Surveillance: ECB's Challenge With Trichet

been justified by fundamentals? Well, I mean there's two issues, and the main issue is there's no place else to put your money, and it's the powerful results have been driven by the incredible efforts of FED Chairman Pal. I think FED Chairman Pal single handedly saved the world. I mean he acted swiftly and decisively in March, pumping tremendous amounts of liquidity into the financial markets, which in turn caused other central bankers around the world to do the same.

And I think that's been the powerful driver of the recovery and the fact that, look, I believe in the resiliency and the of the and the detestinal fortitude of the human spirit that we will come back. We've come back from many bad situations, and innovation has led this recovery, and it's been led by the tech stocks which have empowered the ability to make this shift to support a remote and dispersed workforce as an example. Okay, I get that UM and it all makes sense. That narrative makes sense.

And then you see things like Tesla where they do a stock split and their shares go infinitely higher. They go up by twelve even though you're basically just changing a five dollar bill into five ones, which shouldn't, all things being equal, make a stock more valuable. You see a similar type of move in Apple. What gives I mean are these signs of froth? Well, I mean there's always pockets of unique focus if you will, I think

Apple deserves its valuation. I mean, we have a tremendous catalyst coming up in the launch of the five G enabled iPhone twelves. That will kick off a tremendous supercycle because many have been waiting to upgrade to the high speed five G enabled phones and there's going to be a huge pent up demand as the average iPhone in service today is over five years old. So that will drive a um a new upgrade cycle in Apple phones.

Along with their Apple's focus on increasing their services revenue and offering more and more services entertainment, gaming, payment, shopping, UM that will enable them to further monetize this over one and a half billion installed iPhone user base. All right, So Ivan, you know, when I was in business school, when we were talking about and learning about markets, one of the things I learned was you need to have breath.

You need if you want to have a healthy market, you need to have a breath across a wide swath of stocks and sectors. We are absolutely, absolutely not seeing that in this market. How concerned are you about that in terms of the lack of breath in this market? Well, that is correct. I mean it has been a very narrowly driven rally, primarily by tech stocks. But um technology drives our economy forward. I mean, so it's not unusual that they have been leading the market and increasingly becoming

a dominant part of the economy. So two things are going to happen. I mean, the market is forward looking, and it is predicting that we will see this broadening out, that it will will see um improvements in the industrial sector, in the consumer sector, which we are seeing. There is a positive cadence of economic data that shows the manufacturing sector is improving. There's gradual improvement in consumer sentiments, so the consumer's outlook is improving. Retail is improving, restaurants where

they can. So you saw huge jumps in retail sales when stores opened. You saw a huge jump and people going to restaurants when they could when westaurants started to open with outdoor dining. So there is pent up demand and I will I think you will see this broadening out. The other thing driving the market is optimism that we will get a vaccine, hopefully at least available by the end of the year. We have three companies scheduled to go into three partnerships scheduled to go into trials sometime

in October. So that is the one thing, the one thing that will get us over the pandemic is a vaccine. And if we can get UH some type of approval by the end of the year and ramp up production in the beginning of the next year, we will see a tremendous recovery and the market will have correctly predicted the turnaround. All right, So I have an outside of the fang plus stocks, the six seven names that have

really been driving this market. Where do you see some opportunity here if we're able to look towards the other side, perhaps some time I've and you will see a bounce back in the auto stocks. And looking at Tesla and the optimism over the electric car, General Motors is a tremendous play. Mary Barrett says she wants to have twenty electric vehicles on the market by three not that far off.

Also the valuation I mean there. She even was asked the question, would you spin off this electric vehicle division at some point unlock value? She said, nothing's off the table. So General Motors will become a incredible electric vehicle play. Um. I think some of the depressed retailers, some of the depressed restaurants, and the cruise industry. I mean these stocks were decimated by no fault of their own. The cruise industry in January was looking at a record year and

was decimated. And they are doing everything possible to put in place the ability to safely sail when they get the opportunity when they are allowed to start to sail again. I mean a company like Norwegian, which is my number one pick in the cruise industry. So there are a lot of depressed box So I still like a lot of the tech s docs, including a video with their

