WEBVTT - Fed to Maintain Bond Buys Until ‘Substantial’ Economy Gains Seen 0:00:00.240 --> 0:00:03.280 This is Bloomberg Business Week. I'm Carol Masser. Every day 0:00:03.279 --> 0:00:05.200 we're bringing you the latest news from the world's of 0:00:05.200 --> 0:00:08.920 business and finance, plus technology, politics. So much going on 0:00:08.960 --> 0:00:12.160 in the world of politics, economics, and it's all harnessing 0:00:12.160 --> 0:00:14.840 the power of Business Week reporters and editors. If you 0:00:14.840 --> 0:00:18.280 can download Bloomberg Business Week on iTunes, SoundCloud, or Bloomberg 0:00:18.320 --> 0:00:20.480 dot com. If you can also listen to our radio 0:00:20.520 --> 0:00:23.439 show at two pm Eastern on Bloomberg Radio and be 0:00:23.440 --> 0:00:26.280 sure to watch us too on YouTube by searching Bloomberg 0:00:26.360 --> 0:00:30.120 Global News. It is fed Wednesday. We are Bloomberg Business Week, 0:00:30.120 --> 0:00:32.040 Carol Master, along with Tim Stenovik. Let's bring in the 0:00:32.080 --> 0:00:35.800 team Kathleen Hayes, Global Economics and Policy editor at Bloomberg News. 0:00:35.800 --> 0:00:38.600 She's back in our interactive broker studio. Dave Wilson, Stocks 0:00:38.720 --> 0:00:41.839 editor at Bloomberg News on the remote access from New Jersey. Kathleen, 0:00:41.840 --> 0:00:43.680 you had a few minutes to look at these headlines. 0:00:43.720 --> 0:00:45.600 What stands out for Well, I'd just like to start 0:00:45.640 --> 0:00:47.760 with what the bond market has done, Carol, because I 0:00:48.200 --> 0:00:50.920 made very careful note of where it was and the 0:00:50.920 --> 0:00:52.920 there was it was flat. Just maybe the tenure was 0:00:52.920 --> 0:00:56.560 down to tenth. The tenure is now down eleven thirty seconds. 0:00:56.560 --> 0:00:59.920 The thirty year bond, which was down three three thirty seconds, 0:01:00.120 --> 0:01:03.480 now down a full point. Why, Kathleen do you ask? Well? 0:01:03.560 --> 0:01:07.560 Because the Fed, as mostly expected, apparently, at least in 0:01:07.640 --> 0:01:12.720 the policy statement, has said nothing about the possibility of 0:01:12.920 --> 0:01:15.840 Number one increasing the number of bonds they've been buying. 0:01:15.880 --> 0:01:18.560 That wasn't so expected. But the very least some signal 0:01:18.959 --> 0:01:22.680 that they are ready to start changing the composition of 0:01:22.720 --> 0:01:26.240 the bond maturities right go out the curve by more 0:01:26.319 --> 0:01:29.000 long term bonds. Make sure that that ten year, which 0:01:29.000 --> 0:01:31.319 the yield is currently zero point nine four, people are going, 0:01:31.319 --> 0:01:33.800 oh my god. But if it goes above one percent, well, 0:01:33.840 --> 0:01:36.440 the Fed apparently is not ready to say that yet. 0:01:36.560 --> 0:01:38.839 Certainly at the press conference, J. Poe will be asked 0:01:38.880 --> 0:01:41.840 about that. I think, what's surprised me? I guess not 0:01:42.880 --> 0:01:44.479 when the when the Fed? One of the headlines here 0:01:44.680 --> 0:01:48.080 is the FED Activity saying the economic activity and employment 0:01:48.080 --> 0:01:51.720 have continued to recover. Okay, so some people are really 0:01:51.760 --> 0:01:55.520 concerned about even a negative first quarter, for example, something 0:01:55.520 --> 0:01:58.560 that didn't change meeting forecast sharing rates near zero through 0:01:59.720 --> 0:02:02.480 So the dot plots will not have changed. And of 0:02:02.520 --> 0:02:07.840 course they're revising their economic and inflation forcus etcetera, etcetera. 