? that probably doesn't have huge implications for the growth rate of the economy, the potential growth rate over time. but if you get something more powerful than that, that has applications for how fast the economy grows longer term. cuthe sponsors of the tax is credited with rocket fuel for companies investing. mr. dudley: well, we will see. my own view is that if you look at it historically, investment spending has not been that connected to the cost of capital. there is a positive effect on investment spending, but i expect it would be more modest than really large. so far we have not seen really any sign of acceleration, but it is early days. >> something that you did achieve in the past six years, especially the last four years, was the fed came closest to meeting this inflation target, 2%. i mean, people could say you

have been smart, but if you go back all the way to arthur burns as chairman of the fed can which is going back a long way -- i think you are just beginning to think about being an economist at goldman sachs, and i was just beginning to write stories for " the wall street journal," so that was a long time ago -- what did the fed into the past four -- what did the fed do the past four years that made the difference? mr. dudley: i think what is important in terms of what the twofold.d is we were in a financial crisis and the fed pulled out all the stops to keep the financial system that collapse, because we probably would have had a great depression. and astwo, post crisis we were starting to have a recovery, the federal reserve pursued a stimulative monetary policy to get the economy back to full implement quickly rather than slowly. -- full employment quickly rather than slowly. the amount of disinflation we had in the u.s. was less than in

places like europe and japan. the lesson of the japanese experience when the japanese mobile first is that they do -- when the japanese bubble burst is that they did not respond forcefully enough, and executions got anchored to the downside, and it had the difficult bit of pushing inflation back to their objective. morenk we responded aggressively. you mentioned the quantitative easing programs. i think those things were helpful in keeping inflation expectations from falling a lot, and that made it easier to get back close to our 2% objective. i wouldn't quite declare victory at. the inflation data goes up and down month-to-month. but we have made some progress, and i am certainly happy where we are today. >> which is 1.9%. mr. dudley: 1.9%, right. >> quantitative easing, so far so good. it was successful, it became the template for rescuing europe from its owner session.

yet the critics, who we referenced earlier, have not really acknowledged any regrets about assailing the fed for pursuing this monetary policy. none of them as far as we know said they were wrong. do you think enough time has passed for history to judge qe in a qualified success -- an unqualified success? mr. dudley: i would say it is still premature. let's fully normalize the balance sheet and then we can say we fully a mortgage -- accomplished our mission. the issue with quantitative easing is that people do not appreciate that the fed was in a different machine. in the old regime we put a small amount of reserves in the system to keep the funds rate of balance. but in the fall of 20,008 with the t -- in the fall of 2008 the fed got the authority japan reserves. it allowed you to russian the demand and supply of credit through the level of prices. people thought, g, we are buying

all of these securities from we are adding rapidly to reserves, but they were ignoring the fact that we actually had interest-rate control because of the interest we were paying on reserves. i was never worried that the quantitative easing was going to create an inflation problem. what i was worried about is that people thought it might -- if people thought it might, maybe inflation expectations would get on anchored to the upside. that is what i was worried about. >> what is interesting about what you just said is that coinciding with the qe programs one and two, it turns out that volatility in the market, both treasury market, debt market, and the equity market, collapsed from where it had been, dramatically so. you could see a big change from even the bernanke-led said to ed said, which you were part of. what was going on there? mr. dudley: economy cooperated.

we had a steady recovery, economy growing above trend pace but not a boom. get employment rate was coming down -- the on employment rate was coming down gradually. because there were not a lot of surprises to the market, there was not a lot of volatility. did the fed's actions dampen volatility that? perhaps. but i think it was the fact that the economy cooperated. we had an economy that was not much different from what we were anticipating. you could say, as late as 2012, you had no less a light than jamie dimon querying ben bernanke about, hey, that you may be gone too far, you folks. mr. dudley: it goes back to the japanese experience. i think ben bernanke very much understood that, he understood the lessons of the great depression.

i had done a lot of reading about the japanese experience as well. i was completely in line with his view that we have two err on the side of doing enough. red doing enough inflation expectations well belowuced 2%. then we end up in a japanese situation where it is hard to make monetary policy stimulative because inflation is so low. >> the aftermath of the financial crisis you were the most vocal new york fed president in memory to speak behaviorting out that in the financial markets and creating incentives for integrity in this greater content this greater community known as wall street. did you succeed? mr. dudley: i think we made progress. it is never going to end. my view is a simple 1 -- you look at the bad behavior we saw during the financial crisis and the aftermath, and it wasn't in the gray area. it was way over the line. libor,colluding to rig

people colluding to rig foreign-exchange rates. you saw a major west coast bank, it turns out they are selling accounts to their customers. that is the first piece. the second piece is that the fines are large of the cost of doing this is going up. there really was risk. all of those things were suggesting that this problem is not one institution or a few bad apples, it is more systemic. that is the first point. the second point is that i came to the view that it cannot just be about regulation supervision. the management of these organizations have a responsibility to make sure that their people behave well, that they have good cultures in their institutions. just relying on supervision and my condition isn't a sufficient -- and regulation is sufficient. we had deans of business

