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Speaker 1: Global News. It is fed Wednesday. We are Bloomberg Business Week,
Speaker 1: Carol Master, along with Tim Stenovik. Let's bring in the
Speaker 1: team Kathleen Hayes, Global Economics and Policy editor at Bloomberg News.
Speaker 1: She's back in our interactive broker studio. Dave Wilson, Stocks
Speaker 1: editor at Bloomberg News on the remote access from New Jersey. Kathleen,
Speaker 1: you had a few minutes to look at these headlines.
Speaker 1: What stands out for Well, I'd just like to start
Speaker 1: with what the bond market has done, Carol, because I
Speaker 1: made very careful note of where it was and the
Speaker 1: there was it was flat. Just maybe the tenure was
Speaker 1: down to tenth. The tenure is now down eleven thirty seconds.
Speaker 1: The thirty year bond, which was down three three thirty seconds,
Speaker 1: now down a full point. Why, Kathleen do you ask? Well?
Speaker 1: Because the Fed, as mostly expected, apparently, at least in
Speaker 1: the policy statement, has said nothing about the possibility of
Speaker 1: Number one increasing the number of bonds they've been buying.
Speaker 1: That wasn't so expected. But the very least some signal
Speaker 1: that they are ready to start changing the composition of
Speaker 1: the bond maturities right go out the curve by more
Speaker 1: long term bonds. Make sure that that ten year, which
Speaker 1: the yield is currently zero point nine four, people are going,
Speaker 1: oh my god. But if it goes above one percent, well,
Speaker 1: the Fed apparently is not ready to say that yet.
Speaker 1: Certainly at the press conference, J. Poe will be asked
Speaker 1: about that. I think, what's surprised me? I guess not
Speaker 1: when the when the Fed? One of the headlines here
Speaker 1: is the FED Activity saying the economic activity and employment
Speaker 1: have continued to recover. Okay, so some people are really
Speaker 1: concerned about even a negative first quarter, for example, something
Speaker 1: that didn't change meeting forecast sharing rates near zero through
Speaker 1: So the dot plots will not have changed. And of
Speaker 1: course they're revising their economic and inflation forcus etcetera, etcetera.
Speaker 1: But the headlines one more thing when you throw in
Speaker 1: um that they're study the temporary dollar swap lines and
Speaker 1: repurchase facility, because that's just showing the doors open to
Speaker 1: overseas central banks reaching out if they need a little
Speaker 1: help from the FED. And I forgive me if you
Speaker 1: said this, I'm like been listening to you going through
Speaker 1: the bloomberg. The FED forecasting shows five of seventeen officials
Speaker 1: saw a rate hike during So looking way out, Tim,
Speaker 1: we got to talk about the equity market reaction to Yeah,
Speaker 1: we we certainly do. I mean, is anything surprising equity
Speaker 1: investors right now? Dave, if you want to come in
Speaker 1: on that, Yeah, sure doesn't look like it because you
Speaker 1: had a little bit of fluctuation in the SMP five
Speaker 1: hundred after the meeting results were released. But I mean
Speaker 1: you're talking about an SMP five d it's up a
Speaker 1: tenth of a percent at this point. And if you
Speaker 1: look at things as they shake out in terms of
Speaker 1: industry groups, it's a familiar kind of story. You know,
Speaker 1: the performer among the eleven main groups Consumer Discretionary. It's
Speaker 1: a category that includes retailion therefore includes Amazon dot Com,
Speaker 1: and the entire gain in that index can be explained
Speaker 1: by the fact that Amazon is up one point eight percent,
Speaker 1: and then right after that technology stocks, and certainly they've
Speaker 1: been the story, you know for some time. Uh. But
Speaker 1: seven of the eleven groups are lower utilities taking the
Speaker 1: biggest hit. Uh. Talk about an initiest rate sensitive group.
Speaker 1: So you know what we're seeing, not really a whole
Speaker 1: lot in what the Federal Reserve release to change investors minds,
Speaker 1: it seems when it comes to stocks here. So it's
Speaker 1: so it's fair to say, Dave, that there were no
Speaker 1: big surprises at least when it came to investors in
Speaker 1: this latest FED meeting. Sure doesn't look that way. I mean,
Speaker 1: not a whole lot of fluctuation in share prices, that's
Speaker 1: for sure. Yeah, it's interesting too, and I'm just going
Speaker 1: through our our Bloomberg live blog love this. Uh. Notably,
Speaker 1: officials did not change their tone with respect to economic conditions,
Speaker 1: reiterating that the recovery depend on the course of the
Speaker 1: virus and that the pandemic will continue to weigh on
Speaker 1: conditions in the near term. They say, it's it poses
Speaker 1: considerable risks to the outlook in the medium term. Um,
Speaker 1: you know we're watching this, Uh, Kathleen, you know it's
Speaker 1: so interesting. I just think about FED decisions of the
Speaker 1: past where we were also focused on the rates for often,
Speaker 1: you know, but it's not really about that. Uh. It's
Speaker 1: really about what they are doing to either help out
Speaker 1: this economy because of the pandemic. Well, and um, I
Speaker 1: think you're right to point out the fact that, yes,
Speaker 1: it's still gonna they're still saying that the economy is
Speaker 1: going to depend on the virus. And we could even
Speaker 1: add to that, well, vaccines, how quickly can you get
Speaker 1: them out? Et cetera. I think it's interesting too when
Speaker 1: you look at the change in the summary of economic projections,
Speaker 1: the steps, which that's where the dot plots for the
Speaker 1: interest rate hikes come from. People were saying, including Elena
Speaker 1: Shila Kiva and our Bloomberg Economics team before this came out,
Speaker 1: that undoubtedly their outlook for unemployment because it's come down
Speaker 1: a lot faster than they expect, it would be much brighter.
