WEBVTT - Another Regional Bank Plunges; Fed Opens Door to Pause 0:00:02.000 --> 0:00:05.320 From the Bloomberg interactor Burger Studios. This is Bloomberg day 0:00:05.320 --> 0:00:07.120 Break for Thursday May fourth. 0:00:07.200 --> 0:00:10.440 Coming up today, pack West is the latest regional bank 0:00:10.480 --> 0:00:13.119 to plunge. Is that consider strategic options. 0:00:13.520 --> 0:00:15.760 Big names on Wall Street say that FED deserves a 0:00:15.800 --> 0:00:17.320 blame for the current crisis. 0:00:17.600 --> 0:00:20.440 Jay Powell raises rates again, but leaves the door open 0:00:20.560 --> 0:00:21.640 for a pause. 0:00:21.720 --> 0:00:23.520 And Apple prepares to record earnings. 0:00:23.560 --> 0:00:26.640 This afternoon, the Manhattan DA rules the death of a 0:00:26.680 --> 0:00:29.840 subway rider who dined by a show called a homicide, 0:00:29.960 --> 0:00:32.919 whilst the suspected gunman in a deadly Atlantis shooting has 0:00:32.960 --> 0:00:36.040 been caught. I'm John Tucker, bore ahead, I'm John Stash. 0:00:36.040 --> 0:00:38.440 Aaron sports a walk off win for the Yankees, the 0:00:38.520 --> 0:00:39.560 Mets got swept. 0:00:39.600 --> 0:00:41.840 The Devil's lost Game one at Carolina. 0:00:43.640 --> 0:00:47.080 That's all straight Ahead on Bloomberg day Break, The business 0:00:47.120 --> 0:00:49.559 news you need to starn your day in just one 0:00:49.680 --> 0:00:54.160 fifteen minute podcast each morning on Apple, Spotify, The Bloomberg 0:00:54.200 --> 0:00:56.880 Business Appen everywhere you get your podcasts. 0:01:00.000 --> 0:01:01.680 Good morning, I'm Nathan Hager. 0:01:01.560 --> 0:01:04.800 And I'm Karen Moscow. Here are the stories we're following today. 0:01:05.400 --> 0:01:08.920 We begin this morning with continued turmoil in the banking industry. 0:01:08.959 --> 0:01:11.760 The regional lender PacWest Bank Corp. Has been weighing a 0:01:11.880 --> 0:01:15.400 range of strategic options, including a sale. We get the 0:01:15.440 --> 0:01:17.200 details from Bloomberg's Doug Prisner. 0:01:17.720 --> 0:01:20.520 Yes, Packwest is open to a sale, although the company 0:01:20.560 --> 0:01:24.000 hasn't started a formal auction process. We're also told the 0:01:24.040 --> 0:01:27.640 Beverly Hills Bank is considering a breakup or a capital raise. 0:01:27.959 --> 0:01:28.119 Now. 0:01:28.120 --> 0:01:30.760 An outright sale has been hindered because there aren't many 0:01:30.760 --> 0:01:35.160 potential buyers interested in the entire bank. Packwest compromises a 0:01:35.280 --> 0:01:38.640 community lender called Pacific Western Bank, as well as some 0:01:38.720 --> 0:01:42.440 commercial and consumer lending businesses. Also, a buyer would have 0:01:42.480 --> 0:01:45.440 to potentially book a big loss on marking down some 0:01:45.480 --> 0:01:48.600 of those loans in New York. I'm Doug Prisoner, Bloomberg. 0:01:48.320 --> 0:01:51.000 Daybreak, All right, Doug, thanks well. Shares of pack West 0:01:51.040 --> 0:01:54.120 originally fell sixty percent on the news, but just after 0:01:54.200 --> 0:01:56.840 midnight on the East Coast, the regional bank confirmed its 0:01:56.920 --> 0:02:00.480 in talks with several potential investors and said to posits 0:02:00.480 --> 0:02:03.760 have increased since March. Checking shares a pack West right now, 0:02:04.000 --> 0:02:07.520 they are down almost thirty seven percent in early trading. 0:02:07.320 --> 0:02:09.840 And reaction is pouring into this latest chapter in the 0:02:09.840 --> 0:02:13.360 banking crisis, Karen Pershing squares Bill Ackman says the US 0:02:13.400 --> 0:02:16.280 regional banking system is at risk. He goes on to 0:02:16.360 --> 0:02:20.160 say regulator failures to update and expand the insurance regime 0:02:20.160 --> 0:02:23.040 has quote hammered more nails in the coffin. 0:02:23.040 --> 0:02:25.720 And Nathan, the Federal Reserve deserves some of blame for 0:02:25.760 --> 0:02:28.679 the banking crisis. That's the view from former New York 0:02:28.720 --> 0:02:32.320 FED president and current Bloomberg opinion columnist Bill Dudley. 