Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Today,
Speaker 1: President Trump's administration unveiled its plans to dramatically weakened pollution
Speaker 1: limits on coal fired power plants by shifting most of
Speaker 1: the regulatory burden to states. This basically is another way
Speaker 1: to basically foster the coal industry, as President Trump has
Speaker 1: promised to do. Here to talk a little bit about that,
Speaker 1: as Ethan Zindler ahead of America's for Bloomberg any f
Speaker 1: coming to us from Washington, d c. Ethan, thank you
Speaker 1: so much for joining us. So can we just start
Speaker 1: with an overview of what exactly President Trump's administration is
Speaker 1: trying to do here. So first and foremost, there was
Speaker 1: an effort under the Obama administration called the Clean Power
Speaker 1: Plan that would have set a national goal of reducing
Speaker 1: CEO two missions from the power sector. The goal was
Speaker 1: to cut CEO two emissions by twenty thirty. We're very
Speaker 1: actually very far along towards that goal already. But the
Speaker 1: new rule, which was essentially has now been rolled out
Speaker 1: by the Trump administration UH sets no specific long term
Speaker 1: goals for CEO two emissions and essentially says states, you guys,
Speaker 1: go away and figure out how much you want to
Speaker 1: do on your own to try to address CEO two reductions. Okay,
Speaker 1: So just to give a sense, and this is something
Speaker 1: that you noted that as of the end of last year,
Speaker 1: the US already achieved pent UH CEO two reductions that
Speaker 1: had aimed to reach by In other words, it was
Speaker 1: really ahead of schedule. And I'm wondering how much does
Speaker 1: President Trump's how much too, is President Trump's actions set
Speaker 1: us back or do they have no impact whatsoever. Well,
Speaker 1: this is one of those stories, and especially someone here
Speaker 1: in Washington, which is I think you know, gets a
Speaker 1: lot of attention, justifiably because it represents the perspective of
Speaker 1: the administration and the way they view climate and frankly,
Speaker 1: whether they care about climate at all, which is unclear.
Speaker 1: But it's very important to put this in the larger
Speaker 1: context of the trends that are going on in the
Speaker 1: power sector anyway, And as I mentioned, you know, we've
Speaker 1: reduced our missions from two thousand five levels already as
Speaker 1: of your end two thousand seventeen. Our view is that
Speaker 1: the US power sector will continue to de carbonize. Natural
Speaker 1: gas is cheap, renewables are cheap, and essentially coal is
Speaker 1: getting phased out, and frankly, this regulation probably won't change
Speaker 1: that in any substantial way. So symbolically it's important, But
Speaker 1: as far as the market's concerned, UH and as far
Speaker 1: as the US emissions path is concerned, from the power sector,
Speaker 1: at least an our view is not likely to make
Speaker 1: a big difference. Can you give us any update on
Speaker 1: the coal industry and whether there has been an increased
Speaker 1: in UH in jobs there or an increase in profitability
Speaker 1: since President Trump took office. I'm looking right now at Peabody,
Speaker 1: for example, one of the big US coal companies. Their
Speaker 1: shares are up more than this year, so they are
Speaker 1: beating the broader large indexes. Well, it's all it's all
Speaker 1: relative to I mean, take a look at where they were.
Speaker 1: They were there fair enough and and I think generally speaking,
Speaker 1: you know, I think there's been plenty of sort of
Speaker 1: favorable publicity around the coal industry with this administration saying
Speaker 1: they want to do more things, and they are taking
Speaker 1: a number of regulatory steps to try to be supportive.
