Surveillance: Fed Eyes 'Hard Numbers,' Clarida Says

to it right now. He is the Vice Chairman of the Federal Reserve System, Richard Clarida, of course of Columbia University and truly one of our noted academics on monetary policy, assisting Jerome Powell at every step of the way. Vice Chairman John Farrell and Tom can good morning to you. Good morning. I look, Richard Claida, where we are, and I want to go back to your important paper The Science of Monetary Policy with Galli and Galli and Girdler

of years ago. And you lead with a quote from another Vice Chairman, Alan Blinder, who talks about the practicing of the dark art. Give us the state of the practicing of the dark art of the FED, given this original moment in American history. Well, thank you, Tom and and as Alan and we all and I certainly believe there's there's as much or probably much more art than science and monetary policy, but it's good to refer to

some of that UH as well. I think I think that the Federal Reserve in August adopted a new framework. It's an evolution, but it's a robust evolution, and primarily it is outcome based UM our goals our maximum employment and price stability, and we want our policy to be robust. If our models break down UM and we can still do monetary policy, but we're gonna be more outcome based and less outlook based. And I think that served us well in the pandemic, and I think it will service

well in the years ahead. Could you count arise that as a commitment to being late instead of being guly well. What we've said in September of last year, following our framework announcement in August is that we are we do not expect to lift off until a three conditions are met. First, that inflation actually gets to two percent. We want to see actual inflation for at least a year or two per cent, and we want that to be sustained, not

just one and done. Secondly, we want to be UH looking at labor market indicators that are consistent with a fully employed um economy. And third, we want that to be sustained. We think that's appropriate since we've hit the effective lower bound, inflation has been below our target for most of the last ten years, and under those circumstances,

that is a good UH policy. You are correct that in the past the FED was more preemptive, and indeed, my research suggested that if you've got good models, you want to be preemptive. But if the models are not serving you, well, you're more robust if you're looking at actual data. So that's that's the way I chacterize the job. The conversation, as you know, vice check clouded right now, is over what substantial progress actually is. You're familiar with

the debate. We talk about it almost every single down programs like this. Do you think it's necessary to define what substantial progress actually is? Well, first of all, it's actual progress. I think that's an important point. It's not projective progress. It's it's hard numbers on the labor market and on prices. That's the first point. Secondly, Um, you know we're early on in this year. I know we've already sort of penciled in six or seven percent growth

and a big ball and unemployment. But under outcome based policy, we really want to see that as as share power is indicated and I've under indicated, as we go through the year, as the data comes in, as we release our SEP projections based on that incoming data, we will have a sense on on where we are relative to that progress. And as share pal is also indicated. Um, as we think we are making that progress, we will communicate that to UH people who listen to our communication.

And so I think that this is really where we want to be. It's actual progress, it's not projective progress. And as we go through the year, we will be informing the public about our views on that progress. So Rich, let's talk about it right now. You've talked about the conditions needed for lift off, but we haven't ready defined them conditions consistent with full employment. I don't know what

that is. I have no idea. If you'll tell me, we're talking about substantial progress, but it needs to be actual, not forecast. But I still don't know what progress actually is. So you don't plan to define what substantial further progress is. You've promised to give markets warning before changing policy. How exactly do you plan to do that? Well, certainly we have. We have eight meetings a year. The Chair does a

press conference at at each of those meetings. We release the summary of economic projections at four of those meetings, and so we will have apple opportunity. And again the Chair would not have been making those comments publicly if if he was not committed to it. So we'll have many opportunities as as the actual data ms en uh to to inform uh fat observers about our assessment of are we making that progress? Vice Chairman. The critics, and as you know, there are many critics. They have a

habit of coming out Friday for weekend consumption. Have a true fear of inflation? You're Andrea Aella running your research for monetary affairs. Is a fabulous phrase of the core and the crust. Looking at core inflation, looking at the dynamics of energy, It gets to the visceral fear that our radio and TV listeners have. Are you afraid of inflation?

