WEBVTT - Jobs Print Takes 50bp July Rate Cut Off Table: Dudley 0:00:02.640 --> 0:00:05.360 Welcome to the Bloomberg Penl podcast. I'm Paul Sweene. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa brahma Witz. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:23.680 at Bloomberg dot com. Well, it is jobs Day today. 0:00:23.720 --> 0:00:27.360 Two thousand jobs were added to the U S economy 0:00:27.400 --> 0:00:29.320 in the month of June. Kind of break that down 0:00:29.320 --> 0:00:31.040 and gives a sense of what it means and what 0:00:31.120 --> 0:00:34.280 the FED, how the FED might react. We welcome Bill Dudley. 0:00:34.320 --> 0:00:37.120 Bill is a senior research scholar Prince University Center for 0:00:37.159 --> 0:00:40.600 Economic Policy. Is also a former Federal Reserve Bank of 0:00:40.840 --> 0:00:43.800 New York President. Bill. We're gonna start off by listening 0:00:43.880 --> 0:00:47.320 to National Economic Council Director Larry Cudlow. He spoke with 0:00:47.360 --> 0:00:51.400 Bloomberg Television following this morning's job report. Let's take a listen. Now, 0:00:51.400 --> 0:00:53.720 I do you have an inverted YO curve, which I 0:00:53.720 --> 0:00:57.840 think is somewhat problesome for the longer term, but the 0:00:57.880 --> 0:01:01.040 break evens on the inflation you know, the tips break 0:01:01.080 --> 0:01:05.399 evens the five year Jonathan is one and a half percent, 0:01:05.840 --> 0:01:09.440 and that's the CPI number. So the pc deflated that 0:01:09.480 --> 0:01:12.640 the FED uses would be about thirty basis points less 0:01:12.640 --> 0:01:15.920 than that. So you're one a quarter percent inflation, which 0:01:15.959 --> 0:01:18.839 is way below the Fed's target and what most people want. 0:01:19.280 --> 0:01:22.039 And that's the reason I think they should take back 0:01:22.560 --> 0:01:28.400 the interest rate hike. So Mr Cutler saying, take back 0:01:28.520 --> 0:01:32.640 the December rate hike, Bill, Bill Dudley, what do you think? Well, 0:01:32.680 --> 0:01:34.080 I think it's still up in the air what the 0:01:34.120 --> 0:01:36.720 Fed is gonna do at the July of from C meeting. 0:01:36.760 --> 0:01:40.120 I mean this, this report was stronger than expected, and 0:01:40.160 --> 0:01:41.679 so I think what it does is it takes the 0:01:41.800 --> 0:01:44.520 fifty basis points easing idea off the table lease for 0:01:44.600 --> 0:01:46.679 the time being. And then the question is do you 0:01:46.760 --> 0:01:49.120 do to stand pat wait for more information or do 0:01:49.160 --> 0:01:52.840 you cut base points. Larry Cudlos obviously making the case 0:01:52.880 --> 0:01:55.800 of the Fed should cut rates because inflation expectations are 0:01:56.320 --> 0:02:00.000 you know, blow two. But the Fed has also taken 0:02:00.280 --> 0:02:02.640 into into account the fact that the economy looks like 0:02:02.680 --> 0:02:05.760 it's continuing to grow at a decent place. Payroll gains 0:02:05.800 --> 0:02:08.720 are stronger than what's sustainable over the long run. You know, 0:02:08.720 --> 0:02:10.799 steady stage is probably a hundred thousand of months to 0:02:10.880 --> 0:02:13.520 keep the unemployer rates steady. So I think there's gonna 0:02:13.520 --> 0:02:15.600 be an interesting debate. And obviously we have three and 0:02:15.600 --> 0:02:17.400 app more weeks of data before the FED meets, so 0:02:17.440 --> 0:02:18.880 I think it's still very much up in the air 0:02:18.919 --> 0:02:20.480 what the Fit's going to do with the July meeting. 