Surveillance: Fed Won't Go Negative, Rajan Says

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg Driving for the conversation right now for us, as we spoke with Kenneth Rogoff this morning of Harvard University on an important Group of thirty study of digital currencies, we're gonna touch on that quickly here with Roger and Roger of Chicago Group of thirty working group co chair, former Indian governor RBI, governor of their central bank as well. Robert,

wonderful to have you with us today. What is the distinction of your study? What does this drive forward about how technology is changing money? This is the digital currencies are revolution right for the first time in three years, we can replace cash with something digital. Now we've already

replaced bank accounts. We we have digital bank accounts. But but think of everything going digital and what possibilities that that creates, but also what what challenges if for example, the government issues this digital currency, the amount of data it's going to collect, the amount of privacy it's going to violate, and what what concerns that that raises? Those are what what are made possible by these new technologies cryptocurrencies, government,

digital currencies. Um, that's what that's what we were this report is about. When we talk about digital currencies, it's one aspect to talk about technology and just creating a digital form of what we already have. It's another to say we're debasing the existing currencies that's come up with the alternative that could preserve its value in tandem with gold. Which side are you on as the most plausible for

the future of digital currencies. Well, it's the first. I think This idea of a private cryptocurrency which is forever going to maintain its value is is interesting, but you know, credible central banks have done that with fiat currencies. So really the the issue is once we convert that cash, the stuff that you have in your wallets into something digital, what new possibilities arise and what what new challenges? How do we contain all the concerns that emerge from that,

And that's really what this is about. Dr Rogers, I must bring this up for the first time ever, folks in all my years, I have taken a book of the summer of a year ago and made it a book of the summer of the following summer. I've never done that before, and I do that with Rogin Rogins the third pillar, which is a primal scream for unity

in America, community and other societies. I want to talk about how the third pillar matters Rago and I want to talk about what you've observed over the last three months or so and how we need to get away

from our culture wars back to community absolutely. I mean, actually take the example of fighting the coronavirus right the the countries that have been very successful at it, South Korea, Germany typically have had a combination of a centralized approach setting broad parameters, you know, getting the funding, but also a decentralized approach where each region figures out what its issues are, how it deals with it specifically, and how

it brings its resources to bear. And so my sense is this is there is a broader example here that, in fact, the way we're going to move ahead in our diverse countries without upsetting each fact and is to have a coherent, capable central government of course, but also decentralized processes. If we look at the fault lines of the market right now, Dr Roger, and I'm seeing yields, Command Fox. I'm not even gonna do the data chuck here, just to say time is the market telling the FED

what to do? Can the market drive us two towards negative interest rates? I think the FED is resistant, and my sense is ultimately moving us negative. It will be the FED which will move us. I don't think it's the market, however, to some extent, I think it's the real activity on the ground which is moving the FED. And the real activity is driven by this huge unknown as as you well know, the coronavirus and how we deal with it. I mean, everybody is very sanguine about

a vaccine coming soon. Of course that's going to take time, and it's going to take time to roll out, So so there are tremendous uncertainties. The FED is is going to be as supportive as possible. I don't think that support right now extends to going seriously negative. How concerning is it to you that the FEDS policies are propping up people who own stocks, typically the wealthier individuals, and not necessarily giving that much back to main street and

this is just by function of the FEDS design. How concerning is that at a time we don't have a fiscal plan yet in Washington. Well, you do obviously need a fiscal plan, but I think the support, certainly for Main Street is is structured there. Whether whether firms can take it is an issue. There is an additional issue, which is at what point does the FED allow the market to start resolving firms? In other words, you know, if this continues for some time, there will be a

number of unviable firms. At what point does the FEDS say, We're not going to support as much as we can, We're going to withdraw some of that support so that the unviable firms can be put out of of their misery, which will actually create space for the remaining firms and make them healthier. So that issue has to be tackled eventually.

I don't think now is the time, but the FED will have to start thinking about that the longer the pandemic sort of lass Professor Rugan, thank you so much with the Booth Schools Chicago and of course UH Group of thirty working group co chairman of an important essay with Ken Rogolf on digital currencies, Rob and Roger. Michelle Meyers had a wonderful career Rather Bank of American Securities. How to the US economics now, Michelle, John and Lis

have got some fancy pants question for you. I got a basic question that came off of David Gura of NBC News yesterday at the Paul Press Conference, which was a separation of America into two societies. There the halves, the new hals, which are going through this pandemic service sector. There at home, everything's fine, let's buy the beach house. There's a whole nother America flat on its back. And the Chairman took de bait. He answered the question, tell

us about this separation right now in America? Yeah, Hey, Tom, and I think it was a great question that David asked, and I'm glad to see that FED Chairpowell did respond to it. And it's something that I think is really important to the FED or Reserve, the fact that we've seen this widening income inequality. It comes up in nearly every speech that Chair Powell has given um and even before COVID hit it was critical to their FED listens events this idea that we want to get a broader recovery.

We want to have income creation widely spread. We want to control for the wealth inequality. And so why do we Why is that so important? From a macro perspective, it's important because when you have UM, you know, income inequality of wealth inequality, you're not getting as strong of an aggregate spend as you can have. Right. If so much of the money is concentrating a small share of

the population, that population can possibly spend it all. Right, So when you have the lower income population, which tends to be more budget constrained INTEND it's spend what they earned. It filters into the economy more and multiplies and it's a lot more favorable UM. And this crisis has just proportionately hit the lower income population, particularly those that are working in leisure and hospitality UM. That sector lost almost half of their jobs were cut UM as a result

of of COVID. Now it's been coming back. The bounce in the last two months has been favorable, but there's still a lot millions of workers in that population that are out of work and looking. Michelle, you done a tremendous job over the last couple of months with the team describing what this recovery will look like a fall off the cliff, a bounce off the trampoline, and a climb up the rope. The long time is started. Can you explain to our audience what you think that will

look like. So that's exactly right now. The hard work comes, and I think it's going to be a lot more wobbly, maybe fits and starts. So you make some progress to climb up the rope, you hit a stumbling block, you pause for a bit, maybe part of the maybe they comely falls back slightly. I don't think we're going to fall off again. I don't think it's a W shaped trajectory. It's not going to be a downturn again unless there's something much more significant that happens in terms of you know,

the path of COVID. But but but from here on, I think it's absolutely critical to pay attention to how consumer behavior evolves in the face of COVID risks, and how the stimulus evolves, both monetary and fiscal. And right now we're in a critical point when thinking about fiscal policy and how targeted uh the stimulus may or may not be in terms of reaching that population that has a higher tendency to spend that money on the monitor

policy side of things, that feeds going nowhere fast. Tom Kane, there is an elephant sitting on the front end of the yield curve and it's called the Federal Reserve and a two year yield breaking down it is and this is fascinating. I mean, I don't know what else to say, but you know, I go back to Hunt Brothers Silver. I mean, there's a point where the market starts telling institutions what to do. Michelle mauer Meyer. Is there enough power out there for markets to tell the Fed what

to do? Well? You know, it's a it's a a key question because in a way, markets clearly do influence monetary policy, because monetary policy and the Federal Reserve will react to financial conditions because that's the transmission of policy.

You know, think about everything that that is trying to do in terms of their policies, and you know, the commitment to low interest rates, um, their support for the flow of credit, the way they observe that, and see if their success is to determine how financial conditions evolve and how markets evolve, so markets can push beneficials to some extent, because it's kind of that that that that calibration in a way Tomkine looking at that front end

breaking down zero point one two. I think Lisa mentioned this earlier on the program, the five year space on the treasury curve, the belly, Lisa, this is getting interesting low for longer is something we're told repeatedly. This market is listening, is taking the policy right and pushing it out along the curve into the belly. And how is

that going to help employment? And I think this is one of the big questions right now, especially with the Federal Reserve doing everything they can and gridlock in Washington. John Shell, a bank for Ecto Security. I'm gonna read you some numbers, folks about what was as we bring in David Kelly of JP Morgan and David Kelly knows these numbers, and he knows why I'm going to them.

