Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News returned to our very
Speaker 1: special contributor here on wal Street week. He is Larry
Speaker 1: Summers of Harvard, So Larry, welcome back. It's been a
Speaker 1: very consequential week. We of course had the FED chair
Speaker 1: giving a news conference with the decision, We had ecidata,
Speaker 1: and then we had the jobs numbers at the end.
Speaker 1: What do you make it all?
Speaker 2: Look, there's been a lot of movement, but I don't
Speaker 2: know that we're in a fundamentally different place than we
Speaker 2: were at the beginning of the week. We have been
Speaker 2: realizing now for several months that disinflation is not on
Speaker 2: the secure path that the FED had hoped it would
Speaker 2: be a few months ago. That's why the market has
Speaker 2: moved to go from six cuts this year to about
Speaker 2: one cut this year. And that has been a broadly
Speaker 2: appropriate move on the part of the mark And it
Speaker 2: was a blunder, frankly, of the FED to be as
Speaker 2: confident as it was about the prospect of disinflation. If
Speaker 2: you add up this week's numbers, what did you get?
Speaker 2: You got an ECI that was disturbing on the high side,
Speaker 2: suggesting that wage inflation wasn't coming down, that service sector
Speaker 2: inflation wasn't likely to be coming down in the way
Speaker 2: people hoped. You've got a housing number suggesting more housing
Speaker 2: inflation than many people had been expecting in the presence
Speaker 2: of seven percent mortgages, and then you got a relatively
Speaker 2: soft number this morning and some corroborative ism evidence for
Speaker 2: that that reminded everybody that the economy may well not
Speaker 2: be on fire, the inflation may not accelerate. So I
Speaker 2: think you're at the end of it all about where
Speaker 2: you were at the beginning of the week, with a
Speaker 2: sense that the most likely thing is no cut or
Speaker 2: a little bit of cutting this year, that there's some
Speaker 2: risk that sometimes happens the economy will slide off suddenly,
Speaker 2: but probably greater than that risk is the no landing
Speaker 2: kind of scenario where inflation remains robust. So I think
Speaker 2: everybody's going to have to be watching all this data
Speaker 2: very closely, and ironically, the more we learn, it's not
Speaker 2: really true that the more we know in terms of
Speaker 2: the uncertainties about the economy at this point.
Speaker 1: So I suspect that Shairpower would agree with you, we
Speaker 1: need more data. He likes to data. He's the data
Speaker 1: dependent as they say. At the same time, what I
Speaker 1: took away, at least from his news conference this week
Speaker 1: was a little bit different from the no landing possibility.
Speaker 1: It was sort of, we're on the right course. It's
Speaker 1: just going to take us longer to get there. We
Speaker 1: are restrictive in what we're doing, and we will get
Speaker 1: there and we don't need to consider hikes. Is that
Speaker 1: a fair interpretation what he said, and if so, is
Speaker 1: that where he should be.
Speaker 2: He's much more confident the policy is restrictive than is
Speaker 2: warranted in light of the various factors we've talked about
Speaker 2: pushing up the neutral interest rate, in light of good
Speaker 2: reasons to think that spending may be less intrasensitive than
Speaker 2: had previously been supposed, because, for example, higher interest rates
Speaker 2: with all the government's short term debt mean more income
Speaker 2: for people. I think that the Chair is making a
Speaker 2: mistake if he is confident that policy is meaningfully restrictive
Speaker 2: right now. So, yeah, I have never said that I
Speaker 2: expect the next move to be a hike. I just
Speaker 2: think there's more of a possibility that that's going to
Speaker 2: be necessary than I think has been the view at
Speaker 2: the FED, and to some extent has been the view
Speaker 2: in the markets. But I think you're characterizing the chair's
Speaker 2: attitude right. I think if you look at the FED,
Speaker 2: their tendency going back quite far, most notably in twenty
Speaker 2: twenty one, has been to take strong views when the
Speaker 2: data run against those strong views, to retreat less rapidly
Speaker 2: than they should from the strong views that they have taken.
Speaker 2: And I think we're seeing another example of that on
Speaker 2: the question of whether monetary policy is significantly restrictive. We
Speaker 2: don't know. It could turn out to be, but we
Speaker 2: don't have a basis for confidence that it is.