0:02:08.080 --> 0:02:10.079 But the headlines one more thing when you throw in 0:02:10.280 --> 0:02:12.920 um that they're study the temporary dollar swap lines and 0:02:13.080 --> 0:02:16.200 repurchase facility, because that's just showing the doors open to 0:02:17.320 --> 0:02:20.240 overseas central banks reaching out if they need a little 0:02:20.280 --> 0:02:22.120 help from the FED. And I forgive me if you 0:02:22.160 --> 0:02:23.919 said this, I'm like been listening to you going through 0:02:23.960 --> 0:02:27.280 the bloomberg. The FED forecasting shows five of seventeen officials 0:02:27.280 --> 0:02:30.679 saw a rate hike during So looking way out, Tim, 0:02:30.680 --> 0:02:33.119 we got to talk about the equity market reaction to Yeah, 0:02:33.160 --> 0:02:36.359 we we certainly do. I mean, is anything surprising equity 0:02:36.360 --> 0:02:38.320 investors right now? Dave, if you want to come in 0:02:38.360 --> 0:02:41.400 on that, Yeah, sure doesn't look like it because you 0:02:41.480 --> 0:02:44.120 had a little bit of fluctuation in the SMP five 0:02:44.200 --> 0:02:49.079 hundred after the meeting results were released. But I mean 0:02:49.080 --> 0:02:51.080 you're talking about an SMP five d it's up a 0:02:51.120 --> 0:02:53.880 tenth of a percent at this point. And if you 0:02:54.000 --> 0:02:56.560 look at things as they shake out in terms of 0:02:56.560 --> 0:02:59.600 industry groups, it's a familiar kind of story. You know, 0:02:59.680 --> 0:03:03.360 the performer among the eleven main groups Consumer Discretionary. It's 0:03:03.360 --> 0:03:06.840 a category that includes retailion therefore includes Amazon dot Com, 0:03:07.160 --> 0:03:09.960 and the entire gain in that index can be explained 0:03:10.000 --> 0:03:13.040 by the fact that Amazon is up one point eight percent, 0:03:13.320 --> 0:03:16.280 and then right after that technology stocks, and certainly they've 0:03:16.320 --> 0:03:19.280 been the story, you know for some time. Uh. But 0:03:19.400 --> 0:03:22.320 seven of the eleven groups are lower utilities taking the 0:03:22.400 --> 0:03:25.360 biggest hit. Uh. Talk about an initiest rate sensitive group. 0:03:25.440 --> 0:03:29.079 So you know what we're seeing, not really a whole 0:03:29.320 --> 0:03:35.280 lot in what the Federal Reserve release to change investors minds, 0:03:35.280 --> 0:03:38.320 it seems when it comes to stocks here. So it's 0:03:38.360 --> 0:03:40.400 so it's fair to say, Dave, that there were no 0:03:40.480 --> 0:03:43.080 big surprises at least when it came to investors in 0:03:43.120 --> 0:03:46.280 this latest FED meeting. Sure doesn't look that way. I mean, 0:03:46.760 --> 0:03:50.119 not a whole lot of fluctuation in share prices, that's 0:03:50.160 --> 0:03:52.360 for sure. Yeah, it's interesting too, and I'm just going 0:03:52.360 --> 0:03:55.520 through our our Bloomberg live blog love this. Uh. Notably, 0:03:55.560 --> 0:03:58.600 officials did not change their tone with respect to economic conditions, 0:03:58.640 --> 0:04:01.160 reiterating that the recovery depend on the course of the 0:04:01.240 --> 0:04:03.680 virus and that the pandemic will continue to weigh on 0:04:03.720 --> 0:04:06.320 conditions in the near term. They say, it's it poses 0:04:06.320 --> 0:04:09.520 considerable risks to the outlook in the medium term. Um, 0:04:09.560 --> 0:04:12.320 you know we're watching this, Uh, Kathleen, you know it's 0:04:12.320 --> 0:04:15.040 so interesting. I just think about FED decisions of the 0:04:15.080 --> 0:04:18.159 past where we were also focused on the rates for often, 0:04:18.600 --> 0:04:20.800 you know, but it's not really about that. Uh. It's 0:04:20.800 --> 0:04:22.960 really about what they are doing to either help out 0:04:22.960 --> 0:04:27.760 this economy because of the pandemic. Well, and um, I 0:04:27.800 --> 0:04:30.000 think you're right to point out the fact that, yes, 0:04:30.040 --> 0:04:33.680 it's still gonna they're still saying that the economy is 0:04:33.720 --> 0:04:35.800 going to depend on the virus. And we could even 0:04:35.839 --> 0:04:38.120 add to that, well, vaccines, how quickly can you get 0:04:38.120 --> 0:04:40.960 them out? Et cetera. I think it's interesting too when 0:04:41.000 --> 0:04:44.240 you look at the change in the summary of economic projections, 0:04:44.279 --> 0:04:46.279 the steps, which that's where the dot plots for the 0:04:46.320 --> 0:04:49.760 interest rate hikes come from. People were saying, including Elena 0:04:49.800 --> 0:04:53.080 Shila Kiva and our Bloomberg Economics team before this came out, 0:04:53.160 --> 0:04:56.120 that undoubtedly their outlook for unemployment because it's come down 0:04:56.120 --> 0:04:58.320 a lot faster than they expect, it would be much brighter. 