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Speaker 1: This is Bloomberg Surveillance. The UK needs its own sovereignty,

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Speaker 1: it doesn't need rules set out for it by the

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Speaker 1: European community. That decisions to raid rates are not being

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Speaker 1: driven by inflation, So what is driving at There is

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Speaker 1: still only one cold oil market and the price goes

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Speaker 1: up because of outages in Nigeria and whether we're importing

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Speaker 1: oil from Nigeria. We're going to be reflected here at

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Speaker 1: Bloomberg Surveillance, your link to the world of economics, finance

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Bloomberg Surveillance.

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Speaker 1: Michael McKee and Tom Keenan moments Michael McKee's conversation when

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Speaker 1: President Lockhard of the Atlanta Fed. Let me get right

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Speaker 1: to the FOREX brief brought you by Interactive Brokers for

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Speaker 1: X traders focus on tightness of spreads of cost matters.

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Speaker 1: Visit ib k R dot com slash for X to

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Speaker 1: learn about their for X e c N. It includes

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Speaker 1: fourteen of the largest inter bank dealers for exchange. Today.

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Speaker 1: Yen after that huge strong end move that we saw

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Speaker 1: on Friday one oh seven thirteen, that's still extraordinary and

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Speaker 1: very antiobionomics. The yuro one thirteen fifty as well. He

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Speaker 1: and I've always said folks at the Atlanta Fed is

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Speaker 1: away from New York and gets less discussion in the

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Speaker 1: media than it should. President Lockhart is out of Stanford

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Speaker 1: Economics and the Johns Hopkins Johns Hopkins University School of

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Speaker 1: Advanced International Studies. President Lockhart is at an a steam

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Speaker 1: career UH, in a banking and in private investors. Well,

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Speaker 1: Carl Ricka Donna here as well, Carl with Bloomberg Economics.

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Speaker 1: What do you want to hear from Dennis Lockhart this morning? Well,

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Speaker 1: he's going to be sort of the prelude to share

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Speaker 1: yelling speaking just afternoon today, and he was one who

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Speaker 1: initially brought in concerns about Brexit weighing on the June meetings.

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Speaker 1: So we'll see if he continues to adhere to that,

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Speaker 1: especially given the big f X moves in UH, in

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Speaker 1: Sterlington and over the weekend. Certainly that changes the discussion

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Speaker 1: of Carl Ricka Donna brings up the idea of not

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Speaker 1: one but two I'm not gonna say major polls, but

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Speaker 1: nevertheless visible polls in the United Kingdom that clearly tilt

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Speaker 1: towards Brexit. UH and now UM here is Michael McKee

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Speaker 1: with Dennis Lockhart. How much we are here live with

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Speaker 1: Dennis Lockhart, the President of the Atlanta Fed, on Bloomberg

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Speaker 1: Radio and Bloomberg Television. Good morning to you the day after,

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Speaker 1: as it were, the trading day after the jobs report.

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Speaker 1: Last time we heard from you publicly in mid May,

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Speaker 1: you were saying that June could actually be a decision

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Speaker 1: at which the Fed raised interest rates. Now we've got

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Speaker 1: this number, let's get right to it. Is June still

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Speaker 1: on the table? Well, let me just speak for myself. Um,

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Speaker 1: I think the combination of the jobs report on Friday

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Speaker 1: and the Brexit consideration justify pace. But I'm speaking only

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Speaker 1: for myself. Meeting is live. I don't know how it's

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Speaker 1: going to come out. The committee could arrive at a

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Speaker 1: decision to h increase the Fed funds rate. Um, But

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Speaker 1: as I assess the situation currently, I'm prepared to be patient.

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Speaker 1: What does patient mean? Would July be a meeting at

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Speaker 1: which you would consider a rate increase? Well? I think

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Speaker 1: patient for me again means um first, getting beyond the

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Speaker 1: Brexit boat and seeing how the data come in for

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Speaker 1: the next few weeks. My fundamental view is that the

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Speaker 1: economy remains on a moderate growth track, let us say

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Speaker 1: around two percent, and that it will be sustained for

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Speaker 1: the rest of the year and beyond. So I'm not

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Speaker 1: really changing my overall view of the economy just because

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Speaker 1: of the Job's report on Friday. However, the weakness of

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Speaker 1: the Job's report is something that I think justifies a

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Speaker 1: little bit more patients. If you don't think it's a

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Speaker 1: new trend, then what do you think happened to the

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Speaker 1: Job's report. I think there are two, possibly three ways

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Speaker 1: that could be interpreted. The first is that it's indicating

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Speaker 1: a slowdown in the economy. I don't believe that's the case.

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Speaker 1: As I just said, I don't believe that's the case.

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Speaker 1: The second interpretation is it's the natural slowing of job

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Speaker 1: generation as we get closer and closer to full employment,

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Speaker 1: and that's clearly a possibility. The third is that what

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Speaker 1: we've seen with this most recent report and the revisions

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Speaker 1: to the earlier reports is simply the waxing and waning

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Speaker 1: of data, the to and fro that we see in

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Speaker 1: the numbers. Uh in a in an an economy that's

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Speaker 1: never going to be totally linear, So that's possible as well.

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Speaker 1: But the key point for me is, I don't it

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Speaker 1: does not take me off of my basic view of

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Speaker 1: the economy growing at around two For a fit policy

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Speaker 1: make it's where the risk and reward line is. Where

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Speaker 1: is the greater risk CPI inflation is up, pc inflation

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Speaker 1: is up. The I s M Non Manufacturing survey came

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Speaker 1: out after the jobs report didn't get a lot of publicity,

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Speaker 1: shows labor in short supply for a thirteen month and

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Speaker 1: prices going up for eight months. What is the risk

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Speaker 1: cost benefit ratio at this point? I don't personally see

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Speaker 1: a lot of cost to being patient to the July

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Speaker 1: meeting at least um so I I don't think the

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Speaker 1: FED is behind them, is behind the curve and from

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Speaker 1: the point of view inflation and uh. I think we

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Speaker 1: can Again I'm just speaking for myself, but I think

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Speaker 1: we can can be watchful and see how things develop

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Speaker 1: over the next few weeks. Let's talk a little bit

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Speaker 1: about monetary policy itself at its current levels extraordinary still

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Speaker 1: Is that putting maybe a floor or under growth and

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Speaker 1: inflation or is it actually contributing to growth? At this point,

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Speaker 1: I have to believe that the policies it now stands

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Speaker 1: UH continues to stimulate the economy and UM, I don't

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Speaker 1: see that it's putting a floor under growth and inflation.

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Speaker 1: I think it's net stimulative. Um. And UH. That's not

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Speaker 1: to say that the neutral rate isn't fairly low, but

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Speaker 1: nonetheless I think we're still at a stimulative stance of policy.

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Speaker 1: Do you have a number for a neutral rate? Well,

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Speaker 1: I mean, we debate this all the time, and you

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Speaker 1: can argue that the neutral rate is currently about where

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Speaker 1: the Fed Funds rate is, or maybe one one and

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Speaker 1: a quarter, but it's certainly within that range. I'm I

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Speaker 1: buy into the view that the neutral rate changes over time,

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Speaker 1: and as the economy contin us to move ahead, Uh,

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Speaker 1: the neutral rate will rise. But at the current time,

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Speaker 1: I think it's in the range of sort of where

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Speaker 1: we are maybe a little lower even to one or

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Speaker 1: one and a quarter percent. Given that, then where do

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Speaker 1: you see the Fed funds rates at the end of

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Speaker 1: the year, in other words, where your dots? Well? I, UM,

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Speaker 1: I have revised my thinking on that since December, and UM,

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Speaker 1: I'm now in the school that believes person I'll say

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Speaker 1: we have enough meetings. We have five meetings, including the

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Speaker 1: June meeting, next week, So there are enough meetings to conceivably,

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Speaker 1: if the data justified it, to go to three moves.

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Speaker 1: But I'm more inclined to think in terms of two

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Speaker 1: moves between now and the end of the year, and

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Speaker 1: of course I have to caveat that that depends on

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Speaker 1: how the economy performs. Well. When you look at the

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Speaker 1: calendar for meetings, you've got one in September one in October.

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Speaker 1: If I ask you whether the presidential race would affect

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Speaker 1: your thinking, you were going to tell me, no, will

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Speaker 1: make policy. I mean, a's necessary. But does it cross

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Speaker 1: your mind, especially given the nature of this campaign where

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Speaker 1: you could easily become an issue that could decide the presidency. Oh,

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Speaker 1: I really doubt that. I really doubt that. I do

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Speaker 1: think as the final weeks of the campaign and the

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Speaker 1: election unfold, that much of the electorate will be sizing

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Speaker 1: up the economy and their economic prospects. I think that's

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Speaker 1: been shown with very good scholarship on on the question.

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Speaker 1: So the economy and the state of the economy is

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Speaker 1: clearly part of the equation whether a policy decision would

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Speaker 1: swing the election. I find that very far fetched. In

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Speaker 1: the April Minutes of the April meeting, there was a

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Speaker 1: lot of discussion about a lack of business investment. It

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Speaker 1: what are corporate leaders in the Atlanta district telling you

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Speaker 1: about why they are not spending. We talked to our

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Speaker 1: contacts in the corporate world a lot about this subject

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Speaker 1: to try to understand, you know, what it is that

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Speaker 1: has sort of created a drag from business investment on

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Speaker 1: GDP growth um. One answer is simply that we're still

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Speaker 1: in a state of high uncertainty and that the better

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Speaker 1: part of wisdom on the part of corporate decision makers

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Speaker 1: is to be cautious. Uh. Much of the investment is

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Speaker 1: taking place in equipment, is replacement in in nature, it's

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Speaker 1: not making a big bet on the future. I simply,

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Speaker 1: I guess I would say that I think the uncertainty

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Speaker 1: environment remains elevated enough that business decision makers are very

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Speaker 1: cautious about placing big bets. We're talking live with Denis Lockhart,

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Speaker 1: the president of the Atlanta Federal Reserve Bank, here on

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Speaker 1: Bluebird Radio and television. Business leaders are cautious in an

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Speaker 1: uncertain environment. But what are they uncertain about is that

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Speaker 1: the presidential election? Is that regulation in Washington, is that Obamacare,

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Speaker 1: which is what people talked about the last couple of years,

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Speaker 1: or is it the FED and what policy is going

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Speaker 1: to be probably all of the above. Let me let

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Speaker 1: me just parrot what I hear when I talked to

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Speaker 1: business leaders around the Southeast. They will cite uncertainty regarding

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Speaker 1: global events, so that most of them have within their

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Speaker 1: within their scan, uh, the whole world, and they're uncertain about,

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Speaker 1: you know, how Brexit will unfold, or how the European

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Speaker 1: Union will evolve or whatever. They will also mention regulation,

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Speaker 1: uncertainty about regulation, uncertainty about future taxation, UH, future fiscal policy, clearly,

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Speaker 1: uncertainty regard in the election, although I would say we

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Speaker 1: don't hear a lot of reference to the election per

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Speaker 1: se um and uncertainty um regarding uh, just the overall

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Speaker 1: momentum of the economy, and that policy would be part

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Speaker 1: of that. Is that unusual? Is this uncertainty and the

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Speaker 1: world is always an uncertain place? Um? Yeah, business people

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Speaker 1: are always trying to have as much predictability as they can,

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Speaker 1: and they're making judgments on the margin with the amount

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Speaker 1: of visibility they have about the future. UM. So yes,

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Speaker 1: this is the kind of thing that you hear probably

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Speaker 1: any time you ask the question. So it's a matter

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Speaker 1: of degree. I think it is more intense now than

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Speaker 1: I've heard it. Let's say then I would have heard

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Speaker 1: it ten years ago. You've mentioned Brexit a couple of times,

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Speaker 1: the vote on June and whether or not Britain will

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Speaker 1: leave the European Union. How much of a threat to

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Speaker 1: the US and global economies do you think it really is? First,

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Speaker 1: that's the right question, because as a policymaker, I have

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Speaker 1: to be thinking not just whether this is a big

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Speaker 1: event for the world, but whether it's going to come

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Speaker 1: somehow spill over