This is Bloomberg Wall Street Week.
And we may not have an overall recession, we're having a rolling recession. To Konye Roll looks pretty strongly when it comes to jobs.
The financial stories that shape our world.
Three major regional bank failures send shockwaves through the banking system. We're all trying to figure out what to make of generative AI.
Through the eyes of the most influential voices.
Welcome down, Doctor Paul Krugman, Ryan moynihan, Bank of America, deebro Lair of the Paulson Institute, well then Hubbard of the Columbia Business School.
Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is a special addition of Wall Street Week from Aspen, Colorado, where we've come for the annual Aspen Economic Strategy Group meetings, bringing together economic experts and business leaders for a nonpartisan, detailed discussion some of the big economic issues in front of us.
This year.
The focus is on building a more resilient US economy, with a discussion ranging from things like the debt and deficit, to tax policy to where we're headed with artificial intelligence. We'll hear from special contributor Larry Summers of Harvard, his fellow former Treasury secretaries Hank Paulson and Tim Geidner, former Honeywell CEO Dave Cody, and regional Fed presidents Austin Goulsby
of Chicago and Raphael Bostic of Atlanta. But we start with the distinguished labor economists who until recently was interpreting these numbers for President Biden. She's Cecilia Rouse.
What the Department of Labor reported today was that the US economy added about one hundred and eighty seven thousand jobs last month, which is a robust number. It's the kind of number that I'm confident my callings at the Biden administration celebrated because what we've known is we had the pandemic induced recession. We saw the fastest growth out of that. But we also know that that kind of growth of three hundred thousand jobs month is not sustainable.
That's not consistent with an economy that has reached its you know, whether we want to call it steady state, but it is a naturally, you know, robust economy, and so we've been looking for in anticipating and kind of a cooling last year, President Biden had an op ed it was I think a Wall Street journal anticipating this, But it's not even just about the president there, It's just that that is what we've that's what we want to see. That is what the Federal Reserve is looking for.
Is a labor market that remains remarkably resilient.
I will say that, so it is robust, but.
Where we have the annual jobs numbers looking more consistent with just sort of typical turnover in a strong economy.
As you say, remarkably resilient as a labor conduct Have you been surprised not to snap back after the pandemic but at the continued robustness, because one hundred and eighty seven thousand jobs may only be two hundred thousand, but it's a lot more than you need to have just to absorb the new additions of people to their workforce.
Absolutely, and it's slightly more than you would expect us see with an unemployment rate of three point five percent, and at this stage of the economic recovery, so it has been markeably resilient. If you think about the changes in the inflation rate over the past year, inflation has come down quite a bit, and yet we've not seen
much evidence of any impact on the labor market. So this for me, this goes back to the massive disruption caused by the pandemic, which affected every aspect of our economy in the US globally, and that it goes to that,
you know, the disruption was on the supply side. We definitely had the robust assistance on the fiscal side, on the monetary side to ensure that we could get through the pandemic without too much disruption to our way of life and to our economic you know, our economic health, and that this is an economy that is knitting itself back together, but it has been surprisingly resilient.
Wels I believe saw little bit of a reduction in the average hours worked per week. Is that potentially indication maybe the labor markets started to soften a little around the edges.
So again we want to see a little bit of softening. That's what the Federal Reserve is looking for. So you know, it's important that we not focus on anyone month's numbers, but that could be a sign that a little bit of cooling here and there are unemployment insurance claims numbers remain very low, that job openings numbers remain very high, so we fundamentally have a strong labor market, with some signs that there's some cooling as we would hope to see.
We've been through an extraordinary period of time for the labor market among other markets, because of the pandemic we now are coming back from that. Is it too early to ask ourselves are there structural changes we think in the labor market that may last well into the future.
I think it's a.
Little early to tell. I mean, we certainly hope there will be. We do know, for example, if we look at the economy more broadly, during the pandemic, we had the massive rotation of consumption of goods over services that is renormalizing, but we still see that our services consumption isn't quite back where it was before. So we would anticipate to see more employment growth there, maybe a little.
Bit less in goods.
So we expect to see some of those changes. You know, here at Aspen we've been having a lot of discussion about generative AI and technological change and what kinds of changes that will bring to our labor market and our economy.
