Surveillance: Economic Decisions Pulling us Apart, Krueger Says

of course on the Bloomberg. It's a pleasure to have with me in studio Alan Ruskin Cohea of Dutch Banks for in Exchange Research team on the morning when there is so much to talk about, Alan, let's be begin with oil. In your most recently you talk about the degree to which this is really the big macro driver right now. Yes, it is at the center point. Keep in mind that we did obviously see oil four very very sharply it was so important for all the other

macro drivers. And then the rebound now is almost the reverse effect. So you know, I think the main channels in which this is working is higher all prices, higher break even rates, and then expectations that um, the likes of Treasury hills and other global bond heills will move higher. We've seen that start to quiet and down a little bit over the last few days. As the question as to whether oil sticks around here or does go up,

say another ten dollars a barrel. Um, I don't think people are thinking much more than ten dollars a barrel and giving us some some sense of whether or not that might happen. Is this November three meeting in Vienna, this this Opeque meeting. From what we've heard today from the Saudi oil minister, what we've heard over these last few weeks, what's your sense of the likelihood that we will get at the very least of freeze and and perhaps cuts here in production. Yeah. So look, I'm not

an oil analyst. It's it's full disclosure here, but I think what you have is at least stability with a tendency towards moving towards the upper end of the range. So you know, if the range is forty dollars a barrel to perhaps as high as sixty dollars a barrel, then um, you know, I think we edge a little bit higher at least. While there's speculation that OPEC and

some big non OPEC countries really do curtail supply. The problem I think they face is really that on the non OPEC side, and notably on the U S side, supply will kick in again and you'll see those rig count numbers going up quite sharply. Really as soon as oil does go up. So oil prices do you go up? I want to ask you more here about the relationship between oil and the dollar. Frustyle. So the Bloomberrick surveillance brought to you by invest Goo investing isn't about achieving average,

It's about achieving goals. Learned how Investco's high conviction approach can help investco dot com slash high conviction. I want to bring in Francy and Lackworth from London, pulling a doing yeoman's work here on the heels of a surveillance television joining me from from London's mo Good morning frid We sent Tom Holmes because he lost his works, so you get me. I'm so sorry out of the building.

I'm sure Alan, if you look at so we had those more Instanley report right, and they cut down in trading some unless I guess we'll question whether they cut back down too much. Then you have crude as David was talking about, and you also have this China story. Again, we've seen so many movements from currencies, Brexit non Brexit, the US presidential elections. What will be the next impetus for for big currency moves? Yes, Um, I think right now the focus is really on treasury heels and whether

we are seeing some sort of shifting regime. As we are talking about a little bit earlier. Oil could be one of the catalysts for higher interest rates, at least at the back and the curve, but there's a greater chatter that relates to what central banks actually want for the yield curve. So um, it's clear that the Bank of Japan and perhaps the e c B certainly wants a steeper heeled curve to support the financial sector. Um.

Whether that translates to the US is another question. A little bit more skeptical that it does translate to the US. Are we really seeing inflation? And so treasuries gained a little bit right we saw a core inflation gauge rising less unexpected in September. I can't figure out when we see real inflation. I'm not talking about the UK, which is a whole other problem with Brexit. No, I think inflation has got a lot of global inertia still built

into a huge amount of spare capacity in the system. Actually, not just in the international side of things, but the cap you numbers, the capacity utilization numbers in the US are very very low, remarkably low in the context of central bank that might be tightening. So look, I think at least on the goods inflation side, there's very low inflation. On the services sector side, there's something there as there's

definitely been something. There's a little a little bit of creep and uh, you know, I think in aggregate, will the fair eventually hit their target over there a two year period. I think that's there some you know, that's what they expect, and I think that's not unreasonable. Let me get your sense of what we heard from the vice chair at the Federal Reserve on Monday. Maybe put that in a continue with what we heard from Janet Yellen on Friday. She's talking about running things a bit hard.

