Surveillance: Tech Testimony With Square's McKelvey

As a spar in Washington, what we wanted to do is have a sane conversation with a doer, someone like Cook, someone like Bezos and the rest of him. Jim McKelvey is the McKelvey School of Engineering at the Washington University of St. Louis. He stumbled on a thing with a guy named Dorsey called Square and made a pile of money. But that came out of his curiosity and his innovation and everything from glassblowing to just simple engineering and Pascal

language from another time and place. We're thrilled Jim mcklby can talk today about these four people who are going to stand in front of our Congress. Jim thrilled to have you with us. As well. You are like bezos, you were like cook, You're like the rest of them. You guys aren't normal. What's your message to these congressmen? What come on? What's your message to these congressmen about the innovation you guys had when you were fifteen or twenty or so. I mean, it's exactly the opposite of

what you just said. Um. And the reason I wrote the book The Innovation Stack is because, in fact, I want to skewer this hero myth that somehow people who end up in these positions of fantastic power are somehow different than the rest of us. Um. I mean it's it's literally the opposite of you you said. I'm a very normal guy. I live in St. Louis. Um, I'm not a genius. I'm not even that hard working. I'm no

good at running companies. So um. What I wanted to do was figure out what can take a normal person and put them in a position where someday they do run a company so powerful they get hauled in front of Congress. Will Washington block that innovation? Is that a risk that's out there? Look, there's always a risk from regulation, and when regulation comes, it usually doesn't come in sort of precise surgical implements. But I don't think Washington going to do that much. Um. But then again, I'm not

a legislator. I'm not even somebody who runs a company, so I'm not really qualified to speak on that at best. I'm somebody who spent a lot of time studying the dynamics of these companies. And I would say this as somebody who is very regulated. I believe in regulation, but you want regulation to be consistent so that the companies and the people who work for them can adjust and uh, you know, not have to lurch back and forth. Jim, I want to take Tom's question and turn it on

its head. The idea that perhaps Washington ten squadsh innovation are big tech companies squadshing innovation. This is one of the big questions. Is perhaps the idea of Amazon taking out and eliminating some of the platforms for competitors or sort of pushing them down on the search function in order to basically push forward their own products first, Is that stifling innovation? Well, look, I don't know exactly what

Amazon is doing, but I will tell you this. I mean, the reason I wrote the book was because Amazon, in its early days attack Square, and they copied our product, they undercut our price, and everyone expected Square to die um, and we didn't. Um. And uh you know, a year later, Amazon gave up processing credit cards and um and honestly competing with them, they were really gracious. The competition that you got from Amazon. Do you think that might Square better? Um?

Actually it was almost irrelevant. The funny thing about what happened was with Amazon was that because we had an innovation stack, which is this weird thing that I've been studying for three years, the competition really didn't happen in a way that was traditional. So if you've got normal businesses, which are basically sort of very close copies of each other, then competition, uh is can be deadly. And when Amazon

does this to normal companies, it wipes them out. Um. But in the case of the Square and some other companies that have these things called innovation stacks, you're actually almost competition proof, at least as long as you played by a certain set of rules that you know, I spent three years studying, so I think, Um, you know, everyone expected it to be this giant battle. Um. But

at Square, we really didn't do anything different. And by the way, That pattern repeats and dozens of companies that I have studied, including one, you know, Bank of America. The founding of Bank of America. UM, it was done by a kid who dropped out of school at fifteen years old. UM, no formal education. He was a protein But Jim, Jim, I don't mean to interrupt, but we're gonna run out of time. Jim, this is critical. Is

Washington gonna get in the way of that innovation stack. No, Washington is not going to do it because they can't. Um that companies with innovation stacks adapt very very quickly. What Washington needs to do is just lay out the rules. They need to talk about what's important. UM. If there if there needs to be some protection, they put in some protection. But what we need as innovators is to just know the rules that we're playing in. Hi, Jim write to catch out with you five minutes does not

do this justice. You've gotta get you back, Jim mccaby that Square Cove found out and Deputy chair the send Louis Fete. Jill carry Hall works within the competitive milieu of economics and equity at Bank of America. What she's known for is a blistering single sentence in a three page report. Jill, you have a sentence which is stunning, which is small caps will see a nine year over year collapse of earnings versus large caps with only a collapse of earnings. How does small cap get to the

end of the bridge? Yeah, I mean, the fundamental backdrop for small cops is one of the reasons we've been cautious. I think. Obviously, the coronavirus and the current crisis has been one that's been more detrimental to small businesses. But even going into this, small caps were worse positioned than they usually are. Ahead of recessions. You had about a third of the Russell two thousand that had no earnings,