You mentioned the generative AI, which has been the subject of a lot of discussion here at the Aspen Economic Strategy Group, and it's early on. At the same time, one of the things we're hearing is it's coming really fast and very broadly, in a very broad sense. As a labor commist, what will you be looking at in terms of what we need to do to adjust our workforce for a world of really broad based AI.
So we all embrace technology and in our economy and over history we have all benefited from changes technological changes such as this general AI. It can be disruptive in the short term, and I think the hope is that this will be more complementary with labor, meaning that this kind of technological change allows workers to work better increased productivity, as opposed being an absolute substitute for labor, so that we see firms using the technology instead of workers. So
that is the challenge will be some of both. I think we hope that it'll be more complementary than substituting for labor, but that's what I think we'll be looking for. We saw numbers about what fraction of occupations, you know, in a certain fraction of the labor force, you know, these kinds of technologies are substituting for particular tasks, but not for complete jobs.
That maybe where it starts.
It's hard to imagine that's where it ends.
Doctor Czers, thank you so much for being holo. We really appreciate it. My planning for this is a cio Rose until recently was the chair of the Consuled Economic Advisor.
On Wednesday, we woke up to the unexpected news that Fitch had downgraded US sovereign debt and then learned that the Treasure we have to borrow yet more money to cover the deficit that we're running, all of which made the meetings at the Aspen Economic Strategy Group even more timely because the subject this year was building a more resilient US economy. So we met with the two chairs
of the organization. They are the former Treasury secretaries, Hank Paulson and Tim Geidner, and we got their thoughts about what they're trying to do to help the US get back on the right fiscal track. Tim Geidner Hank Pulson co chairs of the Aspen Economic Strategy Group. So Hank, let me start with you. You've been at chairger a bit longer. What do you have to accomplish this week in these meetings?
Well, David, when we set this up, our goal was to create a forum where we had cutting edge economic research, evidence space research, where we could discuss and debate it on a non partisan basis. And a big one of the things we really want to do is also a creative forum where we can have economic leaders get to know each other, build bonds, and do it across generations, across sectors, and across parties. And then we want this research to have a real world impact. So that's our goal.
And so far over the last six years, I think the group has been coming together and I'm sort of very pleased with the way it's.
Developed and tim the subject of the meetings is building fiscal resilience in the US economy. Couldn't be more timely. I want to talk about that. Even this week which they have Fitch ratings is also bought varring more of the strategy. Putting those on one side. What do we need to do to build fiscal resilience.
Well, the topic is about economic resilience more broadly. Fiscal resilience is one part of those things. And you know, if you look at the economy day, it's a pretty resilient economy. You know, we've been through a lot of challenges and we look pretty strong today in a relative sense, but we have a lot of long term challenge and
the fiscal channels are part of those challenges. And you know, if you think about all the things we face in this more dangerous world, and you know, a country with very high levels of poverty and huge challenges and innovation, it's important to make sure that we have people focused on research that can help inform better public policy choices
at the national level and these things. And that requires bringing people together from all sorts of disciplines, all parts of the economy, both parties, trying to figure out how to build trust and knowledge help shape those outcomes.
Thank clocking at the program. One of the issues we can be talked about is how much money we're spending the deficit, and that subject's been around for quite a while. You've dealt with before. What are the prospects of actually coming up with solutions that might be implemented.
Well, let me tell you something. I'm an optimist. You need to be an optimist to do what we're doing. And I believe what we're doing here is a major step forward in doing this because if we can have great research and get people together across parties and come up with someprific ideas and get the facts out and think tanks to both political parties. We can make progress. Now, you're right the trajectory, our fiscal trajectory is concerning, but we are a rich country and we've got time to
deal with it. But we need to do some things in the next few years to change that trajectory. And I think that's going to be very important, and to do that, it's going to take doing things on both the spending side and the revenue side. We're going to need more revenues and we're going to need to figure out how to deal with some difficult issues in areas like the entitlements.
