WEBVTT - Kocherlakota Says Fed Should Ease To Stimulate Economy (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Katherine Cowdery. The global rally continues on Wall Street,

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<v Speaker 1>where the SMP five Foundered is posting its strongest two

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<v Speaker 1>day climb in four months. Tension is easing over the

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<v Speaker 1>impact of a UK exit from the European Union. Energy

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<v Speaker 1>shares around pace for their best two days since January.

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<v Speaker 1>Is crude oil games with Chevron up two point eight

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<v Speaker 1>percent at Goldman Sachs basket of the most shortage shares

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<v Speaker 1>in the Russell three thousand is seeing its biggest surge

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<v Speaker 1>since who jacon marks every fifteen minutes throughout the trading

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<v Speaker 1>day on Bloomberg Radio. Dal Industrial leverage up two hundred

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<v Speaker 1>fifty four points one and a half percent, trading at

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<v Speaker 1>seventeen thousand, six hundred sixty three. SMP five foundered up

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<v Speaker 1>thirty two points to one point six percent at two

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<v Speaker 1>thousand sixty seven. The NASDAC is hired by eighty five

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<v Speaker 1>points one point eight percent, trading at forty seven seventy six.

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<v Speaker 1>West Texas Center Media crude oil up at dollar seventy

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<v Speaker 1>four a barrel three point six percent at sixty spot

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<v Speaker 1>coled up nine dollars announced at ten year treasury unchanged

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<v Speaker 1>with the yield of one point of forty six sixty three.

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<v Speaker 1>And that's a Bloomberg Business flash show where you Kathleen

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<v Speaker 1>Bloomberg jaking stock to the Fed in the focus. Interest

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<v Speaker 1>rates start to row for where the economy is going.

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<v Speaker 1>The question is how much higher should it be FED

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<v Speaker 1>to increase the fasset? Yes, and in doing so it

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<v Speaker 1>has increased its liability. Keeping interest rates at zero for

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<v Speaker 1>a long time is not going to cause emploation to

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<v Speaker 1>go up. It's very controversial. I think what we need

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<v Speaker 1>to do is find a way for the FED to

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<v Speaker 1>integrate its policy and think more about its impact on

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<v Speaker 1>the world. The Fed in focus on Bloomberg Radio, forget December,

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<v Speaker 1>forget next year. The Fed's done hiking until eighteen. So

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<v Speaker 1>reads the headline on a terrific story on the bloom

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<v Speaker 1>Bloomberg Today and on Bloomberg Dot Calm by Liz Copple McCormick.

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<v Speaker 1>She specializes in the bond market. And Matt Bosler, who

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<v Speaker 1>is part of our feder Reserve Reporting team here in

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<v Speaker 1>New York is not hiking rates enough. Should the Fed

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<v Speaker 1>even be cutting them as well? Let's put this question

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<v Speaker 1>to our next guest, now, Rihanna, Culture Lakota joins us now.

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<v Speaker 1>He is the former head of the Minneapolis feder Reserve Bank.

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<v Speaker 1>He's a bloomberg of you, calumnus, and he's going to

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<v Speaker 1>explain his latest column to us. Now. Rihanna, welcome back. Yeah,

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<v Speaker 1>thanks for Kathleen. It's my pleasure to be with you.

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<v Speaker 1>So let's start with Brexit, because we've got the stock

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<v Speaker 1>market up for three days in a row. People, the

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<v Speaker 1>markets need to be shaking this off. If Brexit is

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<v Speaker 1>one of the reasons why the Fed should be more stimulative,

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<v Speaker 1>not high grades, maybe cut them, maybe go to negative rates,

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<v Speaker 1>as you argued in this in this great piece, is

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<v Speaker 1>it really so necessary? Now? You know, I think that's

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<v Speaker 1>a great question. But I saw Brexit as um merely

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<v Speaker 1>just one example of a large more uncertainties that are

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<v Speaker 1>facing the United States economy as we move forward the

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<v Speaker 1>next three or four years. Um. You know, I think

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<v Speaker 1>that how the negotiations unfold, how um uh, Europe and

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<v Speaker 1>Britain engaging each other, um over the next two three

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<v Speaker 1>years as they as they talk about what brexits going

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<v Speaker 1>to actually mean. I think there's gonna be a lot

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<v Speaker 1>of uncertainties associated with that, both for the UK economy

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<v Speaker 1>and perhaps even more meaningfully for the for the European economy.

