Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes.
Speaker 1: The economy is in the process of rebounding. Will the
Speaker 1: futteral reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflation through the eyes of the
Speaker 1: most influential voices. Larry Summer is the former Treasury Secretary
Speaker 1: Bryan Whan, a backup America, Will Smart CEO Charlie Sharp,
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio,
Speaker 1: rethinking where we are on rates, on oil, on banker's pay,
Speaker 1: and on the Biden administration. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. It was a week for taking stock
Speaker 1: as President Biden tried to reset his agenda after a
Speaker 1: year in the job. But I'm not going to give
Speaker 1: up and accept things as they are now. I call
Speaker 1: it a job not yet finished. And it did it
Speaker 1: that he wasn't going to get all of that build
Speaker 1: back better package, at least not all in one piece.
Speaker 1: I think we can break the package up, get as
Speaker 1: much as we can now and come back and fight
Speaker 1: for the rest of lator. All markets took stock of
Speaker 1: where they are to, sending the price of Brent crude
Speaker 1: up over eighty nine dollars a barrel at one point,
Speaker 1: with talk of it maybe going to one hundred dollars
Speaker 1: of barrel. Here's amrita send from energy aspects. I think
Speaker 1: the fact that demand is so strong and refining margins
Speaker 1: in particular are still very, very robust despite the crewe
Speaker 1: galley we've seen, is a very promising sign. But when
Speaker 1: it comes to taking a fresh look, equities led the way,
Speaker 1: suffering the worst week since the pandemic royal the market,
Speaker 1: with tech shares leading the way down, help by uneven
Speaker 1: earnings and the anticipation of higher rates, with the SMP
Speaker 1: down five points six percent for the week and the
Speaker 1: NASDAC down another seven percent, putting the index into correction territory.
Speaker 1: For all the talk about rate hikes, the ten year
Speaker 1: bond yield actually went down to basis points to one
Speaker 1: point seven six while the dollar climbed nearly four tenths
Speaker 1: of a percent. Help sort out a very vulnerable week.
Speaker 1: We welcome now Sarah Ketder, she's CEO of Causeway Capital,
Speaker 1: and liz Ant Sanders, she's chief investment strategist at charl Schwab.
Speaker 1: So as a strategist, we've got to turn to you first, Lisi,
Speaker 1: on what is going on here with the markets, is
Speaker 1: that the rates anticipation is that the earnings isn't something else.
Speaker 1: So there may be a little bit of a tie
Speaker 1: into earnings just in terms of the companies that haven't
Speaker 1: beaten expectations have gotten hit a little bit more. But
Speaker 1: I think there are bigger picture issues here. It's the
Speaker 1: combination of the FED having moved from very loose policy
Speaker 1: to tighter monetary policy, whether or not that what they
Speaker 1: will start to do with rate hikes ending tapering and
Speaker 1: then potentially moving to QT is the elixir for what
Speaker 1: ails us in terms of the inflation problem, which in
Speaker 1: turn is putting downward pressure on growth. And I just
Speaker 1: think you have a rerating going on, and certainly a
Speaker 1: bit of a excuse the term puking of some of
Speaker 1: the higher spec lower quality segments of the market. So, Sarah,
Speaker 1: a puking a technical term I hadn't heard before. But
Speaker 1: but but what are you saying as an investor, what
Speaker 1: are you seeing there? What are the opportunities? What are
Speaker 1: the real risks out there in the market place right now? Well,
Speaker 1: the market is certainly rewarding certain areas such as energy
Speaker 1: and financials, banks, insurance stocks, but it's and value indices
Speaker 1: are outperforming growth by wide margin. And this is just
Speaker 1: three weeks into the year. But if you look beneath
Speaker 1: that that as lizanner, that, they're definitely pain associated with
Speaker 1: the extremely high valuation stocks, but not all the very
Speaker 1: low valuation stocks are doing well. Again, the market seem
Speaker 1: to rewarding those associated with rising commodities and the financials.
