Surveillance: Boris Johnson Resigns

always be with us in Washington. He's president of the Peterson Institute, former Bank of England Policy Committee member, and with the Peterson Institute has provided terrific economic leadership and right now timely Brexit leadership as well. He had a root canal done at the Royal College of Surgeons recently with the Peterson Institute and gave an important speech. You spoke what Prime Minister Johnson wants to do, which is

making a global Britain. How much damage as Prime Minister caused and the effort of the United Kingdom to move forward. Thanks for having me, Tom, and this president excuse me, this prime minister who thinks he's a president, has caused untold damage the Brexit situation by doing brinksmanship with the EU over Northern Ireland was huge. Undermines trust and undermine

certainty for investment. It shows how damaging Brexit is that on the one hand, Northern Ireland is doing better than the rest of the UK because of the non implementation. And even as crazy Briggs and Minister Rhese Moggs said, I can't fully implement brexitause it will just make inflation go higher. Can the parliamentary system, the present structure, survive modern news flow, modern acuity, the speed of information today? It seems I make a joke about the wars of

the Roses. This is not funny. Lancasters in New York. York has had time to breathe. Yeah, this glorious summer of the Son of York is already coming to an end. And as Jonathan was just saying, you've got turnover and prime ministers so repeatedly fast. But it's not just there, right, I mean, we have politicians disliked on both parties in the US. We have in France mccron go from a win to a few weeks later a complete setback in parliament. We have a genuine like the seventies crisis of democracy.

There was a famous report Tom, You're two young, but Sam Huntington and others wrote for the Trial Atteral Commission back in the seventy three about the crisis. You're just killing me. You're clashing with me. I'm gonna save you both. You don't clash anymore. On the policy front. On fiscal policy, there's a mechanism to deal with this. Yeah, you understand the perspective here. There will be a new leader of the party, there will be a new Prime minister, there

will be immense pressure to call for an election. I have no idea if that's going to happen. What we need to work out from the fiscal side is what is the optimal fiscal policy right now to address the problems we have in this economic problems that are not just unique to the UK, that's similar to Europe and in the United States as well. I can't work out what that policy setting should actually look like, what we should be asking from the next government. It's a tough situation, Johnathan.

You're absolutely right. In the UK, because it's shrunk itself through Brexit, it's more vulnerable to being an echo chamber for shocks. So, as I argued last month, when the inflation hits the same as everybody else gets the inflation, it resonates more and amplifies more in rattling around in the UK because you've got a more limited labor market because they've shut out the EU workers. You've got less inputs and more expense to get inputs because of the

Brexit red tape as well as the pricing. So what you need is a fiscal policy that simply has to accept that that's the reality. And the biggest thing that they can do is keep the fiscal balance on the right track. Because they are small now and you can see the pressure on the pound. It may have popped up a little with the prospect of Boris Johnson's departure, but in the end they're not gonna They have to

avoid overheating more than anybody else of this size. The Governor County I remember bringing up a few years ago he said the speed limit of the UK the British economy has changed that once you become supply constraint, and perhaps permanently so, then you start to bump against this inflation problem, perhaps more often than not. And I wonder whether we've broken into perhaps a new regime that's going

to stick around. And I'm just wondering how you're thinking about that dynamic and whether that's unique to the UK or is that a problem we all share. No, I think it's more unique to the UK. More unique isn't a real word, but anyway, I think it's primarily UK and not US or Europe. I think people are making a mistake if they think we're in a new inflation regime.

In general, I think we're going to fall back, but in the UK you've fallen back towards the seventies, so it is a new regime and they have to worry more. I've been saying this since Brexit. The Bank of England and we're seeing it now has to keep one eye on the pound, one eye on inflation expectations in a way that they didn't before. I want to coach up here under the real ad imposing theme of the last couple of years. And no one has captured this more

than you. Olivier Blanchard had the courage at the I M F. Stiglet's to begin to consider four percent inflation is a goose out of the great financial crisis. You carry that forward to say the new two percent is three percent, And I see an entire world and entire zeiteguys catching up with that. Imposing refresh that. Right now, does your own Powell have to go to three percent or institutionally does he have to stick with two percent? In name, he's going to have to stick with two percent. Tom.