schools, and it is a despicable years ago, and they said something to me that was interesting, basically that people who work graduating from business schools were starting to shy away from going into finance because it was an unethical business from their perspective. that is not a great selection process. only the people who have a very or standards are not going into your business, that will not help you do better. i think we are making more progress. bank leaders are taking it more seriously, boards of directors are taking it more seriously, but there's still more to do. one thing i would love to see in the units it is the banking industry as a group committed to do a survey across all the institutions of by a third-party in terms of evaluating their culture, because i think they would find it interesting to see , number one, how are they doing relative to their peers, and two, they would find it interesting to see how they are doing when a third party does the survey versus when they do

the survey themselves. that is definitely doable. it is being done in the united kingdom. i think it would be great if we could bring that to the u.s. >> you have for the most part been a champion of what is known itdodd-frank, and think that has achieved in the context of -- mr. dudley: it is not perfect, but it beats a lot of alternatives. >> so at this point your assessment of what should be --e, if it isn't done yet what should we make of dodd-frank, especially since there is much enthusiasm for rolling it back? mr. dudley: well, let's go i think dodd-frank did a lot of the important things. number one, more capital and liquidity for systemic organizations. two, central clearing of over-the-counter derivatives. three, give the federal reserve more supervisory oversight over financial market utilities.

order the liquidation authority away from resolving the large banking institution -- shery: that was outgoing new york fed president bill dudley speaking with bloomberg editor-in-chief emeritus matt winkler in an exclusive interview. you can continue to watch the deadly if

jonathan: i am jonathan ferro. this is "bloomberg real yield." record quarter, first port of issuance from the treasury. the treasury borrowing $488 billion from the single biggest quarterly amount of debt sold since 2008. the treasury said this week it will boost the amount of long-term debt itself to $73 billion in the current quarter. moving to u.s. corporate, may

could be a strong month for , the largestell month over the last three years with an average of 171 billion dollars. in south america, the nerve's running high rates has spread to the bond market. -- 4 copiess listed posted $2 billion. and me from td securities jenny montgomery scott -- if you are argentina and start throwing rates up to 40%, some people might argue, just guessing -- what you need to do to get this done 40%? >> argentina is a special case in this whole discussion. there is a lot of specifics. it goes back to the brady bond days when the cost of equity was to present cost of debt. -- 2% cost of debt. i think there has been a strong dollar and higher rate story in the u.s. the argentina story is specific to argentina.

jonathan: there are idiosyncratic reasons to i argentina's getting slapped around and turkey as well. thater there is a string aligns these two things, it is central bank credibility full to there's almost not amongst investors and our ability to contain inflation. michael: turkey has got a pretty monetary situation and fiscal condition that is not very constructive at all for them. i think both of those things, yet, you will get a little bit of old-fashioned em central bank and em fiscal credible it issues converging at the same time. jonathan: more broadly, the story over the last year, year and a half, has been to get longer yen and pay the currency risk, because the dollar will keep getting bigger. the dollar moves over the last peopleweeks have made more uncomfortable relative to a

month ago. is there a reason to be uncomfortable? >> our view is that the dollar is in a structured decline mode. there is a divergence -- the divergence rate has come back. u.s. data has been relatively ok. the west of the world has just the rest of the world has disseminated. -- the rest of the world has decelerated. we think soon the dollar will go back to its secular decline, so you should be ok. one of the most consistent features of the late cycle u.s. economy is the fixture big rally in the u.s. dollar the catches everyone by surprise. i'm not saying with confidence that what we have seen the last two weeks is the start of that, but that would be one more example of all of these indicators in the u.s. signaling late-cycle economic activity, and that combination of both weakness and liquidity pullback into the u.s. is pretty awful

for the yen. jonathan: people are wearing across assets with the exception of maybe credit about late-cycle things -- we're seeing a lot of it in equities right now. economists more so as well. but not in credit. why are we seeing a lot of investors gripped by late-cycle fears? guy: if you look at the vix to credit spread ratio, in the history of the high-yield complex, it made a record low. the move that a lot and credit spreads did not. a lot of that is specific to the vix, etf's -- that ratio has repriced of it. still quite low. when you look at ig credit spreads and you look at high-yield credit spreads and you think about the violence we are seeing day today in the s&p 500, -- day to day in the s&p