0:04:58.640 --> 0:05:01.400 And in fact they do say the jobless rate six 0:05:01.400 --> 0:05:04.719 point seven. Uh, they had forecast at seven point six 0:05:04.920 --> 0:05:07.440 and for next year you'll get down to five five 0:05:07.440 --> 0:05:09.280 point oh versus five point five. You know, those are 0:05:09.360 --> 0:05:12.239 unemployment rates that look like the olden days, right before 0:05:12.279 --> 0:05:15.120 we got to those fifty year lows. Uh. The GDP 0:05:15.360 --> 0:05:18.800 forecast a little bit more optimistic on inflation, though they 0:05:18.920 --> 0:05:21.599 really have a little bit of improvement, but not much. 0:05:21.640 --> 0:05:24.720 They don't see us getting the economy getting to um 0:05:25.000 --> 0:05:28.440 two percent on the core inflation rate until three But 0:05:28.480 --> 0:05:30.000 I think that's kind of what they've been saying for 0:05:30.040 --> 0:05:31.800 a while, Kathleen. I do want to ask you, we 0:05:31.800 --> 0:05:33.880 were talking about it early on our planning call, that 0:05:34.080 --> 0:05:37.360 if during the Powell press conference, if news comes down 0:05:37.360 --> 0:05:41.840 about a stimulus plan or any progress, significant progress, um, 0:05:42.000 --> 0:05:44.320 would we assume that everybody in the room will have 0:05:44.400 --> 0:05:46.599 access to headlines and that is something that they could 0:05:46.600 --> 0:05:49.800 bring up. You know that, Carl, because I remember thinking, now, 0:05:49.839 --> 0:05:52.440 you're absolutely right. The times I've been there, you have 0:05:52.560 --> 0:05:55.200 to uh, well, certainly the lock up because you go 0:05:55.240 --> 0:05:58.400 in early, then you give over your cell phone. However, 0:05:58.520 --> 0:06:01.359 you are allowed to have laptops because that's how you 0:06:01.360 --> 0:06:03.800 put the headlines together to flash them. So yes, I 0:06:03.839 --> 0:06:05.600 think it during the press or they will. I thought, 0:06:05.640 --> 0:06:07.400 you're gonna ask me how j Power react, and I 0:06:07.400 --> 0:06:09.799 was gonna say he he'll probably do a happy dance 0:06:10.000 --> 0:06:12.120 right there in the middle of the press conference. I mean, 0:06:12.160 --> 0:06:16.719 that's did a happy dance. I'm just gonna put that 0:06:16.760 --> 0:06:18.719 out there. Yeah. Well, you know, he does play guitar, 0:06:18.760 --> 0:06:20.360 and he and his wife love to dance. You read 0:06:20.360 --> 0:06:22.839 this all the time. He's quite a renaissance man. But 0:06:23.360 --> 0:06:25.160 it's certainly a big deal. It's probably the biggest deal 0:06:25.200 --> 0:06:27.159 to the fat and I expect that, you know, reporters 0:06:27.160 --> 0:06:29.080 going to ask him a number of different questions about this, 0:06:29.160 --> 0:06:31.599 like what if this doesn't pass, do you get worried 0:06:31.640 --> 0:06:34.920 chair about a negative first quarter? Etcetera. So I think 0:06:34.960 --> 0:06:38.240 this is something that is clearly on the table. We'll 0:06:38.279 --> 0:06:40.880 hear more about it. But who any minute. You know, 0:06:40.920 --> 0:06:42.520 we were talking about that well into the night on 0:06:42.640 --> 0:06:45.240 US ASIA, you know, our Daybreak Asia and Blueberg market 0:06:45.320 --> 0:06:48.559 shows of the stimulus package. Everybody's watching. Yeah, absolutely, Dave Wilson, 0:06:48.560 --> 0:06:50.039 what are you gonna be watching for during that Power 0:06:50.040 --> 0:06:52.400 press conference? Since it doesn't look like we're having Although 0:06:52.440 --> 0:06:54.320 I will say the equity markets look like they're steepening 0:06:54.400 --> 0:06:56.760 some of their losses. But mind you, um not a 0:06:56.760 --> 0:06:58.560 ton and the NAZAC has paired its gain. It was 0:06:58.600 --> 0:07:01.000 up about forty five fried to the FED announced, but 0:07:01.000 --> 0:07:04.040 now just up about eighteen nineteen points. What could Fed 0:07:04.960 --> 0:07:07.240 Chief J. Powe will say that could maybe move the 0:07:07.240 --> 0:07:09.640 equity markets here. I think the real question is how 0:07:09.720 --> 0:07:13.320 much pressure