What I had been hoping was we would have a little bit of inflation and that would allow them to opportunistically say, Okay, we're above three. We're not going to go all the way down the two. Given the credibility concerns, which I think are overdone but for the moment are real.

They're not gonna be able to say that. They probably can't say that until the next strategic review, which is what What they can do, however, is what's likely to happen, which is they're going to bring inflation and down it. Maybe second quarter of twenty three and maybe third quarter of twenty three. They'll get it down, so it starting with a three handle, and there may be a recession that goes with it, and at that point they're not

going to ease up before then. That they'll ease up then and it will be de facto looking like three for Global Wall Street. And I've got to be very careful, your folks. We have a cardinal surveillance rule We do not do differential equations with the White House in the background ever. All but the math here is really important. We're it's a nine percent inflation. It's highly non linear, highly non smooth to bring it down. Which inflation point

matters to you right now? Is it getting to five percent? Is it making that first tick down or do we have to wait, wait, wait to get down to three percent to get any sense of market calm. No. I think once you're on five and it's clearly trend below five and it's clearly trending down, you should have the market calm. And you're already seeing the calm frankly in the long bond um. Not calm about the recession, but calm about inflation in the forwards. That's what you're seeing.

And so I think they just have to The big issue, which goes to my colleague Blanchard and Summers, is how much wage inflation is there going to be? The big difference right now is not that we all got that right in Peterson that the inflation was gonna be much higher, and Larry and Olivier did their job great and did that Um. But the issue is how costly it is to bring it down how high the terminal rate has

to be. And I still take the under versus Larry and Olivier because I think the wage inflation is going to tail off now. If it turns out unit labor costs are still going up, you know, in a few months, rather than starting to trend down, then Olivia and Larry are probably right, in which case we're going to see real You're gonna have to have positive real rates. They still hope we don't have to go all the way there the payrolls tomorrow, let's talk about the incoming danks

rather than last several months. What we have said is decent gangs on the payrolls front. Unemployment has actually still coming down even as we've achieved that, and white just haven't accelerates it. Some paper sitting cab might say, maybe this labor market is not as tight as we perhaps thought it was. What would your take me from just looking at data the last couple of months. Well, to be honest, just looking at the data, das and it's

it's screwy data. I mean, what we've got is the labor market numbers, which generally have been the most reliable data for the US or any major economy. You rely on your labor market numbers and tell you what's going on, and they've been really completely out of whack because remember we had at least on paper contraction in the first quarter, and yet we see these incredible labor market numbers. So we see vacancy ratios too, meaning number of jobs available

to job seekers at levels we've never seen before. We have a new paper, as it happens, coming up from Peterson, from Blanchard and Summer's looking at this. It will be out probably next week um and they basically say, you've got to take this seriously. Labor market is genuinely very tight. I'm more of the persuasion. You look at the numbers. If they don't make sense, there's something wrong with the numbers. So if you're a policy make for again, how would

you interpret the account information? What would you look at We've had from Chaman Pal who's looked at things like consumer expectations on inflation, and you, Mitch, that's new to all of us. That's a little thing in a day to point that we kind of use the pad attention to. And that's the difference between fifty basis points and Steff I think I think that focusing on that one data point and using that to explain the vers fifty, I

think it was a mistake in communication. Frankly, I think what they've got to be focused on are two things. They've got to be focused on, trends and unit labor cross meaning productivity wages net of productivity. And the second thing they've got to be looking at is the longer term expectations in the bond market. Both of those are looking flattish to down very quickly. Here we have an experiment underway behind us, a central bank or Secretary of Treasury.

