A big week on a lot of fronts. Let's start with the CPI numbers that
came out. They certainly got the market's
attention. What did you make of the CPI numbers?
Are they as encouraging as some people seem to think?
I think they were good. They were they were good numbers, but
one number is never decisive. I know where a lot of special factors in
these numbers, some of which will be reversed particular.
As always, team transitory only focuses on the things that are likely to come
down in the future, not the things that are likely to go up in the future.
I don't think apparel prices will keep going down so fast.
I don't think we've really got structural disinflation in medical care.
But this was a good number and the market was right to respond positively
whether the magnitude of the reaction was right.
I think that's very much in question. There was another number yesterday,
which was the Atlanta Fed number on wages, and that was showing continued
strong wage inflation. And I don't see a way as long as
inflation is running in the 5 6 range that we're getting to target.
So I think the people who declared victory on the basis of this number
yesterday were overreacting. But look, it certainly was an
encouraging number, but we had similar encouraging numbers in March and similar
encouraging numbers in July. And one swallow didn't make a spring
then. And so I think we've got to do what Jay
Powell said he's going to do, which is be vigilant and integrate all the data
looking forward. And that was my question, actually.
We know how the markets react to the question is how will the Fed react?
We have a little time to let December meeting at the same time.
Given what you've seen so far, it can change.
Do you think that the Fed should be varying its path in one iota?
Some people are now saying that 75 should be 50, for example, in December.
Well, I think the market's been expecting 50 for some time is the most
likely case. And I don't see a reason to change from
that expectation. I don't think you can make judgments
based on a single month's data. There was a very substantial adjustment
in markets expectations of what the Fed would do.
And I wonder whether that a change quite that large of more than one full
move, one full 25 basis point move was warranted on the basis of just this
number. But it may well prove to be appropriate
given what we see in the in the future Larry.
How much more difficult are the markets making the Fed's job?
Because the financial conditions loosened dramatically in response to the
CPI and it was the most since March of 20 21, then that's two trillion dollars
in fiscal stimulus. You have to look at both the Fed funds
rate and at the overall level of financial conditions to some extent.
I don't I think these financial conditions indices are misleading
because when the stock market goes up, they call that an improvement in
financial conditions, but it may just be a change towards more optimism about the
economy. So I'm not that taken with the financial
conditions, indices like the ones that come out of Goldman Sachs that give
significant weight to the stock market or to credit spreads
in the overall assessment, because I think in some sense they're not just
reflecting what the Fed does. They're reflecting changing views about
the economy, Larry, are arguably the other big news this week with the
mid-term elections, which, by the way, aren't really fully finished finalized
yet because we don't know the results, including who controls the House and the
Senate. But at this point in the process, what
do you make these midterms? One thing I learned was once again that
people don't pay that much attention to pollsters or, by the way, the media.
David, look, I'm I'm quite encouraged the center is holding.
If you look at people on the extreme of either party, they actually
underperformed quite badly. The there was more ticket sledding as
people voted for one Democrat and one Republican rejecting the radical, more
radical candidates. The swing towards Democrats came from
independents and came from more Republicans voting Democratic.
I think the reaction to the radical Supreme Court decision was actually a
substantial part of this story. That's probably cautionary for Democrats
because it's not always going to be. Be that way.
But look, we're not having people in the streets fighting over the results of
elections. Candidates who lose, even very radical
candidates who lose are can are conceding.
I think this was an election that suggested some movement back towards the
center of the country holding what message you think the White House should
take away from this particular aspect of economic policy.
Is this time for a midcourse correction? Are there some lessons in here for the
White House? And by the way.
Should they even take a look at who and who is on the economic team?
Is it time to revamp that? I think they've got very good people.
I don't think the people are. Ah, ah.
The issue, it's a very experienced team. Inevitably, the over time
administrations have turnover. Look, I think the country is governed
best when it's governed from the center and governed with moderation.
Nobody's going back to three and a half trillion dollar new deals, ads not on
the table. And I think it's appropriate, given
inflation that nothing like that be on the table.
I think there's a lot we can do to bring down the price of energy by promoting
energy production of all kinds renewable and non and non-renewable.
I think there's a lot that the administration can do and will do with
respect to technology, particularly in the semiconductor area.
It's a big challenge to actually build infrastructure out well in a way that's
going to contribute to reducing bottlenecks in our economy.
I would like to see more partnership between business and government.
And frankly, if we're going to build out the necessary energy infrastructure, I
don't around the world, I don't think there's any alternative.
So I think that the administration has a real opportunity now to move to an
implementation phase. Larry, one other big development
globally, at least this week was the next climate summit in Cancun, 27 over
in Sharm el Sheikh. Are we making progress on the climate or
not? It seems sometimes like they just get
together and talk. Yeah.
That's why. Yes, I agree with that.
But, David, I think more is happening in the laboratory and less is happening in
the conference room. The good news is that tremendous
progress is being made in all sorts of technologies that point towards
renewable energy. There are some really exciting
developments with respect to batteries and storage that enables renewables
because it's not always windy or sunny. So I think ironically, even though
there's less political progress than one would have hoped.
I actually think we're in a better place with respect to the problem than one
might have expected a decade ago because of the progress in technology.
And finally, we can't leave this week without talking about Sam Bank and Freed
and FTSE X and that meltdown in the crypto exchange.
Apart from the details of what exactly happened, what does it tell us about the
need for regulation and why do we have regulation?
We've been talking about it forever. Democrats and Republicans, how pressing
is that need? How can we get it done?
You know, David, a lot of people have compared this to Lehman.
I would compare it to Enron, the smartest guys in the room, not just
financial error, but certainly from the reports, whiffs of fraud.
Stadium naming is very early in a company's history.
Vast explosion of wealth that nobody quite understands where it comes from.
I think the regulatory community ought to draw two lessons from this.
One, if we had a few fewer economists and quants and a few more forensic
accountants running around, I think it would help us detect what was going on
in countries and in companies. The more I watch, the more that field of
forensic accounting seems to me important.
And the other is, I think we ought to have a rule in everything that touches
finance, that everyone who has anything to do with it in a position of
responsibility has to be entirely. Away from the office, away from their
phone, away from the any device and connection to the system for a week or
two continuously each year, and I suspect that that would be very helpful
in causing some of these problems to come to light sooner.
But. Absolutely.
But I think this is probably less about the complexities of the nuances of the
rules of crypto regulation and more about some very basic financial
principles that go back to financial scandals that took place in ancient
Rome.