Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: by searching Bloomberg Global News. Let's get into it even
Speaker 1: deeper with Kathleen Hayes, global Economics and Policy editor for
Speaker 1: Bloomberg in our Bloomberg Interactive Broker Studio. All right, k
Speaker 1: h you saw the headlines break You're continuing to look
Speaker 1: at them. What jumps out at you? The Federal Reserve,
Speaker 1: led by j. Powell, has made one thing perfectly clear.
Speaker 1: They're providing lots of stimulus, and they intend to continue
Speaker 1: to provide lots of stimulus. Uh, They're going to buy treasuries.
Speaker 1: As you read the headline of mortgage backed securities at
Speaker 1: least at the current pace through two UH. In a
Speaker 1: related statement, that means about eighty billion dollars a month
Speaker 1: for purchases of treasuries and about forty billion of mortgage
Speaker 1: backed securities. This is something that bond investors, bond traders
Speaker 1: really wanted more clarity on. I think it's also important.
Speaker 1: People were talking about the Fed's guidance and how it's
Speaker 1: been kind of fuzzy and wondering if they might make
Speaker 1: it a little more specific. Well, they're going to hold
Speaker 1: rates near zero UM, and they're going to do this
Speaker 1: through twenty twenty two. Okay, we're going to then we've
Speaker 1: got two. I think that's that's making their their UM,
Speaker 1: their guidance, their forward guidance more definite. I think that's
Speaker 1: very important to investors, to the markets as well, UH,
Speaker 1: and generally speaking, I think it's also interesting when you
Speaker 1: look at their projections. UH. The Summary of Economic Projections
Speaker 1: shows that the FED expects GDP for six and a
Speaker 1: half percent this year and rising five percent next year.
Speaker 1: Unemployment down to nine point three percent in the fourth
Speaker 1: quarter twenty that's about four percentage points from where we
Speaker 1: are now. Uh, and it would be a little bit
Speaker 1: below the worst unemployment rate in the Great Recession six
Speaker 1: and a half percent by next year. Okay, maybe not
Speaker 1: so bad. Inflation in their key measure at zero point
Speaker 1: eight percent in twenty that's the long way from the
Speaker 1: two percent target, but they're getting, i think, kind of
Speaker 1: optimistic seeing it back up to one point six percent
Speaker 1: by one So, you know, it will be interesting to
Speaker 1: see what J. Paul says about this at the press conference.
Speaker 1: For example, if a really strong employment report that we
Speaker 1: got on Friday showing the jobs of two and a
Speaker 1: half million, if that influences at all. But it's it's
Speaker 1: it's I think it's seems like a realistic, maybe slightly
Speaker 1: tilted toward we're going to get through this and it's
Speaker 1: not going to take forever, kind of bent. What's key
Speaker 1: about this report, right, it's our first quarterly forecast since December.
Speaker 1: We've got the dot plot of projections, Kathleen, so we
Speaker 1: really are getting an idea of how the board thinks,
Speaker 1: the policy setting board at the FED thinks about where
Speaker 1: we are and more importantly, what the outlook is at
Speaker 1: this point very important because you know we again, I
Speaker 1: think we're going to hear from J. Powell at the
Speaker 1: press conference. Really, someone's going to ask him, well, how
Speaker 1: are how do you think the reopenings are going? And
Speaker 1: what about if we get a resurgence in in virus
Speaker 1: cases in the fall, as some people project we will.
Speaker 1: Is that something you've factored into the forecast? Right? Are
Speaker 1: you expecting that because a lot of people do, and
Speaker 1: still seeing you know, again growth that's going to be
Speaker 1: back on track by next year, unemployment down considerably by
Speaker 1: next year. Again, I considering how how much we've gone
Speaker 1: through already, this strikes to me. This strikes me as
Speaker 1: if I had to classify it as one, I'd say
Speaker 1: more optimistic than pessimistic, because well, because they see growth
Speaker 1: picking up next year, because they see unemployment coming down.
Speaker 1: We're not going to be stuck here forever, you know,
Speaker 1: and so so V shaped you shaped, you know, we've
Speaker 1: all kicked around these doesn't give you better? I would say,
Speaker 1: if you want to call it a V, it's a
Speaker 1: V that's really got wide, aren't you know? It looks
Speaker 1: more like half of a W than a V standing alone?
Speaker 1: You know what I mean? You we went way down
Speaker 1: and we're starting to come up. It's almost like a
Speaker 1: cheerleader doing sort of like the why there you go.
Speaker 1: But it's not going to be a quick v up.
Speaker 1: But it's not going to go from zero to sixty.
Speaker 1: Maybe it goes from zero to you know, you get
Speaker 1: you get to sixty, but it takes you longer. I
Speaker 1: just want to point out market reaction, right because we're
Speaker 1: all about, you know, what's going on in the markets,
Speaker 1: and equity is seeing this, I guess as a bit
Speaker 1: of a doublish report, and you know they are going
Speaker 1: to their highs of the session. I mean, we're only
Speaker 1: up about eleven on the SMP, we're up about sixty
Speaker 1: on the Dow, and we're now up about a hundred
Speaker 1: and five on the NASTIC. We were actually down on
Speaker 1: the SMP and the DAB. The Nazek was higher. But yeah,
Speaker 1: we're you know, that's how the equity markets are surely
Speaker 1: reading it. But that's because money is going to remain
Speaker 1: cheap for a long time exactly. And I think because
Speaker 1: the Job's report showed that strong gain in payrolls. As
Speaker 1: I was speaking to Ellen Sentner from Morgan Stanley, she's
Speaker 1: going to be with us tonight on Dave Breacasia, and
Speaker 1: she said that it's as though the jobs gains, for example,
Speaker 1: that her team thought would come in June, came quicker
Speaker 1: they came in May. And I think there's a lot
Speaker 1: of investors because stocks have run so far, so faster,
Speaker 1: they need more AMMO to keep going. And the fear
Speaker 1: that maybe the FED would say come out, oh my gosh,
Speaker 1: we've got a good jobs report. We can start pulling back.
