1
00:00:00,280 --> 00:00:03,800
Speaker 1: Room were taking stock the Fed in Focus. There's certainly

2
00:00:03,840 --> 00:00:05,720
Speaker 1: a lot of discussion about whether or not the FED

3
00:00:05,800 --> 00:00:07,960
Speaker 1: is going to try to hike rate again this year.

4
00:00:08,160 --> 00:00:10,360
Speaker 1: We think the Fed by December will be ready to

5
00:00:10,440 --> 00:00:12,719
Speaker 1: do another hike. That sounds like a big difference from

6
00:00:12,720 --> 00:00:15,240
Speaker 1: the markets, but it's not that big a difference. I

7
00:00:15,280 --> 00:00:17,360
Speaker 1: think at this point the Fed is going to remain

8
00:00:17,400 --> 00:00:21,560
Speaker 1: on the sideline through and most likely the better part

9
00:00:21,560 --> 00:00:25,079
Speaker 1: of because they have a huge communication problem with the

10
00:00:25,079 --> 00:00:29,240
Speaker 1: public about what's driving their policy decisions. They basically have

11
00:00:29,360 --> 00:00:34,040
Speaker 1: no strategy. The Fed in Focus on Bloomberg Radio. The

12
00:00:34,080 --> 00:00:36,600
Speaker 1: Fed in Focus on Taking Stock is brought to you

13
00:00:36,640 --> 00:00:39,160
Speaker 1: by a Commonwealth financial network. When it's time to change

14
00:00:39,159 --> 00:00:41,440
Speaker 1: the conversation, talk with a broker dealer. Are I a

15
00:00:41,600 --> 00:00:44,120
Speaker 1: that's ready to listen? Call A six six or six

16
00:00:44,120 --> 00:00:46,840
Speaker 1: two three six three eight or visit Commonwealth dot com

17
00:00:47,120 --> 00:00:49,279
Speaker 1: to learn more. And when we want to learn more

18
00:00:49,280 --> 00:00:51,640
Speaker 1: about the Fed, where they are and where they are heading,

19
00:00:51,680 --> 00:00:55,400
Speaker 1: we often call on William Pool. Bill Pool is former

20
00:00:55,440 --> 00:00:59,480
Speaker 1: feder Reserve, a Bank of St. Louis president and senior

21
00:00:59,520 --> 00:01:03,240
Speaker 1: fellow at the Cato Institute and very busy traveling around

22
00:01:03,240 --> 00:01:05,240
Speaker 1: the world to talk to people about so many things

23
00:01:05,240 --> 00:01:06,759
Speaker 1: that have to do with the FED and the economy. Bill,

24
00:01:06,800 --> 00:01:08,880
Speaker 1: welcome back to the show. Hey, Kathleen, how are you

25
00:01:09,120 --> 00:01:13,160
Speaker 1: just great? You know um coincidentally to you coming on

26
00:01:13,200 --> 00:01:16,720
Speaker 1: the show today. Our our team of FED reporters from

27
00:01:16,720 --> 00:01:19,440
Speaker 1: around the world, led by Craig Torres in Washington, did

28
00:01:19,520 --> 00:01:22,759
Speaker 1: it a story with a triffic headline and a great

29
00:01:23,120 --> 00:01:27,640
Speaker 1: of content. FED deluge of dots and discord leaves global

30
00:01:27,760 --> 00:01:33,560
Speaker 1: markets baffled. Is this a fair charge? Uh? Probably? I

31
00:01:33,600 --> 00:01:38,200
Speaker 1: think he also leaves the FED itself baffled. Why and

32
00:01:38,240 --> 00:01:41,320
Speaker 1: in what way? Well, I think the f O m

33
00:01:41,400 --> 00:01:45,800
Speaker 1: c IS is really sort of uh screwed up in

34
00:01:45,920 --> 00:01:53,400
Speaker 1: its communications approach. Uh. You may remember last year, at

35
00:01:53,400 --> 00:01:57,480
Speaker 1: this time we got past the September meeting, there was

36
00:01:57,520 --> 00:02:01,960
Speaker 1: all this speculation about liftoff, and the FED had promised

