'll be giving lectures here 269 00:15:35,120 --> 00:15:37,680 Speaker 1: and there this fall the Stanford and other places, both 270 00:15:37,720 --> 00:15:41,200 Speaker 1: in Europe and Japan. And I'm speaking out as much 271 00:15:41,240 --> 00:15:44,040 Speaker 1: as I can. Tom Well, what will be your single 272 00:15:44,120 --> 00:15:49,360 Speaker 1: message to the great freshman, graduate and undergraduate students at Stanford? Well, 273 00:15:49,400 --> 00:15:54,080 Speaker 1: that there's economics is a wonderful subject. It applies. Let 274 00:15:54,120 --> 00:15:56,760 Speaker 1: me convince you, guys how much you should love it 275 00:15:56,800 --> 00:15:59,440 Speaker 1: like I love it. I like that idea. John Taylor 276 00:15:59,520 --> 00:16:02,000 Speaker 1: never enough time. Thank you so much for coming on 277 00:16:02,080 --> 00:16:05,320 Speaker 1: in his early Pellow Walton morning, John Taylor at Jackson Whole. 278 00:16:05,440 --> 00:16:21,440 Speaker 1: He has returned to his Stanford. We're stilled to bring 279 00:16:21,480 --> 00:16:25,120 Speaker 1: you Peter Hooper of International Economics working with Michael Spencer 280 00:16:25,160 --> 00:16:28,720 Speaker 1: and others at Deutsche Bank. And again we we've we 281 00:16:28,800 --> 00:16:30,760 Speaker 1: talked about some of this Peter this morning, but I 282 00:16:30,800 --> 00:16:32,760 Speaker 1: really think it's so important we need to redo it. 283 00:16:33,160 --> 00:16:39,920 Speaker 1: In the seven o'clock our Worldwide Christopher Simms uh Princeton 284 00:16:40,560 --> 00:16:44,200 Speaker 1: made very clear This is about fiscal policy. Everybody talked 285 00:16:44,200 --> 00:16:46,440 Speaker 1: about it. It's one thing to talk about it, it's 286 00:16:46,440 --> 00:16:49,080 Speaker 1: one thing to do it. Do your Washington team to 287 00:16:49,160 --> 00:16:52,360 Speaker 1: your London team. Look for a political energy to create 288 00:16:52,440 --> 00:16:56,800 Speaker 1: fiscal well. Unfortunately time it's gonna take us a lot 289 00:16:56,840 --> 00:16:59,360 Speaker 1: of pressure on the political system to bring it about 290 00:16:59,400 --> 00:17:01,800 Speaker 1: in a big way. I mean, I will say we 291 00:17:01,800 --> 00:17:03,960 Speaker 1: are getting a little physical expansion this year. We do 292 00:17:04,040 --> 00:17:06,439 Speaker 1: see something in Europe, we see a little bit in 293 00:17:06,440 --> 00:17:10,240 Speaker 1: the US, and there's enough to add several tents perhaps 294 00:17:10,320 --> 00:17:13,160 Speaker 1: to to global GDP growth. We put out a research 295 00:17:13,200 --> 00:17:16,239 Speaker 1: pace on it's about a month ago. But to to 296 00:17:16,400 --> 00:17:21,000 Speaker 1: get really meaningful fiscal action where it really is going 297 00:17:21,040 --> 00:17:24,800 Speaker 1: to count and Europe is number one. Actually, the US 298 00:17:24,920 --> 00:17:27,000 Speaker 1: is not really in that much need of physical action 299 00:17:27,080 --> 00:17:28,800 Speaker 1: right now. We're very close to full employment, the FED 300 00:17:28,960 --> 00:17:30,880 Speaker 1: starting to raise interest rates. The last thing we need 301 00:17:30,960 --> 00:17:33,560 Speaker 1: is a major physical expansion. And this goes to Ben 302 00:17:33,600 --> 00:17:38,840 Speaker 1: wat Carey's energy this Weekend of the East said yes. 303 00:17:38,920 --> 00:17:41,040 Speaker 1: He said, look if either if if we're not getting 304 00:17:41,240 --> 00:17:46,280 Speaker 1: action elsewhere, uh meaning the fiscal authorities, then we're prepared 305 00:17:46,320 --> 00:17:49,720 Speaker 1: to do what it takes to do more. I want 306 00:17:49,760 --> 00:17:51,680 Speaker 1: to review a call here. You've got a one t 307 00:17:52,040 --> 00:17:55,280 Speaker 1: call week Sterling. What is the Deutsche Bank call on 308 00:17:55,480 --> 00:18:00,800 Speaker 1: euro that infects informs your economic opinion in you. We 309 00:18:00,840 --> 00:18:03,840 Speaker 1: think we think the euro, I mean we we had 310 00:18:04,080 --> 00:18:06,720 Speaker 1: we had the view previously the Euro would be going 311 00:18:06,720 --> 00:18:09,439 Speaker 1: through parody over the next year. We still think there 312 00:18:09,480 --> 00:18:12,280 Speaker 1: will be movement in that direction, and certainly with the 313 00:18:12,280 --> 00:18:16,320 Speaker 1: Fed UH raising rates to at least a couple times 314 00:18:16,600 --> 00:18:19,840 Speaker 1: UH and and ECB as far as the eye can 315 00:18:19,880 --> 00:18:24,560 Speaker 1: see UH pushing pushing on monetary expansion. Um, this is 316 00:18:24,560 --> 00:18:27,200 Speaker 1: going to be. It means further movement in the Euro. 317 00:18:27,280 --> 00:18:29,560 Speaker 1: I'm gonna call it. Not an outlier called David Gurrow 318 00:18:29,600 --> 00:18:31,879 Speaker 1: would be this morning, David. Wonderful to have you with 319 00:18:31,960 --> 00:18:35,280 Speaker 1: us helping out is McKee uh takes the golf screen. 320 00:18:35,280 --> 00:18:38,160 Speaker 1: But David, girl, I want to make clear the outlier call. 321 00:18:38,640 --> 00:18:42,560 Speaker 1: Maybe it's HSBC, but Deutsche Bank was first with a 322 00:18:42,600 --> 00:18:46,760 Speaker 1: forceful call for weeks Sterling and weaker euro as well. David, 323 00:18:46,760 --> 00:18:49,159 Speaker 1: Good morning, morning Tom. Thanks for having me really appreciate 324 00:18:49,200 --> 00:18:51,720 Speaker 1: it and and enjoy the conversation the first hour here 325 00:18:51,760 --> 00:18:53,880 Speaker 1: with with Peter Hooper. Peter, let me just ask you 326 00:18:54,680 --> 00:18:57,200 Speaker 1: about your general reaction to that speech, and we're also 327 00:18:57,200 --> 00:18:59,800 Speaker 1: focused on those seventeen words that Janet Yellen said, I 328 00:19:00,040 --> 00:19:01,880 Speaker 1: leave the case for an increase in the federal funds 329 00:19:01,920 --> 00:19:04,680 Speaker 1: rate has strengthened in recent months. How in line is 330 00:19:04,720 --> 00:19:07,840 Speaker 1: that with what you're you're thinking right now? Very much 331 00:19:07,840 --> 00:19:10,840 Speaker 1: in line, I think, I think certainly we we had 332 00:19:10,840 --> 00:19:15,239 Speaker 1: a pretty good hint