1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Bramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,440 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Steve Forbes, 7 00:00:32,640 --> 00:00:35,280 Speaker 1: Chairman and editor in chief of Forbes Media, will be 8 00:00:35,320 --> 00:00:37,840 Speaker 1: speaking at the upcoming Synergy Global Forum, which has taken 9 00:00:37,840 --> 00:00:40,320 Speaker 1: place at Madison Square Garden in October, and he'll be 10 00:00:40,320 --> 00:00:44,360 Speaker 1: discussing the parallels between ancient leaders and today's business leaders. 11 00:00:44,360 --> 00:00:46,360 Speaker 1: I had the opportunity to speak with him to get 12 00:00:46,360 --> 00:00:48,760 Speaker 1: his thoughts on tax reform, whether markets were pricing in 13 00:00:48,800 --> 00:00:51,159 Speaker 1: the risks that were evolving in North Korea, as well 14 00:00:51,200 --> 00:00:53,800 Speaker 1: as whether the Fed would raise rates. He recently wrote 15 00:00:53,800 --> 00:00:56,880 Speaker 1: a column to President Trump basically saying, please don't let 16 00:00:56,880 --> 00:01:00,280 Speaker 1: the Congressional Republicans wreck your plan. I started by asking 17 00:01:00,320 --> 00:01:01,920 Speaker 1: him if he thought that the border tax was dead 18 00:01:01,920 --> 00:01:04,399 Speaker 1: in the water and whether the Trump administration had a 19 00:01:04,480 --> 00:01:08,520 Speaker 1: solid vision for tax reform. Take a listen well, Thankfully, 20 00:01:08,640 --> 00:01:12,720 Speaker 1: the border tax national sales tax. Border tax is dead 21 00:01:13,040 --> 00:01:16,440 Speaker 1: for the moment, which would have hurt the working families, 22 00:01:16,520 --> 00:01:20,480 Speaker 1: people struggling from paycheck to paycheck. That this idea came 23 00:01:20,480 --> 00:01:23,880 Speaker 1: out from the Republicans that I just find astonishing. I 24 00:01:24,000 --> 00:01:28,320 Speaker 1: just shake my head. And in terms of going forward, 25 00:01:28,840 --> 00:01:31,000 Speaker 1: I think you will. We will get a tax bill 26 00:01:31,160 --> 00:01:35,240 Speaker 1: this year because of a thing that biologists taught us 27 00:01:35,280 --> 00:01:39,760 Speaker 1: a long time ago, the instinct of self preservation. Uh. 28 00:01:40,160 --> 00:01:42,800 Speaker 1: I think the Republicans recognize that if they don't get 29 00:01:42,840 --> 00:01:44,840 Speaker 1: a big tax cut through, they're going to be in 30 00:01:44,920 --> 00:01:48,920 Speaker 1: deep trouble next year. You know, the man who invented 31 00:01:49,240 --> 00:01:52,000 Speaker 1: wrote one of the great dictionaries in the English language 32 00:01:52,480 --> 00:01:57,960 Speaker 1: called named Samuel Johnson wrote said over two hundred years ago, 33 00:01:58,000 --> 00:02:02,400 Speaker 1: he said, the prospect of a hanging focuses a man's 34 00:02:02,440 --> 00:02:06,200 Speaker 1: mind wonderfully. I think the prospect of a political hanging 35 00:02:06,240 --> 00:02:08,919 Speaker 1: for the Republicans will focus their minds and you will 36 00:02:09,000 --> 00:02:13,359 Speaker 1: get a major tax bill. It won't be a huge reform, 37 00:02:13,520 --> 00:02:16,119 Speaker 1: they just don't have time for it, but it will 38 00:02:16,160 --> 00:02:21,440 Speaker 1: involve major reductions and taxes across the board. Mr Forbes, 39 00:02:21,680 --> 00:02:27,040 Speaker 1: you have run for president as a Republican several times. 40 00:02:27,720 --> 00:02:31,840 Speaker 1: Do you recognize the Republican Party right now. The party 41 00:02:31,880 --> 00:02:35,639 Speaker 1: is always a change. But what I do like today 42 00:02:36,440 --> 00:02:40,280 Speaker 1: is that the party still believes in tax cuts, still 43 00:02:40,320 --> 00:02:44,760 Speaker 1: believes in UH, having a government that's not burdens among 44 00:02:44,880 --> 00:02:51,880 Speaker 1: the people, that doesn't crush people with unnecessary rules and regulations. 45 00:02:52,800 --> 00:02:57,760 Speaker 1: And so there are always differences within parties. Parties are 46 00:02:57,800 --> 00:03:06,120 Speaker 1: not homogeneous or harmonious. That traditionally in America, you always 47 00:03:06,160 --> 00:03:10,040 Speaker 1: find elements that don't very much like each other. People 48 00:03:10,080 --> 00:03:13,360 Speaker 1: don't realize that as normal in American politics and true 49 00:03:13,400 --> 00:03:17,480 Speaker 1: for a hundred and sixty years. I'm wondering as the 50 00:03:17,600 --> 00:03:21,600 Speaker 1: UN gathers right now, there's a real question as to 51 00:03:22,000 --> 00:03:26,320 Speaker 1: why there's been such a muted response in financial markets 52 00:03:26,440 --> 00:03:31,440 Speaker 1: to threats of a possible nuclear conflict on the Korean peninsula. 53 00:03:31,600 --> 00:03:33,919 Speaker 1: Do you think that markets are two sanguine about the 54 00:03:34,000 --> 00:03:39,920 Speaker 1: risks here. I think the markets believe that one way 55 00:03:40,040 --> 00:03:43,480 Speaker 1: or the other, the issue is not going to come 56 00:03:43,520 --> 00:03:46,720 Speaker 1: to We're not going to go to war, not going 57 00:03:46,760 --> 00:03:49,040 Speaker 1: to come to a war. I'm not going to come 58 00:03:49,080 --> 00:03:54,320 Speaker 1: to serious hostilities. UH. If the markets perceived that this 59 00:03:54,440 --> 00:03:58,080 Speaker 1: was a real possibility and not just rhetoric, you would 60 00:03:58,120 --> 00:04:02,160 Speaker 1: see the markets are reactive, meetings le and violently. Uh, 61 00:04:02,200 --> 00:04:06,120 Speaker 1: you know, we're now a hundred years ago. World War 62 00:04:06,200 --> 00:04:10,240 Speaker 1: One began a little over a hundred years ago, and 63 00:04:10,800 --> 00:04:14,120 Speaker 1: nineteen fourteen, and amazingly in London, which was then the 64 00:04:14,120 --> 00:04:17,559 Speaker 1: financial center of the world, right up to a couple 65 00:04:17,560 --> 00:04:20,040 Speaker 1: of days before the war actually broke out, even though 66 00:04:20,080 --> 00:04:24,920 Speaker 1: the crisis have been simmering for weeks. Only when they 67 00:04:24,960 --> 00:04:28,279 Speaker 1: were were about to march off to battle did the 68 00:04:28,279 --> 00:04:32,159 Speaker 1: markets realize, oh my god, they're not they're they're actually 69 00:04:32,160 --> 00:04:34,120 Speaker 1: going to go over the cliff this time, and the 70 00:04:34,160 --> 00:04:38,080 Speaker 