Speaker 1: But I think most FED watchers say that wasn't going
Speaker 1: to happen. It ain't gonna happen, and that's not what
Speaker 1: is going to express. Why are I mean? We were
Speaker 1: also seeing yields tick up a little bit. I mean
Speaker 1: the ten year was at point seventy seven, it's not
Speaker 1: point seventy nine. If I look at the short end,
Speaker 1: two year was at point one four six. It hasn't
Speaker 1: changed too much, but you know, a little bit of
Speaker 1: an uptick um but not really worth noting. I guess, well,
Speaker 1: maybe they were really hoping that FED was going to
Speaker 1: announce yield curve control or something like that. And again
Speaker 1: I think people think it's too early. Do you really
Speaker 1: need yield curve control if your forward guidance is so definite, right,
Speaker 1: if you're going to now say you're going to keep
Speaker 1: the raids near zero through two, got a good year
Speaker 1: about that, Kathleen, Because I mean, just at first, that's
Speaker 1: a long time away, right, isn't it. I know, now,
Speaker 1: remember the Fed can can change that. Let's say they're
Speaker 1: surprised by the data, but it's a very long time.
Speaker 1: That's a year and a half to keep the key
Speaker 1: read at zero. Uh. And they're they're buying bonds and
Speaker 1: they just said how many They're gonna buy eighty million
Speaker 1: of the treasuries and then forty mbs. So they're gonna
Speaker 1: keep doing that indefinitely. You've got a lot of liquidity
Speaker 1: coming into the system. Uh. They So they've they've kind
Speaker 1: of put a floor under that they're going to keep
Speaker 1: the key right there. And I guess maybe what they're
Speaker 1: trying to tell us to is, this isn't now. It
Speaker 1: isn't just we're gonna try to keep the you know,
Speaker 1: the virus crisis from becoming a financial crisis. Maybe they're
Speaker 1: they're they're leaning toward now is someday things maybe will
Speaker 1: be improved enough enough businesses open people back to work
Speaker 1: that this low rate uh A near zero, and all
Speaker 1: the bomb purchases will become stimulative, right, because so far
Speaker 1: this is to event crisis and and you know, demolished
Speaker 1: economy at some point. Though maybe that's the idea. We
Speaker 1: keep it in place and it starts getting economy growing again.
Speaker 1: But for those of us who have not bought our
Speaker 1: yield curve control T shirts yet, I mean, that's the
Speaker 1: whole idea of the FED buying longer term rate securities. Correct.
Speaker 1: I want to yield curve control T shirts. I work.
Speaker 1: I got to make some and we'll wear them here
Speaker 1: in studio. Why do we want the Fed to do that?
Speaker 1: Because we have to be careful we threw out these phrases,
Speaker 1: and because we use it all the time. But why
Speaker 1: do we want the Fed to do that? Kathleen Well,
Speaker 1: I guess if you are a bondable, you want to
Speaker 1: sort of you want to you want the FED to
Speaker 1: make sure it's going to keep buying bonds and prevent
Speaker 1: yields from rising very much. That's the idea. The other
Speaker 1: side of the coin, though, I guess if you're not
Speaker 1: so much in favors that the Fed's idea presumably is
Speaker 1: that we don't need to do that if we can.
Speaker 1: You know, the market is, the bond market is maybe
Speaker 1: still enough in step with us and our forward guidance
Speaker 1: that they're not going to really expect us to remove stimus.
Speaker 1: They're not going to start pushing yields higher. Uh. And
Speaker 1: then there's still a lot of people out there, take
Speaker 1: the jim Biuncles of the world who say this is
Speaker 1: very bad. It's destroying the on market, and you don't
Speaker 1: get any kind of signal as from a market that
Speaker 1: you used to get. All right, Well, Kathleen Hayes, great
Speaker 1: immediate insight. We really appreciate it. There's a lot to
Speaker 1: digest there, and you really walked us through it very
Speaker 1: cleanly and enthusiastically. We love you, Thank you so much.
Speaker 1: Curtie shirt though it's on my list before Christmas. Well,
Speaker 1: we also like lending into the lending and spending Tourwell,
Speaker 1: we could say control, we could say your Kirk control
Speaker 1: on the front and on the back of what would
Speaker 1: it say, like the lending and spending lending not spending. Okay,
Speaker 1: I've got my name is on the list. We got
Speaker 1: a plan and we had a plaque. You're listening to
Speaker 1: Bloomberg Business Week with Carol Messer and Jason Kelly on
Speaker 1: Bloomberg Radio. We gotta talk a little bit more about
Speaker 1: that FED decision. Yeah, let's do it. Let's get into it,
Speaker 1: understand why the markets are doing what they're doing, and
Speaker 1: what it may set the table for for the FED
Speaker 1: going forward. We've talked a lot about the FED in
Speaker 1: this crisis, and rightly so. For instance, downward with US
Speaker 1: Global chief Economist head of macro economic Strategy for Menu
Speaker 1: Life Investment Management on the phone from Toronto, and Lewis Alexander,
Speaker 1: chief el Economists for No Mura on the phone from
Speaker 1: New York City. Francis, I want to start with you.
