Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jayleie. We bring you
Speaker 1: insight from the best and economics, finance, investment and international relations.
Speaker 1: Find Bloomberg Surveillance and Apple podcast, Suncloud, Bloomberg dot Com
Speaker 1: and of course, on the Bloomberg Terminal from New York
Speaker 1: City for our audience worldwide. Good morning, Good morning, breaking news.
Speaker 1: The President of the United States to nominate Chairman Powe
Speaker 1: to a second term as FED Chair, to nominate Governor
Speaker 1: Brainerd as FED Vice chair. That news coming from the
Speaker 1: White House in the last few seconds. That news this morning,
Speaker 1: the President of the United States to nominate Chairman Power
Speaker 1: to a second term as the FED Chair. From New
Speaker 1: York City alongside Tom Keene, Lisa Brown It's son Jonathan Faroll.
Speaker 1: Your reconly market at four tents of one percent. Tom
Speaker 1: Keane the chairman getting a second term, least he's been
Speaker 1: nominated for one. This one goes to the hearings. The
Speaker 1: market looks like it likes it, up fifteen and futures
Speaker 1: now up twenty. John still moving higher in the yield
Speaker 1: was from a one fifty six and change after one
Speaker 1: zero five at Lisa, it's a split, the president nominating
Speaker 1: chairman power to a second term Brainard governor Brainard nominated
Speaker 1: as FED Vice chair. Yeah. The idea here going with
Speaker 1: the status quo in the sense of trying to have continuity.
Speaker 1: One of the most perilous times, some people would say
Speaker 1: for FED policy possibly in history, based on how low
Speaker 1: rates are and how high inflation is. This is about
Speaker 1: two things, Tom Kane, continuity one and confirm ability too.
Speaker 1: We can talk about continuity at an important inflection point
Speaker 1: for monetery policy, we need to talk about confirm ability
Speaker 1: as well, perhaps that shaping the decision down in Washington.
Speaker 1: Sco point John here, and we're gonna have a wonderful
Speaker 1: set of guests. S are we welcome all of you
Speaker 1: on Bloomberg Radio and Bloomberg Television the special Hour of
Speaker 1: Bloomberg Surveillance. What Michael McKee and I know there's been
Speaker 1: other times where we've had to reappoint ointments, maybe without
Speaker 1: that focus. I went back and looked at Bush Greenspan
Speaker 1: the fourth or fifth time, and it wasn't really that
Speaker 1: big a deal. Why is this a big deal, Michael
Speaker 1: McKee at this time. Well, we've gone into a different
Speaker 1: kind of world tom in terms of monetary policy, things
Speaker 1: that Alan Greenspan never had to contend with, never had
Speaker 1: to consider, with the quantitative easing, with quantitative UH tightening,
Speaker 1: with all the things that the FED has done to
Speaker 1: expand its balance sheet, the zero bound UH. There's a
Speaker 1: lot going on for the FED, and it has become
Speaker 1: front and center in the United States, and as people
Speaker 1: have decided, the Federal Reserve is the economic savior for
Speaker 1: the country also the economic whipping boy. J Paal gets
Speaker 1: to play both roles in this case. Let's talk about
Speaker 1: this bond market move as will guys up five basis
Speaker 1: points on a two year up about four basis points
Speaker 1: on tens, one fifty nine on tents. Right now, what's
Speaker 1: about fifty six basis points on twos? Mike, we can
Speaker 1: talk about confirmability in a moment. I want to talk
Speaker 1: about continuity and for this Federal Reserve chair staring down
Speaker 1: some data that is incompatible with an argument he's made
Speaker 1: through much of this year, and his vice chair, Rich
Speaker 1: Clarada now said to be replaced Governor Waller, both of
Speaker 1: them making a move in the last week to talk
Speaker 1: about accelerating the taper. When we think about the first
Speaker 1: job of this chairman before we even see if he
Speaker 1: gets confirmed for a second term, walk me through the
Speaker 1: complexities of that for the next couple of months. Well,
Speaker 1: when the FED announced that it was going to start tapering,
Speaker 1: it said it would have fifteen billion dollar a month
Speaker 1: taper for November and December, but did not put any
Speaker 1: numbers on January going forward, leaving themselves some room to
Speaker 1: try to uh, to have the ability to change. And
Speaker 1: it does look like they're getting set for a change
Speaker 1: now as we're hearing from more and more members of
Speaker 1: the FED. Rich Clarida will be on the board for
Speaker 1: the December fifteen meeting, and so we could expect the
Speaker 1: Fed maybe to start raising, maybe raise the amount that
Speaker 1: it cuts the buying by on and that then would
Speaker 1: be a reason you would see maybe the markets moving
Speaker 1: a little bit because they figured that j. Powell is
Speaker 1: going to be much more on board than that than
Speaker 1: necessarily Lele Brainard would have been. One of the conundrums
Speaker 1: heading into next year is the dual mandate, the idea
Speaker 1: of trying to combat runaway inflation or even higher inflation
Speaker 1: than they'd like. While allowing employment to get to a
Speaker 1: fuller picture. What happens if you have one, say hi
Speaker 1: inflation without the other, and how does the distinction of
Speaker 1: a power versus a brainerd FED weigh in on this. Well,
Speaker 1: what the Fed has said is they will look at
Speaker 1: both of the mandates and they will basically do risk
Speaker 1: management on whichever one seems to be the worst. Their
Speaker 1: focus is on trying to get unemployment down. But if
Speaker 1: inflation starts to become more of a hazard and unemployment
Speaker 1: doesn't look like it's going to immediately drop, then they
Speaker 1: would attack unemployment. They're hoping in this case that unemployment
Speaker 1: is to use the t word transitory, it will take
Speaker 1: longer to disappear uh inflation, but it will start to
Speaker 1: fall back. And that's the general consensus on Wall Street
Speaker 1: as well. In that case, they don't have to make
Speaker 1: a decision between the two, but tapering faster gets them
Speaker 1: to the point where they can raise rates if they
Speaker 1: need to more quickly. If you are just tuning in
Speaker 1: from audience worldwide on TV and radio, the President of
Speaker 1: the United States nominating Chairman Power to a second term
Speaker 1: as the FED Chair, nominating Governor Brain It's FED Vice
Speaker 1: chair this all according to the White House. In the
Speaker 1: last couple of moments, let's get some market reaction for
Speaker 1: you from Kathy Jimes of Schwabs. She joins, does Kathy
Speaker 1: grant to catch up with you? Your first reaction please? Um?
Speaker 1: I think this is a don't rock the boat move. Um.
Speaker 1: It's it's consistent with you know, the long history at
Speaker 1: the FED. Usually FED chairs are renominated, and it looks
Speaker 1: like probably there was a thought at the White House
Speaker 1: that this fighting, a battle perhaps over brainard, was not
Speaker 1: worth not worth the fight worth having at this stage
Speaker 1: of the game. Kathy, let's talk about the move in
Speaker 1: this bond market and you'll four basis points pushing one
Speaker 1: sixty again. The more interesting move for me is pushing
Speaker 1: sixty basis points at the front end on two's up
Speaker 1: by five basis points to fifty six early days kneez
Speaker 1: joke reaction maybe, But Kathy, what's your initial response to
Speaker 1: seeing that kind of move off the back of this decision. Yeah,
Speaker 1: clearly the market is looking at the likelihood that the
Speaker 1: Fed will increase the rate of tapering and move up
Speaker 1: the timing of the first rate hike. Now that Powell
Speaker 1: has been renominated and you've kind of cleared the decks
Speaker 1: in terms of of policy, you know, decision making going forward.
