WEBVTT - 33: How Monetary Policy is Now Being Outsourced (Sort Of)

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<v Speaker 1>This episode of Bloomberg Benchmark is sponsored by HSBC, winner

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<v Speaker 1>of Trade Finance America's Company Award for Best Supply Chain

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<v Speaker 1>Finance Bank in North America HSBC. Where ambition connects with opportunity.

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<v Speaker 1>The central banks are not the answer. After all these

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<v Speaker 1>years and all of they've done, they still can't fix

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<v Speaker 1>the global economy. Now we're in impotence territory. Hi, and

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<v Speaker 1>welcome back to Bloomberg Benchmark, a podcast about the global economy.

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<v Speaker 1>It's Thursday, April fourteen. I'm Daniel Moss, Executive editor for

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<v Speaker 1>Global Economics at Bloomberg News. My co hosts Archieto and

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<v Speaker 1>Tory still will are out this week, so it's just me.

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<v Speaker 1>We Most of us familiar with the concept of outsourcing,

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<v Speaker 1>the idea that companies and governments find it cheaper or

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<v Speaker 1>more efficient to have outside groups hand all things like

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<v Speaker 1>customers support, legal services, programming, bill collection, data entry, and

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<v Speaker 1>so on. And yes, sometimes this takes place overseas a

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<v Speaker 1>common example of the ubiquitous call centers. Whatever you want

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<v Speaker 1>to check your bank, balanced, book a hotel, or inquire

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<v Speaker 1>about something on your cell phone bill. But outsourcing monetary

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<v Speaker 1>policy that seems to take it to a whole other level.

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<v Speaker 1>Get in a way, that's what the Federal Reserve has done.

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<v Speaker 1>Chair Janet Yellen effectively said as much last week when

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<v Speaker 1>she told an audience in New York that the FED

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<v Speaker 1>dialed back its projections for how many times it will

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<v Speaker 1>increase interest rates in response to investors dialing back. First,

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<v Speaker 1>our colleague Rich Miller listened to her speech, picked up

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<v Speaker 1>on the theme, and wrote about it for Bloomberg News.

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<v Speaker 1>Rich has been following the US economy and the FED

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<v Speaker 1>for more than three decades. He joins us from Washington, Rich,

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<v Speaker 1>great to have you. Thanks for having me, Dan. Well,

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<v Speaker 1>the textbooks tell us that markets are, in theory supposed

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<v Speaker 1>to respond to what you make is saying. Do this

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<v Speaker 1>seems like the world has been turned upside down. What's

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<v Speaker 1>going on? Well, first of all, I just want to say,

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<v Speaker 1>of course, Janet Yellen didn't say in her speech that

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<v Speaker 1>the Fed is outsourcing monetary policy, and Feed officials would

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<v Speaker 1>undoubtedly object to that. But but what she laid out

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<v Speaker 1>in the speech, sure as heck, sounded like that. What

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<v Speaker 1>happened was the markets got a little bit scared about

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<v Speaker 1>global growth in China, so they adjusted down the amount

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<v Speaker 1>of interest rate increases they expected from the Fed. In response,

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<v Speaker 1>long term interest rates went down. Those long term interest

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<v Speaker 1>rates lower long term interest rates provided the economy with

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<v Speaker 1>some stimulus and helped keep the economy on track in

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<v Speaker 1>the face of this jitters about global growth. So Janet

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<v Speaker 1>Yellen said, this is great. This is like an automatic stabilizer.

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<v Speaker 1>I mean, it's sort of sort of like an ideal

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<v Speaker 1>marriage where your partner sort of knows you so well

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<v Speaker 1>that you don't even have to ask for the present

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<v Speaker 1>for your birthday. She or he gets it before you

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<v Speaker 1>even ask. Well, we know the FED keeps a close

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<v Speaker 1>eye on markets. They said that that's no secret. But

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<v Speaker 1>this does seem to elevate it to a new level. Yes,

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<v Speaker 1>yes it does. I think there was a little bit

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<v Speaker 1>of an ulterior motive here. The FED has gotten slammed

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<v Speaker 1>on Capitol Hill by a Republican law may because and

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<v Speaker 1>by some Republican leaning leaning economists for following a policy

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<v Speaker 1>that's too discretionary two seat of the pants, and these people,

