WEBVTT - Powell to Reveal Himself From Behind Yellen's Shadow: Riccadonna

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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<v Speaker 1>Along with my co host Lisa Bramowitz. Each day we

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<v Speaker 1>Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Here

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<v Speaker 1>just to give us a little bit of a taste

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<v Speaker 1>of what we should be expecting, as Carl Kodanna, chief

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<v Speaker 1>US economist for Bloomberg Economics. Also with us is Dave Wilson,

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<v Speaker 1>Bloomberg Sex editor, columnist and blogger at M Live. Go

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<v Speaker 1>on the Bloomberg Carl, let me start with you. Uh,

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<v Speaker 1>you know, a lot of people are sort of dismissing

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<v Speaker 1>these hearings as a formality. Jerome Powell is a non

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<v Speaker 1>controversial pick, largely thought to be the continuity candidate. What

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<v Speaker 1>should we expect from these hearings and are they just

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<v Speaker 1>sort of, uh, sort of throw off? Well, I don't

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<v Speaker 1>think they're a throwoff by any means. What's going to

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<v Speaker 1>be interesting? Here are a couple of points, So why yes,

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<v Speaker 1>j Pal is very much a continuity of JA Yellen, UH,

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<v Speaker 1>if you will, UH and UH. In terms of the

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<v Speaker 1>thought process and philosophy towards monetary policy, he's always been

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<v Speaker 1>very consistent with the Yelling Feds party line, where there's

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<v Speaker 1>a couple of interesting UH, possible opportunities here and and

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<v Speaker 1>and the whole focus right, maybe the whole thing is

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<v Speaker 1>a non event, but the whole focus from Fed watchers

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<v Speaker 1>is going to be to discern if there's any daylight

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<v Speaker 1>between how J. Powell is viewing the world compared to

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<v Speaker 1>how Yelling has characterized things UH and especially UH his

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<v Speaker 1>view towards unconventional monetary policy like quantitative easing. Given that

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<v Speaker 1>we're now past the eight year anniversary of the current

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<v Speaker 1>economic cycle, it is fairly likely that J. Pal will

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<v Speaker 1>be at the helm at the FED when the next

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<v Speaker 1>downturn does occur. I don't think that happens for quite

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<v Speaker 1>some time. Nonetheless, he'll be the one who has to

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<v Speaker 1>clean up the mess, and he's gonna going to not

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<v Speaker 1>have a lot of room to operate in terms of

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<v Speaker 1>interest rate buffer, which means that if it is a

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<v Speaker 1>significant downturn, he's going to have to use some type

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<v Speaker 1>of unconventional policy tool. We'll see today if that's going

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<v Speaker 1>to be Quee and how he thinks about Queie and

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<v Speaker 1>how effective he thinks Quie will be. That's point number one,

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<v Speaker 1>And point number two is going to be how he's

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<v Speaker 1>thinking about financial stability risks. The equity markets they're going

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<v Speaker 1>up and up and up. Uh, and the FED is

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<v Speaker 1>only gradually tightening policy. So we'll learn how he's thinking

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<v Speaker 1>about that issue. Well, I'm glad you mentioned markets because

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<v Speaker 1>I want to bring in Dave Wilson, Bloomberg Stocks, Commas, Bloggert,

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<v Speaker 1>m Live, go on the Bloomberg and of course send

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<v Speaker 1>Dave an email at d Wilson at Bloomberg dot net.

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<v Speaker 1>And Dave, what are you looking at today? I've got

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<v Speaker 1>a list square Roku plus. I've been looking at Microsoft

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<v Speaker 1>and then the ongoing story about Buffalo Wild Wings. The

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<v Speaker 1>shares are up more than six and a quarter percent. Uh.

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<v Speaker 1>This has to do with Royal Capital and their attempt

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<v Speaker 1>to purchase or influence the future of the fast food chain.

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<v Speaker 1>Tell us about what you're looking at today? How about

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<v Speaker 1>r VS Alright, go for it, Winnebago four Industries, Lynchpin there.

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<v Speaker 1>I mean, they had their fiscal first quarter results out

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<v Speaker 1>profit and sales beating analysts highest estimates in Bluebergh. So

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<v Speaker 1>you're talking about strong consumer demand for travel trailers benefiting

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<v Speaker 1>their business. So Floor is up thirteen percent, Winnebago what

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<v Speaker 1>you mentioned, up seven percent, So you know, at least

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<v Speaker 1>at that one sort of you know, niche area that

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<v Speaker 1>is really dependent on consumers spending. I mean, you're seeing

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<v Speaker 1>some some strong demands. So you know, that's sort of

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<v Speaker 1>an interesting, uh sidelight at a time when you know,

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<v Speaker 1>let's face it, it's the holiday shopping season and consumers

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<v Speaker 1>willingness to spend is really kind of runt and center here, Dave.

