WEBVTT - Yield Curve Front And Center For Fed Chair Powell: BI’s Jersey

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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<v Speaker 1>Along with my co host Lisa Bramowitz. Each day we

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<v Speaker 1>Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. It's

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<v Speaker 1>time to bring in Dave Wilson, Bloomberg Stocks columist and

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<v Speaker 1>blogger at M live go on the Bloomberg. Remember to

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<v Speaker 1>send Dave an email at d Wilson at Bloomberg dot net,

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<v Speaker 1>sign up for his daily free email newsletter, and follow

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<v Speaker 1>Dave on Twitter at the One Dave. Alright, the one, Dave.

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<v Speaker 1>What are you looking at today? I was looking at

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<v Speaker 1>cruise line operators. Yeah, it's a good day for transportation

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<v Speaker 1>stocks in general. You can put the cruise lines together

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<v Speaker 1>with the airlines and uh, I'm sure because of the

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<v Speaker 1>United Continental reports exactly, I'm sure you were looking at

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<v Speaker 1>Norwegian cruise lines. Uh. As far as focusing on that industry,

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<v Speaker 1>they expect to raise their earnings forecast for this year,

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<v Speaker 1>talking about booming demand in their main markets around the world.

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<v Speaker 1>And that's saying something when you know there's so much

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<v Speaker 1>of a focus on, you know, whether economies outside the

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<v Speaker 1>US are doing as well or perhaps headed for some

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<v Speaker 1>weakness and relative to the US. And yet you know

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<v Speaker 1>you've got all these stocks moving up in Norwegian Cruise

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<v Speaker 1>Lines has the second biggest game in the S and

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<v Speaker 1>people I'm under now it's up more than eight percent.

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<v Speaker 1>You know, but you know where the demand is coming

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<v Speaker 1>from China? That would make sense. You know, you've got

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<v Speaker 1>people who have more wealth, uh, that are more able

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<v Speaker 1>to travel, and so it stands to reason that you'd

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<v Speaker 1>be getting the demand from China. You know, United Continental,

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<v Speaker 1>I mean they're talking about raising their earnings forecast for

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<v Speaker 1>this year at a time when fuel prices are going

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<v Speaker 1>up and we've seeing other companies cutting their projections. So

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<v Speaker 1>you know that that's the positive surprise there. Uh. You know,

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<v Speaker 1>you've got United up seven and a half percent, American

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<v Speaker 1>Delta Southwest all higher. We should point out to that

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<v Speaker 1>Royal Caribbean and Carnival are following Norwegian Cruise Lines leads.

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<v Speaker 1>So those are a couple of areas that definitely get

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<v Speaker 1>your attention to this market alright. One area that's getting

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<v Speaker 1>my attention is the underperformance of tech stocks to the naztacs,

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<v Speaker 1>certainly underperforming the SMP and down Jones. What's behind that, Well,

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<v Speaker 1>it doesn't help matters that Alphabets down, you know, the

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<v Speaker 1>owner of Google. This five billion dollar fine imposed by

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<v Speaker 1>the European Union, I should point out though, I mean

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<v Speaker 1>those two classes of shares that are in the SMP

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<v Speaker 1>five hundred, the uh the voting class A, which is

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<v Speaker 1>the ticker g O O G L, and the non

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<v Speaker 1>voting class C, which is g O G they're only

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<v Speaker 1>down about a quarter at this point. That exact what

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<v Speaker 1>I was gonna say. I mean, this is the biggest

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<v Speaker 1>fine ever of its hype. It certainly is a big headline.

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<v Speaker 1>The reaction is to Minimus exactly. I mean, people anticipating

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<v Speaker 1>that the EU was going to weigh in. That this

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<v Speaker 1>has been playing out for some time, so it's not

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<v Speaker 1>like it's snuck up on anyone. And just looking at

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<v Speaker 1>you know, Alphabet's performance, I mean you see just in

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<v Speaker 1>terms of how much they earn in a quarter. Yeah, well,

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<v Speaker 1>I mean you're talking about nine billion dollars. They could

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<v Speaker 1>pay it off with a month and a half worth

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<v Speaker 1>of earnings. Let's get a little bit more insight on

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<v Speaker 1>exactly what this fine was and why stock investors just

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<v Speaker 1>really don't care share over a joint us. Now, she's

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<v Speaker 1>a technology columnist with bloom Bloomberg Opinion. UM, we're talking

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<v Speaker 1>about this five billion dollar fine by the European Union.

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<v Speaker 1>Can you just give us why Google was fined this

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<v Speaker 1>way and why shareholders are just shrugging it off? Sure? So, Basically,

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<v Speaker 1>what the European regulators said was that Google has been

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<v Speaker 1>illegally abusing its power over Android, which is the operating

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<v Speaker 1>system that powers something like eight five percent of smartphones

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<v Speaker 1>in the world. And the Europeans basically said Google um

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<v Speaker 1>illegally compelled the companies that make devices that run Android software,

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<v Speaker 1>so that would be companies like Samsung and hp C

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<v Speaker 1>an LG that makes phones. Google compelled them to install

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<v Speaker 1>other Google apps on those Android phones, including things like

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<v Speaker 1>the Google Search app, the Chrome web browser. UM and

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<v Speaker 1>the Europeans said that this was sort of an illegal

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<v Speaker 1>abuse of Google's power over Android. And as for why

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<v Speaker 1>UM investors don't care, look, as you guys said, this

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<v Speaker 1>has been telegraphed for a long time. This investigation has

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<v Speaker 1>been ongoing and it's a little bit hard to know

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<v Speaker 1>exactly how this might crimp Google's revenue and profits that

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<v Speaker 1>you know, we're now in a world where Google has

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<v Speaker 1>become the de facto um you know, starting point for

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<v Speaker 1>a lot of people on their phones, whether that's YouTube

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<v Speaker 1>or the Chrome browser or Search. Certainly, and no matter

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<v Speaker 1>what regulators do, the question is, um has will will

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<v Speaker 1>the rule changes or will Google behavior changes do anything

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<v Speaker 1>to change the status quo of Google's power in the

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<v Speaker 1>smart home world. And you have to bear in mind too,

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<v Speaker 1>we've seen this movie before. Go back a couple of decades,

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<v Speaker 1>the EU regulators told Microsoft they had to break up

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<v Speaker 1>in essence, the Internet Explore browser from the Windows operating system.

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<v Speaker 1>It's the same thing, only it's playing out now with

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<v Speaker 1>mobile phones and Microsoft seems to have survived just fine

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<v Speaker 1>in the last couple of decades. And so here we are.

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<v Speaker 1>It's the same situation you know that that Google's facing.

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<v Speaker 1>And you know, at least we have a press the

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<v Speaker 1>suggest that may not be the end of the world. Well, Shira,

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<v Speaker 1>I just want to understand Android as the operating system.

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<v Speaker 1>It's a Google product, right, is a Google product? Yes?

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<v Speaker 1>So they don't make money directly from Android. But yes,

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<v Speaker 1>it is a product that Google makes and distributes. They

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<v Speaker 1>got two billion monthly active users. That's the largest installed

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<v Speaker 1>base of any operating system, and that fits into the

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<v Speaker 1>Google Play Store. So you've got what three million plus

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<v Speaker 1>apps on the Play Store. What would be the technical

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<v Speaker 1>consequences of separating Google from the actual operating system of

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<v Speaker 1>mobile phones. Yes, fair question. Um, I think the most

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<v Speaker 1>honest answer is we don't know exactly what will be

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<v Speaker 1>the consequence of this you crackdown on Google and how

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<v Speaker 1>Android operates. Um, what it could mean is in the future,

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<v Speaker 1>if you buy an Android phone, whether it's a Samsung

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<v Speaker 1>phone or an HBC phone or somebody else's phone, Um,

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<v Speaker 1>maybe it won't have the Google Search app installed on

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<v Speaker 1>it automatically. Maybe it won't have the Chrome web browser

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<v Speaker 1>installed on it automatically. Right, And look, those kinds of

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<v Speaker 1>default do matter. That is why companies make deals so

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<v Speaker 1>their phones come pre installed with all those apps, because

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<v Speaker 1>people tend to use whatever is already on their phone

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<v Speaker 1>rather than seeking out those apps or internet services on

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<v Speaker 1>their own. All Right, So you know, we started out

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<v Speaker 1>talking about the under performance of NAZA of the Nasdaq index,

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<v Speaker 1>and so it seems like it's pretty clear that this

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<v Speaker 1>is a slap on the risk for Google with the fine,

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<v Speaker 1>it's not going to materially alter their outlook. Netflix perhaps

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<v Speaker 1>is in a different situation. You are seeing those shares

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<v Speaker 1>continue declining today after yesterday's de clim which wasn't as

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<v Speaker 1>bad as it could have been. And I guess I'm

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<v Speaker 1>trying to figure out, is this sort of the moment

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<v Speaker 1>of truth? Do you think shia for Netflix, just with

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<v Speaker 1>respect to they actually start to face some challenges with

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<v Speaker 1>their business model of raising money and then burning it.

