1 00:00:01,920 --> 00:00:04,920 Speaker 1: You're listening to taking stuff with Kathleen Hayes and Pim 2 00:00:05,000 --> 00:00:09,200 Speaker 1: Fox on Bloomberg Radio. The Federal Reserve and led by 3 00:00:09,240 --> 00:00:12,959 Speaker 1: FED Chair Janet Yellen, may have opened the door even 4 00:00:13,039 --> 00:00:17,599 Speaker 1: wider to an interest rate increase in December. However, they 5 00:00:17,760 --> 00:00:20,560 Speaker 1: narrowed that they shut that door a little bit more 6 00:00:20,640 --> 00:00:24,680 Speaker 1: on aggressive rate hikes in two seventeen, as their so 7 00:00:24,840 --> 00:00:28,159 Speaker 1: called dot plots show that the median forecast from the 8 00:00:28,160 --> 00:00:31,400 Speaker 1: Federal Open Market Committee is for just to interest rate 9 00:00:31,440 --> 00:00:35,280 Speaker 1: increases next year instead of three markets in rally mode. 10 00:00:35,880 --> 00:00:39,040 Speaker 1: Is UH this the correct response or should the markets 11 00:00:39,080 --> 00:00:41,159 Speaker 1: be focusing on the fact that a majority of Fed 12 00:00:41,240 --> 00:00:44,199 Speaker 1: officials still see a rate hike this year. Vincent Reinhardt 13 00:00:44,280 --> 00:00:48,560 Speaker 1: joins US now. He's chief economist at Standishmellon Asset Management 14 00:00:48,640 --> 00:00:52,640 Speaker 1: in Boston, home of Bloomberg Radio twelve hundred. He started 15 00:00:52,640 --> 00:00:55,160 Speaker 1: his career at the New York Federal Reserve Bank. He 16 00:00:55,680 --> 00:00:58,240 Speaker 1: worked at the Board of Governors and the divisions of 17 00:00:58,280 --> 00:01:01,120 Speaker 1: Monetary Affairs and International Finance, and during the last six 18 00:01:01,200 --> 00:01:04,000 Speaker 1: years of his careers at the FED Secretary and Economist 19 00:01:04,040 --> 00:01:06,760 Speaker 1: of the FLMC the Federal Open Market Committee. So Vince 20 00:01:06,840 --> 00:01:12,960 Speaker 1: understands very well how these policy statements, decisions are decided on, 21 00:01:13,480 --> 00:01:18,280 Speaker 1: orchestrated and communicated. Vince, welcome back to the show. Thank you. Kathleen, 22 00:01:18,680 --> 00:01:22,959 Speaker 1: Hi bim And he's right there saying Hellovian. So what 23 00:01:23,120 --> 00:01:25,720 Speaker 1: is your take on what we got from the Fed yesterday? 24 00:01:26,560 --> 00:01:29,759 Speaker 1: So essentially it was a compromise and a divided committee. 25 00:01:30,160 --> 00:01:37,880 Speaker 1: My model of the FLMC decision process is that um A, 26 00:01:38,760 --> 00:01:42,759 Speaker 1: the committee has to pull along a reluctant chair. Janet 27 00:01:42,800 --> 00:01:46,080 Speaker 1: Yellen is really dubage. She does want to test to 28 00:01:46,120 --> 00:01:49,360 Speaker 1: see how low the unemployment rate can go, and in 29 00:01:49,400 --> 00:01:53,840 Speaker 1: that environment, she also appreciates that you can keep the 30 00:01:53,840 --> 00:01:58,200 Speaker 1: funds rate lower for longer by sometimes agreeing to tighten 31 00:01:58,560 --> 00:02:03,440 Speaker 1: monetary policy, because never saying yes means you'll lose your 32 00:02:03,480 --> 00:02:08,040 Speaker 1: committee and you have to compromise. They said no yesterday 33 00:02:08,320 --> 00:02:14,600 Speaker 1: with the