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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa A. Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: Time to bring in Dave Wilson, Bloomberg Stocks commist and

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Speaker 1: the editor. Also you can reach Dave at d Wilson

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Speaker 1: Bloomberg dot net. Dave, what are you looking at in stocks?

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Speaker 1: And also want to bring in Matthew Bosler. He is

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Speaker 1: our expert when it comes to the Federal Reserve. Bloomberg

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Speaker 1: News reporter Matt, thanks for being here. I know we're

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Speaker 1: getting ready for a Jerome Pal's first presentation before Congress.

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Speaker 1: Will be speaking before the House today and the House Committee,

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Speaker 1: and then on Thursday he speaks before the Senate Banking Committee.

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Speaker 1: And Dave Wilson, any reaction to stocks based on this

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Speaker 1: really more stock specific news, I would imagine right now

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Speaker 1: right a lack of reaction. I mean, let's face it,

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Speaker 1: we've had a market that this month has been all

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Speaker 1: over the place, especially relative to where it had been

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Speaker 1: in the past year and a half or so, and

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Speaker 1: today you're really seeing things kind of settling out. No

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Speaker 1: doubt a lot of people will be tuned in to

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Speaker 1: what that share pal has to say. Now we already

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Speaker 1: know at least the written portion of the testimony. Then

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Speaker 1: becomes a matter of what kind of questions does he

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Speaker 1: get and what kind of answers does he provide, and

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Speaker 1: does he really shed light on where monetary policy is

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Speaker 1: headed from here? And you've got the SMP five hundred

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Speaker 1: and a quarter of percent range so far today, that's

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Speaker 1: nothing compared to what we've seen over the past three

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Speaker 1: or four weeks. All Right, Matt if you could ask J.

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Speaker 1: Powell three questions, what would they be? Okay? So I

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Speaker 1: think the three big questions I'll have to do with inflation.

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Speaker 1: So the first one is, you know, what are you

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Speaker 1: seeing in the inflation outlook? That's probably the easiest one

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Speaker 1: to answer, because he's probably just going to, you know,

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Speaker 1: convey confidence that it's going back up to the two

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Speaker 1: percent target after some you know, transitory factors kept it

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Speaker 1: down last year. Um, the two bigger questions I think

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Speaker 1: on the inflation front are a how do you feel

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Speaker 1: about all of this chatter about potentially changing the FEDS

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Speaker 1: inflation target to something other than two percent, maybe you know,

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Speaker 1: transitioning to either a higher inflation target or more of

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Speaker 1: a price level targeting regime where you make up for

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Speaker 1: past misses on your inflation target. Uh, that's a conversation

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Speaker 1: that's been brewing, but we haven't really heard from j

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Speaker 1: Powell on that yet, so, um, you know, we'd expect

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Speaker 1: him to stake out of position on that. And then

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Speaker 1: the other big question, um regarding inflation, which probably is

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Speaker 1: even more topical, is how does he view the inflationary

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Speaker 1: effects of this fiscal stimulus that, um, we've just gotten.

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Speaker 1: Now over the last few months, this is already starting

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Speaker 1: to become politicized, this inflation question a little bit. It

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Speaker 1: seems like Treasury Secretary Stephen Manuchin last week said that, um,

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Speaker 1: you know, he thinks that the White Houses policies are

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Speaker 1: going to be able to raise wage growth without raising

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Speaker 1: consumer price inflation. And then last night again he said,

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Speaker 1: you know, the Fed, we'll do a good job managing inflation.

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Speaker 1: So it's very interesting to to kind of hear from

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Speaker 1: how how how they're they're looking at that right now. Him,

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Speaker 1: did you ever think that you would live in an

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Speaker 1: era when inflation was a political issue? Well, I mean

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Speaker 1: as someone that can remember inflation. Uh, and and the

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Speaker 1: years of Paul Volker. Well, and your point is well taken.

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Speaker 1: Let's put it that way. It's back. It's been, it's been,

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Speaker 1: it's been a while. It's been a while. Although I

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Speaker 1: would just offer that for those that actually have to

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Speaker 1: pay for things like food and energy, uh, inflation has

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Speaker 1: never left mind. And of course what you're talking about now,

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Speaker 1: even if it's a higher target two and a half percent,

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Speaker 1: by the standards of the late seventies and early eighties,

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Speaker 1: you never would have seen Paul Vulker take the steps

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Speaker 1: that he had to as FED chair if indeed inflation

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Speaker 1: was that low back then. All right, So I've been

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Speaker 1: listening to a lot of commentators talking about FED chair

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Speaker 1: j Palace speech, and I've been reading a lot of

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Speaker 1: analyst notes. I'm wondering, Dave, what could Powell say that

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Speaker 1: would move markets? It really comes down to, you know,

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Speaker 1: do you see anything that really changes here from the

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Speaker 1: course that has been laid out under his predecessor, Janet

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Speaker 1: Yelling I mean, that's that's what it comes down to.

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Speaker 1: I mean, there is some anticipation that we're going to

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Speaker 1: get more rate increases down the line, that you know,

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Speaker 1: they're going to stick with perhaps the quarter point at

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Speaker 1: a time pace that we've seen, you know, for the

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Speaker 1: past several years. You have to go back a couple

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Speaker 1: of decades to see the last time that the Fed

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Speaker 1: move more than a quarter of a point in a

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Speaker 1: single policy decision, so, you know, and it almost looks

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Speaker 1: like they're trying to keep things, you know, damp down.

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Speaker 1: So you're not going to get that sort of an

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Speaker 1: unpleasant surprise for markets at least that I was looking for.

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Speaker 1: Three Did I missed them? There were three questions? I

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Speaker 1: missed them? Inflation, all right, Inflation, well, inflation I counted

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Speaker 1: as one. Inflation and inflation in exactly three takes on

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Speaker 1: one subject anything else, So um, you know that Again,

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Speaker 1: it goes to how they're looking at this fiscal stimulus.

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Speaker 1: Does it change the outlook for rate increases this year

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Speaker 1: at all? So far they're saying no, they're sticking with three.

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Speaker 1: But if you recall back when they started raising rates

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Speaker 1: in December, the original plan was to go four times

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Speaker 1: a year, not three times a year, and then we

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Speaker 1: had all of the market turmoil, they only went once

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Speaker 1: and then they got back up to three. Now they're

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Speaker 1: saying three again for um, you know, at what point

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Speaker 1: what do they need to see to kind of get

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Speaker 1: them back on that track for four this year? Um?

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Speaker 1: That original plan. Um. And so I think the fiscal

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Speaker 1: stimulus conversation might help tease that out a little bit.

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Speaker 1: And then the other thing is, of course financial markets, right,

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Speaker 1: elevated asset valuations, uh, easy financial conditions. Um. How are

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Speaker 1: they looking at that, both in terms of what is

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Speaker 1: the impulse to economic growth that we're likely to see

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Speaker 1: from that? And also is there any sort of um,

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Speaker 1: you know, concerns about financial stability? Um. So far, what

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Speaker 1: we've gotten in his prepared remarks seem to indicate that

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Speaker 1: the financial conditions impulse to growth is still, um, you know,

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Speaker 1: a reason we should expect to pick up this year. Uh.

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Speaker 1: Not much on the financial stability front yet, but I

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Speaker 1: assume we'll hear about that as well. How about financial regulations,

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Speaker 1: particularly when it comes to regulating banks that are not

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Speaker 1: these too big to fail banks, but the banks that

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Speaker 1: fall under those regulations but don't necessarily have the wherewithal

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Speaker 1: and the financial capacity to spend lots of money dealing

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Speaker 1: with those new regulations. Right, So, I mean this is

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Speaker 1: always a favorite topic of Congress for obvious reasons. In

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Speaker 1: these testimonies. The new thing is that now we have

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Speaker 1: a vice chair for Supervision who is supposed to go

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Speaker 1: and testify on these these matters specifically. So it's unclear

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Speaker 1: how much of that we're going to hear today now

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Speaker 1: that we sort of have a dedicated uh testimony for

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Speaker 1: those issues going forward. But do you think that this

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Speaker 1: will mean that the banks will be at least a

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Speaker 1: little bit less fettered when it comes to raising dividends

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Speaker 1: or doing share buybacks for their shareholders because that was

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Speaker 1: always the issue as you had to go to the

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Speaker 1: Federals had to ask almost permission, can we in you know,

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Speaker 1: can we give it out a dividend? And can we

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Speaker 1: increase the dividend? Yeah? I think that's a really good question,

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Speaker 1: and I don't think we know yet. You know, obviously,

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Speaker 1: coming into um, you know, some of this leadership change

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Speaker 1: at the FED, with you know, bringing the new Trump

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Speaker 1: administration picks on board, there was definitely a sentiment that

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Speaker 1: this was going to be good for the banks, and

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Speaker 1: there's going to be a lot of deregulation. But since

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Speaker 1: Randy Coral started, I think we've seen a little bit

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Speaker 1: more nuance on that front. And it's not clear you know,

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Speaker 1: how dramatic, uh, the changes are going to be. I

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Speaker 1: think they're still trying to kind of work through some

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Speaker 1: of that and figure that out. So I think at

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Speaker 1: this point we just don't know. Dave, what's the likelihood

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Speaker 1: that Chaere Powell goes rogue? Minimal at best? Well, I

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Speaker 1: mean we know about the like Bernankee Taper Tantrum and

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Speaker 1: Cherry Yellin actually answered a question of how long uh,

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Speaker 1: you know eventually was or you know and and just

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Speaker 1: you know, you don't answer the question. Could he make

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Speaker 1: a similar mistake? I mean, come on, it's his first

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Speaker 1: time before Congress in this position, but he's held he's

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Speaker 1: held many positions previously, I mean under Secretary for the

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Speaker 1: Treasury for Domestic Finance, quiet, he's been a quiet member.

