1
00:00:00,320 --> 00:00:04,160
Speaker 1: Who you put your trust in matters. Investors have put

2
00:00:04,200 --> 00:00:07,640
Speaker 1: their trust in independent registered investment advisors to the tune

3
00:00:07,640 --> 00:00:12,240
Speaker 1: of four trillion dollars. Why learn more and find your

4
00:00:12,240 --> 00:00:27,240
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

5
00:00:27,280 --> 00:00:31,320
Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring

6
00:00:31,360 --> 00:00:35,280
Speaker 1: you insight from the best in economics, finance, investment, and

7
00:00:35,360 --> 00:00:41,519
Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com,

8
00:00:41,560 --> 00:00:48,640
Speaker 1: and of course on the Bloomberg Well. The big bet is,

9
00:00:48,760 --> 00:00:52,479
Speaker 1: of course on the central bank trade these days, and

10
00:00:52,520 --> 00:00:55,840
Speaker 1: the bet has been that ever more stimulus will be

11
00:00:55,880 --> 00:00:58,920
Speaker 1: coming our way. Now the Fed ready to meet next week,

12
00:00:59,000 --> 00:01:02,840
Speaker 1: seems to be leaning the other direction. Ellen Zentner is

13
00:01:02,920 --> 00:01:05,920
Speaker 1: the chief US econist at Morgan Stanley, and she's been

14
00:01:06,040 --> 00:01:08,800
Speaker 1: nice enough coming at this early hour tell us that

15
00:01:09,240 --> 00:01:13,040
Speaker 1: she predicted this all along. Yeah, it's not nice to gloat, Mike,

16
00:01:13,840 --> 00:01:16,080
Speaker 1: but Tom's doing here. You can gloat. It's okay, good,

17
00:01:16,160 --> 00:01:19,039
Speaker 1: good good, because he would tamp that down quickly. But

18
00:01:19,160 --> 00:01:22,240
Speaker 1: I think you know, even we have to acknowledge, or

19
00:01:22,240 --> 00:01:24,480
Speaker 1: have had to acknowledge over the past couple of weeks

20
00:01:24,480 --> 00:01:27,600
Speaker 1: that the probability of a December rate hike has risen.

21
00:01:27,640 --> 00:01:30,240
Speaker 1: I mean, the rhetoric was clearly moving in that direction.

22
00:01:30,640 --> 00:01:33,760
Speaker 1: Policymakers feeling more comfortable with the progress they're making on

23
00:01:33,800 --> 00:01:37,160
Speaker 1: their mandates. They're getting stir crazy. They don't like going

24
00:01:37,160 --> 00:01:39,959
Speaker 1: a full year without hiking rates. Certainly that was not

25
00:01:40,000 --> 00:01:44,000
Speaker 1: the definition of gradual they had in mind. Um Yet

26
00:01:44,040 --> 00:01:46,360
Speaker 1: the data in just the past week, and Janet Allen

27
00:01:46,400 --> 00:01:48,880
Speaker 1: said that to the extent that the data continue to

28
00:01:48,920 --> 00:01:53,040
Speaker 1: confirm the outlook, another rate hike could be warranted. But

29
00:01:53,520 --> 00:01:56,520
Speaker 1: the data looks pretty questionable going into this meeting, and

30
00:01:56,760 --> 00:01:59,480
Speaker 1: unfortunate timing going into the September meeting. But I think

31
00:01:59,520 --> 00:02:02,400
Speaker 1: markets are right to have lowered the probability that they

32
00:02:02,600 --> 00:02:05,840
Speaker 1: hike in September. Your call has been no move until

33
00:02:06,000 --> 00:02:09,960
Speaker 1: two thousand seventeen. Everybody focuses on that. The FED folks

34
00:02:09,960 --> 00:02:12,280
Speaker 1: out in Jackson Hole, we're all saying that's the wrong

35
00:02:12,280 --> 00:02:14,520
Speaker 1: way to look at it. It doesn't matter when we

36
00:02:15,040 --> 00:02:18,360
Speaker 1: raise rates unless we wait forever. But it's the path,

37
00:02:18,720 --> 00:02:21,920
Speaker 1: it's the it's the how fast we get to where

38
00:02:21,919 --> 00:02:26,160
Speaker 1: we're going that really should matter to the economy and

39
00:02:26,200 --> 00:02:29,080
Speaker 1: to bond mark well, and they're absolutely right. UM. And

40
00:02:29,120 --> 00:02:31,920
Speaker 1: I've spent a good deal of time with our clients

41
00:02:31,919 --> 00:02:35,519
Speaker 1: and emerging markets uh a few weeks ago. UM and

42
00:02:35,639 --> 00:02:38,640
Speaker 1: emerging markets are are laser focused on what the FED does,

43
00:02:38,840 --> 00:02:43,640
Speaker 1: and they're not necessarily uh nervous about an imminent hike

44
00:02:44,280 --> 00:02:46,160
Speaker 1: if it comes with a promise that the FED is

45
00:02:46,160 --> 00:02:49,560
Speaker 1: not tone deaf and the path will be lower, slower

46
00:02:50,080 --> 00:02:52,360
Speaker 1: to a lower end game, if you will. And I

47
00:02:52,400 --> 00:02:55,040
Speaker 1: think that the FED will start to set up for

48
00:02:55,120 --> 00:02:58,840
Speaker 1: that UM at this September meeting. I think we not

49
00:02:58,960 --> 00:03:01,760
Speaker 1: only get some mark to market of their growth forecast

50
00:03:01,840 --> 00:03:04,239
Speaker 1: this year because the poor first half is going to

51
00:03:04,320 --> 00:03:09,639
Speaker 1: pull those numbers down, but uh, several very important policy

52
00:03:09,680 --> 00:03:13,840
Speaker 1: makers have you know, been laying the ground for work

53
00:03:13,880 --> 00:03:17,880
Speaker 1: for Look, there are structural issues or persistent headwinds that

54
00:03:17,919 --> 00:03:21,720
Speaker 1: are persisting longer than we thought UM, and potential growth

55
00:03:21,840 --> 00:03:24,160
Speaker 1: is probably lower and therefore you need to lower your

56
00:03:24,240 --> 00:03:28,960
Speaker 1: associated neutral rate uh that that would be associated with

57
00:03:28,960 --> 00:03:31,240
Speaker 1: that lower potential growth, And so I think they do

58
00:03:31,400 --> 00:03:35,640
Speaker 1: show us a lower slower path. This will also be

59
00:03:35,680 --> 00:03:39,240
Speaker 1: interesting because the first time we can get twenty nineteen forecasts.

60
00:03:39,520 --> 00:03:42,120
Speaker 1: Have you even thought about twenty nine? Does anyone have

61
00:03:42,160 --> 00:03:44,240
Speaker 1: any clue what's going to happen in twenty and where

62
00:03:44,240 --> 00:03:47,520
Speaker 1: are we going? I don't know. ECB actually gave some

63
00:03:48,160 --> 00:03:51,760
Speaker 1: pretty discouraging forecast for eighteen because they had to lower

64
00:03:51,800 --> 00:03:53,720
Speaker 1: inflation was I think one point seven, but they had

65
00:03:53,720 --> 00:03:57,480
Speaker 1: to lower their growth forecasts overall. Ellen, do we just

66
00:03:57,640 --> 00:03:59,880
Speaker 1: look at the markets and if the markets don't price

67
00:04:00,000 --> 00:04:03,400
Speaker 1: in a FED hike that it means it won't happen? Well,

68
00:04:03,440 --> 00:04:06,160
Speaker 1: I think there that's always the chicken and egg question.

69
00:04:06,720 --> 00:04:09,520
Speaker 1: Uh So the FED is data dependent um and the

70
00:04:10,240 --> 00:04:12,440
Speaker 1: market is looking at the same data the FED is,

71
00:04:12,760 --> 00:04:14,880
Speaker 1: then the FED just has to be careful that they

72
00:04:14,920 --> 00:04:18,240
Speaker 1: communicate around what the data mean to them. If the

73
00:04:18,279 --> 00:04:20,520
Speaker 1: market sees the data the same way the FED does,

74
00:04:21,000 --> 00:04:24,120
Speaker 1: then it should lead market probabilities higher or lower, depending

75
00:04:24,120 --> 00:04:26,080
Speaker 1: on the EBB and flow of the data. And only

76
00:04:26,120 --> 00:04:28,159
Speaker 1: in less the market has it wrong, than does the

77
00:04:28,200 --> 00:04:32,039
Speaker 1: FED push back. And we have not seen pushback on

78
00:04:32,200 --> 00:04:34,880
Speaker 1: the low probability the market is placed on September because

79
00:04:34,880 --> 00:04:37,280
Speaker 1: the data has just not been definitive. Only half of

80
00:04:37,320 --> 00:04:40,800
Speaker 1: the members we knew from the July minutes said that

81
00:04:40,880 --> 00:04:44,240
Speaker 1: the conditions warranted another hike. The other half weren't yet convinced,

82
00:04:44,240 --> 00:04:46,839
Speaker 1: and I'm not sure that we've gotten enough data since

83
00:04:46,920 --> 00:04:49,159
Speaker 1: July to convince them to go at this meeting. Well,

84
00:04:49,320 --> 00:04:51,840
Speaker 1: you mentioned that they're getting antsy because more and more

85
00:04:51,839 --> 00:04:54,159
Speaker 1: of them are coming out and saying maybe there are

86
00:04:54,240 --> 00:04:59,160
Speaker 1: some issues with financial market distortions, but if the markets

87
00:04:59,160 --> 00:05:01,200
Speaker 1: don't let them move, they can't fix that, and it's

88
00:05:01,279 --> 00:05:04,240
Speaker 1: the market's interest for them not to move. Yeah, but

89
00:05:04,279 --> 00:05:07,039
Speaker 1: I don't think this is the markets not letting them move.

90
00:05:07,200 --> 00:05:10,360
Speaker 1: I think it's the markets have read the data correctly.

91
00:05:10,800 --> 00:05:14,600
Speaker 1: I mean, the probabilities have risen for a December hike,

92
00:05:15,120 --> 00:05:18,000
Speaker 1: and I'm not sure that they'll get to froth on

93
00:05:18,160 --> 00:05:21,600
Speaker 1: December until we get past election uncertainty. I think that

94
00:05:21,600 --> 00:05:24,640
Speaker 1: that will hold back markets betting for a rate hike

95
00:05:24,680 --> 00:05:28,040
Speaker 1: in December. But I think the markets have raised the

96
00:05:28,080 --> 00:05:30,400
Speaker 1: probability and heard the Fed that you would like to

97
00:05:30,440 --> 00:05:32,800
Speaker 1: go this year, and it's just does the data help

98
00:05:32,839 --> 00:05:35,640
Speaker 1: the Fed get that open door or not. And we

99
00:05:35,680 --> 00:05:39,400
Speaker 1: saw quite a big move in treasuries, especially the longer

100
00:05:39,800 --> 00:05:43,279
Speaker 1: maturities yesterday on the back of ECB. Do you worry

101
00:05:43,520 --> 00:05:45,960
Speaker 1: that bond traders are a little bit complacent of what

102
00:05:46,080 --> 00:05:50,800
Speaker 1: happens to Fed from now until December. I'm not so

103
00:05:50,839 --> 00:05:55,599
Speaker 1: worried about complacency for this year. I think like Dudley, UM,

104
00:05:55,880 --> 00:05:59,760
Speaker 1: I would worry about complacency of the overall path. I

105
00:05:59,760 --> 00:06:02,839
Speaker 1: mean the Fed. The Fed doesn't see eye to eye

106
00:06:02,880 --> 00:06:05,680
Speaker 1: with markets on what the future path of rates is.

107
00:06:05,720 --> 00:06:08,440
Speaker 1: The Fed has been coming down down down to the

108
00:06:08,480 --> 00:06:11,920
Speaker 1: more pessimistic view of the market in terms of how

109
00:06:12,000 --> 00:06:15,159
Speaker 1: much they can get done. But I think that's where

110
00:06:15,960 --> 00:06:18,680
Speaker 1: when Dudley talked about the markets being complacent, I think

111
00:06:18,720 --> 00:06:20,559
Speaker 1: it was more that he was talking about the path

112
00:06:20,839 --> 00:06:24,120
Speaker 1: priced in through the end of seventeen, not necessarily about

113
00:06:24,160 --> 00:06:27,040
Speaker 1: a rate hike this year. Uh. And so I think

114
00:06:27,080 --> 00:06:29,200
Speaker 1: that's more of what worries the Fed, that the market

115
00:06:29,279 --> 00:06:30,880
Speaker 1: is just never going to price in that they're going

116
00:06:30,920 --> 00:06:32,840
Speaker 1: to be able to do anymore. Yeah, but do they

117
00:06:32,880 --> 00:06:34,800
Speaker 1: have a credibility problem because they keep coming out and

118
00:06:34,880 --> 00:06:37,560
Speaker 1: saying we're getting closer to raising rates and and then

119
00:06:37,600 --> 00:06:41,479
Speaker 1: something always happens and they don't. Well, so that is

120
00:06:41,839 --> 00:06:46,480
Speaker 1: the air drawbacks their benefits and drawbacks to being data dependent. Um.

121
00:06:46,520 --> 00:06:50,080
Speaker 1: Being data dependent means that that you're naked, right, and

122
00:06:50,120 --> 00:06:55,080
Speaker 1: if the data is overwhelmingly positive. Uh. Then it's it's

123
00:06:55,120 --> 00:06:58,080
Speaker 1: obvious that that you must move in the bond market

124
00:06:58,080 --> 00:07:01,760
Speaker 1: will give you that open door because probably abilities will rise.

125
00:07:01,800 --> 00:07:05,960
Speaker 1: But it also means that anytime the data bobbles Uh,

126
00:07:06,000 --> 00:07:07,880
Speaker 1: it also is going to make it very difficult for

127
00:07:07,920 --> 00:07:11,520
Speaker 1: markets to get fraud about expecting another rate hike because

128
00:07:11,600 --> 00:07:14,600
Speaker 1: the data isn't uniformly good. I think in the slow

129
00:07:14,680 --> 00:07:19,800
Speaker 1: growth environment, data depends dependency can be very tough. Well,

130
00:07:20,040 --> 00:07:23,280
Speaker 1: you don't take very quickly that maybe at one rate

131
00:07:23,320 --> 00:07:26,000
Speaker 1: move would send a message to the markets that you

132
00:07:26,040 --> 00:07:28,680
Speaker 1: can't take us for granted. That's just not how the

133
00:07:28,680 --> 00:07:33,240
Speaker 1: FED operates, right, The Fed, uh will hike rates to

134
00:07:33,360 --> 00:07:37,960
Speaker 1: tighten financial conditions. You don't want more tightening than you

135
00:07:38,080 --> 00:07:42,760
Speaker 1: bargained for and surprising the markets in that case, well,

136
00:07:42,800 --> 00:07:45,280
Speaker 1: I think that it would just be bizarre. It would

137
00:07:45,400 --> 00:07:49,160
Speaker 1: be absolutely bizarre move that the that the Fed would

138
00:07:49,200 --> 00:07:51,880
Speaker 1: surprise markets without preparing them for a rate hike. They

139
00:07:51,880 --> 00:07:54,560
Speaker 1: would push back and basically say you're wrong, there's a

140
00:07:54,600 --> 00:07:57,240
Speaker 1: better chance that we go, and then the markets would

141
00:07:57,320 --> 00:08:00,760
Speaker 1: raise the probability ahead of the meeting. Still, she's the

142
00:08:00,880 --> 00:08:04,119
Speaker 1: chief US economist at Morgan Stanley and she's been making

143
00:08:04,120 --> 00:08:06,640
Speaker 1: the point that this is a dated dependent FED and

144
00:08:06,680 --> 00:08:10,480
Speaker 1: the data have not been good of late. But does

145
00:08:10,520 --> 00:08:13,840
Speaker 1: that mean the US economy is in trouble? Ellen, with

146
00:08:13,960 --> 00:08:16,400
Speaker 1: a disappointing jobs report and the I S M numbers

147
00:08:16,440 --> 00:08:19,480
Speaker 1: as you mentioned that didn't go so well, I wouldn't

148
00:08:19,560 --> 00:08:22,760
Speaker 1: characterize as an economy and trouble. Um. I think that

149
00:08:23,280 --> 00:08:27,240
Speaker 1: growth this year is tracking lower than expectations. It's more

150
00:08:27,240 --> 00:08:29,080
Speaker 1: in line with the ours, but we tend to be

151
00:08:29,200 --> 00:08:32,360
Speaker 1: lower than than consensus. Is certainly tracking lower than the

152
00:08:32,360 --> 00:08:36,080
Speaker 1: Fed's expectations. Um. But I think what the what the

153
00:08:36,160 --> 00:08:38,760
Speaker 1: more hawk is on the committee, let's say, could could

154
00:08:38,760 --> 00:08:42,120
Speaker 1: hold on to is you know, okay, let's shut the

155
00:08:42,120 --> 00:08:45,320
Speaker 1: door on first half growth. So it averaged around one

156
00:08:45,360 --> 00:08:49,160
Speaker 1: percent growth. There were some transitory factors in their energy

157
00:08:49,240 --> 00:08:52,040
Speaker 1: drag dollar drag that are probably coming off in the

158
00:08:52,080 --> 00:08:54,600
Speaker 1: second half to some extent. So let's just look at

159
00:08:54,679 --> 00:08:58,160
Speaker 1: third quarter tracking UH and beyond which is which is

160
00:08:58,720 --> 00:09:01,560
Speaker 1: looking pretty strong for quarter. That could get some of

161
00:09:01,600 --> 00:09:05,400
Speaker 1: the more hawkish members UH on the f O m

162
00:09:05,440 --> 00:09:09,040
Speaker 1: C to use that argument to say, let's get another

163
00:09:09,200 --> 00:09:13,080
Speaker 1: rate hike in UH this year. The data EBB and