Speaker 1: But but our general view is that the economics are
Speaker 1: the economics, and gas is very cheap in the US,
Speaker 1: and the consensus view is that it's going to stay
Speaker 1: cheap for a very long time. Renewable prices have been
Speaker 1: down substantially, and with the text credits to support them,
Speaker 1: they also undercut coal. So it's hard to see the
Speaker 1: US coal power sector making a major rebound regardless of
Speaker 1: these very US efforts. You know, I want to put
Speaker 1: you on the spot here and talk about the flip
Speaker 1: side of of coal and what you're talking about, which
Speaker 1: is the renewable side solar, uh when other types of
Speaker 1: energy production that's considered to be more environmentally friendly. The
Speaker 1: US had been accelerating the production of those types of
Speaker 1: energy quite significantly under Obama. I'm wondering has that changed
Speaker 1: at all, or has the pace of adoption continued to
Speaker 1: gain steam under President Trump. I would say that, you know,
Speaker 1: we have seen a bit of a slowing on the
Speaker 1: renewables build side post Trump um. But I wouldn't directly
Speaker 1: attribute that to any actions that he's taken. There have
Speaker 1: been policies in place that essentially we're due to sunset
Speaker 1: and we're coming up towards the end of some of those,
Speaker 1: and that's part of what sort of frontloaded some of
Speaker 1: the activity, uh, sort of coincidentally into Obama's term. But
Speaker 1: generally speaking, you know, we continue to see projects get built.
Speaker 1: There is support for renewables at the state level on
Speaker 1: a policy basis, there are tax credits, but most importanly
Speaker 1: for renewables, the price of the equipment has just come down,
Speaker 1: particularly for solar, so enormously. I mean, by the end
Speaker 1: of the year. To put this in context, a solar
Speaker 1: module sold from a Chinese company will sell for about
Speaker 1: cents a lot. I realized that means nothing to your listeners,
Speaker 1: but ten years ago that number was about eight dollars
Speaker 1: a lot, ten dollars a lot. So the technological advancements
Speaker 1: and the cost declines have just been tremendous. Okay, So
Speaker 1: I'm just wondering going forward, how much can one presidential
Speaker 1: administration shift the policies and sort of shift the landscape
Speaker 1: for energy consumption at this point, and how much really
Speaker 1: is it just the market determining what people use. It's
Speaker 1: mostly market. I think that the administration can sort of
Speaker 1: try and steer a ship, but it takes years to
Speaker 1: try and make real adjustments. And I would also argue
Speaker 1: that some of the most important sort of policies that
Speaker 1: can affect energy, that the course of direction for the
Speaker 1: power sector, are not ones that an administration can do unilaterally.
Speaker 1: You would be Congress um. So, for instance, if you
Speaker 1: really wanted to help the coal industry, the best thing
Speaker 1: you could do is probably create a new tax credit
Speaker 1: or subsidy to support that. But that is not something
Speaker 1: that the administration can do on its own. It's something
Speaker 1: Congress needs to help it within um. Despite the fact
Speaker 1: that Congress seems very inclined to help this administration in
Speaker 1: a lot of ways, I think people would say that
Speaker 1: that would be a tough thing to get through even
Speaker 1: this Congress, and certainly the one that's coming would be
Speaker 1: less would probably be less inclined to be supportive of
Speaker 1: something like that, given the fact that the Republican part
Speaker 1: of the government is expected to lose some seats in
Speaker 1: the upcoming interm election. Is that what you're imply Yeah,
Speaker 1: that does seem to be what people think is going
Speaker 1: to happen so far. One thing I'm wondering is if
Speaker 1: you stripped away all subsidies for solar and wind, would
Speaker 1: those methods of energy production still be economically competitive with
Speaker 1: the fossil fuels? Yes, in some places, know and others?
Speaker 1: Is the long, long story short. If the winds are
Speaker 1: strong enough and the sun shine bright enough, projects are
Speaker 1: absolutely cost competitive. We're seeing that in places like Oklahoma
Speaker 1: and Arizona and other parts of the California and other
Speaker 1: parts of the world. The other question is how expensive
Speaker 1: is the existing generation from those fossil sources. Uh. It
Speaker 1: really varies from different parts of the country. But the
Speaker 1: long story short is right now renewables are cost competitive
Speaker 1: in a number of places around the world, including number
Speaker 1: of prices in the United States, but not everywhere. And
Speaker 1: coal with respect to that, is there anything that President
Speaker 1: Trump can do or that you're watching that will have
Speaker 1: material impact to support coal unilaterally? I think the Trump
Speaker 1: administration is trying to do most of the things that
Speaker 1: it has within its power to support the coal industry. Um,
Speaker 1: but it is it is frankly just going to be
Speaker 1: challenging so long as gas prices remain low um if
Speaker 1: they frankly, if the administration wanted to do something to
Speaker 1: sort of artificially raise the cost of um of gas production,
Speaker 1: I don't know what that step would be, tax or whatever.
