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Speaker 1: The Brexit vote on Bloomberg Radio the Brexit vote June three.
Speaker 1: Will voters in the United Kingdom will they decide to
Speaker 1: leave the European Union or will they remain a member
Speaker 1: of the EU and what effect will this have on
Speaker 1: us policy? Let's find out more. We have vincent Reinhardt.
Speaker 1: He is the chief economist of Standish Melon Asset Management.
Speaker 1: He was also the former head of the Federal Reserves
Speaker 1: Monetary Division, and previously he also served as the Secretary
Speaker 1: and the economist of the Federal Open Market Committee. Vincent Reinhart,
Speaker 1: thank you very much for being with us. Tell us
Speaker 1: about your reaction to today's Federal Reserve statement and no
Speaker 1: move in interest rates? Well, I mean this afternoon, this
Speaker 1: the Reserve gave us a basically devish message, not so
Speaker 1: much in the statement which was little changed, just marked
Speaker 1: to market, but in terms of the characterization of their
Speaker 1: future policy, the dots and the Jannet Ellen's press conference,
Speaker 1: so in terms of let's just flush that out, because
Speaker 1: you know, there's a slight downgrade to their gd GDP
Speaker 1: forecast for this year, slight upgrade to their inflation forecast.
Speaker 1: But it was the number of dots that are now
Speaker 1: saying we only see one interest rate to increase this
Speaker 1: year instead of two unless recall four was the forecast
Speaker 1: the majority had in December. Right now, I think it's
Speaker 1: significant in in two ways. They as you noted, they
Speaker 1: didn't change their economic outlook really very much. What they
Speaker 1: said is they need a lower path for policy in
Speaker 1: order to get that outlook. I EI, there must be
Speaker 1: more headwinds, and they've made a fundamental reassessment how much
Speaker 1: they'll ultimately have to tighten. Uh So they moved it
Speaker 1: at the front end of their great guidance and at
Speaker 1: the back end of the great guidance. The second part
Speaker 1: of their six policymakers saying they only see one one
Speaker 1: tightening in two thousand and sixteen is that this is
Speaker 1: a committee that doesn't follow the median voter theory. What
Speaker 1: matters is a consensus, and it's hard to see how
Speaker 1: six of them are going to get convinced over the
Speaker 1: rest of the year to tighten more than once. Vincent Reinhardt,
Speaker 1: turn your attention now to the United Kingdom and the
Speaker 1: June referendum. First, what do you believe will happen? And
Speaker 1: maybe give us two versions the scenarios based on your
Speaker 1: sort of looking at the situation. I know that they were.
Speaker 1: I was just looking. There were pictures today of a
Speaker 1: flotilla of boats in the Thames. They call it the
Speaker 1: Battle of the Thames, in which boats, UH, flotilla of
Speaker 1: Scottish fisherman of were agitating for Britain to leave, and
Speaker 1: they were met by dinghies and pleasure cruises, all supporting
Speaker 1: remaining in the EU, sort of a reverse Dunkirk where
Speaker 1: it was going away from Europe breather than going to it.
Speaker 1: I think there's a couple of things to him about
Speaker 1: about this. First, we know it's important for monetary policy,
Speaker 1: because Jenny Ellen told us that this afternoon when she
Speaker 1: said international considerations loomed large. Uh. The important things when
Speaker 1: to remember is if the vote is to leave, we
Speaker 1: don't know what Britain will leave too, because what it
Speaker 1: does is open up two years worth of negotiations to
Speaker 1: reconstruct the apparatus of the Common Market by bilateral trade relationships.
Speaker 1: So there's gonna be a lot of uncertainty, uh, in
Speaker 1: the event of a leave vote. In the event of
Speaker 1: a stay vote, markets have h not have increased, only
Speaker 1: priced some of that autom market. So you're gonna get
Speaker 1: a reaction either way if it's fifty fifty, which is
Speaker 1: probably as good a way to guess right now as
Speaker 1: any UH something happens in financial markets on the morning
Speaker 1: of UH And of course Janet yellen first question at
Speaker 1: the press conference right out of the gate, asked by
Speaker 1: a reporter with a British accent, by the way, was
Speaker 1: how much of it role did this play? And she
Speaker 1: said very clearly that yes, it definitely played a role
Speaker 1: in the decision to hold off on even considering seriously
Speaker 1: another rate hike anytime soon. Um. But again, if if
Speaker 1: that goes out of the way, okay, let's say there's
Speaker 1: a stave vote. So now that you've limited that uncertainty,
Speaker 1: if the next job's report is strong, because later in
Speaker 1: the press conference she was asked about that, she said, well,
Speaker 1: it's not impossible. Every meeting's live. I guess now you're
Speaker 1: focused on the FED depends on your forecast for jobs
Speaker 1: in particular economy More broadly, I would always hope the
Speaker 1: forecast on the dependent on jobs in the economy. More
Speaker 1: generally generally, I think there's sincere when they say all
Speaker 1: decisions are data dependent and made meeting by meeting. Assuming
Speaker 1: we get Brexit out of the way and the decision
Speaker 1: doesn't Royal financial markets, the next big number will be employment.