0:02:21.560 --> 0:02:24.360 Former New York FED at President, I'm so excited that 0:02:24.400 --> 0:02:27.320 we have you today. One question that I keep coming 0:02:27.360 --> 0:02:30.880 back to is what is the feds ultimate goal? What 0:02:31.080 --> 0:02:35.600 is their ultimate objective and mandate? What's your view on that? Well, 0:02:35.600 --> 0:02:38.639 obviously they want to keep the economic expansion going, and 0:02:38.760 --> 0:02:41.720 there's risks on both sides. Risk on one side is 0:02:41.760 --> 0:02:46.200 that if they pursue a too easy Monterrey policy, inflation 0:02:46.360 --> 0:02:47.960 rises and then they have to slam in the brakes 0:02:47.960 --> 0:02:50.400 and that generates recessions. So that's risk on one side. 0:02:50.760 --> 0:02:52.880 Risk on the other side is that they tightened Entrey 0:02:52.919 --> 0:02:57.919 policy prematurely and that keeps inflation below their two long 0:02:58.000 --> 0:03:02.240 term objective. Uh and the comedy softens and people have 0:03:02.280 --> 0:03:04.959 basically asked to FED, why do you tighten Madre policy 0:03:05.040 --> 0:03:07.760 when inflation was below your objective, and so they're trying 0:03:07.760 --> 0:03:10.280 to balance those two risks. Do you think that it 0:03:10.400 --> 0:03:13.440 is wise for them to cut rates by at least 0:03:13.440 --> 0:03:15.840 fifty basis points by your end as markets are currently 0:03:15.880 --> 0:03:18.560 pricing in. Well, I mean, obviously depends on how the 0:03:18.600 --> 0:03:21.720 economy evolves. I don't see the economy is that week. 0:03:22.040 --> 0:03:24.400 I see the econmy is doing fine. It seems to 0:03:24.400 --> 0:03:27.119 me like it's growing about trend or maybe a little 0:03:27.120 --> 0:03:29.600 bit above trend. The labor market, in my mind, still 0:03:29.639 --> 0:03:32.760 looks like it's continuing to gradually tighten. So I guess 0:03:32.760 --> 0:03:34.720 if I were sitting there at the fo C, I'd 0:03:34.720 --> 0:03:39.320 be more on the patient camp. I probably would at 0:03:39.320 --> 0:03:42.240 the July meeting, I probably would say, let's let's have 0:03:42.280 --> 0:03:45.680 a statement that doesn't close the door to future eason, 0:03:45.800 --> 0:03:49.000 but let's let's wait and get some more information. So 0:03:49.080 --> 0:03:52.120 build this. FED has said publicly that it is data 0:03:52.160 --> 0:03:55.400 dependent aside from labor statistics. What do you think the 0:03:55.440 --> 0:03:58.240 Fed's really focusing on right now? Well, I think they 0:03:58.280 --> 0:04:01.400 are focused on, you know, one, what's the trajectory for 0:04:01.440 --> 0:04:04.600 GDP growth in the state of the labor market. But 0:04:04.680 --> 0:04:07.800 to they're also, as Larry Cutlows pointed out, they're also 0:04:07.800 --> 0:04:10.240 focused on inflation. The fact is inflation has come in 0:04:10.320 --> 0:04:15.440 below their expectations. So the core personal consumption expenditure deflator 0:04:15.800 --> 0:04:17.960 is rising one point six percent on a year over 0:04:18.040 --> 0:04:22.680 year basis, below the two goal. And also, as as 0:04:22.760 --> 0:04:26.839 Larry pointed out, inflation expectations look like they've dropped a bit. 0:04:27.240 --> 0:04:31.000 So that's another reason for the Fed to consider easy policy. 0:04:31.040 --> 0:04:33.440 And there's basically three paths to easing. One is growth 0:04:33.520 --> 0:04:36.080 is weaker than expected. The second path to easing is 0:04:36.080 --> 0:04:38.800 that inflation turns out to be lower than expected. And 0:04:38.839 --> 0:04:41.239 the third is that risk in the in the economic 0:04:41.279 --> 0:04:44.359 out look goes up because of perhaps uncertainty about trade policy. 0:04:44.640 --> 0:04:46.960 So there's lots of paths to get the Fed to 0:04:47.120 --> 0:04:49.320 an easier montroy policy. And I think that's really why 0:04:49.400 --> 0:04:52.400 easing is priced into the markets right now. When you 0:04:52.440 --> 0:04:54.359 were ahead of the New York Fed, one of the 0:04:54.480 --> 0:04:58.920 roles of that agency is to really monitor financial stability 0:04:59.000 --> 0:05:02.680 financial market, and I'm wondering what you see as the 0:05:02.760 --> 0:05:07.000 potential risks that are building with respect to inflated asset 0:05:07.080 --> 0:05:11.599 values if the Fed does cut rates, and given how much. 0:05:12.040 --> 0:05:13.599 How low rates have been kept for as long as 0:05:13.640 --> 0:05:16.160 they have Well, I think at the end of the day, 0:05:16.200 --> 0:05:18.240 I mean they're they're gonna be focused mostly on the 0:05:18.320 --> 0:05:20.520 growth outlook and the inflation out look. But they do 0:05:20.560 --> 0:05:23.120 have to be aware of the fact that