Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: by searching Bloomberg Global News. All right, Kathleen Hayes, now
Speaker 1: that we've got the bills paid, talk to us about
Speaker 1: what you're seeing and what jumped out of you. Well,
Speaker 1: first of all, the fact that they're the vote was
Speaker 1: a to two uh thirteen and seventeen officials forecast rates
Speaker 1: on hold through three not surprising, But again, um, I
Speaker 1: think it's a little bit surprising to me. On the
Speaker 1: descent from Rob Kaplan Neil Cush Gary Minneapolis, said, Rob
Speaker 1: Kaplin from the Dallas said Now, remember there's only there's
Speaker 1: there's twelve Fed Bank presidents. Four of them vote on
Speaker 1: a rotating basis. That's how you get a total of
Speaker 1: ten on this vote out of the seventeen officials on
Speaker 1: the Federal Market Committee. But importantly, Rob Kaplan uh preferred
Speaker 1: to retain quote greater policy rate flexibility, while uh Neil
Speaker 1: Coscary dissented because he wanted to wait for a rate
Speaker 1: hike until core inflation has reached two percent on a
Speaker 1: sustained basis. Um, I think you know, one of the
Speaker 1: criticisms among Fed watchers of what came out of the
Speaker 1: Jackson Hole virtual meeting, this switch to an inflation targeting framework, etcetera,
Speaker 1: is how are they gonna do it? You know, how
Speaker 1: much are they going to overshoot? What happens if they overshoot,
Speaker 1: then do they have to undershoot? There's so little it's
Speaker 1: really spelled out in terms of details. This is so vague,
Speaker 1: And many of them say, well, it's probably because there's
Speaker 1: still not a full agreement within the Federal but Market
Speaker 1: Committee about how they're going to carry this out. Um.
Speaker 1: Rob Kaplan, I think is already said in the past
Speaker 1: that he would be fine with in the past year
Speaker 1: or more that he'd be fine with let inflation run hot,
Speaker 1: let it run above a bit two percent, but at
Speaker 1: some point he'd want to look at that and you
Speaker 1: then he might think change his main mind about rates.
Speaker 1: Neil Coush Gary, on the other hand, has been very
Speaker 1: worried about the virus. I think this is he's he's
Speaker 1: the dub because the key inflation gauge is not the
Speaker 1: core inflation gauge. Right, so now he's talking about core
Speaker 1: inflation reaching at two percent on a susteemed basis if
Speaker 1: it's a little more, a little stricter, right, I think
Speaker 1: that this. I think it's going to be something that
Speaker 1: comes out of this well. And I'm just gonna say
Speaker 1: what's coming out of it in terms of market reaction,
Speaker 1: not much. When you look along the yield curve, the ten,
Speaker 1: five and two pretty much where they were right before
Speaker 1: the release of those Fed minutes. Equities, however, we've seen
Speaker 1: some support and we're moving to just a little bit
Speaker 1: higher on those news. Let's bring in Dave Wilson. Dave
Speaker 1: give us the equity market reaction here, because we have
Speaker 1: seen a bit of a turnaround. I mean, we have
Speaker 1: and it kind of started, you know, before the decision
Speaker 1: was announced, and you know, we saw the SNP five
Speaker 1: kind of pop up for a few minutes. It's given
Speaker 1: back sort of those initial games. Still trying to hang
Speaker 1: on though for a fourth straight advance. And when you
Speaker 1: look at the eleven main industry groups in the SMP five,
Speaker 1: it's a distinctly sort of economic bent to all this. Uh,
Speaker 1: energy stocks, industrial stocks, financial stocks, best performers out of
Speaker 1: those eleven groups, and what they also have in common
Speaker 1: is they're all down for the year. So it's almost like, uh,
Speaker 1: to some extent, what we're seeing out of the FED
Speaker 1: is giving at least some investors a reason to kind
Speaker 1: of look at the more beaten down areas of the market.
Speaker 1: And I say that knowing that there are only two
Speaker 1: groups that are down out of the eleven, Technology and
Speaker 1: communication services, which includes Facebook and Google's owner Alphabet and
Speaker 1: a bunch more sort of Internet linked companies. So, you know,
Speaker 1: definitely a shift from what we've seen over time in
Speaker 1: terms of the relative performance industry wise, but also areas
Speaker 1: of the market that have run up a lot, you know, right, yeah,
Speaker 1: absolutely so, Kathleen, Let's take a step back if we
Speaker 1: can and just remind people. I mean, the FED always important,
Speaker 1: of course, but it has been many would argue, and
Speaker 1: I might agree with them, the critical player in the
Speaker 1: government's response to this pandemic, especially from the market's perspective.
