Sallie Krawcheck Says We're 100 Years From Gender Pay Parity

Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg Sally craw Chuck is with us, and she is of course an historic place on Wall Street delivering first order securities analysis for Sanford Bernstein where she broke original ground, and then her executive work in financial management and now running Elvis is on. The book is own it and it's not another touchy feely g Gali book here. This is the real thing and it's

hard hitting. Let's start with diversity councils. You go right after diversity councils say no, no, no, help me here. Well, here's what I would say, Tom is and I think we've seen it in diversity has stalled gender progress. We certainly have seen it in politics, but in business as well. For all the discussion and debate about the power of diversity, it's stalled in on Wall Street. You know, it's gone

backwards over the past acts going backwards. And what is your prescription to get away from the happy talk of the recent decade. Well, for CEOs, start to just do it because the impact of not doing it has been theoretical. You won't get the higher return return on equities, you won't get the greater innovation. But at some point it's going to become actual because the number one reason millennial women leave their jobs today is to make more money.

Can you look at a guy like Mark Benoff who we interviewed Davos and he goes back starting with three guys in an apartment and he's, I guess made a success of himself. And Benoff says, come on, if you actually do this livid day to day, it's not that hard. What's holding up the rest of corporate America. Well, it's because they think it is that hard. It is so much easier to bring in diverse individuals and treat them

like middle aged white guys. Be confident, make your case, raise your hand for the P and L responsibility as supposed to really pulling out of everybody the different things they bring to work to drive the power of diversity, right, Sally do We just need more transparency. More transparency in the workforce means that you know how much everyone is paid, you know how many people are employed. And it's certainly

through transparency that people can actually fight for diversity. I can want to fight for diversity, but it's very difficult for me to see where I should be fighting. For example. Well, I think that's a great point. And on today's trajectory, we are either a hundred years, fifty years, a hundred eighty years away from gender pay parity longer if you're

a woman of color, so way away. But all of a sudden, they're these resources such as paste get get raised comparably hired, where we can go in and see about how much we should be paying. So back in my day, a couple of years ago, when I would go in for a raise, it was please give me a raise. Today it's this is how much I should be making, and I can see it, and so I'd

like that raise. The power is shifting, right, What is the one thing, what is the one common misconception on boards on how to treat diversity and actually how to be more inclusive. Well, look, I think boards just haven't really taken the bull by the horns. I mean, everybody says this is an important to do, but when your CEO shows up and says, yeah, I know, and I would love to put Susie in that role, but Jim, Jim is such as Jim, and gosh, she reminds me

so much of me. The board finds it difficult to reach into the company and question those individuals decisions despite what the research indicates. Okay, let's look here at the video. We did a research project. Sally's gagging here this morning, off the level, off the lousy savannas. Go bring up the video this weekend. And this is extraordinary. But I want to tie this into own it as well. You've

got four million women marching. I get it, it's a huge deal, but how many of those women took triggonometry. You go right to it on page one thirty two of your book and you say, this carnard that women can't do math is just belogning. And what people don't know, folks, is Crawchuck invented this on Wall Street with your work at Sanford Bernstein, are you seeing more women say screw the stereotype. I'm doing trigg Well I did. I didn't

invent trigonometry, though I do appreciate the compliment. But here's what I would say. We're now starting to talk about the gender money gaps and women. There are several gender money gaps we have which cost us millions over the course of our lives. Women can go to the elivest website and they can see we put together a whole guide book on this. The one I'm very focused on with eLabs is a gender investing gap which costs women hundreds of thousands or millions, and we still buy the

Ozzie and Harriet math is for guys. Guys are better investors than women. That is, neither of those things are true. I'm trying to think of the percentage of our audience that don't know who Azzi Harried is. They don't even know that Rick Nelson went to a garden party and Harriet it's way back Gillian's Island family. How do we get away from the stereotype of Ginger and Tina whatever her name was, Well, why not? We need to actively move away but this is the place the stereotypes there,

here's one that drives me nuts. Women need more financial education to invest, and we women, because we love getting our eyes are like, you're right, I need more financial education, except the guys need more to but we invest anyway, they invest anyway. So here's the here's the final point industry symbol, a bull. Not a lot of women are looking at that and saying that's for me. So in Sally project now she joins us here in the studio.