announcement yesterday of their new high speed graphic cards. Other favorite chip players in the five G rollout are Quelcom and Skywork Solutions and Corvo Skyworks in Corvera, both Apple Key Apple suppliers. So the five G rollout is a powerful investing theme. The recovery of the consumer sector will be a powerful investing theme, and I believe it will recover and recover very strongly. Just really twenty seconds, how high the valuation of Amazon get It's now one point

seven five trillion dollars. What's the peak in your view? Well, I have been recommending Amazon for sometime. It's on our focus list in our focus Opportunity portfolio. I don't really use price targets, but Amazon, I mean, they're just incredibly efficient in their delivery and fulfillment and logistics processes that they do support a lot of retail. They continue they are the biggest cloud infrastructure supplier, which service provider, which

has enabled the remote workforce and the distributed workforce. They're getting into healthcare. They just announced. There wasn't twenty seconds Ivan, We'll have you back. We'll talk about Amazon. I will tell you this. It is something that you're not alone with a lot of people saying they can see a path lower, but they're not willing to sell their Amazon shares. Ivan find Set, Thanks for retting a good sport and

thanks for being with us. Really appreciate it. This is the story of the day, by risk, period, full stop. The Fed has your back. Maybe Washington d C Will get your back as well. We will find out, and right now, let's find out with Steve Chivron, Federated Herme's

portfolio manager. Steve. We have heard from person after person who has come on this show and said, by risk, that is the result right now from the Federal Reserve that has your back from the idea that we probably are entering a growth phase after the absolute decimation of

the labor market earlier this year. Do you agree? Yeah. Look, I think the story behind the markets is sent a simple I think we've exited recession and we're entering the next recovery, which will lead to the next expansion um. And I think the reason why we've been able to get to hide so quickly is because there's three stats I think that explain it. Incomes her up seven and a half percent versus last year. Mortgage foreclosures are down from three quarters of a percent to two thirds of it.

And while we did have two hundred bankruptcies in the second quarter, that's roughly one fourth of what we were doing on a quarterly basis in the Great Financial Crisis. So both Congress and the Federal Reserve have protected capital. They protected capital in this in this kind of downturn, and the consumer and businesses are better positioned then you would expect them to be, given the severity of the economic contraction that we had. Steve, what won't you buy

right now? What won't I buy? Well? Look, I think you know piling into a treasury bond right here is probably not the smartest thing you know between fifty and seventy basis points. I think you know more importantly, and I am talking a little bit my own book here, but I wouldn't buy a whole bunch of ETFs. I

don't want to own everything right now. I think that there are a lot of companies that are not going to do well coming out of this, and it's incumbent upon investors to be able to sort through industries and pick the winners and avoid the losers. I think that that's the key theme here. All right, Well, Steve, you know, one of the issues you talked about some of the positive economic developments, But the fact is a lot of that was driven by the fiscal stimulus, putting money into

people's hands, into consumers hands, into small and midsized businesses hands. Uh. And of course the FETE is there with the backstop the fet You know, this stimulus is starting to wear out. How critical is it that we get new stimulus to continue to support the economy. Yeah, I think it's important.

I don't know, I don't I wouldn't say it's critical. Um. I think, look, when you've done such a good job of supporting the economy thus far, it's kind of dumb to fumble the ball in the red zone here, right. I mean, you're probably one fiscal package away from getting

yourself to towards a vaccine. But if you looked at the personal income number that came out earlier this week, what you saw was that while the impact of stimulus has has waned a little bit, you have seen a pick up in compensation from from from work, and so I think, look, the economy is healing, it's getting better. It's starting to become self sustaining. But there's enough uncertainty that anything one more bill probably makes sense. So it'd be nice to see Congress, you know, get their acting

gear here and and get something done, all right, Steve. So, as we think about the equity markets, the theme obviously has been the you know that the handful of tech stocks to fang plus docks and driving in the market. When does value get its uh time in the limelight? If ever? Yeah, I think people are maybe misreading the narrow breath of the market. Narrow breath in the market at the end of the cycle is very rasome. Right.

If every company's hit their fifty two week high and there's only two or three that are left that are pushing you higher, that is a sign of exhaustion. What we have here, though, is the companies that did the best during the recession have led us out and the other companies haven't participated yet. And we think that's really

a sign of dry powder. And so as this recovery continues to take hold, as we do get closer to some kind of treatment vaccine type protocol, and we think that you're going to see other companies, some of which your value are going to start to participate in a much bigger way as the economic recovery intensifies here, and so we think that we're on the verge of that. We think you can play it in the value space.

