Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanibek. We're here every day bringing
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Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. Kathleen Hayes, Global Economics and
Speaker 1: Policy editor at Bloomberg News, with us in our New
Speaker 1: York City bureau. Dave Wilson stocks that at Bloomberg News
Speaker 1: on the remote access from New Jersey. Kathleen, I think,
Speaker 1: heading into the studio, you said there's going to be
Speaker 1: some headlines. Well there are, and there are some very
Speaker 1: important ones, Carol, but you've got to look just a
Speaker 1: little bit deeper to see seven eight of eighteen Fed
Speaker 1: officials see at least one three raid hike. Now a
Speaker 1: change in liftoff. No, it's not a majority yet, But
Speaker 1: at the January excuse me, the December meeting, because you know,
Speaker 1: they changed the dot plots their summary of economic projections
Speaker 1: every three months, there were only five, so you see,
Speaker 1: you're going to get a little more sense that more saying, well,
Speaker 1: the economy is going to be stronger than we thought.
Speaker 1: Listen to this lat you really need more details now
Speaker 1: on on the what they're doing with their forecast real GDP.
Speaker 1: In December they saw four point two percent for the year.
Speaker 1: They boosted that by could amount. It's six point five
Speaker 1: percent on their radio screen. Now in December they thought
Speaker 1: the unemployment rate would fault to five percent. Remember what
Speaker 1: was up around fourteen percent. Now they think unemployment rate
Speaker 1: will end the year at four point five percent and
Speaker 1: next year at three point nine. Some people will say, hey,
Speaker 1: three point now nine sounds very much like full employment.
Speaker 1: The substantial further progress that the feed is hoping to make.
Speaker 1: And you mentioned those COREPC eflation inflation numbers. What's interesting
Speaker 1: so important. In December they thought that the number would
Speaker 1: be one point eight. Now they see it at two
Speaker 1: point two, So they really have changed their outlook on
Speaker 1: the economy. This is all very important. A couple more
Speaker 1: things that you've got to have on the radar screen though,
Speaker 1: because there were some things that they have not done.
Speaker 1: They didn't increase their bond purchases. They want to see
Speaker 1: substantial further progress. As I just said, um, they are
Speaker 1: not increasing the rate the interest on access reserves. That
Speaker 1: ties into some questions about money markets and how they
Speaker 1: could be royaled by some build ups in reserves. But
Speaker 1: really there there's a lot of signals. I think that's
Speaker 1: one of the reasons why we've seen the bond market
Speaker 1: actually gained some ground and now the thirty years back
Speaker 1: even lower than it was the tenure about where it started.
Speaker 1: Because on the one hand, they didn't change anything. But
Speaker 1: at the same time, it looks to me like if
Speaker 1: anything's there a FED that sees higher inflation and stronger
Speaker 1: growth and they thought before maybe they will be on
Speaker 1: the road to a sooner lift off. Not yet, But
Speaker 1: that's the kind of question we're gonna hear put in
Speaker 1: front of j pow. Bottom line, FED turning more hawkish
Speaker 1: are not really I don't think they're hawk as yet.
Speaker 1: I think so far they're just direct ignizing their progress
Speaker 1: in the economy because they say the virus is still
Speaker 1: the biggest issue and it's still out there. He did, Wilson,
Speaker 1: come on in here and give us the equity market reaction.
Speaker 1: What happened when these headlines came out? How our traders
Speaker 1: are responding to this news. Well, you saw the SNP
Speaker 1: five hundred spike up to its highs of the day,
Speaker 1: so clearly it's going over well. And if you want
Speaker 1: to focus on one area of the market to sort
Speaker 1: of tied into the decision, it's the home builders. They
Speaker 1: were up. They immediately moved to their highs of the
Speaker 1: day after the decision came out, you know, and especially
Speaker 1: noteworthy got Lenar with the biggest gain in the SMP
Speaker 1: five hundred right now, it's up more than eleven and
Speaker 1: a half percent. On top of what's happening with FED policy.
Speaker 1: You know, they came out and said they raised capital
Speaker 1: from Center Bridge Partners for a new single family rental
Speaker 1: business and they also plan a spinoff that will include
Speaker 1: uh their technology investment. So there's a company story to
Speaker 1: accompany the bigger story of where rates may be headed here. Yeah,
Speaker 1: good point eight. Two things I want to get you,
Speaker 1: and I know Kathleen mentioned this as well. Fed's forecast
Speaker 1: sharing PC will rise to two point four percent this
Speaker 1: year before backing off to two in two point one
Speaker 1: percent in three Yet the median dots still show no
Speaker 1: rate hike through and this sentence retained from the January
Speaker 1: policy statement quote from the FED, the ongoing public health
Speaker 1: crisis continues to weigh on economic activity, employment, and inflation,
Speaker 1: and poses considerable risks to the economic outlook. Listen, Kathleen,
Speaker 1: this mirrors what Tim and I hear from so many
Speaker 1: folks in the medical communities, the corporate communities, like, until
Speaker 1: we get this vaccine and virus under control, all bets
Speaker 1: are off. But look how much the cases have come down.
Speaker 1: Look how much the viruses we plateau too, And and
Speaker 1: that is troubling to a lot of folks in the
Speaker 1: medical definitely. And I think, and I think it's kind
Speaker 1: of glass half empty, glass half glass have full, because
Speaker 1: if you talk to anybody anecdotally, just oh yeah, I
Speaker 1: didn't couldn't qualify for a vaccine. But I went over
Speaker 1: to Dwayne read to the to the Walgreens, and they
Speaker 1: had a bunch of leftovers at the end of the day.