How's the yellowing experiment going. I think her signature issue, which is the International corporate tax deal is was the right priority for her and for this country. I think she did a good job of getting as far as it has gone, but now somehow you have to get the Senate to buy it. I think the American rescue package was too big and too short a time, but that was for ordained. I don't I don't talk about individuals. I don't even individuals I respect greatly, or because individuals

ask me every day. I ask you that someone's going It's like Trump, They're gonna have to drag him out, kicking into it, tims like Trump and we can we clip that just like that out for the rest of this day. I just wonder at him and just briefly, would you even call the American rescue plan the yelling experiment? No, it was, it was. That was exactly my point. I'm sorry I didn't get it out. Really, it was Pelosi and humor with Biden's acceptance that that was the plan.

It whether or not I have no idea what went on in the White House and Treasury and the decision. But the biggest issue was once that plan was clear, it falls on the feed. The feed should have been tightening and worrying more and forecasting more inflation once that plan. This has been a wonderful kind of the Institute. Adam, thank you. We need to drive for the conversation on the nation. We do so with Briandese's National Economic Council Director,

of course, working for years with Gene Sperling. And what is most important here and part of the act of Bloomberg surveillance and what we did with Bloomberg on the economy is microeconomics matters. There's too many people out there blathering the big picture without the foundations under it. Mr d snows some Middlebury one economics micro economics matters. I would suggest the price theory is going in your direction.

There's little indications that maybe the pain is over. Not all clear, but you can you say there's some constructive elements out there that you see, we'll look to start. Prices are unacceptably high, we are also seeing some moderation,

and that moderation is important. You've seen it in core PCE that that that the metric that the Fed traditionally relies on moderation over the last three months, particularly compared to the prior and as you mentioned, we're seeing for the typical American consumer a little bit of relief at the gas pump, prices down to about four seventy five,

down from you know, down more than five cents. But let's be let's be clear, they're still unacceptably I we've got a long way to go, and so we've got to keep our head down and keep a focus on bringing prices down while not giving up all the economic gains that we've made. One of our wonderful guests, Jim Bion, Uncle of Chicago, or a whip inflation now button on the show the other day, you people have avoided the

idiocy of the early nineties seventies. But with that, the president has to provide a morale boost two people hammered by inflation. How do you do that. It's not just a morale boost, and we have to act, and we have to show action on bath of the American people. And that's exactly what the president is doing. He's saying, bringing prices down is his trap priority, and every day

he's focused on practical things that he can do. So the release of oil from the Strategic Petroleum Reserve sounds esoteric to people, but you know, oil market analysts you've had on this show will say it was single handedly responsible. From keeping keeping oil prices going higher, moving to work with the refineries to try to keep refinery capacity online, that is important. It makes a difference, and as we're seeing, we're starting to see a little bit of that moderation

at the pump. The President is saying, let's do more, Let's do everything we possibly can. He called for a temporary holiday for the gas tax. That's not going to solve every issue. That would make a little bit of difference as well. So you need a president who's going to keep at it and who's going to communicate clear to the American people that we are making progress, that we have made enormous economic progress, but that he's not satisfied,

and we're gonna stay at it. You know, satisfied either. But you've talked about a high aggult. You've talked about defending the world lived for Lauder and that we had to stand firm. What did you mean by that, Well, let's be very clear, that's a concept that Republicans and Democrats have embraced four years and it's about democracy. It's about the democracy and the democratic tradition that grew out of World War Two, and it has served our national

security interests, in economic interests well. And standing up for democracy is something that this president feels strongly about. And so we are going to fight to bring prices down, We're going to fight to get increased oil supply on

the market. But what we're not going to do is to suggest that the only way to do that is to actually step away from the Ukrainian people, to step away from fighting for democracy and everything that that if standing up for democracy is tritty paramount, and you've quite clearly just suggested, it is, why is this administration considering removing tariffs on the Chinese Communist Party, which is anything but a democracy, and it's also a government that you've

accused of genocide. Why is that a consideration and how does that reconcile with this view that this is about standing up for democracy. Our economic policy should be about promoting economic security for American workers, American businesses, American families, and so we have to look at everything through that lens.