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<v Speaker 1>I think probably not yet. Um. Look, the thing about

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<v Speaker 1>Netflix is it's pretty easy to argue that one quarter

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<v Speaker 1>or even two quarters um of soft subscriber growth or

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<v Speaker 1>subscriber numbers um is a blip that if you look

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<v Speaker 1>at Netflix's track record over the long term, it is

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<v Speaker 1>a pretty amazing story of a company that has managed

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<v Speaker 1>to gain a huge number of users in a short

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<v Speaker 1>period of time and for the most part, is still

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<v Speaker 1>adding to its user base, even in a country like

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<v Speaker 1>the United States where something like half of all households

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<v Speaker 1>with internet access or Netflix subscribers. It's pretty impressive. Um.

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<v Speaker 1>You know, but the thing about Netflix, right is that

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<v Speaker 1>it's a self fulfilling prophecy that people's investors belief that

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<v Speaker 1>Netflix will keep growing gives it the money both from

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<v Speaker 1>the debt markets and exequity value, gives Netflix the money

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<v Speaker 1>to keep spending on programming so that it can gain

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<v Speaker 1>more users. And if one part of that virtuous circle

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<v Speaker 1>starts to uh kind of collapse a little bit of

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<v Speaker 1>people believe it might start to collapse, then the whole

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<v Speaker 1>cycle doesn't work. Right. That is, investors believe, Okay, maybe

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<v Speaker 1>Netflix isn't going to grow to the moon, or at

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<v Speaker 1>least to have to grow as quickly as we thought

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<v Speaker 1>in terms of subscriber numbers. Maybe they're less willing to

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<v Speaker 1>um loan money to Netflix to fund its programming costs.

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<v Speaker 1>And if that's the case, then maybe Netflix can't spend

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<v Speaker 1>as much as it has been, and then maybe it

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<v Speaker 1>doesn't get as many subscribers as people thought, and then

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<v Speaker 1>the whole thing starts to come unraveled. So we don't

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<v Speaker 1>know the impact. It's only one quarter, but remember that

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<v Speaker 1>Netflix basically live or dies based based on the kind

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<v Speaker 1>of faith of investors, and that faith could be tested. Now, sure,

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<v Speaker 1>Netflix has what a hundred and thirty million subscribers paying

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<v Speaker 1>every month. Correct, that's a lot of cash flow, isn't it. Well,

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<v Speaker 1>it's a lot of cash flow in theory, but if

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<v Speaker 1>you look at Netflix's cash flow, it's negative to the

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<v Speaker 1>tune of several billion dollars a year um and they've

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<v Speaker 1>said that the free cash flow is going to be

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<v Speaker 1>negative three to four billion dollars this year. And the

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<v Speaker 1>reason for that is, Yeah, there's a lot of customers

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<v Speaker 1>coming in the door paying their bills every month, but

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<v Speaker 1>there's even more money going out the door for Netflix

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<v Speaker 1>to pay for Oranges, the new Black and Stranger things

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<v Speaker 1>than all the other literally hundreds of new shows and

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<v Speaker 1>movies that it airs on a yearly basis. So it's

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<v Speaker 1>spending more than it's it's taking in. I think they're

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<v Speaker 1>supposed to be about seven hundred programs on Netflix Original programming. Dave,

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<v Speaker 1>you're shaking your head. The shares and Netflix are down

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<v Speaker 1>about nine That's a lot to watch, no question. Yeah,

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<v Speaker 1>Netflix shares it back to where they were a little

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<v Speaker 1>more than a month ago. So we mean, yeah, you

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<v Speaker 1>saw the reaction. Uh, late Monday, early yesterday, stock bounced

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<v Speaker 1>back close with a loss of a little more than

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<v Speaker 1>five percent after falling as much as four percent. Yeah,

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<v Speaker 1>it's lower today, but two thirds of repersent at the moment,

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<v Speaker 1>so it's not like things are falling apart, at least

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<v Speaker 1>in the eyes of investors when they look at Netflix. Yeah.