1: market collapsed. We closed the stock exchange in the US, 71 00:04:38,880 --> 00:04:42,919 Speaker 1: so the markets now believe it won't happen, But by golly, 72 00:04:43,000 --> 00:04:47,000 Speaker 1: if it believed that it actually might go ahead for 73 00:04:47,040 --> 00:04:49,600 Speaker 1: the sellers, you know. And lastly, I just wanted to 74 00:04:49,640 --> 00:04:52,760 Speaker 1: get your opinion on the Federal Reserve their meeting this week, 75 00:04:53,000 --> 00:04:57,120 Speaker 1: and many people have been pricing in an increasing chance 76 00:04:57,160 --> 00:05:01,560 Speaker 1: that the Fed does raise interest rates again later this year. 77 00:05:01,880 --> 00:05:04,000 Speaker 1: Do you think that that's the right move? And do 78 00:05:04,040 --> 00:05:06,640 Speaker 1: you think that next year the Fed should take a 79 00:05:06,800 --> 00:05:12,000 Speaker 1: more aggressive hiking stance with the FETs? You do really 80 00:05:12,279 --> 00:05:15,320 Speaker 1: is ultimately get out of the business of trying to 81 00:05:15,320 --> 00:05:19,000 Speaker 1: set interest rates and let that be done by borrower 82 00:05:19,040 --> 00:05:23,640 Speaker 1: and lender. Uh interest is a price, and the FED 83 00:05:23,800 --> 00:05:26,960 Speaker 1: is engaged in price controls, and those usually don't work 84 00:05:27,040 --> 00:05:31,320 Speaker 1: very well, and their actions in recent years have done 85 00:05:31,400 --> 00:05:34,480 Speaker 1: more harm to the financial markets, to the credit markets, 86 00:05:34,480 --> 00:05:38,240 Speaker 1: to their functioning, rather than helping. It's one thing to 87 00:05:38,320 --> 00:05:40,640 Speaker 1: respond to a panic, which is what we had in 88 00:05:40,680 --> 00:05:43,920 Speaker 1: two thousand eight early two thousand nine, Will you take 89 00:05:44,000 --> 00:05:49,719 Speaker 1: extraordinary measures quite another when the panic passes and you're 90 00:05:49,760 --> 00:05:53,599 Speaker 1: in the business of trying to manipulate the economy. It 91 00:05:53,680 --> 00:05:57,000 Speaker 1: does not work. So the sooner they get out of 92 00:05:57,000 --> 00:05:59,920 Speaker 1: the way, the better. The sooner they reduced the size 93 00:06:00,000 --> 00:06:04,080 Speaker 1: of their bloated portfolio bonds that they bought, the better. 94 00:06:04,160 --> 00:06:07,360 Speaker 1: They've indicated they're going to start to do that. But 95 00:06:07,800 --> 00:06:11,320 Speaker 1: this is the case of where the FED would have 96 00:06:11,360 --> 00:06:15,159 Speaker 1: been better off having done less. We would have ended 97 00:06:15,240 --> 00:06:19,320 Speaker 1: up with a more healthy economy. That was Steve Forbes, 98 00:06:19,400 --> 00:06:22,080 Speaker 1: Chairman and editor in chief of Forbes and Media, and 99 00:06:22,120 --> 00:06:25,320 Speaker 1: he'll be speaking at the upcoming Synergy Global Form that 100 00:06:25,360 --> 00:06:30,000 Speaker 1: takes place at Medicine Square Garden October, and and that 101 00:06:30,120 --> 00:06:35,120 Speaker 1: will be a conversation that features the distinctions or the 102 00:06:35,160 --> 00:06:39,039 Speaker 1: comparisons between leaders of old and ancient times and the 103 00:06:39,120 --> 00:06:41,960 Speaker 1: leaders today. He had a very controversial take on the 104 00:06:41,960 --> 00:06:44,600 Speaker 1: Federal Reserve because the idea that they should get out 105 00:06:44,640 --> 00:06:47,320 Speaker 1: of the business of setting interest rates at all, that 106 00:06:47,360 --> 00:06:51,360 Speaker 1: they did more harm to the financial system and more harm. Uh. 107 00:06:51,400 --> 00:06:54,840 Speaker 1: You know this is this is a very controversial point 108 00:06:54,880 --> 00:06:56,559 Speaker 1: that has been brought up by some people that perhaps 109 00:06:56,600 --> 00:06:59,080 Speaker 1: the economy could have cleared itself out and recovered, we 110 00:06:59,080 --> 00:07:01,720 Speaker 1: would have seen greater in relation. Uh, if the Fed 111 00:07:01,800 --> 00:07:05,200 Speaker 1: would have just let the market collapse after Lehman brothers 112 00:07:05,560 --> 00:07:09,760 Speaker 1: uh their demise in September two. You know, one of 113 00:07:09,800 --> 00:07:13,880 Speaker 1: the things I love about life is that hindsight is well, 114 00:07:13,880 --> 00:07:16,320 Speaker 1: it's not even clear that that is because right now 115 00:07:16,320 --> 00:07:19,280 Speaker 1: people still disagree and say that perhaps the FED saved 116 00:07:19,320 --> 00:07:24,080 Speaker 1: the US from another great depression like we saw in Yeah, exactly, 117 00:07:24,240 --> 00:07:26,640 Speaker 1: and uh, I don't think you know, a hypothesis and 118 00:07:26,760 --> 00:07:43,360 Speaker 1: theories necessarily outlay reality. We are broadcasting from the Bloomberg 119 00:07:43,440 --> 00:07:46,560 Speaker 1: Global Business Form taking place at the Plaza Hotel in 120 00:07:46,600 --> 00:07:51,040 Speaker 1: Midtown Manhattan. Joining us now is Carlickadonna. He is, of course, 121 00:07:51,120 --> 00:07:54,840 Speaker 1: our chief US economist for Bloomberg intelligence and h Carl, 122 00:07:54,880 --> 00:07:56,880 Speaker 1: I want to begin by just getting your thoughts on 123 00:07:57,040 --> 00:08:02,120 Speaker 1: the home the previously owned UH home report today looking 124 00:08:02,160 --> 00:08:05,480 Speaker 1: like a one year low. But is this really just 125 00:08:05,520 --> 00:08:09,400 Speaker 1: because of Hurricane Harvey. Well, it definitely looked like there 126 00:08:09,440 --> 00:08:13,920 Speaker 1: was some hurricane impact, especially with the south showing we 127 00:08:14,280 --> 00:08:17,440 Speaker 1: do get some geographic breakdown, uh, and it showed a 128 00:08:17,480 --> 00:08:21,440 Speaker 1: sharp contraction in the south. So UH. The existing home 129 00:08:21,520 --> 00:08:27,920 Speaker 1: sales data is clocked or tabulated at the time of closing. UH. 130 00:08:27,960 --> 00:08:30,560 Speaker 1: But even so, a lot of people probably had to 131 00:08:30,600 --> 00:08:34,839 Speaker 1: cancel UH closing due to inclement weather, right sure, and 132 00:08:34,840 --> 00:08:38,240 Speaker 1: they can't they can't get the bank to transfer money 133 00:08:38,280 --> 00:08:39,959 Speaker 1: and so on. But does this how you wanted to 134 00:08:40,040 --> 00:08:41,960 Speaker 1: and do you does this matter to you right now? 135 00:08:42,120 --> 00:08:44,680 Speaker 1: Or is it really just a question of do we 136 00:08:44,760 --> 00:08:48,439 Speaker 1: get some kind of economic data that allows the Federal 137 00:08:48,480 --> 00:08:50,880 Speaker 1: Reserve to raise interest rates one more time this year? 138 00:08:50,960 --> 00:08:53,600 Speaker 1: Or I think this just shows one more data point 139 00:08:53,679 --> 00:08:57,840 Speaker 1: that is starting to have a hurricane impact. And probably 140 00:08:57,880 --> 00:09:01,000 Speaker 1: we can't trust the next month's data either. We're seeing 141 00:09:01,000 --> 00:09:06,240 Speaker 1: it in home sales, vehicle sales, retail sales, and Danta effect, 142 00:09:06,280 --> 00:09:09,480 Speaker 1: isn't it. It's always something, It's always something that's right. 