Surveillance: Biden's Tax Plan With Ramamurti

And what it's so important here is it is experience for the democratic politics of this nation and working with committees as well. Broad I've got to go right to your work with Senator Warren years ago and the tax the tax frenzy the media has right now and the reality of the committee process. How will the Biden administration work with the committees in this modern politics? Sure so that the President has laid out of tax agenda during

the campaign. It involved higher taxes on big corporations, multinational corporations, taxes that tax changes that were intended to drive more investment into the United States rather than abroad. Uh and higher taxes on extremely wealthy individuals, those people making more than four hundred thousand dollars a year, and so UH

we we hope to work with Congress to accomplish those goals. UH. The President's tax plan is intended to make sure that middle class families are are not paying more than their fair share, and that the wealthiest folks who buy in large have done quite well over the last several years, including during the last year, are paying a little bit more. Part of our social fabric is the single versus married split. Are you gonna play with the social construct of our

tax system and particularly joint had a household and single dynamics. Now, I don't believe that there's any plans for that as you as you know, the tax recognizes that, you know, different UH thresholds are wererant it depending on whether you're filing as a single person or married. I don't think that there's any plans to fundamentally change any of that.

But as I said, the key here is that the President believes strongly that the biggest corporations and those folks who have done extremely well over the last several decades should pay a bit more to finance to support investments UH in in the U. S and country. I help me understand this, because something really important is happening down in Washington. You've just called anyone earning over four d

extremely wealthy. At the same time, down in Washington, we've decided that a family earning a hundred and fifty thousand is deserving of a relief check as well. Are we defining something important here? Are these just numbers plugged out a thin air? Is there a message underlying these numbers? Sure?

I mean, the president's view is that you know a teacher and a nurse who collectively make you know, a hundred and ten thousand dollars UH her relief And what we've seen in the data is that families with that kind of profile have suffered. I mean, it's important to remember that, according to the latest data, one and seven American families reported going hungary during the pandemic. There's a

lot of need. That it's very widespread need. And remember, in addition to the fact that the unemployment rate is elevated, there's also evidence that folks have had to cut back on hours, had to take wage cuts in order to make it through the pandemic. So there's widespread need and the economic impact payments the checks reflecting although there is a difference between a hundred and fifty and twenty, there's a difference between a hundred and fifty and no income.

And this raises a question of whether this is trying to simulate spending and ignite some sort of economic growth versus plugging a gap and evening out the playing field. Which is it. Well, I think that the American Rescue Plan, which recently passed, targets money towards those lower income and middle income families. Remember, it's not just the checks. There's an expansion of the child Pax, which is going to

provide parents with children additional support. Obviously, there's an extension of unemployment insurance, which is obviously targeted at folks who have lost their jobs. You no fault of their own. So collectively, what you what you've seen, and what the objective independent analysis and analyses have shown, is that this approach is going to drive a tremendous amount of support to lowering from folks, especially lowering from folks with children.

And we think that that's appropriate. Remember, uh, this plan is going to cut child poverty in the United States in half, and we think that that's one of the main benefits of it. Is it a goal to make the child tax credit permanent? The President said that he's interested in looking at that. Obviously we're not quite bit at that point yet. You want to make sure that in the short term all of the good relief provisions in the American Rescue Plan actually end up in the

pockets of the American people. And so this week and next week, what you're seeing is the administration traveling the country trying to explain to people how they get actually acts us the relief that they're entitled to under this bill. That's really important. Rot This is an important question. It's a curiosity for our global Wall Street audience day to day. What do you observe in the White House is to

how the President takes in his economic advice. What does the Biden method of taking in your wisdom and for that matter, Secretary Yellin's wisdom. Yeah. So, look, this is a very data driven, empirically based approach, and you've seen it in the arguments that the President has been making over the last several months about the need to go big in response to this crisis, and the point that the cost of doing too little UH is greater than the cost of doing too much in the situation, UM.

