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Speaker 1: This is Bloomberg surveying South. There's that we can call

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Speaker 1: the Big three of world oil and tood Martin OPEC.

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Speaker 1: One is Russia and the other. In fact, the United

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Speaker 1: States can costibly justify a rate hikes in June, They'll

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Speaker 1: go ahead. Indista. Monterrey policy is very good at influencing

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Speaker 1: the business cycle. Monterrey policy is not very good at

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Speaker 1: influencing structural impediments to growth. From Bloomberg Surveillance your link

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Speaker 1: to the world of economics, finance and investment on Bloomberg Radio.

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Speaker 1: Good morning everyone, Michael McKee and Tom Keane on a

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Speaker 1: Monday after IF Friday. That was amazing what we observed

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Speaker 1: today thirty on Friday, A lot of good research notes

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Speaker 1: through Friday into the weekend, and of course a number

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Speaker 1: published this morning as well. In this hour, Robert Cinch

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Speaker 1: will join us some Amazon. Pierre Pound, we dragged him

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Speaker 1: on Friday on euro yen and we got a lot

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Speaker 1: more to talk about than uh, the moment of euro

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Speaker 1: yen that we saw uh last week. Sterling just in

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Speaker 1: the last hour, not cratering, that's the wrong phrase, but

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Speaker 1: Sterling much weaker off. Another poll indicating Brexit gaining some

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Speaker 1: momentum off Bromain. So let's to talk about this morning.

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Speaker 1: We welcome all of you worldwide in the United Kingdom

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Speaker 1: and of course coast to coast Bloomberg twe Boston, Bloomberg

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Speaker 1: eleven three on New York, Bloomberg in Washington and Baltimore.

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Speaker 1: Good morning, and of course the early morning in San

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Speaker 1: Francisco as well. Bloomberg Surveillance I brought you by Investco.

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Speaker 1: Don't settle for average in your portfolio. To Investco, the

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Speaker 1: right approach means investing with a high conviction. Find out

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Speaker 1: more at investco dot com. Slash high convictions. Some stability

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Speaker 1: in the markets off the gyration that we saw Friday.

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Speaker 1: You see that in the yield the two years to

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Speaker 1: four digits point seven three excuse me, that's two basis

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Speaker 1: points higher yield lower note rices futures basically flat up

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Speaker 1: to I would know German yields again with stability, although

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Speaker 1: the two year yield uh in a negative zero point

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Speaker 1: five is remarkable, and again the dollar churning here with

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Speaker 1: a little bit of dollar strength of that Brexit news earlier.

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Speaker 1: It is wonderful to begin my week on Bloomberg Surveillance

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Speaker 1: Radio with Robert Sinch of Amer's pier punt. What Fob

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Speaker 1: Sinich does best is not just foreign exchange, not just bonds,

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Speaker 1: not just commodities, but a synthesis of all them through

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Speaker 1: the global litmus paper known is foreign exchanged. Bob, your

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Speaker 1: arch call is dollars stronger? Does yet yelling want a

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Speaker 1: stronger dollar? Or is that the cart that follows her

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Speaker 1: horse of our interest rates? So I think that's the

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Speaker 1: cart that follows her decisions and the and the f

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Speaker 1: o MC's decisions on interest rates UM. And I think

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Speaker 1: the tone at the f o m C importantly has

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Speaker 1: changed over the last three or four months. I think

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Speaker 1: the word normalization is probably going to be a bigger

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Speaker 1: part of their dialogue going forward. I think they're no

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Speaker 1: longer in a situation where they UM necessarily have to

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Speaker 1: focus on on things like like excess slack and and

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Speaker 1: inflation numbers heading lower. They know the the the headline

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Speaker 1: inflation numbers are heading higher and the core inflation numbers

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Speaker 1: are north of one and a half percent. But I

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Speaker 1: think uh, and I think Stanley Fisher has had a

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Speaker 1: big influence on this. They've come to realize that these

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Speaker 1: are not normal interest rates. These are emergency levels, uh,

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Speaker 1: and there's really no rational reason why they should still

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Speaker 1: be there. So I think they're trying to normalize policy,

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Speaker 1: and I think that that reduces the importance of things

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Speaker 1: like last Friday's numbers. I say this with great respect

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Speaker 1: for your work at Brown University with the claim Mr.

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Speaker 1: Pool and others, which is a vector gets in place,

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Speaker 1: and on a physics basis, the vector gets in motion

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Speaker 1: and stays in motion. This is the question I got

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Speaker 1: this weekend. Why can't they raise rates and just say

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Speaker 1: we're going to raise them to hear and stay here

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Speaker 1: instead of the presumption of a vector higher in a

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Speaker 1: measured path. Hire, Why can't they do one and done?

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Speaker 1: You know, I think that the Feds had a problem

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Speaker 1: here now for probably a year year and a half.

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Speaker 1: They would like to see the level of interest rates higher,

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Speaker 1: a more normal level of short term interest rates, so

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Speaker 1: they can get functioning, rational functioning back into markets. The

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Speaker 1: problem is getting from here to there. If they could

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Speaker 1: instantly get to one and a half percent on the

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Speaker 1: Fed funds rate, which would be a zero real Fed

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Speaker 1: funds rate versus the underlying level of core inflation, I

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Speaker 1: think they'd be very happy with that. I think they'd

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Speaker 1: feel that's a more rational financial world. The problem is

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Speaker 1: they're just afraid to get from a quarter to one

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Speaker 1: and a half percent. They're trying to figure out how

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Speaker 1: they get from here to there. Um. I think if

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Speaker 1: if the FED funds rate were at one or one

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Speaker 1: and a half percent, they would probably just leave it

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Speaker 1: there and find no reason to change it. But they've

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Speaker 1: got to get back to a normalized world. And I

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Speaker 1: think that's what we're hearing more kind of the Fed rhetoric.

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Speaker 1: And Robert Melman's note from JP Morgan this weekend was

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Speaker 1: they stand with the July rate increase, maybe you know,

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Speaker 1: positive June Brexit and all that. I just don't understand

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Speaker 1: why we can't have a July rate increase with language

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Speaker 1: that says, we understand the debate, but we've got to

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Speaker 1: have some some clearance off the zero bound. I don't

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Speaker 1: hear that from Cherry yelling. Well, I hear it today.

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Speaker 1: I I think you may begin to hear that. I

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Speaker 1: think you may hear her talking a little less about slack.

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Speaker 1: With a four point seven percent unemployment rate, wages starting

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Speaker 1: to creep up a little bit, I think you may

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Speaker 1: start to hear her talk a little bit more about

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Speaker 1: normalized financial conditions, um, and the fact that these are

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Speaker 1: emergency policies. And again, I think the thing that's changed

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Speaker 1: over the last twelve to eighteen months two things. Really. One,

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Speaker 1: I'm a se the unemployment rate down below five percent.

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Speaker 1: The second is I think we're seeing the influence of

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Speaker 1: of Vice Chair Fisher here in talking about getting a

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Speaker 1: fresh perspective and saying we really want to be in

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Speaker 1: a world where the real Fed funds rate versus core

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Speaker 1: inflation is still negative at a time when the unemployment

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Speaker 1: rates five percent or less. Did you study measured in school?

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Speaker 1: When did measured become measured? Was it? Is it an

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Speaker 1: artifact of Alan Greenspan? Now? I think measured took on

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Speaker 1: a took on a role in in policy when rates

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Speaker 1: got down to low levels, when the Fed wanted to

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Speaker 1: send well, I think a bit there. Of course, they

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Speaker 1: unfortunately didn't move them quickly enough during that cycle. UM.

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Speaker 1: And I think that's one thing that maybe is the

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Speaker 1: Fed is thinking about, is that they fell behind in

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Speaker 1: past cycles. Um. They were always worried about what the

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Speaker 1: downside risks were, uh, and never got markets to adjust

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Speaker 1: quickly enough on a on a gradual ba asis UM,

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Speaker 1: and so I think that's what they're trying to do

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Speaker 1: now is to say, you know, we've got this trade

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Speaker 1: off between raising rates but also the level of rates

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Speaker 1: and the whole structure of the financial system that comes from.

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Speaker 1: How does play out in the markets. What what I've

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Speaker 1: been watching more than anything is the German yields is

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Speaker 1: a proxy for disinflation and deflation in America. Steve Major

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Speaker 1: and HSBC with a house call of one and a

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Speaker 1: half percent US tenure yield, can you frame an outcome

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Speaker 1: where we have yields ever lower in the United States.

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Speaker 1: It's not a very pleasant one. Uh, it's one, and

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Speaker 1: I think Mr Major would agree with that, right it's in.

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Speaker 1: It's one in which there are no drivers of demand

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Speaker 1: growth globally. You know, the demographics are working against demand

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Speaker 1: growth globally. UM. The reorientation of the Chinese economy UM

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Speaker 1: is one thing that's maybe helping demand growth globally. But

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Speaker 1: what I think we're we're struggling with is to see

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Speaker 1: where the next level of demand is going to come from. Uh.

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Speaker 1: Globally UM. I think we've gotten a push out of

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Speaker 1: lower energy prices UM, and that's helped but I think

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Speaker 1: going forward, we're going to continue to hear this drumbeat

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Speaker 1: of fiscal policy. UH needs to take up more of

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Speaker 1: the burdener of global growth UH, and we're just not

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Speaker 1: seeing it right now. And so that's where I think

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Speaker 1: the monetary policymakers in a sense maybe have to start

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Speaker 1: adopting rational policy and stop being the scapegoat for the

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Speaker 1: lack of fiscality. So it just Jenny Yelling comes out

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Speaker 1: today and Dennis luck Art with their Michael McKain, they

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Speaker 1: say we need more assistance fiscally. I see no indication

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Speaker 1: within the election cycle or even after the election cycle

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Speaker 1: of fiscal stidilus. I mean, I help me there. Well,

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Speaker 1: I think after the election cycle it could be a

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Speaker 1: bit different because I think there are um you know,

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Speaker 1: I think both major candidates are talking about having to

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Speaker 1: do some things differently than we've done them in the past. UM.

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Speaker 1: And so I think we could see um some some

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Speaker 1: some tax reform on the corporate side, probably the best

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Speaker 1: thing we could see right now for this economy in

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Speaker 1: terms of generating investment. That is the weakest part of

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Speaker 1: this economic expansion. UH. It's weak around the world, and

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Speaker 1: I think there's just as you would put in a

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Speaker 1: lack of animal spirits, a lack of incentive to invest

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Speaker 1: in new technologies and new capacity. So I think it's

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Speaker 1: the investment side where the biggest disappointment is, and that

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Speaker 1: would argue that that's where the focus ought to be

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Speaker 1: on fiscal policy going forward, is how do we generate

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Speaker 1: a better environment to create business investment, create capital, to

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Speaker 1: create more capital capital, labor ratios go up, productivity should

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Speaker 1: go up, real wages should go up. So you know,

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Speaker 1: if you, if you, if you look around the world,

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Speaker 1: the weakness is in the investment side of global economies. Um,

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Speaker 1: and I think that's where the incentive should be going forward.

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Speaker 1: Pun As we get going here in the seven o'clock

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Speaker 1: are to remind you Dennis Lockhart in conversation with our

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Speaker 1: Michael McKee, I believe that's in the nine o'clock hour,

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Speaker 1: and then we move on to the Philadelphia speech of

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Speaker 1: Cherry Yell, and you'll see that in the twelve noon

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Speaker 1: hour today. That was an important speech in evermore so,

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Speaker 1: I love that Capital Economics said, which was the scribbling

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Speaker 1: you heard Friday at about nine am, was Janet Yelling

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Speaker 1: ripping up her speech and doing something a little bit

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Speaker 1: different as well. The yeah one oh seven fourteen sterling

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Speaker 1: after the shock and all an hour ago from a

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Speaker 1: one forty three up to one zero three, futures up

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Speaker 1: to Dow futures up thirty as well. Brent crude fifty

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Speaker 1: dollars fourteen cents barrel, Tom Keene and Michael McKee from

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Speaker 1: New York stay with us, uh this is on a Monday.

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Speaker 1: Bloomberg Surveillance is brought to you by Palisade. Touty was

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Speaker 1: a Palisade doughty dot com. Now let's chicken and get

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Speaker 1: local news headlines and Michael Hillary Clinton goes into Tuesday's

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Speaker 1: California primary, needing just twenty six more delegates to clinch

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Speaker 1: the Democratic presidential nomination. At aroundy last night in the state,

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Speaker 1: she warnted a contentious campaign ahead trafical storm Colin gaining

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Speaker 1: speed as rank as it gets ready to strike Florida

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Speaker 1: to say, the center of the storm was expected approach

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Speaker 1: the coast of the Florida Big Bend area this afternoon

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Speaker 1: or this evening, and Ukraine's intelligence agency SPU says it

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Speaker 1: you John, and we are watching an update in the markets.

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Speaker 1: A few that the markets were essentially flat on Friday

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Speaker 1: a Bloomberg Business flash and I'm carrying Moscow. This update

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Speaker 1: brought to you by the accountants that advisors at Osner Amper.

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Speaker 1: Cyber security is on the mind of every business leader

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Speaker 1: managing cyber risk should be to get started with a

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Speaker 1: cyber risk assessment. Learn more Osner Emper dot com slash

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Speaker 1: cyber risk. The pound dropping to a three week low

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Speaker 1: after polls showed more Britain's favored quitting the European Union,

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Speaker 1: reviving concern the June twenty three referendum will throw global

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Speaker 1: markets into turmoil and undermine confidence in the twenty eight

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Speaker 1: nation training block. Every dish found a dollar forty four twelve,

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Speaker 1: the euro A dollar thirteen forty two. Futures are high

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Speaker 1: er snp e many futures up three points now e

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Speaker 1: many futures up thirty four nas vacuum any futures up

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Speaker 1: eight that acts in Germany's up to ten percent ten

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Speaker 1: Your treasury down six thirty seconds. The yels one point

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Speaker 1: seven two percent, no max screwed oil up one per

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Speaker 1: cent or fifty six cents toen to barrel called my school.

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Speaker 1: The tenth of upper center, a dollar eighty to twelve

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Speaker 1: forty four, seventy and ounce. That's a Bloomberg business flash.

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Speaker 1: Tom and Mike Karen, thank you so much, greatly appreciate it.

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Speaker 1: Good morning everyone, Michael McKeon, Tom, Michael, what are you

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Speaker 1: gonna ask Dennis lock Art today? Oh? Ask him whether

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Speaker 1: he thinks June or July or off the table, that's

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Speaker 1: the question everybody wants to know. Um, why do they

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Speaker 1: think that we saw such a lousy number in June?

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Speaker 1: That's the immedia. I would ask him, can you ask

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Speaker 1: him about the Atlanta GDP in Atlanta? This in Atlanta,

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Speaker 1: that there's all these numbers, stop cent with this with

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Speaker 1: the Ambers pure there's a like p this is the

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Speaker 1: mic Bob, I know you've never done this before, the

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Speaker 1: p M I now there's like forty two p M.

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Speaker 1: I s we're gonna have like seven Atlanta GDP. Now

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Speaker 1: wage trek or now do we need all this data? Well?

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Speaker 1: I think the you know, the public sector, I mean

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Speaker 1: the private the public sector rather, the FEDS have had

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Speaker 1: numbers like this for quite some time. UM. I think

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Speaker 1: they're just starting to publish them now to give some

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Speaker 1: sense of of how they're viewing the world. UM, a

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Speaker 1: little bit more structured basis, So instead of it being

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Speaker 1: qualitative discussions, you can now have quantitative discussions. And these

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Speaker 1: really are tracking indicators to track. I think the biggest

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Speaker 1: surprise to me has been how much difference there has

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Speaker 1: been between the the sort of the now casting numbers

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Speaker 1: coming out of the Atlanta FED and out of the

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Speaker 1: new York Fed. I don't know whether there's an inherent, uh,

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Speaker 1: you know, focus from the from down south being a

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Speaker 1: little more optimistic, but certainly the Atlanta FED now casting

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Speaker 1: numbers UM, which which take into account of current data,

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Speaker 1: have been a little more more upbeat than the New

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Speaker 1: York Fed's numbers. Uh. New York Fed even now inching

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Speaker 1: back above two percent though for the for the current quarter. Well,

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Speaker 1: and I mean, it just shows you that different models

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Speaker 1: produce different results. But we're also talking about a sixteen

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Speaker 1: trillion dollar economy, and we're talking about very small deviations

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Speaker 1: between the two in terms of total amount of money.

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Speaker 1: So you know, it's it's kind of hard to believe

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Speaker 1: that you could make a whole lot out of the

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Speaker 1: differences between them. Yeah, And I think again, some of

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Speaker 1: it may be a bit of a timing difference. Certainly,

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Speaker 1: the New York Fed estimate of of current growth is

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Speaker 1: has accelerated a bit in the last couple of weeks UM.

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Speaker 1: But I think in general, what it's telling us is

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Speaker 1: UH is that the economy is rebounding reasonably well during

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Speaker 1: the current quarter UM, and I think that that sets

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Speaker 1: the stage for the FED to take some action as

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Speaker 1: we go through the remainder of this year and I

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Speaker 1: and I think even the Fed rhetoric around this is shifted.

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Speaker 1: I think the FED being much more oriented to trying

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Speaker 1: to normalize rates now as we go through this year

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Speaker 1: and into two thousand and seventeen. Do you believe that, uh,

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Speaker 1: they want to breeze rates. I mean that that was

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Speaker 1: the feeling I have had for a while, that they

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Speaker 1: think enough is enough. I think they'd like the level

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Speaker 1: of rates to be higher. Um. I think they're having

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Speaker 1: difficulty in getting from here to there. But I think

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Speaker 1: they'd be very comfortable with a FED funds rate that

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Speaker 1: was pretty close to the core level of core inflation. Um.

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Speaker 1: You know, we've got core inflation measures that range somewhere

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Speaker 1: in the one and a half to two percent range.

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Speaker 1: I think they'd feel comfortable with a real FED funds

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Speaker 1: rate at zero, which is still by historic standards very low,

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Speaker 1: which would imply a nominal FED funds rate of at

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Speaker 1: least one and a half percent. I think the difficulty

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Speaker 1: they're having is getting from here to there, and I

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Speaker 1: think every time you get a bad number like this,

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Speaker 1: they kind of wish they had done it a few

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Speaker 1: months earlier rather than to face these constraints. But I

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Speaker 1: think whereas six months ago, twelve months ago, they were

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Speaker 1: looking for reasons not to to normalize rates and move

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Speaker 1: rates up, I think they've now shifted their focus to saying,

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Speaker 1: we want to try to get rates normalized, and so

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Speaker 1: the orientation is we're going to high rates unless something

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Speaker 1: really tells us we shouldn't. Does this, Mike, does this

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Speaker 1: set us up for a jump condition? I mean, my

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Speaker 1: problem is with a shocker Friday, and with a lot

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Speaker 1: of my good research notes that really stand by July

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Speaker 1: and the need to raise rates, the outcome, bobsyons has

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Speaker 1: to be instability, you would think, although I think the

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Speaker 1: hallmark of today is actually not very much follow through.

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Speaker 1: I think the markets are digesting the fact that, um,

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Speaker 1: you know, we may have had a bit of an

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Speaker 1: overshoot on the weakness of the dollar, and we're seeing

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Speaker 1: the dollar back above one oh seven. We're seeing your

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Speaker 1: dollar coming off a little bit today. The pound has

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Speaker 1: its own problems, um, But I think the markets disc

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Speaker 1: out at the timing of June. But I think pretty

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Speaker 1: quickly are coming to grips with a July move again,

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Speaker 1: unless something really goes off the rails between now and then,

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Speaker 1: and in a sense, I think that's a bit of

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Speaker 1: a healthy situation where we're not extrapolating the latest little

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Speaker 1: nuance into something much more extended. And I think again

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Speaker 1: this shows the sentiment out there that that the mentality

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Speaker 1: of the FED has shifted, that the FED does want

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Speaker 1: to normalize rates and as long as there is not

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Speaker 1: something in their way, they will continue to do that.

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Speaker 1: The cp I was up, the pc was up, and

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Speaker 1: in the it wasn't as widely noted, but we had

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Speaker 1: the I S M Services numbers out after the Job's

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Speaker 1: report on Friday, and they noted that labor was a

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Speaker 1: commodity up in price for the thirteenth straight month. So, uh,

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Speaker 1: you gotta wonder maybe if they wait too long, you

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Speaker 1: got an inflation problem. Yeah, you know. I I I

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Speaker 1: hate to talk about an inflation problem because I don't

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Speaker 1: think the data is going to show that any time

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Speaker 1: in the in the future. But to say that we

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Speaker 1: don't necessarily have an inflation problem doesn't mean we should

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Speaker 1: have a real FED funds rate. That's this negative um

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Speaker 1: And again that's where I get to the issue of

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Speaker 1: of the Feds not really hiking their normalizing and I

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Speaker 1: think that's a big difference in their mentality in terms

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Speaker 1: of how they're thinking. The other issue is, you know,

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Speaker 1: we see the employment data and the change in jobs

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Speaker 1: each month, and that's a reflection of the interaction of

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Speaker 1: supply and demand. And we always assume that the movement

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Speaker 1: in jobs data is driven by the demand for labor.

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Speaker 1: I think increasingly the slowing in employment growth is a

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Speaker 1: function of the supply curve. That the fact that in

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Speaker 1: many industries, and again we talk about macro economics, but

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Speaker 1: this is really microwave. Labor markets are labor or are

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Speaker 1: micro markets? There are many markets, there are command for

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