In the prior administration, they took an approach to escalating trade tensions and a trade war with China that ultimately what didn't serve the perfect that purpose, didn't help our farmers and our ranchers, didn't help many sectors of the economy. So President Biden came into office committed to the proposition

that we need to get tough on China. There are places where we need to be tougher and clearer about their non market practices, about their human rights abuses, but we also need to be smarter about how to do this as well. Why is that smarter? And let's got back to the question again and let things out. Clearly,

you've accused the Chinese Communist Party of genocide. You're saying that what is paramount here is defending democracy and the defending the liberal world order is more important than the pain that people fail at the pump, and ultimately this administration is considering removing town riffs. I wasn't convinced by the last dounce, so I don't think many of us

will either. This is an awkward moment, I know, but I really need to understand from you what makes sense for this administration to consider removing tariffs on a country that you're accusing of genocide. First of all, I want to be you, you miscaraschist. My positions are want to clarify faced bringing prices down for American people as the President's top priority. He's focused on it every day, and it's because he understands the pain that people are feeling

at the gas plump and around the kitchen table. At the same time, he does not believe that the way to do that would be to step back from our democratic values or to step back from protecting UH the Ukrainians against the invasion from Vladimir Putin. He does not believe that that is an acceptable or an appropriate choice. So, given that our focus is on how can we actually advance the ball And you're seeing the President in action

right now doing that. The actions that he's taken around oil supply, the actions that he has taken around refineries, the actions that he has calling for around tax productions, they all would make a difference, and they make a difference for American family. Let's sit on Chinese just for

one final question and try and focus on policy. And I appreciate you follow up as let's talk about what you can do, because what we understand is that you're looking to remove some tariffs on certain goods, but perhaps

double down the effort elsewhere. Can you give me a deeper understanding of where the current thinking of this White House is and the direction of travel for policy, Well, there's no question that if you look at what the Chinese economy and the non market practices that the Chinese uh the Chinese leadership are undertaking, that there are sectors of the economy where they are engaged in on acceptable activities, and that those are present a strategic risk to our

economy and our national security. And so those are the places where we need to focus on using all of the tools at our disposal. Tariffs are one tool but we have other tools as well to make sure that we are protecting key sectors of the American economy and that we are holding to account for those. You look at something like semi conductors, which we've talked about before

and which is incredibly salient. We of course need to act here in the United States to invest in building our own domestic resilience, but we also have to take seriously that some of the actions that China are taking expose us more deeply, and we need to counter those. Brande's wanted for to catch up the director of the National Economic Council. We need to talk about this market, and we can do that with the LEFIA. Door Wada, the managing director of Rock Creep Group A Lefia. Can

we start here the Everything pain portfolio. I mean, it's anything working this year. I mean you talked about uncertainty polit on the political front just as much in the markets, right. I mean, there's three themes that everyone's talking about, and it used to be short term themes. Now it's going to affect the portfolio for the next two, three or four years. Right, slowing global economy, monetary tightening and inflation,

and the impact from the Ukraine Russia War. Nothing has been resolved there, We're still in the same oil hundred dollars hundred and five? Does matter? You and a Shani are too young to remember seventy nine and the glory of the bond bear market. Then you people advise on quiet money. You have never seen bond losses like this. How does quiet money recover in bonds price up, yield down? What is the actual mechanism to do that? Well, you know, it's very interesting, and so thank you for calling me

so young. First of all, I appreciate that. I don't know if some of my colleagues will be flattered. I think a lot of us can remember some of the pain points in the markets though, And I think one of the interesting things about the fixed income markets today is we're very looking, very very closely at where is the ten uere yield going to go? What time line do we have, and how do we start to manage our fixed in You're engaging very institutionally of full faith

and credit. Yes, for now, we haven't started to see a ton of signs of distress, but there are a lot of indicies that we're looking at, a lot of metrics. We're looking at to see if the corporate bond market is starting to crap? Would you describe in we've taken out the wides of like about five fifty through those levels. That was enough for this Federal reserve back then to pivot. Clearly, different world, different inflation level. How do you judge what