We also think you can play a similar theme in small caps, and we think you really don't want to be massively underweight international because those international industries have so much more value than than than the US do in terms of the sector composition. For NAZAC stocks are up more than two hundred and twenty percent so far this year. Yesterday, Zoom Video community patians rose more than forty one day.

That was the rally. Some people saying that the justification for this is that the low yields make everything cheap. Is that the story? I think that's part of it. Look, I mean, you know, equity market multiples are are related to bond yields, and particularly corporate bond yields, and if you look at where the corporate bond yield is to be double a, it would suggest that the SMP could trade upwards of a high twenties or even low thirties multiple,

which has never been the case before. I think that's part of it. But I think the bigger story here as well is that we're in the middle of a digital revolution, and what this pandemic has not slowed that revolution, it's accelerated it. You saw it in the Salesforce earnings. Company after company are looking to upgrade their tech, understanding that that's going to be a bigger part of the

way that they do business. And so I think you've got this very interesting combination of this digital industrial revolution occurring at a time when you know, bond yields are so low um and the world has a scarcity of growth, and it exists in the US. It exists in US tech stocks, and so if you want access to that growth, there's a high price for it. So Steve are Robin Hood is right? I mean, are they on the right paths?

Just buy everything that they say, Look, a stock splits as good of a reason as any to buy a stock. They're winning. Look, I think when you think about Robin Hood, the first thing we have to remember, especially those of us that are quote unquote professional investors, is everyone deserves the right to have access to the market. Um, there are gonna be folks there that maybe don't have as much history and experience with the market. That's why you know,

media like yours exist help them understand that. I think ultimately, what companies are realizing is that if there is a retail demand, if they can make their shares more attractive or more accessible to those retail investors, they're gonna get rewarded because those retail investors want access to some of these companies. There will be some names that end in tears for folks because there's gonna be some hype trades.

But at the end of the day, I think anytime there's more interest in the public markets and the com pounding returns, that's a good thing. It's our job as an investment industry to help make sure that those people have the tools and information to make the best decisions that they can. All Right, Steve, If I'm brave enough to look to the other side of this pandemic and I see an economic recovery in the next twelve months really accelerating, what are some of the beaten down sectors

actually be looking at. Am I brave enough to go into financials for example? Yeah? Look, I think if you think that economic growth is going to improve, then you should expect, you know, long bonds to move up a little bit, not not anything you know that would be scary, and that would be beneficial to banks. Again, we come back to small caps, and we think small caps were three reasons their cyclical So as you get a cyclical improvement in the economy, they're gonna they're gonna benefit from that,

much like value stocks. But in addition, fifty of their debt is variable rate bank debt, so low rates forever are really going to benefit them. And then finally in a year, in the first year following a recession bottom small caps tend to outperform large by about We think that's gonna be your your kind of play on octane here in terms of a cyclical recovery plan on oct

and I like that. Steve Chevron and from Federated Hervey's thank you so much, because everyone who talks about the economic recovery says it will hinge on the trajectory of the virus. The trajectory of the virus is unclear. It is unsuspecting. It can pop up when you least suspected, even in places like New Zealand, which seemed to have gotten it under control. Doctor Deborah Fuller joining us now University of Washington School of Medicine, Microbiology Professor Dr Fuller.

Where are we in this? Some people talk about going back to school, that it's going to be a disaster. Other people say it's fine. Kids are not vectors of this particular virus. What's your take. Yeah, so we're a you know, a phase where you know, we're we understand how to you know, potentially reduced transmission through you know, wearing a mask and practicing um, you know, hand washing and and the like. UM. But I'm not so sure that you know, the public is actually you know following

through um correctly in all those practices. And I think that's where you know, sometimes you're seeing some schools opening up and saying, hey, we've implement all these practices, and then they see you know, high spike uh in induction rate. Uh. You know, unless you know people are hundred percent compliant with all of the you know, the rules, UM, that

virus is going to take an opportunity and transmit. So so I think it's very difficult, uh, you know, in the absence of a vaccine, uh, to get everybody to collectively, um, you know, work as a team together, wear their masks, wash your hands, you know, uh, and uh, you know, follow the safe distancing practices that have been recommended. If they do that, we could probably safely open schools. And