there's not 0:05:23.200 --> 0:05:25.760 much evidence right now that Matrey policy is tight and 0:05:25.839 --> 0:05:28.560 if you look at financial conditions, financial conditions do seem 0:05:28.600 --> 0:05:31.400 actually quite supportive for growth. So the strongest argument to 0:05:31.440 --> 0:05:35.200 hold off, frankly, is that policy Monterrey policy is not 0:05:35.240 --> 0:05:38.640 holding back the US economy to any measurable degree that 0:05:38.680 --> 0:05:41.960 I can see. So BUILD Chairman pal has suggested that 0:05:42.000 --> 0:05:45.520 the FED might end it's quantitative tightening. Do you think 0:05:45.520 --> 0:05:48.400 that's a good idea. Well, they've already said that that 0:05:48.480 --> 0:05:50.440 they're going to bring that to the end at the 0:05:50.560 --> 0:05:53.560 end of September. There's been some speculation though that if 0:05:53.560 --> 0:05:56.000 they cut rates in if the July means, they might 0:05:56.040 --> 0:05:59.600 also move the ending of their balance sheet up to 0:05:59.040 --> 0:06:02.080 to to that at that point in time, I personally 0:06:02.080 --> 0:06:04.280 think they should just keep the balance sheet policy as 0:06:04.279 --> 0:06:07.160 it is today. We're going to continue to run our 0:06:07.240 --> 0:06:10.719 securities until September uh and then and bring that to 0:06:10.760 --> 0:06:12.880 a close I mean, basically tying the short term rate 0:06:12.880 --> 0:06:16.240 decision to the balance sheet decision I think is inappropriate 0:06:16.320 --> 0:06:19.599 right now, because the balance sheet decision is not motivated by, 0:06:19.680 --> 0:06:21.320 you know, what the FEDS trying to do in terms 0:06:21.360 --> 0:06:24.440 of the stance of monetary policy. It's motivated by how 0:06:24.520 --> 0:06:27.320 much reserves the Fed thinks should be in the banking 0:06:27.360 --> 0:06:31.240 system consistent with the efficient execution of monetary policy. And 0:06:31.279 --> 0:06:33.159 that's why they decided that they were going to end 0:06:33.200 --> 0:06:35.200 it in September. So I think they just should stick 0:06:35.240 --> 0:06:38.560 to that decision. So you said that monetary policy is 0:06:38.600 --> 0:06:41.160 not holding back the economy, that is the message when 0:06:41.160 --> 0:06:44.159 you look at the easy financial conditions. What would a 0:06:44.279 --> 0:06:47.720 rate cut accomplish then, Well, I think the rate cut 0:06:47.800 --> 0:06:51.080 would be you know, basically would be insurance, would be 0:06:51.120 --> 0:06:55.320 basically saying, look, we're unhappy with some of the uncertainty 0:06:55.320 --> 0:06:58.560 about the global growth outlook, and also would be a 0:06:58.600 --> 0:07:01.200 way of saying that we're on happy with inflation being 0:07:01.240 --> 0:07:04.000 below er two percent of objectives. So I don't think that, 0:07:04.200 --> 0:07:06.440 you know, fundamentally, it would matter that much to the 0:07:06.480 --> 0:07:08.920 economy if the Fed cut twenty five basis points or 0:07:08.920 --> 0:07:11.600 didn't cut twenty five basis points but be a way 0:07:11.600 --> 0:07:15.600 of uh exhibiting some unhappiness with I think the inflation 0:07:15.640 --> 0:07:19.720 trajectory so build. President Trump is out with some tweets 0:07:19.760 --> 0:07:23.120 this morning on the job's number and some other topics. 0:07:23.120 --> 0:07:26.320 But one of the tweets says the Trump says the 0:07:26.320 --> 0:07:29.080 FED quote doesn't know what they are doing. End quote. 0:07:29.960 --> 0:07:32.119 Tweets like that, to what extent do you think they 0:07:32.160 --> 0:07:35.920 impact members of the FED end or policy? Well, I 0:07:35.960 --> 0:07:37.480 think that the FED has been doing a pretty good 0:07:37.520 --> 0:07:40.040 job and we're in the we're basically now have the 0:07:40.080 --> 0:07:43.600 longest economic expansion at u S history, and I think, well, 0:07:43.680 --> 0:07:45.840 the President, with what wants to take most of the 0:07:45.840 --> 0:07:47.400 credit for that. I think the FED does are some 0:07:48.040 --> 0:07:51.560 some credit as well. Um, I think that basically the 