She's the author of a new book, own It, The Power of Women at Work, of course, former CEO of Smith Barney, now the c and co founder of Elvis. Great to have you with us. Let's start at the beginning of your book. A great first line here, Well here we are you right, but the view looks a little different than we expected. Were There a lot of revisions here between between the events of November the eighth

and where we are today. Remarkably few, actually, because diversity has stalled in corporate America and for those of your listeners on Wall Street has gone backwards on Wall Street before the shocking too many election results. So yes, three days after the election, I did wake up and call my public say, oh my gosh, well, you know, let's can I change the first couple of lines, but remarkably

little because the stalling. There was a piece in Bloomberg Business Week about all that Hillary Clinton promised to do if she were to be elected for women who work in government, particularly at the mid level, and there was great despair in Washington that that was going to change with the with the President Trump. Your background is in Wall Street, not in government. But there are ramifications from from the way the election turned out for women in business.

Absolutely there are Um you know, I was personally hoping for mandated parental leave. We're the only developed country in the world that doesn't have it, and there's new research that shows it pays for itself in the first year because women are more likely to come back if they have maternal leave and you don't have to replace them and train their replacement regardless. One of the points of the book before the election is, hey, guys, you know, what we've been doing has gotten us so far, but

no farther. So what are what's going to happen now? And the points on the book is, first of all, you know, there's so much freaking advice out there that tells us to act like men, when in fact, we bring so many great qualities to the workforce that are becoming more important, such as risk awareness, such as relationship orientation, such as long term perspective. I mean, things that are important and are becoming more important and drive great results

in business. The issue is four. If there wasn't a lot we could do about it, if company didn't appreciate it, we could go work at another company. Now we have much more information, we can figure out we can go to websites to figure out our gender pay gap, and we can go started on fraggan businesses. All of a sudden, you know, the technology is changing things in a way. We have so much more power. I'm so interesting that you read about that in the book, that the role

of technology is playing here. Explain that a little bit more, that the doors that changing technology is opening for women in business. And it's not perfect, right. Venture capitalists don't get it, But you know what do we get like three or six or seven percent of venture capital dollars. But most businesses are not venture capital funded. And today the cost of technology is coming down. You don't have to buy servers, you you rent space in the cloud.

But it's not just technology that's taking down the cost of starting businesses. It's we works as opposed to long term releases. It's benefits as opposed to an HR department. You know, it's it's video conference as opposed to business travel. That you're able now to start businesses to a degree you couldn't before. And there's so many more role models.

I go through a hunking list of them there of women who were starting their own businesses and in part, in part, actually, the number one reason women get for starting their own businesses is because they want to build the business at which they want to work, and corporate America isn't working for so many of them. So for big companies that don't get it, there wasn't much penalty before, I believe going forward as women recognize that these places

can be hollowed out. Talking with Sally Crotchick, the author of Own It, The Power of Women at Work, picking up on what you were just saying, how has mentorship changed The notion of mentorship changed here since you've got into the business. Well, mentorship it's it's very nice, it's very good stuff. It's Hey, I have a question for you, Hey, I've an answer for you. Women have and I'm gonna get these numbers wrong, but three times as many mentors as men, but we have about a third as many

sponsors as men. What's a sponsor? This person in the room who says promote her or promote him or I'm going to put my political capital on the line for him or her and really pull you along, And we just don't have as many of them. In fact, even we think we have more than we do, and then when we question about it, we're like, no, no, don't have them. UM, So that's an important in fact what

I would say. You know, we talked about the book in a geeky way, but there's a lot of action oriented advice based on my almost thirty years in the business UM as well as a lot of Wall Street anecdotes, some of which I think, you know, you're gonna be like what happened? I can't believe it? And I figure if I can sort of give the advice on how I navigated through this most mail of businesses, it should

be relevant for for other businesses as well. You write about group think on Wall Street, especially among the executive ranks, talk a bit about navigating that and how much that continues to persist today. Well, I got fired because of it. Essentially, so um Wall Street, the business I love, went into the downturn white mail and middle aged, and it came out whier mailer and middle aged her, which is really

sort of surprising. And one of the points I make is that while we talk about greed as a driver the downturn, okay, leverage, absolutely, but one thing we don't talk about a group thinking. What I saw were individuals who had the same types of backgrounds, the same type of training, same training programs, all friends who fought the

same way. And so as we went into the downturn, there was a it's going to be okay, remember we saw this, Oh yeah, I remember the last time we Oh remember that one felt and I'm like, what are we talking about? You're finishing each other's sentences, And so there wasn't that outside. Hey, guys, I have a vastly different background, perspective, orientation, way of approaching problems. How about this? And without more, without more of that, we drove straight