Speaker 1: Maybe the value of dias are pulling up some of
Speaker 1: the financials. They have some I think serious headwinds, But
Speaker 1: the area that might have the greatest amount of upside
Speaker 1: as the market begins to discern the winners and losers
Speaker 1: in is as we moved towards post pandemic will be
Speaker 1: those who are most badly affected by COVID And there's
Speaker 1: a whole range of those stocks that have outperformed thus
Speaker 1: far should continue to do so as the year progressed. Yeah,
Speaker 1: and David, I think what Sarah said is absolutely right
Speaker 1: with regard to sort of the push and poll of
Speaker 1: energy and financials, and then the relationship that that has
Speaker 1: with the value indexes. But what's also interesting, it's a
Speaker 1: lot of times when people talk about growth versus value
Speaker 1: and value doing well, they're thinking about it at the
Speaker 1: index level. But even in a sector like technology over
Speaker 1: the past few months, those stocks within tech that screen
Speaker 1: well on value characteristics like free cash flow yield, dividend
Speaker 1: yield are the ones that are outperforming, whereas the stocks
Speaker 1: within tech that have negative earnings are the ones getting hammered.
Speaker 1: So even within call it growthier segments of the market,
Speaker 1: of the value oriented stocks are the ones that are
Speaker 1: doing better. Yeah, we even see this within semicon actors.
Speaker 1: You can see an incredibly expensive semi vector stock like
Speaker 1: an Nvidio under form of maybe a less expensive stock
Speaker 1: in memory. So the distinction is happening right before us,
Speaker 1: and it's a it's a reason to be grounded portfolio
Speaker 1: wise in reasonably value, higher quality companies. Listen, as far
Speaker 1: as there's uncertain of market right now, are we going
Speaker 1: to get some help from the Fed? Next week? We're
Speaker 1: gonna get another FMC ruling, So it'll be an interesting meeting.
Speaker 1: I don't expect anything um particularly formal in terms of
Speaker 1: what they're going to do. They're not going to start
Speaker 1: to raise interest rates. Maybe in the statement they give
Speaker 1: a little bit more color about tapering, but there's no
Speaker 1: question that during the press conference, I'm sure John Powell
Speaker 1: is going to be peppered with questions about the span
Speaker 1: of time between papering and QT, whether or not they're
Speaker 1: going to have to act with a faster pace, or
Speaker 1: a lot of chatter today. Might they have to do
Speaker 1: fifty basis points in the early stages versus only twenty five.
Speaker 1: So I don't expect much of any of that to
Speaker 1: be in the statement. But given that every f o
Speaker 1: MC meeting has a press conference, those these days I
Speaker 1: think are even more interesting than when we first here
Speaker 1: at two o'clock Eastern. And what we can't it's so
Speaker 1: interesting that the said, nor can the Bank of England
Speaker 1: or the European Central Bank. They can't ignore what's right
Speaker 1: in front of their face, which is inexorable wage increases
Speaker 1: that every company we talked to and companies we don't
Speaker 1: talk to, we just read transcripts, they are facing wage inflation,
Speaker 1: and wage inflation that gets more so wage rises get
Speaker 1: more wage rises, which is what makes inflation somewhat difficult
Speaker 1: to eradicate. So central banks may very well be behind
Speaker 1: the ball here. Thank you so very much to liz
Speaker 1: An Sanders of Charles Schwab and Sarah Kettter of Causeway
Speaker 1: Capital Management. Coming up, Bank of America Chair and CEO
Speaker 1: on the future of digital banking. That's next on Wall
Speaker 1: Street Week on gloom Work. This is Bloomberg Wall Street
Speaker 1: Week with David Weston from Bloomberg Radio. The move into
Speaker 1: digital was a big part of the earnings announcements of
Speaker 1: the big banks this season, with projections of large investments
Speaker 1: dampening profit expectations in the near term. Bank of America
Speaker 1: Chair and CEO Brian moynihan has made digital priority for
Speaker 1: years now and he's not backing off, seeing it as
Speaker 1: a major component of the bank's future and the broadest strokes.
Speaker 1: We are a high touch, high tech company, so digital
Speaker 1: is part of the strategy, but it has to be
Speaker 1: incorporated with our relationship manage of businesses think the private
Speaker 1: bank or MARYL, or the commercial bank or UH, the
Speaker 1: trading businesses. So and also our branches three or four
Speaker 1: D thousand people coming to our branches, so it's a
Speaker 1: combined strategy. But why digital is so important, it's from
Speaker 1: the customer interface. It's from the how employees can work together,
Speaker 1: and then how the customers can receive the uh, the
Speaker 1: goods and services, how they by them, how they interact
Speaker 1: with So it makes us tremendously efficient and a great
Speaker 1: client experience, which is a pretty good thing. There's a
Speaker 1: lot of talk right now, but particularly the big banks
Speaker 1: investing in digital. I know you've been investing for some time.