that's just you know, get people to cooperate. Dr Fuller, There's so many unknowns, at least from my vantage point. You see a compliant Can people pack in a subway cars if they have masks on? Can people go to outdoor dining and sit not exactly six feet away from each other but take their masks off to eat as long as they are outside? Are these things all safe? Or are we already engaging in practices that will necessarily spread the virus as we start to become less socially

distant and try to get back to normal. Yeah, there's no guarantee you know that all these practices will you know, if you implement them together. And we're talking about you know, both the six feet distancing and the wearing of the mask and the hand washing. Um. But there is you know, evidence out there that it can reduce transmissions significantly. So it doesn't mean that, say, some virus still won't transmit. But the you know, the way viruses work is they uh,

you know, the more people that get infected. Then that makes more people that can infect others. So if you can reduce the number of transmission events to very low levels, then yeah, people can go about their business much, um, you know, more effectively, and you can start to see, uh,

the incidences of transmission decline. That's what you saw in some of the other countries like uh New Zealand where they just implemented these safe practices and you quickly saw uh, the you know, the that sort of you know, rate of transmission rate go down to almost zero. So it is possible. It's just uh it's and it's not guarantee, but it's you know, better than what we have right now. All right, professor, let's switch gears a little bit to

the vaccine. That's a discussion I think everybody wants to have. Everybody's looking forward towards a vaccine. We know that there are approximately a dozen entities out there that are working aggressively on a vaccine or various stages. Give us your read of the landscape. I feel like I need a scorecard to keep track of all these entities out there, whether their universities or pharmaceutical companies, are biotech companies, companies. Give us your sense of where we are and maybe

a sense of timing. Yeah, so this is actually we're enchering a very siding phase for vaccine development. Right now. There are I think about seven candidate vaccines that have entered into phase three clinical trials, and that's a stage where we're actually testing efficacy of the vaccine as well

as continuing to test its safety. Is going in tens of thousands of people where some people will get up placebo and other people get the vaccine, and then it's just really a waiting time game where it really the

viruses control of the timeline right now. What they're going to do is wait and see, you know, until a certain number of people become infected, and uh then they take uh, you know, they open up, take the blinders off, because they're blinded to you know, who belongs to what group, and they're going to determine are all the people who became infector of the majority of them in the placebo group and none of them in the vaccine group. And if that's the case, then they can then go to

licensure and start to manufacture and distribute the saccine. For you. So, the fact that we have seven of them is very promising. That means that these vaccines have passed you know, high marks high uh uh marks for safety as well as demonstrating the kind of ImmunoGen a season that you're going to meet in an effective vaccine. So this is exciting. Uh. And so we're at in a sense, the final phase and we're perhaps maybe only months away from seeing the

first vaccine license for for human use. Professor Health, how sure can we be about the safety of these um vaccines because you know it usually it takes years and years of testing, and it seems like we're going to get a potentially a vaccine within a year year and a half from the beginning of all this, and that calls into question safety. How do you think about that? Yeah, I mean the the years and years has to do with how the process has changed, you know, in the

events of this pandemic. And the years is because the phase one, two, and three are done sequentially normally with a pandemic, they are being done in an old were laughing fashion, So all of the safety tests are still being done. Uh, nothing is being skipped. So by the time we have a vaccine that complete Space three successfully and shown to be effective and safe, we can be confident that it has gone through all of the checkmarks that are absolutely required, um, you know, right now to

license a vaccine for public use. So Dr Fuller, you would be fine getting one of the first vaccines if it came out. Yeah, I wish I could, you know, but I you know, what you have to be aware of is that when these vaccines start coming out, they're not going to be billions of doses suddenly available for anybody to take. It's likely going to have to go into first responders and health care workers and the like.