over the cliff. You had this career on Wall Street, you leave to start this company. Are the regrets that you didn't do that sooner. As women are weighing whether or not to state the firms they're at or start thrown businesses, what would you say about timing well, you know, for l Vest, which is a digital investment platform for women. UM, I'm not sure I could have started any sooner because

the technology had to catch up with the idea. I mean, we're providing a to my mind, really sophisticated offering for women. It's true goals based investing. It's not about beating the market when the euro this versus the end, but investing highly customized investment portfolios to reach your goals by house, have a baby, start a business, retire well. Um. And the technology UM had to come pretty far for for it to be feasible for us to build the business.

So do I wish I'd skipped a few chapters. Oh yeah, oh yeah, you know that that getting re orged out of Bank of America. I could have actually had a dream last week, Brian Mornahan wants to see you. I'm like, not again. I'm gonna get re orged out again, even though my results are better than you know, even though we're beating Black No, and in my dream, I thought, if I just escaped from the office, maybe they won't find me. Yeah, But then I woke up. You equival

with you take issue with the term empowerment? What is it about that, that word that you don't like? I've always hated it, and I thought it was because it was trite, and you know, let me. I've always hated it because I thought it was overused. Um. I then finally finally looked it up in the dictionary and empowerment means to be given power. Wait a minute, we women have got loads of power. We control five trillion dollars of investable assets we jointly control with our partners another

six we direct of consumer spending. We're more than half the workforce. That's power. We haven't had the means to use it before. How would you know which company to buy from? Well, all of a sudden, their startups that will tell you, you know, when you go to the grocery store, buy up index will tell you the gender makeup the senior leadership team of the company you're buying from. So all of us or you know we've done good, will tell you about how companies are treating the environment.

So all of a sudden, we have, whether it's who we buy from, who we invest in, asking for the raise. Never knew how much to ask for before, but they're all these sites that tell you how much money should be making now, um pay scale, get raised, etcetera. So we have this power and now we're beginning to have the means to use it. So I think it's changing, and I think it can change pretty rapidly. And I

think the timing is so fascinating. As we have women take to the streets in Washington and New York and all over the world. What we're hearing from women again and again is I want to take some action. What we were doing before stalled out. We need to do something different. Sally, thank you very much for coming into short a time to hope we can have you back again, maybe during March madness. I don't know more fervent U n c A fan than I here we have feltorio

any day Sally Project series this year. She's the CEO and co founder LS, the author of Owned The Power of Women. Edward David Garraty and New York Tom Keene is off today. Kevin Logan joins US now. He's the chief US Economists at HS at BC. Like many of us, he lent an ear to what the president, like the then president elect, had to say on Friday. And let's start there, Kevin. We focus with an arcual address on the sweeping rhetoric. It was sixteen minutes worth of that.

Did you expect much granular detail to be sprinkled over? What did you hear when the president spoke, especially when it came to trade. Well, he he had two main themes, populism and protectionism. He talked about the people. He was anti establishment. He says, there's a new sheriff in town. Things are going to change. We're not going to do things the way they were done before, and particularly on trade. Previous administrations had been focused on multilateral deals, the rule

of law. Everyone abide him by the same agreement. And Mr Trump has a completely different approach. He's going to approach things on a unilateral basis, one on one trade deals and as he put it, America first, not a multilateral deal in which many countries benefit and there's even take, but rather now things that clearly benefit in his view, UH, deals that will benefit the United States. So that is a complete break with the past, and it's a new direction.

What's your sense of the the effectiveness of the meetings he has been holding at the White House thus far. He's going to meet with auto executives this morning. Yesterday he met with UH leaders of industrial companies, among others. Elon Musk was there from Tesla and Solar City. UM. How effective can a meeting like that be when he tries to pursue this this new kind of trade policy, I suppose well. I think image is very very important

for Trump, and it's very important for any administration. When it first comes in. Everyone understands the auto industry. Everyone knows that a lot of jobs have moved to Mexico, for example, where a lot of parts are manufactured and then ship back to the United States. And so going straight to the automobile industry has a great optical appeal to people throughout the country. And he may get some victories, their small victories, some more production in the US, and