Speaker 1: UM That would probably also helped Cole, but again that's
Speaker 1: something that Congress would probably have to be involved in.
Speaker 1: Ethan Zindler, thank you so much for that wonderful perspective.
Speaker 1: Ethan Zindler's head of America's for Bloomberg based in Washington,
Speaker 1: d C. That's Bloomberg and E f uh And definitely
Speaker 1: an interesting time with some revocation of Obama era environmental rules.
Speaker 1: How much effective they actually have that remains to be determined.
Speaker 1: There are some companies that are the the intersection of
Speaker 1: some of the trade tensions that have been ongoing, and
Speaker 1: then there's some that face a changing landscape with respect
Speaker 1: to new regulations or regulatory rollbacks. Our next guest potentially
Speaker 1: is at the intersection of both, and that is Mark Vignano.
Speaker 1: He is chief executive of Commoors, which is based in Wilmington, Delaware.
Speaker 1: You might know Commors by some of its brands like
Speaker 1: tef Line, which is sort of means so much to
Speaker 1: so many people as well as free on Mark. Thank
Speaker 1: you so much for being with us. So happy to
Speaker 1: be here. So I want to start with the concept
Speaker 1: of this company has its business the US and the
Speaker 1: rest of its outside of the United States. And I'm wondering,
Speaker 1: at a time when you do have escalating trade tensions,
Speaker 1: how have you been affected. Yeah, so if you think
Speaker 1: about trade, you know, and I know the administration today
Speaker 1: is really trying to get this level playing field. Um.
Speaker 1: From from our standpoint, there's lots of ways to deal
Speaker 1: with that level playing field. One area is something that
Speaker 1: we are very important to us as the key Galley Agreement.
Speaker 1: That ke Galley Agreement is connected to the Montreal Protocol. Basically,
Speaker 1: it's a business first, a US business first kind of
Speaker 1: effective trade agreement where American can win. So it's it's
Speaker 1: allows us to can just lay out when this went
Speaker 1: into so what it is. We manufacture a refrigent called Optition,
Speaker 1: which is low the lowest global warming potential refrigerant in
Speaker 1: the world, lower global warming than any other refrigerants. Many
Speaker 1: countries have adopted the Gali Agreement, which allows the use
Speaker 1: of those in relationship to hfc's or there are traditional refrigerants,
Speaker 1: and so here in the US, we want to see
Speaker 1: that adoption happen as well, because it's going to benefit
Speaker 1: companies like Commor's, companies like Honeywell that actually have developed
Speaker 1: this molecule and be able to bring it in So
Speaker 1: you can, jobs are created here in the US because
Speaker 1: of it, Manufacturing facilities are being put in place here
Speaker 1: in the US because of it, and so it's a
Speaker 1: way for US to be able to utilize US based
Speaker 1: technology versus Chinese based technology which is in our refrigerants today.
Speaker 1: All right, So this is actually really interesting because what
Speaker 1: it hints at is this idea that if the US
Speaker 1: tries to go it alone and have a different set
Speaker 1: of regulations with respect to curbing certain environmentally harmful gases,
Speaker 1: that perhaps it won't be privy to agreements that will
Speaker 1: actually foster jobs and opportunities in the US. Is that
Speaker 1: basically what's it's effectively a business trade agreement that benefits
Speaker 1: and creates a win for the US. So you're exactly right,
Speaker 1: you know, we're going to manufacture that here in the US.