143 00:09:09,960 --> 00:09:13,280 Speaker 1: So in that context, what happens if Federal Reserve punts 144 00:09:13,360 --> 00:09:15,480 Speaker 1: or do you think that they're going to raise interest rates? Well, 145 00:09:15,559 --> 00:09:19,040 Speaker 1: the Federal Reserve has to base policy on the last 146 00:09:19,200 --> 00:09:22,680 Speaker 1: clean data points. So I think that they are so 147 00:09:22,840 --> 00:09:27,520 Speaker 1: well telegraphed with respect to us inaugurating the balance sheet 148 00:09:27,559 --> 00:09:32,400 Speaker 1: unwind at this meeting that it would take something much 149 00:09:32,440 --> 00:09:35,360 Speaker 1: more severe to cause them to deviate from this path. Uh. 150 00:09:35,440 --> 00:09:38,600 Speaker 1: The question mark or the moving part is really their 151 00:09:38,920 --> 00:09:42,160 Speaker 1: active policy, which is going to be interest rate hikes, 152 00:09:42,200 --> 00:09:44,960 Speaker 1: and they have from now until December to try to 153 00:09:45,520 --> 00:09:48,960 Speaker 1: get a cleaner read of what's happening, and that that's 154 00:09:49,120 --> 00:09:52,160 Speaker 1: a long time in terms of economic data. So what's 155 00:09:52,160 --> 00:09:56,199 Speaker 1: your call, Well, we have adjusted our call, so the 156 00:09:56,520 --> 00:10:01,560 Speaker 1: December rate increases, no, sure bet Uh, without a doubt. However, 157 00:10:01,600 --> 00:10:05,240 Speaker 1: I think that they will ultimately, assuming that the economy 158 00:10:05,520 --> 00:10:08,840 Speaker 1: bounces back swiftly from the hurricane, and it appears that 159 00:10:08,880 --> 00:10:12,240 Speaker 1: way in the economic data, we think that December rate 160 00:10:12,320 --> 00:10:15,960 Speaker 1: hike happens, and then we think that the Fed proceeds 161 00:10:15,960 --> 00:10:19,040 Speaker 1: at a slower pace over the next couple of years. 162 00:10:19,080 --> 00:10:21,680 Speaker 1: So the Fed, at least as of its last forecast 163 00:10:21,760 --> 00:10:25,840 Speaker 1: update was signaling three hikes per year both next year 164 00:10:25,840 --> 00:10:28,400 Speaker 1: and the year after. We think that they will be 165 00:10:28,440 --> 00:10:31,280 Speaker 1: going at a slower pace of two hikes per year, 166 00:10:31,360 --> 00:10:34,120 Speaker 1: So we can think June December, June December, uh, and 167 00:10:34,160 --> 00:10:36,559 Speaker 1: in fact one more year of June December. So two 168 00:10:36,600 --> 00:10:39,400 Speaker 1: hikes per year over the next three years from the Fed. 169 00:10:39,480 --> 00:10:42,800 Speaker 1: So we've revised our FED call as a result. Okay, 170 00:10:42,800 --> 00:10:44,320 Speaker 1: but I mean, we don't even know who really is 171 00:10:44,320 --> 00:10:46,560 Speaker 1: going to be on the Federal Reserve next year. We 172 00:10:46,640 --> 00:10:48,760 Speaker 1: don't know who will be on the FED, but there's 173 00:10:48,800 --> 00:10:51,400 Speaker 1: a good chance that it's Janet Yellen. Uh. And if 174 00:10:51,440 --> 00:10:54,679 Speaker 1: it's not her, it's going to be someone probably of 175 00:10:54,760 --> 00:10:58,360 Speaker 1: her ILK that's going to be cautious with respect to 176 00:10:58,679 --> 00:11:00,800 Speaker 1: UH interest rate policy. Mean, they don't want to raise 177 00:11:00,840 --> 00:11:03,800 Speaker 1: interest rates. And also we know that the President is 178 00:11:03,800 --> 00:11:05,840 Speaker 1: in favor of low interest rates. I mean, he's got 179 00:11:05,880 --> 00:11:08,000 Speaker 1: a background in the real estate industry, and they don't 180 00:11:08,000 --> 00:11:11,680 Speaker 1: necessarily like expensive money. They do not like expensive money. 181 00:11:11,720 --> 00:11:14,640 Speaker 1: And if your goal is to hit three percent GDP growth, 182 00:11:14,800 --> 00:11:17,120 Speaker 1: putting a hawk at the Fed is not going to 183 00:11:17,160 --> 00:11:19,320 Speaker 1: be the way to get there. Hey, Carl, you know, 184 00:11:19,360 --> 00:11:21,440 Speaker 1: I don't know whether you've noticed, But I've noticed that 185 00:11:21,440 --> 00:11:26,520 Speaker 1: there is almost no debate or conversation about the debt. 186 00:11:27,240 --> 00:11:29,960 Speaker 1: And we've got the debt ceiling deal that was done, 187 00:11:30,440 --> 00:11:33,520 Speaker 1: but there's no conversation about it except maybe when we 188 00:11:33,559 --> 00:11:35,480 Speaker 1: talk about tax reform and whether it's going to be 189 00:11:35,640 --> 00:11:38,680 Speaker 1: revenue neutral, but over such a long period of time 190 00:11:38,679 --> 00:11:42,040 Speaker 1: that it's almost immaterial. Well, debt is going to come 191 00:11:42,080 --> 00:11:45,400 Speaker 1: back into the picture. But as as you hinted, I 192 00:11:45,440 --> 00:11:49,200 Speaker 1: suspect we need to have greater clarity on what tax reform, 193 00:11:49,640 --> 00:11:52,920 Speaker 1: if we get any, is going to look like, whether 194 00:11:52,960 --> 00:11:55,880 Speaker 1: we get tax reform or simply just a tax cuts 195 00:11:56,000 --> 00:11:59,520 Speaker 1: to stimulate growth. Uh and Uh. It may have been 196 00:11:59,520 --> 00:12:01,720 Speaker 1: in the background, but I suspect it's going to come 197 00:12:01,720 --> 00:12:06,240 Speaker 1: into the foreground, especially once we get to actually considering 198 00:12:06,320 --> 00:12:10,480 Speaker 1: passage of a of a more concrete deal in Congress. 