Speaker 1: And in fact they do say the jobless rate six
Speaker 1: point seven. Uh, they had forecast at seven point six
Speaker 1: and for next year you'll get down to five five
Speaker 1: point oh versus five point five. You know, those are
Speaker 1: unemployment rates that look like the olden days, right before
Speaker 1: we got to those fifty year lows. Uh. The GDP
Speaker 1: forecast a little bit more optimistic on inflation, though they
Speaker 1: really have a little bit of improvement, but not much.
Speaker 1: They don't see us getting the economy getting to um
Speaker 1: two percent on the core inflation rate until three But
Speaker 1: I think that's kind of what they've been saying for
Speaker 1: a while, Kathleen. I do want to ask you, we
Speaker 1: were talking about it early on our planning call, that
Speaker 1: if during the Powell press conference, if news comes down
Speaker 1: about a stimulus plan or any progress, significant progress, um,
Speaker 1: would we assume that everybody in the room will have
Speaker 1: access to headlines and that is something that they could
Speaker 1: bring up. You know that, Carl, because I remember thinking, now,
Speaker 1: you're absolutely right. The times I've been there, you have
Speaker 1: to uh, well, certainly the lock up because you go
Speaker 1: in early, then you give over your cell phone. However,
Speaker 1: you are allowed to have laptops because that's how you
Speaker 1: put the headlines together to flash them. So yes, I
Speaker 1: think it during the press or they will. I thought,
Speaker 1: you're gonna ask me how j Power react, and I
Speaker 1: was gonna say he he'll probably do a happy dance
Speaker 1: right there in the middle of the press conference. I mean,
Speaker 1: that's did a happy dance. I'm just gonna put that
Speaker 1: out there. Yeah. Well, you know, he does play guitar,
Speaker 1: and he and his wife love to dance. You read
Speaker 1: this all the time. He's quite a renaissance man. But
Speaker 1: it's certainly a big deal. It's probably the biggest deal
Speaker 1: to the fat and I expect that, you know, reporters
Speaker 1: going to ask him a number of different questions about this,
Speaker 1: like what if this doesn't pass, do you get worried
Speaker 1: chair about a negative first quarter? Etcetera. So I think
Speaker 1: this is something that is clearly on the table. We'll
Speaker 1: hear more about it. But who any minute. You know,
Speaker 1: we were talking about that well into the night on
Speaker 1: US ASIA, you know, our Daybreak Asia and Blueberg market
Speaker 1: shows of the stimulus package. Everybody's watching. Yeah, absolutely, Dave Wilson,
Speaker 1: what are you gonna be watching for during that Power
Speaker 1: press conference? Since it doesn't look like we're having Although
Speaker 1: I will say the equity markets look like they're steepening
Speaker 1: some of their losses. But mind you, um not a
Speaker 1: ton and the NAZAC has paired its gain. It was
Speaker 1: up about forty five fried to the FED announced, but
Speaker 1: now just up about eighteen nineteen points. What could Fed
Speaker 1: Chief J. Powe will say that could maybe move the
Speaker 1: equity markets here. I think the real question is how
Speaker 1: much pressure does he put, in essence, on Congress in
Speaker 1: the White House to try and get something done in
Speaker 1: terms of a stimulus. You know, how does he see
Speaker 1: things shaking out based on whether they move, come together,
Speaker 1: get something done or you know, it's wait until next year.
Speaker 1: I mean, that's going to be well worth listening for.
Speaker 1: All right. That is certainly setting us up really well.
Speaker 1: Hey guys, thank you, Thank you so much. Dave Wilson,
Speaker 1: Stocks editor at Bloomberg News on the remote access from
Speaker 1: New Jersey. Kathleen Hayes, Global Economics and Policy editor at
Speaker 1: Bloomberg News. She's back in our interactive Brokers studio. Our
Speaker 1: top headline, top story tim the FED saying it will
Speaker 1: continue to support the economy through massive monetary stimulus until
Speaker 1: it sees quote substantial further progress in employment and inflation.
Speaker 1: So they are watching this and I'm assuming they're going
Speaker 1: to get a lot of questions. J Powell will indeed
Speaker 1: on all of this. Let's do some analysis and let's
Speaker 1: talk about this because keep in mind, in just about
Speaker 1: seventeen minutes time, at the bottom of the hour, we
Speaker 1: will hear from J. Powell, Chairman of the Federal Reserve,
Speaker 1: his comments, and of course that press conference with reporters
Speaker 1: after today's decision. So let's bring in Francis Donald. She
Speaker 1: is global chief Economist, head of macroeconomic Strategy at Manu
Speaker 1: Life Investment Management. She's on the phone in Toronto. Stephen
Speaker 1: Skanky back with us, also chief economic advisor at kill Point,
Speaker 1: former U S. Treasury and White House National Security Council
Speaker 1: staff member. He's based in Washington, d C. And I
Speaker 1: believe that's where he is on the phone on this
Speaker 1: FED Wednesday. Steve, let me start with you. So um
Speaker 1: FED maintaining its bond buys, just watching looking for the
Speaker 1: economy to see some improvement. What's key for you in
Speaker 1: terms of this decision. Well, it's not surprising that the
Speaker 1: Fed didn't change any of his policy stance. Uh, there
Speaker 1: was a little bit of expectation that they might say
Speaker 1: something about the composition of their their bond buying. But uh,
Speaker 1: you know on net there was nothing, there was nothing
Speaker 1: for them to gain by doing that, so so they
Speaker 1: just held it steady. Obviously the economic environment is particularly
Speaker 1: complicated with the vaccine rolling out, but yet at the
Speaker 1: same time record rates of infection, hospitalization's mortality. I think
Speaker 1: what was most interesting to me though, was the adjustment
Speaker 1: in their economic projections. Even with all the sworld that's
Speaker 1: going on in this quarter and and weak economic news
Speaker 1: on retail sales coming even just today, they did reduce,
Speaker 1: uh that they did improve the projection e change in
Speaker 1: real t GP for overall, taking it from minus three
Speaker 1: point seven percent for the year to to minus two
Speaker 1: point four That's actually quite encourage and likewise for two
Speaker 1: they also improved their their projected estimates. Well, it's interesting
Speaker 1: and Neil Dada Renaissance Macro emailing me and saying, you know,
Speaker 1: the bond market gets because he said to the Fed
Speaker 1: marking up growth in need to the next two years,
Speaker 1: marked down unemployment and marked up core inflation. The bond
Speaker 1: markets selling off because it gets that positive growth story.
