Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: The global push into infrastructure, breaking the IPO logjam in text.
Speaker 1: The financial stories that shape.
Speaker 2: Are were cutting inflation without losing jobs? Do we need
Speaker 2: rate cuts and if so, how many? Investing in the
Speaker 2: time of geopolitical turmoil?
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Keen Roguoff economists at Harvard, former FDIC had Shila bet
Speaker 2: Ge CEO, Larry Kulp, San Francisco FED President Mary Daily, Bloomberg.
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio.
Speaker 3: A cooling labor market, a FED that is waiting in
Speaker 3: the wings, and David Wesson's special edition from Aspen. This
Speaker 3: is Bloomberg Wall Street Week. I'm scarlet food this week.
Speaker 3: MIT Professor Christen Forbes on what the FED has been
Speaker 3: waiting for.
Speaker 4: There had been a leaning before the pandemic and the
Speaker 4: post pandemic inflation, to wait till you saw inflation, until
Speaker 4: you saw the weights of the eyes of inflation.
Speaker 3: And US Ambassador to Japan Ram and Manual on China's
Speaker 3: global strategy with.
Speaker 5: China is stealing and they bring caught.
Speaker 3: We start with the unexpected cooling in the US labor market.
Speaker 3: The US economy added one hundred and fourteen thousand jobs
Speaker 3: in July, lower than the estimated one hundred and seventy
Speaker 3: five thousand jobs, and the unemployment rate also ticked up
Speaker 3: to four point three percent. This softness is raising questions
Speaker 3: about the Fed's decision to wait to cut rates. Bloomberg's
Speaker 3: Michael McKee joins US now. So not only did we
Speaker 3: get a miss for the July number, we also had
Speaker 3: a downward revision to the Jude number as well. What
Speaker 3: does a breakdown look like in terms of sectors, Well, this.
Speaker 6: Was a generally weak report across the board. The worst
Speaker 6: was information services, which is the tech world, and so
Speaker 6: that is not completely surprising. Government also hiring sloads significantly there,
Speaker 6: but there wasn't a particular area that stood out other
Speaker 6: than we like to look at temporary health services and
Speaker 6: they lost almost nine thousand jobs in that area, which
Speaker 6: is sometimes a harbinger of worse things to come as
Speaker 6: companies cut back on temporary workers before they let go
Speaker 6: of their own.
Speaker 3: Now, speaking of worse things to come, the other thing
Speaker 3: about the rise and the unemployment rate to four point
Speaker 3: three percent is that it triggered a recession call. And
Speaker 3: this has to do with something called a Sam rule.
Speaker 6: Claudia Sam, former FED official, designed the rule, and basically
Speaker 6: it posits that if you get a certain level of unemployment,
Speaker 6: certain change in the amount of unemployment.
Speaker 7: When you get to that level, which is half.
Speaker 6: A percent above the low, then it goes up much
Speaker 6: faster and you're already in recession at that point. And
Speaker 6: it's been a slow grind up as unemployment has risen.
Speaker 6: And while we didn't exactly get to the half percent move,
Speaker 6: it's close enough. And so that's why you're seeing the
Speaker 6: reaction that we have seen on Wall Street is because
Speaker 6: everybody's afraid now that this portends really bad news for
Speaker 6: the overall economy.
Speaker 3: So that's Wall Streets reaction. But I know you speak
Speaker 3: with FED officials, you look at economists notes. What do
Speaker 3: FED officials think of this latest jobs report?
Speaker 6: Well, the first thing they're going to tell you is
Speaker 6: that we never look at one piece of data and
Speaker 6: make a decision based on that, And this is one
Speaker 6: data report.
Speaker 7: There'll be another Job's.
Speaker 6: Report to CPI reports before we get to the next
Speaker 6: FED meeting on September eighteenth, and so they're going to
Speaker 6: want to look at a lot of other different things,
Speaker 6: but it does appear clear that the economy is slowing.
Speaker 6: You have to remember that that's what they wanted. They
Speaker 6: wanted the economy to slow down. The labor market was overheating.
Speaker 6: One hundred and fourteen thousand jobs isn't a bad number.
Speaker 6: It's about the replacement level that the FED would be expecting.
Speaker 7: It's just that we got there in.
Speaker 6: One month rather than over a slow period of time.
Speaker 6: So they're going to push back on the panic aspect
Speaker 6: of it in the markets and say we still have
Speaker 6: a strong economy. GDP has been strong, and we'll wait
Speaker 6: and see what the rest of the data tell us.
Speaker 3: I guess they could also pushback using another data point
Speaker 3: in today's report, which is the participation rate for prime
Speaker 3: major Americans actually rose to the highest in two thousand
Speaker 3: and one, to eighty four percent. So that is a
Speaker 3: silver lining, isn't it.
Speaker 7: It is a silver lining. It's something the FED has
Speaker 7: been wanting to see.
Speaker 6: And really, the unemployment rate went up because a lot
Speaker 6: more people entered the labor force. People think they can
Speaker 6: get jobs and so they start looking, and because that
Speaker 6: number gets larger, the denominator gets larger.
Speaker 7: It makes the unemployment rate a little bit bigger.
Speaker 6: One reason that even Claudia Sam says the sum rule
Speaker 6: may not hold this time because normally it's based on
Speaker 6: the idea of your going into recessions of companies or
Speaker 6: cutting workers.
Speaker 7: But we're not really seeing that.
Speaker 3: So that's an interesting point, the fact that the market
Speaker 3: will bring rates lower on its own, and you could
Speaker 3: see that with bond's rallying hard after the latest jobs report.