Speaker 1: I think your numbers around three point five billion dollars
Speaker 1: a year is as steady as you go. Do you
Speaker 1: expect that to continue into the future or ramp up? Well,
Speaker 1: it's always changing as to what we spend it on.
Speaker 1: It's a gross amount of money, which is a pretty
Speaker 1: good sized amount of money. So when people talk about
Speaker 1: three and a half billion for us, that means literally
Speaker 1: incremental new products and services and new capabilities. So it's
Speaker 1: a lot of money to run the platforms another ten
Speaker 1: or twelve billion dollars. It just goes on every day.
Speaker 1: But what are we investing in greater capabilities? So Erica
Speaker 1: to our consumer clients, you know, is huge, but we
Speaker 1: can keep increasing the functionality. So year every year, we
Speaker 1: had a fourfold increase in the fourth quarter of twenty
Speaker 1: one people using Erica, not because Erica it had a
Speaker 1: growth in customers, but really came from people using it
Speaker 1: more and more or Zel getting it more easily accessible
Speaker 1: through a widget it's called. Those are the types of
Speaker 1: things we're doing it in. On the institutional side, cash pro,
Speaker 1: which is the way companies move money, more engagements by customers.
Speaker 1: They can see everything in a in a portal type
Speaker 1: app as opposed to a bunch of different systems. These
Speaker 1: are just core executions we drive through the platform. I
Speaker 1: believe you passed a road mark this actually quarter in
Speaker 1: Zell actually having more transactions than you're checking accounts? Do
Speaker 1: I believe? I read that? If true, give us a
Speaker 1: sense of overall in your business. Will that continue to progress?
Speaker 1: I mean, at some point does digital eat the entire bank? Well,
Speaker 1: so what happened with Zell is we keep track of
Speaker 1: the checks written by our customers. So, uh, you're sitting
Speaker 1: down and writing a checkout and handing putting in the
Speaker 1: mail to pay a bill or to hand it to
Speaker 1: somebody that's down of the last couple of years, and
Speaker 1: Zel has been growing fifty percent a year, so the
Speaker 1: numbers of transactions by zel is actually exceed the number
Speaker 1: checks written by our consumer customers. That was a milestone
Speaker 1: because it shows you what's really happening is that Zel
Speaker 1: is eating into those low balanced checks. And if you
Speaker 1: look at a dollar amount of checks right, not the
Speaker 1: number of transactions. Dollar amounts actually up a little bit,
Speaker 1: so less checks of higher amounts to two thousand dollar
Speaker 1: checks versus twy dollar checks, and those low checks are
Speaker 1: being taken over by Zell, which is good because it's
Speaker 1: easier for the clients to move money to each other.
Speaker 1: It's easy instead of giving your your son or daughter
Speaker 1: a check, David Ido, you just zelling the money. And
Speaker 1: and in the volume of Zell now exceeds Vemo overall
Speaker 1: in the industry, and I think we're basically equal to
Speaker 1: Venmo in terms of transactions a quarterly basis, So we're
Speaker 1: driving that through. It's really convenient, but that is a
Speaker 1: big milestone to think that what you and I grew
Speaker 1: up with, David, is the way to get money out
Speaker 1: of the bank was to write a check and hand
Speaker 1: it to somebody and then they could negotiate that check
Speaker 1: has now gone to where you can just say giving
Speaker 1: your cell phone number and you pay them. That's pretty good.
Speaker 1: It's extraordinary development, certainly for somebody at my age. That's right, Brian.
Speaker 1: Give me a sense as you look at the digital
Speaker 1: strategy going forward, how much of this is basically doing
Speaker 1: a form of the business you've been doing, for example
Speaker 1: zel replacing checks as opposed to actually moving into new
Speaker 1: businesses potentially with new stomers. Well, I think if you
Speaker 1: if you look on the wealth management business, the financial
Speaker 1: advisory team we have at MARYL and the private bankers
Speaker 1: we have their cord of what we do for clients.