That was former Treasury Secretaries Hank Paulson and Tim Geidner. Coming up, we'll hear from our special contributor here on Wall Street Week, Larry Summers, about whether he thinks it's time for him to start joining some of the others like Bank of America economists and deciding that maybe we won't have that recession after all. That's next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
This is Wall Street Week. I'm David Weston. We are joined here in Aspen, Colorado by our very special contributor on Wall Street Week. He's Larry Summers of Harvard. So Larry, great to be with you here in Aspen. At the end of the week, we got the jobs numbers, and they were a little light on the number of jobs one hundred and eighty seven thousand as supposed to two hundred thousand, a little heavy actually on the wage increases. What do you make of them?
Look, nobody should change their minds fundamentally on the basis of these numbers. They were pretty close to expectations. As you said, economy was softer and inflation was bit stronger than expected, So that's not terrific, but again not a big deal from these numbers. Look, I think the big story here all along is we're trying and to land the plane on the runway where we're worried that the plane would crash short of the runway. That certainly does
not look like it's going to happen. We've got a very strong economy and we're worried that the plane will overshoot the runway. If you look at wage inflation. It was faster for the month then for the quarter, faster for the quarter than for the year, and running for the quarter at about four point nine percent, that's not consistent with two percent underlying inflation or close. And unemployment
ticked down, vacancies ticked up. We still have a tight labor market, a very tight labor market, and with one hundred and eighty seven thousand jobs created and population growing fifty to one hundred thousand a month, we have not just a tight labor market, but a tightening labor market. Now it's true, as someone will point out, that we're tightening, we're tightening relative to a tight state at a slower
rate than we were before, and that's encouraging. But fundamentally, the plane is not yet on a trajectory to a soft landing within the runway.
And let's continue with your analogy about the plane trajectory. Where do we need to get to to get on the right trajectory to get to two percent within some reasonable period of time. What sort of numbers do you look for, for example, in wage increases. Right now we're going about four point four percent year over year. What sorts of numbers do you look for on unemployment rate, what are the key factors in figuring that trajectory.
So the part of the issue is that it's four point four year over a year, but it's four point nine quarter over a quarter, and it's probably closer to five point zero month over month, and so it's not that it is on a decelerating Pathroadly badly. Broadly, inflation is the difference between waste growth and productivity growth. And you can argue about where productivity growth is going to be. I would guess, but it's anybody's guess, somewhere between one
and one and a half percent. So that would tell you that the kind of inflation we're having is ways inflation we're having is pointing to an underlying inflation rate in the three and a half range, and it may not be decelerating. Those are numbers I'll be watching closely. I'll be watching the core inflation numbers. Look, there's no necessary unemployment. Nobody wants to see any unemployment, certainly not
any increase in unemployment. But what we know is that if we don't contain inflation, it sets the stage for all sorts of very serious problems elsewhere. And I don't think we can yet be confident that we're not going to see a reacceleration of inflation at some point.
Down the road.
And that's the thing that I'm focused on, not some precise numerical target for inflation, but whether there's a sense that this is under control. And I think we'll have to wait and see again. The numbers have come in a bit better over the last few months than I would have guessed, but I find the primitive I find the declarations of victory by some to be substantially premature.
I'm glad that the FED is not among those who are declaring victory, and I find the idea that this vindicates the view of those who have been unconcerned about inflation.
All along to be a bit bizarre, since what we followed was very different policies than the ones that they have been pushing.
You've already said you're not so sure of fits in of a self. Is that sigid again? But is there a fundamental underlying issue. You're out here as one of the leaders of the Asthmen economic strategy, and there's a lot of discussion now about what's going on fiscally with the United States.
Ook David, I have written and said that I don't think we're on a sustainable fiscal path. I think the Congressional Budget Office is pretty pessimistic. It thinks the deficit's going to be in the seven percent range once we get out eight.
Or ten years.
