This Is What We Just Learned In Jackson Hole

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0:45Hello and welcome to a special episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. Tracy, so we are here for you and me, the first ever time at Jackson Hall. I know. I always wanted to go partly for the scenery, but also just to get a feel for some of the economic discussions and wonkery. I've seen this described or heard this described as the Super Bowl for central bankers. you know what it's i like that description it's very apt because like when i think of the super bowl i think of like a bunch of like parties and people just hang out like there's the game but seriously like you said like partly for the scenery i would say like for me that's like 95 i was so jaw dropped the first time i walked in it was gorgeous like the grand t-ton i was just like i i'm like totally flabbergasted also the chance to to finally break out my cowboy boots i don't get to do that that often in new york if anyone saw the photos of me on twitter this weekend And Wednesday morning, as I was scrambling out of the house, I could not locate my, I have multiple cowboy boots.

1:47I couldn't find any of them that morning. Sure, Joe. Sure. They all go conveniently missing right before you need them. No, but it is an amazing event. Yeah. It's really interesting to sort of witness it for the first time because it is at this kind of unusual moment for central bankers. Yes. Right. And so it's like this like weird, uneasy piece, which is like inflation has come down a lot. The labor market is robust. We had this hiking cycle, but no one really knows why and how it all happened and what exactly the mechanism was. And I think that leads to a little bit of anxiety about, well, will the disinflation persist?

2:23I think it leads to a lot of anxiety. I mean, these are central bankers who are steeped in economic theory. Things like the Phillips curve, which tell you that inflation shouldn't be coming down without a corresponding rise in the unemployment rate. And we've seen the exact opposite happen. And if anything, it seems like there are some signs that the economy is accelerating now. You have the Atlanta Fed GDP now. 5.9%. Right, which is kind of crazy after we've seen this huge run-up in interest rates. No, I know. There's something like there's – I'm trying to think of some gif of like the person like sort of awkwardly smiling.

2:56And it's like, yeah, things are good, but we totally can't entirely explain why. That's sort of the vibe, I would say, right? Yeah, I think that's right. All right, so what have we learned? We're going to try and do a little bit of summation of this extraordinary weekend with some very special guests for this special episode. We are going to be speaking with two of our illustrious colleagues here at Bloomberg. We're going to be speaking with Bloomberg Surveillance co-host Tom Keen, who happened to be the first ever Odd Lots guest years ago. And then afterwards, we will be speaking to Bloomberg TV's policy correspondent, Michael McKee.

3:31The legend Tom Keen, co-host of Bloomberg Surveillance. Tom, thank you so much for coming back on the AdLock. It's great to be here, but you've got to paint this. I mean, you don't have video for this podcast, do you? No, I'll take a photo. We're sitting here in literally an historic landmark. Back in my ute, there weren't planes, there weren't trains. Tom Keen and the utes. You went west in the car with four screaming kids and no air conditioning, and you went out to the national parks, and there were these little gorgeous 1960s Mad Men bungalows. Yes. And I expect Rock Hudson and Kim Novak to walk through the door at any moment.

4:07These are definitely bungalows. So for people who haven't been to the Jackson Lake Lodge, they're kind of rustic. There's no TV. There's a warning sign in the room saying, if you encounter mice or bats, please call staff. Don't try to trap them yourself. John Farrow had ants. No air conditioning either. But it doesn't get too hot, but there's no air conditioning either. Yeah, air conditioning has a better option. How many times have you been here, Tom? I have been here roughly, I haven't kept count like Davos, but I've been here roughly 17 years, what I'll say is off and on. But I've had the good fortune of being here most of the maximum tension years.

4:44Tracy, you know what I really like about here, and Tom mentioned Davos, which is why I bring it up. In Davos, they clear out all the civilians. Like when all the everyone comes like you cannot get into that whole town here. It's like we're around by tourists like anyone could actually just sort of come hang out here and sort of like sit on one of the couches in the Jackson Lake Lodge. You just got to like buy like a hotel room or something. It's like a much more like peaceful vibe. It's true. I did actually have this older Australian couple that came up to me and they were looking at the Bloomberg TV setup and they sort of tapped me on the shoulder and they were like, what's going on?