from Bill Dudley, Um, just just 333 00:19:15,280 --> 00:19:17,679 Speaker 1: before the minutes came out. Then we got the minutes 334 00:19:18,560 --> 00:19:22,280 Speaker 1: to the July meeting, uh, indicating the bottom line that 335 00:19:22,640 --> 00:19:24,879 Speaker 1: some some folks on the committee are are thinking that 336 00:19:24,920 --> 00:19:28,359 Speaker 1: we need to raise rates soon. Uh. Janet was careful 337 00:19:28,400 --> 00:19:32,119 Speaker 1: to stay away from exact calendar guidance from September for 338 00:19:32,240 --> 00:19:35,320 Speaker 1: giving from giving us a point in time, but to say, 339 00:19:35,520 --> 00:19:40,240 Speaker 1: to say that the case has strengthened. Uh, to be there, uh, 340 00:19:40,760 --> 00:19:46,400 Speaker 1: you know, pictorially alongside both of our advice chair, Vice 341 00:19:46,520 --> 00:19:48,720 Speaker 1: Chair of the f O MC, Bill Dudley, Vice Chair 342 00:19:48,720 --> 00:19:51,960 Speaker 1: of the Board of Governors, Stan Fisher. This is a 343 00:19:52,000 --> 00:19:55,240 Speaker 1: strong leadership that is I think united on this point. 344 00:19:56,280 --> 00:20:01,800 Speaker 1: And UH, there obviously still data driven Fridays now is 345 00:20:01,840 --> 00:20:05,879 Speaker 1: gonna be very important. We're on radio, they can't see 346 00:20:05,960 --> 00:20:09,040 Speaker 1: the promenade, so let's describe it for David Gura and 347 00:20:09,040 --> 00:20:12,560 Speaker 1: Peter Hooper and you right now, every Yeah, I've done this, folks, 348 00:20:12,560 --> 00:20:15,240 Speaker 1: I've actually been there, been there, been there. When the 349 00:20:15,320 --> 00:20:19,040 Speaker 1: elite waltz by, it is hilarious. This is like, it 350 00:20:19,119 --> 00:20:22,240 Speaker 1: is seriously like a Saturday Night Live skit there in 351 00:20:22,280 --> 00:20:25,720 Speaker 1: the lodge, and everybody begins assembling out where we are 352 00:20:25,760 --> 00:20:29,840 Speaker 1: in other media organizations, overlooking the elk and the grizzly 353 00:20:29,880 --> 00:20:33,240 Speaker 1: bear in the mountains in the distance, and then summoning 354 00:20:33,280 --> 00:20:36,160 Speaker 1: out of a door. Who will it be? Who will 355 00:20:36,200 --> 00:20:39,119 Speaker 1: come out of the door? Will it be Corona and yelling? 356 00:20:39,520 --> 00:20:43,240 Speaker 1: Will it be yelling with some person you don't even 357 00:20:43,280 --> 00:20:45,919 Speaker 1: know in economics? Or will it be some ancient worthy 358 00:20:46,000 --> 00:20:49,480 Speaker 1: that's there for one last tour No this year it 359 00:20:49,600 --> 00:20:52,840 Speaker 1: was Dudley of New York vice Chairman Fisher, who I've 360 00:20:52,920 --> 00:20:56,560 Speaker 1: got the luxury of speaking to tomorrow. So come on, Peter, 361 00:20:56,720 --> 00:21:02,200 Speaker 1: what is the significance that the Troy cut they came out? Okay? 362 00:21:02,680 --> 00:21:05,040 Speaker 1: Mr Fisher is viewed as being a little more hawkish. 363 00:21:05,320 --> 00:21:09,359 Speaker 1: Mr Dudley perhaps slightly on the dover's side, and yelling 364 00:21:09,520 --> 00:21:12,320 Speaker 1: clearly viewed as being somewhat do wish and there's always 365 00:21:12,400 --> 00:21:15,800 Speaker 1: gonna be. There have been questions, are these people disagreeing? 366 00:21:16,119 --> 00:21:20,400 Speaker 1: Is uh? They are very much an agreement on this. Okay, 367 00:21:20,320 --> 00:21:25,119 Speaker 1: they are, and that photo op was a clear statement 368 00:21:25,760 --> 00:21:29,280 Speaker 1: to that effect. No, no question. I mean they as 369 00:21:29,320 --> 00:21:31,640 Speaker 1: you say, they prayed it in front of the cameras, 370 00:21:31,720 --> 00:21:34,160 Speaker 1: they stood on the balcony, they over watched the mountain 371 00:21:34,400 --> 00:21:38,200 Speaker 1: and they discussed things, and and David, when they come out, 372 00:21:38,240 --> 00:21:42,840 Speaker 1: it's like you're hoping that some bison are there for 373 00:21:42,880 --> 00:21:46,399 Speaker 1: the disea exact. Yeah. You know, Peter, you mentioned that 374 00:21:46,480 --> 00:21:48,520 Speaker 1: jobs never coming out this week? What what does that 375 00:21:48,600 --> 00:21:52,120 Speaker 1: headline number have to be? You mentioned it's important? How important? Isn't? 376 00:21:52,119 --> 00:21:55,360 Speaker 1: What are you looking for on Friday? I was interested 377 00:21:55,560 --> 00:21:59,840 Speaker 1: interested to hear stand Fisher uh talk over the weekend 378 00:21:59,840 --> 00:22:02,760 Speaker 1: and say that, you know, what we need is something 379 00:22:02,800 --> 00:22:09,000 Speaker 1: between seventy five and on maybe one fifty uh, given 380 00:22:09,240 --> 00:22:11,800 Speaker 1: given the likelihood that we're going to see some movement 381 00:22:11,880 --> 00:22:15,359 Speaker 1: in in labor force participation one way or another. There's 382 00:22:15,359 --> 00:22:19,280 Speaker 1: some uncertainty here, but clearly anything in the one plus 383 00:22:19,440 --> 00:22:23,040 Speaker 1: range I think of sufficient drives home the point that 384 00:22:23,080 --> 00:22:25,560 Speaker 1: the labor market is still expanding at a decent pace. 385 00:22:26,280 --> 00:22:29,600 Speaker 1: Uh if it's over two hundred, uh, so much the better. 386 00:22:30,000 --> 00:22:33,119 Speaker 1: Dr Hooper, your colleague in crime, Dr Constant of the 387 00:22:33,160 --> 00:22:36,400 Speaker 1: strategy side, it was just brilliant on surveillance last week 388 00:22:36,680 --> 00:22:38,920 Speaker 1: and he put out a terse few lines. Thanks Zero 389 00:22:38,960 --> 00:22:42,800 Speaker 1: Hedge for bringing this to my attention. And Doctor Constant 390 00:22:42,840 --> 00:22:44,920 Speaker 1: went right where you would go, which is a real 391 00:22:45,040 --> 00:22:48,560 Speaker 1: rate inflation adjusted analysis. So it's Monday, and we're gonna 392 00:22:48,560 --> 00:22:53,000 Speaker 1: do a little radio geometrics here, folkscil Yeah, exactly, get 393 00:22:53,000 --> 00:22:56,160 Speaker 1: out your pencil, at least your bow tie. The nominal 394 00:22:56,280 --> 00:23:00,879 Speaker 1: rate goes up while inflation is increasing, you worry about 395 00:23:00,960 --> 00:23:05,720 Speaker 1: acceleration or convexity, or a second derivative where the fedst 396 00:23:05,760 --> 00:23:09,440 Speaker 1: a razor rates faster because inflation comes up so rapidly. 