0:02:32.800 --> 0:02:35.640 I think the FED broadly missed the fact that this 0:02:35.800 --> 0:02:38.080 interest rate risk that they had created by being very 0:02:38.160 --> 0:02:41.600 late to tighten monitary policy, that they created by flooding 0:02:41.600 --> 0:02:45.400 the bank with deposits by doing quantitative easing, that they created, 0:02:45.440 --> 0:02:48.120 part of the stress on the banking system that rose 0:02:48.160 --> 0:02:51.480 when they had to tighten bi monetary policy by five 0:02:51.520 --> 0:02:52.840 percent in a little over a year. 0:02:53.400 --> 0:02:55.760 And former New York FED President Bill Dudley made the 0:02:55.800 --> 0:02:59.200 comments just after the Fed's latest rate decisions. Stay tuned 0:02:59.200 --> 0:03:02.000 for more of his inner with a Bloomberg coming up shortly. 0:03:02.280 --> 0:03:05.240 Fed schir Jay Powell also addressed the banking termoil during 0:03:05.240 --> 0:03:07.919 his news conference yesterday. Karen, that was before the latest 0:03:07.960 --> 0:03:11.680 news on Packwest. Palell says issues in the banking sector 0:03:11.800 --> 0:03:12.880 are not systemic. 0:03:13.200 --> 0:03:16.440 Conditions in that sector have broadly improved since early March, 0:03:16.639 --> 0:03:19.560 and the US banking system is sound and resilient. We 0:03:19.600 --> 0:03:22.640 will continue to monitor conditions in the sector. We're committed 0:03:22.639 --> 0:03:25.160 to learning the right lessons from this episode and will 0:03:25.200 --> 0:03:27.920 work to prevent events like these from happening again. 0:03:28.160 --> 0:03:28.280 Well. 0:03:28.320 --> 0:03:31.560 As far as monetary policy, powellan company did raise rates 0:03:31.560 --> 0:03:34.040 for a tenth straight time, but open the door to 0:03:34.160 --> 0:03:36.920 a June pause for rate hikes. We got this reaction 0:03:36.960 --> 0:03:39.320 from former Atlanta Fed president Dennis Lockhart. 0:03:39.600 --> 0:03:42.520 The focus is on inflation. They're trying very hard to 0:03:42.600 --> 0:03:48.600 separate financial stability concerns system banking system concerns from monetary policy. 0:03:48.720 --> 0:03:54.160 We'll see if conditions forced them to begin to combine 0:03:54.360 --> 0:03:58.000 financial stability concerns with monetary policy decisions. 0:03:58.200 --> 0:04:01.240 Former Atlanta Fed President Dennis locker Heart says overall, he 0:04:01.320 --> 0:04:04.600 thinks j. Powell is taking a long term hawkish position 0:04:04.680 --> 0:04:05.400 on policy. 0:04:05.600 --> 0:04:08.800 Interest rates are also in focus overseas, Karen, the European 0:04:08.880 --> 0:04:11.040 Central Bank is poised to slow the pace of interest 0:04:11.080 --> 0:04:13.920 rate increases later this morning. It's after its preferred measure 0:04:13.920 --> 0:04:16.640 of inflation eased for the first time in ten months. 0:04:16.960 --> 0:04:19.200 Officials at the Central Bank are expected to raise the 0:04:19.240 --> 0:04:21.600 deposit rate by a quarter point to three point two 0:04:21.720 --> 0:04:22.320 five percent. 0:04:23.040 --> 0:04:23.200 Well. 0:04:23.240 --> 0:04:25.760 Staying in Europe here, Nathan Shares of Schaller at more 0:04:25.800 --> 0:04:29.000 than two percent first quarter profit, beating estimates. In the 0:04:29.000 --> 0:04:31.800 oil giants said it will repurchase a further four billion 0:04:31.839 --> 0:04:34.839 dollars of shares. That's the same buyback size as in 0:04:34.880 --> 0:04:35.600 the prior quarter. 0:04:35.760 --> 0:04:37.760 And back here in the US, careen the earnings continued 0:04:37.800 --> 0:04:39.720 to roll in as well, with Apple leading the way. 0:04:39.760 --> 0:04:42.440 Today we get a preview from Bloomberg's Tom Busby. 