What Will a Yellen Fed Look Like?

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Oct. 9 (Bloomberg) -- Forbes Media Chairman Steve Forbes, Deutsche Bank's Carl Riccadonna and Moody's Mark Zandi discuss what the Fed may look like with Janet Yellen as chair. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." Bloomberg's Al Hunt also comments. (Source: Bloomberg)

What do you think the most important thing will be that she does when she steps in?

The most important thing she can do is make it clear she is not ben bernanke and that she is going to take a hard look at what has happened.

There was the sharp downturn, and part of it is what the federal government has done, but part of it is what the federal reserve has done to distort the credit markets, and the question is, is she going to realize after 4.5 years of failure, it is time to take a hard look.

You think it is what she should do but will not do, given her reputation?

Yes, it is like an astronomer who still thinks the sun revolves around the earth.

They still think quantitative easing is the way to get the economy moving, even though we have had this flat recovery.

Other countries have tried it without much success, so you would think it would deserve examination, but this is a political world, where you get promoted when you fail, sadly.

We are going to talk more about qe.

Our "bloomberg view" host and host of "political capital." by the senate?

There will probably be 30 votes against her.

There is that narrow band in the steve forbes caucus that will oppose her.

The tea party republicans will oppose her, but i think she will be confirmed, hitting the votes of all the democrats and a number of moderate republicans.

She has impeccable credentials.

Most people do not share steve's view of their performance in the past four years, and i think she will be confirmed, but i do not think it will be without a struggle.

And we are also living in pretty difficult political times, as we have seen played out minute by minute.

Absolutely.

What does it mean for janet yellen?

I think her senate confirmation is going to go fairly smoothly.

Again, i beg to differ with steve.

I say quantitative easing has been effective.

It has pushed interest rates lower, and low interest rates help the economy, whether it is at the short end of the yield curve, or if you have recently taken out a loan to purchase a home or an auto, we see that the monetary policy is gaining traction.

It has been weaker than in past business cycles, but the recession was deeper, and we had deleveraging taking place, and there was the housing bust, so there was a lot going on.

This is not nearly what we had in the 1980's, and then, we did have deleveraging of the energy industry and agriculture, which affected the inflation from the 1970's, but at the same time, we had a vibrant economy, and we conquered inflation.

This is like the old soviet union, where they say the health care is free, but you could not get any.

If you are a big business, big government, you do very well, but there has to be an explanation.

Every downturn in american history, it has always been followed by a sharp upturn.

This is the exception.

This is different because of the housing market which makes it different from the 1980's cycle and the current environment among households, not the energy sector or the business segment.

Households are 70% of the economy.

When 70% of the economy deleveraging, you have got a problem.

Hold on, i want to bring mark into the conversation.

Do you think we are going to get a taper in 2014 from janet yellen?

Trish, i was thinking you are going to ask me to settle that debate was going on.

Do you want to?

What do you think?

Does qe really work?

There are negatives and positives, but i think it is a net positive.

I do think it has lowered long- term interest rates.

I my calculations, they are about one percentage point lower as a result of qe than they otherwise would have been, and that is a positive, right?

It lowers housing rates and helps stocks, and it has helped deleveraging process itself, so it is not a slamdunk pop it is -- slamdunk positive, but it has helped.

Intuitively, it sounds appealing, lower rates help people to buy houses and to buy cars, but, frankly, they are so low that you could argue that the hundred basis point mark by which they are lowered thanks to qe, if you take that away, it would still be there.

I am good at numbers, as you know.

This translates through to what it means to gdp, jobs, and unemployment, it has lifted gdp by about 1.5 percentage points above what it otherwise would he, which is about 1.4 million more jobs, and unemployment rate that is six or seven percentage points lower, so that is not enough to solve all of the problems the economy is struggling with.

There is many issues, but it certainly has been a help.

That sounds pretty good, steve forbes.

The recovery, the one percent that he gives, we would have no recovery at all.

After a sharp downturn, we have had no recovery.

It is preposterous.

The way you get an economy moving is by investment, and the way you get investment is by capital investment.