it might involve a few thousand jobs. More importantly, I think, is what is the grand plan? What is the big plan that's going to change incentives for US manufacturers or any company UH to produce more in the United States and to reverse the outflow of UH production. That's been going on for several decades. The U S tax system UH basically encourages UH firms to move production out of the US. Not that it's just the U. S tax system,

it's also the tax system compared with other countries. If other countries have value added tax system v a T system that taxes consumption but not so much production, whereas the US has a system of taxes production and not consumption, well, of course production is going to move where is more likely taxed, and that's been going on for some time. The question now is what will the Trump administration do to provide new incentives for corporations to locate their production

in the US rather than in other countries. That's what we'll be watching for in coming months. There was a moment of the press briefing yesterday Sean Spicer was talking with reporters. One asked about the unemployment rate. She said, what is the unemployment rate? And there was some hemming and hawing about what he in the administration things it is UH, and a line after that stood out to me. He said that we've been focusing too much on statistics and I want to just draw that more broadly to

talk about trade. You have the President signing an executive order yesterday rejecting the TPP, the Transpacific Partnership. By all reports, he's going to do the same thing with NAFTA. He's going to call for a rewrite of that later in the week. Are you convinced that there is enough attention being paid to the economic case for for reevaluating these trade deals or is this uh, you know, sort of statistics be damned. We're looking at at policy exclusive of that. Well, yes,

it's not only statistics be damned, but conventional economic theory down. Uh. Most trade theorist would say they are great benefits from trade. Look at all the inexpensive goods that are important into the United States. Its benefits everyone, It increases people's standard of living. But that's not what the Trump administration is about.

So those general gains are dwarfed in their minds by low losses that have occurred for people who are in those sectors which a lost employment, lost production because of trade, and that's what they want to reverse. So the overall theory of their overall statistics, Yes, those statistics and theories can be damned. Because the people who supported Donald Trump to a large degree see themselves as being disadvantaged in the by conventional trade theory, and that there should be

a reversal of that. So that's why we're headed in this new direction. Let me ask you lastly here about a different topic entirely. Steven Manuch in the pick T B. Treasury Secretary, was testified Capital Hill, and he talked about the strength of the dollar. The president tweeted about the strength of the dollar, saying he hoped it would be weaker. This is unprecedented to have a president doing that. Are

we seeing the end of the strong dollar policy? Was that was that the pivot was at the turn there When that tweet came out, it certainly sounded as if it was a pivot and change. Back in the nineties when Bill Clinton was president, the strong dollar policy was adopted because there was concerned about capital flows into the

United States. Interest rates were higher. There was a concerned that foreign investors were discouraged by the progress of the American economy and if the capital wasn't invested in the US, interest rates would remain high. It would be difficult for uh the U S economy to grow. Adopting a strong dollar policy sort of put a safety net underneath the value of uh U S assets for foreign investors. By the time we got to the end of that decade, the economy was strong, the U S deficit was shrinking,

moved into a surplus. The rationale for a strong dollar policy had gone, but the policy had its own inertia and just continued not anymore. I think that's new era and a new approach to the dollars that we're about to see. Kevin Love and always right to speaking in the chief us Ecnoms of HSBC, join us here in New York. This is Bloomberg Surveillance on Bloomberg Radio, brought you by Bank of America, Maryland and dedicated to bringing our clients insights and solutions to meet the challenges of

a transforming world. That's the power of global connections. Marylynch, Pierce federin Smith Incorporated, Member s I PC, David Gura in New York. Tom Keene off Today's Scarlett Food joining me in the studio Brunnan Hawk and he's an analyst with UBS. We're here at the end of earning season, of the fourth quarter earning season for the big banks, the Big six banks. Brennan Hawkin, Great to have you with us, and let's start, if we could, with this

prospect for regulatory change. We heard from Steve mcnut in last week on Capitol Hill test to protestifying before the Senate Finance Comming to He was asked about what could change when it comes to regulation. How do you how don analysts like you begin to process what that could mean for banks bottom lines changes to the regulatory framework. Yeah, hi David, thanks for having me on. UM. The great question and probably the one that's most difficult to try

to figure out. Uh. It's something we've been wrestling with ever since early November, right, Uh and UM. Of course regulatory change is one factor. There's also the potential for for tax reform uh and everything like that. But I'll stick to the spirit of your question. UM and UM, you know, the regulatory adjustments and how to think about it. We have done some analysis looking at Goldman as an example, because really they're probably the most likely to benefit and