Speaker 1: It's going to create thousands of jobs because of it,
Speaker 1: and it's going to be exported to the whole world,
Speaker 1: but also can be used here in the US at
Speaker 1: the same time. So as we talk about trade, you know,
Speaker 1: it's it's about how do you how do you create
Speaker 1: free trade for companies like commors, And that's really what
Speaker 1: we're looking for, Okay, But arguably, I mean, if you're
Speaker 1: selling this, why does it matter whether the US is
Speaker 1: involved in those agreements or not, Because the more it's
Speaker 1: a huge market opportunity here in the US. So of
Speaker 1: automobiles in Europe already used this refrigerant. About half of
Speaker 1: the auto park here in the US uses it. But
Speaker 1: stationary refrigeration, stationary air conditioning is really a driver for US,
Speaker 1: and the growth is here in the US. This is
Speaker 1: really interesting to me. It also makes raises a question
Speaker 1: of whether a greater proportion of your business has actually
Speaker 1: gone outside of the US as you've seen some of
Speaker 1: these other countries adopted. Have you seen the mix of
Speaker 1: business shift more to UH foreign countries rather than the
Speaker 1: US over the bunch. Well, it's interesting because as a
Speaker 1: as a global company, you know, we we're the world
Speaker 1: leader in t O two or the world leader in refrigerants,
Speaker 1: with the world leader in Flora polymers um. But this
Speaker 1: specific product we're talking about, which is a refrigerant. You know,
Speaker 1: we think of refrigerants as the old freon, right optition
Speaker 1: is the new free on, if you will. Most of
Speaker 1: our sales are outside the US because of adoption of
Speaker 1: these regulations, and we think this could be a great
Speaker 1: opportunity for the US for business purposes. It creates jobs here.
Speaker 1: It's just not great for the environment. It creates jobs here,
Speaker 1: and it really rewards the companies that have developed this.
Speaker 1: So UM, I want to talk a little bit about
Speaker 1: some other policies that are being implemented or at least
Speaker 1: trying to be affected across the Trumpetitus straation. Antiregulation has
Speaker 1: been a huge theme, and we've seen certain regulatory rollbacks,
Speaker 1: in particular today with proposals to make it easier for
Speaker 1: coal companies to exist and thrive. I'm just wondering, in
Speaker 1: terms of your industry, have you seen a significant regulatory rollback.
Speaker 1: We haven't. You know, we participate in the chemistry industry,
Speaker 1: so from that standpoint, we haven't seen a significant rollback.
Speaker 1: And you know, the way we look at it is,
Speaker 1: you know, regulation isn't always bad for business. It could
Speaker 1: be a positive for business. You know, I gave the
Speaker 1: example of Cagali a second ago, where it could be
Speaker 1: a positive. But at the same time, it can also
Speaker 1: create clarity for a company in terms of how to operate,
Speaker 1: so you don't have to operate differently state to state.
Speaker 1: You can operate the same across So we haven't seen
Speaker 1: significant rollbacks that are affecting us, But to us, regulation,
Speaker 1: if it's based on science and if it's based on risk,
Speaker 1: can be very helpful to a company. At the same time, Um,
Speaker 1: I'm I was interested. I saw a couple of articles
Speaker 1: about this pollution SADA. It's been going on with commors
Speaker 1: and some North Carolina residents about a spill and how
Speaker 1: much you're getting involved or not. And one thing that
Speaker 1: I'm wondering is do regulations protect you in a way
Speaker 1: or if they did roll back some of these regulations,
Speaker 1: would you change anything about your business? Yeah? For us,
Speaker 1: you know, um, so you you mentioned the situation that
Speaker 1: we're dealing with. What would she take very seriously, Again,
Speaker 1: we don't believe we have any health hazard, but the
Speaker 1: community doesn't like things being put into the error into
Speaker 1: the water, So I don't think it would change the
Speaker 1: way we operate because We're going to try to operate
Speaker 1: within the realm of the community and what they want
Speaker 1: and what they need from that standpoint. But again, when
Speaker 1: you're looking at a level playing field across the US,
Speaker 1: it's hard to be able to navigate state to state.
Speaker 1: You want to be able to have something that gives
Speaker 1: you clarity across the whole US as you're operating. That's
Speaker 1: a really good point and one that I hadn't thought
Speaker 1: that much about. Thank you so much for being here.
Speaker 1: It's always it's really a pleasure speaking with you. Mark Vicnano.
