WEBVTT - Gross: Fed is looking more dovish 0:00:00.120 --> 0:00:04.600 Situation where we needed to add accommodation. We have a 0:00:04.720 --> 0:00:07.880 range of tools, and we know from the things we 0:00:07.960 --> 0:00:11.800 did UM in the past that we have a number 0:00:11.840 --> 0:00:16.759 of UM options with respect to the maturity, for example, 0:00:16.880 --> 0:00:22.200 of our portfolio, with respect to asset purchases, or forward 0:00:22.239 --> 0:00:27.159 guidance that remain available to us. That are tools we 0:00:27.240 --> 0:00:30.360 could turn to in the unlikely event that we need 0:00:30.480 --> 0:00:34.080 to add accommodation. So negative rates is not something that 0:00:34.120 --> 0:00:43.839 we were actively considering, and that was not our reserved Here, 0:00:43.920 --> 0:00:46.599 Janet Yellen wrapping up her news conference, this is our 0:00:46.640 --> 0:00:49.880 special report the Fed decides. I'm Scarlett Foe here along 0:00:49.920 --> 0:00:52.800 with Mike McKee and Tom Keene live on Bloomberg Television 0:00:53.120 --> 0:00:56.080 and Radio and gentlemen um. Eric Chatzer pointed this out 0:00:56.080 --> 0:00:58.080 when Jennet Yellen came out with her announced that the 0:00:58.120 --> 0:01:01.480 first time around, despite a hears very prominently in this 0:01:01.600 --> 0:01:05.120 latest FED statement, the Federal Reserve deciding not to move 0:01:05.160 --> 0:01:07.559 interest rates, not to move on interest rates, and taking 0:01:07.560 --> 0:01:10.640 its forecast for the Fed funds target weight rising four 0:01:10.680 --> 0:01:13.080 times this year to two times. And that's despite a 0:01:13.080 --> 0:01:15.520 couple of things happening. Right. You have the global economy 0:01:15.520 --> 0:01:18.200 and financial developments they cite that way up high and 0:01:18.240 --> 0:01:20.560 also you've got rising core inflation, as we learned today. 0:01:20.880 --> 0:01:23.600 That was very interesting that Jenny Yellen came out and said, yes, 0:01:23.800 --> 0:01:26.319 the FED still believes that inflation is going to rise 0:01:26.360 --> 0:01:29.479 to its two percent target, but the inflation we are 0:01:29.520 --> 0:01:33.959 seeing today and recently may not be sustained. They seem 0:01:34.000 --> 0:01:36.520 to have adopted a view that they are not behind 0:01:36.600 --> 0:01:39.200 the curve, that they can run inflation a little bit 0:01:39.240 --> 0:01:41.880 hotter than normal, although she's denied that would be a 0:01:41.880 --> 0:01:45.360 specific plan, and that at this point they don't need 0:01:45.440 --> 0:01:49.600 to react to strength stronger not strength, but a stronger 0:01:49.760 --> 0:01:52.040 US economy. And the Fed is falling back on the 0:01:52.080 --> 0:01:55.160 idea that we are now globally data dependent. There are 0:01:55.160 --> 0:01:58.160 other regions of the world that are in trouble. European 0:01:58.160 --> 0:02:00.960 growth may be slower than people thought, and therefore it's 0:02:00.960 --> 0:02:04.520 prudent for us to wait instead of, as they've always said, 0:02:04.880 --> 0:02:11.720 reacting only to what happens in the United States. Global 0:02:11.800 --> 0:02:17.960 economic and financial developments continue to pose risks against this backdrop. 0:02:18.080 --> 0:02:22.760 The committee judged it prudent to maintain the current policy 0:02:22.880 --> 0:02:27.160 stands at today's meeting. Of course, the FED put out 0:02:27.240 --> 0:02:31.160 a new summary of economic projections that shows the economy 0:02:31.200 --> 0:02:34.920 growing a little bit more slowly, but unemployment still falling 0:02:34.960 --> 0:02:37.520 at the same rate and inflation rising at about the 0:02:37.560 --> 0:02:39.560 same rate. So it doesn't look like they have a 0:02:39.560 --> 0:02:41.679 lot of backup for their view that they need to wait, 0:02:41.720 --> 0:02:45.960 but certainly they are backing off. Like Tom, what do 0:02:46.000 --> 0:02:48.639 you think. I thought it's fascinating. I think the ballet 0:02:48.720 --> 0:02:50.520 that's going on. I think the questions are getting more 0:02:50.520 --> 0:02:53.960 sophisticated as we go through a lot of different press conferences. 