Transcripts For BLOOMBERG Bloomberg Surveillance 20171114 :

also, later we will speak to the iea about the u.s. shale surge. two great guests coming up in a couple seconds. european stocks are shrugging off a little bit of the declines we saw in asia. better than expected german data, boosting sentiment there. some of the most powerful central bankers gather in frankfurt -- that is definitely what we are looking up for. the italian economy -- sure, they did not qualify during the world cup, but the economy expanded better than thought. the 10 year briefly breaching 3% for the first time in 10 years. let's get straight to the bloomberg first word news. chief house tax writer says he has enough republican votes to pass the tax legislation this week. kevin brady says he does not anticipate any major changes. meanwhile, the white house says president trump will speak about taxes thursday morning. and the house ways and means committee chair kevin brady joins us at six a copy of u.k. time. roy moore is facing a fresh allegation of sexual assault. the former alabama judge of celtic a young -- the former alabama judge assaulted a young girl which he was 16. he was called on to drop out of the campaign, even as moore continues to deny the allegation. moore attacked me when i was a child. i did nothing to deserve his sexual attack. i was frightened by his position and his power. i am coming forward today because i want mr. moore to know that he no longer has any power over me. u.k.'s chief brexit negotiator says it is 50-50 if he gets a break during talks by december. david davis briefed yesterday. the pound has fallen further amid the stall brexit talks and the internal political struggles faced by theresa may. theresa may told putin that britain was ready to fight back during his attempt to destabilize democracy. donald trump that on saturday that he believes putin's denial over the election meddling were sincere. theresa may: we know what you were doing and you will not succeed because you underestimate the resilience of our democracies, the enduring attraction of free societies and the commitment of western nations to the alliances that bind us. nejra: china's economic is c expansion dialed back. a 6.6%re down from expansion the previous month. retail sales rose 10%, missing forecasts. while fixed asset investment grew 7.3%, matching estimates. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm nejra cehic. this is bloomberg. francine: thank you. europe's economy is getting traction. figures released in a little less than an hour time is excited to show the eurozone g-v adp at 2.5%. the heads of the world's most influential central banks will be in frankfurt. in the next hour, we will hear from the panel, which includes janet yellen, mario draghi, mark carney and kuroda. executive editor for global ralph.cs is here, as is ralph, let me take it off with you. is this a communication concern, or is this the markets misunderstanding what central banks are telling them? ralph: i don't think we can see any signs of freaking out. the market remains sanguine as ever about what central banks might might not be trying to tell us. the big question is, how do we square on the one hand the increasingly synchronized global recovery. it seems to beginning strength from the external side, so we might see a little bit of a contradiction. we continue to see strong data out of the u.s. gdp data suggests 3% growth in the third quarter. when you are talking about communication challenges, i think the communication , what is themore market trying to tell the rest of the world that we do not see in the data? but the: yes, markets are saying one thing and central banks are saying and other. who is right? >> that's a big question. that will be the big theme for 2018. who is right? the market's prediction that inflation will remain weak is correct. you want a bit more certainty from the central bank. the best guess is the inflation in the u.s. will pick up to the target. the bankers, the economists, interestingly enough, seem to be sticking with the central bank. francine: do you worry about the flattening yield curv eie in the u.s.? what is underlying this -- what the fed does, or is it something more sinister? >> i don't think it is anything sinister. i think it is the market not wanting to give up on the policy of trade. i think there are a lot of people buying fixed income to protect other asset classes, be it credit or equities. long treasuries act as a hedge against that with some kind of flattening exposure. but if the u.s. yield curve is to be believed, then the u.s. rate hike is close to a 10. that is not something the fed will be happy about. we got the first comments from harker last week, directly challenging the flatness of the curve. francine: actually, he can yesterday on bloomberg, harker. he basically said the u.s. yield curves would not invert. in the past, this was the sign of a recession. does this mean we are pointing at a recession? economy that accelerates % -- now we are at 3% -- it doesn't look like an economy that is close to the end of its life cycle. francine: who has the toughest job on the all-star panel? it is probably governor kuroda, yet again. >> probably, though mark carney has a lot too. he must explain the breach of the target. janet yellen seems to put the fed on a gradual path. and kuroda, yes. his opinion. obviously, he is a bit more certain now, as to whether he will be reappointed. there were some signs that inflation data is starting to pick up. francine: is there a communication problem amongst the central bankers? this goes back to the old, philosophical questions. you have to be transparent, but if you are too transparent, to the markets rely too much on your transparency? >> you hold the hand of the markets and you do so in a way when you need to change direction, it happens with a bit of a jolt. the view of central banks will show more that transparency is the best policy and they are trying as best as they can to provide some direction and some guidance. sometimes that comes with a health check. francine: who communicates? doesn't it make your life easier, or harder? -- does it make your life easier, or harder? >> we have gotten clear communications from the fed. recently the ecb has pulled off a difficult october meeting. the fed has not really changed its message for a while while. it is more the issue of the market not believing it. of england and japan have the toughest jobs ahead of them, or maybe even behind them, in the case of the big new england. francine: thank you. ralf preusser stays with us. i have my voice back, which is always a good thing on a tuesday. coming up, we speak to best-selling author michael itis about his book and how outlined the framework for economi psychology. the u.s. shale surge is the biggest oil and gas boom in history. we will go through that, and the bromance between saudi and russia. this is bloomberg. ♪ francine: this is "bloomberg surveillance" and i'm francine lacqua in london. let's get straight to the bloomberg business flash. nejra: at&t will try to dig into when the white house influence the justice's review of the plan takeover of time warner. according to people familiar with the matter, in the event of a trial over the $85.4 billion deal, at&t can seek permission for access to communications between the white house and the doj. at&t and time warner declined to comment, whether justice department referred to earlier statements by the department and white house. credit suisse will pay 135 million dollars to resolve currency manipulation allegations by new york's banking regulator. the department of financial services said traders at the zurich-based bank shared information about client's orders and talk to traders from other banks. the regulator said in some instances, they front ran customer orders to boost the bank's profits. the lead management has amassed a position in more entertainment centers and will push for changes in the company. has held discussions with the company and is urging it to explore been taken private, among other options. elliott declined to comment. taubmanentative from did not immediately reply. francine: in the u.s. the chief house tax writer says he is confident that there are enough republican votes to pass the tax plan. meanwhile, the white house says president trump will speak about taxes at a full conference of house republicans on thursday. joining us for the latest developments from washington, stephanie baker, our global business correspondent. ralf preusser is still with us. stephanie: what exactly have we learned overnight and are we closer to any kind of deal? stephanie: yeah, i think we are not expected to see any significant amendments. there will be minor changes. it is supposed to go to a vote this thursday or friday. um, you know, i think the bigger issue here is they are asking house republicans to vote on a bill that will still be far from what the final will look like because they still have to go through a process called reconciliation with the senate. the senate bill is less radical in many respects than the house bill. so, the final version will look like different. they are far apart on many issues, including when the corporate tax rate deduction cut comes into force. whether to appear estate taxes, whether to get rid of deductions for local and state taxes. so, there are a lot of things that need to be worked out over the next month, if they are to get it passed by christmas. francine: so, what happened thursday? stephanie: thursday the house is expected -- that would be the earliest to vote. that is when trump is expected to go to the hill and urge them to pass this. of course, democrats have called the house tax bill sort of classic trickle-down economics, saying it is not going to work. they have not been included in the process. of course, there have been a slew of studies out, saying the majority of the tax cuts go to the wealthy. indeed, if you look at the house plan, it is $1.5 trillion in tax cuts in $1 trillion of that is accounted for by the corporate taxes, and about $200 billion is estater retaipeal of the tax. this will be a battle and it will carry on through the november 2018 midterm elections. francine: how much does this impact your world, ralf? this is in fact fed thinking, even if they don't say it? ralf: i would argue is probably does. we have to bear in mind that the u.s. economy has strengthened quite formidably. that is something the fed probably did not expect. that's point number one. point number two is the question, why is the market as skeptical as it is? it does not expect anything to be passed. or two, to stephanie's point about trickle down, they don't expected to have any impact on the real economy down the line. francine: not even gdp on the margins? ralf: gdp down the margins, that is the point, i think. even if it is skeptical about the long-term growth impact of this tax plan, because of the use of scoring, because of the is of subtext scores, there shock potentially coming on the back of his tax plan. and that i don't think the market is paying enough attention to. francine: does whatever happens with this tax repose only to be combined with big corporations? stephanie: again, that's another area where they are far apart. there's a lot of details to be worked out. the plan is to shift under the senate plan from a worldwide taxation system to a territorial. that is a huge change. there are a lot of different loopholes that could be introduced when they do that. you know, i don't think they have had enough time to study the full impact of that and to make sure that new loopholes are not introduced as they close down old ones. francine: do you have, falf, an idea? we don't exactly know what shape or form this will take. does that help with inflation or wage growth? or not at all? ralf: it depends very much on what the money is being used for. that is actually quite important. a corporate user has a massive bance sheet. delevy my colleagues in high-grade in the u.s. remain quite bullish on credit. the main impact of this repatriation is on the dollar. some believe this is a big deal for the dollar. we don't think the majority of the money that sits abroad is actually help in u.s. dollars. i think a lot of it sits outside of the u.s. so, i think there is potentially ilwind coming from another repatriation. francine: we will talk to ralf about brexit next. stephanie baker, as always, thank you. ralf preusser stays with me and we will talk about boe, brexit and of course, theresa may. the u.s. ways and means committee chair kevin brady also joins us at 6:00 p.m. u.k. time. will u.k. inflation come in at higher than 3%? we discuss that next. this is bloomberg. ♪ francine: this is "bloomberg surveillance" and i'm francine lacqua in london. raise it talks drag on without finding a clear solution. mark carney the bank of england say it is an inflation problem. cpi from october is due out in a few moments. 