He having what was a fairly academic discussion here about productivity and what is driving rates down. What did you make of those two speeches in concert with each other. Yeah, Look, I think they've got, you know, subtle differences of opinion really, insomuch as I think there still is a little bit more emphasis on the idea that low for long does create some potential financial problems, financial instability in the long haul really in a sense, and so nudging rates up

a little bit won't do much harm. At the same time, waiting a little bit won't do too much harm either on the goods inflation side and on inflation side as well. So it's very subtle really in a way. It's in some ways speaks the idea that central banks don't matter as much as we might think. What did you make of the portion of stand Fishery speech and when he talked in which he talked about inflation targeting, he rather forcefully addressing critics who say, perhaps it should be re evaluated,

perhaps it should be brought up. He's saying, you know, if we can't get to two, I would be talking about three or a number higher. Uh, what do you make of that portion? In particularly well, I think, you know, for central banks to shift on on on a target like this, you know, and it's been entrenched really for the better part of really, you know, in the likes

the United States for what forty yard years. UM. I think that would be to really have people rethink that, you know, the structure and the model kind of thing. So I think that's that's that's one thing. I think raising the inflation target also has its problems, although having an inflation target it's you know, close to two is proving problematic as well in the current environment. And this

is how markets are interpreting right. A lot of people are saying maybe because of what we heard from Janet Yellen talking about a high pressure economy and what we also heard from Mark Karney, who in the aftermath of breggsit is saying he will look through faster price gains, means that they're slightly changing their inflation target. Now you may think that they should, but are they well, I

think Karnie is in a special situation. So you've had an exchange rate shock, and it's much easier to say, look at an exchange rate shock is a one off shock, as it were, and it's going to wake work its way through the system over the next say eighteen months to two or even three years, and uh, we look, the markets are probably going to look past that. UM and underlying inflation X, the exchange rate shock might well be well behaved. So I think Connie is in that

in that particular situation. The US is uh, you know, in a in a very different set of circumstances. I think the idea that in the US is, look, if we go slightly above the inflation target, that will not be you know, too disruptive, is the premise. I think they're probably wrong on that to the extent. Well, I think if inflations does start to nutche above target and start, you know, we start to see the core PC deflator, even even in the low twos um, this bond market

is is not priced for that scenario. And if you do see a major bond market sell off, and you know, some people think there's a bond bubble there. If you see a major bond market sell off, it's going to be usually disruptive for the US economy. And yes, real rates might not actually go up because they'll just be catching up, you know, nominal rates will just be catching up with inflation. But nonetheless, nominal rates matter a great deal. And if the bond market starts setting off sharply, you

can rest assured. I think the equity market's gonna have a hard time as well, and we've seen the dollar weaken a little bit against the ten major currencies. This warning when you look at the Bloomberg Dollar Spot Index that when I was said, I was going to ask you here about the role of the dollar and oil right now, what are you seeing there? Yeah, I think

it's it's a circular to some extent. So traditionally you see a stronger dollar really associated with weaker oil prices and weaker commodity prices just because you know these commodity prices or priced in dollars, so um. You know, that's the sort of traditional one sided relationship. The flip side of that, and the one we're kind of focusing on a little bit more right now is as oil prices go higher, and if they go still higher, um, what effect does that have on the bottom market and then

the knock on effect to obviously the dollar. I think the issue here is if treasury hills do bump up significantly, say the tenure, he'll goes to two. Um, you know, not a huge move, but in the context of where we're at, it's a it's a decent sized move. Then I think you're in a circumstance where the dollar will actually benefit to some degree certainly versus the commodity currencies and the e M currencies because we will go a

little bit risk off until we stabilize. And on the bondom market side, David Gurry here in New York with Francine Lackwar in London, a transatlantic version of Bloomberg Surveillance this morning, recapping the news from Morgan Stanley this morning. Third quarter net revenues of eight point nine billion dollars, fixed income trading revenue almost tripling from a year ago to one point five billion dollars. And that's where I want to start with Alison Williams, senior US bank analysts

for Bloomberg Intelligence, who joins me here, uh in New York. Allison, this story, this fixed story continues here with with Morgan Stanley. Yeah, so we we've had excuse me, uh now, every single bank beating and really sort of going out with a bank with Morgan Stanley having a huge beat versus the one billion estimate and bearing in mind that one billion

is about in line with management targets. So after they restructured the business, the most restructuring, the most recent restructuring was in the fourth quarter of last year when they cut of the front office staff. They had said that they wanted to target roughly four billion annual revenue. That's about a billion a quarter. That's about what UM analysts surveyed by Bloomberg News had been expecting for Morgan Stanley. So obviously this is a very big number. We've been