This hurts small and medium businesses, which are the job creators, so, again, we have had severe downturns, and everyone has been followed by a sharp upturn.

This is the first one where we did not get it, and the federal reserve restoring the credit markets is a key factor.

At the hospital, they kill the patient, but then they would say, hey, we would have killed more if we did not do it.

With the shutdown and a looming debt ceiling?

I want to help steve forbes, but when he parallels this to hospitals that are killing people, steve, i would want to help you, but i cannot.

I was referring to bleeding the patient.

I made no reference to joseph stalin, thank you very much.

You were talking about the soviet union, and that was joe stalin, steve.

It was very clear that larry summers could not get confirmed.

That was his first choice.

Maybe his first choice was tim geithner, and he did not want it.

Janet yellen is an impeccably qualified economist, a lot of experience at the fed, and most people do not agree with steve forbes or his analogy, and i think you have to do it now, because it is going to happen in a matter of weeks, but it takes a couple of months to do it.

A couple of months, al.

What are we talking about?

Six weeks?

Eight weeks?

What's their been a key term does not end until january, and the government tends to do things when they have to, and sometimes they do not do things when they have to.

Between the vetting and the confirmation hearings, it will take longer than that.

If you are a political cynic, al, and we know you are not, if you were a political cynic, you may say, why nominate her now?

Steve forbes does not, but the market like this cutie in, and they want to see yellen in that seat -- but the market likes this qe.

If you really want to do something about this debt ceiling, maybe you want some negativity in the market right now, so, therefore, why nominate her right now, thereby giving them this opportunity?

Hang on one second.

I am curious to hear al, and then we will go to you.

I want him to jump in.

I think there is enough uncertainty as there is.

You do not want to add to it.

This has to be done soon, and i do not think it impacts the that ceiling at all.

I really thought we were going to see this in q4, but i think it is important for the president to send a signal that he is doing something for the country right now and that we are not just sitting in to intransigent camps, bickering with one another.

He did had to cancel a trip to asia and whatnot, but he has to show he is leading on domestic issues.

Might that be why we have a doubt that is up 70 points?

If yellen signals more qe, stocks like that.

I would not draw too much of a distinction between the ben bernanke fed and one of janet yellen.

So you are saying she is a continuation?

Very consistent.

It gives a lot more credibility to the forward guidance that the fed is trying to lie out, and in terms of qe and interest rates creates larry summers said that guidance could be thrown out of the weekend -- window, but with janet yellen, there are greater considerations.

Let me ask this one question in terms of suppressing interest rates.

In any other market, you suppress prices, you get distortions.

What is the difference when you artificially suppress prices?

Well, if we suppress them for two along, absolutely, there will be distortion.

With the labor market right now, we definitely have had suppressed interest rates 14 all along.

-- for too long.

This is higher than the peak.

There is a lot to be done in meeting the dual mandate, and we are missing more on the unemployment side.

There was this idea that if you did not have interest rates so low for the foreseeable future, perhaps people would be wanting to take out the money and invest the money because there would be a threat of higher interest rates in the future.

Do you think we are losing out on some potential growth because we do not have this threat of higher rates?

Steve pointed out a potential negative, and there was the possibility of creating bubbles and troughs, and the fed is very sensitive to that, and jeremy stein, for example, has written a lot on where that might be prevalent.

In fact, one could argue that the reason bernanke started talking about ek bring -- qe tapering was about that.

Therefore, all else being equal, that should generate higher capital, so, no, i do not think that is what is impeding investments.

I think there are other issues, but i do not think that is one.

We have seen rates drop.

2010. from the teens down to about half of that right now, running about 7 point two percent, not that historically, but why are companies -- just to make an important point, the rate of growth has slowed, so it is still rising, and it is rising at a mid-single digit base.

There is a question, why are they not more aggressive in investing, and in my view, there is a lot of factors, but one of the key factors is that one of the uncertainties created by the political brink midship and the regulatory-legal environment, which has also been very uncertain, has put a pall over the willingness of business is to fully engage three and they are not stepping up and taking the risks they would normally take.

It is a very, very uncertain environment.

Let's listen to this historic

This text has been automatically generated. It may not be 100% accurate.

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