The animal spirit line of nominal GDP long ago and far away four a better number four point one back to four percent, three point nine percent, then it was terrible negative three point four percent, and the new statistic, David Kelly negative thirty four point three percent nominal GDP that is unsustainable. What gets us out of this besides the cure of the virus. David, is there a policy prescription that can lessen this pain? Well, yes, you can

lessen to pain by by doing two things. One, you've got to make sure you don't have more layoffs the state and local governments. If you look at the aftermath of the Great Financial Crisis, we had five years of job losses at state and local governments because they couldn't balance the books without laying off workers given the state of the economy. So you need some if you're going to spend federal money, spend federal money by giving it to state and local government so they don't have to

lay off workers who can work during a pandemic. The second, you've got to get this unemployment. The six hundred dollars right. Six hundred dollars is too much because for a lot of low wage workers it actually makes it uh. You know, they're losing money by working. But zero is the wrong number. Two, So I think a settlement on something like three hundred dollars which will give people just enough of incentive get to get back to work while still avoiding widespread poverty.

Those are two things the government could do right now to try and alleviate the situation. But you're completely right. The number one thing you've got to do is you've got to control the virus. I remember many years ago Mickey Candres said it's the economy stupid. Well, now it's the virus stupid. You've got to control this virus if you want a full reopening. So we're going to get a bounce in GDP in the in the third quarter, but this is this is not a v shape recovery.

This is a v interrupted and it's being interrupted by the growth this pandemic. We've got to get that under control. David, When are we going to actually see the true pain of the unemployment figures that we're getting right now in consumption, in sort of the bleed through to default, in some of the economic pain that's been forestalled by the enhanced unemployment benefits and some other fiscal measures. Well, of course we don't get another package, we'll see it pretty quickly.

But I think we will continue to see over the second half of this year, we're going to see more traditional recessionary indications of you know, more bankruptcies. Companies are sort of held in there because the p p P are going to unfortunately go bankrupt um. So we're going to see a lot of that. Uh, you know, hopefully you can have a phase reopening the economy and some

more federal money to try and and alleviate things. But unfortunately, you know, policy is not really designed to protect the the the equity of small business owners here, and I think that's to me, that's one of the biggest tragedies here. The people who put a lifetime into building a small business and they're just gonna get wiped out by this thing, and that the government really isn't finding a way to help them. So there's a lot of pain to come. We will get we'll get a vaccine. I think we'll

get multiple vaccine. So at some stage when we all pull together and decide is a nation that we're going to rid ourselves of this virus with the help of a vaccine, then we'll get back to normal. But we do have to wait for that day. But I think we all fully understand the reaction function of the Federal Reserve. What I don't quite understand right now is the reaction

function of investors. How do you think investors respond next week if we get a negative payrolls print, Well, you may say you'll probably see some set off in the equity markets because that that won't necessarily encourage There's not not much more than that that, you know, I think Congress is gonna do. So if we got that print,

that would be that'd be right. But but on that print, if you go back five weeks ago and look at the unemployment claims to the survey week UM in June, and then you're compared with with the survey week for July, we still got to about a two million million person reduction and continuing claim. So I still think we might, um, you know, get a small positive on pay rolls for the month of July and then a negative one for August.

But the broad picture is I don't think that. I don't think the labor mark is going to get much worse, but it's not going to get much better. I think we'll still have over ten percent unemployment as we go into devid Kelly Gring to catch up with these, Sir, Jeff Morgan as in Management chief Global Strategist, Let's bring in Aaronson to arra Jan Shewy and y U Stern School of Business professor Aaron Gread to catch up with you, sir, didn't I think change in the last twenty four hours

any change whatsoever? Was that all just a spectacle? Um? I think the tone of the hearing was very different from any of the past UM hearings that we've had about big tech. UM. Certainly a little more aggressive, a little more negative, but also from Congress's point of view, much more informed. This wasn't about, like you, how do you earn money from your advertising? Many of the members of Congress sort of probe deep into specific issues relating

to market power, relating to predatory pricing. That made me feel that they were far better informed than in any hearing that has occurred in the past. UM. Now, you know, there were lots of misconceptions as well, but UM, you know, overall, I think it's a turning point for big tech regulation and we've entered a new phase. Professor, you came out of the Rochester Graduate School of Combine, so you've seen personally the collapse of a traditional economy up in Western

New York. Whether it's Buffalo, Rochester, you could say that about anywhere else in the country. Your book cover is maybe the most courageous I've seen the end of employment in the rise of crowd based capitalism. How bad is the end of employment. That's what these politicians were really talking about, wasn't it. Well, the end of employment is

different from the end of work. UM. I think part of the point that I'm making here is that a lot of work that occurs in the future will not come packaged as these full time jobs that we got used to in the twentieth century. UM, but we'll have

a much greater fraction of entrepreneurship. And in many ways, the story that the platforms told yesterday UM was one of UM, like, you know, we are in an economy where you've got millions of sellers on Amazon, You've got tens of millions of small businesses being supported by advertising

on Google. You know, if you move away from the big four, Um, there are millions of hosts on A, B and B. There are millions of restaurants delivering to uberis and door dash, and so this platform based economy is going to pervade UM, like you know, our future of work and UM. You know, one of the things that were striking to me about yesterday's test the money was this misconception that somehow platforms harms small business. And so while we've seen these sort of local geo geographic

economies imployed. Um, it isn't immediately clear to me that small business has been disproportionately hurt by the platforms. In many ways, I think that they're actually shifting a lot of economic activity away from sort of larger to mid sized players and towards millions of small businesses. This is

a very important point. Of course. One line of questioning yesterday was the idea that these platforms that do give voice to smaller businesses are rigged, that they're basically in favor of certain companies, namely the platforms themselves and their own proprietary band brands. And thinking about Amazon, what do you say to that? Well, Um, I think that was a central theme that came out of the hearing yesterday. And you know, more broadly, it has to do with them.

You know, what are the limits that we need to place on channel or marketplace power. Um. I don't think a convincing case was made that the platforms are somehow overtly or explicitly favoring you know, their own products. Um. You know, Amazon is certainly Um, you know, Amazon is following in a sort of a long, a long tradition

of other retailers and creating store brands. I think a lot of the what what what happens in the next few months of looking at are they somehow disadvantaging small businesses by looking at a product and then copying it. Um is the Apple iOS somehow slowing down the performance of competing apps while speeding up their own, you know, because I think broadly. You know, Tim Cook said that um it was really hard to sell software before the app store came along. You needed to sort of get

it shrink wrapped and into a retailer. Now you have millions of tiny app developers who have access to the you know, the App Store, the Google Place Store, and so prima facia, it's hard to make a case that these things are bad for small business and bad for competition.

And the devil is going to be in the details of have they sort of taken specific actions to like you know, to crush diaples dot com, to um like you know, um to suppress particular small businesses And to your point Jeff Bezos yesterday coming out and saying, unlike industries that are winner take all, there's room and retail for many winners. I'm wondering a Rooin we're gonna be getting earnings from Apple, Amazon, and alphabet after the bell today.

Are you looking for some sort of self regulatory measures that will crimp their profitability to get ahead of any potential regulation from Washington? Absolutely? Um. I think a lot of the purpose of hearings like this is to create a credible text, a credible threat of regulation if the

platforms don't do something themselves. Um. But because you know, if you think about what society has done, we have given these platforms a tremendous amount of power um government like power um with censorship, with the I D systems,

with the copyright and intellectual property. Facebook is backing its own currency surveillance, and so we can't sort of suddenly say now, hey, I mean, like you know, we're unhappy with the status coode um, and we're going to come in with a big stick and make you change your behavior, because that's I mean, like you know, no nation state government actually has the power to do that, and the

real solution is going to be self regulatory. But I think the platforms are being nudged in the right direction to make changes by the specter of like you know, big government regulation. And to me, the best solution for society is for the platforms to take matters into their own hands and say, well, here are the changes we're going to make it of the limits we're gonna place on the power that our marketplace creator has in developing in being a supplier. You know, the limits we're gonna

place on predatory pricing. Here are the limits we're gonna place on privacy. And and so because they are better informed that in any government entity about like, you know, what's possible, um their closest to the action. And so I think that's the future. We're going to see them fold in the next two or three years. Around. Were lucky time you on the show today. We appreciate your time. Thank you, sir. I run send a round, John n y u st and School a Business. Thanks for listening

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