Surveillance: Fed's Barkin Sees Strong U.S. Growth In 3Q

Federal Reserve Bank of Richmond. And we welcome you to Bloomberg Radio and Television worldwide. And I will tell you that I will not talk over you or or insult you this morning. But one of them, one of the questions that is um well sometimes asking Washington these days, but always on Wall Street, is has the economy started to slow in the latter half of the summer going into the fall. From your perch in Richmond, what do

you see? Well, the economy took a deep dive, as you know, and it did come back quickly when we open things up, but naturally you would expect to see that recovery be a little more gradual. Where I see the real challenge now is getting the last five of Americans back into the workforce, and that's where I've got my focus. Well, is that going to happen? What are ceo s business leaders telling you about their plans to

hire and to invest, to spend more money. Well, there's a lot of uncertainties, starting of course with the virus, but also what the demand picture is going to look like next year. And in that context, I do think companies are streamlining um taking the last five or in finding those efficiencies. I am starting to hear them in the last month or so some amount of pivoting to tomorrow. And what I mean by that is, Okay, we're going to get this behind us. Let's now talk about where

we go from here. So I do think they've streamlined, but I'm at least hopeful that as we get it in next year, you're going to see them starting to grow again. Do we see growth, uh, significant growth in the coming year? Do you think, oh? Sure? I mean, first of all, you've got a significant drop, and so we're going to grow out of that significant drop. I think you'll see a very strong third core for example,

But even going into next year. I think part of the legacy of rounding over the comps we have from this year is you'll you'll see growth numbers that look that look strong. Um, I look at more level than growth rates, and so I do think then the question is going to be what do we look like year every year? And I still think, you know, by the end of the fourth quarter this year will still be down year every year, and it'll be hard to get back to where we were until sometime around the end

of next year. Well is your forecast assuming we get a fiscal stimulus package, what happens if we don't. Well, I don't try to assume anything in terms of what happens in Washington one way or the other. So, um, you know they're talking and think we'll let them figure out whether it's going to be a stimulus package if there isn't one. In the short term, obviously there's some people down on their luck who are going to get

less support then they otherwise need. I'm more focused on some of the long term issues, or maybe even medium term issues. We have a lot of people who used to be you know, waiters or working amusement park who now need new jobs, and their classic next job would have been working you know, at a retailer or maybe working uh at another restaurant. If those places aren't hiring, how do we get them redeployed? And issues of job retraining,

issues of getting pell grants and getting them funded. Those are the kinds of things I think that are important if we're gonna bring the economy all the way back. Well, another major issue, and you have one of America's biggest banks in your district, that is whether or not the economy can withstand as forbearance comes to an end, and we see rising business debts and increased default, particularly for commercial real estate. How do you see that playing out? Well?

I do think this fiscal stimulus that we've done has been quite helpful to the financial industry. We ah, there are people who have been down in their luck who have gotten stimulus payments, and you actually see credit card outstandings down. You have some small businesses that would have gone under they got PPP money. You've got bigger industries like airlines that might have been much more significantly challenged

if they hadn't gotten the money they've gotten. And I think so far, knock on wood, Uh, what at least I'm seeing from the banks is still pretty healthy. What about in terms of their loans and lending, though there have been concerns expressed that, particularly in commercial real estate, you're going to have a wave of default. I think there will be challenges in commercial real estate, particularly on

the retail side, as you could imagine um. But then the question is just are those defaults going to overwhelm the capital of the system. And my senses there's been a lot of capital building in the last ten years, and the exposures they're compared to the capital in the system don't seem to compare. If the economy is slowing, if things do turn south, is there anything more the FED can do? Or is it pretty much up to

the folks in Washington. Now, Well, we have done a lot, and I like to think, as I learned in college, that there's fiscal and there's monetary, and you want to pull both of them as strongly as you can. Um I'd say, in this particular crisis, you could put public health on that list, and I think all three of those are levers. Will want to pull as hard as we can, and the FED has done a lot. There's, of course still more we could either do additionally or

continue to do. But I'm actually more hopeful on where we're headed next year, and I'm hopeful that what we've done, and also fiscal and the public health authorities will put us in a much better place. Well, are you seeing demand for credit out there? There is some demand for credit, Certainly, auto credit has been very strong. Mortgage credit has been very strong. On the business side. I do think people

took down their lines in March and April. They've you know, now repaid those and I'm not seeing quite as much demand on the business side, in part because they spend most of the year pretty with pretty strong cash positions. One of the big questions about lending is over the

main Street Learning program that the FED runs. The issued a special senior loan officers survey last night that's had banks saying overly restrictive terms for borrowers are discouraging them from approving more loans, and others cited the unattractive terms for lenders for not even making loans at all, not offering them. What do you do about that? Well, I haven't seen that survey, but we designed the main Street