Speaker 1: And yeah, I'm only twenty eight, but they gave me
Speaker 1: the vaccination. I think what people were very negative about
Speaker 1: this what they called a slow start to a program
Speaker 1: we had never done probably about a hundred years, you know,
Speaker 1: nationwide vaccinations, and now they seem to be gaining some steam.
Speaker 1: So I think that's the thing that's interesting here. Yes,
Speaker 1: it still depends. Yes, there's tons of question marks over
Speaker 1: what happens next, right, because we know things can get
Speaker 1: worse just when you think they're getting better. But it
Speaker 1: seems to me this that's been saying this for the
Speaker 1: last year. What you want to think, what Monterrey policy
Speaker 1: is going to do. Watch the virus. The quicker this
Speaker 1: that gets under control, the more businesses can reopen, the
Speaker 1: more people aren't afraid to go out and shop and
Speaker 1: spend money and fly and go to hotels, the quicker
Speaker 1: the economy will pick up. The longer that lingers, the
Speaker 1: longer it will take. But I see Carroll in and
Speaker 1: Tim in this um, in this particular policy statement, in
Speaker 1: some of the other things they're announcing that uh, this
Speaker 1: is this is asymmetric to me. They're seeing what the
Speaker 1: economy is doing. Some people are saying, maybe we will
Speaker 1: raise rates a little sooner, So watch the economy. If
Speaker 1: it gets a lot stronger, a lot faster, maybe we
Speaker 1: do get lift off sooner. If it doesn't, you know,
Speaker 1: maybe they really can't lift off until So Carol mentioned inflation,
Speaker 1: So I want to ask about that, Kathleen, because the
Speaker 1: medium FED forecast shows that core inflation right around or
Speaker 1: above its target in the next few years. One topic
Speaker 1: that we've heard so much from investors about is inflation.
Speaker 1: So what is the message that the FED is sending
Speaker 1: investors about inflation and how it feels about inflation? Well,
Speaker 1: so far, just looking at the forecast again, because the
Speaker 1: core PCs you note um is two point two percent
Speaker 1: this year. But J Poll and others have made it
Speaker 1: clear we see a temporary kind of spike up in
Speaker 1: inflation as we adjust year after you know, one years,
Speaker 1: hence to the numbers that fell so much last year,
Speaker 1: and so there's been a lot of things and then
Speaker 1: pent up demand after the after not being able to shop.
Speaker 1: But I think the fact that we see in the
Speaker 1: two year two percent two point one percent, the question
Speaker 1: will be J. Powell says, and many of them have
Speaker 1: said they don't mind seeing inflation at two point five percent,
Speaker 1: even higher. They wanted above two percent and staying there
Speaker 1: with two percent in to convince them it's time to
Speaker 1: lift off. Probably not. Yeah, good stuff, guys, Thank you
Speaker 1: so much, Really appreciate it. Kathleen Hayes, Global Economics and
Speaker 1: Policy at at Bloomberg News. Dave Wilson Stocks. This is
Speaker 1: Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes.
Speaker 1: Tim Stinovich from Bloomberg Radio. Of course, our top story
Speaker 1: on this Fed Wednesday is the FED will reserve keeping
Speaker 1: zero rates as expected, uh and in terms of the outlook,
Speaker 1: also going to keep rates pretty low for a while.
Speaker 1: Still season inflation bump as short lived in the future,
Speaker 1: So just giving us some indications of where they see
Speaker 1: things going. Let's get into it with our round table. Yeah,
Speaker 1: let's do it. Ali Wolf is chief economist at Zanda,
Speaker 1: joining us on the phone from Irvine, California. Jeffrey Cleveland
Speaker 1: is chief economist at paid In and Regal on the
Speaker 1: phone from Los Angeles. They're not too far apart right now.
Speaker 1: Thanks to both of you for for joining us. Um Alie,
Speaker 1: I want to start with you your immediate reaction to
Speaker 1: this news. So this is a fun day for the
Speaker 1: FED followers. What we saw. Obviously a huge revision by
Speaker 1: the Fed, but this was to be expected and it
Speaker 1: basically matches what we've been seeing from the private economists
Speaker 1: who have been putting out their forecast that GDP is
Speaker 1: going to be pretty remarkable this year as the economy
Speaker 1: opens up at at a way more rapid pace. And
Speaker 1: I think a lot of us expected. Well, okay, so
Speaker 1: come on in on good to know, um, jeff Jeffrey,
Speaker 1: come on into In terms of your um reaction to
Speaker 1: the FED decision, well, I was gonna say, the distance
Speaker 1: between Irvine and Los Angeles depends a lot of the traffic,
Speaker 1: so eventually just a lot longer than you think. Yeah,
Speaker 1: the big the big thing here is they have a
Speaker 1: better economic outlook, better GDP growth, they have lower unemployment,
Speaker 1: they have a little bit higher inflation. Yet the media thought,
Speaker 1: the media thought does not move for three is the key. Uh.
Speaker 1: It's this kind of tug of war that's going on
Speaker 1: with the financial market, with the bomb market in particular,
Speaker 1: where the bab market is saying, okay, better growth, higher inflation,
Speaker 1: therefore you need to hike, and the Fed is saying no, no,
Speaker 1: no no. That is the script from perhaps last cycle.
Speaker 1: That is not the script we're going to use. We're
Speaker 1: gonna keep rates at zero for longer. And so that's
Speaker 1: a message they delivered here. Whether the market really believes it,
Speaker 1: Carol and Tim, that's a that's another question itself. Dare
Speaker 1: I say, Goldilocks economy, so unemployment rate gets better, although
Speaker 1: let's not forget there. You know these there are so
Speaker 1: many different measures of unemployment. It doesn't really look at um.