Speaker 1: Um Francis, come on in on this is that also
Speaker 1: what is jumping out at you, or or is something
Speaker 1: else here's a jumping out of me. We got a
Speaker 1: you know, the end of the news on fiscal We're
Speaker 1: getting a crystal package that looks like it's done done
Speaker 1: Today we get up said that basically does nothing and
Speaker 1: marks up growth and inflation, and all we got was
Speaker 1: a three and a half basic point jump in the
Speaker 1: ten year to nine basis points. Yes, the bond market
Speaker 1: knows things are a little bit better now than they
Speaker 1: were before, but the bond arm because is also staring
Speaker 1: down three months of data that is going to quickly
Speaker 1: deteriorate a central bank that is, whether they do it
Speaker 1: now or next month, going to have to and way
Speaker 1: to average maturity and the possibility that there are you know,
Speaker 1: ongoing turbulence created by the disappearance of thirteen three programs.
Speaker 1: When I look at this bond market, we can kind
Speaker 1: of look at the daily charts, but it's telling me
Speaker 1: the same thing, which is that we're still stuck in
Speaker 1: a recessionary environment. Even if you throw a massive fiscal
Speaker 1: package and a more hawkish than expected FED statement, you're
Speaker 1: still only getting the ninety four basis points. And that's
Speaker 1: the biggest message I can read in the last fifteen minutes. Well, Francis,
Speaker 1: what more could could have Fed do here? I mean,
Speaker 1: we're looking at the forecast. It shows that five of
Speaker 1: seventeen officials see a rate hike happening during twenty twenty three,
Speaker 1: the median forecast showing that rates are going to be
Speaker 1: at near zero levels through three. What more can the
Speaker 1: FED do to stimulate the economy? The FAN can't do
Speaker 1: much to stimulate the economy at all, but they could
Speaker 1: reduce the possibility of tail risks. They can make sure
Speaker 1: that we don't incur a rate tantrum right at the
Speaker 1: period when the economy goes through a double dip. And
Speaker 1: in fact, they should be doing this now. Powell is
Speaker 1: going to get away with this just like Regard did
Speaker 1: last week. Just a little bit of an increase in niels,
Speaker 1: that's totally something that the that the entire economy and
Speaker 1: financial system can deal with. But if we start to
Speaker 1: see rates move above that one percent and we get
Speaker 1: more nervous more of that reflation trade coming in, then
Speaker 1: we might be heading into a period where those tail
Speaker 1: risks starts to become higher probability. We don't rely on
Speaker 1: the side to boost employment you can lower rate as
Speaker 1: much as you want. I'm not going to a movie theater,
Speaker 1: but what you can do is make sure that it
Speaker 1: doesn't create a spiraling event that creates a credit event.
Speaker 1: I think Powell is going to have to come in
Speaker 1: here in about twelve minutes and lean pretty heavily here
Speaker 1: or else who's going to have to direct the New
Speaker 1: York said to start buying the sadder at the curve
Speaker 1: as they have been in the last week or so. Well, Francis,
Speaker 1: she took us exactly where I want to go. Um, Steve,
Speaker 1: come on in back on this conversation. I mean, what
Speaker 1: do you want to hear from Pal? What would you
Speaker 1: be asking him? And I do think about do we
Speaker 1: need to really start thinking about This is the last
Speaker 1: FED meeting of this year, then the first one of
Speaker 1: next year will be just after the Biden administration gets
Speaker 1: into the White House. Um, we've already talked about a
Speaker 1: lot of collaboration expected between Pal and Yelling and the
Speaker 1: economic team of Joe Biden. But what is it that
Speaker 1: you would want to ask Powell and what are you
Speaker 1: expecting come January? Well, what I'd really like to ask him,
Speaker 1: But I'm sure he won't answer at all? Is how
Speaker 1: does he look forward to the partnership with the new
Speaker 1: Treasury secretary of his old friend Janny Yellen? And H
Speaker 1: what types of things are are they thinking about? You know,
Speaker 1: they're going to have some big challenges coming ahead, the
Speaker 1: disadvantage labor groups, UH, some specific industries that are uh
Speaker 1: facing insolvency and credit issues that liquidity won't really solve.
Speaker 1: And um, what do they do when they can't get
Speaker 1: the sort of fiscal stimulus that they really need to have?
Speaker 1: And how is all that going to work together? I
Speaker 1: think it's premature for him to tip his hand on that,
Speaker 1: but we'll see if any of the questioning can tease
Speaker 1: any of that out. Uh. That that's the big challenge.
Speaker 1: To do much right now is no game for the Fed.