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<v Speaker 1>Netflix shares now trading about three hundred and seventy five

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<v Speaker 1>dollars a share. Thanks very much. Sara over Day Bloomberg Opinion,

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<v Speaker 1>a columnist all Things Technology. We encourage you to follow

0:11:45.240 --> 0:11:47.280
<v Speaker 1>her on Twitter at Shara over Day and to read

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<v Speaker 1>all of her opinion columns at Bloomberg dot com slash Opinions.

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<v Speaker 1>I want to bring an Ira Jersey, Chief US Interest

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<v Speaker 1>rate strategist for Bloomberg Intelligence. Ira, Yesterday's Q and A session,

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<v Speaker 1>in my opinion, didn't really guild much. It was a

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<v Speaker 1>lot of grand standing on the part of politicians, and

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<v Speaker 1>there wasn't much with respect to monetary policy. What are

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<v Speaker 1>you expecting from today? Yeah, so I think the Senate

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<v Speaker 1>you tend to get higher brow questions, and you do

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<v Speaker 1>in the House of Representatives, you'll still get a little

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<v Speaker 1>bit of grandstanding, and certainly some members um trying to

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<v Speaker 1>trying to goad Chair Powell into coming to their point

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<v Speaker 1>with their point of view. So things like things like growth,

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<v Speaker 1>why the FEDS growth forecast or what they are m

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<v Speaker 1>I'm sure we'll be asked about the balance sheet. We'll

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<v Speaker 1>be looking with that, and I wouldn't be surprised at all.

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<v Speaker 1>And something that I'll be looking and listening for is

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<v Speaker 1>any comments about how concerned about the shape of the

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<v Speaker 1>yield curve that the FED is. That's been brought up

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<v Speaker 1>in almost re every time we look at the minutes.

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<v Speaker 1>That seems to be one of the highlights that that

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<v Speaker 1>some members are really concerned about about the shape of

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<v Speaker 1>the curve. But but Fitcher Powell actually got asked that

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<v Speaker 1>yesterday and he didn't seem overly concerned. He also did indicate,

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<v Speaker 1>uh that for now they're going to continue with their

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<v Speaker 1>gradual rate hikes. For the market took this as it's

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<v Speaker 1>still all guns blazing, Uh, let's go because to your

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<v Speaker 1>yields and made a new high yesterday, although they are

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<v Speaker 1>off the high that we saw yesterday. Yeah, So so

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<v Speaker 1>you know, some of the some of the reaction I

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<v Speaker 1>think about the curve is people are concerned that if

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<v Speaker 1>the if the FED hikes faster than the market currently expects,

0:13:40.120 --> 0:13:42.200
<v Speaker 1>that's really the real risk to the curve at this

0:13:42.240 --> 0:13:45.320
<v Speaker 1>point because it's it's well known that that or at

0:13:45.400 --> 0:13:47.720
<v Speaker 1>least the markets pricing that that said, it's gonna hike,

0:13:48.040 --> 0:13:50.320
<v Speaker 1>you know, three more times or so before the end

0:13:50.360 --> 0:13:53.720
<v Speaker 1>of next year. Um. So so things about the curve

0:13:53.800 --> 0:13:55.640
<v Speaker 1>that that we're gonna I'll be listening for that might

0:13:55.640 --> 0:13:58.000
<v Speaker 1>be different than yesterday. Are you know, when the curve

0:13:58.080 --> 0:14:00.319
<v Speaker 1>gets to zero, are you going to stop? Or how

0:14:00.360 --> 0:14:02.440
<v Speaker 1>many more hikes are there going to be? Uh, we

0:14:02.559 --> 0:14:05.199
<v Speaker 1>don't know. You're still see slacking the economy, so maybe

0:14:05.200 --> 0:14:08.120
<v Speaker 1>why are you still talking about the s gradule hiking

0:14:08.200 --> 0:14:10.920
<v Speaker 1>like all of those things are um, any change in

0:14:11.040 --> 0:14:12.800
<v Speaker 1>tune with what we're gonna be looking for. Now that

0:14:12.840 --> 0:14:14.960
<v Speaker 1>being said, I think Terry Powell has done a great

0:14:15.040 --> 0:14:19.280
<v Speaker 1>job staying on message, sticking exactly to where, um, where