0:02:53.960 --> 0:02:56.720 But all in all, when you look at the forecast, 0:02:56.760 --> 0:02:59.400 when you look at the change in the inflation and 0:02:59.440 --> 0:03:04.720 employing been in that it's important. I have immense challenges 0:03:04.919 --> 0:03:08.240 would longer run two percent statistic? We heard that from 0:03:08.320 --> 0:03:11.640 Richard Clarena earlier too. Right, right, Let's bring in Eric Schatzker, 0:03:11.720 --> 0:03:16.040 who asked the last question at the Janet Yellen news conference. Erica, 0:03:16.240 --> 0:03:19.280 you got some insight into what the committee thinks about 0:03:19.320 --> 0:03:21.959 negative interest rates, which is they're not actively looking into 0:03:22.000 --> 0:03:25.480 it or discussing it right now. No, and that shouldn't 0:03:25.480 --> 0:03:28.280 surprise us. Scarlett. What I wanted to know, as much 0:03:28.320 --> 0:03:31.240 as anything else, is what has the Fed learned by 0:03:31.400 --> 0:03:35.920 studying the European and Japanese experiment with negative interest rates. 0:03:35.960 --> 0:03:38.920 And you heard Janet Yellen say that in at least 0:03:38.960 --> 0:03:41.040 in her assessment, and I think she was speaking for 0:03:41.120 --> 0:03:44.120 the Central Bank, that the impact of negative rates, the 0:03:44.160 --> 0:03:47.320 effectiveness of negative rates has been mixed. That was the 0:03:47.320 --> 0:03:51.520 word that the term that she used to describe what 0:03:51.720 --> 0:03:54.200 she has observed. Now she said, there have been some 0:03:54.280 --> 0:03:57.200 positive impacts, some negative impacts. Quite honestly, I wish she'd 0:03:57.200 --> 0:03:58.960 gone into a little more detail. It would have been 0:03:59.000 --> 0:04:02.880 fascinating to hear Jenny Yellen dissect the effectiveness of negative 0:04:02.920 --> 0:04:07.360 interest rates in the Eurozone economy. But you know, that's 0:04:07.400 --> 0:04:10.600 that's It shouldn't surprise anybody that the Fed isn't actively 0:04:10.640 --> 0:04:13.720 considering negative interest rates, as you've seen from the dots, 0:04:13.760 --> 0:04:18.600 every single member of the m C, you know, regardless 0:04:18.600 --> 0:04:20.760 of the fact that they have scaled back their expectations, 0:04:20.839 --> 0:04:24.480 does expect does anticipate that interest rates will rise by 0:04:24.520 --> 0:04:26.680 at least half a point by the end of this year, 0:04:26.960 --> 0:04:29.640 right to rate increases this year if you count ms 0:04:30.120 --> 0:04:32.960 basis points. What's interesting in this negative rate discussion is 0:04:33.080 --> 0:04:36.520 uh nariana cultro la Coda, the former Minneapolis FED president 0:04:36.560 --> 0:04:39.000 who is no longer on the Fed Committee right now, 0:04:39.240 --> 0:04:41.760 had written on Bloomberg View that perhaps the Federal Reserve 0:04:41.839 --> 0:04:46.080 should preemptively discuss things like negative rates. He says, if 0:04:46.120 --> 0:04:48.080 the Fed can convince people that it is willing and 0:04:48.160 --> 0:04:51.040 able to take rates into negative territory, it might actually 0:04:51.080 --> 0:04:55.520 be able to raise rates faster and higher. Views. Well, 0:04:55.600 --> 0:04:58.160 you're not gonna convince anybody with what Yellow said today, 0:04:58.200 --> 0:05:00.640 So it looks like essentially she's taking the table by 0:05:00.680 --> 0:05:03.919 saying they don't work at this point. But uh, the 0:05:03.920 --> 0:05:06.200 other point you made is we're not anywhere close to 0:05:06.279 --> 0:05:08.440 needing to worry about it. Well, I thought it was great, 0:05:08.520 --> 0:05:11.840 Eric Rock, congratulations on a terrific question, and the press 0:05:11.839 --> 0:05:16.120 conference in our Kyle Ricodanna makes very clear Yelling's comments 0:05:16.120 --> 0:05:18.960 on negative interest rates were very important. We need to 0:05:18.960 --> 0:05:21.720 get perspective from someone who works within the interest rate 0:05:22.120 --> 0:05:26.480 UH million Janni's capital uh Managements. Bill Gross joins us 0:05:26.480 --> 0:05:29.159 now from Newport Beach. Bill, I got like eight ways 0:05:29.240 --> 0:05:33.000 to go here, but I think it was exceptionally important 0:05:33.080 --> 0:05:36.279 what Cherry Yelling said to Mr Shatska, the idea that 0:05:36.320 --> 0:05:39.520 we're not gonna do negative rates, and she's really questioning, 0:05:39.520 --> 0:05:41.880 now do the work. What have we learned about negative 0:05:41.920 --> 0:05:46.880 interest rates in the last four weeks. Well, we've learned 0:05:46.880 --> 0:05:50.119 a lot of things from other countries over the last 0:05:50.240 --> 0:05:53.200 several years. Over the last four weeks, the you know, 0:05:53.279 --> 0:05:57.680 the dialogue has has increased, and I think the markets 0:05:57.720 --> 0:06:00.560 and the central bankers global air of getting to be 0:06:00.640 --> 0:06:04.240 aware that there are negative aspects to negative interest rates. Um. 0:06:04.279 --> 0:06:07.360 You know, Cherry Yellen cited the experience in Japan, and 0:06:07.720 --> 0:06:10.880 obviously the negative or zero interest rates for a long 0:06:10.960 --> 0:06:14.200 long time have not done much to stimulate inflation or 0:06:14.320 --> 0:06:17.520 to stimulate economic growth. The same thing in your land 0:06:17.560 --> 0:06:20.560 for a shorter period of time. And so I think 0:06:21.000 --> 0:06:24.120 some of the members that that are beginning to sense that, uh, 0:06:24.279 --> 0:06:26.560 negative interest rates and the lower and lower you go, 0:06:27.080 --> 0:06:30.440 the old FED model is not necessarily effective when you 0:06:30.640 --> 0:06:34.640 get to zero or below. Build this today's meeting, does 0:06:34.720 --> 0:06:38.200 today's press conference? Does it amend your portfolio? Will you 0:06:38.279 --> 0:06:43.440 make immediate changes? Yeah? I think to some extent. Obviously 0:06:43.480 --> 0:06:46.839 it's a it's a more devish FED. It seems to 0:06:46.880 --> 0:06:51.839 me that stan Fisher has been overruled to some extent 0:06:51.920 --> 0:06:55.400 by Cherry yelling. In terms of the forward policy, the 0:06:55.440 --> 0:06:58.320 dots have come down. I still think, though, Tom, it's 0:06:58.360 --> 0:07:02.120 interesting that the market, in terms of forward expectations for 0:07:02.279 --> 0:07:06.440 live war and for FED funds only anticipates a thirty 0:07:06.480 --> 0:07:08.800 to forty basis points a year for the next several years. 0:07:08.880 --> 0:07:11.160 The FED still is looking at a hundred. So the 0:07:11.200 --> 0:07:15.080 Fed is still a way above the market, and to 0:07:15.160 --> 0:07:18.120 the extent that the market is lower than UH to 0:07:18.200 --> 0:07:23.320 a certain extent, UH treasuries are fully priced at these lovels, 0:07:23.920 --> 0:07:26.880 And of course the FED sounded very doublish in today's statement, 0:07:26.920 --> 0:07:29.080 even as the fundamentals improved. If you were to look 0:07:29.080 --> 0:07:31.600 at the Atlanta Fed GDP NOWN tracker Mike McKee, what 0:07:31.720 --> 0:07:34.120 you would see is that the lifetime track of the 0:07:34.160 --> 0:07:37.240 domestic economy shows sub two percent growth right now, which 0:07:37.280 --> 0:07:39.920 is pretty much where it was at the December f 0:07:39.920 --> 0:07:42.560 O and C meeting. That's that green circle. They're certainly 0:07:42.560 --> 0:07:46.800 an improvement from January when the FED had its non 0:07:46.880 --> 0:07:49.040 live meeting. I guess you could say without the news conference, 0:07:49.080 --> 0:07:51.800 but it's interesting that the economy, overall views of it, 0:07:51.840 --> 0:07:54.640 has improved and the FED has actually turned more doublish now. 0:07:54.680 --> 0:07:57.680 Bill I'm looking at the dots plot on the Bloomberg 0:07:57.800 --> 0:08:01.200 terminal and you can see the December dots plot and 0:08:01.360 --> 0:08:04.760 the oh I S curve below that. And the big 0:08:04.840 --> 0:08:07.400 argument was the FED was out of step with the markets. 