37
00:02:02,040 --> 00:02:04,920
Speaker 1: lift off, seemed to promise lift off with the dot

38
00:02:04,960 --> 00:02:13,639
Speaker 1: diagram in and eventually in December meeting last year they

39
00:02:13,639 --> 00:02:17,119
Speaker 1: did it. Uh. It didn't make very much difference, and

40
00:02:17,760 --> 00:02:21,760
Speaker 1: as one could reasonably expect basis points, there's not much

41
00:02:21,800 --> 00:02:25,720
Speaker 1: of a move. And I think it's true that the

42
00:02:25,800 --> 00:02:29,920
Speaker 1: UH long bond long long bonds in the US are

43
00:02:29,919 --> 00:02:32,760
Speaker 1: actually lower than they were a year ago, so it

44
00:02:32,800 --> 00:02:39,160
Speaker 1: didn't lift off long treasuries. So now they're doing exactly

45
00:02:39,200 --> 00:02:44,400
Speaker 1: the same thing. It appears. If assuming that at the meeting,

46
00:02:45,240 --> 00:02:49,560
Speaker 1: our September meeting next week, when I say our, there's

47
00:02:50,040 --> 00:02:54,640
Speaker 1: UH that they passed again, which is the market betting,

48
00:02:54,840 --> 00:02:59,440
Speaker 1: then they're going to come up to December, and depending

49
00:02:59,520 --> 00:03:05,040
Speaker 1: on what they say in September, UH, if they leave

50
00:03:05,160 --> 00:03:09,120
Speaker 1: some guidance in effect, that they're going to have another

51
00:03:09,800 --> 00:03:13,880
Speaker 1: rate increase in six and then we'll play the game

52
00:03:14,440 --> 00:03:20,119
Speaker 1: all over again. Uh. So the problem is that this

53
00:03:20,120 --> 00:03:27,079
Speaker 1: this whole communications strategy of the forward guidance is deeply,

54
00:03:27,320 --> 00:03:31,399
Speaker 1: deeply flawed. It's not as if we haven't been here.

55
00:03:32,720 --> 00:03:35,320
Speaker 1: When I was on the f O m C, we

56
00:03:35,360 --> 00:03:40,680
Speaker 1: went around and about over exactly the same issue back

57
00:03:40,840 --> 00:03:43,840
Speaker 1: in the early part I guess we would say the

58
00:03:43,880 --> 00:03:46,880
Speaker 1: early part of the century. At that time, it had

59
00:03:46,920 --> 00:03:49,680
Speaker 1: to do with the so called tilt language, or the

60
00:03:49,720 --> 00:03:56,120
Speaker 1: bias of the bias language, or the balance of risks language.

61
00:03:56,920 --> 00:04:00,440
Speaker 1: And I eventually came to the view that this whole

62
00:04:00,520 --> 00:04:05,960
Speaker 1: approach of trying to provide market guidance was ill advised

63
00:04:06,200 --> 00:04:09,680
Speaker 1: and the reason is very simple that at the time

64
00:04:09,880 --> 00:04:14,360
Speaker 1: that we've tried to provide any such advice, things change,

65
00:04:14,920 --> 00:04:17,800
Speaker 1: and in that case, we will have been in a

66
00:04:17,960 --> 00:04:22,279
Speaker 1: place where we've provided this advice. But then the world

67
00:04:22,279 --> 00:04:24,880
Speaker 1: has changed, it didn't come out exactly the way we

68
00:04:24,920 --> 00:04:27,840
Speaker 1: thought it was going to come out, and then the

69
00:04:27,960 --> 00:04:33,320
Speaker 1: forward guidance doesn't look so sensible anymore. Never does work

70
00:04:33,320 --> 00:04:34,919
Speaker 1: out the way you think it's going to. There are

71
00:04:34,839 --> 00:04:37,200
Speaker 1: always things that you don't understand, and one of the

72
00:04:37,200 --> 00:04:40,320
Speaker 1: things I don't understand, Billpool, is that asset prices are

73
00:04:40,440 --> 00:04:44,880
Speaker 1: high while consumer price the CPI, the Consumer Price index

74
00:04:45,560 --> 00:04:49,840
Speaker 1: is not accelerating. What's up with that? Well, what's up

75
00:04:49,880 --> 00:04:58,200
Speaker 1: with that is that the obviously the economies growth is low.

