WEBVTT - Surveillance: Fed Tightening May Be Back In 2019, Dudley Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:31.639 Bloomberg dot Com, and of course on the Bloomberg. Oh boy, 0:00:31.680 --> 0:00:37.360 another politician out with a book. Yeah, except Vince Cable 0:00:38.040 --> 0:00:40.720 is like I have never seen before. Hit the ball 0:00:40.800 --> 0:00:44.000 out of the park. Writing three and even four years ago. 0:00:44.360 --> 0:00:49.000 He opens Open Arms June seven of two thousand nineteen 0:00:49.200 --> 0:00:54.040 Into the future, Indian sources report a border incident on 0:00:54.120 --> 0:00:58.160 the line of control. In cash Mirror, Mr Cable joins 0:00:58.200 --> 0:01:01.600 us today. Vince first of all can graduations and getting 0:01:01.600 --> 0:01:03.520 out in front of the news is I have never 0:01:03.560 --> 0:01:07.720 ever seen in fiction? How did you do that? Well, 0:01:07.800 --> 0:01:11.040 it's it's it's a political thriller and a love story, 0:01:11.240 --> 0:01:13.319 and it's set in the UK. But I have a 0:01:13.360 --> 0:01:18.319 longstanding association with India and I first first went there 0:01:18.360 --> 0:01:20.919 over half a century ago. I have Indian in laws. 0:01:21.400 --> 0:01:25.560 I love the country and I'm aware of how important 0:01:25.600 --> 0:01:29.360 it is, but also of the dangers of conflict. And 0:01:29.640 --> 0:01:32.479 you have these two nuclear powers, you have a big 0:01:32.520 --> 0:01:36.160 division based on religion, and of course those divisions are 0:01:36.200 --> 0:01:40.119 reflected in British society because we have a large form 0:01:40.200 --> 0:01:45.000 Pakistan former India population. And I set my drama around 0:01:45.560 --> 0:01:50.120 an arms contract between Britain and India. At your post Brexit, 0:01:50.440 --> 0:01:53.680 Britain's trying to push arms exports and we we find 0:01:53.680 --> 0:01:58.560 ourselves in the middle of that historic conflict, which remarkably 0:01:58.640 --> 0:02:01.880 has remained subdued for for many years, and give them 0:02:01.920 --> 0:02:05.840 the potential for damage. What do we misunderstand? So this 0:02:05.920 --> 0:02:08.320 is a thriller. Yesterday we you know, we saw the 0:02:08.360 --> 0:02:10.760 tensions unfold actually in real time, and we've covered it 0:02:10.800 --> 0:02:14.880 extensively here on Bloombridge surveillance between Indian Pakistan. But what 0:02:14.960 --> 0:02:19.800 do we misunderstand about the shift in geopolitics around the world. Well, 0:02:19.840 --> 0:02:23.400 I think probably we're underestimating the risk. I mean, these 0:02:23.440 --> 0:02:26.360 are two nuclear powers. There is an unresolved dispute of 0:02:26.400 --> 0:02:30.800 a territory which is also reflected in populist politics. I mean, 0:02:30.840 --> 0:02:35.200 both these are democratic countries. They both rely heavily on 0:02:36.120 --> 0:02:40.400 the Indian governments on kind of Hindu nationalism, the Pakistan 0:02:40.520 --> 0:02:45.560 government on Muslim radicals. Um, you know, temperate temper, temper 0:02:45.600 --> 0:02:48.280 as easily rise. I mean, we've been fortunate that they've 0:02:48.360 --> 0:02:52.200 had some very rational statesmanlike leaders on both sides who 0:02:52.240 --> 0:02:55.760 steered and clear of conflict. But the potential for disaster 0:02:55.960 --> 0:02:58.600 is I'm afraid also real. But is this the retrenchment 0:02:59.000 --> 0:03:01.840 of you know, the the superpower that is the US 0:03:02.000 --> 0:03:04.360 is from playing a bigger role in the region. Well, 0:03:04.400 --> 0:03:07.400 it's certainly part of it. I mean, actually, at the moment, 0:03:07.440 --> 0:03:10.600 I think probably China has more influence in the region 0:03:10.639 --> 0:03:14.160 because of its very big investment in Pakistan. But the 0:03:14.200 --> 0:03:17.560 United Nation, the Artied States traditional they played a role 0:03:17.680 --> 0:03:21.639 in both sides. They valued India because of its economic 0:03:21.680 --> 0:03:24.960 importance and its democracy. Once upon a time, you may 0:03:25.000 --> 0:03:27.680 remember J. K. Gab Braith