Speaker 1: Better better to be reserved, keep quiet, see how things
Speaker 1: behave and if they need to do something before they
Speaker 1: end of January, obviously they can do that. But but
Speaker 1: for right now, just just lay low and act confident
Speaker 1: and uh give give markets a positive signal. Francis, let's
Speaker 1: let's get that same question over to you. What would
Speaker 1: you ask the FED chair if you were able to
Speaker 1: talk to him in a few minutes. Well, if it
Speaker 1: was over drinks, I'd asked him if he thought this
Speaker 1: morning's retail sales report, I want to be at that.
Speaker 1: I want to be at that drinks. By the way, Yes,
Speaker 1: it's definitely it's definitely over drinks. Yeah. If I was
Speaker 1: in the room though at two thirty, I'd probably dive
Speaker 1: deeper into what they're expecting to do with the longer
Speaker 1: maturities and how comfortable they are with them. And the
Speaker 1: reason that I want to ask that is because I
Speaker 1: would want to subtily get under the surface of how
Speaker 1: much of a connection and Powell wants between fundamentals and rates.
Speaker 1: Is he ready to take off the rains and let
Speaker 1: the market trade off of better news push that tenure
Speaker 1: higher up until where it should be, which is probably
Speaker 1: closer to one forty, or do they want to maintain
Speaker 1: some financial repression in this and allow them overheating. Of course,
Speaker 1: he'll never say that he's happy with financial repression in
Speaker 1: the bond market, but if you could get a sense
Speaker 1: of where they're going on longer duration purchases, I might
Speaker 1: give you a little bit of some insight into the
Speaker 1: way they're thinking about that. Well, Francis and do you
Speaker 1: think he's also thinking about something We've talked about a
Speaker 1: lot on air with Peter Atwater about the K shaped recovery.
Speaker 1: There are people who don't really even feel this economically,
Speaker 1: or they're in the markets and they've made a lot
Speaker 1: of money and they've actually done okay, And then there
Speaker 1: are others who have felt so much too much um
Speaker 1: And I do wonder if J Powell, I think he
Speaker 1: is thinking about letting it run a little hot so
Speaker 1: that those who really have been left out here again
Speaker 1: maybe get some help. Yeah, Carol, I think they probably
Speaker 1: obsess over the K shaped recovery, both because it impacts
Speaker 1: manufacturing and services differently, so the stock market is going
Speaker 1: to take off while the rest of the economy gets
Speaker 1: left behind, but also because if we look at what
Speaker 1: central banks are doing, they continue to expand the way
Speaker 1: they're looking at the world. They're talking about climate change, incommitteequality,
Speaker 1: racially in qualities, the Reserve Bank of New Zealand talking
Speaker 1: about housing affordability. Now that doesn't mean they're going to
Speaker 1: change their duel um, their inflation and employment mandate, but
Speaker 1: it doesn't mean the scope over which they observe that
Speaker 1: is going to change. And this is why, yes, we
Speaker 1: can kind of talk about the three basis points in
Speaker 1: the tenure, and we can talk about way at average maturity,
Speaker 1: but look at the dot plot. Look at what they're
Speaker 1: telling us an average inflation targeting. The set is not
Speaker 1: lifting off until at least five and the rest of
Speaker 1: it is really kind of coming down to tactical trading
Speaker 1: and not the main messaging that they're trying to get across.
Speaker 1: And I really hope that at two thirty Powell just
Speaker 1: pounds that down to the table and reminds us we
Speaker 1: are not thinking about thinking about raising indust rates because
Speaker 1: we use the word like that today. Steve, want to
Speaker 1: bring you back in here and then just talk more
Speaker 1: about these interest rates POTENTI staying at near zero rates
Speaker 1: until what are the long term implications of that? I
Speaker 1: mean beyond financial markets. We look what's happening in the
Speaker 1: real estate industry, because mortgage rates are just at rock
Speaker 1: bottom right now and demand is pushing prices higher throughout
Speaker 1: the country. Despite this week, Economy give us an idea
Speaker 1: of long term implications of low interest rates. Well over time,
Speaker 1: you can get um disruption in in fixed income and
Speaker 1: borrowing markets when when rates stay too low, too long. Uh,
Speaker 1: But it seems like they're willing to take that chance
Speaker 1: and run that experiment. Both Janet Yellen and j Powella
Speaker 1: have have spoken often about the need and the fact
Speaker 1: that the lower income groups and disadvantaged labor groups only
Speaker 1: benefit at the UH in the final stages of the
Speaker 1: economic growth cycle, and so they are going to the
Speaker 1: economy run a little bit hot and inflation be a
Speaker 1: little bit on the high side to get out there,
Speaker 1: and whether that means that they have to apply the
Speaker 1: brake pedal all that much more firmly if if inflation
Speaker 1: should accelerate, that might be the case. Um it it's
Speaker 1: it's not helpful to longer equilibrium in in free markets. UH.
Speaker 1: But I don't think that that's their focus right now.
Speaker 1: You know, it's interesting. Real focus is the K the
Speaker 1: case shape recovery and UH and doing something to benefit
Speaker 1: those that are on the bottom length of that K
Speaker 1: Muhammada area and tweeting out over PIMCO and he's saying
Speaker 1: he highlighted a certain segment of a chair pals upcoming
Speaker 1: press conference and or from the FED statement, I should say,
Speaker 1: and he says that this should be talked about at
Speaker 1: the press conference, but he said, in addition, the Fed
Speaker 1: this is this is a statement from the FED. In addition,
Speaker 1: the FED will continue to increase its holdings of treasure
Speaker 1: securities by at least eighty billion dollars per month and
Speaker 1: of agency mortgage back securities by at least forty billion
Speaker 1: per month until substantial further progress has been made towards
Speaker 1: the Committee's maximum employment and price stability goals. I mean,
Speaker 1: so he's saying, you know, he'll be he'll be asked
Speaker 1: a lot more about that UM and I guess some
Speaker 1: more details about that. I mean, I don't know, for insis,
Speaker 1: we talked about this before. I mean, there isn't a
Speaker 1: lot more that the FED can do, especially when it
Speaker 1: comes to you know, they're about lending, they're not about spending.