They think we're going to be reducing defense spending relative to GDP. I think that's wrong given the threats we face. They think that Treasury bill interest rates can average in the low two's. I think that's not close to right given the strains that we face. They assume, because they're required to, that all the Trump tax cuts will phase out. I don't think that's going to happen. They haven't really fully recognized that revenues are coming in well below expectation
this year. I think if you do the forecast right, you're looking at a number close to ten. I don't think the United States is going to tell bondholders they're not getting money. I think the fact that we worked through, even in an incredibly toxic political environment, the debt limit settled that issue. I look at so called credit default swaps on the United States and they haven't moved, so I don't think Fitch really is contributing usefully to the
debate here. I think they're sort of flailing for relevance, and in general, rating agencies have not proven very prescient. They tend to follow markets rather than lead them. But I do think for anyone who's concerned about inflation, for anybody who's concerned about our resilience as a country and as an economy. You know, we talk constantly these days
about the importance of resilience. Well, if you think about a company, or you think about a household, not being leveraged to the hilt is an important part of being resilient. And I wish that aspect of resilience would preoccupy our policy makers as much as the ones that can be translated into arguments for creating some jobs in Ohio, because I think that's something that is a very very important aspect of resilience.
Very great to be with you here, as Larry Summer is our very special archerer here on Wall Street Week. A good part of the money that the US is spending is on various infrastructure and clean energy project is its part really of a new industrial policy? We ask the former CEO of Honeywell, he's Dave Cody, about whether that makes sense and how it should be done. That's coming up next on Wall Street Week on Bloomberg Industrial policy.
It's been credited with Japan's remarkable economic growth after World War Two, overseen by the famous, some might say infamous Meety, the Ministry of International Trade and Industry. Now the United States is trying out its own form of industrial policy, as Congress passed first the Inflation Reduction Act, including three hundred and seventy billion dollars for climate related investments.
We have deep plans for longer term investments and key sectors, including standing up semiconductors, electric vehicles, electric batteries.
And then another fifty two billion dollars for the US semiconductor industry.
The Chips Act is a seminal act for This may be the most significant industrial policy legislation that's been put in place since World War Two in the This is huge, This is good for the industry, it's good for the United States, and Intel will be a beneficiary there. And I'm proud to have played a part in getting it across the line, all.
Of which has triggered something of a subsidies competition between the United States and allies such as Canada over the IRA Yes.
The IRA is something that we've had to step up to to make sure we're competitive. But we're going to be a lot more strategic about how we pick and choose the right investments. We can't just do a blanket like the US CAMP.
And the European Union over chips micro chiefs.
They are the backbone of Europe's industrial competitiveness in a digital world, the green and the digital transition where it requires new advanced technological solutions, and this is why we must increase Europe's own chips research developments, production capabilities.
But the biggest challenge may be making sure all this money will make our economies stronger rather than simply some companies richer.
The whole point of this is to increase innovation, research and development in the industry, not you know, we're not giving you taxpayer money to fluff your pillow and increase your profit and give it away to your shareholders.
We're giving it to you to invest in our and dasent.
Here at the Aspen Economic Strategy Group, there's been a lot of talk now about industrial policy, particularly the Inflational Reduction Act as well as the Chips and Science Act, and so we have somebody who has actually run some things in his life. He is Dave Cody is the former CEO, of course, of Honeywell, and he's now executive chairman of Virtue. So Dave, great to have you here. I always said, when it comes to industrial policy, if we're going to have it, why don't we have Dave
Cody and Treasury? What do you think about the Chips of Science Act When you think about some of the big industrial policities that's coming out of Washingman Now, it's a lot of money involved.
Yeah, Well, when you think about industrial policy, it tends to be kind of a secular, mobilizing ef left or right, and people are either absolutely for it or absolutely against it. But the reality is there's always been some kind of industrial policy in the country. You're going back to establishing the railroads, establishing canals, the interstate system, NASA to put somebody on the moon. I mean, there's always been that. Kind of the trick is to not let it go
too far. So how do you find that kind of right spot? So I'm not completely against it, but you've got to be smart about it because it's very easy. Once politics starts to intrude, politics will triumph. Good judgment all the time, so you want to make sure you don't lose the good judgment side of it. You asked about the Chips Act, and I would say, you know, I'm a bit ambivalent about the whole thing. In terms of what they think it's going to accomplish.
I don't think they're even close.
And if you take a look at the percent of chips that will actually affect it's estimates from three to five percent of the total, it's not the super high end difficult chips. And the know how required to make those chips doesn't exist in the US anymore. Most of it exists in Taiwan. And this, with the exception of maybe the R and D spending that they're doing, it
doesn't really address any of that. So we're spending a lot of money that doesn't exactly solve the problem, which is how do you create a more domestic capability when it comes to being able to produce these super high end chips. We should be able to figure that out because a lot of the equipment to make these chips is made in the US.
So you would think that if.
We spend money in the right place. Is to say, how do we really learn how to do this. That would be I think much more efficient and effective spending than just building plants to produce chips that really aren't all that essentially.
So in general, Dave, a lot of people say we should look to industrial policy for the things that only the government can do. If the private sector can do it, let them do it. In the area of chips, are there things that only the government can do that we actually have to turn to the government ask them to do it for us.
Well, I think the better place for them to be spending their money is more on the R and D side or providing incentives for people to learn how to produce those chips here, and.
I don't really see that.
One of the things I would like to talk about though, on industrial policy is we spend a lot of time talking about bringing manufacturing jobs back to the US, like manufacturing jobs solve all our economic.
Problems, And that's a little backwards I think.
And we're in the agricultural age, went to the industrial leader, and now we're in the digital age, and if we were smart, we'd be doing the same thing that all our counterparts did one hundred and one hundred and fifty years ago when they said there's this shift to an industrial economy. We need kids to be able to be literate and numerate if they're going to be successful in
this kind of environment. Now we're going to the digital age, and instead of saying, all right, how do we educate our kids, how do we prepare them to be able to be successful in a world like this? Instead we're saying, no, let's make sure that we can keep all the manufacturing jobs here because these will pay well.
It'd be a little like if one hundred thirty.
Years ago politicians and business people had said, god, you know, with this industrial thing, man, that's going to be a lot of trouble.
We need to find a way to keep people on the farm.
Right.
It's totally backwards.
So I'd rather see an industrial policy that focused more on education for all our kids, to say, how do we prepare them for this digital age which is going to go on for another eighty years or so until something new comes around.
This is going to be with us for a while.
R and D Yeah, why can't the private sector do that? I mean you had a big R and D budget, right, I mean all the big corporates in a big R and D dodge Why can't the private sector give us the R and D do we need?
Yeah, I think that's one of the misconceptions about R and D. Has always talked about like it's a single thing, But it's two words, right. It's research development. Well, development takes stuff that was developed in research and turns it into viable products. If you were to take a look at all companies spending on R and D together, I wouldn't be surprised if you found ninety and ninety five
percent of it was spent on development. Because research is just too iffy, too expensive, the chances of it turning into something generally can be pretty small. And that's one where I do think the government has a big role to play and just doing this basic research that's available to all US companies so that as they start finding these things, companies can then take them and develop into
products and services that'll be useful. It's one of the areas I think we're falling down a bit, and for me, this would be good industrial policy. There's a lot more money going into research, whether it's health anything, digital, bioengineering, all those things that are going to be very important to us in the century.
What about climate Another big aspect of industrial plus right now is the move towards green energy. Essentially a lot of money is going into that right now. Does that make sense to you?
Well, I'm a fan of figuring out how do you keep land, air and water as.
Neutral as possible. We're putting a lot.
Of CO two into the atmosphere, so figuring out how can we do this in a more.
Neutral way I think is a good idea.
However, we shouldn't be thinking that this is going to solve climate change. If you really believe that CO two and believe all the models that CO two lasts for one hundred years in the atmosphere is going to be there. We don't get to net zero as a globe for till twenty fifty or something. And remember the US is only like fourteen or fifteen percent of all emissions. That means global warming is coming. Whether we get to zero or not, it's coming.
Let's assume, Dave, that we decide we need industrial policy, whether it's in chips or whether it's in forms of climate, and we decide we need to spend this much money in how should we go about doing it? I mean, I think back in World War Two, I think FDR basically turned to US industry to help really drive a lot of the industrialization that helped to the United States and the Allies win the war. How would we go about really figuring out who should administer the industrial policy?
Well, if you go back to that time, what they actually did was take a number of business leaders and brought them into government in order to run a lot of these things, which I don't think I still don't
think is a bad idea. And I found myself thinking, even when we were in the midst of COVID and we couldn't find basic products that just weren't enough of them, I often thought, why don't they assemble a group of retired CEOs to assign them tasks to say, go figure this out, as opposed to just having a bunch of governments types do it.
And yeah, I'd say that possibility still exists.
