WEBVTT - Benchmark Special: Here's What You Need to Know About the Fed

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<v Speaker 1>Welcome back to the Bloomberg Bench, my podcast, a show

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<v Speaker 1>about the global economy. I'm Daniel Moss, Bloomberg News Executive

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<v Speaker 1>editor for Global Economics in New York. It's September twenty one,

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<v Speaker 1>and this edition is devoted entirely to the Federal Reserve, only,

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<v Speaker 1>the world's most powerful economic policy body. Joining me and

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<v Speaker 1>my colleagues Scott Landman and Matt Bosler in Washington, who

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<v Speaker 1>have been dissecting this decision for the past couple of hours. Scott, Matt,

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<v Speaker 1>you're not quite up for air yet, but you're almost there.

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<v Speaker 1>We're just coming up right now. It's been a busy

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<v Speaker 1>day so far, but we are ready to hash it out.

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<v Speaker 1>The Fed walked up to the line but didn't cross it.

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<v Speaker 1>Interest rates held at the current level again, but with

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<v Speaker 1>more than a hint that something will come soon, possibly

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<v Speaker 1>as early as December. Why not pull the trigger today?

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<v Speaker 1>Well that's a great question, you know, because Janet Yellen

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<v Speaker 1>made very clear that they think they're going to be

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<v Speaker 1>in a position to do so in just a matter

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<v Speaker 1>of weeks, as soon as December. That's twelve weeks away,

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<v Speaker 1>so why not today? And the answer she gave was

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<v Speaker 1>basically just that we didn't really feel like we needed

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<v Speaker 1>to do anything today. We have some time here. Things

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<v Speaker 1>aren't getting away from us, The economy isn't overheating, so

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<v Speaker 1>why not just sit back and collect some more information,

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<v Speaker 1>make sure we're on the right track before pulling the

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<v Speaker 1>trigger and actually raising rates. Ultimately, what it seemed to

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<v Speaker 1>come down to was, you know, and she actually said this,

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<v Speaker 1>that perhaps a rate hike would harm the economy, would

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<v Speaker 1>harm some of the growth in the labor market and

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<v Speaker 1>add to what she called slack in the market. So

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<v Speaker 1>you know, that's what they don't want to do. And

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<v Speaker 1>it sounds like it was a fairly fierce debate as

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<v Speaker 1>far as these things go. You know, Yelling led the

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<v Speaker 1>way in deciding not to pull the trigger. At the

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<v Speaker 1>press conference that followed the meeting, the first couple of

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<v Speaker 1>questions seemed to be devoted almost entirely to this issue.

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<v Speaker 1>If you're confident there will still be a right increase

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<v Speaker 1>in t and that's what the famous dots show again,

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<v Speaker 1>what changes between now and then? And inevitably, given the decision,

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<v Speaker 1>she was asked about the election. Yeah, and I think

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<v Speaker 1>these questions kind of get to an important point, which

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<v Speaker 1>is just that you know, not a lot is going

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<v Speaker 1>to change between now in December. Like you said, so,

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<v Speaker 1>a lot of the message that we got from Janet

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<v Speaker 1>Yelling is maybe the economy is not ready for a

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<v Speaker 1>rate increase. She gave all of these reasons why they

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<v Speaker 1>didn't need to go and so sort of the sore

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<v Speaker 1>thumb sticking out there, if you will, is this desire

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<v Speaker 1>or expectation that they actually will raise rates as soon

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<v Speaker 1>as December. As much as she can say, and she

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<v Speaker 1>repeated many times that the FED is not influenced politically,

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<v Speaker 1>It takes no political considerations into account. You won't see

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<v Speaker 1>anything in the transcripts. You know, it's going to be

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<v Speaker 1>hard for the broader public to accept that, and you know,

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<v Speaker 1>we're still likely to see some blowback from people like

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<v Speaker 1>Donald Trump continuing to accuse Janet Yellen and the FED

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<v Speaker 1>of acting politically to support Democrats in an election year. Now.

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<v Speaker 1>In her answer to one of those questions at the

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<v Speaker 1>press conference, she said, the FIT does not take into

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<v Speaker 1>consideration partisan politics. Is it reading too much into it

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<v Speaker 1>to talk about the modifier partisan. That's not to say

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<v Speaker 1>they don't take politics into account. Am I looking at

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<v Speaker 1>this too closely? There? Was another question in the press

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<v Speaker 1>conference that tried to get at the issue more broadly,

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<v Speaker 1>which was, do you think uncertainty surrounding the election in

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<v Speaker 1>general is having an impact on spending on the economy,

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<v Speaker 1>And that's something that some of Yellen's colleagues have suggested

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<v Speaker 1>maybe the case, But when she was asked about it today,

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<v Speaker 1>she said she wasn't really aware of any evidence that

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<v Speaker 1>would suggest the election is actually weighing on the economy.

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<v Speaker 1>So it's unclear how top of mind that really is,

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<v Speaker 1>even though you actually have some reports that confidence indexes

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<v Speaker 1>things like that that do show that people are thinking

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<v Speaker 1>about the election and it does seem to influence their

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<v Speaker 1>views on sentiment, right, Matt, Yeah, that's right. Even one

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<v Speaker 1>of the fat's own reports, the Beach Book, which is

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<v Speaker 1>just a collection of anecdotes from business contacts they talked to,

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<v Speaker 1>has raised this issue. So she wasn't she was keen

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<v Speaker 1>to downplay that today. I would say she's she's being excessively,

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<v Speaker 1>excessively cautious. That's very cautious in trying to not talk

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<v Speaker 1>about the election, and clearly she's sensitive to any anything

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<v Speaker 1>about that. Three voting members of the Fed's Rate Setting

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<v Speaker 1>Committee dissented today one Esther George from Kansas City, not

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<v Speaker 1>a surprise. She's been in that position before. Let's talk

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<v Speaker 1>a bit about Eric rosen Grin from Boston. Now he

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<v Speaker 1>has dissented both on the Dovish side and now today

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<v Speaker 1>on the hawkish side. Should he get Man of the

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<v Speaker 1>Year award for his independent thought in action? Yeah, that's

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<v Speaker 1>a good question. You know, he's like one of these

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<v Speaker 1>fat officials on the committee who's really undergone a bit

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<v Speaker 1>of a shift. Whereas, like you said, before he was

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<v Speaker 1>seen as more of a dove and now he's seen

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<v Speaker 1>as as more of a hawk. And one of my

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<v Speaker 1>colleagues made a related point, um just a few minutes ago,

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<v Speaker 1>we were talking about it and the fact that Yelling

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<v Speaker 1>had three descents today from within her own committee. In

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<v Speaker 1>addition to all the external pressure, it took some guts

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<v Speaker 1>for her to do what she did as well. So

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<v Speaker 1>I think there's some of that on both sides of

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<v Speaker 1>the debate right now. Well, two descents is not unusual,

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<v Speaker 1>and as we just said, Esther George from Kansas City

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<v Speaker 1>not infrequently finds herself in that position. Could rosen Grin's

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<v Speaker 1>descent when the history of this meeting is written ultimately

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<v Speaker 1>be the thing that stands out. M That's a good question.

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<v Speaker 1>He stumped me on that. Yeah, I mean as an

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<v Speaker 1>indicator of the degree of tension behind the scenes, and

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<v Speaker 1>as a directional indicator. Here we have even a dove

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<v Speaker 1>voting for writing. Chris, that's exactly the way to put it.

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<v Speaker 1>I mean, just the fact that you have three descents

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<v Speaker 1>and enough is one thing, and that's a relative rarity

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<v Speaker 1>in recent fo MC history. When one of them is

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<v Speaker 1>a guy who clearly expressed more dubbish views in the

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<v Speaker 1>past and even dissented that way at a couple of meetings,

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<v Speaker 1>it does show that the overall shift is moving in

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<v Speaker 1>that hawkish direction, and that creates more tension the committee.

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<v Speaker 1>It does take some more effort, willpower and intellectual argument

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<v Speaker 1>to lay that out and push against that. Now, as

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<v Speaker 1>our listeners can probably gather by this conversation, there's an

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<v Speaker 1>entire industry to vote it to passing every word, every comma,

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<v Speaker 1>every vote. Let's take this out of one land for

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<v Speaker 1>a moment, Matt. What does it mean for you personally?

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<v Speaker 1>You're at the start of your working life. Yeah, that's right,

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<v Speaker 1>and I live in New York, so I'm excited that,

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<v Speaker 1>you know, property prices are no longer going up as

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<v Speaker 1>quickly as they used to be. So it's a good question.

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<v Speaker 1>Not much has really changed, right, But Um, the Fed

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<v Speaker 1>seem to be trying to get things going faster still,

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<v Speaker 1>even though they're acknowledging that monetary policy doesn't have necessarily

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<v Speaker 1>a lot of scope to do that, they're still trying

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<v Speaker 1>to get the economy to a point where things are

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<v Speaker 1>going a little faster for everyone. Um. And so you know,

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<v Speaker 1>hopefully that works out. And when you say things going

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<v Speaker 1>a bit faster for everyone, we're talking about this issue

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<v Speaker 1>of how survey after survey shows not every American believes

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<v Speaker 1>or can feel that we're close to full employment. Right.

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<v Speaker 1>And you know, you've heard a lot more of this

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<v Speaker 1>coming out of the FED recently, where they've been talking

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<v Speaker 1>about differentials between unemployment rates for white people and for

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<v Speaker 1>black people, for example. Uh, this is stuff that the

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<v Speaker 1>FED did not historically talk about, but lately they have

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<v Speaker 1>been more cognizant of addressing these issues, putting them out

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<v Speaker 1>in the public, talking about the distributional consequences of economic policies. Um.

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<v Speaker 1>And so, especially with Janet Yellen, given her focus on

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<v Speaker 1>the labor market and her background, her previously stated desires.

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<v Speaker 1>She's getting exactly what she wants right now, which is

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<v Speaker 1>bringing some of those people at the lower end back end. Finally,

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<v Speaker 1>as the economy starts to run a little hotter, and

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<v Speaker 1>even if they did increase interest rates today, historically borrowing

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<v Speaker 1>costs are still at very low levels. It's really mean

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<v Speaker 1>anything outside this building. As Matt was just showing me

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<v Speaker 1>this morning, the rate hike that the Fed did last

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<v Speaker 1>December has had virtually no impact on borrowing costs and

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<v Speaker 1>savings rates. In fact, they've actually come down. And let's

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<v Speaker 1>due more to global forces that have kept interest rates

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<v Speaker 1>low around the world and that's spilled over to the

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<v Speaker 1>United States. Now. If they do hike, though, something's going

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<v Speaker 1>to have to give, and we could actually see a

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<v Speaker 1>bump up in the savings rates the kind of people

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<v Speaker 1>who have money market accounts, savings accounts, those kinds of things,

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<v Speaker 1>especially older folks, and that might actually give a boost.

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<v Speaker 1>And and at the same time interest rates, borrowing costs

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<v Speaker 1>are still probably going to stay relatively low. So they

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<v Speaker 1>hiked it could still be a win win for the economy.

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<v Speaker 1>This won't be the last time we're discussing monetary policy

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<v Speaker 1>on this podcast, but between now and when we do,

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<v Speaker 1>hopefully conditions on this podcast will strengthen somewhat further. We'll

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<v Speaker 1>be back next week, and until then, you can find

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<v Speaker 1>us on the Bloomberg Terminal and Bloomberg dot com, as

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<v Speaker 1>well as iTunes, pocket cast, and Stitcher. Why did they

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<v Speaker 1>take a minute to rate, not interest rate, but rate

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<v Speaker 1>the show so more listeners can find us and let

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<v Speaker 1>us know what you thought of the show. You can

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<v Speaker 1>talk to and follow us on Twitter at at Daniel Moss,

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<v Speaker 1>d c at scott Landmann s c O T T

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<v Speaker 1>l A N m A n at bows b o

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<v Speaker 1>E s underscore, love your Twitter hand on Matt, See

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<v Speaker 1>you next time.