Speaker 1: And I think that that's a reasonable expectation given some
Speaker 1: of the comments that we've heard from various officials and
Speaker 1: the fact that inflation has been higher and more persistent
Speaker 1: than expected. You know, the fab really shouldn't have any
Speaker 1: reason to be buying bonds at this stage of the game.
Speaker 1: It's not really contributing much and it could be doing
Speaker 1: some harm. So the faster they taper, the better news
Speaker 1: it is in terms of getting the inflation picture under control.
Speaker 1: Kathy Jones was u here right now and own blinder
Speaker 1: scheduled to be with us here in moments. Cathy, I
Speaker 1: look at the bond market, I look at all the
Speaker 1: uncertainties forward in what we see, without question is a
Speaker 1: wall of savings, of liquidity, A buoyant holiday season for
Speaker 1: the consumer. Is well, what does the Schwab call on
Speaker 1: the American consumer next year? The chairman Powell and vice
Speaker 1: chairman Brainer will confront. Now, we're pretty optimistic about the consumer.
Speaker 1: You know, there's high levels of savings, job market is
Speaker 1: is very strong, wages are rising, particularly for lower income workers.
Speaker 1: All those are really positive for the consumer. Obviously, it's
Speaker 1: going to be a something of a constraint of energy
Speaker 1: prices stay high, because that's a particular pain point for consumers.
Speaker 1: But by and large, consumers are in good shape, so
Speaker 1: we're looking for that to continue to drive the economy
Speaker 1: going forward. Cathy, stay close for the market action. You're
Speaker 1: two year yield this morning up by five basis points.
Speaker 1: When I head down to d C and catch up
Speaker 1: with Blimpox Emory A Donna Washington correspondent, Amory, this is
Speaker 1: also about confirm ability. Can these decisions actually be realized?
Speaker 1: Take a listen to that famous quote from Senator Warren
Speaker 1: in the last couple of months on what she thinks
Speaker 1: of this chairman. I can't support J. Powell for renomination.
Speaker 1: So my view is he ends his term, we put
Speaker 1: somebody else in place, and I think the fit is
Speaker 1: going to be better off, and I think our economy
Speaker 1: is going to be safer. Senator Warren. Emory called him
Speaker 1: a dangerous man, this president going against the wishes of
Speaker 1: some of these Democrats. Can you walk me through, just
Speaker 1: set the stage frame it for us what the next
Speaker 1: couple of months could look like trying to make this happen. Well,
Speaker 1: the progressives are certainly waking up, probably unhappy with this decision,
Speaker 1: like Senator Warren who did call J. Powell dangerous man.
Speaker 1: But also on Friday, Senator white House coming up with
Speaker 1: a statement as well they wanted a new pick at
Speaker 1: the top. But Jonathan, as you say, this is about
Speaker 1: being able to get through that Senate. Come for me.
Speaker 1: J Powell was confirmed eighty four to thirteen, and many
Speaker 1: of those people are still in the Senate that are
Speaker 1: going to be able to push forward. He has bipartisan support.
Speaker 1: Many credit him to being able to bring the U.
Speaker 1: S economy um out of the pandemic. And then you
Speaker 1: look at Brainarden. She received sixty one to thirty one.
Speaker 1: So you'd already see from their previous nominations and Senate
Speaker 1: confirmations that Governor Chair Powell had a much easier time
Speaker 1: in the Senate. So that's potentially part of the decision making. Also,
Speaker 1: he was able to remain with going with Chair Powell.
Speaker 1: He was able to have this continuity at the top
Speaker 1: of the Fed where his predecessor Trump decided to get
Speaker 1: rid of Janet Yellen and elevate Powell. Now, this is
Speaker 1: something that he likely is going to toot that he
Speaker 1: wanted to make sure that the FED remains independent. At
Speaker 1: the same time, he's giving a nod to the progressives
Speaker 1: by making sure Governor Brainard gets a top spot, and
Speaker 1: she is yeah. But in Marie d we have a
Speaker 1: sense of what the main hang up President Biden had
Speaker 1: with just renominating J. Powell, say a month or two ago.
Speaker 1: It's unclear, but potentially part of it is the fact
Speaker 1: that there's not just these positions. They have a number
Speaker 1: of other positions as well at the FED. So they're
Speaker 1: probably likely looking at how they would we work the
Speaker 1: FED to make it more diverse, to look a little
Speaker 1: bit more like America. That is something you've heard time
Speaker 1: and time again Democrats campaigned for, so potentially that was
Speaker 1: part of it. And then when you had these two
Speaker 1: top selections Brainard and Powell, then you started to hear
Speaker 1: and are reporting that you had senators wanting to sit
Speaker 1: down with each of them. And this is where the
Speaker 1: counting game probably came in for the White House to
Speaker 1: make sure that these two individuals can be confirmed. Emory
Speaker 1: down and Dasy a Wahington correspondent sticking with us through
Speaker 1: this morning on the back of this news, Tom Kane,
Speaker 1: let's build on the price section up at the front end,
Speaker 1: yield to Hime by five basis points. Clear read for
Speaker 1: the FX market, t K that dollar stronger, Well, the
Speaker 1: dollar stronger, and I think that's an immovable force here
Speaker 1: into the new year. John. I think you know everybody's
Speaker 1: doing the looks in that and know I'll readapt and
Speaker 1: adjust off of this. And there's this the confirmation process,
Speaker 1: and that John, the dollars, the global system. And it
Speaker 1: is a vote today for what President Biden did a
Speaker 1: nanty six handle on the d x Y the Bloomberg
Speaker 1: Dollar Index, Lisa, a broader read of that U S dollar.
Speaker 1: More broadly, it's stronger. The idea that if they raised
Speaker 1: reads that will end up leading to a money flight
Speaker 1: into the United States. I do wonder, though, is a
Speaker 1: chair by chair Powell excuse me, so much more hawkish
Speaker 1: than Leo Brainerd or is he going to have a
Speaker 1: rather dovish tilt as he tries to wait for the
Speaker 1: employment market to really pick up. Tom, As you think
Speaker 1: about the history of the Federal Reserve, I'm with Lisa.
Speaker 1: I just think on these two nominees, whether it would
Speaker 1: have been chairman Brainard or chairman Power for a second term.
Speaker 1: How much daylight was there between the two. What I
Speaker 1: think this opens the door too, is a much cleaner
Speaker 1: conversation about what took place on Friday off the back
Speaker 1: of those discussions about accelerating the tape, and now we
Speaker 1: can have a real conversation, not about a lane up
Speaker 1: chairman in December, but a conversation Tom about pushing things
Speaker 1: is forward and maybe pushing things forward a little bit
Speaker 1: more quickly. I think they will be data dependent, John,
Speaker 1: I I understand the parlor game of taper in rate
Speaker 1: rise and Matt Lozettie on with Deutsche Bank, and they're
Speaker 1: July ish. Now I should say on on some form
Speaker 1: of rate move. But John, to me, it's a boom
Speaker 1: American economy. Frankly, the comments of Dana Telsea on the
Speaker 1: American consumer are just as important as Matt l Zati
Speaker 1: of Deutsche Bank. So what extent though, Lisa, right now?
