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Speaker 1: From the Bloomberg Interactive Burgers Studios. This is Bloomberg day

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Speaker 1: Break for Wednesday, May third. Coming up today, the Federal.

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Speaker 2: Reserve is expected to hike rates for a tenth straight time.

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Speaker 1: But a former Fed president said the Central Bank should

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Speaker 1: not make the move.

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Speaker 2: Regional banks remain in focus after yesterday's.

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Speaker 1: So off, and the clock is ticking for Washington to

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Speaker 1: cut a deal on the debat ceiling.

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Speaker 3: It was a loud meeting over rent increases for New

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Speaker 3: York City apartments. Plus the gunman accused of killing five

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Speaker 3: people in Cleveland, Texas is behind bars. I'm John Tucker

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Speaker 3: Moore Ahead.

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Speaker 4: I'm John stashed Aaron's boards. The next beat the heat

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Speaker 4: aside of the series and won. The Lakers won Game

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Speaker 4: one at Golden State, a much did win for the Yankees.

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Speaker 5: That's all straight ahead on Bloomberg day Break, the business

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Speaker 5: news you need to sturn your day in just one

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Speaker 5: fifteen minute podcast each morning on Apples, Spotify, the Bloomberg

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Speaker 5: Business app, and everywhere you get your podcasts.

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Speaker 2: Good morning, I'm Nathan Hager.

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Speaker 1: And I'm Karen Moscow. Here are the stories we're following today.

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Speaker 2: We begin this busy news day with a highly anticipated

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Speaker 2: FED meeting. J Powell and company are expected to raise

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Speaker 2: rates for a tenth straight time. Today we get a

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Speaker 2: preview from Bloomberg's Michael McKee.

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Speaker 6: Investors are convinced the Fed will raise rates once more

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Speaker 6: by a quarter percentage point, but after that one they're done.

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Speaker 6: They will signal rates are high enough and need to

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Speaker 6: stay there for at least the rest of the year

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Speaker 6: to ensure that inflation continues to slow. The owners for

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Speaker 6: convincing Wall Street they will follow through will fall on

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Speaker 6: Chairman J.

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Speaker 4: Powell.

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Speaker 6: Markets are pricing in two rate cuts by the end

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Speaker 6: of twenty twenty three. Powell will also get questions about

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Speaker 6: the status of the banking system and regulatory reforms the

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Speaker 6: Central Bank needs to make, and no doubt about the

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Speaker 6: debt ceiling, although that's an issue he's likely to dodge

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Speaker 6: for the time being. Michael McKee, Bloomberg Daybreak.

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Speaker 1: All right, Mike.

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Speaker 4: Thanks.

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Speaker 1: While the betting on Wall Street is for a twenty

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Speaker 1: five point raid hike, one former FED official wants a

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Speaker 1: different approach. Former Dallas Fed president Robert Kaplan tells us

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Speaker 1: rates should stay where they are.

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Speaker 7: I would prefer to do what's called the hawkish pause.

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Speaker 7: Not raise, but signal that we're in a tightening stance

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Speaker 7: because I actually think the banking situation may well be

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Speaker 7: more serious than we currently understand it.

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Speaker 1: And former Dallas FED President Robert Kaplan made the comments

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Speaker 1: in an interview with Bloomberg's Kathleen Hayes. Stay tuned for

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Speaker 1: more of that conversation coming up shortly on Bloomberg Daybreak.

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Speaker 2: Well, Karen, Kaplan's not the only one asking the Central

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Speaker 2: Bank to pause, so are a couple of lawmakers, including

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Speaker 2: Senators Elizabeth Warren and Bernie Sanders. They wrote a letter

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Speaker 2: to j Powell urging the Fed to stop hiking rates.

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Speaker 2: They cite the recent banking turmoil as a strong reason

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Speaker 2: to pause.

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Speaker 1: And Nathan that banking turmoil remains in focus again today.

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Speaker 1: US regional lenders tumbledon yesterday on fresh anxiety over financial stability.

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Speaker 1: Pac West Bancor plunged twenty seven percent, while Western Alliance

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Speaker 1: dropped fifteen percent, and both our lower again this morning.

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Speaker 1: They're down roughly two percent. PGM CEO David Hunt tells

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Speaker 1: us we have yet to feel the full impact of

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Speaker 1: the regional banking crisis.