Speaker 1: There are millions who are out of the labor force altogether,
Speaker 1: who just said I'm frustrated, I'm out of it. But
Speaker 1: dare I say, Jeffrey, that we are or could be
Speaker 1: headed for kind of a Goldilocks economy, some growth with
Speaker 1: low inflation. Once again, for investors, this is perfect. You
Speaker 1: have better growth, you have a little bit higher inflation,
Speaker 1: which is fine, and you have an easy fed You
Speaker 1: could mix in their very easy physical conditions as well.
Speaker 1: So I think this is a very good back drop
Speaker 1: for risk assets fort for investors overall. I would ignore
Speaker 1: the unemployment rate, Carol, that four percent figure that gets
Speaker 1: bandied about. I would focus instead on the employment of
Speaker 1: population to fifty four year old, how many of them,
Speaker 1: what percentage of those are folks are employed. That's at
Speaker 1: seventy six right now. It needs to be over eighty
Speaker 1: before I even think we should have another phone call
Speaker 1: about full employment. So that's a ways to go. Hey, Aley,
Speaker 1: come on in here and talk about the reaction among
Speaker 1: homebuilders right now, because this is something that that of
Speaker 1: course you watch closely at Zanda. You heard Dave Wilson
Speaker 1: earlier talk about housing stocks on a tear uh this afternoon.
Speaker 1: What's the reaction there. Yeah, So when you look at
Speaker 1: the housing market and you look at what's happened to
Speaker 1: the economy over the past year, you've basically had people
Speaker 1: that have been forced to save. Now, by the way,
Speaker 1: this isn't just applied to the housing market. This applies
Speaker 1: to the wider economy. Here's people that have been forced
Speaker 1: to save. There has been student loaned forbearing, there has
Speaker 1: been three different rounds coming up of stimulus. And then
Speaker 1: you also have, which I think a lot of people forget,
Speaker 1: the underground economy, the hairdressers and the fitness instructors that
Speaker 1: we're still working under the table and also getting unemployment
Speaker 1: insurance and also getting the stimulus. So when you start
Speaker 1: to add up all of those numbers, you really have
Speaker 1: people that were able to continue to work, flush with cash.
Speaker 1: And when you look at the housing market, well, certainly
Speaker 1: that's a game changer because people need to say, for
Speaker 1: a down payment to purchase a home, and all of
Speaker 1: a sudden because of what happened to the economy. Again,
Speaker 1: as long as you were employed, a lot of people
Speaker 1: are in a really healthy position. That's going to drive growth,
Speaker 1: not only for the homebuilders, but also for the wider economy.
Speaker 1: Let's remind everybody. In just about thirteen minutes, a little
Speaker 1: bit under thirteen minutes time, we will take you to
Speaker 1: the Federal Reserve in Washington, d C. And to FED
Speaker 1: Chief J. Powell. His statement and his press commerce will
Speaker 1: begin at that time, and of course we will cover
Speaker 1: it live right here at Bloomberg. Right now we're talking
Speaker 1: with Ali Wolf, chief economist at Zanda, Jeffrey Cleveland, chief
Speaker 1: economist at Payton and Regals. So Ali, let me ask you, though,
Speaker 1: the housing recovery and strength, how important is it though
Speaker 1: in terms of the upcoming economic recovery and and I'm
Speaker 1: I'm asking to with an eye on in some parts
Speaker 1: of the world, it does feel like we're in some
Speaker 1: parts of the country that we're starting to see, you know,
Speaker 1: a shortage of supply. Yeah. So when we look at
Speaker 1: the housing starts numbers, or you look at how many
Speaker 1: homes are being built. For every single home that's built,
Speaker 1: three different jobs are created. And housing has been able
Speaker 1: to partly lead the recovery this time around because builders
Speaker 1: have been so active and on the new and existing homeside.
Speaker 1: For every home someone purchases, they spend money elsewhere. They
Speaker 1: spend money at home depot, they spend money at target,
Speaker 1: and that helps those different companies along the way to
Speaker 1: the risk though, is as we're looking at the tenure treasury,
Speaker 1: we know that that's closely linked to mortgage rates. Yes,
Speaker 1: mortgage rates are still historically low at three percent, but
Speaker 1: we just have to watch how high those go because
Speaker 1: really even pence fifty basis points starts to price people
Speaker 1: out of the market with how much home prices haven't
Speaker 1: gone up over the past year as well, Jeffrey, what
Speaker 1: do you make of of how the Fed is is
Speaker 1: thinking about growth? The feed is even more optimistic one growth,
Speaker 1: as Chris Ansey points out in our in our live
Speaker 1: blog right now, the median forecast among economists survey by
Speaker 1: Bloomberg um the FED policymakers meeting at six point five.
Speaker 1: The Bloomberg Survey medium medium is six, so the Fed
Speaker 1: clearly optimistic here. Yeah, I don't know what the Bloomberg
Speaker 1: survey there's doing. I mean, I think the paid in
Speaker 1: the regal forecast for six and a half percent, so
Speaker 1: it's right in line with the FMC median. I like that,
Speaker 1: So I would the way I would spin it to
Speaker 1: him is that the FED is finally caught up with
Speaker 1: paidon in regal more economics which actually probably should may
Speaker 1: be a little conserved at this point. I don't know
Speaker 1: why talk, yeah, talk, I mean, I mean, obviously it's
Speaker 1: you're joking there, but but like what why why were
Speaker 1: you guys? Why are you guys so optimistic? I mean,
Speaker 1: and why do you go ahead? The optimist sick tone
Speaker 1: sorry to start the year was due to just the reopening.
Speaker 1: The fact that households do have a lot of pent
Speaker 1: up savings, depending on how you measure it, somewhere between
Speaker 1: one and two trillion, you know, or ten percent of
Speaker 1: GDP roughly, So that's a huge amount of money that
Speaker 1: will be I think unleashed as as the economy reopens.
