Latest / Bloomberg Intelligence / PIMCO's Clarida on Rate Hike: Fed Should Get On With It (Audio)

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PIMCO's Clarida on Rate Hike: Fed Should Get On With It (Audio) · Bloomberg Intelligence

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  Speaker 1: six two three six three eight or visit Commonwealth dot
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  Speaker 1: com to learn more. Bloomberg Stock FED in Focus. There's
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  Speaker 1: certainly a large discussion about whether or not the FED
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  Speaker 1: is going to try to hike rate again. To she
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  Speaker 1: we think the FED by December will be ready to
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  Speaker 1: do another hike. That sounds like a big difference from
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  Speaker 1: the markets, but it's not that big a difference. I
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  Speaker 1: think at this point the FED is going to remain
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  Speaker 1: on the sideline through and most likely the better part
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  Speaker 1: of because they have a huge communication problem with the
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  Speaker 1: public about what's driving their polity decisions. They basically have
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  Speaker 1: no strategies the FED in Focus on Bloomberg Radio. I'm
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  Speaker 1: Kathleen Hayes along with pim Fox, and we're very happy
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  Speaker 1: now to welcome to the show. One of the participants
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  Speaker 1: today at our Bloomberg Markets Most Influential Summit here at
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  Speaker 1: our World headquarters, Richard Clarida, Global strategic advisor at Pimco,
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  Speaker 1: Professor at Columbia University. Rich welcomed back to the show.
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  Speaker 1: I'm happy to do it. Well, it's a really exciting
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  Speaker 1: day here at Bloomberg and a kind of exciting day
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  Speaker 1: on Capitol Hill. I guess if you're Janet yell And
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  Speaker 1: testifying before the House Financial Services Committee. She's there to
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  Speaker 1: talk about bank regulation, the health of US banks. But
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  Speaker 1: she defended, of course, she took quite a being. I
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  Speaker 1: would say it was a lot of tough questioning on
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  Speaker 1: what's going on with Wells Fargo and how that FED
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  Speaker 1: intends to respond. Yes, she did, and I think that
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  Speaker 1: was the focus. Although during the you know, the back
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  Speaker 1: and forth with the members of Congress, she did get
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  Speaker 1: into some comments on monetary policy. For the most part,
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  Speaker 1: she stuck very closely to the script from the recent
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  Speaker 1: FED meetings, So no real news there, but yes, understandably
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  Speaker 1: you know that. Uh, I'm sure there wasn't a lot
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  Speaker 1: of of concern criticism, and I think in the headlines
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  Speaker 1: that I read, she also spread concern about these revelations.
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  Speaker 1: Rich Clarena, what did you take away from Janet Yellin's
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  Speaker 1: uh comments and also get your view basis points in December.
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  Speaker 1: I think that's why it's it's it's not a done deal.
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  Speaker 1: This is the FED that's data dependent. But I think kid,
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  Speaker 1: it's important that at the last meeting, fourteen of the
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  Speaker 1: sixteen or I guess actually seventeen fourteen of this havant
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  Speaker 1: team participants through the blue dots, indicated that they thought
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  Speaker 1: it would be appropriate to hiking December. So that means
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  Speaker 1: that I think the FED things that it's going to
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  Speaker 1: be hiking. But obviously it will depend to some extent
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  Speaker 1: on the data. And I should note that the recent
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  Speaker 1: data for the US has been coming in on the
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  Speaker 1: soft side. Most folks a week or two ago thought
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  Speaker 1: the US GDP and the third quarter would be north
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  Speaker 1: of three, and we're we and others are marking down
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  Speaker 1: our view of third quarter GDP probably to around two
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  Speaker 1: and a half or so. So obviously you know the
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  Speaker 1: data will be relevant, but the expectation is that they
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  Speaker 1: will be hiking in December. Well, Rich cleared, If you
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  Speaker 1: were a voter, what would you do? Because you're absolutely right,
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  Speaker 1: the GDP does not look as good as people thought
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  Speaker 1: it would, and me there's some time left before we
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  Speaker 1: see what happens with it. And Jenny Ellen herself, even
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  Speaker 1: though she said she expects the unemplumber rate to fall farther,
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  Speaker 1: she said, yes, growth has been disappointing, productivity is slow,
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  Speaker 1: and she doesn't see inflation rising. Why would it vet
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  Speaker 1: your vote to raise rates? Now? Well, you know, but
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  Speaker 1: but I think I have Norm's respect for Cherry Yellin,
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  Speaker 1: but I think she's a little bit selective. So for example,
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  Speaker 1: if you look at CPI inflation, course, CPI is about
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  Speaker 1: two percent. If you look at that regirely earnings, they're
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  Speaker 1: running at about two point eight per cent um. And
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  Speaker 1: and in particular, I think John Williams, of all the
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  Speaker 1: Fed officials, is the one that I follow closely. I
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  Speaker 1: think Williams just in the last day or two of
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  Speaker 1: new quotas, saying that he would be supportive of a hip.
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  Speaker 1: We had three descents um at the September meeting. Certainly,
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  Speaker 1: I think you know right now policy is very very accommodative.
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  Speaker 1: I think the economic concerning withstand a number another visas
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  Speaker 1: point move uh, and so I just think they should
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  Speaker 1: they should get on with it. You know, Rich Clarado,
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  Speaker 1: one of the things I do to prepare to speak
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  Speaker 1: with you is I look at some of your previous
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  Speaker 1: work and you published a piece back in September of
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  Speaker 1: twenty fifteen, and I have to say, not that you
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  Speaker 1: would reuse it, but you probably could because not much
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  Speaker 1: has changed. And even your description about the debate over
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  Speaker 1: whether to raise twenty five basis points this is as
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  Speaker 1: Yogi Barris says dejav all over again. Well, thank you.
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  Speaker 1: You know, I I knew when I was going on
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  Speaker 1: your show. I wanted to make sure that I hadn't
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  Speaker 1: said something totally silly, and and you're right, it is.
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  Speaker 1: It is eerie the parallels between you know, a year
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  Speaker 1: ago and today, And in fact, I think you can
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  Speaker 1: actually make a case today that the FEDS um poor
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  Speaker 1: communication is even more hard to understand. You know, last
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  Speaker 1: summer you had the China devaluation and the repercussions from that,
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  Speaker 1: so at least you could maybe say, well, international developments
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  Speaker 1: are unfamiliar. But um but I'm not quite sure. And
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  Speaker 1: I don't know if you noticed this today, but Charles Platser,
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  Speaker 1: who until not so long ago was the president of
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  Speaker 1: the Philadelphia FED, was also quoted as being critical of
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  Speaker 1: the communication. I would also know Tim that in the
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  Speaker 1: minutes of the July meeting, as well as in the
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  Speaker 1: minutes of the June and April meetings, the minute to
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  Speaker 1: reveal that FED officials expressed concern that they were not
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  Speaker 1: communicating very well in the markets didn't understand them. And
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  Speaker 1: with all due respect, I think that it's the problem
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  Speaker 1: not the markets. I think that there is not a
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  Speaker 1: particularly crisp understanding of their reaction function. And it may
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  Speaker 1: simply be that the FED itself is not an agreement.
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  Speaker 1: Um And until I think the chair becomes more proactive
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  Speaker 1: in that, well, we're gonna have this pretty divergent range
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  Speaker 1: of views, all right, We're gonna have more With Rich Clarida.
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  Speaker 1: He is Global strategic Advisor at PIMCO. We're broadcasting from
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  Speaker 1: Bloomberg Markets Most Influential Summit at our world headquarters. This
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  Speaker 1: is Bloomberg. Continue our live broadcast Bloomberg Markets Most Influential
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  Speaker 1: Summit with one of the key participants, Rich Clarida, Global
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  Speaker 1: Strategic advisor at HIMCO. It's not just about the Fed
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  Speaker 1: these days, it's about the Bank of Japan and their
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  Speaker 1: year old curve. That's coming up to broadcasting live to
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  Speaker 1: plus Dad Bloomberg Got Gone. This is taking Stock coming
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  Speaker 1: up on taking Stock more with Rich Clarata, Global Strategic
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  Speaker 1: advisor to PIMCO. Want to find out with negative interest
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  Speaker 1: rates in Japan and in Europe, will they cause a
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  Speaker 1: variety of unintended consequences and the regulators holding the bad
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  Speaker 1: very important question. Let's get to Charlie Pellet here at
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  Speaker 1: Bloomberg World Headquarters in the newsroom with the Bloomberg Business Flash.
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  Speaker 1: And I thank you very much, Kathleen Hayes, thank you
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  Speaker 1: pim Fox. We have seen quite a turnaround for US
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  Speaker 1: equities in the past couple of minutes. Here FIDAL, the SMP,
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  Speaker 1: NEZDAC all advancing stocks rising as energy shares rally along
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  Speaker 1: Intermediate now rallying five and a half percent. It is
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  Speaker 1: up to forty five a barrel thirteen right now on
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  Speaker 1: w t I brant of four and a half percent,
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  Speaker 1: gaining two oh eight of arrol forty eight oh seven
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  Speaker 1: on grant s and P five hundred index climbing eight
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  Speaker 1: best level of the day. Now again there of four
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  Speaker 1: tenths of one percent down. Industrial is up eighty seven points,
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  Speaker 1: a gain of five tenths of one percent, and NASDAC
• 9:47
  Speaker 1: is up four points, a gain of one tenth of
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  Speaker 1: one percent. FED Chair Janet Yellen was back on Capitol
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  Speaker 1: Hill this morning. She reiterated her view the the US
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  Speaker 1: Central Bank plans to remove accommodation gradually on current course,
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  Speaker 1: whilst saying she sees no fixed timetable for raising rates
• 10:05
  Speaker 1: as the jobless rate should fall further. And here's what
• 10:08
  Speaker 1: you have to say, and remarks carried right here on Bloomberg.
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  Speaker 1: We're really not seeing meaningful upward pressure on inflation, and
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  Speaker 1: we haven't seen the unemployment rate fall, but monetary policy
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  Speaker 1: is accommodative. Eventually, continued job creation at that pace would
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  Speaker 1: cause the economy to overheat and would push the unemployment
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  Speaker 1: rate um down to lower levels than now. And right
• 10:36
  Speaker 1: now we've got gold down three tenths of one percent
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  Speaker 1: to thirty two on Wall Street. Now, let's take a
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  Speaker 1: Warner says he's quote distressed by Trump's comments that the
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  Speaker 1: Ryan spoke at the Economic Club of Washington this morning
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  Speaker 1: and was asked if he is eyeing a run for
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  Speaker 1: the White House down the road. You never say never
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  Speaker 1: presidents of size personal ambition. It's just it just was
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  Speaker 1: implicated Russia in the shooting down of a Malaysian jet
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  Speaker 1: All two hundred and eight people on board that plane died,
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  Speaker 1: and the NYPD is questioning a man in connection with
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  Speaker 1: that home explosion in the Bronx that killed a fire
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  Speaker 1: battalion chief yesterday. Michael Faye, a seventeen year veteran and
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  Speaker 1: father of three, was killed by falling debris while directing
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  Speaker 1: operations from the street. Authorities are looking into whether that
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  Speaker 1: building was being used to grow marijuana. Global News twenty
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  Speaker 1: in Essencio. This is Bloomberg, Charlie, and we thank you.
• 12:31
  Speaker 1: And again recapping, we are seeing stock surge SMP five
• 12:35
  Speaker 1: hundred index up eight Now that's a gain of four
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  Speaker 1: tenths of one percent, overcoming earlier losses. UH the now
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  Speaker 1: up eighty four points. Again there a five tenths of
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  Speaker 1: one percent. And again have to mention now that crude
• 12:45
  Speaker 1: oil closing in on six percent for barrel of West
• 12:48
  Speaker 1: Texas Intermediate a five point eight percent now gaining two
• 12:51
  Speaker 1: fifty seven to twenty three. I'm Charlie Pellett and that's
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  Speaker 1: a Bloomberg business flash. This is aging Stock in Focus
• 13:02
  Speaker 1: on Bloomberg Radio, the Fed in Focus broadcasting live from
• 13:05
  Speaker 1: Bloomberg Market's most Influential summit at our global headquarters here
• 13:10
  Speaker 1: in New York. Were speaking with Richard and Claren up
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  Speaker 1: is the global Strategic Advisor at Pimco. Rich Claren Up
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  Speaker 1: do you believe that the world is experiencing about a deflation, Well,
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  Speaker 1: the world's not in deflation obviously, Japan until recently has
• 13:27
  Speaker 1: been in deflation. And I think that certainly seven or
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  Speaker 1: eight years ago, in the depths of the crisis, that
• 13:32
  Speaker 1: was a legitimate and real concern. And I think for
• 13:35
  Speaker 1: all the criticism that some have offered, we can't lose
• 13:38
  Speaker 1: sight of the fact that through through bold and unconventional policy,
• 13:42
  Speaker 1: we did avoid deflation in the worst recession in seventy
• 13:46
  Speaker 1: five years. So I think, I think outside of Japan,
• 13:50
  Speaker 1: and even there in Japan has emerged at least using
• 13:52
  Speaker 1: some measures from deflation, I think, uh, I think that
• 13:56
  Speaker 1: we've avoided that knock on wood. Well, no deflaced, but
• 14:00
  Speaker 1: negative interest rates. And of course, to a certain extent,
• 14:04
  Speaker 1: central banks like the Bank of Japan and the European
• 14:06
  Speaker 1: Central Bank have been chasing their tails because the more
• 14:09
  Speaker 1: they pushed towards negative rates and the more bonds they buy,
• 14:12
  Speaker 1: the more they push bond yields down. And even in
• 14:14
  Speaker 1: the negative territory, BUJ is trying to reverse that. Now,
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  Speaker 1: does this is this policy gonna work? What's important about
• 14:19
  Speaker 1: it to you? Well, that's an excellent point, because you know,
• 14:23
  Speaker 1: we're we're conditioned to think of the FED meeting as
• 14:26
  Speaker 1: being the most important, but actually I'd argue that the
• 14:28
  Speaker 1: Bank of Japan meeting last week was it was more
• 14:31
  Speaker 1: important at least in terms of what they're trying to do. Essentially,
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  Speaker 1: Kathleen and pim what they said is that there existing
• 14:38
  Speaker 1: framework they're basically their negative rateing QWI framework UM is
• 14:42
  Speaker 1: reaching some limits UM and so they've pimoted to a
• 14:45
  Speaker 1: framework where they're going to essentially say they want to
• 14:48
  Speaker 1: put a cap on bond yields on the at the
• 14:51
  Speaker 1: ten year point, they're gonna be buying less securities and
• 14:54
  Speaker 1: longer drison. They're gonna try to steepen uh the yield
• 14:57
  Speaker 1: curve and potentially, and I think this is important, poten
• 15:00
  Speaker 1: leap down the road. That could be relevant if the
• 15:02
  Speaker 1: administration designs to put in place a big fiscal expansion,
• 15:07
  Speaker 1: because as long as they are tagging the putting a
• 15:11
  Speaker 1: ceiling on the yield on tenure bonds, you're an effect
• 15:13
  Speaker 1: going to be getting money financing of those debts. And
• 15:16
  Speaker 1: then finally, the last thing they said they would do
• 15:20
  Speaker 1: is they want to anchor inflation expectations. They want to
• 15:22
  Speaker 1: increase inflation expectations, and to do that, they're actually aiming
• 15:27
  Speaker 1: to overshoot their two percent inflation target. Now, I know
• 15:29
  Speaker 1: the skeptic will say, well, they haven't even hit two
• 15:31
  Speaker 1: two percent inflation yet, and I do take the point.
• 15:34
  Speaker 1: But I think that down the road we may see
• 15:36
  Speaker 1: other central banks tivot away from an inflation target towards
• 15:40
  Speaker 1: more of a price level objective. So this could be
• 15:42
  Speaker 1: a sort of a dry run on that, Rich Claid,
• 15:46
  Speaker 1: I don't know whether you've just heard, but oil prices
• 15:49
  Speaker 1: are up by a little bit more than six percent today.
• 15:52
  Speaker 1: The report from a delicate briefed on the matter says
• 15:56
  Speaker 1: that Saudi Arabia and Iran UH they have reached an
• 16:01
  Speaker 1: agreement to cut oil production down to thirty two and
• 16:05
  Speaker 1: a half million barrels a day. That's nearly seven hundred
• 16:08
  Speaker 1: and fifty thousand barrels a day lower from what it
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  Speaker 1: pumped in August. Do you think, first of all, that
• 16:14
  Speaker 1: this kind of agreement will remain in place, given that
• 16:18
  Speaker 1: I think the Saudi has just cut their many government
• 16:21
  Speaker 1: positions salary by will it stay in place? And what
• 16:26
  Speaker 1: are the implications then for dollar and and interest rates
• 16:30
  Speaker 1: when you start looking at great, great point. You know,
• 16:32
  Speaker 1: this has been, this has been people have been speculating
• 16:35
  Speaker 1: on this for a while. Um. And this was this
• 16:39
  Speaker 1: was not the typically regularly scheduled OPEC meeting. This is
• 16:42
  Speaker 1: a special meeting. You know. I've been looking at the
• 16:46
  Speaker 1: internal email traffic on this and I think it's I
• 16:48
  Speaker 1: think it's too soon uh to tell, but but potentially uh.
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  Speaker 1: You know, we've been calling for some time for oil
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  Speaker 1: prices to firm and and this would be contributing to
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  Speaker 1: that would move prices, you know, back up around fifty
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  Speaker 1: uh dollars um and uh. So I think that the
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  Speaker 1: short answer is right now based upon the report, is
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  Speaker 1: too soon to tell. But but there does seem to
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  Speaker 1: be a sentiment uh, and that that OPEC is recognizing
• 17:17
  Speaker 1: to try to achieve some stability in oil prices. Uh.
• 17:20
  Speaker 1: And they may feel now that they can actually enforce this.
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  Speaker 1: Of course, as you both know that in the past,
• 17:25
  Speaker 1: the trouble with OPEC is that there are huge incentives
• 17:28
  Speaker 1: to cheat uh in oil cartels that in life. So
• 17:32
  Speaker 1: whether or not at holds there's another issue. But I
• 17:34
  Speaker 1: knew think that there does seem to be some movement
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  Speaker 1: to trying to put in place some production interesting to
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  Speaker 1: Rich that wouldn't hire oil prices to be viewed favorably.
• 17:44
  Speaker 1: Tricoles the bank in Japan at the FED they're trying
• 17:46
  Speaker 1: to boost inflation. He was following all prices last You're
• 17:49
  Speaker 1: totally made hard for the BOJ to do that. I
• 17:52
  Speaker 1: completely agree, and I think Kathleen, a lot of folks
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  Speaker 1: forget that, and it's easy to criticize the Bank of Japan,
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  Speaker 1: but the fact is is that they got hit with
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  Speaker 1: two UH shocks that had nothing to do with Japan.
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  Speaker 1: One to collapse in oil prices and too obviously the
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  Speaker 1: sort of flight the safety bid for the yen and
• 18:09
  Speaker 1: the dollar after the China devaluation last year UH. And
• 18:13
  Speaker 1: it's tougher for them to keep inflation expectations anchored when
• 18:17
  Speaker 1: there are these big moves and headline inflation that are
• 18:20
  Speaker 1: out of their UH control. So so so yes, I
• 18:23
  Speaker 1: I do see the point. And also we know, Kathleen
• 18:26
  Speaker 1: in the US that inflation expectations are historically quite sensitive
• 18:30
  Speaker 1: to gasoline and oil firms as well. Rich Claire, that
• 18:34
  Speaker 1: thank you so very much for joining us here at
• 18:36
  Speaker 1: Bloomberg Markets. Most influential as someone in our world headquarters today,
• 18:40
  Speaker 1: which is Global Strate Teaching Advisor at PIMCO and the
• 18:42
  Speaker 1: professor at Columbia University. Some big news on the Bloomberg
• 18:46
  Speaker 1: The California State Treasure is sanctioning Wells Fargo. We'll have
• 18:50
  Speaker 1: more details on that coming up in our next Bloomberg
• 18:54
  Speaker 1: Business Report. I'm Kathleen Hayes along with pim Fox, and
• 18:57
  Speaker 1: this is Bloomberg. The FED in Focus is brought to
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