WEBVTT - Standish's Reinhart: Can't See Fed Raising Twice in 2016(Audio) 0:00:03.240 --> 0:00:06.640 Global business news twenty four hours a day at Bloomberg 0:00:06.680 --> 0:00:09.760 dot com, the Radio plus Mobile Act and on your radio. 0:00:10.039 --> 0:00:14.280 This is a Bloomberg Business flag from Bloomberg World Headquarters. 0:00:14.360 --> 0:00:18.440 I'm Charlie Tellett. The DAL, the SMP, NASDAC all declining today. 0:00:18.480 --> 0:00:22.160 This update brought to you by van Eck Vector's et fs. 0:00:22.160 --> 0:00:26.040 Expect more from your muni's target tax exempt income by 0:00:26.120 --> 0:00:30.120 maturity and credit quality, all with low cost ETFs. Visit 0:00:30.240 --> 0:00:35.280 vanec dot com slash muti van eck access the opportunities. 0:00:35.920 --> 0:00:39.320 SMP five hundred index sliding for a fifth day. The 0:00:39.520 --> 0:00:42.519 SMP erasing gains that earlier are poised to be the 0:00:42.520 --> 0:00:45.360 biggest in three weeks. Today it fell three points to 0:00:45.400 --> 0:00:47.680 two thousand seventy want to drop of two tenths of 0:00:47.760 --> 0:00:51.080 one percent. Nastack down eight also a drop of two 0:00:51.080 --> 0:00:54.280 tenths of one percent. Dow Industrials down thirty four. That 0:00:54.400 --> 0:00:57.120 to a drop of two tenths of one percent. Ten 0:00:57.200 --> 0:01:00.640 year yield one point five seven percent up eleventh aready seconds, 0:01:00.640 --> 0:01:03.760 Gold up six seventy the ounce again there of point 0:01:03.800 --> 0:01:08.800 five percent. I'm Charlie Pellett. That's a Bloomberg Business flash. 0:01:09.080 --> 0:01:15.960 The Brexit vote on Bloomberg Radio the Brexit vote June three. 0:01:16.120 --> 0:01:20.000 Will voters in the United Kingdom will they decide to 0:01:20.120 --> 0:01:23.560 leave the European Union or will they remain a member 0:01:23.640 --> 0:01:26.560 of the EU and what effect will this have on 0:01:26.800 --> 0:01:30.800 us policy? Let's find out more. We have vincent Reinhardt. 0:01:30.800 --> 0:01:34.959 He is the chief economist of Standish Melon Asset Management. 0:01:35.280 --> 0:01:37.040 He was also the former head of the Federal Reserves 0:01:37.120 --> 0:01:42.720 Monetary Division, and previously he also served as the Secretary 0:01:42.760 --> 0:01:47.880 and the economist of the Federal Open Market Committee. Vincent Reinhart, 0:01:47.880 --> 0:01:50.200 thank you very much for being with us. Tell us 0:01:50.240 --> 0:01:56.120 about your reaction to today's Federal Reserve statement and no 0:01:56.280 --> 0:01:59.720 move in interest rates? Well, I mean this afternoon, this 0:02:00.000 --> 0:02:04.480 the Reserve gave us a basically devish message, not so 0:02:04.560 --> 0:02:07.760 much in the statement which was little changed, just marked 0:02:07.760 --> 0:02:11.760 to market, but in terms of the characterization of their 0:02:11.800 --> 0:02:16.600 future policy, the dots and the Jannet Ellen's press conference, 0:02:17.600 --> 0:02:22.040 so in terms of let's just flush that out, because 0:02:22.080 --> 0:02:25.080 you know, there's a slight downgrade to their gd GDP 0:02:25.160 --> 0:02:29.240 forecast for this year, slight upgrade to their inflation forecast. 