promise of yes in December. Vincent Reinhardt, Okay, hello, No, 34 00:02:14,800 --> 00:02:17,079 Speaker 1: I was I was waiting for Kathleen there, but because 35 00:02:17,200 --> 00:02:19,239 Speaker 1: you know, we were both looking at these dot plots 36 00:02:19,240 --> 00:02:21,480 Speaker 1: and I got to confess, they kind of looked like 37 00:02:21,520 --> 00:02:25,480 Speaker 1: a bad pac Man game, and uh, if you could 38 00:02:25,520 --> 00:02:29,320 Speaker 1: just go through them, because you write in your note 39 00:02:29,320 --> 00:02:35,080 Speaker 1: here that three of the voting members, uh three, all 40 00:02:35,120 --> 00:02:37,960 Speaker 1: but three of them view at least one quarter point 41 00:02:38,040 --> 00:02:40,640 Speaker 1: tightening by the end of this year as appropriate. Right, 42 00:02:40,680 --> 00:02:42,799 Speaker 1: So that's done and went December, So we should get 43 00:02:42,840 --> 00:02:46,320 Speaker 1: used to twenty five basis points in December. That's right. 44 00:02:46,360 --> 00:02:49,480 Speaker 1: And I do admit it looks like eighties video game. 45 00:02:49,800 --> 00:02:53,160 Speaker 1: There's a their two gang of threes to think about. First, 46 00:02:53,200 --> 00:02:58,240 Speaker 1: in the statement, three bank presidents dissented in favor of 47 00:02:58,360 --> 00:03:04,239 Speaker 1: rates rising immediately, and in the dot plot three unknown participants. 48 00:03:04,240 --> 00:03:07,760 Speaker 1: I think I know who they are. Three unknown participants, uh, 49 00:03:08,760 --> 00:03:12,440 Speaker 1: demured from tightening policy in two thousand sixteen. Well, i'll 50 00:03:12,480 --> 00:03:14,960 Speaker 1: tell you my three for the because because I cheated, 51 00:03:14,960 --> 00:03:18,400 Speaker 1: I already read your note. I'll tell you my three 52 00:03:18,400 --> 00:03:21,079 Speaker 1: for the descents. Right, three descents to the statement, and 53 00:03:21,120 --> 00:03:24,120 Speaker 1: we know that that's Esther, George right, and Mester as 54 00:03:24,120 --> 00:03:28,000 Speaker 1: well as Rosencrant. That's right, okay, And I think the 55 00:03:28,080 --> 00:03:31,839 Speaker 1: three dots UH in favor of not changing rates this year, 56 00:03:32,080 --> 00:03:37,160 Speaker 1: probably two governors, Governor Brainerd and Taruo, and then Bank 57 00:03:37,240 --> 00:03:40,880 Speaker 1: President Evans, who earlier this year said he was not 58 00:03:41,000 --> 00:03:43,680 Speaker 1: in favor of raising rates. It's interesting to me, vince, 59 00:03:43,760 --> 00:03:46,960 Speaker 1: because listening to Janet Yellen at the press conference yesterday, 60 00:03:47,000 --> 00:03:49,360 Speaker 1: and on the one hand, she speaks for the entire committee. 61 00:03:49,360 --> 00:03:52,120 Speaker 1: That's what the fedcher always has to do, represent where 62 00:03:52,120 --> 00:03:55,080 Speaker 1: the you know, the bulk of the consensus is. And 63 00:03:55,120 --> 00:03:59,040 Speaker 1: of course she mentioned that yes, case for rate hiker strengthen, 64 00:03:59,080 --> 00:04:01,800 Speaker 1: as I said in Jackson Halls repeated that, and yes 65 00:04:01,840 --> 00:04:04,200 Speaker 1: inflation is going to move higher. But you know, in 66 00:04:04,560 --> 00:04:07,680 Speaker 1: all the things she talked about there, you still got 67 00:04:07,680 --> 00:04:09,800 Speaker 1: a sense, at least I do, that she's not the 68 00:04:09,840 --> 00:04:12,080 Speaker 1: one leading the charge for the next interest rate increase. 