Uh and so it could be for some of us months even after the vaccines have been released for public use, before we're eligible to start to you know, show up in line to actually receive them. You know that said is I've I've said many times I think that it's going to take multiple vaccines to really be able to tamp down this pandemic. And you're gonna see we have seven in phase three. You're gonna see hopefully at least half a dozen, maybe five or six over the course

of the next six months. You know, it's my hope that they get license for human use. Deborah Fuller, University of Washington School of Medicine microbiology professor, Thank you so much for bringing us the facts here as we try

to look for some sort of vaccine. The economy has been the housing market, which has really struck me at a time of so much job loss and so much pain that we talk about in the consumer sector, the idea that you've seen incredible resilience and bidding wars and suburban areas for houses, lumber prices tripling in just a few months. Joining us, Andrew Holland Horst City Group Global Markets chief you as economist, Andrew, what do you make

of the housing rally? It's just incredible what's happened in housing. I mean, I think we've had a more optimistic outlook on what the reopening, recovery rebound was going to look like, and the data keeps coming in for housing and it just keeps being stronger than expected. We saw it earlier with mortgage applications that have moved to multi year highs and really stayed there. But now you're starting to see that come through in sales and starts really just across

the board. So so an incredible surgeon housing activity, Andrew, yesterday are Bloomberg colleagues put out a story saying that the Federal Reserve had bought nearly a trillion dollars of mortgage bonds over the past couple of months, that they've been one of the hugest buyers of this sector, pushing down rates, solidifying this market. How much has the housing gains? How much have the housing gains really resulted directly from

FED intervention here? Some FED policy is so important. And when we look at the U S economy, of the sector that's probably most immediately sensitive to the FED and two interest rates is the housing sector. Um, so I think it's really mostly about rates coming down. You've got lower tenure yields that led mortgage rates to move lower. Um. Yes, they're purchasing mortgage fac securities as well, which is keeping

those spreads compressed. So Um. You can't understate the importance of the of the FT or you can't overstate the importance of the FED in the housing market right now. All right, Andrew, we had some ADP employment numbers out today, Uh, you know, weaker than expected. Here. We are seeing some approven in the labor market, but maybe losing a little bit of steam here, and that's so critical for the

U S. Economy overall, what's your view of the labor market? So, I think again it's another area where we've been continuously surprised to the upside with jobs reports. And I'd be a little bit careful with the ADP number on the economy is just moving so quickly that it's been difficult for ADP to kind of keep up with what we're seeing in the official statistics that will get out on Friday. UM. So we still think that that that number can look

more positive, UM. But but really important to see this re hiring continue, UM. That's been supporting incomes UM, even with a very high unemployment rate. So, you know, we'd like to get back closer to normal. It's obviously a long road, but but so far, the you know, the last few months have been a positive story, all right, So how critical is it that Congress follows through with another round of what I'm gonna call a significant piece

of fiscal stimulus. The first, the last round, the third round, if you will. The three trillion dollars was done on generally a bipartisan basis, but it looks like politics is creeping back into this round. Yeah, So I think everybody thinks it would be a good idea to have more fiscal stimulus here. I think that's on both sides of the aisle. I think most economists agree. The FED clearly agrees. We've heard that from a number of FED speakers. UM. You do want to put it in context, though, that

we've had a very significant fiscal stimulus already. UM. And if you look at what's happened with the income support that you've had, really the government coming in and substituting for incomes that were lost um due to the results of the pandemic. UM. You see that incomes have been supported. Consumption of course was lower because a lot of avenues for consumption were just closed down. And so it means that the economy came through this period of four savings.

Individual households have saved about a trillion above what they normally would have saved. UM. So now you have things like unemployment benefits that are expiring. That's certainly not a good thing for the economy. We'd like to see those restored. Um. But even if they're not, I think you do have

a lot of savings coming before it. So, so certainly a better story if we can get that next leg of fiscal policy Um, But you know, can this, you know, consumption rebound continue even if you don't get the next leg of fiscal stimulus. I think, at least for the next few months, that story probably still stays intact. I get more concerned as I look out to Q four into one. I'm going back to the labor market. This is still a deeply depressed labor market that still needs

more help. Andrew All and Horst of City Group speaking with us. Andrew, I'm a little uncomfortable as we talk about this for a variety of reasons. We're talking about the incredible boom and housing, We're talking about the incredible boom and equities. We're talking about an unemployment rate above ten percent with some permanent losses coming in, job losses,

job cuts, particularly at the lower income level. This all just goes into the story of the widening gap between the rich and the poor, the people who can buy houses, who can buy stocks, and those who can't and have just been laid off. Andrew, what is the structural challenge?