Speaker 3: Who does it not help out to have just market
Speaker 3: rates come down, but the Fed's key rates stay where
Speaker 3: it is.
Speaker 6: It's not going to help the con consumer borrowing as much.
Speaker 6: We know that credit card rates are very sticky, and
Speaker 6: that's what people notice the most about tight credit is
Speaker 6: that they're paying more on a monthly basis for interest.
Speaker 6: It'll probably be slow to hit the housing market. Housing
Speaker 6: rates may come down some, but we're around seven percent
Speaker 6: and have been for a couple of years, and we
Speaker 6: don't know how low mortgage rates have to go before
Speaker 6: people feel comfortable borrowing again, but some say four to
Speaker 6: five percent, so it'll take a while to get there.
Speaker 6: And then car sales are the other big interest rate
Speaker 6: sensitive sector, and again we don't know whether companies will
Speaker 6: go back to offering incentives, something to drive the purchases.
Speaker 3: All right, Bloomer's Michael McKee, thank you so much, our
Speaker 3: international economics and policy correspondent.
Speaker 2: We spent the week in Colorado at the Aspen Economic
Speaker 2: Strategy Group, where each summer, prominent economists gather with leaders
Speaker 2: from government and industry to talk about issues that affect
Speaker 2: markets and investors and ultimate all of us. One of
Speaker 2: the subjects of discussion this year was that sudden switch
Speaker 2: to Vice President Kamala Harris as the Democratic nominee for
Speaker 2: president and what that could mean for the policy alternatives
Speaker 2: this November. One of those attending was US Ambassador to
Speaker 2: Japan Ram Emmanuel, who gave us the view from Asia.
Speaker 5: From your friend's side, they very much interested in America selection,
Speaker 5: as is your foe. But from a different perspective. Take
Speaker 5: President Biden's leadership that created the Japan Korea Trilateral which
Speaker 5: is historic. One of China's basic principles is the three
Speaker 5: of us can never get on the same page big time,
Speaker 5: then the United States, Japan, and Korea never happened before
Speaker 5: that twilight and this kind of hub and spoke strategy
Speaker 5: that's now becoming more like a lattice work. All of
Speaker 5: it depends on the indispensable presidence power of the United
Speaker 5: States and the permanence of that. Your foes have a strategy,
Speaker 5: which is America's a receding power and don't bet long
Speaker 5: on them. You got to bet on us. And so
Speaker 5: people want to know whether there's going to be a
Speaker 5: foreign policy that counts out. You know, you can't have
Speaker 5: alliances without allies. Are they going to be counted? And
Speaker 5: we're making historic strides, at least in Japan, but I
Speaker 5: can say in other countries also of among friends, and
Speaker 5: so their big concern in the election is are we
Speaker 5: going to stay on this path or is it going
Speaker 5: to be a radical change to friend and foe where
Speaker 5: you not being able to tell the difference.
Speaker 2: So tell us more about that. I think it's called
Speaker 2: trilateral minister's meeting you had for ten days. I think
Speaker 2: with South Korea, no, no.
Speaker 5: No, no. I have patients, but not that much patience.
Speaker 8: In fact, I have zero patience.
Speaker 5: So this weekend was there were four first time ever events.
Speaker 5: One is the United States in what's the Secretary of
Speaker 5: State and Defense met with their counterparts and for the
Speaker 5: first time in seventy years, America is going to update
Speaker 5: their military presence and for structure in Japan, We're going
Speaker 5: to go from management to operational command and control, biggest
Speaker 5: change in seventy years, and bring parts of Indo Pacific
Speaker 5: in Honolulu forward to theater. Second, we've been making since
Speaker 5: Camp Davids President Biden's meeting there, making a lot of
Speaker 5: progress on the political diplomatic side. For the first time ever,
Speaker 5: the defense ministers of the three countries met and planned
Speaker 5: military exercises and strategy and integration.
Speaker 2: For the for the next four years.
Speaker 5: Third, extended to terms, which is America's nuclear commitment to
Speaker 5: the security and safety of Japan at a ministerial level
Speaker 5: had never been so it's raised the level, especially given
Speaker 5: to China's increase in nuclear capability with what North Korea
Speaker 5: is doing. And then fourth, the first time ever in
Speaker 5: agreement with an ally about military industrial co production and
Speaker 5: code development. And when you take for those principles, the
Speaker 5: quantitative aggregate is a qualitative significant change and it is
Speaker 5: the biggest kind of the last thirty six hours. A
Speaker 5: lot of news in America, but for the Indo Pacific
Speaker 5: strategy for what we're trying to do in the sense
Speaker 5: of building dimatic, political and military alliances. The most significant
Speaker 5: weekend in American into Pacific presence.
Speaker 2: And how durable do you think that is? Because there
Speaker 2: are a lot of disagreements in this election between the
Speaker 2: Democracs of Roehunts. The one bipartisan points seems to be
Speaker 2: a real concern about China. I think that position ourselves.
Speaker 5: If I can. I think there's two countries that have
Speaker 5: bipartisan agreement, one about China and about Japan, but from
Speaker 5: different perspectives, and I do think.
Speaker 7: It's durable.
Speaker 5: Japan today, in the last three years, has made changes
Speaker 5: to five separate seventy year old policies. They've gone from
Speaker 5: one percent to two percent on GDP. For defense, they'll
Speaker 5: become the third largest military in the world. They're adopting
Speaker 5: counter strike capability. They've changed their export capability. They've opened
Speaker 5: up and stabilized their relationship with Korea. So when you
Speaker 5: aggregate all those capacities, they're coming up as a full partner.