5:19What's happening? And I was trying to get them very excited about, oh, Jerome Powell is here. And maybe even someone from the RBA is around. They were into it. Bud Nethel was once on the couch. They're hanging out with this guy, 65 years old, gray. They're talking about, so how was your trip? And he's wonderful. It's Mervyn King from the bank of England. It's great. What have you learned? What struck you about Powell's speech? Well, not much about Powell's speech. I mean, I listened to it. It's in my ear. And we've got all sorts of production issues going on. At the time. So to be honest, I don't hear it word for word like you guys do.

5:53And Tracy really sits on it and listens. But different than any other meeting, even Cintra in Portugal, this is a meeting where you have no clue what the zeitgeist is going to be until deep into Friday. And the one word for me, this unique moment in our history, is complexity. Every one of every shape and flavor is overwhelmed by the complexities of the moment. I think that's exactly right. Right. And do you, the people you speak to, do they express much anxiety about this current period of economic time? Or is the vibe very much, well, last year, Powell was talking about how we'd have to have lots of pain in order to bring down inflation.

6:34Yeah, that's the media. Yeah, that's the media. That's the media angle. All right, we're comfortable. No, no, these are people, as you all know, these are the people who were first in their fourth grade class in math. And they had a meeting in June with their parents to say, well, we think he should jump to sixth grade. They were those kind of people. And so they have a huge arrogance about how smart they are, but also a built-in humility. And the humility right now is maxed out. I don't care if they're, you know, Barry Eichen Green of Berkeley or the youngest PhD who's lucky to breathe the air here.

7:07They're all humbled beyond belief about how wrong they've been. I mean, the final paragraph, I think, of Powell's speech, he talked about the cloudy skies, Because the whole question is like, the stars are a star neutral rate, which no one knows what they are. And I think Paul expressed that in his speech. That it's like, the skies are cloudy. Even if such stars even exist, it does not seem like we could see them right now. I live in New York where there's like one damn star in the sky. It's Arcturus. If you think of Stevie Winwood in Ark of the Diver, it's one of the stars on the record album.

7:39You come out here, and the stars were in the sky last night. There'll be a lot of analysis. Frankly, you guys are better at that than me. It'll be hawkish, hawkish in this level. And that I think they're overwhelmed by the non-economic, non-monetary things. And to me, it's just an extension of the pandemic. And we really don't know where we are in that continuum. Yeah, it seems like they're struggling with some of the real economy aspects of this. And you saw it in Powell's speech where he was talking about supply chain pressures starting to ease, what's going on in housing. It feels like that's not their comfort spot.

8:18It's decidedly not. I mean, to take it academic and to take a structure like a Hicksian ISLM structure, which is, you know, blah, blah, blah, 1938. I don't think that's in play right now. You let me with a Phillips curve, which was, what, 52, I'm going to think, London School of Economics. None of this is working right now. Right. I don't know what the 2024 theory is. It awaits odd lots to tell us. You brought up nothing is working right now. And I'm convinced – I mean I did a TV hit yesterday. We were talking about the disinflation. And someone was like, well, in a year will we have more sense.

8:51And I kind of think that like this is going to be a period that not next year, not 10 years. Like for 20 and 30 years, people will be writing papers about this period right now and what happened. And I suspect we are not going to ever really have something that resembles a consensus. I strongly agree with that. My book of the summer is Olivier Blanchard. Very controversial right now. We don't need to go into it. But the answer is Olivier has this phrase for all the stuff we don't get called other factors. It's like an academic usage with quotes around it and that. We're overwhelmed by the other factors.

9:26I mean, look at what we have right now, Tracy. We've got labor dynamics, pandemic dynamics, the UAW thing that's happening. Pharaoh's gone. He's going to make$170 ,000 a year at UPS. And then you got the fact the Red Sox beat the Houston Astros 70 to 1. There are other factors out there that matter. There's a lot happening, that's for sure. So on that note. Did you see how she ignored me? Did you see how she ignored me? If Farrow's going to leave co-hosting Bloomberg surveillance. This is called a pivot. This is what I learned from the central bank meeting. How to pivot. So on this note, I'm curious.