was sent as now as 0:03:27.720 --> 0:03:31.560 a symbol um. And of course on the Pakistan side, 0:03:32.480 --> 0:03:36.400 the United States supported them for geopolitical reasons. The United 0:03:36.440 --> 0:03:39.960 States has largely walked away. Uh. And then that's one 0:03:40.000 --> 0:03:42.520 of the factors that I think adding to the installability 0:03:43.120 --> 0:03:46.160 Dr Cable, as you mentioned John Kenneth Gilbert through working 0:03:46.160 --> 0:03:48.240 with John F. Kennedy a few years ago and all 0:03:48.280 --> 0:03:51.800 that symbolism. You attended the meetings of Endurer Gandhi and 0:03:51.800 --> 0:03:55.520 Margaret Thatcher of another time and place, give us an update. 0:03:55.840 --> 0:03:59.520 What is the special relationship right now of the United 0:03:59.640 --> 0:04:04.240 Kingdom with India. Probably not as big as a lot 0:04:04.280 --> 0:04:06.720 of British people would like to believe, of course it 0:04:06.840 --> 0:04:09.480 is was probably part of the British Empire. We left 0:04:09.480 --> 0:04:12.440 a big legacy, much of it good, some of it bad, 0:04:12.520 --> 0:04:18.440 including the partition of India. Um. But the real role 0:04:18.520 --> 0:04:20.919 that Britain plays is the fact that we now have 0:04:21.080 --> 0:04:24.960 a substantial minority in the UK of migrants who came 0:04:25.000 --> 0:04:29.760 here from the subcontinents some of them from Passion, from Pakistan, 0:04:29.839 --> 0:04:33.200 many of them from Kashmir, and many Indians who came 0:04:33.279 --> 0:04:36.120 here as well. And so in a way, but the 0:04:36.200 --> 0:04:38.760 good and the bad of the Indian subcontinents has been 0:04:39.240 --> 0:04:42.599 transplanted into British society. That's that is the main link 0:04:42.640 --> 0:04:46.279 we now have. How all the world's economy and I 0:04:46.320 --> 0:04:49.480 guess linked to that geopolitics change in the next ten years. Well, 0:04:49.560 --> 0:04:52.279 because India is becoming a superpower and this is it 0:04:52.320 --> 0:04:56.159 will I mean in population terms, it will overcome overtake China. 0:04:56.880 --> 0:05:01.800 Its economy is extremely dynamic egg um and it's it's 0:05:01.800 --> 0:05:04.880 a peculiar case I think it's a very state controlled economy, 0:05:04.920 --> 0:05:08.200 but with a very dynamic private sector. There's this saying 0:05:08.279 --> 0:05:11.160 that they in India the government goes to sleep at 0:05:11.240 --> 0:05:15.719 night and the economy starts to function um and it 0:05:15.920 --> 0:05:18.560 is growing at you know, six seven eight percent a year. 0:05:18.960 --> 0:05:22.799 It is rapidly overtaking China. It's got a long time lag. 0:05:23.720 --> 0:05:26.080 Within a few years time it will have probably have 0:05:26.200 --> 0:05:29.000 the third biggest economy in the world. And I think 0:05:29.040 --> 0:05:32.799 smart people are beginning to appreciate it's important. So Pakistan 0:05:32.880 --> 0:05:36.960 too is is a major economic part potentially, So you know, 0:05:37.680 --> 0:05:40.680 the Western world is underestimating. I think that the shift 0:05:40.720 --> 0:05:43.360 in the center of gravity of the world economy, of 0:05:43.440 --> 0:05:46.280 which India is a critical part. Vince Cable, thank you 0:05:46.279 --> 0:05:47.960 so much for joining as of course he is the 0:05:48.040 --> 0:06:02.320 leader of the UK Liberal Democratic Party, joining us today. 0:06:03.600 --> 0:06:05.880 So our top story a gloomy report from the O 0:06:05.960 --> 0:06:08.359 E c D telling you, ever think you already knew 0:06:08.520 --> 0:06:12.120 the global economy suffering from trade tensions and political uncertainty, 0:06:12.160 --> 0:06:15.560 clouding prospects for the future. The organization cutting the outlook 0:06:15.560 --> 0:06:18.320 again to three point three percent for global growth from 0:06:18.320 --> 0:06:21.200 three point five and warning there may be worse ahead. 