Speaker 1: He is chief executive of Commore's UH, the leading I
Speaker 1: Guess refrigerant company and UH and creator of Teflon and
Speaker 1: free on and all of those things and the new
Speaker 1: free On. It's based in Wilmington, Delaware, but he's here
Speaker 1: in our eleven three oh studios. The Year of zero
Speaker 1: investors do not want to pay anything, and investment firms
Speaker 1: are realizing to keep said investors they need to offer
Speaker 1: them free funds and free trading. Evidently here to talk
Speaker 1: about that. Eric Balcuna, Senior et F analysts for Bloomberg Intelligence.
Speaker 1: So Eric to this morning's news. JP Morgan is planning
Speaker 1: to roll out a mobile brokerage platform next week, including
Speaker 1: free research as well as some free trading discuss Yeah,
Speaker 1: and you know, you just hit on one of the
Speaker 1: things that was buried lead in my opinion, which is
Speaker 1: free research. That's the department I'm in. So knowing that
Speaker 1: it's going to start being becoming free hits home for me.
Speaker 1: This is where we've been going for a while. There's
Speaker 1: been a lot of startups like robin Hood or robo Advisors.
Speaker 1: You know, on the streets you see people offering this
Speaker 1: stuff already for free, and then you see Vanguard get
Speaker 1: in and then of course, uh, you know, the big
Speaker 1: guys are going to follow suit. And the reason is
Speaker 1: because people want it that way, the customers speak with
Speaker 1: their with their feet, and for JPM, we're going to
Speaker 1: do it. It's especially huge. It reminds me of the
Speaker 1: Fidelity zero thing, where when you heard Vanguard offering free
Speaker 1: t F trading, it's like, well that's what they do,
Speaker 1: they're you know, but you know when Fidelity went zero,
Speaker 1: it's like, whoa, aren't they the big active shop. And
Speaker 1: now here you have JP Morgan, who people just don't
Speaker 1: associate with that kind of mentality offering free so I
Speaker 1: think this is equal to the Fidelity announcement in terms
Speaker 1: of just shaking people to their core in the financial industry.
Speaker 1: So you said this is what customers want. I also
Speaker 1: want free housing. I also want, you know, free incredible
Speaker 1: dinners with my husband, and hey, it would be really
Speaker 1: nice to have a free manicures. People want a lot
Speaker 1: of things free. They don't get them. And my question
Speaker 1: is how can these firms be offering zero fee funds
Speaker 1: and zero fee trading? At what point do they make
Speaker 1: no money as a result. Yeah, it's a good question,
Speaker 1: and so for let's go for it, just JP Morgan.
Speaker 1: One way they can do this is by free t
Speaker 1: F trading. You can sell the order flow to market makers. Um,
Speaker 1: and that is worth something. Last year Schwab made, according
Speaker 1: to Dave rid Or, my colleague, a hundred and fourteen
Speaker 1: million in selling that order flow of e t F
Speaker 1: trading and stock trading. Wait, hold on a second, what
Speaker 1: does that mean? So basically they can sell to a
Speaker 1: market maker all of the orders that come in. They
Speaker 1: can then offer that and sell that to a market
Speaker 1: maker who will then get first DIBs on that order
Speaker 1: flow for a very small fee. It might affect the
Speaker 1: retail client in a basis point, so it's minimal, but
Speaker 1: if you add all that up, you do get some revenue.
Speaker 1: It's not a lot though. Some people overestimate this thing
Speaker 1: of order flow. They all also on the fidelity side
Speaker 1: with a free fund people overestimate securities lending that is
Speaker 1: not worth that much either. Both of these cases, these
Speaker 1: are lost leaders right. What they're really trying to sell
Speaker 1: you is is loans, credit cards in chaping Works case,
Speaker 1: or fidelities case, active mutual funds. They have plenty of
Speaker 1: products that make a lot of revenue, and so I
Speaker 1: think they're just reading the writing on the wall and
Speaker 1: they're going, look, this is the way millennials wanted the
Speaker 1: a lot of investors who are following them. Let's just
Speaker 1: go there now, you know, rip the band aid off
Speaker 1: and we'll work out how to make money in other ways.
Speaker 1: But I don't really see any other direction this is
Speaker 1: going to go, because again, this is what the people want.