does he put, in essence, on Congress in 0:07:13.320 --> 0:07:15.480 the White House to try and get something done in 0:07:15.600 --> 0:07:18.080 terms of a stimulus. You know, how does he see 0:07:18.120 --> 0:07:23.040 things shaking out based on whether they move, come together, 0:07:23.120 --> 0:07:26.360 get something done or you know, it's wait until next year. 0:07:26.400 --> 0:07:28.200 I mean, that's going to be well worth listening for. 0:07:28.600 --> 0:07:30.840 All right. That is certainly setting us up really well. 0:07:30.880 --> 0:07:32.960 Hey guys, thank you, Thank you so much. Dave Wilson, 0:07:32.960 --> 0:07:36.160 Stocks editor at Bloomberg News on the remote access from 0:07:36.280 --> 0:07:39.440 New Jersey. Kathleen Hayes, Global Economics and Policy editor at 0:07:39.480 --> 0:07:42.440 Bloomberg News. She's back in our interactive Brokers studio. Our 0:07:42.480 --> 0:07:45.240 top headline, top story tim the FED saying it will 0:07:45.280 --> 0:07:48.920 continue to support the economy through massive monetary stimulus until 0:07:48.960 --> 0:07:53.160 it sees quote substantial further progress in employment and inflation. 0:07:53.280 --> 0:07:55.200 So they are watching this and I'm assuming they're going 0:07:55.240 --> 0:07:57.960 to get a lot of questions. J Powell will indeed 0:07:58.360 --> 0:08:01.120 on all of this. Let's do some analysis and let's 0:08:01.160 --> 0:08:03.320 talk about this because keep in mind, in just about 0:08:03.400 --> 0:08:05.600 seventeen minutes time, at the bottom of the hour, we 0:08:05.640 --> 0:08:08.080 will hear from J. Powell, Chairman of the Federal Reserve, 0:08:08.160 --> 0:08:10.840 his comments, and of course that press conference with reporters 0:08:10.880 --> 0:08:14.480 after today's decision. So let's bring in Francis Donald. She 0:08:14.680 --> 0:08:18.320 is global chief Economist, head of macroeconomic Strategy at Manu 0:08:18.440 --> 0:08:22.160 Life Investment Management. She's on the phone in Toronto. Stephen 0:08:22.200 --> 0:08:25.720 Skanky back with us, also chief economic advisor at kill Point, 0:08:25.880 --> 0:08:28.320 former U S. Treasury and White House National Security Council 0:08:28.360 --> 0:08:31.040 staff member. He's based in Washington, d C. And I 0:08:31.080 --> 0:08:33.800 believe that's where he is on the phone on this 0:08:33.880 --> 0:08:37.440 FED Wednesday. Steve, let me start with you. So um 0:08:37.520 --> 0:08:40.920 FED maintaining its bond buys, just watching looking for the 0:08:40.960 --> 0:08:44.120 economy to see some improvement. What's key for you in 0:08:44.240 --> 0:08:48.280 terms of this decision. Well, it's not surprising that the 0:08:48.400 --> 0:08:52.199 Fed didn't change any of his policy stance. Uh, there 0:08:52.280 --> 0:08:54.559 was a little bit of expectation that they might say 0:08:54.600 --> 0:09:00.520 something about the composition of their their bond buying. But uh, 0:09:00.640 --> 0:09:04.280 you know on net there was nothing, there was nothing 0:09:04.320 --> 0:09:07.600 for them to gain by doing that, so so they 0:09:07.640 --> 0:09:14.239 just held it steady. Obviously the economic environment is particularly 0:09:14.280 --> 0:09:18.400 complicated with the vaccine rolling out, but yet at the 0:09:18.440 --> 0:09:26.240 same time record rates of infection, hospitalization's mortality. I think 0:09:26.280 --> 0:09:30.040 what was most interesting to me though, was the adjustment 0:09:30.080 --> 0:09:34.280 in their economic projections. Even with all the sworld that's 0:09:34.280 --> 0:09:38.880 going on in this quarter and and weak economic news 0:09:39.360 --> 0:09:44.240 on retail sales coming even just today, they did reduce, 0:09:44.640 --> 0:09:49.400 uh that they did improve the projection e change in 0:09:49.480 --> 0:09:54.360 real t GP for overall, taking it from minus three 0:09:54.400 --> 0:09:57.200 point seven percent for the year to to minus two 0:09:57.240 --> 0:10:03.560 point four That's actually quite encourage and likewise for two 0:10:03.640 --> 0:10:08.199 they also improved their their projected estimates. Well, it's interesting 0:10:08.200 --> 0:10:11.880 and Neil Dada Renaissance Macro emailing me and saying, you know, 0:10:12.080 --> 0:10:14.280 the bond market gets because he said to the Fed 0:10:14.280 --> 0:10:16.160 marking up growth in need to the next two years, 0:10:16.280 --> 0:10:19.440 marked down unemployment and marked up core inflation. The bond 0:10:19.520 --> 0:10:22.240 markets selling off because it gets that positive growth story. 0:10:22.440 --> 0:10:25.600 Um Francis, come on in on this is that also 0:10:25.640 --> 0:10:27.600 what is jumping out at you, or or is something 0:10:27.640 --> 0:10:31.480 else here's a jumping out of me. We got a 0:10:31.720 --> 0:10:34.000 you know, the end of the news on fiscal We're 0:10:34.000 --> 0:10:36.560 getting a crystal package that looks like it's done done 0:10:36.600 --> 0:10:39.120 Today we get up said that basically does nothing and 0:10:39.200 --> 0:10:42.040 marks up growth and inflation, and all we got was 0:10:42.080 --> 0:10:44.240 a three and a half basic point jump in the 0:10:44.240 --> 0:10:47.800 ten year to nine basis points. Yes, the bond market 0:10:47.800 --> 0:10:50.000 knows things are a little bit better now than they 0:10:50.000 --> 0:10:52.080 were before, but the bond arm because is also staring 0:10:52.080 --> 0:10:54.920 down three months of data that is going to quickly 0:10:55.000 --> 0:10:57.760 deteriorate a central bank that is, whether they do it 0:10:57.840 --> 0:11:00.319 now or next month, going to have to and way 0:11:00.360 --> 0:11:03.640 to average maturity and the possibility that there are you know, 0:11:03.760 --> 0:11:07.160 ongoing turbulence created by the disappearance of thirteen three programs. 0:11:07.360 --> 0:11:09.000 When I look at this bond market, we can kind 0:11:09.000 --> 0:11:10.760 of look at the daily charts, but it's telling me 0:11:10.880 --> 0:11:13.080 the same thing, which is that we're still stuck in 0:11:13.120 --> 0:11:16.439 a recessionary environment. Even if you throw a massive fiscal 0:11:16.480 --> 0:11:19.760 package and a more hawkish than expected FED statement, you're 0:11:19.800 --> 0:11:22.160 still only getting the ninety four basis points. And that's 0:11:22.200 --> 0:11:25.400 the biggest message I can read in the last fifteen minutes. Well, Francis, 0:11:25.440 --> 0:11:27.400 what more could could have Fed do here? I mean, 0:11:27.520 --> 0:11:29.439 we're looking at the forecast. It shows that five of 0:11:29.520 --> 0:11:33.520 seventeen officials see a rate hike happening during twenty twenty three, 0:11:33.760 --> 0:11:36.400 the median forecast showing that rates are going to be 0:11:36.559 --> 0:11:39.640 at near zero levels through three. What more can the 0:11:39.720 --> 0:11:43.080 FED do to stimulate the economy? The FAN can't do 0:11:43.240 --> 0:11:45.520 much to stimulate the economy at all, but they could 0:11:45.600 --> 0:11:48.480 reduce the possibility of tail risks. They can make sure 0:11:48.520 --> 0:11:51.679 that we don't incur a rate tantrum right at the 0:11:51.760 --> 0:11:54.720 period when the economy goes through a double dip. And 0:11:54.760 --> 0:11:56.719 in fact, they should be doing this now. Powell is 0:11:56.760 --> 0:11:58.640 going to get away with this just like Regard did 0:11:58.720 --> 0:12:01.800 last week. Just a little bit of an increase in niels, 0:12:01.840 --> 0:12:04.439 that's totally something that the that the entire economy and 0:12:04.480 --> 0:12:06.880 financial system can deal with. But if we start to 0:12:06.880 --> 0:12:09.640 see rates move above that one percent and we get 0:12:09.640 --> 0:12:12.400 more nervous more of that reflation trade coming in, then 0:12:12.440 --> 0:12:14.400 we might be heading into a period where those tail 0:12:14.480 --> 0:12:17.280 risks starts to become higher probability. We don't rely on 0:12:17.320 --> 0:12:19.480 the side to boost employment you can lower rate as 0:12:19.559 --> 0:12:21.880 much as you want. I'm not going to a movie theater, 0:12:22.120 --> 0:12:23.599 but what you can do is make sure that it 0:12:23.640 --> 0:12:26.160 doesn't create a spiraling event that creates a credit event. 