0:08:07.720 --> 0:08:11.720 Then let's go ahead now to the current dot plot 0:08:11.960 --> 0:08:14.320 and the oh I asked curve. They're chasing their tail. 0:08:14.560 --> 0:08:16.920 O I S has gone way down because everybody's selling 0:08:16.920 --> 0:08:21.160 out of treasuries. Now, Uh, it's fed at all connected 0:08:21.360 --> 0:08:25.000 to what is going on in your world? Well, I 0:08:25.040 --> 0:08:26.960 think to some extent. I mean they're connected to the 0:08:27.000 --> 0:08:31.120 stock market. You know, the old bernanke uh put so 0:08:31.200 --> 0:08:34.240 to speak. Perhaps the yelling put is still in effect. 0:08:34.240 --> 0:08:36.560 That the stock market went down by you know, five 0:08:36.640 --> 0:08:40.040 or ten percent tomorrow, then yeah, the FED would respond, 0:08:40.520 --> 0:08:43.480 but I don't think they're fully responsive to uh, the 0:08:43.520 --> 0:08:47.040 effects of interest rates at the zero bound or interest 0:08:47.120 --> 0:08:51.640 rates in negative territory, and um, the effects are as 0:08:51.640 --> 0:08:55.120 such that they affect pension funds, they affect insurance companies. 0:08:55.160 --> 0:08:59.800 They think bank net interest margins, you know, basically financed 0:08:59.840 --> 0:09:02.000 cow pennies today in terms of the market are doing 0:09:02.080 --> 0:09:05.440 very poorly because they now sense that interest rates will 0:09:05.480 --> 0:09:09.520 go up less fast than they had previously. So it's 0:09:09.520 --> 0:09:12.440 a it's a negative for the finance industry, for pensions 0:09:12.440 --> 0:09:15.800 and for savers going forward, they can't earn as much 0:09:15.800 --> 0:09:18.360 as they should. Post cross conference like that, Bill Gross 0:09:18.400 --> 0:09:21.520 Mike is pushing the dollar lower. Gross a single annaly 0:09:21.880 --> 0:09:24.920 pushing the dollar down to new weakness and also esecuity 0:09:24.960 --> 0:09:28.200 markets up a billion. Where when where I wanted to go? 0:09:28.240 --> 0:09:30.560 And I should point out dots go on the Bloomberg 0:09:30.600 --> 0:09:32.320 terminal for those of you who haven't, you can see 0:09:32.320 --> 0:09:33.800 all of this and I set it out of the 0:09:33.880 --> 0:09:37.960 radio plus app for Bloomberg Radio. Uh. The Fed at 0:09:37.960 --> 0:09:41.040 this point did it what Jannet Yellen did not talk 0:09:41.200 --> 0:09:45.240 about the impact of what they're doing keeping rates low 0:09:45.360 --> 0:09:49.560 for longer on financial markets. You've told us in the past, though, 0:09:49.640 --> 0:09:52.199 that you think there is a distortion to the markets. 0:09:52.320 --> 0:09:55.200 Is this not a danger? You're talking about pension funds 0:09:55.200 --> 0:09:57.600 and others who have long term obligations. Are we at 0:09:57.679 --> 0:10:00.480 risk of screwing things up? If they can tinue this 0:10:00.840 --> 0:10:04.920 for so for for the ex stated period, Well, well, 0:10:04.920 --> 0:10:07.240 I think to a certain extent capitalism is at risk. 0:10:07.280 --> 0:10:11.360 I mean capitalism depends upon a spread between a borrowing 0:10:11.400 --> 0:10:15.800 fund and and and and risk out on the maturity spectrum. 0:10:15.800 --> 0:10:17.840 And to the extent that that's very narrow, to the 0:10:17.840 --> 0:10:20.880 extent that savers can't earn anything on their money, then 0:10:21.040 --> 0:10:24.400 capitalism doesn't break down, but at the margin, it's it's 0:10:24.440 --> 0:10:26.839 hindered and hampered. And that's what we're seeing I think 0:10:27.120 --> 0:10:30.440 over the past several years in terms of economic growth. 0:10:30.480 --> 0:10:34.680 I don't think the Fed really has a sense, um uh, 0:10:34.760 --> 0:10:38.640 that the negative industrates really have a negative implication. They're 0:10:38.840 --> 0:10:42.600 they're they're looking to stimulate the economy via market prices, 0:10:43.160 --> 0:10:46.160 via asset prices, and have it flow down via a 0:10:46.360 --> 0:10:49.920 wealth effect, you know, to the rest of the real economy. Um, 0:10:50.280 --> 0:10:52.520 I don't think that's happening to the extent that they 0:10:52.600 --> 0:10:56.000 think it's happening. And so because of that, what you 0:10:56.040 --> 0:10:57.960 saw I did and what I started five minutes ago 0:10:58.080 --> 0:11:00.320 in terms of pension funds and insurance company is the 0:11:00.360 --> 0:11:05.280 long term effect basically hampers investment and hampers