Speaker 1: But if you think about what happened during the pandemic,
Speaker 1: the ability for us to get information to clients and
Speaker 1: blue our insights to clients through through Zoom and WebEx
Speaker 1: and other types of meetings allowed us to get out
Speaker 1: to clients in a very intimate setting, one to one,
Speaker 1: but through the through the screen many more times. So
Speaker 1: you enabled your reach of those teammates. But behind the scenes,
Speaker 1: also just thinking the investment products like our our Life
Speaker 1: Events investment product has seven million users now who are
Speaker 1: loading in a financial plan, a life event plan for
Speaker 1: them and It keeps them on uh you know, on
Speaker 1: parting and moving forward on task, showing them what's happening.
Speaker 1: If they say this much, they want to say for
Speaker 1: this purpose, what are the priorities? You know, is that
Speaker 1: a new product not an advisor did that for years?
Speaker 1: But is it enablement advisor to add more value to
Speaker 1: the insight knowledge they have as opposed to putting the
Speaker 1: stuff in a financial planning module or doing calculations is
Speaker 1: on spreadsheets? So you know, as you think about these, yes,
Speaker 1: some are very new products. L is a new way
Speaker 1: to move money. Others are digital embodiments of old products.
Speaker 1: But light have reach and access and capabilities far different.
Speaker 1: And that's pretty fun and interesting. Are there customers that
Speaker 1: you will reach their digital that you would never have
Speaker 1: reached their back of America or is it basically that
Speaker 1: customer base that of course you're always trying to grow. Yeah, well,
Speaker 1: you know, we have basic things. We have more to do.
Speaker 1: We can do with every customer because we have the
Speaker 1: best capabilities of anybody in the market. And if a
Speaker 1: customer simply does has a product with us and does
Speaker 1: something with somebody else, We're like, we're not serving them
Speaker 1: well because we're the best, therefore they should do it
Speaker 1: with us. That's our basic principle. But on the other hand,
Speaker 1: we can gather customers. So if you think about it
Speaker 1: in the in the consumer side, especially as we've been
Speaker 1: going into new markets at Pittsburgh or Columbus, are Cleveland, Cincinnati,
Speaker 1: Salt Lake, or Denver, Minneapolis that we've opened up in
Speaker 1: with branches. When we go in there, we go in
Speaker 1: digital first, and we'll have ten twenty thousand checking accounts
Speaker 1: going before we ever opened the first branch. So those
Speaker 1: stomers can do, you know, can work with this completely
Speaker 1: digitally and it works and so but we we firmly
Speaker 1: believe it's a high touch high tech. At some point
Speaker 1: most customers on the consumer size come to the branch.
Speaker 1: All the relationship managing customers the core interfaces through a person,
Speaker 1: a financial advisor, a commercial banker, but enablement helps and
Speaker 1: so you have to think about this as a combined
Speaker 1: strategy of high touch high tech. So, yes, we get
Speaker 1: customers digitally only that happens all day long. But the
Speaker 1: end of day, what makes us special. We have the
Speaker 1: best digital capabilities, plus we have the physical capabilities with them. Brian,
Speaker 1: as you say, you've invested a lot of money, continue
Speaker 1: to invest a lot. You've made a lot of progress.
Speaker 1: At the same time, do you envision possibly a major
Speaker 1: acquisition in this area to really take you forward, because
Speaker 1: you said the sky is unlimited and how far you
Speaker 1: can go with digital? So we've done major acquisition would
Speaker 1: be off the table probably in a lot of ways
Speaker 1: because it's just the does a business model work creature.
Speaker 1: But we have done an acquisition like an healthcare technology space.
Speaker 1: We did something to enable the payment side, surround payments.
Speaker 1: We bought back our joint venture on the merchant side
Speaker 1: a couple of years ago. That was a two billion
Speaker 1: dollar transaction and now we've put three hundred million dollars
Speaker 1: into the new system to drive that. So we're always
Speaker 1: going to make acquisitions which complement our behaviors and also
Speaker 1: partner with companies or a couple of our capabilities and
Speaker 1: partner with companies. But the reality is, you know, we
Speaker 1: have two point seven billion digital interactions and our consumer business.
Speaker 1: Last quarter, we have a huge business. We have fifty
Speaker 1: four million digital customers UH that are credited and forty
Speaker 1: one million were active. You know, we we we we
Speaker 1: need always be looking at what capabilities we need, and
Speaker 1: sometimes that's partnered with providers and ideas that come in.