Should we fear inflation? Well, the reality is we have a dual mandate and and half of that is price stability um and so the federal reserve, every federal reserve since Paul Wolker's leadership has been committed to that the pal fit is too But but tom um two percent as a ceiling, which is in effect the way many thought of our prior policy, also does not serve the economy well. It has in fact serious implications for the

labor market and prosperity. And so essentially what we've said is that we want inflation outcomes that keep inflation expectations anchored at two percent, and that's gonna mean sometimes will be above two and sometimes will be UM below uh.

We focus on inflation expectations UH intensely. We have a new index of common inflation expectations, I would say, and we've indicated tom uh that because of the nature of the pandemic shock a year ago, as we moved through one on a year over a year basis, headline inflation is gonna likely move above two percent because we're gonna be comparing this year's prices with last year's collapsing prices.

But we expect in our baseline most of that to be transitory and for inflation to return later this year

to around uh two. That's our that's our baseline. Let me also say that around the baseline, there are risks on both sides, uh, and in the risk case and inflation were to begin to move above a level consistent with price stability, we would have the tools to address that, and I'm confident that we would under that under that wrist scenario fold in the balance sheet and that can be the twin deficits, a comparison of the fiscal situation to g d P and of course trade dynamics as well.

What do we do with the sixth standard deviation move and the twin deficit oout say two years. Are you optimistic we can stabilize that terrible trend? Are you optimistic that we can somehow revert to a better outcome? Well, you are correct, Tom, and I think this was pointed out in the I m F World Bank meetings this week. UM that because the US, for a variety of reasons, including better progress on vaccination and very robust policy support, is going to be growing rapidly this year compared to

other countries. And what we tend to see historically is that when the US grows faster than most of the rest of the world, some of that spills into our imports and we have a bigger trade deficit. From the point of view of the rest of the world, that's a good thing that we're more of a locomotive than caboose, and so I would expect the current account deficit to

widen this year and next under the baseline scenario. It's not something now that that is a concern because capital flows into the US in part because of our our rage relative to the rest of the world. So no, it's not a concern. Obviously, any circumstance with a big imbalance can become a concern, but it's not a concern

now to me. Colleague and good friend Michael McKee reached down early this morning Rich and indicated that Lorie Logan, who I'm sure you're familiar with, of course over the New York Fed, suggested last night that they'll be changing the composition of his QUEI purchases to match the outstanding US debt profile. Can you elaborate a little bit on the objectives behind that, Ridge, Sure, And look, Laurie is a fine colleague and and has done a fabulous job in my three years at the at the board, so

I'm lucky to be able to work with her. Well, we're said in those remarks is essentially restarting what has been our policy for some time now, which is that as we're purchasing treasury securities, we're doing so in the secondary market, and we'd like those purchases to roughly match the outstanding, the supply of treasuries in the market according to different maturities, and so, you know, as the Treasury changes its issuance patterns, then we would of course adapt

our program to match those those outstanding. So I don't think she was really trying to make news there. It's really just articulating what our policy has been for for some time. You wouldn't characterize this is operation twist, then I would not characterize the as operation twists. Michael mckill be happy that we address that particular question, said, I think John that was on the edge of the route,

just so you know, have to bring it up. At one of the conversation, Rich you mentioned transit tree, and we've been playing the drinking game transit tree every time the vice chairman is South speaks. Every time the chairman speaks transitory, transity transitory. Say, here's my question. Riches the Epograms says, how would you know if you're wronk that it's not just transit treat How would you know if

you're wronk. Well, the simplest answer is that of inflation at the end of the year, is has not declined from where it is in the middle of the year, that will be some good evidence. Um. I also think that you know, we look at both headline and core measures. And let me also say, John, because not surprisingly it's

a good question that the show tends to ask good questions. Um, the reality the real sometimes not not always, But I would say that that an important point to note, and I've made this point several times, so let me repeat it. Show there is a there is a lot of pent up demand in the economy. We have a lot of fiscal support, monetary policy has been all in for thirteen months. But there's a lot of pent up supply in the economy. Eight and a half million jobs short of where we

were thirteen months ago. A lot of small businesses shut down, and so we do think the economy is going to reopen. So both supply and demand will be in play, and there could be some temporary and balances in certain sectors um so called bottle nuck bottleneck effects. But again we would expect those to be transitory, and there's the year progressive, and there's we go into next year. If they're not, then we'll have to take that into account, certainly, John,