you had record debt levels UM. And now this this earning season, as you mentioned, you're seeing much much bigger your re earnings collapses for smaller companies and and they're still seeing weaker revision trends even though we're starting to see a bottoming out there. So so we're still cautious for smaller companies. But but as you if you move into a more sustainable recovery UM, you know, while it may take a bit longer than than usual given where

they were. That that typically tends to be a more

favorable backdrop for smaller caps. But but for now, we remain more relatively cautious that Joe, just walk me through the earnings profile relative to the price at the story large caps versus small caps now sure, so, I mean right now, on a valuation basis, all three size segments are treading it at pretty extended levels versus history, So so relative to earnings, the market certainly doesn't look look cheap no matter what size segment you're looking at um.

But but for from a relative basis, if you're a long term investor, that's sort of the long term goal case for small caps is relative to large their trading it at multidecade lows. Evaluation doesn't really tend to be very predictive. If you have a short time horizon, you know, what the pe multiple of the market is today doesn't really necessarily tell you much about what returns are going to get over the next year. But if you have, you know, a ten year long term horizon, then that

does tend to be more predictive. So so for a long term investor, it could be a good entry point for small caps. But but for the near near term. We still remain conscious, you know, when you're thinking about these numbers and considering the price of the story, just how much is it distorted by the big four, these

big tech names that will be reporting to Capitol Hill today. Yeah, for the SMP five overall, we've definitely seen a lot of the returns this year driven by by mega caps and fame stocks mid all of the unprecedented liquidity that we've seen. We're equal weight the tech sector right now.

We we have seen pretty strong earnings trends. It's been one of the sectors that this earning season so far has continued to surprise to the upside, along with healthcare UM it has some of the cleanest balance sheets and the SMP so fundamentally the sector still looks strong. But you know, you have seen valuations get more and more extended.

And one of the reasons that we're equal weight tech within the SMP five is potential for for higher regulation, whether some of these companies wind up self regulating or whether it's forced upon them. I think that's something that you know as we move into election, and regardless, it's something that both sides, the i'le have have talked about so obviously we saw that happened with financials and regulation and lower multiples. So that's one one potential concern around

tech talks. Jill, high regulation is one issue, but that can't erase the fact that we've seen an acceleration in the trend toward tech, toward working from home, towards the cloud.

And I'm wondering how much this affects the small caps and the fat and the fact that perhaps some of these companies are more leveraged to the old economy, the one that didn't depend on tech as much, and perhaps that's one of the reasons why those shares are down eleven percent versus almost seventeen percent gain on the NASDAC. How much is this a structural challenge for small cap stalks going forward? Right? I think that's exactly right, that

that's one of the issues. When we've looked at the earnings exposure of small caps, they actually have about double the earnings exposure to some of what we would consider more secularly challenged industries, like some of those old econmosh old economy industries you mentioned, like rates um, you know, machinery, parts of old brick and mortar, retail relative to large caps. So and the areas of small caps that that are

more tech exposed, you know, small caps software. Some of these areas are where you have seen those those valuation multiples go more stratospheric. So you know, overall with within small caps, investing in in growth stocks does tend to be a more consistent longer term strategy than for large But but yes, more more exposure told maybe micro caps small caps who's keeping count? And the old days when revenue was this damage and particularly unit growth was this damage,

you did a roll up, everybody merged, etcetera. Is the apparatus out there right now the catalyst the incentives to get one big M and A of the small camp space. I mean, I think certainly you know M and A it tends to be cyclical. So you know, while certainly you're you're you can still see some some occurred during during downturns, and that tends to pick up cyclically. Um. You know that when we when you look for companies that could be acquisition targets, that that tends to be

one eventual strategy and small caps um. But but I think overall, right now we're seeing a broader picture of you know, uncertainty, over cast, appointment from corporates. That's the theme we're seeing this earning season where even though you know, a lot of companies have have stopped, uh, you know, a lot of the buyback and dividend suspensions may may largely be behind us to the overall market. But I but you'll, I'm I'm baffled by this in the small

cap space. If I'm at four times, ebata seven times, but maybe even seven eight times. But uh, somebody at Bank of America, one of your competitors, gets on the phone and says, you can't grow yourself out of this merge. Is that mechanism broken? I don't think it's broken. I think, as you say, for for a lot of small caps,