Speaker 1: But the reality is acquiring more customers is not what
Speaker 1: we're after right now. Right What we're after right now
Speaker 1: is driving the usage in the capabilities and people understanding
Speaker 1: what they can get from Bank of America's digital capabilities
Speaker 1: across the whole platform. That was Brian Wynihan Chair and
Speaker 1: CEO of Bank of America coming up. How big is
Speaker 1: the semiconductor shortage problem? How long will it last? And
Speaker 1: how can we fix it? We hear from the former
Speaker 1: head of Qualcom, Paul Jacobs. That's next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. Everybody's talking about it, the
Speaker 1: shortage of microchips, whether you make cars. Like Mary Barra
Speaker 1: of GM, we saw significant impact with the semiconductor shortage
Speaker 1: last year. I would say every quarter it gets a
Speaker 1: little bit better, but we're not through it yet. There
Speaker 1: still is work to do. Or you make heating and
Speaker 1: air conditioning equipment. Like Dave Gitland of Carrier, we actually
Speaker 1: um don't have the kind of buying power with the
Speaker 1: chip O e ms that maybe some of some other
Speaker 1: folks in other industries do. But I can tell you
Speaker 1: that we have met directly with the CEOs of major
Speaker 1: chip manufacturers. We've done unique arrangements with them that we've
Speaker 1: never done in the past. And it's not just the
Speaker 1: buyers of chips feeling the pressure. The producers like Kurt
Speaker 1: Sivers of n XP Semiconductors are feeling every bit as
Speaker 1: much pressure. The entire semiconductor supply. Chaine is on the
Speaker 1: pretty heavy stress these days. Even FED Chair J. Powell's
Speaker 1: job has gotten harder because of the chip shortage, which
Speaker 1: he says is partly what's leading to the inflation. We're
Speaker 1: seeing people want to buy cars. Car carmakers can't make
Speaker 1: any more cars because there are no semi conductors. So
Speaker 1: that's that's never happening. So what's the solution. Congress is
Speaker 1: working on a Chips Act to get more investment in
Speaker 1: onshore production, which Congressman Hayley Stevens of Michigan says is
Speaker 1: critical for the auto industry in her district. Here in
Speaker 1: Automotive plan, one of the things that you cannot escape
Speaker 1: from our is the chip shortage. We have got to
Speaker 1: pass the Chips Act. But whatever the solution, just about
Speaker 1: everyone agrees that it's going to take time. Whether you're
Speaker 1: in the market to buy, we still think it's going
Speaker 1: to linger into the first half of this year and
Speaker 1: we should be farther out it by the end of
Speaker 1: this year, or in the market to sell. This is
Speaker 1: going to get better through next year, but I don't
Speaker 1: think everything is going to be imbalanced from a supplied
Speaker 1: amount perspective through the end of next year. And we
Speaker 1: turned now to someone who really knows this chip industry well.
Speaker 1: He's Paul Jacobs. He's now the chairman CEO of x
Speaker 1: CAM and he did for many years run qual Calm.
Speaker 1: So Paul, thanks so much for being with us. First
Speaker 1: of all, give us a sense of how big a
Speaker 1: problem this is. Is can you put your arms around
Speaker 1: how big a problem the shortage of semiconductors is right now.
Speaker 1: But as you know, everything is being digitized, and so
Speaker 1: semi conductors are in almost every product we use, from
Speaker 1: home appliances to cars and now even more so with
Speaker 1: electric vehicles. They're in the cloud, they're in our smartphones,
Speaker 1: are in just so many things in our lives. And
Speaker 1: what's happened is that we had some shocks in the system,
Speaker 1: which became big because we had this notion of being
Speaker 1: very efficient just in time manufacturing, lean manufacturing, so you
Speaker 1: didn't hold a lot of inventory on hand, and when
Speaker 1: there were whips in the supply which happened because of COVID,
Speaker 1: these things spiraled out of control and became very very
Speaker 1: big issues in in the in the supply chain. And
Speaker 1: so you're seeing for big companies, some of them are
Speaker 1: able to get their components still, but for smaller companies, uh,
Speaker 1: some of them are having a very hard time, long
Speaker 1: lead times, some sometimes up as much as a year
Speaker 1: of waiting to get a part that you need, people
Speaker 1: who have been raising prices. So all these things are
Speaker 1: affecting sort of that innovation economy that the world depends on.
Speaker 1: When you talk about just in time, did we under
Speaker 1: invest globally? Did we underinvest in the capacity to design
Speaker 1: and manufacturer chips. I think that there's a lot of
Speaker 1: concentration in it, and there's only a few suppliers. Is
Speaker 1: there's not a lot of diversity in the the supply chain.