Speaker 1: Most important thing that jumps out as you read the
Speaker 1: statement and look ahead to j. Powell's comments. Most important
Speaker 1: change is that there is very little change here. They've
Speaker 1: only need three actually relevant changes to their statement, a
Speaker 1: lot of which is marked to market the projections. No surprises,
Speaker 1: no yield curve control comments, no change in the forward guidance.
Speaker 1: This is a fuederal reserve that does not want to
Speaker 1: rock the boat. And I'm guessing share Powell is sitting
Speaker 1: watching markets feeling pretty pleased with himself The problem is
Speaker 1: in the communications mine field that we're walking into in
Speaker 1: fifteen minutes. Share Powell has to get through a lot
Speaker 1: of time in which he needs to say absolutely nothing
Speaker 1: at all. This is going to be pretty challenging when
Speaker 1: he's gonna get a whole flew of complicated questions. I
Speaker 1: gotta say, we have a top live blog and it's
Speaker 1: really wonderful. It's our whole team, are FED team, our
Speaker 1: markets team, and they said the press conference will be
Speaker 1: interesting and Powell might face some testy questions about the
Speaker 1: advance of risky assets in the last few weeks, and
Speaker 1: I'm gonna get I'm going to guess a lot of testing,
Speaker 1: testing questions about some other subject as well. Um Lewis, Alexander,
Speaker 1: come on in our conversation. How do you see the
Speaker 1: latest FED decision? I guess I'd take it a little
Speaker 1: bit differently. I think there was one important change, and
Speaker 1: that is the FED indicating that it's not going to
Speaker 1: continue to reduce the pace of its asset purchases. Really,
Speaker 1: since they increase our asset purchases dramatically in March is
Speaker 1: COVID as the COVID crisis broke, they've been slowing them
Speaker 1: really steadily since April, and they did indicate in the
Speaker 1: States and today that that processes it is at an end,
Speaker 1: and I think that that is important. It's certainly true
Speaker 1: that they didn't go all the way to YO curve control,
Speaker 1: but essentially, I think it's a response to the way
Speaker 1: long term interest rates have risen in recent days, UH
Speaker 1: in in response to a stronger economy. So I think
Speaker 1: I think we are. I think there was at least
Speaker 1: one important change and what they did in what they
Speaker 1: did today, look, I agree that it's largely UM what
Speaker 1: was expected UM there it wasn't anything else big, and
Speaker 1: there are the bigger issues like EO curve control are
Speaker 1: things that they're going to put off for a later day. UM.
Speaker 1: The press conference, obviously, UH will be interesting. UM. I
Speaker 1: think one of the places he's going to get questions
Speaker 1: is why haven't they made more progress on their thirteen
Speaker 1: three programs, which is what UM. These are the broader
Speaker 1: programs they have to support corporate bond market UH, commercial paper,
Speaker 1: mainstream blending. Those programs which were launched UH in late March, frankly,
Speaker 1: frankly not done very much UH, and so that's gonna
Speaker 1: be I think one of the things they'll be asked about,
Speaker 1: so forces. You know, one of the interesting things to
Speaker 1: think about at this moment, you know, June tenth, uh
Speaker 1: and several months into this crisis and another crisis piled
Speaker 1: on top of it, is that, you know, the FED
Speaker 1: and J. Powell has you know, gotten pretty good reviews.
Speaker 1: It feels like, so far, what do you make of it,
Speaker 1: uh in terms of what they've done and what they
Speaker 1: haven't done by way of programs and relief and um,
Speaker 1: you know, whatever stimulants they can provide. Well, they've certainly
Speaker 1: throw on a lot of the problem. But it's an
Speaker 1: excellent point that a lot of the tools that have
Speaker 1: been engaged have not been fully engaged or fully utilized.
Speaker 1: I think the challenge for the SAID is actually the
Speaker 1: next chapter, how is the SAID going to be viewed
Speaker 1: when actually the economy starts to show more signs of reaccelerations,
Speaker 1: more gangbuster numbers that surprise us to that side, And
Speaker 1: how does the SAID respond if fiscal policy momentum starts
Speaker 1: to slow. That's going to be a more difficult chapter
Speaker 1: for the SAID. They're going to have to avoid any
Speaker 1: type of miscommunication where they acknowledge too much upside risk
Speaker 1: and and risk a paper tantrum that probably keeps her
Speaker 1: Powell awake at night. And how is he going to
Speaker 1: continue to emphasize that the real problem here is solvency,
Speaker 1: not liquidity, and the fiscal weaver has to be the
Speaker 1: one that comes into play. So up until now, it
Speaker 1: is very easy to give the FED, you know, a
Speaker 1: raise reviews. You know, they closed spreads, they avoided a
Speaker 1: credit crisis. But the challenging next act, I think is
Speaker 1: the one where a lot of central bankers are going
Speaker 1: to be a at night. So, Louis, what would be
Speaker 1: the question you'd want to ask J Powell right now? Um?
Speaker 1: I would want to ask him what is he doing
Speaker 1: with those what does he expect to do with US
Speaker 1: thirteen three programs? I think that's to me, that's the
Speaker 1: most immediate question. Another one, though, which I think would
Speaker 1: be important, is they are completing their strategy review. We've
Speaker 1: kind of forgotten about that a little bit in the
Speaker 1: wake of uh COVID nineteen, but that is something they're
Speaker 1: going to be completing in and over the next meeting
Speaker 1: or two. And how does that play into the decision
Speaker 1: is going forward? I agree very much with the way
Speaker 1: the previous speaker characterized the challenge and conning months um
Speaker 1: and to a certain extent, how that strategy review plays out.
Speaker 1: What does that imply about forward guidance? What does that
Speaker 1: imply about how they're going to apply their asset purchases,
Speaker 1: particularly as fiscal policy starts to contribute less in an
Speaker 1: environment where the economy is still a very long way
Speaker 1: from full employment. Uh, those are going to be big
Speaker 1: challenges for the FED. Be interesting to see what they're
Speaker 1: thinking about that at this point. And so, yeah, Francis,
Speaker 1: I mean, this whole question of unemployment, I feel like
Speaker 1: has been so much on our mind me jobs obviously,
Speaker 1: just given the eye poppy numbers that we've seen. And also,
Speaker 1: you know, you're starting to see a little bit more
Speaker 1: of a movement to ask the FED to be, if
Speaker 1: not more diligent, maybe a little bit more transparent about
Speaker 1: what they're doing with this unemployment gap, especially when it
Speaker 1: comes to white Americans versus Black Americans and doing a
Speaker 1: little bit more work or at least showing that they're
Speaker 1: doing a little bit more work. How much do you
Speaker 1: think that the fetcher will hear about that in questions
Speaker 1: and how much do you think he is is thinking
Speaker 1: and talking about that with colleagues. I'll be shocked if
Speaker 1: he doesn't get some questions on the topic as inequality.
Speaker 1: COVID nineteen shining a very bright light on this issue,
Speaker 1: along of course and civil unrest. There's unemployment rate, if
Speaker 1: you look at their projections, actually remains verily stufforingly high.
Speaker 1: Through one they still have a six and a half
Speaker 1: percent unemployment rate, which means they're aware people are going
Speaker 1: to be get going to be left behind, is still
Speaker 1: at nine point unemployment rate. There are going to be
Speaker 1: a lot of conversations that kind of come on the
Speaker 1: ends of what Janet Yellen talked about for years, which
Speaker 1: is that we have to let the economy run hot
Speaker 1: to soak up this excess labor and those have been
Speaker 1: most disadvantaged on the sidelines. We know that it is
Speaker 1: our most vulnerable workers who are most at risk of
Speaker 1: prolonged unemployment. So there's gonna be additional motivation here that
Speaker 1: aren't us about getting your inflation target sustainably and symmetrically
Speaker 1: at two percent, but also how do we rectify some
Speaker 1: of this inequality? And from the central Bank that basically
Speaker 1: has one very blunt tool monetary policy, it means lower
Speaker 1: for longer, Yeah, which is exactly what. That's really interesting
Speaker 1: observation because I feel like it feathers right into something
Speaker 1: we've been talking about with c e O s all
Speaker 1: the time, which is, you know, you have a lot
Speaker 1: of different things that that you can do and a
Speaker 1: lot of different things you have to think about, um,
Speaker 1: and you can't just think about all right, well I
Speaker 1: got it in the case of the CEO, just think
Speaker 1: about my shareholders. Like, this is more complicated. And I
Speaker 1: think if there's one thing we've learned over the past
Speaker 1: couple of weeks that this is an economic crisis as
Speaker 1: much as anything when it comes to inequality. Well, and
Speaker 1: I do think you know, we're going to come up
Speaker 1: on one year, right anniversary, you have the business roundtable
Speaker 1: saying we're people stakeholders, and we're gonna, you know, do
Speaker 1: a scorecard or report card in terms of what we've
Speaker 1: done in that first year. And this has been a
Speaker 1: rough yere. Let's remind everybody the headline that had met
Speaker 1: uh it was the fifth meeting of the year. We've
Speaker 1: had two emergency meetings, the FED pledging to maintain asset
Speaker 1: purchases at at least the current pace and projected interest
Speaker 1: rates will remain near zero through two is policymakers, I
Speaker 1: really look to support the economy's recovery from the virus
Speaker 1: and the subsequent recession. We're talking to Francis Donald at Manulife,
Speaker 1: Lewis Alexandra at Nomura. You know, I asked this of
Speaker 1: Louis Francis, what's the question you want to ask J Powell?
Speaker 1: Then I would really like to know how they're paying
Speaker 1: attention to medical data. Paula has talked at length about
Speaker 1: how they need to pay attention to the medical data.
Speaker 1: How does he look at some of the curves are following,
Speaker 1: some of the curbs have reaccelerated, and what about the
Speaker 1: curb outside of the United States? How did that lay
Speaker 1: on him? I know we've all forgotten, but we're in
Speaker 1: a pandemic that drove massive market moves and the greatest
Speaker 1: policy response we've ever seen. Seems like we're focused on
Speaker 1: other components here a little bit, but we still have
Speaker 1: to combine to back to the crux of the issue,
Speaker 1: which is are we still facing downward curve? And how
Speaker 1: did that medical outlook translate into the way power is
Speaker 1: thinking about monetary policy, and so Louis, you know, I
Speaker 1: go back to one of my initial reactions, and certainly
Speaker 1: the initial reaction from our own Kathleen Hayes, which is
Speaker 1: this whole notion of like, hey guys, we got this
Speaker 1: under control in terms of you know, close to zero
Speaker 1: through two. I know they can change their mind to
Speaker 1: the intimate that does seem like a long time from now.