talking a lot about restructuring. We certainly talked about it in the context of Goldman Sax yesterday, the reduction and head count head count that we've seen their Morgan Stanley has its project streamline. What we learned today about the efficacy of that so far so still going through the numbers, but it does look like they are making um progress on that. On on the overall basis. Uh. The other important pre tax margin is the margin within their wealth

management business. That's a key metric. Their goal is twenty three to twenty five percent margin they got this quarter. So we're still going through just to see if there were any one timers, if that's a true organic recurring margin, but that is another positive for the company. All right, Nelson, thank you for joining us again here As the bank earning season rolls on, that's Alison Williams, their senior US

bank analyst for Bloomberg Intelligence. Fran Yeah, David, we were talking a little bit about monetary policy, about inflation targets, about what a lot of these central banks are facing. We're back with Alan Ruskin from Deutsche Bank. He's global co head of Foreign Exchange Research. And you know, Alan, I was, I'm torn, I don't know whether Laski abou yen because people are concerned about exactly what Governor Kuroda

is trying to do capping that tenure yield. We had the story today about Japan's three largest lenders selling a record amount of yen bonds, or whether I should ask about China and actually what the endgame for rem NIMBI is. Amongst those two stories, what could scupper the markets more right now? I think China is still probably more interesting. So China I think has been going through something of a stealth devaluation, effectively letting its trade weighted index weekend.

The market I think has taken this on board quite nicely, to the relief of everybody, I think, or should be to the reef relief of everybody. And we're seeing, you know, for example, equity markets not respond in the same way to Chinese currency weakness as we've seen before, but I think you will see ongoing Chinese currency weakness on an

opportunistic basis. So when China makes a decision and and and and sees that the markets are being well behaved in response to a weeker currency, they'll let their currency actually weaken. You are halting right this year's longest run of losses. Again, as we had data today showing the nation's economy stabilizing. Do we believe those figures? Yes, I think we do believe. The figure is in a very broad sense in terms of you know, his growth got

a six handle. Well, that's probably as good an estimate as any um. I think the issue you have is the breakdown behind those numbers. So obviously public investments seems to be a main ingredient in terms of keeping growth going.

And then more recently, of course, you've had this explosion of mortgage lending and private related investment has been concentrated in things housing related, and I think what you have here is the building up of even bigger problems and even bigger so called credit gap that I think will manifest itself probably more in two thousand and eighteen, Given then two thousand and seventeen doesn't really fit with the political calendar. Now, I'm going to close here by asking

you about the dollar. Pas so we're seeing at eighteen sixty three, this has been an incredible proxy here for what we've been seeing in the US presidential election. Aside from that, aside of it being kind of neat to watch rise and fall as we see the polling change here in the US, what do you what do you what can you learn from what the PESO was doing at this point? Yeah, we'll just say that the pesso's

problems are a lot deeper than Donald Trump. That the unresponsiveness of the trade balance to the weakness in the PESSO is being quite remarkable in that sense. And I think what you also seeing in terms of the trading is that the PESSO will tend to weaken a lot more on say Donald trumpet coming up on the polls, and will actually strengthen on say a Hillary victory at

this point in time. So the upside as far as the PESSO is concerned, that means the downside and dollar, But the upside as far as the PESSO is concerned is quite limited. I think even if the politics works in its favor. All right, We'll be watching the debate tonight, of course, Alan Ruskin, thank you very much for joining us here. Instant Alan Ruskin, head of Foreign Exchange research at Deutsche Bank based here in New York. Of course, that debate tonight at nine o'clock Wall Street time, Donald

Trump and Hillary Clinton taking the stage. Then we will have coverage before and after here on Bloomberg Radio, also on Bloomberg Intelligent. So pleasure to have Sebastian Mallaby here in studio with us today. He is a Senior Fellow to Counsel on Formulations, author of a new book called The Man Who Knew The Life and Times of Alan Greenspan, the culmination of five years of research interviews with Alan Greenspan and others. And thank you very much for being here.

Appreciate it really great to be with you. Let me ask you first. I was watching the president's news conference yesterday and and something that came up was him commenting on the limits of monetary policy right now. This is a constant through line that we've heard over the last many months here um that monetary policy can't do everything. There has to be fiscal policy. Uh In answered with it.

