tv The David Rubenstein Show Peer to Peer Conversations Bloomberg April 18, 2019 8:00pm-8:31pm EDT
♪ david: you were nominated to be a chairman of the fed by president trump. is being chair all that it is cracked up to be? [laughter] david: people thought two rate increases in 2019 were part of your plan. jay: there is no plan. we are in a place where we can be patient and flexible. david: maybe the president will have a meeting with you. have you received the invitation? jay: no invitation. david: so if you had an invitation, you would be happy to accept it? jay: i am not aware of anybody not accepting it. david: ok. [laughter] >> would you fix your tie, please? david: well, people wouldn't recognize me if my tie was fixed, but ok. just leave it this way. alright. ♪
david: i don't consider myself a journalist. and nobody else would consider myself a journalist. i began to take on the life of being an interviewer even though i have a day job of running a private equity firm. how do you define leadership? what is it that makes somebody tick? you were nominated to be the chairman of the fed by president trump. you had previously served as a member of the fed. now that you have been a member and chair, is being chair all that it is cracked up to be? [laughter] jay: i was a governor for six years. i think i had every job on the board of governors there is other than chair. it is a great job and honored to work every day. david: you don't just wish you were a member? jay: i enjoy the job. i really do.
i'm grateful for the opportunity. it is a great honor. i do. i enjoy it. david: do you find as a chairman that your jokes are laughed at more quickly as a regular member? [laughter] jay: i guess we will find out about the jokes. i don't play much golf anymore. i think my jokes have always been well received, frankly. [laughter] david: you had an interesting interview at the american economics association with your two predecessors. at that interview, you seemed to say that the fed's position going forward is you are comfortable where you are with the fed fund's rate? jay: let me provide some context. 2018 was a good year for the u.s. economy, the strongest growth we have had in more than a decade. the labor market is strong, historically low unemployment, the lowest in 50 years, wages going up, labor force participation going up, and inflation near target. we see continued momentum from
the data through this year. we see the financial markets expressing a view of concern about downside risks associated with global growth and trade. so how do we put those signals together? i think we are actually in a good place. where that leaves us is we have the ability to be patient and watch patiently and carefully as we see the economy evolving and figure out which of these two narratives will be the story for 2019. david: at the end of last year, in december, people thought that perhaps two fed fund rate increases were part of your plan. is it fair to say that is not a part of your plan today? jay: the better way to think about it is there is no such plan. we don't actually vote on a path or plan for interest rates. we have each individual participant on the fomc submit
his or her individual projections four times a year. we did that in december. two rate increases was the median, conditional on strong outlook for 2019, an outlook which may still happen, but we are in a place where we can be patient and flexible and see what evolves. for the meantime, we are waiting and watching. david: i should not anticipate a big increase in interest rates at your next fomc meeting? [laughter] jay: you should anticipate that we are going to be patient and watching. [laughter] david: all right, well. jay: waiting and seeing. david: i have no doubt. your two predecessors had phd in economics. you have a law degree from georgetown. you practice law. is there a disadvantage to not having a phd? and is there an advantage to having a private equity background? [laughter] jay: you know, i would not say there is a disadvantage to having a phd. i have been at the board seven years. i have had a lot of time to learn monetary economics. you really have to do that if
you're going to serve as a board. you have to invest in learning. i have done that. part of my career is doing and learning different things. i have an interesting story. i know a guy who founded a private equity firm with no business degree, no experience, and made a success of it. [laughter] jay: so, it can be done. david: uh -- [applause] david: sometimes it is better to be lucky than anything else. let me ask you this. recently, the president of the united states, who appointed you, has been less than favorable in some of your decisions. does that bother you? jay: no. we are very focused on our job. congress has given us a very specific job, it is an important job. we are here to serve the american people. all of the american people use all our tools to achieve maximum employment and price stability. that is what we are focused on. we don't get distracted by other
things. we do not take political factors into consideration either in our discussions are in our decisions at all. that is just who we are. david: larry kudlow has suggested may be the president will have a meeting with you. have you received that invitation yet? jay: no invitation. i will say, fed chairs do meet with presidents. i'm not aware of any fed chair in my lifetime that hasn't met with the president. these meetings tend to be rare. i think there has been only one or two doing my time here. i am not aware of any fed chair turning down an invitation from the white house, nor do i think that is appropriate. but i really don't have any news for you on that. david: if you had an invitation, you would be happy to accept it? jay: i am not aware of anybody not accepting it. david: ok. [laughter] david: ok, so let's talk about the economy. the fed in its fomc minutes pointed out that there is a disparity a little bit. the financial markets seem to be a little bit uncertain, but the core economy seems to be doing