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Speaker 8: We are actually just starting on the implications of the

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Speaker 8: banking crisis that we are now going to see a

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Speaker 8: increased regulation of banks, in particular focused on the regional

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Speaker 8: banks as you mentioned.

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Speaker 9: We're also going to.

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Speaker 8: See the result of that being a pullback in credit,

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Speaker 8: which will help of course non bank lenders, and we're

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Speaker 8: going to see more bank consolidation.

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Speaker 1: And David Hunt of pgmc's widespread fallout, but that's not

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Speaker 1: the view from Larry Summers. The former Treasury secretary tells

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Speaker 1: us the worst of the banking crisis is likely behind us.

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Speaker 10: I think that we actually are probably over the vast

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Speaker 10: majority of the banking of the banking traumas. But look,

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Speaker 10: we still have institutions that have looked vulnerable for some time,

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Speaker 10: and those are the ones that are most affected today.

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Speaker 1: Former Treasury Secretary Larry Summers made the comments in an

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Speaker 1: interview with Bloomberg's David Weston Catch that interview coming up

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Speaker 1: shortly on the program.

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Speaker 2: Well, Karen, A bigger bank is also making headlines this morning.

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Speaker 2: Morgan Stanley is in talks with US prosecutors and regulators

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Speaker 2: to resolve a probe into its block trading practices. We

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Speaker 2: get the details from Bloomberg's Doug Prisner.

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Speaker 11: The bank is currently discussing a resolution with the SEC

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Speaker 11: and the US Attorney. Previously, Morgan Stantley said the inquiries

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Speaker 11: focused on whether employees violated securities regulations by sharing or

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Speaker 11: using information on impending block trades. Now Morganstantley has discharged

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Speaker 11: two bankers. The company said the move was tied to

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Speaker 11: allegations about their communications on block trades and client activity.

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Speaker 11: Wall Street has been watching closely as prosecutors probe how

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Speaker 11: banks work with hedge funds and other buyers to privately

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Speaker 11: carry out stock sales big enough to move prices in

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Speaker 11: New York Time. Duck prisoner Bloomberg.

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Speaker 1: Gab all right, Doug, thanks man. Now let's shift to

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Speaker 1: politics and get the latest on the debt ceiling debate.

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Speaker 1: The deadline for a potential default just got a little closer,

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Speaker 1: and that means there could be a need for a

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Speaker 1: short term fix. May get the latest from Bloomberg's Amy Morris.

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Speaker 12: Between now and June first, when the Treasury could run

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Speaker 12: out of sufficient cash, President Biden and members of the

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Speaker 12: House and Senate our scheduled to be in town at

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Speaker 12: the same time for one week. That's not enough time

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Speaker 12: for the White House and lawmakers to strike a bargain

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Speaker 12: before the deadline. A short term extension is now likely,

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Speaker 12: but could force Republicans to break their promise against a

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Speaker 12: clean debt ceiling bill or force Democrats to concede, setting

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Speaker 12: a precedent before negotiations even begin. Amy Morris, Bloomberg Daybreak.

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Speaker 4: Okay, Amy, thank you.

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Speaker 2: Along with the deadline, the White House is also under

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Speaker 2: pressure over a potential migrant surge this spring. Now, the

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Speaker 2: Biden administration plans to deploy fifteen hundred members of the

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Speaker 2: US military along the Mexican border. We get that story

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Speaker 2: from Bloomberg's Ed Baxter.

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Speaker 13: The administration says there's already been a spike in migration,

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Speaker 13: and Brigadier General pad Ryder says this is a head

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Speaker 13: of an expected surge of migrants once pandemic restrictions are

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Speaker 13: lifted later this month.

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Speaker 14: For ninety days, these fifteen hundred military personnel, who will

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Speaker 14: be sourced from the active duty component, will fill critical

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Speaker 14: capability gaps such as ground based detection and monitoring.

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Speaker 13: General writer says they will not participate in law enforcement.

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Speaker 13: Immigration is expected to be a major campaign issue in

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Speaker 13: the twenty twenty four election cycle. In San Francisco. I'm

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Speaker 13: at Baxter Bloomberg Daybreak.

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Speaker 2: Time Now for a look at some of the other

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Speaker 2: stories making news in New York and around the world

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Speaker 2: with Bloomberg's John Tucker.

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Speaker 3: Good Morning, John, and Nathan, Tenna and c In New

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Speaker 3: York City's one billion rent stabilized departments are looking at

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Speaker 3: increases After a rent Guidelines Board meeting, the panel offered

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Speaker 3: rent increases of four percent to seven percent for two

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Speaker 3: year leases and two to five percent increases on one

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Speaker 3: year leases. Protesters storm the stage of the meeting, calling

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Speaker 3: for a rent rollback. This woman's spoke to ABC seven.

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Speaker 15: How could we afford out increase right now?

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Speaker 4: Marthomer, don't have no jobs well.

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Speaker 3: The rentike proposals face a final vote next month. Authorities

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Speaker 3: near Houston say they've caught a man suspended of killing

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Speaker 3: five of his neighbors with an ar style rifle. San

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Speaker 3: Jacinto County Sheriff Greg Caper says that thirty eight year

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Speaker 3: old Francisco or Pesa was arrested in connection with his

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Speaker 3: shooting in the town of Cleveland, Texas. He says Orpesa

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Speaker 3: was found hiding in the closet of a home under

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Speaker 3: a pile of laundry after investigators acted on a tip.

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Speaker 13: They effectively made the arrest. He is uninjured and he

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Speaker 13: is currently being taken to my facility in Cole Springs.

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Speaker 3: Authority to say the shooting began late Friday after the

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Speaker 3: neighbors had confronted or Pesa about firing a gun in

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Speaker 3: his yard late at night. New York City Mayor Eric

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Speaker 3: Adams once again accusing Texas Governor Greg Abbott of targeting

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Speaker 3: black mayors with buses full of migrants.

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Speaker 15: Governor Abbott sent assilunce seekers to New York, black mayor,

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Speaker 15: to Washington, black mayor, to Houston, black mayor, to Los Angeles,

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Speaker 15: black mayor to Denver black mayor. He passed over thousands

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Speaker 15: of cities to land here.

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Speaker 3: A Governor Abbitt's office says the migrants chose for themselves

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Speaker 3: which cities to travel to. Donald Trump's attorneys says the

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Speaker 3: former president will not testify at a civil trial in

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Speaker 3: New York. This comes after two women testified yesterday in

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Speaker 3: supportive writer Ejen Carroll, who claims Trump raped her in

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Speaker 3: the nineteen nineties. He has denied that it looks likely

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Speaker 3: to be a long grind for Hollywood writers who've gone

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Speaker 3: on strike to preserve pay and hang on to job security.

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Speaker 3: Members of the Writers Guild of America picketing in New

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Speaker 3: York and Los Angeles after their contract expired. It's the

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Speaker 3: first writer's strike in fifteen years. Global News twenty four

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Speaker 3: hours day powered bye more than twenty seven hundred journalists

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Speaker 3: and analyst in over one hundred and twenty countries. I'm

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Speaker 3: John Tucker, the Sea's Bloomberg Nathan.

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Speaker 4: Thank you, John.

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Speaker 2: Time out for the Bloomberg Sports Update with John stash Out.

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Speaker 4: Thanks Nathan. The Knicks lost Game one to the Heat.

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Speaker 4: Miami star Jimmy Butler didn't play Game two at the

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Speaker 4: Garden due to a sprained ankle, and yet the Knicks

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Speaker 4: trailed for most of the night. Jalen Brunson was zero

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Speaker 4: for seven on three pointers in the opener. He called

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Speaker 4: his play horrific, and he didn't play well first half

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Speaker 4: of Game two. But then Brunston came alive, as in

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Speaker 4: the left sideline cross Robinson a switch take some baseline

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Speaker 4: tries to come up pill a bit step off the

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Speaker 4: paint shotle the fat scorchch ties the game at ninety three.

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Speaker 4: Time out Miami JHN ESPN Yerk Brunston scored thirty points.

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Speaker 4: He made six three pointers. The Knicks pulled out the

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Speaker 4: game to win one to eleven.

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Speaker 9: One O five.

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Speaker 4: Julius Randall back from his ankle injury. He was terrific.

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Speaker 4: He scored twenty five with twelve rebounds in eighty SI RJ.

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Speaker 4: Barrett out at twenty four and the series is tight.

