Speaker 1: So a lot of individual movers and let's face the
Speaker 1: Beige Book, we have to we have to note it
Speaker 1: gets released a couple of weeks ahead of the FEDS medium,
Speaker 1: of course, that's on September one. I want to bring
Speaker 1: in Bruce Kasman, now chief economist and managing director for
Speaker 1: Global Research at JP Morgan Securities. So, Bruce, Uh, you've
Speaker 1: scanned the headlines. I'm sure you have not yet read
Speaker 1: word for word what's in the Beige Book. It seems
Speaker 1: to me that it's a pretty, what I want to say,
Speaker 1: kind of plain vanilla some you know, things are growing,
Speaker 1: inflations contained and let's just get some news that will
Speaker 1: tell us one way or the other where there's economy
Speaker 1: is heading. Well, they don't call it beg for nothing.
Speaker 1: The I think the assessment you made is broadly right.
Speaker 1: It's it's continued with a lot of descriptions of modest
Speaker 1: and moderate throughout the UH the report. And I think
Speaker 1: what that's telling you is that the way that the
Speaker 1: the UM surveys is basically looking at the economy is
Speaker 1: that things are kind of, you know, going along at
Speaker 1: an okay pace. Uh. There's a little bit of wage pressure,
Speaker 1: not much inflation is still low, but there's no signs
Speaker 1: it's getting worse. Uh, And that you know, things are
Speaker 1: kind of, you know, just continuing to kind of move
Speaker 1: along at a at a social pace. Here. One thing
Speaker 1: that I noted that I had not seen previously was
Speaker 1: the San Francisco FED reporting that financial institutions in a
Speaker 1: few states with a legal marijuana industry reported increased operational
Speaker 1: costs related to regulatory constraints on activities linked with that industry.
Speaker 1: Have you ever heard anything from the Federal Reserve comment
Speaker 1: on the legal marijuana business? No, I'm not sure. I'd
Speaker 1: i'd say that tells you anything about monetary policy. But
Speaker 1: one of the things you get in the Beige Book
Speaker 1: is always some interesting in some quirky anecdotes, and that
Speaker 1: certainly is under that category. Jeff, excuse me, I'm thinking
Speaker 1: Jeff Lacker. Bruce Kasman. Jeff Lacker, president of Richmond FED,
Speaker 1: was testifying on FED structure in Washington, d C. He
Speaker 1: and Esther George, who's president in Kansas City FED, both
Speaker 1: arguing to keep it as it is twelve districts, twelve presidents,
Speaker 1: and the board of governors, But afterwards reporters asked him
Speaker 1: about the economy, Jeff Lacker said there's still a strong
Speaker 1: case for a September rate hike up nothing in the
Speaker 1: Beige Book that seems to go one way or the
Speaker 1: other on this. What do you think, UM, I think
Speaker 1: there's a case for a rate high in September. I
Speaker 1: don't think the Fed is going to decide to raise
Speaker 1: rates in September. I think they're more likely to use
Speaker 1: the meeting to basically set us up that if can
Speaker 1: things continue, uh that as they expect that they're going
Speaker 1: to move at the end of the year. UM. As
Speaker 1: you can see, the economy is feeling less downside risks
Speaker 1: as well as the global economy, and I think if
Speaker 1: the Fed feels the economy is on solid footing and
Speaker 1: feels a comfortable that inflation is moving up, they do
Speaker 1: a signal here that they want to raise rates. But
Speaker 1: I don't think the news we've gotten has been strong
Speaker 1: enough or decisive enough to get them to move in September.
Speaker 1: I think they'll wait, hope to see more information confirming it,
Speaker 1: and then move in December. Joining us now is Bruce Kasman.
Speaker 1: He is Managing director, Chief Economist JP Morgan. Bruce someone
Speaker 1: if you could tell us a little bit about how
Speaker 1: you believe the US economy will continue to perform given
Speaker 1: its lackluster performance so far this year. Um, we're kind
Speaker 1: of looking for more of the same. We think the
Speaker 1: economy will get back to about a two pace of growth. UM.
Speaker 1: I think that's a pace which unfortunately is uh, you know,
Speaker 1: pretty decent given where our supply side conditions uh stand
Speaker 1: right now. Um, but it's not one I think that's
Speaker 1: going to excite anybody. I think it's going to calm
Speaker 1: some of the fears we've had as we went through
Speaker 1: the first half of this year, and people will worry
Speaker 1: the things we're gonna get a lot worse. But I
Speaker 1: think there's still enough drag here in terms of the
Speaker 1: business sector profitability is suspending. I think there's still enough
Speaker 1: of a sluggish global environment out there that the economy
Speaker 1: is not really going to take off here in any
Speaker 1: in any meaningful way. Bruce uh Jeff Lacker, president of
Speaker 1: Richmond FED, saying there's still a strong keys for September
Speaker 1: interest rate increased to an extent. Is it your sense
Speaker 1: that those who are arguing more vehemently, who are more
Speaker 1: saying no, let's raise interest rates now, certainly by the
Speaker 1: end of the year. To what extent is that argument
Speaker 1: do you think based more on worries about financial excesses
Speaker 1: developed develop developing financial instability if you keep rates so
Speaker 1: low for so long, versus an argument that there's really
Speaker 1: such a pickup in the economy that you have to
Speaker 1: worry about inflation getting out of control. Well, I think
Speaker 1: there's two pieces to the argument. One is what you're saying.
Speaker 1: I think there's a concern on some members minds that
Speaker 1: the low interest rate environment is starting to create some uh,
Speaker 1: financial risks, and I think you can see some signs
Speaker 1: in commercial real estate, you can see some signs in
Speaker 1: corporate leverage that can can certainly get people a little
Speaker 1: bit concerned on that front. I think the other side
Speaker 1: of this is, even though the economy is not growing
Speaker 1: it at particularly robust pace, labor markets are continuing to tighten,
Speaker 1: Wage numbers are starting to move up. Core inflation to
Speaker 1: us looks like it's starting to drift up, and the
Speaker 1: Fed is just not that far from its objectives here
Speaker 1: in terms of where the the full employment and price
Speaker 1: stability objectives are, and you know, given where policy rates are,
Speaker 1: that's an argument for UM moving on the normalization paths.
Speaker 1: I think that both of these things are in the
Speaker 1: minds of those that are are interested in raising rates
Speaker 1: right now. Bruce Kasman, did you foresee this sluggish growth?
Speaker 1: I mean, is there a call that you wish you
Speaker 1: had made that you didn't or something that has confounded
Speaker 1: you about the economy's performance in the last twelve months. Um. Uh,
Speaker 1: there are a lot of things that I wish I
Speaker 1: had done differently in the last twelve months. Uh, We'll
Speaker 1: take just one. I think we've been a little bit
Speaker 1: surprised by the degree to which the drags coming on
Speaker 1: on the corporate sector of hit um. And I think
Speaker 1: we have, uh, you know, overestimated growth somewhat, but in
Speaker 1: terms of the the forecast on the labor market, in
Speaker 1: terms of the forecast on inflation, things have been evolving
Speaker 1: pretty well the way we expected. And I think that does,
Speaker 1: you know, speak to one of our core views, which
Speaker 1: is that this is an economy which has a weak
Speaker 1: underlying potential rate of growth, so it doesn't take that
Speaker 1: much growth to continue to tighten. And I think that's
Speaker 1: important because it points to the constraints that are on
Speaker 1: the U S economy as we think about the outlook
Speaker 1: going forward. The e c B is meaning tomorrow European
Speaker 1: Central Bank, and there's uh, I think a view out
Speaker 1: there that they could uh at this meeting are very
Speaker 1: soon announce more bond purchases or open up the kind
Speaker 1: of bond purchases they're making. Meanwhile, of course, a big
Speaker 1: story yesterday that two big European corporates are issuingsuing bonds
Speaker 1: with a negative rate of point oh five per cent.
Speaker 1: When you see that, Bruce, though, when when a person
Speaker 1: looks at that, how are we supposed to think that
Speaker 1: this this policy is working when they're going deeper and
Speaker 1: deeper into negative territory. Well, I just say, don't shoot
Speaker 1: the messenger here. I think the reason why Europe needs
Speaker 1: rates in negative territory is because you've had two recessions
Speaker 1: in the space of eight years. You have enormous amount
Speaker 1: of slack in the economy, You've got inflation which is
Speaker 1: sitting very low, and you've got a financial sector which
Speaker 1: is still only gradually healing. I think DCB has done
Speaker 1: a lot in the last couple of years to help
Speaker 1: promote getting some growth going in the UR area. But
Speaker 1: I think, you know, compared to where the US is
Speaker 1: the UR area is still very early in its expansion.
Speaker 1: It's still growing at at a modest pace UH, and
Speaker 1: it needs needs more support. It doesn't have a fiscal
Speaker 1: tool to use UM, and unfortunately, I think negative interest
Speaker 1: rates are actually what's needed there and what has actually
Speaker 1: been a positive in terms of helping keep UH their
Speaker 1: expansion going. Bruce Kasman. As part of the Beije Books
Speaker 1: Anecdotal survey, they noted in New York that a trucking
Speaker 1: industry analysts says that there remains a shortage of trucking
Speaker 1: drivers of truck drivers and that the firms don't have
Speaker 1: enough pricing power for them to afford raising salaries. Is
Speaker 1: that something that you see extending beyond just the trucking industry. Well,
Speaker 1: leaving aside the specifics there, I think there is a
Speaker 1: very important message that does resonate with me for the
Speaker 1: broader economy, which is that corporates are in an environment
Speaker 1: in which they're starting to face tight labor markets, not
Speaker 1: high wage gains, but starting to see some bargaining power
Speaker 1: return to labor, but they don't have the pricing power
Speaker 1: in a global environment where the dollar has gone up
Speaker 1: and where global demand has been weak, um, and I
Speaker 1: think what we see is corporate margins coming under pressure,
Speaker 1: what we've seen as business confidence being depressed, and what
Speaker 1: we've also been seeing is very weak capital spending. That
Speaker 1: to me is the is the piece of the economy
Speaker 1: that's not there that we would really like to see
Speaker 1: to get growth up to a to a strong pace.
Speaker 1: I've heard at least one economists say that keeping the
Speaker 1: key rate for so so low for so long is
Speaker 1: one of the things that creates uncertainty for large corporations
Speaker 1: are unwilling to commit to long term investments because they say,
Speaker 1: this can't last forever, let's just everything short term. Is
Speaker 1: this one of the problems with defense current policy. No,
Speaker 1: I don't think so at all. Um. I think the
Speaker 1: low rates is creating incentives for corporates to do a
Speaker 1: lot in terms of taking out debt and in terms
Speaker 1: of using it. What I think is going on is
Speaker 1: they're just not seeing the opportunities in terms of top
Speaker 1: line growth, in terms of both pricing and volume gains
Speaker 1: to be willing to put that money to work in
Speaker 1: terms of new investments. I don't think the FED is
Speaker 1: the problem there, but I think we do have a
Speaker 1: problem there, and that's you know, that's that's really at
Speaker 1: the core of what constraints is facing this economy right now.
Speaker 1: Bruce Casmin, thanks so much for joining US. Bruce's chief
Speaker 1: economists at JP Morgan Securities. Tearing apart the Beijing Book
Speaker 1: for US, Yes, modest growth, modest inflation, but still enough
Speaker 1: momentum perhaps for interest rate increase by the end of
Speaker 1: the year. This is Boomberg