Latest / Bloomberg Intelligence / Narayana Kocherlakota: Fiscal Stimulus Can Be Effective (Audio)

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Narayana Kocherlakota: Fiscal Stimulus Can Be Effective (Audio) · Bloomberg Intelligence

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  Speaker 1: business flash. He's taking stock the FED in focus on
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  Speaker 1: the FED, and focused the European Central Bank, and focus
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  Speaker 1: the Bank of Japan and focus. It is a world
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  Speaker 1: of central bank Angstome saying, well, someone who knows this
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  Speaker 1: central bank angst himself, I think in a certain way.
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  Speaker 1: As Mariana Cortula quota, he's a Bloomberg You columnist, he's
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  Speaker 1: a former Minneapolis Fed president, he served there from two
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  Speaker 1: thousand nine to fifteen, and he's joining us now to
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  Speaker 1: talk about many of these issues and his latest Bloomberg
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  Speaker 1: view piece. Uh Nariana, I'd like to start though, with
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  Speaker 1: the numbers we've been getting. You know, we've got the
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  Speaker 1: Services index from the I s M looking fairly strong.
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  Speaker 1: And then you contrast that to the Atlanta Fed cutting
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  Speaker 1: its GDP tracker for the third quarter to two point
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  Speaker 1: two because of trade devis at Widen and you pile
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  Speaker 1: on that there's a group of Fed bank presidents now
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  Speaker 1: who think it's time to raise the key right now.
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  Speaker 1: And I bet you don't reason. Is uh no that
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  Speaker 1: that would be bet you would win. Kathleen, thanks a
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  Speaker 1: lot for having me on. Uh it's a lot of
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  Speaker 1: to join you. I um. In terms of the data,
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  Speaker 1: I think that we're Uh, we're still in a situation
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  Speaker 1: where we're seeing slow growth, we're seeing a inflationary pressure
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  Speaker 1: is remaining subdued. Uh. When I look at my the
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  Speaker 1: metrics high follow on inflation expectations, they remain low with
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  Speaker 1: the five year five year forward Uh. Tips spreads remain low,
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  Speaker 1: and also some of the surveys remain low. So I
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  Speaker 1: I don't see it as a time to raise rates
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  Speaker 1: just based on those considerations. But the overwhelming consideration is
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  Speaker 1: really the FEDS a limited tool kit with which to
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  Speaker 1: deal with downside risks of any kind. Uh. And you
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  Speaker 1: want to keep the patient as healthy as possible if
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  Speaker 1: you don't have have any treatments if it gets sick,
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  Speaker 1: and so that that really argues against raising rates. Uh.
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  Speaker 1: I think one of the most compelling argument against raising
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  Speaker 1: race at this point. Professor Cutcota, you are the Lionel W. Mackenzie,
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  Speaker 1: professor of economics at the University of Rochester, and Lionel
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  Speaker 1: Mackenzie I guess was famous for his work on general
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  Speaker 1: equilibrium theory, attempting to explain the behavior of supply and
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  Speaker 1: demand and prices. Where do you see inequality this equilibrium
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  Speaker 1: in global markets right now? Uh? Great? Question, and uh
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  Speaker 1: a great citational linel Um. I think that, uh. My
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  Speaker 1: my own concern remains that I think the interest rates,
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  Speaker 1: and this was going to come surprisingly to so many
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  Speaker 1: of your listeners, is I think interest rates actually remained
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  Speaker 1: too high in much of the world. And I think
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  Speaker 1: we see that when people talk about boy, there's too
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  Speaker 1: much supply or too little demand, well that's really those
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  Speaker 1: those words are really markers for the fact that interest
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  Speaker 1: rates are too high. The interest rates were lower, um
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  Speaker 1: than we'll be able to clear up the excess supply
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  Speaker 1: on and um and uh to the fact that we
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  Speaker 1: have have two little demand at the current point in
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  Speaker 1: time because people would start to spend more as opposed
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  Speaker 1: to saving, and that would soak up the supply that
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  Speaker 1: we we have. So when people and I hear this
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  Speaker 1: from many business business people in financial market participants, that
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  Speaker 1: they see signs of excess supply and and uh in
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  Speaker 1: sufficient demand out there. But those are all markers that
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  Speaker 1: should be it makes you think, boy, interest rates, even
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  Speaker 1: though they're historically unusually low, remain too high. So in
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  Speaker 1: terms of what central banks should do again, the question
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  Speaker 1: gets very interesting. The FETE is getting ready to high
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  Speaker 1: grates and boiled boys, they don't do it in November.