0:12:26.480 --> 0:12:28.080 I think Powell is going to have to come in 0:12:28.120 --> 0:12:30.480 here in about twelve minutes and lean pretty heavily here 0:12:30.880 --> 0:12:32.600 or else who's going to have to direct the New 0:12:32.679 --> 0:12:34.640 York said to start buying the sadder at the curve 0:12:34.679 --> 0:12:36.880 as they have been in the last week or so. Well, Francis, 0:12:36.920 --> 0:12:39.360 she took us exactly where I want to go. Um, Steve, 0:12:39.360 --> 0:12:41.280 come on in back on this conversation. I mean, what 0:12:41.320 --> 0:12:43.000 do you want to hear from Pal? What would you 0:12:43.000 --> 0:12:45.160 be asking him? And I do think about do we 0:12:45.200 --> 0:12:47.400 need to really start thinking about This is the last 0:12:47.440 --> 0:12:49.400 FED meeting of this year, then the first one of 0:12:49.520 --> 0:12:52.040 next year will be just after the Biden administration gets 0:12:52.040 --> 0:12:55.000 into the White House. Um, we've already talked about a 0:12:55.040 --> 0:12:58.840 lot of collaboration expected between Pal and Yelling and the 0:12:58.920 --> 0:13:02.079 economic team of Joe Biden. But what is it that 0:13:02.160 --> 0:13:03.760 you would want to ask Powell and what are you 0:13:03.800 --> 0:13:08.960 expecting come January? Well, what I'd really like to ask him, 0:13:09.160 --> 0:13:13.120 But I'm sure he won't answer at all? Is how 0:13:13.160 --> 0:13:16.280 does he look forward to the partnership with the new 0:13:16.280 --> 0:13:20.240 Treasury secretary of his old friend Janny Yellen? And H 0:13:21.120 --> 0:13:24.680 what types of things are are they thinking about? You know, 0:13:24.720 --> 0:13:28.400 they're going to have some big challenges coming ahead, the 0:13:28.480 --> 0:13:34.199 disadvantage labor groups, UH, some specific industries that are uh 0:13:34.600 --> 0:13:40.840 facing insolvency and credit issues that liquidity won't really solve. 0:13:40.960 --> 0:13:44.640 And um, what do they do when they can't get 0:13:44.679 --> 0:13:47.200 the sort of fiscal stimulus that they really need to have? 0:13:47.400 --> 0:13:50.200 And how is all that going to work together? I 0:13:50.240 --> 0:13:53.600 think it's premature for him to tip his hand on that, 0:13:54.080 --> 0:13:56.520 but we'll see if any of the questioning can tease 0:13:56.600 --> 0:13:59.880 any of that out. Uh. That that's the big challenge. 0:14:00.000 --> 0:14:05.439 To do much right now is no game for the Fed. 0:14:06.120 --> 0:14:10.959 Better better to be reserved, keep quiet, see how things 0:14:11.000 --> 0:14:14.640 behave and if they need to do something before they 0:14:14.679 --> 0:14:18.080 end of January, obviously they can do that. But but 0:14:18.240 --> 0:14:22.720 for right now, just just lay low and act confident 0:14:22.960 --> 0:14:29.040 and uh give give markets a positive signal. Francis, let's 0:14:29.120 --> 0:14:31.680 let's get that same question over to you. What would 0:14:31.720 --> 0:14:34.400 you ask the FED chair if you were able to 0:14:34.440 --> 0:14:36.800 talk to him in a few minutes. Well, if it 0:14:36.840 --> 0:14:38.480 was over drinks, I'd asked him if he thought this 0:14:38.600 --> 0:14:40.720 morning's retail sales report, I want to be at that. 0:14:40.760 --> 0:14:42.440 I want to be at that drinks. By the way, Yes, 0:14:42.560 --> 0:14:46.680 it's definitely it's definitely over drinks. Yeah. If I was 0:14:46.720 --> 0:14:48.840 in the room though at two thirty, I'd probably dive 0:14:48.880 --> 0:14:51.640 deeper into what they're expecting to do with the longer 0:14:51.680 --> 0:14:54.480 maturities and how comfortable they are with them. And the 0:14:54.520 --> 0:14:56.320 reason that I want to ask that is because I 0:14:56.320 --> 0:14:59.000 would want to subtily get under the surface of how 0:14:59.080 --> 0:15:02.400 much of a connection and Powell wants between fundamentals and rates. 0:15:02.720 --> 0:15:04.960 Is he ready to take off the rains and let 0:15:05.000 --> 0:15:08.320 the market trade off of better news push that tenure 0:15:08.400 --> 0:15:10.520 higher up until where it should be, which is probably 0:15:10.520 --> 0:15:13.040 closer to one forty, or do they want to maintain 0:15:13.080 --> 0:15:16.240 some financial repression in this and allow them overheating. Of course, 0:15:16.280 --> 0:15:19.000 he'll never say that he's happy with financial repression in 0:15:19.040 --> 0:15:21.040 the bond market, but if you could get a sense 0:15:21.080 --> 0:15:23.920 of where they're going on longer duration purchases, I might 0:15:23.960 --> 0:15:26.600 give you a little bit of some insight into the 0:15:26.640 --> 0:15:28.840 way they're thinking about that. Well, Francis and do you 0:15:28.840 --> 0:15:31.120 think he's also thinking about something We've talked about a 0:15:31.120 --> 0:15:34.160 lot on air with Peter Atwater about the K shaped recovery. 0:15:34.200 --> 0:15:38.600 There are people who don't really even feel this economically, 0:15:38.720 --> 0:15:40.600 or they're in the markets and they've made a lot 0:15:40.640 --> 0:15:42.760 of money and they've actually done okay, And then there 0:15:42.760 --> 0:15:46.000 are others who have felt so much too much um 0:15:46.080 --> 0:15:48.800 And I do wonder if J Powell, I think he 0:15:48.920 --> 0:15:50.760 is thinking about letting it run a little hot so 0:15:50.800 --> 0:15:53.680 that those who really have been left out here again 0:15:54.320 --> 0:15:57.440 maybe get some help. Yeah, Carol, I think they probably 0:15:57.440 --> 0:16:00.360 obsess over the K shaped recovery, both because it impacts 0:16:00.440 --> 0:16:03.400 manufacturing and services differently, so the stock market is going 0:16:03.440 --> 0:16:05.240 to take off while the rest of the economy gets 0:16:05.280 --> 0:16:07.600 left behind, but also because if we look at what 0:16:07.680 --> 0:16:10.720 central banks are doing, they continue to expand the way 0:16:10.720 --> 0:16:14.160 they're looking at the world. They're talking about climate change, incommitteequality, 0:16:14.280 --> 0:16:17.440 racially in qualities, the Reserve Bank of New Zealand talking 0:16:17.440 --> 0:16:20.000 about housing affordability. Now that doesn't mean they're going to 0:16:20.120 --> 0:16:23.960 change their duel um, their inflation and employment mandate, but 0:16:23.960 --> 0:16:26.320 it doesn't mean the scope over which they observe that 0:16:26.440 --> 0:16:28.720 is going to change. And this is why, yes, we 0:16:28.760 --> 0:16:30.760 can kind of talk about the three basis points in 0:16:30.800 --> 0:16:32.960 the tenure, and we can talk about way at average maturity, 0:16:33.280 --> 0:16:35.440 but look at the dot plot. Look at what they're 0:16:35.440 --> 0:16:37.960 telling us an average inflation targeting. The set is not 0:16:38.080 --> 0:16:42.000 lifting off until at least five and the rest of 0:16:42.000 --> 0:16:44.440 it is really kind of coming down to tactical trading 0:16:44.480 --> 0:16:46.600 and not the main messaging that they're trying to get across. 0:16:46.920 --> 0:16:49.600 And I really hope that at two thirty Powell just 0:16:49.720 --> 0:16:51.960 pounds that down to the table and reminds us we 0:16:52.000 --> 0:16:54.680 are not thinking about thinking about raising indust rates because 0:16:54.680 --> 0:16:57.080 we use the word like that today. Steve, want to 0:16:57.120 --> 0:16:58.720 bring you back in here and then just talk more 0:16:58.720 --> 0:17:01.920 about these interest rates POTENTI staying at near zero rates 0:17:01.960 --> 0:17:04.560 until what are the long term implications of that? I 0:17:04.640 --> 0:17:07.199 mean beyond financial markets. We look what's happening in the 0:17:07.200 --> 0:17:10.320 real estate industry, because mortgage rates are just at rock 0:17:10.480 --> 0:17:14.840 bottom right now and demand is pushing prices higher throughout 0:17:14.920 --> 0:17:17.960 the country. Despite this week, Economy give us an idea 0:17:18.000 --> 0:17:22.520 of long term implications of low interest rates. Well over time, 0:17:22.600 --> 0:17:27.960 you can get um disruption in in fixed income and 0:17:28.040 --> 0:17:33.600 borrowing markets when when rates stay too low, too long. Uh, 0:17:33.800 --> 0:17:37.320 But it seems like they're willing to take that chance 0:17:37.320 --> 0:17:42.160 and run that experiment. Both Janet Yellen and j Powella 0:17:42.840 --> 0:17:47.159 have have spoken often about the need and the fact 0:17:47.200 --> 0:17:52.320 that the lower income groups and disadvantaged labor groups only 0:17:52.359 --> 0:17:55.720 benefit at the UH in the final stages of the 0:17:55.760 --> 0:18:00.560 economic growth cycle, and so they are going to the 0:18:00.600 --> 0:18:03.920 economy run a little bit hot and inflation be a 0:18:03.960 --> 0:18:06.440 little bit on the high side to get out there, 0:18:07.400 --> 0:18:10.679 and whether that means that they have to apply the 0:18:10.720 --> 0:18:15.760 brake pedal all that much more firmly if if inflation 0:18:15.800 --> 0:18:21.400 should accelerate, that might be the case. Um it it's 0:18:21.440 --> 0:18:26.000 it's not helpful to longer equilibrium in in free markets. UH. 0:18:26.359 --> 0:18:29.040 But I don't think that that's their focus right now. 0:18:29.400 --> 0:18:32.359 You know, it's interesting. Real focus is the K the 0:18:32.440 --> 0:18:37.720 case shape recovery and UH and doing something to benefit 0:18:38.080 --> 0:18:40.639 those that are on the bottom length of that K 0:18:41.400 --> 0:18:44.399 Muhammada area and tweeting out over PIMCO and he's saying 0:18:44.680 --> 0:18:48.080 he highlighted a certain segment of a chair pals upcoming 0:18:48.240 --> 0:18:51.240 press conference and or from the FED statement, I should say, 0:18:51.280 --> 0:18:53.320 and he says that this should be talked about at 0:18:53.320 --> 0:18:55.840 the press conference, but he said, in addition, the Fed 0:18:55.920 --> 0:18:57.919 this is this is a statement from the FED. In addition, 0:18:57.960 --> 0:19:00.000 the FED will continue to increase its holdings of treasure 0:19:00.119 --> 0:19:03.119 securities by at least eighty billion dollars per month and 0:19:03.160 --> 0:19:06.320 of agency mortgage back securities by at least forty billion 0:19:06.359 --> 0:19:09.520 per month until substantial further progress has been made towards 0:19:09.760 --> 0:19:12.640 the Committee's maximum employment and price stability goals. I mean, 0:19:13.040 --> 0:19:15.560 so he's saying, you know, he'll be he'll be asked 0:19:15.560 --> 0:19:17.679 a lot more about that UM and I guess some 0:19:17.760 --> 0:19:21.119 more details about that. I mean, I don't know, for insis, 0:19:21.119 --> 0:19:23.639 we talked about this before. I mean, there isn't a 0:19:23.680 --> 0:19:27.479 lot more that the FED can do, especially when it 0:19:27.520 --> 0:19:30.600 comes to you know, they're about lending, they're not about spending. 0:19:30.640 --> 0:19:33.480 That's where Congress comes in. And I do wonder what 0:19:33.560 --> 0:19:35.200 he will say or what we need him to say 0:19:35.200 --> 0:19:37.679 at the press conference when it comes to that next 0:19:37.800 --> 0:19:40.639 round of federal aid and federal stimulus that seems to 0:19:40.680 --> 0:19:44.800 be making progress, but men, it's taking forever now, you know. 0:19:44.840 --> 0:19:47.240 I think he'll push back against the idea that the 0:19:47.520 --> 0:19:50.640 FED can't do anything else. They can latten this curve 0:19:50.640 --> 0:19:53.720 pretty aggressively, and they can make sure that the so 0:19:53.880 --> 0:19:59.280 called inflation scare that's coming through doesn't maturely list rate prematurely, 0:19:59.400 --> 0:20:02.040 particularly in the period where we're heading into weakness. But 0:20:02.080 --> 0:20:03.960 I think one of the things Central Makes are gonna 0:20:04.040 --> 0:20:05.840 have to push back on in the next year or 0:20:05.840 --> 0:20:08.560 so is really, you know, trying to push back against 0:20:08.560 --> 0:20:11.840 the idea that they're even thinking about normalizing. The DTV 0:20:12.320 --> 0:20:14.680 just suddenly brings up the concept of a roll off. 0:20:14.760 --> 0:20:17.760 Nobody was asking them about that. They just volunteered that information. 0:20:17.760 --> 0:20:21.080 It's like those means that go like nobody, absolutely nobody, Hey, 0:20:21.119 --> 0:20:23.480 you want to hear about our roll offs pens. These 0:20:23.520 --> 0:20:25.919