Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
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Speaker 1: just to give us a little bit of a taste
Speaker 1: of what we should be expecting, as Carl Kodanna, chief
Speaker 1: US economist for Bloomberg Economics. Also with us is Dave Wilson,
Speaker 1: Bloomberg Sex editor, columnist and blogger at M Live. Go
Speaker 1: on the Bloomberg Carl, let me start with you. Uh,
Speaker 1: you know, a lot of people are sort of dismissing
Speaker 1: these hearings as a formality. Jerome Powell is a non
Speaker 1: controversial pick, largely thought to be the continuity candidate. What
Speaker 1: should we expect from these hearings and are they just
Speaker 1: sort of, uh, sort of throw off? Well, I don't
Speaker 1: think they're a throwoff by any means. What's going to
Speaker 1: be interesting? Here are a couple of points, So why yes,
Speaker 1: j Pal is very much a continuity of JA Yellen, UH,
Speaker 1: if you will, UH and UH. In terms of the
Speaker 1: thought process and philosophy towards monetary policy, he's always been
Speaker 1: very consistent with the Yelling Feds party line, where there's
Speaker 1: a couple of interesting UH, possible opportunities here and and
Speaker 1: and the whole focus right, maybe the whole thing is
Speaker 1: a non event, but the whole focus from Fed watchers
Speaker 1: is going to be to discern if there's any daylight
Speaker 1: between how J. Powell is viewing the world compared to
Speaker 1: how Yelling has characterized things UH and especially UH his
Speaker 1: view towards unconventional monetary policy like quantitative easing. Given that
Speaker 1: we're now past the eight year anniversary of the current
Speaker 1: economic cycle, it is fairly likely that J. Pal will
Speaker 1: be at the helm at the FED when the next
Speaker 1: downturn does occur. I don't think that happens for quite
Speaker 1: some time. Nonetheless, he'll be the one who has to
Speaker 1: clean up the mess, and he's gonna going to not
Speaker 1: have a lot of room to operate in terms of
Speaker 1: interest rate buffer, which means that if it is a
Speaker 1: significant downturn, he's going to have to use some type
Speaker 1: of unconventional policy tool. We'll see today if that's going
Speaker 1: to be Quee and how he thinks about Queie and
Speaker 1: how effective he thinks Quie will be. That's point number one,
Speaker 1: And point number two is going to be how he's
Speaker 1: thinking about financial stability risks. The equity markets they're going
Speaker 1: up and up and up. Uh, and the FED is
Speaker 1: only gradually tightening policy. So we'll learn how he's thinking
Speaker 1: about that issue. Well, I'm glad you mentioned markets because
Speaker 1: I want to bring in Dave Wilson, Bloomberg Stocks, Commas, Bloggert,
Speaker 1: m Live, go on the Bloomberg and of course send
Speaker 1: Dave an email at d Wilson at Bloomberg dot net.
Speaker 1: And Dave, what are you looking at today? I've got
Speaker 1: a list square Roku plus. I've been looking at Microsoft
Speaker 1: and then the ongoing story about Buffalo Wild Wings. The
Speaker 1: shares are up more than six and a quarter percent. Uh.
Speaker 1: This has to do with Royal Capital and their attempt
Speaker 1: to purchase or influence the future of the fast food chain.
Speaker 1: Tell us about what you're looking at today? How about
Speaker 1: r VS Alright, go for it, Winnebago four Industries, Lynchpin there.
Speaker 1: I mean, they had their fiscal first quarter results out
Speaker 1: profit and sales beating analysts highest estimates in Bluebergh. So
Speaker 1: you're talking about strong consumer demand for travel trailers benefiting
Speaker 1: their business. So Floor is up thirteen percent, Winnebago what
Speaker 1: you mentioned, up seven percent, So you know, at least
Speaker 1: at that one sort of you know, niche area that
Speaker 1: is really dependent on consumers spending. I mean, you're seeing
Speaker 1: some some strong demands. So you know, that's sort of
Speaker 1: an interesting, uh sidelight at a time when you know,
Speaker 1: let's face it, it's the holiday shopping season and consumers
Speaker 1: willingness to spend is really kind of runt and center here, Dave.
Speaker 1: You know, there is definitely company specific news we are awaiting.