Speaker 5: And then the most important thing, which we sometimes don't
Speaker 5: fully in my view, appreciate in the Indo Pacific Asian countries,
Speaker 5: Japan's the most popular country. Seventy years of development, diplomatic
Speaker 5: work huge political benefit to the alliance. There we are
Speaker 5: going as two countries from kind of alliance management to
Speaker 5: alliance or alliance kind of protection to alliance per UH projection,
Speaker 5: and Japan can be a significant partner in the region
Speaker 5: and is a significant partner, and that accrues to America's
Speaker 5: kind of hur our diplomacy while very good. We come
Speaker 5: in with a lot of resources and assets. Japan comes
Speaker 5: in what's dubbed soft power, but it accrues to huge
Speaker 5: political benefit to the UH alliance.
Speaker 2: Do you see a path forward to a world in
Speaker 2: which we engage with China economically? We don't just isolate them,
Speaker 2: that's unrealistic given their size, but do not enable them
Speaker 2: because it feels like the United States is going back
Speaker 2: and forth.
Speaker 5: You know, I nobody would ever look at this and
Speaker 5: say this is a diplomat. So where deterrence ends and
Speaker 5: provocation begins, I don't know, and nobody knows. It's more
Speaker 5: art than it is science. You can have engagement. So
Speaker 5: here's just a short I thought it was the right
Speaker 5: strategy when you look at equities where China was better
Speaker 5: to have them in the tenth than out. What the
Speaker 5: mistake was in twenty twelve. Basically, when President She comes
Speaker 5: to power, we went from they went from thinking of
Speaker 5: America in the West as strategic competitors to strategic adversaries.
Speaker 5: We held onto strategic competitors a decade too long. Now
Speaker 5: we're accelerating realizing that this is different. You can't have
Speaker 5: a system where somebody's part of it, where intellectual property
Speaker 5: theft is a norm. It's just too volatile to a
Speaker 5: system based on trust and law. They're stealing stuff from Google.
Speaker 5: That's not a case. They're stealing stuff from ASML. And
Speaker 5: I'll take one case. ASML makes a SUITAE my conductor
Speaker 5: laser technology. Tokyo Electron is a big competitor. Nikon's a
Speaker 5: big competitor. They compete, they out innovate, They don't steal
Speaker 5: from each other. But China is stealing and they've been
Speaker 5: caught stealing. You can't have an international system, so can
Speaker 5: we have. Sure, you can trade, but you can't steal.
Speaker 5: You can't cheat, okay, and you can't subsidize your private
Speaker 5: sector to the point that their whole strategy is to
Speaker 5: crush the opposition. That's a different economic model, to the
Speaker 5: point that it is destructive.
Speaker 2: That was Ram Emmanuel, US Ambassador to Japan. Coming up,
Speaker 2: we get a view from the other side of the
Speaker 2: aisle with Kevin McCarthy, former Speaker of the House.
Speaker 8: So if you ask me to run the race, it's
Speaker 8: all about Pennsylvania.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is special edition of Wall Street Week coming from
Speaker 2: the Aspen Economic Strategy Group meetings in Colorado. Former Speaker
Speaker 2: of the House Kevin McCarthy was one of those at
Speaker 2: the meetings and we asked him about what the next
Speaker 2: president will face, whether it is Donald Trump or Kamala Harris.
Speaker 8: We're already facing it. We are paying more an interest
Speaker 8: than we paid in defense, the proportion of GDP. What
Speaker 8: dead is We haven't seen this since World War Two,
Speaker 8: but we were fighting to save the world. Right, What
Speaker 8: are we doing now? And it's just on a spiral
Speaker 8: effect that if we don't do something now, the options
Speaker 8: will be taken away for us to save those programs
Speaker 8: that we know are so critical for this country.
Speaker 2: In your own party, you have somebody like a Glenn
Speaker 2: Youngkin who has some experience with business he really understands
Speaker 2: the way a budget works. Do you have hopes that
Speaker 2: a Glenn Youngkind who's not going to be the vice
Speaker 2: president of nominee now a contrary to what I think
Speaker 2: you would have preferred. Is there a voice for a
Speaker 2: Glenn Youngkin right now in your party?
Speaker 9: Yeah?
Speaker 8: And you have to remember a vice president is just
Speaker 8: one position. You pick a team and a cabinet. I
Speaker 8: think Glenn Youngkin would be perfect a cabinet because now
Speaker 8: not only does he have business experience, he has government
Speaker 8: experience as a governor, that's a manager. I think governors
Speaker 8: make better presidents.
Speaker 1: Right.
Speaker 8: They can't print more money, but they have to balance
Speaker 8: a budget, they have to run agencies they didn't create,
Speaker 8: and they have to work with both sides of the aisle.
Speaker 8: And what Glenn also did was understand the importance of
Speaker 8: education and the power of what that changes individual lives.
Speaker 8: I think Glenn inside would be fabulous, And there's a
Speaker 8: lot of people out there that I think can add
Speaker 8: to the ticket to actually make it more powerful on
Speaker 8: both sides.
Speaker 2: You've said that you think Donald Trump is a changed
Speaker 2: man after that attempt on his life. You've seen him,
Speaker 2: you've dealt with him, you believe that. Is he a
Speaker 2: changed man when it comes to economic policy.
Speaker 8: You know, there's certain things that he believed long before
Speaker 8: he ever ran, and some of them are really we're
Speaker 8: Republican ideas in the turn of the century. You know,
Speaker 8: he believes in a strong nation. He's always said that,
Speaker 8: he believes that tariffs not let other countries have their.
Speaker 1: Way about him.
Speaker 8: Get mad at the way he delivered, but he was
Speaker 8: one hundred percent right when he went to NATO and said,
Speaker 8: you got to pay more. You promised all this time,
Speaker 8: and these other people would invade. He gives America greater strength.
Speaker 8: The only time Putin never invaded as he was in
Speaker 8: charge was under Trump's administration. So, I mean, there's certain
Speaker 8: things he fundamentally believes, but he does get by being
Speaker 8: a business person. Now that may set people off differently
Speaker 8: because he'll say things that seem out of the ballpark
Speaker 8: for a politician, but it's not for a business person
Speaker 8: who's negotiating.
Speaker 2: Well, what about the other side. I understand you're a Republican,
Speaker 2: but now have Kamala Harris. Does she have an opportunity
Speaker 2: to make some sort of a pivot on bidnamics that
Speaker 2: might make sense towards the center. Do you have any
Speaker 2: hope of that she does.
Speaker 8: But you want to look at history what's interesting, and
Speaker 8: this race is totally different. The last six weeks of
Speaker 8: politics in America is something we probably will never see again.
Speaker 8: A top candidate being convicted, a debate that a sitting
Speaker 8: president collapses on an assassination attempt you probably haven't seen
Speaker 8: since the sixties, and the president pulling out. Now the
Speaker 8: vice president is a part of that ticket, so all
Speaker 8: those policy things she's still rapped to. She comes from
Speaker 8: San Francisco, so she comes from being in the Senate.
Speaker 8: She was rated as the furthest to the other side.
Speaker 8: But it's a new day for Democrats when they were
Speaker 8: about to completely can collapse. But it looks a lot
Speaker 8: a lot like nineteen eighty eight. Do Caucus becomes the nominee.
Speaker 8: He's a liberal governor from Massachusetts and picks a moderate
Speaker 8: Democrat senator from Texas. He's ahead by seventeen points mid
Speaker 8: July coming out of their convention. You got George Bush
Speaker 8: behind being the VP. He picks this young senator from
Speaker 8: the Midwest that doesn't take off very well. Right, sounds similar,
Speaker 8: But what happened you saw those policies come out across
Speaker 8: the Willie horton the week on crime when crime's a
Speaker 8: big concern to people. Then you saw the moment of
Speaker 8: Ducaucus in a tank, So the question became are they
Speaker 8: prepared for the three am call? Then you got that
Speaker 8: moment in time in a debate or you still opposed
Speaker 8: to the death penal even if your wife was raped?
Speaker 8: And he said yes. So it was out of step
Speaker 8: where America was. So it really did come down to
Speaker 8: policies and lo and behold, George Bush had a really
Speaker 8: big election. I don't know if that happens there now.
Speaker 8: But you've got a history of Kamala starting very strong
Speaker 8: in campaigns, but as the campaign goes, she doesn't do
Speaker 8: as well. Now this is a short campaign, so maybe
Speaker 8: advantage to her, but she has a long history of
Speaker 8: the policies that are kind of out of step when
Speaker 8: it comes to crime, inflation, and the border, and she
Speaker 8: had a responsibility for it. So she's going to have
Speaker 8: to overcome that. Now Trump has a ceiling to where
Speaker 8: he was before and the last presidential race, Biden won
Speaker 8: it by forty nine hundred eight team votes. So if
Speaker 8: you ask me to run the race. It's all about Pennsylvania.
Speaker 8: If Trump only kept the states that he won last
Speaker 8: time when he lost, and he only picked up Pennsylvania
Speaker 8: and Georgia and won the majority of votes in Maine,
Speaker 8: that's two seventy he wins. So it's going to be
Speaker 8: interesting that Kamla It's got the ability to pick her
Speaker 8: VP candidate after knowing all the cards are held out.
Speaker 2: It's an advantage to her.
Speaker 9: Where does she go?
Speaker 2: Well, that sounds like instead of picking a senator from Texas,
Speaker 2: she said, pick a governor from Pennsylvania named Shapiro. Is
Speaker 2: your advice to her?
Speaker 8: No, I don't want to give her good advice.
Speaker 2: I pick somebody else.
Speaker 8: Look, I think Shapiro would be smart, just as I
Speaker 8: thought if you picked Youngkin. It's like a game of chess.
Speaker 8: You want to put more states in play. It would
Speaker 8: have put Virginia in play and it would have been
Speaker 8: a better play down. But she may look to Arizona
Speaker 8: thinking she could play out West right, Deny Trump, Arizona,
Speaker 8: Nevada reshape the debate when it comes to the border.
Speaker 8: Mark Kelly being an astronaut, he's a very interesting Hitit
Speaker 8: go to Tim Walls, a manager I think if she's
Speaker 8: being a senator, I'd pick a governor, a manager, right
Speaker 8: and try to get away from what she's already tried
Speaker 8: to those policies. But look, you're ninety nine days out.
Speaker 8: The advice i'd give anybody, I would listen to Al Davis,
Speaker 8: just win, baby, whatever it takes, just win.
Speaker 2: That was former House Speaker Kevin McCarthy. Wall Street Week
Speaker 2: traveled to Colorado this week for the Aspen Economic Strategy
Speaker 2: Group meetings, and the focus on the FED and where
Speaker 2: it is in an extraordinary period. This included a pandemic
Speaker 2: and a series of dramatic rate increases was very much
Speaker 2: a topic of conversation. MIT Professor of economics Kristin Forbes
Speaker 2: has studied rate cycles through history and took the opportunity
Speaker 2: in Aspen to put what we're seeing into a broader context.
Speaker 4: There had been a leaning before the pandemic and the
Speaker 4: post pandemic inflation to wait till you saw inflation, until
Speaker 4: you saw the weights of the eyes of inflation. And
Speaker 4: mcalesson has learned need to allow center banks to be preemptive.
Speaker 4: They need to be able to start raising interest rates
Speaker 4: ahead of time when they think prices are going to
Speaker 4: pick up quickly. Related to that, I think an important
Speaker 4: lesson we've learned is that as economists central bankers, we
Speaker 4: focus on inflation. So there's a lot of discussion now
Speaker 4: on how inflation is coming back. It's heading back to
Speaker 4: two percent. This has been a remarkably pain free recovery,
Speaker 4: but it hasn't been paid free. The price level has increased.
Speaker 4: It's more expensive for consumers to buy what they need
Speaker 4: to buy to keep their households afloat. And is the
Speaker 4: economists we forget that this price of a basket of
Speaker 4: goods matters to people. Things are more expensive. Is the
Speaker 4: price level that matters to people, not just the rate
Speaker 4: of change of prices. So I think we've learned an
Speaker 4: important lesson that the level of prices does matter. Even
Speaker 4: if inflation comes back down, the increase in inflation and
Speaker 4: the interim can be painful.
Speaker 2: You're an economist, of course, not a politician, But I
Speaker 2: wonder what you just said, Well, that might help explain
Speaker 2: something that I find remarkable. The economy is quite strong
Speaker 2: in the United States right now, and yet a lot
Speaker 2: of people don't feel good about it, and we keep
Speaker 2: saying we inflation is coming down we're getting our control,
Speaker 2: and it doesn't seem to be registering.
Speaker 4: Yeah, I think that's exactly why is that as economists
Speaker 4: we see inflation coming down heading to two percent, they
Speaker 4: think everything's fine. If you look at actually where we
Speaker 4: are in this cycle, it's quite remarkable. We have had
Speaker 4: remarkable swings where unemployment increase and now it's come back down.
Speaker 4: We saw GDP growth collapse and now it's come back.
Speaker 4: So things look good in terms of the finish point.
Speaker 4: Inflation is coming down too, but yet in the interim
Speaker 4: we sell the price level increase and everything just costs more.
Speaker 4: So even though the endpoint looks good, there's been a
Speaker 4: lot of pain to get there.
Speaker 2: You've said that we should not wait till we see
Speaker 2: the whites of the eyes of inflation. That means they
Speaker 2: should be a little faster on the trigger. Is a
Speaker 2: correlaor that that they should be more flexible and coming
Speaker 2: back down as well. I mean there's some sense, but
Speaker 2: once we start moving in one direction, we have to
Speaker 2: keep going in that direction. We're even talking about that
Speaker 2: now with cuts. Once they start to keep going, do
Speaker 2: they have to be a little more flexible on the
Speaker 2: up and down sides?
Speaker 4: So I think another lesson we've learned is that central
Speaker 4: banks need to be cautious about boxing themselves in ahead
Speaker 4: of time. There's always there's always surprises. You need to
Speaker 4: keep your options open to go in both directions, and
Speaker 4: you need to be able to pivot quickly. I think
Speaker 4: part of the reason why central banks were slow raising
Speaker 4: interest rates this time is they had locked themselves into
Speaker 4: so much forward guidance, locked themselves into asset purchases. It
Speaker 4: was slow to pivot when the situation changed. And similar
Speaker 4: now as we're looking forward, there could be some major
Speaker 4: changes in economic policy, which might mean the central bank
Speaker 4: will have to change policy quickly, so they should keep
Speaker 4: options open going forward.
Speaker 2: In law, we say hard cases make bad law. Is
Speaker 2: there an equivalence in economics?
Speaker 4: The change in the FEDS mandate and how it responded
Speaker 4: was partly a response to the decades of very low inflation,
Speaker 4: where people were less worried about inflation picking up, and
Speaker 4: now we're seeing the oppositeere inflation can pick up quite quickly.
Speaker 4: So as central banks go back and rethink mandates that
Speaker 4: should be front and centers, we rethink mandates for all
Speaker 4: different scenarios going forward.
Speaker 2: You've done research and analysis about the sort of rate
Speaker 2: cycles going back quite a way. Was this one different
Speaker 2: from all the others?
Speaker 4: Yeah, great question, which fascinating when you look at this
Speaker 4: most recent rate cycle. There's some ways this is unique
Speaker 4: and unprecedented. There's other ways it's just like great cycles
Speaker 4: from the nineteen eighties and nineteen nineties. We recently wrote
Speaker 4: a long paper on this for CenTra with a couple
Speaker 4: co authors at the World Bank, and we described this
Speaker 4: rate cycle as similar to the parable of the blind
Speaker 4: men and the elephant. In some ways, it's like nothing
Speaker 4: that's come before. In some ways it's a lot like
Speaker 4: past cycles. But let me give you a concrete example
Speaker 4: of some ways this is unique that we haven't seen before.
Speaker 4: One is just the swings in economic activity, the collapse
Speaker 4: in activity, the collapse in employment, and then also the rebound.
Speaker 4: We've never seen such a quick rebound in the labor market,
Speaker 4: in activity, and in inflation. Another way the cycle has
Speaker 4: been unique is that central banks, on average across the
Speaker 4: advanced economies were slow to respond to the pickup in
Speaker 4: inflation and recovery, but then they responded by being unusually
Speaker 4: aggressive to make up for being slow. So it's the
Speaker 4: most synchronized period of rate high we have ever had,
Speaker 4: at least in the data I've looked at since nineteen seventy.
Speaker 4: And it was also followed by central banks keeping rates
Speaker 4: on hold for longer on average than they ever have
Speaker 4: at their peaks, so unusually slow start, but then aggressive
Speaker 4: response hold rates at their peaks for longer. And what's remarkable,
Speaker 4: despite all those unprecedented characteristics of the cycle, we're now
Speaker 4: settling about where you settle two and a half to
Speaker 4: three years after you start hiking rates.
Speaker 2: And giving your study of rate cycles, do you have
Speaker 2: a sense because some people think we're going to end
Speaker 2: up at a higher level than we were before you
Speaker 2: call it our star nutur rate or whatever. Other people say, no,
Speaker 2: we're going to go back down to lower rates. Do
Speaker 2: you have a view on that?
Speaker 4: So, based on my study of historic rate cycles, what
Speaker 4: it suggests is rates may not go down as low
Speaker 4: as most people expecting, or say the FEDS dot plot
Speaker 4: is predicting. Based on this historical comparison, looks like things
Speaker 4: are largely normalizing now where you would at this point
Speaker 4: in a rate cycle, which means rates are probably settling
Speaker 4: not far off where they're going to settle in rates
Speaker 4: now about five in a quarter, which means they would
Speaker 4: not be going all the way down to the sort
Speaker 4: of three two and a quarter three and a half
Speaker 4: that is in the FED stop plight right now, given
Speaker 4: where all the other measures of economic activity are.
Speaker 2: That was MIT economics professor Kristin Forbes coming up some
Speaker 2: thoughts on what Vice President Harris needs to think about
Speaker 2: as she resets the presidential campaign. From the man who
Speaker 2: oversaw policy and speech writing for George Herbert Walker Bush
Speaker 2: is Bob Zelik.
Speaker 7: She's got to step.
Speaker 10: Out of the shadow inherit some of the benefits, but
Speaker 10: reintroduce herself to the public.
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is a special addition to Wall Street Week, coming
Speaker 2: to you from the Aspen Economic Strategy Group meetings. Kamala
Speaker 2: Harris is trying to move from Vice president to be
Speaker 2: elected as president. The last person to do that was
Speaker 2: George Herbert Walker Bush, and before his service as World
Speaker 2: Bank President and Deputy Secretary of State, Bob Zelik ran
Speaker 2: policy and speech writing for the Bush campaign. He shared
Speaker 2: with US his thoughts on the road ahead for miss Harris.
Speaker 2: Vice president is clearly an in the shadow position. So
Speaker 2: one of the challenges for Bush in eighty eight and
Speaker 2: now for Vice President Harris is she's got to step
Speaker 2: out of the shadow inherit some of the benefits, but
Speaker 2: reintroduce herself to the public. She also has to try
Speaker 2: to figure out how she's going to define her opponent,
Speaker 2: and she's got relatively short time to do that. So
Speaker 2: Bush used his convention speech to very good effect to
Speaker 2: kind of reintroduce himself, talk about his background, his story,
Speaker 2: kind of his mission. Critically, why do you want to
Speaker 2: be president?
Speaker 4: Yeah?
Speaker 10: People want to hear.
Speaker 2: That to her.
Speaker 10: So I think that's one thing to watch. The second
Speaker 10: is her vice presidential choice. That's always the first opportunity
Speaker 10: for candidate to take his or her own decision. And third,
Speaker 10: depending on what happens with the debate, that'll be another
Speaker 10: defining area because Biden had so much trouble and now
Speaker 10: you sort of see sort of Trump moving back and forth.
Speaker 10: Is the one other thought that I would express on
Speaker 10: this is that in some ways she has a strength
Speaker 10: that Biden and George Herbert Walker Bush didn't have, which
Speaker 10: is that she's got a very enthusiastic base. Bush didn't
Speaker 10: have that so much on the right, and Biden had
Speaker 10: a little bit of problem with their progressives. That actually
Speaker 10: gives her a little room to edge towards the center
Speaker 10: and seat of send some messages. It doesn't have to
Speaker 10: be on big policies, but just even in terms of
Speaker 10: language on issues that I think could could help her.
Speaker 2: So, George Herbert Walker Bush, with whom you served, succeeded.
Speaker 2: He won the office, but like forty states, but what
Speaker 2: brought him to that? Was that policy or was that politics?
Speaker 2: The vice presidential choice of Dan Quaill was not well
Speaker 2: thought of by some people at the time, but as
Speaker 2: I recall, one of the important things is how actually
Speaker 2: he managed to position Michael Ducacis with the Willie horton
Speaker 2: issues on law and order, with the tank that he
Speaker 2: was riding around in. So how much of this for
Speaker 2: her is going to be? Here are my positions as
Speaker 2: opposed to not allowing the Donald Trump campaign to characterize her.
Speaker 10: I think you need a positive but also what we
Speaker 10: call a contrast as opposed to sort of a negative side,
Speaker 10: because again, remember people don't really know who she is
Speaker 10: or what she stands for. So one of the things
Speaker 10: that Bush did in September and October. People forget this
Speaker 10: is that we had sequences of two, three, four or
Speaker 10: five days. He'd give a positive speech, he'd gave a
Speaker 10: contrast speech, the venues would send a message, we'd have
Speaker 10: the paid advertising, and would stead of hit the theme,
Speaker 10: including on weaknesses.
Speaker 2: So you remember we went to Boston Harbor and sort
Speaker 2: of put the environmental issue on the map. And so
Speaker 2: I think part of her challenge will be to find
Speaker 2: some of those issues where she can try to do
Speaker 2: the same now. But also, you know, politics.
Speaker 10: Is partly political culture just messaging to people.
Speaker 2: So Bush, as.
Speaker 10: You mentioned with Dacaca's focused on the pledge of the
Speaker 10: Allegiance because Ducaca said, veto to Bill about pleasure of allegiance,
Speaker 10: and so you know, it may seem kind of basic,
Speaker 10: but it was a message about patriotism. If I were
Speaker 10: a Kamala Harris, I would just hammer on the notion
Speaker 10: that I'll accept the result of the election, will you,
Speaker 10: And I just keep hidding that because talking to me,
Speaker 10: you don't have to go back to the twenty twenty election,
Speaker 10: just say this election. And I think the average American
Speaker 10: understands if this is a fair play, you got to
Speaker 10: accept the result.
Speaker 2: Bob, You've had a very distinguished career, a long career,
Speaker 2: largely in international economics and trade and international economics. That
Speaker 2: probably won't be what this elections decided on. But as
Speaker 2: you look at Donald Trump as one candidate, Kamala Harris
Speaker 2: is the other, what is important in terms of their
Speaker 2: policies when it comes to international economics, Well, the two
Speaker 2: do mix.
Speaker 10: I mean, what we discovered is people aren't so keen
Speaker 10: on in right, and so that's been a real drag
Speaker 10: for Biden. And so if I were Kamala Harris, one
Speaker 10: of the things I would do is I'd sort of look, admit,
Speaker 10: we haven't gotten where we need to be. And by
Speaker 10: the way, when you're the new person, you can seat
Speaker 10: of say, look, this didn't work out exactly right, but
Speaker 10: inflation's coming down, interest rates will probably be coming down.
Speaker 10: But then she can hammer Trump on saying, look, if
Speaker 10: you put on all those extra tariffs, okay, which you're
Speaker 10: going to increase sort of inflation, you know, frankly, if
Speaker 10: you try to job beyond the Fed on interest rates,
Speaker 10: if you try to deport sort of all these people
Speaker 10: you're going to have a very bad effect on inflation,
Speaker 10: and markets will react. It's a good example, David of
Speaker 10: kind of how she needs to take a positive position
Speaker 10: but then also sort of turn it, I mean, take
Speaker 10: another one where obviously she's already set on abortion. That's
Speaker 10: a very powerful issue for her and that's a part
Speaker 10: of her base. But at the same time, what she
Speaker 10: can also do is, you know, hammer Trump on sort
Speaker 10: of well, look the reason we lostro V Wade, but
Speaker 10: then Hammerman is waffling. But also if she could sort
Speaker 10: of say, look, this is my position, but I understand
Speaker 10: people that have a different view on life. You know,
Speaker 10: the abortions are very sad issue, and you know, support adoption.
Speaker 10: These are little ways that she can be consistent with
Speaker 10: her base, but also kind of signal look, don't put
Speaker 10: me into the box, because Trump's going to try to
Speaker 10: put her in the as you said, you know, radical
Speaker 10: San Francisco liberal box.
Speaker 2: So you mentioned it is really tricky to both have
Speaker 2: continuity with it. Came before it was George herb at
Speaker 2: Walker Bush with Reagan. This time it's Kamala Harris with Biden.
Speaker 2: At the same time, you're saying you're somewhat different. And
Speaker 2: let me give you a specific example, the border, which
Speaker 2: they're going to necessarily tar her with because she was
Speaker 2: assigned to some immigration issues that has not gone so well.
Speaker 2: What does she do to not just throw over everything
Speaker 2: to Joe Biden had said, but also have a break.
Speaker 10: Another good example. You know, when you got an issue
Speaker 10: like that that matters to people, you got to face
Speaker 10: it direct. Okay, she needs to say, we haven't done
Speaker 10: everything that we need to.
Speaker 2: You know, we're going to have to do better on this.
Speaker 10: And then, however, she.
Speaker 2: Has a gift because there was a bill from the
Speaker 2: Senate that Republican Center.
Speaker 7: Lank For encouraged.
Speaker 2: That's got a lot of good issues.
Speaker 10: She should talk about those and say Trump's the one
Speaker 10: who torpedoed this and so and by the way, you
Speaker 10: know what did Trump's expensive border wall do? Did that
Speaker 10: sort of solve the problem? And by the way, if
Speaker 10: you deport all these people, what's that going to do?
Speaker 10: On both a humanitarian and an economic sect. So it's
Speaker 10: a good example acknowledge where you need to do better.
Speaker 2: One of the big issues for both parties has been
Speaker 2: our dealings with China economically and otherwise. But specifically on
Speaker 2: the economic dealings with China. Does she try to distance
Speaker 2: herself or really depart from what Donald Trump is saying
Speaker 2: or are they pretty much in the same lane.
Speaker 10: I think the way that I would try to deal
Speaker 10: with the Chinese issue for her, given her background, is
Speaker 10: to take a strong position on defense. You talked about
Speaker 10: Michael Dukakis and the tank. Every presidential candidate has to
Speaker 10: demons straight that they're up for the number one job,
Speaker 10: which is the defense of the country. And so interestingly,
Speaker 10: under both Trump and Biden, the defense modernization did really
Speaker 10: go where it needed to go.
Speaker 2: So she should say this is.
Speaker 10: The point she's going to stress and that she's going
Speaker 10: to focus on modernization. She's going to work with allies
Speaker 10: where Trump has had that sort of possibility. So I
Speaker 10: don't think she has to be hostile, but she needs
Speaker 10: to understand if we're going to be effective in deterrence,
Speaker 10: we need to be able to have the military. And then, frankly,
Speaker 10: this is where she should take an issue like AI
Speaker 10: and look, it's now reversed. Where Biden was the old guy,
Speaker 10: now Trump's the old guy, so she should own the future.
Speaker 10: She should say, look, AI is an important part of
Speaker 10: our future. The Republican Convention, however, sort of dismissed any
Speaker 10: of the safety concerns. But hasn't everybody watched what just
Speaker 10: happened with CrowdStrike.
Speaker 2: You know. CrowdStrike was the guy who was supposed to
Speaker 2: be helping dealing with cybersecurity. So whether it's biological security,
Speaker 2: whether it's sort of some of the issues.
Speaker 10: On the cyber aarya, and so, to be honest, I
Speaker 10: think she's got an interesting hand to play. But you know,
Speaker 10: we'll watch watch the convention speech, watch the VP selection,
Speaker 10: watch the debate, and then if she could take two
Speaker 10: or three of these issues we're talking about, you know,
Speaker 10: and just sort of sort of move on them, and frankly,
Speaker 10: I think it'll drive Trump nuts, and that's the best
Speaker 10: thing she can do.
Speaker 2: Each year we ask those attending the Aspen Economic Strategy
Speaker 2: Group meetings about what they're reading or what they've read
Speaker 2: that they recommend this year. Before giving us his recommendation,
Speaker 2: US Ambassador to Japan Ram Emmanuel told us about the
Speaker 2: library in his official residence in Tokyo and his efforts
Speaker 2: to beef it up.
Speaker 5: So one day early on in my tenure, the person's
Speaker 5: a little late, so I actually go over and look
Speaker 5: at the books and it's tokyo on five dollars a
Speaker 5: day of kid So it's stuff that you leave, you know,
Speaker 5: behind at a hotel and it said a better breakfast.
Speaker 7: It is a mess. And I love libraries.
Speaker 5: I do read on a kindle now, but I love
Speaker 5: We have three at our home in Chicago. I just
Speaker 5: love them, and I Amy and I decide that's going
Speaker 5: to be our project, so I know you find it
Speaker 5: heart to believe. I raised one hundred and fifty thousand dollars.
Speaker 5: This is initiated pretty quickly. And there's two things. So
Speaker 5: we redid about four hundred and fifty to five hundred books,
Speaker 5: all on the presidential history, great American literature and poetry,
Speaker 5: great American events. Then we did a section on both
Speaker 5: Japanese history, Japanese authors, literature, et cetera. And it's a
Speaker 5: traditional Americana beautiful library with gold at the top, and
Speaker 5: it's all walnut wood paneling, if you can kind of
Speaker 5: put that in your mind's eye. And the books are
Speaker 5: worthy of the library, and the library is worthy of
Speaker 5: the books.
Speaker 2: Not surprisingly, Ram Emanuel is quite a reader.
Speaker 1: One of the.
Speaker 2: Books he recommends highly is about The Plight of Males
Speaker 2: in our Society Today. Of Boys and Men by Richard Reeves.
Speaker 5: On kind of sociology. The two things that I do
Speaker 5: this one of boys and men. I think we have
Speaker 5: a challenge at home, specifically among boys and men. And
Speaker 5: I think I always do. One sociological book this year
Speaker 5: was I Went back Bowling Alone. You know what ye
Speaker 5: came out two thousand and When you think about where
Speaker 5: America is, you think about the opiate crisis, you think
Speaker 5: about the law of community, etc. How one professor looking
Speaker 5: at data three turns ahead, realizes where America is going?
Speaker 2: It kind of is. Jen Dooliac of Arnold Venture spends
Speaker 2: her life researching and then writing out her results. So
Speaker 2: she pointed us in the direction of a book about
Speaker 2: the difficulties in the creative process and how to overcome roadblocks.
Speaker 2: The War of Art by Stephen Pressfield.
Speaker 9: So one of my all time favorites is called The
Speaker 9: War of Art by Stephen Pressfield. Was a longtime researcher,
Speaker 9: which meant my job was mostly writing. Still is in
Speaker 9: many ways, and this book is basically all about how
Speaker 9: if you are engaged in any kind of creative pursuit,
Speaker 9: you have to just show up and work every day,
Speaker 9: have a routine, show up at your desk, be a professional.
Speaker 9: Waiting for inspiration to strike is not the way any
Speaker 9: sort of any professional writer or creative is actually going
Speaker 9: to have their big ideas or get things done.
Speaker 2: As President and COO Blackstone, John Gray spends much of
Speaker 2: his time dealing with challenging situations, but not half so
Speaker 2: difficult as those faced by the survivors of the eighteenth
Speaker 2: century shipwreck told in the book he recommends The Wager,
Speaker 2: a tale of shipwreck, mutiny and murder.
Speaker 11: More recently, I read The Wager, which was about a
Speaker 11: failed British expedition to chase down some Spanish ships in
Speaker 11: the seventeen forties, and I'm often interested in these people
Speaker 11: who face incredible challenge and when they survive and that perseverance.
Speaker 11: Shackleton was like that as well. You know, in business
Speaker 11: and investing, oftentimes things go wrong, not as bad as
Speaker 11: those books, but you learn a little bit and you
Speaker 11: want to be smarter how to deal with crises and challenges.
Speaker 7: That does it.
Speaker 2: For this episode of Wall Street Week from Aspen, Colorado,
Speaker 2: I'm David Weston. This is Bloomberg. See you next week.
Speaker 2: Back in New York,