397 00:23:09,640 --> 00:23:12,400 Speaker 1: To help you and Mr Constom towards a better real rate, 398 00:23:13,720 --> 00:23:16,760 Speaker 1: I leave the convexity issues to our strategis and there's 399 00:23:16,800 --> 00:23:20,040 Speaker 1: nobody better than Dominic Constom on this. But I think 400 00:23:20,080 --> 00:23:24,880 Speaker 1: it's very clear that FED funds rate currently is below neutral. 401 00:23:25,040 --> 00:23:27,439 Speaker 1: Neutral has been declining a bit of late, but it 402 00:23:27,600 --> 00:23:29,760 Speaker 1: is comfortably below neutral, has a way to go out. 403 00:23:30,080 --> 00:23:33,679 Speaker 1: It will also go up in nominal terms, because inflation 404 00:23:33,880 --> 00:23:36,159 Speaker 1: is below target inflation around one and a half percent 405 00:23:36,240 --> 00:23:40,000 Speaker 1: core less than that overall headline. As inflation moves up 406 00:23:40,040 --> 00:23:42,080 Speaker 1: to two percent, the Fed funds rate going to have 407 00:23:42,119 --> 00:23:44,760 Speaker 1: to move up as well. How the long end responds 408 00:23:44,800 --> 00:23:47,360 Speaker 1: to all of this depends on a lot of factors, 409 00:23:47,560 --> 00:23:50,600 Speaker 1: including what's going on abroad. You know, are are we 410 00:23:50,640 --> 00:23:54,800 Speaker 1: still facing significantly negative government interest rates in in uh 411 00:23:54,840 --> 00:23:58,359 Speaker 1: in Europe and Japan and that is a factor holding 412 00:23:58,359 --> 00:24:02,680 Speaker 1: down um. Where the long end goes also influences how 413 00:24:02,720 --> 00:24:06,639 Speaker 1: fast the Fed acts. But bottom line, if if the 414 00:24:06,800 --> 00:24:09,800 Speaker 1: labor if the labor market is tightening and economy is tightening, 415 00:24:09,840 --> 00:24:12,560 Speaker 1: and we do start to see some significant inflation pressure, 416 00:24:13,000 --> 00:24:14,920 Speaker 1: then yes, the Fed's gonna have to act a little 417 00:24:14,920 --> 00:24:18,240 Speaker 1: more aggressively. David grew with me. Here's what David, were 418 00:24:18,240 --> 00:24:23,480 Speaker 1: you like? Riveted on Jackson Hole. Sister who lives out there, 419 00:24:23,640 --> 00:24:25,720 Speaker 1: who looks for hawks and deves of different stripes. He's 420 00:24:25,720 --> 00:24:30,040 Speaker 1: an ornithologist in Jackson Hole. So anytime I see pictures 421 00:24:30,040 --> 00:24:34,879 Speaker 1: of the Grand Tetons, my eyes free time. Peter Cooper 422 00:24:34,920 --> 00:24:38,280 Speaker 1: with us with Deutsche Bank, Peter Um, Chris Simms of 423 00:24:38,359 --> 00:24:42,840 Speaker 1: Princeton getting the press over his paper on fiscal policy, 424 00:24:43,040 --> 00:24:46,679 Speaker 1: Marvin good Friend of Carnegie Mellon wrote an important paper. 425 00:24:46,720 --> 00:24:49,080 Speaker 1: I'll do this on television here in a bit, and 426 00:24:49,160 --> 00:24:54,120 Speaker 1: Professor good Friend hearkens back to Irving Fisher of nineteen 427 00:24:54,240 --> 00:24:59,040 Speaker 1: thirty and Newt Wixel of in the year of Kane's 428 00:24:59,119 --> 00:25:04,560 Speaker 1: nineties six wistful for another time. I would suggest Peter 429 00:25:04,640 --> 00:25:09,040 Speaker 1: Hooper that our analysis of economics now is done in 430 00:25:09,040 --> 00:25:14,359 Speaker 1: a far more global environment. How does currency play into 431 00:25:14,359 --> 00:25:18,000 Speaker 1: the monetary view forward? Whether it's Christopher Simms, it's Marvin 432 00:25:18,080 --> 00:25:23,440 Speaker 1: good Friend, or it's Peter Hooper, How does currency float in? Obviously, 433 00:25:23,520 --> 00:25:27,480 Speaker 1: currency is a very important part of your financial conditions. 434 00:25:28,400 --> 00:25:30,879 Speaker 1: If the dollar continues to rise, and it rise as 435 00:25:30,960 --> 00:25:33,280 Speaker 1: a significant pace, that's going to slow the rate at 436 00:25:33,320 --> 00:25:37,240 Speaker 1: which the Fed titans no question, uh Fed ultimately says, 437 00:25:37,280 --> 00:25:41,080 Speaker 1: says financial conditions as governing the speed of growth in 438 00:25:41,119 --> 00:25:43,960 Speaker 1: the economy and where we get to ultimately on inflation, 439 00:25:44,880 --> 00:25:46,919 Speaker 1: how fast a dollar goes up is obviously a very 440 00:25:46,960 --> 00:25:48,679 Speaker 1: important part of that. I mean, I look at this, 441 00:25:48,760 --> 00:25:51,240 Speaker 1: David Girl. The idea here of Deutsche Bank in a 442 00:25:51,280 --> 00:25:54,960 Speaker 1: one twenties sterling, a weaker euro, others with an outlier call. 443 00:25:55,320 --> 00:25:57,960 Speaker 1: I'm not predicting that, but if you get that sense 444 00:25:59,000 --> 00:26:02,840 Speaker 1: of we your currency dollar dynamics to me is critical 445 00:26:02,880 --> 00:26:06,600 Speaker 1: to all of his calculus. Uh. No, no, no question. 446 00:26:06,640 --> 00:26:09,119 Speaker 1: I think I think you mentioned the good Friend paper, 447 00:26:09,800 --> 00:26:12,959 Speaker 1: if I can slip aside, here he talks about negative 448 00:26:13,000 --> 00:26:17,520 Speaker 1: interest rates. Uh. Interesting that the ECB commentary of the 449 00:26:17,520 --> 00:26:22,240 Speaker 1: fed MR query saying ECB would do whatever it takes. 