164
00:09:13,120 --> 00:09:15,559
Speaker 1: flow right and so all we know is that over

165
00:09:15,600 --> 00:09:17,880
Speaker 1: the past week, with auto sales rolling over, is s

166
00:09:18,080 --> 00:09:23,079
Speaker 1: M s declining? Uh jobs not so great report. Um,

167
00:09:23,120 --> 00:09:25,320
Speaker 1: you know that it's just the EBB and flow. None

168
00:09:25,320 --> 00:09:27,280
Speaker 1: of that looks too good. Maybe it just means that

169
00:09:27,320 --> 00:09:32,320
Speaker 1: we started off uh spicy, to use Peter's term from

170
00:09:32,320 --> 00:09:36,360
Speaker 1: earlier on on Bloomberg surveyan surveillance. Maybe we started off

171
00:09:36,360 --> 00:09:39,360
Speaker 1: the quarter spicy and we fizzled a bit. Um. But

172
00:09:39,440 --> 00:09:41,760
Speaker 1: I certainly wouldn't call it an economy in trouble. None

173
00:09:41,800 --> 00:09:44,720
Speaker 1: of the leading indicators say that, you know, we're we're

174
00:09:44,720 --> 00:09:48,560
Speaker 1: headed south per se. It's just the economy is sluggish

175
00:09:48,600 --> 00:09:50,839
Speaker 1: and it doesn't look like it's overheating. In The inflation

176
00:09:50,920 --> 00:09:54,640
Speaker 1: data continues to run below the Fed's goal with with

177
00:09:54,960 --> 00:09:58,360
Speaker 1: very very lower, record low inflation expectations, and there's just

178
00:09:58,480 --> 00:10:02,160
Speaker 1: nothing there that that would tell me that would make

179
00:10:02,200 --> 00:10:06,760
Speaker 1: me prescribe another great hike to them. But Ellen, how

180
00:10:06,760 --> 00:10:09,960
Speaker 1: do you look at the labor market, because actually that's

181
00:10:10,040 --> 00:10:14,040
Speaker 1: pretty strong, um, you know, and and it's difficult to

182
00:10:14,040 --> 00:10:18,600
Speaker 1: reconcile lower inflation with with a strong labor market. Yeah,

183
00:10:18,640 --> 00:10:21,040
Speaker 1: so I think the labor market, um, you know, the

184
00:10:21,080 --> 00:10:24,319
Speaker 1: FEDS Labor Market Conditions Index sort of takes all the

185
00:10:24,360 --> 00:10:27,080
Speaker 1: pieces from the employment report, all the labor market data,

186
00:10:27,120 --> 00:10:29,560
Speaker 1: and puts it into one nifty index so we can say, well,

187
00:10:29,760 --> 00:10:31,640
Speaker 1: wasn't a good report or was it a bad report?

188
00:10:32,080 --> 00:10:34,560
Speaker 1: Do we say it's good just because there's headline job

189
00:10:34,640 --> 00:10:38,160
Speaker 1: growth and and the that labor Market Conditions Index has

190
00:10:38,200 --> 00:10:41,960
Speaker 1: now declined in seven of the past eight months. So

191
00:10:42,040 --> 00:10:45,760
Speaker 1: while we get strong headline job growth, the overall rate

192
00:10:45,800 --> 00:10:50,320
Speaker 1: of hiring is still very sluggish compared to the prior cycles. Uh.

193
00:10:50,559 --> 00:10:53,520
Speaker 1: You know, layoffs remain low, which are helping that net

194
00:10:53,600 --> 00:10:56,880
Speaker 1: job gain that we get each month look good. Um,

195
00:10:56,960 --> 00:10:58,880
Speaker 1: but I but I think there's still some room to

196
00:10:59,000 --> 00:11:02,120
Speaker 1: go there. But that's not what what you know rubs

197
00:11:02,200 --> 00:11:05,319
Speaker 1: policymakers the wrong way. Right. They're pretty confident on the

198
00:11:05,400 --> 00:11:08,920
Speaker 1: labor market front. They think they've been making great progress

199
00:11:08,960 --> 00:11:12,640
Speaker 1: on that front. It's the inflation front. When inflation expectations

200
00:11:12,640 --> 00:11:16,240
Speaker 1: are falling and core inflation is low, it strikes terror

201
00:11:16,320 --> 00:11:20,400
Speaker 1: in the hearts of policymakers. Every prescription they've learned, every

202
00:11:20,440 --> 00:11:23,839
Speaker 1: theory they've learned, tells them you do not touch rates

203
00:11:23,880 --> 00:11:27,720
Speaker 1: in that environment. Are the theories right. I mean seven

204
00:11:27,760 --> 00:11:33,640
Speaker 1: years on, still extraordinary stimulus rates essentially still almost zero

205
00:11:34,000 --> 00:11:38,120
Speaker 1: and there's no inflation. Why not try something different? Is

206
00:11:38,160 --> 00:11:41,200
Speaker 1: a theory that if you raise rates that instills confidence

207
00:11:41,240 --> 00:11:45,200
Speaker 1: in the economy and UH increases return on capital to businesses,

208
00:11:45,240 --> 00:11:48,160
Speaker 1: which then might invest in then you might get something else. Yeah,

209
00:11:48,200 --> 00:11:49,880
Speaker 1: but I think there's this perception that the FED just

210
00:11:50,000 --> 00:11:52,640
Speaker 1: does not want to raise rates. They want to raise rates,

211
00:11:52,640 --> 00:11:56,560
Speaker 1: but they want the conditions to warrant a rate hike um.

212
00:11:56,640 --> 00:12:00,240
Speaker 1: And with growth so sluggish, it keeps them constantly back

213
00:12:00,280 --> 00:12:02,839
Speaker 1: footed UM. And so I don't think they're going to

214
00:12:02,960 --> 00:12:06,920
Speaker 1: buy into that UM theory that you know, you raise

215
00:12:07,600 --> 00:12:10,160
Speaker 1: raise rates and and it will come. The sort of

216
00:12:10,480 --> 00:12:13,600
Speaker 1: build it and they will come theory. Um. You know.

217
00:12:13,760 --> 00:12:16,160
Speaker 1: I think what we do with policy makers oftentimes as

218
00:12:16,240 --> 00:12:19,080
Speaker 1: we give them this halo effect and we think they

219
00:12:19,120 --> 00:12:22,000
Speaker 1: just have the answers and know everything, and none of

220
00:12:22,040 --> 00:12:24,800
Speaker 1: them have practiced in the post financial crisis world. All

221
00:12:24,840 --> 00:12:27,600
Speaker 1: of them are trying to put monetary policy theory into practice,

222
00:12:27,600 --> 00:12:29,560
Speaker 1: and they're feeling their way in the sand with their

223
00:12:29,600 --> 00:12:33,120
Speaker 1: toes UH, and some of those decisions go well and

224
00:12:33,200 --> 00:12:35,280
Speaker 1: some don't. But they're just doing the best that they

225
00:12:35,320 --> 00:12:39,800
Speaker 1: can um and we've seen with Jackson Hole. You were there, Mike.

226
00:12:39,880 --> 00:12:42,880
Speaker 1: The theme at Jackson Hole was let's rethink all of this.

227
00:12:43,040 --> 00:12:46,120
Speaker 1: Maybe we need new policy frameworks. And so I think

228
00:12:46,160 --> 00:12:49,640
Speaker 1: it does niggle them that maybe this is, you know,

229
00:12:50,240 --> 00:12:53,880
Speaker 1: unprecedented times and we need unprecedented monetary policy. But policy

230
00:12:53,880 --> 00:12:57,520
Speaker 1: makers move at a glacial pace. Well unfortunately fresh for

231
00:12:57,559 --> 00:13:00,400
Speaker 1: out of time, but unfortunately having Ellen's at hern is

232
00:13:00,440 --> 00:13:03,960
Speaker 1: not unprecedented, and she will be back. But thank you

233
00:13:04,000 --> 00:13:06,240
Speaker 1: for coming in this morning. Ellen Setner is the chief

234
00:13:06,320 --> 00:13:09,000
Speaker 1: US economist at Morgan Stanley and that she has not

235
00:13:09,120 --> 00:13:13,559
Speaker 1: been someone who forecast safe FED rate move any time soon.

236
00:13:24,840 --> 00:13:28,840
Speaker 1: Let me cattell is pimco's executive vice president, keeps track

237
00:13:28,920 --> 00:13:31,240
Speaker 1: of all things politics. But let me you know where

238
00:13:31,240 --> 00:13:34,959
Speaker 1: I'm going. I absolutely we are going. We are going

239
00:13:35,000 --> 00:13:38,720
Speaker 1: to with Thursday Night Football, the opening of the football,

240
00:13:38,760 --> 00:13:41,400
Speaker 1: did you stay up and watch? I did? I did?

241
00:13:42,880 --> 00:13:44,240
Speaker 1: I was. I was debating when I was going to

242
00:13:44,320 --> 00:13:47,800
Speaker 1: wear a thirteen jersey or twenty two jersey because C J.

243
00:13:47,840 --> 00:13:51,240
Speaker 1: Anderson had a great night, but Travisan was was did

244
00:13:51,240 --> 00:13:54,160
Speaker 1: a great job and definitely exceeded expectations. I had to

245
00:13:54,280 --> 00:13:56,520
Speaker 1: I had to sleep, so I missed. I woke up

246
00:13:56,520 --> 00:14:00,160
Speaker 1: to Muhammad al Arian uh is sending me message is

247
00:14:00,160 --> 00:14:06,840
Speaker 1: going great comeback. It's like for which teams? So Denver, Broncos,

248
00:14:07,840 --> 00:14:11,160
Speaker 1: Carolina Pathers twenty. Now we have covered that. Are you

249
00:14:11,440 --> 00:14:14,240
Speaker 1: one more question? Are you satisfied with Trevor Simeon as

250
00:14:14,280 --> 00:14:18,840
Speaker 1: the Broncos replacement for Peyton Manning? I I I am,

251
00:14:18,880 --> 00:14:21,600
Speaker 1: I am. I think he again exceeded expectations. I think

252
00:14:21,600 --> 00:14:24,040
Speaker 1: he looked really good. He can also run the ball too,

253
00:14:24,120 --> 00:14:27,720
Speaker 1: So I um, I was impressed early days. But but

254
00:14:27,720 --> 00:14:30,640
Speaker 1: but definitely a good a good opening early days. And

255
00:14:30,640 --> 00:14:34,200
Speaker 1: there's a transition line for you. Um. In terms of

256
00:14:34,240 --> 00:14:38,760
Speaker 1: exceeding expectations, the Republican nominee for president seems to be

257
00:14:38,840 --> 00:14:42,560
Speaker 1: doing that right now. He has some no no discernible

258
00:14:42,640 --> 00:14:46,000
Speaker 1: foreign policy or domestic policy plans. He seems to backtrack

259
00:14:46,040 --> 00:14:49,440
Speaker 1: on all of his proposals on an almost daily basis now,

260
00:14:49,440 --> 00:14:53,280
Speaker 1: and yet has closed the gap with Hillary Clinton. What's

261
00:14:53,320 --> 00:14:56,680
Speaker 1: going on? Yeah? Seek In terms of the national pooling,

262
00:14:56,720 --> 00:15:01,520
Speaker 1: it's not necessarily surprising that the the gap has narrowed.

263
00:15:01,920 --> 00:15:06,040
Speaker 1: She had really almost a historically high post convention bounce,

264
00:15:06,200 --> 00:15:09,440
Speaker 1: and it didn't look like it was necessarily going to, um,

265
00:15:09,520 --> 00:15:12,880
Speaker 1: you know, be sustainable. I think that the question though,

266
00:15:13,000 --> 00:15:15,720
Speaker 1: is it will continue to narrow or will it plateau

267
00:15:15,840 --> 00:15:18,720
Speaker 1: around sort of a three to four percent lead, which

268
00:15:18,720 --> 00:15:20,680
Speaker 1: she has, which she has right now. I think in

269
00:15:20,680 --> 00:15:23,880
Speaker 1: addition to national polling, we're looking at state polling because

270
00:15:23,920 --> 00:15:27,480
Speaker 1: as you know, this this presidency and this race is

271
00:15:27,520 --> 00:15:30,360
Speaker 1: going to be dictated just by a number of swing states. UM.

272
00:15:30,760 --> 00:15:33,680
Speaker 1: So I think that even become more pressing, probably from

273
00:15:33,680 --> 00:15:36,320
Speaker 1: the Clinton perspective, are the recent numbers that are coming

274
00:15:36,320 --> 00:15:39,120
Speaker 1: out of Ohio and Florida. She still has commanding leads

275
00:15:39,120 --> 00:15:42,280
Speaker 1: and key swing states such as Pennsylvania and North Carolina

276
00:15:42,280 --> 00:15:45,360
Speaker 1: and Michigan. UM. But she's she's definitely gonna be focusing

277
00:15:45,400 --> 00:15:48,240
Speaker 1: on Ohio Florida because those are must wins for Trump. UM,

278
00:15:48,280 --> 00:15:50,440
Speaker 1: and she's going to try to obviously take that away

279
00:15:50,480 --> 00:15:53,600
Speaker 1: from from him. Well, somebody said, if this election is

280
00:15:53,600 --> 00:15:56,520
Speaker 1: about Donald Trump, she wins, it's about Hillary Clinton. He

281
00:15:56,560 --> 00:16:00,080
Speaker 1: could win. So what's it about right now? Yeah, And

282
00:16:00,200 --> 00:16:03,120
Speaker 1: I think you know it's um. She obviously there was

283
00:16:03,280 --> 00:16:07,000
Speaker 1: the reserve a flew of negative news around her UM.

284
00:16:07,040 --> 00:16:09,280
Speaker 1: In August she was quite quiet because she was you know,

285
00:16:09,280 --> 00:16:11,840
Speaker 1: fundraising and he and he's gotten to be, you know,

286
00:16:11,920 --> 00:16:15,040
Speaker 1: much more disciplined. I think that the next inflection point

287
00:16:15,440 --> 00:16:18,920
Speaker 1: from a market's perspective, from the public's perspective, is going

288
00:16:18,960 --> 00:16:21,720
Speaker 1: to be the debates, and the first debate is septembery.

289
00:16:22,760 --> 00:16:26,480
Speaker 1: Unlike this, you know, the recent UM forum that was

290
00:16:26,520 --> 00:16:30,080
Speaker 1: on nb on NBC, this will be a ninety minute,

291
00:16:30,200 --> 00:16:33,640
Speaker 1: uninterrupted debate where you know, the candidates will really have

292
00:16:33,760 --> 00:16:36,400
Speaker 1: to dive into two policy details. I think to your

293
00:16:36,440 --> 00:16:39,600
Speaker 1: earlier point, we haven't really seen a lot from Donald

294
00:16:39,600 --> 00:16:42,720
Speaker 1: Trump and he won't be able to sort of rely

295
00:16:42,840 --> 00:16:46,280
Speaker 1: on the commercial breaks UM or the sort of the

296
00:16:46,280 --> 00:16:49,120
Speaker 1: headlines in order to evade, you know, really serve substance

297
00:16:49,120 --> 00:16:52,080
Speaker 1: to policy questions. So I think that the next inflection

298
00:16:52,120 --> 00:16:54,320
Speaker 1: point September twenty six, and so watch them, watch the

299
00:16:54,360 --> 00:16:57,400
Speaker 1: pools after that UM and see through how they come out,

300
00:16:57,480 --> 00:17:00,000
Speaker 1: because I think that that should be much more revealing.

301
00:17:00,000 --> 00:17:02,560
Speaker 1: And then what we're seeing now Frenzy Lakwa in London

302
00:17:02,640 --> 00:17:06,880
Speaker 1: and Michael McKee in New York, Tom Keane taking a

303
00:17:06,920 --> 00:17:10,200
Speaker 1: couple of days off. Thank you for lending him your

304
00:17:10,280 --> 00:17:12,960
Speaker 1: day's friend. Very nice. I hope he's rested when he

305
00:17:13,000 --> 00:17:19,840
Speaker 1: comes back Tan, rested and ready. He's probably trying to

306
00:17:19,920 --> 00:17:23,320
Speaker 1: save his strength for the political campaign. Had sixty days

307
00:17:23,359 --> 00:17:26,480
Speaker 1: to go, and I'm sure most Americans think that's fifty

308
00:17:26,560 --> 00:17:30,320
Speaker 1: nine and a half too many. Libby Cantrill is the

309
00:17:30,440 --> 00:17:34,960
Speaker 1: executive vice president and political analyst for Pacific Investment Management Company,

310
00:17:35,000 --> 00:17:37,680
Speaker 1: and she is with us today and before the break,

311
00:17:37,720 --> 00:17:41,240
Speaker 1: Lebby we were talking about the importance of the debates,

312
00:17:42,000 --> 00:17:46,800
Speaker 1: and I wonder to a certain extent how important they

313
00:17:46,800 --> 00:17:48,879
Speaker 1: are in the sense that are there a lot of

314
00:17:48,920 --> 00:17:52,280
Speaker 1: people who are yet to be convinced who could be

315
00:17:52,320 --> 00:17:54,960
Speaker 1: maybe convinced to vote for Donald Trump? Or is his

316
00:17:55,000 --> 00:17:58,200
Speaker 1: support you know, really hard among those people who will

317
00:17:58,240 --> 00:18:00,679
Speaker 1: vote for him. And the real story is can Hillary

318
00:18:00,760 --> 00:18:04,960
Speaker 1: get her supporters out to vote? Yeah? I think that

319
00:18:04,960 --> 00:18:07,680
Speaker 1: that that's definitely a dynamic. But I also I mean

320
00:18:07,680 --> 00:18:11,000
Speaker 1: it's it's quite surprising to us given how well we

321
00:18:11,040 --> 00:18:14,400
Speaker 1: think we know these candidates, but the number of undecided

322
00:18:14,480 --> 00:18:18,679
Speaker 1: voters this election cycle is actually quite high. Just if

323
00:18:18,760 --> 00:18:21,480
Speaker 1: you look at you know, recent um compared to recent

324
00:18:21,480 --> 00:18:26,359
Speaker 1: election cycles, so ten of voters are undecided, which means

325
00:18:26,400 --> 00:18:29,359
Speaker 1: that the point could be more volatile, but that the

326
00:18:29,480 --> 00:18:32,960
Speaker 1: things like the debates actually could make quite a big difference.

327
00:18:33,000 --> 00:18:34,879
Speaker 1: So y as to me, is is this going to

328
00:18:34,920 --> 00:18:37,760
Speaker 1: be Hillary's task to try to convince some of those

329
00:18:37,760 --> 00:18:41,040
Speaker 1: maybe moderate Republicans who feel uneasy with Donald Trump to

330
00:18:41,119 --> 00:18:43,080
Speaker 1: come over and vote for her. But I think more

331
00:18:43,119 --> 00:18:45,440
Speaker 1: importantly it's going to be trying to convince those independents

332
00:18:45,440 --> 00:18:48,160
Speaker 1: who really haven't made a decision yet. Um. Even if

333
00:18:48,240 --> 00:18:50,560
Speaker 1: that that might be amazing to some of us, given

334
00:18:50,600 --> 00:18:52,960
Speaker 1: how well we feel like we know these candidates. Well,

335
00:18:53,040 --> 00:18:55,280
Speaker 1: how does it It's been a lot of talk about

336
00:18:55,359 --> 00:18:58,680
Speaker 1: Hillary working on the ground game and Donald Trump not

337
00:18:58,760 --> 00:19:01,200
Speaker 1: working on the ground game, but he had a ground game.

338
00:19:01,280 --> 00:19:04,680
Speaker 1: He hadn't had to get out the vote effort at all.

339
00:19:06,359 --> 00:19:09,800
Speaker 1: Does it really matter? Yeah, I mean that is he is.

340
00:19:10,080 --> 00:19:14,560
Speaker 1: He's definitely calling sort of conventional wisdom into question and

341
00:19:14,640 --> 00:19:18,320
Speaker 1: lots of different respects. I mean, from a ground game perspective,

342
00:19:18,359 --> 00:19:22,560
Speaker 1: from sort of a state infrastructure field office, um, registering

343
00:19:22,560 --> 00:19:25,680
Speaker 1: people to vote. I mean, he his members are really poultry.

344
00:19:25,680 --> 00:19:27,560
Speaker 1: And I think it's the latest is he has eight

345
00:19:27,680 --> 00:19:31,520
Speaker 1: eight field offices and swing states versus Hillary Clinton, who

346
00:19:31,560 --> 00:19:34,840
Speaker 1: has almost three hundred. So Um, he hasn't really built

347
00:19:34,840 --> 00:19:37,160
Speaker 1: out that state infrastructure. You know, he hadn't really done

348
00:19:37,160 --> 00:19:39,359
Speaker 1: that for the primaries either, and and Ted Cruz of

349
00:19:39,359 --> 00:19:42,359
Speaker 1: course had and that didn't really prove to be decisive.

350
00:19:42,600 --> 00:19:44,919
Speaker 1: I mean that the general elections a little bit different

351
00:19:45,320 --> 00:19:47,600
Speaker 1: because the primaries are already speaking to folks who are

352
00:19:47,640 --> 00:19:50,800
Speaker 1: already galvanized to vote, whereas you know, the general election

353
00:19:50,880 --> 00:19:53,440
Speaker 1: voters and especially some of the folks that Donald Trump

354
00:19:53,480 --> 00:19:55,880
Speaker 1: is appealing to, they may not even be registered voters,

355
00:19:55,880 --> 00:19:58,560
Speaker 1: so they this is the you know, getting them registered,

356
00:19:58,600 --> 00:20:01,240
Speaker 1: getting them to be early voter is going to maybe

357
00:20:01,280 --> 00:20:03,960
Speaker 1: even be more critical. Um, and we haven't seen him

358
00:20:04,040 --> 00:20:07,160
Speaker 1: and make those make those investments. But I think that

359
00:20:07,160 --> 00:20:11,119
Speaker 1: the lesson I have learned is you can't underestimate Donald Trump.

360
00:20:11,119 --> 00:20:13,280
Speaker 1: And I think a lot of folks who follow Washington

361
00:20:13,720 --> 00:20:16,120
Speaker 1: have you know, sort of constantly underestimated him and then

362
00:20:16,240 --> 00:20:20,359
Speaker 1: you know, have been sort of surprised. That's probably the Yeah,

363
00:20:20,359 --> 00:20:23,400
Speaker 1: that's absolutely spot on. My problem is that I'm fed

364
00:20:23,480 --> 00:20:25,920
Speaker 1: up with knowing about the candidates. I want to listen

365
00:20:25,960 --> 00:20:28,199
Speaker 1: to policy. I want to really make sure that I

366
00:20:28,320 --> 00:20:31,600
Speaker 1: understand what they're standing for. When is that going to

367
00:20:31,680 --> 00:20:35,479
Speaker 1: come through yeah, and this is really Hillary Clinton's strength,

368
00:20:35,640 --> 00:20:39,040
Speaker 1: right If you go to her website, she has policy

369
00:20:39,080 --> 00:20:41,920
Speaker 1: position papers and white papers, and she wants to talk

370
00:20:41,920 --> 00:20:44,600
Speaker 1: about the policies. I think she was getting frustrated with

371
00:20:44,640 --> 00:20:47,040
Speaker 1: Matt lower a few days ago because you know, she

372
00:20:47,080 --> 00:20:49,560
Speaker 1: didn't feel like he was allowing her to do that. Um.

373
00:20:49,640 --> 00:20:52,560
Speaker 1: Donald Trump doesn't really have a policy operation. I think

374
00:20:52,560 --> 00:20:54,760
Speaker 1: that's sort of the other thing that is used to

375
00:20:54,840 --> 00:20:57,560
Speaker 1: being conventional wisdom. UM. A lot of his folks in

376
00:20:57,600 --> 00:21:02,000
Speaker 1: his policy shops have reportedly or not work with him anymore. So. UM,

377
00:21:02,040 --> 00:21:04,600
Speaker 1: I think that the debates again will really shine a

378
00:21:04,680 --> 00:21:09,600
Speaker 1: spotlight on on potentially that deficiency. But again, don't underestimate

379
00:21:09,640 --> 00:21:11,720
Speaker 1: Donald Trump. But those are the debates are really going

380
00:21:11,720 --> 00:21:15,280
Speaker 1: to allow for the candidates to get into the details

381
00:21:15,480 --> 00:21:19,160
Speaker 1: of their policy positions. UM. And so you should hopefully

382
00:21:19,160 --> 00:21:22,960
Speaker 1: be sort of fatiated come September after the first debate,

383
00:21:23,000 --> 00:21:26,240
Speaker 1: which is on September twenty six. Libby. When I'm so,

384
00:21:26,320 --> 00:21:29,240
Speaker 1: I'm sitting here in London, how do Americans vote? We

385
00:21:29,320 --> 00:21:31,800
Speaker 1: have very strict rules in London about how much you

386
00:21:31,800 --> 00:21:34,320
Speaker 1: can spend on the campaign. When you can start campaigning

387
00:21:34,560 --> 00:21:37,879
Speaker 1: in a general election, do people in the US vote

388
00:21:37,920 --> 00:21:41,280
Speaker 1: on personality, do they vote on policy or is twenty

389
00:21:41,320 --> 00:21:44,560
Speaker 1: six team just different? Yeah, I mean it's a really

390
00:21:45,000 --> 00:21:49,280
Speaker 1: difficult thing to say. Um, you know, I think that

391
00:21:49,359 --> 00:21:53,080
Speaker 1: you know, don't underestimate Americans. Americans do care about the policies.

392
00:21:53,119 --> 00:21:56,520
Speaker 1: They don't just you know, they don't just care about personality.

393
00:21:56,600 --> 00:22:00,679
Speaker 1: But personality is important. I think one of the reasons

394
00:22:00,680 --> 00:22:05,560
Speaker 1: why George W. Bush beat Al Gore, although very very

395
00:22:05,600 --> 00:22:08,640
Speaker 1: marginally in two thousand, was because people have this perception

396
00:22:08,680 --> 00:22:11,760
Speaker 1: that George W. Bush Bush could get a beer with um. So,

397
00:22:11,840 --> 00:22:15,119
Speaker 1: you know, personality definitely matters, but people want to feel

398
00:22:15,520 --> 00:22:18,919
Speaker 1: comfortable with their commander in chief that these folks have

399
00:22:18,960 --> 00:22:22,280
Speaker 1: the nuclear codes, they're making incredibly important policy decisions through

400
00:22:22,280 --> 00:22:24,480
Speaker 1: the statement of the obvious, and that they are you

401
00:22:24,480 --> 00:22:26,800
Speaker 1: know that they know, um, they know that sort of

402
00:22:26,840 --> 00:22:29,560
Speaker 1: the policy details. So I think it's sort of a combination,

403
00:22:29,640 --> 00:22:33,879
Speaker 1: but definitely again is calling into conventional wisdom into question

404
00:22:33,920 --> 00:22:38,720
Speaker 1: for sure. Even with the questions about who's leading the

405
00:22:38,760 --> 00:22:42,439
Speaker 1: presidential race, there's seems to be a unanimity of at

406
00:22:42,520 --> 00:22:47,680
Speaker 1: least newspaper headlines suggesting that Democrats are winning the race

407
00:22:47,760 --> 00:22:50,439
Speaker 1: for the United States Senate. How do you read it

408
00:22:50,480 --> 00:22:54,560
Speaker 1: at this point? Uh, if even if Donald Trump wins,

409
00:22:54,560 --> 00:22:57,880
Speaker 1: the Democrats still have a very good chance to take

410
00:22:57,880 --> 00:23:02,040
Speaker 1: the Senate, I don't you know, I don't think so necessarily.

411
00:23:02,080 --> 00:23:05,119
Speaker 1: So the Republicans just going into this election cycles are,

412
00:23:05,200 --> 00:23:08,480
Speaker 1: regardless of the Donald Trump phenomenon, we're facing a pretty

413
00:23:08,560 --> 00:23:11,639
Speaker 1: challenging cycle of the thirty four seats up for re election,

414
00:23:11,960 --> 00:23:15,560
Speaker 1: twenty four being defended by by Republicans. Of those seven

415
00:23:15,560 --> 00:23:17,840
Speaker 1: and states that of the President Obama has won twice,

416
00:23:18,119 --> 00:23:21,320
Speaker 1: So it was going to be a difficult election cycle regardless.

417
00:23:21,359 --> 00:23:24,840
Speaker 1: But but the real vulnerable races are in swing states.

418
00:23:24,840 --> 00:23:28,040
Speaker 1: So they're in the Ohios, the Florida's, the Pennsylvania's, and

419
00:23:28,080 --> 00:23:31,760
Speaker 1: North Carolina's, the New Hampshire's, And if there is really

420
00:23:31,800 --> 00:23:35,520
Speaker 1: big turnout safe for Donald Trump in those states, then

421
00:23:35,560 --> 00:23:37,560
Speaker 1: Donald Trump will get to the White House, but likely

422
00:23:38,040 --> 00:23:40,520
Speaker 1: the Republicans will be able to retain the Senate and

423
00:23:40,680 --> 00:23:43,560
Speaker 1: vice versa. If Hillary Clinton has big turnout in those

424
00:23:43,600 --> 00:23:46,600
Speaker 1: in those swing states, then likely the Senate goes back

425
00:23:46,680 --> 00:23:49,640
Speaker 1: to being Democratic. So it's sort of you know, how

426
00:23:49,720 --> 00:23:52,800
Speaker 1: goes the White House, so goes the Senate. Um meaning

427
00:23:52,840 --> 00:23:55,000
Speaker 1: that if Donald Trump is you know, is able to

428
00:23:55,000 --> 00:23:57,680
Speaker 1: get to the White House. Uh, then they will likely

429
00:23:57,800 --> 00:24:00,199
Speaker 1: the Republicans will be able to retain the on it,

430
00:24:00,400 --> 00:24:03,160
Speaker 1: albeit with a pretty slim majority. And as Mike, you know,

431
00:24:03,640 --> 00:24:06,520
Speaker 1: the sixty vote filibuster proof majority is the most important

432
00:24:06,520 --> 00:24:08,480
Speaker 1: in the Senate, and neither party would get that. Yeah,

433
00:24:08,480 --> 00:24:11,440
Speaker 1: that's not gonna happen. What about the House. Nobody thinks

434
00:24:11,480 --> 00:24:14,480
Speaker 1: that the Republicans will lose the House. But how many

435
00:24:14,480 --> 00:24:18,040
Speaker 1: seats could they lose? Well, I think Nancy Pelosi thinks

436
00:24:17,840 --> 00:24:22,959
Speaker 1: that the Republicans just hoping. But yeah, I mean it's

437
00:24:23,119 --> 00:24:26,360
Speaker 1: it's as we've talked about, because of the congressional redistrict team,

438
00:24:26,400 --> 00:24:31,680
Speaker 1: because of the historically high Republican majority that the Republicans

439
00:24:31,800 --> 00:24:34,760
Speaker 1: enjoying the House right now, you know, very unlikely that

440
00:24:34,800 --> 00:24:36,639
Speaker 1: they lose the thirty seats that they would have to

441
00:24:36,640 --> 00:24:39,400
Speaker 1: lose in order to lose the majority. But probably you know,

442
00:24:39,520 --> 00:24:43,199
Speaker 1: losing ten, fifteen, maybe even twenty again, depending on what

443
00:24:43,280 --> 00:24:46,960
Speaker 1: the turnout is for Hillary Clinton UM is certainly feasible.

444
00:24:47,080 --> 00:24:50,400
Speaker 1: So Speaker Ryan is very likely to stay Speaker UM.

445
00:24:50,440 --> 00:24:55,440
Speaker 1: But with a smaller majority going into at this point,

446
00:24:55,840 --> 00:24:59,080
Speaker 1: we're just after Labor Day when people are supposed to

447
00:24:59,119 --> 00:25:02,000
Speaker 1: start paying at ten. Is it the debates that are

448
00:25:02,040 --> 00:25:04,680
Speaker 1: going to determine this election? You said they're really important

449
00:25:05,119 --> 00:25:08,840
Speaker 1: or could you know, could a terrorist event or something

450
00:25:08,880 --> 00:25:11,480
Speaker 1: like that really changed perceptions or do people have a

451
00:25:11,480 --> 00:25:15,040
Speaker 1: pretty good picture of who these candidates are? Yeah? Well,

452
00:25:15,080 --> 00:25:19,320
Speaker 1: I think again, just given that historically high undecided margin,

453
00:25:19,400 --> 00:25:21,360
Speaker 1: you debates are going to be important. I think other

454
00:25:21,440 --> 00:25:24,200
Speaker 1: new information that you know might come out on the

455
00:25:24,560 --> 00:25:27,720
Speaker 1: Clinton's side or the Donald Trump side for that matter, um,

456
00:25:27,920 --> 00:25:30,720
Speaker 1: might also be might also be definitive. But there's also

457
00:25:30,760 --> 00:25:33,199
Speaker 1: a chance, of course of what's you people referred to

458
00:25:33,200 --> 00:25:36,359
Speaker 1: as an October surprise, So something like you know, a

459
00:25:36,440 --> 00:25:40,200
Speaker 1: terrorist attack, or more details about the content of Sat

460
00:25:40,240 --> 00:25:43,800
Speaker 1: Hillary Clinton's emails, or you know, more revelations about SAT

461
00:25:43,800 --> 00:25:46,439
Speaker 1: Donald Trump's connection to you know, alleged connection to Russia

462
00:25:46,480 --> 00:25:48,920
Speaker 1: or what have you. So, um, you know, things like that.

463
00:25:49,040 --> 00:25:53,359
Speaker 1: I think, just again, given this unconventional nature of this election,

464
00:25:53,760 --> 00:25:57,760
Speaker 1: that could actually you know, move move voters. Um, So

465
00:25:58,080 --> 00:26:01,560
Speaker 1: pay attention to the polling right after Kember, after those

466
00:26:01,640 --> 00:26:05,159
Speaker 1: that that crucial first debate October night, October nine, or

467
00:26:05,200 --> 00:26:07,639
Speaker 1: the other dates of the debate so those are going

468
00:26:07,680 --> 00:26:10,800
Speaker 1: to also be important. But then again, pay attention to

469
00:26:10,840 --> 00:26:13,000
Speaker 1: the swing state pulling because that's going to be really

470
00:26:13,040 --> 00:26:16,359
Speaker 1: ultimately definitive um of the outcome of the White House.

471
00:26:17,040 --> 00:26:19,159
Speaker 1: And as Libby would tell you, pay attention to the

472
00:26:19,160 --> 00:26:22,760
Speaker 1: Denver Broncos this year after last night's big comeback with

473
00:26:23,000 --> 00:26:25,560
Speaker 1: let me cancel from Pipco, thank you very much, our

474
00:26:25,960 --> 00:26:30,920
Speaker 1: political analysts and Denver Broncos football atatist. Fran doesn't know that,

475
00:26:30,960 --> 00:26:36,040
Speaker 1: but she she has a side job. Fran. Who you

476
00:26:36,080 --> 00:26:39,960
Speaker 1: put your trust in matters. Investors have put their trust

477
00:26:40,000 --> 00:26:43,320
Speaker 1: in independent registered investment advisors to the tune of four

478
00:26:43,480 --> 00:26:47,959
Speaker 1: trillion dollars. Why they see their role is to serve,

479
00:26:48,400 --> 00:26:51,679
Speaker 1: not sell. That's why Charles Schwab is committed to the

480
00:26:51,680 --> 00:26:56,360
Speaker 1: success of over seven thousand independent financial advisors who passionately

481
00:26:56,440 --> 00:27:00,800
Speaker 1: dedicate themselves to helping people achieve their financial goals. Learn

482
00:27:00,880 --> 00:27:09,560
Speaker 1: more and find your independent advisor dot com. We were

483
00:27:09,600 --> 00:27:13,000
Speaker 1: sailing on with losses inequities, but not much movement in

484
00:27:13,080 --> 00:27:16,840
Speaker 1: the bond market until Eric Rosenren, the president of the

485
00:27:16,880 --> 00:27:20,480
Speaker 1: Boston FED, came up with his hawkish comments. This is

486
00:27:20,480 --> 00:27:23,000
Speaker 1: a man who had been on the dovish side of

487
00:27:23,000 --> 00:27:25,399
Speaker 1: the ledger for quite some time, but now suggests that

488
00:27:25,440 --> 00:27:28,879
Speaker 1: the FED is in danger of falling behind the curve because,

489
00:27:28,960 --> 00:27:34,199
Speaker 1: in his words, we may already be beyond full employment.