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Speaker 4: To won Game three not until Saturday in Miami. Game

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Speaker 4: one in the West, the Lakers beat Golden State for

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Speaker 4: Anthony Davis thirty points twenty three rebounds. Celtics and Sixers.

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Speaker 4: Game two tonight in Boston. Philly won the opener without

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Speaker 4: Joel Embiid and he is not expected to play tonight.

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Speaker 4: Embiid was just named NBA MVP Stanley Cup Playoffs. Florida

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Speaker 4: and Seattle both off game seven wins down the road,

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Speaker 4: and they won Game one's of Round two on the

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Speaker 4: road the Panthers in Toronto, the Kracking in Dallas and overtime.

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Speaker 4: The Devils off their game seven wins start their series

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Speaker 4: tonight at Carolina at the Stadium. Much didn't win for

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Speaker 4: the Yankees. They had dropped seven to last nine. They

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Speaker 4: trailed Cleveland two nothing came back to win four to two.

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Speaker 4: Home runs for Anthony Boll playing Willie Calhoun. The Mets

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Speaker 4: reigned out for the third time in four days. They'll

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Speaker 4: play at day night doubleheader today in Detroit. Bryce Harper's

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Speaker 4: first game for the Phillies, he went oh for four

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Speaker 4: and the loss of the Dodgers. Harper back earlier and

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Speaker 4: expected from Tommy John Surgery, johns Stashedward. Bloomberg Sports.

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Speaker 5: From coast to coast, from New York to San Francisco,

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Speaker 5: Boston to Washington, DC, nationwide on Syrias exam the Bloomberg

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Speaker 5: Business Appen Bloomberg dot Com.

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Speaker 2: This is Bloomberg Daybreak. Good morning. I'm Nathan Hager. To

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Speaker 2: hike or to pause? That is the question for the

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Speaker 2: Federal Open Market Committee, and we will find out this

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Speaker 2: afternoon what the committee does about interest rates when its

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Speaker 2: May meeting draws to a close. But opinion is divided

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Speaker 2: among leading economic voices. So let's bring those voices to

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Speaker 2: you now. In a conversation with Bloomberg's Kathleen Hayes, sherry

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Speaker 2: On and Heidi Stroud Watts, former Federal Reserve Bank of

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Speaker 2: Dallas president Robert Kaplan called for a hawkish pause amid

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Speaker 2: regional bank turmoil. Let's bring you part of that conversation.

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Speaker 9: You think the FED should pause, Why, Yeah.

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Speaker 7: I do think they should pause for a few reasons.

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Speaker 7: One is, I think we're in the early stages, not

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Speaker 7: the late stages, of this banking situation. I think there's

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Speaker 7: been a pretty significant change for the prospects of small

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Speaker 7: and mid sized banks. They provide most of the lending

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Speaker 7: to small mid sized businesses in the United States, and

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Speaker 7: we've just seen the first phase of this, which is

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Speaker 7: the asset liability mismatch, which is sort of the most

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Speaker 7: obvious issue, but the credit issues are about to start,

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Speaker 7: and I think that's why you're seeing the reaction in

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Speaker 7: the markets. The other issue for me is from a

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Speaker 7: risk management point of view, if I were sitting in

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Speaker 7: the seat, I think it's more important to be able

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Speaker 7: to sustain the current rate for an extended period of time,

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Speaker 7: longer than the market thinks, then get another twenty five

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Speaker 7: or fifty basis points and risk having to cut again.

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Speaker 7: I think that would be very troubling. And I'd say

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Speaker 7: one more comment if I were at the FED, I'd

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Speaker 7: call out that we need a whole of government approach

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Speaker 7: to fight inflation. Right now, the FED is saying we've

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Speaker 7: got this.

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Speaker 9: We can solve it. I don't think that's the case.

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Speaker 7: I would prefer to do what's called the hawkish pause,

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Speaker 7: but signal that we're in a tightening stance, because I

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Speaker 7: actually think the banking situation may well be more serious

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Speaker 7: than we currently understand, and I'd like to turn over

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Speaker 7: a few more cards rather than regret not doing that

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Speaker 7: three months from now.

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Speaker 16: Okay, put on your former golden vice chair hat. If

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Speaker 16: you were advising a desk, a trading desk, an investment desk.

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Speaker 9: What do you think the risk is now?

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Speaker 16: Have we not seen the end of it? It seems

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Speaker 16: we know that there's shorts out there. Are there?

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Speaker 9: No people are nervous?

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Speaker 16: But is there fundamental risk right now that could keep

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Speaker 16: this small and medium sized banking turmoil problem going?

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Speaker 9: Yeah.

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Speaker 7: Normally when we're discussing problems with banks, it's after we've

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Speaker 7: been through a credit cycle. We have not been we

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Speaker 7: haven't even started the credit cycle. We've just had an

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Speaker 7: asset liability mismatch issue where banks were overinvested in long

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Speaker 7: term treasuries and bank equity has been marked down just

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Speaker 7: based on that. We've got the credit issues yet to come,

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Speaker 7: we're at a different stage in the cycle. And there's

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Speaker 7: also potential deposit instability down the road when those credit

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Speaker 7: issues start to unfold. And so I would say we're

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Speaker 7: in the second or third inning of this situation, not

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Speaker 7: the first inning or seventh inning. I should say we

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Speaker 7: just finished the first phase potentially, but there's a lot

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Speaker 7: more to go. The credit phase, I think normally is

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Speaker 7: more serious.

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Speaker 17: Robert, on your point about pausing at this moment, you

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Speaker 17: don't expect that there might be the risk that if

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Speaker 17: you pause at this level, then you might be forced

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Speaker 17: to hike again like we saw with ASTRADI the eye

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Speaker 17: and what is really more detrimental to credibility at this point.

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Speaker 7: Yeah, So I think there's a way to position this.

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Speaker 7: And let's say they raise then pause, or they pause

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Speaker 7: and signalog so called hawkish pause. Either way, the rhetoric

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Speaker 7: needs to be that the FED stands ready to raise rates.

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Speaker 7: All you're doing is we've raised a lot very quickly.

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Speaker 9: We want to absorb and digest some of it.

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Speaker 7: I think people will understand it, think it's prudent, but

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Speaker 7: signal we're prepared to do more. And I think the

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Speaker 7: markets will understand that message. If they give that message.

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Speaker 17: And your concerns about credit tightening coming out of time

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Speaker 17: when we saw the Jewel's numbers really fall, we're seeing

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Speaker 17: layoffs out of a two three year high. How concerning

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Speaker 17: is this for the most vulnerable part of this of

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Speaker 17: the American population, especially when you're thinking that a lot

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Speaker 17: of people will be left out when inflation is this fast.

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Speaker 9: So normally at this stage you worry about the unemployed.

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Speaker 7: Right now, we're in a crisis of the employed. The

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Speaker 7: problem that's going on out there, fifty million workers that

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Speaker 7: make fifty thousand dollars a year or less cannot make

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Speaker 7: ends meet, okay, And part of it is there's been

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Speaker 7: a substantial amount of fiscal spending which hasn't stopped, by

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Speaker 7: the way, and substantial about monetary easing, and really the

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Speaker 7: low moderate income families are paying the price of it.

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Speaker 7: So you do need some adjustment in the labor market.

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Speaker 7: We've got demographically in the United States shortage of workers

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Speaker 7: for as far as the eye can see, at fifty

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Speaker 7: thousand or less, and so I think you could tolerate

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Speaker 7: some loosening in the labor market. I'm more worried about

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Speaker 7: the family who is working that tells me they can't

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Speaker 7: make ends meet, and that is a widespread group of

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Speaker 7: people right now.

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Speaker 16: Does the FED to deserve bear responsibility for what is

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Speaker 16: happening to these banks.

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Speaker 7: I don't blame the FED for making the hikes, although

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Speaker 7: I would have eased off monetary policy a couple of

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Speaker 7: years ago so these weren't necessary. But once they had

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Speaker 7: to do it, I don't blame it for that. I

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Speaker 7: do think there's a problem with a lack of supervision

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Speaker 7: once they knew they were in a hiking mode, and

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Speaker 7: I think it was up to the FED to supervise

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Speaker 7: and make sure that if there were outliers, like two

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Speaker 7: of the largest fifteen banks, that they caught that earth

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Speaker 7: early so we wouldn't be going through what we're going

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Speaker 7: through right now.

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Speaker 16: You left the FED at twenty twenty one, the new

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Speaker 16: framework was being put in place. The new framework said, oh,

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Speaker 16: we're not going to raise rates until we're well above

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Speaker 16: two percent, until we've got maximum employment. Is that another

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Speaker 16: factor that helped set the stage for where we are now?

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Speaker 9: It might have, As you know.

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Speaker 7: I dissented on the guidance in the September of twenty twenty.

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Speaker 7: It was only descent I ever made at the FED.

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Speaker 7: But I dissented because I thought locking into that guidance

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Speaker 7: did not make sense, and I wish that that hadn't

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Speaker 7: been done. But yes, that may have led the FED

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Speaker 7: to be more inclined to keep buying bonds to be

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Speaker 7: later to raise rates. And I've said many many times

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Speaker 7: taking the foot off the accelerator earlier would have made

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Speaker 7: it so they didn't have to slam on the brakes

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Speaker 7: like they're doing right now.

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Speaker 16: What do you think is the big challenge for the

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Speaker 16: FED and the federal government?

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Speaker 2: Right now?

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Speaker 9: Here's the issue.

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Speaker 7: There's the monetary policy element of this cyclical part, but

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Speaker 7: we've got a few other issues. We need more fiscal discipline.

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Speaker 7: We still have a lot of fiscal spending in the pipeline.

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Speaker 7: And right now the federal government, in my view, is

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Speaker 7: working in some ways at cross purposes with the FED

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Speaker 7: energy policy, and the integration to the transition is being

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Speaker 7: done on the backs of low modern income families. There's

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Speaker 7: many actions outside the FED that are making it harder

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Speaker 7: for people making fifty grand a year or less to

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Speaker 7: make ends meet. And yes, I think you want a

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Speaker 7: whole of government approach to inflation, not just a FED

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Speaker 7: does this alone.

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Speaker 17: Approach, and I mean we come back to always a

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Speaker 17: US debt sealing issues, default possibilities, you enforced. We know

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Speaker 17: sort of where this is going. But if we continue

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Speaker 17: to see that stand of what will be the implications.

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Speaker 7: So there's the back and forth of the standoff, which

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Speaker 7: is going to stress people out. But there's a real

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Speaker 7: issue in here. As we sit here right now, we

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Speaker 7: haven't even gone into a downturn. The deficit is right

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Speaker 7: now already ten percent of GDP. We actually have a

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Speaker 7: legitimate issue about the need for more fiscal restraint.

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Speaker 9: And if this.

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Speaker 7: Game of chicken, I don't like the tactics, and I

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Speaker 7: don't think it's healthy to be threatening or making people

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Speaker 7: worried about default.

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Speaker 9: But the discussion about controlling.

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Speaker 7: Spending is necessary, and I think fifty million families that

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Speaker 7: can't make ends meet out there, I think might welcome

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Speaker 7: that debate.

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Speaker 16: Final quick quick question, quick answer in June, in July,

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Speaker 16: in August, are we still going to be where we are?

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Speaker 16: Is the FED going to in effect have been done

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Speaker 16: hiking rates?

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Speaker 9: Do you think there's more to come?

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Speaker 16: How is this going to play out?

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Speaker 7: I think getting from where we are down to say

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Speaker 7: four percent headline inflation will be doable. I think what

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Speaker 7: we're going to find is it's going to be very

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Speaker 7: sticky to get headline inflation. That the wage price spiral

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Speaker 7: of people making fifty thousand or less is alive and

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Speaker 7: well and intense, and that's going to affect services inflation.

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Speaker 7: So I think this is going to be a two

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Speaker 7: or three year battle, not a six month battle.

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Speaker 2: And that was former Dallas FED President Robert Kaplan speaking

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Speaker 2: there with Bloomberg's Kathleen Hayes, sherry On and Heidi Stroud

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Speaker 2: watts Well. Robert Kaplan calls for a hawkish pause. Former

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Speaker 2: Treasury Secretary Larry Summers says the Fed should remain just

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Speaker 2: plain hawkish. In a discussion with Bloomberg's David West, and

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Speaker 2: Summers talked about a potential rate hike today as well

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Speaker 2: as the dead ceiling. Let's listen into that.

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Speaker 9: Now.

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Speaker 18: We heard from Jamie Diamond after the First Republic that

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Speaker 18: you thought pretty much we were over maybe there'd be

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Speaker 18: a small under left. Looks like we're not over this.