0:06:21.440 --> 0:06:23.599 Joining us here in New York is Alan Ruskin, Deutsche 0:06:23.640 --> 0:06:26.679 Bank Global co head of f X Strategy. Good morning 0:06:26.720 --> 0:06:29.840 to Allen. Morning John. How useful is a forecast from 0:06:29.839 --> 0:06:31.520 the O E C D and let's trub in the 0:06:31.520 --> 0:06:34.920 I M F for that matter too. Yeah. Look, these 0:06:34.960 --> 0:06:39.520 are very big organizations that have certain advantages like big 0:06:39.560 --> 0:06:42.719 economic models, but they're obviously not the most number in 0:06:42.760 --> 0:06:45.880 a sense, so they can't change their forecasts and the dime, 0:06:46.160 --> 0:06:48.679 I would argue in this particularly instance, they are really 0:06:48.720 --> 0:06:52.120 following probably a set of market expectations and following the 0:06:52.200 --> 0:06:54.320 data rather than necessary leading it. Well, let's talk about 0:06:54.320 --> 0:06:57.240 the data we have had. We had a really really 0:06:57.279 --> 0:06:59.880 hot print on the I s M in America yesterday. 0:07:00.080 --> 0:07:03.760 Non manufacturing is SAM recovering dramatically. We're getting back to 0:07:03.800 --> 0:07:07.400 that early story of just strength in America and weakness 0:07:07.400 --> 0:07:10.800 our swear. Well, it does still seem to be some 0:07:10.920 --> 0:07:15.559 sense of American exceptionism, because, however, much of the US 0:07:15.720 --> 0:07:19.280 may be slowing, and that's obviously a question mark. However 0:07:19.360 --> 0:07:23.400 much it is slowing, it's probably slowing less than most 0:07:23.440 --> 0:07:27.960 other places. Um. Now, the I s M data, as 0:07:27.960 --> 0:07:31.520 you mentioned, is truly exceptional. At the same time, you're 0:07:31.520 --> 0:07:35.720 probably going to get some oddly week GDP data, albeit 0:07:36.000 --> 0:07:40.360 distorted for quarter one data that could be say sub 0:07:40.400 --> 0:07:43.640 one percent even Um. So it's gonna be interesting. It's 0:07:43.680 --> 0:07:45.440 gonna be quite hard to read the tea leaves as 0:07:45.480 --> 0:07:47.480 far as the data is concern. When people were reading 0:07:47.480 --> 0:07:49.800 the Federal Reserve tea leaves and looking for the pivot 0:07:49.800 --> 0:07:53.160 from Chairman Pal they pushed that view of patients through 0:07:53.160 --> 0:07:55.200 the equity market is done very well. They pushed it 0:07:55.240 --> 0:07:58.160 through credit, it's done very well. They try to push 0:07:58.160 --> 0:08:00.520 it through foreign exchange by assuming we would get a 0:08:00.520 --> 0:08:04.440 week a dollar we haven't had one. What's coming on, Alan, Yes, 0:08:04.600 --> 0:08:08.000 I think that's very much a story of relativism. So 0:08:08.200 --> 0:08:11.760 there you have to compare what's going on in in 0:08:11.800 --> 0:08:18.360 the US versus places like the EU and and particularly Japan. Um. 0:08:18.400 --> 0:08:23.120 What you've seen is the thought process of, well, look, 0:08:23.160 --> 0:08:25.360 if the US is slowing and the FEDS actually not 0:08:25.400 --> 0:08:28.480 going to be doing anything, then the ECB is not 0:08:28.520 --> 0:08:30.680 going to be doing much either, and the ECB is 0:08:30.720 --> 0:08:33.960 going to get locked into negative interest rates at the 0:08:34.000 --> 0:08:36.880 peak of its interest rate cycle, which is widely seen 0:08:36.920 --> 0:08:40.960 as diabolical. So UM it's that that's hamstringing the euro 0:08:41.040 --> 0:08:43.880 in particular. We talked about this at length yesterday. Yesterday 0:08:43.960 --> 0:08:46.920 was fascinating folks, between Liz Economy and a set of 0:08:46.960 --> 0:08:50.360 interviews on China, and also what Mr Ruskin speaks of 0:08:50.400 --> 0:08:54.720 your which is the X axis of negative interest rates. 