Speaker 1: Of course, this hearing of Jerome Powell, then it's j
Speaker 1: Powell to be the next Fed chair. Our markets expected
Speaker 1: to respond at all? Or is this largely sort of
Speaker 1: back background to noise, Well, it's probably background at this point.
Speaker 1: A real question is whether you know, you get any
Speaker 1: meaningful shift in monetary policy coming out of the transition
Speaker 1: at the Central Bank, whether there's more of a push
Speaker 1: to keep inflation down perhaps, I mean, that's a concern.
Speaker 1: There were some comments out of the Dallas FEDS President
Speaker 1: Kaplan that got some people excited on that score, or
Speaker 1: at least it's something to focus on. You know, it
Speaker 1: really is sort of a given that we're going to get,
Speaker 1: you know, more rate increases. It's just a matter how
Speaker 1: things in fold. And Carl was talking about the whole
Speaker 1: idea of this unconventional monetary policy. I mean, that's certainly
Speaker 1: something to watch as well, Carl. Uh. The one thing
Speaker 1: that was interesting, now, we did get his prepared remarks
Speaker 1: yesterday evening at about five pm, and it was very
Speaker 1: much generic boilerplate language which we couldn't considue a lot
Speaker 1: from it then, as might be Mike McKie highlighted on
Speaker 1: TV earlier this morning. Uh. You, you know, wouldn't have
Speaker 1: mattered whether J. Powell's name was stamped on that or
Speaker 1: Janet Yellen or Ben Bernanky. It was very much consistent
Speaker 1: between the three. There was one sentence which that did
Speaker 1: stand out to me. Uh, and he says the following, However,
Speaker 1: while we endeavor to make the path of policy as
Speaker 1: predictable as possible, the future cannot be known with certainty.
Speaker 1: So that's that's not particularly surprising. But but this is
Speaker 1: telling you it's the first part of that sentence that
Speaker 1: I'm most focused on, uh, making the path of policy
Speaker 1: as predictable as possible. There has been pushedback, especially from
Speaker 1: conservative circles, that the FED has been too transparent and
Speaker 1: then markets become too complaint sent j Pal is not
Speaker 1: about to shake that up and have Saturday night specials
Speaker 1: and uh surprising rate moves or uh, you know, catching
Speaker 1: the market off guard and whatnot. He wants a very
Speaker 1: predictable monetary policy and that is of significance. We will
Speaker 1: find out from his own words. Now he did just
Speaker 1: sit down and share Crapo is talking with him Creepo
Speaker 1: about how does prepared statements and everybody. It looks like
Speaker 1: it is a full house, even though often these hearings
Speaker 1: have always shocked at how few attendees there sometimes are
Speaker 1: to some of these hearings. But this one looks like
Speaker 1: a full house. And he's no stranger to this, I mean,
Speaker 1: J Pal, I mean he's certainly served to the Department
Speaker 1: of the Treasury with Nicholas Brady, also formerly banker at
Speaker 1: the Banker's Trust. Dylan Read a partner at the Carlisle Group,
Speaker 1: and he's got the legal background. He's a lawyer by
Speaker 1: trading he's regarded as one of the wealthiest members of
Speaker 1: the federals aboard about ten hundred and twelve million dollars
Speaker 1: of net worth and extrapolations from his revealed and he
Speaker 1: was appointed. Just to make a note that he was
Speaker 1: nominated to the Federal Reserve Board of Governors by President
Speaker 1: Barack Obama. That was back in December of twenty eleven,
Speaker 1: and that was part of a sort of non part
Speaker 1: bipartisan effort to not only get j Powell uh nominated,
Speaker 1: but also Jeremy Stein to the Board of Directors. I
Speaker 1: don't think he's nervous. So he's done this, uh several
Speaker 1: times before as a Fed governor, so he knows the territory. Well,
Speaker 1: what's interesting here. You're not going to get the new
Speaker 1: information or the market relevant information in the opening remarks
Speaker 1: or maybe the first couple of responses. Uh. You know,
Speaker 1: it tends to happen deep into uh the interrogation where
Speaker 1: he maybe gives a more casual answer or less prepared
Speaker 1: answer to a question, and then the markets tend to
Speaker 1: seize on that to get some in So what you know,
Speaker 1: after the senators have worn him down a little bit,
Speaker 1: as potentially when you get the information, and if you
Speaker 1: look in that context, that's exactly how the taper tantrum happened.
