1
00:00:00,120 --> 00:00:04,600
Speaker 1: Situation where we needed to add accommodation. We have a

2
00:00:04,720 --> 00:00:07,880
Speaker 1: range of tools, and we know from the things we

3
00:00:07,960 --> 00:00:11,800
Speaker 1: did UM in the past that we have a number

4
00:00:11,840 --> 00:00:16,759
Speaker 1: of UM options with respect to the maturity, for example,

5
00:00:16,880 --> 00:00:22,200
Speaker 1: of our portfolio, with respect to asset purchases, or forward

6
00:00:22,239 --> 00:00:27,159
Speaker 1: guidance that remain available to us. That are tools we

7
00:00:27,240 --> 00:00:30,360
Speaker 1: could turn to in the unlikely event that we need

8
00:00:30,480 --> 00:00:34,080
Speaker 1: to add accommodation. So negative rates is not something that

9
00:00:34,120 --> 00:00:43,839
Speaker 1: we were actively considering, and that was not our reserved Here,

10
00:00:43,920 --> 00:00:46,599
Speaker 1: Janet Yellen wrapping up her news conference, this is our

11
00:00:46,640 --> 00:00:49,880
Speaker 1: special report the Fed decides. I'm Scarlett Foe here along

12
00:00:49,920 --> 00:00:52,800
Speaker 1: with Mike McKee and Tom Keene live on Bloomberg Television

13
00:00:53,120 --> 00:00:56,080
Speaker 1: and Radio and gentlemen um. Eric Chatzer pointed this out

14
00:00:56,080 --> 00:00:58,080
Speaker 1: when Jennet Yellen came out with her announced that the

15
00:00:58,120 --> 00:01:01,480
Speaker 1: first time around, despite a hears very prominently in this

16
00:01:01,600 --> 00:01:05,120
Speaker 1: latest FED statement, the Federal Reserve deciding not to move

17
00:01:05,160 --> 00:01:07,559
Speaker 1: interest rates, not to move on interest rates, and taking

18
00:01:07,560 --> 00:01:10,640
Speaker 1: its forecast for the Fed funds target weight rising four

19
00:01:10,680 --> 00:01:13,080
Speaker 1: times this year to two times. And that's despite a

20
00:01:13,080 --> 00:01:15,520
Speaker 1: couple of things happening. Right. You have the global economy

21
00:01:15,520 --> 00:01:18,200
Speaker 1: and financial developments they cite that way up high and

22
00:01:18,240 --> 00:01:20,560
Speaker 1: also you've got rising core inflation, as we learned today.

23
00:01:20,880 --> 00:01:23,600
Speaker 1: That was very interesting that Jenny Yellen came out and said, yes,

24
00:01:23,800 --> 00:01:26,319
Speaker 1: the FED still believes that inflation is going to rise

25
00:01:26,360 --> 00:01:29,479
Speaker 1: to its two percent target, but the inflation we are

26
00:01:29,520 --> 00:01:33,959
Speaker 1: seeing today and recently may not be sustained. They seem

27
00:01:34,000 --> 00:01:36,520
Speaker 1: to have adopted a view that they are not behind

28
00:01:36,600 --> 00:01:39,200
Speaker 1: the curve, that they can run inflation a little bit

29
00:01:39,240 --> 00:01:41,880
Speaker 1: hotter than normal, although she's denied that would be a

30
00:01:41,880 --> 00:01:45,360
Speaker 1: specific plan, and that at this point they don't need

31
00:01:45,440 --> 00:01:49,600
Speaker 1: to react to strength stronger not strength, but a stronger

32
00:01:49,760 --> 00:01:52,040
Speaker 1: US economy. And the Fed is falling back on the

33
00:01:52,080 --> 00:01:55,160
Speaker 1: idea that we are now globally data dependent. There are

34
00:01:55,160 --> 00:01:58,160
Speaker 1: other regions of the world that are in trouble. European

35
00:01:58,160 --> 00:02:00,960
Speaker 1: growth may be slower than people thought, and therefore it's

36
00:02:00,960 --> 00:02:04,520
Speaker 1: prudent for us to wait instead of, as they've always said,

37
00:02:04,880 --> 00:02:11,720
Speaker 1: reacting only to what happens in the United States. Global

38
00:02:11,800 --> 00:02:17,960
Speaker 1: economic and financial developments continue to pose risks against this backdrop.

39
00:02:18,080 --> 00:02:22,760
Speaker 1: The committee judged it prudent to maintain the current policy

40
00:02:22,880 --> 00:02:27,160
Speaker 1: stands at today's meeting. Of course, the FED put out

41
00:02:27,240 --> 00:02:31,160
Speaker 1: a new summary of economic projections that shows the economy

42
00:02:31,200 --> 00:02:34,920
Speaker 1: growing a little bit more slowly, but unemployment still falling

43
00:02:34,960 --> 00:02:37,520
Speaker 1: at the same rate and inflation rising at about the

44
00:02:37,560 --> 00:02:39,560
Speaker 1: same rate. So it doesn't look like they have a

45
00:02:39,560 --> 00:02:41,679
Speaker 1: lot of backup for their view that they need to wait,

46
00:02:41,720 --> 00:02:45,960
Speaker 1: but certainly they are backing off. Like Tom, what do

47
00:02:46,000 --> 00:02:48,639
Speaker 1: you think. I thought it's fascinating. I think the ballet

48
00:02:48,720 --> 00:02:50,520
Speaker 1: that's going on. I think the questions are getting more

49
00:02:50,520 --> 00:02:53,960
Speaker 1: sophisticated as we go through a lot of different press conferences.