institutions with 0:11:05.400 --> 0:11:10.040 long term liabilities and makes them less credit worthy. And 0:11:10.080 --> 0:11:12.520 you know, Tom and Mike, as we look through the 0:11:12.559 --> 0:11:16.320 commentary out of the south Side analysis, this yellings dealing 0:11:16.320 --> 0:11:19.840 with this and I dare say, Bill Gross internationally has 0:11:19.880 --> 0:11:23.960 to deal with this. Explain to our audience what this 0:11:24.240 --> 0:11:30.960 divergence means for their yield future. Well, it has an 0:11:31.000 --> 0:11:35.280 important effect, an influence and effect on on the US 0:11:35.360 --> 0:11:37.960 market and other markets, to the extent that there's a 0:11:38.000 --> 0:11:41.000 hundred and fifty basis points spread between the German tenure 0:11:41.120 --> 0:11:43.600 and the U S tenure. And I haven't seen your chart, 0:11:43.640 --> 0:11:46.079 but I think that's about to spread, um, then to 0:11:46.400 --> 0:11:49.800 to a number of global investors. That's an attraction. Um. 0:11:49.880 --> 0:11:52.000 You know, if the US dollar holds its level, and 0:11:52.080 --> 0:11:55.080 it's not today, but if it holds its level relative 0:11:55.120 --> 0:11:57.599 to the Euro, then hundred and fifty basis points for 0:11:57.679 --> 0:12:00.960 equal credit is a pretty decent spread. And so yes, Um, 0:12:01.160 --> 0:12:03.960 your point is as well taken here Tom. That to 0:12:04.040 --> 0:12:05.679 the extent that the e c B is buy an 0:12:05.760 --> 0:12:09.360 eighty billion dollars worth of the bonds of a month, 0:12:09.520 --> 0:12:12.040 not German bulls, but eighty billion in the you know, 0:12:12.120 --> 0:12:15.280 in the euro complex, then that's going to affect treasuries 0:12:15.320 --> 0:12:18.640 and hold treasuries at artificial levels as well. Right, Bill, 0:12:18.679 --> 0:12:20.840 I've got to ask one more question. It's off script 0:12:20.880 --> 0:12:24.280 on the FED, but it's of national importance and Canadian 0:12:24.679 --> 0:12:27.960 importance as well. I guess I'll be rude and ask 0:12:28.040 --> 0:12:30.760 you if you own valued paper. It's been a blood 0:12:30.800 --> 0:12:34.360 bath the last few days. But seriously, Bill gross when 0:12:34.440 --> 0:12:38.520 when we look at the confidence lost with the collapse 0:12:38.679 --> 0:12:40.920 of a valiant you and I have seen this before. 0:12:41.440 --> 0:12:45.960 What does that signal in terms of bond confidence across 0:12:46.000 --> 0:12:51.280 the corporate space. Well, at that's suggestive of of leverage 0:12:51.360 --> 0:12:53.560 and the uh. You know, back in my day town 0:12:53.559 --> 0:12:57.320 when I when I studied at the Anderson Graduate School 0:12:57.360 --> 0:13:01.880 in nine seventy one, there were companies called conglomerates in 0:13:01.920 --> 0:13:04.880 which they used leverage to buy companies to increase their 0:13:04.920 --> 0:13:08.440 earnings per share based upon the difference in pe ratios. 0:13:08.520 --> 0:13:11.680 That's to a certain extent what's happened here. In addition, 0:13:11.840 --> 0:13:15.440 you know, they're in the pharmaceutical market, where pricing of 0:13:15.800 --> 0:13:19.200 products the subject of political problems at the moment and 0:13:19.320 --> 0:13:23.199 certainly going forward, and so that combination has been deadly 0:13:23.320 --> 0:13:25.800 for the price of that stock going forward. And by 0:13:25.840 --> 0:13:29.000 the way, we have a separate account that had those 0:13:29.000 --> 0:13:32.880 bonds when we brought the account in about twelve months ago, 0:13:32.960 --> 0:13:35.760 and we we sold the bonds the first day that 0:13:35.800 --> 0:13:39.000 the problems arrived and that's about three months ago. Well, 0:13:39.000 --> 0:13:40.680 thank you so much, book girls, thank you for that 0:13:40.760 --> 0:13:43.800 clarity and value, in particular clarity on what we saw 0:13:43.880 --> 0:13:46.760 today from Chair Yellow and Scarlett. All right, let's bring 0:13:46.760 --> 0:13:48.920 back our own Eric Shotsko, who has been in Washington, 0:13:49.000 --> 0:13:51.320 d C. Attending the news conference hosted by FED Chair 0:13:51.400 --> 0:13:54.160 Janet