Speaker 1: Are they date to dependent? Are they going back to
Speaker 1: being forecast dependent? Because everything I hear from them is
Speaker 1: about the future. In the future, this will happen if
Speaker 1: we were truly data dependent and we were looking at
Speaker 1: the data right now we'd be saying things are stickier,
Speaker 1: they're broader, and maybe we were really quite wrong about
Speaker 1: our forecast of what would happen with inflation through the year,
Speaker 1: and the employment market perhaps is a bit hotter than
Speaker 1: we previously previously expected. You raise a really good point, John,
Speaker 1: the idea that FED Vice chair Rich Clarida basically talked
Speaker 1: Friday about accelerating the taper and we did not see
Speaker 1: any real material reaction in markets, and I was surprised
Speaker 1: by that. Today you raise the point people dismiss that
Speaker 1: is not necessarily being as relevant with leadership. Well, now
Speaker 1: all of a sudden that has becomes a much more
Speaker 1: real conversation, doesn't it If you just chune again front
Speaker 1: audience worldwide on TV and radio, tell m Kane, we
Speaker 1: have a decision from the President of the United States
Speaker 1: to nominate Chairman pal to a second term as FED.
Speaker 1: Yet we all knew this was coming. They came to
Speaker 1: me a couple of weeks ago and they said, who
Speaker 1: do you want to speak to? And I said, there's
Speaker 1: only one voice that matters, and that is Alan Blinder,
Speaker 1: Princeton University. In the former vice chair, Alan Blinder. It
Speaker 1: was a different time, a different place. You know more
Speaker 1: than anyone on the planet what it's like when a
Speaker 1: chairman and a vice chairman don't get along. You and
Speaker 1: Chairman Greenspan collegiately battled at your time at the FED.
Speaker 1: That's not the case. Now, How will this vice chair
Speaker 1: assist this chairman? Well, I think perfectly as she has
Speaker 1: been as from her seat as governor. You know, it's
Speaker 1: the same table. She'll have a new title, a better,
Speaker 1: uh higher title. But on monetary policies, I think Johnathan
Speaker 1: said a few moments ago, there's been no distance between
Speaker 1: the two of them. This is pure either way. If
Speaker 1: Layle Brainer has become a chair, there'll be no discontinuity
Speaker 1: and monetary policy. And there certainly is not going to
Speaker 1: be any conflict on monetary policy between share Power and
Speaker 1: Vice Chair Brainer. If there's any disagreement uh, and there
Speaker 1: probably will be, it'll be on regulatory uh policy. By
Speaker 1: the way, That's the way it was mostly between Greenspan
Speaker 1: and myself way back in each history. Explain now that
Speaker 1: the rules have changed on the linkage of a monetary
Speaker 1: and fiscal policy, what the voice will be for this
Speaker 1: new team is this nation tackles trillions of dollars of
Speaker 1: new debt. Well, you know, the Federal Reserve. This comes
Speaker 1: back to your taper a question that the three of
Speaker 1: you were just talking about. The Federal Reserve have been
Speaker 1: buying quite a bit of the newly issued debt, which
Speaker 1: smooths the way obviously for issuance of large amounts of
Speaker 1: federal debt. That's going to continue, but at a diministrate
Speaker 1: and I actually joined, I'm part of the school of
Speaker 1: thought that says they ought to be tapering faster. But
Speaker 1: let's remember, tapering does not mean withdrawing. It just means
Speaker 1: easing off the gas pedal. Uh. And that's why I
Speaker 1: think it's an appropriate thing for the FED to be
Speaker 1: doing uh right now. You know, there are these vaguest
Speaker 1: hints the Clarida discussion was just mentioned that the FED
Speaker 1: is thinking in that way also, we'll see, but I
Speaker 1: think they should and I don't see that coming back
Speaker 1: to your previous question as a point of contention between
Speaker 1: Powell and Brainer at all. I just want to bring
Speaker 1: you some newsly, so just very quickly, one twenty Eastern time,
Speaker 1: we will hear from the President of Nada States Lay
Speaker 1: will also hear from the air and the Vice Chair,
Speaker 1: the nominations for both Chairman Powell and Governor Brain It
Speaker 1: also delivering remarks a little bit later. That's one twenty
Speaker 1: Eastern time, So we're here from all three perhaps a
Speaker 1: little bit later, and in the meantime, certain comments are
Speaker 1: already rolling in from the leadership of the Senate. We
Speaker 1: do get us. Senator Shared Brown, chair of the Sudding
Speaker 1: Committee on Banking, Housing, and Urban Affairs, coming out and
Speaker 1: seeming to endorse FED Chair j Powell, saying that he
Speaker 1: led our economy through a historic pandemic and under his
Speaker 1: and President Biden's leadership, unemployment has fallen and workers are
Speaker 1: seeing increased bargaining power. Alan, when we look forward, what
Speaker 1: is the biggest risk in your view for the Federal
Speaker 1: Reserve moving too quickly or waiting too long to raise rates.
Speaker 1: I think it's probably waiting too long, but I can
Speaker 1: understand the way I thought you were good leading up
Speaker 1: to a slighting through it question. I'm just gonna say,
Speaker 1: I think the biggest risk that the FED. It's weighing
Speaker 1: on the FED right now is whether we're going to
Speaker 1: get on another wave of COVID infections coming over from Europe,
Speaker 1: as has happened several times in the past. If that happens,
Speaker 1: we're gonna get kicked down the staircase again, and we're
Speaker 1: gonna be looking at the first to help us get up.
Speaker 1: And I think that's the main reason why, uh, they're
Speaker 1: not anxious to lift off interest rates. That's slightly separate
Speaker 1: question from the taper. The taper is pressing on the
Speaker 1: gas pedal out at a time when it's really not appropriate.
Speaker 1: The liftoff is when you start tapping the brakes uh
Speaker 1: a bit. They're not ready to do that, and I
Speaker 1: think this big risk of the disease is a major
Speaker 1: reason for that. Alan. Given what we've heard from Germany
Speaker 1: this morning and from Europe over the last couple of weeks,
Speaker 1: I think a lot of people might agree with you.
Speaker 1: Tom Let's just frame the president's next twenty four hours.
Speaker 1: Just think about this. We're expecting some comments from the
Speaker 1: president tomorrow about lowering prices, and today he's going to
Speaker 1: stand alongside Chapel a governor Brainer to talk about what
Speaker 1: exactly the future stable prices, lower prices. You put those
Speaker 1: two to two events, togetha and something. They're pretty interested gotten.
Speaker 1: They got into the Thanksgiving holiday, Oh it's a dynamics.
Speaker 1: It's just simply John the into the holidays. I'll take
Speaker 1: your point in this, John, but what I see here
Speaker 1: as all new inequality is is well, I mean, there's
Speaker 1: the halves and the have nots. There's a partition, John Farrell,
Speaker 1: within our society, and that's what they have to confront.
Speaker 1: Mike McKay once twenty Eastern time, we'll get some comments
Speaker 1: from the President of the United States on this, and
Speaker 1: we're here from Sham and Pound and Governor Bran. Mike,
Speaker 1: what are you looking for from those comments? A little
Speaker 1: bit late to this afternoon. It's kind of interesting because
Speaker 1: the President has already scheduled a talk on the economy
Speaker 1: and inflation for tomorrow, so I'm not sure how much
Speaker 1: he wants to step on that, but apparently he does
Speaker 1: want to introduce his two new leaders for the FED,
Speaker 1: and we'll probably talk about inflation. That is the key
Speaker 1: element in the statement the White House put out, the
Speaker 1: President is quoted as saying that he ciates the focus
Speaker 1: of Chair Powell and Leo Brainerd on inflation and on jobs,
Speaker 1: on full employment, putting inflation as his first priority. So
Speaker 1: one can assume he's going to try to deal with
Speaker 1: that both today and tomorrow. I wouldn't expect a whole
Speaker 1: lot from J. Powell and Leo Brainerd as nominees. You
Speaker 1: don't want to get out ahead of the Senate. You
Speaker 1: want to save anything that could end up being a
Speaker 1: controversial comment until then, Uh, they'll thank him and say
Speaker 1: there here to help the economy move forward. I see
Speaker 1: now Alan Blinder still where there's the former vice chairman
Speaker 1: of the Federal Reserve and at Princeton Allen. There was
Speaker 1: a point long agoing far away where a Federal Reserve
Speaker 1: chairman was contained. Not only Chairman Paul, but others have
Speaker 1: changed that rule book for the time of green Span.