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<v Speaker 1>these lawmakers claim that investors don't understand what the Fed's

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<v Speaker 1>gonna do and that hurts the economy. Yelling was basically said,

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<v Speaker 1>was trying to say yes, the markets do understand what

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<v Speaker 1>we're gonna do, and in fact they had just before

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<v Speaker 1>we adjust. So I think there was a little bit

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<v Speaker 1>of a political backstory here that's going on the way

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<v Speaker 1>she described the relationship between the two of them. What

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<v Speaker 1>are the risks of this approach? Uh, Well, the risk

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<v Speaker 1>are uh what mis misunderstandings and upsets like in a marriage, right,

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<v Speaker 1>we're you know, hearken back to what was at the

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<v Speaker 1>middle of two thousand and fourteen. Investors work evinced that

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<v Speaker 1>the FED was going to have what was called quantitative

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<v Speaker 1>easing forever. It was going to keep on buying bonds

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<v Speaker 1>in the market and keep on supporting the economy. Then

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<v Speaker 1>Chairman Ben Bernanky said, well, maybe we're gonna end it,

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<v Speaker 1>maybe we're gonna taper it, and then the markets through

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<v Speaker 1>a hissy fit. They had a tantrum, Right, So that's

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<v Speaker 1>that's the risks that there's misunderstandings that could then lead

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<v Speaker 1>to blow ups later that could hurt the economy. It

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<v Speaker 1>really makes me wonder again to use the marriage analogy,

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<v Speaker 1>who's in charge here? Who right right now? Yeah? Well,

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<v Speaker 1>I guess in some marriages, uh, someone is clearly in

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<v Speaker 1>charge and and someone isn't. But I think in most

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<v Speaker 1>it's kind of a constant, kind of at least in mind,

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<v Speaker 1>constant kind of jockeying back and forth, trying hopefully to

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<v Speaker 1>get to a common goal, which in this case is

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<v Speaker 1>you know, a well functioning economy. I mean, one of

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<v Speaker 1>the problems is is that the goals don't always fully align. Usually,

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<v Speaker 1>you know, investors want are well functioning, growing economy, but

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<v Speaker 1>sometimes they were more interested in, you know, the fact

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<v Speaker 1>that their investments are doing well a bad But I

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<v Speaker 1>think it's never clear. I think there's a constant learning

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<v Speaker 1>process back and forth between the markets and the economy,

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<v Speaker 1>just like in a marriage. Just to use another analogy,

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<v Speaker 1>isn't this a little bit like giving a drug addict

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<v Speaker 1>more heroin? I mean, if you empower the markets to

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<v Speaker 1>that extent and publicly say you did it after markets

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<v Speaker 1>did it, doesn't this just risk emboldening investors and they're

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<v Speaker 1>going to want more and more and more and more

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<v Speaker 1>and more, and the FED finds itself trapped. I think

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<v Speaker 1>there is a risk for that, and then eventually the

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<v Speaker 1>FED will have to disappoint the markets, and then you

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<v Speaker 1>get this kind of upset like we had with the

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<v Speaker 1>taper tantrum. So I think there is a definite risk,

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<v Speaker 1>and I guess it's up to the FED to try

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<v Speaker 1>to communicate clearly with the markets what when it thinks

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<v Speaker 1>they're they're going too far. It also, I mean, we've

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<v Speaker 1>gotten used to seeing the markets want more and more stimulus.

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<v Speaker 1>But it is kind of interesting when you think about

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<v Speaker 1>the initial years after the Great Recession. If you look

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<v Speaker 1>at the markets back then, they were always expecting the

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<v Speaker 1>FED to raise interest rates like a year out, but

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<v Speaker 1>the FED didn't have any intention to do that. So

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<v Speaker 1>the FED eventually had to go out and explicitly say, look,

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<v Speaker 1>we aren't going to raise interest rates until like the

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<v Speaker 1>middle of two thousand fifteen. Don't worry boys and girls.

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<v Speaker 1>So you know, there is risks, but that's just the

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<v Speaker 1>way things work. And what is the risk that Fed

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<v Speaker 1>officials misread the message that markets are conveying. I mean,

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<v Speaker 1>I think it's great obviously, Um I guess, I guess

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<v Speaker 1>trying to stick with this marriage analogy, you know, one

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<v Speaker 1>of the partners is kind of someone who's whose moods

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<v Speaker 1>flips from elation to dejection, and that's the markets right

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<v Speaker 1>as as it flips. As investors flipped from greed to fear.

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<v Speaker 1>Then you have the other partner who's maybe stolid and

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<v Speaker 1>looks at models and rarely changes his or her mind.

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<v Speaker 1>And sometimes the one who's, you know, saying you know

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<v Speaker 1>the end is near is right. Oftentimes the one who's

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<v Speaker 1>saying the end is in he is not right. But

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<v Speaker 1>sometimes the one who says don't worry, be happy or

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<v Speaker 1>don't worry things are copasetic is wrong. So you know

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<v Speaker 1>why they have, you know, a huge they fed have

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<v Speaker 1>a huge bunch of people in New York sort of

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<v Speaker 1>in constant contact with the markets, trying to figure out

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<v Speaker 1>what the message of the markets are trying then to say, well,

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<v Speaker 1>do we agree with what the markets are worried about

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<v Speaker 1>or what the markets think of doing, or do we not? Well,

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<v Speaker 1>I hope this marriage doesn't end in an expensive custody trial. Definitely, Definitely,

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<v Speaker 1>it's been great to have your perspective. Keep up the

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<v Speaker 1>good work. Thanks, thanks, thanks a lot for inviting me.

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<v Speaker 1>Enjoyed it, and now a would from our sponsor. This

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<v Speaker 1>episode of Bloomberg Benchmark is sponsored by HSBC, with over

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<v Speaker 1>eight thousand global relationship managers on the ground in over

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<v Speaker 1>sixty countries. HSBC makes your global ambition their local business HSBC. Well,

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<v Speaker 1>the issues that Rich outlined touch on things you know,

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<v Speaker 1>we wrestle with daily here at Bloomberg News and helping

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<v Speaker 1>us flesh it out and maybe even have it out.

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<v Speaker 1>Two of my colleagues, Bob Burgess and Madeline Limp. Bob

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<v Speaker 1>is executive editor for Markets and Madeline is executive editor

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<v Speaker 1>for Bloomberg First World, tell us a little bit about

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<v Speaker 1>what that actually is. Hi, Dan, thank you for the introduction,

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<v Speaker 1>and Bloomberg First Wood is a very short bullet point

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<v Speaker 1>service about markets, issues and news that's of interest to

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<v Speaker 1>markets in a very quick and condensed form. Well, Bob,

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<v Speaker 1>you've got to feel vindicated by this Markets of one, right.

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<v Speaker 1>I'll never be able to mix it up with you

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<v Speaker 1>in quite the same way in our morning and afternoon

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<v Speaker 1>news meetings. Rich. I think I brought up some very

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<v Speaker 1>interesting topics. But the one thing Rich didn't talk about

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<v Speaker 1>was markets are always forward looking. Okay, markets are not

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<v Speaker 1>necessarily reactive to central banks, but they're more pricing in

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<v Speaker 1>what is going to happen in the future. We're it's

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<v Speaker 1>going to be the cost of money six months out,

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<v Speaker 1>a year out, and so what we've seen over the

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<v Speaker 1>past three years is that the markets have been continually

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<v Speaker 1>more right on the outlook for for the economy and

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<v Speaker 1>um the market has generally been more pessimistic on the

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<v Speaker 1>pace of growth, the FED has been more optimistic. And

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<v Speaker 1>what we've seen over the past twelve to eighteen months,

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<v Speaker 1>maybe even two years, is that the Fed's outlook in

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<v Speaker 1>the economy has continually come down to the markets view

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<v Speaker 1>of the economy. And yet markets will move in response

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<v Speaker 1>to specific central bank events on any given day, often

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<v Speaker 1>the way they should. You're drawing a distinction between the

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<v Speaker 1>longer term and the short term. Markets will always have

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<v Speaker 1>immediate reaction to whoever central bank does on a certain day,

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<v Speaker 1>but the markets are going to be pricing in what

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<v Speaker 1>is going to be, what they think is going to be,

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<v Speaker 1>or what the market things is going to be happening

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<v Speaker 1>four months out to a year out. And one of

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<v Speaker 1>the big debates that's going on in markets these days,

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<v Speaker 1>and you and I and Madeline have have talked a

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<v Speaker 1>lot about this is just how effective is central bank

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<v Speaker 1>you know, policy these days? As you and I have

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<v Speaker 1>debated in Madeline has Uh, We've all talked about a

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<v Speaker 1>lot in recent weeks is is sort of the effectiveness

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<v Speaker 1>of of global central banks and policies. We talked a

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<v Speaker 1>lot about the diminishing returns as central banks are getting

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<v Speaker 1>from uh, this era of lower no interest rates. Uh.