9:59You've been going for a long time. One thing I was kind of surprised about is so much of the focus from us, reporters here to talk about this event is on the short-term policy outlook. But the event itself is supposed to be discussing the longer-term analytical framework for monetary policy. How has the sort of emphasis of this symposium changed over time? Tom Honig, and I have a nice chat out front of the door here of the Lodge. Tom Honig reinvented Jackson Hole and the Kansas City Fed. This started 40 years ago with Paul Volcker. They said, Paul, I know you hate conferences. You don't want to travel.

10:39There's fly fishing. So Volcker showed up. Literally, I kid you not, that's how they started this thing. And off the top of my head, 82. Well, it worked. It worked. And it still works to this day, but it had to get reinvigorated. And Tom Honeg did that as head of the Kansas City Fed before Esther George. But what Honeg had to do is police the modern media. And they it's sort of been, you know, you see it, you come out of the lodge, folks, and there's this huge mountain range picture. And there's this place where they take the photos of the central bankers. And off to the right, it looks like the Republican National Convention.

11:13You know, it's like three networks lined up everything but the satellite trucks. And the answer is the Kansas City Fed has had to police the short term analysis with papers looking at 30 years. Yeah. It does seem, however, in different years, and obviously, the chairman doesn't, not every year, most years, the chairman gives a speech, but every once in a while, I think the chairman doesn't come right. Yeah, I think that's right. 20, I feel like 2013 or something, maybe they didn't bother. Yeah, a vacant memory. But it feels like, to some extent, it's sort of, the dial goes back and forth about how academic they're at.

11:48So, like, right now, and last year, it was probably more famous, you know, there was, like, that Powell gave an eight-minute speech in 2022. which I've characterized as like, we're not here to make friends. We're here to get inflation down. This year, I think the speech was closer to maybe like 15 or 20 minutes or something like that, but still like not a particularly academic speech. But if you go back to 2019 or 2018, and Paulo's speech is very much like talking about the different stars. So it feels like you sort of get a feel for the moment based on how academic that speech is. And sometimes this happens, and it happened, I believe it was with Draghi.

12:20It may have been Trichet. but the moment here is the European Central Bank. My conversation with Christine Lagarde is an example of the urgency in ECB to September 16th and beyond, and a complete mystery of the European experiment. It makes us look like virtual certitude what we're doing. It's all the same. So when you come here, what are the goals? What constitutes a good Jackson Hole for you and the surveillance team? Ask Tom Honegg is to get me out of a suit. He came up to me once and he said, can we lose the tie? Why do you wear a bolo? I traveled. When I first joined Bloomberg, actually, I wore a bolo once.

13:00We interviewed the art director of Mad Men. And I wore a bolo that was some endorsement from Mad Men or something. I can't remember. But at Jackson Hole, I travel like I always travel, which is as simple as I can because I used to travel nonstop for the company. and you know I started out like Audrey Hepburn and charade with seven suitcases and a hat box and then I got down to three suitcases and now it's like you get to one. I did ask Mike McKee who we are about to speak to actually how many hats he typically brings with him to Jackson Hole I was disappointed to hear it was only one I imagined him Audrey Hepburn style with like seven hat boxes on the plane.

13:39I didn't realize he's a he's a western man he's from Colorado so this is his natural habitat. No, Joe, come on. Oh, did I make that up? He's milking every western junket on the economic calendar. He's like, oh, I'm western. He's like, this is my natural habitat. Yeah, he's north of here. He's up by Jellystone Park in Idaho or someplace. He's here. Then he'll go down to Arizona or whatever. He's got the whole mountain time thing. He's nailed it. Well, now we have to ask Mike about this next. It's true. Okay. One more question from me. For people out there who are trying to understand Jackson Hole, What's your most important piece of advice?

14:14What should they be looking out for? The thing, and particularly for younger people, this is so true. Social media, podcasts, the blah, blah I do doesn't cut it. You have to read the material. And the material can be books, obviously. It can be papers. It can be longer commentaries. That's what we did when we were kids. You read The Economist cover to cover. I mean, that's how you do it. There's no substitute for reading. There's just absolutely no substitute for reading. It's as simple as that. Did you read all the papers, Joe? I hate to admit it, but Tom is totally right. This has taken me like 43 years of my life to acknowledge, actually, you kind of have to do the reading.