Speaker 1: So if you look at the inflation forecast they've got,
Speaker 1: they've got core inflation well below two percent even out too,
Speaker 1: as as Francis mentioned, they've got an unemployment rate that
Speaker 1: is well above levels that we would can somewhat consider
Speaker 1: normal out through two. I think that interest rate at
Speaker 1: the effect of lower bound through that period is perfectly
Speaker 1: consistent with our other macroeconomic objectives. So I think there's
Speaker 1: no inconsistency there. And I do think on this broader
Speaker 1: question of of the what can the FIT do about
Speaker 1: um inequality, for instance, was exactly right. They have a
Speaker 1: they don't really have a tool that can address it directly,
Speaker 1: but I do think they can change the way they
Speaker 1: talk about what their employment objective is. Traditionally they've talked
Speaker 1: about essentially getting the unemployment rate to some to some level,
Speaker 1: that's consistent with nehru. You started to see this before
Speaker 1: COVID nineteen of the FED talking about they can it
Speaker 1: isn't clear that there's an unemployment rate that is too
Speaker 1: low for them, um and they can just run this
Speaker 1: economy hot uh and push in some sense labor markets
Speaker 1: a long way without creating inflation risks. And in some ways,
Speaker 1: I think you're going to hear that kind of message
Speaker 1: coming out of their long run review of strategy, because
Speaker 1: I think that's what was the conclusion they were reaching
Speaker 1: before COVID nineteen, and given everything that's happened in the
Speaker 1: last several months, I think they'll just reinforce that mess.
Speaker 1: But all of that is very much about keeping right
Speaker 1: slow for a very long time. Yeah. Well, last question,
Speaker 1: Francis you know, and it goes to something you know
Speaker 1: we were talking about and I think Jason talked about
Speaker 1: with you earlier. You know, this whole idea that Jason
Speaker 1: Powell in terms of how he's at Jason Powell, j
Speaker 1: pal Sorry, just give your promotion. J Powell. I mean
Speaker 1: he understands that people have looked to him as a
Speaker 1: leader during these moments of crisis, right now and he's
Speaker 1: really handled things well, and I think he's gonna be
Speaker 1: very careful not to want to disrupt any of that. Absolutely,
Speaker 1: this is the point where he's supposed to hold steady
Speaker 1: and avoid rocking the boat. But it gets really hard
Speaker 1: when the data starts looking very good, and you're going
Speaker 1: to have a new faction of conversation that comes through,
Speaker 1: just like we're seeing on the federal side, saying this
Speaker 1: is going to be really hard to get out of
Speaker 1: and should you really be adding this amount of stimulus.
Speaker 1: I think the way around that is to slowly downplay
Speaker 1: of the possibility of yeld curve control, continue to push
Speaker 1: back against negative rates, and keep those bullets like refining
Speaker 1: forward guidance alive in the background so that people know
Speaker 1: there's more that he can do, but he doesn't feel
Speaker 1: he needs to do it now. This this is going
Speaker 1: to be very very challenging press conference up ahead, and
Speaker 1: I'm curious to see how he does it. So far,
Speaker 1: so good, but we're really not out of the woods yet. Absolutely.
Speaker 1: All right, Well, thank you both so much. Really fun
Speaker 1: to break all this down for you. And you know,
Speaker 1: when we make our yield cold yield curve control t shirts, Carol,
Speaker 1: certainly around they should each get one, all right. For instance,
Speaker 1: Donald Global, chief kind of his head of macro economic
Speaker 1: strategy for Many Life Investment Management, join us on the
Speaker 1: phone from Toronto. Lewis Alexander, chief US economists for Nomura
Speaker 1: on the phone in New York City. I gotta say
Speaker 1: J Pal has got to be looking right now at
Speaker 1: the financial markets and being like, okay, the markets were
Speaker 1: okay with this, I mean in terms of very little
Speaker 1: movement along the yeeld curve. Equities a little bit of
Speaker 1: a positive bounce here, but not like they're off and
Speaker 1: running so kind of resuming, you know, just like okay, cool,
Speaker 1: we got kind of what you want to see. I mean,
Speaker 1: if you're j Pal and his advisors. Yeah, that was
Speaker 1: not always what happened when he first started speaking, when
Speaker 1: he first started giving these press conferences. Um, so we'll see,
Speaker 1: we'll see whether it holds. I mean, I think, for instance,
Speaker 1: Donald said exactly right at the top that he's got
Speaker 1: to spend however long it is, forty five minutes to
Speaker 1: an hour saying nothing, right, right, which is not new
Speaker 1: ways to say nothing, but especially because it's gonna be
Speaker 1: challenged question because well, First of all, people are gonna
Speaker 1: say Friday's jobs report shocked everybody. So everybody's getting it
Speaker 1: roll like we're doing okay, we're doing much better than
Speaker 1: we thought. Right, So he's gonna, I'm sure going to
Speaker 1: be challenged several times on that. And then yeah, the
Speaker 1: role of the Federal Reserve, right, and in terms of
Speaker 1: you know, their role in society, especially against you know,
Speaker 1: all of the inequalities that were you know, exposed during
Speaker 1: the virus and then once again i know, laid bare.
Speaker 1: And then also again in terms of what happened in Minneapolis. Yeah, yeah,
Speaker 1: and it's something that we continue to talk about it,
Speaker 1: and I do think you know, in Frances alluded to this,
Speaker 1: this whole notion that you know, people are going to
Speaker 1: expect more. I am interested to hear you know, both uh,
Speaker 1: Francis and Louis talk about this, you know, kind of
Speaker 1: Janet Yellow notion of like you gotta let it run hot,
Speaker 1: Like don't get too worried, because when you let it
Speaker 1: run hot, it really, uh, you know, could solve some problems.
