We heard from Jay Powell we've heard from the last three years in Jackson
Hole. You weren't too pleased when he had his
framework a couple of years ago. We weren't too pleased about this
transitory talk. Did you feel a little better this year.
Look I think he did what he needed to do.
It was clear that inflation is the overwhelming priority.
It was clear despite some earlier confused talk about neutral that he was
under no illusion that monetary policy was in an appropriate place right now.
It was clear that whatever the academic arguments about demand shocks versus
supply shocks said the Fed couldn't accept continuing high inflation and had
to act until it was clear that that was going away.
The remarks were very concise. There wasn't a lot of
more academic discussion but there was a statement of
being resolute us. So I think that's just right.
So I think the Fed is positioned as well as it can be given the
credibility losses and mistakes that there have been.
With these remarks to manage things going forward the chair never use the
word recession. At the same time he did talk about below
trend growth for an extended period. I'm also in elevated interest rates for
a good time to come. Is he really pointing to recessions.
Between the line thing get ready for it. I think he also had a reference to the
fact that there was going to be pain. He wasn't predicting recession.
And after all even someone who's quite pessimistic about the situation like me
is saying that there's a 75 percent chance of recession in the next two
years. But he was clearly showing an awareness
of the possibility indeed possibly even the likelihood of
recession. And I think that was very important
because saying you're against inflation when there's no price to have to
resisting inflation or bringing down inflation isn't a consequential
statement. Today he prioritized inflation making
clear that he recognized that that prioritization would have short term
adverse consequences. That wouldn't be easy but that by
bringing down inflation ultimately that we're going to be more jobs with higher
real wages for more people. And that's after all what economic
policy is all about. It was a big change from the Jay Powell
of a couple of years ago who was speaking about the importance of
maximizing employment without an awareness of the issues of
sustainability and long run economic performance.
So I was quite pleased with these remarks.
So let's go over Europe for a moment because they have their own problems
over there. The ECB is indicating further tightening
perhaps at the same time they're in for what looks like a substantial energy
supply shock certainly as we get into the winter.
Are we properly appraising what is going on in Europe and how bad it could be.
Christine Lagarde got a much harder job right now than Jay Powell does.
She's got the dilemmas of inflation but she's got a truly massive supply shock
with what's happened there with natural gas and electricity prices.
She has a set of challenges of monetary union.
Problematic politics is in Italy very high debts in the European periphery.
So they've got a very very difficult set of balances.
And they also have the challenge of a credible currency as the euro moves to
an through parity with the dollar. So I think it's going to be a very
difficult road for them to walk in Europe.
My suspicion would be that they're going to have to raise rates more than is
currently priced in but that that's going to come at a time when there's
very substantial recessionary forces in Europe.
And I'm concerned about what that's going to mean for intra.
European politics and I'm also concerned ultimately and I think it's probably
most important is how it affects Europe's fortitude in this very
difficult world we have with a revanchist Russia and an aggressive
China. Back in their states one big development
this week was President Biden announcing his plan for relief at least partial
relief from student debt loads. We heard Jason Furman somebody you know
well respect. I respect him as well.
He had some tweets that were hurt. I think among other things said this is
pouring gasoline on an inflation fire. What did you make of that policy changed
by the administration. I did not support large scale student
debt relief because I thought it was using federal resources to make
transfers hundreds of billions of dollars.
And I would have liked those resources put to better use helping people who
were poor or who were more in need and who would use the money to invest more
in the future of the economy. I think that it does add to demand which
does increase inflationary pressures but that's something that the Fed should
be able to offset. But it will mean more need
for the Fed to move rates. And I think it needs to be recognized
that this is something that's meaningful relative to all the other things that
are that are that are going on. It's not the policy I would have
preferred but if this is our biggest mistake we will be doing very well.
And you know this is several hundred billion dollars over 10 years.
What we did in 2021 was several trillion dollars over one year.
So we just need to keep perspective on the scale with this.
Larry you have helped set economic policy both at Treasury and at the White
House. Was this the economist talking or is it
the politicians talking. And some people as you know are starting
to say a serious economist are not having enough of a say in this White
House. Look I'm somebody who always believes
that you can't go wrong listening more to
more to economics. I think in response to many of the
frustrations going back to the financial crisis there has been some movement away
from relying on economists advice. I think over time that will tend to lead
to mistakes because you'll focus on the direct consequences of things and fail
to recognize the indirect consequences. For example you'll miss the inflationary
consequences of protectionism. You'll tend to focus on what's good
about spending and not focus on the things that are crowded are crowded out.
So yeah I would like to see more influence but I also think that the
economics profession has got to do better do better in recognizing the
kinds of concerns that led to the terrible populism that
we've seen in many parts of the country. And we need ISE economists to be
understanding rather than just dismissing those problems.
Finally briefly to the end I was left talking about golf.
You're a serious golfer. I try to golf some.
In the meantime we have the departure of justice reportedly investigating the
possible antitrust suit against the PGA Tour I guess because of live golf.
What you make of that. I don't know anything about the merits
but it's just hard to believe that there isn't a higher priority for the use of
taxpayers money in the antitrust area than protecting Bryson D shambo from
exploitation. I just find it hard to see why of all
the issues that they could work on that would be the one they would choose.
Again I have no knowledge of the merits and certainly civil suits back and forth
are part of what happens in situations like this.
But I did wonder why this was something the Justice Department was taking on.