WEBVTT - FTN's Low: Disagreement in Fed Continues Along Same Line(Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pellett. Stocks little change right now, the down,

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<v Speaker 1>SMP are higher, Nestack is Laura. This update is brought

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<v Speaker 1>to you by s E. I have evolving investor and

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<v Speaker 1>dot com. Slash. Imagine stocks fluctuating after briefly erasing losses.

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<v Speaker 1>Right now, we've got the SMP five hundred index up

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<v Speaker 1>one point to seventy nine, a gain there of one

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<v Speaker 1>tenth of one percent. Down Industrials up eleven again, also

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<v Speaker 1>of one tenth of one percent. The Nastack Composite index

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<v Speaker 1>down three points, a drop there of one tenth of

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<v Speaker 1>one percent. Minutes from the latest Federal Reserve meeting show

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<v Speaker 1>officials were split on weather and in trust rate increase

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<v Speaker 1>is warranted soon. The tenure up six thirty seconds, Zeal

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<v Speaker 1>one point five, Gold down three tents of one percent.

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<v Speaker 1>Thirty nine ounce crude oil West Texas Intermediate now unchanged.

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<v Speaker 1>I'm Charlie Pala. Fat's a Bloomberg Business Flash. You're listening

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<v Speaker 1>to taking Stock with pim Box and Kathleen Hayes on

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<v Speaker 1>Bloomberg Radio and Divine. I've had a reserve over how

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<v Speaker 1>soon to raise its key rate again. That is one

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<v Speaker 1>of the elements it seems to emerge from the minutes

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<v Speaker 1>of the July seven policy meeting, released just about eighteen

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<v Speaker 1>minutes ago here on taking Stock on Bloomberg Radio. Let's

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<v Speaker 1>bring back to the table now. Chris Lowe is chief

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<v Speaker 1>economist at f t N Financial. So, Chris, if what

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<v Speaker 1>do you what would you say about the odds of

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<v Speaker 1>the FED moving in September moving in December? Based on

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<v Speaker 1>number one, these minutes? Right, so, even after a week

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<v Speaker 1>employment report which they had seen, they were still thinking

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<v Speaker 1>about the need to raise the key rate, right uh?

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<v Speaker 1>And then also based on what you've heard from BEETE

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<v Speaker 1>officials the last couple of days. Well, okay, we can

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<v Speaker 1>start with they think the odds are higher than the

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<v Speaker 1>market does. But the market is pretty much dismissed the

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<v Speaker 1>rate hike this year, especially right away, so it is

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<v Speaker 1>interesting to see those odds readjusting after Dudley yesterday. Uh,

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<v Speaker 1>my sense is that the odds are probably close to

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<v Speaker 1>about in September, which might sound high, but my my

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<v Speaker 1>thinking is that they really would like to get this

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<v Speaker 1>done before the election, so they're feeling a little bit

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<v Speaker 1>of pressure that sooner is probably better than later if

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<v Speaker 1>they can get away with it. But at the same time,

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<v Speaker 1>it still doesn't quite get you over because they are

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<v Speaker 1>still worried about things. Uh. Two things that jumped out

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<v Speaker 1>at me in the minutes. First, Uh, they had they

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<v Speaker 1>spent quite a bit of time talking about inflation, and

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<v Speaker 1>they're just not convinced it's going to accelerate to two

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<v Speaker 1>I think that's really important because after all, what's the

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<v Speaker 1>point of raising rates if you never get to two

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<v Speaker 1>percent inflation. The the other one is the discussion of

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<v Speaker 1>risks overseas. Yes, Brexit is on the radar, but there

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<v Speaker 1>were two other things they're watching as well. They're watching

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<v Speaker 1>bad loans at European banks. They're worried about the possibility

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<v Speaker 1>that that could uh weigh on economic growth in the region,

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<v Speaker 1>and of course that's something equity investors have been on

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<v Speaker 1>too as well. And then they're watching China. They are

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<v Speaker 1>still worried about China's far an exchange policy and the

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<v Speaker 1>implications of Chinese debt, which has run up now to

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<v Speaker 1>a very significant portion of GDP. Chow, Is it possible

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<v Speaker 1>that we're going to get uncertain events between now in

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<v Speaker 1>September or even now in the end of the year

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<v Speaker 1>that will preclude any action on the part of the

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<v Speaker 1>Federal Reserve? I think it's likely. Uh. You know, when

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<v Speaker 1>when you look back, the FED had every intention of

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<v Speaker 1>tightening once a quarter when they made the decision to

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<v Speaker 1>raise rates last year, which by the way, they made

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<v Speaker 1>at the April meeting, and then they didn't get that

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<v Speaker 1>first rate out hike out until December. And of course

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<v Speaker 1>now we've already moved out to September, so it's nine

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<v Speaker 1>months later. So the reason is that at every meeting

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<v Speaker 1>since December, there has been something going on overseas. Uh.

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<v Speaker 1>And what's noteworthy about that is it FED officials Bob Kaplan,

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<v Speaker 1>for example, in Dallas, are starting to connect the dots.

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<v Speaker 1>Maybe we shouldn't worry about each one of these crises.

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<v Speaker 1>Maybe it's time to recognize that they're all connected, uh,

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<v Speaker 1>that they're connected by virtue of the fact that global

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<v Speaker 1>growth is absolutely disappointing. That means that there's too much

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<v Speaker 1>global wage slack. That means that global inflation is low,

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<v Speaker 1>global interest rates are low, and you know, if you

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<v Speaker 1>follow that to the obvious conclusion, it means the need

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<v Speaker 1>to raise rates just isn't what you would normally expect.

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<v Speaker 1>And at the end of a business, you know, Chris,

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<v Speaker 1>uh and of course all our taking stock listeners will

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<v Speaker 1>be speaking to Rob Kaplan, President Dallas FED a week

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<v Speaker 1>from tomorrow at the Jackson holl Symposium. He'll be joining

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<v Speaker 1>us live to certainly to talk about these very very issues.

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<v Speaker 1>It's it's an interesting connection he's making in that way, Chris,

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<v Speaker 1>in terms of in terms of the bond market, you know,

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<v Speaker 1>and you look where things are. The work as a

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<v Speaker 1>matter of fact that I just mentioned being above has

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<v Speaker 1>dropped to forty five point three. Clearly there's a little bit,

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<v Speaker 1>at least from the FED funds futures traders standpoint, a

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<v Speaker 1>little bit of a sense of huh. Maybe it's just

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<v Speaker 1>disappointment that there wasn't more of a sign of the

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<v Speaker 1>Fed reared up to raise rates or even considering September.

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<v Speaker 1>As Bill Dudley from the New York FED was possible yesterday. Yeah,

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<v Speaker 1>I think that's exactly right. You know, I read these

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<v Speaker 1>minutes and that they still tilt towards caution as much

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<v Speaker 1>as they do. You know, there's there's never anything definite,

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<v Speaker 1>but uh, you know the fact that they are still

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<v Speaker 1>looking at problems that we know are have not gone away,

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<v Speaker 1>particularly problems on bank balance sheets in Europe. I think

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<v Speaker 1>that is a major issue, uh, which I can't remember

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<v Speaker 1>the FED focusing on since the European banking crisis way

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<v Speaker 1>back in and eleven, So it's it's noteworthy they're looking

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<v Speaker 1>at that. Uh. And by the way, remember too that

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<v Speaker 1>there were two big European banks that they're subsidiaries failed

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<v Speaker 1>the FED stress test, so that might be another reason

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<v Speaker 1>they're on the fed's radar. Thanks very much for spending

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<v Speaker 1>time with us. Chris Lowe is the chief economist for

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<v Speaker 1>f t N Financial, giving us his perspective on the

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<v Speaker 1>release of today's f o MC meeting minutes from the

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<v Speaker 1>July six and twenty seven meeting, in which it seems

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<v Speaker 1>as though the participants were split about increasing interest rates

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<v Speaker 1>sooner rather than later. You're listening to taking stock. I'm

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<v Speaker 1>Pim Fox, my co host Kathleen Hayes and this is

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