Bloomberg Audio Studios, podcasts, radio news. Joining us now who has been writing fire recently. Adam Posen of the Peterson Institute for International Economics, who has been pretty aggressively talking about some of the harmful ramifications from a new World Order. But before we get to all of that, I want to get to how this is set up and how this feels very different than previous Jackson Hall meetings.
Thank you Lisa for having me back. It's good to be back with you and Tom. And you're right, it is different. It's different inherently because it will be Powell's last speeches chair, and he's had quite the tenure, and there's always the combination. Now it so happens of his potential legacy speech talking about the Framework review and the
fact that the economic situation is genuinely unclear. But then of course there's this whole overlay of the Trump administration's variegated attempts to put pressure on the FED in an overt way, using personal attacks and using social media in a way that is unprecedent and harmful.
I know that human nature is such that if someone tells you what to do again and again and again, and you have somewhat of a rebellious spirit.
You want to do the opposite.
And I wonder how academics who get together and who want to do what they think is right are airing on the side of being overly hawkish in order to sort of thumb their nose at what they see as political interference and something that isn't their fault. Do you feel that in some capacity, I feel they're thinking about it.
I feel that they're trying to be very self aware of that. And there is a history lease of central bank independence, and Tom and I are old enough to remember this that when the buddiest bank was like the leading bank setting policy outside the US, whenever a left wing finance minister, or for that matter, a conservative finance minister would say you're too tight, the central Bank would explicitly Hans Steetmeyer would explicitly say, you yell at me, I'm not doing anything.
So there is that element.
But I think what Paula said, what President Collins, who you just had, has said, is they are trying to make the right call in the economy, and in the end, I think, if anything, they're going to bend over backwards to not be hawkish today because they want to show then no matter what the Trumpies do, they're going to make the call on the basis of the economy.
And Posen with us the Peterson Institute, as we welcome all of you worldwide good morning on Bloomberg Radio and on Bloomberg Television as well, to call this for you in the limited time that we have. Doctor Posen's essay and Foreign Affairs days ago sets the table for a post American world. Doctor Posen, of course, channeling the economist Joni Mitchell from nineteen seventy. It was good of you to end the essay looking at a parking lot with
the lights turned out. In the seventies, the inflation was six point eight percent. We've been running three ish, four ish depending out. Jason measures it for me. The answer is, do you fear an inflation back to the time of big yellow TAXI?
Yeah? Tom, thank you.
I know you curate foreign affairs articles for your audience, and I'm grateful you've picked up on mine, and I think people have been missing the big picture. This is an economic regime change. It's not just the tariffs. It goes to the thirty year bonds and the international flows that you were talking about and so is inflation going to get out of hand? No, Ultimately, no matter who succeeds Powell, who Trump appoints, they'll be forced to turn
around if it gets big. But what you're going to get is the stuff we saw in the early eighties. You're going to get a steeper yield curve, You're going to get a higher yield curve. You're going to get risk premium. You're going to get more out of the dollar.
Right, can we go all nerd?
Now? Places? What were we doing before?
Right?
Come on?
As buried in the middle of every textbook chapter twenty ors, so is in chapter insurance. Your essay is that we've given up the ghost of us being the insurer for the world in the seventies, in the sixties, post World War Two? Can we recover after Trump back to an insured world where they trust America to be the insurer?
Just as some foreign policy types talked about after Vice President Vance at the Munich Summit and all this stuff against NATO. You don't do it in a day. If the president realizes the mistake, if the Congress steps up, if there's an election and the changes, we can go back. But you have to think of it, like Germany or Japan after the war. You have to rebuild trust, you have to invest. And the longer this goes on, the longer the US ceases to provide the kinds of insurance
that it did. Other countries self insure, and so they take money out of the dollar, They invest in different institutions, they make different trade deals, they try to build things up. So the longer it goes, the harder it's going to be to turn it back. And everybody's sours off, including the US, but they make the best of it they can.
That's the big picture as you see it. Some people would say that this was already fracturing in other ways heading into this, and we saw that in the post pandemic reality. But shifting to the inflation side that tom'son rightly picked up on. If the FED does cut by twenty five or fifty basis points now and you do see inflation pick up materially, what do you see as a risk that they have to hike materially next year? Something that Ken Rogoff has talked about.
Well, I mean nothing against KEM, but you and I have been talking about this on your show for a year and a half did. I no, but anyway, But so I'm aligned with the brilliant rogueff. It's they I think they have a reversal built in at this point because essentially they're gambling on.
The fact that the our star hasn't risen.
They're gambling on the fact that the recessionary effects of the tariffs and the anti migration will more than offset the inflationary effects. They're gambling on the fact that long term inflation expectations will remain fully anchored, which amidst everything else after the last few years and after the attacks on the FED, seems like a bad gamble.
And ultimately they're gambling on.
The fact that the pass through of these things is going to be very limited, which gets us back to Tom's seventy's analogy.
At the same time, if you look at the unemployment rate of young adults sixteen to twenty four, it's ten percent. It's the highest ever been on super recession. You see an increasing number of people remaining on jobless claims. We're receiving those roles because they cannot get a job. Doesn't the labor market worry you at this point?
It does, But that's different from what you and I were just talking about Lisa. This is what happens when you run a terrible policy mix, when you get stagflation, is you have no good choice, and then you're stuck worrying about inflation despite the fact people are suffering.
This is the problem.
It's not because there aren't going to be problems and aren't already problems in the labor market. It's because the inflation threat is worse at this point.
And if the.
Trump administration hadn't done all the things that had done, we wouldn't be facing this terrible trade off.
I noticed last night I looked at the Nielsen ratings and there were two people listening in Wyoming as the Red Sox beat the Yankees. It was me and Adam. We were sitting in our little he was in a pup tent. I'm in a little bigger tent, and we were listening to the Red Sox on our radio.
Oh yeah, this is your transistor radio that you have. Yeah, yeah, everyone's buying that out here. Those are really good. Do they have a chance except all you want to know today.
They have a chan They always have a chill.
Imposed of the Peterson Institute for International Economics on economics, on policy, and on the red sox.
Thank you so much for being with us