Speaker 1: And then now another round of fiscal relief coming down.
Speaker 1: So you know, all those things together, I think you
Speaker 1: can very easily get to a six six and a
Speaker 1: half percent GDP growth that you're maybe even some risk
Speaker 1: him to hire growth. That means that the thing is
Speaker 1: looking at a little bit further. I think we'll settle
Speaker 1: back down somewhere closer to two per cent or so.
Speaker 1: So it's not something that will persist beyond beyond one,
Speaker 1: but I think it's a very upbeat view for the
Speaker 1: year ahead. So Ali, you know, I asked Jeffrey about,
Speaker 1: you know, a Goldilocks economy. Uh, you know, it took
Speaker 1: a while to kind of get things going coming off
Speaker 1: of the financial crisis, but we did kind of have
Speaker 1: you know, low and steady for a long long time,
Speaker 1: certainly something that financial market investors made them, you know,
Speaker 1: pretty you know, eager to take on risk in a
Speaker 1: low yield environment. How do you see it? Could we
Speaker 1: be setting up for once again kind of a low
Speaker 1: and steady recovery here? Well, I actually think it's gonna
Speaker 1: be really robust when you look at history. So we've
Speaker 1: now put six trillion dollars into the system over the
Speaker 1: past year from just the Congress and from what they've
Speaker 1: done from the different stimulus packages versus one point eight
Speaker 1: trillion over multiple years last time around. And when a
Speaker 1: lot of US economists look at the data, we say, well,
Speaker 1: that's one of the reasons that it was so long
Speaker 1: and protracted to finally get back. But what we've seen
Speaker 1: from the stimulus checks that have gone out so far,
Speaker 1: we can already learn from what consumers do with it.
Speaker 1: And so right now, this is data from the Chicago SPED.
Speaker 1: You can see fifty of the money gets spent basically
Speaker 1: right away, and then fifty percent of it gets saved.
Speaker 1: And some of that money is getting saved for things
Speaker 1: people can't do today but they can do three or
Speaker 1: four months from now. One vacation, go to restaurants, go
Speaker 1: to bars. And so that's why I also feel really positive,
Speaker 1: I think, I mean, we've seen Goldman's forecasts or even
Speaker 1: higher than that six point five percent that we're seeing
Speaker 1: from the FED. But that's what gives me support about
Speaker 1: the economic recovery. But it's a spike alley, right, and
Speaker 1: then we start to settle down to kind of more
Speaker 1: normal levels. It is, but it depends, it depends on
Speaker 1: is it that one time vacation that you're going on.
Speaker 1: I know a lot of people are talking about they
Speaker 1: want to do their take multiple vacation. I want to
Speaker 1: take ten vacations right now. Yes, so I understand that,
Speaker 1: But we also know that there's additional stimulus that's likely
Speaker 1: going to come on the infrastructure side, which fuels more
Speaker 1: longer terms uh growth too. So Jeffrey, the FED is optimistic,
Speaker 1: painting and Regal is optimistic. How quickly, in your opinion,
Speaker 1: does hirings start to pick up just in the next
Speaker 1: few months. I think we could have three or four
Speaker 1: months ahead to know where you have million, a million
Speaker 1: and a half jobs added each and every month, so
Speaker 1: it can come back very very quickly. I think to me,
Speaker 1: that's the lesson the last night months, not just for
Speaker 1: the FED, but also for forecasters. People were very and
Speaker 1: I think it's justifiable last summer to be very pessimistic
Speaker 1: given the state of the world. It's time, but things
Speaker 1: have changed dramatically, especially in the last six or eight weeks.
Speaker 1: Even so, we we've seen that as soon as things reopened,
Speaker 1: hiring will come back very quickly. We got a little
Speaker 1: taste of that last year, but I think that's what's
Speaker 1: ahead for the next I would say three, three or
Speaker 1: four months. Hey, Alian, Jeffrey, I want to ask you,
Speaker 1: is this kind of how we, fingers crossed, had hoped
Speaker 1: it would would play out after the deep decline and
Speaker 1: the economy shut down shutting down last year? You know, Ali,
Speaker 1: isn't this kind of I know it's a lot of
Speaker 1: money being popped into the system, but isn't this kind
Speaker 1: of what we hope for rather than staying down for
Speaker 1: a longer time, which would have made it more difficult
Speaker 1: to bounce back. I think this is what we hoped for.
Speaker 1: But I would say at least my earliest forecast was
Speaker 1: more like a swouch shape. I thought that there would
Speaker 1: be a little bit of economic pain. And I do
Speaker 1: want to temper what I just said with some of
Speaker 1: the labor statistics, because if you do look at the
Speaker 1: leisure and hospitality after so, that's obviously the sector that's
Speaker 1: been hit the hardest. Let's say tomorrow, because the economy
Speaker 1: opens up, every single one of those jobs comes back. Right,
Speaker 1: we go from nine point five million jobs shy of
Speaker 1: where we where we were last year to now five
Speaker 1: million jobs shy where we are last year. So there's
Speaker 1: a lot of enthusiasm that okay, as we open up,
Speaker 1: and I just that it's you guys do There's a
Speaker 1: lot of enthusiasm on that front. But we still have
Speaker 1: some lingering pain with the long term unemployed, with the
Speaker 1: commercial real estate space that I think, honestly and not
Speaker 1: enough people are are acknowledging that there's a risk on
Speaker 1: that front. Tim and I talked about that all the time,
Speaker 1: Like we're just driving around New York. It's just staggering
Speaker 1: the number of boarded up, shut down you know, retail restaurants,
Speaker 1: you name it, that are no longer there. Tim. Yeah,
Speaker 1: And if companies have employees have proven look to you know,
Speaker 1: mixed reviews from executives who we hear from pretty much
Speaker 1: each and every week about how they feel about employees
Speaker 1: not being in the office. But if employees have proven
Speaker 1: that they can work in a hybrid environment or or
Speaker 1: remotely from home or coming into the office just a
Speaker 1: couple of days a week, that has serious repercussion for
Speaker 1: parts of the economy. So, Jeffrey, commercial real estate, is
Speaker 1: that something that might be another shoe to drop maybe
Speaker 1: this year or into next year. Well, I have to say,
Speaker 1: I think if you go back nine months ago, the
Speaker 1: the outlook was much more pessimistic, like we would never
Speaker 1: return to the office. I think that's changed a lot.