450 00:26:22,720 --> 00:26:26,120 Speaker 1: I think we're getting into some dangerous territory here. Good 451 00:26:26,119 --> 00:26:28,600 Speaker 1: Friend was in favor of interest rates. But going back 452 00:26:28,640 --> 00:26:31,240 Speaker 1: to the models in the history that he talked about, 453 00:26:31,600 --> 00:26:35,280 Speaker 1: the world has changed. It used to be that we 454 00:26:35,320 --> 00:26:37,960 Speaker 1: would go we would favor negative interest rates because that's 455 00:26:37,960 --> 00:26:43,320 Speaker 1: gonna discourage saving, it's going to encourage spending. But with 456 00:26:43,400 --> 00:26:46,840 Speaker 1: a baby boom generation these days, Uh, sitting on nest 457 00:26:46,920 --> 00:26:51,040 Speaker 1: eggs that they thought we're going to support retirement, suddenly 458 00:26:51,080 --> 00:26:55,600 Speaker 1: realizing that interest rates are maybe close to zero, maybe 459 00:26:55,600 --> 00:26:59,560 Speaker 1: even negative, you have to save more to to support 460 00:26:59,600 --> 00:27:02,360 Speaker 1: irret ironment. So I think you know it's it's not 461 00:27:02,480 --> 00:27:05,200 Speaker 1: being anywhere near as productive as as hoped and could 462 00:27:05,200 --> 00:27:07,320 Speaker 1: be backfired. Peter, were you surprised at all at the 463 00:27:07,320 --> 00:27:10,880 Speaker 1: degree to which negative rates weren't discussed by Janet Yellen. Say, 464 00:27:10,960 --> 00:27:13,200 Speaker 1: we talked about the conspicuousness of further with Stan Fisher 465 00:27:13,240 --> 00:27:17,280 Speaker 1: and the president of New York Fed. Uh paper no 466 00:27:17,400 --> 00:27:19,399 Speaker 1: mention of them surprising to you in light of the 467 00:27:19,440 --> 00:27:22,280 Speaker 1: fact that that is the global the macro conversation we're 468 00:27:22,280 --> 00:27:26,119 Speaker 1: having about central banking. Uh. Yes, I think there was 469 00:27:26,160 --> 00:27:28,760 Speaker 1: a message there, and Fisher did did touch on the point, 470 00:27:28,800 --> 00:27:30,920 Speaker 1: but he said, but of course this is not something 471 00:27:31,000 --> 00:27:36,199 Speaker 1: we're entertaining it at all anytime soon. Certainly, Um, it 472 00:27:36,400 --> 00:27:40,240 Speaker 1: is entering into maybe entering into the discussion a little bit. 473 00:27:40,280 --> 00:27:42,959 Speaker 1: But but uh, I think that the FED is a 474 00:27:43,000 --> 00:27:47,119 Speaker 1: long ways away, fortunately from the rest of the world 475 00:27:47,280 --> 00:27:50,560 Speaker 1: on on this one. I think I think the we 476 00:27:50,640 --> 00:27:54,800 Speaker 1: have to keep in mind the banking sector is important 477 00:27:54,800 --> 00:28:00,600 Speaker 1: to credit creation and how monetary policy is transmitted, uh, 478 00:28:00,760 --> 00:28:04,840 Speaker 1: to the economy does depend on on what what what 479 00:28:04,920 --> 00:28:07,800 Speaker 1: are the decisions of those who create credit and if 480 00:28:07,800 --> 00:28:11,040 Speaker 1: if you your margin is going to be disappearing, Uh, 481 00:28:11,080 --> 00:28:14,000 Speaker 1: you're not gonna be encouraged to extend credit. I look, 482 00:28:14,080 --> 00:28:16,800 Speaker 1: Peter Hooper, it we only have one minute left. I'm 483 00:28:16,840 --> 00:28:20,160 Speaker 1: so sorry for that. We just get to productivity. I mean, 484 00:28:20,200 --> 00:28:23,960 Speaker 1: that is the backdrop and to use a green spanning word. 485 00:28:24,000 --> 00:28:28,840 Speaker 1: That is the conundrum, isn't it. Absolutely we're gonna get 486 00:28:28,840 --> 00:28:32,320 Speaker 1: some productivity numbers again this week. Productivity has actually been declining. 487 00:28:32,400 --> 00:28:36,000 Speaker 1: It's been the weakest we've seen historically for the US 488 00:28:36,040 --> 00:28:39,560 Speaker 1: over the last five years. UH. It's going to take 489 00:28:39,680 --> 00:28:43,760 Speaker 1: a significant increase in investment by firms down the road. 490 00:28:43,880 --> 00:28:47,880 Speaker 1: This means reducing uncertainty in the US and global economy. 491 00:28:48,040 --> 00:28:49,880 Speaker 1: That's the bottom line as far as I could see, 492 00:28:50,440 --> 00:28:52,880 Speaker 1: Peter Hooper, think you so much greatly appreciated with what 493 00:28:52,960 --> 00:28:59,440 Speaker 1: you're pak. Who you put your trust in matters. Investors 494 00:28:59,440 --> 00:29:02,800 Speaker 1: have put their trust an independent registered investment advisors to 495 00:29:02,840 --> 00:29:07,239 Speaker 1: the tune of four trillion dollars. Why they see their 496 00:29:07,320 --> 00:29:11,200 Speaker 1: role is to serve, not sell. That's why Charles Schwab 497 00:29:11,280 --> 00:29:14,240 Speaker 1: is committed to the success of over seven thousand independent 498 00:29:14,240 --> 00:29:19,120 Speaker 1: financial advisors who passionately dedicate themselves to helping people achieve 499 00:29:19,120 --> 00:29:23,440 Speaker 1: their financial goals. Learn more and find your independent advisor 500 00:29:23,520 --> 00:29:32,440 Speaker 1: dot com. David Economists Economists, on the other hand, we 501 00:29:32,480 --> 00:29:35,960 Speaker 1: could talk with someone in fixed income Ira, Jersey with 502 00:29:36,040 --> 00:29:42,120 Speaker 1: Oppenheimer Funds for years UH opining and forecasting and now 503 00:29:42,160 --> 00:29:46,560 Speaker 1: advising portfolio managers and what to actually do with their money. 504 00:29:47,080 --> 00:29:50,080 Speaker 1: Um I one of the great joys you have is 505 00:29:50,080 --> 00:29:52,080 Speaker 1: a people you speak to it open I. Amber funds 506 00:29:52,080 --> 00:29:57,000 Speaker 1: are smart, smart smart. If the curve flattens, there's two 507 00:29:57,040 --> 00:29:58,440 Speaker 1: ways it could do it, well, it could do it 508 00:29:58,520 --> 00:30:01,880 Speaker 1: three four ways. But let's go to to two year 509 00:30:01,920 --> 00:30:05,480 Speaker 1: yield up, tenure yield down flat or the other way 510 00:30:05,480 --> 00:30:08,240 Speaker 1: where the tenure yield comes in with a vengeance. Right now, 511 00:30:08,280 --> 00:30:11,320 Speaker 1: I'm seeing the higher two year yield in a flat 512 00:30:11,360 --> 00:30:14,680 Speaker 1: to lower tenure yield? Is that a good thing? And 513 00:30:14,800 --> 00:30:17,920 Speaker 1: is that a different thing? Do you make a distinction 514 00:30:18,120 --> 00:30:22,000 Speaker 1: without how we flatten? Well? We we do. And I 515 00:30:22,040 --> 00:30:25,200 Speaker 1: think that something that's unusual is that, UM, you know, 516 00:30:25,280 --> 00:30:28,080 Speaker 1: this has really been a serious what we call bull flattener. 