0:14:19.320 --> 0:14:21.280
<v Speaker 1>he was at the last press conference in June, as

0:14:21.320 --> 0:14:23.560
<v Speaker 1>well as what we've seen in the minutes and and

0:14:23.600 --> 0:14:26.600
<v Speaker 1>the statements since he became chair. Um. You know, he

0:14:26.640 --> 0:14:29.320
<v Speaker 1>tends to be not quite as verbose as Cherry Yellen was,

0:14:29.360 --> 0:14:32.280
<v Speaker 1>and I think that that's maybe part of his legal

0:14:32.280 --> 0:14:34.800
<v Speaker 1>background where uh, you know, he doesn't want to give

0:14:34.840 --> 0:14:37.720
<v Speaker 1>away too much at at these at these hearings, but

0:14:37.760 --> 0:14:39.760
<v Speaker 1>at the same time, he also needs to answer the

0:14:39.840 --> 0:14:41.960
<v Speaker 1>questions that are asked as him. So I think things

0:14:42.000 --> 0:14:45.120
<v Speaker 1>like about the growth trajectory and and maybe a little

0:14:45.160 --> 0:14:47.480
<v Speaker 1>bit more on the labor side of things that he

0:14:47.520 --> 0:14:50.920
<v Speaker 1>was asked about yesterday before the House of Representatives, the

0:14:51.000 --> 0:14:55.880
<v Speaker 1>head of the committee talked about how the economy is performing.

0:14:56.520 --> 0:14:59.360
<v Speaker 1>Do you think that that is a way to support

0:14:59.400 --> 0:15:02.240
<v Speaker 1>the policy sees of the Federal Reserve And as much

0:15:02.280 --> 0:15:08.560
<v Speaker 1>as they have sort of telegraphed these rate increases, yeah,

0:15:08.600 --> 0:15:10.520
<v Speaker 1>you know, I think that when when we talk about

0:15:10.560 --> 0:15:12.720
<v Speaker 1>the rate increases and the pace of rate increases, I

0:15:12.720 --> 0:15:15.400
<v Speaker 1>think one of the things that that I think members

0:15:15.400 --> 0:15:17.640
<v Speaker 1>of Congress don't want. They don't want the Federal Reserve

0:15:17.760 --> 0:15:20.280
<v Speaker 1>to kind of derail the economy, and especially now at

0:15:20.280 --> 0:15:22.600
<v Speaker 1>a time when you're talking about midterm elections coming up

0:15:22.600 --> 0:15:25.160
<v Speaker 1>in just a few months. Um, you know, you're gonna

0:15:25.200 --> 0:15:27.800
<v Speaker 1>have Republicans in particular who seem to be a little

0:15:27.800 --> 0:15:29.880
<v Speaker 1>bit on the back foot when it comes to um

0:15:30.280 --> 0:15:34.880
<v Speaker 1>some elections, particularly in the Senate, that they're um, they're

0:15:34.920 --> 0:15:37.000
<v Speaker 1>likely to ask him, you know, to to stay slow

0:15:37.160 --> 0:15:39.120
<v Speaker 1>and yeah, you know, you've just had some members of

0:15:39.640 --> 0:15:42.120
<v Speaker 1>the House of Representatives also saying like, hey, you you

0:15:42.200 --> 0:15:44.880
<v Speaker 1>know you shouldn't we we want high interest rates because

0:15:44.920 --> 0:15:47.080
<v Speaker 1>we have a lot of savers and retirees, but at

0:15:47.080 --> 0:15:49.480
<v Speaker 1>the same time, we don't want the economy to falter.

0:15:49.680 --> 0:15:52.560
<v Speaker 1>So I think he'll be asked about some policies as well. UM,

0:15:52.640 --> 0:15:54.360
<v Speaker 1>So we'll be asked about things like, you know, what

0:15:54.480 --> 0:15:58.600
<v Speaker 1>are the tax increases or the tax the tax decreases

0:15:58.640 --> 0:16:01.560
<v Speaker 1>and the additional federal spending. What does that do to growth?

