WEBVTT - Jonathan Levin on Kashkari Comments (Audio)

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<v Speaker 1>Well. Minneapolis Faded president Neil Kashgary said he was actually

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<v Speaker 1>happy to see how chair J. Pale's Jackson the whole

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<v Speaker 1>speech was received by markets. Of course, Micuts received that

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<v Speaker 1>speech by selling off pretty heavily on Friday afternoon, joining

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<v Speaker 1>us to discuss. Now we have Jonathan levin Bloomberg's market columnists,

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<v Speaker 1>so Cash Gary happy that he saw global shares fall.

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<v Speaker 1>It does sound brutal, but he does. He have a

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<v Speaker 1>point when it comes to markets doubting the foods commitment.

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<v Speaker 1>They're good to be with you, Paul. What I thought

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<v Speaker 1>was interesting about this is just, you know, to to

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<v Speaker 1>see a central bank or actually saying the quiet part

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<v Speaker 1>out loud. You know, I think that in reality, this

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<v Speaker 1>is just how monetary policy works, and we all kind

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<v Speaker 1>of understand this. This is where the this don't fight

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<v Speaker 1>the Fed mantra comes from. And central Marcus talk a

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<v Speaker 1>lot about the importance of financial conditions. It's essentially a

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<v Speaker 1>euphemism for we need to raise borrowing costs and make

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<v Speaker 1>you feel poor in order to rein in him. For Asian,

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<v Speaker 1>it's just rare to to see an active central banker

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<v Speaker 1>say so as bluntly as as Cash Carry did. In

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<v Speaker 1>this interview with odd Lots, Is it something that we

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<v Speaker 1>want to hear? Do we want, you know, twelve people

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<v Speaker 1>in a room telling our markets what they should be doing.

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<v Speaker 1>I know that sounds, you know, like it's criticize criticizing him,

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<v Speaker 1>but you you often don't hear FED officials talking actively

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<v Speaker 1>about the level of the dollar or the level of markets,

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<v Speaker 1>and and that, Yeah, I I think it's sort of

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<v Speaker 1>just reflects where we are, at least in US markets. Right.

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<v Speaker 1>So over the summer, coming off of the July the

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<v Speaker 1>July lows, there was this sort of I've called it,

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<v Speaker 1>sort of a vapid summer rally that wasn't really based

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<v Speaker 1>based on much of anything but a lack of real

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<v Speaker 1>fundamental news. And that summer rally ended up achieving the

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<v Speaker 1>opposite of what the FED is trying to do. Right.

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<v Speaker 1>It loosened up, Uh, it loosened up financial can editions

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<v Speaker 1>a little bit. We're going to see if that has

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<v Speaker 1>any consequences actual inflation numbers going forward. But as j Pal,

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<v Speaker 1>the FECh chair made clear in Jackson Hole on Friday,

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<v Speaker 1>you know, they are committed to this, to this fight.

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<v Speaker 1>And I think that j Pal's message in a slightly

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<v Speaker 1>more opaque, opaque fashion than what kash Gary just told us. Uh,

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<v Speaker 1>you know, j Pale was coming out guns ablazing and saying, listen,

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<v Speaker 1>we're doing this, We're serious about this. And I think

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<v Speaker 1>that that he chose that format specifically because he perceived

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<v Speaker 1>that that markets weren't getting the picture. Yeah, the famous

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<v Speaker 1>saying is don't fight the fit. But to some degree

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<v Speaker 1>did the FIT bring this upon itself? Because we've seen

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<v Speaker 1>in the past a reaction to type of tantrums, more

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<v Speaker 1>recently the FIT cold inflation transitory. The market doubted that

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<v Speaker 1>the market was proven right. So can we pack some

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<v Speaker 1>of the blame for this at the FIDGS door. Yeah,

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<v Speaker 1>I mean, obviously this is a this is a different FED,

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<v Speaker 1>but but uh, you know, a long time FED watchers

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<v Speaker 1>grew up sort of reading the tea leaves. This, you know,

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<v Speaker 1>for a long time, this was one of the most

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<v Speaker 1>opaque institutions in the world, one of the most opaque

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<v Speaker 1>and one of the most powerful, and a lot of

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<v Speaker 1>people earned a living just you know, trying to read

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<v Speaker 1>read the tea leaves. And it's kind of shocking, maybe

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<v Speaker 1>even hard to understand that with this particular FED, at

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<v Speaker 1>least in my humble opinion, there are no tea he

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<v Speaker 1>leaves to read. They're they're sort of telling it as

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<v Speaker 1>it is, and it has taken the market some adjusting

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<v Speaker 1>to say, hey, maybe they aren't playing three dimensional chess.

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<v Speaker 1>Maybe they're just telling us what they're gonna do and

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<v Speaker 1>we should listen. Yeah, I mean, I absolutely get that,

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<v Speaker 1>and you know, just trying to explain more than thinking

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<v Speaker 1>behind the first question is that you know, there's millions

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<v Speaker 1>of Asians distilled down into what markets are doing. If

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<v Speaker 1>if the market thinks that companies can handle one cost

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<v Speaker 1>input interest rates or one cost input, right, If if

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<v Speaker 1>companies can handle that and their earnings are not, let's say,

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<v Speaker 1>hit hard, then who's to say that the market at

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<v Speaker 1>any given time is right or wrong. Market is what

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<v Speaker 1>it is. Yeah, that's exactly right. I mean, obviously, an

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<v Speaker 1>element of this is is p S and an element

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<v Speaker 1>of this, at least in the stock market, is what

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<v Speaker 1>people's earnings expectations are going to be. You know, I've

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<v Speaker 1>been I've been of the opinion that p is we're

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<v Speaker 1>a little rich for an extras rate environment that that

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<v Speaker 1>looks like this anyway. But the broader picture is that

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<v Speaker 1>there is significant earnings risk going forward. I don't think

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<v Speaker 1>that that earnings risk is going to manifest itself right away,

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<v Speaker 1>you know. I think a lot of people took heart

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<v Speaker 1>in the in the fact that the latest quarters numbers

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<v Speaker 1>out of the out of US, we're actually fairly strong.

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<v Speaker 1>You might call them resilient or whatever. But this this

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<v Speaker 1>is a process that takes time. People typically talk about

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<v Speaker 1>a monetary policy lag of eighteen to twenty four months

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<v Speaker 1>for the FEDS sort of wrecking ball to to do

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<v Speaker 1>its thing, if you will. And uh so, you know,

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<v Speaker 1>there's there's significant risk there. What is happening now in

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<v Speaker 1>US markets is that, uh, you know, the job market

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<v Speaker 1>remains remains strong, people are starting to spend down those

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<v Speaker 1>pandemic savings. They're starting to turn to the credit cards

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<v Speaker 1>and so forth, and that, you know, that creates a

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<v Speaker 1>bit of a runway for consumption in the in the US,

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<v Speaker 1>And that that being the case, it could really take

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<v Speaker 1>you know, several quarters, well into three until we can

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<v Speaker 1>really assess the earning situation and say the FED did

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<v Speaker 1>its thing and it didn't do too much damage. Yeah,

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<v Speaker 1>it shapes up as really interesting next six months, for sure. Jonathan,

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<v Speaker 1>thanks very much for being with us. Jonathan Levin new

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<v Speaker 1>is Bloomberg Market columnist,