517 00:30:28,160 --> 00:30:31,840 Speaker 1: So if you go back in time to UM two 518 00:30:31,920 --> 00:30:34,320 Speaker 1: thousand and fourteen and you look at how the curve 519 00:30:34,400 --> 00:30:37,360 Speaker 1: is flattened, it's mostly been because the tenuere yield has 520 00:30:37,400 --> 00:30:39,440 Speaker 1: gone from three percent all the way down to one 521 00:30:39,480 --> 00:30:42,840 Speaker 1: and a half percent UM. And you know that that's 522 00:30:42,920 --> 00:30:45,760 Speaker 1: different than other periods of time. So I know a 523 00:30:45,800 --> 00:30:47,800 Speaker 1: lot of people say, oh, look the curve is so flat. 524 00:30:47,880 --> 00:30:52,000 Speaker 1: This has to be forecasting recession because every time the 525 00:30:52,080 --> 00:30:55,520 Speaker 1: curve gets this flat, we've had a recession within twelve months. 526 00:30:56,240 --> 00:30:58,719 Speaker 1: Except that those are those are the bare flatteners. Those 527 00:30:58,720 --> 00:31:00,920 Speaker 1: are the first thing that you described where you had 528 00:31:00,960 --> 00:31:03,960 Speaker 1: policy rates going up, you had two year yields going up, 529 00:31:04,000 --> 00:31:07,880 Speaker 1: and and and generally speaking, you had tighter monetary conditions. 530 00:31:08,160 --> 00:31:11,120 Speaker 1: Now you're getting a curve flattening and easier monetary conditions 531 00:31:11,160 --> 00:31:14,280 Speaker 1: because of the expectation that interest rates and inflation are 532 00:31:14,280 --> 00:31:16,960 Speaker 1: going to remain low for a very long period of time. 533 00:31:17,040 --> 00:31:19,240 Speaker 1: So you're not worried about the spectrum of a recession 534 00:31:19,320 --> 00:31:21,400 Speaker 1: right now. It sounds like I'm not worried about a 535 00:31:21,440 --> 00:31:25,360 Speaker 1: recession primarily because you a lot of the fundamental data 536 00:31:25,440 --> 00:31:28,880 Speaker 1: that that I look at has tended to be um 537 00:31:29,000 --> 00:31:31,040 Speaker 1: very stable. So you look at the and we'll get 538 00:31:31,040 --> 00:31:32,720 Speaker 1: some of that day at eight thirty today when we 539 00:31:32,720 --> 00:31:35,360 Speaker 1: get the personal income and spending numbers. I think one 540 00:31:35,360 --> 00:31:37,600 Speaker 1: of the things that's going on in the world is 541 00:31:37,640 --> 00:31:41,360 Speaker 1: we have to remember that growth is unappealingly low um, 542 00:31:41,400 --> 00:31:44,160 Speaker 1: but that's only in the context of the last thirty years. 543 00:31:44,200 --> 00:31:47,840 Speaker 1: If you go back in time, it's not unusual like 544 00:31:47,920 --> 00:31:50,720 Speaker 1: the the old norm I would call it was for 545 00:31:51,080 --> 00:31:53,840 Speaker 1: real GDP growth to be two and a half three percent, 546 00:31:53,920 --> 00:31:57,120 Speaker 1: which is pretty much where we are UM, and uh, 547 00:31:57,160 --> 00:32:01,280 Speaker 1: inflation to be very subdued. And and that's just not 548 00:32:01,400 --> 00:32:03,320 Speaker 1: something that's been in our psyche because none of us 549 00:32:03,320 --> 00:32:05,160 Speaker 1: have lived through that period of time, or very few 550 00:32:05,240 --> 00:32:07,280 Speaker 1: of us have. UM. But you go back to the 551 00:32:07,680 --> 00:32:10,000 Speaker 1: ties and nineteen fifties, you go back even into the 552 00:32:10,080 --> 00:32:12,640 Speaker 1: nineteenth century, and you see that that's kind of the 553 00:32:12,680 --> 00:32:15,480 Speaker 1: normal state of the world. And I think that that's 554 00:32:15,520 --> 00:32:17,640 Speaker 1: that the fact we don't have fast growth means that 555 00:32:17,680 --> 00:32:20,400 Speaker 1: this is more sustainable. So I'm not so worried about 556 00:32:20,400 --> 00:32:23,800 Speaker 1: falling into recession over the next twelve to two twelve 557 00:32:23,840 --> 00:32:26,600 Speaker 1: months to two years. What I am worried about is, 558 00:32:26,800 --> 00:32:30,480 Speaker 1: you know, will we keep rates low for a bit 559 00:32:30,520 --> 00:32:33,000 Speaker 1: longer than we should? Um. And I don't think it's 560 00:32:33,000 --> 00:32:34,400 Speaker 1: a problem for this year. I really think that's a 561 00:32:34,440 --> 00:32:39,040 Speaker 1: problem for our friends. A Pantheon macroeconomics using the phrase 562 00:32:39,080 --> 00:32:43,240 Speaker 1: blunt but unspecific to describe what Janet Yellen had to 563 00:32:43,280 --> 00:32:46,400 Speaker 1: say on Frinday, What was your read on on her speech? 564 00:32:46,440 --> 00:32:49,720 Speaker 1: And Uh, indeed, there there wasn't a a a very 565 00:32:49,760 --> 00:32:52,040 Speaker 1: well defined timetable there. What was your sense of what 566 00:32:52,120 --> 00:32:54,600 Speaker 1: she was she was indicating. Yeah, I think she was 567 00:32:54,680 --> 00:32:58,480 Speaker 1: hinting at exactly what the Fed Reserve has been saying 568 00:32:58,560 --> 00:33:00,400 Speaker 1: is that they want to raise interest rate, but they 569 00:33:00,440 --> 00:33:03,520 Speaker 1: don't quite um get the data that they need in 570 00:33:03,600 --> 00:33:07,160 Speaker 1: order to be convinced that they should. And um so, 571 00:33:07,720 --> 00:33:09,520 Speaker 1: so more than likely that the Fed is going to 572 00:33:09,640 --> 00:33:11,320 Speaker 1: hike once this year. You know, when when we say 573 00:33:11,440 --> 00:33:14,880 Speaker 1: gradual hikes, maybe they mean once a year. Um. You know, 574 00:33:14,960 --> 00:33:17,840 Speaker 1: the market doesn't believe that that a September hike is 575 00:33:17,840 --> 00:33:20,920 Speaker 1: in the works, depending on your model. My model says 576 00:33:20,960 --> 00:33:22,840 Speaker 1: there's about a one in three chance that they'll hike 577 00:33:22,880 --> 00:33:25,000 Speaker 1: in September. Um. I know the w I r P 578 00:33:25,120 --> 00:33:28,480 Speaker 1: function on Bloomberg says about forty percent chance. Um. But 579 00:33:28,880 --> 00:33:31,640 Speaker 1: it you know, the market is now pricing for a 580 00:33:31,800 --> 00:33:35,000 Speaker 1: December hike. UM. So you know, December hike would not 581 00:33:35,040 --> 00:33:38,200 Speaker 1: surprise the market, would not rattle markets much at all. 582 00:33:38,680 --> 00:33:41,000 Speaker 1: I think if they hike in September, on the other hand, 583 00:33:41,080 --> 00:33:43,080 Speaker 1: that would be a surprise and that the markets would hike. 584 00:33:43,120 --> 00:33:44,800 Speaker 1: But maybe they want to get back the initiative. I mean, 585 00:33:44,840 --> 00:33:47,680 Speaker 1: one of the things that the fed's communication policy has 586 00:33:47,720 --> 00:33:52,040 Speaker 1: done is really confused people. Right that the point initially was, look, 587 00:33:52,160 --> 00:33:54,640 Speaker 1: let's give forward guidance, let's tell the market what we're 588 00:33:54,640 --> 00:33:57,120 Speaker 1: doing so they're not surprised, so interest rates can stay longer. 