there there are attractive acquisition targets. And this has been a very good market for not only for stock picking, but for just very differentiated uh, you know, valuations within the market. So I think you know what one of the things to to look at is is for small caps, you know a lot of companies that that have you know, attractive free cash flowd the ability to grow. Um. We we've seen companies that are are very over levered within

small caps overall. So you know, I think kind of separating out some of these metrics, and you know, just as an investor looking at the small cap sized segment, even if it's even if this is a point whereas we expect value could continue to start to work, um, you know, differentiating within small caps, what's more quality value from you know, levered risk within small caps um and

companies that still do have that potential to grow. Jill, since you're having a pretty cautious tone and a lot of people come on this program and they say that they're actually going more into small caps is a way to capture some of the upside on this recovery. What do you say against the argument that these companies will benefit more from a week or dollar more from a

bigger resurgence internationally as a result of that. Yeah, I mean, I think when we've you know, when small caps overall have grown more internationally exposed over time, so the gap between small and a large caps for and exposure has has narrowed, they are still more domestically exposed. When we've looked at the dollar versus relative performance over time, it actually hasn't been very predictive. And that you know, you've seen some periods of of secular dollar strength for small

caps of underperforms somewhere they've outperformed. So really, what we found is that the overall economic backdrop and what's going on UM tends to be more predictive than just the level of the dollar itself. Still, what do you say to people who have left off the idea of bankruptcy or some sort of contagion among smaller companies saying the FED has their back fiscal stimulus will also help support them. Do you think that this optimistic view is perhaps overplayed

at this point? Well, I think, you know, certainly where we expect to remain in a lower for longer rates backdrop, we expect the FED to remain a comminative, but you know, in terms of the unprecedented fiscal and monetary stimulus we've seen, you know, one of the reasons that we're we're cautious on the market and the spa hundred overall UM in terms of not really expecting more more upside through year end is that we expect there could be payback risk

from all the stimulus we've seen, and that a lot of the biggest stimulus has largely been behind us and certainly there's potential for more to to help the economy, but um, you know, we we've seen diminishing returns from stimulus in terms of the boosts we've seen to lower quality stocks. As we've seen each consecutive instance, those get less and less of a boost. So um, I think it will remain in accommodative backdrop. But but a lot of the biggest boost we've seen has been in the past.

We're seeing fighting collective will as well Joe Gright to catch out with the Joe carry hole there of Bank America, some k let's bringing prey, shall we see the Securities Global head of Right Strategy joins us right now, Preya, I think you agree with me that this is more important than people are letting gone later today. What are you looking for in the news conference with Chad jack pal right, It's all going to be about the news conference because I don't expect any changes in the statement.

We don't get the dot plot, we don't get projections, So it's all about how does he set the stage for forward guidance and how does he frame the que You know, is QUEI all about market functioning? Because if that's the case, and they should continue to buy across the curve, but market functioning has largely returned to normal. So are we going to see a reduction in quee. I've actually been you know, reading between the lines. A lot of the FED officials have been talking about more accommodation.

But one way they can provide more accommodation is to change the narrative of que itself from being something about market functioning, which it did a great job, but it's it's sort of done. I think, to now provide accommodation to keep long term rates low. I think if we get that shift in narrative, the markets, uh, you know, going to understand that the FED is going to move further out the curve. That's going to help real rates decline somewhere. I think we've started to price this in.

If you look across assets, the dollar, gold, real rates, break evens all telling you that the markets setting up for sort of hate saying normal but effectively normal queue, which is that the the intent of QUEUEI is to keep long term rate slow. I think we really need to hear that from chap Out because we've been setting up for that for the last couple of weeks. Pray when you hear Governor brand and say things like we need to shift away from stabilization to accommodation. Do you

hear yield curve control? I think she has been a proponent of yield curve control, and we were thinking that that's likely to happen this year, but from recent FED communication, not everybody is on board. It's a completely new policy tool. How do you get out of veek of control? So I still think it's going to be in the policy tool kit. But something they can do, you know, from the existing tools is certainly link forward guidance to inflation,

effectively suggesting a much more dubbish reaction function. If they have this reaction function in twenty they wouldn't have hyped because core PC was significantly below too. So I think they can do that with existing outcome based forward guidance. They can also just shift that you need so effectively provide accommodation, you know, giving them time until they actually analyze eeek of control. I do think they may have