Speaker 1: That's where Congress comes in. And I do wonder what
Speaker 1: he will say or what we need him to say
Speaker 1: at the press conference when it comes to that next
Speaker 1: round of federal aid and federal stimulus that seems to
Speaker 1: be making progress, but men, it's taking forever now, you know.
Speaker 1: I think he'll push back against the idea that the
Speaker 1: FED can't do anything else. They can latten this curve
Speaker 1: pretty aggressively, and they can make sure that the so
Speaker 1: called inflation scare that's coming through doesn't maturely list rate prematurely,
Speaker 1: particularly in the period where we're heading into weakness. But
Speaker 1: I think one of the things Central Makes are gonna
Speaker 1: have to push back on in the next year or
Speaker 1: so is really, you know, trying to push back against
Speaker 1: the idea that they're even thinking about normalizing. The DTV
Speaker 1: just suddenly brings up the concept of a roll off.
Speaker 1: Nobody was asking them about that. They just volunteered that information.
Speaker 1: It's like those means that go like nobody, absolutely nobody, Hey,
Speaker 1: you want to hear about our roll offs pens. These
Speaker 1: are not really what we need to be hearing. What
Speaker 1: we need to be hearing is we're boring. We're not
Speaker 1: doing anything will be more needed. We're not even thinking
Speaker 1: about what an exit plan looks like. We need that.
Speaker 1: We just need that for three six more months. That's
Speaker 1: all I need, just three six more months. Then we
Speaker 1: can talk about roll offs. Going into a period that's very,
Speaker 1: very weak and we have to prepare for it. We
Speaker 1: have to be relaxed and not reactive. Well, it's a
Speaker 1: year where we talked you know so much about deliberate actions,
Speaker 1: whether it you know of all that ails us right,
Speaker 1: it needs to be and it sounds like you know, Francis,
Speaker 1: that's what you're saying, Steve. Do you agree that the
Speaker 1: Fed needs to be incredibly deliberate right here about and
Speaker 1: make sure it's message is very clear? Oh? Absolutely, because
Speaker 1: they can markets can be confused, especially as Frances says,
Speaker 1: when you look at what the the e c B
Speaker 1: just sort of uh, let let drop out there. The
Speaker 1: Ft has been adamant about that, and I think that
Speaker 1: the Chairman Powell will will reiterate that just so there's
Speaker 1: absolutely no confusion that they're thinking about doing anything in
Speaker 1: terms of raising rates or or or dampening down there
Speaker 1: um quantitative easing until well well into or beyond even
Speaker 1: the end of tree, depending on where labor markets and
Speaker 1: inviceing are at that point in time. I don't think
Speaker 1: we'll hear about it today because these are are primarily
Speaker 1: the biggest issues. But there there's also an opportunity if
Speaker 1: if in the new Congress, and depending on what that
Speaker 1: composition looks like, if if there's not an opportunity too
Speaker 1: to obtain the sort of fiscal stimulus that the incoming
Speaker 1: by the administration thinks that it needs of the yell
Speaker 1: and power combination of figuring out how the Fed can
Speaker 1: can provide fiscal like monetary stimulus in one to to
Speaker 1: get that additional boost that they may decide they need
Speaker 1: to have. Steve we we talked a lot about the
Speaker 1: fetch her, of course being very deliberate with his language
Speaker 1: and deliberate in those statements. But what could he say
Speaker 1: today that could move markets? Well, I think if he walked,
Speaker 1: if he waffles at all on their the interest rate outlook.
Speaker 1: So it's more of a question what he doesn't say. Yes,
Speaker 1: it's more a question of what he doesn't say. The
Speaker 1: statement that they came out with was very clear. You know,
Speaker 1: there's been a lot of hope and expect Mason that
Speaker 1: they would say something about extending duration, uh increasing the
Speaker 1: treasury bond buying at the expense of mortgage backed security
Speaker 1: bond buying, and they avoided all of that. Um I
Speaker 1: think because it's not needed, it's untimely, it clouds the issue,
Speaker 1: and it gives the market's a better opportunity to to
Speaker 1: misread what they're trying to say. So so so they
Speaker 1: they are at a very narrow lane in uh what
Speaker 1: they've put in their press release. Uh. I guess is
Speaker 1: that Charmin Powell will will stay in that lane and
Speaker 1: be deliberate about reiterating the points that they made in
Speaker 1: the press conference. Got it, francis saving you thirty seconds.
Speaker 1: Final thoughts here, Paul got a lean back against some
Speaker 1: of this hawkishness after this statement. I'm very nervous about
Speaker 1: this press conference. It will come down to communication. I
Speaker 1: wouldn't be surprised you can make an argument that we
Speaker 1: see rape to one percent at the end of the
Speaker 1: press conference or their back down five basis points. It's
Speaker 1: been a long time since you head into a press
Speaker 1: conference who have been so nervous and the range of
Speaker 1: outcome so wide. Yeah, exactly, all right, Gonna leave it there.