Speaker 1: So as you see this, and obviously we're gonna hear
Speaker 1: more from J. Powell coming up in about twenty four minutes,
Speaker 1: remind us the place that the FED is really holding
Speaker 1: here in terms of kind of keeping it all together. Well,
Speaker 1: let's remember that the FED very early, I believe it
Speaker 1: was March third, and that was before there were even
Speaker 1: lockdowns going on in the United States. UM made its
Speaker 1: first emergency rate cut, right, and then it quickly got
Speaker 1: the rates down to near zero as it launched in
Speaker 1: totally and nine different programs to to lend money to people,
Speaker 1: to get money to businesses, to make it easier for
Speaker 1: them to UM not layoff workers. And importantly, though, remember
Speaker 1: how crazy the bomb market was in February. That's one
Speaker 1: of the reasons why I started buying securities pumping liquidity right,
Speaker 1: and they did it. They've done an excellent job with
Speaker 1: all that. Congress of course did get on board and
Speaker 1: pass a big stimulus program, but now it looks like
Speaker 1: nothing until after the election. So they have played a
Speaker 1: very important role. And I think the other thing that
Speaker 1: the FED is trying to do with all of the
Speaker 1: stuff that's done lately in terms of this framework, they're
Speaker 1: just making it so crystal clear. I mean, you wouldn't
Speaker 1: expect with all the speeches safe given everything. J Pole
Speaker 1: and others have said that they were even thinking about
Speaker 1: thinking about hiking rates for a long time, but more
Speaker 1: and more there are so many people, Hey, we're not
Speaker 1: going to start hiking rates. We're not going to be
Speaker 1: is this is not the past where we let inflation
Speaker 1: up rise so much and then say, man, we better
Speaker 1: cut it up. And I think you have to bring
Speaker 1: in all the other aspects of this as well. In
Speaker 1: Jackson holl the FED also added something that caught a
Speaker 1: lot of people's eyes. It's not just maximum employment. The
Speaker 1: FED supporting massive maxim massive inclusive employment, because more and
Speaker 1: more there's been voices saying, look, you gotta let they
Speaker 1: call me run hot to allow low income workers. Uh,
Speaker 1: many of them happened to be black, happened to be Latino,
Speaker 1: allowed them to get caught up too. So there's a
Speaker 1: lot of pieces here, and I think the FED is
Speaker 1: clearly on the side of some of the big trends
Speaker 1: going on in our in our country and in the
Speaker 1: world even I think the question for markets, for investors,
Speaker 1: and for economists, though, is how this is really going
Speaker 1: to work as we go down the road. Yeah, exactly.
Speaker 1: I just I'm blown away about Um, you know, we
Speaker 1: keep kind of kidding about c e O s and
Speaker 1: we don't know what's going to happen in visibility. And
Speaker 1: I respect that because it's still a lot of questions.
Speaker 1: But here's the FED saying, you know, we're gonna likely
Speaker 1: keep rates, uh you know, you know forecasts, you know,
Speaker 1: and and rates at zero through Don't you suppose that's
Speaker 1: why Rob Kaplan said, Hey, I'm dissenting in Rob's a centrist,
Speaker 1: wrong right middle of the road, downright right down the
Speaker 1: road guy. And remember he worked on Wall Street for
Speaker 1: a long time. So, Kathleen, how often is it that
Speaker 1: they can they put out this kind of long term
Speaker 1: forecast but then they come back in a year, I mean,
Speaker 1: I don't know, a long time always. I mean, how
Speaker 1: likely is it that they're going to revise that? Carol,
Speaker 1: Let's I'm talk to you like I'm set official. Well, Carol,
Speaker 1: you know today I put in my forecast to the content. Carol,
Speaker 1: I'm looking at the economy looks right now and how
Speaker 1: I think the virus is going to play out. And
Speaker 1: we really expect it's going to take a long time
Speaker 1: to get unemployment uh down to a level that we
Speaker 1: would consider something like maximum and make sure it's inclusive unemployment.
Speaker 1: And I'm gonna say, say, fedeficial, get real pertem We're
Speaker 1: at a bar and you're really talkative, beneficial, Kathleen Hayes,
Speaker 1: tell me what you really think. Well, they're gonna change
Speaker 1: this right, you know, you would say, Carol, You might say, well,
Speaker 1: but Kathleen, you guys already missed the fact on unemployment
Speaker 1: that um you you thought it was gonna be nine
Speaker 1: point three percent at the end of twenty It's already
Speaker 1: down to eight point four percent as of August. What
Speaker 1: if the economy gets stronger faster? Can you really stick
Speaker 1: with no rate hike until three And then if you
Speaker 1: push me hard enough for one of them, they probably say, well, sure, yeah,
Speaker 1: but we're not you know, in going about two percent
Speaker 1: isn't the thing that pushes us. It's going to be
Speaker 1: unemployment falling and getting people back to work, and we're
Speaker 1: willing to tolerate some overshoot. But that's the question too,
Speaker 1: how much overshoot? Yeah exactly, I love this role playing.
Speaker 1: I could just sit here all day and listen to
Speaker 1: you guys sort of pretend to be FED officials, and
Speaker 1: I feel like we've got this is the show. Is
Speaker 1: role playing that fat. I just want to play j
Speaker 1: Powell and sort of sort of monitor monitone every and
Speaker 1: not really answer any questions. All right, Kathleen Hayes, thank
Speaker 1: you so much. Dave Wilson, give us a little tease
Speaker 1: for your chart of the day coming up. Oh, it's
Speaker 1: been quite a year. You know. There's a word called
Speaker 1: dispersion that analysts used to talk about the extent to
Speaker 1: which stocks or industry groups either track each other or don't.