76
00:04:59,320 --> 00:05:02,520
Speaker 1: G d P growth has been low. It's the weakest

77
00:05:02,920 --> 00:05:07,720
Speaker 1: recovery um since World War Two. And I believe that

78
00:05:07,800 --> 00:05:12,279
Speaker 1: the reason for that is that there have been uh

79
00:05:12,800 --> 00:05:19,080
Speaker 1: two major depressants, if you will. One is the budgetary

80
00:05:19,480 --> 00:05:26,640
Speaker 1: uncertainty and the possibility of tax increases in the future,

81
00:05:27,440 --> 00:05:30,320
Speaker 1: and that's really staring us in the face now with

82
00:05:30,440 --> 00:05:34,200
Speaker 1: the demographics changes that we have known about for a

83
00:05:34,200 --> 00:05:39,839
Speaker 1: long time UH coming. And then the other the the

84
00:05:39,920 --> 00:05:46,360
Speaker 1: regulatory constraints on economic activity. We're going through this again

85
00:05:46,400 --> 00:05:51,279
Speaker 1: in the news. We've got this Dakota pipeline situation, and

86
00:05:51,360 --> 00:05:56,839
Speaker 1: to me, it's just crazy because pipelines are clearly both

87
00:05:57,040 --> 00:06:01,560
Speaker 1: more efficient, that is, lower costs and safer than transporting

88
00:06:01,640 --> 00:06:06,240
Speaker 1: oil by rail or by truck, and it takes the

89
00:06:06,279 --> 00:06:11,360
Speaker 1: pressure off the rail and the highway infrastructure. Uh, it's

90
00:06:11,400 --> 00:06:14,200
Speaker 1: just nutty. It just doesn't make any sense. And yet

91
00:06:14,600 --> 00:06:17,560
Speaker 1: that there's there's where we are. This Dakota pipeline is

92
00:06:17,600 --> 00:06:21,400
Speaker 1: now tied up in the courts. Uh. We had another

93
00:06:21,480 --> 00:06:26,760
Speaker 1: situation that I've looked at rather closely. He's taking stock

94
00:06:26,920 --> 00:06:30,640
Speaker 1: the FED in Focus on bloom Word Radio, The FED

95
00:06:30,839 --> 00:06:34,360
Speaker 1: in Focus with William Pool. Bill Pool is senior fellow

96
00:06:34,360 --> 00:06:37,320
Speaker 1: at the Cato Institute, former president of the St. Louis

97
00:06:37,400 --> 00:06:41,240
Speaker 1: Federal Reserve. He joins us, Now, Bill Pool, I beg

98
00:06:41,240 --> 00:06:44,479
Speaker 1: your pardon. You were concluding your thoughts and adding some

99
00:06:44,520 --> 00:06:47,800
Speaker 1: more and just wanted to focus on asset prices, high

100
00:06:47,960 --> 00:06:54,440
Speaker 1: inflation constrained. Go ahead, tell us more. Okay, the the

101
00:06:54,480 --> 00:06:59,279
Speaker 1: feed is always made clear, and it's especially clear when

102
00:06:59,320 --> 00:07:05,200
Speaker 1: they started this to the statements of policy intentions, uh, strategy,

103
00:07:05,240 --> 00:07:11,880
Speaker 1: where they had the inflation target. That there is UH

104
00:07:12,200 --> 00:07:16,120
Speaker 1: no way that the FED can control real conditions, real

105
00:07:16,200 --> 00:07:20,800
Speaker 1: economic conditions, such as the long run rate of unemployment.