Speaker 1: Thank you both. Francis Donald, chi's global chief Economist, head
Speaker 1: of Macroeconomic Strategy and Manual Life Investment Management on the
Speaker 1: phone from Toronto, and of course Steve Skanky, chief economic
Speaker 1: advisor at Keel Point, former US Treasury and White House
Speaker 1: National Security Council staff member. This is Bloomberg Business Week
Speaker 1: with Carol Masser from Bloomberg Radio, and you are listening
Speaker 1: to Bloomberg Business Week on this FED Wednesday Carol Masser
Speaker 1: along with Tim Stanovic of Bloomberg quicktake and as expected,
Speaker 1: leaving rates unchanged. But we did hear a lot from
Speaker 1: FED Chief J Powell, certainly as Charlie highlighted there about expectations,
Speaker 1: hopes if you will, for fiscal stimulus, something that is
Speaker 1: still winding its way slowly through Congress, and we'll see
Speaker 1: fultimately we get something, Tim before the end of the year. Slowly,
Speaker 1: is right, We're counting down the days until something needs
Speaker 1: to happen. Yeah, exactly right, And there's not much left
Speaker 1: here in Hey, let's see what um our round table
Speaker 1: has to say about this FED decision and really that
Speaker 1: FED press conference with j Palasti Blitz back with US
Speaker 1: chief US economist at T S. Lombard. Lombard, excuse me
Speaker 1: on the phone in New York City. Also Bloomberg Economics
Speaker 1: senior US economist Elana Shaleva. She's on the phone in
Speaker 1: Long Island. Elena, let me start with you briefly. I
Speaker 1: want to get from both of you, UM the highlights
Speaker 1: in the press conference, things that you think investors are
Speaker 1: Bloomberg audience really need to take note of absolutely. I
Speaker 1: think what was very interesting from the press conferences that
Speaker 1: check Powell dismissed any expectations for a need term change
Speaker 1: in the piece or the composition of as it touchased it. Uh.
Speaker 1: He noted that financial conditions are appropriate for now, and
Speaker 1: the FED is providing enough accommodation, uh, substantial accommodation, So
Speaker 1: shifting towards Bloomber term maturities by simultaneous reducing the pace
Speaker 1: of purchases something that was like hinted in the latest
Speaker 1: affiency minutes. Uh, it's not high on our list of priorities,
Speaker 1: he said. So. I think what it was very interesting
Speaker 1: uh in the whole uh effiency community was that they
Speaker 1: did not hint at any more aggressive case of purchases
Speaker 1: going forward. They did actually refined its communications um in
Speaker 1: terms of what to expect in terms of purchases going forward,
Speaker 1: but they were not aggressively saying that they will increase
Speaker 1: the piece. In the daed to Steve, I want to
Speaker 1: bring you into the conversation, chief chief US economist at T. S. Lombard. Um. Look,
Speaker 1: I had a chance to look at your note and
Speaker 1: your reaction right at two o'clock. You said not very interesting.
Speaker 1: Nothing very interesting in the f O m C statement.
Speaker 1: What about when it comes to fed your palace press conference,
Speaker 1: any more color or anything else that you found anything
Speaker 1: in there that you actually found interesting surprising? Well, yes
Speaker 1: and no. I think first of all, I think he
Speaker 1: basically waved again the white flag and said, look, near term,
Speaker 1: over the next four or five months, you know, the
Speaker 1: bridge to you know, the vaccinated world, and the ability
Speaker 1: for the economy to get there and hold and whole
Speaker 1: rests with fiscal policy, not monetary policy. That you know,
Speaker 1: what's suffering is not interest rate sensitive, and therefore for
Speaker 1: them to do anything more isn't going to help. I mean,
Speaker 1: reading the reading between the lines here, that's a message
Speaker 1: to Congress and to lawmakers that's like, hey, get something
Speaker 1: done now. I think it's a sledge em and not
Speaker 1: between the lines. But the other part of his message, though,
Speaker 1: I think, as long as we're talking after your audience
Speaker 1: are market participants, is this they're also making the bet
Speaker 1: that when the recovery occurs, it's going to be another
Speaker 1: extended growth low in station environment. I thought that was
Speaker 1: really interesting, Steve. I thought that was really interesting that
Speaker 1: he even actually put that out there. Yeah, And so
Speaker 1: the question is, as a market participant, do you believe
Speaker 1: that the next cycle is going to have the same
Speaker 1: dynamic as the last one. I would argue the answer
Speaker 1: is no, and that their timeline of when they're actually
Speaker 1: going to begin to react is a lot shorter than
Speaker 1: what they're laying out there. Um. But of course there's
Speaker 1: no way for them right now. There's no way for
Speaker 1: right now that they would alter that because it would
Speaker 1: be counterproductive to their their messaging. So I understand that.
Speaker 1: But as a market participant, are you going to bet
Speaker 1: with that forward curve or you're gonna bet against that?
Speaker 1: And I think it makes more sense to bet against
Speaker 1: it that the economy is gonna end up being stronger
Speaker 1: and so they're gonna gonna have to react. Well, Helena,
Speaker 1: this is kind of your world too, in terms of
Speaker 1: watching the economy. I mean, could we be setting this
Speaker 1: age for another kind of very long protracted, you know,
Speaker 1: kind of slow growth, low inflation economy, which is one
Speaker 1: that we know market investors just love, certainly equity investors. Well,
Speaker 1: I think I totally agree with that. And I think
Speaker 1: despite some you know, expected rebound probably in the second
Speaker 1: half of this year, it will take time for the
Speaker 1: labor market to uh get fixed. So look at what
Speaker 1: has happened already. You know, yes, there was a quick
Speaker 1: rebound in economic growth, but lest over rebound in the
Speaker 1: label market, and that's what we are facing going into
Speaker 1: the next year. I think in terms of inflation, that
Speaker 1: was very interesting as well. I think the you know,
Speaker 1: the changes to the summer economic projections reflecting stronger growth,
Speaker 1: lower unemployment rate, but no substantial changes to inflation projections
Speaker 1: actually highl that the set is not expecting much of
Speaker 1: higher inflation going forward. So that tells me that they're
Speaker 1: not that optimistic with respect to developments in the label
Speaker 1: market going forward. Lena, what would have to happen for
Speaker 1: the Fed to raise interest rates? Oh my god, that's
Speaker 1: the one. We are not expecting interest rates until by
Speaker 1: the way, So so even further than the Fed the
Speaker 1: FED set today, Yes, but you know, the consensus is
Speaker 1: still pretty uh you know, in line with no interest
Speaker 1: rates increases. Just a few of participants are expecting those.