is stressful this time compared to what was stressful then? Yeah? Well, you know, we have the benefit of investing in a lot of debt financing types of strategies, right, so we're looking to see what is the underwriting, has it loosened? We're looking to see where will the cracks be. We're looking at the high yield market, I mean spreads up wide and over five hundred basis points right in the last few months. We're looking to see where the relative

opportunities and are you getting paid for that risk? There's going to be risk in the market, right but defaults would have to double if we wanted to see a huge loss in our high yield portfolio. So is it the right time to start stepping in. I'm not saying we're doing anything right now. I think it's a wait and see moment, and I think we're gonna have to wait and see where things you know, shake out. But there are pockets of opportunity that we are starting to see.

And I don't think we have to worry as much about credit risk in our fixting come portfolio as we do about duration. What are you waiting for? Talking about what you're waiting for? You stress we're not doing anything right now? Went off inflation. I think it's been clear by the FED that that is their target. They're looking at inflation, and everything's hinging around inflation, and consumer demand

is going to hinge around inflation. We have a huge earning season coming up right, I mean July is going to be a bellweather of inflation. UM expectations, what our companies seeing, what our corporates pricing in Q one was pretty good. Everyone can I can admit to that Q two probably not as good. Q three expectations are going

to be worse. If consumer demand starts to fall, then I think that we will continue to see pain in the market, and where we want to see the market shake out a little more in pain before we start making real investment. The heritage of Rock Creek, when we meet with Asani and Davos, is natural gas. She owns the high ground on the dynamics of gas and hydrocarbons as well. What is your response to the surge that they're living in continental Europe about natural gas? I mean,

it's it's standard deviations out, isn't it. The entire energy complex were in a different world right, and there are a ton of investment opportunities, as you've heard from us before, in terms of the energy complex, in terms of natural gas, in terms of the tail winds for renewable energy, wind solar, There is so much that we can look at in terms of the next five ten years, and we're positioning our portfolios to take advantage of all of that, and

unfortunately Europe is going to take the pain in the interim. You're you're advising Rock Creek wanders into the White House to day to meet with almost and President Biden here on Llergy. Can you be optimistic that Lergy can rescue Europe by December? Not by December? I think that's a that's a heavy task. I think that everything that is going on within Russia and Europe is going to dictate whether Europe comes out ahead at the end of the year.

But I'll tell you we're not, you know, bullish on Europe despite valuations, and it's because of the geopolitical tensions and the energy complex. How can you really be overweight Europe today? That's the difficult question that a lot of people have, and some of that mats to the right. Differentials even matter to the year when you count. Tell me where the proces gast this year? Rent, you know where I feel on this differentials and spreads. Heather Bauchet

with us right now. To say she's a member of the Council of Economic Advisors doesn't describe how important her position is. Her book Unbound stopped economic traffic a number of years ago and looking at the inequalities of the nation. And she has an economic pedigree very different from most, including working at the University of Hile, Bronner and Bernstein, the New School of Social Research in Washington. Are you treated how are you treated by the fancy academics from

fancy schools. They wouldn't know that, you know, the New School of Social Research if it hit him over the head. Well, you know, in econ circles, I think what matters is, you know, how will we talked about the economy? And I think I have not experienced discrimination based on my pedigree. We're ALcom to talk about jobs claims. That's inappropriate right

now given the policies of the White House. But we can talk about the state of inequality in this nation when you speak to the President, when you advise others in the White House. What is the character of our labor inequality right now? Well, one of the things that we've seen since the President took office is in large part due to policies like the American Rescue Plan, like making sure that we wrapped our hands around the pandemic

and got the job market back in motion. We've actually seen that this has been good for addressing inequality over the past over the past or year and a half. What remains to be seen is whether or not we can continue those trends. But certainly the President was focused first and foremost on getting people back to work. And we know that for the vast majority of Americans, the vast majority of their income comes from their job. So if people have jobs, and especially jobs in an economic

or wages arising, that is that is so important. We don't we forget, we're so jaded in our Bloomberg world. If you're open two or three hundred thousand jobs a month, nine farm payrolls. For any president, that's a success. I would say the difference between Wall Streight and Main Street, and there are many, Let's be clear about that. On Wall Street is an addiction to trying off headline numbers and not talking about the disparity beneath those headline numbers.