Speaker 1: Blinder is, well, how will the second term of power
Speaker 1: be different? How does he cast the day to day,
Speaker 1: the press conference to press conference differently? Reappointed, I think
Speaker 1: that's completely dependent on the state of the economy right now.
Speaker 1: As several of you have just correctly said, inflation is
Speaker 1: popping up as the main problem facing the FED, which
Speaker 1: hasn't been true for years, like maybe maybe I should
Speaker 1: say decades. I mean, it's been a long time since
Speaker 1: the FED chair or the f m S more broadly,
Speaker 1: is really concerned about high inflation, but now they are,
Speaker 1: and so I think for that reason alone, you'll see
Speaker 1: a different tone of rhetoric coming out over the coming months,
Speaker 1: and eventually everybody's guessing when a lift off on interest
Speaker 1: rates to try to slow things down a bit and
Speaker 1: counter the inflationary search. That guessing getting continues this morning
Speaker 1: with your two year, your five year, the yields on
Speaker 1: both at the highs. From off the back of this decision,
Speaker 1: some comments from Secretary yelling the former Fed share of course,
Speaker 1: saying she's pleased with pal brain and nominations. It will
Speaker 1: can ten you to support a strong federal reserve. Kathy
Speaker 1: Jones a schwab stool with us. Kathy, thanks for staying
Speaker 1: patient at stand close. I want to bring him into
Speaker 1: the conversation again. We will hear it once went from
Speaker 1: all three, from the President, from the chair and from
Speaker 1: the would be vice chair. Let's see how the nominations
Speaker 1: goes and how that works out down in d C.
Speaker 1: But when you hear from Governor Brandon the chairman Pound
Speaker 1: a little bit later, canthy just walk me through your
Speaker 1: thoughts on this what you're looking for specifically, after we
Speaker 1: just heard on Friday from Governor brainerd from Governor Waller
Speaker 1: rather and vice chair clarity that maybe we should think
Speaker 1: about going quicker. Yeah. I think the emphasis, to the
Speaker 1: extent that they get into policy discussions at all, will
Speaker 1: be on the inflation problem that's currently front and center
Speaker 1: right now. We know that Powell has been pretty darvish,
Speaker 1: as has Brainard, but I think that because of the
Speaker 1: optics of this and inflation being the big concern for
Speaker 1: not only the FAT but for the administration, that that's
Speaker 1: where we're going to hear the probably the most interesting comments.
Speaker 1: I don't know that the Paul's going to tip his
Speaker 1: hand and talk about timing of liftoff or changing and
Speaker 1: tapering or any of those details, but I think the
Speaker 1: emphasis will likely be on the FED is very much
Speaker 1: aware of the inflation threat in front of us and
Speaker 1: wants to balance that against allowing for a full recovery
Speaker 1: in the economy. Cathy, how difficult will it be for
Speaker 1: FED Chair J Powell and Leo Brainard, the the announced
Speaker 1: potential vice chair, to come out and remain independent and
Speaker 1: portray a deeply independent streak as President Biden talks extensively
Speaker 1: about the need to control inflation. Yeah, I don't I
Speaker 1: don't see that as a huge problem. Um. You know,
Speaker 1: I think that people will read their comments the way
Speaker 1: they want to read them, from a political perspective. But
Speaker 1: keep in mind Brainard has been at the FED for many,
Speaker 1: many years. Powell now has several years under his Belvist chair. Um.
Speaker 1: I think that they can point to their policy moves
Speaker 1: pre Biden administration as um as underscoring their independence, their
Speaker 1: ability to work through one administration and one political regime
Speaker 1: or another. Kathy, what about the dual mandate here of
Speaker 1: inflation and full employment, which takes precedence as we head
Speaker 1: into next year, Given the fact that so much emphasis
Speaker 1: has been placed on Leo Brainard putting more of a
Speaker 1: focus unemployment than share Powell, Yeah, I would say. I
Speaker 1: would say Paul has also put a big focus on employment.
Speaker 1: He has been fully on board with the idea of
Speaker 1: a broad and inclusive job market. Obviously, it's going to
Speaker 1: be a very, very difficult task because we're in a
Speaker 1: very unusual circumstance right now, with inflation popping up but
Speaker 1: still having you know, significant number of people not back
Speaker 1: at work and wages rising. But I think the shift
Speaker 1: now will be towards inflation and less so on the
Speaker 1: job market. Do a couple of things this morning. Work
Speaker 1: count the reaction in the price section in the markets,
Speaker 1: and then work out the reaction down and Washington d C.
Speaker 1: The reaction in the markets is pretty clear. Yields up
Speaker 1: at the front end by six basis points. Now for
Speaker 1: a two year yield, a six basis point move, that's
Speaker 1: a pretty sizable move back towards fifty seven, approaching sixty
Speaker 1: as two year yield start to Winshire. You get some
Speaker 1: dollar strength coming through the Dollar INDEXX at ninety sixty
Speaker 1: two by four tents of one percent. That's a stronger
Speaker 1: dollar erectory market hanging in there, up seventeen points, advancing
Speaker 1: a third of one percent on the nastag of four
Speaker 1: tents of one percent. So that's how we're set up
Speaker 1: in the price action in the markets. Off the back
Speaker 1: of this decision, here's a statement from the President of
Speaker 1: the United States. American needs steady, independent and effective leadership
Speaker 1: at the Federal Reserve. That's why I will nominate Jerome
Speaker 1: Power for a second chair second term as Chair of
Speaker 1: the Board of Governors of the Federal Reserve System and
Speaker 1: Dr Lele Brainerd to serve as Vice chair of the
Speaker 1: Board of Governors. There is a ton of reaction in
Speaker 1: DC off the back of this, want to bring in
Speaker 1: a Washington corresponded down in Washington and Marie Hordern and
Speaker 1: Marie we talked about this now for weeks. A lot
Speaker 1: of people put our statements ahead of time, saying this
Speaker 1: is who I want to support, this is who I'm against.
Speaker 1: What for the reaction of the last twenty five minutes
Speaker 1: or side. Well, first, let's point to the reaction of
Speaker 1: the Treasury Secretary Janet Yellen, a former chair herself. Remember
Speaker 1: in the summer she had said to the President, I
Speaker 1: think you should continue with the second term for FED
Speaker 1: Chair Powell, and she is right now congratulating them. She's
Speaker 1: also grateful, she says that the President nominated Dr Brainard
Speaker 1: to serve as vice chair, saying that she's a respected
Speaker 1: economist with years of experience and instrumental in the nation's recovery.
Speaker 1: So Yellen has her pick. And I always thought it
Speaker 1: would be very interesting if the President was to go
Speaker 1: against his own Treasury pick in terms of who he's
Speaker 1: going to renominate. And then we heard from Shared Brown
Speaker 1: on the renomination of Powell for FED and it looks
Speaker 1: like what he is saying is that this is going
Speaker 1: to be a pretty simple confirmation process. Remember, he is
Speaker 1: the first line of defense, and that hearing that's going
Speaker 1: to happen in order to get the president's picks through,
Speaker 1: and he's saying he's looking forward to working with both
Speaker 1: these individuals. And Marie, what do you make of the
Speaker 1: fact that independent was mentioned extensively by pretty much every
Speaker 1: recomment that's come out of the Biden administration and beyond. Basically,
Speaker 1: this is the takeaway at a time when inflation is
Speaker 1: so much on the forefront of the political agenda. Yeah,
Speaker 1: two points. The first is gonna be on inflation. We
Speaker 1: have heard the president time and time again when he's
Speaker 1: touting his economic agenda. It's no longer about the social
Speaker 1: programs or the bridges. It is about the fact that
Speaker 1: his economic agenda is going to clamp down inflation. You
Speaker 1: look at the latest CBS poll when the s of
Speaker 1: Americans think the economy isn't doing well because of inflation.