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<v Speaker 1>Kid Jokes, who's the chief market strategist at Society Generally,

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<v Speaker 1>actually had a very good no doubt talking about how

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<v Speaker 1>after the trillions of dollars of money that has been

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<v Speaker 1>pumped into the global economy by central banks, here we

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<v Speaker 1>are in two thousand sixteen, able two thousand sixteen, and

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<v Speaker 1>all we're seeing is very low growth. This is your

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<v Speaker 1>impotent point exactly. We're going to get to that in

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<v Speaker 1>just a second, because I've got something for you all that.

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<v Speaker 1>But Madeline, and your experience other markets always right, and

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<v Speaker 1>how do you determine what they're actually saying? You can

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<v Speaker 1>see what a phenomenal logical market level is, but how

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<v Speaker 1>do you know that the interpretation is right? Well? I

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<v Speaker 1>think it all depends on your perspective, right, And always

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<v Speaker 1>remember my short position is your long position. If you

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<v Speaker 1>believe something is going up, you've got to sell it

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<v Speaker 1>to somebody. So it's it's a given take situation. But

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<v Speaker 1>I do think that more broadly in a market based

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<v Speaker 1>capitalist system, as we have for aessential bank, not to

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<v Speaker 1>pay attention to the markets and what the markets are saying.

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<v Speaker 1>These are ultimately smart people who are doing their analysis

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<v Speaker 1>and putting their money on the line, or their investors

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<v Speaker 1>money on the line. That you can't really ignore that.

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<v Speaker 1>And I would sort of warn that you know, where

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<v Speaker 1>not talking about the stock market here and it's various

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<v Speaker 1>ups and downs. Nor are we talking about the FX

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<v Speaker 1>markets another completely different story. We are talking about the

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<v Speaker 1>bond market here, which can be volatile admittedly, but if

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<v Speaker 1>you look at the ten year yield since December, it

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<v Speaker 1>has been more or less on a downtrend and two

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<v Speaker 1>percent is the level that is really hard for the

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<v Speaker 1>ten ure yield to get above in the US, and

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<v Speaker 1>I think that tells you something about what investors feel

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<v Speaker 1>is the outlook for growth. But for both of you

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<v Speaker 1>in your jobs, one of the things I find frustrating

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<v Speaker 1>is how do you cut through the noise and find

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<v Speaker 1>out what actually is the central point? Because it does

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<v Speaker 1>feel like one day market participants are saying that there

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<v Speaker 1>needs to do this and they're hopeless at that. Then

0:12:43.400 --> 0:12:46.760
<v Speaker 1>the next day they're saying precisely the opposite how do

0:12:46.800 --> 0:12:51.199
<v Speaker 1>you sort out, to quote Nate Silver, the signal from

0:12:51.240 --> 0:12:55.199
<v Speaker 1>the noise. As Medal has said, there's always going to

0:12:55.240 --> 0:12:58.319
<v Speaker 1>be a buyer and a seller, and you're always going

0:12:58.360 --> 0:13:01.000
<v Speaker 1>to have the ups and downs of the markets. But

0:13:01.559 --> 0:13:03.240
<v Speaker 1>what we need to do every day is is take

0:13:03.280 --> 0:13:05.600
<v Speaker 1>a step back, take a look at the big picture

0:13:05.840 --> 0:13:07.559
<v Speaker 1>and try to get a sense of what does the

0:13:07.640 --> 0:13:11.199
<v Speaker 1>bigger picture or message that the markets are are are sending.

0:13:11.280 --> 0:13:13.880
<v Speaker 1>And I think that in these days it's clear that

0:13:13.960 --> 0:13:18.319
<v Speaker 1>the markets are signaling that the outlook for the global

0:13:18.320 --> 0:13:21.720
<v Speaker 1>economy is is pretty anemic. I mean, as Madeline said,

0:13:21.720 --> 0:13:25.360
<v Speaker 1>he's talking about the tenure yield. Globally, bon yields on

0:13:25.440 --> 0:13:27.880
<v Speaker 1>average are down one to one point three percent, a

0:13:28.040 --> 0:13:35.040
<v Speaker 1>record low. Does anemic often get conflated, mistakenly with disastrous

0:13:35.400 --> 0:13:38.160
<v Speaker 1>If we go back to January, in the first half

0:13:38.200 --> 0:13:43.079
<v Speaker 1>of February, the narrative coming not just from the markets,

0:13:43.120 --> 0:13:46.640
<v Speaker 1>but from some family serious economists as well, you could

0:13:46.679 --> 0:13:49.679
<v Speaker 1>be forgiven for thinking the apocalypse was with us, and

0:13:49.720 --> 0:13:54.800
<v Speaker 1>now here we are. The macro economic data hasn't changed dramatically,

0:13:54.880 --> 0:13:58.560
<v Speaker 1>certainly within the US, China hasn't fallen apart, and the

0:13:58.640 --> 0:14:02.360
<v Speaker 1>Eurozone is like, you know, hanging in there. Well, what

0:14:02.400 --> 0:14:04.320
<v Speaker 1>I would say is you're right. I mean, at the

0:14:04.320 --> 0:14:06.680
<v Speaker 1>beginning of the year, there was a number of different

0:14:06.679 --> 0:14:09.720
<v Speaker 1>events that happened that caused a lot of terminal markets.

0:14:09.760 --> 0:14:14.480
<v Speaker 1>You had China weakening its its currency, raising concerns about

0:14:14.480 --> 0:14:19.120
<v Speaker 1>a currency war. Oil and commodities continued to collapse um

0:14:19.280 --> 0:14:25.240
<v Speaker 1>raising concern about deflation, global recession, defaults by energy companies

0:14:25.240 --> 0:14:27.240
<v Speaker 1>that have raised a hundreds of billions of dollars in

0:14:27.480 --> 0:14:31.120
<v Speaker 1>recent years. You had all these events coming together at

0:14:31.120 --> 0:14:34.440
<v Speaker 1>the same time. You had the Bank of Japan going

0:14:34.520 --> 0:14:38.400
<v Speaker 1>into negative interest rates and the European Central Bank going

0:14:38.440 --> 0:14:41.600
<v Speaker 1>further into a negative interest rates, and the message that

0:14:41.640 --> 0:14:44.960
<v Speaker 1>was sending the markets was the central banks are not

0:14:45.080 --> 0:14:48.280
<v Speaker 1>the answer. After all these years and all of they've done,

0:14:48.720 --> 0:14:53.400
<v Speaker 1>they still can't fix the global economy. Now we're in

0:14:53.480 --> 0:14:57.040
<v Speaker 1>impotence territory for one of a better time. Right. But

0:14:57.120 --> 0:14:59.560
<v Speaker 1>you know, so I think that you know, taking a

0:14:59.560 --> 0:15:02.080
<v Speaker 1>look at all that the first couple of months of

0:15:02.080 --> 0:15:05.200
<v Speaker 1>the year, it was very turbulent markets and markets were, um,

0:15:05.360 --> 0:15:07.760
<v Speaker 1>we're reacting to that. They weren't just reacting to to

0:15:07.800 --> 0:15:11.680
<v Speaker 1>what central banks were doing. March was a tremendous comeback.

0:15:11.720 --> 0:15:15.000
<v Speaker 1>I think in the SMP we were down ten percent

0:15:15.200 --> 0:15:19.080
<v Speaker 1>through mid February and then the SMP five recouped all

0:15:19.160 --> 0:15:21.160
<v Speaker 1>that through the end of March. It was the biggest

0:15:21.160 --> 0:15:23.840
<v Speaker 1>turnaround in history for the markets. So that makes me

0:15:23.880 --> 0:15:26.840
<v Speaker 1>wonder who was right in January February or were they

0:15:26.880 --> 0:15:29.400
<v Speaker 1>both right? They were both right. The markets are not

0:15:29.600 --> 0:15:34.120
<v Speaker 1>signaling now that it's all clear, while back in February

0:15:34.200 --> 0:15:36.800
<v Speaker 1>and January. In February, there's a lot of concern about

0:15:37.000 --> 0:15:41.040
<v Speaker 1>as I said, deflation, global recession that's come out of

0:15:41.040 --> 0:15:43.240
<v Speaker 1>the market, but the market is not signaling that it's

0:15:43.360 --> 0:15:46.680
<v Speaker 1>all clear, right. And I would just add to that

0:15:46.680 --> 0:15:48.920
<v Speaker 1>with Bob says, is that you have to just be

0:15:49.240 --> 0:15:51.560
<v Speaker 1>mindful of when when you talk about the market, what

0:15:51.640 --> 0:15:53.960
<v Speaker 1>your how you look at things. I really do think

0:15:54.000 --> 0:15:56.160
<v Speaker 1>the perspective rely matters if you take what the market

0:15:56.200 --> 0:15:59.080
<v Speaker 1>is pricing in now for it, like Bob says, in

0:15:59.120 --> 0:16:01.880
<v Speaker 1>the next years ahead, you know, rather than looking at

0:16:01.880 --> 0:16:04.120
<v Speaker 1>the noise, you have to kind of look at the

0:16:04.160 --> 0:16:06.080
<v Speaker 1>long term and then sort of from there. And it

0:16:06.280 --> 0:16:09.240
<v Speaker 1>wouldn't be tenable to have the market pricing in you know,

0:16:09.480 --> 0:16:13.000
<v Speaker 1>very low likelihood of maybe even two rate tags this

0:16:13.080 --> 0:16:15.080
<v Speaker 1>year and the Fed still maintaining no, we're going to

0:16:15.160 --> 0:16:18.000
<v Speaker 1>raise rates for You can't have that dicotomy go on

0:16:18.120 --> 0:16:20.200
<v Speaker 1>for too long. At some point, something has to converge.

0:16:20.640 --> 0:16:22.760
<v Speaker 1>And I think for the FED to look at the model,

0:16:22.840 --> 0:16:25.480
<v Speaker 1>and you know, the FED looks at it's economic models,

0:16:25.840 --> 0:16:28.200
<v Speaker 1>the market looks at their economic models, and I think

0:16:28.240 --> 0:16:30.560
<v Speaker 1>taking it together, it's just using all the data that

0:16:30.640 --> 0:16:32.840
<v Speaker 1>you can to formulate the best policy that you can

0:16:32.880 --> 0:16:35.000
<v Speaker 1>come up with. I think right or wrong is a

0:16:35.040 --> 0:16:39.040
<v Speaker 1>hard question to answer, because ultimately, if the policy is

0:16:39.720 --> 0:16:43.040
<v Speaker 1>set right, then yes, you should see growth pick up.

0:16:43.200 --> 0:16:46.000
<v Speaker 1>Right come the middle of the year, the picture looks different.

0:16:46.280 --> 0:16:49.280
<v Speaker 1>You're trying to create the conditions now that foster growth

0:16:49.280 --> 0:16:50.840
<v Speaker 1>in the future, and I think that's a really hard

0:16:50.880 --> 0:16:54.600
<v Speaker 1>balance to achieve and we shouldn't be trying to parse

0:16:54.680 --> 0:16:56.160
<v Speaker 1>too much out of the day to day moves, and

0:16:56.160 --> 0:16:58.240
<v Speaker 1>I would really warn against looking too close listens at

0:16:58.240 --> 0:17:01.960
<v Speaker 1>that point. But but the other thing, you know is

0:17:02.320 --> 0:17:04.040
<v Speaker 1>I think what happened at the beginning of the year

0:17:04.119 --> 0:17:07.119
<v Speaker 1>is people were setting up for the FED. You know,

0:17:07.160 --> 0:17:10.359
<v Speaker 1>the FED was tightening policy. They started in December, and

0:17:10.400 --> 0:17:13.040
<v Speaker 1>people were trying to set up for that, and there

0:17:13.080 --> 0:17:15.000
<v Speaker 1>was a lot of volatility around and I think that

0:17:15.080 --> 0:17:17.240
<v Speaker 1>added to the whole concern of what was going on,

0:17:17.720 --> 0:17:20.439
<v Speaker 1>and some big names thought that they would have to

0:17:20.520 --> 0:17:23.800
<v Speaker 1>revert to queue and that they would take interest rates

0:17:23.840 --> 0:17:27.560
<v Speaker 1>off the table together. Now they've scaled back their projections,

0:17:27.560 --> 0:17:30.560
<v Speaker 1>as Rich was just saying, but they haven't taken them

0:17:30.600 --> 0:17:34.400
<v Speaker 1>off the table, and they certainly haven't eased Let's get

0:17:34.400 --> 0:17:37.720
<v Speaker 1>back to the eye word body. I can buy the

0:17:37.880 --> 0:17:45.080
<v Speaker 1>argument that the central bank efforts now suffering diminishing returns,

0:17:45.800 --> 0:17:48.520
<v Speaker 1>but there still is a return there. Are you sure

0:17:48.520 --> 0:17:50.880
<v Speaker 1>it's impotence. I think it depends on how you look

0:17:50.920 --> 0:17:55.280
<v Speaker 1>at it from the market perspective. If you're looking about

0:17:55.560 --> 0:17:59.200
<v Speaker 1>at strictly what central banks are doing to asset prices,

0:18:00.000 --> 0:18:03.560
<v Speaker 1>it's probably not evident because there's still the e c B,

0:18:03.840 --> 0:18:07.320
<v Speaker 1>the b o J, they're still buying bonds, um and

0:18:07.400 --> 0:18:10.520
<v Speaker 1>other financial assets. The federals are even though it's not

0:18:10.720 --> 0:18:14.360
<v Speaker 1>creating money to buy bonds, it's reinvesting the proceeds from

0:18:14.400 --> 0:18:16.920
<v Speaker 1>maturing bonds into new security, so that money is is

0:18:17.160 --> 0:18:20.399
<v Speaker 1>cycling back in. That's actually that's supporting the bond market.

0:18:20.440 --> 0:18:23.520
<v Speaker 1>There's no question about it. But when people start talking

0:18:23.560 --> 0:18:26.000
<v Speaker 1>about whether the central banks and the Fed are are

0:18:26.040 --> 0:18:31.360
<v Speaker 1>impotent or not, they are talking really about the transition

0:18:31.359 --> 0:18:34.679
<v Speaker 1>mechanism in the sense that is the wealth in the

0:18:34.720 --> 0:18:38.800
<v Speaker 1>financial markets that the central banks have created, is that

0:18:39.560 --> 0:18:43.159
<v Speaker 1>leaking into or helping the real economy, And in a

0:18:43.160 --> 0:18:46.960
<v Speaker 1>lot of ways they're saying that it's not helping the

0:18:47.000 --> 0:18:49.960
<v Speaker 1>real economy. Take a look at them the the Atlanta

0:18:50.320 --> 0:18:53.359
<v Speaker 1>Fed in its estimates of GDP for the first quarter,

0:18:53.440 --> 0:18:56.359
<v Speaker 1>I think it's down to below one percent now the

0:18:56.440 --> 0:18:59.119
<v Speaker 1>beginning of the year was supposed to be something between

0:18:59.160 --> 0:19:01.600
<v Speaker 1>two and a half to three so that I think

0:19:01.680 --> 0:19:04.480
<v Speaker 1>when the markets see that, sees that it tells them something.

0:19:05.040 --> 0:19:07.320
<v Speaker 1>To be fair to the Atlanta Fair, that is a

0:19:07.359 --> 0:19:11.520
<v Speaker 1>tracking estimate which does change week by week depending on

0:19:11.600 --> 0:19:14.000
<v Speaker 1>incoming data. And I just wanted to say that, well,

0:19:14.040 --> 0:19:15.840
<v Speaker 1>that is the crux of what the ECB is doing

0:19:15.880 --> 0:19:17.440
<v Speaker 1>to get away from the vetch just a little bit.

0:19:18.080 --> 0:19:20.840
<v Speaker 1>They're buying program of corporate bonds. What will really matter

0:19:20.920 --> 0:19:24.520
<v Speaker 1>is whether that trickles truth too small and medium sized companies,

0:19:24.560 --> 0:19:26.480
<v Speaker 1>and as we know in Europe, those are much less

0:19:26.480 --> 0:19:29.760
<v Speaker 1>dependent on the markets and do a lot more through

0:19:29.760 --> 0:19:33.560
<v Speaker 1>bank financings. Are any of the market participants that your

0:19:33.600 --> 0:19:40.080
<v Speaker 1>teams are talking to saying that the initial stimulus, and

0:19:40.119 --> 0:19:44.240
<v Speaker 1>by initial I mean say from late two thousand and

0:19:44.320 --> 0:19:49.520
<v Speaker 1>seven through two for arguments, say, are they saying those

0:19:49.600 --> 0:19:54.840
<v Speaker 1>were ineffective in staving off depression? There's no question about it.

0:19:55.080 --> 0:19:59.280
<v Speaker 1>But but that was two thousand, two thousand ten, two

0:19:59.280 --> 0:20:01.359
<v Speaker 1>thousand seven, two thousand and ten. We're now in two

0:20:01.400 --> 0:20:05.159
<v Speaker 1>thousand sixteen. It doesn't seem to be working as effectively

0:20:05.200 --> 0:20:08.800
<v Speaker 1>as it did then. So that's an argument for diminishing returns.

0:20:09.320 --> 0:20:11.960
<v Speaker 1>It is, but remember when when the FED begins to

0:20:11.960 --> 0:20:15.240
<v Speaker 1>stop reinvestment, that's going to be another big adjustment, particularly

0:20:15.280 --> 0:20:17.119
<v Speaker 1>for one market that never gets much mentioned, which is

0:20:17.119 --> 0:20:19.520
<v Speaker 1>the mortgage backed securities market. That is going to be

0:20:19.560 --> 0:20:22.680
<v Speaker 1>something to watch. Well, Madeline, you're responsible for first word.

0:20:22.760 --> 0:20:24.879
<v Speaker 1>That means for the last word. I do have to

0:20:24.920 --> 0:20:30.160
<v Speaker 1>come back to Bob by all means well he said

0:20:30.200 --> 0:20:32.800
<v Speaker 1>it as metal as said earlier. I mean, if you're

0:20:32.800 --> 0:20:35.399
<v Speaker 1>trying to answer the questions about whether markets are right

0:20:35.480 --> 0:20:38.400
<v Speaker 1>or wrong, there is no answer to that. The markets

0:20:38.400 --> 0:20:41.399
<v Speaker 1>are going to is going to vacillate from day to

0:20:41.480 --> 0:20:43.679
<v Speaker 1>day on the incoming data. But if you take a

0:20:43.680 --> 0:20:46.680
<v Speaker 1>step back, take a look at the markets as a whole,

0:20:47.160 --> 0:20:50.480
<v Speaker 1>the message that they're signaling is that central banks can't

0:20:50.520 --> 0:20:54.800
<v Speaker 1>do it alone. And meanwhile, every Fed official says, hey,

0:20:54.920 --> 0:20:58.800
<v Speaker 1>but the April meeting is still alive. Meeting or Bob

0:20:58.800 --> 0:21:00.639
<v Speaker 1>and Madeline, thanks for joy and us. We're going to

0:21:00.760 --> 0:21:03.480
<v Speaker 1>definitely have you back, and thank you to all of

0:21:03.520 --> 0:21:06.640
<v Speaker 1>you for listening to Bloomberg Benchmark. We will be back

0:21:07.080 --> 0:21:09.040
<v Speaker 1>next week. Until then, you can find us on the

0:21:09.040 --> 0:21:12.480
<v Speaker 1>Bloomberg terminal and Bloomberg dot com, as well as iTunes,

0:21:12.560 --> 0:21:16.480
<v Speaker 1>pocket Cast, Stitcher and a few others. And while you're there,

0:21:16.720 --> 0:21:19.199
<v Speaker 1>take a minute to rate and review the show so

0:21:19.320 --> 0:21:21.879
<v Speaker 1>more listeners can find us and do let us know

0:21:21.960 --> 0:21:24.560
<v Speaker 1>what you thought of this show. You can talk to

0:21:24.600 --> 0:21:27.159
<v Speaker 1>and follow us on Twitter at at Daniel Moss, d

0:21:27.320 --> 0:21:36.640
<v Speaker 1>C at Tory Steelwell, and at Aco seven. This episode

0:21:36.640 --> 0:21:41.480
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