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Speaker 2: Bill Lee, chief economist at the Milkin Institute, who is
Speaker 2: in Singapore for the eleventh annual Milkin Institute Asia Summit. Bill,
Speaker 2: always a pleasure to have you with us on the program.
Speaker 2: Lots to talk about this morning. We can talk about China,
Speaker 2: we can talk about the US. We can talk about US,
Speaker 2: China and the FED. Let's start off with the Fed.
Speaker 2: I'm curious why you think this time the FED decided
Speaker 2: to not be very clear about its course of action. Generally,
Speaker 2: the market tends to know what the Fed is going
Speaker 2: to do when we get to the day. Not this time.
Speaker 3: Why, under Chair Powell, I think we've noticed that the
Speaker 3: FED has really held its cards very close to the chest,
Speaker 3: and they're maximize the amount of optionality they have by
Speaker 3: saying that we're completely data dependent and we're going to
Speaker 3: look at the last bit of data before we make
Speaker 3: up our minds. In a way, it's done a disservice
Speaker 3: to financial markets. When I use that the FED Reserve
Speaker 3: in the old days, there's a lot of there's a
Speaker 3: sense that we understood how the FED worked, we understood
Speaker 3: its framework, we can anticipate its decision making. And I said,
Speaker 3: I must say a criticism of the current FED is
Speaker 3: this complete data dependency without telling markets what exactly it's
Speaker 3: going to do with the data. And I think that
Speaker 3: has been characteristic of Chair Paul's caution and wanting to
Speaker 3: preserve his legacy of sticking the soft landing and being
Speaker 3: one of the few FED chairmen who's able to do that.
Speaker 1: Bill We've been talking about this debate in the marketplace
Speaker 1: whether it's going to be a twenty five basis point
Speaker 1: raid cut or a fifty basis point raid cut.
Speaker 3: WO tear to weigh in, Well, let me just bring
Speaker 3: out the old school model of how the Federal Reserve
Speaker 3: has always worked and really continues to work at its core,
Speaker 3: which is to say, they really want to make a
Speaker 3: path that's clear to financial markets that we are going
Speaker 3: to get back to neutrality. I personally believe that that
Speaker 3: we should do it fairly quickly because the economy has
Speaker 3: been cruising at at a steady pace, at a very strong,
Speaker 3: steady pace, with inflation clearly coming down. But we're so
Speaker 3: far away from a neutral interest rate that we should
Speaker 3: just get on with it because there isn't a lot
Speaker 3: of danger of inflation resurging, and the weakening economy has
Speaker 3: got financial markets concerned, and I think cher Paul should
Speaker 3: do a better job of explaining to financial markets there's
Speaker 3: nothing to be concerned about. The US economy is on
Speaker 3: cruise control and where in fact, you know, better than
Speaker 3: normal right now, the labor market is not really shows
Speaker 3: no signs of weakness at all, regardless of what whether
Speaker 3: people believe this so called sombl or not. Normally pay
Speaker 3: roll increases are like one hundred and fifty thousand.
Speaker 2: We're a little crimped on time today. So let's kind
Speaker 2: of have a little rapid fire action here. Let me
Speaker 2: ask you, you know we usually have unanimous votes there,
Speaker 2: do you expect a lot more divergence or dissent in
Speaker 2: this decision?
Speaker 3: I think the current Fed really is really wanting to
Speaker 3: show a sign of unity, and that's why Chirpaul has
Speaker 3: been so cautious in telling markets what the FED will
Speaker 3: be doing until it actually does it, So I doubt
Speaker 3: that there'll be much in a way of decent.
Speaker 1: So I'm imagining that China is going to be a
Speaker 1: big topic for the eleventh annual Milkin Institute Asia Summit.
Speaker 1: Are you concerned about the degree to which China is
Speaker 1: really stuck in this deflationary trap?
Speaker 3: You know absolutely. In fact, I've been in Korea at
Speaker 3: the World College Forum. I just came here and the
Speaker 3: discussion is really all about China, and I've been telling
Speaker 3: everyone China suffers some of the bad des deficient demand,
Speaker 3: debilitating debt, and dismal demographics, and the debt's burden local
Speaker 3: governments has really hindered the ability of the local governments
Speaker 3: to part participate in the kind of fiscal policy that's
Speaker 3: needed to stimulate the economy. And Chairman, She's aversion for
Speaker 3: direct transfers to households and keeping supply side measures going
Speaker 3: has really shown to be ineffective. And I hope they
Speaker 3: will see the light that the American and Western way
Speaker 3: of COUNTERCYCLEO fiscal policy directly transferred to the households.
Speaker 2: We imagine the Chinese economy to be stumbling a little
Speaker 2: bit now, but the US economy to be in a
Speaker 2: good place. Meantime, China's actually going faster than the US,
Speaker 2: even if it doesn't make the five percent target.
Speaker 3: Why, well, what's relative to normal?
Speaker 4: Right?
Speaker 3: China's demographics has really slowed down to the point where
Speaker 3: normal growth to keep the population employed, it has to
Speaker 3: be above five to seven percent, And now it looks
Speaker 3: like the every forecast is showing China to be below
Speaker 3: five except for the official one. So I think the
Speaker 3: measures of differences about normality and population and technology and
Speaker 3: productivity growth are really explaining most of the difference between
Speaker 3: the two growth rates.
Speaker 1: Very quickly, Bill, in about ten seconds, will we get
Speaker 1: something from the PBOC that is stimulative here in the
Speaker 1: near term.
Speaker 3: That's not what they need. They need a fiscal policy,
Speaker 3: fiscal stimulus, support income.
Speaker 1: Okay, yeah, Bill Well Billy, chief economist at the Milk
Speaker 1: and Institute in Singapore for the eleventh annual Milk and
Speaker 1: Institute Asia Summit.
Speaker 2: David Finnerty from our Bloomberg Live team, So we're looking
Speaker 2: at the FED. I'm wondering, David, whether or not you
Speaker 2: think that perhaps too much positivity has been priced into
Speaker 2: markets at the moment.
Speaker 4: Yeah. Well, in terms of you going with it's fifty
Speaker 4: or twenty five, I think, certainly at my end it
Speaker 4: should be twenty five. I think the market is, as
Speaker 4: we've seen several times, it says it's really biased what's
Speaker 4: right cuts, and it is what it is. So you
Speaker 4: give them any chance of price in fifty, those certainly
Speaker 4: run with that. And I think reality is if the
Speaker 4: Fed does cut fifty, the markets could go, oh, you
Speaker 4: mean fifty to fifty to fifty. So I reality, that's
Speaker 4: what it's going to do. It will try and price in.
Speaker 4: I think it will. We'll be back to six rate
Speaker 4: cuts because it's called a point weight cuts this year.
Speaker 4: I mean, the market's going to go with it if
Speaker 4: you give it any chance. So I think I'm in.
Speaker 4: There's something in the twenty five camp. And one of
Speaker 4: the logic is I said, if you go fifty, the
Speaker 4: market's going to go because you remember, back in the
Speaker 4: June dot plot was we go The media forecast was
Speaker 4: for one rate cut this year, So suddenly you do
Speaker 4: fifty just three months later, it looks panicky. Yes, the
Speaker 4: data has slowed down. I get that, but I don't
Speaker 4: think the data warrants are fifty. But if you give fifty,
Speaker 4: the market's going to go. You're behind the curve. We're
Speaker 4: going to price in more weight cuts very quickly.
Speaker 1: Yeah, the bond market certainly has done a lot of
Speaker 1: the heavy lifting lately, and that's one of the factors
Speaker 1: that has really kind of made financial conditions relatively easy.
Speaker 1: The other part of the story is the dollar and
Speaker 1: its relative weakness, and also higher stock prices. So do
Speaker 1: you think that the FED would be right in erring
Speaker 1: on the on the conservative side.
Speaker 4: For me based off the data? If there really the
Speaker 4: Fed's looking at, we're here not to control stock market
Speaker 4: indirect you could say it is, but if it's looking here,
Speaker 4: we're trying to get that soft landing. I think the
Speaker 4: data for me warrants a twenty five, and then you
Speaker 4: can you can leave the door open to look for
Speaker 4: data weekends, then we can do fifty. That's fine, But
Speaker 4: the moment, I don't think you know, four point two
Speaker 4: percent on employment rate. Yes, it's been upticking, but it
Speaker 4: did stabilize last month, So let's see that uptick trend continues.
Speaker 4: I know, could argument be if you leave it you're
Speaker 4: behind the curve. But then again, are you going too
Speaker 4: aggressively too early? So I'm I'm for me. I think
Speaker 4: twenty five is wanted.
Speaker 2: I kind of think they'll go fifty. But then we'll
Speaker 2: have more hawkish commentary than what some people might be expected,
Speaker 2: just to give them, you know, a very broad range
Speaker 2: of movement. Now you've got, you know, a lot of
Speaker 2: room there in between the fifty, and you know, Policymaker
Speaker 2: Powell who's sounding like, you know, this might be all
Speaker 2: you get for a while. So I don't know, I mean,
Speaker 2: we can muse about all of this. You know, your
Speaker 2: your thoughts on whether the economy needs some juicing.
Speaker 4: Well, at the moment, I said, I think base it's
Speaker 4: certainly slowing down. I think twenty I said, I'm in
Speaker 4: the twenty five camp. I think the cats for the
Speaker 4: Fed if you do fifty and go oh and that's it,
Speaker 4: the market's going to go no, no, no, no, you're
Speaker 4: fifty to fifty to fifty, and that's what the market.
Speaker 4: You know, the market is buiased that way. So you know,
Speaker 4: I think you it's go be very tough for the
Speaker 4: market to the Feds have credit.
Speaker 2: They could do it they could do it in a
Speaker 2: slightly different way. They could say, well, the Fed funds
Speaker 2: rates at five and a half percent, and they could
Speaker 2: kind of say, you know, we think fifty basis points
Speaker 2: is a way to kind of bring that because inflation's
Speaker 2: down below three percent, right, so there's a really big gap.
Speaker 2: So they could say, well, fifty basis points is the
Speaker 2: first step. It's going to take some time for us
Speaker 2: to see how this works out. I don't expect too
Speaker 2: much in the short term.
Speaker 4: Yeah, I get your point. I mean, i'd say, the
Speaker 4: market's going to hear what it wants to hear, and
Speaker 4: the market's going to go fifty and I want six
Speaker 4: rate cuts this year. I want six quad of points
Speaker 4: and you've opened the door to that, and I'm going
Speaker 4: to run with that. So it's the market interprets it
Speaker 4: how it wants to interpret, and it's very biased towards
Speaker 4: anything dubbish. I'm going to that's all I'm going to hear.
Speaker 4: I forget the rest. I'm hearing the Dovist parts.
Speaker 1: So you fear like a tantrum. And at this point
Speaker 1: the Fed cannot afford to have the market not on
Speaker 1: its side. Is that fair?
Speaker 4: I think it's tough to control the markets. Is that
Speaker 4: you've seen how much the markets whipsawed this year, said
Speaker 4: go back to January with the sick rate cuts, expecting
Speaker 4: one in March, and then it went back to no
Speaker 4: rate cuts. And so the market continue shows its hand
Speaker 4: in terms of its behavior. And I just think you've
Speaker 4: got to be careful what you asked for in that
Speaker 4: the market is going to go very aggressively. If you
Speaker 4: give me signals of a rate cut, I will literally
Speaker 4: run with it. So I think fifty is the market's going.
Speaker 4: You're well behind the right curve. We're going to put
Speaker 4: in one fifty this year and then let's not get
Speaker 4: to next year because we've got to do more next year.
Speaker 4: So I think heels get crashed and stuff. So I
Speaker 4: think it's just it creates a mess for the FED
Speaker 4: to try and control it. You know, you've got like
Speaker 4: this kid who's running around. You're trying to control what
Speaker 4: it does on the lease and the market's going, well,
Speaker 4: you give me a big leash to just do what want,
Speaker 4: and I'm going to I.
Speaker 2: Think the market's pretty I think the market is pretty mature,
Speaker 2: and it seems like right now it's kind of understands
Speaker 2: that whether it's twenty five or fifty, it's the beginning
Speaker 2: of a cycle, and the cycle, you know, there's no
Speaker 2: rush to do it, but you do have the election
Speaker 2: coming up, so maybe you act now and then see
Speaker 2: how things move over the next few months. I take
Speaker 2: your point that market can be kind of needy sometimes,
Speaker 2: but if you look at the market performance of late,
Speaker 2: it seems like even though we've swung from twenty five
Speaker 2: to fifty, the market's kind of hanging in there.
Speaker 4: Well, if you mean I mean which market do you mean?
Speaker 4: You mean the equity because the equity market is going
Speaker 4: to love rate cuts and understand these, So the bond
Speaker 4: market is sully volatile. I mean, if you see the
Speaker 4: market's mature, I agree with saying, but you can go
Speaker 4: back to well, hold it just back in January, the
Speaker 4: market's going, I think the six rate cuts warrant it,
Speaker 4: and here we are later on at the moment we've
Speaker 4: had none. So yes, it is mature, But then it's
Speaker 4: shown a very strong bias towards a certain way. And
Speaker 4: that's so that's what I'm just saying, is if you
Speaker 4: get all I'm trying to say is if you give
Speaker 4: that bias encouragement. It will run with it without question.
Speaker 1: No doubt about that. I agree with that, and so
Speaker 1: talk to me a little bit about your expectations for
Speaker 1: how the dollar would react to the scenarios that we're
Speaker 1: laying out twenty five fifty. I mean, what is the
Speaker 1: dollar reflecting right now?
Speaker 4: Yeah, well, I think that's a good question. I think
Speaker 4: the dollar the dollars. The reality is traders want to
Speaker 4: sell the dollars. So again it's like they want rate
Speaker 4: cuts and they headgs, funds something want to sell the
Speaker 4: dollar if they can. So I think you do twenty
Speaker 4: five or fifty. Obviously, if it's fifty, then just sell
Speaker 4: Dollar's very simple as that, because even if the dot
Speaker 4: plot is, say on the more hawkish side, so we say,
Speaker 4: the markets go, I don't care it's fifty to fifty
Speaker 4: to fifty, it's sever a dollar. I think what happens
Speaker 4: is if you get a twenty five, you obvious get
Speaker 4: a knee cher reaction. Dollars should totally go high initially,
Speaker 4: but then very quickly it's like lots of headlines, you go, okay,
Speaker 4: that's initial. Then they'll very quickly look at what the
Speaker 4: dot plot does and then you've got to go to
Speaker 4: what Powell says. Remember it's a biased this in terms
Speaker 4: of I want to hear something duvish and then I
Speaker 4: see it, I'm going to rum with that. So I
Speaker 4: think you got a little of whipsaws with the market
Speaker 4: trying to sell a dollar if it's got a chance.
Speaker 2: Yeah, we had Ray Dalio on earlier. He said twenty
Speaker 2: five or fifty, it doesn't matter if the US economy
Speaker 2: is close to equilibrium. He wishes that policymakers would look
Speaker 2: at the big picture and the long term picture rather
Speaker 2: than short term consideration. So do you think there's any
Speaker 2: chance of that from the Fed or can you expect
Speaker 2: it from the fiscal authorities?
Speaker 5: No?
Speaker 4: I think it's a fair point. And at the end
Speaker 4: of day, you sort of you're supposed to look longer term.
Speaker 4: By again, the market thinks short term if we're wanting
Speaker 4: So I think that one thing the Federal go and
Speaker 4: the coupe anounce say, okay, where we do twenty five
Speaker 4: to fifty. The real question guys, where's the terminal rate
Speaker 4: going to be? And obviously that will have a bead
Speaker 4: idea in that dot plot. So I think the Fed
Speaker 4: tries to go long term, but the market thinks short term,
Speaker 4: and that's sort of that austraders the FOE came about.
Speaker 2: For the record, I don't think the market's mature all
Speaker 2: the time, just has sort of been behaving that way lately.
Speaker 2: There's plenty of times it give be Bertie Finicky, pretty panicky, David,
Speaker 2: Thank you very much, David Finnergy Bloomberg FX rates St.
Speaker 2: Paul Brody, global blockchain leader at ey Paul is in
Speaker 2: Singapore for the Token twenty forty nine Cryptos summit. I
Speaker 2: was just talking about the transition in part from retail
Speaker 2: customers to institutional customers and what one of the catalysts
Speaker 2: might be for that.
Speaker 5: So the thing that we're seeing is what we're calling
Speaker 5: global regulatory conversions, and what's going on here is as
Speaker 5: regulators have taken steps to bring crypto inside of legal frameworks,
Speaker 5: and we've seen that in Singapore, Japan, and across the
Speaker 5: European Union as well as the ETS. What's happened is
Speaker 5: we've shifted from this model where any consumer can do
Speaker 5: this and their consumers were doing it, to one where
Speaker 5: things are now accessible by institutions, pension funds, major sort
Speaker 5: of private investors, things like that, And so where the
Speaker 5: big money is. If you look at the world's RULs
Speaker 5: of capital, it's inside of institutions, and they can't touch
Speaker 5: cryptocurrencies or digital assets until they are regulated in these
Speaker 5: national ecosystems.
Speaker 1: You know, it's interesting. There was a report that we
Speaker 1: were talking about last week where the FBI here in
Speaker 1: the US has closed that Americans lost to staggering five
Speaker 1: point six billion to cryptocurrency related fraud in twenty twenty three.
Speaker 1: Talk to me a little bit about the public relations
Speaker 1: campaign that needs to take place, maybe to repair some
Speaker 1: of the reputational harm that the overall cryptocurrency space has
Speaker 1: suffered as of late.
Speaker 5: So there is a huge amount of damage that's been done.
Speaker 5: And I used to joke that the special thing that
Speaker 5: crypto was good at giving to the people who hate
Speaker 5: crypto is ammunition. We are great at sort of providing
Speaker 5: frauds and cons and things like that. And I think
Speaker 5: what's happened. And I spoke to one European regular. He
Speaker 5: put it very nice, and he said, the more we
Speaker 5: warned people against doing stuff, the more they did it.
Speaker 5: And we came to realize that the best path to
Speaker 5: improving the ecosystem was to regulate it and give people
Speaker 5: more confidence, and I do think that regulatory involvement has
Speaker 5: been a big catalyst to improving the perception of the industry.
Speaker 2: Yeah, that's very interesting. It's something that a lot of
Speaker 2: people in their gut probably wouldn't feel is the case
Speaker 2: that regulation can make a difference and actually broaden it.
Speaker 2: I'm curious when we talk about that move from the
Speaker 2: retail customer to the institutional does that also mean that
Speaker 2: the focus has changed a little bit away from cryptocurrencies
Speaker 2: and more to the blockchain.
Speaker 5: A little bit.
Speaker 4: Yes.
Speaker 5: I think one of the consensuses here at this event
Speaker 5: is that crypto is out a role. It's going to
Speaker 5: grow substantially, but there's probably an upper limit on the
Speaker 5: sides of the cryptocurrency industry, and it's probably roughly similar
Speaker 5: to what we have in gold today, which is something
Speaker 5: between ten and fifteen trillion dollars, which, to give you
Speaker 5: a sense of scale, is ten times what exists now. However,
Speaker 5: that hails in comparison to some of the other industries
Speaker 5: where you can have really substantial asset tokenization, such as
Speaker 5: real estate. There's three hundred and seventy nine trillion dollars
Speaker 5: of real estate in the world. There's another roughly two
Speaker 5: hundred to three hundred trillion in liquid bank deposits, bonds,
Speaker 5: and stocks. So people really have their eye on all
Speaker 5: these other assets and they believe that the sort of
Speaker 5: overall growth room in that space is much much larger,
Speaker 5: and hence the shift towards digital assets. I wouldn't say
Speaker 5: away from crypto, but people see it as a bigger prize.
Speaker 1: I remember the hype around blockchain when it first kind
Speaker 1: of became a point of discussion here, and then subsequently
Speaker 1: the move into a lot of the cryptocurrency, the way
Speaker 1: in which blockchain was applied to crypto. It seems though
Speaker 1: lately the market's focused on anything related to artificial intelligence.
Speaker 1: Is there a lot of competition for new capital, let's
Speaker 1: say that you're fighting for because of the current hype
Speaker 1: around AI.
Speaker 5: There's definitely competition for capital. There's competition even more so
Speaker 5: for mind share, although there is also this integration that
Speaker 5: is going on. So two, there's probably three areas in
Speaker 5: particular where we see the most integration. First, using AI
Speaker 5: to develop crypto applications and crypto software. Secondly, using distributed
Speaker 5: computing systems built on cryptocurrency technology to handle the compute
Speaker 5: workload for AI. And then thirdly, kind of this idea
Speaker 5: that AI is for decision making and blockchain ecosystems for execution,
Speaker 5: that they can be very complementary together.
Speaker 2: So Jamie Diamond says JP Morgan is one of the
Speaker 2: biggest users of blockchain. Yet he says, we've been talking
Speaker 2: about blockchain for twelve years, not much has happened. Is
Speaker 2: he wrong?
Speaker 5: He's not entirely wrong, And I, for one, kind of
Speaker 5: really believe that we The problem has been that we
Speaker 5: have not solved some of the critical issues for institutional enterprise.
Speaker 5: You just one of them was regulation, right, so institutions
Speaker 5: just really can't use it that much without good regulation.
Speaker 5: And the second is a technological one, which is mostly privacy.
Speaker 5: So the industry has done an amazing job of solving
Speaker 5: the scalability problem.
Speaker 3: Right.
Speaker 5: Where theorem used to be able to handle a million
Speaker 5: transactions to day, we can now do several one hundred
Speaker 5: million a day through all these layer twos. The bigger
Speaker 5: problem has been that if you're an institution or an enterprise,
Speaker 5: you must have privacy technology. And it's really only just
Speaker 5: now that privacy systems like the architecture that we've been
Speaker 5: building and others have been working on are coming to
Speaker 5: the point where they are mature enough and scalable enough
Speaker 5: for businesses to use comfortably and without fear of kind
Speaker 5: of losing their sensitive data.
Speaker 2: Paul Brody, thank you very much for joining us. Paul Brody,
Speaker 2: Global Blockchain Leader at EY. He drives the EY initiatives
Speaker 2: and investments in blockchain technology.
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