0:08:55.160 --> 0:09:00.280 We're pushing five years of negative German two year. That's 0:09:00.320 --> 0:09:03.240 not in my textbooks, is it. No, we're we're well 0:09:03.240 --> 0:09:05.520 out of the realms of textbooks unless you've been reading 0:09:05.559 --> 0:09:08.719 the one that has been written in Japanese really for 0:09:08.760 --> 0:09:12.640 the last twenty ideas go out in the last twenty 0:09:12.679 --> 0:09:16.679 four US say that's what Europe faces. Perhaps Japanification. Absolutely, 0:09:16.679 --> 0:09:19.520 it looks very very similar. Indeed, actually that there's this 0:09:19.600 --> 0:09:22.120 sort of sense that you get locked into extremely low 0:09:22.200 --> 0:09:27.880 interest rates. The loudest drag in Europe not Japanify. Well, 0:09:28.160 --> 0:09:30.160 I think the first step would be to look to 0:09:30.200 --> 0:09:34.640 fiscal policy, because oddly enough, Europe has been following relatively 0:09:34.679 --> 0:09:37.840 austere fiscal policies, particularly in Germany, where they've been running 0:09:37.840 --> 0:09:40.280 a surplus. So why are you running a surplus in 0:09:40.280 --> 0:09:46.720 this particularly environment because the currency is an artificial construct, Yes, 0:09:46.800 --> 0:09:49.480 but no, there's there's but there's politics behind it as well. 0:09:49.559 --> 0:09:51.720 I mean, just fell off their chairs in Frankfort at 0:09:51.760 --> 0:09:55.320 Deutsche Bank. Um, where should where should Europe be? For 0:09:55.440 --> 0:09:58.760 Germany and you know, grab your bed, you'll be okay, 0:09:58.920 --> 0:10:03.840 just take a guess. One fifty we can say, we 0:10:03.880 --> 0:10:06.720 can say for the problem Europe has allen. And you 0:10:06.760 --> 0:10:10.760 know this, there is zero consensus for countercyclical fiscal policy 0:10:11.200 --> 0:10:15.680 in Europe. The Europeans, the South might want it, the Italians, 0:10:15.880 --> 0:10:18.480 the Spanish for that matter too, maybe the Greeks, but 0:10:18.520 --> 0:10:21.200 they've been forced by the North and the core of 0:10:21.240 --> 0:10:24.839 Europe to go down a different path. Um, that's right, 0:10:24.880 --> 0:10:26.960 and in some ways you I think John making the 0:10:27.080 --> 0:10:31.480 argument that well, forget Japanification. In fact, Europe's in a 0:10:31.520 --> 0:10:35.200 worse situation than Japan because it doesn't really have its leavers, 0:10:35.360 --> 0:10:37.880 you know, can't pull the levers and policy, no policy 0:10:37.920 --> 0:10:39.800 response whatsoever, which is why the o E c D 0:10:39.920 --> 0:10:42.280 report is backward looking as it is. It's slightly concerning 0:10:42.320 --> 0:10:44.880 because it raises the concern that many people have it's 0:10:44.880 --> 0:10:47.600 a slow down in Europe, the lack of a policy response. 0:10:47.920 --> 0:10:50.080 As we go through to the ECB meeting tomorrow, what 0:10:50.120 --> 0:10:52.760 options do they actually have Allan Well, I think their 0:10:52.800 --> 0:10:55.800 main option is really to roll over l t R 0:10:55.840 --> 0:10:59.840 O two and the like, really keep the liquidity flowing there. 0:11:00.000 --> 0:11:03.000 It that's not an exit story, really, and they have 0:11:03.080 --> 0:11:04.920 thought they were going to be in an exit situation 0:11:04.960 --> 0:11:07.160 at this point in time, so I think they do 0:11:07.240 --> 0:11:10.000 have their hands tied unfortunately, and if we do see 0:11:10.000 --> 0:11:13.240 a growth slowdown, it's inopportune and they might have missed 0:11:13.240 --> 0:11:14.880 the boat in terms of normalize. So the thing we're 0:11:14.880 --> 0:11:17.319 gonna hear more and more over the next coming weeks, 0:11:17.360 --> 0:11:20.240 I assume, is the carry trade and by the US dollar. 0:11:20.760 --> 0:11:23.360 Is that the story for you, Allen, Well, it's it's 0:11:23.400 --> 0:11:25.560 certainly a story that we've been telling for a while, 0:11:26.000 --> 0:11:28.880 and particularly on the carry side of things, a little 0:11:28.880 --> 0:11:30.920 bit less so on the sort of by US dollar. 