Speaker 1: But I think we need to see that the output
Speaker 1: that gap to close, and we will need to see
Speaker 1: inflation expectations picking up substantially. That will not happen without
Speaker 1: substantial and sustainable will increase in the prices going forward.
Speaker 1: So I think we are ways away from the first
Speaker 1: race in Greason. By the way, we did not expect
Speaker 1: a tapering of asset purchases until but listen, Tim brings
Speaker 1: up a good point, and you know, I do understand.
Speaker 1: What's is there's something out there, an outlier that we
Speaker 1: could miss, you know, or that you're thinking about significantly.
Speaker 1: It sounds like you're a little bit more tempered, but
Speaker 1: something significantly on the downside or significantly on the upside.
Speaker 1: I mean, we are living in unusual times this year
Speaker 1: certainly where we saw, you know, a drop off like
Speaker 1: no other in the economy and a bounce back like
Speaker 1: no other in the economy. And we know the way
Speaker 1: back is usually tip, you know, much much more difficult.
Speaker 1: But is there something out there, an outlier when you
Speaker 1: get your team together and you're like, don't forget, this
Speaker 1: is still got to be on your radar the label market.
Speaker 1: I think if we see a significant improvement in a
Speaker 1: jobless rate as well as a significant improvements a patient,
Speaker 1: that will uh you know, result in significant growth in
Speaker 1: our personal income and consumer spending, like way better than
Speaker 1: the market and the economy's expectations, that could incur some
Speaker 1: high inflation Quaker. So that's something to watch for you. Yeah.
Speaker 1: I think that the key thing here is that, first
Speaker 1: of all, it's not your typical recession because it's been
Speaker 1: it's been in effect falsely created, and it falsely created
Speaker 1: in the sense that we asked a big part of
Speaker 1: the economy to shut down, and that part of the
Speaker 1: economy eventually reopens. What if you look at the last
Speaker 1: ten years with Howell's essentially expecting is for a similar
Speaker 1: pattern of growth, namely a lot of high end growth
Speaker 1: and a lot of low end growth in the labor market.
Speaker 1: If instead head because of COVID and everybody wanted to
Speaker 1: move someplace else, you get more and and reshoring of
Speaker 1: economic activity. You get higher um construction employment, higher manufacturing employment,
Speaker 1: higher office administration employment. It's not gonna matter in one,
Speaker 1: but because then you can see a lot of the
Speaker 1: lower wage workers coming back as restaurant if it comes
Speaker 1: back to online. But in two you're gonna see the
Speaker 1: return of a much higher level of average hourly earning
Speaker 1: growth and relative to the unemployment rate than what we
Speaker 1: saw in the last recovery and to set all of
Speaker 1: a sudden is going to be looking at a from
Speaker 1: their perspective, not mine, but from their perspective, a return
Speaker 1: of the Philip skirt. And so I think that at
Speaker 1: the very end of two. First of all, I think
Speaker 1: at the end of one they taper, if not in
Speaker 1: the asset purchases, and by the end of two get
Speaker 1: your first little ink in the funds rate. All right,
Speaker 1: we gotta leave it there. Hey, guys, thank you so much.
Speaker 1: Have a good holiday. Steve and Elena YouTube. If we
Speaker 1: don't catch you before the new year, though I'm guessing
Speaker 1: we probably will. Steve bletch chie you chief US economist
Speaker 1: at T S. Lombard and Bloomberg Economics. Senior US economist Lena,
Speaker 1: she'll like you, I brom journal. Yeah, but you let
Speaker 1: me drive? No, no, no, dr home honey please, I'll
Speaker 1: do the riding. Drivels me. I want to drive, Just
Speaker 1: drive baby, good questions trying. Yeah, this is the drive
Speaker 1: to the Globe Commune. Thanks, we'll drive us down on
Speaker 1: Bloomberg Radio. Yeah, let's get right to it. Time for
Speaker 1: the drive to the clothes Ready wants back with us
Speaker 1: chief investments stragist at O'Neil Global Advisors. He's with us
Speaker 1: once again on the phone in Miami. Randy, good to
Speaker 1: have you here with Tim and myself. Um, I hope
Speaker 1: you're doing well, and I feel like there's so much
Speaker 1: to talk about, So where so we begin. I'm curious
Speaker 1: the Fed, the meeting today, anything that you think is
Speaker 1: just really standing out for you and I think that well,
Speaker 1: first of all, thanks for having me back. I'll try
Speaker 1: to make it quick so you guys get get out
Speaker 1: of there before the snow really starts in New York. Uh.
Speaker 1: With with regard to the Fed, you know, I really
Speaker 1: think there were a couple of things. The first is
Speaker 1: that they're committed to continuing the bond buying. I'm sure
Speaker 1: you've talked about some of this on the show already.
Speaker 1: They said they'll increase asset purchases at the economy slows.
Speaker 1: So what the bulls wanted to hear today they got right.
Speaker 1: The Fed is committed. They're gonna keep buying bonds and
Speaker 1: they're going to do more if they need to. The
Speaker 1: balance sheets at seven point three trillion that doesn't seem
Speaker 1: to bother them. They're willing to a low to keep going.