And you also see it in the fact that the President has said, UM that it's totally reasonable and the right thing to do economically, UH to deficit finance this relief plan, because in the long term, the cost of not providing this relief and letting the economy stagnate for longer is also quite severe. All Right, it's great to catch up and we appreciate time. So come back soon one year rama the National Economic Council with Deputy Director. This is a joy and this is what it's all about.

It's what Jonathan Pharaoh, Lisa Bramwints and I agree on stop and talk to smart people. Patricia Moser is one of the most wonderful economists we have at Columbia. Yes, a former New York FED official, yes, but her heritage from Carl Case at Wellesley on to M. I. T. And Blanchard and Fisher and onto her first rate economics sets her up. Is truly someone with perspective on Jerome Powell and this Fed. Professor Moser, thank you so much for joining us today. I want to go to M I. T. Economics,

which is the X axis and the time continuum. What in God's name, does transitory mean to someone that's studied under Fisher and Blanchard. Well, I was listening to a banker for a lot longer than I studied with stand Fisher and Olivia black Shards. So I'm going to answer that a little of both. UH. Transitory depends on the

market and the circumstances. Macro Economic transitory is a few quarters. UH. Financial market transitory is if you're lucky, it's a couple of minutes, but you know, maybe a day or two tops. So UM, I think it depends on the it depends on the circumstances. UM. From a monetary policy standpoint, if we're gonna talk about the FED, I think that it's uh. It's transitory is something that they're looking at from a matho perspective usually unless they're explicitly talking about markets, and

that means a quarter or two. And to the comment that that was made a couple of minutes ago about looking through this, I think that's basically a simple bankers interpretation of what's happened in the last few months. Is the reason that um uh nearly everybody I know and I certainly agree with this. I think that this is good news toole point is to get the economy growing faster, real interest rates up, inflation expectations up. And both of

those things have happened. Uh. Now it's at the cost that you know, it's not good news for if you're fixed income investor. Uh. But but otherwise it's actually very incommicy news from a map. Stan Fishers stopped the Economic Club of New York a couple of years ago with the discussion of the percentage move from low yields. Are you taken aback by the abruptness of the move and low yields to a higher point or even up to

focus Landau's two point to five predicted this morning. So, um, it was speedier than things that we've seen the last ten years, ten twelve years or so. But let me be blunt. Anybody who has uh thinks about what I call normal monetary policy, which is kind of four eight. Um, this is not ridiculously abrupt. It's actually kind of stereotypical behavior.

Toward the second half of the recession. Your kirk gets steeper, the long end reads, the short end out, inflation expectations rise, real rates rise, and by the way, risk premia at the same time, this iss gone has been going on, have actually gone down. I think how you'ld how you'ld spreads upon like forty basis on into this period. So this is not a sign of like tight credit and things going wrong. This is a sign of things going

right right. But Patricia, there is a concern about whether we could see as some sort of additional tantrum, I mean against nord Vaga. Exante was just on and he was saying, really it will hinge this week, and whether the Fed gives guidance on how far they're willing to overshoot with inflation before they start to get nervous and start to talk about rate rises, and he said, it's a big difference if it's two point one percent inflation

or if it's two point five percent. Do you expect the Fed to give guidance and what do you think the reaction could be? Yeah, I doubt if they're going to give that explicit guidance um right now. Will they eventually have to do that? I think it's entirely possible that they're going to have to And perhaps the way they'll give that guidance is through a series of speeches

rather than through a formal agreement. Because based on history, and my guess is that there's not complete agreement on the E and C about how far amongst this particular set of members about exactly how far above two they would go. You know, transitory, if it's truly transitory for a few quarters. This is what we're um the word

of the word of the morning. Um. Uh. Then I think I'd almost all agree that having transitory inflation at two and a half percent for a while, if their forecasts and their excellent economic reasons to believe that's not going to last, um, like the reversal of supply shocks from a year ago, for example. UM, then I don't think you're going to have a problem with the vast