What is the economic result of this widening divide. Yeah, it's a real issue for the U. S economy, and certainly those inequalities have been exacerbated by the crisis that we've come through, and that's where you know, I'm encouraged to see the Federal Reserve, for instance, changing their framework talking about pushing the unemployment rate even lower so that we can start to bring some of those workers back

into the economy. Um. I think that's what was happening as we got down to a three and a half percent unemployment rate. Again, this this is a long road. I don't think anyone is saying that, you know, this is going to be easy to get back to something like a three and a half percent unemployment rate, but but you really do want to get back down to those very low rates of unemployment to bring a more

inclusive this into hiring into the labor market. Unfortunately, that's where we were, that's not where we are now, and I think that's what monetary and fiscal are trying to get us back to. Meanwhile, talking about getting back to today is back to school, and you see a lot of people taking their kids off to their first day, first date. Perhaps since March and Andrew, I do wonder

what the effect is on the younger cohort. I was looking at data that showed that the sixteen to twenty five year demographic had an unemployment rate of more than eighteen percent versus that ten point two percent average. That they've been absolutely pummeled. Those entry level jobs have just evaporated. What's the longer term economic effect of that? Yeah, So that that that's part of why you want to try to cure the problems in the labor market as quickly

as possible. We saw this after two thousand and eight, where you had students coming out of high school, students coming out of college trying to get that first job and finding that that first job just wasn't available. Um. And that's probably even more the case with this down turn um again because we've seen those entry level jobs go away on, those lower wage jobs go away, um. And that's a potential avenue for a permanent structural scarring

on the economy. And that's what you're really trying to avoid. I mean, we we all know that the situation um is bad in terms of a high unemployment rate right now. But what you want to do with policy is try to limit the amount of time that we spend at these levels um, so that you can get those individuals that we were just talking about back into jobs integrated back into the labor market, because if you have an extended period where you're not in the labor market, that

means that human capital is not being built. That means that that attachment between workers and firms is being lost. So really important to try to get that back intact as quickly as possible. So, Andrew, what are the good folks at City Group thinking about the economy the GDP number really through the back half of this year into next year. Give us a sense of kind of how

you think the recovery might look. Yeah, so it's looking like every bit as bad as the contraction was in Q two, the rebound in Q three, it's not going to completely make up for that, but we're going to have this kind of very elevated annualized growth number for for Q three. And you know, just like in Q two, we spent a lot of time talking about this negative thirty percent growth is an annualized number, so you're essentially multiplying the contraction by four. And also this is some

things that are transitory. Is there some things that are transitory that are going to be reversed and that reverse will coming Q three. You should also be careful with the Q three number. UM. But now I'll tell you that Q three number looks like it's gonna be probably closer to thirty percent than twenty percent annualized. And when you know, we have first done our forecast, we thought maybe it's more like twenty. Again, you're growing from very

low levels. I want to I want to emphasize that this is just trying to get back to kind of a more normal level of activity. UM. But it still looks like a very powerful growth rate in the third quarter. How about twenty one. Is there going to be meaningful growth in twenty one? And how much of that growth is dependent upon stimulus? Yeah, I think we can continue to grow in one. But but that is where you start thinking more about stimulus. Like I said, there's a

lot of kind of stimulus that that was done. We had the stimulus checks, we have the enhanced unemployment insurance UM. I think that will carry us through probably at least Q three, if not the rest of the year. As we get into one, UM, that's when you really would like to see another leg for for stimulus UM, where you'd like to see more help for unemployed workers. You know, people who are unemployed through no fault of their own. Um, you'd like to see, um, other forms of spending, things

like infrastructure that have a high multiplier. I mean, those are probably things that you can think about after the election. Andrew holl And Harst of a city group, thank you so much. Whether it's your strength or dollar weakness. So let's get that sort of that with Rich. He's a former ECB president. He always makes our shows. But are who are delighted that Mr Trich joins us this morning? Rich. There's a lot of talk about whether the euro is

just too high. I don't know at what point it becomes problematic, but there was a warning start from the CB Chief Economists saying like, look, this could mess with