199 00:12:10,520 --> 00:12:13,360 Speaker 1: I was gonna say that Randall Stevenson of UH A, 200 00:12:13,559 --> 00:12:16,120 Speaker 1: T and T was speaking earlier today. I think he 201 00:12:16,160 --> 00:12:17,760 Speaker 1: said that, you know, if there is some kind of 202 00:12:17,840 --> 00:12:20,640 Speaker 1: tax deal that is put together, maybe to allow the 203 00:12:20,679 --> 00:12:24,800 Speaker 1: repatriation of US profits that are held overseas, that we 204 00:12:24,840 --> 00:12:27,560 Speaker 1: could see three percent g d P if we do 205 00:12:27,679 --> 00:12:30,640 Speaker 1: get sustainable three percent GDP. What does that do? What 206 00:12:30,679 --> 00:12:32,839 Speaker 1: would interest rates look like to you? Well, there's a 207 00:12:32,880 --> 00:12:36,920 Speaker 1: big difference between three percent and sustainable three percent. Uh. 208 00:12:36,960 --> 00:12:41,000 Speaker 1: If we let's say sustainable three percent, what happens where 209 00:12:41,000 --> 00:12:45,280 Speaker 1: would interest rates be? Uh? If we're having sustainable three 210 00:12:45,320 --> 00:12:49,120 Speaker 1: percent growth, that probably means a speed limit for the 211 00:12:49,160 --> 00:12:53,360 Speaker 1: economy has moved up, so it might not be that inflationary. Uh. 212 00:12:53,400 --> 00:12:56,760 Speaker 1: And there would be a significant offset from stronger tax revenue. 213 00:12:56,920 --> 00:12:59,439 Speaker 1: So I I don't know that that means a higher 214 00:12:59,480 --> 00:13:02,920 Speaker 1: interest rate. If it's a not sustainable increase in three 215 00:13:02,920 --> 00:13:07,320 Speaker 1: percent growth, then that's going to have some inflationary ramifications 216 00:13:07,360 --> 00:13:12,000 Speaker 1: which would push longer term yields higher. Well, okay, so 217 00:13:11,760 --> 00:13:14,560 Speaker 1: so the real question here is a are we getting 218 00:13:14,600 --> 00:13:17,640 Speaker 1: three growth on a sustained basis or just as a 219 00:13:17,720 --> 00:13:20,560 Speaker 1: cheap sugar high from a one time tax cut. Uh? 220 00:13:20,600 --> 00:13:24,560 Speaker 1: And two, if we are looking at faster growth, has 221 00:13:24,600 --> 00:13:28,520 Speaker 1: the speed limit of the economy moved higher or Uh? 222 00:13:28,600 --> 00:13:31,240 Speaker 1: If it hasn't, then there's going to be some some 223 00:13:31,360 --> 00:13:34,960 Speaker 1: fallout from inflation pressures. Well, I mean this idea of 224 00:13:35,000 --> 00:13:37,880 Speaker 1: sustainable or not sustainable, I mean, just as we're seeing 225 00:13:37,920 --> 00:13:42,520 Speaker 1: what the results of today's existing home sales report. There's 226 00:13:42,520 --> 00:13:47,520 Speaker 1: always something to make whatever the news is extraordinary, right, 227 00:13:47,559 --> 00:13:49,360 Speaker 1: I mean, it seems to happen on a regular basis, 228 00:13:49,400 --> 00:13:52,920 Speaker 1: whether it is a natural disaster or man made disaster, 229 00:13:53,000 --> 00:13:55,959 Speaker 1: whether it's something like Brexit. In that context, is there 230 00:13:56,000 --> 00:13:59,199 Speaker 1: any way that the Federal Reserve will change It's kind 231 00:13:59,200 --> 00:14:03,839 Speaker 1: of under standing of the pace of economic performance because 232 00:14:04,280 --> 00:14:07,240 Speaker 1: we seem to be having so many one off events 233 00:14:07,280 --> 00:14:11,280 Speaker 1: that affect the economy. Well, for the Fed to reassess 234 00:14:11,440 --> 00:14:14,040 Speaker 1: the speed limit for the economy, we need to see 235 00:14:14,040 --> 00:14:19,240 Speaker 1: a couple of things happen. So one, UH, demographics are 236 00:14:19,320 --> 00:14:23,080 Speaker 1: our destiny. I know that's the hack hackneyed expression. But 237 00:14:23,160 --> 00:14:27,560 Speaker 1: if we're not getting faster population growth, either through a 238 00:14:27,640 --> 00:14:32,360 Speaker 1: rebound in the birth rate or UH more UH inclusive 239 00:14:33,160 --> 00:14:36,680 Speaker 1: or relaxed immigration policies, UH, it's hard to hit that 240 00:14:37,000 --> 00:14:40,880 Speaker 1: faster growth rate without a change to the demographic trend, 241 00:14:41,040 --> 00:14:45,600 Speaker 1: and population growth has been decelerating. The other factor is 242 00:14:45,680 --> 00:14:49,400 Speaker 1: the productive capacity of the economy. UH. And there's two 243 00:14:49,400 --> 00:14:52,680 Speaker 1: components to that. One UH is a rebound in productivity 244 00:14:52,800 --> 00:14:55,720 Speaker 1: in and of itself, UH and two would be a 245 00:14:55,840 --> 00:15:00,120 Speaker 1: significant investment into the capital stock of the econom me 246 00:15:00,200 --> 00:15:04,360 Speaker 1: whether that's infrastructure spending on rail lines and utilities and 247 00:15:04,400 --> 00:15:07,800 Speaker 1: airports or whatnot, things like rebuilding when it comes to 248 00:15:07,880 --> 00:15:11,200 Speaker 1: the Commonwealth of Puerto Rico. Well, well, certainly there will 249 00:15:11,200 --> 00:15:14,760 Speaker 1: be big rebuilding, but that's not going to necessarily improve 250 00:15:14,960 --> 00:15:18,280 Speaker 1: the productive capacity of the of the economy. We got 251 00:15:18,280 --> 00:15:20,400 Speaker 1: to leave it there, Thanks very much. Carl Rick Donald, 252 00:15:20,440 --> 00:15:35,080 Speaker 1: thus economist for Bloomberg Intelligence as a PIM, was saying, 253 00:15:35,320 --> 00:15:39,080 Speaker 1: Hurricane Maria made landfall in Puerto Rico as a category 254 00:15:39,280 --> 00:15:43,440 Speaker 1: for storm just within the past few hours, and this 255 00:15:43,480 --> 00:15:46,120 Speaker 1: would be the worst storm to hit the island since. 256 00:15:47,680 --> 00:15:51,360 Speaker 1: Give us more of a perspective on just how potentially 257 00:15:51,360 --> 00:15:54,000 Speaker 1: catastrophic this hurricane is, as well as what some of 258 00:15:54,000 --> 00:15:56,320 Speaker 1: the financial damage could look like. I want to bring 259 00:15:56,320 --> 00:15:59,360 Speaker 1: in Michelle Kaski. She's our Puerto Rico reporter for Bloomberg 260 00:15:59,360 --> 00:16:01,840 Speaker 1: News andjoins us from O Bloomberg eleven three oh studio 261 00:16:01,960 --> 00:16:04,480 Speaker 1: in New York. Michelle, can you just give us a 262 00:16:04,520 --> 00:16:06,800 Speaker 1: sort of a state of play right now? What is 263 00:16:06,960 --> 00:16:09,200 Speaker 1: where is the hurricane? How long is it going to last? 264 00:16:09,400 --> 00:16:11,000 Speaker 1: And does it look like it's going to be as 265 00:16:11,000 --> 00:16:15,400 Speaker 1: bad as some more predicting Hey, good morning, um Yeah, 266 00:16:15,440 --> 00:16:17,920 Speaker 1: the hurricane as we speak is going over the island. 