Speaker 1: This year is all about don't there you go role
Speaker 1: playing for Dave too. Yeah exactly. This is Bloomberg Business
Speaker 1: Week with Carol Masser and Jason Kelly on Bloomberg Radio.
Speaker 1: Got another blockbuster team here on deck to help us
Speaker 1: understand what's going on at the FED. Dr Stephen Skanky,
Speaker 1: of course, chief economic advisor at keel Point, former U. S.
Speaker 1: Treasury and White House National Security Council staff member. He's
Speaker 1: in Washington, d C. Speaking the nation's capital, and Jeffrey Cleveland,
Speaker 1: chief economist for Paydon and Regal, he joins us on
Speaker 1: the phone from Los Angeles. Jeffrey, I want to start
Speaker 1: with you as you sort of distill this down. Nothing
Speaker 1: seems to be shocking the market about this, but steady
Speaker 1: as she goes? Or what what do you see here? Well,
Speaker 1: I said, this is more explicit for guidance than I
Speaker 1: think I expected in the statement to the Fed. Here
Speaker 1: pledging to keep rate slow until inflation is back above
Speaker 1: two percent for some time and we get the full employment.
Speaker 1: So I would say that is effectively pledging to keep
Speaker 1: interest rates at zero for forever, Jason, for the foreseeable future,
Speaker 1: unless you really expect inflation above two p m. The
Speaker 1: feed is the Fed is at zero. That was already
Speaker 1: priced in. So I think that's why markets are not
Speaker 1: reacting much, at least so far. You didn't have a
Speaker 1: rate hike priced into the bond market until so that's
Speaker 1: that's nothing new. But I think it's interesting to to
Speaker 1: think about UH made more explicit that forward guidance. Then
Speaker 1: I think most people expected in this particular meeting. I'm
Speaker 1: like blown away. Um, Steve Skanky, come on in on this. Um,
Speaker 1: I'm curious. Do you think that this is a political
Speaker 1: decision one at least made a little bit with the
Speaker 1: election in November in mind. Yeah, the fet is obvious.
Speaker 1: You just pointed that there hasn't been any action on
Speaker 1: the fiscal stimulus tide of things yet. They've they've said
Speaker 1: about all that they can and being specific about that,
Speaker 1: and they they no in their announcement, and then the
Speaker 1: comments of individual f l M team was leading up
Speaker 1: to the meeting that they remained concerned about the economy
Speaker 1: and the tremendous human and economic hardship. They once again
Speaker 1: reiterate their their statement from six weeks ago the path
Speaker 1: of the economy will depend significantly on the course of
Speaker 1: the virus, and we had daily infections yesterday thousand. It's
Speaker 1: it's very frustrating for the FT and UH and rather
Speaker 1: say something more about the fiscal stimulus, UH, they were
Speaker 1: just very explicit they're going to keep rates of zero,
Speaker 1: They're going to continue their their pond buying program at
Speaker 1: least at the current rate, and may implied that they
Speaker 1: may increase it above a hundred and twenty billion a
Speaker 1: month until there's just a honstormable evidence that they're reaching
Speaker 1: the employment targets and inflation that is average Jane above
Speaker 1: two percent a year for some period of time. Um,
Speaker 1: it would be hard for them to just say more
Speaker 1: that would be encouraging and positive for the market. Well,
Speaker 1: and in the market seemed to be reacting pretty positively.
Speaker 1: I mean, now taking a look Carroll, the SMP in
Speaker 1: the Dow, uh definitely hitting their highs of the day,
Speaker 1: the NASDAC creeping very close to there as well. So
Speaker 1: Jeffrey Cleveland, I mean, this is a market that not
Speaker 1: to be too silly about it, but like loves the Fed.
Speaker 1: They have counted on the Fed throughout this entire crisis. Well,
Speaker 1: there is no alternative right at this point. I mean,
Speaker 1: they're pushing people into equities. Yeah, what's the old adage,
Speaker 1: don't fight the Fed. I think that that applies. If
Speaker 1: real rates are going to be maintained at a negative level,
Speaker 1: so negative T bill returns, then investors, you know, many
Speaker 1: of our clients looking elsewhere. So the investment grade corporate space,
Speaker 1: the high yield corporate space, emerging market debt and equities. Uh,
Speaker 1: there's your alternative if you're looking for income and return.
Speaker 1: So I think that's still in play. I should also
Speaker 1: say that, you know, the there are risks, of course,
Speaker 1: the one of them that were worried about is the
Speaker 1: fiscal relief, the lack thereof the extension of that. But
Speaker 1: the data, the economic data is better than last time.