Learning facility to play a particular role. Um it maybe it'll be a bigger role if you know, bad news happens in the economy goes south. But if their loans coming into banks, um, they get the option of whether to keep them or whether to sell off into our main street facility. Um. And I'm not sure it's bad news if they're making those loans and keeping them right. Uh. The Fed in June banned buy backs by banks and cap their dividends into the third quarter. Should that ban

and cap be extended? Big debate right now? Well, I think we've put in place a protocol that allows us to have a deep investigation into the quality of the capital levels of the various banks. And and my view is we ought to do whatever we do want a bank by bank basis, and those banks that need to conserve capital ought to be conserving capital, and those banks that have sufficient capital ought to be free to distribute it.

And I gotta ask you about the new framework and your view that things are going to pick up in the economy going forward, does that mean inflation is going to pick up as well? Well? There may well be some inflation, particularly in the near term, if demand comes back stronger than people think at a time where supply chains are stretched. But you know, our framework is not

a round any particular month or quarters inflation. It's much more around where we headed in long term inflation expectations, and my hope is that those will start to creep up back toward our two percent target. Well, the new policy is that, of course, appropriate monetary policy, in your words, will likely aim to achieve inflation moderately above two percent for some time. For Tom Barkin, what does moderately mean and how far above two percent? Well, let's see when

we get there. But I think I gave a speech, Mike, you were there in Idaho a year ago where I said, I'm very supportive of a range around two percent, in a moderate range around two percent, whether that's one and a half to two and a half or one to three. I think I said, is I'm not that focused on the difference between them, but that's something close to or

is somebody put I think recently the word moderate means moderate. Yeah, that somebody was the chairman who also took pains to say over and over in his news conference that the new guidance is strong and powerful, which does not seem to be the read on Wall Street Why do you think there's a disconnect there. Oh, I don't know if

there is a disconnect. The the analysis on Wall Street basically is that you can move interest rates, but you're not going to have much impact on the economy unless demand for credit picks up, unless something is done out of Capitol Hill. Well, I just say there's a difference between looking backwards and looking forwards. I think for the last six months, uh, we've gone pretty strong in terms of what we can do to support the economy, and

now we're looking forward over the next year or two. UM. I think the four guidances particularly powerful as the economy comes back as I think it's going to. And so if you do see a strength and economy, if you do see modest overshoots of inflation, I think we're gonna be having a different conversation. One of the other things that people are watching in terms of overshoots is the equity markets lower for longer, raising financial stability concerns, particularly

with pe ratios getting to where they are. Are you worried at all that your money that you're putting into the economy maybe ending up in the wrong place. Stimulating equity acquisition and share buy backs and things like that instead of stimulating growth. Well, I'm not a believer that, uh, you know, lower for longer means zero forever. I do think, um, I want to normalize at some point, and I want to normalize in part as a response to a healthy economy.

So I watched I don't really watch the equity markets as much as I watched leverage levels. And the thing I would be nervous about is if you start seeing leverage in particular sectors that may be concerned. I don't think that's where we are. Yet you're not seeing dangerous changes in borrowing patterns, and well, actually credit card outstandings are down, um uh. And you know, as I said before, the pipelines on the business side aren't overwhelming the bank.

