Speaker 1: Now we bring in Dr Ward McCarthy, chief financial economist
Speaker 1: at Jeffrey's. Ward welcome. I know you've been busy explaining
Speaker 1: to the guys on your trading desk what this means.
Speaker 1: What do you take away from Janet yellen speech today?
Speaker 1: What's this? What's the message? Well, the messages she wants
Speaker 1: still wants to try to gradually move interest rates away
Speaker 1: from zero, but Friday's employment number was sufficiently scary in
Speaker 1: her mind, um that she became much less specific in
Speaker 1: terms of the timing of when the next rate hike
Speaker 1: might be, and uh effectively backed away from some of
Speaker 1: her comments recently when she said that the FED would
Speaker 1: be raising rates in coming months. So I think the
Speaker 1: messages that the Fed wants to go through another round
Speaker 1: to two of data just to make sure that uh,
Speaker 1: the economy, which has been you know, resilient for almost
Speaker 1: uh seven years now continues on that track before the
Speaker 1: nutget rates by another basis points, you know, we could
Speaker 1: go Friday Ward, when she was speaking with Greg Manq
Speaker 1: at Radcliffe, I was quite struck. To me, she sounded
Speaker 1: very devilish and she did not say rate hikes in
Speaker 1: coming months, whether it was just an unconscious slip or not.
Speaker 1: She said, a rate hike, that's like one right hike
Speaker 1: in coming months. Now months is that that could be
Speaker 1: three months, that could be four months. To me, she
Speaker 1: left the door wide open to to a rate hike
Speaker 1: maybe sometime this summer, maybe not, maybe not to the fall. Well,
Speaker 1: I think you also have to put her comments in
Speaker 1: the context of what other FETE officials were saying. Uh,
Speaker 1: and some of them um uh talked about a rate
Speaker 1: hike specifically in either June or July. So you know
Speaker 1: you're right and that she was not being specific as
Speaker 1: to what exact meaning, but she was sending a message
Speaker 1: that she thought of what happened soon today. She just
Speaker 1: sent the message that yes, we're going to continue to
Speaker 1: raise rates, but there was no hint at all that
Speaker 1: she thought it was going to happen soon. Very interesting,
Speaker 1: of course that based on what were McCarthy just told us,
Speaker 1: and he is going to continue this conversation, We've got
Speaker 1: a lot more questions to ask him. That the U. S.
Speaker 1: Treasury market actually has traded lower today, stocks are in
Speaker 1: rally mode. We're gonna ask Ward to decipher what the
Speaker 1: message from the bond market is as taking stock continues.
Speaker 1: I'm Kathleen Hayes and this is Bloomberg Radio fed cher.
Speaker 1: Jannet Yellen spoke in Philadelphia this afternoon and eagerly anticipated speech,
Speaker 1: which seems to have fallen short of the kind of
Speaker 1: fireworks a lot of people thought might have occurred had
Speaker 1: she signaled very definitely that she was ready to pull
Speaker 1: the trigger on interest rates. Maybe not next week, but
Speaker 1: certainly by the middle of the summer. Instead, Jenny Ellen
Speaker 1: did not give us a sense of timing, only what
Speaker 1: repeating something she has said for a while that wants
Speaker 1: to normalize rates, rates will move higher. There's certainly no
Speaker 1: sense though of when in the urgency she may or
Speaker 1: not have their Dr Wid McCarthy is joining us. He's
Speaker 1: chief financially economist at Jeffreys so Ward. What about the
Speaker 1: job support the labor market? Are you concerned? Uh didn't
Speaker 1: get much attention with all the focus on yelling, But
Speaker 1: the labor market Conditions Index for May weakened even more
Speaker 1: than it had weekend in April. Well, that was pretty
Speaker 1: much a given after UH the employment data that we
Speaker 1: saw on Friday, Because the labor market Conditions indexes is
Speaker 1: based on the BLS report so it is no surprise
Speaker 1: that it was extremely weak. It just really confirmed what
Speaker 1: we had already seen on Friday, and that is that
Speaker 1: the labor market data for the month of May was
Speaker 1: absolutely abysmal. So what's going on? Well, that's the million
Speaker 1: good question, Kathleen. Um, I'm we are in one of
Speaker 1: those periods right now. We're echono data points in very
Speaker 1: different directions. So, for example, within the last few weeks,
Speaker 1: we have seen new home sales that were the strongest
Speaker 1: since Q one two thousand and eight. Then we saw
Speaker 1: the largest month over month increasing consumer spending since Q
Speaker 1: three two thousand and nine, and then we followed that
Speaker 1: up with the weakest payroll data since Q one two
Speaker 1: tho and ten. So the economic data has not been
Speaker 1: telling a coherent story. Um, And you know when this happens,
Speaker 1: it creates confusion. My inclination is to look at the
Speaker 1: employment data is being uh some kind of a statistical quirk.