Speaker 1: What's the market expecting from Congress right now, because we know,
Speaker 1: and we just heard from Mitch McConnell sign a majority
Speaker 1: leader that they're close but not yet. I mean they
Speaker 1: expect this, you know, nine billion dollar bill they expect
Speaker 1: before the end of the year. They would like to
Speaker 1: see some relief for small business. I think the current
Speaker 1: version does include direct payments to consumers. I think that's needed.
Speaker 1: I think again, as I've said before, the number one
Speaker 1: thing that is not focused on enough is the damage
Speaker 1: being done to small business. And you can see that,
Speaker 1: particularly in Manhattan, where so many small businesses and restaurants
Speaker 1: and bars are going out of business. Yeah, it's just devastating.
Speaker 1: It kind of breaks my heart. Anytime I'm kind of
Speaker 1: going through New York, it's just one boarded up or
Speaker 1: closed um retail front after another, restaurants in particular Randy.
Speaker 1: One thing that really stood out for Tim and me
Speaker 1: today in listening to the FED chairman was what do
Speaker 1: you have to say about climate change? And I love
Speaker 1: you just put out an article UM at the end
Speaker 1: of November and Forbes how to invest in the coming
Speaker 1: alternative energy boom. I think that there is and many
Speaker 1: people are thinking about this that we are at this
Speaker 1: interesting critical time where there's a lot of money being
Speaker 1: spent by global governments to kick start the global economies,
Speaker 1: and that we can do it in a thoughtful, deliberate, environmentally,
Speaker 1: a conscious way. And I'm just curious how you see it.
Speaker 1: I'd say three things. First, I feel like clean energy,
Speaker 1: like I mentioned in the article, it's like biotechnology and
Speaker 1: biotechnology really got going Amgen had those two major drugs
Speaker 1: in the whole sector took off. I think you're looking
Speaker 1: at a thirty year cycle here for clean energy. If
Speaker 1: you look at both the Biden administration and the European
Speaker 1: Commission overseas, both of them want to get their respective
Speaker 1: economies to basically carbon neutral by So if that's going
Speaker 1: to happen, that's an awful lot of spending. The Biden
Speaker 1: administration wants to spend four hundred billion initially over ten years.
Speaker 1: In Europe it's even bigger. They want to spend a
Speaker 1: trillion euros over ten years. So there's gonna be a
Speaker 1: ton of spending. And then the third point is that
Speaker 1: if you look at new builds, so brand new builds
Speaker 1: for power generation, solar and wind are now actually cost effective.
Speaker 1: They are as low cost as the lowest cost fossil fuel.
Speaker 1: So if the cost is the same, why wouldn't you
Speaker 1: do clean energy? So can I just can I just follow?
Speaker 1: So then traditional oil carbon like I mean, you know
Speaker 1: the big integrated oil companies, would you just run from them?
Speaker 1: I know they're also getting involved in alternative energy. I
Speaker 1: think they need to get involved. I think some are
Speaker 1: transitioning quicker than others. Despides the integrated can also look
Speaker 1: at things like utilities. I mean FPL here in Florida
Speaker 1: has been very aggressive in terms of increasing its clean
Speaker 1: energy exposure. But I think you want to be with
Speaker 1: the companies that are really committed to it, and I've
Speaker 1: already started a transition, not the ones that are gonna
Speaker 1: be late to the party because it's gonna be it's
Speaker 1: gonna hurt them, or it's going to be expensive for
Speaker 1: them to catch up. Well, one of those companies that
Speaker 1: you certainly have on your list is Tesla. Uh, this
Speaker 1: company has just had an amazing year. It's up more
Speaker 1: than sient so far this year. It's unbelievable. Um is
Speaker 1: the party over? Though? I mean, is there still room
Speaker 1: to get in on this? I think I think it's
Speaker 1: a question of timing. Right. So they're the largest electronic
Speaker 1: vehicle manufacturer in the world that gets sixteen percent share
Speaker 1: of the EV market, but they've only got four percent
Speaker 1: of the total markets. They have a lot of room
Speaker 1: to grow. Their energy storage business is growing about forty
Speaker 1: five percent a year, but only revenue. However, let's remember
Speaker 1: the stocks going into the SMP on December one. That's
Speaker 1: caused a lot of forward buying in the stock. I
Speaker 1: think if I owned it, I would hold it, But
Speaker 1: if I didn't own it, I'd really be looking for
Speaker 1: a better chance to get in sometime in the first
Speaker 1: or second quarter of next year. And that really I
Speaker 1: think goes for a lot of stocks. If you if
Speaker 1: you look at the market right now, technically it's trending
Speaker 1: up along at a rising fifty day moving average, but
Speaker 1: are an individual basis, there's an awful lot of names
Speaker 1: that are that are very extended from proper entry points,
Speaker 1: very extended from their fifty and two day moving averages,
Speaker 1: And I think there are a lot of names out
Speaker 1: there where people should be taken some profits because they're
Speaker 1: probably gonna get a better chance to buy the stocks
Speaker 1: back in the first half of the year. And I
Speaker 1: know there's a lot of other names, Randy in the
Speaker 1: alternative energy space that you're looking at and phase energy soilaria. Um.
Speaker 1: So we're gonna have to have you come back and
Speaker 1: join us a because we'd love to diggle a bit
Speaker 1: more deeper into the space, Randy. Randy, have a great holiday,
Speaker 1: a safe holiday, and happy New Year, and look forward
Speaker 1: to talking with you in Randy Watt's chief Investment Strategies
Speaker 1: at O'Neil Global Advisors, on the phone in Miami. Um.
Speaker 1: Interesting to hear we did to say about Tesla. Thanks
Speaker 1: so much for listening to Bloomberg Business Week. Download the
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