Senior Fellow at Council on Foreign Relations Rebecca Patterson Talks "Too Much"

SPEAKER_1 (0:02)

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Tom Keene (0:07)

I guess a sigh of relief on worries of an overheating economy. She is an expert at this. Rebecca Patterson joins us now, the Council on Foreign Relations. Let me go right to your work. I was at the Greenspan Memorial, just a fabulous effort by Jane Harman, and of course, Andrea here with all of the people showing up in honor of Alan Greenspan. It's a really frank talk about the arc of his work. And I was greeted by Sebastian Malaby, whose book, The Man Who Knew the Life and Times of Alan Greenspan. You have the privilege of doing a podcast with Sebastian and CFR, and your recent newly minted podcast is on central banks.

What kind of bind are they in, given the drama I just saw on the Bloomberg screen?

Rebecca Patterson (0:53)

I mean, let's put the payroll data aside for a second, because the Fed and other central banks are looking not just at one number, but at a dashboard of numbers when they're making their assessment on labor and inflation. I think the challenge for the Fed, the challenge for all these developed markets, and even a few emerging central banks today, is that a lot of the pressure coming in are supply shocks, and central bank policy changes can't create a barrel of oil, they can't create more chips, et cetera. So it's hard for them to know how to respond to that. Now, some of this is demand driven, as we know, and the way I'm starting to think about the economy today, and AI in particular, is it's too much of a good thing.

We have too much capex, literally, going in the economy. Brookings put out a paper recently suggesting 3.6% of GDP for about a decade. I mean, that's an incredible, incredible statistic.

Tom Keene (1:48)

That's real GDP, folks.

Rebecca Patterson (1:49)

Yes.

Tom Keene (1:50)

Okay, folks, let me translate. Paul, Banana Republic, continue. Not the clothing store.

Rebecca Patterson (1:56)

So you've got this boost to growth, but as we just saw, it's not necessarily translating into an equal number of jobs. We have this need for energy that's pushing up inflation at the margin. And as Claudia Somme just mentioned, love to see her before me, although it's a lot of pressure on me.

It sucks away from everything else. And when I say sucks away, I mean, you don't have enough construction workers because they're all building data centers. You have pressure higher on treasury yields because you are now competing with all that AI debt.

Tom Keene (2:30)

Paul, let me give you this statistic here. I think it's really important. I have a huge affection for Duluth that actually has to do with Rome, Italy. Poverty rate in Minnesota is 9%.

Booming Minneapolis, data centers, the Mayo Clinic, the Minnesota Wild, everything. I won't mention the twins. Brian, I'm sorry, I won't mention the Vikings. Okay, in Duluth, the poverty rate is almost double, 16.8%. That's the part of America flat on their back.

Paul Sweeney (2:57)

Absolutely. So Rebecca, a lot of people are trying to understand it. There's a lot of people in this market that have never seen yields at these levels. It's been a long time since we've seen yields at these levels. Is it fair to tell them, this is kind of the new normal? This is actually normal when you look at it historically, and you better get used to these levels. Is that how you think about it?

Rebecca Patterson (3:15)

Yes. I think we are in a higher for longer regime. I think government bond yields, again, across a number of markets are resetting higher structurally. It doesn't mean they won't go up and down with the economic cycle, but the era that we had for 20 some years after the financial crisis in 08, where we had zero interest rates and very low yields, that's not coming back.

Tom Keene (3:37)

Rebecca, you know that when we make a correction here, we have to do it immediately because the markets are riveted to what we say here, in equities, bonds, currencies, commodities.

Surveillance correction. Brian Belsky, thank you so much for emailing in. The Vikings are 3-0.

Rebecca Patterson (3:53)

Whoa.

Tom Keene (3:54)

And they got a gimme this weekend with the lousy Miami Dolphins.

Paul Sweeney (3:57)

Okay, all right.

Tom Keene (3:58)

They're gonna be on the edge of Duke, 4-0 and that. Exactly, exactly. Let us continue our conversation on the American economy.

Paul Sweeney (4:04)

So, should we go in and lock in some yield here in the Treasury bond market? I mean, these are coupons we haven't seen before.