to do that next year. Have the idea that you talked about this is huge, the idea that the FED could come out and say we are going to actively try to suppress longer term borrowing costs for the United States, basically monetizing the United States dead. That would have a torpedo effect on the dollar, wouldn't it. I think that the part of the weakness and the dollar in the last couple of weeks, I think is the market sort of listening to the Fed and saying that's probably the

next step. So I but absolutely, I think if they're very clear that they're going to keep long term rates low, that should weaken the dollar. Now a lot with the dollar, A lot does depend on, you know, what's happened happening globally. If global growth is going to research, then that can certainly take the dollar much weaker. I'm a little more pessimistic, I think, you know, I'm not sure that global growth necessarily picks up, so I think that ultimately will put

a floor on the dollar. Plus we have an election coming up, so there's a lot of other things going on with the dollar. To prey it's away from your remit, but tell me about the labor economy. I mean, I'm sorry, it's part of their mandate. It's not good. How do you take the prism of the labor economy and folded over in the lower for longer. So I think you

know clearly it's it's part of their mandate. When we look at the labor market, I think we've seen the improvement from reopening, also from stimulus, which is why this whole stimulus discussion is important. Our fear is that the labor economy is going to start to stall as we realize that the were reopening to a new normal. There will be parts of the labor economy that cannot get back to normal because it's the social distancing, et cetera. Okay,

but three, this is important. I'm gonna make some news here. Are you in the glide path of Steve Major at HSBC or what we see out of some of the people at JP Morgan of a lower ten ure yield and even a ten ure yield that could threaten the zero bound. Yes, I think for the zero bound it's a little bit hard because the fact can just let up on the amount that they're buying. But we actually do see low a ten ye years in the near term.

I think August seasonals are typically positive. We're seeing the recovery stall and you have a devilish fed that's going to start buying out the curve. I think that's going to actually uh tense, could absolutely touch bottom in the very near term. Apprey, This is so so difficult for a right strategist right now, for anyone in this bomb market. We touched on this in the last hour. How do you have some kind of call on the yield curve when you can have a fat step in with yield

curve control? Even if you think inflation expectations going to pick up because they'll tolerate higher inflation, haven't You just got to follow the FED just the idea that whatever the fat does is whether the yield curve is going to go right? Well, I think there's a reaction function component. Then there's the actual economic data, and I think what we're all struggling with is we can't extrapolate from any of the economic data we've been seen, right because the

weakness was all about the lockdown. Now the improvement seems to be all about reopening. So we're looking at these high frequency measures to try and estimate is the recovery stalling. We're all becoming epidemiologists. We're looking at the virus rate, death rate and for depressing topics. But you know, once you have that If the FED clarifies the reaction function, the market can then start to look at the data and then start to price in what happens to rates.

But you know, we're also looking at supply demand. If we're going to get another one and a half trillion more of supply, then I think this thread buying becomes extremely critical to pick what you know, how well, where exactly is the tenure? What does that heal curve look like? You're right, more variables to look at now where we're all coming up at the biologists because this is a

health problem, it's not a financial system problem. And I have to wonder if the FED comes out and provides even more accommodation, what does that do at this point with your record low borrowing costs across the board? I think it buys time. Does it prevent something like a taper tantrum? Let's say we get a vaccine soon, and I hope that we do. We get a vaccine, but it's going to take a while for that to you know, be effective, for for consumer confidence, business confidence to come back.

I think where the FED can absolutely help keep things accommodative until we can get the public health response, until we realize that actually we're going back to normal, then they can take it back. I think that's the key, just to prevent some sort of big tightening in conditions because suddenly there's optimism about a vaccine. I think so, so they can be more preemptive. It can just at least ashore the market, takers premium out and help risk asses.

And they've done a great job so far. But I think they may have to do more on treasuries, even how much supply is going to come down the pike. You know, I love catching up with you. We love catching up with the prayer mess, with that of tad securities. You have gotten a pologust like something. This is Dennis Curbon out of retirement, off the golf course and John this is without question the most important conversation in gold

in the week, the month, and indeed the quarter. This is equivalent to Gary shilling on low interest rates, a major shout out to the bulls in the equity market. Someone like Ben Laidler at Tower Hudson Garmin nailed gold. He went't even further and said not only owned gold, but own it yen in euro And we get an update this morning from Mr Gartman, Dennis, I believe off your reports you are out of gold. How could Gartman be out of gold? Well, let's I'm practicing social distancing

in the gold market. That it has become a little too crowded, and is uh? I think it is Jogi Berra, Who's who was talking about a restaurant one time in New York who said, nobody goes there anymore. It's too crowded. It's become awfully crowded. The boat has become very crowded, too many people involved. I couldn't get people interested in gold of consequence two and three years ago, and now

it's front page too. Is now it's the front page of every report that you see, It's the front page of magazines, it's the lead article on and and the radio and television. And I think it's just become a bit too crowded, that's all. How much of a pullback do you need to see to become enthusiastic again? Well, first of all, there let's say that I always told people who in a bull market there are three positions. One can have really long, modestly longer neutral, And this

point on gold, I'm neutral. How far down do I think I need to see it go. Well, we're trading close to fifty five I think just a few seconds ago. Uh, if we traded back to seventeen seventy five, eighteen and a quarter, I'd be a buyer. Noah sends or bus about it. And do I think that we'll get that kind of correction? Yes, I think we will do I can I tell where if it gets to seventeen seventy five, is that reasonable? I'll just simply say a hundred dollars

from from any interim high, and I'm a buyer. Again. What's the catalyst for us el off? Just the fact that the market is way too crowded, too many people involved. Nothing more than that. Sometimes that's all one needs. You might see if had become less accommodative, discussing perhaps a a a less expansionary policy towards its balance sheet, some sort of comment from a Federati official might do it.

A turnaround in the dollar to a stronger dollar, which I don't think is going to happen, that might do it. Weakness in the stock market that might do it. There's a number of things, but let's just simply say too many people are all of a sudden all involved in the in the gold market, that there's only one position that everybody has that's long and I think that's just

people have to be taken out of that trade. Dennis, weakness in the stock market causing a sell off in gold, does this mean that the correlation between gold and a risk off feeling markets is broken? Well, it's interesting. Sometimes golden stocks go up together, sometimes golden stocks going contravention one to another. For the past several months, they've been moving in convention one with the other. As gold has gone up, so has stocks. And stocks has gone up

have gone up, so has gold. But I do think that there's a great probability that that conventional movement, that that consistency between the two shall shall continue for a while longer. So if if the stock market, and I think stocks are extremely expensive, if stocks start to tumble, you'll get a correlative sell off in the gold market. What people don't understand, folks, is a Dennis Garment newsletter

was ten twelve, fourteen pages long each day. In the back three or four pages were on the political philosophy of this nation. Dennis, I know there's gonna be four hipsters in front of Congress today rumor has that you're going to be the fifth horseman, and you're not there. But what is Congress doing going after the value add

capitalism that we've seen out of silicon technology. It's ill advised, it's a bad decision, but they're going to do it anyway because that's the left wing phenomenon, that the left wing philosophy that seems to dominate the news media at this point. So it's going to be I think it'll it'll be terribly ugly, ugly, almost as ugly as what

we watched yesterday with the attacks upon Mr Barr. So this, I don't think it's going to be a very pretty day for the to be a social they handle it howl, you mean you and I remember the Bloomberg headline with the Justice Department walked away from the Microsoft litigation of years ago, A T and T, et cetera. What's your advice to these guys over lobbied over expert about how to patiently get through this. That's exactly what they should do.

Patiently get to it. Try not to smirk, try not to laugh, try not to get up and walk out, answer the questions with yes and no answers, and be as genteel and as southern as you possibly can be. It will be very difficult. Gentele and southern. Will you own that? Dennis? Dennis, I want to go back to the equity markets where Lisa was before. You say they're

over priced, but they have a bid. I have to participate in a four oh one K. I'm not trading like Doug cass or you were, you know, the day traders. I know you're on the couch Mrs Garbins, on the couch doing the robin Hood thing. If I'm in a four oh one K, I have to participate. How do I do that? Well? I think you should still be. It is still a bowl market, and it's still a long term bed on the benefits and the attributes of

the American system over long periods of time. It will still be five years from now stocks will be from the lower left to the upper right from where they are now, Shall they be from the lower left to the up right in the next six months? I have my doubts. And if you're long, if you're overly exposed, I think being somewhat less exposed. After a thirty seven or thirty eight percent rally in the NASDAC in the court the last three months. Probably makes sense to take

some of that off the table. Raise a little cash can't hurt you at all. Dennis Lisa emails in from surveillance and says, when you get a chance, Dennis, tell us when to go along gold again. Mr Gartman just brilliant on the moonshot that we've seen on gold in Yen and in euro as well. Francine Lakwan, London, I'm Tom Keane in New York. He is the Richmond Fed. There was a gentleman named Mr Black, and then there