majority of the the F one s TEA members. They're gonna say that's fine, particularly if it gets us from under one and a half to closer to two percent on a long run basis. That's that's what they're after. Um, and more of all utility, a little bit more, a little bit more volatility and inflation is exactly what they're aiming for. I think that the question about whether there

will be another tantrum is slightly different though. Um, It's not that the Treasury market is completely immune from supply effects. And there's gonna be a lot of supply of treasury obviously, Um, there was going to be anyway, but with the fiscal stimula package, there's going to be a lot and very occasionally rarely. Um. It's one reason I get so much attention. Uh, you can get real supply effects in the treasury market.

I called the pig in the python problem. Um. And of course dealers are a lot healthier financial institutions than they were twelve years ago, but their balancutes are also a bit less flexible and as a as a result of the changes, and so I think they're regulatory changes. And so given that the odds of this of having a few bumps along the way and a little more volatility than we've had, I think I think it's hot.

But honestly, there's been no voluntarity for twelve years since it's partly what everybody's expectations are how fixed income markets should behave. UM. Sorry to be a little bit you know, old school about this, but um, well but Patricia or worried about too much supply, like more than investors want. That's a very rare thing to happen in treasury markets. It hasn't happened since the eighties. Um Um, I don't

think it's very likely, but it's always a risk. And that's why I thought what Secretary Yelling said the other day about eventually doing something when the economy is in debt or shape, about about the fistal deficity is important. Well, but no worries. I mean, these are all really important points.

And it brings me to the Fed's balance sheet, the idea that we have the seven point six trillion dollar balance sheet, and there's a question of how much the Fed will operate as an absorbed, as an absorption tool basically for all of this supply. At what point will they essentially monetize the debt buying the dead of the United States And basically it's a wash if they don't

ever shrink their balance sheet. Do you think that they'll give guiding about how much the actimist capacity and continue to expand their balance seat despite the incredibly easy monetary conditions that we've seen. So um, I don't think they're in a rush to get out of it. Because one of the things I think that's very interesting is how uncertain everybody sort of things, Okay, this is good news about inflation, but the uncertainty about medium term inflation is

very high right now. Honestly, COVID is a completely different kind of shock going to they have, and so understanding what the implications are going to be for prices and wages two years out now is incredibly difficult to do. And so I that's one reason that I think they're going to be hesitant to give too much guidance because they don't want to give the impression they're gonna right now, this very minute. They don't want to give the impression they're going to pull back too soon. But they will

give guidance. They they did a pretty decent job of it when they not the paper tantrum in but after that they learned, uh, and they did a pretty decent job. And they're gonna do this way ahead at time. And I don't think they're there yet because I don't think the economy is strong enough and inflation is on where

they wanted to be. Um Uh. The one thing that I will say, um though about um the the the Fed's balance sheet is that from a dealer capacity standpoint, the Fed buying treasuries and creating reserves doesn't really help, but just sort of trades one kind of state Bassett for a different kind of state Bassett on the bank's balance sheets. Um, and it doesn't sort of solve the

capacity problem, the flexibility problem per se. Actually, I think what the bank regulators decided to do about the supplementary leverage ration of this month, I think that's decided before the end of them up. Maybe more important there something we'll focus on a little bit more in the days ahead. Professor, thanks for time this morning, because most of that of Columbia University. An hour ago we beat to duth Ian lingon a BEMO Capital Markets. Abramowitz and Ferrell absolutely killed

the translation of its notes. He has had of US rates at BEMO Capital Markets. And Mr Lincoln joins us this morning and I make jokes about it, but it's not funny. It is a record issuance of debt. What is the distinction of this record issuance of debt? Well, I think that the real defining characteristic of what we're seeing at this moment in terms of new Treasury issuances. It's not going to all be in the front into