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Speaker 1: Well he may he may have been a quiet member

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Speaker 1: on the Federal Reserve Board, but I mean, you know,

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Speaker 1: he's a lawyer by training, and he has extensive experience

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Speaker 1: in corporate matters and he's I don't think that he's

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Speaker 1: going to, you know, be undone by being before the Senate,

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Speaker 1: the Senate, in the House committee. If you want to

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Speaker 1: look for a surprisely that, why don't you look at

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Speaker 1: what's going on with Fed funds futures, Because if you

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Speaker 1: go out to December, you find something interesting. You add

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Speaker 1: up all the probabilities, you see about a thirty percent

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Speaker 1: chance that you'll get more than three rate increases this year.

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Speaker 1: And if you look at you know, just the three

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Speaker 1: camp is about thirty seven percent, about thirty four percent

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Speaker 1: looking for less than three. So it's a pretty even split.

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Speaker 1: But there is a significant minority view, as express in

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Speaker 1: the prices of December contracts on FED funds, that you

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Speaker 1: will get more than three rate increases this year. And

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Speaker 1: we'll see if the market's right on that score. I

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Speaker 1: don't know whether this is something that is also a

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Speaker 1: feature of his UH experience, but you know, he was

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Speaker 1: involved in the negotiations to bring warm Buffett in as

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Speaker 1: an investor in Solomon Brothers UH during the scandal and

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Speaker 1: the subsequent financial problems that the investment bank had. This

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Speaker 1: goes back to those issues related to the false bids

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Speaker 1: for a US Treasury security. It's been around the block

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Speaker 1: of time or two, that's for sure. Yeah, absolutely, that's

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Speaker 1: a little bit before my time, but that is my time.

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Speaker 1: And I only and I raised that because you know,

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Speaker 1: if you have those kinds of relationships uh in your past,

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Speaker 1: they may serve you very well at times of market turmoil.

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Speaker 1: And I wonder whether one of the questions is going

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Speaker 1: to be what kinds of actions would you take for

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Speaker 1: dealing with the next recession, because there will be one,

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Speaker 1: it just don't know when. Yeah, I mean, that's kind

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Speaker 1: of been another interesting topic of discussion. I think, you know,

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Speaker 1: a lot of people at the FED are frustrated by

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Speaker 1: you know, what they see as sort of being limited

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Speaker 1: on that front. Certainly thirteen C. Three the ability to

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Speaker 1: bail out firms and trouble is something that um, you know,

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Speaker 1: Congress restricted their ability to do after the crisis. So

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Speaker 1: it'll be interesting to see if that comes up at all,

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Speaker 1: and and if if J. Powell, you know, tries to

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Speaker 1: make a more forceful case for for expanding that remit

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Speaker 1: a little bit. Again, expecting any sense Matt that the

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Speaker 1: House members are going to try to get Chair Powell

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Speaker 1: to talk about the political implications of the tax cuts.

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Speaker 1: What how they're going to respond to basically get him

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Speaker 1: to say something that they could use as ammunition against

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Speaker 1: either President Trump or against Chair Powell is possibly acting

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Speaker 1: more in order to continue the growth of the current

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Speaker 1: administration than act in a financially prudent way. Yeah, I mean,

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Speaker 1: I think that's the big question here, right, I mean,

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Speaker 1: I think you know, this is the thing we've been

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Speaker 1: talking about for the last year or so. Now, how

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Speaker 1: is the FED going to respond to these to these

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Speaker 1: this fiscal stimulus that we got, and you know, to

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Speaker 1: Dave's point on the Fed funds features there, there is

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Speaker 1: now a significant probability baked into the markets that they

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Speaker 1: go more than three times this year. So I think

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Speaker 1: for for j today, it's like that's not something that

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Speaker 1: you really need to establish right now. You can kind

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Speaker 1: of wait until later in the year, and if you

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Speaker 1: want to end up going four times, you can do it.