Speaker 1: So he wants to make sure that he is remaining
Speaker 1: at the middle of this recovery, that there is continuity
Speaker 1: at the FED and they're not going to be questioned
Speaker 1: about what happens with inflation, because he kept the same
Speaker 1: horse in the race too, so, so to speak, if
Speaker 1: he were to pick elevate brain Art and inflation does
Speaker 1: run extremely hot, potentially Biden down the road could have
Speaker 1: been um a bashed for that. The second thing, of course,
Speaker 1: is that his predecessor decided to take a different stand.
Speaker 1: Since the fifties, for the most part, president it's continued
Speaker 1: regardless of whether or not his Republican or Democrat that
Speaker 1: was the chair. They continued with maintaining that continuity at
Speaker 1: the Fed. And he's likely trying to point out that
Speaker 1: even though Jerome Powell is a known Republican, he has
Speaker 1: bipartisan support and that he wants to maintain that tradition
Speaker 1: when new presidents come in of keeping the FED chair
Speaker 1: at the top spot again though a not of progressives,
Speaker 1: because there is an elevation for Dr Brainard h Emory
Speaker 1: Horder in Washington. We're going to continue here, Michael McKee
Speaker 1: with us of course, with all of his experience in
Speaker 1: international economics, Michael McKee, how will this be greeted abroad?
Speaker 1: There's such a set of different challenges for banks. Does
Speaker 1: the emerging market structure that is so challenged right now.
Speaker 1: Do they need a chairman Powell? I wouldn't put it
Speaker 1: as a needed chairman Powell, but it will help them
Speaker 1: to have continuity because they know what to expect. Always
Speaker 1: better to know what you're dealing with instead of trying
Speaker 1: to figure out how somebody is going to behave going forward.
Speaker 1: And in this case, Um, the US dollar is going
Speaker 1: to a strong in the US is going to aid
Speaker 1: as strong as the economy. So emerging markets situation isn't
Speaker 1: gonna change. And John, this is critical inequities, in bonds,
Speaker 1: in commodities. Guess what the story this morning is the
Speaker 1: dollar reaction? Yeah, if the back of this move at
Speaker 1: the front end, tell him, I just can't get away
Speaker 1: from it. Mike McKay, a six basis point move on
Speaker 1: a two year that's hard to ignore, approaches sixty basis
Speaker 1: points at about fifty seven. What you'll read on that, Mike,
Speaker 1: that lift at the front end, off the back of
Speaker 1: this decision eight minutes ago. Well, if I had an
Speaker 1: accurate read, I'd be a very wealthy man and I
Speaker 1: wouldn't be here. But my guests, looking at what's happening
Speaker 1: and looking at the notes from people that Basically, it's
Speaker 1: sort of a relief trade of people who think that
Speaker 1: Powell is a little bit more hawkish than Brainerd and
Speaker 1: the continuity will keep the FED going. And with the
Speaker 1: talk of speeding up taper, all those things kind of
Speaker 1: combined into one and people who were holding back have
Speaker 1: now done a little bit of a trade. I'm wondering though,
Speaker 1: how long it lasts. It may be someone with knee jerk.
Speaker 1: And remember, we get a whole bunch of data on Wednesday,
Speaker 1: ahead of the Thanksgiving holiday here in the United States,
Speaker 1: and I suspect that will have a very big impact
Speaker 1: on Yeah, hopefully I'll make that flight. Okay for anyone
Speaker 1: just tuning in, there is someone that is paid to
Speaker 1: do this far better than Mike McKee and I. It's
Speaker 1: Bob Michael, a JP Morgan Asset Management, the CEO of
Speaker 1: Global Fixed Income. Bob, let's just start with a move
Speaker 1: in the bond market off the back of this decision.
Speaker 1: Yields up, yield high up. Your response to yeah, I
Speaker 1: think Mike McKee is right, this is a knee jerk reaction.
Speaker 1: Pals been reappointed. I think the market is is. Assuming
Speaker 1: we're on track for two rate hikes next year, but
Speaker 1: overall fairly moderate FED going forward. What's the biggest knee
Speaker 1: jerk reaction that you see as a miss pricing, Bob,
Speaker 1: the idea of a five year going out to nearly
Speaker 1: one point three percent, or the two year going out
Speaker 1: and rising six basis points. You know, Lisa, I don't
Speaker 1: really think there is a miss pricing here. I think
Speaker 1: this is the central case that the markets expected, um
Speaker 1: that Pal would be reappointed, you would have Brainard as
Speaker 1: vice chair, You have a very devish package in there.
Speaker 1: I think what you have to look at our risk
Speaker 1: assets and that it is doing well. Equities obviously had
Speaker 1: a nice bounce. You've got a FED in place for
Speaker 1: the next several years that's going to be very patient
Speaker 1: and finitive about normalizing at least as you get in
Speaker 1: the open and found equities are heading in direction happing
Speaker 1: for the you know, the reappointment equities are up. Equities
Speaker 1: are up full tents of one percent even with that
Speaker 1: movie lie. So in the bond market, in this prospect
Speaker 1: of time of monagy policy, that's exactly where wanted to go.
Speaker 1: Bob is is basically giving a green light to the
Speaker 1: Federal Reserve to raise rates in the middle of next
Speaker 1: year and followed up with another rate hike just as
Speaker 1: the market seems to be pricing in well. I think
Speaker 1: there's a lot to go between where we are today
Speaker 1: and a year from now. I think certainly there hasn't
Speaker 1: been a tremendous amount of pushback on rate hike or
Speaker 1: two next year. UM. I wouldn't be surprised if there
Speaker 1: was some sort of commitment from pal to the administration
Speaker 1: to be very cautious about the normalizing process and be
Speaker 1: sure that there are sufficient growth and inflationary pressure as
Speaker 1: we're seeing them now. Will that continue for an entire year?
Speaker 1: Sref they get through the tapering process and then start
Speaker 1: to raise rates. We think so, but let's wait and see.
Speaker 1: Michael J. Pem We're going to arguably the essay of
Speaker 1: the weekend trying to game out our future on inflation
Speaker 1: and what it comes down to for our viewers and listeners.
Speaker 1: Is a tip point on the tenuere yield. Where in
Speaker 1: your head is the critical level of tenure yield where
Speaker 1: things change. I think north of two percent. I think
Speaker 1: there's a lot of UM clear space between here and
Speaker 1: two percent. I think the debate as we go into
Speaker 1: will be how high can the FED get the at
Speaker 1: funds rate and then the yield curve will start to
Speaker 1: flatten out around there. Um two percent seems like a
Speaker 1: pretty good stopping point built in a slight term premium
Speaker 1: called the band two to two and a quarter percent.
Speaker 1: I think we get there over the next several months.
Speaker 1: Over the next several months, we had an important and
Speaker 1: emotional point, what's the experience of JP Morgan on what
Speaker 1: that will do to issuance, to the dynamics of the
Speaker 1: market that we don't look at each and every day, Well,
Speaker 1: you should see issuance continue to to come at a
Speaker 1: very high rate. When we talk to borrowers, their cognizant
Speaker 1: of the fact that growth and inflation are picking up,
Speaker 1: that the FED will begin to lift rates, that their
Speaker 1: funding rate will go up, So they're starting into put
Speaker 1: in place additional amounts of long term funding at what
Speaker 1: they feel are are secularly low rates. Well with Michael A.
