WEBVTT - Jefferies' McCarthy Sees No Rate Hike Until September (Audio)

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<v Speaker 1>Now we bring in Dr Ward McCarthy, chief financial economist

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<v Speaker 1>at Jeffrey's. Ward welcome. I know you've been busy explaining

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<v Speaker 1>to the guys on your trading desk what this means.

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<v Speaker 1>What do you take away from Janet yellen speech today?

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<v Speaker 1>What's this? What's the message? Well, the messages she wants

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<v Speaker 1>still wants to try to gradually move interest rates away

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<v Speaker 1>from zero, but Friday's employment number was sufficiently scary in

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<v Speaker 1>her mind, um that she became much less specific in

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<v Speaker 1>terms of the timing of when the next rate hike

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<v Speaker 1>might be, and uh effectively backed away from some of

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<v Speaker 1>her comments recently when she said that the FED would

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<v Speaker 1>be raising rates in coming months. So I think the

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<v Speaker 1>messages that the Fed wants to go through another round

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<v Speaker 1>to two of data just to make sure that uh,

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<v Speaker 1>the economy, which has been you know, resilient for almost

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<v Speaker 1>uh seven years now continues on that track before the

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<v Speaker 1>nutget rates by another basis points, you know, we could

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<v Speaker 1>go Friday Ward, when she was speaking with Greg Manq

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<v Speaker 1>at Radcliffe, I was quite struck. To me, she sounded

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<v Speaker 1>very devilish and she did not say rate hikes in

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<v Speaker 1>coming months, whether it was just an unconscious slip or not.

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<v Speaker 1>She said, a rate hike, that's like one right hike

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<v Speaker 1>in coming months. Now months is that that could be

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<v Speaker 1>three months, that could be four months. To me, she

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<v Speaker 1>left the door wide open to to a rate hike

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<v Speaker 1>maybe sometime this summer, maybe not, maybe not to the fall. Well,

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<v Speaker 1>I think you also have to put her comments in

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<v Speaker 1>the context of what other FETE officials were saying. Uh,

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<v Speaker 1>and some of them um uh talked about a rate

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<v Speaker 1>hike specifically in either June or July. So you know

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<v Speaker 1>you're right and that she was not being specific as

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<v Speaker 1>to what exact meaning, but she was sending a message

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<v Speaker 1>that she thought of what happened soon today. She just

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<v Speaker 1>sent the message that yes, we're going to continue to

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<v Speaker 1>raise rates, but there was no hint at all that

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<v Speaker 1>she thought it was going to happen soon. Very interesting,

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<v Speaker 1>of course that based on what were McCarthy just told us,

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<v Speaker 1>and he is going to continue this conversation, We've got

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<v Speaker 1>a lot more questions to ask him. That the U. S.

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<v Speaker 1>Treasury market actually has traded lower today, stocks are in

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<v Speaker 1>rally mode. We're gonna ask Ward to decipher what the

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<v Speaker 1>message from the bond market is as taking stock continues.

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<v Speaker 1>I'm Kathleen Hayes and this is Bloomberg Radio fed cher.

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<v Speaker 1>Jannet Yellen spoke in Philadelphia this afternoon and eagerly anticipated speech,

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<v Speaker 1>which seems to have fallen short of the kind of

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<v Speaker 1>fireworks a lot of people thought might have occurred had

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<v Speaker 1>she signaled very definitely that she was ready to pull

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<v Speaker 1>the trigger on interest rates. Maybe not next week, but

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<v Speaker 1>certainly by the middle of the summer. Instead, Jenny Ellen

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<v Speaker 1>did not give us a sense of timing, only what

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<v Speaker 1>repeating something she has said for a while that wants

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<v Speaker 1>to normalize rates, rates will move higher. There's certainly no

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<v Speaker 1>sense though of when in the urgency she may or

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<v Speaker 1>not have their Dr Wid McCarthy is joining us. He's

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<v Speaker 1>chief financially economist at Jeffreys so Ward. What about the

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<v Speaker 1>job support the labor market? Are you concerned? Uh didn't

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<v Speaker 1>get much attention with all the focus on yelling, But

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<v Speaker 1>the labor market Conditions Index for May weakened even more

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<v Speaker 1>than it had weekend in April. Well, that was pretty

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<v Speaker 1>much a given after UH the employment data that we

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<v Speaker 1>saw on Friday, Because the labor market Conditions indexes is

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<v Speaker 1>based on the BLS report so it is no surprise

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<v Speaker 1>that it was extremely weak. It just really confirmed what

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<v Speaker 1>we had already seen on Friday, and that is that

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<v Speaker 1>the labor market data for the month of May was

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<v Speaker 1>absolutely abysmal. So what's going on? Well, that's the million

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<v Speaker 1>good question, Kathleen. Um, I'm we are in one of

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<v Speaker 1>those periods right now. We're echono data points in very

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<v Speaker 1>different directions. So, for example, within the last few weeks,

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<v Speaker 1>we have seen new home sales that were the strongest

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<v Speaker 1>since Q one two thousand and eight. Then we saw

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<v Speaker 1>the largest month over month increasing consumer spending since Q

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<v Speaker 1>three two thousand and nine, and then we followed that

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<v Speaker 1>up with the weakest payroll data since Q one two

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<v Speaker 1>tho and ten. So the economic data has not been

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<v Speaker 1>telling a coherent story. Um, And you know when this happens,

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<v Speaker 1>it creates confusion. My inclination is to look at the

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<v Speaker 1>employment data is being uh some kind of a statistical quirk.

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<v Speaker 1>And here's why I say that, on three prior occasions

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<v Speaker 1>we have had UH payroll increases that we're well in

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<v Speaker 1>excess of three hundred thousand. None of them persisted, nor

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<v Speaker 1>did this signal any significant improvement in the underlying tone

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<v Speaker 1>of the economy. But prior to Friday, we also had

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<v Speaker 1>two increases in payrolls since the beginning of this cycle

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<v Speaker 1>that were less than fifty thou and they also did

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<v Speaker 1>not persist, uh and nor did it signal a deterioration

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<v Speaker 1>and economic activity that was significant. So in each of

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<v Speaker 1>these probate cases, when we got a head scratch and number,

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<v Speaker 1>payrolls migrated back towards the underlying trend, which is a

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<v Speaker 1>little bit under two hundred thousand. And I think that's

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<v Speaker 1>what's going to happen this time around over the next

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<v Speaker 1>couple of months as well. Uh. Okay, fair enough, because

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<v Speaker 1>you know, people left the labor force usually a sign

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<v Speaker 1>that maybe things aren't as good as they had been.

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<v Speaker 1>But the household survey is probably even more volatile than

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<v Speaker 1>the payrolls. Why is the bond market falling in price

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<v Speaker 1>and rising in yield today? Well, I think that Uh,

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<v Speaker 1>Jenny Ellen, I think walked kind of a fine line

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<v Speaker 1>here and she did not want to pre commit to

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<v Speaker 1>to anything, but she also did not want to uh

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<v Speaker 1>back way from the normalization process. And I think that, uh,

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<v Speaker 1>there were some expectations today that Janet Yellen would express

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<v Speaker 1>a greater tone of concern as far as the employment data, um,

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<v Speaker 1>how it might affect monetary policy. But she didn't, you know,

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<v Speaker 1>she did not hit the panic button. She just pointed out, Yeah,

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<v Speaker 1>this data is um, something that we really don't like

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<v Speaker 1>to see, but against the backdrop of the cumulative improvement

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<v Speaker 1>we've seen in the labor market um over the last

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<v Speaker 1>number of years. Um, it's the reason to pause and

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<v Speaker 1>think about things, but not a reason to hit the

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<v Speaker 1>panic button. It's interesting to be worried that the two

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<v Speaker 1>year notes sold off a little, but still it was

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<v Speaker 1>what point seven eight on Friday, just you know, the

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<v Speaker 1>yield plunge, surprise sword after the jobs apart came in

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<v Speaker 1>so weak. It's sold off a little, but it's still

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<v Speaker 1>just at zero point seven nine. And even with a

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<v Speaker 1>little bit of a sell off in the ten year

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<v Speaker 1>note one point seven three, I mean, yields are remaining

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<v Speaker 1>very low. Perhaps uh kind of corroborating with the Fed.

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<v Speaker 1>Chairs Yes, yeah, the Fed's going to raise rates eventually,

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<v Speaker 1>but it's gonna be well. And there's just there's just

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<v Speaker 1>not too much sign and people turning from turning to

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<v Speaker 1>a real bearish view in the bond market. No, not

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<v Speaker 1>at all and and part of that is because the

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<v Speaker 1>markets just become so skeptical um of two things. First

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<v Speaker 1>of all, there is a pervasive pessimism about whether or not,

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<v Speaker 1>you know, the US economy is capable of generating any

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<v Speaker 1>growth UM. And they're also is a skepticism about UM

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<v Speaker 1>the FITS commitment to raising rates as it has projected

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<v Speaker 1>so UM, you know, the FIT has been projected in

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<v Speaker 1>it would raise rates since two thousand and twelve, and

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<v Speaker 1>it took till December two thousand and fifteen before they

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<v Speaker 1>got one off. And now they had been preparing us

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<v Speaker 1>for a rate hike in a relatively short period of time,

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<v Speaker 1>and Jennet Yellen um by not addressing it specifically, appeared

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<v Speaker 1>to back away from it. Any chance to FED was

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<v Speaker 1>still September. Final questions, Well, that's when I think they

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<v Speaker 1>will do at this point is way until Tember. Let

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<v Speaker 1>some more data come in, let the dust settle, and

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<v Speaker 1>uh and then finally pulled the plug. Man, all right,

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<v Speaker 1>it's gonna be a long FED watch in summer, and

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<v Speaker 1>of course he's gonna be helping us throughout ward. McCarthy,

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<v Speaker 1>chief financial economist at Jeffries. He says, Uh, Janet Yellen

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<v Speaker 1>is in no hurried raise rates. He once thought June

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<v Speaker 1>would be likely, September seems more like the time for

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<v Speaker 1>the Fed Rais Dreys a key rate again. Now, next,

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<v Speaker 1>we're gonna go to the marijuana business. The co founder

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<v Speaker 1>and CEO of med men right here on Bloomberg Radio