Speaker 1: So tdmre trade right now shares down more than five
Speaker 1: Charles Schwab shares also sharply down. I'm just trying to
Speaker 1: figure out, are we going to look at some kind
Speaker 1: of massive consolidation in the brokerage industry similar to what
Speaker 1: we have been seeing, or perhaps it needs to frankly
Speaker 1: escalate to meet analysts expectations in the asset management industry.
Speaker 1: I think you have to all signs point to consolidation
Speaker 1: across the financial industry because of this intense cost obsession,
Speaker 1: whether it's a cost obsession and expense ratios of funds
Speaker 1: or for free trading um. You can't live on a
Speaker 1: couple of basis points alone. Everybody knows that, right, so
Speaker 1: scale is one way to get cheaper, obviously up selling
Speaker 1: them on higher price products. The reason you're probably not
Speaker 1: going to see this kind of mass consolidation right now
Speaker 1: or in the near term is the market has been
Speaker 1: so good to these companies. I just looked at you know,
Speaker 1: active mutual funds alone have grown assets by seven trillion
Speaker 1: just in the last ten years on market appreciation alone,
Speaker 1: no flows. So the market has really helped the financial
Speaker 1: industry not have to really face this challenge. So I
Speaker 1: do think if the market gets choppy or goes down,
Speaker 1: then I think you'll see people sort of looking to
Speaker 1: partner up UM and get scale and go cheaper. You know,
Speaker 1: I have to wonder there's really no free lunch, right,
Speaker 1: And I have to wonder when you start seeing all
Speaker 1: of these look no fee UH funds or offerings, there
Speaker 1: are fees for somebody. Is someone going to bear the
Speaker 1: brunt of this, either through inefficiencies or extra cars costs elsewhere. Yeah,
Speaker 1: I think that's the big case here. You have with
Speaker 1: UH you know this idea of selling order flow, which
Speaker 1: you know your own money. But again, I don't look.
Speaker 1: I know there's a lot of ways to look at this.
Speaker 1: And what's the catch, right, That's that's what Vanguard that
Speaker 1: their reaction to Fidelity going to zero fee. But in
Speaker 1: this case, if you're a disciplined person, it's sort of
Speaker 1: like your credit card. You know, my wife and I
Speaker 1: use it a lot, but we pay it back like clockwork.
Speaker 1: It's more my wife, I'm a little easier, but we
Speaker 1: pay it back like clock was. Yeah, it's all her.
Speaker 1: I get to give her credit. If you can really
Speaker 1: discipline yourself and and not and resist temptation, I think
Speaker 1: you can really get basically free exposure and all of
Speaker 1: your investments and finances for almost nothing. I think they're
Speaker 1: it's the people who can't control themselves. Maybe you trade
Speaker 1: a lot and you get more involved in they're in
Speaker 1: there sort of like universe than they upsell you. You
Speaker 1: start using options. Next thing you know, they're making a
Speaker 1: lot of money off you. So I think this is
Speaker 1: sort of the same situation here. But discipline will help
Speaker 1: investors who are looking to enter these free situations. Um,
Speaker 1: and that's important. Yeah, It's sort of like free drinks
Speaker 1: in Las Vegas. Right. It's fine for people who are disciplined,
Speaker 1: but for those heavy gamblers might be tougher. Eric Felt,
Speaker 1: Senior et F analyst for Bloomberg Intelligence, always with insightful
Speaker 1: comments today on the race to zero throughout the financial industry.