Speaker 1: JP Morgan as in management the CEO of or will
Speaker 1: Fixed Income. Off the back of this decision from the
Speaker 1: White House, the President of the United States to nominate
Speaker 1: Chairman Power to a second term of the Federal Reserve
Speaker 1: and alle a governor brain and potentially to FED Vice chair.
Speaker 1: The reaction in the market is pretty clear. Yield tire
Speaker 1: through the curve, particularly at the front end of the curve.
Speaker 1: That means a stronger dollar, and this equity market open
Speaker 1: by about advance and a half of one percent. If
Speaker 1: you break down a sector price action, there is a
Speaker 1: big tilt higher in the financials. The banks Lisa ripping
Speaker 1: the financials up nine tents of one percent off the
Speaker 1: back of this bond market move. And this really speaks
Speaker 1: to the idea that banks hinge, particularly on that front
Speaker 1: end rate that gives them more net interest income. What
Speaker 1: is interesting if you look at the yield curve, it
Speaker 1: is flattening. If you look at, for example, the gap
Speaker 1: between five year and thirty year treasuries, it is actually
Speaker 1: the narrowest it's been since March of so long term
Speaker 1: this is perhaps a more dampening effect on longer term
Speaker 1: inflation expectations and yields. But Michael, December, when the Federal
Speaker 1: Reserve meets and we get a news conference, I've got
Speaker 1: no idea when the hearings are what are you looking
Speaker 1: for around that time at a time when the Fed
Speaker 1: chair is looking to get confirmed for a second term. Well,
Speaker 1: we've been talking about that, and and it looks as
Speaker 1: though the reappointment process, since he's the current sitting FED chair,
Speaker 1: could take no more than two months. I would expect
Speaker 1: very devish rhetoric coming out of the Federal Reserve between
Speaker 1: now and say mid January, until the reappointment has gone
Speaker 1: through Congress. So, Bob, what do you think of that? Now?
Speaker 1: With Vice Chair Clorida potentially just unleashed, you can say
Speaker 1: whatever he wants to say. He made a move on
Speaker 1: Friday to talk about maybe we need to discuss the
Speaker 1: type of pace. Governor wall is already out there saying
Speaker 1: the same thing. How do you bout that away in
Speaker 1: the middle of December? Do you know what? I love
Speaker 1: hearing to the former f O m C officials. They're
Speaker 1: so candid and unlike anything we've seen when they've been sitting.
Speaker 1: But you know what, it doesn't really matter. You have
Speaker 1: a re a point of chair, you have a new
Speaker 1: Vice chair um and the vote will coalesce around them
Speaker 1: going forward. Do you think it compromises the December fifteenth decision? Well,
Speaker 1: the way you see things right now, they're gonna have
Speaker 1: a new set of forecasts a new dot plot. Those
Speaker 1: forecasts have got to be adjusted for the incoming inflation data.
Speaker 1: Do you think it compromises that meeting? UH. I don't
Speaker 1: think it will. I think that the expectation for that
Speaker 1: meeting all along has been Boy, we can't wait to
Speaker 1: see the dot plot. I wonder where those will be.
Speaker 1: But because they've just begun the tapering process, all the
Speaker 1: commentary and rhetoric around it will still be somewhat divish that.
Speaker 1: You know, things could still be transitory. They don't want
Speaker 1: to rush into starting the rate hikes cycle. Those are
Speaker 1: two distinct and separate things until a lot of the
Speaker 1: lost unemployment has been recovered, extending beyond futures, John, what
Speaker 1: I see here is SPX up seven points, now up
Speaker 1: fifty x points, even the VIX coming in with a vengeance.
Speaker 1: Michael McKee with us along with some wonderful guests to
Speaker 1: comment the next man. It's Michael McKee. The market votes,
Speaker 1: the market is voting, and as Lisa mentioned, an interesting
Speaker 1: move for banks going higher. UH. That is probably because
Speaker 1: lele Brader was not chosen as the vice chair for Supervision.
Speaker 1: She was seen as a tough regulator on the banks.
Speaker 1: Which means that the next three appointments that President Biden
Speaker 1: still has to make could be quite important and could
Speaker 1: be definitely h sort of assigned to the left wing
Speaker 1: of his party that he is hearing their concerns, we
Speaker 1: might actually get a tougher bank regulator. You look at
Speaker 1: the nominee for the Controller of the Currency and you
Speaker 1: think the Biden administration doesn't have any problem with being
Speaker 1: tough on banks, So perhaps celebrating that too early might
Speaker 1: be a mistake. Uh, Elizabeth Warren is probably going to
Speaker 1: like whoever gets chosen as Vice Chair of Supervision and
Speaker 1: to other seats. So the president still has three seats
Speaker 1: and no indication of when we're going to see those. So, Mike,
Speaker 1: looking at the banks in particular, there is this question
Speaker 1: about the yield curve contracting and that typically being negative
Speaker 1: for the banks. We are seeing that to some degree,
Speaker 1: whereas a lot of their income does hinge on the
Speaker 1: front end. Do you really think that the regulatory backdrop
Speaker 1: is so material right now for the banks given the
Speaker 1: Fed's role. Not at the moment, And as Bob was
Speaker 1: just saying, I think a lot of the reaction we
Speaker 1: see in the markets is knee jerk. The regulatory issues
Speaker 1: will be more important as we go down the road,
Speaker 1: but front and center for markets, both in fixed income
Speaker 1: and equities and also in currencies is going to be
Speaker 1: how soon the FED raises rates, how strong the US
Speaker 1: economy is. And while the Fed may wait a while
Speaker 1: to raise rates, the guessing game is already underway and
Speaker 1: every piece of data is going to feed into that.
Speaker 1: And higher rates at the long end, in a sense,
Speaker 1: will be good for the banking system. But the cocominant
Speaker 1: part of that is that if you have higher rates
Speaker 1: and it slows down business, it may slow down lending.
Speaker 1: So there there's some good and bad ahead for for
Speaker 1: people who are trying to trade banks. Mike McKee on
Speaker 1: the composition, the potential composition of this f O m
Speaker 1: C a fantastic lineup through the next twenty minutes. We're
Speaker 1: here from preamisra Eric Friedman. We're here from Danny blanche
Speaker 1: flat To on this decision from this White House. I've
Speaker 1: got one final question for Bob Michael JP Mark and
Speaker 1: Asset Management. Bob, for the people just tuning in to
Speaker 1: put you on the spot, if you had to bet
Speaker 1: for next year, zero hikes one two, or more. Bob Michael,
Speaker 1: what would you be going with right now? Two hikes
Speaker 1: September and December? Bottom line, simple, easy, Bob Michael. Good
Speaker 1: to catch up, sir. Thanks for logging on and catching
Speaker 1: up with this very quickly after that decision. We appreciate it,
Speaker 1: Bob Michael. There, JP Morgan Asset Management, Lisa, Bob Michael
Speaker 1: looking for two? Yeah, well, market right now consensus is
Speaker 1: for two questions, just as when July or June even
Speaker 1: being potentially where it is. Honestly, how much discussion is
Speaker 1: there about accelerating the taper, especially with a vice chair
Speaker 1: Rich Clarida unleashed chairman Pound nominated for a second term
Speaker 1: by this White House governor Brain had nominated to be
Speaker 1: elevated from governor to FED vice chair, that decision coming
Speaker 1: thirty eight minutes ago. Happy to say that joining us
Speaker 1: now is pre a miser of TV securities preor yield
Speaker 1: hire up five basis points on two's, four basis points
Speaker 1: on tens. We faced just a little bit. Can I
Speaker 1: get your early reaction to that decision from forty minutes ago? Sure? Thanks, John,
Speaker 1: So yeah, I think the market was pricing in thirty
Speaker 1: chance of Brainer's or if that's been taken down, I
Speaker 1: think the market is putting higher rates in that front
Speaker 1: end with the view that Governor brainer it was likely
Speaker 1: to be more dubbish, was more likely to be ideologically
Speaker 1: waiting for the labor market to recover fully. So I
Speaker 1: think the market is pricing in that. You know, I
Speaker 1: think the idea that there will be continuity but power
Speaker 1: might be stepping away from this idea that the labor
Speaker 1: market needs to fully heal. But I will flag that
Speaker 1: the stalk around accelerator deeper. And let's see from the minutes,
Speaker 1: I think it's way too early for the Fed to
Speaker 1: be talking about accelerating taper. Maybe we see that in
Speaker 1: the minute. I think that's also playing into this, because
Speaker 1: the accelerat taper, they can hike much sooner. The market
Speaker 1: now is pricing in the first hike in June of
Speaker 1: twenty two. So that tells you that it's the combination
Speaker 1: off I think Jap I'll getting renominated plas. Now you
Speaker 1: have three Fed officials talking about an accelerating tapers. It's
Speaker 1: a combination of the two. Jean Bava with a Bank
Speaker 1: of Canada and now at black Rock and really truly
Speaker 1: a first rate economic mind out of Princeton with Blinder,
Speaker 1: I should say, and Jean Bova says, we're getting this wrong.
Speaker 1: It's not an inflation watch, it's an employment watch. Your
Speaker 1: call is on the edge. You are the outlier call
Speaker 1: preamsra fold in the unemployment and wage growth dynamics to
Speaker 1: your call that this is a FED that will wait
Speaker 1: and wait. Right, So, our economists do have the FED
Speaker 1: not hiking until well into two thousand twenty three, largely
Speaker 1: because of that labor market point, because we do expect
Speaker 1: people to over time there are frictions in the labor market,
Speaker 1: and so it hasn't happened so far, but through the
Speaker 1: course of next day to people for people to return
Speaker 1: to the labor market, and that's going to put download
Speaker 1: pressure on wage inflation. And ultimately we think that CPI
Speaker 1: or pc SO inflation numbers are not sustained if you
Speaker 1: don't have wage inflation, because you know ultimately it's going
Speaker 1: to hurt growth and and and and consumption when when
Speaker 1: that purchasing power um is not there. So I do
Speaker 1: think it's it's it's about the labor market. And if
Speaker 1: we see a fiscal drag next year, we see people
Speaker 1: coming back. So there's this hidden slack in the labor
Speaker 1: market that starts to show up. Then the FED will
Speaker 1: I think be vindicated in or at least those on
Speaker 1: the FED who are arguing to let it run hot
Speaker 1: will be vindicated in the fact that inflation is likely
Speaker 1: to come off and there's no urgency for the Fed
Speaker 1: to hike, but it is going to come down, yes
Speaker 1: to to that labor market. Do we see people return
Speaker 1: or COVID such a structural shock to the system that
Speaker 1: people have left permanently. I think that's really the big
Speaker 1: question for the next six months. All in all, your
Speaker 1: call again is just you're just incredibly against what's going
Speaker 1: on now, the calls that are out there, the worries
Speaker 1: is John gamed out tapering and rate rises and such.
Speaker 1: What do they miss estimate? What is the thing in
Speaker 1: this November the time of outlooks. What is consensus most
Speaker 1: getting wrong? I think it's the so that the couple
Speaker 1: of things, it's an idea that the FED is under
Speaker 1: pressure on the inflation front that they won't be able
Speaker 1: to withstand months, you know, month after month of high
Speaker 1: inflation prints. And this is where I'd say the new
Speaker 1: FED officials coming in or or governor brainer as the
Speaker 1: new vice chair. Assuming all these get confirmed, I think
Speaker 1: that's going to be important. Can they withstand that show?
Speaker 1: And even if power might be taking a tiny step
Speaker 1: back saying, you know, maybe we need to reassess policy
Speaker 1: or we need to be humble, I think so so
Speaker 1: so the market. Maybe some may be misinterpretting how quickly
Speaker 1: the FED caves under inflation. I think that's part of it.
Speaker 1: And part of it is fiscal drag. I think the
Speaker 1: assumption is that the high savings of the consumer will
Speaker 1: be enough to offset fiscal drag. But when we look
Speaker 1: at the composition of savings, much of the savings is
Speaker 1: actually the top one percent, And so you know, when
Speaker 1: the fiscal drag is felt by the rest of the economy,
Speaker 1: we think it's going to impact growth. It's going to
Speaker 1: impact that goods to service consumption shift that everyone's looking for.
Speaker 1: And savings may not be enough, and maybe people want
Speaker 1: precautionary savings because we're in a world where there's a
Speaker 1: lot of uncertainty out there, so that might be misunderstood
Speaker 1: as well. Always always feel lucky to catch up with you,
Speaker 1: particularly this morning off the back of this decision. Prayer
Speaker 1: miss or that of TV Securities. As we learned that
Speaker 1: the president of your noted size is nominating Chairman Power
Speaker 1: for a second term at the top of effect and
Speaker 1: looking to Allifi, Governor Brian from Government of Vice Chair
Speaker 1: of the Federal Reserve, and that decision coming about forty
Speaker 1: three minutes ago. You will hear from all three potentially
Speaker 1: at once twenty eastern time. When we hear from the
Speaker 1: President of the United States, get that one of the
Speaker 1: diary one twenty eastern the President of the United States,
Speaker 1: Chairman Pale, Governor Brained once twenty eastern. Tide will take
Speaker 1: that in full. On bloom Blog, TV and radio. We
Speaker 1: talked a lot Tom about this move in upon market.
Speaker 1: Let's talk about a move in the equity market. All
Speaker 1: time highs on the SMP, record highs on the Nastack John,
Speaker 1: the Nastic one hundred is a great story. The three
Speaker 1: of US un surveillance twelve months ago. We're listening to
Speaker 1: the death of technology. John Galub of Credit Squeeze really
Speaker 1: encourageously pushed against that. But John, I'll tell you Dow
Speaker 1: up se maybe Boeing and does Standard and Poors up. John,
Speaker 1: I wasn't aware till this morning. Year to date, nast
Speaker 1: deck one hundred is outpacing the standard of purse. That's
Speaker 1: a vote for technology and growth is a massive move.
Speaker 1: Tommy right to point it out, and please to say
Speaker 1: that joining us now, it's Eric Friedman, the chief investment
Speaker 1: officer at the US Bank Cassette Management Erik. At times
Speaker 1: like this, it's difficult to distinguish between a knee jack reaction,
Speaker 1: a move that might not last five minutes, and a
Speaker 1: move that might be a little bit more durable. How
Speaker 1: do you do that on a morning like this morning?
Speaker 1: Eric hit Jonathan Goomring, thanks so much for having me on.
Speaker 1: I think your your point is as well taken. I
Speaker 1: would say that some of the movement in both the
Speaker 1: financial sector plus small caps this morning is a reverse able.
Speaker 1: We saw the past let's call it six seven trading sessions,
Speaker 1: those were the spots of the market that were really
Speaker 1: under relative pressure. And and so I think that part
Speaker 1: of today's uh, let's let's call it the side of relief,
Speaker 1: if you will, from the reopening trade is the idea
Speaker 1: that we will have some continuity. So I would say
Speaker 1: that our viewpoint remains the glass is half full. Clearly
Speaker 1: this is a FED that's not going to be as
Speaker 1: much transition as markets perhaps thought as early I should
Speaker 1: say as late as as Friday Saturday of this weekend.
Speaker 1: So Brainard was was certainly viewed as as a transitional pick.
Speaker 1: And perhaps what this means, Jonathan, is that this is
Speaker 1: the administration saying, you know what, let's let's keep an
Speaker 1: an oilve branch if you will, towards the other side
Speaker 1: of the aisle, and having a know, a continuity with
Speaker 1: which are Powell. We of course had mid terms of
Speaker 1: which are less than that less than twelve months away,
Speaker 1: so so continuity is really the word of the data.
Speaker 1: We still think this continues that that class half full
Speaker 1: mentality we've been we've been talking about with clients. Erica.
Speaker 1: Jim Bianco of Bianco Research messages in pointing out that
Speaker 1: the market now has three full rate hikes priced end
Speaker 1: for all of next year, beginning in June with a
Speaker 1: seventy nine chance of a rate hike and then going
Speaker 1: on from there even May has a significant probability put
Speaker 1: around it. What would happen in equities if this rates
Speaker 1: market is correct? I think, Lisa, it's it's something that
Speaker 1: we look at June as probably being that that transitional
Speaker 1: busk do We think that May is probably a bit early,
Speaker 1: and you've done a great job as a team covering
Speaker 1: the tapering dynamics. So for us, it's really more about
Speaker 1: the terminal level. And I'm just again so enthusis asked
Speaker 1: listen to Tom's consistent message about terminal cash flow discounting. So,
Speaker 1: in other words, if the market is wrong and that
Speaker 1: that terminal rate is going to be higher than one
Speaker 1: point five one point seven, that's a that's an equity
Speaker 1: market that has to read price lower. So for us,
Speaker 1: we think that the the initial wave of of lift off,
Speaker 1: if you will, that can be whether it's it's June,
Speaker 1: whether that's the July twenty seven meeting, those are those
Speaker 1: are okay in the marketshiest, But I think that what
Speaker 1: would be a really really challenging outcome for markets least
Speaker 1: would be if the Fed starts talking up a higher
Speaker 1: terminal rate that's not priced in right now, right now,
Speaker 1: What kind of data would we need to see with
Speaker 1: the Fed need to say to start to move up
Speaker 1: or signal that that ultimate Fed funds rate would end
Speaker 1: at a much higher rate than the market's expecting at
Speaker 1: leasta with the with the pal driven FED employment data
Speaker 1: is going to be just mission critical. He has gone
Speaker 1: out of his way to signal that that is a
Speaker 1: that's that's the marketis Pink most close attention to. So
Speaker 1: if we see labor force participation pick up, if we
Speaker 1: see people move away from the sine lines and actually
Speaker 1: into the market, but also, I didn't the jobs market,
Speaker 1: but then also into a more wide spread set of jobs,
Speaker 1: that would be the critical level that we think would
Speaker 1: be the signal if you will that that share. Powell says,
Speaker 1: you know what we we we thought the market, the
Speaker 1: labor market would be stubborn. They're not, and we may
Speaker 1: have to raise it rates faster as well as higher.
Speaker 1: Eric Friedman, thank you so much for joining us this morning.
Speaker 1: Greatly appreciate it as well. Joining us now from Dartmouth College.
Speaker 1: Of course, a gentleman was set with the Bank of
Speaker 1: England and is definitive on our monetary theory, our employment
Speaker 1: and our wages. David blanche Flower joins us this morning.
Speaker 1: Professor blanche Flower, thank you so much. What just comes
Speaker 1: down to Jean Bevan, you know of the Bank of Canada,
Speaker 1: uh and I believe a team that lost to Dartmouth
Speaker 1: and Ivy League football this weekend from Princeton as well,
Speaker 1: Jean Bevan made very clear this is about jobs. That
Speaker 1: is your wheelhouse. Should Sherman Powell and vice Chairman Brainerd
Speaker 1: should they fear wage growth? No, I don't think they
Speaker 1: should fear it. I mean we've seen so little wage
Speaker 1: growth in the last fifty years, so I don't think
Speaker 1: they should fear it. But I've listened to all the
Speaker 1: commentary going on. I think these these appointments makes sense.
Speaker 1: I think Powell has said something which I really agree
Speaker 1: with and everyone seems to admit, which is the faedest
Speaker 1: sitting waiting and watching and could move in either direction.
Speaker 1: And I think much of what I've been listening to
Speaker 1: is getnomic. It really depends upon how this economy moves,
Speaker 1: what long run changes in behavior there are, and what
Speaker 1: happens to the virus and cases are rising. So I
Speaker 1: think the answer is that the market's got well ahead
Speaker 1: of it stuff, just as it did at the Bank
Speaker 1: of England, and we'll see what happens to adjustments in
Speaker 1: the labor market. I mean people have been retiring, people
Speaker 1: have been leaving, and part of it I think is
Speaker 1: temporary because of the virus. Obviously when people's four are
Speaker 1: one case have risen. But we really don't know or
Speaker 1: what these market reactions are going to be, especially in
Speaker 1: the labor market. Do I think the market entire got
Speaker 1: ahead of itself. It really depends on what's coming. I
Speaker 1: mean I understand that you know, if this then the
Speaker 1: answer comes. But bank presidents coming out saying, you know,
Speaker 1: we should be tightening the three rate rises coming or
Speaker 1: that's for the birth. I mean we have always got
Speaker 1: to do with that. You know what it was like
Speaker 1: in the Bank of England for you forgive me, Danny,
Speaker 1: because we have to keep it pretty sure. And what
Speaker 1: we'll do is we'll rebook you and have a longer conversation.
Speaker 1: But just to find a word on this, how do
Speaker 1: you remain patient? How do you communicate this that you're
Speaker 1: willing to wait with inflation with the six handles? How
Speaker 1: would you do that? How would you guide it? I
Speaker 1: would say that we have seen recent rises in inflation.
Speaker 1: It's not that Fed's job to respond to every single month.
Speaker 1: The question is what happens eighteen months ahead, and we
Speaker 1: don't exactly know that we're going to sit and wait
Speaker 1: and see if this pattern repeats itself. And I think
Speaker 1: Power has really been spot on where he kind of
Speaker 1: pushed against we're just raising were he said, there's possibilities
Speaker 1: in the other direction. So I think the answer is
Speaker 1: the quick question, is this stuff going to get repeated
Speaker 1: and are we going to see rises in two thousand
Speaker 1: and twenties. If we do, then you have to respond.
Speaker 1: But if you don't at all, the price of the
Speaker 1: phone in the world, container index is falling and the
Speaker 1: Baltic dry is falling. If those things continue the path,
Speaker 1: it will be very different to what the market says.
Speaker 1: And remember markets got a completely wrong in o as well.
Speaker 1: Danny always appreciate catching up with you. I know you've
Speaker 1: got to tie schedule as one of this morning, So
Speaker 1: thank you, sir, Danny Blanche f there down. This is
Speaker 1: the Bloomberg Surveillance Podcast. Thanks for listening. Join us live
Speaker 1: weekdays from seven to ten am Eastern I'm Bloomberg Radio
Speaker 1: and on Bloomberg Television each day from six to nine
Speaker 1: am for insight from the best in economics, finance, investment,
Speaker 1: and international relations. And subscribe to the Surveillance Podcast on
Speaker 1: Apple podcast, SoundCloud, bloomberg dot com and of course on
Speaker 1: the terminal. I'm Tom Keene, and this is Bloomberg