Well, we have a retired CEO right here? Are you volunteering, Dave?
I don't know that I'm not retired retired enough to be able to do that at this point, Dave.
Great to have you on Wall Street Week. Zave Cody. He's the executive chair of Versive coming up a Stronger Economy and a bit less inflation. What does that tell the FED about where it should head next? On interest rates, We're going to talk to two regional FED presidents, Austin Goolsby of Chicago and Rafael Bok of Atlanta. Let's come up next on Wall Street Week on Bloomberg.
This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
From Asma, Colorado for a Bloomberg Television radio audience is worldwide. I'm David Weston. I'm delighted to be joined right now by the president of the Chicago Fed. He is Austin Goolsby. Austin, thanks for being here.
We've met.
We're out here for the Aspen Economic Strategy Group meetings. A lot of talk about fiscal issues, monetary issues, but we all I have now the key job figures a little bit lighter than expected, one hundred and eighty seven thousand, set of two hundred thousand, little heavier than expected on the wages. What did you take on the.
Job market is cooling a little too kind of a balanced level, but it's still extremely strong. That's the strongest part of the economy by far, is how low the unemployment rate is and people can get a job if they want a job.
But what about the wages where now these numbers were four point four percent year over year I believe it was. That doesn't sound like something consistent with getting to two percent inflation overall. The way I view it as two things.
One can't say anything about wages until you actually know what's happening with productivity. We got some productivity numbers. They were strong for the quarter. That's very noisy. But if you have strong productivity growth, you can have wage growth and it doesn't generate inflation. And the other thing about wages is they're not a leading indicator of price inflation. They're backward looking. They move, wages move more slowly. When things happen, we get shocks, the prices move first and
then the wages. So when we see what's happening to wages today, this is kind of an amalgam of a bunch of stuff that already occurred.
What are those numbers telling you right now? Particularly goods inflation? Is it a bit stickier than you're thing it.
Has been, But the last couple of readings have been pretty positive. It's important that you raise this goods loosely.
If you look at core inflation. You got goods, you got housing, you got services not including housing, And we've much remarked on the stickiness and persistence of services inflation, but we knew that that's not where we went wrong over at the end of last year beginning of this year, with inflation lasting a little longer than we thought, it has been the goods prices, while down, have not gone all the way down to where they were before the pandemic.
I feel like that's kind of started and that's put the Fed on this line.
I mean, it's a thin line.
To walk, but getting the prices down without having a big recession, We're gonna Johnny cash this thing and walk that line, and that that's for sure the goal.
So we got the jobs numbers on Friday at the end of the week, A little lighter on the number of jobs, a little heavier on the wage increases. How did you interpret them?
So they actually came in pretty much as I expected. You know, I've expected the economy to slow down in a fairly orderly way, and this number one eighty seven comes in continuing that pace. Some folks would have liked it to be faster and a larger gap but I'm comfortable. I'm not expecting this to be over in a short period of time. In terms of the wages, it doesn't
surprive me that wages are still strong. You know, during this whole high inflation period, worker wages have trailed inflation for quite some time, and so we're still in that catch up period, and I expect that we will still see strong wages. But I'll tell you, when I talk to employers, the one thing they tell me is that whatever they're setting their growth at this year, they're expecting it to be lower next year and then lower again after that to get back to where we're a pre pandemic.
So you know, we got to keep an eye on it, of course, but I was not concerned too much about that at this point.
And I'm sure you'd be the first to sem me one data point isn't enough to make a decision. But do you feel that the FED is on the trajectory it needs to be on to get to two percent at some point?
I do you know?
We are today in a restrictive stance, and as inflation continues to fall, the degree to which it's restrictive actually grows. As that gap between the inflation rate and our interest rate widens, So I think that will put enough constraint on the economy that it will continue to slow. But again, I'm not expecting this to be a two month or
three month period. My outlook is that we'll still be in a restrictive territory well into twenty twenty four, and it will just take a while for the inflationary pressures that we've seen over the last year and a half to fully dissipate and get us back to two percent. That's Raphael Boston. He is the president of the Atlanta FED. That does it for this episode of Wall Street Week. Coming to you from Aspen, Colorado. I'm David Weston. This is Bloomberg. See you next week in New York.