69 00:04:12,120 --> 00:04:14,880 Speaker 1: She talked in fact about the participation rate and showing 70 00:04:14,880 --> 00:04:17,200 Speaker 1: that maybe discouraged workers are coming back in is as 71 00:04:17,200 --> 00:04:20,039 Speaker 1: a reason to give the economy room to run. That 72 00:04:20,080 --> 00:04:22,599 Speaker 1: doesn't sound like an urgency to raise the rate. Oh, 73 00:04:22,640 --> 00:04:25,800 Speaker 1: I think the committee has to pull her along when 74 00:04:26,000 --> 00:04:31,479 Speaker 1: enough participants get rest of get talk at uh in 75 00:04:31,680 --> 00:04:35,120 Speaker 1: public about the need to tighten policy. Well, it's stinking 76 00:04:35,160 --> 00:04:39,080 Speaker 1: about the Jackson Hole speeches. Yes, she said the words 77 00:04:39,080 --> 00:04:42,800 Speaker 1: there's a need for tightening, but it was timeless in 78 00:04:42,839 --> 00:04:45,160 Speaker 1: the sense that she didn't put put a date to it. 79 00:04:45,520 --> 00:04:47,680 Speaker 1: If she had wanted to put tightening on the table. 80 00:04:47,720 --> 00:04:51,680 Speaker 1: If she wanted expectations about action in September, she could 81 00:04:51,680 --> 00:04:54,560 Speaker 1: have done it with about three words inserted into exactly 82 00:04:54,600 --> 00:04:58,960 Speaker 1: the same speech she decided not to vincent reinhard. Is 83 00:04:59,000 --> 00:05:01,760 Speaker 1: this a dry I'm behind the scenes? Is there any 84 00:05:01,839 --> 00:05:04,480 Speaker 1: soap opera behind all this? Could this ever get turned 85 00:05:04,520 --> 00:05:07,640 Speaker 1: into a Netflix you know series? Because it seems as 86 00:05:07,680 --> 00:05:10,360 Speaker 1: though you're talking about these are still you know individuals, 87 00:05:10,400 --> 00:05:12,479 Speaker 1: and you've got the twelve members, and then the seven 88 00:05:12,480 --> 00:05:15,320 Speaker 1: members of the Board of Governors are the governors of 89 00:05:15,360 --> 00:05:17,160 Speaker 1: the Federal Reserves, and then the president of the New 90 00:05:17,240 --> 00:05:20,000 Speaker 1: York Fed. Maybe just tell us about the personalities involved. 91 00:05:20,800 --> 00:05:23,600 Speaker 1: Uh so you can find in the fo m C 92 00:05:23,839 --> 00:05:27,600 Speaker 1: transcript me telling the committee at one point. Don't you 93 00:05:27,720 --> 00:05:31,120 Speaker 1: understand I work for nineteen people who couldn't agree on 94 00:05:31,160 --> 00:05:36,200 Speaker 1: the color of an orange. So yes, I feel you're 95 00:05:36,240 --> 00:05:39,320 Speaker 1: paying pim. But part of the I think the real 96 00:05:39,400 --> 00:05:44,240 Speaker 1: answer is we don't know, because for the entire tenure 97 00:05:44,279 --> 00:05:47,560 Speaker 1: of Janet Yell in his chair, markets have been more 98 00:05:47,640 --> 00:05:50,480 Speaker 1: devilish than their own rate guides. You're focusing a lot 99 00:05:50,520 --> 00:05:53,400 Speaker 1: on the dots, but the your dollar curve still lies 100 00:05:53,520 --> 00:05:57,200 Speaker 1: everywhere below. What the f MC is projecting as the 101 00:05:57,240 --> 00:06:00,920 Speaker 1: path for rates. If you're if you're you're a chair. 