500, what is shown is that we are not that late cycle in the u.s. economic trajectory, but there is a whole bunch of regime withinwith tech stocks the s&p which is keeping that vix elevated there. i am looking at credit spreads as a better read on the economy than the s&p and price action right now. i don't necessarily see a lot of late-cycle indicators. i'm not saying -- i'm saying maybe more of the seventh inning. guy: which gives us a year, year-and-a-half. jonathan: is it ready to worry about fears as a credit investor? guy: on the margin, yes, and that is not because the wheels will fall off the bus, choose your metaphor. horizon, youonth will not pay to take the risk. my universal recommendation is don't be a hero. it is not benefiting you. sideam wrong on the credit

, rates should be higher anyway. jonathan: last year there was a big issue -- it was the for nita lowey august, and for this maturity at this credit rating -- it was the end of august command for this maturity at this credit rating, it was a record low yield. i see things on my bloomberg, it is 7.5%. real repricing. was august the abnormal time for the high-yield market? are we getting a little bit more normal? guy: i am not in a position to comment on the credit specifics of tesla, but that company attracts a certain fanatic-type investor. i would not be surprised if a fair amount of the debt county its way into retail hands on average. i will put it in terms that elon musk might support. jonathan: i would put it in terms that some of our viewers might like. is this credit market still wide-open with the high-cash for companies like tesla?

guy: a little bit less so, but still wide-open. the area that is the most concern is the leverage loan space. this space has grown significantly relative to the broader credit markets the last few years, and i hear this in advertising points over and over again. hey, we had very low default rates during the global financial crisis. this debt, or this specific subsector, is issuing for the last crisis, which means it is in no position to handle the next one, whatever that might be. that is the sector of biggest concern with a credit market. jonathan: great to have you with us. jenny montgomery scott. check on whether market has been. yields up by just a single basis point. 250 on the u.s. 10-year. unchanged at the longer end. still ahead, the final spread featuring the bank of england and governor mark carney.

."is is "bloomberg real yield ♪

jonathan: i'm jonathan ferro. this is "bloomberg real yield." time for the final spread. over the next week, nafta talks resuming in washington, d.c. the bank of england out with its policy decision and an inflation report. plus, a news conference from the governor mark carney. and we await a decision from president trump in regards to the iranian nuclear deal. still with me is michael purvis and priya and guy lebas. priya, big week for issuance coming up. how would you define a failed auction? the reason i ask is not because i'm thinking about it. i wasn't until later this week,

when the subject was brought up to me. how would you define it and how would you want it in the united states given all the supply? priya: the one good thing with u.s. treasury market, we have the primary dealers. every dealer has to put big in there. the way i would define a failed auction would be -- when the wi market trades at a surprise, the option comes in 5, 7 basis points higher. that would be a big shock to the treasury market. we have not seen any signs so far that these auctions are having any trouble, but that is because the rest of the world is buying our debt very happily. when it worries me longer-term is that if you were going into this trade war world, you have companies say -- country's sake why do we hold our reserves in dollars? ,ny reduction in foreign demand that could essentially move rates higher. jonathan: guy? guy: i think that is a fair

assessment. the levels will ultimately adjust even if there is in one given action not enough customer demand. amusing from a ,onger-term perspective is two three years ago we were read about a shortage of safe haven assets, now we are basically drowning from them. in both cases somewhere in between so there will be good to demand for the treasury curve, maybe five basis points -- jonathan: people have to be boring are the same ones who said the medassets government should widen the fiscal position and take advantage -- michael purvis, do you see a market that is well set up to absorb record issuance from the united states? most, probably. determine premium on 10 year taxsuries exploded with the plan in december.

and then it came right back. -- look at the move in next index, it has been trading take for tech. rates have been going up to a higher range, but not the way we 4% back in.6 to february. if that term premium kent state low i will guess -- if that term that willn state low, help people by a committee you have your friends across the ocean in the ecb and japan creating a backup for that as well. jonathan: i will have the opportunity to wrap up the program with a rapidfire questions round. i will go to the questions individually. turkish for argentina debt through your and -- through year end? michael: tough one. i will guess argentina. guy: turkey. priya: i will go with turkey as

well. jonathan: credit question, maybe a difficult one. similar maturity through yea r-end. michael: tesla has a stronger religious space. [laughter] wework. will go with i think the world is moving ork-techa wew culture. guy: porter cash. therefore your cash. michael: hike. hike. guy: hike. jonathan: great to have you with me. this was "bloomberg real yield." this is bloomberg tv. ♪

shery: live from bloomberg world

headquarters in new york, i am shery ahn. toronto,ive from t i'm amanda lang. shery: here are the stories we're following from around the world. equities rally in america as u.s. unemployment. any are two decade low. we headed to the hoover institution monetary policy conference at stanford university for a live discussion with the former president of the philadelphia fed. plus, can finance minister tell us why he is cautiously optimistic that nasa is moving in the right direction? a quickt started with check of the major averages in the u.s. and the session highs. the dow is getting 1.2% while the nasdaq is up 1.5%. headlines today can with apple reaching record highs