We hear phrases like the consumers strong, the labor market is is tight. Do you characterize those two things quite the same way. I think what we are looking at, and certainly what the Council of Economic Advisors is looking at more generally, is you know, how how many people have jobs? Where are those jobs? What does that look

like for people? What is family economic security? Because that's the foundation of spending across our economy, consumer spending GDP, So making sure that we are attending to that basic fundamental fact. You know, the President said it so many times now that his goal is to build an economy from the bottom up, in middle out and that's a promise that he has made to the American people and one that he's working each and every day to keep. This is a difficult question to answer to grant it,

but I imagine you've done so research on this. When you look at incomes right now, particularly for lower income Americans, what proportion of that wallet are they now spending on energy? Just how bad is it out there for them? Certainly the high prices and energy and also food affect lower income families more so than hiring compliments because a big portion of their income. And it's also money that they

have to spend. If you have to put gas in your car in order to get to your job, that's not that's not something that you have a choice over. So this is one of the reasons why the President has prioritized doing everything he can to get inflation down and to doing everything he can to get gas prices down, noting that we are here because we've been recovering from a global pandemic that has led to supply chain challenges around the world. This inflation is global, it's not just

in the United States. And of course you add to that the war in the Ukraine that Putin is waging. All of these things are making it harder for especially moderate and low income Americans. What they can do is a question that we've been asking or morning, what can you do? What can you do to actually offset any of this pain? For Americans right now. We've talked about the trial balloons that are floating outside the White House

on almost the weekly basis right now. We've heard about a fuel rebate, We've heard about all kinds of things, removal of Chinese tariffs, proposals that aren't being executed on at least I haven't seen them. What can you do and what do you expect to happen? Well, so the President has been very clear and focusing on what he

has control over. So one of the things that he did early on that I think it's been incredibly important has been releasing oil from the Strategic Petroleum Reserve, so working with our allies around the world, making sure that oil was available in this time of need when we do have the supply chain supply side shortages. The President is also over the past couple of weeks been working with refiners. We know that one of the challenges is that many refineries, too many shut down over the pandemic.

Capacity has been constrained. The President is working and is and is asked his Energy secretary to work with refiners to see what they can do to get things flowing again, but also noting that because of high oil prices because of my gas prices. These folks are making a lot of money, so they have resources to make those investments. On the hall from your office in the White House is a political raging battle oversay. How to take Pennsylvania at the mid terms, How to take Pennsylvania in two

thousand twenty four. All of that is about the rage of the middle class, either Republican or Democrat, or the inequalities which you've written about in your claim book Unbound. How do we address in this nation the idea that technology benefits the havels. Technology maybe benefits all of society, but technology burdens and lowers the outcome the standard of living for the great middle class. How do we make

technology a friend of people that want to vote Democrat. Well, a number of things that the President has focused on are about that um and maybe your your viewers don't quite see the connection, and so let me like outline of them. So one of them is early on the President put out an all of government effort around market structure and competition. Let's make sure that markets are fair and that they deliver for the American people, including But this is important. There's a huge body of people of

all political persuasions who feel it's rigged. It's rigged here at Lafayette Square, it's rigged in the inner Northwest district of Washington as well. How do we regain the trust of the middle class that institutions can lead to a better life. You do You do it by delivering. So you think of some of the things that the presidents delivered on just in recent months, things like making sure

that prices on ocean shipping are fair. And so many of the things that we buy come on a ship that comes from overseas, but that process has been circumscribed by a small number firms. So the President is using his tools to say, let's make sure that those prices that people are paying are fair. Is he blocked by Republicans. So here's the thing. The get A branch does have a lot of power when it comes to enforcing antitrust laws.