Speaker 1: You're listening to Bloomberg Business Week with Carol Messer and
Speaker 1: Jason Kelly on Bloomberg Radio let's get to IR Jersey,
Speaker 1: chief US interest rate Strategies at Blomberg Intelligence. He's on
Speaker 1: the phone in New Jersey. Lindsay Piegsa back with US
Speaker 1: chief economist at stepl Financial. She joins us on the phone,
Speaker 1: UM from Chicago, and you know, I want to start
Speaker 1: with you. It feels like the markets kind of ending
Speaker 1: up where they started before the FED decision. But what's
Speaker 1: key for you, as you heard from the FED chief,
Speaker 1: not at all, Carol. I mean, the yield curve has
Speaker 1: flattened quite a bit if you look at two's tens
Speaker 1: or five year versus ten year treasuries UM. I I
Speaker 1: think that the two things really caused the treasury market
Speaker 1: to react pretty you know, at least noticeably, if not significantly.
Speaker 1: One is that the dot plot being as as devilish
Speaker 1: as it was with the you know, median UH forecast
Speaker 1: of of FED members saying that they're not going to
Speaker 1: hike rates until UH at least three that that has
Speaker 1: meant that you had so a pretty significant rally in
Speaker 1: five and seven year rates actually and then UH and
Speaker 1: then on the other side the UM the chairman mentioning
Speaker 1: gild curve control in his opening remarks and then also
Speaker 1: in response to a couple of questions, I think also
Speaker 1: contributed to additional UM additional buying of treasuries. So so
Speaker 1: I think the the support that UH the market had
Speaker 1: back in March, that that's been ebbing. I think the
Speaker 1: FED leaves open the possibility that you'll have even more
Speaker 1: asset buying in the future if the recovery doesn't UH
Speaker 1: doesn't accelerate from the way that the some of the
Speaker 1: members of the FED hope. So Lindsay Lindsay piegsa as
Speaker 1: I look at what our colleagues on the Bloomberg Top
Speaker 1: Live blog we're saying, as I look at the equity
Speaker 1: market reaction a little bit, I mean, it seems like
Speaker 1: everybody was kind of trying to make up their mind
Speaker 1: of what they were hearing, both totally and I think
Speaker 1: in substance from the FED chair what was the most
Speaker 1: important thing you heard him say? Well, I think the
Speaker 1: most important thing was the tone of reassurance. The FED
Speaker 1: chairman really reiterating the notion that the Committee will continue
Speaker 1: to do whatever it takes to support the economy. Now,
Speaker 1: on the one hand, they pointed out that the policies
Speaker 1: already implemented have been relatively favorable. They point proving financial
Speaker 1: conditions specifically to get longer number of tools still in
Speaker 1: our chop box. We have not exhausted those yet. Back
Speaker 1: to Ira Jersey and Ira I should have clarified. The
Speaker 1: equity market seem to kind of, you know, bounce around
Speaker 1: and then settle back to where they were. But you're
Speaker 1: right in terms of the treasury market, in terms of
Speaker 1: what we got. So, uh, you know, what's the next
Speaker 1: focal point? Do you think that's going to be really
Speaker 1: key for market watch, especially when it comes to the
Speaker 1: fixed income market and really some of those economic data points,
Speaker 1: as J Powell you know, several times reminded us. You know,
Speaker 1: this was one data point that jobs report we got
Speaker 1: on Friday, and you could tell he's worried about the
Speaker 1: labor market. Yeah, for sure. I I certainly read his
Speaker 1: comments that way as well, that you know that there
Speaker 1: was he was he and everyone else quite frankly, were
Speaker 1: surprised by the data. And obviously the data is going
Speaker 1: to be very noisy, I think over the next couple
Speaker 1: of months. So I think for the rate market it's
Speaker 1: going to be this push and pull. So the idea
Speaker 1: is how serious are they at implementing something like an
Speaker 1: open ended quantitative easing that would be yield curve control
Speaker 1: and defending a particular rate versus the amount of treasury
Speaker 1: supply that's coming to the market. So obviously to fund
Speaker 1: all of the fiscal stimulus plans, and certainly if there's
Speaker 1: another potentially trilling in dollar fiscal stimulus in the future
Speaker 1: coming down the pipeline, then that's just going to add
Speaker 1: to the amount of treasuries that are going to have
Speaker 1: to be issued. And you've already seen a little bit
Speaker 1: of um, a little bit of friction as some of
Speaker 1: those bombs have been issued over the last couple of weeks,
Speaker 1: uh T bills in particular, but also even uh ten
Speaker 1: ure notes yesterday had their weakest treasury auction that we've
Speaker 1: seen in quite a few months. So so so I
Speaker 1: think that that's the push and pull that's gonna go on.
Speaker 1: And obviously the you know, the traditional economic data is
Speaker 1: gonna matter. But I think you have to look through
Speaker 1: the next couple of months and we won't really get
Speaker 1: a clear picture until August or September as we start
Speaker 1: to get, uh get a little bit deeper into the
Speaker 1: data cycle. Yeah, so talk a little bit more about
Speaker 1: that if you can, you know, deeper into that data cycle,
Speaker 1: what exactly are we looking for, who are we looking toward?
Speaker 1: Um to really get that good sense, because you're right,
Speaker 1: it's been very hard to kind of get a handle
Speaker 1: on what's in even the FED chair basically like, listen,
Speaker 1: let's not get way too excited about last Friday's number. Well,
Speaker 1: I think in a way, the data is going to
Speaker 1: be lagging some of the real time data that we
Speaker 1: can look at. So I think it's things like where
Speaker 1: are aggregate cases and death from coronavirus, for example, and
Speaker 1: then what is the policy response for that? Right? So,
Speaker 1: so do you see more and more states opening up
Speaker 1: because the number of cases being reported per day has
Speaker 1: gone down? I mean I live in New Jersey, as
Speaker 1: you noted at the top of the show, and you know,
Speaker 1: we're starting to reopen. We had one of the most
Speaker 1: draconian um you know, sets of of social distancing and
Speaker 1: now we're we're starting to slowly open up. And when
Speaker 1: you look at you know, cases per day are now
Speaker 1: at three hundred instead of at you know, three thousand.
Speaker 1: You know, as you get that data, I think that
Speaker 1: data might actually push markets and be more important, um,
Speaker 1: certainly to risk assets I think than uh um so
Speaker 1: things like corporate bonds and equities more than more than
Speaker 1: you know I s M data for example. I agree
Speaker 1: with you. I think a lot of the CEOs and
Speaker 1: individuals we've had they said, you know, it's a health
Speaker 1: care story. Is a health care problem? Um, just quickly,
Speaker 1: I just wanted to ask you, he said, many officials
Speaker 1: a different possible paths for the economy. Just got about
Speaker 1: thirty seconds. Um, So what healthy debate going inside the
Speaker 1: FED right now? Yeah? Well, I think that that just
Speaker 1: shows the the uncertainty, you know, both at the FED
Speaker 1: but also in the markets in general. Like like, we
Speaker 1: don't know what the path of the recovery is. But
Speaker 1: in my in my view, it's more of a duck
Speaker 1: build fat tail, you know, reduction because we know now
Speaker 1: that that you know that the pace is probably going
Speaker 1: to be positive from here. The question is what is
Speaker 1: how how faft and and or or how flat is
Speaker 1: that recovery going to be? All right, Well, we really
Speaker 1: appreciate it. We know it's a busy day. Our Jersey
Speaker 1: chief US interest rate strategist for Bloomberg Intelligence joining us
Speaker 1: on the phone from New Jersey. Lindsay Pieza, chief economists
Speaker 1: for STI full Financial, on the phone from Chicago. M Journal. Yeah,
Speaker 1: but you let me drive? Oh no, no, no, no,
Speaker 1: who's going to drive home? Honey? Please, I'll do the
Speaker 1: riding drivel. I want to drive all Just drive baby,
Speaker 1: question trying. This is the drive to the globe. Thanks,
Speaker 1: we'll drying us to dawn on Bloomberg Radio. All right,
Speaker 1: it is time for the drives of the clothes. Let's
Speaker 1: check in with their man. Sean Cruise, manager of trader
Speaker 1: Strategy at T D mer Tree Johnny Us on the
Speaker 1: phone from Chicago. And you know, Sean, we were watching
Speaker 1: the tape as it went through J Pal's press conference.
Speaker 1: It's been a funky one for a long time now.
Speaker 1: But it was interesting to just watch almost tick by tick.
Speaker 1: You could see people being like, I mean, I'm using
Speaker 1: very technical market h sounds there, but interesting to watch
Speaker 1: how dependent this market really is on J. Powell and friends. Yeah,
Speaker 1: And I think that the markets were trying to get
Speaker 1: was some guidance one on on where interest rates were
Speaker 1: going to be, not just for the time being, but
Speaker 1: looking forward for the next year or two um. And
Speaker 1: then also looking at what they're gonna do with asset purchases.
Speaker 1: So I think one in one hand, they got what
Speaker 1: they wanted, that is, we are going to get the
Speaker 1: rates remaining in the zero or twenty five basis points range,
Speaker 1: and we also got what we wanted from asset purchases.
Speaker 1: But I think that they plan on keeping those rates lower.
Speaker 1: I think a little bit longer than the market anticipated
Speaker 1: sort of doesn't put you in a good place mentally
Speaker 1: about the trajectory of the economy. If you are going
Speaker 1: to need rates that low for that long going out
Speaker 1: through two what does that say about your your expectations
Speaker 1: for what the economy is going to be doing. And
Speaker 1: I think trying to reconcile that was what paused a
Speaker 1: lot of that volatility back and forth as the conference
Speaker 1: is going on, Well so on, right, it's like wait
Speaker 1: a minute, Okay, that's cheap money for a really long time.
Speaker 1: Wait a minute. That also means the economy is not
Speaker 1: so great, right, Like it's that yin Yang that was
Speaker 1: going on. Wait a minute, Wait a minute. I think so.
Speaker 1: And so it's hard to imagine where one you're going
Speaker 1: to start getting um, some recovering employment, you're gonna get
Speaker 1: some recovering economic activity, but you're not going to get
Speaker 1: any sort of inflationary pressures to go along with it
Speaker 1: or anything else that would necessitate the set having to
Speaker 1: push rates higher at least before two thousand twenty two.
Speaker 1: So if that's one thing where the market sort of
Speaker 1: read through um into that, and then if you're looking
Speaker 1: at rates being that load that long, it's not going
Speaker 1: to help out some of these sectors that need higher
Speaker 1: interest rates or take higher interest rates sort of as
Speaker 1: a good sign of economic economic activity. And that's financials,
Speaker 1: that's industrials, and you definitely are seeing those sectors remain
Speaker 1: under pressure post conference, right, So, Sean, I have to
Speaker 1: ask you, amid all of this, and day was no exception,
Speaker 1: we continue to see tech stocks I was gonna say,
Speaker 1: grind higher, but there's not really a grind. It's just
Speaker 1: like they're going they're going up. Yeah, not a lot
Speaker 1: of friction there. I do wonder what you make of
Speaker 1: especially the big tech names, the fang names, amid all
Speaker 1: of this, because they continue to really hold everything up.
Speaker 1: I mean, the NASDAC is up ten on the air
Speaker 1: at this point plus so it's almost like you have
Speaker 1: to think of this not in terms of cyclical versus
Speaker 1: defensive um. You almost have to think of it as
Speaker 1: stay at home versus reopening. And when you get the
Speaker 1: stay at home scene prevailing that maybe we're not going
Speaker 1: to reopen as fast as as we were hoping or expecting,
Speaker 1: that's when you start to see some of these tech names.
Speaker 1: And I think it's been well documented just the impact
Speaker 1: that Microsoft, Amazon, Apple, Facebook, Google have on on the
Speaker 1: NASDAC um. Whereas if you're looking at the SMP five hundred,
Speaker 1: where there's um a lot more like we just talked
Speaker 1: about industrials, financial energies that make up a decent amount
Speaker 1: of that index as well, it makes sense that you
Speaker 1: can see the NASDAK really take off, especially when the
Speaker 1: stay at home seeing prevails, because you've got you've got
Speaker 1: four or five names that make up so much of
Speaker 1: that index but also can benefit from the stay at
Speaker 1: home economy, and even if we start to reopen, they're
Speaker 1: probably going to be in a good spot to reopen
Speaker 1: moving forward as well. Well, don't you wonder, I mean, Sean,
Speaker 1: I don't know you've watched the markets for a while,
Speaker 1: do we at some point wake up and say, uh,
Speaker 1: you know this is our economy. This handful of tech
Speaker 1: names largely and anybody connected with them, is our economy
Speaker 1: going forward? Or are we being kind of stupid and
Speaker 1: thinking that. I don't think it would be wrong to
Speaker 1: to think that companies like Amazon and Microsoft are just
Speaker 1: bringing so many users and so much activity onto their platforms,
Speaker 1: and a lot of that probably will remain sticky moving forward.
Speaker 1: I think you've already seen some of that play out.
Speaker 1: And if you look at just the market capitalization, how
Speaker 1: much that is shrunk in some of those other sectors. UM.
Speaker 1: You can even look at some of the consumer discretionaries.
Speaker 1: If if you take Amazon out of the consumer discretionaries, UM,
Speaker 1: there's been a significant um drop in the market cap
Speaker 1: of discretionaries, market cap of industrials and energy companies. So
Speaker 1: the image is already sort of starting to reflect that
Speaker 1: that is really going to be more representative of economic
Speaker 1: activity moving forward will be in those big technology and
Speaker 1: communications services companies. Can I ask you about one thing
Speaker 1: that's a little baby sort of offbeat, which is, you know,
Speaker 1: you look at some of these bankrupt companies like Herds
Speaker 1: and J. C. Pennies, and you know these are well
Speaker 1: known names to two folks and yet you've seen these
Speaker 1: little runs in them. These are companies that are you know,
Speaker 1: it's not going out of business, being dramatically restructured legally.
Speaker 1: Help me understand that. Well, that was a little bit
Speaker 1: of a head scratcher to me as well, because that's
Speaker 1: sort of just a given in any sort of bankrupts
Speaker 1: your your organization, if you are an equity holder, that
Speaker 1: the first and easiest item to check off the list
Speaker 1: as equity goes to zero. Yeah, so I think that
Speaker 1: was a little bit of a mystery. And so that
Speaker 1: almost makes you wonder if there was going to be
Speaker 1: some sort of a deal or something put on the
Speaker 1: table where there was they were going to find a
Speaker 1: way to maybe take the company private or recapitalize the
Speaker 1: company without having to do that. But that was a
Speaker 1: very short lived right. What I think is maybe a
Speaker 1: just a little blitz in the pricing that that reverse
Speaker 1: itself fairly quickly. You well, and it's just it is
Speaker 1: an interesting time. I just feel like there's so many
Speaker 1: people weighing in, Like, you know, we had John Paul
Speaker 1: Tutor Jones like eating some humble pie. You know, all
Speaker 1: of these big investors who were you know, saying back
Speaker 1: in March or even sooner, like this is not a
Speaker 1: market to be in, and then yet here we are,
Speaker 1: So I don't know, what are your expectations, what kind
Speaker 1: of visibility do you have in terms of the equity
Speaker 1: trade right now? Well, the what we noticed in an
Speaker 1: before t dmritrade clients, and that is we actually saw
Speaker 1: our clients start lowering exposure to equities at the start
Speaker 1: of the year UM and we actually hit a seven
Speaker 1: year low in March for equity exposure and clients and
Speaker 1: it sort of turned around from there. So I think
Speaker 1: clients started dialing back exposure once we hit those loads
Speaker 1: in March, and it was sort of one thing where
Speaker 1: we've we've had some about a decade to see how
Speaker 1: this plays out. But the FED came in with March
Speaker 1: and they really announced some pretty extraordinary programs. We also
Speaker 1: got financial support packages that were pretty extraordinary as well,
Speaker 1: UM and I think investors saw that as an opportunity
Speaker 1: maybe to get back in and that was really meant
Speaker 1: to address what I think was the big concern issue
Speaker 1: for the market, and that was leverage and solving the
Speaker 1: issues and everything that FED and h Congress did, it
Speaker 1: seemed to be pointed to address those those solving issues.
Speaker 1: Sounds like a little bit of market timing to me.
Speaker 1: And those were good, those are good before they did that. Clients,
Speaker 1: all right, Sean Cruise, thank you so much. Manager of
Speaker 1: Trader Strategy for t d Amor Trade, Johnnys on the
Speaker 1: phone from Chicago, Thanks so much for listening to Bloomberg
Speaker 1: Business Week. Download the podcast on iTunes, Southcloud, Bloomberg dot com,
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