I should also say that. I should also say that I consult my Bloomberg regularly, UH and my favorite, one of my favorite screens is e CFC, where you accumulate all the individual forecast for the economy UH, and your entire Bloomberg panel shows a similar projection. Now, again, forecasting is hard, That's why we do it a lot. But the baseline view, even given the fiscal package, is that most of the move above two percent inflation we see

the spring should revert back later this year. I'm looking at a CFC right now at two point one, twenty one, twenty two point twenty three. You mentioned something important, Nut Rich, and it wasn't lost on me until about that turn from twenty one into twenty two. Is that the ultimate test for you? But you won't really know until we

get a little bit deeper into early twenty two. To draw that distinction between whether something is transitory or perhaps a little bit more persistent, Well, sure, I think I just think as as time, you know, as time goes on, you you learn more about about how the economy is

going to a depth. I think I saw heard some sound you must have had my good friend Ken Rugoff on at one point, and I think Kenna's usual brings up an excellent observation, which is that this is a very unusual shock, a global shutdown, shutdown of the global economy through a true, truly exhaugenous event. I think it's never happened to my professional career because it impacted both

supply and demand. So we're gonna be learning as sectors come back online, and I'm sure there'll be surprises along the way, and we need to be attuned and attentive

to the data flow. But yes, of course, and also John Um, you know, yes, we we welcome the nine thousand plus jobs that are gained, but there's a a hole in the in the labor market, and will begin to get a better sense as we go through this calendar year about how how rapid that progress is and how that is showing up another indicators of the labor market.

So of course, I think, yeah, Vice Chairman, a final question, if we could, we did speak with Kenneth Rogoff of Harvard today, and he traced a path in our academics back to UH Dr Mundell Robert Mandel passing at this week, Richard Clarida, you had the privilege of not only reading Mundel and doing Mundel, but working with Mundel at Columbia University. Your thoughts on what he gave to Kenneth Rogoff, Richard

Clarida and the rest of us, well, it's uh. I was very saddened when I heard the news this week. Bob was a mentor and a friend for thirty years. It was one of the thrills of my career too, to be a colleague of his. Because as a global Mackerel, all global and Mackerel columns today are either students of Mundeal or the students of Mundal in one way or

the other. And that was certainly true with me. He's truly the father of the euro expansive, creative, a wonderful gentleman, UH and really one of the great great economists of the second half of the twentieth century. Will be sorely missed, both as a human being UH and as a scholar. And I think everyone here at Blomberg's of violence and a tame across the Blimberg universe at those comments, Rachel

always trying to catch out these. I think we're all looking forward to just getting into the same room again and look forward to doing that soon. Maybe, Like Danny D. C. Richard kod Of, Vice Chair of the Federals, Eve Kenneth Rogoff of Hervard University on the dollar in the place within our global system, Professor Rogoff I mentioned to Catherine Mann this line that goes from modern economics of you and Obsfeld, back through Jacob Frankel to the founding of

Robert Mundel. In all of that is the politician velleries you started to staying of France who aked about the US dollar exorbitant privilege. Mundell talked about this for years and years. Are we finally here where we could lose our exorbitant privilege? Well, first, let me say it's a great tragedy that we've lost Robert Mandel. I regard him as my intellectual grandfather. He was my thesis advisor, Rudy

Dornbush's thesis advisor, and certainly an incredibly original scholar. Uh No, I don't think we're about to lose our exorbitant privilege tomorrow. But there's no question that part of what strengthened it over the last ten twenty years is that China has had a very dollar centric policy. They stabilized against the dollar. Now it's a mix of the dollar in the year with the dollar in the year aren't moving that much.