3% would force mark carney to write to the exchequer and a fine. is it a goodf all, deal if you have to write to the chancellor? it does not look good on your chancellorsevious have done it before. ralf: exactly. it is that of mark carney's hands. i don't think he will be losing any sleep over this. francine: what is your inflation expectation? let me bring you over to my chart. it's an easy chart, looking at u.k. time. in purple, it's the total goods. the six planes what is going on with inflation. >> exactly, what we are seeing are the impacts of fx weakeness passing through to headline inflation. the less interesting story in my mind is not how we got where we are, but rather, we are we going from here. artyou believe this chanc and others like it, you could be too pessimistic about how quickly inflation could start normalizing next year, in the sense that it should be symmetric. gful a fairly meetinanin correction. francine: this is the transition deal from december? >> the transition deal is mechanical. if we can start talking about transition deals, sterling would get a bit of a bounce in that could accelerate if we don't. we need weakness and sterling cannot be disregarded entirely, but moderated towards the next tier. francine: are we starting a hiking cycle, or was it one and done? ralf: personally, i don't understand why we got even one atrate hike in. i think a lot of the arguments that were put forward by, even some of the more dovish members, have already been called into question. an important element to this. i think that is optimism we have to reflect in the bank of england and over the next few months, that is when we have to start regulating to year's end. francine: up next, we speak to michael lewis and we talk about traders, but also his money. the bloomberg . ♪ francine: this is "bloomberg surveillance" and i'm francine lacqua in lndon. you can see a beautiful live picture of london town. we get cpi figures from here in the u.k. in 20 seconds. the concern, if you are mark carney, is many of us have to deal with brexit negotiations starting. the secretary recommended it was a close 5052 whether or not we got a breakthrough in the divorce with the eu by december. the cpi just coming through. it is actually at core year on , and that is for the month of october. what this means is it is a little bit shy of the 3.1% excitation. although mark carney is in frankfurt. a bit of a sigh of relief. at 3%, know if it is but at least it is not 3.1%. ralf preusser expect inflation to normalize. we will keep a watch on the panel the back of the cpi figures. nejra: the chief has tax writer is confident that there are enough republican votes to pass the legislation this week. kevin brady does not anticipate any major changes. the white house says president trump will speak about taxes at a full conference of house republicans thursday morning. kevin brady joins us at six cop p.m. u.k. time -- kevin brady joins us at 6:00 p.m. u.k. time. comes as mitch mcconnell told him to pull out of the race as he continues to deny the allegation. >> mr. moore attacked me when i was a child. i did nothing to deserve this sexual attack. i was frightened by his position and his power and i'm i want rward today, mr. moore to know he no longer has any power over me. >> the u.k.'s chief brexit negotiator is 50/50 whether he gets talks by november. he briefed at a meeting yesterday and his spokesman said it was categorically untrue davis said that. the pound has fallen further amid the brexit talks and internal struggles faces by prime minister teresa may. teresa may told vladimir putin britain was ready to fight back in an attempt to destabilize western democracy and comments with donald trump said usda he believed putin's denial of russian meddling was sincere. >> we know what you are doing and you will not succeed because you underestimate the resilience of our democracies, the enduring attraction of free and open societies. and commitment of western nations of the alliances that bind us. >> global news powered by more than 2,700 journalists and analysts. this is bloomberg. francine? francine: thank you so much. our next guest is a bloomberg columnist and bestseller of classics including "liar, pokers, flash ball and the big shorts" and some were made in oscar nominated films. the latest book is "the undoing project" and tells a story of two israeli psychologists who work together who result in the behavior economics. we're pleased to be joined by michael lewis. congratulations. it's been out a year ago and is on paper book and is a fantastic book. you get attached to the two main characters. but you basically talk about how a lot of our decisions are based on memories, right? michael: one of their insights, the way memory distorts judgment and whatever you've just seen or heard or things that are vivid take exaggerated importance in your mind. a simple example is -- the point is you're moving through the world and implicitly calculating probabilities and if you're driving down the you' implicitly saying not much risk of an accident. you see a gory accident and slow down to 55 as if the probability has changed because the thing is in your mind and the likelihood of having an accident has decreased but over and over have showed the way not just memory but memory -- there are various kinks in the mind that led people to make -- when they could make accurate statistical predictions instead sort of tell a story that led them atrade in a predictable way. francine: did you know when you started thinking writing the book the world was changing at such a fast pace that actually i guess this becomes more dangerous if you're used to the past and actually mismanaging ith a you see in the future? michael: it's funny, you're thinking big historical terms and the first big misjudgment that danny, one of the main characters sees, is his father sitting in france in 1940 saying the germans are no threat for the jews because last time in world war i i saw this and the same thing will happen and we'll be safe and keeps them in france and danny lives through the holocaust in france as a result. there is an analogy to that kind of thing, that people do think whatever just happened is what's going to happen again and is exactly what is not going to happen again. i get asked all the time, will we have another financial crisis like 2008 and assure you that whatever the crisis is it won't be like -- francine: muscle memory. michael: that's the one we'll avoid. francine: you think we're jumping in shadows and overthinking the last crisis and not looking at the next one that could come from somewhere else? michael: i think that's always what happens. they would say yes, that is what happens but also would say it is the whole business of trying to predict where the financial markets are going to go is a little bit of an absurd exercise, that there's a huge amount of randomness in it and we're wired to try to make the world a more deterministic place than it is to sort of sweep away the sense of randomness. and so what we do is after any event, we tell ourselves a great story about why it happened and why it was predictable if only you'd seen certain things and the truth is generally it's not predictable and we leave ourselves feeling a lot more stupid than we should feel because we should have seen it coming. francine: how can you change that? michael: you can't change that. you can't change the degree of predictability, of these sort of events with lots of randomness in them but you can change your sense of how you approach the world. you can avoid being surprised all the time by thinking you can predict what's going to happen. and you can live -- i think what they'd say is you can live with a sense the world is a probablistic place. it's been said reality is not a point, it's a cloud of possibilities. it's much more of an attitude towards things, how you can use them to make money, that's a whole different question. francine: what drew you to these two characters? t's a story of friendship. michael: more than friendship, a love affair without sex. so passionate they both agreed on amos' deathbed each was the most important person in the other's life and they made each other miserable. that's the other thing they agreed, each made the other one more me than anyone had done in their lives. what drew me to them -- the first thing that drew me to them -- there were lots of them but they were extremely different and no one who knew them saw them collaborating yet came together and collaborated and did the first work that made it scientifically respectable, the study of the human mind and get at essential traits of human nature. and the two people who nobody saw coming together with radically different minds produced something so different when working together than either would have or could have done it alone. the first thing that got me interested is i think it was collaboration, i wanted to write about the collaboration and mystery of the collaboration. francine: because of the times we're going through, how do you pick the subject of the book, is it something you look at the world and what the world would really need now is an amazing collaboration with people talking to each other but that are so different? michael: i don't think that way, what does the world need. i think what do i need to keep myself interested and keep a reader interested in turning the pages. what drew me to it in the very beginning, like what sparked my interest was i had written this book called "money ball" and about how markets get screwed up and in this case it was the market for professional athletes, how people can get misvalued, and i hadn't really explored why that happens. and these two guys offered a really persuasive explanation as to why when people are valuing assets, whether it be people or stocks, their minds can go in the wrong direction and i thought this is sort of for me was getting to kind of a completion on that story, on him why do markets get screwed up? francine: do you think -- we talk about al gore rhythms playing a -- algorithms playing a bigger part in the market and would it be a pure market in the way you value things, the way the markets get priced? michael: i would say this, when you go back to the origin of skepticism, about human judgment in, say, picking stocks, it goes back to burton malkial's random walk down wall street where throwing darts at "the wall street journal" is outperforming more than half the money managers on wall street. he draws on their work, he is saying you want to know why the experts might underperform the monkey, the monkey doesn't have these cognitive biases when he's throwing the dart. and i do think if you're an investor in the markets, you're much better off putting your money in a low cost index fund than trusting the judgment of some expert and especially the expert seems very certain about everything and unfortunately it's the experts that seem certain about everything that tends to seduce us to giving us their money. francine: on that note, thanks very much. best-selling author on bloomberg. stay with us. we're talking u.s. politics next. before that we'll also be joined by the international energy agency's executive director and we'll talk about the agency's report on how the surge in u.s. shale could be the biggest boom for oil and gas in history. this is bloomberg. ♪ francine: this is bloomberg surveillance. i'm francine laqua in london. michael lewis is with us and wrote a piece for "vanity fair" called inside trump's cruel campaign against the u.s. scientists and in it he writes how the people at the department of agriculture laid out a friendly welcome for the trump transition team but seemed to discover most candidates are not qualified for the job. we had a great conversation about your paper book that's out. if you look at the trump administration and a lot of the material that maybe comes out, what's your next book on, would you focus more on the machinations of politics in washington? michael: i'm in the middle of a series which is likely going to be a book because the material is just riveting and the emise is this, the obama administration spent resources by law but by sense of obligation. undreds of people were preparing the agency for the people coming in. our government is a strange government and 4,000 people are politically appointed who run it, so the head gets chopped off every four years and new people come in. what's supposed to happen is the day after the election in the department of treasury and into the department of energy and agriculture, 20 or 30 people are supposed to roll in and get briefings. there are briefing books set up and people waiting to talk to them and in many places across the government after trump was elected, nobody showed. the student didn't turn up for the class, best class that ever was created in how the government runs and nobody shows up. i'm taking the class is what's going on. literally. i'm going from place to place and having the people who would have educated the trump administration educate me to get a sense of where the risks are that come not from actually ideological opposition because much of the government does is there's no ideological dispute, it's essentially mismanagement, neglect and ignorance. francine: how big are these briefings? is it like a doskiesky book, this is where the coffee machine is and by the way, this is our foreign policy? michael: and these people you can rely on to be good in their jobs and that's are the weaknesses in the government and these are the problems we see ahead. in the department of agriculture which must sound like the sleepiest subject anyone wrote about, i persuaded "vanity fair" to put 13,000 words about it in their magazine because it's riveting. they're sitting there trying to deal with, for example, how we're going to grow crops in a different climate. a $3 billion a year science budget largely devoted to long-term food production problems. and there are a lot of people who really know about this problem who are managing this dget into this job replacing a distinguished agricultural scientist, trump roll as right wing radio host from iowa with no background in science at all. francine: why did they not do their home work or briefings? michael: it's a combination of lots of things, there was malice towards the obama administration in trump himself if obama