0:02:29.680 --> 0:02:32.359 But it was the number of dots that are now 0:02:32.480 --> 0:02:36.000 saying we only see one interest rate to increase this 0:02:36.040 --> 0:02:39.280 year instead of two unless recall four was the forecast 0:02:39.320 --> 0:02:42.079 the majority had in December. Right now, I think it's 0:02:42.120 --> 0:02:45.600 significant in in two ways. They as you noted, they 0:02:45.600 --> 0:02:49.520 didn't change their economic outlook really very much. What they 0:02:49.560 --> 0:02:52.400 said is they need a lower path for policy in 0:02:52.560 --> 0:02:55.079 order to get that outlook. I EI, there must be 0:02:55.320 --> 0:03:00.600 more headwinds, and they've made a fundamental reassessment how much 0:03:00.639 --> 0:03:04.200 they'll ultimately have to tighten. Uh So they moved it 0:03:04.240 --> 0:03:06.560 at the front end of their great guidance and at 0:03:06.560 --> 0:03:09.600 the back end of the great guidance. The second part 0:03:10.040 --> 0:03:14.560 of their six policymakers saying they only see one one 0:03:14.600 --> 0:03:17.200 tightening in two thousand and sixteen is that this is 0:03:17.240 --> 0:03:21.880 a committee that doesn't follow the median voter theory. What 0:03:22.040 --> 0:03:25.239 matters is a consensus, and it's hard to see how 0:03:25.280 --> 0:03:28.160 six of them are going to get convinced over the 0:03:28.200 --> 0:03:32.000 rest of the year to tighten more than once. Vincent Reinhardt, 0:03:32.000 --> 0:03:35.120 turn your attention now to the United Kingdom and the 0:03:35.200 --> 0:03:40.280 June referendum. First, what do you believe will happen? And 0:03:40.440 --> 0:03:44.720 maybe give us two versions the scenarios based on your 0:03:45.480 --> 0:03:47.760 sort of looking at the situation. I know that they were. 0:03:48.080 --> 0:03:50.520 I was just looking. There were pictures today of a 0:03:50.600 --> 0:03:53.600 flotilla of boats in the Thames. They call it the 0:03:54.120 --> 0:03:58.160 Battle of the Thames, in which boats, UH, flotilla of 0:03:58.200 --> 0:04:02.280 Scottish fisherman of were agitating for Britain to leave, and 0:04:02.320 --> 0:04:05.400 they were met by dinghies and pleasure cruises, all supporting 0:04:05.800 --> 0:04:09.280 remaining in the EU, sort of a reverse Dunkirk where 0:04:09.320 --> 0:04:13.280 it was going away from Europe breather than going to it. 0:04:14.160 --> 0:04:16.280 I think there's a couple of things to him about 0:04:16.400 --> 0:04:19.320 about this. First, we know it's important for monetary policy, 0:04:19.680 --> 0:04:22.400 because Jenny Ellen told us that this afternoon when she 0:04:22.520 --> 0:04:28.400 said international considerations loomed large. Uh. The important things when 0:04:28.880 --> 0:04:32.320 to remember is if the vote is to leave, we 0:04:32.360 --> 0:04:36.160 don't know what Britain will leave too, because what it 0:04:36.240 --> 0:04:39.840 does is open up two years worth of negotiations to 0:04:40.520 --> 0:04:46.839 reconstruct the apparatus of the Common Market by bilateral trade relationships. 0:04:47.040 --> 0:04:50.760 So there's gonna be a lot of uncertainty, uh, in 0:04:50.800 --> 0:04:53.760 the event of a leave vote. In the event of 0:04:53.760 --> 0:05:00.280 a stay vote, markets have h not have increased, only 0:05:00.600 --> 0:05:02.800 priced some of that autom market. So you're gonna get 0:05:02.800 --> 0:05:06.320 a reaction either way if it's fifty fifty, which is 0:05:06.560 --> 0:05:09.480 probably as good a way to guess right now as 0:05:09.520 --> 0:05:13.480 any UH something happens in financial markets on the morning 0:05:13.480 --> 0:05:19.000 of UH And of course Janet yellen first question at 0:05:19.000 --> 0:05:21.560 the press conference right out of the gate, asked by 0:05:21.600 --> 0:05:23.560 a reporter with a British accent, by the way, was 0:05:23.600 --> 0:05:25.599 how much of it role did this play? And she 0:05:25.640 --> 0:05:28.240 said very clearly that yes, it definitely played a role 0:05:28.279 --> 0:05:31.560 in the decision to hold off on even considering seriously 0:05:32.200 --> 0:05:38.360 another rate hike anytime soon. Um. But again, if if 0:05:38.400 --> 0:05:40.400 that goes out of the way, okay, let's say there's 0:05:40.560 --> 0:05:43.440 a stave vote. So now that you've limited that uncertainty, 0:05:43.480 --> 0:05:46.560 if the next job's report is strong, because later in 0:05:46.640 --> 0:05:50.080 the press conference she was asked about that, she said, well, 0:05:50.279 --> 0:05:54.000 it's not impossible. Every meeting's live. I guess now you're 0:05:54.040 --> 0:05:56.760 focused on the FED depends on your forecast for jobs 0:05:56.800 --> 0:06:00.200 in particular economy More broadly, I would always hope the 0:06:00.200 --> 0:06:04.000 forecast on the dependent on jobs in the economy. More 0:06:04.080 --> 0:06:06.840 generally generally, I think there's sincere when they say all 0:06:06.839 --> 0:06:11.200 decisions are data dependent and made meeting by meeting. Assuming 0:06:11.279 --> 0:06:15.480 we get Brexit out of the way and the decision 0:06:15.520 --> 0:06:20.200 doesn't Royal financial markets, the next big number will be employment. 0:06:20.480 --> 0:06:23.440 But i've gotta you've gotta admit the way she answered 0:06:23.880 --> 0:06:28.080 the question with the double negative, it's not impossible. Uh, 0:06:28.320 --> 0:06:31.599 kind of made me think that the bar is pretty high. 0:06:31.960 --> 0:06:36.120 Because what was significant about some of her Cherry Ellen's 0:06:36.720 --> 0:06:41.080 remarks from the press conferences. She said she needed reassurance. 0:06:41.360 --> 0:06:44.960 She the committee needed to know that to be confident 0:06:45.000 --> 0:06:48.480 about the outlook. One data point doesn't do that for you. 0:06:49.200 --> 0:06:51.720 So yes, I think there is a strong enough employment 0:06:51.760 --> 0:06:55.680 report that would get them get tightening back on the 0:06:55.720 --> 0:07:00.600 table in July. That's probably a one in four chance, um. 0:07:01.400 --> 0:07:03.919 But the plain fact is if they don't tighten in July, 0:07:04.560 --> 0:07:06.919 they will probably only tightened once this year, and that 0:07:06.960 --> 0:07:11.080 would be in December. If they're not confident how market 0:07:11.240 --> 0:07:14.920 takes their the reaction to reacts to their policy action, 0:07:15.280 --> 0:07:19.000 They're not gonna want to do two tightenings in relatively 0:07:19.080 --> 0:07:23.600 quick succession. Vincent Reinhardt, as the chief economist of Standish 0:07:23.840 --> 0:07:30.320 Melon Asset Management, what are you telling your salesforce, your customers, 0:07:30.400 --> 0:07:34.040 your clients about Brexit? Because I'm looking, for example, at 0:07:34.040 --> 0:07:37.280 the dividend yield of the foot see one index stock index, 0:07:37.520 --> 0:07:42.360 it's over four and a half per cent. Is investing 0:07:42.480 --> 0:07:48.679 in Britain a bullish call for you? So right now, UH, 0:07:48.720 --> 0:07:51.520 it is a risky call because if it is about 0:07:51.600 --> 0:07:55.960 you know, fifty fifty UH stay versus is leave, you 0:07:56.000 --> 0:07:59.440 know there'll be a response in markets. You also would 0:07:59.520 --> 0:08:04.800 suspect that the response will be asymmetric i e. UH. 0:08:04.880 --> 0:08:09.000 If the decision is to stay H then that gets 0:08:09.040 --> 0:08:12.760 priced out of markets and the adjustment can be pretty 0:08:12.800 --> 0:08:17.160 quick in orderly. But if the vote is to leave, 0:08:17.520 --> 0:08:21.360 then it opens up just a world of uncertainty, and 0:08:21.400 --> 0:08:27.040 it also sets a precedent for other European UH actors 0:08:27.680 --> 0:08:34.400 to really question the integrity of the European Union. And 0:08:34.600 --> 0:08:39.480 also remember London is a financial center, UH, lots of 0:08:39.679 --> 0:08:43.600 cross border claims. In an uncertain environment, they'll probably be 0:08:43.640 --> 0:08:47.760 some withdrawal from risk taking. So UH, the first thing 0:08:47.800 --> 0:08:51.400 to recognize is there's risks either way, but the risks 0:08:51.400 --> 0:08:56.160 are not not symmetric. UH. Risk on is gonna be 0:08:56.400 --> 0:08:59.920 a lot less significant for asset prices than if it's 0:09:00.040 --> 0:09:03.920 risk off. You know, UH, FED meeting is behind us 0:09:04.000 --> 0:09:07.480 two more central bank policy shoes to drop, Vince, as 0:09:07.520 --> 0:09:09.240 you well know, because the Bank of Japan has been 0:09:09.280 --> 0:09:11.000 having a two day meeting and we're going to get 0:09:11.000 --> 0:09:13.079 the results just an hours ahead of us, and then 0:09:13.559 --> 0:09:16.480 keep going around the world. Bank of England is is 0:09:16.520 --> 0:09:20.080 having a policy decision today as well. What's important to 0:09:20.160 --> 0:09:22.240 be watching out of those decisions and what are you 0:09:22.320 --> 0:09:24.840 looking for? Well, first thing to remember is Kennet Yellen 0:09:24.960 --> 0:09:28.679 made their life harder. Uh. If the Fed had tightened, 0:09:28.760 --> 0:09:32.520 you probably would have associated orally signaled a willingness to titans, 0:09:32.559 --> 0:09:36.440 say in July, you would have expected some dollar appreciation. 0:09:36.800 --> 0:09:40.960 But from the perspective of government or Kuroda or government 0:09:41.080 --> 0:09:44.280 or Governor Kearney, that would have been a welcome using 0:09:44.360 --> 0:09:48.720 of financial conditions in the form of some some currency depreciation. 0:09:49.440 --> 0:09:52.560 Now they've got to do the work for themselves. I 0:09:52.600 --> 0:09:56.560 think the more important actor, obviously is the Bank of Japan, 0:09:57.120 --> 0:10:01.040 because if Janet Yellen was al then to move in 0:10:01.080 --> 0:10:04.200 advance the UK referendum, I'm pretty sure Mark Karney has 0:10:04.240 --> 0:10:07.280 been will be reluctant to move uh, and he's already 0:10:07.320 --> 0:10:11.080 told us that. UH. For Governor Corota, the issue is 0:10:11.559 --> 0:10:16.240 what form of additional policy stimulus h does he have. 0:10:16.840 --> 0:10:21.079 The reaction to making the deposit rate negative has been 0:10:21.160 --> 0:10:25.960 very adverse. It's been associated with some um technical difficulties 0:10:25.960 --> 0:10:30.440 in markets, and so his actions will probably be in 0:10:30.559 --> 0:10:34.280 terms of the scale and scope of his quantitative using purchases. 0:10:34.640 --> 0:10:39.480 But it's probably not something that happens tonight. Alright, Vince Rhinhart, 0:10:39.480 --> 0:10:41.520 thank you so very much for joining us. OK, thank 0:10:41.559 --> 0:10:45.079 thanks for having me. Vince is chief economist at Standish 0:10:45.120 --> 0:10:49.600 Melon Asset Management in Boston. He's a former fedeficial, former 0:10:49.600 --> 0:10:52.440 head of the feder Reserves, a monetary division, and he 0:10:52.600 --> 0:10:55.960 says that the FED was definitely devished, and I appreciate 0:10:56.000 --> 0:10:58.920 what he said about the FED by not signaling any 0:10:58.960 --> 0:11:02.440 tightening anytime soon and weakening the dollar make the job 0:11:02.640 --> 0:11:04.680 harder for the Bank of Japan and harder for the 0:11:04.720 --> 0:11:07.120 Bank of England as they hold and wrap up their 0:11:07.240 --> 0:11:10.480 policy meetings. Just ahead, Kathleen Hayes and Pim Foxes is 0:11:10.559 --> 0:11:11.920 taking stock on liber Radio.