0:16:01.680 --> 0:16:04.160
<v Speaker 1>And you know, they'll try and highlight their their kind

0:16:04.200 --> 0:16:06.200
<v Speaker 1>of campaign pledge on the on the Republican side, I

0:16:06.240 --> 0:16:08.280
<v Speaker 1>think on the Democratic side, they're going to highlight the

0:16:08.360 --> 0:16:10.920
<v Speaker 1>risks of those policies and and want Jay Powell to

0:16:10.960 --> 0:16:13.240
<v Speaker 1>say something. You know this. You know, the thing with

0:16:13.520 --> 0:16:16.640
<v Speaker 1>testimony these days, particularly the last couple of years, is

0:16:16.920 --> 0:16:20.480
<v Speaker 1>that UM people do try and have been trying to

0:16:20.560 --> 0:16:23.080
<v Speaker 1>get whether it was his Chairman Nankee, Chair Yell and

0:16:23.400 --> 0:16:25.680
<v Speaker 1>now Chair Powell, to kind of take a stand on

0:16:25.800 --> 0:16:28.120
<v Speaker 1>their side of the issue. So there's some sound bite

0:16:28.160 --> 0:16:30.800
<v Speaker 1>that they can use, um, you know, for for their

0:16:30.800 --> 0:16:34.080
<v Speaker 1>own political gain. Well, as I was mentioning Jeb Henseling,

0:16:34.120 --> 0:16:38.960
<v Speaker 1>he's the committee chairman. He also maintenance. His opening remarks

0:16:39.160 --> 0:16:40.680
<v Speaker 1>a little bit of comments having to do with the

0:16:40.760 --> 0:16:43.360
<v Speaker 1>FEDS balance sheet and the draw down of the Fed's

0:16:43.400 --> 0:16:46.040
<v Speaker 1>balance sheet. Do you think that's going to be a focus. Yeah,

0:16:46.080 --> 0:16:48.400
<v Speaker 1>I think he'll he'll he'll be asked about that. You know,

0:16:48.480 --> 0:16:50.480
<v Speaker 1>you know that the chair always is. I think on

0:16:50.560 --> 0:16:52.720
<v Speaker 1>the Republican side in particular, they think that the Fed's

0:16:52.760 --> 0:16:54.840
<v Speaker 1>balance sheet is far too big. They I think some

0:16:55.000 --> 0:16:57.760
<v Speaker 1>of them is a lack of understanding of exactly, um,

0:16:57.920 --> 0:16:59.560
<v Speaker 1>you know, what the FEDS balance sheet is and how

0:16:59.600 --> 0:17:02.240
<v Speaker 1>it's been used. Um. But but it's also an important

0:17:02.320 --> 0:17:04.639
<v Speaker 1>question because the FED could, like, like one of the

0:17:04.720 --> 0:17:07.240
<v Speaker 1>things that the Federal Reserve could potentially do, it's in

0:17:07.280 --> 0:17:08.800
<v Speaker 1>their tool kit. I don't think that they'll do it.

0:17:08.880 --> 0:17:10.680
<v Speaker 1>I think that they don't want to do. It would

0:17:10.720 --> 0:17:13.080
<v Speaker 1>be to sell some assets that are on their portfolio.

0:17:13.200 --> 0:17:16.040
<v Speaker 1>So for example, if they want to keep on hiking

0:17:16.080 --> 0:17:17.840
<v Speaker 1>interest rates but they want to steep in the curve,

0:17:17.960 --> 0:17:19.920
<v Speaker 1>one of the things that they can talk about doing

0:17:20.680 --> 0:17:22.880
<v Speaker 1>would be to be selling these uh, you know, twenty

0:17:23.000 --> 0:17:25.399
<v Speaker 1>year and twenty five year securities that they own, and

0:17:25.440 --> 0:17:27.320
<v Speaker 1>they own about three dred billion of them, so if

0:17:27.320 --> 0:17:29.400
<v Speaker 1>they were to stort to sell some of them, you'd

0:17:29.440 --> 0:17:31.840
<v Speaker 1>probably see a significant increase in yields in the back

0:17:31.920 --> 0:17:33.720
<v Speaker 1>end of the curve. I think that the Fed doesn't

0:17:33.720 --> 0:17:36.119
<v Speaker 1>want to do that because they see it as disrupting

0:17:36.160 --> 0:17:38.440
<v Speaker 1>the market more than than the way that they're letting

0:17:38.440 --> 0:17:40.840
<v Speaker 1>their balance sheet roll off right now. Um So, I

0:17:40.880 --> 0:17:43.200
<v Speaker 1>think all of those things have to be taken into

0:17:43.760 --> 0:17:46.080
<v Speaker 1>um be taken into account. I think j. Powell will

0:17:46.160 --> 0:17:48.399
<v Speaker 1>probably talk about that that you know that their balance

0:17:48.440 --> 0:17:52.560
<v Speaker 1>sheet is unwinding and orderly fashion right now? All right?

0:17:52.680 --> 0:17:55.760
<v Speaker 1>You know it's It strikes me as we await the

0:17:55.920 --> 0:18:00.080
<v Speaker 1>Q and a portion of this event withdrawal testifying in

0:18:00.160 --> 0:18:03.840
<v Speaker 1>front of Congress, it is striking that we're getting more

0:18:04.040 --> 0:18:08.040
<v Speaker 1>data out of the US, particularly housing data this morning

0:18:08.080 --> 0:18:12.080
<v Speaker 1>showing the US new home groundbreaking and permits fell in June,

0:18:12.320 --> 0:18:14.520
<v Speaker 1>so the slowest pace in nine months. This is being

0:18:14.600 --> 0:18:17.399
<v Speaker 1>taken as another sign of a greater slow down in

0:18:17.440 --> 0:18:19.960
<v Speaker 1>the housing market the people expected. People are attributing this

0:18:20.040 --> 0:18:22.680
<v Speaker 1>to higher mortgage rates as well as just the higher

0:18:22.800 --> 0:18:26.879
<v Speaker 1>cost of goods and labor. And I'm wondering, you know this,

0:18:27.200 --> 0:18:29.320
<v Speaker 1>this has to at least weigh a little bit on

0:18:29.400 --> 0:18:32.680
<v Speaker 1>the federal reserve right now, given the fact that you're

0:18:32.720 --> 0:18:35.960
<v Speaker 1>not seeing expectations of longer term growth increase. In fact,

0:18:36.000 --> 0:18:38.040
<v Speaker 1>they're coming down the more the Fed hikes. I mean,

0:18:38.800 --> 0:18:40.920
<v Speaker 1>how has he responded to that? Is it just a

0:18:41.000 --> 0:18:44.600
<v Speaker 1>labor market discussion? You know, Well, we're seeing good employment

0:18:44.680 --> 0:18:48.040
<v Speaker 1>numbers now, so let's just keep on keeping on. Well,

0:18:48.080 --> 0:18:50.000
<v Speaker 1>I think he'll use that as an excuse. This is

0:18:50.080 --> 0:18:52.119
<v Speaker 1>why they need to go gradually, because there are some

0:18:52.240 --> 0:18:55.320
<v Speaker 1>fragilities potentially in the economy, and you know, things like

0:18:55.440 --> 0:18:57.919
<v Speaker 1>housing could be on on the front foot. And certainly

0:18:58.280 --> 0:19:01.080
<v Speaker 1>housing starts is important for or you know, some some

0:19:01.240 --> 0:19:05.119
<v Speaker 1>economic numbers like like GDP for example, because it's uh,

0:19:05.400 --> 0:19:08.520
<v Speaker 1>it's housing stares and completions, not existing home sales that

0:19:08.600 --> 0:19:11.879
<v Speaker 1>go in. And that's the component of GDP UM you know.

0:19:11.960 --> 0:19:13.720
<v Speaker 1>And and and it is true that you've seen some

0:19:13.920 --> 0:19:16.840
<v Speaker 1>somewhat of a slowdown as you've gotten over to about

0:19:16.880 --> 0:19:20.560
<v Speaker 1>four percent. UH, that the commitment rate for thirty year

0:19:20.560 --> 0:19:23.040
<v Speaker 1>mortgages is above four percent now, which you haven't seen

0:19:23.080 --> 0:19:26.200
<v Speaker 1>in over a decade UM. And I think that's something

0:19:26.280 --> 0:19:28.480
<v Speaker 1>that that is on the back of um of a

0:19:28.560 --> 0:19:31.359
<v Speaker 1>lot of UH of a lot of FED members minds

0:19:31.480 --> 0:19:33.400
<v Speaker 1>is you know, if if we continue to hike, will

0:19:33.440 --> 0:19:36.600
<v Speaker 1>that push up interest rates significantly more? You know, one

0:19:36.600 --> 0:19:38.320
<v Speaker 1>of the reasons why you have mortgage rates where they

0:19:38.320 --> 0:19:40.760
<v Speaker 1>are is not as much from the interest rate hikes