we can we can get into why if you like. UM. We took a look at what happened in in two thousand and nine, UM, which was the last time we had a nice solid growth of the fix revenue pool, which is fixed income, currency and commodity trading amongst the large bullish bracket investment banks, and Goldman took a ton of share. Uh. They captured about of that revenue opportunity. UM,

there are a great franchise. They were able to be committed to UM putting capital at work in the market, and they hadn't fired rebody off of their trading desks the way so many of their competitors had, which is remarkably similar to today UM, when other firms have restructured their thick business. It's it's been a really problematic line of business for a lot of the bullish brackets UM, but Goldman has stuck to it, and so we think that they are in a very very good position to

benefit from thick expansion. If we just get back to uh, you know the average for FICK, you know, we'd be adding about fifteen billion to the global revenue pool. Is this a case of Golden stealing share from his competitors or is it growing? Is the market growing or starting

to grow again? So a little bit of both, probably Scarlett. UM. What I would say is, Um, the Goldman has seeded or have had market share stolen in your Partlan's Um over the last three years in fick Um and that's mostly because the macro businesses f X rates are not really big strong as strong markets for Goldman as the

commercial banks. Commercial banks have huge stock piles of treasuries, they deal in in currencies, uh, you know, gold Boy through a banking footprint, and so they have competitive advantages over a firm like Goldman Um and so they're Goldman through its business bix alone is going to appear to seed share in a time when macro businesses do much better within sick Garlett Food and I talking with Brennan Hawk, an analyst with UBS, just on the subject of Goldman

quickly if I could hear Brennan, we see so many alumni of Goldman Sacks going into government here Goldman Sacks once again being foisted into the spotlight as a result of that. Is that something that's worrying to you as an analyst. Does that bring new scrutiny to the bank, maybe not new scrutiny, but renewed scrutiny to the bank, And is that something that could affect how the bank performs It certainly will bring a tension from the press. I think that that's to be expected. Um, I'm not

so sure. I usually don't think that that has a big impact. Normally, when someone goes into uh, you know, public service after they've um, you know, done what they want to do and made a good deal of wealth in private sector, they usually do it because they feel

like they can have an impact. Now, what I think is important and interesting is that, but you know, folks like Gary Cohen and the like who go into um Minuchan who you referenced before, David, They when they go into public service, they tend to be more um understanding of commercial interests, pro market understanding the benefits that market can bring, whereas some of the previous folks in regulatory and senior Washington positions, you know, folks like Dance while

he currently still is but we'll see how for how long that Dance Rulo who comes out of academia and law. They just have a different print approach, an understanding of um, you know, the need to generate sufficient returns in the market, the benefit that markets can provide to companies and allowing for access to capital, the importance of aquidity. And so to me, this is really we stumbled onto a key point.

And and you know maybe if Tom were here, I'd get a rip up the script comments or something out of him. Right, but uh, you know, to me, this is where the rubber will hit the road, and we can actually see regulatory tone change, right the idea that you know, those on top are saying, listen, we we need to have better functioning capital markets. We need to have greater liquidity in some of these bond markets and

the like. And the best way to do it is to not, you know, continue to apply pressure to these businesses when they're really just trying to service customers. So that being the case, what would Gary Cohne do as his first initiative or what would he be pushing for

in his first initiative? The supporting president? Yeah, and and we we we started on Gary, but but I I strayed, of course, more more broadly than that, UM, I think UM Gary is in a position where he would be advising right on the Economic Council, which is more of UM a tonal impact, right, UH, an adjustment to approach perhaps if he can put input into UM assignments, UH in key regulatory positions. To me, the key regulatory positions

are what are really important here. And so we took I mentioned before about the TRUA role within the fed UM. There is also the idea we're going to have a new sec UH chairperson uh J Clayton here soon who clearly has h an understanding and appreciation for commercial interests in the markets. We've also got UM the potential for a new head of cftc UM, which is going to have a very very big impact on some of these

trading markets. Volker has had a huge impact on the thick markets, mostly UM, because there's so much scrutiny of any kind of principal transaction and the need to be so cautious and so concerned about these entities trading on their own account, whereas in reality they might just be facilitating,

you know, customer trade. So is it a matter of perhaps not enforcing everything that's in the vocal rule and everything that's in regulation right now as opposed to rewriting it completely to me UM, the idea that we would have repeal um of laws actually on the books is