102 00:06:01,040 --> 00:06:05,320 Speaker 1: That's an easy problem because markets are not testing you. 103 00:06:06,279 --> 00:06:09,720 Speaker 1: They may test them right well, Vince, you know, Uh, 104 00:06:09,880 --> 00:06:13,040 Speaker 1: And of course, Uh, the market reaction is interesting today 105 00:06:13,040 --> 00:06:15,280 Speaker 1: because the dollar has weakened a lot of people are 106 00:06:15,320 --> 00:06:17,360 Speaker 1: looking again at the dot plots for next year coming 107 00:06:17,400 --> 00:06:20,800 Speaker 1: down a bit. Stocks are rolling, bonds are rolling. And 108 00:06:20,839 --> 00:06:23,440 Speaker 1: one of our stories, uh sums it up more or 109 00:06:23,520 --> 00:06:27,120 Speaker 1: less as the divergence bet, the bet that's been on 110 00:06:27,160 --> 00:06:29,080 Speaker 1: there's supposed to strengthen the dollar of the Federal raise 111 00:06:29,200 --> 00:06:32,039 Speaker 1: rates this year and other central banks will remain easier. 112 00:06:32,160 --> 00:06:36,160 Speaker 1: Use further is weakening because now the Fed has you know, 113 00:06:36,480 --> 00:06:38,680 Speaker 1: punted again. They say they're going to raise rates at 114 00:06:38,680 --> 00:06:40,240 Speaker 1: the end of the year. We've seen this happen again. 115 00:06:40,720 --> 00:06:45,160 Speaker 1: So what do you make of that part of the analysis? Oh, 116 00:06:45,240 --> 00:06:48,080 Speaker 1: I think that's exactly right that at the beginning of 117 00:06:48,120 --> 00:06:50,880 Speaker 1: the year. I think it would be right to depict 118 00:06:51,600 --> 00:06:55,359 Speaker 1: policy rates across the advanced economies is defining a channel 119 00:06:55,720 --> 00:06:58,320 Speaker 1: at the bottom or the EC being the bank in 120 00:06:58,400 --> 00:07:02,120 Speaker 1: Japan and a few other at zero or negative at 121 00:07:02,160 --> 00:07:07,280 Speaker 1: the top or small advanced economies like Australia or New 122 00:07:07,360 --> 00:07:12,560 Speaker 1: Zealand and Canada, uh and who had rates around two 123 00:07:13,040 --> 00:07:14,920 Speaker 1: and the said was going to be seen as moving 124 00:07:14,960 --> 00:07:17,040 Speaker 1: from the bottom of the channel to the top of 125 00:07:17,080 --> 00:07:21,840 Speaker 1: the channel. In doing so, it gives the pre appreciation 126 00:07:21,880 --> 00:07:25,320 Speaker 1: of the dollar, giving some relief to the Japanese and 127 00:07:25,360 --> 00:07:28,160 Speaker 1: in the Euro area from their problems was dealing with 128 00:07:28,240 --> 00:07:32,000 Speaker 1: disinflation as it got closer to the top end of 129 00:07:32,040 --> 00:07:34,760 Speaker 1: the band, the Canadian dollar, the New Zealand dollar, the 130 00:07:34,760 --> 00:07:37,960 Speaker 1: Australian dollar would depreciate. That would mean they wouldn't have 131 00:07:38,040 --> 00:07:41,600 Speaker 1: to ease. What's happened is the feeder reserved isn't moving 132 00:07:41,640 --> 00:07:44,520 Speaker 1: up that card or in the carridor's collapsing. Those other 133 00:07:44,600 --> 00:07:47,400 Speaker 1: central banks are tired of waiting for the said, and 134 00:07:47,480 --> 00:07:51,600 Speaker 