0:04:42.640 --> 0:04:47.240 Despite expectations of continued solid sales of iPhones, watches, MacBooks, 0:04:47.240 --> 0:04:49.479 and other gadgets, Wall Street is bracing for what could 0:04:49.520 --> 0:04:52.520 be a second year over year sales decline in a 0:04:52.640 --> 0:04:55.280 row as consumers here in the US and all around 0:04:55.320 --> 0:04:57.719 the world pull back a bit on their spending. But 0:04:57.800 --> 0:05:01.600 Apple also expected to boost its dividends and increase its 0:05:01.640 --> 0:05:05.040 share buyback program, which it did by ninety billion dollars 0:05:05.080 --> 0:05:07.440 just a year ago. For the second quarter, look for 0:05:07.480 --> 0:05:10.479 revenue of just under seventy two billion dollars forty nine 0:05:10.600 --> 0:05:13.720 billion of that from iPhone sales and consensus calls for 0:05:13.760 --> 0:05:16.640 innings per share of a dollar forty three. Tom buzzby 0:05:16.760 --> 0:05:18.880 Bloomberg Daybreak. All right, Tom, thanks well. 0:05:18.880 --> 0:05:21.920 Turning to politics, We're just days away from a key 0:05:22.000 --> 0:05:24.359 meeting on the debt ceiling, and now economists at the 0:05:24.360 --> 0:05:27.200 White House are issuing a new warning. The Council of 0:05:27.240 --> 0:05:30.640 Economic Advisor says a short default on the debt would 0:05:30.720 --> 0:05:33.719 cost a half million jobs and knock six tens of 0:05:33.720 --> 0:05:37.000 a percent off GDP. If it lasted a full quarter, 0:05:37.080 --> 0:05:40.159 GDP would fall more than six percent and the unemployment 0:05:40.240 --> 0:05:44.000 rate would go up five percent. Democratic Congressman Henry Kuahar 0:05:44.120 --> 0:05:46.880 is pushing for a clean debt ceiling increase. 0:05:47.160 --> 0:05:50.640 We cannot have a default because that's going to cost 0:05:50.680 --> 0:05:53.760 the US and we saw that at twenty eleven. We 0:05:53.839 --> 0:05:56.200 did it at the very end, and what happened the 0:05:56.760 --> 0:06:00.800 US credit was downgraded and that caused a lot of 0:06:00.800 --> 0:06:04.240 more money where we're paying out billions of dollars on 0:06:04.400 --> 0:06:06.839 interest because of the downgrade. 0:06:07.000 --> 0:06:09.719 And Congressman Henry Quayar of Texas spoke with our Washington 0:06:09.720 --> 0:06:12.760 correspondent Joe Matthew on Bloomberg's sound on Catch the show 0:06:12.760 --> 0:06:16.159 weekdays at one pm Eastern on Bloomberg Radio or listen 0:06:16.200 --> 0:06:18.240 on demand wherever you get your podcasts. 0:06:22.640 --> 0:06:23.840 Tim now to take a look at some of the 0:06:23.920 --> 0:06:26.240 other stories making news in New York and around the world. 0:06:26.240 --> 0:06:28.839 For that, we're joined by Bloomberg's John Tucker. Good Morning, John, 0:06:28.920 --> 0:06:29.440 and Nathan. 0:06:29.480 --> 0:06:31.840 The New York Medical Examiners world The death of a 0:06:31.880 --> 0:06:35.560 thirty year old subway rid a homicide. The NYPD says 0:06:35.560 --> 0:06:37.960 the man had been shouting at people aboard a train 0:06:38.040 --> 0:06:41.760 on Monday, then fellow writers tackled him and won a 0:06:41.920 --> 0:06:44.320 US marine put him at a choke hold that lasted 0:06:44.440 --> 0:06:47.640 until his body went limp. The medical examiners. His thirty 0:06:47.720 --> 0:06:50.600 year old Jordan Neely, died from compression of the neck. 0:06:51.080 --> 0:06:53.159 Neeling is known to some New Yorkers as a Michael 0:06:53.279 --> 0:06:57.160 Jackson impersonator in Times Square. Mayor Adams was ansd on 0:06:57.240 --> 0:06:58.840 CNN about the investigation. 0:06:59.400 --> 0:07:03.359 Well, now it's still ongoing, and really our hearts go 0:07:03.440 --> 0:07:07.919 out to the family and this terrible incident, and the 0:07:08.040 --> 0:07:12.560 disc attorney, as you stated, the Medical Examiner's office just 0:07:13.560 --> 0:07:15.480 bruth the case and now it's in the hands of 0:07:15.640 --> 0:07:18.800 investigators that determine exactly what happened. There's so many unknowns 0:07:18.800 --> 0:07:19.480 at this time. 0:07:19.680 --> 0:07:23.320 For now, the Manhattan DA has not charged anyone. Police 0:07:23.360 --> 0:07:26.040 in Atlanta say they caught the suspected gunman who shot 0:07:26.080 --> 0:07:28.440 and killed one woman and wounded four others at a 0:07:28.440 --> 0:07:31.360 medical center. The mother of the alleged suspect, twenty four 0:07:31.480 --> 0:07:34.160 year old m Patterson, says he was upset or a 0:07:34.160 --> 0:07:36.560 medical mix up and wanted a drug to deal with 0:07:36.640 --> 0:07:40.400 anxiety and depression. Atlanta Mayor Andre Dickens. 