589 00:33:57,280 --> 00:33:59,920 Speaker 1: But now they now they're just confusing us because they're 590 00:34:00,080 --> 00:34:03,920 Speaker 1: not living up to their um It's not they're not promises, granted, 591 00:34:03,920 --> 00:34:05,640 Speaker 1: but they're not living up to their own forecast. About 592 00:34:06,200 --> 00:34:08,080 Speaker 1: one of the great joys of talking to you is 593 00:34:08,120 --> 00:34:13,120 Speaker 1: you've been in the trenches of reacting to what economists say, 594 00:34:13,200 --> 00:34:16,520 Speaker 1: doing interest rate strategy, credit sue and others, and now 595 00:34:16,520 --> 00:34:20,879 Speaker 1: with Oppenheimer Funds. I mean, aren't we overthinking this? I mean, 596 00:34:21,000 --> 00:34:24,600 Speaker 1: within all the reading of the weekend, it's all brilliant. 597 00:34:24,680 --> 00:34:28,200 Speaker 1: I'm thrilled to Christopher Sims took the trophy for impact, 598 00:34:28,200 --> 00:34:32,160 Speaker 1: and Marvin good Friend and everybody's waiting. Larry Summer's out 599 00:34:32,200 --> 00:34:35,640 Speaker 1: with a scathing note ten minutes ago. I just put 600 00:34:35,680 --> 00:34:41,200 Speaker 1: it on Twitter. Folks, Are we just overthinking this? We? 601 00:34:41,200 --> 00:34:44,200 Speaker 1: We probably are quite frankly, Um, you know, we we 602 00:34:44,400 --> 00:34:46,200 Speaker 1: hang on every single word that comes out of the 603 00:34:46,200 --> 00:34:48,920 Speaker 1: Federal Reserve because we think that it's going to mean 604 00:34:49,000 --> 00:34:51,680 Speaker 1: something For markets. But ultimately, in over the longer period 605 00:34:51,680 --> 00:34:55,040 Speaker 1: of time, it's going to be fundamentals, whether it's economics, 606 00:34:55,080 --> 00:34:58,000 Speaker 1: whether it's um, you know, animal spirits and how much 607 00:34:58,040 --> 00:35:01,439 Speaker 1: you know, debt issuance there is by either governments or corporations. 608 00:35:02,040 --> 00:35:05,080 Speaker 1: It's it's ultimately in the long term it's fundamentals and all. 609 00:35:05,160 --> 00:35:07,560 Speaker 1: And at the Federal Reserve at some point is either 610 00:35:07,600 --> 00:35:10,040 Speaker 1: going to have to hike because fundamentals are good, or 611 00:35:10,080 --> 00:35:13,359 Speaker 1: they're going to remain flat because you know, fundamentals are 612 00:35:13,440 --> 00:35:17,720 Speaker 1: are iffy and you know, so, really is the data 613 00:35:17,760 --> 00:35:19,920 Speaker 1: that we have to look at and and quite frankly, 614 00:35:19,960 --> 00:35:21,759 Speaker 1: the longer term data. I mean, the difference between what 615 00:35:21,800 --> 00:35:23,520 Speaker 1: I used to do as a credit tragist and what 616 00:35:23,600 --> 00:35:26,200 Speaker 1: we do now is is time frame. Really, you know, 617 00:35:26,239 --> 00:35:28,640 Speaker 1: I used to care about a number and you know, 618 00:35:28,680 --> 00:35:30,640 Speaker 1: what was going to happen the next ten minutes after 619 00:35:30,640 --> 00:35:34,800 Speaker 1: a number came out? Um, now I care about so 620 00:35:34,880 --> 00:35:38,320 Speaker 1: now no stop now that you're not and I'm funds 621 00:35:38,680 --> 00:35:43,560 Speaker 1: to twenty five minutes, right, Well, no much longer. I 622 00:35:43,560 --> 00:35:45,919 Speaker 1: mean we you know, we do have long term focus here. 623 00:35:46,440 --> 00:35:51,200 Speaker 1: And you know, so when we were international, now no years, 624 00:35:51,239 --> 00:35:52,920 Speaker 1: I mean, you know, so when we talk about our 625 00:35:52,960 --> 00:35:56,239 Speaker 1: international bond fund for example, you know what happens is 626 00:35:56,280 --> 00:35:58,960 Speaker 1: we we look at our macro, our macro outlook, and 627 00:35:59,000 --> 00:36:00,799 Speaker 1: we say what are we think to happen over the 628 00:36:00,840 --> 00:36:03,840 Speaker 1: next twelve to twenty four months in the terms of macro, 629 00:36:04,040 --> 00:36:06,480 Speaker 1: and then we look at what the markets pricing right, 630 00:36:06,520 --> 00:36:08,680 Speaker 1: So so one data point is not going to change 631 00:36:08,680 --> 00:36:10,800 Speaker 1: our opinion as to the macro outlook. Now, if the 632 00:36:10,880 --> 00:36:16,040 Speaker 1: markets move significantly, then that's when opportunities present themselves. Because, um, 633 00:36:16,080 --> 00:36:17,800 Speaker 1: you know, we we have a pretty good track record 634 00:36:17,960 --> 00:36:21,200 Speaker 1: of uh of having a good long term forecast. But 635 00:36:21,239 --> 00:36:23,919 Speaker 1: if you know, the dollar moves too much, or if 636 00:36:24,400 --> 00:36:27,440 Speaker 1: interest rates and you know Europe or Japan or Brazil 637 00:36:27,719 --> 00:36:29,359 Speaker 1: or the United States moved too much, we can take 638 00:36:29,360 --> 00:36:32,319 Speaker 1: advantage of that. Um if if things look to get 639 00:36:32,320 --> 00:36:34,560 Speaker 1: out of line based on where we think the fundamentals 640 00:36:34,600 --> 00:36:36,440 Speaker 1: will ultimately end up. Let me read a little bit 641 00:36:36,520 --> 00:36:38,759 Speaker 1: here from the Larry Summers piece that that Tom has 642 00:36:38,760 --> 00:36:41,120 Speaker 1: been referring to. He says he agrees with miss Yellen's 643 00:36:41,160 --> 00:36:43,360 Speaker 1: observation that the case for rate increase Now he's stronger 644 00:36:43,360 --> 00:36:45,719 Speaker 1: than it was a few months ago. US economy does 645 00:36:45,760 --> 00:36:47,239 Speaker 1: appear to be gaining strength and second half of the 646 00:36:47,280 --> 00:36:49,560 Speaker 1: year the Brexit shock has been easily absorbed in markets 647 00:36:49,560 --> 00:36:52,239 Speaker 1: are unusually calm. But and here's the salient point. I 648 00:36:52,280 --> 00:36:54,000 Speaker 1: think to say that the case for a rate increase 649 00:36:54,000 --> 00:36:56,399 Speaker 1: has strengthened is not to say it's reach the point 650 00:36:56,440 --> 00:37:00,680 Speaker 1: of being persuasive. What what do you make of that? Yeah? 651 00:37:00,840 --> 00:37:03,240 Speaker 1: I mean again, that's like nuance on top of nuance. 