Speaker 1: I think you see that change in price for for
Speaker 1: the commercial real estate sector in various ways, so maybe
Speaker 1: we should be a little bit more upbeat. It was
Speaker 1: like Carol, it was the U, the L, the W
Speaker 1: shaped recovery. It's much more like the U then, I think,
Speaker 1: or even like the V. You know, it's not the
Speaker 1: L or it's not the W, but that beings that.
Speaker 1: I mean, I think there is some restructuring that needs
Speaker 1: to go on here, but that's that's something that happens
Speaker 1: every recession where you do have sectors that don't quite
Speaker 1: come back to where they were pre recession, and the
Speaker 1: capital needs to be reallocated. So maybe that that will
Speaker 1: be focused on the on the c R E space. Well, Jeffrey,
Speaker 1: one letter you didn't mention was K, and it's the
Speaker 1: K shaped recovery that that we've been talking about for
Speaker 1: months that the people who have been at the higher
Speaker 1: end of the income bracket have done so much better
Speaker 1: than those at the lower end of what needs to
Speaker 1: happen in order for the recovery to be equal. The
Speaker 1: best thing that can happen for the K shaped type
Speaker 1: recovery to get the lower end back is to have
Speaker 1: full and inclusive employment. So that's why I was so
Speaker 1: emphatic about five four year old corborate the population, which
Speaker 1: at seventy six we need back at eighty. When that
Speaker 1: labor market gets to that level of tightness, that's when
Speaker 1: the lower income stretches tend to benefit the most. We
Speaker 1: saw that in eighteen ten. I think maybe the Fed
Speaker 1: even learned its lesson that perhaps we preemptively hyped too
Speaker 1: much too quickly. Sort of we could have had a
Speaker 1: even hotter labor market. So we need a hot labor
Speaker 1: market to help the bottom part of the K, which
Speaker 1: is just where we were a pre pandemic. Just three
Speaker 1: and a half minutes away from J. Powell of the
Speaker 1: Federal Reserve, he will be making a brief statement, followed by,
Speaker 1: of course, the press conference following that latest FED decision,
Speaker 1: wherewith here with Ali Wolf of Xander and Jeffrey Cleveland
Speaker 1: have paid an in regal guys. Um got a question
Speaker 1: for you about, uh, what keeps you up at night? Ali?
Speaker 1: What worries you about the US economy? Right? Now, so
Speaker 1: I would say, and this is something that I'm sure
Speaker 1: people will ask Dave Powell on when he comes out
Speaker 1: for his press conference, is he has acknowledged that, yes,
Speaker 1: we're going to have this base effect with inflation, and
Speaker 1: yes we're going to have um transitory inflation. But the
Speaker 1: question basically everyone is saying, we haven't seen inflation in
Speaker 1: the past, and going into this, we didn't see really
Speaker 1: high levels of inflation, so we shouldn't expect to see event.
Speaker 1: And I know there's a couple of different camps emerging,
Speaker 1: but we're living through a world of so many different
Speaker 1: unprecedentedge you know, we're talking about a top dollar amount
Speaker 1: that we haven't seen. We're talking about that gap between
Speaker 1: the halves and the halves, not we're talking about the
Speaker 1: savings changes. We're talking about a goods economy that's thriving
Speaker 1: and a service economy that's not. And and eventually they
Speaker 1: both will maybe come up and they'll meet in the middle.
Speaker 1: But how high can inflation go? How long can the
Speaker 1: FED pulled off if the numbers are alarmingly higher than
Speaker 1: what they think, which I think at one phase throughout
Speaker 1: this year we may see pretty alarmingly high inflation numbers. Jeffrey,
Speaker 1: same question. Do you what keeps you up at night?
Speaker 1: I think policymakers are always fighting the last battle and
Speaker 1: the battle last cycle. The lesson that policymakers seem to
Speaker 1: have learned is that they could have let the economy
Speaker 1: run a bit hotter or longer and not preemptively started
Speaker 1: the hiking cycle, and that would have benefited a lot
Speaker 1: of the labor market, and that maybe would have had
Speaker 1: higher inflation. So they seem to think that it was there.
Speaker 1: You know, they're called they control inflation. I wonder about that.
Speaker 1: What if that's the wrong lesson and inflation, you know,
Speaker 1: has the mind of allsven by somebody else, and they'll
Speaker 1: be a bit surprised here by by a more persistent pickup.
Speaker 1: That's probably the biggest concern. All right, kind of leave
Speaker 1: it on that, guys, You were amazing, Thank you so much,
Speaker 1: really smart Inside. Ali Wolfe, chief economist Ad Zonda on
Speaker 1: the phone from Irvine, California. Just around the corner. Jeffreyley,
Speaker 1: Jeffrey Cleveland, the chief economists at paid An in Regal,
Speaker 1: on the phone from Los Angeles. This is Bloomberg Business
Speaker 1: Week with Carol matt Sure and Bloomberg quick takes Tim
Speaker 1: Stinovich from Bloomberg Radio. Let's continue with our coverage of
Speaker 1: today's decision by the Federal Reserve their Open Market Committee
Speaker 1: in J. Powell's press conference shooting us right now. Great
Speaker 1: to have back with us is Stephen Skanky. He's chief
Speaker 1: economic advisor at kill Point, former U S Treasuring White
Speaker 1: House National Security Council staff member based in Washington, d C.
Speaker 1: On the phone though from Missouri on this Wednesday, fed Wednesday.
Speaker 1: Also here Bloomberg Economics chief US economist Carlwick and Donna
Speaker 1: with a recap of the Power press conference as well,
Speaker 1: and he joins us on the phone in New Jersey. So, um, Carl,
Speaker 1: let me start with you. What stood out here? It
Speaker 1: feels like it's almost a perfect report. Well, it certainly
Speaker 1: was a well well executed He spect the landing here.
Speaker 1: I think the market is getting ready to test the
Speaker 1: Feds resolved against both the backup and interest rates, and
Speaker 1: also some signs that maybe inflation pressures are starting to
Speaker 1: warm up, at least on the temporary basis. And so
Speaker 1: we have seen yields backing up to post to pre
Speaker 1: pandemic levels, although when we adjust those Treasury yields for inflation,
Speaker 1: we're right back at zero. So you know, it's not
Speaker 1: while it looks like a large move and yields, when
Speaker 1: we take it in the context of how the economy
Speaker 1: is performing at the moment, Uh, it's not the type
Speaker 1: of backup in rates that could actually derail activity. So
Speaker 1: I was kind of surprised to see the market largely
Speaker 1: take this in stride. But but as expected, this is
Speaker 1: a fed that is not going to be faced by
Speaker 1: short term uh deviations in economic data. So they acknowledge
Speaker 1: that yes, at one point nine trillion and fiscal stimulus
Speaker 1: is going to dramatically change the growth profile for but
Speaker 1: it's not going to have a long term implication for
Speaker 1: either growth or inflation pressures in the economy. So this
Speaker 1: is a fad that still thinks it's too early to
Speaker 1: even talk about talking about the exit. Steve, do you
Speaker 1: agree with that a assessment? How do you see it?
Speaker 1: And is it fed right? And kind of their outlook,
Speaker 1: you know, feeling like we can keep rates low for
Speaker 1: a long time, that's right. Uh, it's actually quite phenomenal
Speaker 1: how how well J. Powell navigated around this issue of
Speaker 1: inflation and what are they going to do and what
Speaker 1: is their outlook. I think what was really impressive was
Speaker 1: that he just well not eat but but the F
Speaker 1: one m C just went into it head first. There
Speaker 1: there's some very of economic rejections. They increased the growth
Speaker 1: outlook to six and a half percent for one versus
Speaker 1: four point two, unemployment lower at three point nine percent,
Speaker 1: and then interestingly right up front headline inflation at two
Speaker 1: point four in one UH and and then two percent
Speaker 1: in two core inflation two. So so when we see
Speaker 1: the numbers start to chick up, they're already out there
Speaker 1: in in front of it that they're saying, we expect this,
Speaker 1: and what we're doing has all of this in mind.
Speaker 1: Uh and that should take a lot of the second
Speaker 1: guesting and and jitters out of the market when it
Speaker 1: comes as it will. Well, and Carl, was there something
Speaker 1: that wasn't asked that you kind of wish had been
Speaker 1: of J. Powell's or something that or after the press
Speaker 1: commerce you're still thinking, God, I'd like to go back
Speaker 1: and kind of push him on some point. Well, Carol,
Speaker 1: the million dollar question, or maybe we should say multi
Speaker 1: trillion dollar question, as it pertains that the quantitative easing
Speaker 1: is this question or that the notion about what the
Speaker 1: exit sequence is going to be like, So we know
Speaker 1: from the get go it's pointless to ask him about
Speaker 1: when they're gonna raise rates or when they're gonna paper
Speaker 1: asset purchases because it's going to give those canned answer
Speaker 1: is that are that are well thought out answers, but
Speaker 1: that that he's been giving for you know, the broader
Speaker 1: course of six months to a year depending on economic conditions, etcetera.
Speaker 1: Heads right, He's not going to come out and say,
Speaker 1: folks going to do this right, right exactly, So, as
Speaker 1: he said in his own words, we're not going to
Speaker 1: put pins in the calendar on those issues. It depends
Speaker 1: on economic data. But what is a very important question
Speaker 1: here is the sequence of the exits. So if we
Speaker 1: look back to the FED response after the two seven
Speaker 1: to two nine two nine recession, they hike rates by
Speaker 1: about a hundred basis points before they started to let
Speaker 1: the balance sheet unwind. The question is will they follow
Speaker 1: the same playbook this time around or is it kind
Speaker 1: of a first in, last out approach where maybe they
Speaker 1: deemed the policy response last time around to be ineffective,
Speaker 1: where they would like to taper asset purchases first and
Speaker 1: then follow through with rate increases, So that would have
Speaker 1: dramatic consequences for the financial markets. And unfortunately we're just
Speaker 1: not getting that question asked to the chairman just yet.
Speaker 1: A great point, Uh, Steve, let me put that question
Speaker 1: to you. Is there something that you kind of wish
Speaker 1: you could go back now and you know, add on
Speaker 1: to the questioning of J. Powell or push them on,
Speaker 1: you know, one particular point. Well, it would be really
Speaker 1: to get a better understanding of of maximum employment and
Speaker 1: the variety of labor market indicators that they're using. It's
Speaker 1: not just the unemployment rate, it's not just labor force participation.
Speaker 1: But they clearly have something in mind about what maximum
Speaker 1: employment looks like and how that has to be spread
Speaker 1: out with with some equality through the disadvantaged sectors of
Speaker 1: the labor market. Uh and uh. And they talk about
Speaker 1: it some, but but never with enough specificity that that
Speaker 1: anyone just trying to read the tea leaves separately could
Speaker 1: could come up with a judgment. Um. I understand that
Speaker 1: they don't want to chip their hand on that, but
Speaker 1: but I sure would love to ask the question and
Speaker 1: here an answer. Yeah, Well, you know, and I've got
Speaker 1: to just put this to you guys. You know, it
Speaker 1: does feel like I talked about kind of a Goldilocks economy, Like,
Speaker 1: could we possibly, Carl, be getting back to that? I
Speaker 1: think very much we're getting back to that, Carol. We're
Speaker 1: looking for economic growth. I know the FED is taking
Speaker 1: growth at about six and a half percent this year.
Speaker 1: My own team is forecasting growth closer to seven point
Speaker 1: seven percent of this year. So we have very robust
Speaker 1: growth numbers, which should drive the unemployment rate lower. Although
Speaker 1: I should add a footnote of caution. Those unemployment rate
Speaker 1: projections that FED put out there do not necessarily assume
Speaker 1: that participation in the economy rebounds where we were the pandemic.
Speaker 1: So keep in mind that even though the last unemployment
Speaker 1: rate was reported at about six point two percent, if
Speaker 1: we adjusted for the collapse and participation that happened during
Speaker 1: the pandemic, we would instead be talking of an unemployment
Speaker 1: rate closer to nine. So, uh, you know, those forecasts
Speaker 1: don't fully take that into account. But back to Steve's point, Uh,
Speaker 1: the answer Steve, look all around you. You're in Missouri.
Speaker 1: It's the show me state. Uh. And so Powell and
Speaker 1: his committee they want to see the evidence of wage
Speaker 1: pressures in the economy, so they wonder where full employment is, uh,
Speaker 1: they'll know that they've gotten there. It used to be
Speaker 1: talking about the whites of the eyes of inflation. Now
Speaker 1: it's the coattails of inflation, where they actually need to
Speaker 1: see inflation marching past them to actually know that we've
Speaker 1: reached full employment in the economy. We've gone through four
Speaker 1: percent in the recent past was an inflationary We were
Speaker 1: at three and a half percent before the pandemic set in,
Speaker 1: and actually we're seeing inflation and wage pressures trending in
Speaker 1: the wrong direction. So while the said doesn't want to
Speaker 1: put a number around this, it's probably low three percent
Speaker 1: or maybe even lower territory, which is wow to things. Steven,
Speaker 1: then I want you to kind of back to this.
Speaker 1: But there's two things that came from j Pal saying
Speaker 1: it's going to take time for ten million to return
Speaker 1: to work. He also said the time of tight unemployment inflation,
Speaker 1: that tie is long gone. So Steve come on in
Speaker 1: and layer on this conversation. Well, there there's probably closer
Speaker 1: to twenty million people who are who are unemployed. Um
Speaker 1: to the point that Karl made earlier, and I think
Speaker 1: I think most recently reported last week is that there
Speaker 1: are twenty million people still receiving in some form of
Speaker 1: unemployment benefits related to the pandemic or otherwise. Uh. And
Speaker 1: that's a huge number. Uh. And when you when you
Speaker 1: when you try to count it up, obviously you get,
Speaker 1: as Carl said, the reduction in labor force participation, the
Speaker 1: people who haven't got their jobs back. Um, within labor
Speaker 1: force participation, the number of five million people who left
Speaker 1: the labor force just to take care of their kids
Speaker 1: when schools closed. Uh. And all of that comes back together.
Speaker 1: And so when when jar poll says, uh, this isn't
Speaker 1: about estimates and guesses that we we want to see
Speaker 1: substantial actual progress, Carl said, marching past us with higher
Speaker 1: employment and in placing. Uh and to see it moving
Speaker 1: beyond beyond our target. Right. And I think that's that's
Speaker 1: that's critical. Uh, what with with the concern and care
Speaker 1: they have about the the employment situation, that that really
Speaker 1: is going to be their focus. Uh. Maybe to the
Speaker 1: detriment of price stability, but I think we all hope
Speaker 1: not for the reason you just said, Carol, you know
Speaker 1: that pie seems to be broken Yeah, and the FETs.
Speaker 1: She's saying that several times that you know, the FETE
Speaker 1: is eyeing actual progress, not forecast progress, in saying that
Speaker 1: the things that they're putting out right now are forecasts. Guys, Um,
Speaker 1: thank you so much. Really smart conversation here. Dr Steven Skanky,
Speaker 1: great check in with him again, chief economic advisor at
Speaker 1: kill Point, former U. S. Treasury and White House National
Speaker 1: Security Council staff member with us from Missouri. As we
Speaker 1: like to say, Carl Rickadonna, the best chief US economist
Speaker 1: at Bloomberg Economics, with us on the phone in New Jersey.
Speaker 1: This is Bloomberg Business Week with Carol Masser and Bloomberg
Speaker 1: Quick Takes. Tim Stinovich from Bloomberg Radio. Let's talk about
Speaker 1: the Drive to the close with David Speaker. He's president
Speaker 1: and chief investment officer at Guidestone Capital Management. Sixteen point
Speaker 1: three billion in assets under management, and there are small
Speaker 1: cap equity fund by the way, up nearly eighteen percent
Speaker 1: year to date, on par with the rise in the
Speaker 1: Russell two thousand. David with us on the phone from Dallas. David, uh,
Speaker 1: interesting market year already and it's only mid March. How
Speaker 1: do you see it, and how does what the Feds
Speaker 1: say you think play into the market play for the
Speaker 1: rest of the year. Well, thanks for having me on, Carroll,
Speaker 1: and I would say, yes, it's been very interesting, and
Speaker 1: clearly the market liked with the hurt from the Fed today,
Speaker 1: a very devilish tone. No hikes until continuing to buy
Speaker 1: bonds and and and and do qui into the foreseeable future.
Speaker 1: That's really been the key ever since the market bottom
Speaker 1: a year ago, has been with the FETE has done
Speaker 1: in terms of stimulus, and now we've got more fiscal
Speaker 1: stimulus courtesy of the federal government. That's also a fueling
Speaker 1: stock prices. Ultimately, what we want to see though, is
Speaker 1: a sustainable economic recovery fueled by consumer spending. Now, we
Speaker 1: had weaker than expected consumer spending in February, but that
Speaker 1: was pre stimulus. Um, we're getting better. Just a lot
Speaker 1: of snow. There was a lot of stuff going on,
Speaker 1: right Yeah, yeah, a lot of snow, a lot of weather.
Speaker 1: We had some bad economic data. But going forward, the
Speaker 1: stimulus should be a key and and we really feel
Speaker 1: like this year we're going to see very strong economic
Speaker 1: growth and the markets should respond to that well. And
Speaker 1: it's interesting. I mean, listen, we have a story on
Speaker 1: the Bloomberg. It's one of our most red Americans have
Speaker 1: one point seven trillion to burn and revenge spending binge,
Speaker 1: and you know, just talking about you know, we've been
Speaker 1: all pent up not spending money on anything, and you
Speaker 1: know that as the economy reopens, the expectation is that
Speaker 1: people are going to be out there spending big time. Yeah,
Speaker 1: that's a great point, Caroline. One of the things that
Speaker 1: we like in in our Small Calf Equity Fund, the
Speaker 1: guides Own Small Calf Equity Fund, is the opportunity to
Speaker 1: see leisure spending take off. And so what you saw
Speaker 1: during the pandemic was a lot more spending on things
Speaker 1: that could support outdoor activities watercraft and bicycles and golf equipment.
Speaker 1: So a company like Malibu Boats that trades at a
Speaker 1: very attractive sixteen times forward earnings multiple, a leader in
Speaker 1: high performance watercraft production, and a company that's mean some
Speaker 1: really nice recent acquisitions, we think they'll benefit from this
Speaker 1: trend as what companies like Dix Sporting Goods and Callaway Golf.
Speaker 1: This is something that's going to continue as companies as
Speaker 1: individuals start spending that money they've been holding onto over
Speaker 1: the past year. This is a pretty remarkable stock tickers
Speaker 1: M b u U and I have to say, I've
Speaker 1: been talking and uh folks, I know, talking with people
Speaker 1: who are in the boating industry and sell boats. They said,
Speaker 1: it has never been busier than what they have been
Speaker 1: seeing for the last year or so, and in particular
Speaker 1: what we're seeing right now. But you look at m
Speaker 1: b u U. Uh, that was a stock that was
Speaker 1: trading at sixteen bucks at the end of TIFT. It's
Speaker 1: now an eight seven dollar stock. It has been consistently
Speaker 1: higher and higher each year. Specifically, another name that you
Speaker 1: like is um an I T staffing company. The takers
Speaker 1: A s g and Virginia based talk to us about
Speaker 1: this company. Uh yeah, A s g N is a
Speaker 1: company that provides staffing solutions in the I T industry.
Speaker 1: And if you think about where the growth is in
Speaker 1: the economy today, I T clearly as a leader. Uh.
Speaker 1: We don't want to forget the fact that I T
Speaker 1: companies and the I T stocks are not performing well.
Speaker 1: But longer term I T growth is going to be
Speaker 1: paramount for the growth of the economy. So a company
Speaker 1: like a s g N that can provide staffing solutions
Speaker 1: for technology companies. Um is going to do very very well.
Speaker 1: And they've also got a very attractive growth oriented m
Speaker 1: and a strategy that's very additive to their growth. And
Speaker 1: so that's another company that we own in the guides
Speaker 1: one small cath equity fund that we're we're very favorable
Speaker 1: towards nineteen up another eighteen percent last year. UM. Let
Speaker 1: me also ask you really quickly about Q two holding.
Speaker 1: It's down about fifteen percent this year. Ticker is Q
Speaker 1: two qt w O just got about thirty five seconds.
Speaker 1: It's got a pretty high short position to what's your
Speaker 1: take here, Well, the valuation is kind of steep because
Speaker 1: they've made a lot of uh, they've got a lot
Speaker 1: of expenses related to their growth, but the popline revenue
Speaker 1: growth is going to be or more for the foreseeable future.
Speaker 1: They provide cloud based services for small and midsides banks
Speaker 1: and seventy of their revenues are recurring, their subscription based
Speaker 1: and if you think about where the activity is going
Speaker 1: to be, the banking sector is going to benefit from
Speaker 1: this rebound in the economy and all the stimulus, and
Speaker 1: a company like Q two will be will positioned to
Speaker 1: benefit from that as well. Yeah, forward looking pe I
Speaker 1: th seventy five. You weren't kidding that. It's deep. Um.
Speaker 1: Hey listen, good to check in with you really appreciate it.
Speaker 1: David Speaker, President and Chief Investment Officer of guide Stone
Speaker 1: Capital Management, sixteen point three billion in assets under management,
Speaker 1: with us on the phone for Dallas. Thanks for listening
Speaker 1: to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,
Speaker 1: or Bloomberg dot com, and you can also listen to
Speaker 1: our radio show at two pm Eastern on Bloomberg Radio
Speaker 1: or watch us on YouTube. Search to Bloomberg Global News