did it, i'm against it. but that's childish because much as i say -- 90% of what the federal government does in this regime change will be the same. we still are facing the same threat from north korea. learn about it. francine: did other administrations read the briefing notes? michael: the obama administration was grateful they existed because they came in during the financial crisis and they kept people around because they wanted people in place that knew what they were doing. but trump, i think the source of the dysfunction is one, trump didn't think he was going to win so why put in the work. that was partly it. trump himself hadn't prepared an acceptance speech on the night of election, he prepared a concession speech of sorts. two, he fought -- to the extent he had prepared, the head of his transition team was chris christie and he fired him the day after and he fired the people that would be doing this. and three, i think inside the trump administration there was a war about how they were going to go about -- the spirit with which to govern. he didn't have a clear ideology. you have this weird brew of nationalists and libertarians and conservatives and they don't mix very well. francine: who does the president listen to, does he listen to his chief of staff? michael: i have no idea. this thing is eventually going to end in the white house. my sense is he listens to whoever spoke to him last. he would be like a perfect lab rat because he's pure intuitive judgment and immune to anything that would check his cognitive vices. francine: come back. i can't wait until the new book, "the undoing project." we need to talk oil, the supply surge in u.s. shale will be the biggest oil and gas boom in history according to the international energy agency and also says the 2025 growth in american oil production will equal what achieved saudi arabia. of course oil at the height of its expansion. that's impressive. and the executive director of the i.a. joins us now for the supply surge. great to have you on the program. when you look at shale and the amount of shale that can be turned on quite quickly, can it keep a cap on global market prices? guest: first of all, i should tell you in our outlook we share today, we find out that is the d states undisputed leader in oil and gas markets in terms to come. in terms of oil, big clubs coming from the shale oil as such there is a big difference between the united states and other producers and in terms of the natural gas, again, strong hale gas production and as uch, the u.s. will be -- [no audio] francine: i think we're having a little bit of issues with fatih birol. we'll get back to the oil in a second. what i'm looking at is a great story on the bloomberg terminal saying russia led supply limits that lifted crude to a 2 1/2 year high and may be prolonged an extended period to collapse and that was an interview we did with the global head of research at citigroup. we'll get back to oil and i want to show you things that happened in the other markets. u.k. inflation holding at 3%. let's get back to fatih. i don't know if you can hear me, the apologies for breakup of satellite. these things happen on live tv. you were talking about the shale revolution and impact of prices globally, how much do we understand what shale will produce in five to 10 years. e they the undoubted continuing-pingmaker when it comes to oil prices. >> let's say in the next 10 years or so, the u.s. total production will reach 17 million barrels per day and as such there's a big difference between the united states and the second biggest producer and what we also see is the next 10 years, more than 80% of the global oil production growth comes from the united states only. and as such, there is a lot of oil in the markets and we put downward pressure on the prices. and in terms of natural gas, it's the same story, a similar story, gas production, shale production in the inside will increase substantially and again in 10 years's time, the difference between the u.s. and russia will be more than 30%. the u.s. will produce more than 30% gas than russia and lots of exports will come to markets. and redine the global gas markets and operations and the prices. so a big upheaval in the oil and gas markets driven by the shale boom in the united states. francine: fatih, willow peck have to keep retraining production for years to come to make up for this output in shale? [no audio] francine: we're having quite a lot of issues over there. it feels sometimes we're very, very close but the world is so big sometimes satellites and things get lost in space. let's get straight back to one of our other top stories we were talking about with michael lewis about the foreign policy in the u.s. and get on to taxes in a second. we also need to talk about u.k. inflation holding at 3% as we saw some of the cheaper fuel oversetting food prices, consumer prices rose 3% from a year earlier according to the office for national statistics. that means that the governor of the bank of england mark carney has spared, having to explain why inflation is more than a percentage point above the 2% target though officials expect the rate to reach that level very soon. this is the level on pound 1 30.92. policymakers are trying to raise their key interest rates for the first time in more than a year -- more than a decade this month to tackle the rising cost of live will. we'll have plenty more on that on the show. i'm looking at the u.k. and a couple things to do with oil and the ataxia telangiectasia. in about five minutes we have an all-star panel starting in frankfurt with governor kuroda and others. let's go to nejra [nejra: we'll see if they looked at time-warner if the government blocks the deal. in a trial over the $85.4 billion deal, at&t tends to seek court permission for access of communications between the white house and d.o.j. at&t and time-warner declined to comment while the justice department referred to earlier statements by the department and the white house. credit swiss will pay $135 million to resolve currency manipulations by the bank regulator. the new york department of financial services said traders, probably by executives in some cases, shared information about the currency orders and talked to traders from other banks. the regulator said in some instances trade front ran the orders in an effort to reduce the bank's own profit. elliot plans to push for changes at the company including a potential sale. according to people familiar with the matter, elliot held discussions with the company and is urging it to explore being taken private among other options. a representative for elliot declined to comment but a representative for taubman centers didn't respond for request for comments. the chief brexit negotiator said it's 50/50 whether they get a breakthrough in divorce talks by december according to david davis briefed at a meeting yesterday. however, his spokesman said it was categorically untrue davis said that. the pound has fallen further and the internal political schedules placed by teresa may. teresa may told vladimir putin britain was ready to fight back in an attempt to destabilize the western democracy. and a meeting with donald trump said on saturday he believes putin's denials of election meddling was sincere. >> we know what you are doing and you will not success because you underestimate the reliance of our democracies, the enduring attraction of free and open societies and the commitment of western nations to the alliances that bind us. nejra: that's the bloomberg business flash. francine: "bloomberg surveillance" continues and tom keene joins me and we'll bring you the news from frankfurt and drag i had and carney expected o -- draghi and carney expected to peach. inflation is holding at 3% and we're seeing auto fueling offsetting the price of food and we'll talk about inflation in the u.k. and brexit. this is bloomberg. . ♪ francine: meeting of the minds. draghi and the ecb host kuroda, janet yellen and mark carney in frankfurt. u.k.'s inflation hold steady at 3%, meaning he will not have to expire himself to the chancellor this time. house democrats moved to make their own statement in washington dc as attorney general jeff sessions is questioned over russian election meddling. this is "bloomberg surveillance" and i'm francine lacqua in london. tom keene is in new york. mark carney is getting ready to address the people. he will have to write that letter to the chancellor, explaining inflation because it is just at 3%. tom: yeah, that's their important. he does not have to write a letter. i cannot say enough, francine, about this gathering of the clan in frankfurt. eric nielsen is there. and andy haldane makes an appearance as well. let me go to the data right now. equities, bonds, currencies and commodities -- just one screen right now. the market is much like what we saw yesterday afternoon. francine: tom, i am looking at european stocks, which seem to be trying to shrug off the broad-based claim in asia. bonds are turning positive as the world's most powerful central bankers gathered in frankfurt. we're also looking at the yield. i don't do this very often. the yield on china's debt 10 year briefly reached 4% for the first time in three years, currently at 3.99%. we have some news out of the eu, very much in line with expectations. the euro area economy is growing at 2.5%. tom? tom: yeah, in line is where i would put it. we're seeing the data come out here. we're in that weird period after the jobs report int he u.s. not that much central bank data going on, except for this gathering of central bank powers in frankfurt with mr. draghi. francine: it is a huge deal because the world's top central bankers are gathering. the panel will be on communication challenges. -washyy these are wishy topics, but these are important because if you look at the challenges facing mario draghi, janet yellen, mark carney and governor kuroda, how do they communicate? so, let's get straight to our guest. chiefarclay's economist. thank you for joining us. first of all, what do you think of in frankfurt? communication is part of the game. you can have an interesting policy, but if the market does not believe you, is it actually working? >> absolutely. one of the new tools for these penicies were for o operations, it was about credibility. that is the key. that is something the ecb has struggled with, with the large appreciation of the euro. the markets thought they would start normalizing interest rates, and then they have to convince the markets back again that the euro is putting downward pressure on inflation. so, please believe us. interest rates will stay for a long period after the end of qe. that was key. finally, the market. it. francine: michael, when you look at some of these challenges, is the bond market misinterpreting what central bankers are saying? michael: not necessarily. they have gotten things right for the last four or five years. the rates market has positioned itself relative to forecasts from the fed. the arbiter next year will do two things. one will be what happens to inflation. that has got the capacity to disturb the rates market. then, the other aspect of communication is for guidance because for central bankers, for the first time in nine years, they will be traveling the other way. they are beginning to normalize monetary policy. that requires a very different set of communication skills. francine: we are just seeing the moderator of the panel, introducing the panel and we will get to that in a couple seconds. when you look at governor kuroda , when you look at janet yellen and mario draghi and governor kuroda, who has the toughest job? i think the toughest job is draghi's. it is managing the key members with different d irectives, and sometimes with different political pressures. the political pressure is on. also, the fact that you do not have a fully integrated monetary union. so by far, i think his is the most difficult. tom: antonio, we are seeing david west holding court at the brookings institution in washington. he is really working in tandem with the former chairman. i give russell major credit, francine, for driving forward ben bernanke's very thoughtful blog at the brookings institution. it has become an immediate must-read in american economics. and of course, chair yellen, on her way out the door. i don't know when, i guess sometime next year, sitting next to mr. wessel. and i goi look at this to an earlier panel with charles evans from chicago, who as you know, likes to speak his mind. the future of odc eysseun guidance. the bankers have been humbled by lack of inflation, haven't they? antonio: indeed, that is the biggest trouble. when you look at global growth, hovering around 4%, accelerated in the euro area, it is inflation that is the big trouble, the one that is mainly misunderstood. i don't think anybody can fully explain why it is taking so long to get back to whatever the equilibrium is. tom: michael, are the central bankers, are they the ones with goosed equity prices? are we looking at the reason why everybody's 401k in america is higher? michael: i think that played a very big hand in it, tom. we haven't had many firm policy moves. so, i would point to the u.s. in particular, and from the very strong business cycle, i sense regulation is beginning to be pared back. and central banks continuing to motor on with qe. the prospect of bernanke was, he is the intellectual godfather for many of today's central bankers. in his last blog, he's looking into the future it is mindset is still of the central banker who would be prepared to do more and more qe if there were another crisis or different economy. that is