0:07:51.600 --> 0:07:55.000 Trump's pressure on the FED really actually probably is counterproductive 0:07:55.040 --> 0:07:57.120 in the sense that the FED doesn't want to do 0:07:57.240 --> 0:08:00.760 something that is seen as caving into presidential rusher. They 0:08:00.760 --> 0:08:03.119 want to be seen as doing something that's appropriate given 0:08:03.120 --> 0:08:06.480 the economic outlook. So at anything, if anything, I think 0:08:06.560 --> 0:08:08.800 this probably makes the set a little bit more stubborn 0:08:08.840 --> 0:08:13.480 in terms of moving interest rates. Yet, President Trump has 0:08:13.480 --> 0:08:16.320 been speaking and he has continued to speak we'll bring 0:08:16.320 --> 0:08:18.960 you the headlines as they come out, saying that that 0:08:19.200 --> 0:08:22.360 FED cutting rates would help the economy, and he's very 0:08:22.440 --> 0:08:26.840 happy about the jobs numbers still with US Bill Dudley, 0:08:27.280 --> 0:08:30.560 who is the former New York FED President. Uh. You know, 0:08:30.600 --> 0:08:34.120 one interesting sort of outcome of this strong job's report 0:08:34.200 --> 0:08:37.800 has been a stronger dollar, with the dollar surging against 0:08:37.800 --> 0:08:41.520 peers today. This has also been a concern of President Trump's. 0:08:41.520 --> 0:08:43.200 He has tweeted about the fact that he would like 0:08:43.240 --> 0:08:46.920 to see it weaker, talked about currency manipulation. Would it 0:08:46.960 --> 0:08:49.600 be better for the U. S economy if the dollar 0:08:49.679 --> 0:08:53.200 were weaker at this point? I don't. I don't understand 0:08:53.240 --> 0:08:57.640 the argument. We're basically at full employment. Uh, economy is 0:08:57.679 --> 0:09:00.679 doing fine, it's growing at an above trent pace. Why 0:09:00.720 --> 0:09:03.320 would I want the currency to be weaker? Uh that 0:09:03.400 --> 0:09:06.320 all that would do is reduce the US households purchasing 0:09:06.360 --> 0:09:10.000 power of foreign goods and services. Um. You know, I 0:09:10.040 --> 0:09:13.319 also understand why a weaker currency is something that you 0:09:13.360 --> 0:09:17.400 want when you're operating an economy pretty close to full employment. 0:09:17.559 --> 0:09:19.520 I can understand a weaker currency of the economy is 0:09:19.600 --> 0:09:22.880 very weak and you're having trouble getting traction coming out 0:09:22.880 --> 0:09:25.160 of a recession by at the time when the economy 0:09:25.200 --> 0:09:27.319 is pretty close to full employment. I don't understand why 0:09:27.320 --> 0:09:29.920 you don't want a weaker currency at that point. So, 0:09:30.000 --> 0:09:34.040 but we've had economists and fund managers comment over the 0:09:34.120 --> 0:09:38.439 last several months that, uh, they think a recession by 0:09:38.480 --> 0:09:42.080 mid is a possibility, maybe a likelihood. What are your 0:09:42.080 --> 0:09:47.000 thoughts there. Economic expansions don't die of old age. They 0:09:47.080 --> 0:09:50.960 usually die because either the either there's an inflation problem 0:09:51.000 --> 0:09:55.280 and the federal reserves response to that by tightening Monterrey policy, uh, 0:09:55.360 --> 0:09:59.200 making Monterrey policy tight, or there's a big shock to 0:09:59.240 --> 0:10:01.559 the economy that the FED just can't react quickly enough 0:10:01.600 --> 0:10:05.040 to offset. There's not enough inflation for the FED respond 0:10:05.080 --> 0:10:08.160 aggressively to tighten Madre policy. So I think the risk 0:10:08.240 --> 0:10:10.520 of the receptive of a recession from that source is 0:10:10.640 --> 0:10:13.079 very very low. Obviously, there is a risk of a 0:10:13.160 --> 0:10:14.959 shock coming from the rest of the world, for in 0:10:14.960 --> 0:10:17.079 the U s econmun But you know, the biggest one 0:10:17.120 --> 0:10:21.959 that I think this trade policy. If trade policy, if 0:10:22.040 --> 0:10:25.760 more confusion is created about what US trade policy is, 0:10:26.480 --> 0:10:30.280 and that creates uncertainty about how businesses should invest, where 0:10:30.320 --> 0:10:34.080 they should invest, how they should orient their supply chains. 