0:11:31.280 --> 0:11:33.840 And there's been a very active debate, not only in 0:11:33.920 --> 0:11:35.440 terms of what you want to be long in terms 0:11:35.440 --> 0:11:36.920 of carry and let's say you just want to be 0:11:37.000 --> 0:11:40.080 long the whole gamut of em high heeled for the 0:11:40.120 --> 0:11:43.280 time being, at least whilst the U S stock market 0:11:43.360 --> 0:11:45.280 is hanging in and the power put looks to be 0:11:46.000 --> 0:11:48.920 in play, so you want the whole gamut of E 0:11:49.080 --> 0:11:51.440 M longs, and you probably want to be financing it 0:11:51.520 --> 0:11:53.280 with a little bit of yen, a little bit of euros, 0:11:53.320 --> 0:11:55.840 and perhaps some dollars, but the dollar is not necessary 0:11:55.880 --> 0:11:58.199 pewing up its hand as the obvious funding current. Can 0:11:58.240 --> 0:11:59.600 you in focus? This is a little bit of pro 0:11:59.720 --> 0:12:01.840 jury gonna here, but we'll go there on a on 0:12:01.880 --> 0:12:04.560 a cold day in New York? Can you finance the 0:12:04.640 --> 0:12:07.720 carry trade with negative interest rates? Yes? You love it? 0:12:07.880 --> 0:12:10.079 What do you do? How do you do it? And 0:12:10.160 --> 0:12:12.560 the forward points are even more in your favor? The 0:12:12.640 --> 0:12:18.760 microphones over there falling off my still getting excited. I know, 0:12:18.960 --> 0:12:21.240 how do you finance with negative interest? Can I do that? 0:12:21.280 --> 0:12:26.000 With college tuition? You can? You can? How do you do? 0:12:26.640 --> 0:12:31.920 The forward points are exactly reflective really of interest rates spreads, 0:12:32.400 --> 0:12:36.439 and the forward points, whether the rates are zero or negative, 0:12:36.559 --> 0:12:40.679 will be they're adjusted, uh, you know, and appropriate for 0:12:40.760 --> 0:12:42.680 what that interest rate. So I go forward and like 0:12:42.800 --> 0:12:46.800 nine years, swissy grab a negative interest rate? Yeah, and 0:12:46.800 --> 0:12:49.120 and you know, and and historically you will find that 0:12:49.440 --> 0:12:52.920 currentries which have these very low interest rates are expected 0:12:52.960 --> 0:12:55.440 to appreciate over time. And if you think they're not 0:12:55.440 --> 0:12:58.960 going to appreciate, then you can take bet in the 0:12:59.000 --> 0:13:02.360 other direction of that. If you're driving off the road 0:13:02.480 --> 0:13:04.199 right now, don't worry. I'm driving off the road in 0:13:04.240 --> 0:13:07.439 the studio. So Alan Ruskin was some of the complexities 0:13:07.440 --> 0:13:26.080 that carried there. He is with Deutsche Bank. It is 0:13:26.120 --> 0:13:28.520 now a great pleasure to bring to you the tenth 0:13:28.559 --> 0:13:32.160 President of the Federal Reserve Bank of New York, William Dudley, 0:13:32.240 --> 0:13:35.480 out of Williston, out of Berkeley, where he took his 0:13:35.520 --> 0:13:39.440 PhD in New College of Florida a few years back. 0:13:39.520 --> 0:13:42.800 Bill Dudley has been an original economist. He wrote a 0:13:42.920 --> 0:13:45.880 chapter for me with a wonderful at mcelvy years ago 0:13:46.120 --> 0:13:49.480 in my book, and in that he said, there is 0:13:49.559 --> 0:13:52.320 not a moment to lose Bill Dudley. Wonderful to have 0:13:52.360 --> 0:13:54.880 you with us today on the FED A few other 0:13:54.960 --> 0:13:57.760 topics as well. What is there not a moment to 0:13:57.880 --> 0:14:01.319 lose for the markets to hook back with that policy. 0:14:01.640 --> 0:14:05.240 The distance of the dots is substantial, isn't it. Well, 0:14:05.240 --> 0:14:07.199 there's a quite a bit of distance between the last 0:14:07.440 --> 0:14:10.800 summer economic projections and what the market currently thinks. I 0:14:10.800 --> 0:14:13.199 think the key question is when the Fed says their patients, 0:14:13.240 --> 0:14:15.480 does that mean they're done? And I think the answer 0:14:15.559 --> 0:14:18.679 is not necessarily. I think what's gonna happen is we're 0:14:18.679 --> 0:14:21.040 gonna have a pretty weak first quarter and that's going 0:14:21.120 --> 0:14:23.680 to probably reinforce the idea that the SET is done. 0:14:24.000 --> 0:14:25.520 But I think the economy is going to pick up 0:14:25.880 --> 0:14:28.800 steam after that. Some of the issues that we're holding 0:14:28.800 --> 0:14:31.320 the economy back, like the tightening of financial conditions that 0:14:31.360 --> 0:14:34.880 we saw in the fourth quarter, the questions about Chinese growth, 0:14:35.120 --> 0:14:37.280 uncertainties about trade policy. I think those things are going 0:14:37.320 --> 0:14:40.480 to be resolved, mainly positively in the first half of 0:14:40.520 --> 0:14:43.160 