quite nicely. how does this explain why the financial markets seem to be nervous, while the core economy seems to be growing at a good rate? jay: the financial markets beginning in the fourth quarter got more volatile and seemed to be pricing in a more pessimistic outlook, which seemed to be rooted in concerns about slowing growth and a related concern of the ongoing trade negotiations. but if you look at the incoming data right through the end of the year and into the beginning of this year, you don't really see any evidence of a slowdown. we are in a situation where we have factors pointing in different directions. by the way, this is not uncommon. this is something that happens not infrequently. when we have that, what we do is we apply risk management principles. we are not just concerned about the baseline case. we are thinking about the risks and we are using our tools to
address those risks. in that case, what does it mean? first, there is no preset path for rates. there really isn't. there never is. but, particularly there isn't now. second, it gives us the opportunity to be patient and watch and see what does evolve. are we going to see a more positive view that most forecasters have for this year, or are we going to see slowing global growth and it affecting u.s. growth? if it does, it is a common thing for the economy to behave in ways that are not exactly as we expect. and when that happens, we can flexibly and quickly move policy, significantly as well, if that is appropriate. so we will always use our tools to try to sustain the expansion and keep the labor markets strong, and inflation low. david: the fed is projecting the u.s. economy will grow in 2019 at 2.3%. i believe that is the number. previously, it was a bit higher, 2.5%, i think, last year. you have lowered it, correct?
jay: there is no official fed projection. what 2.3% was, was the median of 17 participants. there were half above and half below that. during the year, not infrequently, in fact, typically, when we submit new projections every quarter, the projections will change. it is difficult to forecast the economy with that level of precision. so we will take into account tightening financial conditions, which we have seen, and we will also lower our rate path and try to have monetary policy offset weakness before it even happens. david: the shutdown, what is the impact on the economy in your view? jay: in the short term, if government shutdowns don't last long, they have typically not left much of a mark on the economy. it isn't to say that there isn't plenty of personal hardship that people undergo, but at the aggregate level, the economy generally does not reflect much damage from a shutdown. a longer shutdown is something we haven't had. if we have an extended shutdown, then i do think that would show
up in the data pretty clearly, and i would say particularly from our standpoint, one of the agencies that is shut down is commerce, which has the bureau of economic analysis and census bureau, and some of the pretty important data is published by them. it would not be published, including retail sales and other things this month, so we would have a less clear picture into the economy were it to go on much longer. david: how do you get out of speaking in fed-speak when you have all those fed people around you? [laughter] jay: when people start using those technical words that don't mean anything to them, it is irritating, so i try hard not to, or lapse into latin, for that matter. [laughter] ♪
about the economy going forward. we are close to the longest period of expansion since world war ii. we could break that record. do you see anything on the horizon that would make it likely we would go into a recession in 2019? jay: i don't see anything that suggests the possibility of a recession in the near term is at all elevated. recessions are caused by two things. one, inflation high enough that the fed has to hit the brakes. we don't see that. more common recently, in the last several cycles, it has been a matter of mounting financial imbalances, by which i mean the housing bubble, the dot com bubble, or excessive leverage, as you saw in the subprime mortgage area. where those things happen. we don't see that either. we don't see the two most basic recent causes of recession, we don't see those risks. so i would say that the possibility is not elevated at the moment. david: you are not worried in 2019 about anything close to a recession? jay: i don't see a recession.
if you asked me what i am worried about, i would say the u.s. economy is solid. as i mentioned, there is good momentum going into this year. the principal worry i would have is really global growth. if you look at asia, if you look at europe, you see slowing in growth, and the question will be, how much does that affect us? it is a tightly integrated global economy and financial market, and we will feel that. david: talk about inflation for the moment. what do you think the inflation rate is likely to be for 2019? jay: i think it will be right around 2%. a capital asset we inherited from chairman volcker and greenspan, is anchored in inflation expectations. that means that when the economy is really weak, inflation doesn't go down much, and when the economy is really strong, inflation tends to be rooted close to 2%. david: are you worried about the slowing growth rate in the chinese economy and its impact on our economy? jay: it is a concern, something we are watching. the chinese economy has slowed down.
