WEBVTT - Amherst's Stanley on FOMC Minutes: 'Angry Birds' at Fed (Audio)

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<v Speaker 1>showed most officials set an interest rate increase would be

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<v Speaker 1>dot com to learn more. This is taking stock the

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<v Speaker 1>FED in focus on bloom Word Radio. FED releases the

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<v Speaker 1>minutes of its April meeting market. It takes it as

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<v Speaker 1>a sign given the wording, participants judging that of incoming

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<v Speaker 1>data would be consistent with growth picking up and labor

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<v Speaker 1>market conditions continuing to get better and inflation even just

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<v Speaker 1>making progress to the Fed's target could be time to

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<v Speaker 1>raise rates. Well, let's find out how. A man who's

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<v Speaker 1>been writing a lot about the FED this week. In fact,

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<v Speaker 1>you talked about angry birds at the FED recently. Stephen Stanley,

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<v Speaker 1>chief economists at Amherst Pierpont Security, joins us. Now, So,

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<v Speaker 1>first of all, Stephen, what is your immediate response to

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<v Speaker 1>the minutes? Well, Hi, Kathleen, I think the most important

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<v Speaker 1>thing for me is that it it um corroborates what

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<v Speaker 1>I thought, which is that at the time of the

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<v Speaker 1>April meeting, what the FED wanted is they wanted the

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<v Speaker 1>markets to move closer to a fifty fifty assessment of

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<v Speaker 1>the odds of a June move, so that a June

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<v Speaker 1>move would be open to them. And at the time,

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<v Speaker 1>the odds of a June move were probably as low

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<v Speaker 1>as and I think the Fed was probably quite surprised

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<v Speaker 1>and maybe a bit perturbed that the odds actually went

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<v Speaker 1>down almost all the way to zero by the end

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<v Speaker 1>of last week, and that's why you've seen maybe some

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<v Speaker 1>of the more strident rhetoric over the last week or two.

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<v Speaker 1>A three legged stool. Stephen Stanley, Economic growth, labor market condition,

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<v Speaker 1>and inflation tell us your thoughts on each three well,

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<v Speaker 1>I think the minutes reiterate that the Fed did not

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<v Speaker 1>put a lot of stock in the low Q one

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<v Speaker 1>GDP number. Um we know from the statement that they

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<v Speaker 1>were weighing the strength and labor market conditions as more

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<v Speaker 1>important than the UH low GDP number. So I think

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<v Speaker 1>that's and that's certainly fleshed out quite well in the minutes.

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<v Speaker 1>I think on inflation. There's still a bit of a

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<v Speaker 1>division of opinion. They're they're a number of folks on

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<v Speaker 1>the committee who are starting to become concerned that the

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<v Speaker 1>tightness of labor markets and the fact that we've already

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<v Speaker 1>begun to see a little bit of of gradual uptick

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<v Speaker 1>in wages and in core inflation means that they need

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<v Speaker 1>to get moving in there. Others who were still in

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<v Speaker 1>addition to Esther, George of the Kansas City Fed, well, yeah,

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<v Speaker 1>I mean, I think she's certainly one that wants to move.

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<v Speaker 1>In the minutes said that there were a few people

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<v Speaker 1>who wanted to move, So I think you can infer

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<v Speaker 1>there were at least a couple of of non voters

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<v Speaker 1>who would also have sinned off in an April move

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<v Speaker 1>if they had a chance to vote on it. So Steven,

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<v Speaker 1>just to follow up on the expectations. Now, probability of

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<v Speaker 1>June rad hike up to not not more than fifty,

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<v Speaker 1>but still it was down around four percent earlier this week.

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<v Speaker 1>Your piece just from a couple of days ago, angry

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<v Speaker 1>birds at the FED talking about hawks and doves at

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<v Speaker 1>the Fed often failing to see eye to eye, but

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<v Speaker 1>either the consensus is shifting at the FED or the

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<v Speaker 1>Hawks are gearing up to challenge the ruler of the ruse. Uh.

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<v Speaker 1>Cheer Yelling. I think you're making a very interesting, important argument.

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<v Speaker 1>Maybe a lot of the comments that have been made

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<v Speaker 1>publicly are to you know, help lead the FED in

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<v Speaker 1>a direction and start laying down the gauntlet before the

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<v Speaker 1>next meeting. Yeah. I think that's right, And I think

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<v Speaker 1>for me, the most important thing is the fact that

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<v Speaker 1>Cherry Ellen did schedule a speech for June six, because

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<v Speaker 1>you know, I think from the market perspective, if they

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<v Speaker 1>don't hear it from her, they're not going to believe it.

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<v Speaker 1>Because there have been a number of times over the

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<v Speaker 1>last year or so when Hawks has kind of started

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<v Speaker 1>to get all agitated and then Cherry Yelling or one

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<v Speaker 1>of the other problem that does in the committee kind

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<v Speaker 1>of you know, pushed back hard. Uh. Most recently at

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<v Speaker 1>the end of March, when Yelling gave her last public speech.

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<v Speaker 1>There had been some pretty intense hawk Is rhetoric coming

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<v Speaker 1>out of certain quarters of the FED after that March meeting,

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<v Speaker 1>and she kind of slapped that down. I think, so, um,

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<v Speaker 1>you know, this June six speech I think is going

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<v Speaker 1>to be pretty pivotal in shaping expectations around the June meeting,

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<v Speaker 1>which comes a little over week after that. Stephen Stanley,

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<v Speaker 1>are we going to see more bonds sell offs right now?

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<v Speaker 1>Looking at the thirty year were down more than more

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<v Speaker 1>than a full point, down more than one percent, and

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<v Speaker 1>the tenure were down more than seven tents. The two

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<v Speaker 1>year PM is now up to point nine zero. On

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<v Speaker 1>that there's having a huge move, a big sell off

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<v Speaker 1>at the short end as well. Yeah. Well, I mean,

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<v Speaker 1>you know, the markets really weren't pricing in very much

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<v Speaker 1>at all for the I mean less than a full

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<v Speaker 1>hike for all of two thousand and sixteen, and less

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<v Speaker 1>than a full hike for all two thousand and seventeen

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<v Speaker 1>up until a couple of days ago. So if if

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<v Speaker 1>the markets are convinced the Fed's going to get serious

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<v Speaker 1>about raising rights here, then yeah, obviously um interest rates

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<v Speaker 1>are going to have to adjust up and down the curve.

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<v Speaker 1>So what are you what odds would you put on

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<v Speaker 1>them June inter strate increase the meeting again just to

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<v Speaker 1>three weeks away, there's a July meeting. Do you think

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<v Speaker 1>they wait till then? Stephen? Well, I think they could

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<v Speaker 1>wait if if Brexit proves to be a disruptive force

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<v Speaker 1>in the lead up to the June meeting. But but

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<v Speaker 1>I actually still think that June is the most likely scenario.

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<v Speaker 1>I put the odds of a of a June move

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<v Speaker 1>at something like two out of three. UM. I think

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<v Speaker 1>that you know, where there's smoke, there's fire. And there's

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<v Speaker 1>been a lot of talk amongst people to fed and

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<v Speaker 1>not just the Hawks recently, but but even some of

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<v Speaker 1>the Doves. UM. And the fact that Cherry Yellen scheduled

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<v Speaker 1>the speech for June six, to me is that maybe

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<v Speaker 1>I'm reading a little too much here, but I think

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<v Speaker 1>that that's a pretty strong influence that she wants to

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<v Speaker 1>uh to say something. And and obviously she wouldn't really

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<v Speaker 1>have had to schedule that speech if all she wanted

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<v Speaker 1>to say was that we're not ready to move, because

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<v Speaker 1>it wasn't priced in at all a couple of days ago.

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<v Speaker 1>Thank you very much for spending time with us. Stephen

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<v Speaker 1>Stanley is the chief economist for Amherst pure Pont Securities.

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<v Speaker 1>They're based in Stanford, Connecticut, giving his thoughts about the

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<v Speaker 1>Federal Open Market Committee policy meeting in April. The minutes

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<v Speaker 1>just released most Federal Reserve policymakers said an interest rate

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<v Speaker 1>increase would be appropriate in June and the economy continued

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<v Speaker 1>to improve. That they're divided over whether those conditions will

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<v Speaker 1>be net June interest rate increase. That odd odds of

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<v Speaker 1>that move seems to be somewhat higher. After LESA mint

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<v Speaker 1>Is today, our next guest is going to explain to

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<v Speaker 1>us why maybe the Fed should not be on the

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<v Speaker 1>move yet. This is Bloomberg Radio.