1: they've been easing their own rates. Well, I'm just noting here, Vincent, 135 00:07:51,600 --> 00:07:53,560 Speaker 1: just to give you the numbers, and you comment or 136 00:07:53,600 --> 00:07:55,640 Speaker 1: break in whenever you know you've got a thought, because 137 00:07:55,640 --> 00:07:58,600 Speaker 1: I'm looking at, for example, a can dollar versus the 138 00:07:58,640 --> 00:08:01,840 Speaker 1: US dollar one thirty or if you do it the 139 00:08:01,880 --> 00:08:06,040 Speaker 1: other way, zero point seven six, but also the end 140 00:08:06,240 --> 00:08:09,640 Speaker 1: one hundred against the dollar. The euro at at one 141 00:08:09,680 --> 00:08:13,720 Speaker 1: twelve sterling at at one thirty. Any thoughts, So one 142 00:08:13,760 --> 00:08:16,160 Speaker 1: thing to do is just type up W I R 143 00:08:16,240 --> 00:08:19,160 Speaker 1: P on your Bloomberg terminal and you'll see the real 144 00:08:19,840 --> 00:08:23,520 Speaker 1: test of the Fed market participants only put a fifty 145 00:08:23,520 --> 00:08:28,400 Speaker 1: eight percent probability of policy action by December. So despite 146 00:08:28,440 --> 00:08:32,360 Speaker 1: the dot plot, despite what you know, how the the 147 00:08:32,600 --> 00:08:38,520 Speaker 1: statement was designed to induce expectations of policy tightening. Uh, 148 00:08:38,679 --> 00:08:41,960 Speaker 1: market participants don't believe me yet. Just quickly, we've got 149 00:08:42,000 --> 00:08:45,280 Speaker 1: about forty seconds left here. Bank of Japan wanting to 150 00:08:45,320 --> 00:08:47,480 Speaker 1: steep in the yield curves and tweaks this week. I 151 00:08:47,480 --> 00:08:49,959 Speaker 1: guess that's the other part of the dollar weaker equation. 152 00:08:49,960 --> 00:08:51,440 Speaker 1: What do you make of the Bank of Japan's move? 153 00:08:51,840 --> 00:08:53,640 Speaker 1: The theory is, if you build it, they will come 154 00:08:53,960 --> 00:08:57,760 Speaker 1: i E. They're putting in place an automatic mechanism to 155 00:08:57,880 --> 00:09:02,040 Speaker 1: be very accommodated if in lation and inflation expectations rise, 156 00:09:02,280 --> 00:09:07,079 Speaker 1: because they will be defending the tenure yielded zero i 157 00:09:07,240 --> 00:09:11,880 Speaker 1: E rates will be more negative. UH. Problem news. They 158 00:09:11,880 --> 00:09:15,000 Speaker 1: don't have a mechanism right now to spur inflation, and 159 00:09:15,040 --> 00:09:17,520 Speaker 1: that's been their problem for a while. So in some sense, 160 00:09:17,559 --> 00:09:20,839 Speaker 1: they punted on the big issue. But They made sure 161 00:09:20,920 --> 00:09:23,880 Speaker 1: that if inflation does not rise, they can sustain it. 162 00:09:25,640 --> 00:09:27,439 Speaker 1: I want to thank you very much for spending time 163 00:09:27,480 --> 00:09:30,959 Speaker 1: with us. Boy, that's a that's a real education. Vincent Reinhardt, 164 00:09:31,040 --> 00:09:35,520 Speaker 1: he is the chief economist that standish Melon Asset Management. 165 00:09:35,600 --> 00:09:39,760 Speaker 1: Joining us from Boston, of course, home to Bloomberg. This 166 00:09:39,880 --> 00:09:43,079 Speaker 1: is taking Stock. I'm pim Fox. My co host Kathleen Hayes, 167 00:09:43,520 --> 00:09:44,839 Speaker 1: this is Bloomberg.