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Amherst's Stanley on FOMC Minutes: 'Angry Birds' at Fed (Audio) · Bloomberg Intelligence

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  Speaker 1: FED in focus on bloom Word Radio. FED releases the
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  Speaker 1: minutes of its April meeting market. It takes it as
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  Speaker 1: a sign given the wording, participants judging that of incoming
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  Speaker 1: data would be consistent with growth picking up and labor
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  Speaker 1: market conditions continuing to get better and inflation even just
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  Speaker 1: making progress to the Fed's target could be time to
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  Speaker 1: raise rates. Well, let's find out how. A man who's
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  Speaker 1: been writing a lot about the FED this week. In fact,
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  Speaker 1: you talked about angry birds at the FED recently. Stephen Stanley,
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  Speaker 1: chief economists at Amherst Pierpont Security, joins us. Now, So,
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  Speaker 1: first of all, Stephen, what is your immediate response to
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  Speaker 1: the minutes? Well, Hi, Kathleen, I think the most important
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  Speaker 1: thing for me is that it it um corroborates what
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  Speaker 1: I thought, which is that at the time of the
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  Speaker 1: April meeting, what the FED wanted is they wanted the
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  Speaker 1: markets to move closer to a fifty fifty assessment of
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  Speaker 1: the odds of a June move, so that a June
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  Speaker 1: move would be open to them. And at the time,
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  Speaker 1: the odds of a June move were probably as low
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  Speaker 1: as and I think the Fed was probably quite surprised
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  Speaker 1: and maybe a bit perturbed that the odds actually went
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  Speaker 1: down almost all the way to zero by the end
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  Speaker 1: of last week, and that's why you've seen maybe some
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  Speaker 1: of the more strident rhetoric over the last week or two.
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  Speaker 1: A three legged stool. Stephen Stanley, Economic growth, labor market condition,
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  Speaker 1: and inflation tell us your thoughts on each three well,
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  Speaker 1: I think the minutes reiterate that the Fed did not
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  Speaker 1: put a lot of stock in the low Q one
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  Speaker 1: GDP number. Um we know from the statement that they
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  Speaker 1: were weighing the strength and labor market conditions as more
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  Speaker 1: important than the UH low GDP number. So I think
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  Speaker 1: that's and that's certainly fleshed out quite well in the minutes.
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  Speaker 1: I think on inflation. There's still a bit of a
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  Speaker 1: division of opinion. They're they're a number of folks on
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  Speaker 1: the committee who are starting to become concerned that the
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  Speaker 1: tightness of labor markets and the fact that we've already
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  Speaker 1: begun to see a little bit of of gradual uptick
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  Speaker 1: in wages and in core inflation means that they need
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  Speaker 1: to get moving in there. Others who were still in
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  Speaker 1: addition to Esther, George of the Kansas City Fed, well, yeah,
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  Speaker 1: I mean, I think she's certainly one that wants to move.
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  Speaker 1: In the minutes said that there were a few people
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  Speaker 1: who wanted to move, So I think you can infer
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  Speaker 1: there were at least a couple of of non voters
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  Speaker 1: who would also have sinned off in an April move
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  Speaker 1: if they had a chance to vote on it. So Steven,
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  Speaker 1: just to follow up on the expectations. Now, probability of
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  Speaker 1: June rad hike up to not not more than fifty,
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  Speaker 1: but still it was down around four percent earlier this week.
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  Speaker 1: Your piece just from a couple of days ago, angry
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  Speaker 1: birds at the FED talking about hawks and doves at
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  Speaker 1: the Fed often failing to see eye to eye, but
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  Speaker 1: either the consensus is shifting at the FED or the
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  Speaker 1: Hawks are gearing up to challenge the ruler of the ruse. Uh.
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  Speaker 1: Cheer Yelling. I think you're making a very interesting, important argument.
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  Speaker 1: Maybe a lot of the comments that have been made
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  Speaker 1: publicly are to you know, help lead the FED in
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  Speaker 1: a direction and start laying down the gauntlet before the
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  Speaker 1: next meeting. Yeah. I think that's right, And I think
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  Speaker 1: for me, the most important thing is the fact that
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  Speaker 1: Cherry Ellen did schedule a speech for June six, because
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  Speaker 1: you know, I think from the market perspective, if they
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  Speaker 1: don't hear it from her, they're not going to believe it.