0:10:34.840 --> 0:10:36.719 That's probably the biggest risk of the economy right now, 0:10:36.720 --> 0:10:39.320 what happens in terms of US trade policy. Bill Dudley, 0:10:39.360 --> 0:10:42.280 thank you so much for being with us today. Bill Dudley, 0:10:42.320 --> 0:10:45.480 former New York Fed President and senior researcher at Princeton 0:10:45.600 --> 0:10:49.760 University Center for Economic Policy Studies, also a contributor to 0:10:50.080 --> 0:11:08.120 Bloomberg Opinion, Commenting on today's jobs report, Well, it is 0:11:08.400 --> 0:11:10.760 Jobs Day today, and what to day it is. The 0:11:10.840 --> 0:11:15.439 US economy added two thousand jobs in the month of June. 0:11:15.640 --> 0:11:16.960 You get a sense of what that means for the 0:11:17.000 --> 0:11:19.640 US economy and FED policy going forward. To welcome our 0:11:19.640 --> 0:11:22.520 next guest, Jim Bianco. Jim as president and founder of 0:11:22.720 --> 0:11:26.040 Bianco Research. Jim, thanks so much for joining us. Just 0:11:26.080 --> 0:11:28.360 give us your first quick take on what you think 0:11:28.440 --> 0:11:33.120 the jobs report today means for the Fed Reserve. I 0:11:33.160 --> 0:11:35.760 think it means that the subtle Reserve is now closer 0:11:35.800 --> 0:11:39.160 to making a mistake by not cutting rates at the 0:11:39.360 --> 0:11:42.200 July meeting, and they're going to probably push this off. 0:11:42.840 --> 0:11:45.520 I think the markets have been telling us that the 0:11:45.600 --> 0:11:48.600 funds rate has been too high, the Fed one too far. 0:11:48.800 --> 0:11:52.840 Last year, one fund statistic for you. There's forty trillion 0:11:52.880 --> 0:11:57.240 dollars worth of sovereign developed market debt in the world 0:11:57.880 --> 0:12:02.559 and it has a yield of less than the funds rate. 0:12:02.679 --> 0:12:04.880 Right now, the funds rate is becoming an outlier. Is 0:12:04.880 --> 0:12:07.280 one of the highest interest rates in the world. It 0:12:07.320 --> 0:12:09.600 needs to come down. The FED is going to look 0:12:09.600 --> 0:12:11.960 at this strong payroll number thinking they don't have to 0:12:12.000 --> 0:12:13.840 do that, and I think what you're seeing in the 0:12:13.840 --> 0:12:16.640 markets is a reaction that they may may make a 0:12:16.679 --> 0:12:21.080 mistake by not cutting rates. So, Jim, I know that 0:12:21.480 --> 0:12:24.560 you your voice, and this is particularly important because the 0:12:24.559 --> 0:12:28.720 White House actually considered you for one of the open 0:12:28.760 --> 0:12:32.480 positions on the Fed's board that you are interviewed for that. 0:12:32.840 --> 0:12:35.120 Can you just talk a little bit about what it 0:12:35.200 --> 0:12:39.400 was like interviewing with them. What were their questions to you? Uh? 0:12:39.559 --> 0:12:41.679 It was an amazing experience to be able to do 0:12:41.760 --> 0:12:43.800 something like that, and I'm honored that they gave me 0:12:43.880 --> 0:12:47.080 the opportunity to do it. Uh. They just asked me 0:12:47.080 --> 0:12:49.440 about FED policy, They asked me about my views of 0:12:49.480 --> 0:12:53.160 the world. Uh. They interviewed me because I'm a bit 0:12:53.280 --> 0:12:58.440 different than their typical candidate. Because Uh, the FED works 0:12:58.440 --> 0:13:01.719 through the financial channel, and they considered the idea of 0:13:01.760 --> 0:13:05.599 having somebody from a financial markets background as opposed to 0:13:05.640 --> 0:13:10.199 a traditional PhD background as a as a candidate, and 0:13:10.240 --> 0:13:12.320 I was one of the few, if I don't know, 0:13:12.400 --> 0:13:14.679 maybe the only one that was chosen with that kind 0:13:14.679 --> 0:13:17.400 of with that kind of background. And so it was 0:13:17.760 --> 0:13:22.080 it was a very you know, interesting, well uh ranging 0:13:22.160 --> 0:13:24.720 interview of a lot of different subjects, mainly about FED 0:13:24.760 --> 0:13:27.400 policy in the economy. So Jim Baith, based upon that 0:13:27.440 --> 0:13:29.560 interview process, what do you think the FED is is 0:13:29.920 --> 0:13:31.880 or what do