The President is made clear that that that price fairness is a number one goal and that feeds to the whole economy. And he's also prioritized making sure that if you are a worker in a market where there are few employers for your services, that those markets can be more fair, more open. And I think That's one of the ways that you can see the role of technology in the kinds of algorithms that affect who's hired, who's fired, what pay is. These are issues that the President is

bringing is brought to the fore. But the other thing that he's prioritized day in and day out is allowing workers to join unions. That's one of the ways that we address in equality. It's one of the ways that we think about how the economy can deliver for working people and how it can be fair and build that trust through democratic institutions on the ground, in workplaces all across. That word fair and you and I have had this

conversation before. It sometimes makes it sound like something nefarious has in certain places. The President of the weekend said this, My message to the companies running gas stations and setting prices at the pump is simple. This is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you're paying for the product, and do it now. Jeff Bezos came out and tweeted the following up, Sure you read it.

Inflation is far too important a problem for the White House to keep making statements like this. It's either straight ahead misdirection or a deep misunderstanding of basic market dynamics. I'm not going to accuse you of the latter. I want to talk about the former. Where's that messaging coming from the President has made clear that his number one goal is delivering for the American people. We are in a time of crisis. We are in a time of war where where the president or allies we are supporting

the Ukrainian people. Congress has engaged in this effort, both says the Aisle to say, this is an important priority and one of the consequences is this high price of oil because of global trans answer his important should everyone either everyone in the nation wants to know the answer to the question Mr Ferrell just asked you, which is who is advising the president unshockingly naive price theory over

a gallon of gas? So the President is not shockingly naive, and we are in this moment of global crisis in terms of energy, and he is using the tools at his disposable disposal to make sure that the prices that people pay at the prompt are fair. So what we know in oil prices is that the prices can they can rise very quickly. It can take a long time for those prices to recalibrate and to come back down. And he's saying, do that faster. You have the capacity

to do so you're making profits. But the important thing is that he's using the tools at his disposal given this very challenging central planning. Now, is that what this has come to, that central planing to sit here and decide what's fair, what's not fair, and then go on Twitter and say this is unfair, bring your prices down. But it's markets or is it not markets as a capitalism or is it central planning? Where's this warehouse going.

One of the things that the President has prioritized is understanding the way the concentration across markets has affected the American people. Is affecting markets. We know when there are very few players, this is econ one O one. You know when there's a monopoly that that there is more price setting power. And that's one of the things that we know about what I think on a calendarful what

I want? Had a fantastic at the catch up with you, Stephanie Aaronson had of economics at Brookings and of course at Brookings Institution. That stopped the world of think tanks a number of years ago, when down one hallway you had a shingle that said Bernanke and a shingle that said yelling as well. What was it like for you to wander in a daily basis and have a cup

of coffee with the Bernankey yelling access. It's funny because I'd had the opportunity to work with both of them when I worked at the Federal Reserve, and then to see them in this context was really a treaty once? Was it a talk where Bernanke once said I announced him, introduced him at the conference, and then he said, Stephanie used to work for me, and now I work for Stephanie.

So the climate yellow now Secretary yelling? Is this word slack the measurement of the inefficiencies within the American economy. Many in society, including those that support President Biden, would say, there is still slack in our labor economy? Is there? I think by some measures there is some slack. In particular, the labor force participation rate is still a bit low relative to where we would think, even given the fact

that the trend in participation is going down. But unfortunately, now the Fed also has to worry about inflation, and so they can't, you know, make the labor market perfect. I think at this point back a company is we were talking about getting back to where we were, getting that employment to population ratio back to where we were. Clearly inflation has interrupted that ultimate objective that so many

of these people had. But what has happened? Do you think there was wild and I was part of the conversation used to ask the question is it the benefits the excess benefits with sending to people that are keeping them out of the labor force. Doesn't seem like it was that we asked that question a million times. What do you think it is? My McKay, they're just talking about the I S M services yesterday. Send them with I have a demand problem, we still have a supply problem.