So I don't think at this moment in time, and that's what you're saying. But of course, when you do have low rates, that's one of the things you want to watch. Um. But again, I think at this point the banks are tightening standards, not the other way around, and so I don't really see that as today's issue. Before I let you go, I gotta ask you, because I know this is an area of interest for you. Has the financial crisis we're undergoing now changed the dynamic

for the economy in terms of inequality. A lot of talk these days about a K shaped recovery. Well, if you look at the last thirty or forty years, the mega story has been the decline in middle income jobs and the growth of both the high end jobs and those at the low end. And the sad part about this crisis is those low end jobs which are disproportionately UM low income. Personal service, personal contact workers UM, you know, uh, waiters,

amusement parks, um, you know, pete, retail folks. Uh. Those are the jobs that have been hit the hardest. And I do worry that that group of people who have been brought in off the sidelines over the last five or ten years of a healthy economy are now displaced

and their next best job is also displaced. And so this question of you know, what are the things we can do to help those people re engage in the workforce and rebuild their careers UM into some of the places perhaps that are you know, hotter, whether they be healthcare or manufacturing, or or construction or whatever. That's a pretty important thing for us to work on. And if we don't do that. I do worry about what that's

gonna do for inequality. Tom Barkin, Richmond, Fed President, thank you very much for joining us this morning here on Bloomberg on Place to site. Joining us now, Lisa Shallott markin Stanley, se Lisa griants to catch up with you. You're calling this a policy micas correction. What is a

policy micas correction? Well, look, I mean I think that as we know, it's really been the policymakers herculean efforts over the last six months that are unprecedented that have allowed us to rebound and retrace and and even uh, you know, by September two hit new fresh all time highs in the spire. But I think that they also you know, set the bar very very high, and uh

many investors expected them to continue to follow through. And I think as uh, you know, the days of September war on, it became very clear that some of the gifts that we were given in March, April and May were perhaps gonna going to be a little bit tougher to procure. And that's really around the certainty of what policy is. And so you know, we've talked about kind

of three things. Um, you know, We've talked about the fact that that we're quite frankly shocked at that that the market isn't more tumultuous given what looks like could potentially not just be a delay in the Cares acts, but but in um, you know, uh, a materially reduced and watered down version of it, when so many people in the June and July timeframe we're saying, oh, yeah, we're definitely going to get another trillion trillion and a

half dollars UM and that's not forthcoming. And at your point that that you all were talking about for unemployed, for states, municipalities who've dealt with COVID, for uh, you know, many of the small businesses that are now beginning to to have to, uh, you know, make decisions about shuttering. Um. This stimulus matters, and it matters a lot um and it was in most people's forecasts. Lisa, push this forward.

Does this mean in your view the market needs to sell off further in order to adequately reflect the lack of additional fiscal support from Washington. Yeah. So, so look, we've we've had this pull back from you know, seven eight percent from extraordinary which on September two, UM you know, our thought was that you know, you could get up something you know, much closer to a ten to fifteent zip code from those levels you know potentially you know, with being more um uh So, so yes, we do

see that that there's downside to this market. So Carris was one of the disappointment on on the timing of cares and potentially the size of Carros. Uh is the first thing. The second thing is we know um has been you know, kind of where the FED is and and some of the ambiguity in their in their guidance. UM. I think you know clearly at Jackson Hole. Uh. You know, Chairman Powell fired a big bazooken and you know you all have been been talking about that very thoroughly over

the last monta. This is you know, the end of forty years of of bucer ideology and and you know we're we're no longer going to fight to keep inflation below two percent. Was going to somehow aim for some thing that average inflation targeting, but the FED is not yet really specified how we're going to measure that over what time period, using what metrics. I think the market is frustrated about that, because how do you really try to guess at what inflation or inflation expectations are going

to do and therefore what might trigger a height. Lisa, you got one excuse me, Lisa, just this is a good morning and I'm just fired up about this. Look, Lisa, you've got the best bio on Wall Street. You start off with your protest leftist burning of buildings at Brown University a million years ago, and how you're working for James Gorman on Wall Street. Lisa, it really works. That emotion is out there right now. We certainly saw that

emotion last night. How will the sea officers of all our corporations and adapt and adjust to what they witnessed last night? Do they make plans? Did they sit back? Do they cut CAPEX by half? Or do they go out and say, hey there's optimism here, let's go Well, I don't know that they that that there was any

optimism to be seen. Look, you know, without getting into the politics of it, you know, my observation is, and I think you know, some of the folks said it this morning on some of the other you know news out with you know that the dignity and democracy are the things that took a big hit m night right. And so I think from that perspective, you know, if I'm sitting in the c suite uh and and talking

about what does this all mean? You know, I think it's it's preparing uh your teams for the fact that there could be material uncertainty uh, you know between November and January. UM, and that's volatility in markets. And it's potentially you know, in decision by your clients, customers, um uh, partners in in in in the economy and so um That's what I've been talking about. Leaks always guite to cash out with you Entertainment, Morgan Stanley, at least shout that.

Morgan Stanley. See, we are privileged at Bloomberg Surveillance for radio, for television worldwide to bring you a lot of fancy people. I don't mean fancy meals, fancy dinners. I'm talking fancy economics, fancy politics, lots of fancy degrees. None of that matters. If you're a kid out of Leon and you're a chef and you build a food restaurant empire in this pandemic, what you're observing really really matters. This is without question, our most important interview of the day for small business

America and those trying to survive this pandemic. He is Daniel Bellud. You know him from his restaurants, UH, and he joins us this morning, what are you gonna do, sir? And then the good morning wonderful to have you with us, what are you gonna do? And the next thirty days to keep your team employed, to keep going forward and to avoid the reality of this pandemic in New York City. We are getting ready for tonight for the opening inside.

For of course that occupancy is unsustainable when it comes to the economic it's unsustainable for any business, and some of them not They are not able to reopen period, but we are. I decided to transform the restaurant into sort of a UH. I missed going in the South of France this summer, and I go every year, and I said, well, maybe I should bring a glimpse of the South of France. So, of course it's always starts with the food, but we also put out the decore.

Young architect and artist stephaniely got to help me set up a decore. I raised a little bit of money with sponsors to make sure that you know, my priority was to protect my staff and to be able to bring back more stuff. From a business standpoint, is it more efficacious to receive assistance from the government and wait for the VACS scene or is it better to struggle forward with this limited occupancy. It didn't really think of the first. I went for the second, and we have

been struggling. It has not been easy. We lost a lot of stuff and we are we but I'm very positive in a sense that having started early by doing a lot of initiatives, from doing charity meals with Food First Foundation and uh SL Green, to opening two of our restaurants in New York, to take one of our restaurant, Cafe Blue, to the countryside, I have brought almost certified for the certified percent of my staff, and I think

I am I'm very proud of that. And that's not mean the economic and beautiful, but at least we are protecting the business and the jobs. Yes, so Chef Blued. As you reopen a capacity, there's a lot of discussion about the state of New York City, people moving out, clients not taking their business members out for dinner, or the clients still there for you to eventually reopen to the same degree that you once were. One we have so many regular customers who say, please let me know

when we open inside. What we want is our customer to be very disciplined, very careful, and we want ourselves. I mean, of course, we train our staff, our staff and our team to be also very careful and very discipline with the process. We have also made alteration to our h v a C. We have done, of course, many different steps to ensure that safety come first, of course, and also for our staff as well. We have a

regular checkup all the time with our staff. We want to make sure and guests and cause guests an employees feel very safe to be inside. And I think that's the case of every restaurate today. They try to really be on par with their responsibility of opening inside. Daniel, before we let you go. Forgive me for getting a little bit sentimental, but I grew up in this industry. I watched my father run several restaurants and how tough it is. But I also know what it means to

people who work in this industry as well. It's a sanctuary for people down on their luck. It's where people go when they've lost the job. It's where people go to get the first job, and for young aspiring chefs in their teenage years right now, Chef, I'm just wondering what's the message for them as they want to get

on the chef's side of the past. What do you say to them right now as they look around and see our world being decimated now, people who love the hospitality, the restaurant business, cooking and service, I think they should try to find a job at any level. You don't matter what type of restaurant it is or what type

of business. I think it's important to have experienced right now and to be offul and positive because I think we get out of this dynamic and we will be stronger, and we certainly will have learned a lot through it. But I am my my My message is to stay positive and try to keep learning in any which way they can about their profession they're cooking. I mean, choosing to be a chef is it shouldn't be a very expensive proposition to go to always to go to school.

You can directly apply into a restaurant and start cooking as well. Chef fantastic to catch up with you today, Come back soon. Chef Daniel followed that on the situation in New York City, and beyond. This is so so tough for so many people in this industry right now, and I think we always forget the other side of the industry. For many people, this is where they turn to get a job when they're really desperate for a job.

And this time around, when you hear about those layoffs, the likes of the Walt Disney Company, some those jobs won't be there to fall back on in the way that they used to pay Right now, Noria will being here with us joining from Israel today, with New York University of course, no real today, dot com neural. Every administration has its own character. Indeed, i'll use the word respectfully dysfunctions as well. You observe the debate last night, how do we get forward on policy whomever wins this

November election? But the major problem is I'm not gonna know November third one because the markets are done in Europe and the US future down because people are realizing that the election night is going to become election weeks or weeks or maybe months if it's up to Trump. Last night was the guest debate ever and the President behaved like a bully, interrupting and attacking, but by them in the moderator. I mean from the point of the markets,

and that's why they're gonna go further down. The uys not right now, looks like a public is run by I wanna be caw deal or dictator. Is literally planning an institutional coup. He said that mail in ballots are gonna be and through them he's gonna claim against them. He said, it's not gonna have an orderly transition. He told these militia white supremacist that well, all right, stand by. He's gonna start the Supreme Court. He's gonna use the

Insurrection Act. And it's telling the bunch of the city is already anarchies. This is the beginning of civil unrest, violence, if not civil war. This is gonna be the earliest election ever. We're not gonna know we won an election night. That's why the markets are down. In the case of God versus Bush, the market was done percent. This timarund

is gonna be much worse. Snoil, your heritage here is Jeff Sex at Harvard, working with Secretary Gutner, working with Lawrence Somers as well, and then time in the Clinton administration. I think we understand where you fit into the political landscape. The fact is a president of the United States represents a large body of America who is not seeing economic growth. Do you detect a Democratic Party plan, whether the middle ground is espoused by Vice President Biden last night or

by as Mr Trump calls them, the radical left. I think that the plans are Biden are gonna be quite moderate and centric. I progressive. First of all, he is a centrist. Secondly, has chosen another centrist as a running mate. Third of all, the median senator Democrat if the Democrats win the Senate is more moderate than the left of the party. So radical things like Medicare for all and no private plans and the Green New Deal are not

gonna pass. And he has a plan. He's a plan for a massive physical steamers that we need to pay for it by raising moderately taxes on corporates from twenty one to twenty percent, reducing loop so we're not gonna runaway budget deficits, investing infrastructure, investing in renewables, investing into increasing minimum wages and incomes for workers so there is more consumptual growth and the markets. Until August when by there was a the pak of his poles were actually

going higher. The needs that markets do realize that actually is politic goal to lead to stronger economic growth, and any hits on profits and earnings coming from slightly higher taxes on the corporate sector are going to be counterbalanced by a stimulus gonna lead to stronger economic growth. So on. Net I think the markets are quite calm about the prospects or Biden winning or even a switch, but nereal what priced in the markets right now? How close will

the selection be? Well, first of all, as I pointed out, the correction occurred in September, it's not just the US election risk, but what's happening with the new cases, with the worry about the third wave, with the risk of a fiscal cliff, with the on me nowtstalling and so

on and so on. But now in the last few days and what has happened overnight, I think that people are gonna start realizing the the US electoral list or severe If you look at the VIGs, the VIGs for November and December, the future one is much higher than this right now, options on very types of effects trading as suggesting people trying to adge those things going into

November and December. So certain investors are signaling that are worried about a long, ugly contested election and they've started to take protection against it. What's the number one risk in real in the next five to six months. Is it a posy mistake, is it a stimulus, Is it the U S elections, or is it Brexit? Well, in my view, is going to be initially the US election because most likely we're not gonna know who's the winner, is going to be contested for weeks, if not for months.

You could have a ten percent correction just because of that. If you have a very severe, protracted, ugly and con as that situation, I think the braxing matters for the UK and for Europe. That's another risk. But the other risk is that unfortunately the second wave is not stopping and we're going into fall and winter where everything knows it's gonna be a third wave and the scientist I saying we're not gonna get safe and effective vaccine by the spring of next year. That's is to the economy

and to the market as well. Nora Beanie, thank you so much for New York University and noral Today dot Com. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcast, 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