Speaker 1: But I think maybe to explain it a little bit simpler,
Speaker 1: if we think about it something close to home, like
Speaker 1: toilet paper. When you think about there was supply of
Speaker 1: toilet paper and a pretty constant demand of toilet paper,
Speaker 1: maybe a little bit more because people were working from home.
Speaker 1: But you didn't buy a lot of toilet paper at
Speaker 1: your house because I figured you could go down to
Speaker 1: the store and get it. Now what happened. People got
Speaker 1: nervous whether they could actually go down to the store
Speaker 1: and get it, so they started putting more at home.
Speaker 1: They started buying more, and the system wasn't set up
Speaker 1: for that. So there was this surgeon demand and that
Speaker 1: meant that there were shortages. And that is part of
Speaker 1: the problem with the chip business. The supply is there
Speaker 1: under normal constraints. But now with these things that have
Speaker 1: happened because of COVID, and very interesting things happened because
Speaker 1: at first the demand dropped, everybody thought the whole economy
Speaker 1: was slowing down to demand drop. Then the demand surge
Speaker 1: because all of this work from home and all the
Speaker 1: other other things. So there was this ripple in the
Speaker 1: demand side. The supply side was basically there, but it's
Speaker 1: kind of like this toilet paper situation. Now people who
Speaker 1: are have the ability are trying to hold more inventory
Speaker 1: so that they don't get hit by these ups and
Speaker 1: downs in the process. I would say though, that it
Speaker 1: is important to build more semiconductor uh fabs, and it's
Speaker 1: important not just for the making of the chips, but
Speaker 1: also the packaging of the chips, the testing of the chips,
Speaker 1: but even beyond that, it's all the little components that
Speaker 1: go around it aboards. I mean, we really, uh, you know,
Speaker 1: we have an issue where there were very few suppliers.
Speaker 1: There was a broad range of products out there that
Speaker 1: that and components that that people needed, and all this
Speaker 1: led to a lack of resiliency, you know, a lack
Speaker 1: of ability to adapt to these big shocks that might
Speaker 1: happen in the system. Paul, this has been very helpful.
Speaker 1: Thank you so very much. As Paul Jacobs, he's the
Speaker 1: chairman and CEO of x COOM. Coming up, we wrap
Speaker 1: up the week with special contributor Larry Summers of Harvard.
Speaker 1: This is Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. This
Speaker 1: is Wall Street Week. I'm David Weston. We're gonna wrap
Speaker 1: up the week again this week with our very special
Speaker 1: contributer Larry Summers of Harvard. Larry, welcome back. Good to
Speaker 1: have you here. We've talked about the Fed. We've talked
Speaker 1: about inflation. The FED has said they're going to tighten
Speaker 1: because the inflation you've been warning about for some time.
Speaker 1: We actually get a decision next week. What do you
Speaker 1: expect the FED to do? I think they're going to
Speaker 1: be signaling the tightening in March. I hope they'll be
Speaker 1: signaling as rapid as possible and end UH to qt UH.
Speaker 1: We got an economy that's looking like it's above the
Speaker 1: speed limit and it's gonna have to slow down. And
Speaker 1: the Fed's got a very delicate operation now in UH
Speaker 1: owing it down. The delicacy of that operation is underscored
Speaker 1: by the turbulent and asset markets since the beginning of
Speaker 1: the year. It's underscored by the softness in some kinds
Speaker 1: of measures of consumer sentiment and UH consumer spending. But
Speaker 1: if we're going to have maximum employment and maximum growth
Speaker 1: over time, UH, we're gonna have to control the pace
Speaker 1: of the growth of UH total incomes so that more
Speaker 1: of it can go into more employment and more output
Speaker 1: and less of it into inflation. Larry, as you look
Speaker 1: at the various indicators do you can. Are you concerned
Speaker 1: at all that maybe we're too complacent about the offensibility
Speaker 1: to do this. The market uses they have been turbulent,
Speaker 1: they're reacting at the same time you look at the
Speaker 1: five year five years there's still like a two point
Speaker 1: one two like that, And also the financial conditions have
Speaker 1: not really tightened much. Is that because we're just so
Speaker 1: confident that they can do this without really roiling people?