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  Speaker 1: It's sure looks like the majority is going to vote
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  Speaker 1: for December. And at the same time, now there's these
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  Speaker 1: stirrings from the bank in Japan and European central banks
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  Speaker 1: saying it seems, you know, this quantity of vising really
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  Speaker 1: isn't working, so they're gonna start cutting back. That's a
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  Speaker 1: little less stimulus as well. I know you think the
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  Speaker 1: central bank should be more stimulative perhaps, but do you
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  Speaker 1: agree me to be though that that bond purchases have
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  Speaker 1: run out of steam in terms of being able to
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  Speaker 1: boost economies. I would interpret what's going on in the
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  Speaker 1: boj a little bit differently, and it's actually they're reaching
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  Speaker 1: a policy conclusion that that uh that I had been
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  Speaker 1: reaching some of my own thinking a while back, which
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  Speaker 1: is it might be better to be targeting prices of
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  Speaker 1: bonds as opposed to trying to target target quantities. What
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  Speaker 1: we really believe in the in the economic modeling that
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  Speaker 1: we do is it's really prices that matter for economic
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  Speaker 1: decision making, not so much quantities, and so buying a
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  Speaker 1: certain amount of bonds every month is merely a very
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  Speaker 1: indirect way to to get the influence you want, which
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  Speaker 1: is on on prices and yields. So I actually took
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  Speaker 1: their their statement uh that they made uh recently to
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  Speaker 1: be much more. I thought it was a very healthy move,
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  Speaker 1: which is to start to talk about we're gonna be
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  Speaker 1: aiming to target UM a certain yield for the for
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  Speaker 1: the ten year as opposed to UM buying buying buying assets.
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  Speaker 1: We talked about buying assets. I'm wondering if you maybe
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  Speaker 1: could reference, uh, the Obama administration's economic stimulus plan, because
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  Speaker 1: you said at the time, I believe that the reason
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  Speaker 1: you've decided you didn't vote against it was not that
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  Speaker 1: you were necessarily opposed to it, but that economic stimulus
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  Speaker 1: was not a settled question within the world of academia. Yeah. No,
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  Speaker 1: one of the unfortunate I should say, one of the
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  Speaker 1: fortunate features of an unfortunate event is that, uh, in
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  Speaker 1: response to the downturn of of two thousand uh eight,
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  Speaker 1: in two thousand nine, we've been able to do a
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  Speaker 1: lot of studies to follow up studies to analyze the
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  Speaker 1: effect of physical stimulus. UH. Those studies weren't available at
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  Speaker 1: the time that I signed a petition you make reference to.
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  Speaker 1: I think now is as usual. There's still more work
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  Speaker 1: to be done and more clear to be to be
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  Speaker 1: too found. But I think that it seems clear the
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  Speaker 1: physical list when we're at the zero or bound interest
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  Speaker 1: rates can be very effective as a way of boosting
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  Speaker 1: overall output. Alright, just ten seconds. Is there any chance
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  Speaker 1: of it? It doesn't raise a key rate by December? Noriana, Yes,
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  Speaker 1: there is a chance, and that's the right thing to do,
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  Speaker 1: not doing. They should they should not raise rates. All right,
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  Speaker 1: now you're a quo Letkona. Thank you so much. We'd
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  Speaker 1: like to get every drop of information and analysis we
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  Speaker 1: can out of his former Federal Reserve Bank president in Minneapolis,
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  Speaker 1: Noriyanna Coacha Lakota, also a Bloomberg View columnist. We're going
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  Speaker 1: to continue our fed in focus here on taking stock.
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  Speaker 1: I'm Kathleen Hayes along with Pim Fox, and this is Bloomberg.
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  Speaker 1: Coming up on taking stock, will be speaking with Richard Grossman.
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  Speaker 1: He's the head of Halsted Property. We're going to find
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  Speaker 1: out about residential real estate values and whether low interest
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  Speaker 1: rates will help the market. That's next