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<v Speaker 1>You know, there is definitely company specific news we are awaiting.

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<v Speaker 1>Of course, this hearing of Jerome Powell, then it's j

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<v Speaker 1>Powell to be the next Fed chair. Our markets expected

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<v Speaker 1>to respond at all? Or is this largely sort of

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<v Speaker 1>back background to noise, Well, it's probably background at this point.

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<v Speaker 1>A real question is whether you know, you get any

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<v Speaker 1>meaningful shift in monetary policy coming out of the transition

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<v Speaker 1>at the Central Bank, whether there's more of a push

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<v Speaker 1>to keep inflation down perhaps, I mean, that's a concern.

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<v Speaker 1>There were some comments out of the Dallas FEDS President

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<v Speaker 1>Kaplan that got some people excited on that score, or

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<v Speaker 1>at least it's something to focus on. You know, it

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<v Speaker 1>really is sort of a given that we're going to get,

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<v Speaker 1>you know, more rate increases. It's just a matter how

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<v Speaker 1>things in fold. And Carl was talking about the whole

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<v Speaker 1>idea of this unconventional monetary policy. I mean, that's certainly

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<v Speaker 1>something to watch as well, Carl. Uh. The one thing

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<v Speaker 1>that was interesting, now, we did get his prepared remarks

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<v Speaker 1>yesterday evening at about five pm, and it was very

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<v Speaker 1>much generic boilerplate language which we couldn't considue a lot

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<v Speaker 1>from it then, as might be Mike McKie highlighted on

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<v Speaker 1>TV earlier this morning. Uh. You, you know, wouldn't have

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<v Speaker 1>mattered whether J. Powell's name was stamped on that or

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<v Speaker 1>Janet Yellen or Ben Bernanky. It was very much consistent

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<v Speaker 1>between the three. There was one sentence which that did

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<v Speaker 1>stand out to me. Uh, and he says the following, However,

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<v Speaker 1>while we endeavor to make the path of policy as

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<v Speaker 1>predictable as possible, the future cannot be known with certainty.

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<v Speaker 1>So that's that's not particularly surprising. But but this is

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<v Speaker 1>telling you it's the first part of that sentence that

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<v Speaker 1>I'm most focused on, uh, making the path of policy

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<v Speaker 1>as predictable as possible. There has been pushedback, especially from

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<v Speaker 1>conservative circles, that the FED has been too transparent and

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<v Speaker 1>then markets become too complaint sent j Pal is not

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<v Speaker 1>about to shake that up and have Saturday night specials

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<v Speaker 1>and uh surprising rate moves or uh, you know, catching

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<v Speaker 1>the market off guard and whatnot. He wants a very

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<v Speaker 1>predictable monetary policy and that is of significance. We will

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<v Speaker 1>find out from his own words. Now he did just

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<v Speaker 1>sit down and share Crapo is talking with him Creepo

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<v Speaker 1>about how does prepared statements and everybody. It looks like

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<v Speaker 1>it is a full house, even though often these hearings

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<v Speaker 1>have always shocked at how few attendees there sometimes are

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<v Speaker 1>to some of these hearings. But this one looks like

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<v Speaker 1>a full house. And he's no stranger to this, I mean,

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<v Speaker 1>J Pal, I mean he's certainly served to the Department

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<v Speaker 1>of the Treasury with Nicholas Brady, also formerly banker at

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<v Speaker 1>the Banker's Trust. Dylan Read a partner at the Carlisle Group,

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<v Speaker 1>and he's got the legal background. He's a lawyer by

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<v Speaker 1>trading he's regarded as one of the wealthiest members of

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<v Speaker 1>the federals aboard about ten hundred and twelve million dollars

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<v Speaker 1>of net worth and extrapolations from his revealed and he

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<v Speaker 1>was appointed. Just to make a note that he was

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<v Speaker 1>nominated to the Federal Reserve Board of Governors by President

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<v Speaker 1>Barack Obama. That was back in December of twenty eleven,

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<v Speaker 1>and that was part of a sort of non part

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<v Speaker 1>bipartisan effort to not only get j Powell uh nominated,

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<v Speaker 1>but also Jeremy Stein to the Board of Directors. I