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Speaker 18: Whatever it is right at this point, how did we

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Speaker 18: get here? Why does this keep going on?

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Speaker 10: I think that we actually are probably over the vast

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Speaker 10: majority of the banking of the banking traumas. But look,

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Speaker 10: we still have institutions that have looked vulnerable for some time,

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Speaker 10: and those are the ones that are most affected today.

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Speaker 10: We still have concerns about commercial real estate and what

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Speaker 10: that's going to mean for the credit worthiness of a

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Speaker 10: number of institutions. There are still questions that are going

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Speaker 10: to be around. I'm concerned today, but I have to

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Speaker 10: say I'm not highly alarmed by what's happening in the

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Speaker 10: banking sector. I'm frankly more alarmed about what's happening in

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Speaker 10: the political sector, where it's clear that we've only got

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Speaker 10: a certain amount of time and something's got to come together,

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Speaker 10: where something very serious is going to happen before that.

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Speaker 18: Is there a more systemic effect here because we have

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Speaker 18: a lot of banks and appears actually have liabilities greater

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Speaker 18: than their assets at this point because of the reduced

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Speaker 18: value of the assets because of the rapid increase in

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Speaker 18: the interest rates. Is there a larger issue of solvency

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Speaker 18: that respect to a lot of US banks at this point.

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Speaker 10: I think there is some alarmism in the calculations you're

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Speaker 10: describing because it insufficiently recognizes that yes, if you hold

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Speaker 10: a bond or you hold a mortgage and the interest

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Speaker 10: rate goes up, the value of that mortgage goes down.

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Speaker 10: But equally, if you're having a deposit and that deposit

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Speaker 10: is at a low interest rate and so you're going

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Speaker 10: to be able to earn a spread, there's an asset there,

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Speaker 10: and when interest rates go up, the value of that

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Speaker 10: asset goes up. And so I think it's kind of

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Speaker 10: alarmist and wrong to focus on the first adjustment and

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Speaker 10: not pay attention to the second adjustment. So, yes, absolutely

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Speaker 10: we have not been as careful in thinking about interest

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Speaker 10: rate increases as we should have been. I think it

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Speaker 10: was kind of amazing and very unfortunate that FED stress

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Speaker 10: testing didn't put weight on interst rate increased scenarios in

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Speaker 10: the way that it should have, And that's an important

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Speaker 10: intellectual failure by the Federal Reserve system. But I also

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Speaker 10: think that the kind of analysis that your sighting are

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Speaker 10: probably overly alarmist.

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Speaker 18: Learn let's come back to the issue raised by the

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Speaker 18: debt ceiling. You've been in these jobs, so when there's

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Speaker 18: a crisis, and sometimes they come in pairs. Right now,

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Speaker 18: we have the banking on the one hand, and the

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Speaker 18: debt selling on the other how do you handle those

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Speaker 18: simultaneous potential crises.

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Speaker 10: I think on the debt limit issue, you have parties

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Speaker 10: that may not always be rooting for success, and you

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Speaker 10: also have entities like the Republican Caucus, where you're negotiating

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Speaker 10: with somebody, but you're not really sure of what the

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Speaker 10: person you're negotiating with can or cannot deliver, and that

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Speaker 10: makes this say, more difficult kind of situation.

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Speaker 18: Let's talk about the Federal reserves. How does this affect

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Speaker 18: potential of their decision the past. You said you think

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Speaker 18: twenty five basis points is in the cards for May.

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Speaker 18: Can they hike into a banking crisis?

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Speaker 10: Anyone in the federal reserve system who was inclined to

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Speaker 10: use language that was committing to further hikes in June

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Speaker 10: should surely hesitate because we don't know how this is

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Speaker 10: going to metastasize. At the same time, I think for

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Speaker 10: the Fed to signal in a definitive way that they

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Speaker 10: were finished would be to take a substantial risk of

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Speaker 10: locking into what turns out to be a mistaken path,

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Speaker 10: and would also perhaps be taken by the market as

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Speaker 10: a seek sign of significant alarm. So what I'm going

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Speaker 10: to be looking for and hoping for from the FED

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Speaker 10: is a move upwards and a clear recognition of uncertainty

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Speaker 10: and agnosticism with respect to what's coming.

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