you think the administration is looking for 0:13:32.440 --> 0:13:35.840 in the FED going forward? I think that you know, 0:13:35.880 --> 0:13:37.960 if you listen to Larry Cudlow or if you listen 0:13:37.960 --> 0:13:41.360 to any of the other administration officials, that they do 0:13:41.520 --> 0:13:46.160 believe that the Phillips curve, this idea that inflation and 0:13:46.440 --> 0:13:50.960 the employment or growth are somehow linked in a predictable manner, 0:13:51.000 --> 0:13:54.960 has been broken down. That you could see again today 0:13:55.000 --> 0:13:58.920 in the payroll report two four thousand jobs created and 0:13:58.960 --> 0:14:02.120 there was no uptick in wage growth. This is just 0:14:02.280 --> 0:14:05.320 basically thrown all of the FED models and all of 0:14:05.320 --> 0:14:08.280 the economic models forget to FED, all the economic models 0:14:08.320 --> 0:14:12.000 you know, on their ear because this wasn't supposed to happen, 0:14:12.080 --> 0:14:14.880 meaning that when you have the economy growing this fast 0:14:14.960 --> 0:14:17.560 and you have an unemployment this low for this longer 0:14:17.600 --> 0:14:21.760 period of time to really show no major worries about 0:14:22.040 --> 0:14:25.880 wage inflation, let alone overall inflation. I think that that's 0:14:25.920 --> 0:14:27.920 been a big theme of THEIRS. It's been a big 0:14:27.960 --> 0:14:30.040 theme of mind and a number of other people as 0:14:30.080 --> 0:14:32.920 well too, that we are in a different type of 0:14:32.960 --> 0:14:36.560 inflation world and we don't need to have interest rates 0:14:36.640 --> 0:14:40.600 as high as we did, say in previous cycles, when 0:14:40.640 --> 0:14:44.880 the relationship between unemployment inflation was different. So, Jim, when 0:14:44.880 --> 0:14:47.320 we asked about the jobs report, when Paul asked you, 0:14:47.320 --> 0:14:50.240 you said, Uh, it just sort of confirms that if 0:14:50.240 --> 0:14:53.400 the Fed made a mistake in December and that they 0:14:53.400 --> 0:14:56.040 should keep rates lower than where they are currently and 0:14:56.080 --> 0:14:58.480 reverse the mistake in December and accommodate more. And I'm 0:14:58.480 --> 0:15:01.160 trying to figure out what the goal of the Fed here, 0:15:01.200 --> 0:15:04.080 I mean, how much will that actually boost the real 0:15:04.200 --> 0:15:08.560 economy for the Federal Reserve to cut rates by basis points. 0:15:08.600 --> 0:15:11.160 Some traders are now predicting, Yeah, you know a lot 0:15:11.200 --> 0:15:13.400 of people asked that question a lot. You know that 0:15:13.640 --> 0:15:17.040 in the assumption there is that nobody cares about the 0:15:17.080 --> 0:15:19.640 level of interest rates, that if you were to lower 0:15:19.720 --> 0:15:22.320 interest rates, that that would not be anywhat of a 0:15:22.360 --> 0:15:26.080 stimulus towards mortgages and the housing market, or towards autos 0:15:26.080 --> 0:15:30.400 and auto loans. You know, Wall Street doesn't nobody, nobody 0:15:30.400 --> 0:15:32.480 in Wall Street bothers with interest rates. They're not at 0:15:32.520 --> 0:15:34.560 all interested in whether or not they move up or down. 0:15:34.800 --> 0:15:38.119 Of course, this is all ridiculous. It is an important 0:15:38.240 --> 0:15:41.080 factor in the economy, and I do think that if 0:15:41.120 --> 0:15:44.840 nothing else, what we're doing is correcting an imbalance, that 0:15:44.920 --> 0:15:47.560 the rates are too high, and that it may not 0:15:47.760 --> 0:15:51.040 necessarily mean that we're trying to stimulate the economy by 0:15:51.120 --> 0:15:54.080 lowering them, but more along the lines of we're trying 0:15:54.120 --> 0:15:57.600 to stop hurting the economy by keeping them where they 0:15:57.600 --> 0:16:01.760 are now. The inverted yield curve, that is a signal 0:16:02.360 --> 0:16:05.920 that that is that the yield on the tenure note 0:16:06.040 --> 0:16:08.160 is lower than the yield on the three month bill. 0:16:08.720 --> 0:16:11.200 That is a signal that rates are too high, and 0:16:11.200 --> 0:16:14.520 that if we leave that in place for month after month, 0:16:14.600 --> 0:16:17.680 and that would happen if we didn't cut rates, that 0:16:17.880 --> 0:16:22.200 cumulative effect could really retard the economy, and so I 0:16:22.200 --> 0:16:24.760 think that that needs to be respected and that what 0:16:24.840 --> 0:16:30.359 we're probably doing here not is injecting stimulus, but removing restrictiveness. 