We're hearing that from central bank governors, were hearing that from finance chiefs, We're hearing it from from heads of state. Looking back at when Alan Greenspan was FED, here was just something that he had to reckon with the limits

of monetary policy. Well, he did have to reckon at the beginning, with the limits of the Fed's independence and the willingness of politicians to beat up on the FED has happened very much in the George H. W. Bush administration at the beginning of Greenspan's tenure, to the point that actually the budget chief in the White House, Richard Dumman, was going around Washington and whispering This FED chief, sixty five years old, lives by himself, called his mother every day.

Doesn't this reminds you of Hitchcock's Psycho So, I mean, there was there was nasty pressure on the FED. And the fact that then the FED this stopped and the FED became independent is a testament to Greenspan's political skills. And I think that you know modern day experts who are under pressure, whether it's central bankers or other experts they need to learn a lesson from Alan Greenspan, which is you've got to marry the expertise with political savvy

and take the fight back to the politicians. Sebashion would mean he called his mother every day. He's Italian, right, that's the only thing we can take it out. Same thing. Um, Look, this is a man that was full of contradiction. First of all, congratulations on a really fine biography. He was considered a rock star. And yet it's it was under his watch almost that you know, the crisis happened, the

financial crisis. Could he have done anything to avert it? Yes, I mean you cannot be the most influential economist in the world, presiding over the global financial system have it blow up and say sorry, it wasn't my my fault. I mean, clearly he got something wrong. Now, the interesting thing is, I believe the mistake he made is not what most people would say. Most people would say, gee, you know, interest rates were about right because inflation was

on target. It was really on the regulatory side that there was a mess. In my view, and I did a Freedom of Information Act requests and so forth to to verify this. The fact actually did try to do something about some prime mortgages. In two thousand one, it did pass new rules. The problem is regulation, especially in the United States, is poorous it leaks. There are so many different agencies trying to do regulation. There's an alphabet

soup out there of different bodies. So regulation doesn't work. And therefore I believe green Span should have been willing to raise interest rates to fight the bubble. We'll talk more about this apt for a breaking in just the second. I wanted to ask you about the degree to which he he thinks of his position in history. He looks back on decisions he made visa the regulation. What he

could have done differently? Is he somebody who does think back on the past and maybe play out some counterfactuals. The fascinating thing is, you know, I would go see him, um, you know a lot. I lost current after seventy hours of sitting in his office, and every time he would want to speak about the present or the future, and I would have to force him because I'm doing a biography, right, I want him to talk about the past. But he's saying, why do you think about Brexit? Is that kind of

you know, that kind of stuff? See, you know, we've spoken with him recently ran bloom Bigridian bloom Brew Television. He still is very actively engaged in these discussions that they're taking place. He's a wonderfully open and curious mind, and I think that's still true at ninety years old.

We are joined in studio by Sebastian mal But, the author of for finding biography here of Alan Alan Greenspan, called the man who knew the life and times of Alan Greenspan, and Sebastian I wanted to ask you about FED communication. Alan Greenspan leaves and we see Ben Bernanki on sixty minutes. We watch wrapped every couple of months when the FED chair delivers a news conference. The vice chair, stand Fisher, spoke at the Economic Club of New York

this week to a crowd of of hundreds. What is Alan Greenspan make of this movement toward more transparency, openness, whatever you'd like to call it. Well, when Alan Greenspan was chairman, first of all, he spoke less, but also when he did speak sometimes it was highly and deliberately confusing. I mean he was compared once to a bespectacled c SQUI who's sensing danger, right, He emits black ink and then glides away silently. So you know he didn't believe

in quite as much communication. I actually think he got it right. I think the cacophony that you're here is not constructive because what it does it dilutes the message from the FED. And as a result, today you've got a tax on the FED from the right, from the left. Is it too tight? Is it too loose? And Janet Yell it is not really shaping that debate because there are too many different people speaking on behalf of the FED. That is not something that Alan Greenspan would have permitted.

I'll have you come and down that. Maybe from from your perspective here, it seems like there's spin a sort of half moved toward openness. This is still there's still some opacity there. Uh. It creates a kind of game where we're constantly guessing, even as we do have more information. Just I guess the quality of that information is debatable. I think the fact is that the more you talk in a way, the less you can communicate. I mean, people have to then interpret too many statements by too

many governors. Right in Greenspan's era, if one of his fellow governors went out and made a speech that got too much attention. Greenspan told him stop it, stop it. I want to be the messenger. And if there's order of us talking at once, that just confuses the markets. It doesn't help but seaction. I mean, we pay some of the market participants, you know, the hedge funds are