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  Speaker 1: Because there have been a number of times over the
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  Speaker 1: last year or so when Hawks has kind of started
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  Speaker 1: to get all agitated and then Cherry Yelling or one
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  Speaker 1: of the other problem that does in the committee kind
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  Speaker 1: of you know, pushed back hard. Uh. Most recently at
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  Speaker 1: the end of March, when Yelling gave her last public speech.
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  Speaker 1: There had been some pretty intense hawk Is rhetoric coming
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  Speaker 1: out of certain quarters of the FED after that March meeting,
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  Speaker 1: and she kind of slapped that down. I think, so, um,
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  Speaker 1: you know, this June six speech I think is going
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  Speaker 1: to be pretty pivotal in shaping expectations around the June meeting,
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  Speaker 1: which comes a little over week after that. Stephen Stanley,
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  Speaker 1: are we going to see more bonds sell offs right now?
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  Speaker 1: Looking at the thirty year were down more than more
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  Speaker 1: than a full point, down more than one percent, and
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  Speaker 1: the tenure were down more than seven tents. The two
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  Speaker 1: year PM is now up to point nine zero. On
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  Speaker 1: that there's having a huge move, a big sell off
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  Speaker 1: at the short end as well. Yeah. Well, I mean,
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  Speaker 1: you know, the markets really weren't pricing in very much
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  Speaker 1: at all for the I mean less than a full
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  Speaker 1: hike for all of two thousand and sixteen, and less
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  Speaker 1: than a full hike for all two thousand and seventeen
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  Speaker 1: up until a couple of days ago. So if if
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  Speaker 1: the markets are convinced the Fed's going to get serious
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  Speaker 1: about raising rights here, then yeah, obviously um interest rates
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  Speaker 1: are going to have to adjust up and down the curve.
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  Speaker 1: So what are you what odds would you put on
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  Speaker 1: them June inter strate increase the meeting again just to
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  Speaker 1: three weeks away, there's a July meeting. Do you think
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  Speaker 1: they wait till then? Stephen? Well, I think they could
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  Speaker 1: wait if if Brexit proves to be a disruptive force
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  Speaker 1: in the lead up to the June meeting. But but
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  Speaker 1: I actually still think that June is the most likely scenario.
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  Speaker 1: I put the odds of a of a June move
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  Speaker 1: at something like two out of three. UM. I think
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  Speaker 1: that you know, where there's smoke, there's fire. And there's
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  Speaker 1: been a lot of talk amongst people to fed and
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  Speaker 1: not just the Hawks recently, but but even some of
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  Speaker 1: the Doves. UM. And the fact that Cherry Yellen scheduled
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  Speaker 1: the speech for June six, to me is that maybe
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  Speaker 1: I'm reading a little too much here, but I think
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  Speaker 1: that that's a pretty strong influence that she wants to
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  Speaker 1: uh to say something. And and obviously she wouldn't really
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  Speaker 1: have had to schedule that speech if all she wanted
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  Speaker 1: to say was that we're not ready to move, because
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  Speaker 1: it wasn't priced in at all a couple of days ago.
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  Speaker 1: Thank you very much for spending time with us. Stephen
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  Speaker 1: Stanley is the chief economist for Amherst pure Pont Securities.
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  Speaker 1: They're based in Stanford, Connecticut, giving his thoughts about the
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  Speaker 1: Federal Open Market Committee policy meeting in April. The minutes
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  Speaker 1: just released most Federal Reserve policymakers said an interest rate
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  Speaker 1: increase would be appropriate in June and the economy continued
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  Speaker 1: to improve. That they're divided over whether those conditions will
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  Speaker 1: be net June interest rate increase. That odd odds of
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  Speaker 1: that move seems to be somewhat higher. After LESA mint
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  Speaker 1: Is today, our next guest is going to explain to
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  Speaker 1: us why maybe the Fed should not be on the
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  Speaker 1: move yet. This is Bloomberg Radio.