50
00:02:53,960 --> 00:02:56,720
Speaker 1: But all in all, when you look at the forecast,

51
00:02:56,760 --> 00:02:59,400
Speaker 1: when you look at the change in the inflation and

52
00:02:59,440 --> 00:03:04,720
Speaker 1: employing been in that it's important. I have immense challenges

53
00:03:04,919 --> 00:03:08,240
Speaker 1: would longer run two percent statistic? We heard that from

54
00:03:08,320 --> 00:03:11,640
Speaker 1: Richard Clarena earlier too. Right, right, Let's bring in Eric Schatzker,

55
00:03:11,720 --> 00:03:16,040
Speaker 1: who asked the last question at the Janet Yellen news conference. Erica,

56
00:03:16,240 --> 00:03:19,280
Speaker 1: you got some insight into what the committee thinks about

57
00:03:19,320 --> 00:03:21,959
Speaker 1: negative interest rates, which is they're not actively looking into

58
00:03:22,000 --> 00:03:25,480
Speaker 1: it or discussing it right now. No, and that shouldn't

59
00:03:25,480 --> 00:03:28,280
Speaker 1: surprise us. Scarlett. What I wanted to know, as much

60
00:03:28,320 --> 00:03:31,240
Speaker 1: as anything else, is what has the Fed learned by

61
00:03:31,400 --> 00:03:35,920
Speaker 1: studying the European and Japanese experiment with negative interest rates.

62
00:03:35,960 --> 00:03:38,920
Speaker 1: And you heard Janet Yellen say that in at least

63
00:03:38,960 --> 00:03:41,040
Speaker 1: in her assessment, and I think she was speaking for

64
00:03:41,120 --> 00:03:44,120
Speaker 1: the Central Bank, that the impact of negative rates, the

65
00:03:44,160 --> 00:03:47,320
Speaker 1: effectiveness of negative rates has been mixed. That was the

66
00:03:47,320 --> 00:03:51,520
Speaker 1: word that the term that she used to describe what

67
00:03:51,720 --> 00:03:54,200
Speaker 1: she has observed. Now she said, there have been some

68
00:03:54,280 --> 00:03:57,200
Speaker 1: positive impacts, some negative impacts. Quite honestly, I wish she'd

69
00:03:57,200 --> 00:03:58,960
Speaker 1: gone into a little more detail. It would have been

70
00:03:59,000 --> 00:04:02,880
Speaker 1: fascinating to hear Jenny Yellen dissect the effectiveness of negative

71
00:04:02,920 --> 00:04:07,360
Speaker 1: interest rates in the Eurozone economy. But you know, that's

72
00:04:07,400 --> 00:04:10,600
Speaker 1: that's It shouldn't surprise anybody that the Fed isn't actively

73
00:04:10,640 --> 00:04:13,720
Speaker 1: considering negative interest rates, as you've seen from the dots,

74
00:04:13,760 --> 00:04:18,600
Speaker 1: every single member of the m C, you know, regardless

75
00:04:18,600 --> 00:04:20,760
Speaker 1: of the fact that they have scaled back their expectations,

76
00:04:20,839 --> 00:04:24,480
Speaker 1: does expect does anticipate that interest rates will rise by

77
00:04:24,520 --> 00:04:26,680
Speaker 1: at least half a point by the end of this year,

78
00:04:26,960 --> 00:04:29,640
Speaker 1: right to rate increases this year if you count ms

79
00:04:30,120 --> 00:04:32,960
Speaker 1: basis points. What's interesting in this negative rate discussion is

80
00:04:33,080 --> 00:04:36,520
Speaker 1: uh nariana cultro la Coda, the former Minneapolis FED president

81
00:04:36,560 --> 00:04:39,000
Speaker 1: who is no longer on the Fed Committee right now,

82
00:04:39,240 --> 00:04:41,760
Speaker 1: had written on Bloomberg View that perhaps the Federal Reserve

83
00:04:41,839 --> 00:04:46,080
Speaker 1: should preemptively discuss things like negative rates. He says, if

84
00:04:46,120 --> 00:04:48,080
Speaker 1: the Fed can convince people that it is willing and

85
00:04:48,160 --> 00:04:51,040
Speaker 1: able to take rates into negative territory, it might actually

86
00:04:51,080 --> 00:04:55,520
Speaker 1: be able to raise rates faster and higher. Views. Well,

87
00:04:55,600 --> 00:04:58,160
Speaker 1: you're not gonna convince anybody with what Yellow said today,

88
00:04:58,200 --> 00:05:00,640
Speaker 1: So it looks like essentially she's taking the table by

89
00:05:00,680 --> 00:05:03,919
Speaker 1: saying they don't work at this point. But uh, the

90
00:05:03,920 --> 00:05:06,200
Speaker 1: other point you made is we're not anywhere close to

91
00:05:06,279 --> 00:05:08,440
Speaker 1: needing to worry about it. Well, I thought it was great,

92
00:05:08,520 --> 00:05:11,840
Speaker 1: Eric Rock, congratulations on a terrific question, and the press

93
00:05:11,839 --> 00:05:16,120
Speaker 1: conference in our Kyle Ricodanna makes very clear Yelling's comments

94
00:05:16,120 --> 00:05:18,960
Speaker 1: on negative interest rates were very important. We need to

95
00:05:18,960 --> 00:05:21,720
Speaker 1: get perspective from someone who works within the interest rate

96
00:05:22,120 --> 00:05:26,480
Speaker 1: UH million Janni's capital uh Managements. Bill Gross joins us

97
00:05:26,480 --> 00:05:29,159
Speaker 1: now from Newport Beach. Bill, I got like eight ways

98
00:05:29,240 --> 00:05:33,000
Speaker 1: to go here, but I think it was exceptionally important

99
00:05:33,080 --> 00:05:36,279
Speaker 1: what Cherry Yelling said to Mr Shatska, the idea that

100
00:05:36,320 --> 00:05:39,520
Speaker 1: we're not gonna do negative rates, and she's really questioning,

101
00:05:39,520 --> 00:05:41,880
Speaker 1: now do the work. What have we learned about negative

102
00:05:41,920 --> 00:05:46,880
Speaker 1: interest rates in the last four weeks. Well, we've learned

103
00:05:46,880 --> 00:05:50,119
Speaker 1: a lot of things from other countries over the last

104
00:05:50,240 --> 00:05:53,200
Speaker 1: several years. Over the last four weeks, the you know,

105
00:05:53,279 --> 00:05:57,680
Speaker 1: the dialogue has has increased, and I think the markets

106
00:05:57,720 --> 00:06:00,560
Speaker 1: and the central bankers global air of getting to be

107
00:06:00,640 --> 00:06:04,240
Speaker 1: aware that there are negative aspects to negative interest rates. Um.

108
00:06:04,279 --> 00:06:07,360
Speaker 1: You know, Cherry Yellen cited the experience in Japan, and

109
00:06:07,720 --> 00:06:10,880
Speaker 1: obviously the negative or zero interest rates for a long

110
00:06:10,960 --> 00:06:14,200
Speaker 1: long time have not done much to stimulate inflation or

111
00:06:14,320 --> 00:06:17,520
Speaker 1: to stimulate economic growth. The same thing in your land

112
00:06:17,560 --> 00:06:20,560
Speaker 1: for a shorter period of time. And so I think

113
00:06:21,000 --> 00:06:24,120
Speaker 1: some of the members that that are beginning to sense that, uh,

114
00:06:24,279 --> 00:06:26,560
Speaker 1: negative interest rates and the lower and lower you go,

115
00:06:27,080 --> 00:06:30,440
Speaker 1: the old FED model is not necessarily effective when you

116
00:06:30,640 --> 00:06:34,640
Speaker 1: get to zero or below. Build this today's meeting, does

117
00:06:34,720 --> 00:06:38,200
Speaker 1: today's press conference? Does it amend your portfolio? Will you

118
00:06:38,279 --> 00:06:43,440
Speaker 1: make immediate changes? Yeah? I think to some extent. Obviously

119
00:06:43,480 --> 00:06:46,839
Speaker 1: it's a it's a more devish FED. It seems to

120
00:06:46,880 --> 00:06:51,839
Speaker 1: me that stan Fisher has been overruled to some extent

121
00:06:51,920 --> 00:06:55,400
Speaker 1: by Cherry yelling. In terms of the forward policy, the

122
00:06:55,440 --> 00:06:58,320
Speaker 1: dots have come down. I still think, though, Tom, it's

123
00:06:58,360 --> 00:07:02,120
Speaker 1: interesting that the market, in terms of forward expectations for

124
00:07:02,279 --> 00:07:06,440
Speaker 1: live war and for FED funds only anticipates a thirty

125
00:07:06,480 --> 00:07:08,800
Speaker 1: to forty basis points a year for the next several years.

126
00:07:08,880 --> 00:07:11,160
Speaker 1: The FED still is looking at a hundred. So the

127
00:07:11,200 --> 00:07:15,080
Speaker 1: Fed is still a way above the market, and to

128
00:07:15,160 --> 00:07:18,120
Speaker 1: the extent that the market is lower than UH to

129
00:07:18,200 --> 00:07:23,320
Speaker 1: a certain extent, UH treasuries are fully priced at these lovels,

130
00:07:23,920 --> 00:07:26,880
Speaker 1: And of course the FED sounded very doublish in today's statement,

131
00:07:26,920 --> 00:07:29,080
Speaker 1: even as the fundamentals improved. If you were to look

132
00:07:29,080 --> 00:07:31,600
Speaker 1: at the Atlanta Fed GDP NOWN tracker Mike McKee, what

133
00:07:31,720 --> 00:07:34,120
Speaker 1: you would see is that the lifetime track of the

134
00:07:34,160 --> 00:07:37,240
Speaker 1: domestic economy shows sub two percent growth right now, which

135
00:07:37,280 --> 00:07:39,920
Speaker 1: is pretty much where it was at the December f

136
00:07:39,920 --> 00:07:42,560
Speaker 1: O and C meeting. That's that green circle. They're certainly

137
00:07:42,560 --> 00:07:46,800
Speaker 1: an improvement from January when the FED had its non

138
00:07:46,880 --> 00:07:49,040
Speaker 1: live meeting. I guess you could say without the news conference,

139
00:07:49,080 --> 00:07:51,800
Speaker 1: but it's interesting that the economy, overall views of it,

140
00:07:51,840 --> 00:07:54,640
Speaker 1: has improved and the FED has actually turned more doublish now.

141
00:07:54,680 --> 00:07:57,680
Speaker 1: Bill I'm looking at the dots plot on the Bloomberg

142
00:07:57,800 --> 00:08:01,200
Speaker 1: terminal and you can see the December dots plot and

143
00:08:01,360 --> 00:08:04,760
Speaker 1: the oh I S curve below that. And the big

144
00:08:04,840 --> 00:08:07,400
Speaker 1: argument was the FED was out of step with the markets.

145
00:08:07,720 --> 00:08:11,720
Speaker 1: Then let's go ahead now to the current dot plot

146
00:08:11,960 --> 00:08:14,320
Speaker 1: and the oh I asked curve. They're chasing their tail.

147
00:08:14,560 --> 00:08:16,920
Speaker 1: O I S has gone way down because everybody's selling

148
00:08:16,920 --> 00:08:21,160
Speaker 1: out of treasuries. Now, Uh, it's fed at all connected

149
00:08:21,360 --> 00:08:25,000
Speaker 1: to what is going on in your world? Well, I

150
00:08:25,040 --> 00:08:26,960
Speaker 1: think to some extent. I mean they're connected to the

151
00:08:27,000 --> 00:08:31,120
Speaker 1: stock market. You know, the old bernanke uh put so

152
00:08:31,200 --> 00:08:34,240
Speaker 1: to speak. Perhaps the yelling put is still in effect.

153
00:08:34,240 --> 00:08:36,560
Speaker 1: That the stock market went down by you know, five

154
00:08:36,640 --> 00:08:40,040
Speaker 1: or ten percent tomorrow, then yeah, the FED would respond,

155
00:08:40,520 --> 00:08:43,480
Speaker 1: but I don't think they're fully responsive to uh, the

156
00:08:43,520 --> 00:08:47,040
Speaker 1: effects of interest rates at the zero bound or interest

157
00:08:47,120 --> 00:08:51,640
Speaker 1: rates in negative territory, and um, the effects are as

158
00:08:51,640 --> 00:08:55,120
Speaker 1: such that they affect pension funds, they affect insurance companies.

159
00:08:55,160 --> 00:08:59,800
Speaker 1: They think bank net interest margins, you know, basically financed

160
00:08:59,840 --> 00:09:02,000
Speaker 1: cow pennies today in terms of the market are doing

161
00:09:02,080 --> 00:09:05,440
Speaker 1: very poorly because they now sense that interest rates will

162
00:09:05,480 --> 00:09:09,520
Speaker 1: go up less fast than they had previously. So it's

163
00:09:09,520 --> 00:09:12,440
Speaker 1: a it's a negative for the finance industry, for pensions

164
00:09:12,440 --> 00:09:15,800
Speaker 1: and for savers going forward, they can't earn as much

165
00:09:15,800 --> 00:09:18,360
Speaker 1: as they should. Post cross conference like that, Bill Gross

166
00:09:18,400 --> 00:09:21,520
Speaker 1: Mike is pushing the dollar lower. Gross a single annaly

167
00:09:21,880 --> 00:09:24,920
Speaker 1: pushing the dollar down to new weakness and also esecuity

168
00:09:24,960 --> 00:09:28,200
Speaker 1: markets up a billion. Where when where I wanted to go?

169
00:09:28,240 --> 00:09:30,560
Speaker 1: And I should point out dots go on the Bloomberg

170
00:09:30,600 --> 00:09:32,320
Speaker 1: terminal for those of you who haven't, you can see

171
00:09:32,320 --> 00:09:33,800
Speaker 1: all of this and I set it out of the

172
00:09:33,880 --> 00:09:37,960
Speaker 1: radio plus app for Bloomberg Radio. Uh. The Fed at

173
00:09:37,960 --> 00:09:41,040
Speaker 1: this point did it what Jannet Yellen did not talk

174
00:09:41,200 --> 00:09:45,240
Speaker 1: about the impact of what they're doing keeping rates low

175
00:09:45,360 --> 00:09:49,560
Speaker 1: for longer on financial markets. You've told us in the past, though,

176
00:09:49,640 --> 00:09:52,199
Speaker 1: that you think there is a distortion to the markets.

177
00:09:52,320 --> 00:09:55,200
Speaker 1: Is this not a danger? You're talking about pension funds

178
00:09:55,200 --> 00:09:57,600
Speaker 1: and others who have long term obligations. Are we at

179
00:09:57,679 --> 00:10:00,480
Speaker 1: risk of screwing things up? If they can tinue this

180
00:10:00,840 --> 00:10:04,920
Speaker 1: for so for for the ex stated period, Well, well,

181
00:10:04,920 --> 00:10:07,240
Speaker 1: I think to a certain extent capitalism is at risk.

182
00:10:07,280 --> 00:10:11,360
Speaker 1: I mean capitalism depends upon a spread between a borrowing

183
00:10:11,400 --> 00:10:15,800
Speaker 1: fund and and and and risk out on the maturity spectrum.

184
00:10:15,800 --> 00:10:17,840
Speaker 1: And to the extent that that's very narrow, to the

185
00:10:17,840 --> 00:10:20,880
Speaker 1: extent that savers can't earn anything on their money, then

186
00:10:21,040 --> 00:10:24,400
Speaker 1: capitalism doesn't break down, but at the margin, it's it's

187
00:10:24,440 --> 00:10:26,839
Speaker 1: hindered and hampered. And that's what we're seeing I think

188
00:10:27,120 --> 00:10:30,440
Speaker 1: over the past several years in terms of economic growth.

189
00:10:30,480 --> 00:10:34,680
Speaker 1: I don't think the Fed really has a sense, um uh,

190
00:10:34,760 --> 00:10:38,640
Speaker 1: that the negative industrates really have a negative implication. They're

191
00:10:38,840 --> 00:10:42,600
Speaker 1: they're they're looking to stimulate the economy via market prices,

192
00:10:43,160 --> 00:10:46,160
Speaker 1: via asset prices, and have it flow down via a

193
00:10:46,360 --> 00:10:49,920
Speaker 1: wealth effect, you know, to the rest of the real economy. Um,

194
00:10:50,280 --> 00:10:52,520
Speaker 1: I don't think that's happening to the extent that they

195
00:10:52,600 --> 00:10:56,000
Speaker 1: think it's happening. And so because of that, what you

196
00:10:56,040 --> 00:10:57,960
Speaker 1: saw I did and what I started five minutes ago

197
00:10:58,080 --> 00:11:00,320
Speaker 1: in terms of pension funds and insurance company is the

198
00:11:00,360 --> 00:11:05,280
Speaker 1: long term effect basically hampers investment and hampers institutions with

199
00:11:05,400 --> 00:11:10,040
Speaker 1: long term liabilities and makes them less credit worthy. And

200
00:11:10,080 --> 00:11:12,520
Speaker 1: you know, Tom and Mike, as we look through the

201
00:11:12,559 --> 00:11:16,320
Speaker 1: commentary out of the south Side analysis, this yellings dealing

202
00:11:16,320 --> 00:11:19,840
Speaker 1: with this and I dare say, Bill Gross internationally has

203
00:11:19,880 --> 00:11:23,960
Speaker 1: to deal with this. Explain to our audience what this

204
00:11:24,240 --> 00:11:30,960
Speaker 1: divergence means for their yield future. Well, it has an

205
00:11:31,000 --> 00:11:35,280
Speaker 1: important effect, an influence and effect on on the US

206
00:11:35,360 --> 00:11:37,960
Speaker 1: market and other markets, to the extent that there's a

207
00:11:38,000 --> 00:11:41,000
Speaker 1: hundred and fifty basis points spread between the German tenure

208
00:11:41,120 --> 00:11:43,600
Speaker 1: and the U S tenure. And I haven't seen your chart,

209
00:11:43,640 --> 00:11:46,079
Speaker 1: but I think that's about to spread, um, then to

210
00:11:46,400 --> 00:11:49,800
Speaker 1: to a number of global investors. That's an attraction. Um.

211
00:11:49,880 --> 00:11:52,000
Speaker 1: You know, if the US dollar holds its level, and

212
00:11:52,080 --> 00:11:55,080
Speaker 1: it's not today, but if it holds its level relative

213
00:11:55,120 --> 00:11:57,599
Speaker 1: to the Euro, then hundred and fifty basis points for

214
00:11:57,679 --> 00:12:00,960
Speaker 1: equal credit is a pretty decent spread. And so yes, Um,

215
00:12:01,160 --> 00:12:03,960
Speaker 1: your point is as well taken here Tom. That to

216
00:12:04,040 --> 00:12:05,679
Speaker 1: the extent that the e c B is buy an

217
00:12:05,760 --> 00:12:09,360
Speaker 1: eighty billion dollars worth of the bonds of a month,

218
00:12:09,520 --> 00:12:12,040
Speaker 1: not German bulls, but eighty billion in the you know,

219
00:12:12,120 --> 00:12:15,280
Speaker 1: in the euro complex, then that's going to affect treasuries

220
00:12:15,320 --> 00:12:18,640
Speaker 1: and hold treasuries at artificial levels as well. Right, Bill,

221
00:12:18,679 --> 00:12:20,840
Speaker 1: I've got to ask one more question. It's off script

222
00:12:20,880 --> 00:12:24,280
Speaker 1: on the FED, but it's of national importance and Canadian

223
00:12:24,679 --> 00:12:27,960
Speaker 1: importance as well. I guess I'll be rude and ask

224
00:12:28,040 --> 00:12:30,760
Speaker 1: you if you own valued paper. It's been a blood

225
00:12:30,800 --> 00:12:34,360
Speaker 1: bath the last few days. But seriously, Bill gross when

226
00:12:34,440 --> 00:12:38,520
Speaker 1: when we look at the confidence lost with the collapse

227
00:12:38,679 --> 00:12:40,920
Speaker 1: of a valiant you and I have seen this before.

228
00:12:41,440 --> 00:12:45,960
Speaker 1: What does that signal in terms of bond confidence across

229
00:12:46,000 --> 00:12:51,280
Speaker 1: the corporate space. Well, at that's suggestive of of leverage

230
00:12:51,360 --> 00:12:53,560
Speaker 1: and the uh. You know, back in my day town

231
00:12:53,559 --> 00:12:57,320
Speaker 1: when I when I studied at the Anderson Graduate School

232
00:12:57,360 --> 00:13:01,880
Speaker 1: in nine seventy one, there were companies called conglomerates in

233
00:13:01,920 --> 00:13:04,880
Speaker 1: which they used leverage to buy companies to increase their

234
00:13:04,920 --> 00:13:08,440
Speaker 1: earnings per share based upon the difference in pe ratios.

235
00:13:08,520 --> 00:13:11,680
Speaker 1: That's to a certain extent what's happened here. In addition,

236
00:13:11,840 --> 00:13:15,440
Speaker 1: you know, they're in the pharmaceutical market, where pricing of

237
00:13:15,800 --> 00:13:19,200
Speaker 1: products the subject of political problems at the moment and

238
00:13:19,320 --> 00:13:23,199
Speaker 1: certainly going forward, and so that combination has been deadly

239
00:13:23,320 --> 00:13:25,800
Speaker 1: for the price of that stock going forward. And by

240
00:13:25,840 --> 00:13:29,000
Speaker 1: the way, we have a separate account that had those

241
00:13:29,000 --> 00:13:32,880
Speaker 1: bonds when we brought the account in about twelve months ago,

242
00:13:32,960 --> 00:13:35,760
Speaker 1: and we we sold the bonds the first day that

243
00:13:35,800 --> 00:13:39,000
Speaker 1: the problems arrived and that's about three months ago. Well,

244
00:13:39,000 --> 00:13:40,680
Speaker 1: thank you so much, book girls, thank you for that

245
00:13:40,760 --> 00:13:43,800
Speaker 1: clarity and value, in particular clarity on what we saw

246
00:13:43,880 --> 00:13:46,760
Speaker 1: today from Chair Yellow and Scarlett. All right, let's bring

247
00:13:46,760 --> 00:13:48,920
Speaker 1: back our own Eric Shotsko, who has been in Washington,

248
00:13:49,000 --> 00:13:51,320
Speaker 1: d C. Attending the news conference hosted by FED Chair

249
00:13:51,400 --> 00:13:54,160
Speaker 1: Janet Yellen. Eric, give us your final thoughts as we

250
00:13:54,200 --> 00:13:57,839
Speaker 1: wrap up our FED special. Well, I want to talk

251
00:13:57,880 --> 00:13:59,880
Speaker 1: about inflation for just a moment, and then I want

252
00:13:59,920 --> 00:14:03,480
Speaker 1: to talk about these global risks that the FED pointed to,

253
00:14:03,880 --> 00:14:05,520
Speaker 1: And the reason is that you and Bill were talking

254
00:14:05,520 --> 00:14:07,520
Speaker 1: about inflation. There was a lot of concern in the

255
00:14:07,600 --> 00:14:10,160
Speaker 1: room among the reporters there who are asking questions of

256
00:14:10,240 --> 00:14:13,400
Speaker 1: Jenny Ellen about inflation and specifically what they seem to

257
00:14:13,400 --> 00:14:17,800
Speaker 1: perceive as a disconnect between the figures that show accelerating inflation,

258
00:14:17,800 --> 00:14:20,480
Speaker 1: whether we're measuring it by the PC, the Fed's preferred

259
00:14:20,960 --> 00:14:24,920
Speaker 1: measure or gauge if you prefer, or by core cp I,

260
00:14:25,040 --> 00:14:28,160
Speaker 1: both of which have surprised to the upside. Core cp

261
00:14:28,200 --> 00:14:30,720
Speaker 1: I just a little bit of the PC quite dramatically

262
00:14:30,760 --> 00:14:33,120
Speaker 1: as of late. And Ellen had a lot to say

263
00:14:33,160 --> 00:14:36,160
Speaker 1: about inflation She said that the committee looks through oil prices,

264
00:14:36,200 --> 00:14:39,640
Speaker 1: that fifty dollar oil would maybe move the path for

265
00:14:40,040 --> 00:14:43,920
Speaker 1: course CPI up slightly, but with no real policy significance.

266
00:14:43,960 --> 00:14:47,320
Speaker 1: She said that there may be some transitory factors involved

267
00:14:47,360 --> 00:14:50,320
Speaker 1: in the in the recent acceleration of inflation, and she

268
00:14:50,400 --> 00:14:53,440
Speaker 1: hasn't noticed any lasting upticking core inflation. She says that

269
00:14:53,480 --> 00:14:58,280
Speaker 1: inflation expectations remained reasonably well anchored. Those are her terms.

270
00:14:59,080 --> 00:15:01,120
Speaker 1: So we heard a lot about inflation. What we didn't

271
00:15:01,160 --> 00:15:04,000
Speaker 1: hear a lot about notwithstanding the fact that they were

272
00:15:04,040 --> 00:15:06,880
Speaker 1: at two maybe three questions on the subject, including from

273
00:15:06,920 --> 00:15:10,800
Speaker 1: our colleague Chris Condon, were these global risks? When asked specifically,

274
00:15:10,840 --> 00:15:13,920
Speaker 1: what were the global risks that the Fed perceives as

275
00:15:14,240 --> 00:15:18,360
Speaker 1: uh I guess presenting a downside to the U S economy,

276
00:15:18,440 --> 00:15:20,800
Speaker 1: she talked about the I m F cutting its global

277
00:15:20,840 --> 00:15:23,800
Speaker 1: growth projection. She talked about no great surprise in Chinese

278
00:15:23,800 --> 00:15:28,280
Speaker 1: growth effed expected it to slow down, a surprisingly negative

279
00:15:28,280 --> 00:15:31,200
Speaker 1: GDP print in Japan and the fourth quarter, and weaker

280
00:15:31,280 --> 00:15:34,440
Speaker 1: growth indicated by data in the Eurozone. But again no

281
00:15:34,640 --> 00:15:38,640
Speaker 1: real depth on that, and no real discussion of the

282
00:15:38,680 --> 00:15:42,760
Speaker 1: financial factors that the Fed explicitly referred to, and Chris

283
00:15:42,800 --> 00:15:46,200
Speaker 1: Condon pressed her on FX rates, for example, and whether

284
00:15:46,640 --> 00:15:49,920
Speaker 1: the transmission or at least if if foreign exchanges, the

285
00:15:49,920 --> 00:15:54,480
Speaker 1: transmission mechanism between various monetary policies, whether that constrains the

286
00:15:54,560 --> 00:15:57,080
Speaker 1: FED because the weakening or at least the accommodation in

287
00:15:57,120 --> 00:16:00,000
Speaker 1: Europe and Japan strengthens the dollar, and all she really

288
00:16:00,040 --> 00:16:02,440
Speaker 1: you had to see on that front was no, Scarlett,

289
00:16:03,000 --> 00:16:05,320
Speaker 1: A simple no. Alright, Eric Shasker, thank you so much

290
00:16:05,320 --> 00:16:07,680
Speaker 1: for doing yeoman's duty over at the FED. We want

291
00:16:07,720 --> 00:16:09,680
Speaker 1: to now bring in Tom Purcella. He's the chief US

292
00:16:09,680 --> 00:16:12,120
Speaker 1: economist at RBC Capital Markets and he joins us now

293
00:16:12,200 --> 00:16:16,040
Speaker 1: from the RBC trading floor. So Tom to FED rate

294
00:16:16,120 --> 00:16:18,880
Speaker 1: hikes is now what is being uh implied in the

295
00:16:18,960 --> 00:16:22,320
Speaker 1: FED dot plot? Is this realistic? Do you see this

296
00:16:22,480 --> 00:16:25,800
Speaker 1: as happening or is this still an aspiration? According to

297
00:16:25,920 --> 00:16:28,640
Speaker 1: Richard Clarida, who had seen the four dots of the

298
00:16:28,680 --> 00:16:32,200
Speaker 1: four rate hikes price into dot plots as an aspiration, yeah,

299
00:16:32,280 --> 00:16:34,360
Speaker 1: I mean, look, I think it's in a lot of

300
00:16:34,360 --> 00:16:36,640
Speaker 1: ways where so we were guided by them. Um, if

301
00:16:36,680 --> 00:16:38,400
Speaker 1: they're telling us that they want to go twice this year,

302
00:16:38,440 --> 00:16:40,000
Speaker 1: then guess what I'm gonna do. I'm gonna change my

303
00:16:40,000 --> 00:16:42,600
Speaker 1: forecast to twice this year. I think that they should

304
00:16:42,640 --> 00:16:44,840
Speaker 1: have gone four times this year. I think that the

305
00:16:44,880 --> 00:16:48,440
Speaker 1: economic data lend itself to the FED going four times

306
00:16:48,440 --> 00:16:51,360
Speaker 1: this year. But as Ye highlighted it, if she's going

307
00:16:51,400 --> 00:16:53,800
Speaker 1: to be continuous, she's going to be continuously worried about

308
00:16:53,800 --> 00:16:57,120
Speaker 1: what's going on in China and Japan and Europe. Uh

309
00:16:57,160 --> 00:16:59,960
Speaker 1: And if you know spread widening is something that she's

310
00:17:00,000 --> 00:17:03,520
Speaker 1: concerned about, all four things she's quite specifically mentioned as

311
00:17:03,520 --> 00:17:05,920
Speaker 1: a reason for expecting a lower path, then I think

312
00:17:05,960 --> 00:17:07,920
Speaker 1: you actually have to wonder, well, are they even gonna

313
00:17:07,920 --> 00:17:09,840
Speaker 1: be able to go two times this year because a

314
00:17:09,840 --> 00:17:11,960
Speaker 1: lot of these global issues that we're dealing with we

315
00:17:12,040 --> 00:17:14,679
Speaker 1: really don't see going away in any material way. So

316
00:17:14,680 --> 00:17:17,200
Speaker 1: if they're going to continue to be spooked by these things, uh,

317
00:17:17,240 --> 00:17:19,800
Speaker 1: then then yeah, then maybe two is actually too high

318
00:17:20,080 --> 00:17:21,800
Speaker 1: for the time being. Will stick with it, um, but

319
00:17:22,119 --> 00:17:24,040
Speaker 1: I think it's a it's a massive question mark at

320
00:17:24,080 --> 00:17:27,560
Speaker 1: this point. Going inside the terminal, looking at both the

321
00:17:27,640 --> 00:17:31,480
Speaker 1: cp I core and PC core, they are the two

322
00:17:31,560 --> 00:17:33,480
Speaker 1: measures of inflation the FED is looking at. The FED

323
00:17:33,800 --> 00:17:36,840
Speaker 1: likes to look at PC which is the white line

324
00:17:36,880 --> 00:17:40,040
Speaker 1: runs a few tens lower, but you can see both

325
00:17:40,119 --> 00:17:44,560
Speaker 1: are rising significantly recently. She seemed to dismiss that as

326
00:17:44,600 --> 00:17:47,320
Speaker 1: an issue. So let me give you a couple of

327
00:17:47,359 --> 00:17:50,399
Speaker 1: things to think about. If you if you get gains

328
00:17:50,440 --> 00:17:54,240
Speaker 1: a point one five month on month in core PC,

329
00:17:54,960 --> 00:17:58,959
Speaker 1: you will be at two percent year and year by October, right,

330
00:17:59,280 --> 00:18:02,760
Speaker 1: just for who don't know, point one five percent gains

331
00:18:02,800 --> 00:18:06,440
Speaker 1: monthly is actually a pretty low hurdle. So you are

332
00:18:06,480 --> 00:18:09,000
Speaker 1: going to see continue to increase his inflation. This is

333
00:18:09,000 --> 00:18:10,960
Speaker 1: something we've been sort of pounding the table on and

334
00:18:11,000 --> 00:18:13,520
Speaker 1: I would actually um take issue with one thing that

335
00:18:13,600 --> 00:18:16,440
Speaker 1: she said, in particular that it's been the volatile components

336
00:18:16,560 --> 00:18:18,760
Speaker 1: of inflation that I've actually been doing most of the driving.

337
00:18:19,040 --> 00:18:22,320
Speaker 1: That this is actually untrue. Just look at the Atlanta

338
00:18:22,400 --> 00:18:25,439
Speaker 1: Fed sticky measure of inflation. That might sound sort of

339
00:18:25,480 --> 00:18:27,439
Speaker 1: like very wonkish for a lot of people, take a

340
00:18:27,440 --> 00:18:30,760
Speaker 1: look at their website. It's the sticky measures of inflation

341
00:18:31,080 --> 00:18:33,160
Speaker 1: that are actually doing all of the driving right now.

342
00:18:33,200 --> 00:18:36,560
Speaker 1: So I think that whole idea that that that narrative

343
00:18:36,600 --> 00:18:38,560
Speaker 1: that she was trying to push is a dubious one

344
00:18:38,600 --> 00:18:40,480
Speaker 1: at best, just given the facts that are in front

345
00:18:40,480 --> 00:18:43,520
Speaker 1: of us right now, right, Tom Purcella. We featured earlier

346
00:18:43,600 --> 00:18:49,080
Speaker 1: Robert Gordon's optimism he of Northwestern on labor participation. Leggy

347
00:18:49,359 --> 00:18:52,280
Speaker 1: up here. It reminded me of your wonderful work on

348
00:18:52,359 --> 00:18:56,479
Speaker 1: wage inflation eighteen months ago or so. Benjamin apple Bomb

349
00:18:56,840 --> 00:18:58,919
Speaker 1: of the New York Times brought this up at the

350
00:18:58,960 --> 00:19:03,280
Speaker 1: press conference on slack. What's the level of slack out there?

351
00:19:03,640 --> 00:19:05,760
Speaker 1: And this is a fact that's gonna have to catch

352
00:19:05,920 --> 00:19:09,560
Speaker 1: up because the slack will disappear. It's it's hard to

353
00:19:09,600 --> 00:19:12,639
Speaker 1: make the case that there's any material slack in the backdrop.

354
00:19:13,240 --> 00:19:15,040
Speaker 1: I mean, you have to think about this practically for

355
00:19:15,080 --> 00:19:17,800
Speaker 1: a second. We can have the conversation about the you

356
00:19:17,800 --> 00:19:19,480
Speaker 1: know that the people sitting on the sidelines, and I

357
00:19:19,520 --> 00:19:21,720
Speaker 1: think that's a fair question, uh, And I think it's

358
00:19:21,720 --> 00:19:24,320
Speaker 1: something that probably needs to be addressed from a uh,

359
00:19:24,359 --> 00:19:26,760
Speaker 1: you know, sort of a d C perspective. But when

360
00:19:26,760 --> 00:19:29,600
Speaker 1: you think of it from a practical perspective, what companies

361
00:19:29,640 --> 00:19:32,720
Speaker 1: are actually doing in terms of hiring their raising pay

362
00:19:32,800 --> 00:19:36,200
Speaker 1: because there's not enough qualified workers. I mean, think about

363
00:19:36,240 --> 00:19:39,560
Speaker 1: that practically. Um. Uh, you know, there's a reason why

364
00:19:39,600 --> 00:19:41,919
Speaker 1: you're actually seeing increases in wages. And let me be

365
00:19:42,040 --> 00:19:45,040
Speaker 1: very very clear, Um, I'm not making the case for

366
00:19:45,160 --> 00:19:47,480
Speaker 1: a sort of rampant wage gains. Tom, as you know,

367
00:19:47,560 --> 00:19:49,120
Speaker 1: you and I've been talking about this for a really

368
00:19:49,160 --> 00:19:52,200
Speaker 1: long time. We've been making the case for modest increases

369
00:19:52,240 --> 00:19:54,520
Speaker 1: in wages and we're already seeing it. And part of

370
00:19:54,560 --> 00:19:57,440
Speaker 1: the reasons because there's a lack of qualified workers. There's

371
00:19:57,480 --> 00:19:59,560
Speaker 1: a dearth of qualified workers and that's why you're seeing

372
00:19:59,600 --> 00:20:02,320
Speaker 1: these wage so but but again it's it's funny like, sure,

373
00:20:02,359 --> 00:20:04,639
Speaker 1: we had a good call on that, but but to

374
00:20:04,720 --> 00:20:06,960
Speaker 1: what end? It doesn't matter? Right, I mean, this is

375
00:20:06,960 --> 00:20:10,040
Speaker 1: not something that's resonating within the FED. Good point, Tom

376
00:20:10,080 --> 00:20:13,000
Speaker 1: for Selly. We really appreciate your time and your analysis

377
00:20:13,080 --> 00:20:15,800
Speaker 1: of the FED chairs comments. The chief US economists for

378
00:20:15,840 --> 00:20:18,199
Speaker 1: Urbacy Capital Markets, Tom for Selling joining us from his

379
00:20:18,320 --> 00:20:21,240
Speaker 1: office in New York. So, what I thought was interesting

380
00:20:21,240 --> 00:20:24,120
Speaker 1: in the commentary on inflation was Jennet Allen, of course

381
00:20:24,160 --> 00:20:27,879
Speaker 1: concerned about the energy price drop, calling that transitory on

382
00:20:27,920 --> 00:20:29,880
Speaker 1: the way down. It's also transitory on the way up.

383
00:20:30,200 --> 00:20:32,480
Speaker 1: What we don't know is what's going to cause them

384
00:20:32,480 --> 00:20:34,000
Speaker 1: to raise rates. Now she's taken a lot of the

385
00:20:34,000 --> 00:20:37,520
Speaker 1: measuring sticks off the table. The FED funds futures function

386
00:20:37,600 --> 00:20:40,640
Speaker 1: now shows no move until September. What is it that's

387
00:20:40,640 --> 00:20:43,200
Speaker 1: going to lead them to remind us? Before the press

388
00:20:43,240 --> 00:20:46,960
Speaker 1: conference was for June. We have something to talk about

389
00:20:47,000 --> 00:20:51,000
Speaker 1: tomorrow morning. I think I'll see you early. It's not right.

390
00:20:53,520 --> 00:20:56,200
Speaker 1: It's never boring, folks. That is it for our FED

391
00:20:56,280 --> 00:21:02,159
Speaker 1: coverage The FED decides on television and radio. Welcome to

392
00:21:02,200 --> 00:21:06,680
Speaker 1: our special edition of Taking Stock on Bloomberg Radio today,

393
00:21:06,800 --> 00:21:10,040
Speaker 1: coverage of the Fed's decision to pull back on the

394
00:21:10,119 --> 00:21:14,320
Speaker 1: interest rate accelerator. I'm Kathleen Hayes and I'm Pim Fox.

395
00:21:14,359 --> 00:21:17,480
Speaker 1: We'll be talking about FED share Janet Yelling. She said

396
00:21:17,480 --> 00:21:21,440
Speaker 1: that caution is appropriate. This was during her news conference

397
00:21:21,480 --> 00:21:24,159
Speaker 1: that followed the meeting. She summed up her approach in

398
00:21:24,280 --> 00:21:27,040
Speaker 1: handling what is described as a vulnerable economy in a

399
00:21:27,080 --> 00:21:30,080
Speaker 1: central bank that doesn't seem to have too many tools

400
00:21:30,200 --> 00:21:33,600
Speaker 1: left if there are any new threats in order to

401
00:21:33,800 --> 00:21:36,760
Speaker 1: derail the expansion in the United States very important. The

402
00:21:36,760 --> 00:21:40,000
Speaker 1: feder Reserve had signaled him at the end of that

403
00:21:40,040 --> 00:21:43,159
Speaker 1: there would be probably about four interest rate increases this year.

404
00:21:43,200 --> 00:21:46,280
Speaker 1: They made the first increase since two thousand six in

405
00:21:46,400 --> 00:21:50,720
Speaker 1: December basis points well, today the dot plot the Feds

406
00:21:50,720 --> 00:21:52,720
Speaker 1: sort of casual look at where they think they're going.

407
00:21:52,800 --> 00:21:56,000
Speaker 1: So there's only two interest rate increases. This is weekend

408
00:21:56,040 --> 00:21:58,679
Speaker 1: the dollar that's having a big impact on commodity prices

409
00:21:58,680 --> 00:22:02,160
Speaker 1: and commodity producing company. He's like Freeport mcmaran. And we're

410
00:22:02,160 --> 00:22:06,520
Speaker 1: gonna be talking to the former president of these Minneapolis Fed,

411
00:22:06,560 --> 00:22:09,479
Speaker 1: Gary Stern, to get his expert view on what this

412
00:22:09,560 --> 00:22:12,639
Speaker 1: all means. Also, we'll be speaking about commodities with Frank Holmes.

413
00:22:12,640 --> 00:22:15,359
Speaker 1: He is the chief executive, the chief investment officer of

414
00:22:15,520 --> 00:22:18,760
Speaker 1: us A Global Investors, and also on bonds and the

415
00:22:18,800 --> 00:22:21,560
Speaker 1: reaction in the bond market. We've got Cliff Noreene. He

416
00:22:21,640 --> 00:22:24,439
Speaker 1: is the president of Babson Capital Management. He helps to

417
00:22:24,480 --> 00:22:29,199
Speaker 1: manage two hundred and twenty three billion dollars. So we're

418
00:22:29,240 --> 00:22:30,000
Speaker 1: going to find out what the