monetary policy, does it? Yes? I think. I think, of course that it is a very very important element to consider the U who went up Vitor and many other currencies by around twelve percent or go certain period of time, and the Europe and New Area does not need that, of course, taking into account the difficulty of the present situation, the difficulty of the recovery, and also the fact that in comparison with the US, we have a growth and the catching up process after and in time of pandemic,

which which takes time, and we are not in the best situation possible. So I would say, begger than I never policy is never appropriate. And I am a little bit hurt. Not by the FED itself because the language of the FED is very, very prudent and cautious in terms of exchange rate, but from time to time the executive branch in the US, he's talking down the door,

which is absolutely unappropriate. Obviously, there is no place for a begger than I never policy in a situation where we are, and I hope that they will be as responsible as possible. I'm speaking of the executive branch of the United States. But Mr, what is the level that starts becoming really uncomfortable for euro No, I will not pronounce any level, any level, say that plus is a

big change in my process and myself. We're commenting such move, I qualify themselves as modeled myself, I remember, which created some emotion, But I really think that what we did is can stability and certainly not talking down the main currency, which is the dollar, which is not at all appropuli

that already sent. And you were very clear in your comments MS, but you know from here given the FED policy, will dollar actually weaken even without that rhetoric from the executive that you're talking about, Well, I must confess I expect the first to the extent that there is a dimension of the exchange rate which is associated with the recent decision of the Fed. I think it was totally

overdone by the market. I mean, the FED only said we will if if we do not get out of the present situation, will continue to have an accommodating policy. But the accommodating policy of the Fed doesn't mean negative interest rates, And in yourb you have negative interest rates. So the fundamentals are below all the noise that we are hearing. In my opinion, there is a very good case for certainly not changing the dollar you position based

on the recent decision of the Fed. I don't think there is really a case for that, and I'm sure that the market will realize that there is no case by that. Well, Mr Trichet, it's Kelly in New York. A stronger currency can be a hindrance for inflation, and already data show this. Yesterday, consumer prices in the Euro Area falling for the first time in four years. How big of a problem does that create? For the e c B. Well, the problem of the CB is more or lit the same as I would say in all

major supplements. Of course we have inflation, which is much to know. That inflation which is much to creates two problems. One problem is that we have risk of method realization of deflation, and of course this is an ultimate risk that we must avoid. And second, of course it go alls for very low interest rates, which themselves have their own doorbacks, particularly if you are in a in a

time when you need more accommodating policies. So, all taken into account, it is the situation of major sample banks. D CD has to cope with that situation, and it seems to me that it does it as well as possible. I would say, my successor is doing as well as possible, and the governing Council is doing as well as possible. But the situation is demanding. And then the little why precisely we don't need at all change in the overall condition that would be conducive to less growth and less

activity in Europe? Right, Mr Tiha. Given the FEDS move last week, this move towards average inflation targeting, does that add some pressure for the easy V to follow the FEDS blueprint on that front. Well, post of all the review I started in January in Europe and it will take a little time. I would say that seen from the European perspective, the idea of judging on the average inflation,

the meeting the objective is something which is natural in Europe. Myself, I remember going to various capitals, including Berlin for instance. In my time, I was claiming that we were up to our responsibility when we were delivering more or less one average since the setting up of the Euros. So

it was natural in Europe to reason on an average basis. Uh. And I would say that also the fact is in Europe, in principle, we consider the headline inflation as the inflation that you must looked at because it's the inflation that our own fellow citizens are seeing. The code in plation is a different concept which is not seen by the general public. So of course, if you are following headline inflation, it goes up and down, up and down, and you

have necessarily some kind of averaging to operate. But all that being said, we will see what the e c B will do. What reassures me in a way in what has been decided in the US is that the two percent reference was not abandoned. You remember some academics were recommending to go down to one percent or even zero percent. Others were saying four percent is much better.

I'm very happy with the two percent, which is, by the way, the reference in the US, in Japan, in the UK, and in the e c B, which is the first, by the way to mention the two percent as a very very important reference. So the fact that all central banks, including I have to say, in many respects Bank of China, have this kind of reference in mind is in my opinion, helpful in terms of global final fruits stability, global monitory stability. Um, when you look

at the spectrum of deflation. We started in lockdown looking at all this stimulus and thinking it could lead to very strong inflation, maybe even rampant inflation is the risk. Now you know deflationary holds and actually you're becoming a lot more like Japan. Well, again, what we know in all advanced economies is that Japan was very much ahead

of the other major economies. But but we all are in that situation which has very well summed up by j Power recently namely, first we have a good potential which is significantly lower than before. Second, we have a really interest with its equivably interest withates that are much

lower than before. A Third, we have inflation which remains extremely low and abnormally low for all reasons, and particularly the two reasons I mentioned the materialization of potential, depression of a risk, and the two low interest nominal interest rates that are I would say engineered by that situation. So that is the situation in all advanced economy and its calls of cooks for getting out of that situation. The supplements are doing all what they can, in my opinion,

even being much bolder than what was foreseen. And in particular the e CP with the pandemic Emergency Purchase Program proved the capacity to react to extraorly difficult situation. But I mean, the problem is to find the pandemic at the present moment. As soon as we have thought successfully against the pandemic, we will have the problem that we had before the pandemic, and the problem we had before the pandemic other problem that we just summed up, so

we will see exactly how to get out. In my opinion, we will get out of that situation, but with the help of other partners. The central banks alone cannot change the growth potential. They cannot change the heal neutral interest rates or equitably interest rates, and that that is the responsibility of other partners. And of course we have the main problem of the Philips curves, and there I could

delaborate on that if if we have time. Mrs. We were talking about inflation, we talked about of course the euro strength, and we started by talking us about the Philips curve. I mean, if you look at what the Phillips curve has told us so far, this is the economic concepts that basically states that inslation and unemployment have a stable and inverse relationship. How will that change because

of the crisis. Looks like it changed dramatically since the crisis, obviously, and the turning point is around Liman bothers and and a few years after Liman bobbles. So we are now in a situation where the philipskirt looks totally flat and in major advanced economies, clearly, even with full employment, you don't have the inflation pick up that you would normally expect. And that of course is a major problem because it impacts the full body of the Centle Bank monetary policy.

Of course, in all those countries, and we were speaking of that a moment ago. Of course, it's probably due to a number of factors, and academia has worked a lot on that. Globalization, new technologies. But I would insist myself, I would stress that in most countries, the bargaining power of labor has diminished. That's obvious, and that is of course mainly economic problem, of course, but also a social political problem. And I'm speaking of those countries that have

full employment. In countries that are not at full employment, of course, it's not appropriate it to suggest that we should elevate the wages and salaries, because because then then it is not in line with the idea to have

full employment. But in those countries like Japan, like the US before the pandemic, like Germany, the Netherlands before the pandemic, and other countries Switzerland and so forth, it's abnormally, my opinion, is very abnormal that the very weak bargaining power of labor calls for uniquely because to augment miserable and calls for a nominal evolution of wages and salaries to be that flat. And I expect that it will change. It must change, It will have to change, because again, it's

not only an ego problem. It's also a social economic problem, and we see that on the social political dimension it is more than more a major problem. So I am confident that we will solve that problem progressively. But we are just in the middle of this problement. Pandemic is even a graviating of course, this situation, because it creates a new element to privilege. If I may the job instead of asking for more, which is accelarists increases great

Mr trichet coming out of this pandemic. Let's talk about other changes. Has the function of monetary policy completely changed? All of these exceptional monetary policy is now going to have to become semi permanent. Well, it's clear now that we have. But it was true before the pandemic, and before the pandemic, it was true that the new normal

was very different from the previous normal. It was true that we had certainty to take into account the extraordinary capacity of the sample banks to be extraoraly accommodating in utilizing a lot of various tools. That's obvious in my opinion. My opinion has always been in any case the compass that we have is price stability. Price stability as a primary mandate, and speaking of what for the rogan santle back.

But let's not forget. Once you attain price stability, or we are in the present situation where the problem is to go up to the level of the objective, then you can accompany all other policies of the European Union. This is the treaty. The treaty says very very clearly without placidas to price stability, the ciddled banking system, the ECB accompanies all the other policies of the of the

Opian Union name system on that. Because from time to time we are called to say, well, in the US, they have two objectives in the in your there is only one objective. There is one objective of the game. The mention is in the treaty that when this subjective is attained to be obtained, then you have to accompany the other. I would say, dam of the policies. LEI, thank you so much for joining us today as always makes us wiser on monetary policy. Janctric they're the former

easily president. Thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio