So, Larry, one of the big events of this week was Jay Powell, the chair of the
Federal Reserve, speaking with our very own David Rubenstein at the Economic
Club in Washington. And the markets came with it saying, you
know what? He didn't go as far as we thought he
would. It's saying we've really got to tighten
more. Given those jobs numbers, are we
becoming complacent because there's talk on Wall Street now that there won't be
any landing, whether it's soft or hard? Basically, we'll just keep going.
I think the Fed understands that it doesn't understand because no one can
know the future with confidence. And I think that the Fed is determined
to do what's necessary. That's certainly what I hope
is the case in a substantially uncertain environment.
I think the consensus has become ISE substantially too complacent about
inflation for a variety of reasons. First, let's be clear.
Even after the reductions we have seen, inflation today is at levels that would
have been unimaginable for inflation two years ago.
And so we haven't come all the way down or got this fully under control.
And in a way, I guess one way to put it in Super Bowl week here is that it's
easier to move move the ball down the field at midfield than it is when you're
in the red zone and we're getting closer to the red zone with respect to
inflation. And so I think the gains in terms of
further reduction are going to come harder.
Second, I think there are a variety of bounceback factors that we're going to
have. You saw it in the market, wholesale used
car prices, which look like they're going to be a positive contributor to
inflation. You've seen some reversal on gasoline
prices more broadly. You've seen a variety of prices that
blip way up nine months or so ago. And now that's mean reverting.
Now that's coming back to normal. Well, it's not always going to be going
down. And when those become normal, that's
going to be an increment to the underlying inflation figure.
And so that, too, I think is a cause for concern.
Third, if you look at the variables that economists tend to think that you should
look at to predict what's happening with inflation.
We are an economy that's got relatively loose financial conditions.
Now, given what's happened to markets, by some measures, financial conditions
are looser than they were when all this tightening started.
That's probably misleading, but we probably are back to somewhere where we
were late last summer in terms of the degree of tightness in financial
markets. And we've got that at a time when we
still have a record level of vacancies relative to unemployment.
So I think with that kind of picture, the prospect that we are not on our
trajectory now where inflation is going to get to the target level and therefore
this tightening cycle is not just about one more, two more, three more, 25 basis
point increases, but something more fundamental.
That's a substantial probability. In this environment.
So I don't think that's a moment for any kind of euphoria.
And I think there is some complacency that's setting in in many places.
We've heard from Share Powell on Tuesday.
A few hours later, we heard from the president at states, Joe Biden, as he
gave his State of the Union address to Congress.
He did talk about some economic things, fair a number in there, including some
you and I have talked about, such as Buy America.
What did you make of the economic part of President Biden's speech?
Look, I think the most important thing to say about the president's State of
the Union was that it was probably the clearest, strongest exposition of his
economic philosophy that he has delivered during his two years as
president. I did worry that as I heard him talk and
speak powerfully and I thought persuasively about the junk fee issues
and the extra money people are paying for airline baggage or paying for.
Overdraft fees or a variety of those other junk fees.
I liked that because it was recognizing that people's incomes, people's spending
power is what matters and that depends on how much they earn.
And it also depends on the prices they pay.
I hope the administration is being very careful about that comprehensively.
My guess would be that the extra taxes people are going to pay because projects
are going to cost more because of bias by America.
The extra prices people pay because of tariffs that we put on in the name of
create or maintain in the name of creating American jobs.
My guess is that those higher prices from things that we're doing through
policy probably add more to consumer burdens than all the junk fees that the
president spoke about. So I think we need to look very, very
carefully at those policies. One thing that you and I have not talked
about, I don't believe, is Israel and Benjamin Netanyahu's new government over
in Israel. There are a lot of political and legal
issues involved, but there are also some economic issues.
As you know, a number of U.S. economists, I don't think were involved,
wrote a letter really expressing concern about some of the proposed changes in
the judiciary. What that could mean for the Israeli
economy. I was a little surprised to see your
name came up, actually, in the times of Israel as having talked to the prime
minister, Benjamin Netanyahu. What do I want to tell us about what
they're doing over there? So, David, I don't I don't talk about my
conversations with government officials. As you know, but I have been following
this issue closely, and I think the temperature has to come down on both
sides. I think there is a case for strong case
for judicial reform in Israel.
It's unusual by international standards for judges to be chosen by currently
sitting judges. It's unusual for courts to be able to
rule out legislation simply by judging that it's unreasonable without having a
constitution to point to. On the other hand, it's very clear from
the context of the way this is being done that it is feeling to a large
number of people and a large number of people with the capacity to move their
money in and out of Israel, particularly in the entrepreneurial community, that
an overly rapid, not carefully done judicial reform could raise serious and
profound questions about the rule of law.
And that, it seems to me, could have quite serious adverse effects on the
Israeli economy. And finally, at the end of the week, we
received word that Mr. Kazuo Wadah may well be appointed the
next governor of the Bank of Japan. He is an academic economist, as I
understand it. He has served in the past on the Bank of
Japan policy board. Do you have thoughts about either Mr.
Wadah or where the Bank of Japan needs to go next?
You know, I think we can think of him as being
Japan's Ben Bernanke. He studied at M.I.T.
at about the same time that Ben did with the same thesis advisor that Ben
Bernanke he had. He specialized in similar areas of
monetary economics and has a soft spoken academic way about him, but is also
capable of being decisive. And I think Japan has a very complicated
issue ahead of it. I don't think it's going to be able to
maintain yield control for an indefinite horizon.
And he has big shoes to fill. I've known Kuroda son for more than 30
years. He's an extraordinarily
capable, analytical, but also with a real measure of cunning,
central banker. And he will be he will be missed.
But knowing Mr Hu away to, I've got quite a bit of confidence in his ability
to chart a course forward.