Speaker 1: As Hilari. Besides the data, the wealth of data that
Speaker 1: came in. A big topic in the news this week
Speaker 1: was the Japanese yen and what's going on exactly the yen,
Speaker 1: whether the government there is intervening or not intervening to
Speaker 1: sort of support the end when it went up to
Speaker 1: one sixty. Actually, you have some experience with intervention and currencies.
Speaker 1: Give us where you think we are right now. And
Speaker 1: of course this is related to the FED because part
Speaker 1: of the issue is if the FED stays higher for longer,
Speaker 1: it supports the strength of the US dollar.
Speaker 2: Given the massive size of the capital markets. I think
Speaker 2: the evidence is reasonably clear that intervention doesn't work, even
Speaker 2: in the scales that the Japanese engaged in. It's just
Speaker 2: overwhelmed by the broad magnitude of private sector capital flows.
Speaker 2: That said, nations tend to intervene when currencies have gotten
Speaker 2: very far from normal levels, and when they've gotten very
Speaker 2: far from normal levels, they sometimes bounce back. So I
Speaker 2: wouldn't want to confidently presume that the end will devalue
Speaker 2: further from here. It could go either way. But even
Speaker 2: if the end does appreciate, I'm going to attribute that
Speaker 2: much more to snapback, then I'm going to attribute it
Speaker 2: to the efficacy of intervention. But I think this points
Speaker 2: up an important issue, which is that the dollar is
Speaker 2: extremely strong right now. That's been a factor that's contributed
Speaker 2: to our relatively favorable inflation performance.
Speaker 1: Larry, I'm sad to say that the disputes on college
Speaker 1: campuses growing out of the Israeli Gods' situation have continued
Speaker 1: some ways have gotten worse. Actually, this week we saw
Speaker 1: police going in various places here in New York at Columbia,
Speaker 1: but across the country. You've been outspoken in the past
Speaker 1: on this issue as a former college president, yourself at
Speaker 1: Harvard and is now a scholar at Harvard. What do
Speaker 1: you think is going on? And more important, perhaps what
Speaker 1: should the colleges be doing? What should the leadership be doing?
Speaker 2: Right now? This is very depressing and worrisome to me.
Speaker 2: As I've said on your show before, David, I think
Speaker 2: the United States is in the most dangerous geopolitical moment
Speaker 2: we've been in probably two generations, given what's happening in China, Russia, Raan,
Speaker 2: North Korea, and so forth. And it seems to me
Speaker 2: that anybody sitting in one of those countries has to
Speaker 2: be taking great encouragement from the spectacle that is being
Speaker 2: made by our young future elits on so many of
Speaker 2: our leading college camps, and even more by the craven
Speaker 2: responses that are typifying university leaderships. I have not been
Speaker 2: as appalled by Harvard ever, as I am by the
Speaker 2: fact that a cathia has rested over the John Harvard
Speaker 2: statue and a Palestenian flag has been placed in the
Speaker 2: hand of John Harvard, that iconic statue on the Harvard campus.
Speaker 2: And you can debate whether administrators should be sending in police,
Speaker 2: and I think that should always be a last resort,
Speaker 2: but that they can't keep John Harvard unadorned with hamas
Speaker 2: supporting symbols. That just is appalling to me. I don't
Speaker 2: think there's any question that as a double standard throughout
Speaker 2: the Ivy League and elite higher education on anti Semitism
Speaker 2: and other forms of prejudice. The lawsuits are largely correct
Speaker 2: in making that suggestion, and I think this is a
Speaker 2: failure of a fundamental part of education, the imbuing people
Speaker 2: with an ability to contemplate serious moral issues in serious ways.
Speaker 2: There is idealism among some of those protesting, though some
Speaker 2: of them are being driven by outside agitation and outside funding.
Speaker 2: And I respect the idealism of those who live by
Speaker 2: a theory of civil disobedience and are prepared for their
Speaker 2: cause to accept punishment. But when I see spectacles like
Speaker 2: the law review of Columbia University demanding that exams be
Speaker 2: canceled or grading be stopped this year because of what
Speaker 2: happened on that campus, I think that bespeaks a kind
Speaker 2: of decadence that causes me to be very worried about
Speaker 2: the future of our universities and about the future therefore
Speaker 2: of our country. I wish we could find ways of
Speaker 2: getting things back on track.
Speaker 1: Larry, thank you so very much for being with us
Speaker 1: as Larry Summer is our special contributor here on Wall
Speaker 1: Street week