267 00:16:17,960 --> 00:16:21,880 Speaker 1: They're experiencing experiencing it, the heavy, heavy winds and the 268 00:16:21,960 --> 00:16:25,400 Speaker 1: rainfall and of course the the potential for some some 269 00:16:25,520 --> 00:16:30,520 Speaker 1: serious storm surges. And um, they have this very weak 270 00:16:30,560 --> 00:16:34,840 Speaker 1: infrastructure to begin with, even before the hurricane came. So um, 271 00:16:34,880 --> 00:16:40,000 Speaker 1: they're electric grid is at risk, even water, UM supply 272 00:16:40,080 --> 00:16:42,520 Speaker 1: of water. So we just have to wait and see 273 00:16:42,720 --> 00:16:45,280 Speaker 1: and and see how bad the damage is going to be. 274 00:16:45,560 --> 00:16:48,480 Speaker 1: But basically all of today they will be experiencing this, 275 00:16:48,480 --> 00:16:51,640 Speaker 1: this horrible storm, Michelle. Do we know anything about the 276 00:16:51,720 --> 00:16:55,840 Speaker 1: disposition of the first responders or indeed whether the United 277 00:16:55,880 --> 00:17:00,040 Speaker 1: States federal government has sent troops or any person a 278 00:17:00,080 --> 00:17:03,360 Speaker 1: knell into the island commonwealth in order to not only 279 00:17:03,400 --> 00:17:06,400 Speaker 1: maintain order but the help with the cleanup. Now, before 280 00:17:06,760 --> 00:17:09,960 Speaker 1: UM the storm hit, the governor did say that because 281 00:17:10,600 --> 00:17:13,719 Speaker 1: um the island is at risk of being without electricity 282 00:17:13,760 --> 00:17:15,840 Speaker 1: for some time or parts of the island would be 283 00:17:15,880 --> 00:17:20,320 Speaker 1: at risk, that they would then uh afterwards get outside 284 00:17:20,400 --> 00:17:26,280 Speaker 1: help from um from the mainland US. Now, whether those 285 00:17:27,080 --> 00:17:30,920 Speaker 1: those that help has arrived with boots on the ground, UM, 286 00:17:31,119 --> 00:17:34,160 Speaker 1: we don't know yet, but that is the anticipation that 287 00:17:34,359 --> 00:17:37,440 Speaker 1: Puerto Rico will get not just um, some FEMA money 288 00:17:37,440 --> 00:17:40,159 Speaker 1: at some point, but actual hands on help from the 289 00:17:40,160 --> 00:17:42,520 Speaker 1: federal government. Right. The reason I ask is because I 290 00:17:42,520 --> 00:17:44,120 Speaker 1: know that that has been an issue with the US 291 00:17:44,200 --> 00:17:47,480 Speaker 1: Virgin Islands, for example in St. Thomas and and St. John. 292 00:17:48,080 --> 00:17:50,600 Speaker 1: Is trying to get the help to the people that 293 00:17:50,680 --> 00:17:54,159 Speaker 1: actually needed at the moment of the state of the 294 00:17:54,200 --> 00:17:57,639 Speaker 1: Puerto Rican economy. This couldn't have happened at a worse time, No, 295 00:17:57,840 --> 00:18:02,360 Speaker 1: it couldn't. They declared bankruptcy in early May, and they're 296 00:18:02,359 --> 00:18:06,720 Speaker 1: going through the bankruptcy process. They they don't have a 297 00:18:06,760 --> 00:18:10,200 Speaker 1: tremendous amount of cash on hand to be able to 298 00:18:10,240 --> 00:18:13,320 Speaker 1: deal with you know, storm clean up and rebuilding. So 299 00:18:13,400 --> 00:18:17,480 Speaker 1: that's why, um, they're really seeking the the federal help. 300 00:18:17,720 --> 00:18:21,920 Speaker 1: And um, you know the again, this infrastructure needed to 301 00:18:21,960 --> 00:18:25,639 Speaker 1: be upgraded even before the storm, so um, this only 302 00:18:25,720 --> 00:18:28,399 Speaker 1: accelerates that need. Well. Yeah, and just to put a 303 00:18:28,480 --> 00:18:30,879 Speaker 1: number on that, Puerto Rico's emergency fund stood at about 304 00:18:30,920 --> 00:18:34,919 Speaker 1: thirty two million dollars before IRMA passed through the island. 305 00:18:34,960 --> 00:18:37,840 Speaker 1: That compares to an estimated a potential of thirty billion 306 00:18:37,840 --> 00:18:41,240 Speaker 1: dollars of damage, so quite an order of magnitude higher 307 00:18:41,560 --> 00:18:44,359 Speaker 1: of money that they will need. Michelle. You know, I 308 00:18:44,400 --> 00:18:46,680 Speaker 1: was speaking with some Puerto Rico investors. You know, will 309 00:18:46,760 --> 00:18:50,359 Speaker 1: this create even more of a headache for this island 310 00:18:50,440 --> 00:18:52,159 Speaker 1: that has seventy four billion dollars of death that it 311 00:18:52,200 --> 00:18:54,840 Speaker 1: can't pay back and has amid in the midst of 312 00:18:54,960 --> 00:18:58,560 Speaker 1: a lot of legal negotiations over that. Well, let's actually 313 00:18:58,880 --> 00:19:01,040 Speaker 1: helped them in in a weird way in the sense 314 00:19:01,119 --> 00:19:04,240 Speaker 1: that perhaps there will be more money flowing towards the 315 00:19:04,240 --> 00:19:09,520 Speaker 1: island to rebuild its infrastructure that already was falling into disrepair. Well, 316 00:19:09,520 --> 00:19:12,640 Speaker 1: that's that's the hope that this actually puts even more 317 00:19:12,680 --> 00:19:17,520 Speaker 1: attention on, um the needs that Puerto Rico has, and 318 00:19:17,520 --> 00:19:22,240 Speaker 1: and again that the potential federal dollars could be um 319 00:19:22,280 --> 00:19:25,880 Speaker 1: helping to upgrade systems that we're so out of date 320 00:19:25,920 --> 00:19:29,159 Speaker 1: even before the storm hit. Um, that that would be 321 00:19:29,240 --> 00:19:32,240 Speaker 1: sort of the silver lining here. But again, the damage 322 00:19:32,320 --> 00:19:34,600 Speaker 1: might be we don't know yet, but the damage could 323 00:19:34,600 --> 00:19:39,040 Speaker 1: be so extensive that, um, you know that that federal 324 00:19:39,200 --> 00:19:43,200 Speaker 1: money may not be enough or it Um, it will 325 00:19:43,280 --> 00:19:45,560 Speaker 1: just take an incredible amount of time for the island 326 00:19:45,600 --> 00:19:48,120 Speaker 1: to bounce back. Well, I mean here's a quote from 327 00:19:48,520 --> 00:19:51,879 Speaker 1: the Governor of Puerto Rico, Ricardo Rossello. He was speaking 328 00:19:51,880 --> 00:19:53,879 Speaker 1: to the Associated Press and he said, we're going to 329 00:19:53,920 --> 00:19:56,600 Speaker 1: lose a lot of infrastructure in Puerto Rico. We're going 330 00:19:56,680 --> 00:19:59,320 Speaker 1: to have to rebuild. And then Eric Blake, who's a 331 00:19:59,359 --> 00:20:04,879 Speaker 1: forecaster the National Hurricane Center, tweeted this morning that the 332 00:20:05,640 --> 00:20:10,480 Speaker 1: strike on the same place in the same intensity following Harvey, 333 00:20:10,760 --> 00:20:15,480 Speaker 1: Hurricane Harvey and Hurricane Irma unprecedented in the modern era. 334 00:20:16,200 --> 00:20:21,360 Speaker 1: So that's kind of draws a line under it, doesn't it. Michelle, Sure, definitely. 