underpinning the asset prices as well. francine: are you concerned that the fed is communicates? we have a change at the top. is known, but he is not done this before and we have key fomc members who are being replaced. antonio: this is a new set of members. so, there's that risk, indeed. the timing, which you were expecting for a little bit of volatility the size of the balance sheet. union clarity, it is the most important part. -- you need clarity, it is the most and port in part. that is where the problem lies. the expectation is that not much will change. much of it lies with yellen. tom: we welcome all of you worldwide this morning. francine lacqua in london and i am tom keene in new york with a different "bloomberg surveillance." we have two esteemed guests, michael o'sullivan and antonio garcia pascual. you are looking at an esteemed panel, david wessel of brookings, going to yellen, ku mr. draghi.e is draghi: it has become a full-fledged monetary policy instrument. it has evolved since the time you jsuust recalled when the measure of monetary policy diction changed interest rates without saying anything to the masses. now it has changed to forward guidance about shorter interest rates and the expected path cherhe economy to a much ri instrument. journey, we moved from communicating our sort of views of the economy and our views of the interest rates to , conditioninglan and reaction allete. -- and reactionality. two -- our has history has two landmarks. whenirst is in july, 2013, we tried to, um, give guidance, as far as interest rates were concerned, in order to shield the eurozone's financial markets from what was happening in the tantrum.nly the the fear there was that movements in short-term interest opposecould actually movements along the yield curve and make our financial market's condition deteriorate. as we used to say, and still say, cause an unwanted tightening of financial conditions. so, we gave that -- the purpose of that forward guidance, which for the first time -- the forward guidance was qualitative. the purpose of this forward guidance was to protect. it was not proactive. and it succeeded. it succeeded, contrary by the way, to everybody's expectations and everybody's assessment at the time. it was said at the time that having such a broad forward without specifying quantitatively or timewise would make it ineffective. i remember, there was an exchange about this actually in new york, where i said, we are simpler folks. we stay with simple formulas, and it worked. date,ere is another another landmark, in january, 2015. because after that, of course, there were renewed weaknesses in the eurozone and deflationary risks started to materialize at the end of 2013 in the beginning of 2014. in january of 2015 we formulated a much richer forward guidance where we talked about interest rates. we also talked about as it purchases and then the horizon over which these purchases would be carried out, and we introduced also timelines for that. we also kindng, of formulated a framework where the various parts of this forward guidance, the interest rates and the asset purchases on a other side would interact in synergy, so each would actually amplify the effect of the other one. and i think it worked. experience shows that forward guidance has now become a full-fledged monetary policy instrument, like anything else. oh, by the way, there was also good reason for this renewed importance of forward guidance. and that has to do with the zero bound. until we reached that point, forward guidance was there. there was simply less importance. >> so, you think this is a permanent feature? the ecb will be continuing with forward guidance, even as a move away from the zero lower bound? draghi: it is hard to say, but so far, the experience has been successful. have credibility and many other things to be successful. policy with this instrument has proved to be effective. >> isn't there a risk you will constrain yourself undesirably by making forward guidance that the markets see, in charlie odysseun?ds, : we need forward guidance, given certain conditions. the answer to this has to do with the ability and the effectiveness of the central banks. you can make mistakes and change interest rates where they should not be changed, or not changing them when they should be changed. the same thing might happen with forward guidance. >> also with the quality of the listeners as well? draghi: we take that for granted. [laughter] >> governor kuroda, you have had an interesting experiment in japan, trying to use communications in various ways to change inflation expectations and to list them, i am trying to richete when jean claude t became the president of the european central bank in the 1990's, the notion that the problem would be lifting was not on his to do list. how do you judge your success, and what has worked, and what hasn't? gov. kuroda: as you know, we introduced qe, or quantitative easing, in april, 2013. twothat quickly included elements. one is the large-scale purch ases. the other is the very strong commitment to achieve the 2% target that the hardest possible time. then, actual inflation data started to accelerate and in 2014, actual inflation rates reached around 1.5%. and inflation expectations also approached around 1.5%. experienced a huge downturn of oil prices. oil prices before the summer of 2014, they used to be around $110 per barrel. oilhe next year and a half, prices declined to less than $40 per barrel, a huge decline. japan's imports dropped abroad. actual inflation data started to decline in the summer of 2014. thishe time being, despite significant decline of inflation rates, there was an expectation that somehow remained around 1%. partly because we expanded through qe in autumn of 20 14, but the oil price decline continued and the actual inflation rates followed. eventually, inflation expectations also declined. mid-2015, there's may notion that economies settle down. not just china, but many emerging economies in the world might slow down. and oil prices would continue to decline. and the financial markets wo bee somewhat unstable. situationsing these in january of 2016, we introduced the negative interest rate, which was not very popular. of1 on portions on the bank japan. there was a flattening of the yield curve that resulted. the yield curve used to be like this. we began to see the decline of the yield curve and also, significant flattening of the yield curve. during the summer of 2016 we made so-called comprehensive assessments of qw, the negative interest rate. and we reached the conclusion that we should better switch toom the quantitative target o control. overnight policy and then the1% nice curve could be quite -- [laughter] for the financial markets. the expectations stopped declining. and now, inflation expectations are finally picking up. so, two things. one, inflation expectations are formed not only by forward-looking ways but backward looking ways. and in japan, where people experienced 15 year long deflation from 1998 through 2013, inflation expectations formation appeared to be lag ging, not forward thinking. so, forward guidance and strong commitment, yes, these work to some extent. but looking at the oil price thek and the result on inflation expectations, which declined, we reached the conclusion that the inflation expectations formation in japan was largely backward-looking. so, at this moment, yes, we continue to make a strong 2%mitment to achieving the inflation target. but at the same time, we accommodativeg, monetary policy, by way of contr ol. make a further boost and reduce unemployment rates farther by furthering the actual rate increase in the actual price increase, which would be accelerated. moderater: of all the things you have done, what has been the most successful in changing public inflation expectations? which of the various communications do you think of had the biggest affect? gov. kuroda: i think ofmunication is not a matter -- what do i want to say, technique or some method. it's a matter of policy itself. and, um, from my experience in the last four and a half years, the best communication policy is words the in straight content and intention of your monetary policy. which could be understood not just through monetary exports or economists, but also by the general public. that is the most important. ad it's not, as i said, not technique. it's a matter of dtraightforwar acclamations of content in your policy and intention of your policy. we have a market and policy committee meeting eight times a year now. and every time after the monetary policy committee meets, first interview, explaining the discussions and the results of the decision by the monetary policy committee. even sometimes i show this using graphics. so, communication policy is in difficult. very directly complicated. it should be straightforward. [laughter] gov. kuroda: that is the best way, i think. moderater: chair yellen, you have had four years of experience as the chair of the fed, but many years of monetary policymaking before that. the point was made this morning in the discussion that sometimes people act as if the goal of monetary policy statements is to never surprised the markets. and one judges success on whether the markets did what you want. i'm curious how the markets look from your vantage point. do the markets, the traders, the economists, do they understand contingent guidance? do they want more certainty from you than any human being could possibly provide, given the unproductive ability of the economy? a yes or no question. [laughter] yellen: i think the answer is yes. with markets, my experience is market participants are very interested in knowing exactly they're a justice and knowing what the path of policy would be and what changes will be made, either in asset purchases or on the policy path. and that's something that central banks are moved t to provide. the reason for that were discussed in the first panel. pathppropriate policy depends on expectations about what the medium-term outlook is. forwardlieve, a bit of guidance, even when it has been calendar-based over the years, the fomc used the words, we think such and such would be appropriate in light of the outlook for the economy and for us, really almost all guidance should be conditional and we theed to the outlook for economy. inherent, there's uncertainty about the outlook for the economy. and so, the committee's expectations to create appropriate policy evolved over time and line up with the outlook. when that happens, my experience is that market participants feel often miffed in this way. i can give you examples of that. we first decided to raise the french rate off the effective lower-band in december of 2015. statementt time, our provided qualitative guidance that we expected the path of adjustments to be gradual. but i believe starting in 2012, the committee began to publish quarterly projections for each of the participants, of their economic outlooks and the associated path of policy. so, market participants look to the summary of economic projections to get a sense of the policy path. now, a look at those charts immediately revealed there was disagreement. we've more recently highlighted the median kind of summary as the projections. decemberarticipants in of 2015, when we first raised rates 25 basis points, the me dian in the s&p suggested that over the next year there would be four rate increases. now, as we got into the next year, into 2016, there were shifts in the outlook, particularly due to the global economy. there were be assessments of the domestic economic outlook and of course, we intended for market participants to understand that four increases during 2016 not only was there not committee agreement about that, but also that each and every participant's expectations or acceptance of the appropriate that the policy would be reliant in the light of new information. now, as it turns out, over the course of that year, we ended up raising the rate exactly one time, not four times. i would say that market participants should have understood that the end of 2015, or always, that that is a possibility. these are not odysseun type of policies. we are always trying to emphasize the economic functionality of our forthcoming policy decisions. market participants, i think, felt they were think, they were disappointed had written misled. that was thehink case. again, in line with governor comment, we try to not only explain what changed about the economic outlook, we 2016fied our move in rather than the four moves we may have anticipated at the beginning of the year. public, asader opposed to market participants, the most important thing is to know what is it we are trying to achieve. and we attempt to readjust our instruments. most members of the public are not fixated what will happen at the next meeting and will there be two or four increases. but we are committed to our 2% inflation objective. insuranceadjust these -- instruments as we think is necessary. i do think that market participants are looking for greater certainty about the forecast that central bankers think it is appropriate to offer most of the time. >> do you ever think that providing the markets with the projections of interest rates by the members of committee, market with the benefit of hindsight, in your experience, is that a good idea? you can be candid. i want to take advantage of this. [laughter] chair yellen: i suppose it has costs and benefits. [laughter] you know, for example -- >> do you care to qualify that? chair yellen: i think the episode i just described has a cost. to the extent that the public believes somehow there is a commitment embodied in the median of what we call -- show in forecasts for the year that is a cost and is not what we intend. on the other hand, there has been a benefit from providing to the public information about the paths of policy committee members think will be appropriate in light of our objectives. concreteve you a more illustration of that. one of the things we have realized in recent years is so-called "our star," or the neutral rate of interest, is now and willlow perhaps stay low for the indefinite future, in part because productivity growth has been slow, and we have aging populations around much of the world. we have said in our policy statement -- and this has been part of our statement since early 2014 -- foreseeing that we were likely to begin raising -- we wanted the public to understand we did not anticipate a sharp task -- path of increase in rates. we use the language that we expect the great increases to be gradual, which is about as far as i think we could go in actual policy statement. but what did "gradual" mean? we wanted to communicate something quantitative about what gradual means. we also wanted to communicate that we thought neutral was very low. one reason why the past could be gradual was because getting back to neutral would mean moving to that, by long historical standards, would be judged to be quite low. that kind of information was clearly communicated. over time, we actually included individuals estimates of the longer run normal or mutual rate of interest. we are providing information on that. market participants and the public at see that those expectations were shifting down not only among market participants but also in the fo rc -- forc. >> thank you. governor carney, thank you for being patient. it seems that bank of england has -- >> taking notes. [laughter] >> the bank of england has changed quite a bit in recent years, both in the way it can sophisticateda audience, both super tuesday, report on the same day to make things easier for the press, but i have also been struck on what you have done to reach out to the public. when you did your rate decision, there is a fascinating, simple explanation of the rate increase. report that ison clearly written for people who do not understand monetary policy. why did you do what you did? later this week, you and several other governors will go to liverpool and speak to high school classes -- what are you trying to achieve, and is it working? gov. carney: thanks, first off, for having us here. i commend the ecb for this initiative. i was learning a lot there. one of the things you heard from my colleagues and are about to hear from he is in the end, whether the ecb, the fed, the bank of japan, the bank of england, we are speaking to the people we serve first. we are always conscious that the messages, in some way, will land with the public lee serve. we have a responsibility to get those messages across in a consistent way to different audiences but in a way that are readily understandable. the super tuesday thing was, in part, because having a decision -- the bank of england did not press release -- but having a decision without a press release was odd. having that, then the minutes coming out later, the inflation report in between -- three events with their own nuances and twists and turns. not confusing it was confusing. just collapsing them together following the lead of the ecb and bank of japan and getting rid of extra meetings, 20 official communications a year. al of whether-butt central banks talk too much. [laughter] >> there is one institution getting more productive. [laughter] gov. carney: but then when you look at what we put out -- a 50 page inflation report. we still communicate in 15 page speeches with lots of charts, expert audiences read them, understand, digest -- that is true. but that is not the way to communicate with the general public and it is not a sustainable form of communicating and a world that .as enough experts it is also not consistent with how people access information. 300,000 people read the open go financial times" -- there are 30 million facebook users in the u.k. so using different channels has different orders of magnitude. the package -- it is not about tweeting your own package. no one really that. you have to change the content. what we tried to do is lay or the contents, so you have a very simple message that is treatable -- tweetable. take a 50 page inflation report and reduce it down to a relatively simple narrative with icons, key charts, that explain why we did what we did. and to use multiple channels in order for that to get out. the other thing we are doing, though, is trying to change -- in order to have this cultural change in how we communicate externally, we have to do things internally as well. so we are collapsing down. we have not landed on the magic number. but we are experimenting with restricting memos to six pages. we are making sure that charts and rafts -- graphs produced inside the institution can be instantly picked up and sent outside the institution so that the internal negation has the impact that the external communications is supposed to have you yet we need that cultural change. the other thing i will mention aree are also trying -- we -- increasing the number of portals into the bank. like the fed and the ecb, there is a blog -- we have something set up called bank underground. we have over one million hits on bank underground now. bank not mistaken for the of england policy view. quite often, the post will be at odds with where policy is and might be going, but that is ok. because it helps with the general education. about these goals. we will go out to a couple hundred schools this year. but it will not just be me and other governors. whoill be midcareer staff get out there and have broader spokespeople. the point i want to make is in order to be as effective as on speaking with the broader public and actually, ultimately, getting to dialogue as opposed to a monologue, we need different channels. we need different content. we need change within the institution. you only get that if you open it up to a broader number of people than just those. >> one thing you are saying is thanks to the technology, you do not need to use intermediaries, whether they are market analysts or the press. but what is the goal? how do we succeed? is the bank of england popular? what is it you are trying to achieve? >> well, it is already a big issue. [laughter] >> what is the medium length of memos? [laughter] in the interest of chance, can we have a chart? [laughter] gov. carney: in the interest of transparency, is you get 300 pages of grieving and night, easily. -- 300 pages of briefing a night, easily. on the top layer, what you want is for the institution to be credible or at least competent. they should be able to test of that assumption in ways that are accessible, that they should be given tools to judge that performance. that is the first thing. the second thing, and i think this gets missed in some discussions of guidance, is what do businesses and citizens think about the guidance? it is clear what the objective of the bank of japan is if you are japanese. if you are japanese citizen. when we had guidance both post-referendum and our initial state contingents guide around unemployment, it was pretty clear -- and we had limited and general guidance. businesses across the u.k. understood the contingencies. people understand these messages when they are simple and out there. it affects behavior. givenrst one, competence, the benefit of the doubt -- that is crucial. but the other ones, at certain times, whatever it takes gets translated to the shop for. impact. an last point, the market will understandably trade in and out and tried to predict -- try to predict the assets. in the end, it is a bit of a rounding error relative -- it is more than a bit of a rounding inor -- relative to agents the economy. you have to be able to get out to them. >> governor draghi, you have a particularly difficult situation in europe -- francine: we are listening to the world's top central bankers talking about communication challenges. it is actually timely. i was struck by mario draghi saying forward guidance has now tool. a fully implemented proven effective. you also heard from governor kuroda saying they would continue the strong economic policy. he is really thinking outside of the box. tom: you never know in these panels. it is one of the best i have ever seen. i love how david wessel focused on charles evans' comments. let me show this quick chart before we get to mr. draghi. the idea of the four inflations of these bankers -- i put their names here. carney in the united kingdom with brexit inflation. yellen with the challenge of trying to get rates up for a better economy. mr. draghi in blue with euro sclerosis and the challenges of many countries. and mr. kuroda looking at ages inflation. and it is really fascinating to think what you see in this panel. to me, it borders on historic. >> yes. there was a very important question, when the panel got guidanceout is this about communication never put pressure on the markets? the answer is probably not. we are just in exceptional circumstances. remember, right now, we are in the great unwind. want to guideo the market, otherwise, you are exposed to the taper tantrum we had. it is communicating, and it is not easy. francine: you spread the market once, twice, it is rare to do it a third time. >> these for central bankers are on a path towards moving on tightening, but certainly into the end of accommodation. they are beginning to wind back super accommodation. the one that struck me was mark carney. said if ago, greenspan you think you understand me, you're wrong. francine: let's go back to frankfurt and mario draghi. gov. draghi: trying to do our best. any initiative that is being proposed is accepted gladly about that because of what you said. because of the particular -- percolator -- peculiar reality in which we live. earshere must also be ready to listen. and if you have realities where, no matter what, the recession is not there, it is not a good reason for being discouraged. it is a good reason to do more and more and more. but the victory may be far ahead. on the other hand, we are comforted at the fact that everybody else listens. --n you look at whether the you sort of ask yourself is this a majority of the people criticizing us? the answer is it is a minority. a minority which is shielded itself from international scrutiny. david chair yellen, once upon a time in the united states, a sickly the only person who spoke was the chair. paul volcker and alan greenspan laid out the line, and other were -- people said they in favor of whatever it was the chair just said, and the sun will come up in the morning. but ben bernanke's era and yours, there has been a democratization of the process. but that means there is a lot more people talking about monetary policy. and part of the game here is figure out not -- how not to increase the north at the expense of the signal. how have you found managing the message of the federal reserve when you have the 19 member federal market committee with people not all in washington, some of whom seem to enjoy being quoted in the press. is that annoying, frustrating, a problem? chair yellen: this really is one of the challenges of our system. we have a very large committee -- 19 people. as you mentioned, we have had a kind of democratization of monetary policy that began, really, under my predecessor. i think our system has great strength. the most important strength is we avoid groupthink, which is a real pitfall in policy committees. i think it is important to have people sitting around the table who bring independent minded views to the making of monetary policy. autocratict an process that i think was under chairman greenspan. healthy policy debates. yet, we usually are able to reach a consensus about our broad policy strategies. in most moves we make most of the time. from a communications standpoint, it is challenging. because individuals, members of the committee, give lots of speeches. the press often covers and gives lots of attention to each individual speech. to try to deal with this, and we probably never will, given our structure and size, be able to deal with this totally effectively. but some years ago, we adopted, the committee adopted, a policy on external communications. and we agreed, as a committee, that what we want to do is explain to the public the committee's goals and strategies for achieving them. we committed that each member of the committee, in their public communications, first and foremost would explain the logic of the committee's decisions, a late-breaking on what we jointly say an hour statement, which is a joint communique of our assessment of the outlook and likely policy strategy or path. lost.mes, that gets individuals should be explaining, in their speeches, elaborating on what is in the statement and explaining what we agreed upon. we agree that, having done that, individuals will have to explain their individual perspectives. i would say that guidance has not been totally faithfully followed, although many of my colleagues tried to do that. on press tends to pick up differences. particularly difficult when we have an upcoming policy decision , generally our guidance states people should try to avoid forecasting short-term policy and not make payments about how they themselves will vote at a meeting that has not yet taken place. that type of statement is very collegiality. we believe we should be going into meetings compared to listen to one another before making a policy decision. but i will admit that, often, what is reported is that individuals are talking about having made up their minds about policy communication, about policy for a forthcoming meeting. so it is a work in progress. diversity is a strength of the committee. the whole design of the federal reserve system, going back 100 years this reserve bank structure we have, was intended variety of perspectives and voices to their table. that works. to comedic a consensus and our war statement. the reason for adopting press conferences is a committee wanted there to be someone, namely the chair, will be out trying to explain the committee decisions, the consensus, leaving them freer to voice individual views. but it is challenging. earlier ouroned summary of economic projections. we have recognized, as a committee, that we could offer the public greater guidance and 19 differentaying views on the outlook and appropriate policy, having a single committee view, or, possibly, a consensus view. we have experimented with trying to produce a consensus view. and i have to say those experiments were not successful. partly, we have a very large committee, and attempting to craft a consensus view with the outlook, including a path of policy, proves to be extremely challenging. we discovered also that when you are operating with multiple insurance -- instruments of policy, so some of the experiments we had were taking 3,ce just as we launched qe and a consensus forecast would have had us agree not only on the outlook of policy and the future path of policy, but also the path of asset purchases. that was, perhaps, reaching too far, to think 19 people could agree on that. but do recognize the fundamental point that the starting point of it is confusing to the public, so many voices. those are some of the ways we are trying to cope with it. david: governor kuroda, do you ever think there may be too much transparency? you have a very complicated set of objectives in japan. you had a quantity target and price target at the same time. negative instrument -- interest rates, but they only applied to a small number of bankers. you sometimes feel your overloading the public as opposed to clarifying? gov. kuroda: yes and no. [laughter] current policyur trademark, qqe, is sufficiently complicated. expect that the general public would understand each detail of our policy frame. at the same time, what is the policy our monetary framework, and what is the intention of the policy framework? it could be explained and should we understood by the general public. now, our monetary policy committee consists of nine members. three from the bank of japan, meaning a governor and two w governors. and six others from outside. time we discuss an discuss outlook and about monetary policy itself and, always, we take votes policyng the monetary itself. in thedisclose, statement after the monetary opposed andng, who who agreed to the policy actually adopted by the monetary policy committee. the monetary policy itself, content as well as intention, we are totally transparent. it creates uncertainty or not because, as janet said, like any other central banks in developed countries, our system is like this. monetary policy decisions are of committees consisting of nine members. and a governor cannot decide monetary policy always. the majority desires the monetary policy. are a diversity of policymong monetary committee members, it is natural to not always have unanimous support made to a particular monetary policy decision. 8 versus 1 or 6 versus 3, and so on and so forth. and that, showing that, i don't thek would reduce effectiveness of the monetary policy. because it showed a diversity of views. and after extensive discussions on the economic outlook, financial decisions, and the monetary committee will reach the policy to be incremented. i think this is rather not a weakness but a strength of the monetary policy decision. showing the extensive devaluation on the economy and policy. so i do not think current is making any negative impact on the effectiveness of monetary policy. ok.ink it is basically [laughter] david: it reminds me of something that don gohn taught me. francine: janet yellen just a thatt ago saying communication has become a fully tool --monetary policy actually, that was mario draghi. but janet yellen was saying that market launch has the exact timing of monetary policy, something that central banks are loath to give. thank you for joining us. tom: good morning. this is "bloomberg surveillance ." from london, new york, and frank burke, germany this morning with history in the making. these panels, you never know -- i can say that about the panels francine and i have done at davos and other places in the world -- this is an extraordinary panel. the governor of the bank of england, the governor of the bank of japan, mr. draghi hosting, the ecb, and, of course, janet yellen sitting next to david wessel of the brookings is a tuition -- inst itution. this is an important panel. we will continue to monitor it in print. guest onhe perfect where this panel fits in, the right now, we need a news briefing. here is taylor riggs. taylor: trump has ended his trip to asia, declaring that trade rules have changed. afteresident left manila two days of meetings. he tweeted that when it comes to trade, all countries know the u.s. must be treated fairly. still, the president did not give any specific assurances. in the u.s., on capitol hill, the house's chief tax writer says he is confident there is enough votes in the house to pass the reform bill this week. kevin brady says he has told the deductions forng property taxes up to $10,000 is a priority. that senate version would eliminate that deduction. in the u.k., a warning for russia from prime minister theresa may. she told vladimir putin that britain will retaliate against meddling in the election. she said "we know what you are doing, and you will not succeed." donald trump jr. is downplaying reports he had direct vacations with wikileaks in the weeks before the election. democrats call this evidence of the proxy link between the campaign and russia. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. thanks. let's get through the data check. i want to mention the blowout from home depot. they have an exceptional quarter. just one screen right now. i am looking at euro strengthening .1718. -- 1.1718. francine: i am looking at european bonds, what the pound is doing on the back of 3% inflation. european stocks trying to shrug off negative sentiment from asia. actually, they are a little down. mostlooking at the world's powerful central bankers gathering in frankfurt. and the yield on china's 10-year debt briefly reached 4% for the most time in three years. tom: i want to thank you. we have a panel going on in frankfurt. i want to mention home depot with the extraordinary statistic of 7.9% you see. what is great is there is a paragraph that breaks out the hurricane. michael mckee will have that in a moment. more than $200 million off the hurricane, then they take out 100 million dollars out of hurricane expense, and it ends up being -$51 million. michael mckee our international hurricane correspondent, and he joins us now. very quickly, home depot is a great measure of that hurricane economics, isn't it? michael: because everyone goes to home depot to get supplies the or the storm -- before the storm. what it shows you is these things do wash out. tom: they washed out. we have a panel right now. let's show an image of that. looking at governor carney speaking. getseform, the president off the airplane -- i believe he is in the air right now -- what is he going to be greeted by on capitol hill? michael: he hopes you will be greeted by a unified republican party on the house side ready to vote as soon as thursday -- and then get ready for the senate. the question is whether the senate can meet at their own requirements. francine: what do we know about tax cuts -- and there is a lot of concern that this goes to the wealthy. what about money being repatriated as part of this tax overhaul? michael: it looks like it will happen. the irs will just send all of these companies a bill. we do not know how much the tax rate will be yet. there are differences between the house and senate side. the real question is what kind of stimulus, if any, will you get out for it. republicans argue shareholders are people too. but there is no real evidence the 2004 repatriation boosted the economy in any way. that will be one of the fights when they are trying to negotiate how much they are going to charge and how they will do it. tom: a different "bloomberg surveillance" today. the economics of this panel, the economics of different inflation they have, is at the economics you had at western ontario? and your textbooks from western ontario, years ago, do they apply for the next leaders of these four central banks? >> of course, we have very different situations. we have carney, who is predicate it on the slowing of inflation. the other panelists are hoping to see some pickup in inflation. one of the issues we have here we are fixated on these small moves in inflation and potentially big changes in policy. the ecb is looking for slow , and based on.5% that, we are expected to buy 30 million euros in bonds next year . tom: these forget people on stage, and david wessel's job as moderator, is a physical contraction of the london school of economics, and we end up with the phillips curve, which we all worship. does it still work for carney, kuroda? >> if you take it back to the way it was originally created, it does work. but what central bankers have have made it more about inflation. when you look at the wage moves for prime age workers and the unemployment rate for prime age workers and make some adjustments in terms of the u.s. economy, it will show that phillips curve works as it did in 1958. francine: does forward guidance work? mario draghi saying forward guidance is actually a policy instrument, but what happened to mark carney is he tried to introduce that and then had to step away from it. it earned him the nickname of "unreliable boyfriend." .> that is the problem carney has had to flip-flop. yellen who, i think now, is more comfortable about speaking openly about having a panel of 19 people with different views, trying to communicate something of a joint view of a committee, and it is difficult to do that. those are the challenges those banks face. we have people with different policies in the fed may have different views on where policy should go. so how do you make that an important part of your policy? tom: david wessel with the question right now -- we will get to that in a minute. trust.""in fed we we are supposed to trust of these omniscient bankers. you are in the trenches, asking questions to chair yellen. what is the squirm factor for the bankers? what is the worry they have? michael: the worry they have is they are not quite sure about the behavior of inflation dynamics at this point. the key point that all four of them have made in this panel is there is a difference between their mission, which is, they see, as price stability and in the u.s. also about maximum employment for the general public. and the markets which want to trade on every blip and change in policies. they say they are focused on the public, not the markets. the market money made and lost is a rounding error compared to the overall economies. tom: new zealand is the rules-based dominant central bank, marginally from rules-based towards discussion. our ru -- are rules in retreat? gotael: they will argue you it wrong. they are not using rules. they have targets for inflation. and they have the discretion to reach those targets. a rule would be when you are at this level of unemployment and this level of prices, you must do x. we do not do that. we look at rules for guidance, but we have targets. it is the targets that are in question right now. whether 2% is an accurate reasonable --- an accurate, reasonable target to do something. this panel is really quite good. francine: it is really quite good. that is the understatement of the year. governor carney just talked about the transition period. all of the central bankers have challenges they need to address. let's go back to frank for an mario draghi. gov. draghi: the transparency is an integral component of accountability. abouta duty, no question that. obviously, transparency is also, in a sense, shown in the example you quoted, transparencies also to be welcome, because it improves, dramatically, the transition of monetary policy. ofthat time, transition monetary policy was impaired by the fragmentation that was pervasive in the euro area at that time. and the change in that situation was the beginning of repairing the euro area fragmentation, to the point where we are today, lending rates and spreads, especially across different countries and sectors at historical lows. the of a thing that is important to appreciate now, and a few years have passed since then, we calculate the decision -- dispersion index across countries. the dispersion index between the value added in different countries is now at historical lows. you have to go back to 1997. even before the euro had been theted, which shows countries had converged a lot, at least in terms of growth rates. so in a sense, the story of that episode shows that guidance helps to stabilize behavior, and ,his stabilization behavior especially in times of crisis, has a very powerful affect on the convergence of different countries. david: so you have this all worked out when he made that statement? gov. draghi: no. [laughter] thing abouta good having people like you ask these kinds of questions. [laughter] david: i will take that as a compliment. on the other hand, the taper tantrum episode, where ben bernanke told congress you are beginning to think about had ang qe purchases onset affect on the market. clearly something that was not expected. what is your sense of why did that happen and what did you learn from that that you employed when you finally did do the exit from qe and nobody noticed? chair yellen: so we were very surprised by the outside market i think this was in may of 2013. of conditionss that might be in place that would make it appropriate to assetreducing our purchases. the reaction we saw in the market -- i think the 10 year yield went up i 100 basis points, or maybe even a little more. that was something that simply could not be understood in terms of surprises about the path of our balance sheet. at the fact, if you look dealer surveys that we took that the newime, york fed routinely does, the things that chairman bernanke said were pretty much in line with where market participants expected at that time. looking back at that experience, what caused the taper tantrum was the timing of the and, somehow, its character was most unexpected and lived not only to some small shift in exhibitions about the path of our balance sheet, but a significant shift in expectations about the path of the federal funds rate. it was interpreted as an unusual intervention that surprised the markets and suggested that there would be a steeper path for the federal funds rate than markets anticipated. so what were the takeaways? i would say two that played a role that we have now played a our balanceshrink sheet. lesson number one, it is important to prepare the markets thoroughly for what we intend to do with our balance sheet. so before commencing shrinking the balance sheet in october, we a longe groundwork in set of communications, in which we provided more and more detailed information about how we would go about doing this. and, importantly, we wanted to make completely clear that the process would be one that would be very gradual and would avoid market disruption. second -- and i think we were successful in doing that. second is we understood the indications about the balance sheet can -- the communications about the balance sheet can be interpreted as an tailing information or leading to revisions and assessments about the policy path. therefore, we needed to can indicate clearly what would be the determinants of the policy path and not allow those -- ssments to be jolted david: you mean the policy back of the short-term rates. chair yellen: short-term rates. and not be jolted by our conditions -- communications about our island sheet. we made clear early on that what we intended was for the federal fund rates to be the prime is a policy tool, that we would only begin to shrink our balance sheet when we felt we had sufficient scope. aen the funds rate reached sufficiently high level, and the economy was sufficiently robust, that we would be able to use our funds rate, at least in most circumstances, as a tool to adjust the appropriate path of policy to achieve our goals. when we felt we had enough scope funds rate,se the only then would we essentially put our balance sheet on a path to shrinking. essentially, it is a background thing running on autopilot, unless they were a very large, negative shock on the economy. and we made great efforts to communicate that. that there was no change in our objectives, no change in our assessment of the economy. that to the extent that shrinking our balance sheet, we tend to gradually raise the term premium and lead to some tightening of financial conditions that, in effect, the public should ignore that, -- theree would offset would not be an unintended shift in the stands all policy. we would take that into account in setting the path of the federal funds rate. i think we have been successful in making those can indications this time. david: let me ask one final question. i am confused by the clock -- [laughter] thank you. difficult,ou find it and the current environment, to can indicate with people in the financial markets without leading to the press and others saying you are giving away the secrets to the traders and the moneyed interests, rather than the public? is that a constraint on you are not? i mean, i think we all only can make it with financial markets and the way we comedic it with the public. communicate with the public. people will have meetings from time to time with financial markets -- i will speak for myself. it will not surprise you as regulator that we will make -- ceo's.th bank when you meet and discuss the economy, you say what you say. i want such item house -- chatham house once. i spoke about the economy and brexit. i said exactly what i said the day before in public. to the press. it it was a quote that was a quote from the previous day, but because it was chatham house rules, and it was not supposed to be leaked -- poor chatham house, that i revealed they broke their roles. but you have to be conscious of that. we have to learn about their perspective of what is going on. before best gov. kuroda: before becoming the bank of japan, i was the president of the asian development -- the way the committee is managed , it does have some implications as the communications strategy. we have 67 member countries, all asian countries, the u.s., europeannd 18 countries. almost all decisions by the longtive board regarding time -- long-term projects, strategies, the decision was made not by voting but by consensus. , at leaston that thisy, showing was decided by consensus or something. there are two issues, always, the board insist to take voting. staff salary and budget. and here, 12 members of the ,oard representing 67 countries have diverse views regarding staff salary and budget. and requests by the board always took voting. and, usually, more than 51% of chairs supported the management proposals. but this is a bit awkward. showress release would not any country who supported or -- how many voting chairs supported or were opposed . the press release does not say anything about that. just say that a few members of the board objected. i do not want to say ambiguous, but very general. trying to avoid accentuating board diverse views. bank ofther hand, the japan always takes voting. voting results are immediately released. who opposed, who supported. why? probably because the monetary policy committee is devoted to discuss and decide monetary policy. not a range of issues. unlike development, climate change, whatever issues in asia and the pacific. quite complicated. on the other hand, monetary decides policye in the next few months. david: you're the only person who has gone from the president of the asian developing tank and said the bank of japan -- and said being the president of the bank of japan was an easier job. francine: we just stepped away briefly from that all staff -- all-star panel. major central bankers talking about how they communicate. mark carney say something interesting about communicating. and when fed chair janet yellen was talking about the central bank's decentralized structure. about not talk a lot having too much or too little transparency. there areair saying very healthy policy debates but they can still reach a consensus. the concern is if you are a market participant, and you have too many views, it is the cult of the the one you think will happen. tom: absolutely. this panel has been a joy. smartre will be other analysts. cohn, chairman greenspan, they are in frank for it. now, it is time to turn to washington, a beautiful washington. it doesn't look as good as the sunrise over cato lake. he is the gentleman of east texas. he has spent years trying to save -- the rose festival of tyler, texas. he is a gentleman from the first district of texas. your president -- he took 72% of -- your president is returning to washington. i know he will return to the support of trump supporters like you. anyhe get at the margin other people to support him on tax of form and the other issues at hand? >> i think he can, on tax reform. of course, it seems there are two or three people in the senate and our party that enjoy mr. trump. to i think you will see some people get serious and come on board. cuts, they really will help our economy. i kept pushing mr. trump -- do not let ryan and mcconnell talk you up from 15%. that will bring back manufacturing. i inc. those -- there are those who look down at manufacturing and say we have evolved into a service economy. but any major nation cannot produce what they need and a time of war will not remain a major power after the next war. tom: you famously went after john boehner, and went down in flames on that, we left of the debate -- minute, irt: wait a do not go down in flames. the goal was to get to a second ballot compromise candidate. it took 8, 9 months after that vote. corrected will stand on the level of the flames. what i will say is democrats did very well across the nation, particularly in the state of virginia. leaderker ryan and mcconnell, do they have the support and do they need democrats to get anything done over the next three to five months on capitol hill? ohmert: i do not know if we need their support, but we should get some of their support. that was one of the big mistakes of mistakes of obamacare. i think if the john dingell had been left as chairman of the committee of jurisdiction instead of yanking him and putting henry waxman in you would have had a health care bill that involved some republicans and we wouldn't have republicans trying to repeal it as being such a disaster. them but it would certainly be good to have them. it will make for a better longer standing tax code. i think in the end if we do the right things we will pick up some democratic votes. tom: what is the strength of the tea party in the broader ultraconservative movement today? there has been so many back-and-forth and the sexual harassment stuff and the gentleman from alabama and all of that. what is the essence of evangelical christians and the ultra-right in america right now? is it fractured? is it damaged? or do they still stand strong? >> i think is a group they are still standing strong. -- as a group they are still standing strong. they are not committed to one candidate as much as wanting somebody who will do what they said. will bepresident trump able to do that and we will give him the support to keep his campaign promises. you're seeing the sexual harassment -- that is no discriminator as to political parties. going across the board. as you do with most impropriety. hope to leave that's going to work itself out. as a fodder -- father of three daughters we don't need sexual harassment the matter where it is. tom: what do you need to see from the attorney general? how does he stay out of trouble? >> if an attorney general is really doing his job is going to have some people fussing at him no matter what. theeally did anticipate attorney general's getting in there and just enforcing the law. the obama administration kept screaming for more gun control and they had fewer gun violation prosecutions than any presidency in this generation. hopefully we are going to see that. we are going to find out and i think the revelation yesterday that actually the attorney remaining mute for so long on some of these important issues has let us know he's getting into these things. tom: i'm going to rip up the script. over thee have seen last months i get the idea that east texas. it's the heritage, the land, the rolling hills into the western appalachians. how does the gun a those of your ethosdistrict of texas -- of your first district of texas lead to a common legislation with new york city? how do we get to, and legislation on gun control when we see the horrific deaths and injuries? i think we will see guns extentanned to the same we start seeing ammonium nitrate -- vans and trucks and machetes being banned. it's more about who is holding the instrument that is what the instrument is. we start seeing ammonium nitrate the blue intend on terrorizing intentdering -- people on terrorizing and murdering are going to do that. if they had not had a gun it would not have been 25 people shot. thos ofnot the eas everyone. guns are offensive or defensive. it's nice to have the great equalizer. since we have strayed so far true morality whether it is spending future generations money or just the way we treat people unfortunately defensive weapons are going to be imported. -- important. tom: much going on with francine lacqua in london and conrad dequadros. it's quite extraordinary isn't it? francine: the officials are in charge of half the world's economy. janet yellen, mario draghi, mark carney. let's go back to frankfurt where four of the world's most powerful central bankers seem to agree that more transparent communication on monetary policy intentions is effective and here to stay. here is chair yellen. >> we are in a low interest rate environment and that may be one that's likely to prevail for a long time. more broadly financial stability involves looking at leverage maturity transformation the health of the banking system and taking all of that into account. we have also communicated that our overall assessment of financial stability risk remains quite moderate. the woman here in the aisle. >> i was wondering for mrs. yellen and mr. carney. could you give us your experience of state dependence which you mentioned and given the breakdown in the old relationships and how useful it was to do that. if you were talking about how grand to avoide -- ground to avoid the taper tantrum how does that mesh with the independence depending on economic data when you lay the groundwork so clearly? are you trapped into doing something that perhaps economic data might have not justified if you'd had freedom? >> if you have state dependence -- think stonee unfold as you expect it causes problems. >> not necessarily. things don't unfold as you expect it causes problems. >> not necessarily. first we said we weren't going to think about raising interest rates until unemployment fell below 7%. at the time when the recovery had started and it was picking up quite strongly and on historic reaction function of previous nbc is the end would have raised rates two to three thereover the past from to 7%. we provide the guidance that recovery is picking up. we want to make sure the recovery takes hold. message first and foremost to individuals and businesses in the united kingdom. it's also a message to markets. then we are going to evaluate. 