Speaker 1: The Fed put out their projections that much more pessimistic
Speaker 1: projections from the f MC in June, and they've marked
Speaker 1: up their GDP forecast. They've marked down at least in
Speaker 1: terms of the unemployment rate, lowering the unemployment rate to
Speaker 1: seven point six, you know, by the year end. So
Speaker 1: that's much better than they were anticipating in June they
Speaker 1: had it closer to ten. So things have improved relative
Speaker 1: to you know, ninety days ago. And I think that's
Speaker 1: important for the for the financial markets because financial markets
Speaker 1: are always looking ahead. So what do you guys want
Speaker 1: to hear from j Powell at the bottom of the hour,
Speaker 1: So just in about ten minutes time, Steve, let me
Speaker 1: start with you. What was it What would it be
Speaker 1: that you would us the FED chief on to be
Speaker 1: more explicit if you can about what really is the
Speaker 1: inflation target and and probably even more importantly, Carol, is
Speaker 1: what it is they're going to do to try to
Speaker 1: drive it to that. What's left in their arsenal of
Speaker 1: monetary policy tools which they say they're going to use
Speaker 1: their fullest to to help bring further economic activity that
Speaker 1: will cause wages to rise and and further health increase employment. Uh.
Speaker 1: And you know, following up a little bit of what
Speaker 1: about what you asked earlier, this is really I mean,
Speaker 1: their next meeting is at the eve of the election,
Speaker 1: and so it's very hard for them to do or
Speaker 1: say much at their next meeting without sounding political. So
Speaker 1: so Chairman Powell has got to get in all the
Speaker 1: points you'd like to make in this press conference and
Speaker 1: exactly what they're gonna do in terms of increasing the
Speaker 1: balance sheet, uh, putting more energy into their their emergency
Speaker 1: long facilities to get things quite in a better way.
Speaker 1: And especially if we end up with no more fiscal
Speaker 1: genulus before the end of the year. And so, Jeffrey,
Speaker 1: if you're on Capitol Hill and you're looking at this
Speaker 1: and you're watching the negotiations or lack thereof go on
Speaker 1: around fiscal rescue or stimulus, does this change your thinking
Speaker 1: at all. I mean, it's hard to say what they're
Speaker 1: thinking candidly at this point because they can't get it.
Speaker 1: They can't seem to get get a deal done. But
Speaker 1: how does the fiscal picture match up with what we're
Speaker 1: hearing on the monetary side. Well, unfortunately, I think the
Speaker 1: story was that the consumer was going to completely fall
Speaker 1: apart in August and September when these benefits ended as
Speaker 1: at the end of July, and that really hasn't happened.
Speaker 1: You're you know today this morning's data for retail sales,
Speaker 1: the August data, it was a little bit lower than
Speaker 1: expect did it slowed down from July, but you know,
Speaker 1: the consumer has not fallen apart. We're remarkably Jason back,
Speaker 1: I think we're fifteen six below where we were in
Speaker 1: February on restaurant sales. So that's much better than I
Speaker 1: would anticipated given the expiration of the fiscal benefits and
Speaker 1: the fact that, um, you know, the the virus is ongoing.
Speaker 1: So things have have you falled better than some of
Speaker 1: the worst fears until I guess that just makes policymakers,
Speaker 1: if they already had their heels dug in on the
Speaker 1: on the fiscal relief front, they might stay with that position.
Speaker 1: I mean, Jeffy, how does the economy feel right now?
Speaker 1: I mean it's really kind of shocking. I feel like
Speaker 1: if you think about, you know, how much we went down,
Speaker 1: how much you know we have come off of that low,
Speaker 1: and yet there are still statistics, some that are promising,
Speaker 1: some that are troubling. How do you see the economy,
Speaker 1: especially when we don't have a lot of CEOs who
Speaker 1: come out and say here's what we're seeing. Um, even
Speaker 1: those CEOs who are in a better place and God forbid,
Speaker 1: you know, have kind of benefited from the pandemic. So
Speaker 1: how do you see the economy for the rest of
Speaker 1: the year and going into well, the third quarter is
Speaker 1: looking great, carol Us and global we're we're going to
Speaker 1: see a GDP, you know, annualized rate in excess of
Speaker 1: which is good coming off the decline, and we saw
Speaker 1: on Q two, so big bouncing Q three And by
Speaker 1: the end of the year we're still below levels that
Speaker 1: we that we started the year. So GDP is probably
Speaker 1: three to four percent below levels and we'll take another
Speaker 1: year or two to get back to the pre virus levels.
Speaker 1: So strong bounce back, but then we are going to
Speaker 1: face a little bit of a longer road to get
Speaker 1: to get back there with you know, some some uncertainty
Speaker 1: in the fall, of course. And Steve, do you agree
Speaker 1: with that or what's your assessment here? I do agree
Speaker 1: that we should see a g d F bounce back
Speaker 1: at an annualized rate oft in UH in the third
Speaker 1: quarter and then just continue to continue to move forward.
Speaker 1: I think one of the challenging things though, is the
Speaker 1: difficulty that we've had with some of the employment numbers
Speaker 1: and unemployment numbers. You know, this began back in March
Speaker 1: where the the COVID impact on surveys had a created
Speaker 1: a big problem for the way the survey results were
Speaker 1: coming in. And even when we looked at the August numbers,
Speaker 1: which were great all things considered, after tremendous shot browth
Speaker 1: in UH May in June, UH, there are there are
Speaker 1: fifteen million people roughly who left the labor force, a
Speaker 1: third of those because they didn't have shild care opportunities
Speaker 1: UH and the other two thirds unsure as to what
Speaker 1: opportunities there there might be. So while I I'm really
Speaker 1: excited about the unemployment rate falling to where it has
Speaker 1: compared to word the tent thought it was going to
Speaker 1: be even to the end of the year or in
Speaker 1: the percent range. I think we need to be careful, uh,
Speaker 1: to make sure we understand really what's going on in
Speaker 1: those numbers, so that the people, especially policymakers, aren't are
Speaker 1: aren't letting the foot off the gas. Two to right.
Speaker 1: Can I just say, Jason, do I still have to
Speaker 1: get my head around a bounce back, you know after
Speaker 1: drop of like I just can't even yeah, and and
Speaker 1: and to that, to that point, and and to the
Speaker 1: point Um Stevenskey was was just making you know, this
Speaker 1: question of who's affected and how I mean, Jeffrey, I
Speaker 1: think about that a lot. I was having a conversation
Speaker 1: earlier today for a private equity event with David Rubinstein,
Speaker 1: and we were talking about this K shaped recovery um
Speaker 1: and maybe that is or isn't the right way to
Speaker 1: look at it. But what we do know is that
Speaker 1: this pandemic has not been indiscriminate economically. We know it
Speaker 1: has been actually very um discriminatory economically. What are the
Speaker 1: long term impacts of that, especially given that we even
Speaker 1: have maybe I shouldn't say even, but we do have
Speaker 1: the feed essentially saying we may let the economy run
Speaker 1: a little hotter in order to ensure that employment is
Speaker 1: not just fuller, but fairer. Well, that was the key
Speaker 1: part of the Ford guidance in the statement Jason, full employment,
Speaker 1: so there's a whittle room around. That does not mean
Speaker 1: in my view, the unemployment rate getting back to four
Speaker 1: or five. What they probably refer are referring to is
Speaker 1: something you know, more inclusive, so an employment to population ratio.
Speaker 1: So one that we like to look at is the
Speaker 1: fifty four year old the core working age population employment
Speaker 1: to population ratio that as of August was seventy five,
Speaker 1: right around there pre COVID, before before the pandemic, we
Speaker 1: were around eighty, a little bit above eighty. So we
Speaker 1: have a ways to go until we get back to
Speaker 1: a more in full, inclusive employment. But that that would
Speaker 1: be the metric that I would watch, and the fetes
Speaker 1: pledging to keep rates low until that time. Alright, So
Speaker 1: what keeps you up at night Steve when you think
Speaker 1: about the economy. I mean you talked about, you know,
Speaker 1: your concerns about policymakers making sure that they are watching
Speaker 1: and being smart as we read the data. I feel like,
Speaker 1: we've to be really good about digging deeper into statistics
Speaker 1: right now so that we really understand what's going on.
Speaker 1: But what is it that keeps you up at night
Speaker 1: when it comes to the economy, Well, Carl, it's it's
Speaker 1: really that there's overconfidence and how quickly to rebound is coming. Um.
Speaker 1: The the the annualized numbers are are are are sort
Speaker 1: of hard to get our head around, especially when you're
Speaker 1: talking about a second quarter decline of thirty two UH
Speaker 1: minus a little bit on an annualized rate from January.
Speaker 1: At the end of the end of June that GDP
Speaker 1: went down about eleven and we went from a twenty
Speaker 1: one frellon dollar economy to a nine and change trade
Speaker 1: and pour economy and lost a lot of jobs in
Speaker 1: the meantime. And I just don't think that our our data,
Speaker 1: particularly on jobs, gives us a good picture as to
Speaker 1: what is happening, and that if if we give up
Speaker 1: too soon, we will contribute to what I think will
Speaker 1: be permanent and irreparable damage to a big piece in
Speaker 1: our labor force. And that just takes a long time
Speaker 1: to to come back from. And I understand all the
Speaker 1: arguments against UH putting more gas into the economy through
Speaker 1: to a fiscal stimulus. But we have something that's just extraordinary,
Speaker 1: and I believe that if it falls for outside and
Speaker 1: outsized response, and I hate to see us give up
Speaker 1: too soon and missed the opportunity that that that is. Uh,
Speaker 1: here's something that we can't fully retover from except over
Speaker 1: a long period time. Right, all right, Well, our thanks
Speaker 1: to you both. Really interesting to get both your perspectives,
Speaker 1: especially as we look ahead to hear from Mr Powell.
Speaker 1: Chir Powell himself. Dr Stephen Skanky, chief economic advisor for
Speaker 1: keel point from your U. S. Treasury and White House
Speaker 1: National Security Council staff member from d C. And Jeffrey
Speaker 1: Cleveland are pale out in Los Angeles, chief economists for
Speaker 1: Peydon and Regal. This is Bloomberg Business Week with Carol
Speaker 1: Masser and Jason Kelly on Bloomberg Radio. Let's understand what
Speaker 1: he said and what impact it may have on how
Speaker 1: people think about economics and interest rates. Ira Jersey is
Speaker 1: chief US Interest rate Strategists for Bloomberg Intelligence. He done
Speaker 1: this on the phone f b I headquarters in Princeton.
Speaker 1: Yelena schletevis in US economist for Bloomberg Economics. She's in
Speaker 1: our Bloomberg Interactive broker's studio. So Elena, let me start
Speaker 1: with you. You were listening very closely you and your team.
Speaker 1: What's the most important thing? J Powell said, Well, the
Speaker 1: most important thing that they did follow through on the
Speaker 1: framework change and they were decisive in changing the language
Speaker 1: in the statement. So there was some discussion around whether
Speaker 1: they will do it now or they will wait till
Speaker 1: later in the year, and they did do it this
Speaker 1: time around, and it was a strong forward guidance, and
Speaker 1: I think that is very important. That's probably the key
Speaker 1: point here. Uh. That comes at the expense of two
Speaker 1: descents though, So there was simply not enough time between
Speaker 1: the Jackson Hole meeting and this current Effoency meeting for
Speaker 1: everybody to get into consensus. So, uh, there was some
Speaker 1: like changes in the statement that the President's kaplan and
Speaker 1: cash Carry did not like. But overall, I think that's
Speaker 1: very important that the Fed went ahead and they were
Speaker 1: nimble to change forward guidance to make it pretty clear
Speaker 1: what they are going to do boy and forward guidance.
Speaker 1: They did give us our jersey come on and out
Speaker 1: what stood out for you not just in the decision
Speaker 1: and the statement, but what we heard from J. Howell
Speaker 1: in that lengthy press conference. Yeah, so a couple of things.
Speaker 1: I mean, the press conference really didn't have anything that new.
Speaker 1: I think that he wanted to go along just because
Speaker 1: there were a lot of changes in the statement, and uh,
Speaker 1: obviously if there were more questions about the new forward guidance,
Speaker 1: he wanted to get to those. Um. You know, interesting
Speaker 1: that he continues to be asked about what does you
Speaker 1: know longer term mean, what does you know modest mean?
Speaker 1: And things like that. You know that everyone expecting the
Speaker 1: Fed to be that specific is always going to be
Speaker 1: disappointed in asking those questions. I I think going back
Speaker 1: to the sense a little bit, you know, I think
Speaker 1: I think uh, um, Robert Taplin's descent was kind of
Speaker 1: interesting and that it seemed to be a little bit hawkish,
Speaker 1: where whereas everyone else on the committee is relatively dubbish.
Speaker 1: So um, in talking to some investors on on Bloomber
Speaker 1: terminal after as J. Powell was speaking, you know, to
Speaker 1: talk about, um, you know, who's this person who thinks
Speaker 1: that they're going to hike in two a couple of
Speaker 1: times and then three more times in three that doesn't
Speaker 1: seem realistic, and it's like, well, look, it's one of
Speaker 1: seventeen people saying that they're going to hike, so, um,
Speaker 1: you know, I wouldn't take much away from that. But
Speaker 1: for the treasury market, I think this is, you know,
Speaker 1: pretty much what was expected. They were, you know, committing
Speaker 1: to keeping interest rates low for very long time and
Speaker 1: and for that, um, you know, maybe at some point
Speaker 1: the curve, the treasury yield curve, ll steepen a little bit,
Speaker 1: but that's probably more of a two event than than
Speaker 1: in the near term. So, Elena, what did we learn
Speaker 1: from j Powell about the their view of the economy.
Speaker 1: He talked a lot about employment, how they're looking at
Speaker 1: UH employment a little more holistic than just saying, hey,
Speaker 1: a bunch of people got jobs, but what jobs they
Speaker 1: got and who got those jobs. It sounded like, well,
Speaker 1: I think I agree with Ira that we did not
Speaker 1: learn that much from the press conference. I mean, the
Speaker 1: kid messages were already in the statement and in the
Speaker 1: Summari economic projections, but j PA will confirm that they
Speaker 1: are not going to move until they actually see the
Speaker 1: whites of the eyes of the inflation and until they
Speaker 1: return to full employment. So, uh, they need to see
Speaker 1: the actual changes in those two goals of the FATS.
Speaker 1: So I would say that what JPA will set in
Speaker 1: the press conference with respect to where the unemployment is
Speaker 1: is obviously very davish. Uh. They saw a lot of
Speaker 1: progress in terms of unemployment, but the level of unemployment
Speaker 1: remains extremely elevated. And he mentioned also all these people
Speaker 1: who remained out of the labor force, So if you
Speaker 1: add those to the pool of unemployed, you will see
Speaker 1: the unemployment rate is probably three percentage points higher. That's
Speaker 1: what he said. So they are looking at a whole
Speaker 1: bunch of different labor market indicators to assess the state
Speaker 1: of the labor market. Hey just quickly, guys, because we're
Speaker 1: ben a time. But Ira, are you freaked out a
Speaker 1: little bit by his statement? Are you a little bit
Speaker 1: worried a little bit more about the economic outlook as
Speaker 1: a result. So I'm not. I mean, he didn't say
Speaker 1: anything that we don't know. I mean, there is still
Speaker 1: a lot of uncertainty and it's going to take a
Speaker 1: long time for us to get back to the levels
Speaker 1: of economic activity we enjoyed in how about you, Yelena. Uh, Well,
Speaker 1: the Fed updated the forecast for We did that a
Speaker 1: few like last week, I think so. Uh. Yes, we
Speaker 1: do expect better growth based on the recent data this year,
Speaker 1: but that comes at the expense of slower growth in
Speaker 1: twenty one and two, and that is probably a result
Speaker 1: of a lot of complacency among fiscal policy makers because
Speaker 1: of this better than expected data. Right now, all right,
Speaker 1: all right, thank you both so much. We really appreciate it. Yelliness,
Speaker 1: She'll let you have a senior US economists for Bloomberg
Speaker 1: Economics and Ira Jersey, chief US interest rate strategists for
Speaker 1: Bloomberg Intelligence, Broom the journal. But you let me drive.
Speaker 1: Oh no, no, no no, no, honey, please, I'll do the
Speaker 1: right rivel. Let me. I want to drive, all just drive, baby,
Speaker 1: good questions trying. This is the drive to the globe future. Thanks,
Speaker 1: we'll try us on Bloomberg Radio. All right, it is
Speaker 1: time for the drive to the clothes. Let's turn to
Speaker 1: our pall. David Deats, President and chief investment strategists four
Speaker 1: Point View Wealth Management, joining us on the phone from summit,
Speaker 1: New Jersey. All right, David, let's do a beat on
Speaker 1: the FED. What do you what did you not hear
Speaker 1: from J Powell from an investment perspective, Well, well, certainly
Speaker 1: you have to say that the market hurts something that
Speaker 1: they weren't totally happy with. If I were to put
Speaker 1: my finger on it is they talked about keeping interest
Speaker 1: rates low as low as possible for much longer, up
Speaker 1: to potentially two thousand four. But when you looked at
Speaker 1: their economic forecast, they talked about keeping the interest rates slow.
Speaker 1: So ultimately we get not only to the two percent
Speaker 1: inflation target, but above it. In their economic forecast for
Speaker 1: this long period, they don't show inflation ever coming up
Speaker 1: to two percent. So there's some question as to whether
Speaker 1: they feel that the tools they have, even though they
Speaker 1: say they're nearly omnipotent, is gonna be enough to get
Speaker 1: us out of a very slow growth economic environment. Do
Speaker 1: you agree? You know, if there's one thing that we've
Speaker 1: learned through the pandemic and going back to the subprime crisis,
Speaker 1: is awfully difficult to make forecasts, particularly long term forecast
Speaker 1: so um, you know, as much as we love to
Speaker 1: know what's going to happen over the next three or
Speaker 1: four years, I think it's awfully difficult to tell. Why
Speaker 1: would that be, Carroll, I mean We're just part of
Speaker 1: a global economy. A lot of things going on in China,
Speaker 1: Europe and so forth affects up to half the revenues
Speaker 1: of the SMPI. You may have a change in administration,
Speaker 1: maybe not just the White House, but potentially the Senate
Speaker 1: to what changes will that bring and how will that
Speaker 1: affect the economy. And then finally, the big eight hundred
Speaker 1: pound guerilla Jason Carroll is COVID. When will people feel
Speaker 1: safe to get back on an airplane they have full
Speaker 1: capacity in a restaurant. I don't think anyone has a
Speaker 1: crystal ball on exactly how that's going to play out. Well,
Speaker 1: and based on a call I had with someone who
Speaker 1: works with all of the big publicly health companies this morning,
Speaker 1: you know she's finding I'm not going to have to
Speaker 1: get on meetings with with a lot of folks going forward.
Speaker 1: You just it's it's kind of a waste of time,
Speaker 1: and you realize you don't have to have face to
Speaker 1: face for everything, and you lose time in the process. Well,
Speaker 1: in speaking of which is a headline crossings Boomberg right
Speaker 1: now courtesy of Dow Jones. Deutsche Bank to let its
Speaker 1: US staff stay home until mid That is cutting against
Speaker 1: what we've been hearing from a lot of Wall Street
Speaker 1: over the past couple of days here. But I I,
Speaker 1: you know, these are the big banks, but I don't
Speaker 1: know necessarily, I feel like Deutsche Banks kind of in
Speaker 1: its own little world. They've been in their own little
Speaker 1: world of hurt for the past few years. But that's
Speaker 1: a whole other story. So, David diets, as we look
Speaker 1: across the landscape here and we think about names that
Speaker 1: you like, one that you shared with us that I
Speaker 1: want to hear more about a lot is Intel, because
Speaker 1: it has been an unloved chip maker, especially Visa, VI,
Speaker 1: Nvidia and others. Sure, absolutely, so we love tech in
Speaker 1: terms of it's the way of a few. You're the
Speaker 1: secular tail in behind it. But what we are cautious
Speaker 1: about some of the valuations. I mean, we're studying here
Speaker 1: where Apple is bigger than the Russell two thousand is
Speaker 1: bigger than the UK dot market, and yet you know,
Speaker 1: I don't know whether we're gonna be using an iPhone
Speaker 1: in the next five to ten years. So but we
Speaker 1: still believe that tech will make a difference. I'm just
Speaker 1: not sure how what I like about Intel is is
Speaker 1: a chip maker involved in artificial intelligence, autonomous driving UM,
Speaker 1: the Internet of Things, anything you can think of with tech.
Speaker 1: Intel is working on solutions in terms of the chips
Speaker 1: and semiconductors that you would use UM. Yet you still
Speaker 1: have a reasonable valuation. You've got a dividend. So it
Speaker 1: seems to me that we could have a situation where
Speaker 1: people get a little nervous on some of the nose
Speaker 1: evaluation on some of the text. But say I need
Speaker 1: to stay in my space. Intel is your ticket at
Speaker 1: that decent dividend, that decent valuation, good management. Uh in
Speaker 1: the TAO seems like a good spot here. All right,
Speaker 1: Wells Fargo, talk to me about that one, David, Um,
Speaker 1: it's down. You're along a Wells fargable. I love it
Speaker 1: when you talk to WFC and I will say, I
Speaker 1: think Charlie Sharf is shaking things up there. So you
Speaker 1: put your finger on it, Carol. I mean, he finally
Speaker 1: brought someone in from the outside. He had a great
Speaker 1: record of bank in New York. He came in and
Speaker 1: he doesn't have those established you know, alliances and loyalties.
Speaker 1: He he wasn't responsible for any of the bad decisions.
Speaker 1: So I think he's got a much freer hand to
Speaker 1: start cutting costs, to make the tough decision. I mean,
Speaker 1: you've got the franchise coast to coast, you're not involved
Speaker 1: in risk your trading, you're involved in middle market lending,
Speaker 1: nuts and bolts, mortgages and so forth. Um, so you've
Speaker 1: got the economy's of scale. You are now below book value.
Speaker 1: And I think you've got a man here who has
Speaker 1: said point blank we're gonna be chopping costs. And if
Speaker 1: you can just get the costs down, and then of
Speaker 1: course a little tail wind behind the banks would be
Speaker 1: that maybe Mr Paul doesn't have the forecast right, the
Speaker 1: inflation will perk up a little faster than these forecasts
Speaker 1: interest rates come up. That would be manner from heaven
Speaker 1: for the banks so wells Fargo, I think is an
Speaker 1: interesting situation for cost cutting and ultimately take at some
Speaker 1: point where the banks take the baton from some of
Speaker 1: these nosebleed texts. Another excuse me another name Right in
Speaker 1: the middle of everything we're talking about is it relates
Speaker 1: to the pandemic and also a lot of focus on
Speaker 1: our health as I cough is. CBS talked to us
Speaker 1: about that one dude, So I love CBS is the
Speaker 1: duopoly with walled grains in terms of drug stores coast
Speaker 1: to coast. I do believe that at some point a
Speaker 1: vaccine will emerge where we're gonna get it. Not everyone's
Speaker 1: gonna be able to get into their primary physician, and
Speaker 1: I think people are going to be going to CBS
Speaker 1: and drug stores like that. And of course I think
Speaker 1: they're expanding their operations to have more than just products
Speaker 1: but also services healthcare practitioners. But it's more than that
Speaker 1: because they've recently executed a merger with Etna's just kind
Speaker 1: of a one stop shoping. You get your health insurance,
Speaker 1: you can get your prescriptions. Of course they have a
Speaker 1: great pharmacy benefit managers. Meanwhile, the stock is show us
Speaker 1: playing cheap at under ten times earnings with its dividend
Speaker 1: above three. You want to be in healthcare. This seems
Speaker 1: to be something that's been overlooked recently. And once that
Speaker 1: vaccine comes out, I think people can be paying more
Speaker 1: attention to who's going to be providing those vaccines. And
Speaker 1: just got about a minute or so left here, Tyson Foods,
Speaker 1: what's to deal with that one? So we love companies
Speaker 1: that kind of dominate their space. So they're like number
Speaker 1: one in port production, number one in chicken production. We
Speaker 1: know the whole world wants more protein and so forth.
Speaker 1: Tyson has been knocked down off of its perch because
Speaker 1: unfortunately some of the working conditions were just fertile hotbeds
Speaker 1: for COVID exposure. So all the meat producers got knocked
Speaker 1: down on that. But eventually again we will have a vaccine.
Speaker 1: What I also like about Tyson Foods is they're moving
Speaker 1: into higher value products, so they're not just giving you
Speaker 1: commodity meat, but they're putting it into you know, branded
Speaker 1: Jimmy Dean's and things like that, branded products where people
Speaker 1: will pay a higher margin for a Jimmy Dean's product
Speaker 1: as opposed to a brand extra product. And so uh,
Speaker 1: largest in the space, good dividend, low valuation, and of
Speaker 1: course I don't think that's gonna be made moved by
Speaker 1: e commerce. All right, David, Dee, it's really good to
Speaker 1: catch up with you. Thank you so much, and great
Speaker 1: feed analysis, and we love talking names. David Deats is
Speaker 1: president and chief investment strategist for Point View Wealth Management,
Speaker 1: overseeing about seven point three billion dollars joining us on
Speaker 1: the phone from Summit, New Jersey. Thanks so much for
Speaker 1: listening to Bloomberg Business Week. Download the podcast on itune,
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