WEBVTT - Jacob Frenkel: Doesn't Expect Fed to Raise In September (Audio) 0:00:02.840 --> 0:00:07.119 Broadcasting live to New York Bloomberg eleven Brio to Washington, 0:00:07.240 --> 0:00:12.240 d C. Bloomber to Boston, Bloomberg Well Under, to San Francisco, 0:00:12.360 --> 0:00:16.599 Bloomberg to the Country, Shoe is ex General one nineteen 0:00:16.720 --> 0:00:20.240 and around the globe the Bloomberg Radio plus Davin Bloomberg 0:00:20.239 --> 0:00:25.720 got gone. This is taking Stock. I'm Kathleen Hayes in 0:00:26.079 --> 0:00:30.480 Jackson Whole, Wyoming at the Kansas City Fed Reserves Annual Symposium, 0:00:30.720 --> 0:00:34.880 a look at perhaps redesigning monetary policy this year Pim Fox, 0:00:34.920 --> 0:00:38.120 of course in New York at Bloomberg World Headquarters. We're 0:00:38.120 --> 0:00:40.680 going to be joined by Jacob Frankel. He's been coming 0:00:40.720 --> 0:00:44.599 out this Jackson Hole Symposium PIM for more than thirty years. Yes, 0:00:44.680 --> 0:00:47.200 we're gonna find out what he thinks about federal reserve policy, 0:00:47.280 --> 0:00:50.400 but also whether the Federal Reserve can actually increase interest 0:00:50.479 --> 0:00:54.040 rates despite or at least during the election cycle, maybe 0:00:54.120 --> 0:00:57.400 even before December. We've got much more coming up right now, 0:00:57.440 --> 0:00:59.320 Let's go to Charlie Pellett in the Bloomberg news room 0:00:59.400 --> 0:01:01.720 for a Bloomberg Business Flat and I think you Pim 0:01:01.800 --> 0:01:05.120 Fox traders pushing down the value of stock spawns and 0:01:05.240 --> 0:01:08.480 the dollar ahead of tomorrow's speech by FED Shair Janet 0:01:08.520 --> 0:01:12.319 yelling in Jackson Hole. The SMP five hundred index down 0:01:12.360 --> 0:01:16.280 three now to a drop of two tenths of one percent. 0:01:16.600 --> 0:01:19.479 The ten year down four thirty seconds yield one point 0:01:19.520 --> 0:01:23.640 five seven percent. Dallas FED chief Robert Kaplan was interviewed 0:01:23.680 --> 0:01:27.080 on Bloomberg Radio from Jackson Hole. He touched on a 0:01:27.200 --> 0:01:31.160 number of topics, including the case for removing accommodation. I 0:01:31.200 --> 0:01:35.400 think any removal of accommodation should be patient, slow, gradual, 0:01:35.600 --> 0:01:38.520 because we've got a number of persistent headwinds that we 0:01:38.640 --> 0:01:40.880 have to adjust to. But yes, I think the strength 0:01:41.000 --> 0:01:44.560 the case for removing some amount of accommodation. It has 0:01:44.600 --> 0:01:47.920 strengthened Sears Holdings. That's the retailer run by hedge fund 0:01:47.920 --> 0:01:52.040 manager Edward Lampert posted a second quarter loss of sales 0:01:52.120 --> 0:01:56.320 continued to shrink Sears holdings down four point four percent. 0:01:56.480 --> 0:02:00.280 St Jude Medical shares plunging. Today, Carson blocked the down 0:02:00.520 --> 0:02:03.880 short seller and founder research for Muddy Waters, warning the 0:02:03.920 --> 0:02:07.480 tens of thousands of Americans are living with taking time bombs, 0:02:07.480 --> 0:02:10.799 and that is St. Jude pacemakers and defibrillators that are 0:02:10.840 --> 0:02:15.919 easily compromised, causing potentially fatal disruptions. The company says allegations 0:02:15.960 --> 0:02:20.480 are quote absolutely untrue and several layers of security r 0:02:20.520 --> 0:02:23.320 in place. St. Jude Chairs down now by five point 0:02:23.360 --> 0:02:27.240 two percent, SMP five hundred index down to a drop 0:02:27.280 --> 0:02:30.320 of one tenth of one percent down, Industrials down twenty 0:02:30.400 --> 0:02:32.760 six also a drop of one tenth of one percent, 0:02:33.080 --> 0:02:37.080 Gold down four ninety ounce one, a drop of four 0:02:37.120 --> 0:02:40.400 tenths of one percent three thirty two on Wall Street. Now, 0:02:40.480 --> 0:02:43.280 let's take a look at other news from around the world. 0:02:45.080 --> 0:02:47.840 Thank you, Charlie from the Bloomberg newsroom. I'm John Lauder. 0:02:48.200 --> 0:02:49.920 This news update is brought to you by the jeep 0:02:49.919 --> 0:02:53.720 Grand Cherokee, the most awarded suv ever. The Grand Cherokee 0:02:53.760 --> 0:02:56.480 continues to raise the bar with its luxurious interior and 0:02:56.600 --> 0:02:59.760 legendary four by four capability. Drive on at your local 0:03:00.200 --> 0:03:03.640 dealer today. Donald Trump is trying to woo minority voters, 0:03:03.919 --> 0:03:07.000 promising his economic policies and hardline stance on a legal 0:03:07.000 --> 0:03:10.679 immigration will benefit low income Americans and protect jobs. But 0:03:10.760 --> 0:03:14.440 White House Press Secretary Josh Ernest says the Obama administration 0:03:14.440 --> 0:03:16.840 and the Democratic Party beg to differ, it would have 0:03:17.000 --> 0:03:22.400 a devastating impact fiscally and economically by doling out significant 0:03:22.400 --> 0:03:24.000 tax cuts to those at the top of the income 0:03:24.040 --> 0:03:27.880 scale UH and leaving the rest of us to pay 0:03:27.919 --> 0:03:31.760 the tab. Meanwhile, Democrat Hillary Clinton speaks later today in Reno, Nevada. 0:03:31.960 --> 0:03:34.480 She'll press her view that Trump is quote taking a 0:03:34.520 --> 0:03:37.800 hate movement mainstream shall also try to link his candidacy 0:03:37.840 --> 0:03:40.680 to the so called alt right wing of American politics. 0:03:40.840 --> 0:03:43.520 A car bomber detonated a vehicle near the new Turkish 0:03:43.520 --> 0:03:47.440 Embassy compound in the Somali capital of Mogadishu. Police opened 0:03:47.480 --> 0:03:49.560 fire on the car when the bomber refused orders to 0:03:49.600 --> 0:03:52.640 stop at a checkpoint near the beach side embassy. The 0:03:52.680 --> 0:03:55.680 Arizona Coyotes are breaking new ground in the National Hockey League. 0:03:55.920 --> 0:03:57.960 The team has hired what's believed to be the first 0:03:57.960 --> 0:04:01.280 full time female coach, Dawn brey Will service skating coach. 0:04:01.320 --> 0:04:03.560 She worked part time for the team last year, and 0:04:03.600 --> 0:04:06.160 the city's Conflict of Interest Board has levied a fifteen 0:04:06.160 --> 0:04:09.440 thousand dollar font on Brooklyn District Attorney Ken Thompson a 0:04:09.520 --> 0:04:12.400 settlement over personal meals charged to the d a's office 0:04:12.840 --> 0:04:16.120 Thompson admitted improperly billing more than five thousand dollars to 0:04:16.160 --> 0:04:19.159 the King's County d A's Office, which he's repaid. The 0:04:19.200 --> 0:04:22.000 sanctions among the largest in a decade. Global News twenty 0:04:22.040 --> 0:04:24.240 four hours a day, power by more than twenty d 0:04:24.400 --> 0:04:27.200 journalists and analysts in more than a hundred and twenty countries. 0:04:27.440 --> 0:04:31.320 I'm John Lauder. This is Bloomberg, Charlie, and we thank you. 0:04:31.440 --> 0:04:36.159 And that's a Bloomberg business flash. You're listening to Taking 0:04:36.200 --> 0:04:39.120 a stock with Kathleen has fim Fox line from the 0:04:39.200 --> 0:04:44.760 Jackson Hole Economic Symposium von Bloomberg Radio. The theme of 0:04:44.839 --> 0:04:48.440 this year's a conference here in Jackson Hole, Wyoming is 0:04:48.480 --> 0:04:52.920 designing resilient monetary policy framers for the future. Well, our 0:04:52.960 --> 0:04:56.040 next guest says, you better not forget the past. Don't 0:04:56.080 --> 0:04:58.640 throw out the old textbooks because they still have a 0:04:58.640 --> 0:05:02.000 lot of lessons for cent old bankers today. Joining us 0:05:02.040 --> 0:05:04.440 now is someone who I have to say is a fixture. 0:05:04.440 --> 0:05:07.360 It wouldn't be Jackson Hall. About Jacob Frankel. First of all, 0:05:07.360 --> 0:05:11.800 he's chairman of JP Morgan Chase International. He's the former 0:05:11.920 --> 0:05:14.800 chief of the Bank of Israel, so he's been a 0:05:14.839 --> 0:05:17.479 central banker who's all those decisions rested on his lab. 0:05:17.720 --> 0:05:19.760 He's also chairman of the board of trustees of the 0:05:19.800 --> 0:05:21.880 Group of Thirty. In fact, he has been a member 0:05:21.880 --> 0:05:24.760 of that group for more than thirty years. So Jacob, 0:05:24.800 --> 0:05:27.400 first of all, welcome, thank you. I'm pleased to be here. 0:05:27.680 --> 0:05:31.200 So let's start by your view of this rethink of 0:05:31.240 --> 0:05:35.640 that policy. You are saying, don't throughout the old textbooks. Why, well, 0:05:35.760 --> 0:05:40.800 for several years we have been in an exceptional situation 0:05:40.960 --> 0:05:45.359 where a new palladim was gaining hold, and that's the 0:05:45.680 --> 0:05:50.840 unconventional monetary policy. It's very important to recognize that that 0:05:52.360 --> 0:05:56.960 unconventional monetary policy in historical perspective should be viewed as 0:05:57.000 --> 0:05:59.680 a de two at the end of which one returns 0:05:59.720 --> 0:06:04.400 to the highway of normal monetary policy, rather than becoming 0:06:04.440 --> 0:06:08.080 the new paradigm that will prevail for years to come. 0:06:08.760 --> 0:06:15.240 The old central banking principles that are emphasizing the important 0:06:15.480 --> 0:06:21.240 of price stability and more recently financial stability. That is 0:06:21.279 --> 0:06:26.279 resting on the importance of independence of central banking, that 0:06:26.440 --> 0:06:33.920 emphasizes clarity and transparency and recognizes that central banks mandates 0:06:34.040 --> 0:06:38.560 are relatively limited. You cannot solve all the problems in 0:06:38.600 --> 0:06:43.240 the world only by relying on monetary policy. For years, 0:06:43.279 --> 0:06:46.440 we have seen a situation where monetary policy all of 0:06:46.520 --> 0:06:50.480 the world has been overburdened. It has become the only 0:06:50.560 --> 0:06:53.240 game in town. And the reason is that it has 0:06:53.279 --> 0:06:58.640 been the only really well functioning um of economic policy. 0:06:58.880 --> 0:07:01.800 But we should not get to the habit of basically 0:07:01.839 --> 0:07:06.840 absolving the other important arms and assume away the possibility 0:07:06.920 --> 0:07:12.520 of introducing structural policies flexibility of the economic system. That's 0:07:12.560 --> 0:07:15.360 the only way in which you can really raise productivity 0:07:15.480 --> 0:07:20.640 and contribute to sustainable growth. What about increasing interest rates? 0:07:23.800 --> 0:07:26.880 When you're asking what about increasing interest rates, we need 0:07:26.920 --> 0:07:29.640 to put it in perspective. We are now in an 0:07:29.840 --> 0:07:34.080 unprecedented level of interest rates, let's call it close to zero. 0:07:34.640 --> 0:07:39.120 Real interest rates are negative, So we need to ask ourselves, 0:07:39.240 --> 0:07:42.960 is this the new long run? The answer is no. 0:07:43.640 --> 0:07:47.440 Every central banker will tell you that the negative real 0:07:47.560 --> 0:07:50.760 interest rates, or the very long run or the zero 0:07:50.880 --> 0:07:54.240 practically zero nominal rates of the central bank in the 0:07:54.320 --> 0:07:57.880 long run are not desirable and are not sustainable. So 0:07:57.960 --> 0:08:00.480 it is in this context that we need to ask, 0:08:00.840 --> 0:08:04.920 is this the time to move ahead with normalization? It 0:08:05.080 --> 0:08:08.800 is not only my opinion. The Federal Reserve has told 0:08:08.920 --> 0:08:13.000 us very clearly in the past that they are eager 0:08:13.040 --> 0:08:18.240 to move towards normalization, that they were looking specifically at 0:08:18.640 --> 0:08:22.800 the developments of the economy, at the developments of labor markets. 0:08:22.840 --> 0:08:26.880 So when I follow that guideline, I conclude, and I 0:08:26.920 --> 0:08:31.160 asked myself, where is the labor market today? Clearly improved dramatically. 0:08:31.640 --> 0:08:36.479 Unemployment has declined to four point nine, Participation has improved, 0:08:36.880 --> 0:08:42.840 duration of unemployment has declined. The situation of households has 0:08:42.920 --> 0:08:48.000 improved dramatically. Spending is on the rise. We do have, 0:08:48.160 --> 0:08:53.400 of course, a negative part of the corporate investment. But 0:08:53.600 --> 0:08:57.360 I say that by and large, by these criteria, the 0:08:57.559 --> 0:09:01.079 tests have passed and it's time the economy is strong 0:09:01.200 --> 0:09:05.800 enough to move ahead with the normalization. Okay. Jacob Franco 0:09:06.080 --> 0:09:11.120 uh rob Kaplan President Dallas FED sees there the fat 0:09:11.160 --> 0:09:14.600 moving in act direction, But the patient patient no rush 0:09:14.720 --> 0:09:17.520 to move you Are you in a different mode, would 0:09:17.520 --> 0:09:19.760 you say, FED, think about doing an interest rate increase 0:09:20.040 --> 0:09:24.199 at your next meeting in September. Well, I'm all for patients, 0:09:24.480 --> 0:09:28.600 provided somebody is doing what needs to be done during 0:09:28.640 --> 0:09:33.000 the patient's period. Does anyone really believe that Congress will 0:09:33.080 --> 0:09:36.880 act get its act together in the coming three to 0:09:37.040 --> 0:09:40.360 six months? Does anyone really believe that we will see 0:09:40.360 --> 0:09:43.679 structural measures in the coming three to six months? And 0:09:43.760 --> 0:09:48.680 if the idea of patients means allow Congress to do it, 0:09:48.920 --> 0:09:53.000 then it means very long run. To me, I need 0:09:53.040 --> 0:09:55.960 to ask myself not only what are the risks of 0:09:56.800 --> 0:10:00.600 raising interest rates, but what are the costs of delaying 0:10:00.640 --> 0:10:04.600 the normalization. We see today's situation where there are a 0:10:04.640 --> 0:10:08.920 lot of this location. The price of risks has been distorted. 0:10:09.320 --> 0:10:14.640 We are giving them superficial and artificial boost to financial markets. 0:10:14.679 --> 0:10:19.800 By pushing interest rates down, we divert investment from plants 0:10:19.840 --> 0:10:24.040 and equipment towards financial assets. People are happy because their 0:10:24.160 --> 0:10:27.440 value of their wealth is rising as it is reflected 0:10:27.480 --> 0:10:32.000 in prices of housing and the prices of their stocks. 0:10:32.080 --> 0:10:35.920 And therefore we say wow, but let's not forget real 0:10:36.040 --> 0:10:38.800 investment is a problem, and one of fit. One of 0:10:38.840 --> 0:10:43.760 the reasons for it is uncertainty about many things, including 0:10:44.200 --> 0:10:47.200 threat policy, Yes or no interest rate and increase in September, 0:10:47.320 --> 0:10:50.000 you say yes. If you're asking me whether I would 0:10:50.000 --> 0:10:52.200 recommend to raise I say yes. If you're ask me, 0:10:52.240 --> 0:10:54.640 do I expect it to happen? I say no, thank you. 0:10:54.720 --> 0:11:03.120 Jacob Frank of This is Bloomberg coming up on taking Stock, 0:11:03.120 --> 0:11:05.520 will be speaking with Mark Gordon. He is the treasurer 0:11:05.559 --> 0:11:08.200 of the state of Wyoming. He is a former member 0:11:08.240 --> 0:11:11.079 of the Kansas City Federal Reserves Board of Directors. He's 0:11:11.080 --> 0:11:14.000 going to talk about the challenges facing Wyoming and the 0:11:14.080 --> 0:11:14.880 energy industry.