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<v Speaker 1>But there's other questions that are on the table as well,

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<v Speaker 1>questions about about China, about emerging markets. All those uncertainties

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<v Speaker 1>UM mean that I think the FETCH should really be

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<v Speaker 1>best served by UH. That combined with the fact I

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<v Speaker 1>should say that the FET faces some constraints in terms

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<v Speaker 1>of ability to react to those kinds of contingencies if

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<v Speaker 1>they do emerge, UH means that the FETCH betaing at

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<v Speaker 1>some insurance today by UM at their next meeting, by

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<v Speaker 1>cutting raids when what's the likelihood of that. We got

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<v Speaker 1>the consumer spending numbers the strongest two months since two

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<v Speaker 1>thousand nine. Now, granted that their key inflation games, that

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<v Speaker 1>PC deflator year over a year went from one point

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<v Speaker 1>oh to point nine, so it's even further away from

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<v Speaker 1>the FEDS two percent target. I didn't the UH, So

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<v Speaker 1>I've been discovering with what I would refer the FED

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<v Speaker 1>to do UM that I I don't anticipate that is

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<v Speaker 1>pretty to be too likely on the FENS agenda and

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<v Speaker 1>in July. That is, I don't anticipate that they would

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<v Speaker 1>be thinking about cutting rates in July. I've been disappointed.

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<v Speaker 1>I have to say, to what extent um the increase

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<v Speaker 1>in December is treated as a given um in in

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<v Speaker 1>feder Reserve communications. I I think that that makes it

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<v Speaker 1>much harder to raise rates if you treat every move

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<v Speaker 1>you've made as being something that's semi semi permanent nature um.

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<v Speaker 1>Because if you if you ever raise rates, that means

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<v Speaker 1>that you're stuck with it, and then that means you're

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<v Speaker 1>gonna have to be very deliberative about any process of

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<v Speaker 1>raising rates. But I actually think they get there faster

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<v Speaker 1>if they were more willing to cut and uh. But

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<v Speaker 1>everything we've heard from them is that what they're thinking

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<v Speaker 1>about is as the most stimulaive policy they can think

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<v Speaker 1>of is not is uh. At least we've heard so

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<v Speaker 1>far is simply standing paths. I want you to elaborate

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<v Speaker 1>on that point, because you state that in your latest piece,

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<v Speaker 1>but it's something you have written and talked about more extensively,

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<v Speaker 1>because I think maybe just people don't quite hear what

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<v Speaker 1>you're saying, which is, if you really want to start

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<v Speaker 1>hiking rates, FED get the economy going and get in

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<v Speaker 1>a position where it needs to have rate hikes. And

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<v Speaker 1>it's not a big question, but you you're saying, you

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<v Speaker 1>can't do that unless you ease and stimulate more first. Yeah,

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<v Speaker 1>I think that if we ease further now, and we

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<v Speaker 1>and the FED was actually clearer about the package of

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<v Speaker 1>tools that has this available in in the case of

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<v Speaker 1>of adverse shocks, I think that businesses and households we

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<v Speaker 1>feel a for spending now, and that would get the

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<v Speaker 1>economy going again. Um. But beyond that, I think I

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<v Speaker 1>think right now that the FIT has been communicating that

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<v Speaker 1>every interest rate hike that they're going to think about

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<v Speaker 1>is going to be semi permanent. Nature will take it

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<v Speaker 1>a very extreme event to move away from that. Any

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<v Speaker 1>If you think about any decision you want to make,

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<v Speaker 1>if you're free to change it, you're going to be

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<v Speaker 1>more likely to make it. If you're free to If

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<v Speaker 1>it's stuck forever, you're not able to do it, then

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<v Speaker 1>you're so. And I think it's been a problem for

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<v Speaker 1>the FED that they've been communiating that that move we

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<v Speaker 1>made in December. That's stuck. We're never gonna undo it.

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<v Speaker 1>Um bari cataph last. When I go shopping, I only

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<v Speaker 1>buy from stores. Will let me return things, should be

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<v Speaker 1>able to say myself. Great example, real quick though, Jeroan

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<v Speaker 1>Paul fedboard governor is looking at financial conditions tightening, saying

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<v Speaker 1>that's now a big, big part of how that FED

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<v Speaker 1>makes a decision. Will that maybe help the move toward

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<v Speaker 1>a rate cut? I was writing, what you say, financial

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<v Speaker 1>condition and tightening bigger part of the equation for the FED.

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<v Speaker 1>I think that the financial conditions are certainly something their

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<v Speaker 1>continued track by ster Dudley uh thinks about talks about

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<v Speaker 1>that a fair amount. And again, what we've heard from

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<v Speaker 1>them is that that's gonna make them less likely to

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<v Speaker 1>raise rates. I haven't heard anything that indicates that they're

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<v Speaker 1>gonna that's gonna make them like that. He cut as

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<v Speaker 1>sooner July Now, Riana cultural Lakota, thank you so very

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<v Speaker 1>much for joining me today. He's form ahead of the

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<v Speaker 1>Federal Reserve Bank of Minneapolis. He's a Lionel W. Mackenzie

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<v Speaker 1>professor of economics at the University of Rochester and of

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<v Speaker 1>Bloomberg gew columns. This is taking stock on Bloomberg Radio.

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<v Speaker 1>The third year Treasury bond continues to rally. The yield

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<v Speaker 1>is down to two point to six percent. How low

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<v Speaker 1>can it go? Kevin get us from Raymond James up

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<v Speaker 1>next to Bloomberg Radio.