652 00:37:03,320 --> 00:37:05,759 Speaker 1: I think, you know, Jenny Yellen was attempting to be 653 00:37:05,840 --> 00:37:08,520 Speaker 1: nuanced and and say, look, we you know, the case 654 00:37:08,600 --> 00:37:13,120 Speaker 1: is higher. So that and the market certainly responded to her, uh, 655 00:37:13,160 --> 00:37:15,200 Speaker 1: you know, pointing out that the case was higher, because 656 00:37:15,680 --> 00:37:18,240 Speaker 1: I think the the expectation is is that Ms Yellen 657 00:37:18,400 --> 00:37:21,480 Speaker 1: is a moderate to dovish member of the FOMC. So 658 00:37:21,520 --> 00:37:23,439 Speaker 1: when she says that the case for hikes is higher, 659 00:37:23,440 --> 00:37:25,640 Speaker 1: and then the market has to believe it that that 660 00:37:25,719 --> 00:37:29,439 Speaker 1: it is, And and the market responded, um, the way 661 00:37:29,440 --> 00:37:32,200 Speaker 1: that one would would anticipate to that statement, where you know, 662 00:37:32,239 --> 00:37:35,160 Speaker 1: you have a basically a three and four chance that 663 00:37:35,200 --> 00:37:37,600 Speaker 1: the Fed is gonna hike it by December. Um. I 664 00:37:37,640 --> 00:37:40,160 Speaker 1: think Mr Summers is, you know, he just wants some 665 00:37:40,160 --> 00:37:41,759 Speaker 1: some more clarity. And I think a lot of people 666 00:37:41,800 --> 00:37:44,239 Speaker 1: in the markets, quite frankly, would like a lot more 667 00:37:44,239 --> 00:37:46,480 Speaker 1: clarity from them and just live up to your expectations. 668 00:37:46,480 --> 00:37:48,600 Speaker 1: So it almost like they should pair back things like 669 00:37:48,640 --> 00:37:50,560 Speaker 1: the dot plots and just say, you know, just get 670 00:37:50,640 --> 00:37:53,719 Speaker 1: rid of them and and the their usefulness is I 671 00:37:53,760 --> 00:37:57,520 Speaker 1: think in the past, and Professor Summers includes the dotts plots, 672 00:37:57,520 --> 00:38:00,799 Speaker 1: he does I re juice do where this without pen 673 00:38:00,840 --> 00:38:02,960 Speaker 1: Iimer Funds as we look at the fixed income market, 674 00:38:03,280 --> 00:38:06,759 Speaker 1: I or what is your counsel to portfolio managers at 675 00:38:06,800 --> 00:38:12,319 Speaker 1: Oppenheimer Funds, what actually will rates do? Yeah? So in 676 00:38:12,360 --> 00:38:14,880 Speaker 1: the long end um, but I want to stay pretty 677 00:38:14,960 --> 00:38:18,200 Speaker 1: much pretty much market weight, so in line with where 678 00:38:18,200 --> 00:38:21,800 Speaker 1: the benchmarks are, because I do think that the risks 679 00:38:21,840 --> 00:38:25,080 Speaker 1: out in ten year and thirty year are pretty asymmetric, 680 00:38:25,160 --> 00:38:27,360 Speaker 1: which is, you know, not not something that I know 681 00:38:27,400 --> 00:38:29,799 Speaker 1: a lot of people want to hear because everyone says, oh, 682 00:38:29,880 --> 00:38:31,959 Speaker 1: yields are too low, there's no way one point six 683 00:38:32,960 --> 00:38:35,560 Speaker 1: is sustainable. But when you have like bo j Governor 684 00:38:35,640 --> 00:38:38,560 Speaker 1: Kuroda coming out and saying, hey, we might cut interest 685 00:38:38,600 --> 00:38:43,919 Speaker 1: rates more and make the interest uh interest rate more 686 00:38:44,000 --> 00:38:47,200 Speaker 1: negative in Japan, then you know, demand for long term 687 00:38:47,200 --> 00:38:51,279 Speaker 1: assets uh and any positive yielding long term assets is 688 00:38:51,360 --> 00:38:53,360 Speaker 1: going to continue. So anyway, so we have to I 689 00:38:53,360 --> 00:38:56,560 Speaker 1: think be careful of the long end and UH and 690 00:38:56,560 --> 00:38:58,800 Speaker 1: and you know, make sure that you're you're not overly 691 00:38:59,239 --> 00:39:02,160 Speaker 1: underweight there. I do think the front end, however, is 692 00:39:02,200 --> 00:39:04,680 Speaker 1: at risk. I do think that the we're still not 693 00:39:04,760 --> 00:39:08,600 Speaker 1: a price for set the hike, and we're not pricing 694 00:39:08,640 --> 00:39:11,200 Speaker 1: for multiple hikes next year either, And I think that 695 00:39:11,200 --> 00:39:14,920 Speaker 1: that's a significant risk. So being underweight two year notes 696 00:39:15,200 --> 00:39:18,160 Speaker 1: um is UH is prudent at this point. Is so, 697 00:39:18,160 --> 00:39:20,719 Speaker 1: so basically you continued curve flattener, but but more bare 698 00:39:20,760 --> 00:39:23,960 Speaker 1: flattening than uh than bill flattening. Like we've seen what 699 00:39:24,120 --> 00:39:26,160 Speaker 1: is this this credit cycle going to turn as you 700 00:39:26,160 --> 00:39:29,080 Speaker 1: see it right now? Yeah, we think we're in the 701 00:39:29,160 --> 00:39:31,800 Speaker 1: latter half of the credit cycle. Um So when we 702 00:39:31,840 --> 00:39:35,399 Speaker 1: talk about credit cycle, what we usually think about corporate debt? 703 00:39:35,680 --> 00:39:38,759 Speaker 1: Uh So, how much leveraging has has been going on 704 00:39:38,880 --> 00:39:41,640 Speaker 1: where we are in the profit cycle um and and 705 00:39:41,680 --> 00:39:45,480 Speaker 1: the revenue cycle and in general, at least for investment 706 00:39:45,480 --> 00:39:48,160 Speaker 1: grade firms. You know, revenues have been holding up reasonably well. 707 00:39:48,560 --> 00:39:51,680 Speaker 1: Consumer spending is is okay? What what has been happening. 708 00:39:51,920 --> 00:39:53,720 Speaker 1: And you know, when you talk to my former colleagues 709 00:39:53,760 --> 00:39:55,680 Speaker 1: at Credit Sueez or you talk to a lot of 710 00:39:55,719 --> 00:40:02,720 Speaker 1: other UM economists, Oh yeah, we do. I'm a customer there, 711 00:40:03,920 --> 00:40:06,799 Speaker 1: um so. So but when you talk what you talk 712 00:40:06,880 --> 00:40:08,800 Speaker 1: to them, one of the things that everyone talks about 713 00:40:08,840 --> 00:40:12,120 Speaker 1: is profit share of growth. Domestic income has gone up 714 00:40:12,200 --> 00:40:15,080 Speaker 1: so much since the financial crisis that we're at a 715 00:40:15,120 --> 00:40:18,560 Speaker 1: point now where weight share, so the amount of consumers 716 00:40:18,560 --> 00:40:21,480 Speaker 1: make have to have to go up relative to profits 717 00:40:21,600 --> 00:40:23,960 Speaker 1: and UM and and we're at a point and you 718 00:40:23,960 --> 00:40:26,040 Speaker 1: see it in some of the GDP data that's coming 719 00:40:26,040 --> 00:40:27,600 Speaker 1: out and we'll get another again read of that in 720 00:40:27,640 --> 00:40:30,520 Speaker 1: about eight minutes, is that has to improve and and 721 00:40:30,560 --> 00:40:33,719 Speaker 1: that's not a great thing for for profit growth UM. 722 00:40:33,800 --> 00:40:35,480 Speaker 1: So one of the things that that is going to 723 00:40:35,560 --> 00:40:38,920 Speaker 1: continue probably to prop up risk gas that's like equities 724 00:40:39,200 --> 00:40:42,000 Speaker 1: is going to be low interest rates globally UM. But 725 00:40:42,200 --> 00:40:44,360 Speaker 1: fundamentals are not going to improve at the pace that 726 00:40:44,400 --> 00:40:46,680 Speaker 1: they have before. So you're not likely to see you know, 727 00:40:47,160 --> 00:40:51,200 Speaker 1: multiple double digit gains UM year after year in uh 728 00:40:51,440 --> 00:40:53,960 Speaker 1: UM in things like risks. How does it fold over 729 00:40:54,000 --> 00:40:57,320 Speaker 1: the credit markets? We're talking with biography sec of Jones's 730 00:40:57,360 --> 00:40:59,439 Speaker 1: day earlier. This idea. He's an M and a guy 731 00:41:00,000 --> 00:41:03,000 Speaker 1: in an attorney, and you know he's talking about CFOs 732 00:41:03,000 --> 00:41:05,440 Speaker 1: with a pressure to issue paper given the free money, 733 00:41:05,800 --> 00:41:08,960 Speaker 1: and that's out there price up yield LO LO lower corporations. 734 00:41:09,400 --> 00:41:13,000 Speaker 1: Translate your world, Ira Jersey over the corporate realities of 735 00:41:13,040 --> 00:41:18,120 Speaker 1: corporate bonds. Yeah so so corporate So corporate liquidity has 736 00:41:18,160 --> 00:41:20,759 Speaker 1: been quite good. Actually, so there's been i know, you know, 737 00:41:20,800 --> 00:41:23,720 Speaker 1: different bouts where people were worried about that, but demand 738 00:41:23,960 --> 00:41:27,880 Speaker 1: for investment grade UM and even better high yield paper 739 00:41:27,920 --> 00:41:31,480 Speaker 1: has been very has been quite strong over the course 740 00:41:31,520 --> 00:41:33,359 Speaker 1: of this year, and we don't think that that's going 741 00:41:33,400 --> 00:41:35,239 Speaker 1: to change. And again that that is part of this 742 00:41:35,280 --> 00:41:38,960 Speaker 1: whole low yield UH negative yield world that we live 743 00:41:38,960 --> 00:41:41,560 Speaker 1: in where UM everyone needs to search for that. So 744 00:41:41,600 --> 00:41:44,239 Speaker 1: if you're an insurance company that needs to have the 745 00:41:44,360 --> 00:41:46,640 Speaker 1: will used to be six percent yields, then it became 746 00:41:46,680 --> 00:41:48,560 Speaker 1: five percent yields, and now if you're even trying to 747 00:41:48,560 --> 00:41:51,040 Speaker 1: get a four percent yield, you need to go down 748 00:41:51,080 --> 00:41:54,880 Speaker 1: to you know, lower quality investment grade corporate paper in 749 00:41:54,960 --> 00:41:57,760 Speaker 1: order to find that in in ten year and thirty 750 00:41:57,840 --> 00:42:01,120 Speaker 1: years debt. But luckily know the markets making a lot 751 00:42:01,120 --> 00:42:05,280 Speaker 1: of that paper, so so and so supply is meeting demand, 752 00:42:05,360 --> 00:42:08,360 Speaker 1: and and uh, you have tighter and tighter credit spreads 753 00:42:08,360 --> 00:42:10,600 Speaker 1: that they're not nearly as attractive. Spreads are not nearly 754 00:42:10,600 --> 00:42:12,120 Speaker 1: as attractive. I want to get you all down to 755 00:42:12,160 --> 00:42:14,400 Speaker 1: fundamental quickly here. I want to get in trouble with 756 00:42:14,440 --> 00:42:17,040 Speaker 1: your general counsel. Quickly is the only way to do it? 757 00:42:17,080 --> 00:42:21,800 Speaker 1: Does this end ugly? Or can buy side managers manage 758 00:42:21,840 --> 00:42:25,920 Speaker 1: their way to nirvana when all this ends? Well? I 759 00:42:25,920 --> 00:42:28,680 Speaker 1: think that's all about controlling risk. And so one of 760 00:42:28,680 --> 00:42:31,279 Speaker 1: the things that that we always ask ourselves when we 761 00:42:31,320 --> 00:42:34,839 Speaker 1: go into our meetings, uh, for our with our bond 762 00:42:34,880 --> 00:42:37,719 Speaker 1: fund managers, is what are the risks in the portfolio? 763 00:42:38,000 --> 00:42:40,040 Speaker 1: How can we manage those risks? And do we have 764 00:42:40,120 --> 00:42:44,120 Speaker 1: the appropriate risk? So we were always asking ourselves about 765 00:42:44,160 --> 00:42:47,160 Speaker 1: the risks in the portfolio and do we have risk 766 00:42:47,239 --> 00:42:49,920 Speaker 1: that seems appropriate for both the environment and based on 767 00:42:49,960 --> 00:42:53,359 Speaker 1: our customers mandate in those particular funds are Thank you 768 00:42:53,400 --> 00:42:55,880 Speaker 1: so much, seriously, really quite good. Thank you today I 769 00:42:55,920 --> 00:43:01,400 Speaker 1: are a Jersey with Hoppenheimer. Thanks for listening to the 770 00:43:01,440 --> 00:43:07,520 Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, 771 00:43:07,840 --> 00:43:11,799 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 772 00:43:11,840 --> 00:43:16,640 Speaker 1: Tom Keane. Michael McKee is at Economy Before the Podcast. 773 00:43:16,719 --> 00:43:26,919 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio. Who 774 00:43:27,000 --> 00:43:30,719 Speaker 1: you put your trust in matters. Investors have put their 775 00:43:30,719 --> 00:43:34,080 Speaker 1: trust in independent registered investment advisors to the tune of 776 00:43:34,160 --> 00:43:39,120 Speaker 1: four trillion dollars. Why learn more and find your independent 777 00:43:39,160 --> 00:43:42,640 Speaker 1: advisor dot com.