Speaker 1: But i've gotta you've gotta admit the way she answered
Speaker 1: the question with the double negative, it's not impossible. Uh,
Speaker 1: kind of made me think that the bar is pretty high.
Speaker 1: Because what was significant about some of her Cherry Ellen's
Speaker 1: remarks from the press conferences. She said she needed reassurance.
Speaker 1: She the committee needed to know that to be confident
Speaker 1: about the outlook. One data point doesn't do that for you.
Speaker 1: So yes, I think there is a strong enough employment
Speaker 1: report that would get them get tightening back on the
Speaker 1: table in July. That's probably a one in four chance, um.
Speaker 1: But the plain fact is if they don't tighten in July,
Speaker 1: they will probably only tightened once this year, and that
Speaker 1: would be in December. If they're not confident how market
Speaker 1: takes their the reaction to reacts to their policy action,
Speaker 1: They're not gonna want to do two tightenings in relatively
Speaker 1: quick succession. Vincent Reinhardt, as the chief economist of Standish
Speaker 1: Melon Asset Management, what are you telling your salesforce, your customers,
Speaker 1: your clients about Brexit? Because I'm looking, for example, at
Speaker 1: the dividend yield of the foot see one index stock index,
Speaker 1: it's over four and a half per cent. Is investing
Speaker 1: in Britain a bullish call for you? So right now, UH,
Speaker 1: it is a risky call because if it is about
Speaker 1: you know, fifty fifty UH stay versus is leave, you
Speaker 1: know there'll be a response in markets. You also would
Speaker 1: suspect that the response will be asymmetric i e. UH.
Speaker 1: If the decision is to stay H then that gets
Speaker 1: priced out of markets and the adjustment can be pretty
Speaker 1: quick in orderly. But if the vote is to leave,
Speaker 1: then it opens up just a world of uncertainty, and
Speaker 1: it also sets a precedent for other European UH actors
Speaker 1: to really question the integrity of the European Union. And
Speaker 1: also remember London is a financial center, UH, lots of
Speaker 1: cross border claims. In an uncertain environment, they'll probably be
Speaker 1: some withdrawal from risk taking. So UH, the first thing
Speaker 1: to recognize is there's risks either way, but the risks
Speaker 1: are not not symmetric. UH. Risk on is gonna be
Speaker 1: a lot less significant for asset prices than if it's
Speaker 1: risk off. You know, UH, FED meeting is behind us
Speaker 1: two more central bank policy shoes to drop, Vince, as
Speaker 1: you well know, because the Bank of Japan has been
Speaker 1: having a two day meeting and we're going to get
Speaker 1: the results just an hours ahead of us, and then
Speaker 1: keep going around the world. Bank of England is is
Speaker 1: having a policy decision today as well. What's important to
Speaker 1: be watching out of those decisions and what are you
Speaker 1: looking for? Well, first thing to remember is Kennet Yellen
Speaker 1: made their life harder. Uh. If the Fed had tightened,
Speaker 1: you probably would have associated orally signaled a willingness to titans,
Speaker 1: say in July, you would have expected some dollar appreciation.
Speaker 1: But from the perspective of government or Kuroda or government
Speaker 1: or Governor Kearney, that would have been a welcome using
Speaker 1: of financial conditions in the form of some some currency depreciation.
Speaker 1: Now they've got to do the work for themselves. I
Speaker 1: think the more important actor, obviously is the Bank of Japan,
Speaker 1: because if Janet Yellen was al then to move in
Speaker 1: advance the UK referendum, I'm pretty sure Mark Karney has
Speaker 1: been will be reluctant to move uh, and he's already
Speaker 1: told us that. UH. For Governor Corota, the issue is
Speaker 1: what form of additional policy stimulus h does he have.
Speaker 1: The reaction to making the deposit rate negative has been
Speaker 1: very adverse. It's been associated with some um technical difficulties
Speaker 1: in markets, and so his actions will probably be in
Speaker 1: terms of the scale and scope of his quantitative using purchases.
Speaker 1: But it's probably not something that happens tonight. Alright, Vince Rhinhart,
Speaker 1: thank you so very much for joining us. OK, thank
Speaker 1: thanks for having me. Vince is chief economist at Standish
Speaker 1: Melon Asset Management in Boston. He's a former fedeficial, former
Speaker 1: head of the feder Reserves, a monetary division, and he
Speaker 1: says that the FED was definitely devished, and I appreciate
Speaker 1: what he said about the FED by not signaling any
Speaker 1: tightening anytime soon and weakening the dollar make the job
Speaker 1: harder for the Bank of Japan and harder for the
Speaker 1: Bank of England as they hold and wrap up their
Speaker 1: policy meetings. Just ahead, Kathleen Hayes and Pim Foxes is
Speaker 1: taking stock on liber Radio.