Speaker 1: Are we underestimating the size of the problem. I think
Speaker 1: the gravity of our situation is still understated. While the
Speaker 1: term transitory has left the policy maker discourse, the idea
Speaker 1: of transitory inflation is still very fixed in their minds.
Speaker 1: There's still a belief that with very limited monetary actions
Speaker 1: that have not taken full effect, we will see inflation
Speaker 1: as slow to the two percent range by the end
Speaker 1: of the year. That certainly could happen, but it wouldn't
Speaker 1: be my bet. Given the tremendous tightness of labor markets,
Speaker 1: given increasing signs to China is going to be a
Speaker 1: source of bottlenecks for quite some time to come, given
Speaker 1: increasing concerns about oil prices, given that there's a lot
Speaker 1: of housing inflation that's still has to feed through the system,
Speaker 1: and given how remarkably low real interest rates UH are,
Speaker 1: I don't think that it's the best bet that inflation
Speaker 1: is going to be coming down to the two into
Speaker 1: the two percent range or the two's by the end
Speaker 1: of the year. And so I think complacency is UH
Speaker 1: not appropriate. So Larry and President Biden had a quite long,
Speaker 1: almost two year, two hour press conference this week, and
Speaker 1: in the course of that he basically said it is
Speaker 1: the FEDS responsibility to do with inflation. He talked about
Speaker 1: the economy. What did you make of what Prisident Biden
Speaker 1: had to say about his leadership of the economy. Look,
Speaker 1: I think President Biden is right to take pride in
Speaker 1: the fact that more people are employed than anyone would
Speaker 1: have expected on the day he took office, despite very
Speaker 1: substantial uh desease threats. Frankly, I can't understand, for the
Speaker 1: life of me why the administration is so obsessed with
Speaker 1: meat packing. Meat Packing is a entire higherly trivial and
Speaker 1: unimportant issue with respect to uh inflation. It is inconceivable
Speaker 1: that tossing a billion dollars as the Agriculture Department is
Speaker 1: in the general direction of creating an extra meeting meatpacking
Speaker 1: plant is a good use of taxpayers money or is
Speaker 1: going to happen. So I don't understand why the President
Speaker 1: of the the United States keeps talking about that. I'm glad
Speaker 1: to see him recognize and emphasize the independence of the
Speaker 1: Central Bank. And as I said on your show last week, David,
Speaker 1: I very much hope that his new appointees to the Fed,
Speaker 1: when they have their confirmation hearings, will take the opportunity
Speaker 1: to underscore their recognition that the most basic responsibility that
Speaker 1: the Central Bank has is a stable currency and price
Speaker 1: UH stability and the avoidance of inflation. That's not something
Speaker 1: that's been in any of their writings UH prior to
Speaker 1: this point. That doesn't mean they don't fully share the conviction,
Speaker 1: but I think it will be very important for them
Speaker 1: to articulate that and articulate how important they perceive that
Speaker 1: to have been in the nominating process, because ultimately, credibility
Speaker 1: is about deeds as much as it's about words, and
Speaker 1: the most important deeds the president has with respect to
Speaker 1: UH the Central Bank are what he are, what he
Speaker 1: does UH in terms of staffing the Central Bank, Larry,
Speaker 1: we're talking at me packing, I naturally think about competition
Speaker 1: policy and a trust law. You have something of a dispute,
Speaker 1: perhaps going with Paul Krugman, your former classmate, your friend,
Speaker 1: over the role that a trust and we've heard from
Speaker 1: President Biden and others that really an trust enforcement is
Speaker 1: a key ingredient in fighting and inflation. How big a
Speaker 1: difference do you really have on this subject. I'm not sure,
Speaker 1: because I'm not sure what they really think. Should we
Speaker 1: have substantially enhanced anti trust in the United States? Yes,
Speaker 1: we absolutely should. Is it harmless and normal politics to
Speaker 1: take advantage of concern about high prices to drive political
Speaker 1: energy behind that competition policy? Yes. Does it make sense
Speaker 1: to suggest that antitrust policy canning any important way reduce
Speaker 1: uh the inflation rate over the horizon of a couple
Speaker 1: of years. No, that is not supported by economic science.
Speaker 1: I'm also worried about the um and type trust doctrines
Speaker 1: that some of the Biden appointees have put forward. Lena
Speaker 1: Kahn expressed a concern that perhaps when two firms merge
Speaker 1: and they're able to produce more efficiently with fewer people,
Speaker 1: that should not be counted as an efficiency. There's been
Speaker 1: a lot of talk about introducing considerations other than lower
Speaker 1: prices for consumers into antitrust protecting small business competitors. For example.