106
00:07:21,240 --> 00:07:24,160
Speaker 1: So the same thing is true of the rate of

107
00:07:24,200 --> 00:07:27,560
Speaker 1: productivity growth. Federal reserve has nothing to do with that,

108
00:07:28,200 --> 00:07:31,040
Speaker 1: And the same thing is true of the real rate

109
00:07:31,080 --> 00:07:35,480
Speaker 1: of interest. So it looks as though the FED has

110
00:07:36,280 --> 00:07:39,440
Speaker 1: influenced over the rate of interest because it sets the

111
00:07:39,440 --> 00:07:43,280
Speaker 1: federal funds rate, but that's only the short rate in

112
00:07:43,320 --> 00:07:48,160
Speaker 1: the short run, and it is fundamentally constrained by the

113
00:07:48,200 --> 00:07:53,280
Speaker 1: productivity of the economy. The demand, the underlying demand for

114
00:07:53,520 --> 00:07:58,320
Speaker 1: funds to finance investment. Investment has been slow to recover

115
00:07:58,880 --> 00:08:04,400
Speaker 1: in this recovery period, and that's an essential feature of

116
00:08:04,480 --> 00:08:10,760
Speaker 1: this recovery. So I think that the UH that the

117
00:08:10,840 --> 00:08:19,560
Speaker 1: market analysts have generally underplayed the importance of various environmental

118
00:08:19,720 --> 00:08:29,360
Speaker 1: especially constraints on expansion of infrastructure such as pipelines. And

119
00:08:29,800 --> 00:08:33,280
Speaker 1: the reason that companies aren't building this stuff is that

120
00:08:33,320 --> 00:08:37,120
Speaker 1: they're not allowed to. It's just very simple. And so

121
00:08:37,360 --> 00:08:41,640
Speaker 1: if you go to great lengths, as the Jordan's cove

122
00:08:42,480 --> 00:08:50,480
Speaker 1: case for the Federal Regulator, the UH that case that

123
00:08:50,640 --> 00:08:56,240
Speaker 1: came to ahead last March, the Energy Regulatory Commission denied

124
00:08:56,320 --> 00:09:00,600
Speaker 1: permission to go ahead to build an export terminal and

125
00:09:00,679 --> 00:09:03,079
Speaker 1: that was the end of it. So why should companies

126
00:09:03,200 --> 00:09:07,640
Speaker 1: go to the expense of preparing an environmental impact statement

127
00:09:07,720 --> 00:09:11,800
Speaker 1: when they're going to get chopped off by this vague

128
00:09:12,160 --> 00:09:15,640
Speaker 1: standard of public bill. Here's one thing, though, I don't understand.

129
00:09:15,640 --> 00:09:19,040
Speaker 1: I know you could argue that the amount of regulation

130
00:09:19,160 --> 00:09:22,120
Speaker 1: and the kind of constraints on various kinds of investments

131
00:09:22,120 --> 00:09:23,840
Speaker 1: have increased over the years, but that's been in a

132
00:09:23,880 --> 00:09:26,720
Speaker 1: place for a while. And what hasn't been in place

133
00:09:26,760 --> 00:09:29,360
Speaker 1: for a while is this current zero interest rate policy

134
00:09:29,400 --> 00:09:32,960
Speaker 1: and in fact, in some cases negative rates in other countries.

135
00:09:33,120 --> 00:09:35,840
Speaker 1: And we've seen this and very low bond yields, and

136
00:09:35,920 --> 00:09:38,840
Speaker 1: I do I am curious what you would say in

137
00:09:38,880 --> 00:09:42,240
Speaker 1: response to Jim Low, who's this It's just me Jim Tiss,

138
00:09:42,240 --> 00:09:47,400
Speaker 1: who's the CEO of Lows, speaking to a Bloomberg event today. Uh.

139
00:09:47,720 --> 00:09:51,400
Speaker 1: He says that this policy hasn't worked. Uh. He says

140
00:09:51,440 --> 00:09:54,120
Speaker 1: the Fed has gotten itself into a hole of zero

141
00:09:54,160 --> 00:09:56,559
Speaker 1: interest rates and they don't know how to get out,

142
00:09:56,720 --> 00:10:00,960
Speaker 1: and in fact that the keeping the yield suppression is

143
00:10:01,280 --> 00:10:04,000
Speaker 1: hurting investors, right, it's harder to get yield. How do

144
00:10:04,040 --> 00:10:05,840
Speaker 1: you respond to that? Is the Fed a fault there?