14:57And if you read an academic paper, you can't just... For years, I just read the abstract and then skipped to the end and looked for a chart that I could screenshot and tweet. And I have to admit that there might be actually some good meat in the middle. The good stuff's in the footnotes. I know. All right, my last question, a few more months of this year, three Fed meetings before the end of the year. What are you watching for? What are you looking out for for the rest of the year, both from the macro and the Fed? What interests you right now? The word I overuse, the TV people will say to me, why are you saying vector?

15:29No one knows what that is. I think a lot of people know what a vector is. it's a straight line essentially but in a two or three dimensional space to the end of this year with all that we've got joe it's a massive three-dimensional space right now i want to know the power of any of these vectors like inflation i want to know which way they're going i have no idea what the what the vector is on java's claims no idea at all but i i want to see established to the end of the year any belief in these vectors full you know we make jokes about I'm so pessimistic. I'm in the triple leveraged all cash fund.

16:03I have hugely... Which is... Anyway, sorry. No, no. It's a good bet. There was a good bet up in... There's a new offering coming out in February. It's forple leveraged. But the answer is, I have a huge optimism. It's like Churchill said about America. We'll figure it out at some point. I have a huge optimism forward about our exceptionalism on technology getting us into 2024. Well, Jackson Hole is definitely a place that makes you believe in American exceptionalism. Oh, 100%. 100%. I was DMing with someone earlier. I was like, you don't even need to travel abroad. America is so much. It's so nice.

16:38Tom, that was a blast. It was great. So much fun. Can I take a nap? Yes. Silicon Valley is selling you a future where you're obsolete or worse, identical. At Palantir, they're witnessing something different and revolutionary from re-industrializing the nation's defense base to shipyard workers building faster and frontline workers boosting productivity, AI is transforming work across the nation. AI is not replacing American workers or flattening them into conformity. It's unleashing what makes each one irreplaceable. Their judgment, their craft, their creativity. When American workers become more powerfully themselves, they own the future.

17:21Palantir, making Americans irreplaceable.

17:54We'll see you next time. And now let's chat with our colleague, Mike McKee. Mike McKee, thank you so much for joining us. Happy to be here. Mike, really important question to start. So Tom said you're not really Western. He's like, oh, Mike McKee. Tom says you're a faux Western. He just pretends to be a cowboy when he's like, what's the truth? What's the real story? I will gladly take Tom out on the range with me. I grew up in Colorado, grew up riding horses. That seems pretty west. I come out here every year and help my friends on the ranch. And so, yeah, I mean, I can cowboy. Okay. For those who haven't seen the pictures Mike wears a cowboy A lot of people like to dress up But I think Mike is a little more credible than most I think Mike probably has the best Jackson Hole wardrobe I'd put it that way It's what I would wear This is Jackson Hole How many hats do you actually have with you?

18:43I only have one hat with me I own seven And how many times have you been out here? I don't know I have an exact count But the first time I came was 1997 And most years between 97 and now I've been here. So one thing I didn't realize about Jackson Hole, I kind of assumed that, you know, media was invited and that media would have access to the actual conference. But that's not the case. They have a kind of weird system. Can you describe that to us? Basically, it's one representative from each news media organization. And Bloomberg Radio, TV, and unfortunately, you guys are lumped under that. That's okay.

19:19gets one. And Bloomberg News gets one. And then the Wall Street Journal, the New York Times, et cetera. And so the media presence is there, but it's not huge. So we were talking about this with Tom earlier, but it feels like the dial changes from time to time. And some years, the interest is in something very academic. And then some years, it feels like the interest is in how fast is the Fed going to raise rates over the next three or four months. How does this year feel different or similar to past Jackson Hole's you've been to? Well, it's maybe a little more in the middle. What happened basically was, it is an academic conference.

20:01People think that something goes on in there that doesn't happen. It's academic economic papers with econometrics, math in there, and they talk about things that might happen in the future and in terms of economics. But the chairman always gets to give a speech. And in 2009, Ben Bernanke had something he wanted to say because this was just before they were going to start QE. And so he announced it here. And then the following year, he announced a round two because they still had the recession and the economic problems. And then that got Wall Street's attention. And it became obvious to central bankers, to the chairman, that they could make some news or they could steer, because not much else is happening in August anyway.

20:46And so some years when they've had something to say, they've used this platform. Last year, Jay Powell gave his famous eight-minute slap the markets upside the head speech and got a lot of attention. So that didn't focus everybody's attention on this year. And he gave an economic outlook speech. I think he wanted to set the predicate for going into September, but we could easily go back to something anodyne next year. What was your favorite Jackson Hole? Is there one that stands out to you as a sort of seminal moment? I think probably the most interesting seminal one was 2005. Alan Greenspan was retiring, and they set this up as a sort of hagiography to Alan Greenspan, because remember, we had the great moderation and productivity gains, and the Fed had its soft landing.

21:39And so everybody was here to praise Alan Greenspan, except for Raghuram Rajan, who was at the University of Chicago, and then later the governor of the Indian Central Bank. He came here and said, you guys are all missing it. We are going to have a crisis, because we've got this borrowing bubble, and he was sort of ostracized by the economic community and the people here until, obviously, he was proven right and came back a couple of years later. So I knew that Rajan had given that speech. I didn't realize that was a Jackson Hole speech, and I certainly did not realize that it was essentially at the sort of vague Alan Greenspan roast or whatever it is.

22:20He was the skunk at the party. I hadn't realized the context of that before. Yeah, it was kind of fascinating because it stood out so much from what everybody else was saying because Jean-Claude Trichet was the ECB president at the time, came here to talk about how great Alan Greenspan was. Is anyone getting ostracized this year? Is there someone we should be paying more attention to? I think this year everybody is kind of welcome at the table. Even Esther George, who has retired, is back to see her old buddies. And I talked to her. She said she's very happy to sit in the back and not have to worry about it this year.

22:52So something that we were talking about before is that, you know, compared to last year, obviously, when I think, you know, CPI peaked around 9%, the Fed probably feels, and many central bankers probably feel better about things. But there's a few, you know, there's an uneasiness, right, because no one really knows why inflation fell as fast as it did, given that we still have 3.5 % unemployment. And no one really knows why GDP growth seems to be accelerating in Q3, despite the Fed having raised rates to 5%. And then on top of that, you just have all these other things going on. What was the term that Tom used?

23:27Complexity. Other factors. Vectors, I think he said. Very Tom. Vectors matter. That was a terrible Tom Keen. You have a Tom dictionary somewhere. Explanation, yeah. Can you talk a little bit, like, you know, it feels like we're just in a period of, it's a cliche, but just like real uncertainty about what is going on. Well, two thoughts on that. One is that coming into this meeting, I talked earlier in the week with a central banker who said, this is a tough one for us because it was easy last year. Right. Inflation was high. You know what you need to say. We know what we need to say. We're going to raise rates.

24:01We're going to raise rates. We're going to raise rates. This year, we don't know what's going to happen. And it's kind of hard to convince people that we don't know and we don't have a plan and we're going to be data dependent. That was one thought. The other is, if you remember in Jay Powell's speech, he said, we are trying to navigate by the stars under cloudy skies. Well, you'll appreciate this, Joe, because you're a musician. It's a little bit like listening to an oldie, maybe an old Grateful Dead song, and you remember the lyrics because you were around. That came from his 2008 speech, 18 speech, his first speech here when he talked about our star, you stars, et cetera.

24:39And so I think it was Jay Powell's little inside joke to everybody about we don't really know where we are now. Wait, I have a media navel-gazing question, which is why did this expectation that he was going to give some big R-star policy stance come about anyway? Because if you look at the 2018 speech, he was always kind of doubtful about it. And of course, he is not an economist by training. And so I don't know where that expectation came from that he was suddenly going to give a very academic speech about how maybe the neutral rate was higher than we thought. I'm not exactly sure. The estimates of the neutral rate that the New York Fed did got suspended during the pandemic because the data weren't accurate enough to make any kind of determination.