Speaker 1: That kind of stuff is frankly promoting of higher prices
Speaker 1: and works in the wrong direction with respect to inflation.
Speaker 1: The most important things thing we can do with respect
Speaker 1: to competition policy is accept lower priced goods from abroad,
Speaker 1: and resistance to protection is UM active trade policy. Those
Speaker 1: aren't things we hear about from the administration. So yes,
Speaker 1: I am all for UH competition policy. Yes, I think
Speaker 1: ant i trust in our country has lagged, but it
Speaker 1: needs to be based on lower consumer prices. Larry Lewis
Speaker 1: sneak in one more if I could hear please. A
Speaker 1: couple of weeks ago, we had an outrage of the
Speaker 1: week from you about the patterns of investment from our
Speaker 1: public officials, whether at the Federal Reserve Board or up
Speaker 1: in at on on Capitol Hill. We now have perhaps
Speaker 1: a development where the Speak of the House, Nancy Pelosi,
Speaker 1: apparently has backed off of her resistance to a broadband
Speaker 1: on that. What do you think should happen? I was
Speaker 1: glad to see it. I think we need to scale
Speaker 1: scale any suggestion of impropriety by public officials. UM out
Speaker 1: of our system. That means not trading in individual stocks.
Speaker 1: That also means uh, not here in something and calling
Speaker 1: your broker to do anything, even selling mutual funds and
Speaker 1: the like. People should be able to adjust their financial positions,
Speaker 1: but only well in advance, so that there's a reassurance
Speaker 1: that insider information is not coming into it. And there
Speaker 1: should be rigorous rules in both the executive branch, the
Speaker 1: Federal Reserve and uh the Congress. And I think it's
Speaker 1: an area where it's appropriate for a confidence uh to
Speaker 1: look at things so an outrage of the week that
Speaker 1: maybe a little bit less outrageous going forward, we hope.
Speaker 1: Thank you so much to Larry Summers, Will Harvard, our
Speaker 1: very special contributor on Wall Street Week. Thanks a lot. Finally,
Speaker 1: one more thought. Lions and tigers and bears and even hamsters.
Speaker 1: Oh my, every one of us is dealing with COVID
Speaker 1: in one way or another, whether it's worrying about our
Speaker 1: hospitals or whether our kids can go to school, or
Speaker 1: figuring out when we should go back into the office.
Speaker 1: But that's all about us. What about the other creatures
Speaker 1: that share the planet with us? What about the tigers
Speaker 1: and pumas, and minx, and yes, even the hamsters. Well,
Speaker 1: it turns out that a lot of them can get
Speaker 1: this virus too, and they don't even have the option
Speaker 1: of getting the vaccine, much less the booster. A year ago,
Speaker 1: it was a crisis over mink farming in Denmark which
Speaker 1: brought the Danish Prime Minister to tears when she ordered
Speaker 1: millions of the little furry creatures destroyed. Now we learned
Speaker 1: that lions and pumas in a South African zoo have
Speaker 1: contracted COVID, apparently from the people who work there. Fortunately
Speaker 1: they were treated and they recovered, which is more than
Speaker 1: we can say for the poor hamsters. Over in Hong Kong,
Speaker 1: China is pursuing a vigorous, some might say ruthless policy
Speaker 1: of zero tolerance of COVID. So when a local pet
Speaker 1: shop worker, a customer, and eleven hamsters tested positive for
Speaker 1: the Delta variant, the Hong Kong government ordered all hamsters
Speaker 1: imported since December euthanized. Despite the lack of really clear
Speaker 1: proof that humans can get COVID from hamsters, but there
Speaker 1: may be another way. Since the eighteenth century, in a
Speaker 1: small village west of Madrid, on the eve of San
Speaker 1: Anton's day, they purify animals from disease. Well, how do
Speaker 1: they do it. They take a group of horses and
Speaker 1: ride them through bonfires, which may or may not date
Speaker 1: back to the days of the plague. And if it
Speaker 1: seems a bit medieval, then again doesn't a lot of
Speaker 1: our response to this pandemic. It sure does for those
Speaker 1: poor hamsters. That does it For this episode of Wall
Speaker 1: Street Week, I'm David Weston. This is Bloomberg. See you
Speaker 1: next week.