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<v Speaker 1>don't think he's nervous. So he's done this, uh several

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<v Speaker 1>times before as a Fed governor, so he knows the territory. Well,

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<v Speaker 1>what's interesting here. You're not going to get the new

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<v Speaker 1>information or the market relevant information in the opening remarks

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<v Speaker 1>or maybe the first couple of responses. Uh. You know,

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<v Speaker 1>it tends to happen deep into uh the interrogation where

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<v Speaker 1>he maybe gives a more casual answer or less prepared

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<v Speaker 1>answer to a question, and then the markets tend to

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<v Speaker 1>seize on that to get some in So what you know,

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<v Speaker 1>after the senators have worn him down a little bit,

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<v Speaker 1>as potentially when you get the information, and if you

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<v Speaker 1>look in that context, that's exactly how the taper tantrum happened.

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<v Speaker 1>Happened when Chair Bernankee at the time it was in May,

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<v Speaker 1>was testifying before the j e C. And then kind

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<v Speaker 1>of later on in the UH in his UH testimony,

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<v Speaker 1>gave some casual answers about how the FED would be

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<v Speaker 1>tapering asset purchases in the markets, kind of pivoted on

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<v Speaker 1>those remarks just a little bit more about his personal history.

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<v Speaker 1>Graduate of Georgetown University and also a Princeton University, and

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<v Speaker 1>he was the Under Secretary for Domestic Finance UH after

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<v Speaker 1>being nominated by a George H. W. Bush. So he

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<v Speaker 1>certainly has lots of experience in Washington, but he's not

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<v Speaker 1>an economist, which is going to be a lawyer, a lawyer,

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<v Speaker 1>a lawyer by by training and um he did clerk

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<v Speaker 1>for Judge Ellsworth van Gryfeland of the US Court of

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<v Speaker 1>a Heels for the Second Circuit that was here in

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<v Speaker 1>New York, and also a lawyer at Davis Polk So

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<v Speaker 1>he's got a lot of legal as well as business experience. Dave,

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<v Speaker 1>if you were on that chair which you just repeat

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<v Speaker 1>over and over again, yield, curve, bed funds, rate, inflation,

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<v Speaker 1>we look at it all those are the key things.

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<v Speaker 1>And you know it's clear that you know, he doesn't

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<v Speaker 1>want to tie up central bank policy of the Strait

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<v Speaker 1>Jack as much as he talks about predictable. I mean,

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<v Speaker 1>let's face it. You know, we had John Taylor as

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<v Speaker 1>a candidate for the position, and it was so much

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<v Speaker 1>concerned about whether his rules based approach to policy making

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<v Speaker 1>would hold truth. So you can understand why there would

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<v Speaker 1>be a nod to predictability. You can also understand why

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<v Speaker 1>they would want to avoid it, you know, being wrote

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<v Speaker 1>formula because you know, economy shift, the data moves where

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<v Speaker 1>it moves, and you've got to be able, and he doesn't.

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<v Speaker 1>And and he has demonstrated in the past that he's

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<v Speaker 1>been able to respond to specific situations because he was

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<v Speaker 1>one of the very important people having to do with

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<v Speaker 1>the Solomon Brothers investigation and sanctions over those false bids

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<v Speaker 1>to the U. S. Treasury, and he was involved with

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<v Speaker 1>the negotiations to actually bring Warren Buffett on as the

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<v Speaker 1>chairman of Solomon Brothers at the time. You know, I

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<v Speaker 1>gotta I gotta say, and Carl, I want you to

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<v Speaker 1>weigh in on this. I think it's fascinating that as J.

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<v Speaker 1>Powell takes the stand, we're looking at a yield curve

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<v Speaker 1>in the US that does continue to flatten. Two tents

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<v Speaker 1>spread now at fifty seven a little more than fifty

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<v Speaker 1>seven basis points. That's the lowest the smallest spread between

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<v Speaker 1>the two since two thousand and seven. A lot of

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<v Speaker 1>people view this as a potential FED mistake in the making.

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<v Speaker 1>Do you expect any questions about this? Uh? I think

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<v Speaker 1>absolutely they're going to question him on uh, not only

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<v Speaker 1>directly the yield curve flatness, but also the factors behind it,

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<v Speaker 1>like the fact that the FED has not hit its

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<v Speaker 1>inflation mandate uh, really at all over the course of

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<v Speaker 1>the last eight years. And they will that's absolutely fair

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<v Speaker 1>game for the testimony. But I want to go back

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<v Speaker 1>to something you said earlier, because a lot of people

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<v Speaker 1>are focusing on this notion that he's not an academic economist. UH.

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<v Speaker 1>Neither was Paul Volker. There have been plenty of FED

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<v Speaker 1>chairs who have not been formally trained academic economists, and

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<v Speaker 1>and and you know, nothing against the profession. Certainly it's

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<v Speaker 1>you know, a PhD in economics is a very helpful

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<v Speaker 1>if you've studied monetary policy to be running the Federal Reserve.

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<v Speaker 1>But private sector expertise, UH, in the experience he has

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<v Speaker 1>had in the Treasury Department, UH, in the banking sector,

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<v Speaker 1>in the finance sector more generally incredibly valuable for the

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<v Speaker 1>for the FED chair. Yeah, will he be able to

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<v Speaker 1>understand directly the relationship between what he does at the

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<v Speaker 1>Central Bank and how he frames the arguments with what

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<v Speaker 1>happens in the real world and the effects of those Absolutely,

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<v Speaker 1>And he'll have two hundred odd economists at his disposal

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<v Speaker 1>on the Board of Governors to help him with the

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<v Speaker 1>FED forecasting. So, because he's not an academic economist, this

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<v Speaker 1>is going to be a FED chair who leans more

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<v Speaker 1>heavily on the staff forecasts. Well, that might not be

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<v Speaker 1>a bad thing. And also may lean heavily on the

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<v Speaker 1>industrial sector of the economy because that was his specialty

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<v Speaker 1>at the Carlos exactly industrial company investments in tracking the

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<v Speaker 1>staff forecast, which we can kind of see what those

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<v Speaker 1>look like based on the FED meeting minutes. UH, the

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<v Speaker 1>staff forecast have had a devilish bias over the let's say,

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<v Speaker 1>the course of the last year and a half relative

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<v Speaker 1>to what the f o MC meeting participants have actually concluded.

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<v Speaker 1>So often when you read the meeting minutes, the first

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<v Speaker 1>half of the minutes is the staff conclusions. The second

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<v Speaker 1>half is UH that you know, the meeting participants to

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<v Speaker 1>FED governors and presidents. There's been a little bit of

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<v Speaker 1>a break between the two where the staff forecasts have

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<v Speaker 1>not been as optimistic on growth rebounding and inflation picking up,

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<v Speaker 1>So that could be an interesting twist for UH. For

0:13:11.360 --> 0:13:13.880
<v Speaker 1>Chair Powell, Carl, I just want to also put out

0:13:13.880 --> 0:13:16.560
<v Speaker 1>to you that on a personal level, he comes with

0:13:16.679 --> 0:13:19.800
<v Speaker 1>experience as being one of the founders of the Center

0:13:20.240 --> 0:13:23.360
<v Speaker 1>City Consortium, which is a group of sixteen parochial schools

0:13:23.360 --> 0:13:26.400
<v Speaker 1>in the poorest areas of Washington, d C. Also previously

0:13:26.840 --> 0:13:30.599
<v Speaker 1>on the board of the Nature Conservancy. Is that the

0:13:30.679 --> 0:13:33.240
<v Speaker 1>kind of background that you normally see in a federal

0:13:33.240 --> 0:13:36.319
<v Speaker 1>reserve sheep because those things can be very telling, and

0:13:36.400 --> 0:13:39.440
<v Speaker 1>not only in terms of the policy, but also in

0:13:39.520 --> 0:13:42.160
<v Speaker 1>terms of the practice, the way in which the process

0:13:42.920 --> 0:13:45.800
<v Speaker 1>is followed. I think it's relevant that highlights, you know,

0:13:45.840 --> 0:13:48.360
<v Speaker 1>the human element of the job. Right, we can't just

0:13:48.440 --> 0:13:51.800
<v Speaker 1>back off onto a tailor rule regime and let the

0:13:51.880 --> 0:13:55.800
<v Speaker 1>robots or the the iPads control monetary policy. There's a

0:13:55.880 --> 0:13:59.360
<v Speaker 1>very human element and I think this has been particularly

0:13:59.559 --> 0:14:02.000
<v Speaker 1>evident and with the Yell and FED. We can all

0:14:02.080 --> 0:14:05.720
<v Speaker 1>remember when she gave the speech and specifically named individuals

0:14:06.200 --> 0:14:09.199
<v Speaker 1>who were getting access to the labor market, who had

0:14:09.240 --> 0:14:12.440
<v Speaker 1>been in prison or faced other types of problems which

0:14:12.600 --> 0:14:15.200
<v Speaker 1>could create based on her own that's not based on

0:14:15.240 --> 0:14:18.280
<v Speaker 1>her own personal experience. In other words, that's not what

0:14:18.480 --> 0:14:23.040
<v Speaker 1>she's dedicated. I say, a portion of her life she's academic,

0:14:23.920 --> 0:14:26.320
<v Speaker 1>has so because she was a labor economist, and so

0:14:26.440 --> 0:14:29.080
<v Speaker 1>she was very much focused on letting the economy run

0:14:29.200 --> 0:14:33.200
<v Speaker 1>hot to let those marginal participants back into the labor force,

0:14:33.240 --> 0:14:35.840
<v Speaker 1>and that was embodied particularly in that speech. I believe

0:14:35.840 --> 0:14:39.400
<v Speaker 1>it was in Chicago when she made those remarks, and

0:14:39.640 --> 0:14:41.920
<v Speaker 1>so that's very relevant to the FED. And even today

0:14:42.120 --> 0:14:45.280
<v Speaker 1>I opened the newspaper and read this great article about

0:14:45.600 --> 0:14:49.040
<v Speaker 1>the state of New Hampshire where they have extremely low

0:14:49.120 --> 0:14:54.120
<v Speaker 1>unemployment and so Governor Sanunu there is UH working with

0:14:54.240 --> 0:14:58.400
<v Speaker 1>employers to set up job fairs for people who have

0:14:58.480 --> 0:15:01.360
<v Speaker 1>had addiction problems. And so this is evident of you know,

0:15:01.400 --> 0:15:03.080
<v Speaker 1>when you get to that stage of the cycle and

0:15:03.120 --> 0:15:06.160
<v Speaker 1>there's not many workers left. We can start bringing people

0:15:06.160 --> 0:15:08.600
<v Speaker 1>off of the sidelines. All right, So let's bring this

0:15:08.720 --> 0:15:10.800
<v Speaker 1>back to the market. And Dave, I want to bring

0:15:10.840 --> 0:15:14.240
<v Speaker 1>you in here because a lot of what we're hearing about,

0:15:14.480 --> 0:15:16.400
<v Speaker 1>you know, sort of the feel good or the running

0:15:16.440 --> 0:15:19.240
<v Speaker 1>hot sort of goes against what the market seems to

0:15:19.240 --> 0:15:21.960
<v Speaker 1>be suggesting. Certainly going back to that yield curve, it

0:15:22.040 --> 0:15:27.000
<v Speaker 1>seems to be pricing in a sort of shift in

0:15:27.000 --> 0:15:29.880
<v Speaker 1>in the tone at the FED into a more hawkish

0:15:30.720 --> 0:15:34.120
<v Speaker 1>kind of path. I just want to let you know

0:15:34.240 --> 0:15:37.400
<v Speaker 1>j Pal is currently taking the oath. Quick question, do

0:15:37.440 --> 0:15:39.480
<v Speaker 1>you believe that the Fed still is going to let

0:15:39.480 --> 0:15:43.880
<v Speaker 1>the let the let the market run hot. Well, I

0:15:43.960 --> 0:15:47.000
<v Speaker 1>believe they're going to proceed and whatever happens in the

0:15:47.040 --> 0:15:49.800
<v Speaker 1>market is whatever happens in the market. I mean, let's

0:15:49.840 --> 0:15:52.960
<v Speaker 1>not forget that they have a mandate that has nothing

0:15:53.080 --> 0:15:56.760
<v Speaker 1>to do specifically with the markets. It's all about, you know,

0:15:56.840 --> 0:16:00.840
<v Speaker 1>containing inflation and promoting full employment. And that's what they're

0:16:00.840 --> 0:16:03.240
<v Speaker 1>going to focus on, is they have for some time.

0:16:03.640 --> 0:16:06.080
<v Speaker 1>And wherever happens in the markets, it's wherever it goes.

0:16:11.840 --> 0:16:14.400
<v Speaker 1>Thanks for listening to the Bloomberg p and l podcast.

0:16:14.720 --> 0:16:18.600
<v Speaker 1>You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

0:16:18.720 --> 0:16:22.200
<v Speaker 1>or whatever podcast platform you prefer. I'm Pim Fox. I'm

0:16:22.240 --> 0:16:26.240
<v Speaker 1>on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

0:16:26.360 --> 0:16:28.960
<v Speaker 1>It's one before the podcast. You can always catch us

0:16:29.000 --> 0:16:30.560
<v Speaker 1>worldwide on Bloomberg Radio