335 00:20:21,400 --> 00:20:23,760 Speaker 1: I mean, it's just two weeks ago. Um, they went 336 00:20:23,800 --> 00:20:27,480 Speaker 1: through Irma, thank god, Herma. Irma just passed through over 337 00:20:27,520 --> 00:20:30,400 Speaker 1: the north of the island, so they got mostly a 338 00:20:30,520 --> 00:20:35,320 Speaker 1: very very heavy, very strong tropical storm. Um, the hurricane 339 00:20:35,320 --> 00:20:38,320 Speaker 1: didn't actually Irma didn't actually hit the island itself, but 340 00:20:38,960 --> 00:20:40,840 Speaker 1: they did have to deal with the effects of a 341 00:20:40,920 --> 00:20:43,359 Speaker 1: hurricane then, and that was just two weeks ago, so 342 00:20:43,560 --> 00:20:46,680 Speaker 1: they were barely able to pick themselves up. I mean, 343 00:20:46,800 --> 00:20:50,680 Speaker 1: there were still people without power on the island because 344 00:20:50,680 --> 00:20:54,440 Speaker 1: of Irma before Maria hit. Well, we're gonna certainly watch 345 00:20:54,560 --> 00:20:58,960 Speaker 1: this ongoing natural disaster. Thank you very much for joining us. 346 00:20:59,000 --> 00:21:02,520 Speaker 1: Michelle Kaski is our Puerto Rico reporter for Bloomberg, joining 347 00:21:02,600 --> 00:21:16,880 Speaker 1: us in our eleven three oh studio And something else 348 00:21:16,880 --> 00:21:19,159 Speaker 1: is gonna be taking place today, but it'll be in Washington, 349 00:21:19,440 --> 00:21:21,439 Speaker 1: and it has to do with the Federal Reserve. And 350 00:21:21,440 --> 00:21:23,480 Speaker 1: here to help us understand what might or might not 351 00:21:23,600 --> 00:21:27,840 Speaker 1: happen is Ira Jersey, chief US interest rates strategist for Bloomberg. 352 00:21:27,880 --> 00:21:31,160 Speaker 1: He joins us from our Bloomberg eleven three oh studios. Ira, 353 00:21:31,320 --> 00:21:33,840 Speaker 1: Great to have you with us as always. So, um, 354 00:21:34,000 --> 00:21:36,160 Speaker 1: Federal Reserve going to raise rates or not pay fim? 355 00:21:36,359 --> 00:21:42,000 Speaker 1: Uh no not okay, we're all done. But are they 356 00:21:42,080 --> 00:21:45,080 Speaker 1: going to tell us anything about unwinding the balance sheet? Yeah? So, 357 00:21:45,080 --> 00:21:46,800 Speaker 1: so I think it would be a surprise actually if 358 00:21:46,800 --> 00:21:49,240 Speaker 1: they did not start on winding the balance sheet. They've 359 00:21:49,280 --> 00:21:51,119 Speaker 1: set up the market for this, now that we have 360 00:21:51,240 --> 00:21:53,320 Speaker 1: the debt ceiling out of the way and a budget 361 00:21:53,320 --> 00:21:55,720 Speaker 1: at least until December. Um, this is kind of the 362 00:21:55,760 --> 00:21:57,679 Speaker 1: optimal time for the Fed to do it. There's not 363 00:21:57,720 --> 00:22:00,159 Speaker 1: a lot of reason to wait. Um. So, so I 364 00:22:00,200 --> 00:22:01,920 Speaker 1: do think that they'll do it. Um, we don't need 365 00:22:02,160 --> 00:22:04,320 Speaker 1: you know. One of the questions I've been asked today 366 00:22:04,359 --> 00:22:07,080 Speaker 1: is are we going to get any other operational details? Well, 367 00:22:07,200 --> 00:22:09,760 Speaker 1: for the for the FED, the only real operational detail 368 00:22:09,800 --> 00:22:12,359 Speaker 1: they need to tell us, perhaps is are they going 369 00:22:12,440 --> 00:22:14,359 Speaker 1: to change the way that they buy mortgages? Because for 370 00:22:14,400 --> 00:22:17,320 Speaker 1: treasuries they just mature and they go away, and the 371 00:22:17,359 --> 00:22:19,920 Speaker 1: Fed will just do its normal course reinvestment like it 372 00:22:20,080 --> 00:22:22,800 Speaker 1: it's always done, and it's uh, you know, hundred plus 373 00:22:22,920 --> 00:22:26,080 Speaker 1: year history. So so I do think that that, uh 374 00:22:26,520 --> 00:22:28,840 Speaker 1: is something that that they'll do. We then get the 375 00:22:28,840 --> 00:22:32,320 Speaker 1: summary of economic projections and UH and their statement, and 376 00:22:32,480 --> 00:22:34,720 Speaker 1: that I think might be actually scrutinized a bit more. 377 00:22:35,359 --> 00:22:38,720 Speaker 1: And right now the FED funds futures market is pricing 378 00:22:38,720 --> 00:22:43,240 Speaker 1: in a chance of the Fed hiking rates in December. 379 00:22:43,400 --> 00:22:46,199 Speaker 1: Do you think that that is overly optimistic or do 380 00:22:46,200 --> 00:22:49,240 Speaker 1: you think that the market, uh, it will be surprised 381 00:22:49,640 --> 00:22:53,320 Speaker 1: by the feds haggishness. So, yeah, that's a good question. Um. 382 00:22:54,160 --> 00:22:55,919 Speaker 1: You know, my my view is is that that the 383 00:22:55,920 --> 00:22:57,920 Speaker 1: FED has always heard on the side of caution when 384 00:22:57,960 --> 00:23:00,840 Speaker 1: it comes to hiking rates, particularly if they think that 385 00:23:00,920 --> 00:23:02,560 Speaker 1: they there might be some kind of bumps in the 386 00:23:02,640 --> 00:23:05,600 Speaker 1: road ahead for the economy. Um. I think the idea 387 00:23:05,680 --> 00:23:07,400 Speaker 1: that they're going to hike this year is a little 388 00:23:07,440 --> 00:23:11,360 Speaker 1: bit optimistic, um, and definitely will rely on what's gone 389 00:23:11,400 --> 00:23:13,880 Speaker 1: on with the data. So you've had some very disappointing 390 00:23:14,440 --> 00:23:17,000 Speaker 1: inflation numbers. It's been creeping up a little bit. I 391 00:23:17,200 --> 00:23:19,120 Speaker 1: actually think that over the next six months we could 392 00:23:19,160 --> 00:23:22,000 Speaker 1: actually uh see inflation start to tick up just a 393 00:23:22,000 --> 00:23:24,080 Speaker 1: little bit. I'm not saying a lot or that's gonna 394 00:23:24,119 --> 00:23:26,520 Speaker 1: be worrying, but at the same time, it could be 395 00:23:26,560 --> 00:23:28,520 Speaker 1: just enough that the Federal Reserve can be a little 396 00:23:28,520 --> 00:23:31,800 Speaker 1: bit more um more hawkish. Now you know, well that 397 00:23:31,880 --> 00:23:33,880 Speaker 1: can they do that this