paid handsomely to understand these markets. I mean, what the fact is becoming is just a little bit like the Bank of England and the NPC here where you have different views and actually it's up to the markets to understand the strength of the economy. Well, you know, when the Taper tantrum occurred in ben Bernanke himself was I think totally surprised and confused by how the markets reacted

to what he said. And that just shows you that however much you pay people to interpret what the central bank is doing, if the central banks statements are open to multiple interpretations, you're gonna get these volatile swings. You know, every time the feed is about to meet maybe it's going to exit low rates, you see this enormous volatility build up. I just think you had much less volatility in the Great Moderation and the Great moderation was under

the great Alan Greenspan. Um. You know there were other stuff going on too, but I think Greenspan was the master of being the empowered guru in Washington. Right. The times have changed also, haven't they. You know, yesterday we extensively talked about this opinion piece in the Telegraph by William Hague, whose Foreign secretary, former Foreign secretary in the UK, and if you look at the headline, he says, central bankers have collectively lost the plot. They must raise interest

rates or face their doom. I mean, someone as powerful as Alan Greenspan in today's context would would be eaten alive. No, I think Alan Greenspan would probably eat his critics in life. I mean, the truth is that green Span Greenspan had unbelievably a good sense of how to manipulate Washington. He

was a Machiavellian power excellence. He had contacts in the media such that if you picked a fight in public with Alan Greenspan, you should not be surprised if in the next two weeks one of the major newspapers had a front page story is saying that you were wrong. I mean, he had such good relations with people in the Senate that you could perhaps not be confirmed to the job you wanted. Greenspan knew how to operate in a way that I think other central bankers today just

cannot match him. That's that's a fascinating point. I think about our last two FED chair Ben Bruniki and Janet Yellen, their backgrounds are very different from from Alan Greenspans. As you were writing this, as you were thinking about this, do you have any sort of conclusion about what equips somebody best for a job like that. Yes, well, one of the revelations about Alan Greenspan in his background is

that he was super political. I mean, you know, people might vaguely know that he had advised Richard Nixon in the sixties. He was not just the economic advisor, he was the polling analyst. And then if you go forward, you know he serves in the Ford administration. He's the kind of person who sneaks into the White House with his allies on the weekend to rewrite the president's speech because one of his bureaucratic adversaries has done something he

didn't like. Henry Kissinger. At one point, Henry Kissinger supposed to be the master bureaucratic infighter, and a story appears in The New York Times attacking Kissinger's kusting just says

where the heck did this come from? To his deputy, and the deputy says, oh, well, Alan Greenspan must have planted that because green Span, I mean, you know, he was just brilliant politically, and I think that is relevant to why he did so well at the said when he was attacked by politicians, he took the fight to them. He understood power, he knew how to wield it. And frankly, experts today who are under attack on the defensive they could learn a lot from the example of Alan Greenspan.

How would he deal with Donald Trump? I think he would, you know, make it um. You know, he would feed the press with very smart arguments as to why what Trump was doing was ridiculous, and the negative commentary on Trump, which has already been quite considerable, would have been even more.

He would have gone to people in the Senate who were you know, who are used to getting advice from green Span, and he would have, you know, told them that Trump was ruining their party, and he would have isolated Trump, you know, completely, And I think that and you know, he might also have said things in public. And remember, at the height of Alan Greenspan's power, there were Alan Greenspan T shirts, There were Alan Greenspan dolls, you know, there was there were cartoons of him so

dressed up as Superman. I mean, he was the maestro. Somebody compared him to Prozac because he lifted the mood of Americans. Right, So if he had gone out in public and said, you know, something negative about what Trump was saying, it would have had an enormous effect on Trump's standing and credibility. I mean, John McCain, in one of the presidential primary debates in two thousand's made the point that even if Greenspan were to die, you would

still want him miss fed chairman. You would dress him up but dark glasses on the guy and keep him in office because that was the nature of Greenspan's prestige. I have a disclaimer. I do have a T shirt, not of Greenspan. Ruth Bader Ginsburg. That's it. I need to say that, Sebastian. Do you think that there's a central banker that I mean gets as close as possible as green Span. It seems they're all getting under so much pressure. Mark Harney now being politicized, you know, Cherry