0:07:40.120 --> 0:07:42.640 It's the guns that we're talking about. We live in 0:07:42.680 --> 0:07:45.120 a state and in a nation where people have easy 0:07:45.200 --> 0:07:48.800 and wide access to firearms that are used to kill 0:07:48.920 --> 0:07:53.520 other fellow Americans. We need immediate action that meets the 0:07:53.680 --> 0:07:55.400 urgency of this crisis. 0:07:55.560 --> 0:08:00.200 Mayor Dickens says a citizen's tip Lanta Patterson's arrest. People 0:08:00.240 --> 0:08:02.320 are dead, including a seven year old girl, after a 0:08:02.360 --> 0:08:05.520 shooting in Newark, New Jersey, last night. Two others were 0:08:05.520 --> 0:08:08.640 wounded in what polease say is a domestic dispute, and 0:08:08.720 --> 0:08:11.920 a home on Johnson Avenue. The SATs back to gunman 0:08:12.200 --> 0:08:15.679 was also killed. A judge dismissed Donald Trump's one hundred 0:08:15.720 --> 0:08:18.200 million dollar lawsuit against the New York Times and its 0:08:18.240 --> 0:08:22.440 reporters over a twenty eighteen expose on his taxes. The 0:08:22.440 --> 0:08:25.240 New York State Supreme Court judge also ordered the former 0:08:25.320 --> 0:08:29.560 president to pay the news outlets attorney's fees. Prosecutors is 0:08:29.600 --> 0:08:31.679 said to be nearing a decision on whether to charge 0:08:31.680 --> 0:08:35.840 President Biden's son Hunter with tax violations. The Washington Post 0:08:35.840 --> 0:08:38.920 says that's according to people familiar with the matter. Global 0:08:38.960 --> 0:08:41.839 News twenty four hours a day, powervine more than twenty 0:08:41.840 --> 0:08:44.760 seven hundred journalist and analysts, you know, over one hundred 0:08:44.760 --> 0:08:48.000 and twenty countries. I'm John Tucker. This is Bloomberg, Nathan. 0:08:48.040 --> 0:08:55.560 Thank you, John. Time now for Bloomberg Sports Update. For that, 0:08:55.600 --> 0:08:57.000 we bring in John Stanshower. 0:08:57.000 --> 0:08:57.640 All right, Nathan. 0:08:57.640 --> 0:08:58.280 It was a long day. 0:08:58.320 --> 0:09:00.520 I'm not a good one for the Mets in Detroit 0:09:00.559 --> 0:09:02.320 at day night double ahead of the Tigers won the 0:09:02.320 --> 0:09:05.000 openers six to five, scoring twice in the eighth na 0:09:05.120 --> 0:09:08.400 A Bada Montevino. Detroit catcher Eric Pass had five hits 0:09:08.440 --> 0:09:10.920 and then he hit two home runs in the nightcap, 0:09:11.000 --> 0:09:13.520 won by the Tigers eight to one. Max Schurzer, back 0:09:13.520 --> 0:09:16.560 from his suspension, gave up six runs and eight hits. 0:09:16.559 --> 0:09:20.520 This afternoon, Justin Verlander makes his Mets debut. Yankees are 0:09:20.520 --> 0:09:22.800 off before starting a weekend series at Tampa Bay. The 0:09:22.960 --> 0:09:25.559 raised just one again. They are twenty five and six, 0:09:26.120 --> 0:09:28.000 sixteen and two at home, the eight and a half 0:09:28.040 --> 0:09:30.320 games ahead of the Yankees, who did rally to win 0:09:30.360 --> 0:09:32.600 a second straight over Cleveland at the Stadium. The Yanks 0:09:32.640 --> 0:09:34.640 trailed two nothing, got home runs in the fifteen from 0:09:34.679 --> 0:09:38.760 Willie Calhoun and new Yank outfielder Jake Bowers. Calhoun drove 0:09:38.800 --> 0:09:40.560 in the tiny run bottom of the ninth inning, and then 0:09:40.600 --> 0:09:43.240 the Yanks won four to three on the Jose Travino 0:09:43.360 --> 0:09:45.520 hit in the tenth. Before the game, Yankee GM Brian 0:09:45.600 --> 0:09:49.400 Cashman said the reason his team is in last place injury. 