the year, So I think fit tightening maybe back on 0:14:43.200 --> 0:14:45.800 the table in the second half of two thousand. So Bill. 0:14:45.840 --> 0:14:47.480 Over the last couple of months, the Federal Reserve has 0:14:47.520 --> 0:14:51.160 come under some criticism about the way it's communicated. It's 0:14:51.320 --> 0:14:54.680 changed towards a position of patients. How does the Federal 0:14:54.680 --> 0:14:58.040 Reserve refinance communication in the coming months to adjust and 0:14:58.120 --> 0:15:01.640 guide the market towards the reality you to described? Well, 0:15:01.680 --> 0:15:03.640 I think the SET is trying to get the market 0:15:03.680 --> 0:15:06.480 to focus less on what it says about its own 0:15:06.480 --> 0:15:09.840 projections and more about the economic outlook. The economic outlook 0:15:09.880 --> 0:15:12.280 is what's going to drive the SET, and what what 0:15:12.480 --> 0:15:14.520 changed in the fourth quarter was we had a lot 0:15:14.520 --> 0:15:19.240 of new developments, financial conditions tightened growth abroad, sload, there 0:15:19.280 --> 0:15:23.640 are uncertainties about trade policy, and inflation was very cuiescent. 0:15:23.880 --> 0:15:26.600 The unemployer rates stopp declining even though perial growth was strong. 0:15:26.640 --> 0:15:29.200 So there's a whole bunch of factors that pushed the 0:15:29.280 --> 0:15:32.360 FED in the direction of being patient. Whether those factors 0:15:32.400 --> 0:15:35.560 persist or not will determine whether in fact patients means 0:15:35.640 --> 0:15:38.280 done well. Bill has been quite co recently to get 0:15:38.280 --> 0:15:40.640 an understanding of the FATS reaction function, because there's been 0:15:40.680 --> 0:15:43.400 a lot of discussion about allowing for an overshoot on 0:15:43.480 --> 0:15:48.080 the inflation target of in and around two In your mind, 0:15:48.160 --> 0:15:50.000 is this the fect that's willing to tolerate a bit 0:15:50.000 --> 0:15:52.760 of an overshoot, And how does that complicate things if 0:15:52.760 --> 0:15:55.080 you say to the market with data dependent, but the 0:15:55.120 --> 0:15:58.160 market doesn't know how you depended on the data. Well, 0:15:58.200 --> 0:16:00.640 I think the discussion about inflation is really a longer 0:16:00.760 --> 0:16:03.040 term issue about do they want to move away from 0:16:03.080 --> 0:16:05.880 their current policy, which is a bygonese policy. In other words, 0:16:05.880 --> 0:16:08.480 if they miss inflation below two percent for a long 0:16:08.520 --> 0:16:11.080 period time, their next move is to try to get 0:16:11.080 --> 0:16:13.240 back to two percent, not above two percent. That's the 0:16:13.240 --> 0:16:16.200 current policy. They're now having discussions about whether that's not 0:16:16.360 --> 0:16:18.600 maybe that's not the right policy because that might lead 0:16:18.640 --> 0:16:22.360 inflation expectations to decline over time. So they're thinking about 0:16:23.040 --> 0:16:26.680 refining their their inflation objectives. But that's different. That's not 0:16:26.680 --> 0:16:28.760 going to happen right in the very near term. They're 0:16:28.760 --> 0:16:31.840 going on a big project over the next six to 0:16:31.880 --> 0:16:35.560 twelve months to evaluate whether their inflation targeting regime is 0:16:35.600 --> 0:16:38.000 the proper one. Taking the near term, it's really gonna 0:16:38.000 --> 0:16:41.000 be about growth pressure on resources and whether that shows 0:16:41.080 --> 0:16:43.720 up in any inflation pressure. And I think the feed 0:16:43.880 --> 0:16:46.800 is going to be tolerant of inflation slightly above two percent. 0:16:47.240 --> 0:16:49.200 But if they think they commun has a lot of momentum, 0:16:49.280 --> 0:16:51.800 if they think inflation is going to keep climbing, then 0:16:51.840 --> 0:16:54.000 they're going to start to tighten again. You're just joining 0:16:54.080 --> 0:16:57.600 us William Dudley, a Bloomberg opinion piece. Don't assume that 0:16:57.640 --> 0:17:00.720 the FET is done at raising rates that according to 0:17:00.760 --> 0:17:04.719 Bill Dudley. Dr Dudley on paragraph seven, you do what 0:17:04.760 --> 0:17:07.440 you do best, which is hide your mathematics. You talk 0:17:07.480 --> 0:17:11.919 about threshold effects, and you also talk about inertial force. 0:17:12.040 --> 0:17:17.080 The physics of monetary policy. Where is the inertial force 0:17:17.280 --> 0:17:22.280 right now in our monetary policy? Well, it takes you know, 0:17:22.280 --> 0:17:24.280 it takes a bit of information for the FED to 0:17:24.359 --> 0:17:26.520 sort of change his mind. So we had a lot 0:17:26.560 --> 0:17:28.640 of evidence in the fourth colore that pushed the FED 0:17:28.680 --> 0:17:31.439 off the off the notion of continuing to tighten in 0:17:31.480 --> 0:17:34.960 the near tray. Now it's going to take that evidence reversing, 0:17:35.119 --> 0:17:37.280 quite a bit of reversal before the FED starts to 0:17:37.680 --> 0:17:40.240 decide to tighten again. Uh So, you know, if you 0:17:40.280 --> 0:17:42.520 look at the FED monrey policy through history, the FED 0:17:42.560 --> 0:17:45.120 doesn't move erratically, don't They don't go up and then down, 0:17:45.200 --> 0:17:47.800 up and then down. They tend to move in in 0:17:48.000 --> 0:17:51.520 st cycles. And that's start shows you that there's thresholds 0:17:51.640 --> 0:17:53.600 effects to get them to move in one direction or 0:17:53.600 --> 0:17:55.600 the other. And once they start moving, it takes quite 0:17:55.600 --> 0:17:57.679 a bit of information to get them to stop. And 0:17:57.720 --> 0:17:59.600 once they've stopped, it takes quite a bit of information 0:17:59.680 --> 0:18:01.280 to get them to move again. But can we just 0:18:01.320 --> 0:18:03.640 take the opportunity to lift the lid on the decision 0:18:03.680 --> 0:18:05.840 making process at the f O m C. Whenever we 0:18:05.880 --> 0:18:08.159 have guests come into radio with Tom and I to 0:18:08.200 --> 0:18:10.399 see how the sausage is made. They're always surprised by 0:18:10.440 --> 0:18:12.359 how messy it really is, and largely because of what 0:18:12.400 --> 0:18:14.800 Tom and I are doing behind the scenes. It's very messy. Tom, 0:18:14.840 --> 0:18:16.480 I'm just wondering how messy it is at the f 0:18:16.560 --> 0:18:20.639 O m C because the market is literally gripping on 0:18:20.800 --> 0:18:23.639 every hanging on every single word you guys put out. 0:18:27.720 --> 0:18:30.280 How to come How do you decide on the word 0:18:30.480 --> 0:18:32.440 everyone's going to go out there and talk about patients. 0:18:32.480 --> 0:18:36.600 Patiences are what you guys sing kumbay are patients? I 0:18:36.600 --> 0:18:38.680 mean patients means what it says that it means I'm 0:18:38.680 --> 0:18:41.000 going to be now to do anything. It doesn't mean 0:18:41.040 --> 0:18:43.040 I'm done. But do you sit around the table bill 0:18:43.080 --> 0:18:44.680 and decide that that's the words You're all going to 0:18:44.760 --> 0:18:46.639 go out and trot around for the next month or so. 0:18:46.760 --> 0:18:48.600 Talk me through the decision making process. How do you 0:18:48.640 --> 0:18:50.520 guys come up with the words? These words are not 0:18:51.000 --> 0:18:53.840 chosen lately. I mean, if you see something that's in 0:18:53.880 --> 0:18:58.200 a speech or in a chair's press conference, those words 0:18:58.240 --> 0:19:02.680 are very close, carefully osen. If someone is speaking extemporaneously, 0:19:02.920 --> 0:19:05.119 then you can discount those words a little bit because 0:19:05.119 --> 0:19:08.520 people obviously can't be point as precise when they're speaking, 0:19:09.280 --> 0:19:12.960 when they're writing. So the words are very important, picking 0:19:13.000 --> 0:19:16.879 those words with care and deliver and after careful deliberation. 0:19:17.320 --> 0:19:19.320 And it's also words that are picked that you know 0:19:19.320 --> 0:19:21.840 their socialized across the committee. I mean typically what happen 0:19:22.000 --> 0:19:26.840 typically the the chair wants the committee to be together, right, 0:19:27.000 --> 0:19:29.440 and so there's you know, there's gonna be some discussion 0:19:29.480 --> 0:19:31.600 about are these kind of words the words that are 0:19:31.600 --> 0:19:33.959 appropriate or not? Bill, I want you to weigh in 0:19:34.040 --> 0:19:36.359 here on the raging debate and the scope of the 0:19:36.400 --> 0:19:39.159 time that we've got left with you this morning. Modern 0:19:39.200 --> 0:19:42.520 monetary theory. Lawrence Summer's writing in The Post on it yesterday, 0:19:42.600 --> 0:19:46.320 Ken Rogoff writing in Project Syndicate, Paul Krugman coming out 0:19:46.400 --> 0:19:51.040 forcefully against a theory advocated by Stephanie Kelton of Stony Brook, 0:19:51.080 --> 0:19:54.280 and she's written this up in Bloomberg Opinion as well. 0:19:54.600 --> 0:19:56.760 I don't want to go into a great dissertation right 0:19:56.760 --> 0:19:59.879 now in MMT, but part of it is a belief 0:20:00.080 --> 0:20:04.760 that the legislative branch can make a decision making or 0:20:04.840 --> 0:20:10.840 can execute decision making on fiscal slash monetary policy in 0:20:10.840 --> 0:20:14.560 a more efficacious way than they fed a reserve system. 0:20:14.600 --> 0:20:17.600 Do you see any evidence of that that there can 0:20:17.640 --> 0:20:22.720 be a better process of execution of our fiscal policy 0:20:22.720 --> 0:20:25.680 other than from the Fed. Look, I did not subscribe 0:20:25.680 --> 0:20:28.280 to monitor Monterey theory at all. I mean, the fact 0:20:28.320 --> 0:20:30.240 that you issued debt in your own currency means you 0:20:30.280 --> 0:20:32.720 can't default, that's true, But that doesn't mean you can't 0:20:32.760 --> 0:20:35.679 have a huge hyperinflation problem. And this was tried in 0:20:35.760 --> 0:20:38.399 that we were a republic of tried in Zimbabwe and 0:20:38.480 --> 0:20:40.439 we had a little episode of this in the in 0:20:40.480 --> 0:20:43.280 the nineteen sixties and nineteen seventies. This is a really 0:20:43.280 --> 0:20:46.760 a correct pot theory in my opinion that said, could 0:20:46.800 --> 0:20:49.960 there be better coordination of Monterrey policy and fiscal policy? 0:20:50.600 --> 0:20:53.000 Absolutely so, if the if the FED were trapped at 0:20:53.000 --> 0:20:55.600 the zul or bound for interest rates, it would be great. 0:20:55.600 --> 0:20:57.720 If we had a fiscal policy at that time that 0:20:57.840 --> 0:21:01.200 was strongly procyclical, that was actually prod support to the economy. 0:21:01.520 --> 0:21:04.119 One thing I'd like to see is the fiscal stabilizers, 0:21:04.160 --> 0:21:07.840 automatic fiscal stabilizer strengthened so if there is an economic downturn, 0:21:07.920 --> 0:21:10.359 people know that the government's gonna cut fiscal you know, 0:21:10.400 --> 0:21:12.960 east fiscal policy and that's going to stimulate the that 0:21:12.960 --> 0:21:15.680 would help the FED do his job. So better coordination 0:21:15.680 --> 0:21:18.200 between the fiscal side and the entrey policy side would 0:21:18.280 --> 0:21:20.600 help the economy bill. This is so important. You and 0:21:20.720 --> 0:21:25.000 Ed mkelvey were so far out front on concerned and 0:21:25.040 --> 0:21:28.560 the ramifications of a growing debt or deficit. Where we 0:21:28.720 --> 0:21:32.159 are now, according to CBO, is so much worse than 0:21:32.280 --> 0:21:35.840 McKelvey and Dudley ever thought about. How do you reframe 0:21:35.880 --> 0:21:38.920 There's not a moment to lose on our fiscal policy 0:21:39.240 --> 0:21:43.000 in two thousand twenty or two thousand. Well, I think 0:21:43.040 --> 0:21:45.159 the problem is that the markets right now are just 0:21:45.240 --> 0:21:47.760 not worried about it. Uh. You know, even though the 0:21:47.800 --> 0:21:51.159 deficit past is not good, that debt service costs are 0:21:51.200 --> 0:21:53.480 going to climb very very sharply over the coming years, 0:21:53.800 --> 0:21:56.720 the baby generations and retire and time and spending costs 0:21:56.760 --> 0:21:59.639 are gonna go up. Markets are just not worried about it. 0:21:59.680 --> 0:22:01.800 And so I think the problem is until markets start 0:22:01.840 --> 0:22:04.159 to become more concerned about it, there's not gonna be 0:22:04.160 --> 0:22:06.919