Speaker 1: Happened when Chair Bernankee at the time it was in May,
Speaker 1: was testifying before the j e C. And then kind
Speaker 1: of later on in the UH in his UH testimony,
Speaker 1: gave some casual answers about how the FED would be
Speaker 1: tapering asset purchases in the markets, kind of pivoted on
Speaker 1: those remarks just a little bit more about his personal history.
Speaker 1: Graduate of Georgetown University and also a Princeton University, and
Speaker 1: he was the Under Secretary for Domestic Finance UH after
Speaker 1: being nominated by a George H. W. Bush. So he
Speaker 1: certainly has lots of experience in Washington, but he's not
Speaker 1: an economist, which is going to be a lawyer, a lawyer,
Speaker 1: a lawyer by by training and um he did clerk
Speaker 1: for Judge Ellsworth van Gryfeland of the US Court of
Speaker 1: a Heels for the Second Circuit that was here in
Speaker 1: New York, and also a lawyer at Davis Polk So
Speaker 1: he's got a lot of legal as well as business experience. Dave,
Speaker 1: if you were on that chair which you just repeat
Speaker 1: over and over again, yield, curve, bed funds, rate, inflation,
Speaker 1: we look at it all those are the key things.
Speaker 1: And you know it's clear that you know, he doesn't
Speaker 1: want to tie up central bank policy of the Strait
Speaker 1: Jack as much as he talks about predictable. I mean,
Speaker 1: let's face it. You know, we had John Taylor as
Speaker 1: a candidate for the position, and it was so much
Speaker 1: concerned about whether his rules based approach to policy making
Speaker 1: would hold truth. So you can understand why there would
Speaker 1: be a nod to predictability. You can also understand why
Speaker 1: they would want to avoid it, you know, being wrote
Speaker 1: formula because you know, economy shift, the data moves where
Speaker 1: it moves, and you've got to be able, and he doesn't.
Speaker 1: And and he has demonstrated in the past that he's
Speaker 1: been able to respond to specific situations because he was
Speaker 1: one of the very important people having to do with
Speaker 1: the Solomon Brothers investigation and sanctions over those false bids
Speaker 1: to the U. S. Treasury, and he was involved with
Speaker 1: the negotiations to actually bring Warren Buffett on as the
Speaker 1: chairman of Solomon Brothers at the time. You know, I
Speaker 1: gotta I gotta say, and Carl, I want you to
Speaker 1: weigh in on this. I think it's fascinating that as J.
Speaker 1: Powell takes the stand, we're looking at a yield curve
Speaker 1: in the US that does continue to flatten. Two tents
Speaker 1: spread now at fifty seven a little more than fifty
Speaker 1: seven basis points. That's the lowest the smallest spread between
Speaker 1: the two since two thousand and seven. A lot of
Speaker 1: people view this as a potential FED mistake in the making.
Speaker 1: Do you expect any questions about this? Uh? I think
Speaker 1: absolutely they're going to question him on uh, not only
Speaker 1: directly the yield curve flatness, but also the factors behind it,
Speaker 1: like the fact that the FED has not hit its
Speaker 1: inflation mandate uh, really at all over the course of
Speaker 1: the last eight years. And they will that's absolutely fair
Speaker 1: game for the testimony. But I want to go back
Speaker 1: to something you said earlier, because a lot of people
Speaker 1: are focusing on this notion that he's not an academic economist. UH.
Speaker 1: Neither was Paul Volker. There have been plenty of FED
Speaker 1: chairs who have not been formally trained academic economists, and
Speaker 1: and and you know, nothing against the profession. Certainly it's
Speaker 1: you know, a PhD in economics is a very helpful
Speaker 1: if you've studied monetary policy to be running the Federal Reserve.
Speaker 1: But private sector expertise, UH, in the experience he has
Speaker 1: had in the Treasury Department, UH, in the banking sector,
Speaker 1: in the finance sector more generally incredibly valuable for the
Speaker 1: for the FED chair. Yeah, will he be able to
Speaker 1: understand directly the relationship between what he does at the
Speaker 1: Central Bank and how he frames the arguments with what
Speaker 1: happens in the real world and the effects of those Absolutely,
Speaker 1: And he'll have two hundred odd economists at his disposal
Speaker 1: on the Board of Governors to help him with the
Speaker 1: FED forecasting. So, because he's not an academic economist, this
Speaker 1: is going to be a FED chair who leans more
Speaker 1: heavily on the staff forecasts. Well, that might not be
Speaker 1: a bad thing. And also may lean heavily on the
Speaker 1: industrial sector of the economy because that was his specialty
Speaker 1: at the Carlos exactly industrial company investments in tracking the
Speaker 1: staff forecast, which we can kind of see what those
Speaker 1: look like based on the FED meeting minutes. UH, the
Speaker 1: staff forecast have had a devilish bias over the let's say,
Speaker 1: the course of the last year and a half relative
Speaker 1: to what the f o MC meeting participants have actually concluded.
Speaker 1: So often when you read the meeting minutes, the first
Speaker 1: half of the minutes is the staff conclusions. The second
Speaker 1: half is UH that you know, the meeting participants to
Speaker 1: FED governors and presidents. There's been a little bit of
Speaker 1: a break between the two where the staff forecasts have
Speaker 1: not been as optimistic on growth rebounding and inflation picking up,
Speaker 1: So that could be an interesting twist for UH. For
Speaker 1: Chair Powell, Carl, I just want to also put out
Speaker 1: to you that on a personal level, he comes with
Speaker 1: experience as being one of the founders of the Center
Speaker 1: City Consortium, which is a group of sixteen parochial schools
Speaker 1: in the poorest areas of Washington, d C. Also previously
Speaker 1: on the board of the Nature Conservancy. Is that the
Speaker 1: kind of background that you normally see in a federal
Speaker 1: reserve sheep because those things can be very telling, and
Speaker 1: not only in terms of the policy, but also in
Speaker 1: terms of the practice, the way in which the process
Speaker 1: is followed. I think it's relevant that highlights, you know,
Speaker 1: the human element of the job. Right, we can't just
Speaker 1: back off onto a tailor rule regime and let the
Speaker 1: robots or the the iPads control monetary policy. There's a
Speaker 1: very human element and I think this has been particularly
Speaker 1: evident and with the Yell and FED. We can all
Speaker 1: remember when she gave the speech and specifically named individuals
Speaker 1: who were getting access to the labor market, who had
Speaker 1: been in prison or faced other types of problems which
Speaker 1: could create based on her own that's not based on
Speaker 1: her own personal experience. In other words, that's not what
Speaker 1: she's dedicated. I say, a portion of her life she's academic,
Speaker 1: has so because she was a labor economist, and so
Speaker 1: she was very much focused on letting the economy run
Speaker 1: hot to let those marginal participants back into the labor force,
Speaker 1: and that was embodied particularly in that speech. I believe
Speaker 1: it was in Chicago when she made those remarks, and
Speaker 1: so that's very relevant to the FED. And even today
Speaker 1: I opened the newspaper and read this great article about
Speaker 1: the state of New Hampshire where they have extremely low
Speaker 1: unemployment and so Governor Sanunu there is UH working with
Speaker 1: employers to set up job fairs for people who have
Speaker 1: had addiction problems. And so this is evident of you know,
Speaker 1: when you get to that stage of the cycle and
Speaker 1: there's not many workers left. We can start bringing people
Speaker 1: off of the sidelines. All right, So let's bring this
Speaker 1: back to the market. And Dave, I want to bring
Speaker 1: you in here because a lot of what we're hearing about,
Speaker 1: you know, sort of the feel good or the running
Speaker 1: hot sort of goes against what the market seems to
Speaker 1: be suggesting. Certainly going back to that yield curve, it
Speaker 1: seems to be pricing in a sort of shift in
Speaker 1: in the tone at the FED into a more hawkish
Speaker 1: kind of path. I just want to let you know
Speaker 1: j Pal is currently taking the oath. Quick question, do
Speaker 1: you believe that the Fed still is going to let
Speaker 1: the let the let the market run hot. Well, I
Speaker 1: believe they're going to proceed and whatever happens in the
Speaker 1: market is whatever happens in the market. I mean, let's
Speaker 1: not forget that they have a mandate that has nothing
Speaker 1: to do specifically with the markets. It's all about, you know,
Speaker 1: containing inflation and promoting full employment. And that's what they're
Speaker 1: going to focus on, is they have for some time.
Speaker 1: And wherever happens in the markets, it's wherever it goes.
Speaker 1: Thanks for listening to the Bloomberg p and l podcast.
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