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Speaker 1: Then he probably doesn't want to make too strong a

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Speaker 1: statement about the need for more rate hikes this year

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Speaker 1: because you can imagine the headlines, you know, his first

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Speaker 1: public appearances fed Share here he is talking about speeding

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Speaker 1: up rate hikes because of fiscal stimulus, you know what

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Speaker 1: I mean, that might not be the most desirable outcome,

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Speaker 1: So what we'll see what he says well, And just

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Speaker 1: to offer this color for his background. Previously worked at

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Speaker 1: Dylan Read, the leveraged buyout and private equity firm, also

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Speaker 1: a partner at the former partner at the Carlisle Group,

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Speaker 1: and estimated net worth of more than a hundred million dollars,

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Speaker 1: so currently making him uh the I guess the wealthiest

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Speaker 1: member of the Board of Governors of the Federal Reserve.

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Speaker 1: So not just well, not bad and uh, I guess

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Speaker 1: truly earned. But just to give that as a perspective,

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Speaker 1: always liked in a little bit of the background of

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Speaker 1: who it is that is assuming these positions. You have

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Speaker 1: any idea that he's going to be an advocate for

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Speaker 1: fewer regulations when it comes to the financial system, I

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Speaker 1: don't know how much appetite there is for that, really.

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Speaker 1: I mean, I think like certainly on the margins, there

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Speaker 1: are things they've talked about, you know, like relaxing the

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Speaker 1: vocal rule and you know, maybe loosening up some of

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Speaker 1: the the bossel the gold plating on some of the

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Speaker 1: Bassel standards. Um. And then of course you know, loosening

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Speaker 1: up regulations on community banks. But you know, those are

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Speaker 1: all things that everybody seems to you know, have been

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Speaker 1: in agreement on for a while now, and we're just

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Speaker 1: kind of waiting for action. So um, I think there's

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Speaker 1: a question of do we get much more than that?

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Speaker 1: And and doesn't really end up looking so dramatic in

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Speaker 1: the end. You know, there was something that caught my eye,

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Speaker 1: uh this morning, there was a chart that Towardsten Slock

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Speaker 1: of Deutsche Bank put out there. Uh, that's sort of

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Speaker 1: in the backdrop as we wait for the Reserve to

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Speaker 1: decide what to do with interest rates. Which is the

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Speaker 1: amount of debt that the US has and the average

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Speaker 1: maturity of it, and it is the lowest or the

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Speaker 1: shortest average maturity among its peers. And this is troubling

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Speaker 1: to me. And uh, I love your your view of this, Matt,

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Speaker 1: but I wonder how much of this is weighing also

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Speaker 1: on the Fed. Because it's short term debt. All the

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Speaker 1: other nations have locked in these lower rates, the US

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Speaker 1: has actually has to lock in some higher rates. Now,

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Speaker 1: how much does this way on what the Fed does

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Speaker 1: or says well in terms of you know, the interest costs.

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Speaker 1: I don't think. I don't think it's really something that

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Speaker 1: they care about much at all. You know, they would

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Speaker 1: say they're independent of the Treasury. They're going to do

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Speaker 1: their thing, and Treasury is going to do treasuries thing. Um.

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Speaker 1: It's interesting because you know, really we're seeing over the

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Speaker 1: last couple of weeks of steepening of the Yeld curve

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Speaker 1: and long term interest rates rising faster than short term

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Speaker 1: interest rates um. And so that's kind of an interesting

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Speaker 1: development as well because to extent that some of these

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Speaker 1: FED officials were worried about, you know, the flattening Yold

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Speaker 1: curve may be signaling a recession. Now they're saying, Okay,

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Speaker 1: maybe that's not such a worry. Um. So you know,

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Speaker 1: there's a lot of interesting stuff going on in in

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Speaker 1: debt management and and you know, all of the moves

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Speaker 1: across the Yeld curve that we're seeing right now. I

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Speaker 1: just think there's so much sort of disagreement or or

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Speaker 1: lack of conclusion at the FED about you know, what

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Speaker 1: the implications are, what they mean, and it's not clear

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Speaker 1: how much they really care at all at the end

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Speaker 1: of the day, and when you make the comparison between

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Speaker 1: how the US maturity is set up, and the rest

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Speaker 1: of the world. You have to remember those negative interest

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Speaker 1: rates in Europe. Let's face it, European governments have have

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Speaker 1: every incentive to sell bonds for a longer periods because

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Speaker 1: then they can ensure that in essence, they get paid

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Speaker 1: by bond investors for the privilege of having that debt.

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Speaker 1: Thank you so much, Dave Willson, Bloomberg Scox Editor, Calumnist

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Speaker 1: and Bloggard, m live Go and Matt Bosler, who covers

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Speaker 1: the Reserved. Thanks for listening to the Bloomberg P and

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Speaker 1: L podcast. You can subscribe and listen to interviews at

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Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

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Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on

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Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. Ask.

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Speaker 1: You can always catch us worldwide on Bloomberg Radio.