a lot more difficult. UM. Bulker is an extremely subjective rule, and if you have a regulatory approach that is hostile in its tone, then you're there's going to be an enthusiasm and a UM an approach that will limit the ability of a lot of these firms to provide liquidity the market, whereas if the approach is more pro market, more more commercially oriented, UM, than we could easily see a greater amount of liquidity provided. But in the time that we have left, let me bring it back to

to the last earning season. UH. It was a fourth quarter earning season. We saw a beat like we don't usually see in the fourth quarter. Speak to the uniqueness of of of what we saw there. We've mentioned that it was a fixed story for a lot of these big banks. Are there signs that's going to continue into the next quarter or was this something really uniquely tied to the president's victory? UM, So it was a probably

a mix of both. UM. There was the victory was definitely very helpful in UM providing a catalyst for markets and providing volumes. We saw a similar thing when bregsit occurred, you know in the third quarter. UH, there was a benefit Actually there's some degree to the second but also to the third quarter from that event. UM. The election also provided a great deal of reason to UH for

customers to trade in the fourth quarter. Fourth quarters normally are not all that great because of the holidays and the and the lower amount of trading volume into total. One queue is typically where a great deal of money is made, especially in fix. We're off to a very very good start. There's been a very busy underwriting calendar for a lot of these debt markets, which tends to bode very very well for thick revenues. Comps are quite easy, so I think we're going to see another really strong

revenue growth quarter here this quarter. And that's even before a lot of these adjustments to the regulatory enforcement that I've made reference to before to start to actually have an impact. So to me, we're just getting started, all right, friend, we'll have to have you back after some of those adjustments starts to happen. Brennon Hawk in the analyst with Ubs joining us. Michael Gapan joins us now he's chief US economist by at Barclays. Join us here in the studio.

Let me start with a definitional question. Sure, there was a lot of talk about tariffs during the campaign and the transition. Now the talk seems to have shifted to conversation about the border adjustment tax. Right, are they the same thing. What what do you what do you make of the rhetoric we've heard about that here? The way the President speaks about it, it is a tariff. So he says, if if you're a company and you relocate overseas and you try and export back into the US,

you will face a thirty tax. Right, that's the simplified version of what he said. That's a tariff. The way how Speaker Ryan and some of the Senate plans talk about the border adjustment tax is it's couched in broad based corporate tax reform, so it's a tax on all imports, and it's a reorientation of the tax code. So right now, it's a point of origin system, so if you're a US corporation, doesn't matter where the sale takes place, it's

subject to federal taxes. So if you export that sell it abroad, your subject to federal taxes in the US. You pay it when it's repatriated. That's why we have the repatriation issue. But if you reorient the system in tax all imports, you're refundamentally reshaping the full core pro tax code. So I would say it depends on which border tax you're you're talking about if it's House Ryan, House Speaker Ryan's plan, it's comprehensive, couched and comprehensive tax reform.

It's part of a very broad based fiscal stimulus plan. If you're looking out at the way President Trump is talking about it, it's more bilateral tariffs against specific trading partners. Is everyone trying to simplify this a little bit too much? I mean, should there be the same tax, whether it's border tax or a tariff on all industry, all types of companies. But I think that there's probably a legal issue on whether you can put this tax on an individual firm, right, So I think if you know, he's

called out specific company correct. So I'm not a legal scholar on this, but my my guess is where it would go as you'd have to consider then tariffs on a specific industry or an entire country. Um. So if you go back to say, when um, when Reagan was in was in office, we put a tariff on semiconductors. You look at what President Obama did on steel imports from from China. So I think you would have to lead treat an entire segment and industry segment the same way.

Does that work? Better. Uh, not necessarily. I think it depends on what what the goal is ultimately, and in this case, what the President is trying to do is reorient activity to the domestic economy. And in principle, if you want to get less of something, in this case trade,

you have to make it more expensive or prohibited. So I think what what the President would be saying is there are specific bilateral trading partners that are not behaving well, and we could perhaps remedy that that through tariff policy. The House and Senate plans are more about we don't like the way the corporate tax code is set up. We think it creates too many distortions. UM, we'd like to lower the rate, broaden the base, and in the

border adjustment tax provides a way to do that. So one's about trade policy, the other one is about corporate taxation. Make it more expensive. We're prohibited, you say, And I wonder if you if you've modeled that out sort of what that means, and if you think that the politicians who are proposing these changes have reck with that as well,