it is showing up a lot in consumer spending. we also saw two weak manufacturing and services surveys. the thing you are also seeing, though, is that the chinese authorities are doing repeated rounds of things to support the economy. just over and over again, different things. i still think the baseline case for china is going to be another year of solid growth. i don't see -- there is no reason to think it will be something worse than that. david: do you think the tariffs we have imposed on chinese imports is a good thing for our economy, a harmful thing for the chinese economy? jay: so i don't think that the tariffs on either side have had much of a visible mark on the respective economies. i would not comment on the administration's trade policy. i will say this though -- if this process leads us to a fairer, more open, lower-tariff environment for trade, that will be good for the global economy and it would be good for our economy.
if instead, it leads to a more protectionist environment where tariffs are higher and mutual and longer-lasting, that would lead to a less productive economy here in the united states and around the world. david: are you worried about the enormous amount of debt the federal government has? jay: i am very worried about it. but from the fed standpoint, we are really looking at a business cycle kind of length. that is our frame of reference, and the long-term fiscal non-sustainability of the u.s. government is not really something that plays into the medium-term, that is relevant for our policy decisions. it is a long-run issue we need to face, and ultimately will have no choice but to face. david: as a result of quantitative easing, the fed bought a lot of securities, and now you are letting them roll off. is that the correct policy, as opposed to selling them? you are just letting them expire. is that the correct policy in your view? jay: yes, we wanted to have the balance sheet return to a more
normal level, a level no larger than it needs to be to conduct monetary policy efficiently. david: what level would that be, $1 trillion? jay: we don't know the exact level. that will depend on the public's appetite for our liabilities, specifically currency. to us, that is the liability. the public has a large appetite for currency and also reserves and other liabilities. the public has a large appetite for currency. so it will be substantially smaller than it is now. david: what is the balance sheet now? jay: it is a little under $4 trillion. it was $4 trillion before the crisis. it will be smaller than it is now, but nowhere near what it was before. david: where do you think the unemployment rate is headed? jay: right now it is 3.9%. we have been under 4% for the last nine months. again, that has not happened since the mid-1960's. so a 50-year low. if we get this world that is our baseline case of growth in the range of 2% to 2.5%, employment should move down a couple of tenths.
david: do you meet with the treasury secretary, or people in the white house? jay: four a long time tradition, the fed chair has regular meetings that wind up being breakfast and lunch is, mostly breakfast, between the secretary of the treasury and the fed chair. david: where do they have them? jay: it alternates. we also have a council of economic advisers. david: where is the food better? jay: treasury. [laughter] jay: trust me there. david: do you meet with any member of congress wants to meet with you, or how do you decide? jay: i don't decide, i just meet them. i think it is very important. i have visitors over for lunch in groups sometimes. i can't stress how important it is. our accountability to the american people runs through congress. we seek transparency and accountability. it is a big part of what we do. david: some predecessors of yours spoken fed-speak. which would mean that it is difficult to understand what they are saying. alan greenspan would be the master of that.
i think he would take pride in it. jay: proudly, yeah. david: you don't like fed speak, so how do you get out of speaking fed-speak when you have all those fed people around you? [laughter] jay: what i'm trying to do is explain what we are doing and why we are doing it in a way that is comprehensible to the interested public. that's what i try to do. when people start using these technical words that don't mean anything to them, it is just irritating. so i try hard not to use it, or lapse into the latin, for that matter. david: speaking of latin, you have a skill you have perfected since college. you can take a word and pronounce it backwards. so, take rubenstein. you can say that backwards. is that right? jay: yes, it is something i was born with. i can see your name spelled forward and backward in my head. i have been a what to do that since i could read. david: is there any advantage in life from having this skill, or? [laughter] jay: it has been surprisingly lucrative at times.