Yellen being the markets don't seem to believer her. You have Druggy that's basically battling with states, and then you have Governor Kroda who's losing credibility by the day. You know. I think Janet Yellen is the furthest from the green Span model because she's such an economist, economist, a sort of technocrat, rather cautious. I'd say that Mark Karne has that political flair. Um. You know, he obviously has their

own political ambitions in Canada um. And before Justin Trudeau became the leader there, you know, there's talk of him becoming the leader of Canada. And I think that shows you that Connie does have that political side to him, which is a good thing. His his disadvantage is that

in Britain he's not embedded in the long term. I mean, he came three or four years ago, whereas green Span by the time he became FED chairman, he had already had two decades in Washington of building up relationships and they always Maria drag I think Marria drag E does have some of that political talent and is very kind of deeply embedded in the Eurozone. And when he made that statement in you know, the whole Eurozone was falling apart.

Peripheral yields were going crazy, and and and Draggy stood up and said, you know, we're going to fix this. We will do what it takes, and believe me, it will, you know, do enough. It's almost like Clint Eastward, you know, curning his lip and snarling at the hedge funds. I'm badder than you are, right and Draggy I think that he won that battle. And that is another reminder. Draggy had that Greenspan magic and that's what we need more of today. Very quickly here, just about thirty seconds left.

I wonder what he makes of the policy tool kits such as it exists now. Is it something he could have envisioned? You mentioned you talked to him for his severny plus hours and wrestled with some of these modern day issues. What does he make of of what's in that toolbox right now? I think he's highly skeptical of the modern toolbox. He thinks that if you create that much money in the end, there's going to be inflation. He hasn't been improved right yet. But his view is

that this is playing with fire. S Matsha Melby, thank you very much for for twining us here, based in London, here in New York with us today. He's the author of a new book, The Life The Man Who Knew, the Life and times of Alan Greenspan. He's a Senior Fellow in Economics at the Council on Foreign Relations. Who you put your trust in matters. Investors have put their trust in independent registered investment advisors to the two and of four trillion dollars. Why they see their roles to serve,

not sell. That's why Charles Schwab is committed to the success over seven thousand independent financial advisors who passionately dedicate themselves to helping people achieve their financial goals. Learn more at find your Independent Advisor dot com. I'm joined now in studio by Alan Krueger Heath Schi of course, professor of Economics at Princeton University, formerture of the Council of Economic Advisors in the Obama administration, now in informal advisor

to the Hillary Clinton campaign. I certain we want to talk about the campaign and the debate, but let me mind your expertise here in labor economics for a minute, free Stallen, and we had the last jobs report, a hundred thousand jobs added, the employment rate of five percent. I was struck by how that played in the press. I was looking back at the headlines when when those numbers came out the New York Times seeing the US economy showing resilience added a hundred fifty six thousand jobs

last month. The USA today saying disappointing hundred fifty jobs added in September. Help us process that number and put into some context for us, well, I think the big picture is the labor market is in much better shape than it was five years ago, eight years ago, and we're now seeing, uh, the benefits of the recovery. We're seeing wage growth pick up, We're seeing the gains be

more broadly shared. And I think going forward, with the unemployment right down to five, the expectation should be for around a hundred and fifty thousand jobs added. There Uh is not that big a pool of workers left looking for work compared to where we were a few years ago. So alan we're going to see a right hike in December, right, I mean, if everything is so strong it would be

the wrong signal not to hike in December. Well, I think it's likely that the hike in December, but you know a lot of data will come in between now and then. Uh So, nothing happens in the economics with certainty, right, but the trend so far points to a strong or stronger US economy than what it was six months ago. I think there's no question that the US economy has been resilient and is on stronger footing. At the same time, the inflation rate, while picking up, is still below the

two percent target. Uh And there's a lot of weakness in the rest of the world, which the f O m C will pay attention to. An issue in this campaign has been the disenfranchised worker or the disenfranchised American who wants to work or or work more. It's certainly something that Donald Trump talks about. It certainly something that Hillary Clinton talks about, perhaps with a little more difficulty here as the natural successor to to to President Obama.

What explains that, What explains the sentiment that we're seeing surrounding that right now, given the act that we are getting stronger numbers and we're seeing the unemployment rate where it is well. Over the last year, the labor force participation rate actually has recovered about a half a percentage point, which frankly, I was not expecting. The reason why I wasn't expecting it is that the main reason we've seen labor force decline is simply because we're an older population.