what it could mean for the U. S economy. Well, I think that so in the political political economy sense, you I think you asked the question, did we just vote as as a country to say we're comfortable with paying a little more to get a little less if that means we get to keep more jobs at home. That's the kind of the anti globalization trade off. So if you put tariffs on on products, you will get less trade, that's true, but it will also mean what you and I buy every day is generally a little

more expensive, so your dollar won't go as far. That's a political economy trade off. We're in the short run. It would likely hurt activity a bit and cause a little more inflation, So you have to trade a short term loss for an unknown medium term gain. Normally that's not a good political trade off, but that's what we're looking at. We're on chartered territory at the same time. That's right. We don't have a tremendous amount of experience with the imposition of very large tariffs. Um, you have

to go back many decades to do that. Generally, it's not positive for activity in the short run. Yeah. I heard Stephen Moore interviewed this morning of the Heritage Foundation, former advisor to Donald Trump when he was running for president, and one thing he acknowledged. Is you have the president

calling out, as Scarlett said, some of these companies by name. Uh, this could all fall apart, The strategy could all fall apart if one of them decided it makes more sense to move overseas despite the fact that these terrorists are in place. Do you agree with that that this is a sort of a a loosely constructed house. Well, that's when I would say push comes to shove and you have to decide what you what you want to do. In in our baseline, we do assume protectionist policies are

put into place. We felt like the main theme of the Trump campaign was reorienting activity domestically, backing away from globalized economy. So I do think you will get protectionist policy. So yes, right now the messages don't do it. But if somebody does it, then you've drawn a line, the so called redline. And what what does the administration do in response? And we think you will get some terroffs.

So what is the argument or the best argument the heads of GM Ford and FIAT christ Or can make when they go and speak with President Trump today when it comes to how best to preserve their growth prospects, but also protect US jobs. The auto market is a global market. Are Detroit makes autos that they ship into China as well, So growth for these companies is largely outside the US. They also make products for sale here.

They have a global factory production process. Some of it they source and produce domestically, some of it they source and produce globally. They've allocated their capital in a way that maximizes their efficiency under the current system. If you change all that around, there's going to be a lot

of upheaval. Ask you how this factors into your GDP forecast right now when you look at how the country might the country's economy might grow, I imagine the trade is still looming large is a variable that you really don't have a handle on. Yeah, that of us have a handle on on yet that's how how are you calculating? What we're assuming is is that you get say seven percent tariffs on imports from Mexico and on imports from China.

That covers about a third of all imports. So if if that's correct, it would tend to reduce your growth rate by about a half percent, and it would tend to boost rates of inflation, say two to three tents, so it wouldn't be a major drag, but it would also depend on what these countries do in response, and it would depend on what other trading partners do, And it's important to consider do you get complementary fiscal stimulus

alongside that. So this is why I think you need if if if I'm a say, a political operative, and I want to do anti trade policies, I better do those expansionary fiscal policies at the same time or close to the same time, so the one would outweigh the other. So if it's say modest anti trade, it's something that I think a fiscal stimulus bill could over outweigh and keep the economy on say a two to two and

a half percent growth path, and everything looks fine. If it's if it's import tariffs on all imports and our trading partners do the same, it's a very different story. So I think it does depend on the reach of those anti trade policies and whether you get expansion or fiscal policy alongside. So as we await details of the new administration's trade policy, and as they sort out how they're going to approach infrastructure spending and other parts of

their fiscal stimulus. What kind of cost does that uncertainty have on business activity? I think historically it would say that investment waits, and we're going to get the advanced estimate of Q four GDP on on Friday, and I would expect within that business spending will be quite soft. That whether it's spending on equipment and software or intellectual property or structure as we expect those rates of growth to be quite modest. So until you know the details,

the answer is typically you wait. So at least, let's say, through the first half of the year, we would be very surprised if businesses front run any policy decision or consumers front run any any tax cut. I think until you know the details were in a holding pattern. Let me ask you about a moment in the press conference yesterday with Spice to the White House press sectory question was what's the unemployment rate? Is this going to be something that's pretty hotly debated here in the new year.

What what unemployment actually is? I think it's it's about facts and how you claim victory. And so if you don't settle on a definition of what unemployment is, then you can always claim that your policies are are benefiting

labor markets. There's an accepted unemployment rate. That's let's call it mid to high force right now, because it's it's oscillating around for seven, for eight, for nine, but we're below five, and most of us in the economist world have settled on Yeah, that's a reasonable measure of where labor markets are, and by that measure, we're at full employment. We are here with Michael Gabon, he is the chief US economist at Barkleys and Michael, we were talking about

how to define unemployment in this new administration. The thorough Reserve may have the opportunity to do just that because next week we have the next f O MC meeting Wednesday. UM, people are not expecting a rate increase. It's not a live meeting. In fact, if you look at w I r P on the Bloomberg, only a chance of rate hike on February one. Yet we are likely to get some language regarding where we are in the FEDS duty to fulfill its two mandates of full employment and inflation

controlling inflation. That's right. So last week when Cherry Ellen spoke, you've got a very clear message on the labor market, the unemployment rate, the U three measure is near its long term UM level, the underemployment rate has the U six measure has fully retraced. All your cyclical components of participation in the employment of population ratio have have been removed, and it would be risky and unwise to pursue a hot economy. And she concluded, I think we're basically there

on the employment side of of our dual mandate. So I think that's the message you'll see in the statement. There will be the normal discussion on the incoming data, but I think you'll you'll see that conclusion that at least as as it pertains to labor markets, under utilization has been removed, and that will be an important signal for markets because looking ahead it means further progress will generate rate hikes. It's an important signal for the markets.

What kind of signal does it send to the Trump administration? That's right. So I think that the FED is has a statutory mandate, meaning Congress has given it um specific goals, and the FED interprets its maximum employment goal through a variety of measures, but the main one is the unemployment rate. So the marker there from a political point of view is that, well, we have to raise rates because we're pretty close to our dual mandate. We're a little off

on inflation, but we're basically they're on unemployment. So further progress means rate hikes. So it's a signal on a political front that we're doing this because we're there, not because we don't like the policies that that are coming. But if you don't accept that unemployment rate, um, you're from the other side, you're still likely to generate some political goal criticism. We'll listen to the political argument that's taking place on Capitol Hill about a more rules based approach.

The FILS should take a more rules based approach, Uh, if one were in place, how that effect defends thinking right now? Well, the rules based approach would would say if if you assume the U three unemployment rate is part of of of that rule, then yes, that rule would say you should be normalizing policy um. Yelling went through several different variations of the policy rule. All of them suggested that rates should should go higher, some faster

than than others. But the critical decision would be, well, what do you assume then, is the goal for maximum employment and the inflation side is obviously easier to to pin down UM. But from a rules based approach that says, either some combination of U three and even U six were there by by those measures, and moderate increases in in front end rates are are in store. Does the

f that matter as much in this environment? Uh? While, Since we talk about the FED as having an actual impact on how companies decide what to do, that's right. So I think the big shift in November was that the FEDS no longer the only game in tone and for for years our discussions have always been around what's the central bank going to going to do? And and now we're getting a little more balanced and the FED will be following. So it depends on what fiscal policy.

Does you get a lot of anti anti trade, not a lot of fiscal stimulus. The FED will be ignoring that inflation impulse, looking where activity goes, and you make it easy in that world. If you get a lot of fiscal stimulus at a time when the FED sees the economy as as being at full employment, and we would agree with that, then you're going to get some offsets. So they're important in the sense that they will be

pushing rates higher. The dollar will likely respond to that, so you'll get a tightening and financial conditions alongside fiscal stimulus, so there'll be some crowding out effects. Help us with the potential seismic shift here in terms of personnel on the FED Reserve. How big good deal is is that going to be? We hear the report this week that maybe a community banker might join the ranks of the FIT Reserve Board. How big a shift is this going

to be? I think in the next by seen you'll probably turn over a third and a half of the entire FMC, at least from the board's point of view. It's likely the chair and the vice chair Um Daniel Tarullo, if not one or two more UM may maybe. So you got the two new faces and then perhaps three changes. So that's help us with the new faces? I mean, do you haven't do you have a sense of who

this administration might put forward? Well, there's been as you mentioned, there's the name of the community bankers that were put out yesterday. I would say, we don't have a tremendous amount of information. What I would say is I would expect them to be more practitioners, actual bankers or those who have worked in markets and generated good performance. Um So,

Kevin Walsh would be an example. If you reach back and look at a previous board governor from a Republican administration, little more more could practitioner oriented much less see pure academic oriented. That's kind of the shift I would expect. What it means for monetary policy, it's hard to say until we know who the chair is. All right, Michael Gaban, thank you very much as always for joining us. Michael Gaban, Chief u S Ecconomist at Barclay's joining us here in

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