Speaker 1: President Trump is disappointed in Jerome Powell. He said in
Speaker 1: comments to a number of different outlets that he thought
Speaker 1: that his FED chair was going to be a cheap
Speaker 1: money FED chairman, and he is disappointed that he's been
Speaker 1: raising interest rates. Joining us now to talk about that
Speaker 1: is Mark Spintel, founder and chief investment officer at Potomac
Speaker 1: River Capital, as well as Craig Torres Federal Reserve, and
Speaker 1: you as economy reporter for Bloomberg News. Thank you both
Speaker 1: for joining me here from Washington, d C. Craig I
Speaker 1: want to start with you and just get a sense
Speaker 1: of what President Trump said and how out of the
Speaker 1: ordinary it is. Uh. It was uh not that dissimilar
Speaker 1: to previous remarks he made, which I think is why
Speaker 1: people are kind of people are investors in particular paying attention,
Speaker 1: but not really saying this is something new. He's been complaining,
Speaker 1: it's on everybody's radar. Uh. The question is you know,
Speaker 1: what does it do? Um? How does it shape the
Speaker 1: Federal Reserve? So among the comments was a comment to
Speaker 1: Reuters where he said, we're President Trump said during this
Speaker 1: period of time, I should be given some help by
Speaker 1: the Fed. The other countries are accommodated. Mark, come on
Speaker 1: in here. I guess that there is a big existential
Speaker 1: question that this raises about the independence of the Photo Reserve.
Speaker 1: Jeroan Powell cannot be firement President Trump. Does this matter
Speaker 1: at all from an independence angle? I think it does.
Speaker 1: And uh, and thank you for for the invitation to talk.
Speaker 1: I I would first point out that, uh, though extreme
Speaker 1: Powell could be fired by Trump, though the parameters and
Speaker 1: the reasons are are sort of very narrow. Um, but
Speaker 1: he could so called Trump up some charges to find
Speaker 1: cause in Powell's actions. Um, I think I would echo
Speaker 1: Gregg's point that this is not necessarily unusual presidents going
Speaker 1: back forty or fifty years, most spectacularly Nixon criticizing his
Speaker 1: appointed FED chair Arthur Burns. But I think most presidents
Speaker 1: have been upset with with FED chairs who are tightening
Speaker 1: the reins on credit. What makes this somewhat unique is
Speaker 1: that monetary policy is, by the FED zone measures quite
Speaker 1: loose accommodative. They talk about that in their statements. So
Speaker 1: the fact that he's unhappy with loose monetary policy and
Speaker 1: that he's criticizing his hand picked FED chair is a
Speaker 1: bit unusual. This this early into the game. Mark, you
Speaker 1: co authored a book, The Myth of Independence, How Congress
Speaker 1: Governs the Federal Reserve. Uh So, clearly your skeptical of
Speaker 1: FED Federal Reserve independence to begin with. But I'm wondering
Speaker 1: does this type of rhetoric push the FED further into
Speaker 1: the domain of politics rather than policy. Indeed, and I
Speaker 1: think you're talking about a century old institution that sits
Speaker 1: right here in our town and is very much in
Speaker 1: the political sphere. And the book that Sarah Binder and
Speaker 1: I co author talked a lot about the FEDS relationship
Speaker 1: with Congress. But I think the way presidents in particular
Speaker 1: Trump this go around, are putting pressure on on the
Speaker 1: Federal Reserve and on Chair Powell Powell directly will potentially
Speaker 1: shape some of the contours and outlooks for interest rates. Again,
Speaker 1: we're we're in a tightening cycle. The Fed is still
Speaker 1: quite accommodative, but they're moving very gradually, uh, and as
Speaker 1: they get closer to their own definition of neutral, I
Speaker 1: think it's going to be very interesting to see if
Speaker 1: they continue that gradual pace, which may be interpreted as
Speaker 1: just uh, sort of bending a little bit to the
Speaker 1: White House's demands. Greg come in here, because we're just
Speaker 1: weeks away from the September meeting, where the Federal Reserve
Speaker 1: is widely expected to hike interest rates yet again this year.
Speaker 1: There is a question of how many more times they
Speaker 1: would hike. What data points are they looking at, especially
Speaker 1: given the fact that the U. S economy by some measures,
Speaker 1: just growing at the fastest pace since two thive Well,
Speaker 1: they'll be looking at that, but also that the jobs
Speaker 1: market continues to be very robust, and perhaps most importantly,
Speaker 1: that inflation is around their target slightly above actually so
Speaker 1: you know, the Fed is letting the economy run, but
Speaker 1: to keep inflation expectations nailed down, Uh, they need to
Speaker 1: gradually raise interest rates. However, I would I would agree
Speaker 1: with Mark that here's an interesting fact. Yes, I think
Speaker 1: the debate about QUEI during the financial crisis, nobody thought
Speaker 1: about the politics of it at the time. But if
Speaker 1: you stand back now, you know and look at it.
Speaker 1: I think even Bernanke would say there were constraints on
Speaker 1: doing more than more than they actually did at the time,
Speaker 1: and those constraints were political. So it's not like the
Speaker 1: Fed responds to political pressure, but it does feel constrained
Speaker 1: by it in terms of what they can do well.
Speaker 1: And Mark, then I want to turn that back to
Speaker 1: you because, I mean you could say, in the larger
Speaker 1: scheme of things that Congress ultimately holds the strings when
Speaker 1: it comes to the Federal Reserve with confirmation and a
Speaker 1: number of other measures and sort of controls that it has.
Speaker 1: But for all intents and purposes, it's not like J.
Speaker 1: Powell and other committee members are going to go to
Speaker 1: Congress people and say, what do you guys think do
Speaker 1: you think we should raise interest rates? I mean, there
Speaker 1: is a modicum of independence, and that's not going away correct.
Speaker 1: And I think the term that Sarah and I adopted
Speaker 1: in the book was interdependence. And you know, to your point, Lisa,
Speaker 1: they're operating in this political sphere. I think the legislative
Speaker 1: threat is probably a bit far even for President Trump
Speaker 1: at this point. Um. There there probably isn't indeed in
Speaker 1: the House as we speak, the Republican Conference is probably
Speaker 1: more hawkish, uh, certainly more hawkish than the president. So
Speaker 1: I don't think they would cow tow to the President's
Speaker 1: demands for cheaper money. Um. But that could change in November.
Speaker 1: We could see a Democratic conference in the House. We
Speaker 1: could see Max Swheet, Maxine waters as ahead of the
Speaker 1: House Financial Services Committee. But there's very unlikely to be
Speaker 1: sixty votes in the Senate to reopen the Act. Uh.
Speaker 1: Not to mention, what would they do? And that goes back,
Speaker 1: Lisa to your point that I think some threats. He
Speaker 1: could increase the heat on Powell himself. He could threaten
Speaker 1: to fire the FED chair. He could stack some more
Speaker 1: seats on the committee on the board with more Delvish members, um.
Speaker 1: And I think the context in the environment is important.
Speaker 1: We are growing quite quickly. UH. Inflation has ticked above
Speaker 1: their target and UH and might continue to rise. The
Speaker 1: capital markets, equities in particular, are very strong. Unemployment is
Speaker 1: as low as it's been in a generation. And again,
Speaker 1: monetary policy is still loose, and the president's upset with
Speaker 1: with money that isn't cheap enough, Soraig. Given given that backdrop,
Speaker 1: I was interested in what Atlanta Fed Raphael Bostic said
Speaker 1: earlier this week or a couple of days ago, anyway
Speaker 1: where he was speaking. He said, you know, he didn't
Speaker 1: want to raise interest rates to a point where he
Speaker 1: inverts the yield curve. Seems like that's very much on
Speaker 1: Federal Reserve members minds. What do you expect how that
Speaker 1: influence what they do? Not very much? All right? Then there.
Speaker 1: I think the board staff has looked at this and
Speaker 1: somewhat dismissed it. And I would add this, if Rafael
Speaker 1: Bostic is so concerned about the yield curve, then he
Speaker 1: should be arguing that they shorten the maturity of their
Speaker 1: portfolio and sell those assets a little bit faster. That's
Speaker 1: really interesting. That's a fascinating point. Other words, step in
Speaker 1: the yield curve another way, don't just stop hiking interest
Speaker 1: rates on the short end. Thank you both. Fascinating conversation.
Speaker 1: Mark Spindel, founder and Chief investment officer of Potomac River Capital,
Speaker 1: also the co author of the book The Myth of Independence,
Speaker 1: How Congress Governs the Federal Reserve, And of course my
Speaker 1: thanks to Craig Torah's Federal Reserve and US Economy reporter
Speaker 1: from Bloomberg News who always has fantastic stories. I recommend
Speaker 1: to read them. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio.