WEBVTT - Surveillance: Focus On Fed's Forward Guidance, Stanley Says 0:00:09.840 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Lee. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:28.080 Bloomberg dot Com, and of course, on the Bloomberg. Pleased 0:00:28.080 --> 0:00:30.000 to say that joining us on the phone is Steven Stanley, 0:00:30.000 --> 0:00:33.800 Amherst p Upont Chief Economists Stephen. Good morning. Too great 0:00:33.840 --> 0:00:36.160 to have you with us on the program. Good morning, 0:00:36.320 --> 0:00:38.680 big question for a lot of our audience whether this 0:00:38.760 --> 0:00:40.919 is an insurance rate cut that is about to come 0:00:40.960 --> 0:00:43.639 down from Chairman Poll or the beginning of a rate 0:00:43.680 --> 0:00:47.639 cunning cycle. Stephen, what are your talent clients right now? Well, 0:00:47.680 --> 0:00:50.120 I mean, obviously that depends on how the economy progresses, 0:00:50.200 --> 0:00:52.000 but I would say, you know, in my view, it's 0:00:52.040 --> 0:00:54.200 more of an insurance cut. I think the economy has 0:00:54.200 --> 0:00:58.520 proven um to be in considerably better shape today than 0:00:58.640 --> 0:01:01.640 than we saw it at the uh previous meeting in June, 0:01:01.640 --> 0:01:04.160 when the Fed essentially decided that they were gonna need 0:01:04.240 --> 0:01:08.680 to um to invoke cut in in July. So UM, 0:01:08.720 --> 0:01:11.959 you know, I I think it's premature to talk about 0:01:12.000 --> 0:01:13.920 whether there's going to be you know, maybe one or 0:01:13.920 --> 0:01:16.640 two more, But I certainly don't envision this being a 0:01:16.720 --> 0:01:18.920 long series of cuts, as you would expect if the 0:01:18.920 --> 0:01:22.080 economy we're falling into recession. Saying, what is the GDP 0:01:22.200 --> 0:01:24.440 growth right now and what is a tip point where 0:01:24.480 --> 0:01:27.120 Chairman Powell would continue to cut rates. Where where's the 0:01:27.160 --> 0:01:30.240 Steve Stanley statistic on the run rate of the economy 0:01:30.360 --> 0:01:33.000 right now? Well, the first half of the year we 0:01:33.040 --> 0:01:35.560 average two point six. I think that's a pretty good 0:01:35.680 --> 0:01:38.520 um metric of where we are now. I expect growth 0:01:38.560 --> 0:01:40.640 in the second half of the year to be pretty similar, 0:01:40.920 --> 0:01:44.560 with the consumer continuing to lead the way. Um. You know, 0:01:44.600 --> 0:01:47.480 in terms of where the tipping point is for Charman Pale, 0:01:47.560 --> 0:01:49.600 it's hard to say because from what I can tell 0:01:49.960 --> 0:01:51.960 that they're not really paying a lot of attention to 0:01:52.000 --> 0:01:55.440 growth there. Looking Steve, this is the art of the matter. 0:01:55.480 --> 0:01:57.720 I want to make clear, folks, Steve Stanley's when every 0:01:57.760 --> 0:02:00.920 award there is in g d P four casting you're 0:02:01.040 --> 0:02:03.920 the two six. Let's say you massively are wrong, so 0:02:03.960 --> 0:02:07.960 it's only two point three. At what level would Steve 0:02:08.160 --> 0:02:12.600 Standling cut interest rates? Well, you know, everybody thinks the 0:02:12.639 --> 0:02:15.200 trend is around two percent. I'm not sure why if 0:02:15.200 --> 0:02:17.520 it should be cutting rates when growth is above trend 0:02:17.520 --> 0:02:19.600 at this point. So, Stephen, how does he manage that 0:02:19.639 --> 0:02:23.639 message in the news conference today? What's the strategy for communication? 0:02:23.680 --> 0:02:25.399 I imagine they spent the last couple of days thinking 0:02:25.440 --> 0:02:27.680 about how to deliver what they need to say in 0:02:27.680 --> 0:02:30.120 this news conference. Given that it's pretty limited the material 0:02:30.160 --> 0:02:32.400 they have. They just have the statement and the news conference. 0:02:32.440 --> 0:02:35.040 How do they manage the message today? Yeah, I think 0:02:35.080 --> 0:02:38.600 it's gonna be really tricky. Um. I think explaining the 0:02:38.680 --> 0:02:42.000 rate cut is maybe the easier part, and Powell did 0:02:42.040 --> 0:02:45.079 that in July. He cited three things. He cited downside 0:02:45.160 --> 0:02:49.240 risks around trade uncertainty, decided weakness in the global economy, 0:02:49.280 --> 0:02:52.160 and he cited the fact that inflation is below modestly 0:02:52.200 --> 0:02:54.840 below target. I think for me, the trickier thing is 0:02:54.880 --> 0:02:56.680 going to be the forward guidance, and that's really what 0:02:56.720 --> 0:02:59.519 people are focused on. Um. The problem the FED has 0:02:59.639 --> 0:03:03.239 is that it it professed to be data dependent in June, 0:03:03.800 --> 0:03:05.960 and it really wasn't. We learned after the fact when 0:03:05.960 --> 0:03:08.359 we got the minutes, it defended more or less decided 0:03:08.400 --> 0:03:10.400 that they were going to cut in July as of 0:03:10.440 --> 0:03:13.600 the June meeting, And so how does the FED communicate 0:03:14.360 --> 0:03:16.920 if they want to truly be data dependent going forward, 0:03:16.960 --> 0:03:19.120 how do they communicate that now? You know, no, no, 0:03:19.200 --> 0:03:21.840 we really mean at this time. Um, they certainly can't 0:03:21.880 --> 0:03:24.080 use the same language they used in June. So, Stephen, 0:03:24.120 --> 0:03:27.080 typically we'd have the summary of economic projections at a 0:03:27.120 --> 0:03:28.919 meeting with a news conference. Now we have a news 0:03:28.960 --> 0:03:31.160 conference at every meeting, and in some meetings we don't 0:03:31.160 --> 0:03:34.040 have a summary of economic projections. So no new forecasts, 0:03:34.560 --> 0:03:37.600 no new dot plot. Is that an advantage or a 0:03:37.640 --> 0:03:42.200 disadvantage for the chairman today? Um? I mean, I guess 0:03:42.200 --> 0:03:44.520 it's a mild disadvantage. But I think that you know, 0:03:44.560 --> 0:03:48.280 it looks like a very wise move to invoke press 0:03:48.280 --> 0:03:50.840 conferences at the end of every meeting, which um, Charon 0:03:50.880 --> 0:03:53.000 Powell did for the beginning of this year. I mean, 0:03:53.040 --> 0:03:55.080 it gives them more flexibility. Remember there was all the 0:03:55.120 --> 0:03:58.120 talk in the prior regime that they could only cut 0:03:58.720 --> 0:04:01.600 or hike at meeting is where there was a press conference. Well, 0:04:01.800 --> 0:04:04.000 you know, it turns out July is the in the 0:04:04.000 --> 0:04:06.200 feeds of mind, the proper time to be easing. And 0:04:06.200 --> 0:04:08.760 and if if we were still in the old mode, 0:04:08.800 --> 0:04:11.600 there wouldn't even be a press conference today. So, um, 0:04:11.720 --> 0:04:13.040 you know, and think it turns out to be a 0:04:13.040 --> 0:04:15.760 good thing that that the FED is having press conferences 0:04:15.800 --> 0:04:18.000 after every meeting, and you know that should give him 0:04:18.000 --> 0:04:22.000 plenty of of room to explain what the FED is doing. 0:04:22.040 --> 0:04:23.720 I just think it's going to be a tricky message 0:04:23.760 --> 0:04:25.680 to deliver. Well, Stephen, let's talk about what the FETE 0:04:25.680 --> 0:04:28.440 is doing. You signed the three reasons to ease monetary policy. 0:04:28.640 --> 0:04:30.880 I imagine he might repeat them in the news conference today. 0:04:31.160 --> 0:04:34.520 Something he totally failed at was responding to a question 0:04:34.720 --> 0:04:38.440 from our very own colleague, Michael McKee as to how 0:04:38.480 --> 0:04:40.760 easy a monetary policy will have given the challenges we 0:04:40.800 --> 0:04:45.960 have currently. How do lower rates help in this environment? Stephen, Well, 0:04:46.000 --> 0:04:48.039 I think that's a good question, and if I were 0:04:48.200 --> 0:04:50.200 chair and power, I'd be doing everything I could to 0:04:50.240 --> 0:04:54.080 avoid that question, because, um, the reality is the main 0:04:54.160 --> 0:04:57.320 thing that's holding the economy back right now. And again, 0:04:57.400 --> 0:04:59.480 we are growing above trends, so it's not like the 0:04:59.520 --> 0:05:01.840 economy's week, But the main thing that's holding it back 0:05:02.360 --> 0:05:05.640 is uncertainty around trade policy, and there's literally nothing the 0:05:05.720 --> 0:05:08.919 FED can do to resolve that we're talking about this 0:05:08.920 --> 0:05:11.919 early this morning, Steve Stanley, If the if consumption is 0:05:11.960 --> 0:05:15.920 a plug, like it's pretty immovable. Consumer just delivers what 0:05:15.960 --> 0:05:20.080 they deliver. What are we asking of investment in this 0:05:20.240 --> 0:05:25.359 country to jump start what? I guess President Trump and 0:05:25.400 --> 0:05:28.440 others want. What? What? What are we are we asking 0:05:28.480 --> 0:05:33.960 for a doubling of investment in the company at the margin? Well, 0:05:34.000 --> 0:05:36.640 I don't think you need a huge amount in terms 0:05:36.680 --> 0:05:38.359 of investment. I mean, look, we're at a point in 0:05:38.360 --> 0:05:41.400 the cycle. The unemployment rate is near fifty year lows. 0:05:41.440 --> 0:05:43.760 It's not like we need the economy to be growing 0:05:44.200 --> 0:05:47.040 tremendously above trend. Now, if you're the president and you're 0:05:47.920 --> 0:05:50.200 less than eighteen months from reelection, of course you want 0:05:50.240 --> 0:05:52.200 the economy to be growing as fast as it can 0:05:52.320 --> 0:05:55.080 and and that's you know, that's that's I think that 0:05:55.240 --> 0:05:57.960 the sentiment behind his rhetoric. But if you're the Fed, 0:05:58.640 --> 0:06:03.120 you're just looking for growth that kind of keeps things going. 0:06:03.200 --> 0:06:05.320 I think they are somewhat concerned about the fact that 0:06:05.360 --> 0:06:08.720 inflation has been running a little below target this year, 0:06:08.760 --> 0:06:12.320 but that feels like it's um even if it's not 0:06:12.800 --> 0:06:16.440 um transitory, as Pal said in May. But then bernig 0:06:16.520 --> 0:06:19.200 Don in June. It does feel very structural, and I'm 0:06:19.240 --> 0:06:20.880 not sure that there's a whole lot that I can 0:06:20.920 --> 0:06:23.680 do about that either. Um, But you know, I don't 0:06:23.720 --> 0:06:26.280 know that we need to be goosing the economy right now. 0:06:26.320 --> 0:06:29.240 I think the economy is fine. Stanley, thank you so much. 0:06:45.320 --> 0:06:47.920 The great unspoken of so much of our politics and 0:06:48.040 --> 0:06:52.359 almost the FED is trade. Like, what will Chairman Policy 0:06:52.480 --> 0:06:56.240 say today? Is the head of the FED supposed to 0:06:56.320 --> 0:06:58.760 address a trade wark? Yeah? I think he has to 0:06:58.760 --> 0:07:00.719 address he has to talk about the risks are around 0:07:00.720 --> 0:07:03.520 the outlook. I thought what I found really striking the debates, 0:07:03.600 --> 0:07:05.640 not just the ones last night and the ones we 0:07:05.760 --> 0:07:08.800 are set together again the previous round two barely any 0:07:08.880 --> 0:07:11.160 mention of what is happening with China. I mean, you're 0:07:11.200 --> 0:07:15.880 in Detroit should be the story. Court Democrats will vote Democrat. 0:07:15.920 --> 0:07:17.480 I get that, But if you want to win the election, 0:07:17.520 --> 0:07:19.840 start talking about the economy. And if you have one 0:07:19.880 --> 0:07:21.960 person that says you're losing your jobs and you're losing 0:07:21.960 --> 0:07:25.440 your jobs because of China, and then another set of 0:07:25.480 --> 0:07:29.040 individuals not even referencing what's happening, only one person is 0:07:29.080 --> 0:07:32.080 winning that debate. Because I mean one person is having it, Meredith, 0:07:32.160 --> 0:07:35.440 something with us with your Asia group on this topic. Meredith, 0:07:35.480 --> 0:07:38.240 it's so important that the easy answers it's about agriculture, 0:07:38.360 --> 0:07:40.280 and I guess it will be addressed in the president 0:07:40.600 --> 0:07:43.880 front and center with farmers. But it's more than just agriculture, 0:07:43.920 --> 0:07:46.920 isn't it. It certainly is what this is. This is 0:07:46.960 --> 0:07:49.560 really not about tariffs. It's really not about trade. At 0:07:49.600 --> 0:07:54.000 the heart of this, Tom is this is really the 0:07:54.040 --> 0:07:59.000 economic competition between two markedly different models and which are 0:07:59.120 --> 0:08:02.080 for years were now at more of a tipping point 0:08:02.160 --> 0:08:06.560 because the China state backed capitalist model is, in the 0:08:07.120 --> 0:08:10.720 views of Washington policymakers, on the verge of being able 0:08:10.760 --> 0:08:14.600 to overtake the United States in some of the key 0:08:14.680 --> 0:08:17.640 technology growth sectors of the future. And that's really what 0:08:17.800 --> 0:08:21.240 is driving not just a trade confrontation, but the broader 0:08:21.400 --> 0:08:24.920 US China technology war that we see playing out, most 0:08:24.920 --> 0:08:27.800 notably with Huawei. A series of governments just believe that 0:08:27.880 --> 0:08:30.600 China was going to look increasingly like the United States 0:08:30.600 --> 0:08:32.480 and the rest of the Western world as years progressed. 0:08:32.720 --> 0:08:35.480 A lot of people fell head over heels for that president. 0:08:35.559 --> 0:08:37.720 She speech over in Davos, a couple of years ago 0:08:37.840 --> 0:08:40.679 rather foolishly. I think now we face what you say 0:08:40.679 --> 0:08:42.760 as a tipping point, and I just wonder how this 0:08:42.840 --> 0:08:45.120 rolls over. Is it something that just continues now the 0:08:45.120 --> 0:08:47.480 way it is at the moment, this tension year after 0:08:47.559 --> 0:08:49.800 year after year for a couple of decades, or do 0:08:49.920 --> 0:08:51.960 something break? How do you frame that for clients at 0:08:52.000 --> 0:08:54.280 the moment, Meredith, My sense this is going to be 0:08:54.400 --> 0:08:58.360 more of a a long term struggle than something that 0:08:58.440 --> 0:09:00.560 is necessarily going to break it. And look, we we 0:09:00.600 --> 0:09:05.520 need to go back to how Washington and Beijing work 0:09:05.600 --> 0:09:09.880 together in prior decades. There's this raging debate within Washington 0:09:10.000 --> 0:09:14.600 right now that the engagement policy of prior administrations, both 0:09:14.640 --> 0:09:18.400 Republican and democratic, failed, and I think that's ultimately wrong. 0:09:18.559 --> 0:09:22.000 It was useful at that time, and as a former U. S. Diplomat, 0:09:22.040 --> 0:09:24.960 I was at the table when we were pressing Beijing 0:09:25.040 --> 0:09:28.840 that they needed to make economic reforms that a couple 0:09:28.800 --> 0:09:31.280 of years later they would eventually make. They would get there, 0:09:31.320 --> 0:09:34.040 They were listening, but it was always in their own 0:09:34.040 --> 0:09:36.600 time frame, and it was always the kind of reforms 0:09:36.600 --> 0:09:39.480 that would still allow state China state capitalist model to 0:09:39.520 --> 0:09:43.520 be uniquely Chinese and not Western and that's really where 0:09:43.559 --> 0:09:46.040 we are right now moving forward all the singles that 0:09:46.040 --> 0:09:51.000 we're watching as that engagement debate seems to be changing 0:09:51.040 --> 0:09:56.959 in Washington. That is confirmed for Beijing that Washington can't 0:09:57.040 --> 0:10:02.400 live with China under Shijin Ping being China, and that 0:10:02.559 --> 0:10:05.240 as such, Hiju and Ping is not no longer looking 0:10:05.280 --> 0:10:08.200 to reform China's models, so that is more amenable to 0:10:08.679 --> 0:10:11.760 President Trump's America, but looking to do what he can 0:10:11.920 --> 0:10:15.640 to preserve the economic structures that he's put in place 0:10:15.679 --> 0:10:19.360 that he thinks is uniquely positioned to see China's economy 0:10:19.400 --> 0:10:23.800 transition um and while retaining its unique characteristics. So perhaps 0:10:23.840 --> 0:10:26.600 fortunately for President g the conversation at the moment is 0:10:26.679 --> 0:10:29.080 will you sell product to Huawei and will you buy 0:10:29.080 --> 0:10:31.840 some agricultural products from our farmers in the United States. 0:10:32.080 --> 0:10:33.920 It seems to me that we've drifted away from some 0:10:33.960 --> 0:10:36.080 of the core issues at the moment. Meredith, can we 0:10:36.120 --> 0:10:38.880 get back to the core issues again? I think that 0:10:38.880 --> 0:10:40.800 we would. We need to get back to those core issues. 0:10:40.840 --> 0:10:43.400 But right now Washington Beijing are they're having more surface 0:10:43.440 --> 0:10:47.240 level conversations, and even today the talks in Shanghai they 0:10:47.280 --> 0:10:51.000 wrapped early. That tells you that they are not getting 0:10:51.080 --> 0:10:54.520 to those core issues, and in fact that the levels 0:10:54.600 --> 0:10:57.400 of if not trust, then at least sort of mutual 0:10:57.480 --> 0:10:59.559 understanding of where the both sides are that's really sort 0:10:59.600 --> 0:11:01.120 of broken down. We need to get back to that 0:11:01.160 --> 0:11:03.560 in order to make substantial progress. You say, terrorists don't 0:11:03.600 --> 0:11:05.959 matter a lot of people. You know, they'll go okay, great, 0:11:06.080 --> 0:11:09.160 except it does if they are if they are a 0:11:09.320 --> 0:11:14.120 tax on imports and attacks on Americans. Who's winning the 0:11:14.120 --> 0:11:18.440 tariff war? Right now? What's what's the partial score? Well, 0:11:18.640 --> 0:11:21.920 it is tariffs do matter, Tom, But in eur Asia 0:11:21.960 --> 0:11:23.840 groups of view, it's not necessarily the tariffs that are 0:11:23.840 --> 0:11:27.320 going to have the ultimate lasting impact. It's the export controls, 0:11:27.360 --> 0:11:30.640 it's the investment restrictions, it's the attacks on each other's 0:11:30.679 --> 0:11:35.440 economic models that is going to cause the long term destabilization. 0:11:35.720 --> 0:11:37.520 Just for a minute here, I know Dr Bremer doesn't 0:11:37.520 --> 0:11:39.200 want you to do this, but let's go short term. 0:11:39.760 --> 0:11:42.720 Is it China one US zero right now? On tariffs? 0:11:42.760 --> 0:11:47.120 Who's winning? Well, Americans are certainly paying those tariffs, but 0:11:47.360 --> 0:11:52.880 China's own growth is markedly slowing. Six You know, what 0:11:52.920 --> 0:11:55.240 are we John in the us splitting here between Steve 0:11:55.280 --> 0:12:00.280 Stanley's two point six and shriek Camars comparison when start 0:12:00.320 --> 0:12:03.480 looking at growth that way between China and the United States. Yeah, 0:12:03.679 --> 0:12:06.840 you're right, even slowing growth is not bad growth in China. Correct. Yeah, 0:12:06.840 --> 0:12:08.200 I would agree with that, but I would look at 0:12:08.200 --> 0:12:10.400 what's happening in China at the moment, and I think 0:12:10.440 --> 0:12:12.600 it's I think it would be a mistake to sit 0:12:12.640 --> 0:12:15.280 here and say that the United States is under more pressure, 0:12:15.320 --> 0:12:17.480 the president is under more pressure because there's an election 0:12:17.559 --> 0:12:19.520 next year. We always seem to make that mistake and 0:12:19.600 --> 0:12:22.560 boil it down to electoral politics. Meredith, and I'd like 0:12:22.559 --> 0:12:23.920 you to give us a little bit more clarity as 0:12:24.000 --> 0:12:26.480 just to how much pressure President she is under right now. 0:12:26.960 --> 0:12:29.920 Not to get this wrong, because there are some people 0:12:29.960 --> 0:12:34.040 that think perhaps he's overstepped in the last couple of years, 0:12:34.240 --> 0:12:36.400 Perhaps he's take had been a little bit too bold 0:12:36.440 --> 0:12:40.160 with made in China, and this is the blowback from 0:12:40.200 --> 0:12:44.040 that previously. What are your thoughts on that, Absolutely he 0:12:44.200 --> 0:12:47.360 is under increased pressure. And I say this as the 0:12:47.480 --> 0:12:49.920 Chinese Communist Party leadership are preparing to go to their 0:12:50.200 --> 0:12:52.520 annual summer retreat, where I'm sure that she's in Ping 0:12:52.559 --> 0:12:55.040 will be in listening mode, not just on the US 0:12:55.080 --> 0:12:57.760 China trade confrontation, but on the blowback with b R I. 0:12:57.800 --> 0:13:01.319 We've seen him scale back that program slightly and look 0:13:01.360 --> 0:13:04.400 to tweak it to address the criticisms there. Also what's 0:13:04.440 --> 0:13:07.480 happening in Hong Kong. We have an upcoming presidential election 0:13:07.559 --> 0:13:11.560 in Taiwan that could move that island further away from 0:13:11.600 --> 0:13:14.319 from Beijing's grasp. So he's got a lot of pressure 0:13:14.320 --> 0:13:16.360 coming at him. But what's key here is that there 0:13:16.480 --> 0:13:20.280 is no one that could possibly replace shijin Ping. Now 0:13:20.360 --> 0:13:24.080 he has neutralized any potential successors, and so all the 0:13:24.120 --> 0:13:27.280 power is still rest with him. His position is still 0:13:27.320 --> 0:13:31.839 relatively strong. Regardless what do you see in the Mandarin press? 0:13:31.880 --> 0:13:33.640 What do you see when your great gifts is to 0:13:33.679 --> 0:13:36.120 be able to read all this in real time? What 0:13:36.240 --> 0:13:38.599 are they actually writing? I love when you ask me 0:13:38.679 --> 0:13:41.560 this question Every time, Tom I would say that there 0:13:41.640 --> 0:13:46.000 is a market shift away from what kind of reforms 0:13:46.080 --> 0:13:49.440 might be necessary to reach a deal, and more so 0:13:49.559 --> 0:13:51.880 to what can we do to shore up our own 0:13:51.960 --> 0:13:56.319 unique state capitalist system to wave off onward pressure coming 0:13:56.320 --> 0:13:59.319 from Washington. So they are managing the tension coming from Washington. 0:13:59.320 --> 0:14:01.280 They're not looking to of any problems. Is it a 0:14:01.400 --> 0:14:03.600 vacuum for Europe right now? I mean, can they slip 0:14:03.679 --> 0:14:06.760 right in here and become more dominant to those important 0:14:06.880 --> 0:14:09.800 Chinese view questions? I certain I think China will be 0:14:09.840 --> 0:14:13.520 looking to replace some of its relationships with Washington with Europe, 0:14:13.640 --> 0:14:17.400 Latin America, other key key economies. But those same concerns 0:14:17.440 --> 0:14:21.600 about Chinese industrial policies, investment practices, they're in European capitals 0:14:21.640 --> 0:14:24.520 to to a somewhat of a lesser extent, they would 0:14:24.520 --> 0:14:27.320 prefer a different approach than that taken by President Trump, 0:14:27.640 --> 0:14:30.240 but they do share those concerns. One final question, Should 0:14:30.280 --> 0:14:32.040 John and I do a road trip to Hong Kong 0:14:32.080 --> 0:14:35.360 and in November, you know, just get out in front 0:14:35.400 --> 0:14:37.440 of the big changes. I'd love to see you guys 0:14:37.480 --> 0:14:41.120 in Hong Kong and November. That's good. Should come back 0:14:41.320 --> 0:14:43.040 you plan in the next couple of months. I'm working 0:14:43.080 --> 0:14:45.200 on it. Yeah, you know, there's a lot going on 0:14:45.280 --> 0:15:00.440 there pretty ahead of right strategy for t DC securities. 0:15:00.480 --> 0:15:01.640 Do you want to us now as we count you 0:15:01.680 --> 0:15:04.360 down to that fat decision prayer, just begin with what 0:15:04.400 --> 0:15:08.880 you're looking for? In several last time, I uh, John, 0:15:09.280 --> 0:15:12.560 thanks thanks for having me on tom UM. So we 0:15:12.600 --> 0:15:14.520 are looking for the twenty five based point of cut 0:15:14.920 --> 0:15:17.040 that is pretty much baked in the cake, I would argue, 0:15:17.320 --> 0:15:18.760 I think all the focus is going to be on 0:15:18.800 --> 0:15:21.800 forward guidance and really what the what the thresholders for 0:15:21.840 --> 0:15:24.120 the next yeas you know, does does data need to 0:15:24.160 --> 0:15:26.560 get worse for the FAT two ease again or are 0:15:26.560 --> 0:15:29.480 they still going to continue to add insurance cuts? So 0:15:29.800 --> 0:15:32.200 I think that's really going to be the focus. There's 0:15:32.280 --> 0:15:35.160 also some talk around this fifty based point cut. I 0:15:35.160 --> 0:15:37.480 think it's very hard to message that because if they 0:15:37.480 --> 0:15:40.520 go fifty and talk about going more than the market 0:15:40.600 --> 0:15:42.080 might say, you know, what does the FED know that 0:15:42.200 --> 0:15:44.760 we don't know? If they don't go fifty, they can 0:15:44.800 --> 0:15:47.800 go twenty five, and I think keep that optionality out there. 0:15:48.120 --> 0:15:50.080 The other thing that the treasury market and I think 0:15:50.120 --> 0:15:53.040 overall markets will look at, will be on the balance sheet. 0:15:53.320 --> 0:15:55.360 So remember the balance sheet is supposed to or or 0:15:56.120 --> 0:15:58.880 rather balance sheet run off. Balance sheet runoff is slated 0:15:58.960 --> 0:16:01.800 to end in st member. But you know, it's hard 0:16:01.840 --> 0:16:04.080 for the Fed too, I think, communicate that they're actually 0:16:04.160 --> 0:16:06.600 easing on the rate front, but they continue to tighten 0:16:06.600 --> 0:16:08.720 on the balance sheet front, so they might end that. 0:16:09.120 --> 0:16:11.600 I think that's pretty bullish for treasuries because now it 0:16:11.640 --> 0:16:13.400 implies that the FED is going to be buying as 0:16:13.520 --> 0:16:17.760 much as you know, twenty billion off treasuries in the 0:16:17.800 --> 0:16:20.480 open market. So it's not QUEI, but it will look 0:16:20.520 --> 0:16:22.800 like a little bit uh, you know, like a small 0:16:22.880 --> 0:16:25.360 que So just to jump in just quickly on this 0:16:25.400 --> 0:16:28.120 issue because you're not aliged Banks America. JP Morgan also 0:16:28.160 --> 0:16:29.920 thinks that we could get an end to balance sheet 0:16:30.040 --> 0:16:32.720 roll off early, but it's only a couple of months early. 0:16:32.760 --> 0:16:36.440 Why is that material? So it's not so material in 0:16:36.560 --> 0:16:39.880 terms of of the total amount of reserve drainage, but 0:16:39.920 --> 0:16:42.480 where it is material is that the FED will be 0:16:42.680 --> 0:16:45.160 potentially buying as much as twenty billions. I think what 0:16:45.320 --> 0:16:48.920 the market doesn't quite appreciate is that because rates have fallen, 0:16:49.240 --> 0:16:52.600 mortgage runoff is running fairly high, so it's about fifteen 0:16:52.640 --> 0:16:54.800 to twenty billion a month now. The FED is probably 0:16:54.840 --> 0:16:56.880 going to continue to let mortgages run off, but they're 0:16:56.880 --> 0:16:59.760 going to replace mortgages with treasuries. So for the first time, 0:17:00.200 --> 0:17:02.880 keew We ended the FED will mean the open market 0:17:02.880 --> 0:17:05.240 buying treasuries, and you know it's it's not a couple 0:17:05.280 --> 0:17:07.760 of billion. They'll be buying twenty billion a month, So 0:17:07.800 --> 0:17:10.760 that's going to add you know, download pressure on r 0:17:11.080 --> 0:17:13.320 Is any of this in fabosi? I mean you and 0:17:13.359 --> 0:17:16.520 I we rounded through six seven, eight hundred pages of fabosi. 0:17:17.280 --> 0:17:20.360 People like you, Preya, you just sort of glibally say, 0:17:20.440 --> 0:17:23.199 you know, twenty billion, this twenty billion that what is 0:17:23.280 --> 0:17:28.720 the outcome of this original policy? Yeah? I think the 0:17:28.760 --> 0:17:32.880 outcome of the original QUEI was to take duration discouvers. 0:17:32.920 --> 0:17:37.119 This is about just keeping policy unchanged and allowing the 0:17:37.200 --> 0:17:40.600 FED to ultimately return to a all treasury portfolio. But 0:17:40.680 --> 0:17:43.080 it is a new martial buyer in town. So you know, 0:17:43.119 --> 0:17:45.560 I think with all this talk about deficits, you know, 0:17:45.960 --> 0:17:48.760 arging to rise, when you've got another buyer, John, is 0:17:48.800 --> 0:17:53.159 there any positive Swiss yield? The answer is no. I mean, Prea, 0:17:53.240 --> 0:17:59.560 the price of this is disincentivizing normal processes in finance. 0:18:00.000 --> 0:18:02.120 How do we get to how do we get back 0:18:02.160 --> 0:18:07.199 to normal processes? Well, I think we're redefining normal right. 0:18:07.280 --> 0:18:10.040 If if our star, which I think the FED was 0:18:10.080 --> 0:18:12.560 hoping was close to fifty base points to one percent. 0:18:12.800 --> 0:18:15.560 What if it's actually zero in the US, and so 0:18:15.680 --> 0:18:18.040 what if we were actually tighter monetary policy. You know, 0:18:18.119 --> 0:18:19.760 as much as we'd like to blame this on the 0:18:19.760 --> 0:18:22.560 trade boar, maybe the FED should not have raised rates 0:18:22.560 --> 0:18:24.520 as much as it did. So now as they're taking 0:18:24.520 --> 0:18:27.439 it out, I know they're going to pictures as insurance cuts, 0:18:27.480 --> 0:18:30.679 but I think it's possible that policy was restrictive. So 0:18:30.720 --> 0:18:33.000 now if they take that back and Our Star actually 0:18:33.080 --> 0:18:35.639 goes down, is that going to be stimulative. I'm actually 0:18:35.720 --> 0:18:38.920 very skeptical that insurance cuts work. I think we're in 0:18:38.960 --> 0:18:42.480 the starting phase of a slowdown. I'm not sure twenty 0:18:42.560 --> 0:18:44.680 five or even fifty base points do a whole lot 0:18:44.720 --> 0:18:47.520 because financially conditions are pretty easy. So I think the 0:18:47.560 --> 0:18:49.800 FACT will pitch this as insurance and then they'll have 0:18:49.880 --> 0:18:51.840 to continue to do more because I just don't know 0:18:52.000 --> 0:18:54.800 any of the global uncertainties going away. You know, the 0:18:54.880 --> 0:18:58.840 in Portland organ every time someone mentions Our Star, they 0:18:58.880 --> 0:19:00.520 have a drinking game where you have a shot of 0:19:00.560 --> 0:19:04.200 blend coffee. You have drunk you can't. You have coffee. 0:19:04.240 --> 0:19:06.040 They don't, they don't, you know, they don't just a 0:19:06.200 --> 0:19:09.720 caffeinated blend cost sounds like a really weird drinking every 0:19:09.720 --> 0:19:11.920 time it came out of San Francisco. That's a city 0:19:11.960 --> 0:19:15.280 sellth Is it Starbucks coffee? No, no one drinks star 0:19:15.320 --> 0:19:20.480 Wars coffee. They're everywhere but blend coffee. Okay, what's the 0:19:20.520 --> 0:19:23.800 relevance of this? It's our start? I mean, where's where's 0:19:23.840 --> 0:19:29.280 our start? Now? Yeah? Yeah, yeah, where's our start? Nobody knows? 0:19:29.720 --> 0:19:33.760 Thank you, very easy. You'll only know in hindsight. You 0:19:33.800 --> 0:19:36.280 know that, oh, maybe we were above our star. Such 0:19:36.320 --> 0:19:38.679 a nebulous concept. Well, pray have they found out that 0:19:38.680 --> 0:19:42.639 they were above it? You know? I don't know. I 0:19:42.680 --> 0:19:45.400 think we just won't know. Um. I think the FED 0:19:45.560 --> 0:19:47.880 so far doesn't. I mean, it's clearly the President things 0:19:47.880 --> 0:19:50.040 that we were much above our start. I think the 0:19:50.080 --> 0:19:53.520 Fed is attributing this, not so much too than having 0:19:53.520 --> 0:19:56.320 tightened too much, but more than you know, new uncertainties 0:19:56.359 --> 0:19:58.679 have come in and there's inflation. We don't know if 0:19:58.680 --> 0:20:01.040 the philipsco exists, how flat is it? Maybe it's a 0:20:01.119 --> 0:20:05.200 straight line, the horizontal line. So there's so many unknowns 0:20:05.200 --> 0:20:07.400 that I'm almost hoping that they don't rely too much 0:20:07.400 --> 0:20:11.199 on our star and instead communicates a different reaction function. 0:20:11.440 --> 0:20:13.200 We have a very different which is why I think, 0:20:13.359 --> 0:20:16.960 you know Bill Dudley's comments, that's the old guard. We're 0:20:16.960 --> 0:20:20.480 in a new fair interest knew different reaction function where 0:20:20.480 --> 0:20:22.639 they want to be more aggressive is Gairman Paul and 0:20:22.680 --> 0:20:27.720 the old guard, No, I would argue he Clarada Williams. 0:20:27.800 --> 0:20:30.080 I think that's the new guard that they just don't 0:20:30.119 --> 0:20:31.720 want to go back to the zero low a bound. 0:20:32.200 --> 0:20:34.800 So rather than waiting for data to suggest that they 0:20:34.840 --> 0:20:37.359 need to ease, let's go early. What's the cost of 0:20:37.400 --> 0:20:40.280 going early, Well, inflation, But actually inflation is running so 0:20:40.320 --> 0:20:43.080 low that that's not a problem. I'm a little nervous 0:20:43.080 --> 0:20:45.960 around financial stability. I think that's been swept away a 0:20:45.960 --> 0:20:48.320