490
00:27:34,680 --> 00:27:38,520
Speaker 1: Gary Stern is the former president of the Minneapolis Fed,

491
00:27:38,600 --> 00:27:41,960
Speaker 1: and Gary, this seems like quite a turnaround for a

492
00:27:42,040 --> 00:27:44,399
Speaker 1: FED Bank president. Did you ever find yourself in a

493
00:27:44,440 --> 00:27:48,480
Speaker 1: situation where um, Although I'm told reliably he did not

494
00:27:48,680 --> 00:27:51,040
Speaker 1: actually say it, but the famous quote from John Maynard

495
00:27:51,119 --> 00:27:54,160
Speaker 1: Ken's of when the facts change, I changed my mind,

496
00:27:54,800 --> 00:27:58,399
Speaker 1: where the the economic facts changed, and shortly before a

497
00:27:58,440 --> 00:28:03,959
Speaker 1: meeting you suddenly found yourself rethinking your your beliefs. Um.

498
00:28:03,960 --> 00:28:08,000
Speaker 1: Not not that I recall to the extent that apparently

499
00:28:08,119 --> 00:28:12,359
Speaker 1: Eric Rosengren has reassessed the situation. Uh. And I'm a

500
00:28:12,400 --> 00:28:16,400
Speaker 1: bit surprised, not because I think we have to try

501
00:28:16,440 --> 00:28:20,000
Speaker 1: to classify President ro rosen Grin as a hawk or

502
00:28:20,040 --> 00:28:23,159
Speaker 1: a dove, but because it seems to me the labor

503
00:28:23,200 --> 00:28:27,600
Speaker 1: market has been reasonably strong for a sustained period of time,

504
00:28:28,200 --> 00:28:31,479
Speaker 1: and so I don't understand why you would, you know,

505
00:28:31,800 --> 00:28:35,800
Speaker 1: belatedly come to the conclusion that perhaps we're at or

506
00:28:35,840 --> 00:28:40,120
Speaker 1: maybe even beyond full employment. Uh. We've we've had very

507
00:28:40,120 --> 00:28:45,080
Speaker 1: substantial employment gains on average for several years now. Uh.

508
00:28:45,280 --> 00:28:49,360
Speaker 1: If you look around the country, there are many labor markets,

509
00:28:49,400 --> 00:28:52,720
Speaker 1: not at all, but many labor markets where anyone who

510
00:28:52,760 --> 00:28:56,120
Speaker 1: wants a job can have one. May not be you know,

511
00:28:56,240 --> 00:28:58,800
Speaker 1: their dream job, or they may not get paid as

512
00:28:58,880 --> 00:29:02,000
Speaker 1: much as they think they ought to, but in many markets,

513
00:29:02,040 --> 00:29:04,200
Speaker 1: if you want a job, you can have one. I

514
00:29:04,240 --> 00:29:08,080
Speaker 1: think that's been the case for some time. Uh. So

515
00:29:08,400 --> 00:29:10,640
Speaker 1: you know something in ways much of this is to

516
00:29:10,720 --> 00:29:14,720
Speaker 1: me anyway, is is not news? Um? Now, of course,

517
00:29:14,760 --> 00:29:17,960
Speaker 1: you you know, you can get surprised if you get

518
00:29:17,960 --> 00:29:22,880
Speaker 1: a major departure. Uh. For example, you know, if consumer

519
00:29:22,920 --> 00:29:25,960
Speaker 1: spending seems to be trending up and you get one

520
00:29:26,080 --> 00:29:30,320
Speaker 1: or two months of consecutive months of weakness, that that

521
00:29:30,400 --> 00:29:33,840
Speaker 1: could force you to change your views pretty quickly. But

522
00:29:33,960 --> 00:29:36,360
Speaker 1: in this case, as I said, the labor market seems

523
00:29:36,400 --> 00:29:41,480
Speaker 1: to have been consistently healthy for an extended period of time. So, Gary,

524
00:29:41,520 --> 00:29:44,400
Speaker 1: does that mean if you had to vote on September

525
00:29:44,440 --> 00:29:49,680
Speaker 1: twenty one, would you vote for a hike? Yes? I would, uh,

526
00:29:49,920 --> 00:29:54,200
Speaker 1: because I for the reasons I basically expressed, Uh, I

527
00:29:54,240 --> 00:29:58,280
Speaker 1: think the economy is fundamentally sound. I think we're certainly

528
00:29:58,360 --> 00:30:02,000
Speaker 1: close to full cloiment, and the employment gains have been

529
00:30:02,040 --> 00:30:05,040
Speaker 1: substantial over time. And you know the other part of

530
00:30:05,080 --> 00:30:08,640
Speaker 1: the FED mandate is price stability, and that too has

531
00:30:08,680 --> 00:30:11,800
Speaker 1: been achieved. So the question seems to me to be

532
00:30:12,360 --> 00:30:16,520
Speaker 1: what what how do we conduct policy from here uh

533
00:30:16,560 --> 00:30:21,200
Speaker 1: to sustain our accomplishments. But wage inflation is not as

534
00:30:21,240 --> 00:30:25,400
Speaker 1: strong as people were expecting, and I guess the question

535
00:30:25,480 --> 00:30:28,560
Speaker 1: should be, do you fear that the UK the US

536
00:30:28,600 --> 00:30:32,800
Speaker 1: economy overheats if you don't hike in September? I don't think.

537
00:30:33,160 --> 00:30:36,160
Speaker 1: I don't think overheating is imminent by any stretch of

538
00:30:36,160 --> 00:30:39,840
Speaker 1: the imagination. And that's why the FED, you know, still

539
00:30:39,920 --> 00:30:44,360
Speaker 1: does have some leeway with regard to timing UM. And

540
00:30:44,480 --> 00:30:48,120
Speaker 1: I agree with with the observation that that perhaps wage

541
00:30:48,240 --> 00:30:51,960
Speaker 1: inflation has not been as rapid as one might have

542
00:30:52,120 --> 00:30:56,240
Speaker 1: expected given the state of the labor market. But I

543
00:30:56,240 --> 00:31:01,040
Speaker 1: would be a little cautious about emphasizing that, because UH,

544
00:31:01,080 --> 00:31:05,920
Speaker 1: the idea of cost push inflation was very popular in

545
00:31:05,960 --> 00:31:11,520
Speaker 1: the nineties seventies, it was subsequently, I would say, fully discredited.

546
00:31:12,480 --> 00:31:15,520
Speaker 1: I don't think I would put special emphasis on what's

547
00:31:15,560 --> 00:31:20,560
Speaker 1: happening to wages or broader measures of compensation, and try

548
00:31:20,640 --> 00:31:25,120
Speaker 1: to conclude how how inflation is likely to perform. I

549
00:31:25,200 --> 00:31:29,760
Speaker 1: think ultimately what happens to inflation is up to central banks, UH,

550
00:31:29,800 --> 00:31:33,680
Speaker 1: the Federal Reserve, the europe European Central Bank, the Bank

551
00:31:33,720 --> 00:31:40,320
Speaker 1: of Japan, and so forth. And UH, compensation is obviously

552
00:31:40,360 --> 00:31:45,960
Speaker 1: important because it's an ingredient in consumers ability to purchase

553
00:31:46,000 --> 00:31:48,720
Speaker 1: goods and services. I don't think it's so important when

554
00:31:48,720 --> 00:31:52,000
Speaker 1: it comes to inflation. UH. We are speaking with Gary's during,

555
00:31:52,000 --> 00:31:56,440
Speaker 1: the former Minneapolis Fed Bank president, and we're talking about

556
00:31:57,160 --> 00:31:59,880
Speaker 1: how the Fed seemed to be setting us up for

557
00:32:00,000 --> 00:32:03,000
Speaker 1: a rate increase Jenny Yellen, Stanley Fisher out in Jackson Holme.

558
00:32:03,040 --> 00:32:06,000
Speaker 1: Then along came the August payrolls report. And I wonder

559
00:32:06,200 --> 00:32:09,720
Speaker 1: if you can have too much data dependence or you

560
00:32:09,760 --> 00:32:13,920
Speaker 1: pay too much attention to the markets, Gary, because it

561
00:32:14,000 --> 00:32:16,640
Speaker 1: seems like the minute you get a bad economic report,

562
00:32:16,680 --> 00:32:19,080
Speaker 1: the markets say the Fed is not going to raise

563
00:32:19,200 --> 00:32:24,200
Speaker 1: rates of futures, odds go way down, and then everybody

564
00:32:24,200 --> 00:32:27,000
Speaker 1: writes off the feed and they back off. Well, there

565
00:32:27,000 --> 00:32:30,400
Speaker 1: does seem to be some circularity to that along the

566
00:32:30,440 --> 00:32:34,480
Speaker 1: lines you're described, but you know, the fet is. I

567
00:32:34,520 --> 00:32:37,040
Speaker 1: think it goes beyond that. The fet is a fundamentally

568
00:32:37,120 --> 00:32:42,760
Speaker 1: cautious organization. They don't they don't make an effort to,

569
00:32:43,040 --> 00:32:45,760
Speaker 1: you know, try to get out in front of things

570
00:32:45,840 --> 00:32:50,800
Speaker 1: or surprise people when unless they have to. So I

571
00:32:50,840 --> 00:32:53,600
Speaker 1: think that, and I think that inherent caution has served

572
00:32:53,720 --> 00:32:56,520
Speaker 1: the institution and has served the country well over time.

573
00:32:56,840 --> 00:32:59,440
Speaker 1: So I'm not being critical of that, but I think

574
00:32:59,480 --> 00:33:02,880
Speaker 1: they have out in themselves today to a point where

575
00:33:03,760 --> 00:33:06,320
Speaker 1: data dependence has put them in a bit of a

576
00:33:06,360 --> 00:33:09,760
Speaker 1: strait jacket. And it's because the data are in some

577
00:33:09,840 --> 00:33:13,440
Speaker 1: sense inherently erratic. And I'm not talking about revisions on

578
00:33:13,520 --> 00:33:15,800
Speaker 1: a month to month basis. I'm just talking about the

579
00:33:15,880 --> 00:33:19,280
Speaker 1: nature of the incoming data. You know, in any given month,

580
00:33:19,880 --> 00:33:23,520
Speaker 1: you might get a strong employment report, a good housing report,

581
00:33:23,560 --> 00:33:27,280
Speaker 1: a mediocre report on consumer spending, and a week report

582
00:33:27,360 --> 00:33:30,320
Speaker 1: on durable goods orders or something. Okay, what are you

583
00:33:30,360 --> 00:33:32,880
Speaker 1: to do with all that? Gary Stern is with us

584
00:33:32,920 --> 00:33:36,160
Speaker 1: from the Minneapolis Fed, And Gary, I will go back

585
00:33:36,160 --> 00:33:39,200
Speaker 1: to what I was saying about the markets, and there's

586
00:33:39,240 --> 00:33:41,800
Speaker 1: a perception that the FED is being sort of led

587
00:33:41,840 --> 00:33:46,080
Speaker 1: around by the markets these days. Yeah, I think there

588
00:33:46,200 --> 00:33:49,080
Speaker 1: is that perception. I think you're you're right about that.

589
00:33:49,240 --> 00:33:52,080
Speaker 1: I and there may be there may be some truth

590
00:33:52,120 --> 00:33:55,000
Speaker 1: to it, but I suspect that's exaggerated. I think what

591
00:33:55,080 --> 00:33:59,200
Speaker 1: the FED is being led around by UH is it's

592
00:34:00,120 --> 00:34:03,720
Speaker 1: so called data dependency, and they really are, as best

593
00:34:03,760 --> 00:34:08,520
Speaker 1: I can judge, dedicated to that. And it seems to

594
00:34:08,520 --> 00:34:11,920
Speaker 1: me that you know that inherently puts them in a

595
00:34:11,920 --> 00:34:14,040
Speaker 1: bit of a strait jacket because of the nature of

596
00:34:14,120 --> 00:34:18,040
Speaker 1: the data, which are always almost always mixed, by which

597
00:34:18,080 --> 00:34:21,520
Speaker 1: I mean some series come in strongly in any given months,

598
00:34:21,560 --> 00:34:24,920
Speaker 1: Some series come in UH give you a week reading,

599
00:34:25,000 --> 00:34:27,880
Speaker 1: some come in kind of mediocre. I don't know what

600
00:34:27,920 --> 00:34:30,200
Speaker 1: to what you make of that if you're a policymaker.

601
00:34:30,920 --> 00:34:33,719
Speaker 1: UM Sometimes, as we saw the last few months in

602
00:34:33,719 --> 00:34:36,960
Speaker 1: the labor market, very strong gains in June and July,

603
00:34:37,160 --> 00:34:41,120
Speaker 1: and then a game that was satisfactory in my view,

604
00:34:41,160 --> 00:34:45,200
Speaker 1: but below expectations for August, and that you know that

605
00:34:45,320 --> 00:34:48,920
Speaker 1: seems to have affected market participants, but it also seems

606
00:34:48,920 --> 00:34:53,200
Speaker 1: to have affected FED policymakers, and and I think the

607
00:34:53,320 --> 00:34:57,759
Speaker 1: FED needs to find a way to get beyond the

608
00:34:57,760 --> 00:35:00,560
Speaker 1: strait jacket that seems to be being in posed by

609
00:35:00,640 --> 00:35:04,160
Speaker 1: data dependence. Uh. And I think I don't think it's

610
00:35:04,200 --> 00:35:07,080
Speaker 1: impossible to do that, but I think it takes some

611
00:35:07,400 --> 00:35:10,080
Speaker 1: thought and some effort to do that at some communication

612
00:35:10,680 --> 00:35:14,120
Speaker 1: with market participants as well. Gary, So you made your

613
00:35:14,120 --> 00:35:16,840
Speaker 1: point very clear. You want the FED to gradually tighten

614
00:35:17,000 --> 00:35:21,200
Speaker 1: starting from September. Do you not worry about dollar strength? No?

615
00:35:21,440 --> 00:35:23,919
Speaker 1: I mean it's obviously there could be that there could

616
00:35:23,960 --> 00:35:27,000
Speaker 1: be further dollar strength coming from that, although you might

617
00:35:27,080 --> 00:35:28,879
Speaker 1: argue that a lot of that is priced in one

618
00:35:28,920 --> 00:35:32,839
Speaker 1: way or another, hard to hard to know in advance. Um,

619
00:35:32,920 --> 00:35:37,000
Speaker 1: but let's suppose that the dollar does strength other things equal, Uh,

620
00:35:37,040 --> 00:35:41,000
Speaker 1: that would uh slow the pace of economic activity in

621
00:35:41,040 --> 00:35:44,799
Speaker 1: the US. But it wouldn't, my judgment be profound. After all,

622
00:35:44,840 --> 00:35:48,160
Speaker 1: the US, of all the major economies, is probably the

623
00:35:48,239 --> 00:35:53,680
Speaker 1: least dependent on foreign trade exports or imports. And and

624
00:35:53,719 --> 00:35:59,279
Speaker 1: so I wouldn't exaggerate the consequences of further strengthening of

625
00:35:59,320 --> 00:36:01,239
Speaker 1: the dollar. And as I said, some of that might

626
00:36:01,239 --> 00:36:04,520
Speaker 1: be priced in. Gary Serton, former president of the New

627
00:36:04,600 --> 00:36:07,800
Speaker 1: York the Minneapolis Federal Reserve, Sorry, but I'm thinking of

628
00:36:07,880 --> 00:36:09,759
Speaker 1: Paul Volker, you know, went to Minneapolis, came back to

629
00:36:09,800 --> 00:36:13,000
Speaker 1: New York and then it ended up down in Washington.

630
00:36:13,600 --> 00:36:17,759
Speaker 1: Next week they fed meat September one and uh Scarlett food.

631
00:36:17,800 --> 00:36:20,200
Speaker 1: Tom Keene and I will have full coverage for you

632
00:36:20,360 --> 00:36:24,160
Speaker 1: of the FEDS decision and Janet Yellin's news conference beginning

633
00:36:24,200 --> 00:36:28,880
Speaker 1: at one pm UM and then the decision at two

634
00:36:28,960 --> 00:36:32,040
Speaker 1: and she will speak. The chair will speak at two thirty.

635
00:36:32,400 --> 00:36:36,400
Speaker 1: World will be paying attention. Thanks for listening to the

636
00:36:36,440 --> 00:36:42,520
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud,

637
00:36:42,840 --> 00:36:46,799
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at

638
00:36:46,840 --> 00:36:51,640
Speaker 1: Tom Keane, Michael McKee is at Economy. Before the podcast,

639
00:36:51,719 --> 00:37:00,680
Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio. Mm hmmm.

640
00:37:01,719 --> 00:37:05,560
Speaker 1: Who you put your trust in? Matters? Investors have put

641
00:37:05,600 --> 00:37:09,000
Speaker 1: their trust in independent registered investment advisors to the tune

642
00:37:09,000 --> 00:37:13,640
Speaker 1: of four trillion dollars. Why learn more and find your

643
00:37:13,640 --> 00:37:17,600
Speaker 1: independent advisor dot com