0:09:49.480 --> 0:09:51.280 Were banged up so bad right now. If it was 0:09:51.280 --> 0:09:54.160 a short seat and we'd be taken out. But we 0:09:54.320 --> 0:09:58.040 have time to make up ground and we're gonna compete 0:09:58.080 --> 0:09:59.480 with who we have here, and we look forward to 0:09:59.520 --> 0:10:02.000 getting who we need back, you know what, a later date. 0:10:02.080 --> 0:10:04.480 Thanks ok Toad Aaron Judge back next week. Stanley Cup 0:10:04.559 --> 0:10:07.680 flaff Carolina an easy game one win over the Devils 0:10:07.720 --> 0:10:10.160 in Raleigh five to one. That's the same score of 0:10:10.200 --> 0:10:13.360 the games one and two losses by the Devils against 0:10:13.400 --> 0:10:15.160 the Rangers, and of course they came back and won 0:10:15.200 --> 0:10:18.320 that series. Vegas beat Edmonton sixty four. The Oilers Leon 0:10:18.400 --> 0:10:21.640 Dreizeido scored all four in defeat. NBA Boston blew out 0:10:21.640 --> 0:10:24.840 Philadelphia by thirty four. That series tied at one. The 0:10:24.960 --> 0:10:28.160 Jets have signed veteran whiteout Randall Cobb, a longtime teammate 0:10:28.200 --> 0:10:29.880 of Aaron Rodgers in Green Bay. 0:10:30.200 --> 0:10:32.280 John Stash Edwin. Bloomberg Sports. 0:10:35.360 --> 0:10:38.760 Live from coast to coast, from New York to San Francisco, 0:10:38.960 --> 0:10:43.400 Boston to Washington, d C. Nationwide on SIRIUSXAM, the Bloomberg 0:10:43.440 --> 0:10:45.559 Business app, and Bloomberg dot Com. 0:10:45.600 --> 0:10:50.080 This is Bloomberg day Break. Good morning. I'm Nathan Hager. 0:10:50.160 --> 0:10:53.240 Let's continue the conversation now on the latest rate hikes 0:10:53.240 --> 0:10:55.960 from the Federal Reserve and the continued turmoil in the 0:10:56.000 --> 0:10:59.000 regional banking sector. If we've learned one thing over the 0:10:59.080 --> 0:11:02.439 past years monitary tightening cycle, it is that there are 0:11:02.520 --> 0:11:05.640 no guarantees. There was no guarantee that the Fed would 0:11:05.720 --> 0:11:08.280 raise interest rates as fast as it did, and it's 0:11:08.280 --> 0:11:11.560 not guaranteed they're now going to pause Fed chaired jer 0:11:11.559 --> 0:11:14.880 Own pal signal the Central Bank could stop hikes after 0:11:15.000 --> 0:11:18.160 yesterday's quarter point increase, but that the Central Bank will 0:11:18.360 --> 0:11:21.520 remain data dependent and at the same time, the Feds 0:11:21.640 --> 0:11:25.480 not just following the data, it's also closely watching continued 0:11:25.520 --> 0:11:28.800 turmoil in the regional banking sector. Bill Dudley, ran the 0:11:28.840 --> 0:11:32.440 New York Fed, is currently a Bloomberg opinion columnist. He 0:11:32.559 --> 0:11:34.839 says the Central Bank should keep an eye on how 0:11:34.880 --> 0:11:37.680 this turmoil unfolds, but he thinks it's also time to 0:11:37.720 --> 0:11:40.480 own up to the way interest rate increases may have 0:11:40.559 --> 0:11:44.280 fueled the crisis. Bill Dudley discussed that along with Jpalll's 0:11:44.320 --> 0:11:48.040 news conference yesterday with Bloomberg's Tom Kean, Lisa Abramowitz, and 0:11:48.120 --> 0:11:50.440 Jonathan Ferrell. Let's bring you that discussion now. 0:11:51.200 --> 0:11:55.880 If they pause, is it asymmetric or symmetric? Does a 0:11:56.000 --> 0:11:59.360 pause mean rate cuts to come or they can say 0:11:59.440 --> 0:12:02.880 we're going to pause and we can go either way. 0:12:03.440 --> 0:12:06.480 Well, I think they can pause and then continue to 0:12:06.520 --> 0:12:08.959 tighten again if the data turns out to support that. 0:12:09.720 --> 0:12:12.199 But obviously when they do pause, they're making a pretty 0:12:12.240 --> 0:12:15.240 strong statement that they've gotten enough information that they're confident 0:12:15.280 --> 0:12:18.640 that policy is sufficiently restrictive to use German policy terms 0:12:18.800 --> 0:12:21.560 to bring inflation down to two percent over time. So 0:12:21.600 --> 0:12:24.000 a pause is going to be a pretty significant event 0:12:24.280 --> 0:12:26.640 from the Fed. Now. Obviously contact matters that we're in 0:12:26.640 --> 0:12:29.080 the middle of a debt limit ceiling fight at the 0:12:29.080 --> 0:12:30.520 time of the June FMC met. 0:12:30.920 --> 0:12:32.040 You might take a pause for. 0:12:32.040 --> 0:12:34.400 Other reasons, but I would say a pause will be 0:12:34.480 --> 0:12:37.680 pretty important event. What the Fed was trying to do 0:12:37.720 --> 0:12:39.600 today was say, look, we don't know if we're going 0:12:39.640 --> 0:12:43.360 to pause or not at this point. The message, I 0:12:43.360 --> 0:12:46.120 think in the statement and in the Prescombe was pretty clear. 0:12:46.640 --> 0:12:49.959 We think we're getting close to a level that's sufficient restrictive. 0:12:50.200 --> 0:12:53.079 We're not absolutely certain data's going to tell that we 0:12:53.160 --> 0:12:55.160 have to do a little bit more. We're clearly not 0:12:55.200 --> 0:12:58.200 going to cut yet. So I think the pushback that 0:12:58.200 --> 0:12:59.920 the Fed is making is really to the markets price 0:13:00.040 --> 0:13:02.800 seeing rate cuts. The FED thinks that the process of 0:13:02.800 --> 0:13:04.920 getting inflation done to two percent is going to take some. 0:13:04.920 --> 0:13:07.200 Time, a lot longer than what the market thinks. 0:13:07.320 --> 0:13:10.720 What is a cumulative effect of where we are right now? 0:13:11.120 --> 0:13:14.080 Give in how you nailed the need for higher rates 0:13:14.080 --> 0:13:15.079 to fight inflation. 0:13:16.640 --> 0:13:19.720 Well, we're certainly in the vicinity of what's sufficient. I 0:13:19.760 --> 0:13:22.160 think in my mind whether they have to do another 0:13:22.760 --> 0:13:25.439 you know, increase or two it's hard to say at 0:13:25.440 --> 0:13:25.920 this point. 0:13:26.200 --> 0:13:28.120 You know, we've come a long way in the last year. 0:13:28.280 --> 0:13:30.200 As puppet cheer Paul said in his press covers, you 0:13:30.200 --> 0:13:32.680 go five hundred basis point five percent increase in short 0:13:32.720 --> 0:13:33.120 term rates. 0:13:33.120 --> 0:13:34.240 That's a lot in a year. 0:13:34.559 --> 0:13:36.720 And we're also starting to see some of the effects 0:13:36.760 --> 0:13:39.120 of that on the on the banking system, so that 0:13:39.160 --> 0:13:42.160 the FED has a whole nother source of restraint, which 0:13:42.200 --> 0:13:45.360 is a credit conditions are going to tighten because some 0:13:45.400 --> 0:13:47.360 banks are going to pull off. Now the hard part is, 0:13:47.400 --> 0:13:49.280 he said in his press covers, it's very hard to 0:13:49.320 --> 0:13:52.280 access how important that a channel is going to be. 0:13:52.640 --> 0:13:54.800 My own personal view is it's going to be fairly weak, 0:13:54.840 --> 0:13:57.320 because the problems that these banks face were not that 0:13:57.360 --> 0:13:59.400 they went out and made bad loans. The problem that 0:13:59.480 --> 0:14:01.400 these banks spaces they went out and took a lot 0:14:01.440 --> 0:14:02.280 of interest rate risks. 0:14:02.800 --> 0:14:05.840 Bill, were you satisfied with the explanations or the answers 0:14:05.880 --> 0:14:09.040 to the questions about the supervisory of some of these 0:14:09.080 --> 0:14:11.680 banking institutions that have failed, Well, I. 0:14:11.720 --> 0:14:14.840 Don't think the FED is, you know, taking the full 0:14:14.880 --> 0:14:19.080 responsibility for being pretty slow on this process. I mean, 0:14:19.080 --> 0:14:21.000 if you go back and look at the November Financial 0:14:21.040 --> 0:14:24.800 Stability port, which I did this morning, there's there's basically 0:14:24.800 --> 0:14:27.000 no mention of any kind of you know, interest rate 0:14:27.080 --> 0:14:31.560 risk mismatch, any prime kind of potential liquidity problem in 0:14:31.600 --> 0:14:34.480 the bank. So it wasn't just a question of the 0:14:34.880 --> 0:14:38.560 supervision not being more aggressive with Silicon Valley Bank. 0:14:38.600 --> 0:14:40.600 I think the FED basically missed the risk. 0:14:40.480 --> 0:14:43.440 Here that the posits could flow out very very quickly 0:14:43.520 --> 0:14:45.840 because of the marked and market losses on some of 0:14:45.880 --> 0:14:46.960 these banks balance sheets. 