was Al brought us, and then onto Jeffrey Lacker. But the character and true fabric of the Richmond Fed is always in will be Al brought us where thrilled he could join us today. Hell, you've never seen a deficit like this. How does the deficit growth, the deficit sustainability, the deficit reality that we have, how does it change the dialogue at the eCos building? Well, you know, I think UH Anonymous are comfortable with these deficits, That's that's

for sure. But I think it's well recognized that this is just a really unusual situation and I don't need to Maybe we've people talk about this uh endlessly on your program and elsewhere. Uh, and you got you got to deal with it with policy in a really wholesale way. And they've done that, and I think I think so far the progress has been has been cool. Uh. So I think the general thinking around that table probably is

we don't we're not comfortable with these deficits. Uh, but we're gonna have to live with them for a while and hopefully, uh, you know, we'll we'll deal with bringing them down when the economic situation and the driver, which is pandemic gets uh, gets to a point where we we have the opportunity to do that. For now, I think it's just steady as she goes. The academics of

the Richmond FED has been so varied and interesting. But if your color and combined together Richmond, Atlanta, maybe Bob McTeer and the Georgia School to Dallas FED as well. There's a huge body the American public that's grievously concerned about deficit build up. Can you support trillions of dollars of additional stimulus to overlay over what Chairman Powell is doing? I think we have I think at this point we

really don't have a lot of choice. UH. And I think many of the most recent statements by reserve back presidents now on the committee have been calling for uh continued fiscal stimulus. I think there's gonna be some concern it to fed about the difficulty of getting this current uh, the division between the House and the Senate UH corrected, and and and and done. Uh, but that's gonna answer the deficit. And I just have to go back to what I said a minute ago. UH. We're not used

to it, we don't like it. UH, but we've got to live with that, UH until we get a good solid floor under the economy. Hopefully the path of the pandemic will make it possible to do this with less future further build up as we moved through the second half of the year and into UH. But UH, you know, if if things do go south with that, we have to be prepared for that. And I think what's happening now is we're trying to prevent that from getting any worse.

And that's full the job one UH and bringing the look. I don't like deficits. I think you know that. I don't like the inflict the potential inflation of longer term inflationary implications of high DEFICUS and the fact that the FED is essentially monetizing a lot of this. But you know, you've got to prioritize. We've got to get the weakness in the economy undergird it so that we can look forward to the day when we'll get we'll see more growth of the economy and that just we'll just naturally

begin to go down. Mr Brods, When will we see a much stronger U S economy? A good question that a lot is going to depend. There's several possibilities to start to start and oversure UH. And again, I think it comes back to the path of the pandemic and how we deal with that. I think maybe it was

Robert Kaplan, the Dallas FED president. I'm not sure that one of the UH current reserved back president said that the Really maybe it was Eric in Boston made the point that the best economic tool now is the things we're trying to do to get the pandemic under control of bend the curve down. UH. So hopefully we'll have some success. We have had a tough time for the last couple of months with that not much success UH. And you begin to see I think it's some of

the most recent data. I'm no expert on this, but some of the most recent data I was looking at listening about yesterday, maybe a little bit of progress in the Southern States towards easing the caseload increase. If that were to turn into something like a trend, that would make a huge difference and make our job a lot easier and make the day when we begin to grow again come sooner rather than the later. You mentioned that you're worried about inflation. You're worried about these deficits. When

do investors start worrying about that? Well, you know, I think some investors are already worrying about it. I think some of the run up in the price of go will probably reflects concern on the potusan some investors. I don't want to suggest here that I think inflation is a clear at present current danger. I don't expect to see. Actually, what we would like to see as an increase with the PI. Would really like to see is an increase in the underlying trend rate of inflation back up close

to the two percent target. I think that would make conducting monetary policy a lot easier. But you know, if that we begin to see a movement in that direction at some point, probably more than a year further down the road, and then you could begin to see some upside risk on the inflation up front. But that's for the future. Have to look forward to it, have to be aware of it. But that's does something that the

FEBLE have to deal with in the future. Right now that I think the key thing is to get the inflation rate up and bring it closer to the two percent target. The FED give you a long answer, but the Fed UH at this meeting, it's going to be discussing, I think the kind of strategy it wants to follow

to ensure that something like that happens. We have an inflation target at two percent, but I think it's going to be discussion about the possibility to going to something call it average inflation targeting, which would allow the inflation rate for a period of time to move above two percent UH in order to get us a bet our inflation tracts. Al brought us. Thank you so much for joining us today. He's the former Richmond to the FED President.

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