More than half of the decline in labor force participation in the US is simply the result of the baby boom reaching retirement age um and those who criticize the economy under President Obama are missing the fact that this was all expected before he came to office. The Council of Economic Advisors under President Bush was anticipating that labor force participation would be falling because of increasing retirements from

the baby boom generation. We saw the length of the work week took up a little bit in the last report. When you look at wage game where two point six percent growth over over the last twelve months. You talked about where the overall rate should be, the number of jobs added should be. When you look at those things, when you look at wages, when you look at the length of the work week, are are we nearing a ceiling there? Do you think? I don't know if it's

the ceiling. I think we're getting close to the classical definition of full employment. Wage growth is up two point eight percent this year. Last year we saw the sharpest decline in poverty since the late ninet nineties, and we saw the fastest growth in real median household income since the nineteen sixties. So I think those are signs that the labor market is getting tight. Should we worry or

should the Fed worry about a stronger dollar? Um? I think the Fed anticipates that if the US economy continues to recover the way they have been forecasting, and if they raise rates, then the dollar probably will move up. Some of that's already I think built into the markets, but I'm sure that that's part of their forecasts, right, so they can withstand it, right as long as it

doesn't Is there an optimum level, for example, for year dollar? Well, I think more broadly, they're balancing lots of competing forces, and their looking for the sweet spot where we can maintain full employment and stable prices. And so far, you know, I wouldn't second guess what they've done. I mean, it's kind of remarkable progress that we've made. When when I first started to work for President Obama. In two thousand nine,

we were losing eight hundred thousand jobs a month. Now we're a little disappointed because we only added a hundred and fifty six thousand UM and last year we added almost three million over the course of the year. So I think we're in a much stronger position and also much stronger compared to the rest of the world. Help me with the definition here of full employment. You hear stan Fisher talk about where we are. We're nearing full

employment in his estimation. We talk a lot about the the maybe fracturing unanimity of the FED Reserve Board, But is there a clear definition of what full employment is what the FED wants to see now when it comes to employment. I think that as you as you said, UH, FED is not of one mind, and different governors and regional presidents have different views. Some would like to see the job market run very hig I put some upward

pressure on wages and see that push up prices. Others are concerned that inflation get could get above the two percent target. My own view is that we've been below the two percent target for so long. I think the FET has been right to be cautious. UH and to move at a at a slow pace. I think the economy could withstand uh the inflation rate UH getting to the two percent target or above it for a little while,

because it was below it for so long. You're sympathetic to to stand Fisher's argument there not to change that target at this point, to to raise it leave it where it is. Well, I think they're stuck with the two percent target um because there there's a lot of credibility if they were to change it. On the other hand, the way I interpret the target is that it's an average.

Two percent is an average. The fact that we've been at one percent one and a half percent for four years means to make the average of two percent, we could be at three percent for a few years. Now. That's my interpretation. I would like to hear a little more articulation from from the FET about how they interpret their target and stand Fishers saying the the Economic Club of New York really this week, indeed, the FIT things

we were close to that two percent target. Alan we are here a few hours away from the third and final presidential debate. We can talk about Hillary Clinton's plans in specific here in a moment, but I wonder what your sense is of the degree to which these candidates have engaged with economic issues. I think back to the last presidential debate. It had that town hall forum, and you know, who knows how representative that that group is of the American electric But the economy was not front

and centered, at least in the questions there. Well, I think that's uh certainly was the case. Uh. Secretary Clinton, I can tell you, has focused very much on economic issues facing the country. She's developed very detailed plans about her vision for the future, about how to improve the work life balance, how to have an economy that works for everyone. I've been involved in the development of some of those plans, and I can tell you it was

reminiscent of my work in the government. Who was a level of detail, And the other side seems really to be flying by the seat of their parents. They don't have specifics on what they would do to help middle class families, um, what they would do to invest in infrastructure. So I think that contrast couldn't be stronger. You know, you you've been in Washington, You've seen the policy engine grind slowly as it's been grinding over these these last

few years. We're talking with Stan Collinder about the prospects for divided government here in the in the next year. How would a president Hillary Clinton deal with Congress? Again, we hear the clarion call from central bankers, from from UH financial policymakers calling for more fiscal policy. It has been difficult, to say the least, for the ABO administration to get more done. Are you optimistic that with a new president something would be possible? How is it going

to be possible? I think there would be a great opportunity for Hillary Clinton if she were to become president. She's worked across the aisle before. She's demonstrated that she can make principles compromises. I think that there's scope for improving our corporate tax system, for investing more in infrastructure, for improving our work life balance. I think it can be done in a fiscally responsible way, but you need

Congress well. I think if Congress remains divided, or Paul Ryan remains Speaker of the House, I still think there's an opportunity. Ryan has expressed interest and a lot of issues UM which I think could lead to UH a package. UH you know, for example, expanding their in the Coome tax credit to be more generous to individuals without depending children reforming the corporate tax system. So I think that there is scope for a lot of progress even if

Congress remains divided. Ellen, let's go back to the economic policies of Hillary Clinton, and we all read the you know, the policies. We read some of the leaflets and their um. You know, they seem okay on paper, But how many unification initiatives can the Clinton administration actually push through? For example, in infrastructure, you need to finance the spending. Where's the

money coming from. I actually helped to make some suggestions for her infrastructure plan, so I'm intimately familiar with it. UM it's a fiscally responsible plan. It's paid for with corporate tax reform. It would increase investment in infrastructure UH I think by about five billion dollars over the first five years. Part of it would come from a Infrastructure Investment Bank, which would be seeded by UH funds from the government, but would leverage private capital and would benefit

I think from the judgment of private sector investors. She would emphasize repairing on the tax so corporate income tax would go up. No, no, you know, if you take a look at our corporate tax system. It is so inefficient. UH, companies have so much money deferred abroad which they owe federal income tax on that there's plenty of scope for UH lowering our corporate tax rate, reducing some of the loopholes, improving the way we tax international income, and using some

of the revenue that that generates to invest in infrastructure. Right, and you and you believe that she will be able to reach an agreement that's acceptable to both House Republicans and members of her own party. Well, I think there's an agreement to be had if if you look at the proposal that Congressman David Camp had when he was Chairman of the House Ways and Means Committee, it wasn't

too far off of the Treasury Department proposal. So I'm hoping that the election will free up a little bit of space for Congress to make some progress on these issues. Let's talk trade for a second here. One of our reporters just sat down with an ambassador mic Frome and the U. S Trade representative talked about the prospects for getting the Trans Pacific Partnership voted on by Congress here

by by the end of President Obama's term. Of course, Hillary Clinton said she doesn't support the partnership as it stands right now. What is wrong with it is she as she sees it when she looks at that policy, what's missing, what needs to be changed? Of course, your trade a a very big part of the economic backdrop

to this campaign. I can't be for the candidate on what you would need to see, but I can tell you as an economist, trade agreements certainly have the potential to increase the size of the pie, but the affect who gets which slice of the pie and the gains from globalization have not been shared broadly enough. I think too many workers get dislocated as a result of trade, and we don't do enough to help them make a transition to other sectors to help them make up for

lost income. That brings me to my next question here, which is about economic conclusion. You certainly saw it being talked about at the IMF World Bank meetings a few weeks ago. It seems like any big event, any big gathering of economists, now it's going to be something that comes up. And I wonder why it seems like, um,

this is happening now. I think you could I think you could criticize the field, perhaps the policy field for coming to this too light, But there are a lot of people who feel disenfranchised, and what tangibly can policy makers do to to to make economic gains more inclusive. Well, first of all, the rise and inequality that we've seen in the US started in the early eighties, so this

is not a new phenomenon. And the only time in the last thirty five years where we've seen the bottom gain as much as the top, if not more than the top, was in the late nineteen nineties and then last year. So I think it's clear that a strong macro economy helps, but policy can also help, for example, raising the minimum wage, expanding their own income tax credit. I think investing in infrastructure would would help possibly bring back some people have left the labor force, so there's

a lot that could be done. But I think economic forces have been following us apart and I think some corporate decisions have been pulling us apart um. We've seen too much of the profit go uh to the very top in the corporations, and one of the things that Secretary Clinton proposed and I'm a big fan of, is more profit sharing for for employees and having tax incentives to encourage profit sharing, which could also increase loyalty and

raised productivity. So I think there's a lot of both the private sector and the government can do to create a more inclusive society. All right, Alan Krueger, thank you very much for joining us here today in New York. That's Alan Kruger. He's a professor of economics at Princeton University. Cours formature of President Obama's Council of Economic Advisors, now an informal advisor. It's an advisor and awful lot of times here to the Hillary Clinton campaign for president. Thanks

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