year? Yes? I do think 398 00:23:33,880 --> 00:23:37,439 Speaker 1: it's so data dependent that something like forty sixty or 399 00:23:37,440 --> 00:23:41,160 Speaker 1: even fifty fifty odds is probably the right level. So, um, 400 00:23:41,240 --> 00:23:42,760 Speaker 1: you really have to have a view. Do you think 401 00:23:42,800 --> 00:23:45,240 Speaker 1: that the data is going to improve significantly or do 402 00:23:45,280 --> 00:23:47,760 Speaker 1: you think it's gonna, um gonna kind of meander on 403 00:23:47,760 --> 00:23:50,000 Speaker 1: the way it is now? And if Meri Anderson wait 404 00:23:50,080 --> 00:23:52,400 Speaker 1: is now, they probably stay pat you know, I would 405 00:23:52,440 --> 00:23:55,359 Speaker 1: love to get your opinion on a story that brought 406 00:23:55,359 --> 00:23:57,720 Speaker 1: in Chopotta wrote earlier this week of Blimpbroock News, where 407 00:23:57,760 --> 00:24:00,720 Speaker 1: he was talking about analysts expecting that Treasury yield could 408 00:24:00,720 --> 00:24:05,440 Speaker 1: actually drop if the Federal Reserve continues with its balancing 409 00:24:05,600 --> 00:24:08,919 Speaker 1: unwind as it plans to do, just because that type 410 00:24:09,040 --> 00:24:13,320 Speaker 1: of tightening would end up slowing the US economy, UH 411 00:24:13,320 --> 00:24:16,399 Speaker 1: and therefore reducing the prospect of inflation going forward. Do 412 00:24:16,400 --> 00:24:19,159 Speaker 1: you agree with that? Yeah, you know, this is a 413 00:24:19,240 --> 00:24:21,200 Speaker 1: question I get asked a lot. You know, you look 414 00:24:21,240 --> 00:24:23,439 Speaker 1: at charts and you say, oh, when the Federal Reserve, 415 00:24:23,480 --> 00:24:25,320 Speaker 1: and I've shown these sharts too, Right, when the Federal 416 00:24:25,359 --> 00:24:28,760 Speaker 1: Reserve bought bonds, yields actually rose. UM that that had 417 00:24:28,800 --> 00:24:32,760 Speaker 1: to do with with inflation expectations moving higher. I'm not 418 00:24:32,840 --> 00:24:36,560 Speaker 1: convinced that the runoff of the balance sheet necessarily UM 419 00:24:36,720 --> 00:24:40,200 Speaker 1: has to have that detrimental of an impact on the economy, 420 00:24:40,280 --> 00:24:44,520 Speaker 1: primarily because, UM, it probably won't lead to yields rising 421 00:24:44,560 --> 00:24:47,240 Speaker 1: that much, because it's really up to the Treasury Department 422 00:24:47,320 --> 00:24:51,320 Speaker 1: to manage the issuance of these new bonds to the public. 423 00:24:51,720 --> 00:24:54,119 Speaker 1: And when you look at things like, uh, you know, 424 00:24:54,200 --> 00:24:56,520 Speaker 1: who really loses out here, well, it ends up being 425 00:24:56,560 --> 00:25:00,200 Speaker 1: some liquidity by banks. So over time, UH bank thinks 426 00:25:00,240 --> 00:25:02,960 Speaker 1: that own that have these reserves on their balance sheet 427 00:25:03,160 --> 00:25:05,359 Speaker 1: will have less reserves, so maybe they have a little 428 00:25:05,440 --> 00:25:08,479 Speaker 1: less liquidity. Um. And because of that, I think some 429 00:25:08,520 --> 00:25:10,720 Speaker 1: people are saying, oh, well, that means that there might 430 00:25:10,720 --> 00:25:12,960 Speaker 1: not be the lending that we need, and that could 431 00:25:12,960 --> 00:25:15,920 Speaker 1: slow the economy and actually have yields fall. I'm I'm 432 00:25:15,960 --> 00:25:18,880 Speaker 1: not quite in that camp. I think it's probably more 433 00:25:18,920 --> 00:25:21,840 Speaker 1: neutral for the economy than anything, um. But but I 434 00:25:21,920 --> 00:25:24,040 Speaker 1: do think that it's important to think about these things 435 00:25:24,119 --> 00:25:26,800 Speaker 1: because this has never been tried. Right. Yeah, we've never 436 00:25:26,880 --> 00:25:29,960 Speaker 1: had a FED a central bank balance sheet that shrunk 437 00:25:30,000 --> 00:25:32,679 Speaker 1: by the magnitude that the federal reserves going to be 438 00:25:32,680 --> 00:25:35,120 Speaker 1: attempting to do over the next couple of years. Hey, 439 00:25:35,560 --> 00:25:38,000 Speaker 1: you mentioned the mortgage industry, and I want to get 440 00:25:38,040 --> 00:25:41,199 Speaker 1: a little bit more detail with that because you know, 441 00:25:41,240 --> 00:25:43,960 Speaker 1: you say, okay, maybe interest rates will other stay where 442 00:25:43,960 --> 00:25:46,360 Speaker 1: they are on the decline. Right now, we're two eighty 443 00:25:46,400 --> 00:25:49,119 Speaker 1: for the thirty year and we're two twenty three for 444 00:25:49,240 --> 00:25:53,200 Speaker 1: the ten year. Existing home sales came out today they 445 00:25:53,440 --> 00:25:56,240 Speaker 1: were what five point three five million? Everyone was looking 446 00:25:56,280 --> 00:25:58,600 Speaker 1: for five point four or five, so that was a 447 00:25:58,600 --> 00:26:00,840 Speaker 1: little bit of a disappointment. Do you think that we'll 448 00:26:00,840 --> 00:26:03,200 Speaker 1: see increases in the cost of money to consumers and 449 00:26:03,280 --> 00:26:05,800 Speaker 1: want to buy a house. Yeah. So, so I think 450 00:26:06,000 --> 00:26:09,040 Speaker 1: the big risk with the Fed Reserve unwinding its balance 451 00:26:09,040 --> 00:26:11,960 Speaker 1: sheet is going to be in mortgage in mortgage area, 452 00:26:12,040 --> 00:26:14,640 Speaker 1: But it's so well telegraphed that we've actually already had 453 00:26:15,280 --> 00:26:19,440 Speaker 1: pretty significant and meaningful widening in spreads between mortgage backed 454 00:26:19,480 --> 00:26:22,920 Speaker 1: securities and UM and the tenure Treasury. And I think 455 00:26:22,920 --> 00:26:26,520 Speaker 1: that those spreads being that wide UM is indicative of 456 00:26:26,560 --> 00:26:28,880 Speaker 1: the idea that there's going to be more supply into 457 00:26:28,920 --> 00:26:32,400 Speaker 1: the mortgage market over time UM. And I do think 458 00:26:32,520 --> 00:26:34,880 Speaker 1: so will there be more than this? You know that 459 00:26:34,880 --> 00:26:37,960 Speaker 1: that's a that's a good question and certainly something that 460 00:26:37,960 --> 00:26:40,200 Speaker 1: that has to be watched. But I suspect that most, 461 00:26:40,280 --> 00:26:44,400 Speaker 1: maybe seventy eight percent of the of the higher mortgage 462 00:26:44,480 --> 00:26:47,600 Speaker 1: costs because of unwind has already been priced in. All right. 