0:14:47.160 --> 0:14:49.360 Do you think, then, Bill, they're still missing it, that 0:14:49.400 --> 0:14:52.200 they don't appreciate the full extent of it, based on, 0:14:52.840 --> 0:14:54.800 for example, the preliminary look that they got to the 0:14:54.800 --> 0:14:58.160 Senior Loan Officer opinion survey, which seemed to indicate just 0:14:58.200 --> 0:15:01.800 an ongoing trend of what they had, are then underappreciating 0:15:01.960 --> 0:15:03.240 a new pressure in the market. 0:15:04.480 --> 0:15:06.680 I think that his answer on the Senior Loan Officers 0:15:06.720 --> 0:15:09.960 servey was that it's moving in the same direction that 0:15:10.040 --> 0:15:13.720 it was upward and the tightening of credit conditions, but 0:15:13.800 --> 0:15:16.440 not in a way that would suggest that the problems 0:15:16.480 --> 0:15:19.880 of the banking system since mid March have led to 0:15:19.880 --> 0:15:22.600 a significant further tightening of credit conditions. So I think 0:15:22.840 --> 0:15:25.320 he's basically saying there's not really any new information in 0:15:25.360 --> 0:15:26.720 the senior loan officers survey. 0:15:26.760 --> 0:15:30.120 That was my sense of his response to that question. 0:15:30.360 --> 0:15:34.359 Doctor Dudley, what you just said is extraordinary. You said, basically, 0:15:34.400 --> 0:15:39.400 the FED missed the ramifications of new digital technology the 0:15:39.440 --> 0:15:43.200 speed with which we can move deposits out A delicate question, 0:15:43.280 --> 0:15:46.680 if I may, Bill, and that is basically they want 0:15:46.680 --> 0:15:50.480 Mary Daly's head. There's no other way to put it nicely. 0:15:50.760 --> 0:15:54.600 You've had experience being a president of a FED. Do 0:15:54.680 --> 0:15:57.960 you go after the president of any given regional FRED 0:15:58.080 --> 0:16:00.760 when there's a major blow up like this? Or is 0:16:00.800 --> 0:16:03.720 it much more down the food chain looking at the 0:16:03.760 --> 0:16:07.840 process of supervision and regulation, I think it's. 0:16:07.680 --> 0:16:12.560 A much broader issue about supervisors finding finding problems with 0:16:12.880 --> 0:16:15.560 banks and then not forcing the banks to remedy those 0:16:15.560 --> 0:16:18.920 problems in a timely way. The second issue here was 0:16:18.960 --> 0:16:21.120 I think the FED broadly missed the fact that that 0:16:21.240 --> 0:16:23.800 that this interest rate risks that they had created by 0:16:23.880 --> 0:16:27.120 being very late to tighten monitary policy that they created 0:16:27.160 --> 0:16:30.320 by flooding the bank with deposits by doing quantitative easing 0:16:30.840 --> 0:16:32.840 that they created part of the stress and the banking 0:16:32.880 --> 0:16:35.520 system that rose when they had to tighten. 0:16:36.320 --> 0:16:39.040 Monetary policy by five percent in a little over a year. 0:16:39.360 --> 0:16:42.080 So the Federal Reserve has some culpability here, both in 0:16:42.160 --> 0:16:45.120 terms of the monitary policy policy policies that they pursued 0:16:45.280 --> 0:16:49.200 over the last few years, and also on the supervisory. 0:16:48.600 --> 0:16:51.600 Sid's certainly culpability. They're not really looking to go out 0:16:51.640 --> 0:16:53.360 and acknowledge in a major way, that's for sure, based 0:16:53.400 --> 0:16:54.560 on some of the statements we've heard. 0:16:55.280 --> 0:16:56.280 They have to a degree. 0:16:56.280 --> 0:16:58.760 I mean, I thought I thought the dead report from 0:16:58.800 --> 0:17:01.280 Michael Barr that came out last week was what did. 0:17:01.240 --> 0:17:03.040 Acknowledge that there was a lot of improvement on the 0:17:03.040 --> 0:17:05.240 supervisory side that that needed to be made. 0:17:05.400 --> 0:17:07.280 But I don't think the Fed has acknowledged the fact 0:17:07.280 --> 0:17:10.159 that the monitary policy regime that they followed, which was 0:17:10.200 --> 0:17:14.000 to be purposefully late and tightening monitary policy meant you 0:17:14.040 --> 0:17:16.680 were encouraging banks to take on more interest rate risk, 0:17:17.000 --> 0:17:18.040 and then those banks. 0:17:17.800 --> 0:17:20.159 Got caught and the Federal Reserve heavy ring raised by 0:17:20.200 --> 0:17:20.880 five hundred. 0:17:20.680 --> 0:17:23.040 Basic points, you know, I mean, at the end of 0:17:23.080 --> 0:17:24.840 the day, what they're trying to do is assess what 0:17:24.960 --> 0:17:28.400 is sufficiently restrictive in order to get inflation back down 0:17:28.440 --> 0:17:31.760 to two percent. Before the banking system problems, they thought 0:17:31.760 --> 0:17:34.440 sufficiently restricted was higher than what we are today, And 0:17:34.520 --> 0:17:36.520 in fact, Paul was talking about potentially even doing a 0:17:36.520 --> 0:17:38.800 fifty base ap point Radhi cup not too long ago. 0:17:39.119 --> 0:17:41.879 And then the banking problems hit, and so that caused 0:17:41.880 --> 0:17:44.920 the BED to lower their estimate of what sufficiently restricted is. 0:17:45.200 --> 0:17:48.600 So the data will inform them about what's sufficiently restrictive is. 0:17:48.600 --> 0:17:50.879 If the data is really strong, they'll revive up their 0:17:50.920 --> 0:17:52.560 notion of what's sufficiently restrictively. 0:17:52.920 --> 0:17:54.560 Well, Bill, are they going to put more weight on 0:17:54.840 --> 0:17:56.879 financial sector data or are they going to put more 0:17:56.920 --> 0:17:59.280 weight on the data coming from traditional indicators. 0:18:00.000 --> 0:18:01.399 Think they're going to put a lot of weight on 0:18:01.520 --> 0:18:04.800 what they're seeing in terms of the labor market, wages 0:18:04.920 --> 0:18:07.720 and inflation. You know, that's really where they haven't made 0:18:07.800 --> 0:18:10.399 much progress yet. They're also going to probably take some 0:18:10.440 --> 0:18:12.600 signal by what's having in the housing sector, because if 0:18:12.600 --> 0:18:14.440 you look at the single family housing sector, it looks 0:18:14.480 --> 0:18:18.560 like it's actually stabilizing. So the policy restraint that's already 0:18:18.600 --> 0:18:21.199 been put in place. Looks like it's the effects of 0:18:21.240 --> 0:18:22.600 that on housing are starting to feed. 0:18:22.920 --> 0:18:24.879 But just a final question from us all this is 0:18:24.920 --> 0:18:26.920 something my the Key's brought up over the last week 0:18:26.960 --> 0:18:29.439 in my conversations with him, whether this would be a 0:18:29.520 --> 0:18:32.399 nod to June two thousand and six. You obviously have 0:18:32.440 --> 0:18:34.800 a deep understanding of the history of the Federal Reserve. 0:18:35.119 --> 0:18:37.640 Back in June O six, they wrote in the statement, 0:18:37.680 --> 0:18:40.040 the extent and timing of any additional firming that maybe 0:18:40.040 --> 0:18:42.760 needed to address these risks will depend on the evolution 0:18:42.880 --> 0:18:45.480 of the outlook and et cetera, et cetera, inflation and 0:18:45.520 --> 0:18:49.320 economic growth implied by incoming information. Now, Bill, do you 0:18:49.320 --> 0:18:52.280 think it's a deliberate nod to JUNEO O six when 0:18:52.400 --> 0:18:54.760 essentially that decision ended up being a pause. 0:18:55.320 --> 0:18:55.359 No. 0:18:55.440 --> 0:18:56.280 I don't think they know yet. 0:18:56.359 --> 0:18:59.159 I think Pow being true is very honest when he 0:18:59.200 --> 0:19:01.479 said that we haven't made any decision about whether we're 0:19:01.480 --> 0:19:03.280 going to pause it. I think they think that the 0:19:03.359 --> 0:19:06.880 probability is highed that they're going to pad, but they 0:19:06.880 --> 0:19:08.160 haven't actually got there yet. 0:19:08.640 --> 0:19:11.480