Where are they? I mean, I think one of the things is that when the pandemic hit, a lot of people were forced to leave the labor force, and then they make decisions that are keeping them out now. So people can decide to stay home and take care of their children or their elderly parents, they go back to school.

And I like to say that these decisions are sticky and so you know, even though maybe there are more opportunities in the labor force now, people have just changed their behavior in a way that is causing them not to look for employment. Now. It may be over time if the you know, employment continues to expand, unemployment rates days low, some of these people will be brought back into the labor force, but that will just take time. How high does the price need to go to change

that behavior? I'm not talking about inflation, I'm talking about whites. How high does that need to go to ultimately get that supply side response that we just haven't seen in a profound way. Yeah, I think no one knows the number. But it's clear that workers in the United States are underpaid. They hadn't had you know, wage gains in real terms for decades, and we're making up for some lost time now, but it's clear we haven't made up enough. I got

eight ways to go here. I'm gonna go to the lawyer Paul Romer at n y U and the idea of technology and the impact of compensation. Where executives now are salary and bonus, and you'd say, over fifteen years, they know they don't get that bonus if labor gets that pay raise. Are we at, as Bullard would say, are we at a regime change now in labor and finally lower deciles can begin to catch up. That's certainly what it has seemed like in the wake of the pandemic.

I think one of the big questions is whether that will persist as the economy slows. But the basic observation John and I get tons of mail on this all the time. Chee's we can't hire name the job shortstops for for the Washington Nationals, whatever. If that's the case, just pay them more. If you pay them more, do they show up? Workers show up if you paid them more? And I agree, I think you have identified a big puzzle.

It's often in surveys of businesses they say they can't hire workers, and then when you know, the question comes to have you raised wages, they say no, what do they expect? It's to me generationalizes are with this in mind? What do you make of what the Federals is trying to achieve. I think they're trying to achieve something very difficult. I think it's not impossible. You know, clearly they need to slow the economy in order to bring down inflation.

Part of the problem is that a lot of the you know, causes of inflation right now are on the supply side, and the FITS tools are not really good for lowering oil prices or food prices. You know. All they can do is try to slow demand. So I think that it will be difficult for them to do, but it's certainly not impossible. I'm just bringing up their forecasts for unemployment on the Blimberg terminal three point two twenty three. It ticks up to three point nine, then

four point one. We've asked the million guests this question. Is that aspirational overly optimistic? Some people might say fanciful, what do you call it? I think that they would have to be very lucky to achieve that. The truth is, at times when the FED has really wanted to bring down inflation, they've ended up causing a recession. And I don't expect if we do, you know, go that route. I don't expect it to be very deep. We're not looking at, you know, the vulgar recession of the early

nineteen eighties or the Great Recession. But I think it will be hard for them to substantially slow the economy. You know, typically when the employment rate rises like that, right, you want to get a quote on a ten ure to you at a four decimal places, But we won't do that. Instead, we'll say, does someone fancy like you look at jobless claims? I think the jobless claims are not that helpful. I think, I mean, part of it is that a lot of the slowing early on comes

from firms stopping to hire. So the first thing we're gonna see if we're really you know, the the labor market cools is firms are going to reduce their hiring and job openings should go down, and we know the FED is counting on that, and then eventually firms do start to lay off workers and the claims numbers will go up. You know, we've seen a little bit of an increase, But I don't put too much weight on that five. I mean perspective, hits set five historically something well,

not even not even number. What's your favorite chart right now? What's the chart that tells the greatest story right now of the American labor economy? I mean, actually I have to side with yelling here and say I really like the quits because I think the quits rate says something about how confident workers are feeling in the economy, and the quits rate is high and in May the latest data we have it kind of side ways. So the

confidence right now is still there. They feel good about quitting the job, but ultimately they're not happy with the economy. Can you reconcile? No, I can't. I go to a death sile's time for this, but I go to a dec sile analysis. We should extend the decile is different, Stephanie Alison Stefanitely. Thanks you. 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 Pie, podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg m