WEBVTT - Surveillance: A Data Dependent Fed With Citi's Mann 0:00:06.320 --> 0:00:12.960 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 0:00:13.480 --> 0:00:17.560 Jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.320 Bloomberg dot Com, and of course on the Bloomberg. I 0:00:34.360 --> 0:00:36.919 want to bring a Danny blanche Flat, Dartmouth University professor 0:00:36.960 --> 0:00:39.960 and former bank having the policymaker. Danny, you think the 0:00:39.960 --> 0:00:44.600 Fed's made a mistake? Why, well, I do. I don't 0:00:44.680 --> 0:00:46.760 think there's any real data from the real world that 0:00:46.800 --> 0:00:49.239 actually justifies this. I think the other thing guys right, 0:00:49.360 --> 0:00:52.879 that the data looks quite good. But actually oftentimes at 0:00:52.960 --> 0:00:55.279 times like this, the data revisions of what gets you 0:00:55.960 --> 0:01:00.160 excuse me, run cold. Um, that's what happened into than 0:01:00.200 --> 0:01:03.360 an age. And I've challenged people for quite a long time. Obviously, 0:01:03.400 --> 0:01:06.399 the data, the GDP data is relatively strong, driven a 0:01:06.440 --> 0:01:09.600 lot by the stimulus, but these rate rises take a 0:01:09.640 --> 0:01:12.640 while to work their way through. So yes, the data 0:01:12.680 --> 0:01:14.480 may be strong, but the question is what are the 0:01:14.600 --> 0:01:17.560 rate rise affects being? And well, it will take us 0:01:17.560 --> 0:01:20.200 a while to know. And I think the evidence is 0:01:20.240 --> 0:01:23.840 that actually that the fundamental belief they have that the 0:01:23.920 --> 0:01:26.920 narrows around Born a half is wrong. There's no doubt 0:01:27.000 --> 0:01:29.640 in my mind that that's wrong. They have no explanation 0:01:29.680 --> 0:01:32.360 as to why there's weak wage growth. So I think 0:01:32.440 --> 0:01:35.280 this these rate rises, that the eight of them, with 0:01:35.400 --> 0:01:38.920 a slowing global economy, will kill off growth. So I 0:01:38.959 --> 0:01:41.399 think you have to sit there and say, what, what 0:01:41.560 --> 0:01:45.520 data from the real world actually justifies this. There's no inflation, 0:01:45.880 --> 0:01:49.080 Inflation expectations are pretty well anchored. They have no explanation 0:01:49.440 --> 0:01:52.600 for weak wage growth in a slowing global economy. It 0:01:52.720 --> 0:01:55.800 just seems to the Chairman is understating the importance of 0:01:55.800 --> 0:01:59.720 the inflation mandate, and he seems to be focused on 0:02:00.080 --> 0:02:02.760 what is going to happen with financial imbalances, or potentially 0:02:02.760 --> 0:02:05.000 with financial imbalances. And we hear that from the Chairman 0:02:05.040 --> 0:02:08.679 again and again and again. Are you saying that's wrong? Well, 0:02:08.720 --> 0:02:11.240 I'm not sure that actually dealing with it through sets 0:02:11.240 --> 0:02:13.720 of interest rate increases maybe wrong. I mean, and one 0:02:13.720 --> 0:02:16.240 possibility is you could have just held back on the 0:02:16.240 --> 0:02:19.480 interest rate increases and perhaps have shrunk the size of 0:02:19.520 --> 0:02:21.560 the balance sheet rather more. I mean, they'll deal with 0:02:21.760 --> 0:02:25.359 that way. If you're worried about imbalances and financial stability 0:02:25.800 --> 0:02:29.239 deal with it with financial stability measures. It's not clear 0:02:29.280 --> 0:02:31.799 that you know using your mallet. If you're the only 0:02:31.840 --> 0:02:34.520 thing you have, a mallet of the interest rate will 0:02:34.600 --> 0:02:37.880 solve your problem for you, it'll kill off the real economy. Um. 0:02:37.960 --> 0:02:39.880 And I think your point is very good. That pal 0:02:39.960 --> 0:02:42.600 has kind of vacillated from one place to the other, 0:02:42.880 --> 0:02:45.120 and that's brought the President of the United States on 0:02:45.200 --> 0:02:47.720 his back, and so I think that sort of threatens 0:02:47.760 --> 0:02:50.480 the very independence of the bank. Are they making decisions 0:02:50.520 --> 0:02:53.000 to just sort of show themselves to be independent? But 0:02:53.080 --> 0:02:56.760 I think the marketsin Guy was right, The markets don't 0:02:56.800 --> 0:02:59.120 really believe them. I don't think they're doing right. A 0:02:59.160 --> 0:03:01.440 large number of other people think that this is an error, 0:03:01.800 --> 0:03:05.079 and recoveries end very often because the FED makes an error. 0:03:05.120 --> 0:03:08.359 In reason soon, the global economy is slowing. And when 0:03:08.360 --> 0:03:11.240 I was looking a couple of days ago in Germany 0:03:11.240 --> 0:03:14.440 and Italy both both had negative courses in the last quarter. 0:03:14.760 --> 0:03:17.399 So the global economy is weakening and it will take 0:03:17.440 --> 0:03:19.600 a while for us to work out where we are now. 0:03:19.840 --> 0:03:24.160 And in all probability, the US economy is slowing now, Danny. 0:03:24.560 --> 0:03:27.520 The real reaction from the market yesterday came at the 0:03:27.560 --> 0:03:30.200 point that the FED was talking about power, was talking 0:03:30.240 --> 0:03:36.120 about the balance sheet. Is the Fed underestimating a the 0:03:36.120 --> 0:03:38.560 effect that this this kind of balance sheet runoff on 0:03:38.680 --> 0:03:41.800 rails is having on sentiments and be the effect that 0:03:41.840 --> 0:03:44.880 it's having on liquidity, because that seems to be. The 0:03:44.920 --> 0:03:47.280 market was kind of okay with the other stuff, it seems, 0:03:47.320 --> 0:03:49.520 but it was kind of when we started talking about 0:03:49.600 --> 0:03:55.480 that that you've got this real downdraft, particularly in equities. Well, 0:03:55.520 --> 0:03:58.120 I think probably that's right. I mean, I think that 0:03:58.240 --> 0:04:01.280 the story is having sat in room I and and 0:04:01.440 --> 0:04:04.520 boted on these things, my memory is that we really 0:04:04.520 --> 0:04:07.600 had very little idea what the effect of the asset 0:04:07.680 --> 0:04:10.960 buying was gonna be as we bought it. We also 0:04:11.040 --> 0:04:14.400 had absolutely no idea what the effects would be once 0:04:14.400 --> 0:04:17.159 you started to sell them off. And I think that 0:04:17.279 --> 0:04:19.000 in a way, the right way to think of it 0:04:19.120 --> 0:04:21.839 was do it a little, be cautious, try and sit 0:04:21.880 --> 0:04:24.039 and think about what the effects would be. Just to 0:04:24.120 --> 0:04:27.160 believe that the FED knows what the effects on liquidity 0:04:27.240 --> 0:04:30.599 and other things of these of these assets sales would 0:04:30.839 --> 0:04:33.520 know is living in dream world. They have absolutely no idea. 0:04:33.560 --> 0:04:36.440 There's no economics to tell you this. So the potential 0:04:36.600 --> 0:04:39.560 is that these are having effects that they're unaware of 0:04:39.920 --> 0:04:42.600 and the market and it's given the market digitis. So 0:04:42.680 --> 0:04:46.280 I think we should be in caution mode raising rates 0:04:47.400 --> 0:04:50.640 in this in this stream without really knowing what's going on, 0:04:50.720 --> 0:04:53.560 I think is what's generating the concern in the markets. Right. 0:04:54.480 --> 0:04:56.800 Always great to catch up with you to talk about 0:04:56.839 --> 0:05:00.520 the world of central banking. Danny Blanche Dalnmouth University fessor, Danny, 0:05:00.520 --> 0:05:05.839 when's the book out? Thank you? He's not gonna tell us, No, 0:05:05.960 --> 0:05:09.840 he's not. Is it a secret? Is it a secret? Guy? 0:05:10.120 --> 0:05:11.960 He's gone though, hasn't he He's not gonna tell us. 0:05:12.120 --> 0:05:13.760 I think it's going to be called it's the labor 0:05:13.800 --> 0:05:17.159 market stupid or something like that. At least that's what 0:05:17.200 --> 0:05:19.640 he told me twelve months ago. That could have been 0:05:19.640 --> 0:05:38.960 the working title. Oh okay, let's get a take from 0:05:38.960 --> 0:05:41.680 Howard Ward. Now give belly fund seat I oh of 0:05:41.760 --> 0:05:44.600 growth aqulties, he joins us. Now, how did the FED 0:05:44.640 --> 0:05:48.200 make a mistake yesterday? I think the big mistake was 0:05:48.520 --> 0:05:53.400 in uh somewhat dismissing the role of quantitative tightening the 0:05:53.400 --> 0:05:57.480 balance sheet reduction. Um I think that's important. That's fifty 0:05:57.480 --> 0:05:59.839 billion dollars a month rolling off the FED balance sheet, 0:05:59.839 --> 0:06:03.280 the six billion dollars a year of liquidity being sucked 0:06:03.279 --> 0:06:06.760 out of the economy. I think that's important, and I 0:06:06.800 --> 0:06:11.880 don't think that Powell gave that it's due consideration. I 0:06:11.920 --> 0:06:15.640 also think that tightening eight times over the course of 0:06:15.720 --> 0:06:20.400 two years is uh too rapid a move, given the 0:06:20.480 --> 0:06:25.680 eighteen month lag that's associated with monetary policy changes in 0:06:25.760 --> 0:06:28.880 terms of having the full impact on the economy. So 0:06:28.920 --> 0:06:31.839 we've had five or six increases in the pipeline that 0:06:31.920 --> 0:06:35.080 really have yet to be fully digested by the economy. 0:06:35.160 --> 0:06:38.160 So I do think that given the lack of inflation, 0:06:38.640 --> 0:06:41.919 and given the behavior of the global capital markets and 0:06:41.960 --> 0:06:44.840 the housing market here in the It's days, I think 0:06:44.839 --> 0:06:47.920 the Fed very easily could have justified taking a pause. 0:06:48.839 --> 0:06:50.960 Uh So, I think they struck the wrong tone, and 0:06:51.000 --> 0:06:55.560 I think the dismissal of quantitative tightening was a big mistake. 0:06:56.480 --> 0:06:59.640 And so, I you know, the market is in a 0:06:59.720 --> 0:07:02.600 down trend and I don't think the Fed's comments yesterday 0:07:02.640 --> 0:07:06.880 are very helpful. So what happens now the market has 0:07:07.000 --> 0:07:10.360 learned what from this? Well, I think the market has 0:07:10.440 --> 0:07:15.680 learned that the so called FED put is is no more. 0:07:15.920 --> 0:07:20.400 I think it's UH. I for one, went into this 0:07:20.480 --> 0:07:24.000 meeting feeling that the FED got it, that the FED 0:07:24.560 --> 0:07:27.600 had heard the markets. And I say that because a 0:07:27.600 --> 0:07:30.280 couple of weeks ago, Richard Clarda, the vice chairman of 0:07:30.320 --> 0:07:33.840 the FED, came out and walked back some of Powell's 0:07:33.880 --> 0:07:37.440 earlier comments which seemed to indicate a robotic approach to 0:07:37.600 --> 0:07:41.640 raising rates. And not only that, but James buellerd just 0:07:42.000 --> 0:07:43.920 a couple of days ago, the head of the St. 0:07:43.920 --> 0:07:47.160 Louis FED, came out and said maybe the FED shouldn't 0:07:47.200 --> 0:07:50.360 raise rates at all in December, which is of course 0:07:50.400 --> 0:07:53.600 the yesterday's meeting. And so I think that gave the 0:07:53.680 --> 0:07:57.160 market some indication that the FED was more dovish than 0:07:57.200 --> 0:08:00.280 it turns out they actually are. And to see the 0:08:00.400 --> 0:08:04.560 eleven the eleven of the sixteen members felt that you 0:08:04.640 --> 0:08:07.960 might need to raise rates UH at least twice next year, 0:08:08.000 --> 0:08:10.760 and you had five or six or seven thought maybe 0:08:10.760 --> 0:08:14.160 three times or more. I find that astonishing when I 0:08:14.200 --> 0:08:17.120 look around the world and see what's happening to global 0:08:17.160 --> 0:08:20.280 growth the FED. The old saying is the FED always 0:08:20.280 --> 0:08:23.560 tightens until something breaks and I think we are on 0:08:23.760 --> 0:08:28.800 that pathway right now, although there's still time for for 0:08:28.880 --> 0:08:31.520 the Fed to limit the damage that they've already done. 0:08:31.520 --> 0:08:34.120 And I say that because a slowdown is baked into 0:08:34.160 --> 0:08:36.120 the economy for the next year, and it would be 0:08:36.160 --> 0:08:38.719 baked in even if the Fed had done nothing yesterday. 0:08:39.080 --> 0:08:42.000 And that's again because of the lagged impact of monetary policy. 0:08:42.240 --> 0:08:44.440 The FED admitted as much when they lowered their own 0:08:44.520 --> 0:08:47.440 GDP forecast for next year from to five to two three, 0:08:47.800 --> 0:08:49.760 and that number will probably be lower than that. At 0:08:49.760 --> 0:08:53.520 this point, Howard sentiment is totally shot. Just watching this 0:08:53.679 --> 0:08:56.800 feed on itself yesterday was incredible. I mean a full 0:08:56.920 --> 0:09:00.840 perc move from the highs to when the day where 0:09:00.840 --> 0:09:02.760 we ended the day. Where are we going to get 0:09:02.800 --> 0:09:05.040 some comfort? Where do the bulls find comfort? Here? Is 0:09:05.040 --> 0:09:06.719 it in the dates through the endings in quell and 0:09:06.760 --> 0:09:08.480 where does it come from? Well, I mean it's a 0:09:08.559 --> 0:09:11.240 very good point. I think that Dow had a reversal 0:09:11.240 --> 0:09:14.680 of about seven and thirty points yesterday from peak to close. 0:09:15.360 --> 0:09:18.760 And uh, interestingly enough, if you looked at the American 0:09:18.760 --> 0:09:22.320 Association of Individual Investor sentiment data on the market from 0:09:22.400 --> 0:09:26.600 last week, it was the largest increase in barysh sentiment 0:09:27.400 --> 0:09:29.360 UH in a number of years. In fact, the barry 0:09:29.440 --> 0:09:32.559 sentiment was forty eight point nine percent, that's the highest 0:09:32.600 --> 0:09:36.240 reading since April of two thousand and thirteen, and the 0:09:36.280 --> 0:09:39.160 bullish sentiment was at twenty point nine percent, which was 0:09:39.200 --> 0:09:42.280 the weakest reading since May of two thousand and sixteen. Now, 0:09:42.320 --> 0:09:45.360 typically when you have extreme sentiment like that that's negative, 0:09:45.640 --> 0:09:47.880 that's a good sign the markets do for a bounce, 0:09:48.280 --> 0:09:50.360 and therefore I find it all the more interesting that 0:09:50.400 --> 0:09:53.880 the market really didn't bounce. The market had quite a 0:09:53.880 --> 0:09:57.000 reversal yesterday and declined, and so I do think that 0:09:57.800 --> 0:10:00.560 I'm going to follow the general rule of technicians, which 0:10:00.600 --> 0:10:03.320 is that the deeper the decline and the wider the 0:10:03.400 --> 0:10:06.000 range of stocks that are declining, the longer it takes 0:10:06.040 --> 0:10:08.720 to stage a real recovery in the market. And so 0:10:08.800 --> 0:10:10.880 we've done a lot of damage to the stock market. 0:10:10.920 --> 0:10:12.719 I think it's gonna take a while for us to 0:10:13.160 --> 0:10:15.559 recover to the point of new highs. But it's going 0:10:15.640 --> 0:10:18.120 to take a series of things. It's gonna take good earnings, 0:10:18.160 --> 0:10:22.480 good guidance. It's gonna need a resolution of the trade 0:10:22.720 --> 0:10:25.720 problem with China UH and I'm not that optimistic that 0:10:25.760 --> 0:10:28.240 there's anything other than a short term fix for that, 0:10:28.720 --> 0:10:31.200 but that would be helpful. But the Fed is gonna 0:10:31.240 --> 0:10:33.679 have to play a role here too. Howard, you've given 0:10:33.760 --> 0:10:35.960 us so much time on Bloomberg TV and Bloomberg Radio 0:10:36.000 --> 0:10:38.600 today and we really appreciate your insight. Thank you very much, 0:10:38.640 --> 0:10:42.040 not just for today but throughout. Howard would give Belly 0:10:42.080 --> 0:10:56.480 fund c io of Growth Equity. I want to bring 0:10:56.480 --> 0:10:59.200 in Catherine Man, City Global chief Economist who joins us 0:10:59.200 --> 0:11:02.080 in New York studio. Katherine, your thoughts on that subject? 0:11:02.080 --> 0:11:05.040 How important is it what is happening right now for 0:11:05.080 --> 0:11:07.720 the Federal Reserve? Well, we have to look at a 0:11:07.720 --> 0:11:10.480 broad measure of financial conditions, and when we look at 0:11:10.480 --> 0:11:14.240 that where they're actually still accommodative, there are still accommodative 0:11:14.280 --> 0:11:16.960 and so what you know, what we need to do 0:11:17.040 --> 0:11:20.880 is sort of pass through how these different components of 0:11:20.920 --> 0:11:23.839 financial conditions, whether it be equities, whether it be high yield, 0:11:24.040 --> 0:11:28.280 whether it be credit, regular credit, uh, the dollar, these 0:11:28.360 --> 0:11:32.960 follow through and affect businesses in different ways across different sectors. 0:11:33.000 --> 0:11:35.800 And yes, I do agree that we have to be 0:11:35.840 --> 0:11:39.720 concerned about the technicals becoming the fundamentals. But once we 0:11:39.840 --> 0:11:44.240 pass through these, for example uh an equity crash, how 0:11:44.280 --> 0:11:46.559 does that affect the real economy? Well, it might affect 0:11:46.600 --> 0:11:49.560 the real economy through the wealth effect and consumption spending. 0:11:49.920 --> 0:11:53.200 But in fact, since wealth is so concentrated and held 0:11:53.360 --> 0:11:56.320 directly of very few people in the US actually hold 0:11:56.320 --> 0:12:00.880 direct stocks directly UM, that has statistically very little impact 0:12:00.880 --> 0:12:03.679 on consumption. People who hold wealth in four oh one 0:12:03.720 --> 0:12:07.520 case UM or mutual funds. Turns out they don't feel 0:12:07.600 --> 0:12:09.360 richer when the stock market went up, they don't feel 0:12:09.360 --> 0:12:11.559 poorer when it goes down. So the consumption effect through 0:12:11.600 --> 0:12:15.240 that channel is relatively low. And now think about high yield, Well, 0:12:15.360 --> 0:12:16.839 you know, there were a bunch of um. That's a 0:12:17.080 --> 0:12:19.599 narrow market. It's not. It's a much bigger than it 0:12:19.679 --> 0:12:21.920 used to be, of course, but it is it is 0:12:21.960 --> 0:12:26.760 still a narrow market relative to the path you know, 0:12:26.840 --> 0:12:31.000 the span of businesses that are engaged in employing people, 0:12:31.480 --> 0:12:35.360 paying them wages and producing product. So a vast swath 0:12:35.440 --> 0:12:37.480 of the of the U S economy, and this is 0:12:37.520 --> 0:12:40.400 true for for Europe as well. Are you know they 0:12:40.400 --> 0:12:45.520 are plain vanilla borrowers and some of them actually don't 0:12:45.559 --> 0:12:49.040 even borrow right, So those those are on a pathway 0:12:49.080 --> 0:12:51.679 and and they're they're selling that they're feeling pretty good 0:12:51.679 --> 0:12:53.960 about the way the economies are running right now. Leverage 0:12:54.000 --> 0:12:56.920 LANs is a bigger market than high yield. The triple 0:12:57.000 --> 0:13:00.320 base part of investment right is a big bigger than 0:13:00.400 --> 0:13:03.120 high yield. This is a big, big market and all 0:13:03.160 --> 0:13:05.400 of them are kind of coming undepression right now, Catherine, Well, 0:13:05.440 --> 0:13:07.439 but they should be. They should be. I mean, we've 0:13:07.480 --> 0:13:10.200 had ten years worth of quantitative easing, which was designed 0:13:10.200 --> 0:13:13.720 to narrow risk spreads, which it did do uh, and 0:13:13.800 --> 0:13:17.240 it's now time to move towards the normal risk spreads. 0:13:17.520 --> 0:13:20.880 And that is associated with restrictions on credit UH and 0:13:20.960 --> 0:13:25.480 a broad arrange of valuations. But again, when we look 0:13:25.520 --> 0:13:29.280 at financial conditions on a on a on a broad basis, 0:13:29.760 --> 0:13:32.200 not just narrowly on a couple of one segment versus 0:13:32.240 --> 0:13:37.959 another segment, we are still in a common dative territory. Catherine, 0:13:37.960 --> 0:13:40.960 what's the lag? Where are we with this with this story? 0:13:41.040 --> 0:13:43.400 Because I keep hearing this argument time and time again 0:13:43.440 --> 0:13:45.600 this morning that the Fed has made a mistake and 0:13:45.679 --> 0:13:49.120 policy acts with a lag. I kind of put that 0:13:49.160 --> 0:13:53.320 into context for me from your from your research. Well, yes, 0:13:53.400 --> 0:13:55.920 policy acts with a lag, that's for sure. Now the 0:13:55.960 --> 0:13:59.800 Fed making a mistake. Um. You know, they could have 0:14:00.120 --> 0:14:03.719 died until next year to see um a little bit 0:14:03.720 --> 0:14:07.960 more about how the digestion and the financial markets was doing. Um. 0:14:08.000 --> 0:14:12.199 But you know, they had to weigh the UM way 0:14:12.360 --> 0:14:15.680 the concerns that the financial markets might be more concerned 0:14:15.720 --> 0:14:18.199 if they didn't move, because after all, the expectations were 0:14:18.240 --> 0:14:20.320 that the Fed was going to move in December, and 0:14:20.360 --> 0:14:23.520 if they didn't move, then, in fact, the markets might say, Wow, 0:14:24.040 --> 0:14:26.080 the Fed knows more than we do. In fact, the 0:14:26.080 --> 0:14:28.520 economy is much slower than we think, and so that 0:14:28.600 --> 0:14:31.200 could have caused the market to tank even more than 0:14:31.280 --> 0:14:35.280 than we observed in yesterday's session. So um, you know 0:14:35.320 --> 0:14:37.880 they're in a they're in a data dependent mode. The 0:14:37.960 --> 0:14:40.720 data that they are looking at is both the real 0:14:40.800 --> 0:14:43.560 side of the economy and the financial side of the economy. 0:14:43.600 --> 0:14:46.400 And there is quite a divorce right now between the 0:14:46.480 --> 0:14:50.840 data when you look at the data for the real economy, uh, 0:14:50.880 --> 0:14:54.040 and the data that you look at for the financial markets. 0:14:54.080 --> 0:14:57.720 There's a huge divergence between those two right now. And 0:14:58.240 --> 0:15:03.160 we do worry about self fulfilling prophecies the financial markets 0:15:03.200 --> 0:15:07.800 being ultimately the decider for the real economy. We do 0:15:07.880 --> 0:15:10.200 worry about that a lot, which is why we focus 0:15:10.240 --> 0:15:14.200 on these financial condition indexes, which give us some guidance 0:15:14.520 --> 0:15:19.200 for not just the delta on how much you know 0:15:19.200 --> 0:15:21.320 where we are with the equity markets, for example, but 0:15:21.400 --> 0:15:25.120 also the level. These are both important indicators, not just 0:15:25.240 --> 0:15:28.400 not just how much things change, but what is the level. Okay, 0:15:28.440 --> 0:15:30.840 so you've got two different things going on here, um, 0:15:30.920 --> 0:15:34.440 and two different aspects which will affect the real economy 0:15:34.560 --> 0:15:38.160 and what kind of happens next. So so is your 0:15:38.240 --> 0:15:42.160 view currently that the FED is is making a mistake 0:15:42.200 --> 0:15:44.440 and I'm being very black and white about this, or 0:15:44.520 --> 0:15:47.120 is the market making a mistake in its assessment of 0:15:47.160 --> 0:15:51.840 what is happening here, because, as you say, they're very 0:15:51.880 --> 0:15:55.720 different things happening here in terms of the messages they're communicating. Well, 0:15:55.760 --> 0:15:58.000 if I had to, I mean, I just wrote about 0:15:58.040 --> 0:16:00.440 this saying that that there's these two is a big 0:16:00.480 --> 0:16:03.800 divergence between the financial markets assessment of the real economy 0:16:03.880 --> 0:16:07.160 and the data in the real economy's assessment and measure 0:16:07.200 --> 0:16:10.280 and signal about what's going on in the real economy, 0:16:10.640 --> 0:16:14.520 and and I say, the divorces is dramatic right now. 0:16:15.040 --> 0:16:18.000 And the question is, um, if we if we pars 0:16:18.080 --> 0:16:20.680 down a little bit deeper, UH and we look at 0:16:20.680 --> 0:16:22.880 which parts of the real economy are the ones that 0:16:22.920 --> 0:16:25.520 are the strongest UH. It is the parts of the 0:16:25.520 --> 0:16:29.480 economy that basically doesn't engage deeply with Wall Street and 0:16:29.600 --> 0:16:32.440 doesn't really engage deeply with the global economy. In other words, 0:16:32.440 --> 0:16:34.480 the trade war doesn't matter too much to these to 0:16:34.600 --> 0:16:38.160 these businesses, and they are a vast swath of the U. 0:16:38.280 --> 0:16:41.400 S economy, and they all are actually a vast swath 0:16:41.760 --> 0:16:43.920 of the European economy as well. And we can see that, 0:16:44.000 --> 0:16:47.760 for example, in in the German data where we look 0:16:47.800 --> 0:16:53.400 at the small businesses um UH valuations relative to the 0:16:53.440 --> 0:16:56.320 large businesses, valuations of small businesses are actually doing better. 0:16:56.680 --> 0:16:59.520 So you know, that is an important distinction that I 0:16:59.560 --> 0:17:02.280 think is important when we think about the potential channels 0:17:02.560 --> 0:17:05.960 through which financial market turbulence might affect the real economy. 0:17:06.000 --> 0:17:09.399 The channels are limited. Now, on top of all this, 0:17:09.480 --> 0:17:11.560 we haven't I've mentioned at once, but you know, we 0:17:11.880 --> 0:17:14.760 can't kind of ignore this trade war issue, which is 0:17:14.760 --> 0:17:18.320 a material risk for growth in the global economy, for 0:17:18.359 --> 0:17:20.600 the U. S economy and of course for others as well. 0:17:20.600 --> 0:17:23.800 We spent the year waiting for the global softening in 0:17:23.840 --> 0:17:26.720 the economy and the markets, the feedback into the United States. 0:17:27.400 --> 0:17:29.520 The US market was resilient for a while until the 0:17:29.560 --> 0:17:33.000 previous three months. Then bangets happened. Now the concern is 0:17:33.040 --> 0:17:35.280 that the feedback loop comes from the global economy into 0:17:35.320 --> 0:17:37.919 the U. S. Economy. Just as a final question, Catherine, 0:17:37.960 --> 0:17:40.639 is we look ahead to nineteen, do you see the 0:17:40.640 --> 0:17:43.879 global economy economy becoming much more of a headwind to 0:17:44.040 --> 0:17:47.399 US growth next year? Well, we do have a down 0:17:47.680 --> 0:17:53.240 We did write down based on what we've already seen 0:17:53.280 --> 0:17:56.080 in terms of the trade war having an impact on 0:17:56.080 --> 0:17:59.720 on on economies. UM, you know for the US or 0:17:59.720 --> 0:18:02.840 what we have for is we still actually have a 0:18:02.840 --> 0:18:07.480 lot of fiscal impetus coming through the US economy from 0:18:07.560 --> 0:18:10.760 the from the original budget spending bill from last year. 0:18:10.800 --> 0:18:14.120 A lot of it shows up in UM. And then 0:18:14.160 --> 0:18:18.359 we also actually have a fair degree of domestic investment 0:18:18.400 --> 0:18:23.560 resilience because we also expect the fiscal cliff that is 0:18:23.600 --> 0:18:27.320 associated with the budget caps in twenty to actually be 0:18:27.520 --> 0:18:30.800 kicked the can down the road. Uh, we've We've observed 0:18:30.840 --> 0:18:34.320 that happening in previous kind of election years. So we 0:18:34.400 --> 0:18:38.000 have a profile for the US growth rate that is 0:18:38.040 --> 0:18:43.359 a more modest uh profile that moves um deterioration and 0:18:43.400 --> 0:18:46.639 growth further out. Now there is a deceleration. We do 0:18:46.760 --> 0:18:50.200 have a deceleration, but we're not talking about a deceleration 0:18:50.880 --> 0:18:53.600 to below two percent, So you know, we're still pretty strong. 0:18:53.680 --> 0:18:55.639 Catherine Maunt always quite a catch shop with you, and 0:18:55.680 --> 0:18:57.480 we've got to thank you for everything this year as well. 0:18:57.560 --> 0:19:00.480 Catherine Man, City's global chief of a missed on a 0:19:00.520 --> 0:19:19.679 fascinating couple of days from New York City for our 0:19:19.720 --> 0:19:24.560 audience worldwide. This is Bloomberg Surveillance with Guy Johnson stepping 0:19:24.600 --> 0:19:27.080 in for Tom Keen. Tomp Keens at home, Guy Johnson 0:19:27.119 --> 0:19:29.640 out of London. I'm Jonathan Faroe in New York. Let's 0:19:29.640 --> 0:19:31.960 get you some economic data, shall, where your indicators brought 0:19:32.000 --> 0:19:34.920 to you as always common Towe our financial network. The 0:19:35.040 --> 0:19:38.439 number one are a broker dealer that j D paris 0:19:38.520 --> 0:19:41.640 named hiest an Independent Advice and Satisfaction among financial investment 0:19:41.680 --> 0:19:44.120 firms five times in a row lettle More at Commonwealth 0:19:44.200 --> 0:19:46.400 dot Com. Let's get some economic data, Shall, we here's 0:19:46.400 --> 0:19:49.680 Finnish je Jonathan and Guy. Good morning. Well, the data 0:19:49.720 --> 0:19:53.080 on the labor market suggested still solid. Jobless claims up 0:19:53.080 --> 0:19:56.120 a bit to two fourteen thousand last week, but that's 0:19:56.160 --> 0:19:59.480 still close to a half century low. The report generally 0:19:59.480 --> 0:20:02.440 in line with forecast the prior week two hundred six thousand. 0:20:02.640 --> 0:20:05.840 We also have figures coming up the index of Leading 0:20:05.840 --> 0:20:08.879 Economic Indicators from November, a gauge or where we may 0:20:08.920 --> 0:20:11.359 be three to six months from now. Economist surveyed by 0:20:11.400 --> 0:20:14.680 Bloomberg looking for that index to whole steady stall. If 0:20:14.680 --> 0:20:17.360 you're a pessimist, We'll see the Fed says the economy 0:20:17.400 --> 0:20:19.240 is healthy. Let's see what the l E I says. 0:20:19.320 --> 0:20:21.960 I'm Vinny del Judas, Bloomberg Radio. Let's go back to 0:20:21.960 --> 0:20:24.320 new work in London. Hey, Vinny, thank you very much. 0:20:24.320 --> 0:20:26.360 In Guy, this data just speaks to the problem the 0:20:26.400 --> 0:20:31.280 Federal Reserve has. The data is okay. The market it's like, yeah, 0:20:31.280 --> 0:20:34.960 I know it's okay, but show me. That's a tough 0:20:35.000 --> 0:20:37.720 thing to to do right now. The market and the 0:20:37.720 --> 0:20:40.719 Fed just seems to be on completely different pages. Um, 0:20:40.760 --> 0:20:42.399 and I guess if you sort of take a step 0:20:42.400 --> 0:20:44.200 back and look at this from thirty thou feet John, 0:20:44.200 --> 0:20:48.000 you can understand why we are going through a readjustment 0:20:48.200 --> 0:20:51.920 that has never really been attempted before, and everybody is 0:20:52.080 --> 0:20:55.160 kind of bumping their way across the darkened room trying 0:20:55.160 --> 0:20:57.600 to understand this this process. Let's try and get a 0:20:57.560 --> 0:20:59.920 little bit of clarity now on kind of what is 0:21:00.080 --> 0:21:03.680 going on. Marianna Coach Lakota, University of Rochester professor of 0:21:03.720 --> 0:21:07.520 economics and former Federal Reserve Bank of Minneapolis President, and 0:21:07.640 --> 0:21:12.520 bloom Both View columnist joins us. Now, good morning. The 0:21:12.520 --> 0:21:15.520 thing that everybody, the well, the market seemed to react 0:21:15.520 --> 0:21:19.679 to yesterday, Marianna, was this was this idea that the 0:21:19.760 --> 0:21:22.880 chair said, basically that the Fed is going to keep 0:21:22.960 --> 0:21:27.439 QUT on autopilots and use rates to manage the situation. 0:21:27.480 --> 0:21:30.480 And it was that statement that the market seemed to 0:21:30.520 --> 0:21:34.240 react to. We didn't talk about the balance sheet in 0:21:34.280 --> 0:21:36.000 the run up to this, and a great it's sort 0:21:36.000 --> 0:21:38.280 of a great deal. Are you surprised that that is 0:21:38.320 --> 0:21:42.520 what the market reacted to? Yeah, thanks for all for 0:21:42.520 --> 0:21:45.719 having me on. I am quite surprised by that because, uh, 0:21:46.240 --> 0:21:50.080 you know, central communication uh is remains an art rather 0:21:50.080 --> 0:21:52.520 than a science. But I thought that was a point 0:21:52.520 --> 0:21:55.040 of the FED ha been very clear about UM that 0:21:55.160 --> 0:21:57.560 they were planning to use. The balance sheet was going 0:21:57.600 --> 0:22:01.080 to be on autopilot, and the tool choice during the 0:22:02.000 --> 0:22:04.720 UH in terms of reacting a shock now was going 0:22:04.760 --> 0:22:07.239 to be the path of short term interest rates. So 0:22:07.280 --> 0:22:10.280 I am surprised by that that market somehow thought that 0:22:10.320 --> 0:22:14.280 the FED was going to back away from that. UM. Honestly, 0:22:14.760 --> 0:22:16.639 if the FED were ever to back away from that, 0:22:16.680 --> 0:22:20.119 which I do not expect, it would take a long 0:22:20.240 --> 0:22:22.040 time from the reach that stage, they would have to 0:22:22.080 --> 0:22:28.159 telegraph it through speeches, through UM, through the minutes. UM. 0:22:28.320 --> 0:22:31.919 It was not gonna happen yesterday. You aren't afraid of 0:22:31.920 --> 0:22:33.880 putting your hand up and saying this is bad policy. 0:22:34.119 --> 0:22:40.359