0:19:40.840 --> 0:19:43.440
<v Speaker 1>as it is from the runoff of the portfolio, because

0:19:43.480 --> 0:19:47.399
<v Speaker 1>you've seen spread slide in mortgage backed securities. Interesting, I

0:19:47.480 --> 0:19:51.160
<v Speaker 1>guess all. Another sort of statistics that I think could

0:19:51.240 --> 0:19:53.600
<v Speaker 1>come up is that real wages haven't increased it all

0:19:53.640 --> 0:19:56.600
<v Speaker 1>over the past year once, including inflation. And I'm wondering

0:19:56.840 --> 0:19:59.399
<v Speaker 1>he had He did talk a bit about that yesterday,

0:20:00.080 --> 0:20:02.440
<v Speaker 1>but you know, do you think that he could be

0:20:02.560 --> 0:20:04.440
<v Speaker 1>pressed more on that? Is there something more that he

0:20:04.480 --> 0:20:08.439
<v Speaker 1>could kind of offer up that would be compelling to you? Yeah, well,

0:20:08.480 --> 0:20:10.040
<v Speaker 1>there's not. There's not a lot that I think what

0:20:10.119 --> 0:20:11.680
<v Speaker 1>he would say to a question about that is that

0:20:11.760 --> 0:20:13.840
<v Speaker 1>there's not much that the Federal Reserve can do other

0:20:13.920 --> 0:20:17.399
<v Speaker 1>than keeping monetary policy reasonably accommodative, which they think that

0:20:17.520 --> 0:20:20.879
<v Speaker 1>they still are um or um at least some members do.

0:20:21.400 --> 0:20:23.440
<v Speaker 1>And uh. And because of that, it has to be

0:20:23.600 --> 0:20:27.199
<v Speaker 1>things like fiscal policy or some kind of um uh,

0:20:27.400 --> 0:20:29.840
<v Speaker 1>you know, government action as opposed to federal reserve action

0:20:30.240 --> 0:20:34.280
<v Speaker 1>that would potentially raise raise income. So um no, I'm

0:20:34.280 --> 0:20:36.359
<v Speaker 1>sure he'll be asked about trade, right, So some people

0:20:36.480 --> 0:20:39.399
<v Speaker 1>will say, particularly on the Republican side, will likely say that,

0:20:39.760 --> 0:20:42.000
<v Speaker 1>you know, these trade barriers should increase wages in some

0:20:42.160 --> 0:20:45.440
<v Speaker 1>sectors that have been held down because of globalization. Um.

0:20:45.560 --> 0:20:49.000
<v Speaker 1>I think that, you know, Chair Powell will probably come

0:20:49.040 --> 0:20:51.159
<v Speaker 1>down on kind of a pretty neutral stance on on

0:20:51.240 --> 0:20:53.920
<v Speaker 1>that if he's asked about, you know, the wage implications

0:20:54.040 --> 0:20:58.800
<v Speaker 1>of of any particularly any potential um reduction or increase

0:20:58.840 --> 0:21:02.440
<v Speaker 1>in trade barriers, and he'll he'll say that like it's dangerous,

0:21:02.480 --> 0:21:04.840
<v Speaker 1>it's a dangerous game. And he did come down, you know,

0:21:04.960 --> 0:21:08.760
<v Speaker 1>reasonably hard against trade barriers last year or yesterday rather

0:21:08.880 --> 0:21:11.760
<v Speaker 1>and I think that that's something that will probably come

0:21:11.840 --> 0:21:14.800
<v Speaker 1>up as well. Thank you very much. Ira Jersey is

0:21:14.840 --> 0:21:22.800
<v Speaker 1>our chief US interest rate strategist for Bloomberg Intelligence. Thanks

0:21:22.840 --> 0:21:25.440
<v Speaker 1>for listening to the Bloomberg P and L podcast. You

0:21:25.480 --> 0:21:29.240
<v Speaker 1>can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

0:21:29.400 --> 0:21:32.840
<v Speaker 1>or whatever podcast platform you prefer. I'm pim Fox. I'm

0:21:32.920 --> 0:21:36.920
<v Speaker 1>on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

0:21:37.040 --> 0:21:39.600
<v Speaker 1>It's one before the podcast. You can always catch us

0:21:39.680 --> 0:21:41.200
<v Speaker 1>worldwide on Bloomberg Radio