Yellen. Eric, give us your final thoughts as we 0:13:54.200 --> 0:13:57.839 wrap up our FED special. Well, I want to talk 0:13:57.880 --> 0:13:59.880 about inflation for just a moment, and then I want 0:13:59.920 --> 0:14:03.480 to talk about these global risks that the FED pointed to, 0:14:03.880 --> 0:14:05.520 And the reason is that you and Bill were talking 0:14:05.520 --> 0:14:07.520 about inflation. There was a lot of concern in the 0:14:07.600 --> 0:14:10.160 room among the reporters there who are asking questions of 0:14:10.240 --> 0:14:13.400 Jenny Ellen about inflation and specifically what they seem to 0:14:13.400 --> 0:14:17.800 perceive as a disconnect between the figures that show accelerating inflation, 0:14:17.800 --> 0:14:20.480 whether we're measuring it by the PC, the Fed's preferred 0:14:20.960 --> 0:14:24.920 measure or gauge if you prefer, or by core cp I, 0:14:25.040 --> 0:14:28.160 both of which have surprised to the upside. Core cp 0:14:28.200 --> 0:14:30.720 I just a little bit of the PC quite dramatically 0:14:30.760 --> 0:14:33.120 as of late. And Ellen had a lot to say 0:14:33.160 --> 0:14:36.160 about inflation She said that the committee looks through oil prices, 0:14:36.200 --> 0:14:39.640 that fifty dollar oil would maybe move the path for 0:14:40.040 --> 0:14:43.920 course CPI up slightly, but with no real policy significance. 0:14:43.960 --> 0:14:47.320 She said that there may be some transitory factors involved 0:14:47.360 --> 0:14:50.320 in the in the recent acceleration of inflation, and she 0:14:50.400 --> 0:14:53.440 hasn't noticed any lasting upticking core inflation. She says that 0:14:53.480 --> 0:14:58.280 inflation expectations remained reasonably well anchored. Those are her terms. 0:14:59.080 --> 0:15:01.120 So we heard a lot about inflation. What we didn't 0:15:01.160 --> 0:15:04.000 hear a lot about notwithstanding the fact that they were 0:15:04.040 --> 0:15:06.880 at two maybe three questions on the subject, including from 0:15:06.920 --> 0:15:10.800 our colleague Chris Condon, were these global risks? When asked specifically, 0:15:10.840 --> 0:15:13.920 what were the global risks that the Fed perceives as 0:15:14.240 --> 0:15:18.360 uh I guess presenting a downside to the U S economy, 0:15:18.440 --> 0:15:20.800 she talked about the I m F cutting its global 0:15:20.840 --> 0:15:23.800 growth projection. She talked about no great surprise in Chinese 0:15:23.800 --> 0:15:28.280 growth effed expected it to slow down, a surprisingly negative 0:15:28.280 --> 0:15:31.200 GDP print in Japan and the fourth quarter, and weaker 0:15:31.280 --> 0:15:34.440 growth indicated by data in the Eurozone. But again no 0:15:34.640 --> 0:15:38.640 real depth on that, and no real discussion of the 0:15:38.680 --> 0:15:42.760 financial factors that the Fed explicitly referred to, and Chris 0:15:42.800 --> 0:15:46.200 Condon pressed her on FX rates, for example, and whether 0:15:46.640 --> 0:15:49.920 the transmission or at least if if foreign exchanges, the 0:15:49.920 --> 0:15:54.480 transmission mechanism between various monetary policies, whether that constrains the 0:15:54.560 --> 0:15:57.080 FED because the weakening or at least the accommodation in 0:15:57.120 --> 0:16:00.000 Europe and Japan strengthens the dollar, and all she really 0:16:00.040 --> 0:16:02.440 you had to see on that front was no, Scarlett, 0:16:03.000 --> 0:16:05.320 A simple no. Alright, Eric Shasker, thank you so much 0:16:05.320 --> 0:16:07.680 for doing yeoman's duty over at the FED. We want 0:16:07.720 --> 0:16:09.680 to now bring in Tom Purcella. He's the chief US 0:16:09.680 --> 0:16:12.120 economist at RBC Capital Markets and he joins us now 0:16:12.200 --> 0:16:16.040 from the RBC trading floor. So Tom to FED rate 0:16:16.120 --> 0:16:18.880 hikes is now what is being uh implied in the 0:16:18.960 --> 0:16:22.320 FED dot plot? Is this realistic? Do you see this 0:16:22.480 --> 0:16:25.800 as happening or is this still an aspiration? According to 0:16:25.920 --> 0:16:28.640 Richard Clarida, who had seen the four dots of the 0:16:28.680 --> 0:16:32.200 four rate hikes price into dot plots as an aspiration, yeah, 0:16:32.280 --> 0:16:34.360 I mean, look, I think it's in a lot of 0:16:34.360 --> 0:16:36.640 ways where so we were guided by them. Um, if 0:16:36.680 --> 0:16:38.400 they're telling us that they want to go twice this year, 0:16:38.440 --> 0:16:40.000 then guess what I'm gonna do. I'm gonna change my 0:16:40.000 --> 0:16:42.600 forecast to twice this year. I think that they should 0:16:42.640 --> 0:16:44.840 have gone four times this year. I think that the 0:16:44.880 --> 0:16:48.440 economic data lend itself to the FED going four times 0:16:48.440 --> 0:16:51.360 this year. But as Ye highlighted it, if she's going 0:16:51.400 --> 0:16:53.800 to be continuous, she's going to be continuously worried about 0:16:53.800 --> 0:16:57.120 what's going on in China and Japan and Europe. Uh 0:16:57.160 --> 0:16:59.960 And if you know spread widening is something that she's 0:17:00.000 --> 0:17:03.520 concerned about, all four things she's quite specifically mentioned as 0:17:03.520 --> 0:17:05.920 a reason for expecting a lower path, then I think 0:17:05.960 --> 0:17:07.920 you actually have to wonder, well, are they even gonna 0:17:07.920 --> 0:17:09.840 be able to go two times this year because a 0:17:09.840 --> 0:17:11.960 lot of these global issues that we're dealing with we 0:17:12.040 --> 0:17:14.679 really don't see going away in any material way. So 0:17:14.680 --> 0:17:17.200 if they're going to continue to be spooked by these things, uh, 0:17:17.240 --> 0:17:19.800 then then yeah, then maybe two is actually too high 0:17:20.080 --> 0:17:21.800 for the time being. Will stick with it, um, but 0:17:22.119 --> 0:17:24.040 I think it's a it's a massive question mark at 0:17:24.080 --> 0:17:27.560 this point. Going inside the terminal, looking at both the 0:17:27.640 --> 0:17:31.480 cp I core and PC core, they are the two 0:17:31.560 --> 0:17:33.480 measures of inflation the FED is looking at. The FED 0:17:33.800 --> 0:17:36.840 likes to look at PC which is the white line 0:17:36.880 --> 0:17:40.040 runs a few tens lower, but you can see both 0:17:40.119 --> 0:17:44.560 are rising significantly recently. She seemed to dismiss that as 0:17:44.600 --> 0:17:47.320 an issue. So let me give you a couple of 0:17:47.359 --> 0:17:50.399 things to think about. If you if you get gains 0:17:50.440 --> 0:17:54.240 a point one five month on month in core PC, 0:17:54.960 --> 0:17:58.959 you will be at two percent year and year by October, right, 0:17:59.280 --> 0:18:02.760 just for who don't know, point one five percent gains 0:18:02.800 --> 0:18:06.440 monthly is actually a pretty low hurdle. So you are 0:18:06.480 --> 0:18:09.000 going to see continue to increase his inflation. This is 0:18:09.000 --> 0:18:10.960 something we've been sort of pounding the table on and 0:18:11.000 --> 0:18:13.520 I would actually um take issue with one thing that 0:18:13.600 --> 0:18:16.440 she said, in particular that it's been the volatile components 0:18:16.560 --> 0:18:18.760 of inflation that I've actually been doing most of the driving. 0:18:19.040 --> 0:18:22.320 That this is actually untrue. Just look at the Atlanta 0:18:22.400 --> 0:18:25.439 Fed sticky measure of inflation. That might sound sort of 0:18:25.480 --> 0:18:27.439 like very wonkish for a lot of people, take a 0:18:27.440 --> 0:18:30.760 look at their website. It's the sticky measures of inflation 0:18:31.080 --> 0:18:33.160 that are actually doing all of the driving right now. 0:18:33.200 --> 0:18:36.560 So I think that whole idea that that that narrative 0:18:36.600 --> 0:18:38.560 that she was trying to push is a dubious one 0:18:38.600 --> 0:18:40.480 at best, just given the facts that are in front 0:18:40.480 --> 0:18:43.520 of us right now, right, Tom Purcella. We featured earlier 0:18:43.600 --> 0:18:49.080 Robert Gordon's optimism he of Northwestern on labor participation. Leggy 0:18:49.359 --> 0:18:52.280 up here. It reminded me of your wonderful work on 0:18:52.359 --> 0:18:56.479 wage inflation eighteen months ago or so. Benjamin apple Bomb 0:18:56.840 --> 0:18:58.919 of the New York Times brought this up at the 0:18:58.960 --> 0:19:03.280 press conference on slack. What's the level of slack out there? 