Thank you so much, Rebecca with us, we had a lot of important economic data
this week. We get the first quarter GDP numbers
about personal spending that ECI. What was most important for you, David?
I'd been pointing to the ECI number because I think the labor market is the
key to the inflation process because it only comes quarterly because it's the
best of the numbers for measuring wage inflation, because it includes benefits
and adjusts for changes in the composition of the labor force.
And that number was pretty strong. That numbers running at about four point
eight percent. Now, both on an annual basis and a
quarterly basis, there's not really evidence that it is decelerating.
The revision for last quarter was a little bit upwards and four point eight
percent labor cost inflation just does not go with 2 percent
underlying inflation. So I think we've got a bit of a
stagflation area problem developing where we have a base inflation that's
well above target. And as I've been saying for the last
year and a half, I don't think that's going to get back to Target without a
meaningful slowdown in the economy. That doesn't mean the Fed's objective
should be to induce a slowdown. But if the Fed does what's necessary to
contain inflation, I think a slowdown is likely to come along.
And the odds on that happening sometime in the next 12 months, I think are
pretty good, perhaps 70 percent. So I think we're not looking at an easy
situation facing the Fed given these numbers.
I think it's pretty clear that the Fed has to go ahead and move rates in May
given the emerging credit problems. I think June is very much an open
question. So what I hope we'll see from the Fed is
a move upwards by 25 basis points in May, followed by a commitment to
monitoring both the activity and inflation figures on one hand and the
credit flow issues which are leading of the economy on the other.
So, Larry, there was a thought, not a hope, but a thought that perhaps some of
the difficulties we had at Silicon Valley Bank and Signature Bank and now
First Republic Bank might slow down the economy on its own.
So the Fed wouldn't have to go as far. We thought maybe these were behind us.
We'd now still have issues that looked up with First Republic.
What do you make of the way that's being handled as opposed the way Silicon
Valley Bank was handled? I mean, let me just say first, David,
that I am very connected to people all over the financial sector, but I have no
specific relationship of any kind that I know of with First Republic Bank.
I'm surprised and disappointed that this situation has continued to linger as
long as it has with the bank stock down 95 percent and various other credit
indicia of it in a problematic direction.
Look, the big banks and the government both have a strong stake in this
situation being contained and resolved. The big banks have deposits in First
Republic Bank in significant quantity. They have a huge stake in the financial
system staying stable. Larry, let's take a bit of a longer view
here now about where we are headed globally with our economy head, Jake,
solving the national security adviser give remarks at the Brookings
Institution this week where he laid out what I took to be so a framework under
the Bush administration where he wants to go with economic policy.
What did you make of that speech? Jake is a very thoughtful
leader, and it's probably the most carefully, intellectually developed
exposition of the administration's philosophy that we have had to date.
And certainly he's right that the world has changed.
He's right that China represents a new kind of challenge.
He's right to emphasize after what we've seen in Europe with oil, other things,
the importance of raising. But I was disappointed that the speech
did not emphasize the central importance of importing low priced goods.
That is a substantial part of what determines the living standards of
Americans. That is a substantial part of what
determines the competitiveness of American producers.
For example, we have sixty thousand people working in the steel industry and
six million people working in industries that use steel.
So when we raise the price of steel, we are all hurting people.
The Peterson Institute estimated some time ago that trade reduced costs for
consumers by more than a trillion dollars.
And if we had removed our tariffs on other measures against China, it would
have added 2 percent to people's real incomes.
By reducing inflation pressure, I think that the administration is much too
quick to move to industrial policy strategies on grounds of resilience.
Let me give you two examples. The Jones Act was the resilience policy
of the nineteen twenties. Let's have all our shipping be U.S.
carriers. That's made the price of heating oil
considerably higher in New England all year.
That screwed up our efforts to help Puerto Rico after the hurricane.
Cause we didn't have adequate supplies.
We had a major infant formula problem in this country that was related to buy
American policies. That meant we couldn't turn quickly to
European supply chains. So, of course, we're all for resilience.
We're all for strong U.S. corn producers and strong U.S.
businesses. But what I find missing in the approach
is helping consumers, which, after all, is the middle class and is central to
how people feel they're doing. Recognizing the importance of
cooperation in producing a more prosperous general global economy that
works to our benefit and the United States maintaining its commitment to
other countries, which we have not done. In the trade area for quite some time.
Let's leave our audience on Wall Street here with a quick round of long, short
where you're long or short. Certain issues and certain people.
Let's start with President Biden's relaunch of his new re-election
campaign. It happened this week.
Are you long or short on it? I've.
I'm long. I think that the administration's got a
lot that it can run on. And frankly, its opposition is in very
substantial disarray. What about the head of the Bank of
Japan, Mr. Wade?
He had his first meeting this week and surprised some people about sort of
putting up ultimate decisions about yield curve control.
Are you long or short on his premier? I think he's a cagey and shrewd guy.
Any kind of peg, whether it's an exchange rate or an interest rate, is a
hotel that's much easier to check into than to check out of.
And I think by setting forth that study mechanism, he is beginning a process of
orchestrating leaving a peg that probably has outlived its purpose.
And finally, we talk about the Fed a lot.
We don't talk about Fed security very much.
This week we had this remarkable incident where apparently some people
who were apparently Russian purported to be Presence Galinsky of Ukraine and got
Jay Powell, the chair of the Fed, on the phone and had a fairly detailed
discussion with them. You're long or short on security at the
Federal Reserve. Oh, I'm short looking backwards that I'm
long looking forward, because I'm sure there's going to be a pretty thorough
review of how that could have happened. That's determined to make sure that
doesn't happen again. That's.
Kind of an embarrassing, embarrassing moment.
If there's any institution in the United States, we want to be uncomfortable.
I would suggest that it's the Fed, but there are a lot of very dedicated people
there and I'm sure they'll get it fixed.