Speaker 1: And here's why I say that, on three prior occasions
Speaker 1: we have had UH payroll increases that we're well in
Speaker 1: excess of three hundred thousand. None of them persisted, nor
Speaker 1: did this signal any significant improvement in the underlying tone
Speaker 1: of the economy. But prior to Friday, we also had
Speaker 1: two increases in payrolls since the beginning of this cycle
Speaker 1: that were less than fifty thou and they also did
Speaker 1: not persist, uh and nor did it signal a deterioration
Speaker 1: and economic activity that was significant. So in each of
Speaker 1: these probate cases, when we got a head scratch and number,
Speaker 1: payrolls migrated back towards the underlying trend, which is a
Speaker 1: little bit under two hundred thousand. And I think that's
Speaker 1: what's going to happen this time around over the next
Speaker 1: couple of months as well. Uh. Okay, fair enough, because
Speaker 1: you know, people left the labor force usually a sign
Speaker 1: that maybe things aren't as good as they had been.
Speaker 1: But the household survey is probably even more volatile than
Speaker 1: the payrolls. Why is the bond market falling in price
Speaker 1: and rising in yield today? Well, I think that Uh,
Speaker 1: Jenny Ellen, I think walked kind of a fine line
Speaker 1: here and she did not want to pre commit to
Speaker 1: to anything, but she also did not want to uh
Speaker 1: back way from the normalization process. And I think that, uh,
Speaker 1: there were some expectations today that Janet Yellen would express
Speaker 1: a greater tone of concern as far as the employment data, um,
Speaker 1: how it might affect monetary policy. But she didn't, you know,
Speaker 1: she did not hit the panic button. She just pointed out, Yeah,
Speaker 1: this data is um, something that we really don't like
Speaker 1: to see, but against the backdrop of the cumulative improvement
Speaker 1: we've seen in the labor market um over the last
Speaker 1: number of years. Um, it's the reason to pause and
Speaker 1: think about things, but not a reason to hit the
Speaker 1: panic button. It's interesting to be worried that the two
Speaker 1: year notes sold off a little, but still it was
Speaker 1: what point seven eight on Friday, just you know, the
Speaker 1: yield plunge, surprise sword after the jobs apart came in
Speaker 1: so weak. It's sold off a little, but it's still
Speaker 1: just at zero point seven nine. And even with a
Speaker 1: little bit of a sell off in the ten year
Speaker 1: note one point seven three, I mean, yields are remaining
Speaker 1: very low. Perhaps uh kind of corroborating with the Fed.
Speaker 1: Chairs Yes, yeah, the Fed's going to raise rates eventually,
Speaker 1: but it's gonna be well. And there's just there's just
Speaker 1: not too much sign and people turning from turning to
Speaker 1: a real bearish view in the bond market. No, not
Speaker 1: at all and and part of that is because the
Speaker 1: markets just become so skeptical um of two things. First
Speaker 1: of all, there is a pervasive pessimism about whether or not,
Speaker 1: you know, the US economy is capable of generating any
Speaker 1: growth UM. And they're also is a skepticism about UM
Speaker 1: the FITS commitment to raising rates as it has projected
Speaker 1: so UM, you know, the FIT has been projected in
Speaker 1: it would raise rates since two thousand and twelve, and
Speaker 1: it took till December two thousand and fifteen before they
Speaker 1: got one off. And now they had been preparing us
Speaker 1: for a rate hike in a relatively short period of time,
Speaker 1: and Jennet Yellen um by not addressing it specifically, appeared
Speaker 1: to back away from it. Any chance to FED was
Speaker 1: still September. Final questions, Well, that's when I think they
Speaker 1: will do at this point is way until Tember. Let
Speaker 1: some more data come in, let the dust settle, and
Speaker 1: uh and then finally pulled the plug. Man, all right,
Speaker 1: it's gonna be a long FED watch in summer, and
Speaker 1: of course he's gonna be helping us throughout ward. McCarthy,
Speaker 1: chief financial economist at Jeffries. He says, Uh, Janet Yellen
Speaker 1: is in no hurried raise rates. He once thought June
Speaker 1: would be likely, September seems more like the time for
Speaker 1: the Fed Rais Dreys a key rate again. Now, next,
Speaker 1: we're gonna go to the marijuana business. The co founder
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