the curve. The Treasury Secretary wants to turn it out so we're seeing more thirties, more twenties, more tens, and it's coming at a moment where the FED is content to characterize the back up and yields as a positive sign because it reflects in improving economic outlook and inflation expectations. There will be a point in which we look back at the higher rates we're seeing and say, wow, that was a great buying opportunity. The question, in my mind is is that one sex deten ye yields or is

it one seventy five? And we'll get there in and I want to elaborate a little bit about how to know and what to even gauge out. But there's a question we talk about all this supply. How much is the FED buying? I mean, they've sucked up a substantial portion of this. Will they continue to absorb the us IS ample and record debt sales, Well, they won't be

buying the entirety of net issuance. In fact, we're projecting somewhere around one point eight trillion dollars off net new issuants out find of what's going into SOMA or at the FED. So they we will really need underwriters from different parts of the economy and different parts of the market in different parts of the world to actually get the US bet. So, why do you think that treasure yields are capped at one seventy five or that it

becomes a buying opportunity there? Why not two percent to and a quarter percent, which is what some houses are saying. I think at one seventy five, we start to look at what's going on in the US in terms of the treasury market, versus what's going on in Europe, what's going on in Japan, and on a comparative On a comparative basis, we're already starting to book attractive another fifteen twenty basis points I suspect will be the point where we start to see wobbles and risk assets and bring

in those sideline buyers. But to be fair, I could certainly envision a situation where the Fed gives the green might to the very steepening tomorrow and we take a shot at a two handle tins and that would be a I think that would be a shock to the equity market. And can you give us a game plan for the twenty year issue? Who actually buys the twenty year and how much of a read across can you take from the twenty year issue today just for the

broadest treasury market? So the twenty year issue, obviously it's a recent reintroduction to the benchmark. It has a set of natural buyers because it's the CTD for the classic bond contract and so there has been a solid bid. Auctions tend to tail slightly, but it's not a big foreign issue unlike tins for example, so it's a It does have structural buyers, but as a read for what

it means for the rest of the market. The only way that the twenty year auction matters this afternoon is if we get a repeat of what we saw at February seven sevens, which was a significant tale despite a reasonable concession. Do you think that should be ignored that way in at this stage. I think that there's plenty of underwriting demand. At some stage, if we continue to see supply indigestion comparable to the sevens consistent tail versus the one pm win issue rate, that's going to merit

a more significant repricing. That would be one of my biggest concerns in terms of how supply could truly reshape the curve in Lincoln year the bank amount you all, and I know when this pandemic is over, they're going to drag you up to my After all, you're gonna go with the big shots to see the Canadians beat the leaves. And someone's going to turn to you between the second and third period and say, look, my biggest

fear as the foreigners don't show up. How do you answer the age old question that the foreigners will not show up to buy the United States full faith and credit paper. I think that the classic bond market adage that there's no such thing as a bad bond, just a bad price, is particularly apt in this context. People will show up to buy US treasuries. The question is at what yield will they need to be enticed in from the sidelines. And that's what we're seeing defined as

the outpost. One outlook continues to brighten this Lisa's ice hockey games. Is that what you're implying to the Lisa shows up to an ice hockey game and I'll see and yeah, really it depends where you are. If you're in North Dakota, pretty exciting, it's always exciting. Actually, Rangers game is pretty exciting. To do you really want to have this conversation John, it's she holds in the boxes at Madison Square Garden. You can hear a pin drop

when she starts terrible. If we get a briefing now, which has become extremely anticipated for all of our viewers and listeners, I'm Adalgia is a John Hopkins Center for Health Security and has provided just immense, immense value to us. All in the media love the charts of cases. They're dramatic, they're emotional, they're the easily accountable. The pros look at

deaths and hospitalizations. When would you assume the public will finally shift onto your territory of death and the hospitalization dynamics.

I think they're already starting to as they see that people get there, are getting vaccinated, as they don't hear about hospital pacity problems anymore, As they realize that nursing homes have been vaccinated, I think they're starting to understand that the concept really is not to get to COVID zero, but detain the virus to defend it so that it doesn't have the ability to cause serious disease, hospitalization and death.

And I think they're going to get there because eventually that's all everybody is going to be looking at because that this is what this is what flatting the curve has always been about, as being below hospital capacity. And if you're in that position, we're dealing with a very

different virus than we were a year ago. And I think that it's gonna take some time and the media is going to have to report more on on that than they are on on cases, and it's going to be a shift, but I think it is going to occur, and it is starting to occur, so it's more attentionally drawn to that. People will ask whether we can aggressively wide and broaden the eligibility full vaccinations. Do you think we're at that point right now? I do think we're

starting to see states get broader. We've we've heard about We've heard about Alaska broadening. There's other states that are now broadening eligibility. It's just a question of being supplied constrained right now, and the supply is going to get better each day gets a little bit better as as we get closer and closer to delivery dates for Fiser Maderna, for Johnson and Johnson for bigger amounts of this vaccine.

So I do think it's going to be a point than we're just vaccinating in anybody that wants to be vaccinated. As the President said, I can make an appointment in May, and I think we're looking at at summer, hopefully a little bit earlier than that late spring, where that can be the case, because that will really get things completely back on track and we'll see the clear trajectory out of this pandemic. It's already already sensing frustration amongst certain people,

including myself, and I'll be very open about that. The idea that smoke has in certain states have seemed to jump the line. A choice to smoke has given you the opportunities get a vaccine before people have chosen not to smoke. What's the best way of dealing with these issues? You have to remember that the vaccine is about really decreasing decreasing the pressure on hospitals by vaccinating high risk individuals.

So when we look at this as a public health problem, they were trying to say, how can we stretch this vaccine supply the best so that our hospitals never get in trouble. So if you're a smoker, you're more likely to be hospitalized. So it's on any kind of personal approval of your behavior. It's just your behavior puts you at risk for severe disease. We're worried about hospital capacity, is worried about I cu bed, So we're going to give you a vaccine so hospitals don't have to worry

about you. That's how That's how I put that. You've done that, Dr Adult. In the meantime, over in Europe, you have a growing number of countries suspending the use of the astro Zenica vaccine. What's your view on the efficacy of this particular inoculation and whether it ought to be continued to be distributed. I think it should be continued to be distributed. We've seen tremendous success in the United Kingdom with this. It's actually approved in Canada as well.

This is a vaccine uses innovative technology. I think they've had some difficulties with the EO, difficulties with dosing, and now there's been some reports of blood clots, but they're not above the background rate that you would expect in a population that's been vaccinated. Uh. And I think this is just one of those spurious associations because and people need to be explained that just because something happens after a vaccination doesn't mean that it's been caused by vaccination.

We're gonna stop the show. This is really really important, Dr Adlga. Are you telling us that the uproar in Europe nation to nation about the astra Zeneca vaccine is overdone or the uproar is off the mark, or incorrect all of the above. I don't think that this is justified. Other countries like the UK have not suspended this, this this association with blood clots. Everyone has looked at the data so far and said, this doesn't look like as

a biological mechanism. It is not above the background rate of what you would expect and in a population that big, and this is something you know we see with vaccines when you give them to large population, certain things happen and doesn't mean it's caused by the vaccine. It's important to look to understand and try and figure that out.

But I don't think in the midst of a pandemic where people are dying where you're many European countries are going into lockdowns, that a vaccine that's been proven to be highly effective in the United Kingdom should be suspended. I think it's the wrong decision, don't to. We appreciate your time, your insight, your perspective. As always stilt to animish it down to that Jones Health can sense if a house security a scola. This is the Bloomberg Surveillance Podcast.

Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom Keene and this is Bloomberg