david: really? what did you think when you first on the fed? you are not an economist. jay: i spent a couple of years really getting the books. i sat next to janet yellen. she used to come in my office and go, are you coming out today? so, i hit it really hard there. i felt like i had a lot to learn, and i did. ♪
david: you grew up in the washington area, and you went to undergraduate at princeton, then went to georgetown law school, and you were editor in chief of the law review. jay: yes, i was. david: and then you clerked, so you had a great legal career. you practiced for a while. why did you abandon the practice of law? jay: it is funny. so, going to law school led me to practice law. although it didn't lead
everybody that way. practicing law led me to want to go into investment banking, because they were the clients and it seemed like they were having more fun. so i went into investment banking. david: they are making more money, for sure. [laughter] jay: that led me to do other things. david: it ultimately want to dillon reid, and there, you worked for nick brady, who became treasury secretary. he recruited you to washington, d.c., and you became undersecretary for finance under george herbert walker bush? is that right? jay: that is correct. yeah. david: you went back to dillon reid for a while, and then you decided that the high point of your life would be if you want into private equity. as many people know, you joined carlyle and were there for eight years. so is there any doubt that private equity is the highest calling of mankind? [laughter] jay: so, let me say, i -- somehow, that was the path that made sense to me along the way. it did lead me to private equity. it was a great way to make a living. i really enjoyed my time there. david: when you left carlyle, you did something very
interesting, and this brought you to the attention of president obama. why don't you explain this to the people? jay: i went to work on fiscal policy and i was there for two great years. i saw the debt ceiling crisis coming. and i wrote this big study that showed pretty much what would happen with some precision, if the debt ceiling weren't raised. you can actually look at what bills are due on what day with the federal government, the daily treasury cash statement, and i started briefing people on this. and it really went viral. that went viral. and i wound up briefing the whole republican caucus in the house and the senate, and playing a real role in that. and i think the obama administration, so i think speaker boehner and eric cantor thought i had played a real role in turning around the house caucus on that, told that to the president, and the next thing i know, i'm getting a phone call from tim geithner, wondering if i could talk about being on the federal reserve board. david: when you got on the fed, did you think the people did not know much as you did about policy, or that they knew more
than you did? what did you think when you were first on the fed? you are not an economist. jay: i had nine months between getting that phone call and actually walking in the front door and being sworn in. and i used that time to study economics through textbooks and lots and lots of papers and speeches. then i got into the real education. i assumed i had a lot to learn. i spent a couple of years really hitting the books. in fact, i sat next to janet yellen in those days. she used to come into my office and go, are you coming out today? so, i hit it really hard there. i felt like i had a lot to learn. and i did. david: you were there when janet yellen was there? jay: vice chair. david: so she became chair when you are there, and also ben bernanke. so who was the better chair? [laughter] jay: it is a tie. [laughter] david: ok. so when the opportunity came for you to be appointed as chair, as i recall, there were several candidates that were considered by the president.
had you ever met the president before? jay: i never had met him. i met him for the first time when i had my interview for chair. david: how long did you spend with him? jay: less than an hour. i can't remember exactly how long it was. david: ok. so after it was over for you, you said, i did that pretty well and i will get this job, or you didn't know? jay: i didn't know. i felt like the interview had gone well. david: you are a guitar player, right? jay: i am an amateur musician. yes. david: you sing as well? jay: i sing badly. i try to accompany people who sing well. david: you used to be a golfer, you are not a golfer now? jay: i can't do a lot of golfing now, but i have been a road cyclist for many years. david: is that safe when you are the chairman of the federal reserve board? i am afraid to go across the street sometimes, when they see bikes coming. is that safe for you to do that? jay: i do try to keep it in a safe way. we have a weekend house on the island and i ride around the
island over and over again. i ride my stationary bike at home. i don't get on the streets of washington, d.c. anymore. david: ok. talk about the pleasures of the job. what is the great pleasure of a job, and what is the least pleasurable of the job? other than the interviews? [laughter] jay: i actually enjoy meeting with people and meeting with the public. it is a little bit like your statement that you don't find any deals in the office, you used to say. so in my case, getting out of the office, going to capitol hill, i enjoyed engaging with people. also, we have lots of groups that have come in. i met with a group of students from d.c. last week, high school students. it was a lot of fun. i would go back to the fact that it is such a great honor and privilege to do this. i never go to to work not thinking this is a great job and a special time in my life. ♪
david: if you could be a great athlete or you could be the ceo of an athletic apparel company, what would you rather do? kevin: i would take ceo every day of the week. maybe not every day of the week. [laughter] david: stephen curry, great basketball player, if he comes over your house, does he let you win? kevin: if i won a game against stephen curry that would be a problem. david: you're in the apparel business. kevin: that jacket lets you increase blood flow and help recover your muscles faster. david: i'm feeling the blood flowing already. >> would you fix your tie, please? david: people wouldn't recognize me if my tie was fixed, but all right.