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Standish's Reinhart: Can't See Fed Raising Twice in 2016(Audio) · Bloomberg Intelligence

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