0:16:30.440 --> 0:16:31.960 I know a lot of people have a hard time 0:16:32.000 --> 0:16:34.440 with this, thinking how can two and a half percent 0:16:34.600 --> 0:16:38.600 interest rates be restrictive because they've got this long history, 0:16:38.600 --> 0:16:40.920 and how will remind them it's one of the highest 0:16:41.200 --> 0:16:44.400 developed world rates in the world. Everybody else is lower, 0:16:44.480 --> 0:16:48.760 and there's twelve trillion dollars almost thirteen of negative interest rates. 0:16:48.840 --> 0:16:52.080 We are an outlier and that is why it is restrictive, 0:16:52.200 --> 0:16:55.040 because rich interest rates should be viewed in context with 0:16:55.120 --> 0:16:58.840 all other interest rates. Jim Bianco, always a wonderful thing 0:16:58.880 --> 0:17:01.000 having you on the show. Thank you so much for 0:17:01.120 --> 0:17:05.280 spending your post July four Friday with us. Jim Bianco, 0:17:05.440 --> 0:17:08.760 President and founder of Bianco Research, also someone who has 0:17:08.800 --> 0:17:11.560 interviewed A four A an open fed position by the 0:17:11.600 --> 0:17:31.199 current White House. When it comes to Deutsche Bank, the 0:17:31.280 --> 0:17:34.560 question is how far will its planned cuts go, not 0:17:34.680 --> 0:17:37.600 whether there will be cuts and where will those cuts 0:17:37.640 --> 0:17:40.000 be most focused? Joining us down to talk about that. 0:17:40.080 --> 0:17:43.720 Stephen Aaron's, German banks reporter for Bloomberg News, joining us 0:17:43.720 --> 0:17:46.520 from Frankfort. Stephen, I want to just talk about the timeline. 0:17:46.520 --> 0:17:50.040 We've been talking about Deutsche Bank for a while. Are 0:17:50.080 --> 0:17:54.160 we getting closer to the bank actually announcing some sort 0:17:54.200 --> 0:17:58.800 of restructuring plan that we can then view as fact. Absolutely, 0:17:58.840 --> 0:18:03.720 we're moving. We're moving much closer the the supervisory board 0:18:03.800 --> 0:18:07.320 meaning that is likely to adopt the plan will take 0:18:07.359 --> 0:18:10.640 place on Sunday. We've been told the bank hasn't officially CONFIRMEDNUS, 0:18:11.000 --> 0:18:13.360 but it's very likely to happen, and that will then 0:18:13.680 --> 0:18:17.919 trigger under German securities law, will trigger a a obligation 0:18:18.000 --> 0:18:22.320 to inform the market. So expect something on Sunday. Uh 0:18:22.359 --> 0:18:24.920 And in fact, the the the announcement has already begun, 0:18:25.359 --> 0:18:28.880 with the bank saying today that the investment banking had 0:18:29.000 --> 0:18:31.560 god Ritchie's leaving the bank. So that's the first instance 0:18:31.640 --> 0:18:35.560 of the whole big plan now moving into action. So, Stephen, 0:18:35.720 --> 0:18:41.120 how expansive do you expect the restructuring to be. It's 0:18:41.160 --> 0:18:45.800 going to be big, possibly or even probably the biggest 0:18:46.000 --> 0:18:50.240 restructuring of Dutch Bank and its investment banking division, particularly 0:18:50.280 --> 0:18:54.119 in in decades. The job clubs could reach up to 0:18:54.160 --> 0:18:57.879 twenty tho probably stretched out over several years, but still 0:18:57.920 --> 0:18:59.719 it's a very large number. It's it would be more 0:18:59.760 --> 0:19:03.160 than fifth of the current workforce. The cuts will also 0:19:03.280 --> 0:19:06.640 very much hit the US. Again, it's not clear over 0:19:06.680 --> 0:19:10.480 what timeline and just how much, but it's clear that 0:19:10.600 --> 0:19:14.439 the face of the U S operations will will fundamentally change. 