7%n unemployment got to probability in the market that we were going to raise interest rates, very low. the market looked at the trade-off and correctly assessed our reaction function. hee commentators whatever characterized what we said and looked back and said that doesn't really matter because people understood it and the market understood it. the second example is state contingent. used policydum we quite substantially and we said in august 2016 if the economy turns out broadly in line with our forecast we'll use policy further. there will be further stimulus. there is a lot of uncertainty about the path of the economy at that point. the economy picks up, it is stronger than our base case in the market takes out an expectation of additional policy easing. we felt it was appropriate to manage that trade-off. the informed observers of the market crist in the nature of the guidance and took it off when those conditions precedent weren't realized. i think in both cases from our it worked as it should've. >> weren't you boxing yourself in? what if the economy had not performed as you expected? had you over prepared the market for something? >> first of all we indicated early on that we would only undertake balance sheet when normalization of the federal funds rate was well underway. we understood that if we put our balance sheet on a shrinking path in an autopilot sort of way that clearly we needed a tool that would have sufficient scope to respond to shifts in the outlook. we wanted to make sure that in most circumstances the fed funds rate and movement and it sufficient would be to respond to any variation in the outlook that we might experience. a mantra for was we are not going to start shrinking our balance sheet until we feel the fed funds rate is at a level and the economy is sufficiently robust. we've got a tool to use. second recognizing that there could be significant negative shocks that would call into question whether or not we to lowerd enough room alsoederal funds rate we put a proviso into our balance sheet guidance. we said here is a strategy. autopiloting to be on is aroceed unless there significant negative shock that calls into question whether or not we might have to cut the reach thends rate, zero lower bound and in the event of such a shock we stand ready to resume reinvestment investments or even expand the balance sheet again and resort to further asset purchases if we need to. we were well aware that we needed a policy tool and even a set of policy tools to cope with sufficient negative shocks. >> gentleman here. i am steven hansen from oxford. i'm interested in the idea of different target groups. of tell from a bond price how market has reacted to your actions. there are 10 year expectations of inflation or interest rates. at the same time several of you have pointed out you also care about what the public at large thinks. i was sort of interested in what metrics you might imagine you could use to judge whether the public has reacted in the way that you wanted. that seems less clear to me. it seems and point -- an important audience. >> likes or dislikes on the facebook page. we will let the governor's answer before we break. >> it's a question probably more for chairwoman janet yellen. it's about your dual mandate. thedo you communicate arguments of the old mandate. it's probably easier to communicate. how do you communicate when they go in conflicting directions. even going through your recent experience you should look at the last year. disappointing relative to your target well unemployment was not. so can we conclude in the end the driver of your decision of the last few months was mainly the labor market side, the employment or unemployment side of your mandate or not anyway. it's a general question. >> how do you judge whether you are successful with the public? high-level inflation expectations. there's several layers apart from asking every single person in the country which is difficult to do you have to rely largely on surveys. there are surveys of relative trust in institutions. service of his nas expectations. my answer to the woman from onters question was based thousands of business opinions not just bank of england surveys of what business is expected to happen and what they did because of the guidance issues around brexit. we have a decision-maker panel reaching up to ultimately almost 10,000 businesses across the u.k. which is representative and you have to ask the questions. time serieshave a so you can truly judge the relative changes. if you care about these things you have to do those in order to help track anything beyond anecdote. of course we continue to monitor the bond market. market isause bond one of the channels through which monetary policy can -- >> he wants to know how do you measure what the public thinks. >> as far as public things are , ensuring inflation expectations and assessment of the status of the economy. the bank of japan law prescribed that the bank must aim at achieving sound economic development through price stability. yes price stability is one of the mandates of the bank. it is not simple stability itself. throughice stability which bank of japan supports sound economic development. a bit complicated but i still think that whenever you assess of public evaluation monetary policy not just price and inflation expectation but the evaluation of the general economic -- >> how do you manage the dual mandate? is it really dual? maximumcognize employment and price stability could come into conflict. our we issued in 2012 for so-called statement of longer run goals and strategies we were explicit in stating that if they came into conflict we would pursue a balanced approach taking deviations of all things into account and i think many of us were thinking that circumstances were for example unemployment is high and excess of the natural rate and inflation is also above target that we had a commitment to get back to 2% but we would take unemployment implications into account in deciding how quickly to do that. you asked about the last year and it's a slightly different situation in which unemployment tolower than levels deemed be sustainable in the long run and installations will also too low. is it really inherently bad that unemployment is below the natural rate. not sure. there are certainly members of our committee who would see unemployment going back to the butral rate as a constraint not inherently undesirable. whether or not we are in a conflict situation at this point namely it's to get inflation back to 2%. undershooting the natural rate of unemployment that is purposeful. about strategy. it's intentional. we are doing it to get inflation back up to 2% which is our commitment and it is necessary to the natural rate of unemployment. is that inherently a bad thing? i'm not so sure it's inherently a bad thing. of course we want to get back to 2% and that's our commitment. francine: janet yellen talking among the top central bankers in the world in frankfurt. officials in charge of half of the world's economy seem to agree on one thing which is that forward guidance is actually used as monetary policy tool. have itssay it can limits. they all seem to continue wanting to do this. let's get back to conrad dequadros. when you look at forward guidance is it a proper tool or are we hoping to much that the markets move on just talking? >> one of the points i was trying to make before that i think is unfortunate that they are relying so much on forward guidance because i don't think it's a good tool. yellen made the point that there is this intent to thoroughly guide policy going forward but how can you do that when the outlook is so uncertain and yet policy is supposed to be dependent on that outlook. the comment yellen just made tot it might be desirable see the unemployment rate move back towards what they think the natural rate is. i would make the point that on their estimates that's a half percentage point increase in the unemployment rate. never have we seen a half percent increase in the unemployment rate. if you get a half percent increase in the unemployment rate the economy always goes into recession. these are kind of bizarre communications coming out of the fed and i think it complicates things. i don't think it's a particularly useful policy tool. they focused a lot about who are they communicating to. the markets are the public. they're communicating to the public which they said they think is important. it's going to be really hard to 1.5ince the public that percent inflation is a bad outcome and 2% inflation is a good outcome. there's not much of a different between those two rates and 1.5% is probably better for the public. tom: conrad dequadros, a terrific panel in frankfurt. we need to find time for the great rebirth of general electric. and absolutely iconic coverage of the company. everyone is scrambling on the flannery reorg. you have been more optimistic. crew onto the gloom general electric why you can acquire shares at 19 or 20 or $21 per share. haver what it's worth, we been wrong. certainly 50%ect reduction in the dividend and we did not expect a material pull forward to the extent it occurred at the power business and that is their largest business. with those behind us you had a reset for the guidance in 17 after the third quarter. you have now it provided preliminary 2018 guidance and that is roughly flat with 17. it doesn't incorporate a lot of new accounting. going forward from this standpoint all you've got in my opinion at this juncture is the new ge. with 20 billion less assets. that ultimately is going to be measured on free cash flow and virtually nothing else. a new ge that ultimately is going to be -- tom: i want to bring up the chart. you are joining us on telephone as you begin your day. here's ge at 30. here's the slow path down and the huge disappointment on a log basis. when you were at the meeting yesterday does mr. flannery understand that is x axis is not the same as jeff in melts or jeff welch's? did that come across yesterday? >> i think so. it sounded very clearly that they are going to take something and a half a billion cost out of power. the board is going to go from 12 to 18 as of next april with five new members within the last year. clearly accountability for capital allocation is paramount. tom: how many bodies are going to go out the door? can you figure out of $20 billion how many exit? >> 295,000? i wouldn't be surprised if 50 are not part of the company by the time pairing is done. a smaller company will be clearly more profitable. francine: how much time is the market going to give the new ceo? >> i don't think a lot. he has to walk in. i asked yesterday are we going to have a december meeting. he said, we will probably have one in march. by that time he will have a few things on the table to market and exit of these assets. orse proceeds could equal exceed the 17 billion in free cash flow that is expected at 18 and 19. he has to demonstrate can create value. francine: if you were in charge what would ge look like four or five years from now? >> he has laid out that it is aerospace power and health care. i sense that it is going to be a much more focused less on the present in all industrial markets type of company that is funding the transformation of the industrial digital future. it will be a company that has a return on capital in excess of 20%. let's go back to conrad dequadros for final comment. when you look at animal spirits which is exactly what ge and other companies need what will it take for them to really come back in full throttle in the u.s.? >> i think companies right now are probably looking at the economy and seeing a synchronized upswing. believe that if we were to get something along the lines of the cut in the tax rates of 20% that has been proposed by congress that would be a big positive and something i would like to see. ahead of that we have had a pick up in capital investment. it's looking like the fourth quarter is going to be strong as well. there's going to be a resurgence animal spirits already going on. conditions seem to get something of an upswing. francine: will it lead to further investments in the u.s.? the problem with a lot of the don'ts we have done is we have these kind of changes in u.s. tax policy happening frequently. at the last time we had a significant change in corporate tax policy in the kennedy years and attack cuts -- tax cuts that was passed posthumously. there is a bit of pent-up capital spending. we had some weakness a couple years ago beginning to feed through. that's going to be very important for us to see some improvement and productivity trends in the u.s. conrad dequadros thank you. this is bloomberg. plenty more to come. ♪ hey xfinity! show me netflix. hey guys... youtube people getting scared. 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