463 00:26:47,640 --> 00:26:49,800 Speaker 1: You know, I'm wondering, are we talking about the FED 464 00:26:49,800 --> 00:26:51,960 Speaker 1: too much? Does the Fed even matter that much anymore? 465 00:26:52,080 --> 00:26:55,439 Speaker 1: Or has it basically ceded control to the ECB and 466 00:26:55,800 --> 00:26:58,320 Speaker 1: b o J and others. I think the Fed matters 467 00:26:58,400 --> 00:27:01,919 Speaker 1: in when they when they initially announced something, so when 468 00:27:01,920 --> 00:27:05,000 Speaker 1: they started talking about UM, you know, balance sheet unwind 469 00:27:05,040 --> 00:27:07,240 Speaker 1: and stuff, the market took notice. Now it just become 470 00:27:07,520 --> 00:27:09,440 Speaker 1: you know, so what if they don't do it, that's 471 00:27:09,480 --> 00:27:12,000 Speaker 1: the news. If they do it, so we're expecting it. 472 00:27:12,040 --> 00:27:14,600 Speaker 1: Who cares? Um. But I do think that the that 473 00:27:14,680 --> 00:27:16,880 Speaker 1: the risk to markets at this point, and to your point, LEAs, 474 00:27:17,000 --> 00:27:20,200 Speaker 1: is that, um, if the ECB starts to taper, if 475 00:27:20,240 --> 00:27:24,240 Speaker 1: the Bank of Japan significantly changes their own QWI program, 476 00:27:24,280 --> 00:27:27,560 Speaker 1: those are things that can royal the global fixed income 477 00:27:27,600 --> 00:27:30,840 Speaker 1: markets and the global government bond markets in particular. And 478 00:27:30,880 --> 00:27:33,560 Speaker 1: I think that's the one place where you could see 479 00:27:33,600 --> 00:27:36,040 Speaker 1: a substantial sell off in in ten ure yields is 480 00:27:36,080 --> 00:27:38,359 Speaker 1: if the ECB were to come out over the next 481 00:27:38,400 --> 00:27:40,840 Speaker 1: several months and say, hey, we're gonna slow down our 482 00:27:40,880 --> 00:27:42,879 Speaker 1: bond buying, and we're gonna slow down a lot, and 483 00:27:43,000 --> 00:27:45,879 Speaker 1: quickly you get a taper tantrum like reaction to that, 484 00:27:45,960 --> 00:27:47,840 Speaker 1: and you can see curve step and you can see 485 00:27:47,840 --> 00:27:50,520 Speaker 1: ten year yields head up towards two seventy five, maybe 486 00:27:50,560 --> 00:27:52,879 Speaker 1: toward three percent. I don't think they stay there. I 487 00:27:52,880 --> 00:27:55,600 Speaker 1: think that that's an interesting buying opportunity if that were 488 00:27:55,600 --> 00:27:57,760 Speaker 1: to happen. But um, but at the end of the day, 489 00:27:57,800 --> 00:28:00,000 Speaker 1: that that's the type of volatility that you can get. 490 00:28:00,119 --> 00:28:02,199 Speaker 1: So so, so I think the Fed has done a 491 00:28:02,200 --> 00:28:05,280 Speaker 1: good job in its communication where it's it's really limited 492 00:28:05,320 --> 00:28:07,720 Speaker 1: the amount of volatility that comes from its own actions, 493 00:28:08,040 --> 00:28:11,720 Speaker 1: whereas other central banks now are potentially the impetus for 494 00:28:11,720 --> 00:28:14,200 Speaker 1: more volatility. Any chance that we don't get a rate 495 00:28:14,200 --> 00:28:17,639 Speaker 1: increased this year, well yeah, I think that there's a 496 00:28:17,680 --> 00:28:20,639 Speaker 1: pretty high chance that we don't get an interest rate. 497 00:28:20,680 --> 00:28:22,480 Speaker 1: And if I said, okay, so if that's the case, 498 00:28:22,560 --> 00:28:24,359 Speaker 1: if that happens, if we've got a free pass from 499 00:28:24,400 --> 00:28:27,040 Speaker 1: now until the end of December, what's that due to 500 00:28:27,119 --> 00:28:29,119 Speaker 1: the dollar? We're now at one nine team, we were 501 00:28:29,160 --> 00:28:33,640 Speaker 1: at one twenty against the euro, one eight pounds sterling, 502 00:28:34,080 --> 00:28:36,560 Speaker 1: and boy it's been losing value against the Canadian dollar 503 00:28:36,600 --> 00:28:40,080 Speaker 1: wor so. So the dollar tends to go in these 504 00:28:40,160 --> 00:28:42,800 Speaker 1: very long cycles. So when you look at the the 505 00:28:42,880 --> 00:28:45,240 Speaker 1: trade weighted dollar, for example, I like looking at the 506 00:28:45,720 --> 00:28:47,960 Speaker 1: trade weighted dollar because it it has more of a 507 00:28:47,960 --> 00:28:51,480 Speaker 1: direct economic impact than say looking at dollar euro into euros. 508 00:28:51,560 --> 00:28:54,040 Speaker 1: Not not a as major of a of a trading 509 00:28:54,040 --> 00:28:56,240 Speaker 1: partner with the US is say Canada, like you mentioned 510 00:28:56,240 --> 00:28:59,160 Speaker 1: pim um. So so when you look at the trade 511 00:28:59,160 --> 00:29:01,800 Speaker 1: weighted dollar ten to go in these five to seven 512 00:29:01,880 --> 00:29:05,520 Speaker 1: year cycles. And we just had this pretty strong up 513 00:29:05,560 --> 00:29:09,000 Speaker 1: cycle where the dollar appreciated quite a lot over about 514 00:29:09,040 --> 00:29:12,560 Speaker 1: five year period, and now we're maybe starting at this, uh, 515 00:29:12,840 --> 00:29:15,120 Speaker 1: the next down leg of the cycle where the dollar 516 00:29:15,400 --> 00:29:19,880 Speaker 1: will ultimately depreciate against some other currencies um and over 517 00:29:19,920 --> 00:29:22,400 Speaker 1: a long period of time. Now that's not necessarily against 518 00:29:22,400 --> 00:29:25,320 Speaker 1: every currency, but against um, you know, this large basket 519 00:29:25,360 --> 00:29:28,160 Speaker 1: of currencies every Jersey, thank you so much. Always a 520 00:29:28,200 --> 00:29:31,320 Speaker 1: pleasure here your insights on the FED and all things 521 00:29:31,320 --> 00:29:33,680 Speaker 1: related to interest rates. Iver Jersey is our interest rate 522 00:29:33,720 --> 00:29:37,480 Speaker 1: strategist for Bloomberg Intelligence. He has normally based in New Jersey, 523 00:29:37,520 --> 00:29:39,320 Speaker 1: but he was coming to us from our Bloomberg eleven 524 00:29:39,360 --> 00:29:45,000 Speaker 1: three oh studios. Thanks for listening to the Bloomberg P 525 00:29:45,120 --> 00:29:48,120 Speaker 1: and L podcast. You can subscribe and listen to interviews 526 00:29:48,120 --> 00:29:52,200 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 527 00:29:52,600 --> 00:29:56,160 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 528 00:29:56,200 --> 00:29:59,560 Speaker 1: on Twitter at Lisa abramoits one before the podcast. You 529 00:29:59,560 --> 00:30:02,120 Speaker 1: can always catch us worldwide on Bloomberg Radio