145
00:10:05,840 --> 00:10:08,160
Speaker 1: And should they start raising rates as a result? The

146
00:10:08,200 --> 00:10:13,600
Speaker 1: Federal Reserve cannot raise rates above what the market will support.

147
00:10:14,840 --> 00:10:20,600
Speaker 1: The demand for funds around the world is weak because

148
00:10:21,600 --> 00:10:28,680
Speaker 1: of the demand for investment, physical investment, which is financed

149
00:10:28,840 --> 00:10:32,040
Speaker 1: through the bond markets. So the Federal Reserve can no

150
00:10:32,160 --> 00:10:37,800
Speaker 1: more raise the rate of interest than the Department of

151
00:10:37,840 --> 00:10:42,680
Speaker 1: Agriculture can simply double the price of wheat. It's just

152
00:10:42,840 --> 00:10:48,840
Speaker 1: that simple bill pool. If there is an inflation target

153
00:10:48,920 --> 00:10:52,240
Speaker 1: of let's say this coming from a speech by San

154
00:10:52,280 --> 00:10:57,560
Speaker 1: Francisco FED President John Williams earlier in the month, Uh,

155
00:10:58,120 --> 00:11:00,760
Speaker 1: what would you think that would do to asset prices?

156
00:11:00,800 --> 00:11:02,640
Speaker 1: Do you think that he doesn't care what it does

157
00:11:02,679 --> 00:11:05,760
Speaker 1: two asset prices? And you think that he reflects the

158
00:11:05,760 --> 00:11:09,280
Speaker 1: thinking of Janet Yellen share the feeder reserve? Well, I

159
00:11:09,320 --> 00:11:12,520
Speaker 1: have no idea about Janet Yellen's views on that, although

160
00:11:12,520 --> 00:11:15,520
Speaker 1: I think that she has reinforced the view that the

161
00:11:15,520 --> 00:11:19,920
Speaker 1: two percent target will be retained. What I find strange

162
00:11:20,440 --> 00:11:23,640
Speaker 1: about the argument of changing the target to four percent

163
00:11:24,160 --> 00:11:26,160
Speaker 1: is that the Fed can't even get up to two percent,

164
00:11:26,640 --> 00:11:31,600
Speaker 1: and what instruments does it are available to even get

165
00:11:31,600 --> 00:11:34,560
Speaker 1: the two percent? The Feed has been struggling to get

166
00:11:34,679 --> 00:11:37,480
Speaker 1: even to two percent. So the argument that joined the

167
00:11:37,559 --> 00:11:40,880
Speaker 1: four would be helpful is one that I just don't understand.

168
00:11:41,320 --> 00:11:42,880
Speaker 1: If I'm going to raise the key rate this year,

169
00:11:43,360 --> 00:11:48,000
Speaker 1: is it not gonna happen. I don't know what the

170
00:11:48,040 --> 00:11:49,679
Speaker 1: Fed is going to do. That's part of the problem.

171
00:11:49,800 --> 00:11:55,000
Speaker 1: The Fed itself doesn't know what it's gonna do. Alright, Well,

172
00:11:55,040 --> 00:11:57,760
Speaker 1: we're gonna leave it there. Bill Poll always always, i'd

173
00:11:57,760 --> 00:11:59,160
Speaker 1: like to talk to you. Thank you so very much

174
00:11:59,200 --> 00:12:01,920
Speaker 1: for joining us. Bill is former president of the Federals

175
00:12:01,920 --> 00:12:03,920
Speaker 1: at Bank of St. Louis, so he's been there and

176
00:12:04,000 --> 00:12:05,720
Speaker 1: done that. Though we've got a kind of a a brave

177
00:12:05,760 --> 00:12:08,800
Speaker 1: new world of zero rates since Bill took over that

178
00:12:09,280 --> 00:12:12,959
Speaker 1: office and then left. I'm Kathleen Hayes along with Pim Fox.

179
00:12:13,559 --> 00:12:16,200
Speaker 1: This is taking Stock. Got a lot more coming up

180
00:12:16,240 --> 00:12:18,520
Speaker 1: on the show. Keep it right here. This is Bloomberg