0:19:03.640 --> 0:19:05.760 And this is a fact that's gonna have to catch 0:19:05.920 --> 0:19:09.560 up because the slack will disappear. It's it's hard to 0:19:09.600 --> 0:19:12.639 make the case that there's any material slack in the backdrop. 0:19:13.240 --> 0:19:15.040 I mean, you have to think about this practically for 0:19:15.080 --> 0:19:17.800 a second. We can have the conversation about the you 0:19:17.800 --> 0:19:19.480 know that the people sitting on the sidelines, and I 0:19:19.520 --> 0:19:21.720 think that's a fair question, uh, And I think it's 0:19:21.720 --> 0:19:24.320 something that probably needs to be addressed from a uh, 0:19:24.359 --> 0:19:26.760 you know, sort of a d C perspective. But when 0:19:26.760 --> 0:19:29.600 you think of it from a practical perspective, what companies 0:19:29.640 --> 0:19:32.720 are actually doing in terms of hiring their raising pay 0:19:32.800 --> 0:19:36.200 because there's not enough qualified workers. I mean, think about 0:19:36.240 --> 0:19:39.560 that practically. Um. Uh, you know, there's a reason why 0:19:39.600 --> 0:19:41.919 you're actually seeing increases in wages. And let me be 0:19:42.040 --> 0:19:45.040 very very clear, Um, I'm not making the case for 0:19:45.160 --> 0:19:47.480 a sort of rampant wage gains. Tom, as you know, 0:19:47.560 --> 0:19:49.120 you and I've been talking about this for a really 0:19:49.160 --> 0:19:52.200 long time. We've been making the case for modest increases 0:19:52.240 --> 0:19:54.520 in wages and we're already seeing it. And part of 0:19:54.560 --> 0:19:57.440 the reasons because there's a lack of qualified workers. There's 0:19:57.480 --> 0:19:59.560 a dearth of qualified workers and that's why you're seeing 0:19:59.600 --> 0:20:02.320 these wage so but but again it's it's funny like, sure, 0:20:02.359 --> 0:20:04.639 we had a good call on that, but but to 0:20:04.720 --> 0:20:06.960 what end? It doesn't matter? Right, I mean, this is 0:20:06.960 --> 0:20:10.040 not something that's resonating within the FED. Good point, Tom 0:20:10.080 --> 0:20:13.000 for Selly. We really appreciate your time and your analysis 0:20:13.080 --> 0:20:15.800 of the FED chairs comments. The chief US economists for 0:20:15.840 --> 0:20:18.199 Urbacy Capital Markets, Tom for Selling joining us from his 0:20:18.320 --> 0:20:21.240 office in New York. So, what I thought was interesting 0:20:21.240 --> 0:20:24.120 in the commentary on inflation was Jennet Allen, of course 0:20:24.160 --> 0:20:27.879 concerned about the energy price drop, calling that transitory on 0:20:27.920 --> 0:20:29.880 the way down. It's also transitory on the way up. 0:20:30.200 --> 0:20:32.480 What we don't know is what's going to cause them 0:20:32.480 --> 0:20:34.000 to raise rates. Now she's taken a lot of the 0:20:34.000 --> 0:20:37.520 measuring sticks off the table. The FED funds futures function 0:20:37.600 --> 0:20:40.640 now shows no move until September. What is it that's 0:20:40.640 --> 0:20:43.200 going to lead them to remind us? Before the press 0:20:43.240 --> 0:20:46.960 conference was for June. We have something to talk about 0:20:47.000 --> 0:20:51.000 tomorrow morning. I think I'll see you early. It's not right. 0:20:53.520 --> 0:20:56.200 It's never boring, folks. That is it for our FED 0:20:56.280 --> 0:21:02.159 coverage The FED decides on television and radio. Welcome to 0:21:02.200 --> 0:21:06.680 our special edition of Taking Stock on Bloomberg Radio today, 0:21:06.800 --> 0:21:10.040 coverage of the Fed's decision to pull back on the 0:21:10.119 --> 0:21:14.320 interest rate accelerator. I'm Kathleen Hayes and I'm Pim Fox. 0:21:14.359 --> 0:21:17.480 We'll be talking about FED share Janet Yelling. She said 0:21:17.480 --> 0:21:21.440 that caution is appropriate. This was during her news conference 0:21:21.480 --> 0:21:24.159 that followed the meeting. She summed up her approach in 0:21:24.280 --> 0:21:27.040 handling what is described as a vulnerable economy in a 0:21:27.080 --> 0:21:30.080 central bank that doesn't seem to have too many tools 0:21:30.200 --> 0:21:33.600 left if there are any new threats in order to 0:21:33.800 --> 0:21:36.760