0:19:14.680 --> 0:19:19.720 There has been some uh some speculation, including by as 0:19:19.720 --> 0:19:23.639 published in Bloomberg News, that Deutsche Bank will get out 0:19:23.680 --> 0:19:27.360 of equities, trading, sales, research, etcetera. In the United States 0:19:27.920 --> 0:19:32.160 also that potentially could largely just newter the investment bank. 0:19:32.200 --> 0:19:34.360 We did see the investment banking chief of Deutsche Bank 0:19:34.480 --> 0:19:37.960 leaving the bank today or at least announcing that he 0:19:38.000 --> 0:19:41.399 is going to be departing. What will the restructure Deutsche 0:19:41.400 --> 0:19:45.040 Bank look like. It's going to be much more focused 0:19:45.200 --> 0:19:50.439 on companies, large companies and European large companies then it 0:19:50.520 --> 0:19:54.840 has been, and shifting away from a previous focus on 0:19:54.920 --> 0:19:59.960 institutional investors. So the trading components for those investors trading equity, 0:20:00.000 --> 0:20:03.480 these trading fixed income will be lower, especially over time, 0:20:03.960 --> 0:20:08.399 and parts that that cater to the capital markets needs 0:20:08.400 --> 0:20:10.960 and then the general banking needs of leuch corporate such 0:20:11.000 --> 0:20:15.320 as trade finance, cash management. Those businesses will will like 0:20:15.400 --> 0:20:19.359 her grow, Steve, do you expect Deutsche Bank in any way, 0:20:19.680 --> 0:20:24.760 shape or form to uh admit that they have I 0:20:24.760 --> 0:20:27.600 guess given up their aspirations to be a truly global 0:20:27.760 --> 0:20:30.960 investment bank here. I mean, they're not gonna say it 0:20:31.400 --> 0:20:35.879 like that, right, They're gonna They're gonna highlight just that 0:20:36.760 --> 0:20:39.240 they continue to have a global footprint. I'm not sure 0:20:39.240 --> 0:20:45.159 they're gonna completely shutter any any in outposts any countries completely. 0:20:45.560 --> 0:20:48.720 They probably, as you said, they may shut it completely 0:20:48.800 --> 0:20:52.760 the US equities, but it's not clear whether any countries 0:20:52.800 --> 0:20:56.120 will completely be dissolved the presence there so they will 0:20:56.160 --> 0:20:58.640 continue to head at the global presence. But yes, they 0:20:58.680 --> 0:21:02.119 will admit that there are your your focused banks. They 0:21:02.119 --> 0:21:05.440 have been admitting this actually for a while, and they're 0:21:05.480 --> 0:21:07.760 not going to claim anymore that they can still compete 0:21:07.800 --> 0:21:11.560 with the big US investment banks that now in the 0:21:11.600 --> 0:21:15.840 trading area especially have a much bigger presence than Deutsche Bank. 0:21:16.280 --> 0:21:18.920 Bank shares today up three point eight percent. I'm looking 0:21:18.960 --> 0:21:21.200 at the A d R s in the United States. 0:21:21.280 --> 0:21:25.439 I'm wondering whether there's any discussions still about a possible merger. 0:21:25.480 --> 0:21:27.359 I know that Commerce Bank and TB. We're looking at 0:21:27.359 --> 0:21:30.760 a potential tie up that fell through. Is that basically 0:21:30.760 --> 0:21:35.840 off the table? That concept definitely? For now. This restructuring 0:21:35.880 --> 0:21:40.480 now will is designed to happen without any big murder. 0:21:40.640 --> 0:21:44.959 They're still looking to grow their asset management business DWS. 0:21:45.160 --> 0:21:49.320 They're looking for takeovers there, but the bank itself is 0:21:49.320 --> 0:21:52.560 not currently looking at anything. They were previously talked with 0:21:52.560 --> 0:21:54.600 with Commerce bank A as you said, and they've even 0:21:54.920 --> 0:21:58.600 had some brief informal talks with ubs, but for as 0:21:58.640 --> 0:22:00.600 long as the share price is a low as it 0:22:00.640 --> 0:22:04.359 is now, that's not something that will happen, Steve. Do 0:22:04.359 --> 0:22:08.760 you expect Deutsche Bank to address the home market Germany? Uh, 0:22:08.960 --> 0:22:12.159 the concerns that it's tremendously over banked. Um. Kind of 0:22:12.160 --> 0:22:13.720 what is their strategy to try to shore up the 0:22:13.760 --> 0:22:18.560 profitability of their core market, job cuts and cost cuts 0:22:18.560 --> 0:22:23.240 Again in a nutshell, they earning money in the German 0:22:23.320 --> 0:22:26.399