And as long as that holds up, I think the US exorbitan privilege is solid, but it might not hold up forever. It's really not an optimal policy for China. And I might add that if you look at the longer end of five year ten year debt UH and look at say the covered comparisons, the US no longer gets any exorbitant privilege. It's really only on short debt.

Can we will go if the basic theme of the less sophisticated is it China not as it war with US, but certainly has a different political system and as a new robust offense. Can they use remimbi as a weapon? Can you weaponize a currency? Look, they view themselves as doing very well and they're not looking to rock the boat. Their technocrats have been telling them for two decades almost now you really should have an inflation targeting regime like

everybody else. Let us be a little bit more independent central bank. We can keep thinks stable. We shouldn't be following around the dollar for lots of reasons. Uh, the politicians have said, you know, things are going great, let's not do that. Uh. They are looking at the longer run, and they thoroughly intend for the NIMBI first to be coequal with the dollar, at least with the Euro, and maybe eventually take over. Uh. If we look at a long enough horizon, trying to continues to rise, that would

be hard to stop. But I don't think they're looking to do anything quickly. That said, they put out this new starting to put out a new digital central bank currency which certainly has the seeds of being able to replace the dollar. Can as you see things right now, what do you think is the biggest threat to dollar hegemony? Is it a decision that America could make, or decision that could be made out of sweat. I think it would come from, you know, a shock to the system.

Dollar hegemony is not something that's going to go away overnight. Typically, when you get on top, you keep it for a century or more. We've had it for a century. Uh, certainly since we'll under World War One. So it's But on the other hand, if you're let's say, piling up sixty percent of the global public and corporate debt UH in the world, as the US is sort of doing, it just dominates UH debt issuance markets, and you're counting on that, and that can't go away quickly. It's a fragility.

And the late Emanuel far He, together with Matteo Monjori at Stanford far He was my colleague, I wrote this wonderful paper about you know that hedgemon is tempted to push things, to take advantage of this exorbitant privilege and create fragility. That might be a reasonable calculus for the United States, but not for the world as a whole. So let me talk about that fragility right now. Ken, what's the biggest source of it do you think Do

you think it is in the debt market? Boy? Um, well, certainly if interest rates went up, I just would turn the world upside down. I think we'll find out a lot when Europe gets out of this. When the vaccines come. That's really the biggest difference between the US and Europe. The vaccines come as long as Europe, which is roughly as big as the United States is sort of stuck in the mud. It's very hard to tell what's going on with global interest rates, what's going on with inflation.

So I think I think the US has a while to run before that happens, But when it does, I don't know what's next. Obviously, this has been a very hard pandemic to call, particularly because uh waves of it and the vaccines have been vastly more successful. And I think almost anyone expected can rogoff. This time is different a book from another time in place, and I'll have

the clearest recommended recollection. I think I was at your book party and remember opening and there was that single page you put together with Carmen on the finances of the Spanish Armada, and it was, you know, the Spanish government falling apart. Is our debt structure now span this government equivalent when they launched the Armada. I mean, are we in that bad a condition? Well, listen, they are. If the Armada hadn't crashed because of the weather, we'd

be living in a different world history now. I think. I think it takes a shock to the system, just a massive shock of which I can't even imagine. Uh, But you know, we've had shocks to the system which we can't even imagine, roughly twice at the last twelve years, so we're more vulnerable than we were. On the other hand, By the way, I just want to be clear, I mean, I think it makes perfect sense what President Biden is doing.

Certainly politically, it makes what he's doing, and uh, you know, we're we're in this terrible situation and he's sort of getting done what he thinks he can get done. And they're parts of the infrastructure bill that make a lot of sense. There are a lot of things we could do in this country addressing inequality. I will say, at the end of the day, you have to raise taxes

to pay for this. If we're just not the nest on the physical infrastructure, but the what they called the social infrastructures transfer programs great, but you gotta pay for it. Ken rogof James Diamond wrote a sixty six page letter this week. He running JP Morgan, and part of the discussion is we have two quarters of boom, and then there's a question about how we come out of a boom the runway. Do we drop off sharply, do we

as ease out of it? If you will, Mr Diamond very optimistic about an extended good g DP in America. What is the academic history of how we come off a boom economy or are we flying blind? Well? Look, we are to some extent flying blind here at this pandemic is quite different than the financial crisis. People who you know say, there's almost exactly the same thing. That's just crazy. We don't know what's next. If I go back to I mentioned Robert Bondello, my intellectual grandfather. His

student Rudy Dorn. But she had a great book twenty Years. It's Sebastian AdWords of U. C. L. A. And a theme of it is that populism actually works great for a while. Uh and their timeline was sort of two to four years. You get a boom, but then you get problems at the end of the boom. The problem, you know, we talked about, will there be inflation? Will something go wrong? Larry Summers you mentioned, you know, raise

the point. I don't think it's an immediate problem, but obviously, if at some point you run the war economy and don't stop, it will be a problem. And politically it may not be that easy to stop. After a couple of years. Can't just a fund of question for me? If I can on the transitory argument around inflation, will catch up with the Federal Serve vice chair a little bit later. How will we know if they're wrong? When will we know? When's the real test for you. I

don't think we'll know for a while. I don't think it's just going to blow up. That's it's possible. You know that some commodity price changes will spike inflation for a while, but the the core inflation and expectations are very sluggish. They're very slow to move. On the other hand, if you keep running a war economy, you just undermine all the things underlying those expectations. And people say it's

never gonna stop, it will change. That was the theme of dorn Bush's book, that populism, if you just keep doing it for too long, blows up. And that's a political question. Uh. You know, if you get a lot of stimulus and people say, hey, that worked great, let's do it again. Hey that worked great, Let's keep doing it. That's how you got into trouble. I ken it's gonna catch you up. It's gonna see you John, And I think I got the book already up and out on Twitter.

John Ford in twelve pages dorn Bush Edwards, John, I think that's light reading for you this week. Yeah, thanks for that film. What are you giving us reading for the weekend? I mean, Wilkins me, Kenneth Rogoff that how much University professor of Economics and Public Policy, and thank you. It has been a terrific day of economics including Professor Rogoff, professor to Clarida and now vice Chairman of the Federal Reserve System. And we finished strong because Rogolf and Clara.

To listen to the laureate Angus Deaton, I will not mince words. The gentleman from Princeton is our definitive voice on our inequalities. It is front and center for all of us in our economics and our politics. Is new book is also definitive. Also, I should say it is Francine Laquise book of the year. And we're thrilled to have Angus eaton on with us. He looks as the despair that is out there. Professor, Uh, how bad is our inequality? What is original about our two thousand twenty

one inequality? Well, everything's different in the pandemic. So one of the things that once most worried about inequality during the pandemic. This is the pandemic is affecting different people differently. UM. And some people like you and me are staying at home and UM talking to each other over the web, while others are out there risking their lives. And what I'm afraid of is that these splits during covid um

will exacerbate UM differences that were already there. And we're festering in America surrounding the issues that that's of despair, that and Case and I have been writing about it. Do you believe that we have a political will to at least nudge our inequalities in a better direction. Well, we certainly have some people, and the current administration to Biden administration is much more interested in doing that than

the previous administration was. But it's very early days yet. UM. The American Rescue Acts certainly would help with income inequality because so much of it is targeted towards less well off people. UM. Whether the measures in the infrastructure plan will through is not clear to me right now. What do we do with our American individualism? There's a voice in America that says inequality comes from our individualistic effort, and of course that buttress is up against those more societal,

those more all encompassing. How do we stand on our individualism and how do we move that forward and sustain that as we try to get away from this inequality? Well, I think the individualism is incredibly important and I don't really think it's very much at risk, to tell you the truth. Um, We've focused on the individualistic aspect for a very long time, and it's brought us great benefits. I mean, you know, the wonderful benefits of modern capitalism

which have helped many. But you know, we've got to make sure for those of us suit have done well out of this that other people share in that too. And one of the biggest divisions in America today and one of the riskiest ones, is the an educated elite people broadly who have a four year college degree have been doing extremely well for the last fifty years, whereas for the people without college degree UM, they've seen a fifty year trend of downward um wages, downward labor force participation.

And you know, we'll tear our country apart if we don't share angus. What is so important here and I believe you and I talked about this at Davos two years ago, and I'm going to believe nothing has changed here as well is the impute of technology upon this debate? We try to look out ten years or twenty years or half a century to what this profound technology means. What do you think it will mean for society less

than some people think. I think. I think this vision of a world in which there's no jobs at all and everything is done by robots is science fiction, was then,

is now, and probably ever will be. Uh. There's a lot of things we can do to help provide good jobs for less educated Americans, or to stop destroying good jobs for less educated Americans, like subsidizing um the introduction of robots, for instance, which we're doing right now, or having a healthcare system which is gutting the labor market for less educated folks. But I mean, I guess what is so important here? And I'm gonna go to a chapter in Deaths of Despair, which is things come apart.

A huge body of our radio and TV audience believe, whatever their background, whatever their wealth, maybe they're in the highest tax record in New York State. The fact is they look at this country and say things are coming apart. How do the elites engage this conversation? Given the political maelstrom of Washington, I think it would be really good for us to talk together a better than we do right now. UM. I think it's very important for those of us who do belong to the educated to listen

to the other people. UM. One of the things I keep hearing people saying is, do you hear us now and you know, um rioting at the capitol or you know, voting for someone I regarded as a very destructive president.

Our house of protests, and perhaps those would be less severe if we'd been listening harder and a little longer, and not just celebrating the undoubted triumphs of capitalism, but understanding that those two thirds of the population who are not benefiting very much from it, whose life expectancy is falling, even that which is a pretty fundamental thing, even that's falling for the last ten years for people without a

bachelor's degree. Angstein, thank you so much so, Laurian from Princeton, And of course the new book does of despair with Anne Kate John. We can do the transitory drinking game with one Anthony Chrissenzi, we can do that right now, Tony percentI joins his film cut portfolio manager Market Strategy is Tony right to catch up. Said, you've coded the great head fake, the great inflation head fake. If the

next couple of months, can you walk us through it? Well, the inflation rate because of decline in prices that was seen last year after COVID hit um that declined will be met by a year over year game. We think in the consumer price in xs CPI, not the pc E that the Fed targets of two point two percent or so from the mid ones that we've seen of late, but then we see it by year end moving down back to one point seven percent or so. It'll climb we think by the end of two point to Now.

The significance of that in terms of FED policy is that a two point two percent c p I at the end of next year probably means a pc personal consumption expensions deflator of something less than two percent. Now.

The Fed has said it won't raise its policy rate until the inflation and rate has been at two percent for about a year and show signs of accelerating to above two percent for some time and So the market now looking at your dollar futures for December twenty two, their price today for the BED to raise its policy rate by a full quarter point by the end of next year. So we would say that it's highly improbable and that more likely the first rate hike occurs somewhere

in the end of SOS. Some value to be harvested in the front end of the Yielkert for the debt that the market is making on the FED moving early. Sounds like you're in line with the feder reserve then and their outlook Tony, that the next couple of weeks, next few months is going to be a head fake that maybe you choose the word transitory. As for substantial improvement progress towards their goals, do you think they need to define that? Is that necessary? Yes? Uh, it is,

but the markets will define it for its themselves. Um. But the type of improvement that's a little bit more vague, it will be more difficult to discern. Is this idea of a broad and inclusive gain and employment. It wants maximum employment as it's safe stated August last year, and it's long statement on longer run goals and monetary policy strategy that the pursuit of maximum employment is a broad and inclusive goal. This likely means a job irust rate

of under four percent. Keep in mind, by the way, even after last week's strong jobs report, it still remains about eight million people unemployed relative to pre COVID, So there's a long way to go on that front. End. To define broad and inclusive, it means more women in the workforce, more minorities, etcetera, etcetera. Uh, that's that'll take some time. And this is what this is why that December view is wrong headed. Anthony tim King, good morning

to you. I was just reading last night light reading Stagums. I was going through the twelve hundred pages of the chrisense Tone and on page Tony, you talk about don't fight the FED, follow it. How do we follow a FED? If the FED is as exposed as it ben since mc chesney Martin, I don't understand. That's the strategic bond investor. Folks. Look for that film just signed at the Sunset Tower in London, a film you'll see that Memorial Day two

thousand twenty four. I'm talking about STEMS classic. But Tony, how do we how do we react to a FED? That's waiting and waiting and waiting and waiting. Well, here's how to think about it. Um there are three components of a bond shield, expected short rates, expected inflation, and what's called the term premium, the extra yield that a bond a vesta wants for risk. Not in the past, one might say, by the FED keeping by following the Fed, you'd say, well, the Fed's keeping the funds very low,

so shouldn't all yields below? The answer right now, and markets have already given their u boat is no, because the fact that the Fed will be keeping the short ray low means the two other components, so they expected short very part is good for the bond market, but the two other components are free to go. In other words, inflation expectations might rise faster, and so might the term pinion, which has come up tally. I think this is so important.

But what the heart of the matter is for our listeners and viewers is out somewhere in twenty three or late twenty two of Fed waiting and waiting and waiting, and then the market's going to react to it. What do you anticipate, Well, this is this. There will be numerous tests of the FED that the Fed will have to apply to over time. And you'll want to ask risch Clara whether he still believes. I'm sure he does um in this idea of a new neutral, the new

neutral thesis that he helped develop it PEMPCO. The new neutral means the FED thinks that the neutral policy rate is lower than it today than it used to be. In the past, it might have been called it three percent or so or even four. Today it's probably in the low twos. And so we want to know if the FED still believes that, and the tests will come frequently be is when the inflation rate does, if it ever does get back up to the level the FED

wants low twos. On the PC, the markets will test the FED to see if it will react to it, because the markets will be worried about inflation. That's where those other two components will require a different sort of policeman. On the inflation be the bond vigilante might come back, as you saw recently, So those um periods like we've seen recently will return now and then, But in the end, the inflation rate probably won't rise materially, that's our belief.

And now will the federal funds rate call it somewhere and the twos most likely, but that test is yet to come. So in your mind, Tony, nothing about this pandemic is Shane Shane change the trajectory of the economy going against the pandemic. In the next couple of years will be back to normal. Well, the in the US we're expecting about seven percent quote this year. We called three percent next year, and the growth will be the best in forty years. But there are aspects of growth

in this coming decade. Uh you could say this transfer nation underway. It will be more digital, more inclusive, and more green. So it will be a very different sort of economy. You see this benefiting, for example, the semiconductor industry. Semi Conductors will be a component of the green economy. Think of a charging station for electric vehicle requires semiconductors. Cars these days require more semiconductors, So it'll be there will be a transformation. It will be more focused on

the true drivers of growth. Investments in people and in things capital those are the major drivers, along with of course total factor productivity, how we use people's skills, how we use the things in place. So there is a major transformation on the way that could mean faster growth when we think it may mean about a two tenth or so gain in uh GDP this decade relative to less simply because we're investing in people and in things.

But whether that leads to meaningful meniqually more inflation, we would doubt it. Right now. It's so manny, good to see you. Thanks portfolio manager, a market strategist. This is the blue Burg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment,

and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg