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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jayleie. We bring you

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Speaker 1: insight from the best and economics, finance, investment and international relations.

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Speaker 1: Find Bloomberg Surveillance and Apple podcast, Suncloud, Bloomberg dot Com

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Speaker 1: and of course, on the Bloomberg Terminal from New York

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Speaker 1: City for our audience worldwide. Good morning, Good morning, breaking news.

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Speaker 1: The President of the United States to nominate Chairman Powe

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Speaker 1: to a second term as FED Chair, to nominate Governor

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Speaker 1: Brainerd as FED Vice chair. That news coming from the

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Speaker 1: White House in the last few seconds. That news this morning,

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Speaker 1: the President of the United States to nominate Chairman Power

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Speaker 1: to a second term as the FED Chair. From New

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Speaker 1: York City alongside Tom Keene, Lisa Brown It's son Jonathan Faroll.

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Speaker 1: Your reconly market at four tents of one percent. Tom

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Speaker 1: Keane the chairman getting a second term, least he's been

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Speaker 1: nominated for one. This one goes to the hearings. The

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Speaker 1: market looks like it likes it, up fifteen and futures

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Speaker 1: now up twenty. John still moving higher in the yield

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Speaker 1: was from a one fifty six and change after one

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Speaker 1: zero five at Lisa, it's a split, the president nominating

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Speaker 1: chairman power to a second term Brainard governor Brainard nominated

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Speaker 1: as FED Vice chair. Yeah. The idea here going with

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Speaker 1: the status quo in the sense of trying to have continuity.

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Speaker 1: One of the most perilous times, some people would say

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Speaker 1: for FED policy possibly in history, based on how low

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Speaker 1: rates are and how high inflation is. This is about

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Speaker 1: two things, Tom Kane, continuity one and confirm ability too.

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Speaker 1: We can talk about continuity at an important inflection point

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Speaker 1: for monetery policy, we need to talk about confirm ability

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Speaker 1: as well, perhaps that shaping the decision down in Washington.

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Speaker 1: Sco point John here, and we're gonna have a wonderful

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Speaker 1: set of guests. S are we welcome all of you

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Speaker 1: on Bloomberg Radio and Bloomberg Television the special Hour of

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Speaker 1: Bloomberg Surveillance. What Michael McKee and I know there's been

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Speaker 1: other times where we've had to reappoint ointments, maybe without

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Speaker 1: that focus. I went back and looked at Bush Greenspan

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Speaker 1: the fourth or fifth time, and it wasn't really that

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Speaker 1: big a deal. Why is this a big deal, Michael

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Speaker 1: McKee at this time. Well, we've gone into a different

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Speaker 1: kind of world tom in terms of monetary policy, things

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Speaker 1: that Alan Greenspan never had to contend with, never had

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Speaker 1: to consider, with the quantitative easing, with quantitative UH tightening,

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Speaker 1: with all the things that the FED has done to

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Speaker 1: expand its balance sheet, the zero bound UH. There's a

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Speaker 1: lot going on for the FED, and it has become

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Speaker 1: front and center in the United States, and as people

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Speaker 1: have decided, the Federal Reserve is the economic savior for

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Speaker 1: the country also the economic whipping boy. J Paal gets

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Speaker 1: to play both roles in this case. Let's talk about

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Speaker 1: this bond market move as will guys up five basis

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Speaker 1: points on a two year up about four basis points

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Speaker 1: on tens, one fifty nine on tents. Right now, what's

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Speaker 1: about fifty six basis points on twos? Mike, we can

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Speaker 1: talk about confirmability in a moment. I want to talk

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Speaker 1: about continuity and for this Federal Reserve chair staring down

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Speaker 1: some data that is incompatible with an argument he's made

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Speaker 1: through much of this year, and his vice chair, Rich

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Speaker 1: Clarada now said to be replaced Governor Waller, both of

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Speaker 1: them making a move in the last week to talk

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Speaker 1: about accelerating the taper. When we think about the first

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Speaker 1: job of this chairman before we even see if he

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Speaker 1: gets confirmed for a second term, walk me through the

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Speaker 1: complexities of that for the next couple of months. Well,

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Speaker 1: when the FED announced that it was going to start tapering,

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Speaker 1: it said it would have fifteen billion dollar a month

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Speaker 1: taper for November and December, but did not put any

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Speaker 1: numbers on January going forward, leaving themselves some room to

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Speaker 1: try to uh, to have the ability to change. And

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Speaker 1: it does look like they're getting set for a change

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Speaker 1: now as we're hearing from more and more members of

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Speaker 1: the FED. Rich Clarida will be on the board for

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Speaker 1: the December fifteen meeting, and so we could expect the

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Speaker 1: Fed maybe to start raising, maybe raise the amount that

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Speaker 1: it cuts the buying by on and that then would

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Speaker 1: be a reason you would see maybe the markets moving

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Speaker 1: a little bit because they figured that j. Powell is

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Speaker 1: going to be much more on board than that than

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Speaker 1: necessarily Lele Brainard would have been. One of the conundrums

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Speaker 1: heading into next year is the dual mandate, the idea

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Speaker 1: of trying to combat runaway inflation or even higher inflation

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Speaker 1: than they'd like. While allowing employment to get to a

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Speaker 1: fuller picture. What happens if you have one, say hi

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Speaker 1: inflation without the other, and how does the distinction of

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Speaker 1: a power versus a brainerd FED weigh in on this. Well,

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Speaker 1: what the Fed has said is they will look at

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Speaker 1: both of the mandates and they will basically do risk

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Speaker 1: management on whichever one seems to be the worst. Their

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Speaker 1: focus is on trying to get unemployment down. But if

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Speaker 1: inflation starts to become more of a hazard and unemployment

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Speaker 1: doesn't look like it's going to immediately drop, then they

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Speaker 1: would attack unemployment. They're hoping in this case that unemployment

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Speaker 1: is to use the t word transitory, it will take

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Speaker 1: longer to disappear uh inflation, but it will start to

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Speaker 1: fall back. And that's the general consensus on Wall Street

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Speaker 1: as well. In that case, they don't have to make

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Speaker 1: a decision between the two, but tapering faster gets them

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Speaker 1: to the point where they can raise rates if they

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Speaker 1: need to more quickly. If you are just tuning in

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Speaker 1: from audience worldwide on TV and radio, the President of

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Speaker 1: the United States nominating Chairman Power to a second term

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Speaker 1: as the FED Chair, nominating Governor Brain It's FED Vice

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Speaker 1: chair this all according to the White House. In the

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Speaker 1: last couple of moments, let's get some market reaction for

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Speaker 1: you from Kathy Jimes of Schwabs. She joins, does Kathy

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Speaker 1: grant to catch up with you? Your first reaction please? Um?

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Speaker 1: I think this is a don't rock the boat move. Um.

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Speaker 1: It's it's consistent with you know, the long history at

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Speaker 1: the FED. Usually FED chairs are renominated, and it looks

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Speaker 1: like probably there was a thought at the White House

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Speaker 1: that this fighting, a battle perhaps over brainard, was not

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Speaker 1: worth not worth the fight worth having at this stage

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Speaker 1: of the game. Kathy, let's talk about the move in

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Speaker 1: this bond market and you'll four basis points pushing one

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Speaker 1: sixty again. The more interesting move for me is pushing

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Speaker 1: sixty basis points at the front end on two's up

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Speaker 1: by five basis points to fifty six early days kneez

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Speaker 1: joke reaction maybe, But Kathy, what's your initial response to

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Speaker 1: seeing that kind of move off the back of this decision. Yeah,

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Speaker 1: clearly the market is looking at the likelihood that the

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Speaker 1: Fed will increase the rate of tapering and move up

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Speaker 1: the timing of the first rate hike. Now that Powell

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Speaker 1: has been renominated and you've kind of cleared the decks

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Speaker 1: in terms of of policy, you know, decision making going forward.

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Speaker 1: And I think that that's a reasonable expectation given some

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Speaker 1: of the comments that we've heard from various officials and

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Speaker 1: the fact that inflation has been higher and more persistent

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Speaker 1: than expected. You know, the fab really shouldn't have any

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Speaker 1: reason to be buying bonds at this stage of the game.

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Speaker 1: It's not really contributing much and it could be doing

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Speaker 1: some harm. So the faster they taper, the better news

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Speaker 1: it is in terms of getting the inflation picture under control.

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Speaker 1: Kathy Jones was u here right now and own blinder

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Speaker 1: scheduled to be with us here in moments. Cathy, I

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Speaker 1: look at the bond market, I look at all the

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Speaker 1: uncertainties forward in what we see, without question is a

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Speaker 1: wall of savings, of liquidity, A buoyant holiday season for

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Speaker 1: the consumer. Is well, what does the Schwab call on

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Speaker 1: the American consumer next year? The chairman Powell and vice

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Speaker 1: chairman Brainer will confront. Now, we're pretty optimistic about the consumer.

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Speaker 1: You know, there's high levels of savings, job market is

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Speaker 1: is very strong, wages are rising, particularly for lower income workers.

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Speaker 1: All those are really positive for the consumer. Obviously, it's

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Speaker 1: going to be a something of a constraint of energy

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Speaker 1: prices stay high, because that's a particular pain point for consumers.

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Speaker 1: But by and large, consumers are in good shape, so

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Speaker 1: we're looking for that to continue to drive the economy

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Speaker 1: going forward. Cathy, stay close for the market action. You're

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Speaker 1: two year yield this morning up by five basis points.

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Speaker 1: When I head down to d C and catch up

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Speaker 1: with Blimpox Emory A Donna Washington correspondent, Amory, this is

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Speaker 1: also about confirm ability. Can these decisions actually be realized?

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Speaker 1: Take a listen to that famous quote from Senator Warren

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Speaker 1: in the last couple of months on what she thinks

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Speaker 1: of this chairman. I can't support J. Powell for renomination.

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Speaker 1: So my view is he ends his term, we put

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Speaker 1: somebody else in place, and I think the fit is

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Speaker 1: going to be better off, and I think our economy

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Speaker 1: is going to be safer. Senator Warren. Emory called him

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Speaker 1: a dangerous man, this president going against the wishes of

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Speaker 1: some of these Democrats. Can you walk me through, just

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Speaker 1: set the stage frame it for us what the next

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Speaker 1: couple of months could look like trying to make this happen. Well,

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Speaker 1: the progressives are certainly waking up, probably unhappy with this decision,

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Speaker 1: like Senator Warren who did call J. Powell dangerous man.

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Speaker 1: But also on Friday, Senator white House coming up with

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Speaker 1: a statement as well they wanted a new pick at

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Speaker 1: the top. But Jonathan, as you say, this is about

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Speaker 1: being able to get through that Senate. Come for me.

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Speaker 1: J Powell was confirmed eighty four to thirteen, and many

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Speaker 1: of those people are still in the Senate that are

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Speaker 1: going to be able to push forward. He has bipartisan support.

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Speaker 1: Many credit him to being able to bring the U.

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Speaker 1: S economy um out of the pandemic. And then you

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Speaker 1: look at Brainarden. She received sixty one to thirty one.

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Speaker 1: So you'd already see from their previous nominations and Senate

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Speaker 1: confirmations that Governor Chair Powell had a much easier time

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Speaker 1: in the Senate. So that's potentially part of the decision making. Also,

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Speaker 1: he was able to remain with going with Chair Powell.

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Speaker 1: He was able to have this continuity at the top

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Speaker 1: of the Fed where his predecessor Trump decided to get

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Speaker 1: rid of Janet Yellen and elevate Powell. Now, this is

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Speaker 1: something that he likely is going to toot that he

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Speaker 1: wanted to make sure that the FED remains independent. At

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Speaker 1: the same time, he's giving a nod to the progressives

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Speaker 1: by making sure Governor Brainard gets a top spot, and

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Speaker 1: she is yeah. But in Marie d we have a

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Speaker 1: sense of what the main hang up President Biden had

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Speaker 1: with just renominating J. Powell, say a month or two ago.

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Speaker 1: It's unclear, but potentially part of it is the fact

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Speaker 1: that there's not just these positions. They have a number

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Speaker 1: of other positions as well at the FED. So they're

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Speaker 1: probably likely looking at how they would we work the

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Speaker 1: FED to make it more diverse, to look a little

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Speaker 1: bit more like America. That is something you've heard time

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Speaker 1: and time again Democrats campaigned for, so potentially that was

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Speaker 1: part of it. And then when you had these two

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Speaker 1: top selections Brainard and Powell, then you started to hear

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Speaker 1: and are reporting that you had senators wanting to sit

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Speaker 1: down with each of them. And this is where the

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Speaker 1: counting game probably came in for the White House to

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Speaker 1: make sure that these two individuals can be confirmed. Emory

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Speaker 1: down and Dasy a Wahington correspondent sticking with us through

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Speaker 1: this morning on the back of this news, Tom Kane,

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Speaker 1: let's build on the price section up at the front end,

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Speaker 1: yield to Hime by five basis points. Clear read for

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Speaker 1: the FX market, t K that dollar stronger, Well, the

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Speaker 1: dollar stronger, and I think that's an immovable force here

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Speaker 1: into the new year. John. I think you know everybody's

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Speaker 1: doing the looks in that and know I'll readapt and

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Speaker 1: adjust off of this. And there's this the confirmation process,

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Speaker 1: and that John, the dollars, the global system. And it

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Speaker 1: is a vote today for what President Biden did a

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Speaker 1: nanty six handle on the d x Y the Bloomberg

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Speaker 1: Dollar Index, Lisa, a broader read of that U S dollar.

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Speaker 1: More broadly, it's stronger. The idea that if they raised

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Speaker 1: reads that will end up leading to a money flight

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Speaker 1: into the United States. I do wonder, though, is a

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Speaker 1: chair by chair Powell excuse me, so much more hawkish

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Speaker 1: than Leo Brainerd or is he going to have a

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Speaker 1: rather dovish tilt as he tries to wait for the

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Speaker 1: employment market to really pick up. Tom, As you think

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Speaker 1: about the history of the Federal Reserve, I'm with Lisa.

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Speaker 1: I just think on these two nominees, whether it would

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Speaker 1: have been chairman Brainard or chairman Power for a second term.

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Speaker 1: How much daylight was there between the two. What I

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Speaker 1: think this opens the door too, is a much cleaner

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Speaker 1: conversation about what took place on Friday off the back

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Speaker 1: of those discussions about accelerating the tape, and now we

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Speaker 1: can have a real conversation, not about a lane up

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Speaker 1: chairman in December, but a conversation Tom about pushing things

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Speaker 1: is forward and maybe pushing things forward a little bit

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Speaker 1: more quickly. I think they will be data dependent, John,

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Speaker 1: I I understand the parlor game of taper in rate

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Speaker 1: rise and Matt Lozettie on with Deutsche Bank, and they're

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Speaker 1: July ish. Now I should say on on some form

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Speaker 1: of rate move. But John, to me, it's a boom

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Speaker 1: American economy. Frankly, the comments of Dana Telsea on the

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Speaker 1: American consumer are just as important as Matt l Zati

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Speaker 1: of Deutsche Bank. So what extent though, Lisa, right now?

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Speaker 1: Are they date to dependent? Are they going back to

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Speaker 1: being forecast dependent? Because everything I hear from them is

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Speaker 1: about the future. In the future, this will happen if

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Speaker 1: we were truly data dependent and we were looking at

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Speaker 1: the data right now we'd be saying things are stickier,

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Speaker 1: they're broader, and maybe we were really quite wrong about

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Speaker 1: our forecast of what would happen with inflation through the year,

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Speaker 1: and the employment market perhaps is a bit hotter than

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Speaker 1: we previously previously expected. You raise a really good point, John,

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Speaker 1: the idea that FED Vice chair Rich Clarida basically talked

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Speaker 1: Friday about accelerating the taper and we did not see

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Speaker 1: any real material reaction in markets, and I was surprised

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Speaker 1: by that. Today you raise the point people dismiss that

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Speaker 1: is not necessarily being as relevant with leadership. Well, now

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Speaker 1: all of a sudden that has becomes a much more

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Speaker 1: real conversation, doesn't it If you just chune again front

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Speaker 1: audience worldwide on TV and radio, tell m Kane, we

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Speaker 1: have a decision from the President of the United States

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Speaker 1: to nominate Chairman pal to a second term as FED.

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Speaker 1: Yet we all knew this was coming. They came to

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Speaker 1: me a couple of weeks ago and they said, who

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Speaker 1: do you want to speak to? And I said, there's

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Speaker 1: only one voice that matters, and that is Alan Blinder,

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Speaker 1: Princeton University. In the former vice chair, Alan Blinder. It

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Speaker 1: was a different time, a different place. You know more

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Speaker 1: than anyone on the planet what it's like when a

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Speaker 1: chairman and a vice chairman don't get along. You and

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Speaker 1: Chairman Greenspan collegiately battled at your time at the FED.

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Speaker 1: That's not the case. Now, How will this vice chair

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Speaker 1: assist this chairman? Well, I think perfectly as she has

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Speaker 1: been as from her seat as governor. You know, it's

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Speaker 1: the same table. She'll have a new title, a better,

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Speaker 1: uh higher title. But on monetary policies, I think Johnathan

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Speaker 1: said a few moments ago, there's been no distance between

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Speaker 1: the two of them. This is pure either way. If

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Speaker 1: Layle Brainer has become a chair, there'll be no discontinuity

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Speaker 1: and monetary policy. And there certainly is not going to

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Speaker 1: be any conflict on monetary policy between share Power and

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Speaker 1: Vice Chair Brainer. If there's any disagreement uh, and there

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Speaker 1: probably will be, it'll be on regulatory uh policy. By

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Speaker 1: the way, That's the way it was mostly between Greenspan

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Speaker 1: and myself way back in each history. Explain now that

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Speaker 1: the rules have changed on the linkage of a monetary

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Speaker 1: and fiscal policy, what the voice will be for this

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Speaker 1: new team is this nation tackles trillions of dollars of

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Speaker 1: new debt. Well, you know, the Federal Reserve. This comes

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Speaker 1: back to your taper a question that the three of

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Speaker 1: you were just talking about. The Federal Reserve have been

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Speaker 1: buying quite a bit of the newly issued debt, which

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Speaker 1: smooths the way obviously for issuance of large amounts of

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Speaker 1: federal debt. That's going to continue, but at a diministrate

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Speaker 1: and I actually joined, I'm part of the school of

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Speaker 1: thought that says they ought to be tapering faster. But

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Speaker 1: let's remember, tapering does not mean withdrawing. It just means

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Speaker 1: easing off the gas pedal. Uh. And that's why I

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Speaker 1: think it's an appropriate thing for the FED to be

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Speaker 1: doing uh right now. You know, there are these vaguest

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Speaker 1: hints the Clarida discussion was just mentioned that the FED

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Speaker 1: is thinking in that way also, we'll see, but I

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Speaker 1: think they should and I don't see that coming back

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Speaker 1: to your previous question as a point of contention between

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Speaker 1: Powell and Brainer at all. I just want to bring

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Speaker 1: you some newsly, so just very quickly, one twenty Eastern time,

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Speaker 1: we will hear from the President of Nada States Lay

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Speaker 1: will also hear from the air and the Vice Chair,

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Speaker 1: the nominations for both Chairman Powell and Governor Brain It

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Speaker 1: also delivering remarks a little bit later. That's one twenty

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Speaker 1: Eastern time, So we're here from all three perhaps a

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Speaker 1: little bit later, and in the meantime, certain comments are

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Speaker 1: already rolling in from the leadership of the Senate. We

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Speaker 1: do get us. Senator Shared Brown, chair of the Sudding

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Speaker 1: Committee on Banking, Housing, and Urban Affairs, coming out and

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Speaker 1: seeming to endorse FED Chair j Powell, saying that he

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Speaker 1: led our economy through a historic pandemic and under his

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Speaker 1: and President Biden's leadership, unemployment has fallen and workers are

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Speaker 1: seeing increased bargaining power. Alan, when we look forward, what

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Speaker 1: is the biggest risk in your view for the Federal

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Speaker 1: Reserve moving too quickly or waiting too long to raise rates.

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Speaker 1: I think it's probably waiting too long, but I can

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Speaker 1: understand the way I thought you were good leading up

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Speaker 1: to a slighting through it question. I'm just gonna say,

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Speaker 1: I think the biggest risk that the FED. It's weighing

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Speaker 1: on the FED right now is whether we're going to

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Speaker 1: get on another wave of COVID infections coming over from Europe,

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Speaker 1: as has happened several times in the past. If that happens,

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Speaker 1: we're gonna get kicked down the staircase again, and we're

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Speaker 1: gonna be looking at the first to help us get up.

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Speaker 1: And I think that's the main reason why, uh, they're

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Speaker 1: not anxious to lift off interest rates. That's slightly separate

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Speaker 1: question from the taper. The taper is pressing on the

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Speaker 1: gas pedal out at a time when it's really not appropriate.

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Speaker 1: The liftoff is when you start tapping the brakes uh

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Speaker 1: a bit. They're not ready to do that, and I

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Speaker 1: think this big risk of the disease is a major

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Speaker 1: reason for that. Alan. Given what we've heard from Germany

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Speaker 1: this morning and from Europe over the last couple of weeks,

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Speaker 1: I think a lot of people might agree with you.

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Speaker 1: Tom Let's just frame the president's next twenty four hours.

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Speaker 1: Just think about this. We're expecting some comments from the

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Speaker 1: president tomorrow about lowering prices, and today he's going to

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Speaker 1: stand alongside Chapel a governor Brainer to talk about what

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Speaker 1: exactly the future stable prices, lower prices. You put those

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Speaker 1: two to two events, togetha and something. They're pretty interested gotten.

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Speaker 1: They got into the Thanksgiving holiday, Oh it's a dynamics.

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Speaker 1: It's just simply John the into the holidays. I'll take

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Speaker 1: your point in this, John, but what I see here

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Speaker 1: as all new inequality is is well, I mean, there's

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Speaker 1: the halves and the have nots. There's a partition, John Farrell,

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Speaker 1: within our society, and that's what they have to confront.

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Speaker 1: Mike McKay once twenty Eastern time, we'll get some comments

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Speaker 1: from the President of the United States on this, and

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Speaker 1: we're here from Sham and Pound and Governor Bran. Mike,

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Speaker 1: what are you looking for from those comments? A little

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Speaker 1: bit late to this afternoon. It's kind of interesting because

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Speaker 1: the President has already scheduled a talk on the economy

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Speaker 1: and inflation for tomorrow, so I'm not sure how much

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Speaker 1: he wants to step on that, but apparently he does

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Speaker 1: want to introduce his two new leaders for the FED,

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Speaker 1: and we'll probably talk about inflation. That is the key

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Speaker 1: element in the statement the White House put out, the

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Speaker 1: President is quoted as saying that he ciates the focus

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Speaker 1: of Chair Powell and Leo Brainerd on inflation and on jobs,

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Speaker 1: on full employment, putting inflation as his first priority. So

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Speaker 1: one can assume he's going to try to deal with

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Speaker 1: that both today and tomorrow. I wouldn't expect a whole

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Speaker 1: lot from J. Powell and Leo Brainerd as nominees. You

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Speaker 1: don't want to get out ahead of the Senate. You

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Speaker 1: want to save anything that could end up being a

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Speaker 1: controversial comment until then, Uh, they'll thank him and say

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Speaker 1: there here to help the economy move forward. I see

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Speaker 1: now Alan Blinder still where there's the former vice chairman

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Speaker 1: of the Federal Reserve and at Princeton Allen. There was

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Speaker 1: a point long agoing far away where a Federal Reserve

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Speaker 1: chairman was contained. Not only Chairman Paul, but others have

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Speaker 1: changed that rule book for the time of green Span.

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Speaker 1: Blinder is, well, how will the second term of power

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Speaker 1: be different? How does he cast the day to day,

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Speaker 1: the press conference to press conference differently? Reappointed, I think

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Speaker 1: that's completely dependent on the state of the economy right now.

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Speaker 1: As several of you have just correctly said, inflation is

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Speaker 1: popping up as the main problem facing the FED, which

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Speaker 1: hasn't been true for years, like maybe maybe I should

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Speaker 1: say decades. I mean, it's been a long time since

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Speaker 1: the FED chair or the f m S more broadly,

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Speaker 1: is really concerned about high inflation, but now they are,

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Speaker 1: and so I think for that reason alone, you'll see

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Speaker 1: a different tone of rhetoric coming out over the coming months,

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Speaker 1: and eventually everybody's guessing when a lift off on interest

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Speaker 1: rates to try to slow things down a bit and

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Speaker 1: counter the inflationary search. That guessing getting continues this morning

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Speaker 1: with your two year, your five year, the yields on

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Speaker 1: both at the highs. From off the back of this decision,

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Speaker 1: some comments from Secretary yelling the former Fed share of course,

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Speaker 1: saying she's pleased with pal brain and nominations. It will

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Speaker 1: can ten you to support a strong federal reserve. Kathy

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Speaker 1: Jones a schwab stool with us. Kathy, thanks for staying

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Speaker 1: patient at stand close. I want to bring him into

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Speaker 1: the conversation again. We will hear it once went from

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Speaker 1: all three, from the President, from the chair and from

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Speaker 1: the would be vice chair. Let's see how the nominations

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Speaker 1: goes and how that works out down in d C.

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Speaker 1: But when you hear from Governor Brandon the chairman Pound

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Speaker 1: a little bit later, canthy just walk me through your

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Speaker 1: thoughts on this what you're looking for specifically, after we

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Speaker 1: just heard on Friday from Governor brainerd from Governor Waller

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Speaker 1: rather and vice chair clarity that maybe we should think

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Speaker 1: about going quicker. Yeah. I think the emphasis, to the

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Speaker 1: extent that they get into policy discussions at all, will

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Speaker 1: be on the inflation problem that's currently front and center

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Speaker 1: right now. We know that Powell has been pretty darvish,

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Speaker 1: as has Brainard, but I think that because of the

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Speaker 1: optics of this and inflation being the big concern for

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Speaker 1: not only the FAT but for the administration, that that's

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Speaker 1: where we're going to hear the probably the most interesting comments.

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Speaker 1: I don't know that the Paul's going to tip his

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Speaker 1: hand and talk about timing of liftoff or changing and

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Speaker 1: tapering or any of those details, but I think the

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Speaker 1: emphasis will likely be on the FED is very much

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Speaker 1: aware of the inflation threat in front of us and

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Speaker 1: wants to balance that against allowing for a full recovery

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Speaker 1: in the economy. Cathy, how difficult will it be for

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Speaker 1: FED Chair J Powell and Leo Brainard, the the announced

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Speaker 1: potential vice chair, to come out and remain independent and

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Speaker 1: portray a deeply independent streak as President Biden talks extensively

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Speaker 1: about the need to control inflation. Yeah, I don't I

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Speaker 1: don't see that as a huge problem. Um. You know,

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Speaker 1: I think that people will read their comments the way

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Speaker 1: they want to read them, from a political perspective. But

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Speaker 1: keep in mind Brainard has been at the FED for many,

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Speaker 1: many years. Powell now has several years under his Belvist chair. Um.

430
00:22:54,720 --> 00:22:57,240
Speaker 1: I think that they can point to their policy moves

431
00:22:58,040 --> 00:23:03,840
Speaker 1: pre Biden administration as um as underscoring their independence, their

432
00:23:03,880 --> 00:23:07,879
Speaker 1: ability to work through one administration and one political regime

433
00:23:08,000 --> 00:23:11,080
Speaker 1: or another. Kathy, what about the dual mandate here of

434
00:23:11,160 --> 00:23:14,880
Speaker 1: inflation and full employment, which takes precedence as we head

435
00:23:14,880 --> 00:23:17,600
Speaker 1: into next year, Given the fact that so much emphasis

436
00:23:17,600 --> 00:23:20,639
Speaker 1: has been placed on Leo Brainard putting more of a

437
00:23:20,680 --> 00:23:25,440
Speaker 1: focus unemployment than share Powell, Yeah, I would say. I

438
00:23:25,480 --> 00:23:29,800
Speaker 1: would say Paul has also put a big focus on employment.

439
00:23:29,960 --> 00:23:33,040
Speaker 1: He has been fully on board with the idea of

440
00:23:33,119 --> 00:23:36,800
Speaker 1: a broad and inclusive job market. Obviously, it's going to

441
00:23:36,880 --> 00:23:40,159
Speaker 1: be a very, very difficult task because we're in a

442
00:23:40,400 --> 00:23:44,960
Speaker 1: very unusual circumstance right now, with inflation popping up but

443
00:23:45,119 --> 00:23:48,080
Speaker 1: still having you know, significant number of people not back

444
00:23:48,119 --> 00:23:50,919
Speaker 1: at work and wages rising. But I think the shift

445
00:23:50,960 --> 00:23:53,960
Speaker 1: now will be towards inflation and less so on the

446
00:23:54,040 --> 00:23:56,359
Speaker 1: job market. Do a couple of things this morning. Work

447
00:23:56,359 --> 00:23:58,680
Speaker 1: count the reaction in the price section in the markets,

448
00:23:58,680 --> 00:24:00,680
Speaker 1: and then work out the reaction down and Washington d C.

449
00:24:01,119 --> 00:24:04,040
Speaker 1: The reaction in the markets is pretty clear. Yields up

450
00:24:04,040 --> 00:24:06,040
Speaker 1: at the front end by six basis points. Now for

451
00:24:06,080 --> 00:24:08,520
Speaker 1: a two year yield, a six basis point move, that's

452
00:24:08,520 --> 00:24:12,040
Speaker 1: a pretty sizable move back towards fifty seven, approaching sixty

453
00:24:12,080 --> 00:24:14,320
Speaker 1: as two year yield start to Winshire. You get some

454
00:24:14,359 --> 00:24:17,440
Speaker 1: dollar strength coming through the Dollar INDEXX at ninety sixty

455
00:24:17,520 --> 00:24:19,960
Speaker 1: two by four tents of one percent. That's a stronger

456
00:24:20,040 --> 00:24:23,320
Speaker 1: dollar erectory market hanging in there, up seventeen points, advancing

457
00:24:23,320 --> 00:24:25,360
Speaker 1: a third of one percent on the nastag of four

458
00:24:25,400 --> 00:24:27,359
Speaker 1: tents of one percent. So that's how we're set up

459
00:24:27,400 --> 00:24:28,960
Speaker 1: in the price action in the markets. Off the back

460
00:24:29,000 --> 00:24:31,200
Speaker 1: of this decision, here's a statement from the President of

461
00:24:31,200 --> 00:24:34,960
Speaker 1: the United States. American needs steady, independent and effective leadership

462
00:24:34,960 --> 00:24:37,320
Speaker 1: at the Federal Reserve. That's why I will nominate Jerome

463
00:24:37,400 --> 00:24:40,040
Speaker 1: Power for a second chair second term as Chair of

464
00:24:40,080 --> 00:24:42,639
Speaker 1: the Board of Governors of the Federal Reserve System and

465
00:24:42,720 --> 00:24:45,280
Speaker 1: Dr Lele Brainerd to serve as Vice chair of the

466
00:24:45,320 --> 00:24:47,560
Speaker 1: Board of Governors. There is a ton of reaction in

467
00:24:47,640 --> 00:24:50,000
Speaker 1: DC off the back of this, want to bring in

468
00:24:50,040 --> 00:24:53,080
Speaker 1: a Washington corresponded down in Washington and Marie Hordern and

469
00:24:53,160 --> 00:24:55,479
Speaker 1: Marie we talked about this now for weeks. A lot

470
00:24:55,520 --> 00:24:57,560
Speaker 1: of people put our statements ahead of time, saying this

471
00:24:57,600 --> 00:24:59,800
Speaker 1: is who I want to support, this is who I'm against.

472
00:24:59,800 --> 00:25:01,960
Speaker 1: What for the reaction of the last twenty five minutes

473
00:25:02,040 --> 00:25:05,320
Speaker 1: or side. Well, first, let's point to the reaction of

474
00:25:05,359 --> 00:25:08,840
Speaker 1: the Treasury Secretary Janet Yellen, a former chair herself. Remember

475
00:25:08,840 --> 00:25:11,040
Speaker 1: in the summer she had said to the President, I

476
00:25:11,080 --> 00:25:13,720
Speaker 1: think you should continue with the second term for FED

477
00:25:13,840 --> 00:25:18,640
Speaker 1: Chair Powell, and she is right now congratulating them. She's

478
00:25:18,680 --> 00:25:21,760
Speaker 1: also grateful, she says that the President nominated Dr Brainard

479
00:25:21,800 --> 00:25:24,160
Speaker 1: to serve as vice chair, saying that she's a respected

480
00:25:24,160 --> 00:25:27,880
Speaker 1: economist with years of experience and instrumental in the nation's recovery.

481
00:25:28,200 --> 00:25:30,920
Speaker 1: So Yellen has her pick. And I always thought it

482
00:25:30,960 --> 00:25:33,399
Speaker 1: would be very interesting if the President was to go

483
00:25:33,440 --> 00:25:36,000
Speaker 1: against his own Treasury pick in terms of who he's

484
00:25:36,040 --> 00:25:38,320
Speaker 1: going to renominate. And then we heard from Shared Brown

485
00:25:38,640 --> 00:25:41,760
Speaker 1: on the renomination of Powell for FED and it looks

486
00:25:41,840 --> 00:25:43,720
Speaker 1: like what he is saying is that this is going

487
00:25:43,760 --> 00:25:47,240
Speaker 1: to be a pretty simple confirmation process. Remember, he is

488
00:25:47,280 --> 00:25:50,000
Speaker 1: the first line of defense, and that hearing that's going

489
00:25:50,040 --> 00:25:52,440
Speaker 1: to happen in order to get the president's picks through,

490
00:25:52,680 --> 00:25:54,560
Speaker 1: and he's saying he's looking forward to working with both

491
00:25:54,560 --> 00:25:56,240
Speaker 1: these individuals. And Marie, what do you make of the

492
00:25:56,240 --> 00:26:00,000
Speaker 1: fact that independent was mentioned extensively by pretty much every

493
00:26:00,040 --> 00:26:04,200
Speaker 1: recomment that's come out of the Biden administration and beyond. Basically,

494
00:26:04,240 --> 00:26:07,240
Speaker 1: this is the takeaway at a time when inflation is

495
00:26:07,280 --> 00:26:10,480
Speaker 1: so much on the forefront of the political agenda. Yeah,

496
00:26:10,560 --> 00:26:12,719
Speaker 1: two points. The first is gonna be on inflation. We

497
00:26:12,760 --> 00:26:15,200
Speaker 1: have heard the president time and time again when he's

498
00:26:15,200 --> 00:26:18,360
Speaker 1: touting his economic agenda. It's no longer about the social

499
00:26:18,400 --> 00:26:21,240
Speaker 1: programs or the bridges. It is about the fact that

500
00:26:21,359 --> 00:26:24,199
Speaker 1: his economic agenda is going to clamp down inflation. You

501
00:26:24,200 --> 00:26:26,840
Speaker 1: look at the latest CBS poll when the s of

502
00:26:26,880 --> 00:26:29,679
Speaker 1: Americans think the economy isn't doing well because of inflation.

503
00:26:30,080 --> 00:26:32,520
Speaker 1: So he wants to make sure that he is remaining

504
00:26:32,840 --> 00:26:35,719
Speaker 1: at the middle of this recovery, that there is continuity

505
00:26:35,720 --> 00:26:37,679
Speaker 1: at the FED and they're not going to be questioned

506
00:26:37,920 --> 00:26:41,359
Speaker 1: about what happens with inflation, because he kept the same

507
00:26:41,400 --> 00:26:43,840
Speaker 1: horse in the race too, so, so to speak, if

508
00:26:43,840 --> 00:26:47,080
Speaker 1: he were to pick elevate brain Art and inflation does

509
00:26:47,200 --> 00:26:50,399
Speaker 1: run extremely hot, potentially Biden down the road could have

510
00:26:50,440 --> 00:26:53,439
Speaker 1: been um a bashed for that. The second thing, of course,

511
00:26:53,480 --> 00:26:56,840
Speaker 1: is that his predecessor decided to take a different stand.

512
00:26:56,880 --> 00:27:00,680
Speaker 1: Since the fifties, for the most part, president it's continued

513
00:27:00,720 --> 00:27:03,240
Speaker 1: regardless of whether or not his Republican or Democrat that

514
00:27:03,320 --> 00:27:07,680
Speaker 1: was the chair. They continued with maintaining that continuity at

515
00:27:07,720 --> 00:27:10,280
Speaker 1: the Fed. And he's likely trying to point out that

516
00:27:10,359 --> 00:27:13,360
Speaker 1: even though Jerome Powell is a known Republican, he has

517
00:27:13,400 --> 00:27:17,960
Speaker 1: bipartisan support and that he wants to maintain that tradition

518
00:27:18,440 --> 00:27:21,120
Speaker 1: when new presidents come in of keeping the FED chair

519
00:27:21,160 --> 00:27:24,000
Speaker 1: at the top spot again though a not of progressives,

520
00:27:24,000 --> 00:27:27,040
Speaker 1: because there is an elevation for Dr Brainard h Emory

521
00:27:27,080 --> 00:27:30,120
Speaker 1: Horder in Washington. We're going to continue here, Michael McKee

522
00:27:30,119 --> 00:27:32,240
Speaker 1: with us of course, with all of his experience in

523
00:27:32,240 --> 00:27:36,000
Speaker 1: international economics, Michael McKee, how will this be greeted abroad?

524
00:27:36,000 --> 00:27:39,080
Speaker 1: There's such a set of different challenges for banks. Does

525
00:27:39,119 --> 00:27:42,520
Speaker 1: the emerging market structure that is so challenged right now.

526
00:27:42,760 --> 00:27:45,879
Speaker 1: Do they need a chairman Powell? I wouldn't put it

527
00:27:45,920 --> 00:27:47,960
Speaker 1: as a needed chairman Powell, but it will help them

528
00:27:47,960 --> 00:27:50,639
Speaker 1: to have continuity because they know what to expect. Always

529
00:27:50,680 --> 00:27:53,920
Speaker 1: better to know what you're dealing with instead of trying

530
00:27:53,960 --> 00:27:56,760
Speaker 1: to figure out how somebody is going to behave going forward.

531
00:27:56,760 --> 00:27:59,679
Speaker 1: And in this case, Um, the US dollar is going

532
00:27:59,720 --> 00:28:02,240
Speaker 1: to a strong in the US is going to aid

533
00:28:02,320 --> 00:28:05,400
Speaker 1: as strong as the economy. So emerging markets situation isn't

534
00:28:05,440 --> 00:28:08,960
Speaker 1: gonna change. And John, this is critical inequities, in bonds,

535
00:28:09,000 --> 00:28:12,240
Speaker 1: in commodities. Guess what the story this morning is the

536
00:28:12,280 --> 00:28:14,560
Speaker 1: dollar reaction? Yeah, if the back of this move at

537
00:28:14,560 --> 00:28:16,080
Speaker 1: the front end, tell him, I just can't get away

538
00:28:16,080 --> 00:28:18,600
Speaker 1: from it. Mike McKay, a six basis point move on

539
00:28:18,640 --> 00:28:22,080
Speaker 1: a two year that's hard to ignore, approaches sixty basis

540
00:28:22,080 --> 00:28:24,520
Speaker 1: points at about fifty seven. What you'll read on that, Mike,

541
00:28:24,640 --> 00:28:26,560
Speaker 1: that lift at the front end, off the back of

542
00:28:26,600 --> 00:28:29,679
Speaker 1: this decision eight minutes ago. Well, if I had an

543
00:28:29,720 --> 00:28:31,480
Speaker 1: accurate read, I'd be a very wealthy man and I

544
00:28:31,480 --> 00:28:34,920
Speaker 1: wouldn't be here. But my guests, looking at what's happening

545
00:28:34,920 --> 00:28:38,320
Speaker 1: and looking at the notes from people that Basically, it's

546
00:28:38,360 --> 00:28:40,760
Speaker 1: sort of a relief trade of people who think that

547
00:28:40,920 --> 00:28:44,520
Speaker 1: Powell is a little bit more hawkish than Brainerd and

548
00:28:44,560 --> 00:28:47,520
Speaker 1: the continuity will keep the FED going. And with the

549
00:28:47,560 --> 00:28:50,800
Speaker 1: talk of speeding up taper, all those things kind of

550
00:28:50,840 --> 00:28:54,280
Speaker 1: combined into one and people who were holding back have

551
00:28:54,440 --> 00:28:56,920
Speaker 1: now done a little bit of a trade. I'm wondering though,

552
00:28:56,960 --> 00:28:59,640
Speaker 1: how long it lasts. It may be someone with knee jerk.

553
00:28:59,760 --> 00:29:03,960
Speaker 1: And remember, we get a whole bunch of data on Wednesday,

554
00:29:04,000 --> 00:29:06,600
Speaker 1: ahead of the Thanksgiving holiday here in the United States,

555
00:29:06,600 --> 00:29:09,160
Speaker 1: and I suspect that will have a very big impact

556
00:29:09,200 --> 00:29:14,400
Speaker 1: on Yeah, hopefully I'll make that flight. Okay for anyone

557
00:29:14,440 --> 00:29:16,440
Speaker 1: just tuning in, there is someone that is paid to

558
00:29:16,480 --> 00:29:19,080
Speaker 1: do this far better than Mike McKee and I. It's

559
00:29:19,120 --> 00:29:22,120
Speaker 1: Bob Michael, a JP Morgan Asset Management, the CEO of

560
00:29:22,160 --> 00:29:24,600
Speaker 1: Global Fixed Income. Bob, let's just start with a move

561
00:29:24,640 --> 00:29:26,160
Speaker 1: in the bond market off the back of this decision.

562
00:29:26,240 --> 00:29:30,840
Speaker 1: Yields up, yield high up. Your response to yeah, I

563
00:29:30,880 --> 00:29:33,840
Speaker 1: think Mike McKee is right, this is a knee jerk reaction.

564
00:29:34,200 --> 00:29:38,040
Speaker 1: Pals been reappointed. I think the market is is. Assuming

565
00:29:38,160 --> 00:29:41,360
Speaker 1: we're on track for two rate hikes next year, but

566
00:29:41,680 --> 00:29:46,840
Speaker 1: overall fairly moderate FED going forward. What's the biggest knee

567
00:29:46,920 --> 00:29:49,680
Speaker 1: jerk reaction that you see as a miss pricing, Bob,

568
00:29:49,760 --> 00:29:52,320
Speaker 1: the idea of a five year going out to nearly

569
00:29:52,360 --> 00:29:55,680
Speaker 1: one point three percent, or the two year going out

570
00:29:55,760 --> 00:30:00,840
Speaker 1: and rising six basis points. You know, Lisa, I don't

571
00:30:00,840 --> 00:30:03,240
Speaker 1: really think there is a miss pricing here. I think

572
00:30:03,280 --> 00:30:07,560
Speaker 1: this is the central case that the markets expected, um

573
00:30:07,600 --> 00:30:10,479
Speaker 1: that Pal would be reappointed, you would have Brainard as

574
00:30:10,680 --> 00:30:13,800
Speaker 1: vice chair, You have a very devish package in there.

575
00:30:14,360 --> 00:30:16,160
Speaker 1: I think what you have to look at our risk

576
00:30:16,240 --> 00:30:19,720
Speaker 1: assets and that it is doing well. Equities obviously had

577
00:30:19,760 --> 00:30:22,200
Speaker 1: a nice bounce. You've got a FED in place for

578
00:30:22,280 --> 00:30:25,160
Speaker 1: the next several years that's going to be very patient

579
00:30:25,200 --> 00:30:28,160
Speaker 1: and finitive about normalizing at least as you get in

580
00:30:28,200 --> 00:30:30,320
Speaker 1: the open and found equities are heading in direction happing

581
00:30:30,400 --> 00:30:33,520
Speaker 1: for the you know, the reappointment equities are up. Equities

582
00:30:33,520 --> 00:30:35,240
Speaker 1: are up full tents of one percent even with that

583
00:30:35,360 --> 00:30:37,320
Speaker 1: movie lie. So in the bond market, in this prospect

584
00:30:37,360 --> 00:30:39,680
Speaker 1: of time of monagy policy, that's exactly where wanted to go.

585
00:30:39,760 --> 00:30:41,800
Speaker 1: Bob is is basically giving a green light to the

586
00:30:41,800 --> 00:30:43,960
Speaker 1: Federal Reserve to raise rates in the middle of next

587
00:30:44,040 --> 00:30:46,320
Speaker 1: year and followed up with another rate hike just as

588
00:30:46,360 --> 00:30:50,280
Speaker 1: the market seems to be pricing in well. I think

589
00:30:50,320 --> 00:30:53,520
Speaker 1: there's a lot to go between where we are today

590
00:30:53,760 --> 00:30:57,160
Speaker 1: and a year from now. I think certainly there hasn't

591
00:30:57,160 --> 00:31:00,840
Speaker 1: been a tremendous amount of pushback on rate hike or

592
00:31:00,880 --> 00:31:04,320
Speaker 1: two next year. UM. I wouldn't be surprised if there

593
00:31:04,360 --> 00:31:07,400
Speaker 1: was some sort of commitment from pal to the administration

594
00:31:07,800 --> 00:31:11,560
Speaker 1: to be very cautious about the normalizing process and be

595
00:31:11,680 --> 00:31:14,960
Speaker 1: sure that there are sufficient growth and inflationary pressure as

596
00:31:15,000 --> 00:31:18,400
Speaker 1: we're seeing them now. Will that continue for an entire year?

597
00:31:18,720 --> 00:31:21,680
Speaker 1: Sref they get through the tapering process and then start

598
00:31:21,720 --> 00:31:24,400
Speaker 1: to raise rates. We think so, but let's wait and see.

599
00:31:24,920 --> 00:31:27,840
Speaker 1: Michael J. Pem We're going to arguably the essay of

600
00:31:27,880 --> 00:31:31,000
Speaker 1: the weekend trying to game out our future on inflation

601
00:31:31,120 --> 00:31:33,480
Speaker 1: and what it comes down to for our viewers and listeners.

602
00:31:34,160 --> 00:31:37,280
Speaker 1: Is a tip point on the tenuere yield. Where in

603
00:31:37,320 --> 00:31:42,280
Speaker 1: your head is the critical level of tenure yield where

604
00:31:42,320 --> 00:31:48,360
Speaker 1: things change. I think north of two percent. I think

605
00:31:48,400 --> 00:31:52,160
Speaker 1: there's a lot of UM clear space between here and

606
00:31:52,200 --> 00:31:57,320
Speaker 1: two percent. I think the debate as we go into

607
00:31:57,520 --> 00:32:00,160
Speaker 1: will be how high can the FED get the at

608
00:32:00,160 --> 00:32:02,800
Speaker 1: funds rate and then the yield curve will start to

609
00:32:02,840 --> 00:32:06,640
Speaker 1: flatten out around there. Um two percent seems like a

610
00:32:06,720 --> 00:32:10,440
Speaker 1: pretty good stopping point built in a slight term premium

611
00:32:10,480 --> 00:32:12,640
Speaker 1: called the band two to two and a quarter percent.

612
00:32:13,080 --> 00:32:16,280
Speaker 1: I think we get there over the next several months.

613
00:32:16,480 --> 00:32:18,720
Speaker 1: Over the next several months, we had an important and

614
00:32:18,760 --> 00:32:22,720
Speaker 1: emotional point, what's the experience of JP Morgan on what

615
00:32:22,800 --> 00:32:26,000
Speaker 1: that will do to issuance, to the dynamics of the

616
00:32:26,040 --> 00:32:30,160
Speaker 1: market that we don't look at each and every day, Well,

617
00:32:30,520 --> 00:32:34,240
Speaker 1: you should see issuance continue to to come at a

618
00:32:34,320 --> 00:32:38,720
Speaker 1: very high rate. When we talk to borrowers, their cognizant

619
00:32:38,720 --> 00:32:42,840
Speaker 1: of the fact that growth and inflation are picking up,

620
00:32:43,040 --> 00:32:46,200
Speaker 1: that the FED will begin to lift rates, that their

621
00:32:46,240 --> 00:32:49,840
Speaker 1: funding rate will go up, So they're starting into put

622
00:32:49,880 --> 00:32:53,200
Speaker 1: in place additional amounts of long term funding at what

623
00:32:53,240 --> 00:32:57,320
Speaker 1: they feel are are secularly low rates. Well with Michael A.

624
00:32:57,400 --> 00:33:00,280
Speaker 1: JP Morgan as in management the CEO of or will

625
00:33:00,320 --> 00:33:02,440
Speaker 1: Fixed Income. Off the back of this decision from the

626
00:33:02,440 --> 00:33:04,600
Speaker 1: White House, the President of the United States to nominate

627
00:33:04,800 --> 00:33:07,040
Speaker 1: Chairman Power to a second term of the Federal Reserve

628
00:33:07,240 --> 00:33:10,200
Speaker 1: and alle a governor brain and potentially to FED Vice chair.

629
00:33:10,440 --> 00:33:12,640
Speaker 1: The reaction in the market is pretty clear. Yield tire

630
00:33:12,680 --> 00:33:14,520
Speaker 1: through the curve, particularly at the front end of the curve.

631
00:33:14,560 --> 00:33:17,240
Speaker 1: That means a stronger dollar, and this equity market open

632
00:33:17,560 --> 00:33:20,440
Speaker 1: by about advance and a half of one percent. If

633
00:33:20,480 --> 00:33:22,920
Speaker 1: you break down a sector price action, there is a

634
00:33:22,920 --> 00:33:26,080
Speaker 1: big tilt higher in the financials. The banks Lisa ripping

635
00:33:26,320 --> 00:33:28,360
Speaker 1: the financials up nine tents of one percent off the

636
00:33:28,360 --> 00:33:30,560
Speaker 1: back of this bond market move. And this really speaks

637
00:33:30,600 --> 00:33:33,760
Speaker 1: to the idea that banks hinge, particularly on that front

638
00:33:33,880 --> 00:33:36,800
Speaker 1: end rate that gives them more net interest income. What

639
00:33:37,040 --> 00:33:39,400
Speaker 1: is interesting if you look at the yield curve, it

640
00:33:39,520 --> 00:33:41,640
Speaker 1: is flattening. If you look at, for example, the gap

641
00:33:41,680 --> 00:33:44,280
Speaker 1: between five year and thirty year treasuries, it is actually

642
00:33:44,360 --> 00:33:48,320
Speaker 1: the narrowest it's been since March of so long term

643
00:33:48,360 --> 00:33:51,640
Speaker 1: this is perhaps a more dampening effect on longer term

644
00:33:51,640 --> 00:33:55,960
Speaker 1: inflation expectations and yields. But Michael, December, when the Federal

645
00:33:56,000 --> 00:33:58,080
Speaker 1: Reserve meets and we get a news conference, I've got

646
00:33:58,080 --> 00:34:00,440
Speaker 1: no idea when the hearings are what are you looking

647
00:34:00,440 --> 00:34:02,560
Speaker 1: for around that time at a time when the Fed

648
00:34:02,680 --> 00:34:07,160
Speaker 1: chair is looking to get confirmed for a second term. Well,

649
00:34:07,200 --> 00:34:09,799
Speaker 1: we've been talking about that, and and it looks as

650
00:34:09,840 --> 00:34:15,000
Speaker 1: though the reappointment process, since he's the current sitting FED chair,

651
00:34:15,400 --> 00:34:19,160
Speaker 1: could take no more than two months. I would expect

652
00:34:19,880 --> 00:34:24,360
Speaker 1: very devish rhetoric coming out of the Federal Reserve between

653
00:34:24,400 --> 00:34:29,400
Speaker 1: now and say mid January, until the reappointment has gone

654
00:34:29,440 --> 00:34:31,680
Speaker 1: through Congress. So, Bob, what do you think of that? Now?

655
00:34:31,680 --> 00:34:34,439
Speaker 1: With Vice Chair Clorida potentially just unleashed, you can say

656
00:34:34,440 --> 00:34:36,080
Speaker 1: whatever he wants to say. He made a move on

657
00:34:36,120 --> 00:34:38,160
Speaker 1: Friday to talk about maybe we need to discuss the

658
00:34:38,239 --> 00:34:40,399
Speaker 1: type of pace. Governor wall is already out there saying

659
00:34:40,440 --> 00:34:42,160
Speaker 1: the same thing. How do you bout that away in

660
00:34:42,160 --> 00:34:46,160
Speaker 1: the middle of December? Do you know what? I love

661
00:34:46,560 --> 00:34:49,839
Speaker 1: hearing to the former f O m C officials. They're

662
00:34:49,880 --> 00:34:55,200
Speaker 1: so candid and unlike anything we've seen when they've been sitting.

663
00:34:55,320 --> 00:34:58,400
Speaker 1: But you know what, it doesn't really matter. You have

664
00:34:59,600 --> 00:35:01,960
Speaker 1: a re a point of chair, you have a new

665
00:35:02,080 --> 00:35:06,279
Speaker 1: Vice chair um and the vote will coalesce around them

666
00:35:06,280 --> 00:35:10,919
Speaker 1: going forward. Do you think it compromises the December fifteenth decision? Well,

667
00:35:10,960 --> 00:35:12,800
Speaker 1: the way you see things right now, they're gonna have

668
00:35:12,800 --> 00:35:15,560
Speaker 1: a new set of forecasts a new dot plot. Those

669
00:35:15,600 --> 00:35:18,480
Speaker 1: forecasts have got to be adjusted for the incoming inflation data.

670
00:35:18,560 --> 00:35:23,160
Speaker 1: Do you think it compromises that meeting? UH. I don't

671
00:35:23,200 --> 00:35:26,160
Speaker 1: think it will. I think that the expectation for that

672
00:35:26,239 --> 00:35:29,120
Speaker 1: meeting all along has been Boy, we can't wait to

673
00:35:29,160 --> 00:35:31,719
Speaker 1: see the dot plot. I wonder where those will be.

674
00:35:32,360 --> 00:35:36,360
Speaker 1: But because they've just begun the tapering process, all the

675
00:35:36,400 --> 00:35:40,759
Speaker 1: commentary and rhetoric around it will still be somewhat divish that.

676
00:35:41,040 --> 00:35:44,359
Speaker 1: You know, things could still be transitory. They don't want

677
00:35:44,400 --> 00:35:48,600
Speaker 1: to rush into starting the rate hikes cycle. Those are

678
00:35:48,640 --> 00:35:51,960
Speaker 1: two distinct and separate things until a lot of the

679
00:35:52,040 --> 00:35:55,880
Speaker 1: lost unemployment has been recovered, extending beyond futures, John, what

680
00:35:56,040 --> 00:35:59,040
Speaker 1: I see here is SPX up seven points, now up

681
00:35:59,560 --> 00:36:02,440
Speaker 1: fifty x points, even the VIX coming in with a vengeance.

682
00:36:02,800 --> 00:36:05,400
Speaker 1: Michael McKee with us along with some wonderful guests to

683
00:36:05,440 --> 00:36:09,920
Speaker 1: comment the next man. It's Michael McKee. The market votes,

684
00:36:10,560 --> 00:36:13,040
Speaker 1: the market is voting, and as Lisa mentioned, an interesting

685
00:36:13,080 --> 00:36:17,240
Speaker 1: move for banks going higher. UH. That is probably because

686
00:36:17,320 --> 00:36:20,920
Speaker 1: lele Brader was not chosen as the vice chair for Supervision.

687
00:36:20,960 --> 00:36:23,920
Speaker 1: She was seen as a tough regulator on the banks.

688
00:36:24,480 --> 00:36:28,200
Speaker 1: Which means that the next three appointments that President Biden

689
00:36:28,320 --> 00:36:30,919
Speaker 1: still has to make could be quite important and could

690
00:36:31,000 --> 00:36:35,640
Speaker 1: be definitely h sort of assigned to the left wing

691
00:36:36,080 --> 00:36:39,360
Speaker 1: of his party that he is hearing their concerns, we

692
00:36:39,480 --> 00:36:42,759
Speaker 1: might actually get a tougher bank regulator. You look at

693
00:36:42,800 --> 00:36:45,239
Speaker 1: the nominee for the Controller of the Currency and you

694
00:36:45,280 --> 00:36:47,879
Speaker 1: think the Biden administration doesn't have any problem with being

695
00:36:47,880 --> 00:36:52,319
Speaker 1: tough on banks, So perhaps celebrating that too early might

696
00:36:52,400 --> 00:36:55,920
Speaker 1: be a mistake. Uh, Elizabeth Warren is probably going to

697
00:36:56,080 --> 00:36:59,600
Speaker 1: like whoever gets chosen as Vice Chair of Supervision and

698
00:37:00,000 --> 00:37:02,520
Speaker 1: to other seats. So the president still has three seats

699
00:37:02,520 --> 00:37:05,080
Speaker 1: and no indication of when we're going to see those. So, Mike,

700
00:37:05,160 --> 00:37:07,920
Speaker 1: looking at the banks in particular, there is this question

701
00:37:07,960 --> 00:37:12,200
Speaker 1: about the yield curve contracting and that typically being negative

702
00:37:12,239 --> 00:37:14,360
Speaker 1: for the banks. We are seeing that to some degree,

703
00:37:14,640 --> 00:37:17,359
Speaker 1: whereas a lot of their income does hinge on the

704
00:37:17,400 --> 00:37:20,799
Speaker 1: front end. Do you really think that the regulatory backdrop

705
00:37:21,040 --> 00:37:23,440
Speaker 1: is so material right now for the banks given the

706
00:37:23,440 --> 00:37:26,600
Speaker 1: Fed's role. Not at the moment, And as Bob was

707
00:37:26,680 --> 00:37:28,800
Speaker 1: just saying, I think a lot of the reaction we

708
00:37:28,840 --> 00:37:31,680
Speaker 1: see in the markets is knee jerk. The regulatory issues

709
00:37:31,719 --> 00:37:34,000
Speaker 1: will be more important as we go down the road,

710
00:37:34,040 --> 00:37:37,560
Speaker 1: but front and center for markets, both in fixed income

711
00:37:37,680 --> 00:37:40,880
Speaker 1: and equities and also in currencies is going to be

712
00:37:41,280 --> 00:37:43,960
Speaker 1: how soon the FED raises rates, how strong the US

713
00:37:44,040 --> 00:37:46,560
Speaker 1: economy is. And while the Fed may wait a while

714
00:37:46,640 --> 00:37:49,640
Speaker 1: to raise rates, the guessing game is already underway and

715
00:37:49,680 --> 00:37:52,040
Speaker 1: every piece of data is going to feed into that.

716
00:37:52,239 --> 00:37:55,680
Speaker 1: And higher rates at the long end, in a sense,

717
00:37:55,760 --> 00:38:00,719
Speaker 1: will be good for the banking system. But the cocominant

718
00:38:00,760 --> 00:38:03,040
Speaker 1: part of that is that if you have higher rates

719
00:38:03,040 --> 00:38:05,320
Speaker 1: and it slows down business, it may slow down lending.

720
00:38:05,960 --> 00:38:09,000
Speaker 1: So there there's some good and bad ahead for for

721
00:38:09,040 --> 00:38:11,120
Speaker 1: people who are trying to trade banks. Mike McKee on

722
00:38:11,120 --> 00:38:13,440
Speaker 1: the composition, the potential composition of this f O m

723
00:38:13,440 --> 00:38:16,200
Speaker 1: C a fantastic lineup through the next twenty minutes. We're

724
00:38:16,200 --> 00:38:18,960
Speaker 1: here from preamisra Eric Friedman. We're here from Danny blanche

725
00:38:18,960 --> 00:38:21,399
Speaker 1: flat To on this decision from this White House. I've

726
00:38:21,400 --> 00:38:23,759
Speaker 1: got one final question for Bob Michael JP Mark and

727
00:38:23,800 --> 00:38:26,160
Speaker 1: Asset Management. Bob, for the people just tuning in to

728
00:38:26,200 --> 00:38:27,680
Speaker 1: put you on the spot, if you had to bet

729
00:38:27,719 --> 00:38:32,120
Speaker 1: for next year, zero hikes one two, or more. Bob Michael,

730
00:38:32,120 --> 00:38:35,680
Speaker 1: what would you be going with right now? Two hikes

731
00:38:35,880 --> 00:38:40,000
Speaker 1: September and December? Bottom line, simple, easy, Bob Michael. Good

732
00:38:40,000 --> 00:38:42,320
Speaker 1: to catch up, sir. Thanks for logging on and catching

733
00:38:42,400 --> 00:38:44,960
Speaker 1: up with this very quickly after that decision. We appreciate it,

734
00:38:45,080 --> 00:38:48,600
Speaker 1: Bob Michael. There, JP Morgan Asset Management, Lisa, Bob Michael

735
00:38:48,880 --> 00:38:51,960
Speaker 1: looking for two? Yeah, well, market right now consensus is

736
00:38:52,000 --> 00:38:56,120
Speaker 1: for two questions, just as when July or June even

737
00:38:56,160 --> 00:38:58,960
Speaker 1: being potentially where it is. Honestly, how much discussion is

738
00:38:58,960 --> 00:39:02,520
Speaker 1: there about accelerating the taper, especially with a vice chair

739
00:39:02,680 --> 00:39:06,040
Speaker 1: Rich Clarida unleashed chairman Pound nominated for a second term

740
00:39:06,239 --> 00:39:08,320
Speaker 1: by this White House governor Brain had nominated to be

741
00:39:08,400 --> 00:39:12,000
Speaker 1: elevated from governor to FED vice chair, that decision coming

742
00:39:12,040 --> 00:39:14,600
Speaker 1: thirty eight minutes ago. Happy to say that joining us

743
00:39:14,600 --> 00:39:17,640
Speaker 1: now is pre a miser of TV securities preor yield

744
00:39:17,719 --> 00:39:20,920
Speaker 1: hire up five basis points on two's, four basis points

745
00:39:20,920 --> 00:39:22,840
Speaker 1: on tens. We faced just a little bit. Can I

746
00:39:22,840 --> 00:39:27,640
Speaker 1: get your early reaction to that decision from forty minutes ago? Sure? Thanks, John,

747
00:39:28,000 --> 00:39:31,759
Speaker 1: So yeah, I think the market was pricing in thirty

748
00:39:32,120 --> 00:39:34,840
Speaker 1: chance of Brainer's or if that's been taken down, I

749
00:39:34,840 --> 00:39:37,320
Speaker 1: think the market is putting higher rates in that front

750
00:39:37,400 --> 00:39:39,959
Speaker 1: end with the view that Governor brainer it was likely

751
00:39:40,000 --> 00:39:43,399
Speaker 1: to be more dubbish, was more likely to be ideologically

752
00:39:43,440 --> 00:39:46,160
Speaker 1: waiting for the labor market to recover fully. So I

753
00:39:46,160 --> 00:39:48,520
Speaker 1: think the market is pricing in that. You know, I

754
00:39:48,560 --> 00:39:52,600
Speaker 1: think the idea that there will be continuity but power

755
00:39:52,719 --> 00:39:55,479
Speaker 1: might be stepping away from this idea that the labor

756
00:39:55,520 --> 00:39:58,560
Speaker 1: market needs to fully heal. But I will flag that

757
00:39:58,600 --> 00:40:01,440
Speaker 1: the stalk around accelerator deeper. And let's see from the minutes,

758
00:40:01,600 --> 00:40:03,400
Speaker 1: I think it's way too early for the Fed to

759
00:40:03,440 --> 00:40:06,080
Speaker 1: be talking about accelerating taper. Maybe we see that in

760
00:40:06,120 --> 00:40:08,920
Speaker 1: the minute. I think that's also playing into this, because

761
00:40:09,320 --> 00:40:12,160
Speaker 1: the accelerat taper, they can hike much sooner. The market

762
00:40:12,200 --> 00:40:14,239
Speaker 1: now is pricing in the first hike in June of

763
00:40:14,280 --> 00:40:17,239
Speaker 1: twenty two. So that tells you that it's the combination

764
00:40:17,360 --> 00:40:20,640
Speaker 1: off I think Jap I'll getting renominated plas. Now you

765
00:40:20,680 --> 00:40:24,000
Speaker 1: have three Fed officials talking about an accelerating tapers. It's

766
00:40:24,000 --> 00:40:27,719
Speaker 1: a combination of the two. Jean Bava with a Bank

767
00:40:27,760 --> 00:40:30,640
Speaker 1: of Canada and now at black Rock and really truly

768
00:40:30,680 --> 00:40:34,160
Speaker 1: a first rate economic mind out of Princeton with Blinder,

769
00:40:34,200 --> 00:40:38,880
Speaker 1: I should say, and Jean Bova says, we're getting this wrong.

770
00:40:39,040 --> 00:40:43,959
Speaker 1: It's not an inflation watch, it's an employment watch. Your

771
00:40:44,080 --> 00:40:47,480
Speaker 1: call is on the edge. You are the outlier call

772
00:40:47,640 --> 00:40:53,680
Speaker 1: preamsra fold in the unemployment and wage growth dynamics to

773
00:40:53,800 --> 00:40:56,240
Speaker 1: your call that this is a FED that will wait

774
00:40:56,560 --> 00:41:01,200
Speaker 1: and wait. Right, So, our economists do have the FED

775
00:41:01,280 --> 00:41:04,960
Speaker 1: not hiking until well into two thousand twenty three, largely

776
00:41:05,000 --> 00:41:08,000
Speaker 1: because of that labor market point, because we do expect

777
00:41:08,160 --> 00:41:11,080
Speaker 1: people to over time there are frictions in the labor market,

778
00:41:11,120 --> 00:41:13,239
Speaker 1: and so it hasn't happened so far, but through the

779
00:41:13,320 --> 00:41:15,760
Speaker 1: course of next day to people for people to return

780
00:41:15,840 --> 00:41:18,200
Speaker 1: to the labor market, and that's going to put download

781
00:41:18,200 --> 00:41:22,320
Speaker 1: pressure on wage inflation. And ultimately we think that CPI

782
00:41:22,719 --> 00:41:26,840
Speaker 1: or pc SO inflation numbers are not sustained if you

783
00:41:26,880 --> 00:41:29,600
Speaker 1: don't have wage inflation, because you know ultimately it's going

784
00:41:29,640 --> 00:41:32,279
Speaker 1: to hurt growth and and and and consumption when when

785
00:41:32,280 --> 00:41:35,719
Speaker 1: that purchasing power um is not there. So I do

786
00:41:35,800 --> 00:41:37,920
Speaker 1: think it's it's it's about the labor market. And if

787
00:41:37,920 --> 00:41:40,320
Speaker 1: we see a fiscal drag next year, we see people

788
00:41:40,320 --> 00:41:43,120
Speaker 1: coming back. So there's this hidden slack in the labor

789
00:41:43,160 --> 00:41:45,839
Speaker 1: market that starts to show up. Then the FED will

790
00:41:45,920 --> 00:41:48,120
Speaker 1: I think be vindicated in or at least those on

791
00:41:48,200 --> 00:41:50,520
Speaker 1: the FED who are arguing to let it run hot

792
00:41:50,800 --> 00:41:53,160
Speaker 1: will be vindicated in the fact that inflation is likely

793
00:41:53,200 --> 00:41:55,879
Speaker 1: to come off and there's no urgency for the Fed

794
00:41:55,920 --> 00:41:58,160
Speaker 1: to hike, but it is going to come down, yes

795
00:41:58,200 --> 00:42:00,920
Speaker 1: to to that labor market. Do we see people return

796
00:42:01,200 --> 00:42:04,600
Speaker 1: or COVID such a structural shock to the system that

797
00:42:04,719 --> 00:42:07,839
Speaker 1: people have left permanently. I think that's really the big

798
00:42:07,920 --> 00:42:13,399
Speaker 1: question for the next six months. All in all, your

799
00:42:13,440 --> 00:42:18,759
Speaker 1: call again is just you're just incredibly against what's going

800
00:42:18,840 --> 00:42:21,280
Speaker 1: on now, the calls that are out there, the worries

801
00:42:21,400 --> 00:42:24,520
Speaker 1: is John gamed out tapering and rate rises and such.

802
00:42:25,200 --> 00:42:28,560
Speaker 1: What do they miss estimate? What is the thing in

803
00:42:28,640 --> 00:42:32,840
Speaker 1: this November the time of outlooks. What is consensus most

804
00:42:32,880 --> 00:42:37,200
Speaker 1: getting wrong? I think it's the so that the couple

805
00:42:37,239 --> 00:42:40,080
Speaker 1: of things, it's an idea that the FED is under

806
00:42:40,080 --> 00:42:43,200
Speaker 1: pressure on the inflation front that they won't be able

807
00:42:43,239 --> 00:42:46,440
Speaker 1: to withstand months, you know, month after month of high

808
00:42:46,520 --> 00:42:51,120
Speaker 1: inflation prints. And this is where I'd say the new

809
00:42:51,120 --> 00:42:54,279
Speaker 1: FED officials coming in or or governor brainer as the

810
00:42:54,320 --> 00:42:57,680
Speaker 1: new vice chair. Assuming all these get confirmed, I think

811
00:42:57,719 --> 00:43:00,239
Speaker 1: that's going to be important. Can they withstand that show?

812
00:43:00,760 --> 00:43:03,120
Speaker 1: And even if power might be taking a tiny step

813
00:43:03,160 --> 00:43:06,200
Speaker 1: back saying, you know, maybe we need to reassess policy

814
00:43:06,280 --> 00:43:08,680
Speaker 1: or we need to be humble, I think so so

815
00:43:08,680 --> 00:43:12,240
Speaker 1: so the market. Maybe some may be misinterpretting how quickly

816
00:43:12,280 --> 00:43:14,920
Speaker 1: the FED caves under inflation. I think that's part of it.

817
00:43:15,200 --> 00:43:17,400
Speaker 1: And part of it is fiscal drag. I think the

818
00:43:17,440 --> 00:43:20,359
Speaker 1: assumption is that the high savings of the consumer will

819
00:43:20,400 --> 00:43:23,239
Speaker 1: be enough to offset fiscal drag. But when we look

820
00:43:23,280 --> 00:43:25,880
Speaker 1: at the composition of savings, much of the savings is

821
00:43:25,920 --> 00:43:28,480
Speaker 1: actually the top one percent, And so you know, when

822
00:43:28,480 --> 00:43:30,880
Speaker 1: the fiscal drag is felt by the rest of the economy,

823
00:43:30,960 --> 00:43:33,040
Speaker 1: we think it's going to impact growth. It's going to

824
00:43:33,080 --> 00:43:38,000
Speaker 1: impact that goods to service consumption shift that everyone's looking for.

825
00:43:38,360 --> 00:43:40,839
Speaker 1: And savings may not be enough, and maybe people want

826
00:43:40,880 --> 00:43:43,360
Speaker 1: precautionary savings because we're in a world where there's a

827
00:43:43,360 --> 00:43:47,680
Speaker 1: lot of uncertainty out there, so that might be misunderstood

828
00:43:47,680 --> 00:43:50,080
Speaker 1: as well. Always always feel lucky to catch up with you,

829
00:43:50,120 --> 00:43:52,080
Speaker 1: particularly this morning off the back of this decision. Prayer

830
00:43:52,080 --> 00:43:54,040
Speaker 1: miss or that of TV Securities. As we learned that

831
00:43:54,080 --> 00:43:56,160
Speaker 1: the president of your noted size is nominating Chairman Power

832
00:43:56,160 --> 00:43:58,120
Speaker 1: for a second term at the top of effect and

833
00:43:58,160 --> 00:44:00,640
Speaker 1: looking to Allifi, Governor Brian from Government of Vice Chair

834
00:44:00,840 --> 00:44:03,000
Speaker 1: of the Federal Reserve, and that decision coming about forty

835
00:44:03,000 --> 00:44:05,840
Speaker 1: three minutes ago. You will hear from all three potentially

836
00:44:05,840 --> 00:44:07,520
Speaker 1: at once twenty eastern time. When we hear from the

837
00:44:07,520 --> 00:44:09,040
Speaker 1: President of the United States, get that one of the

838
00:44:09,080 --> 00:44:11,959
Speaker 1: diary one twenty eastern the President of the United States,

839
00:44:12,040 --> 00:44:15,520
Speaker 1: Chairman Pale, Governor Brained once twenty eastern. Tide will take

840
00:44:15,520 --> 00:44:18,080
Speaker 1: that in full. On bloom Blog, TV and radio. We

841
00:44:18,200 --> 00:44:20,200
Speaker 1: talked a lot Tom about this move in upon market.

842
00:44:20,239 --> 00:44:22,200
Speaker 1: Let's talk about a move in the equity market. All

843
00:44:22,239 --> 00:44:25,399
Speaker 1: time highs on the SMP, record highs on the Nastack John,

844
00:44:25,520 --> 00:44:28,200
Speaker 1: the Nastic one hundred is a great story. The three

845
00:44:28,280 --> 00:44:31,200
Speaker 1: of US un surveillance twelve months ago. We're listening to

846
00:44:31,280 --> 00:44:34,840
Speaker 1: the death of technology. John Galub of Credit Squeeze really

847
00:44:35,000 --> 00:44:38,560
Speaker 1: encourageously pushed against that. But John, I'll tell you Dow

848
00:44:38,719 --> 00:44:44,040
Speaker 1: up se maybe Boeing and does Standard and Poors up. John,

849
00:44:44,040 --> 00:44:47,040
Speaker 1: I wasn't aware till this morning. Year to date, nast

850
00:44:47,080 --> 00:44:51,520
Speaker 1: deck one hundred is outpacing the standard of purse. That's

851
00:44:51,520 --> 00:44:54,799
Speaker 1: a vote for technology and growth is a massive move.

852
00:44:54,880 --> 00:44:56,480
Speaker 1: Tommy right to point it out, and please to say

853
00:44:56,480 --> 00:44:58,680
Speaker 1: that joining us now, it's Eric Friedman, the chief investment

854
00:44:58,680 --> 00:45:01,479
Speaker 1: officer at the US Bank Cassette Management Erik. At times

855
00:45:01,560 --> 00:45:05,040
Speaker 1: like this, it's difficult to distinguish between a knee jack reaction,

856
00:45:05,080 --> 00:45:07,600
Speaker 1: a move that might not last five minutes, and a

857
00:45:07,640 --> 00:45:09,359
Speaker 1: move that might be a little bit more durable. How

858
00:45:09,400 --> 00:45:10,920
Speaker 1: do you do that on a morning like this morning?

859
00:45:11,040 --> 00:45:14,160
Speaker 1: Eric hit Jonathan Goomring, thanks so much for having me on.

860
00:45:14,320 --> 00:45:16,440
Speaker 1: I think your your point is as well taken. I

861
00:45:16,480 --> 00:45:19,200
Speaker 1: would say that some of the movement in both the

862
00:45:19,239 --> 00:45:23,319
Speaker 1: financial sector plus small caps this morning is a reverse able.

863
00:45:23,360 --> 00:45:25,960
Speaker 1: We saw the past let's call it six seven trading sessions,

864
00:45:26,080 --> 00:45:28,080
Speaker 1: those were the spots of the market that were really

865
00:45:28,680 --> 00:45:31,840
Speaker 1: under relative pressure. And and so I think that part

866
00:45:31,840 --> 00:45:34,800
Speaker 1: of today's uh, let's let's call it the side of relief,

867
00:45:34,840 --> 00:45:37,880
Speaker 1: if you will, from the reopening trade is the idea

868
00:45:37,920 --> 00:45:40,759
Speaker 1: that we will have some continuity. So I would say

869
00:45:40,800 --> 00:45:44,600
Speaker 1: that our viewpoint remains the glass is half full. Clearly

870
00:45:44,800 --> 00:45:46,719
Speaker 1: this is a FED that's not going to be as

871
00:45:46,800 --> 00:45:50,040
Speaker 1: much transition as markets perhaps thought as early I should

872
00:45:50,040 --> 00:45:52,480
Speaker 1: say as late as as Friday Saturday of this weekend.

873
00:45:52,520 --> 00:45:56,959
Speaker 1: So Brainard was was certainly viewed as as a transitional pick.

874
00:45:57,480 --> 00:46:00,120
Speaker 1: And perhaps what this means, Jonathan, is that this is

875
00:46:00,200 --> 00:46:03,160
Speaker 1: the administration saying, you know what, let's let's keep an

876
00:46:03,160 --> 00:46:05,879
Speaker 1: an oilve branch if you will, towards the other side

877
00:46:05,920 --> 00:46:09,200
Speaker 1: of the aisle, and having a know, a continuity with

878
00:46:09,200 --> 00:46:11,759
Speaker 1: which are Powell. We of course had mid terms of

879
00:46:11,760 --> 00:46:13,880
Speaker 1: which are less than that less than twelve months away,

880
00:46:13,960 --> 00:46:15,879
Speaker 1: so so continuity is really the word of the data.

881
00:46:15,960 --> 00:46:19,160
Speaker 1: We still think this continues that that class half full

882
00:46:19,200 --> 00:46:21,680
Speaker 1: mentality we've been we've been talking about with clients. Erica.

883
00:46:21,760 --> 00:46:25,200
Speaker 1: Jim Bianco of Bianco Research messages in pointing out that

884
00:46:25,239 --> 00:46:28,160
Speaker 1: the market now has three full rate hikes priced end

885
00:46:28,239 --> 00:46:31,040
Speaker 1: for all of next year, beginning in June with a

886
00:46:31,120 --> 00:46:33,960
Speaker 1: seventy nine chance of a rate hike and then going

887
00:46:34,000 --> 00:46:36,879
Speaker 1: on from there even May has a significant probability put

888
00:46:36,880 --> 00:46:40,560
Speaker 1: around it. What would happen in equities if this rates

889
00:46:40,600 --> 00:46:45,160
Speaker 1: market is correct? I think, Lisa, it's it's something that

890
00:46:45,280 --> 00:46:48,279
Speaker 1: we look at June as probably being that that transitional

891
00:46:48,360 --> 00:46:50,600
Speaker 1: busk do We think that May is probably a bit early,

892
00:46:50,840 --> 00:46:52,880
Speaker 1: and you've done a great job as a team covering

893
00:46:52,920 --> 00:46:56,600
Speaker 1: the tapering dynamics. So for us, it's really more about

894
00:46:56,600 --> 00:47:00,279
Speaker 1: the terminal level. And I'm just again so enthusis asked

895
00:47:00,400 --> 00:47:04,480
Speaker 1: listen to Tom's consistent message about terminal cash flow discounting. So,

896
00:47:04,719 --> 00:47:07,440
Speaker 1: in other words, if the market is wrong and that

897
00:47:07,560 --> 00:47:10,799
Speaker 1: that terminal rate is going to be higher than one

898
00:47:10,840 --> 00:47:14,200
Speaker 1: point five one point seven, that's a that's an equity

899
00:47:14,239 --> 00:47:16,480
Speaker 1: market that has to read price lower. So for us,

900
00:47:16,560 --> 00:47:21,279
Speaker 1: we think that the the initial wave of of lift off,

901
00:47:21,320 --> 00:47:24,080
Speaker 1: if you will, that can be whether it's it's June,

902
00:47:24,160 --> 00:47:27,040
Speaker 1: whether that's the July twenty seven meeting, those are those

903
00:47:27,080 --> 00:47:29,160
Speaker 1: are okay in the marketshiest, But I think that what

904
00:47:29,160 --> 00:47:32,080
Speaker 1: would be a really really challenging outcome for markets least

905
00:47:32,200 --> 00:47:35,440
Speaker 1: would be if the Fed starts talking up a higher

906
00:47:35,640 --> 00:47:38,120
Speaker 1: terminal rate that's not priced in right now, right now,

907
00:47:38,200 --> 00:47:40,239
Speaker 1: What kind of data would we need to see with

908
00:47:40,320 --> 00:47:42,799
Speaker 1: the Fed need to say to start to move up

909
00:47:42,920 --> 00:47:46,399
Speaker 1: or signal that that ultimate Fed funds rate would end

910
00:47:46,400 --> 00:47:49,920
Speaker 1: at a much higher rate than the market's expecting at

911
00:47:49,960 --> 00:47:53,439
Speaker 1: leasta with the with the pal driven FED employment data

912
00:47:53,520 --> 00:47:55,359
Speaker 1: is going to be just mission critical. He has gone

913
00:47:55,360 --> 00:47:57,799
Speaker 1: out of his way to signal that that is a

914
00:47:58,640 --> 00:48:01,279
Speaker 1: that's that's the marketis Pink most close attention to. So

915
00:48:01,360 --> 00:48:04,120
Speaker 1: if we see labor force participation pick up, if we

916
00:48:04,200 --> 00:48:07,400
Speaker 1: see people move away from the sine lines and actually

917
00:48:07,520 --> 00:48:09,800
Speaker 1: into the market, but also, I didn't the jobs market,

918
00:48:10,160 --> 00:48:14,200
Speaker 1: but then also into a more wide spread set of jobs,

919
00:48:14,480 --> 00:48:16,560
Speaker 1: that would be the critical level that we think would

920
00:48:16,560 --> 00:48:19,560
Speaker 1: be the signal if you will that that share. Powell says,

921
00:48:19,600 --> 00:48:21,440
Speaker 1: you know what we we we thought the market, the

922
00:48:21,480 --> 00:48:24,000
Speaker 1: labor market would be stubborn. They're not, and we may

923
00:48:24,040 --> 00:48:26,200
Speaker 1: have to raise it rates faster as well as higher.

924
00:48:26,360 --> 00:48:28,760
Speaker 1: Eric Friedman, thank you so much for joining us this morning.

925
00:48:28,800 --> 00:48:32,840
Speaker 1: Greatly appreciate it as well. Joining us now from Dartmouth College.

926
00:48:32,880 --> 00:48:34,799
Speaker 1: Of course, a gentleman was set with the Bank of

927
00:48:34,800 --> 00:48:38,680
Speaker 1: England and is definitive on our monetary theory, our employment

928
00:48:38,920 --> 00:48:42,640
Speaker 1: and our wages. David blanche Flower joins us this morning.

929
00:48:42,680 --> 00:48:45,600
Speaker 1: Professor blanche Flower, thank you so much. What just comes

930
00:48:45,600 --> 00:48:48,760
Speaker 1: down to Jean Bevan, you know of the Bank of Canada,

931
00:48:48,880 --> 00:48:51,400
Speaker 1: uh and I believe a team that lost to Dartmouth

932
00:48:51,400 --> 00:48:54,399
Speaker 1: and Ivy League football this weekend from Princeton as well,

933
00:48:54,960 --> 00:48:58,440
Speaker 1: Jean Bevan made very clear this is about jobs. That

934
00:48:58,640 --> 00:49:02,840
Speaker 1: is your wheelhouse. Should Sherman Powell and vice Chairman Brainerd

935
00:49:03,080 --> 00:49:07,600
Speaker 1: should they fear wage growth? No, I don't think they

936
00:49:07,640 --> 00:49:10,080
Speaker 1: should fear it. I mean we've seen so little wage

937
00:49:10,120 --> 00:49:12,839
Speaker 1: growth in the last fifty years, so I don't think

938
00:49:12,840 --> 00:49:15,000
Speaker 1: they should fear it. But I've listened to all the

939
00:49:15,040 --> 00:49:18,040
Speaker 1: commentary going on. I think these these appointments makes sense.

940
00:49:18,600 --> 00:49:21,040
Speaker 1: I think Powell has said something which I really agree

941
00:49:21,080 --> 00:49:24,000
Speaker 1: with and everyone seems to admit, which is the faedest

942
00:49:24,000 --> 00:49:27,160
Speaker 1: sitting waiting and watching and could move in either direction.

943
00:49:27,200 --> 00:49:28,759
Speaker 1: And I think much of what I've been listening to

944
00:49:28,920 --> 00:49:32,920
Speaker 1: is getnomic. It really depends upon how this economy moves,

945
00:49:33,239 --> 00:49:36,920
Speaker 1: what long run changes in behavior there are, and what

946
00:49:37,080 --> 00:49:40,319
Speaker 1: happens to the virus and cases are rising. So I

947
00:49:40,360 --> 00:49:43,000
Speaker 1: think the answer is that the market's got well ahead

948
00:49:43,000 --> 00:49:44,959
Speaker 1: of it stuff, just as it did at the Bank

949
00:49:45,000 --> 00:49:48,360
Speaker 1: of England, and we'll see what happens to adjustments in

950
00:49:48,360 --> 00:49:51,040
Speaker 1: the labor market. I mean people have been retiring, people

951
00:49:51,080 --> 00:49:53,239
Speaker 1: have been leaving, and part of it I think is

952
00:49:53,280 --> 00:49:57,080
Speaker 1: temporary because of the virus. Obviously when people's four are

953
00:49:57,080 --> 00:50:00,200
Speaker 1: one case have risen. But we really don't know or

954
00:50:00,200 --> 00:50:02,719
Speaker 1: what these market reactions are going to be, especially in

955
00:50:02,760 --> 00:50:05,879
Speaker 1: the labor market. Do I think the market entire got

956
00:50:05,880 --> 00:50:09,120
Speaker 1: ahead of itself. It really depends on what's coming. I

957
00:50:09,120 --> 00:50:11,439
Speaker 1: mean I understand that you know, if this then the

958
00:50:11,560 --> 00:50:14,279
Speaker 1: answer comes. But bank presidents coming out saying, you know,

959
00:50:14,360 --> 00:50:18,040
Speaker 1: we should be tightening the three rate rises coming or

960
00:50:18,080 --> 00:50:20,600
Speaker 1: that's for the birth. I mean we have always got

961
00:50:20,600 --> 00:50:21,799
Speaker 1: to do with that. You know what it was like

962
00:50:21,840 --> 00:50:23,680
Speaker 1: in the Bank of England for you forgive me, Danny,

963
00:50:23,680 --> 00:50:25,080
Speaker 1: because we have to keep it pretty sure. And what

964
00:50:25,120 --> 00:50:27,040
Speaker 1: we'll do is we'll rebook you and have a longer conversation.

965
00:50:27,080 --> 00:50:29,120
Speaker 1: But just to find a word on this, how do

966
00:50:29,239 --> 00:50:32,359
Speaker 1: you remain patient? How do you communicate this that you're

967
00:50:32,360 --> 00:50:35,000
Speaker 1: willing to wait with inflation with the six handles? How

968
00:50:35,000 --> 00:50:37,080
Speaker 1: would you do that? How would you guide it? I

969
00:50:37,120 --> 00:50:41,840
Speaker 1: would say that we have seen recent rises in inflation.

970
00:50:42,239 --> 00:50:45,280
Speaker 1: It's not that Fed's job to respond to every single month.

971
00:50:45,320 --> 00:50:48,719
Speaker 1: The question is what happens eighteen months ahead, and we

972
00:50:48,760 --> 00:50:50,600
Speaker 1: don't exactly know that we're going to sit and wait

973
00:50:50,600 --> 00:50:53,000
Speaker 1: and see if this pattern repeats itself. And I think

974
00:50:53,080 --> 00:50:55,239
Speaker 1: Power has really been spot on where he kind of

975
00:50:55,280 --> 00:50:58,680
Speaker 1: pushed against we're just raising were he said, there's possibilities

976
00:50:58,680 --> 00:51:00,640
Speaker 1: in the other direction. So I think the answer is

977
00:51:00,800 --> 00:51:03,759
Speaker 1: the quick question, is this stuff going to get repeated

978
00:51:04,040 --> 00:51:06,240
Speaker 1: and are we going to see rises in two thousand

979
00:51:06,280 --> 00:51:08,440
Speaker 1: and twenties. If we do, then you have to respond.

980
00:51:08,560 --> 00:51:10,040
Speaker 1: But if you don't at all, the price of the

981
00:51:10,040 --> 00:51:13,200
Speaker 1: phone in the world, container index is falling and the

982
00:51:13,239 --> 00:51:16,960
Speaker 1: Baltic dry is falling. If those things continue the path,

983
00:51:17,040 --> 00:51:18,879
Speaker 1: it will be very different to what the market says.

984
00:51:18,880 --> 00:51:22,320
Speaker 1: And remember markets got a completely wrong in o as well.

985
00:51:22,560 --> 00:51:24,879
Speaker 1: Danny always appreciate catching up with you. I know you've

986
00:51:24,880 --> 00:51:26,319
Speaker 1: got to tie schedule as one of this morning, So

987
00:51:26,360 --> 00:51:28,960
Speaker 1: thank you, sir, Danny Blanche f there down. This is

988
00:51:29,000 --> 00:51:32,960
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live

989
00:51:33,160 --> 00:51:36,920
Speaker 1: weekdays from seven to ten am Eastern I'm Bloomberg Radio

990
00:51:37,120 --> 00:51:40,719
Speaker 1: and on Bloomberg Television each day from six to nine

991
00:51:40,800 --> 00:51:45,160
Speaker 1: am for insight from the best in economics, finance, investment,

992
00:51:45,360 --> 00:51:50,360
Speaker 1: and international relations. And subscribe to the Surveillance Podcast on

993
00:51:50,480 --> 00:51:54,279
Speaker 1: Apple podcast, SoundCloud, bloomberg dot com and of course on

994
00:51:54,400 --> 00:51:58,520
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg