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Jay Powell, Munis, And ETFs (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
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Speaker 1: at Bloomberg dot com slash podcast. Markets. Uh reacting pretty
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Speaker 1: decisively here to the comments we got from FED Chairman
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Speaker 1: j pal Uh, he's going to continue to fight inflation,
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Speaker 1: push those rates higher. And I think he also was
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Speaker 1: trying to send the messages We're committed to do this
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Speaker 1: for some time. Uh, So don't bet on us pulling
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Speaker 1: back in the near term. That seems to be the
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Speaker 1: message here and how the market's reacting. Let's get some
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Speaker 1: professional thoughts here. Robert Teeter, head of Investment Policy and
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Speaker 1: the Strategy Group at Silver Crest Asset Management, joins us. Robert,
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Speaker 1: what's your takeaway? It was a short speech, but I
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Speaker 1: think he got his message across. I agree, short speech,
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Speaker 1: very powerful, very strong communication that the job isn't done
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Speaker 1: until the job is done. Until they get too I
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Speaker 1: think some of this reaction that we're seeing here though,
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Speaker 1: is perhaps healthy in that in my interpretation, it's ringing
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Speaker 1: out some of the last hopes of a pivot. And
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Speaker 1: I think pal made it very clear today there's no
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Speaker 1: pivot on the horizon. There might be a pause at
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Speaker 1: some point, there might be a reduction in the scale
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Speaker 1: of increases, but the main focus is on inflation here squarely,
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Speaker 1: and I think he communicated that point very clearly and
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Speaker 1: very concisely today, and that's how we're seeing the reactions unfold.
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Speaker 1: What about on the bond market, I'm confused with the
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Speaker 1: bond market is thinking here you're looking at a tenure
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Speaker 1: yield that's virtually unchanged, even though being a little bit choppy.
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Speaker 1: As Herman Powell was speaking, what do you do with
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Speaker 1: the bond market that just seems to hover, or say
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Speaker 1: a bond yield that seems to hover around. Yeah, I
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Speaker 1: thought that was interesting as well, and that's one of
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Speaker 1: the reasons why I thought this reaction has been primarily
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Speaker 1: centered on on equities and that hope for a pivot.
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Speaker 1: It didn't seem to me that the bond market was
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Speaker 1: reflecting any kind of potential change in policy. It looks
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Speaker 1: like the mix is still pretty evenly split between fifty
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Speaker 1: and seventy five at the next meeting, maybe a slight
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Speaker 1: move towards seventy five. Still pretty evenly balanced, and as
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Speaker 1: he said, the tenure kind of hanging in right around
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Speaker 1: three percent without any major reaction as well. So it
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Speaker 1: sort of says to me that maybe the bond market
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Speaker 1: has has interpreted the FED for what they've been saying
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Speaker 1: in terms of inflation. Maybe the equity market got a
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Speaker 1: little bit carried away with that hope for a pivot
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Speaker 1: a while back. But I think this is kind of
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Speaker 1: a healthy one day adjustment in the equity side of things.
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Speaker 1: Do you think the equity markets retest their late June lows?
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Speaker 1: Robert Um, I don't think we'll get there. I think
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Speaker 1: a lot of that depends on on the economic outlook,
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Speaker 1: which today it has remained strong. There's been this battle
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Speaker 1: between you know, which is going to change first, the
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Speaker 1: economy or inflation. It's been quite a long runway for
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Speaker 1: for both. The economy is kind of hanging in their
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Speaker 1: earnings estimates have been hanging in there, and I think
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Speaker 1: that's really the critical point. So if we keep with
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Speaker 1: this stability around rates, I think the evaluations will stay
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Speaker 1: where they are, and if we keep earnings estimates where
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Speaker 1: they are, equity should have an okay backdrop from now
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Speaker 1: through the remainder of the year. I think we'll be
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Speaker 1: in a bit of a choppy and holding period, though
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Speaker 1: certainly through the CPI report and probably through the next
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Speaker 1: FED meeting as well. So in the laungic here of
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Speaker 1: of the trade when it comes to trading the Fed's credibility.
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Speaker 1: The idea here being that if they're going to tackle
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Speaker 1: inflation and the market believes it, then they sell off.
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Speaker 1: But isn't that a good thing that they're tackling inflation
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Speaker 1: are looking to do it because to some extended almost
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Speaker 1: delays UH, this inevitable recession perhaps further into arguably into
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Speaker 1: isn't that something risk asset should be celebrating. I think
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Speaker 1: that's right. I agree with that interpretation, and I think
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Speaker 1: that that that follows through in inequities or risk assets
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Speaker 1: may take place in in coming weeks. I think today
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Speaker 1: was sort of this recognition that there's there's absolutely no
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Speaker 1: chance for a pivot. I didn't think there was one.
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Speaker 1: You probably didn't think there was one, but maybe there
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Speaker 1: was a little bit of hope left for that inequities.
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Speaker 1: But I think you're right, and I think the language
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Speaker 1: PAL delivered and that that the regional fed shares that
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Speaker 1: delivered in terms of front end loading and being really
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Speaker 1: clear about this, this is the objective. Inflation is the objective.
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Speaker 1: I think that's a strong and healthy message that inflation,
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Speaker 1: you know, hopefully will be coming under control. Here. They've
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Speaker 1: talked about some glimmers of hope in the monthly reading,
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Speaker 1: but Pal made it clear today that one month is
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Speaker 1: not enough, and I think ultimately you're right, that's a
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Speaker 1: that's a healthy message for risk assets over the long term. Alright,
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Speaker 1: So given that backdrop, Robert, how are you guys positioning
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Speaker 1: your portfolios there? How much risk are you taking on
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Speaker 1: in the near term or is it just kind of
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Speaker 1: it's buy some real defensive kind of sectors here and
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Speaker 1: just hunkered down for a little bit longer. Yeah. Well,
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Speaker 1: we've been slightly above the midpoint of our range for
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Speaker 1: risk exposure, mainly for equities, on the basis of we
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Speaker 1: think over the medium term horizons, over the next few years,
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Speaker 1: earnings we think will track higher, and we think PE's
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Speaker 1: have stabilized here. So while there might be some chop um,
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Speaker 1: we think we returned to a slow growth economy, called
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Speaker 1: it a two percent economy. We think earnings will maybe
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Speaker 1: come in a little bit lower than consensus in the
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Speaker 1: next few years, but still five six and so we're
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Speaker 1: moderately modestly I should say, above midpoint of range for
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Speaker 1: risk assets here. So I want to go back to
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Speaker 1: something that Sherman Pal specifically said. He said this justification
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Speaker 1: for remaining this hawk ish was going back to vulgar.
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Speaker 1: The mistake that they made in the seventies was pausing,
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Speaker 1: and he doesn't want to make that mistake again. He
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Speaker 1: made that very clear. But I'm curious about what happened
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Speaker 1: after that in the eighties. And yes, Paul, I know
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Speaker 1: I was not born in the eighties, but I have
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Speaker 1: studied it, so it's okay I can ask this question.
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Speaker 1: Didn't even let me get it, I know, because I
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Speaker 1: know you too well. Um, but I have to ask,
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Speaker 1: are we in for a repeat of the eighties here?
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Speaker 1: And what do you trade if we are? Yeah? I
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Speaker 1: thought that was a really interesting point as well. One
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Speaker 1: if I takeaways from it was that he mentioned both
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Speaker 1: vulgar and green span, which, in a in a weird way,
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Speaker 1: I thought was maybe a hint towards balancing out fifty
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Speaker 1: and seventy five at the next at the next meeting.
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Speaker 1: But I thought that was a really telling comment as well.
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Speaker 1: He made it very clear, uh that you know they
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Speaker 1: won't finish until the job is done. And I think
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Speaker 1: at your point earlier that that's a healthy message for
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Speaker 1: equities over the longer term outlook, and so better to
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Speaker 1: get the job done now, get it done effectively, uh,
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Speaker 1: and hopefully set the stage for as we as we
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Speaker 1: saw in the eighties, perhaps not quite so strong in
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Speaker 1: terms of economic growth, but at least price stability and
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Speaker 1: a bill city for valuations to remain flat or even
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Speaker 1: increase a bit if we have a very stable inflation backdrop.
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Speaker 1: All right, Robert, really good stuff. You appreciate getting your perspective,
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Speaker 1: your views here on the heels of some pretty important
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Speaker 1: testimony coming out of Jackson Hole Wyoming from FIT chairman
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Speaker 1: j Pal Robert Teter. He's head of Investment Policy and
6:17
Speaker 1: Strategy Group at Silver Crest Asset Management. Now on Bloomberg Markets,
6:24
Speaker 1: Muni's in focus with Joe Mesa. Alright, our focus on
6:30
Speaker 1: Munis today is Rottie, but I build America Mutual when
6:33
Speaker 1: the market is unpredictable. Bad gives you certainty. BAM matured
6:36
Speaker 1: municipal bonds delivered to fall protection, value preservation and a
6:40
Speaker 1: durable rating. Asciar broker about BAM in short municipal bonds
6:45
Speaker 1: joining us today, Joe Meisa Bloomberg Briefs. He joins us
6:48
Speaker 1: on our Bloomberg Interactive Broker studio as he usually does.
6:51
Speaker 1: He's not one to phone it in like some others.
6:54
Speaker 1: So Joe's in our studio. Joe. When you hear the
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Speaker 1: Federal Reserve talk about with conviction, we're right, we're raising
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Speaker 1: rates here? What does it mean? It's of a bond
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Speaker 1: market typically see typically think about Oh man, you know
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Speaker 1: what it's seen in the last couple of weeks. Is
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Speaker 1: the yield curve inverted in Yes, very unusual occurrence. I
7:18
Speaker 1: can't remember the last time I saw it, but this
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Speaker 1: is it's it's shocking because hey, Federal Reserves his interest
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Speaker 1: rates and you know, the three and six months really
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Speaker 1: responded and so now I think it's the three months
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Speaker 1: is like a two thirty five, six months is about
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Speaker 1: two thirty. These are almost ten year yields right up
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Speaker 1: front there. Do I want to ask you about another
7:43
Speaker 1: story that's near and dear to my heart, but perhaps
7:45
Speaker 1: not in a great way that I'd like to brag about. Um.
7:48
Speaker 1: I am a Texan and there's a lot going on
7:50
Speaker 1: between the East G space right now in Texas, especially
7:53
Speaker 1: when it comes to JP Morgan, black Rock, Ubs, can
7:56
Speaker 1: you before? I don't want to step on your toes,
7:58
Speaker 1: So I'm gonna let you tell our audience the story
8:00
Speaker 1: because it kind of it gets complicated, you know, thank
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Speaker 1: you pretty this if this is insane? The Republicans in
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Speaker 1: Florida and in Texas. Uh, and several of the states
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Speaker 1: are targeting banks and funds that they think are gonna
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Speaker 1: put it woke, okay, and uh. This week the Texas
8:26
Speaker 1: Controller came out with a list of banks that he
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Speaker 1: that he said, you know, you shouldn't do business with
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Speaker 1: these banks because they're oil boycotters. Uh. You know people.
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Speaker 1: At the top of the list was black Rock. There's
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Speaker 1: also Ubs. But I looked at this list and we
8:47
Speaker 1: got me was that. Uh. In the in the ten
8:52
Speaker 1: firms on the list, we have Donska Bank, and we
8:56
Speaker 1: have Nordea Bank, Schroders, Svenska Handelsbankan and Sweed Bank. And
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Speaker 1: I thought, really, I just you know, to me, it
9:08
Speaker 1: seems that baby he's losing heart for this particular crusade.
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Speaker 1: Because how about JP Morgan, Right, JP Morgan. We have
9:19
Speaker 1: a story today by Amanda Albright and Danielle Moran about
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Speaker 1: JP Morgan getting ready to go back and do municipal
9:28
Speaker 1: bond underwriting in the state of Texas. So all right,
9:33
Speaker 1: sall see you know you look at that look at
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Speaker 1: that list, and then you say ha, because you know
9:39
Speaker 1: Texas has some financing needs and you would think they
9:43
Speaker 1: would want and many banks bidding as possible to get
9:46
Speaker 1: the lower their cost. Alright, key West International Airport, they're
9:51
Speaker 1: coming to the inunicipal bob market. What's going on down there? Oh?
9:54
Speaker 1: Baby chickens running through the airport by the way, What yes,
9:59
Speaker 1: y are have a very fancy refurbishment plan that they're
10:04
Speaker 1: cooking up. And they sold about thirty thirty six million
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Speaker 1: dollars in bonds this week and the total cost the
10:11
Speaker 1: project going to be about a d million. A lot
10:14
Speaker 1: of airports have been uh coming to market this year
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Speaker 1: and actually the previous two years getting set for you know,
10:23
Speaker 1: the expansion that are sure to come. And in the
10:26
Speaker 1: case of Key West, one was a record year for him.
10:31
Speaker 1: I saw that in your story, Joe, four percent of
10:35
Speaker 1: total capacity, you know, right, I mean, nobody wanted to
10:39
Speaker 1: literally shut down effectively. But last year people are like,
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Speaker 1: we're going back to the Keys. Baby business was a bowman.
10:47
Speaker 1: And you know that's because, uh, they couldn't go anywhere else.
10:51
Speaker 1: They were quarantines and or you know, shutdowns of of
10:54
Speaker 1: the international flight and and you know, you couldn't get
10:58
Speaker 1: you here, and even if you did, then you might
11:00
Speaker 1: not be able to get back in. So people looked
11:02
Speaker 1: at it and said like, great, let's go to the Keys,
11:05
Speaker 1: Let's go to see Gars, let's go to Maine, right
11:08
Speaker 1: And so last year booming at this airport, and of
11:13
Speaker 1: course I wanted to go see heming Wise house. Yeah
11:15
Speaker 1: that's yeah, we've got that down there. Yeah, it's a
11:19
Speaker 1: good it's fun boy down there right now. That I
11:21
Speaker 1: actually don't mind the drive down the Keys. You flying
11:23
Speaker 1: Fort Lauderdale because it's easier to find into Miami, cross
11:26
Speaker 1: another half hour river the drive because it's a little
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Speaker 1: bit north of Miami Airport, But then to drive down
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Speaker 1: through the Keys is very cool, very picturesque, very picturesque,
11:34
Speaker 1: and in fact, you bring that up. Um, you know
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Speaker 1: Moody is in their rating, uh of this airport brought
11:42
Speaker 1: that up. They said, you know, there are harder the
11:44
Speaker 1: airports you could take. And it's a very picturesque drive. Yeah,
11:47
Speaker 1: and it's a tay. They stepped up out of Newark.
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Speaker 1: They stepped up the number of flights down to key West.
11:52
Speaker 1: Good stuff there, unless you get stuck behind like a
11:54
Speaker 1: big truck because it's only a two two lane road
11:56
Speaker 1: most of the way. So yeah, so that can get
11:59
Speaker 1: a little top, all right, Joe Misa, guess what what? No, No,
12:02
Speaker 1: that's it. That's it. There you go, Boom, we can
12:05
Speaker 1: all have a drink. That's it. There you go. Joe Mysa.
12:07
Speaker 1: He covers all things Muni's for Bloomberg Markets. Bloomberg briefs.
12:12
Speaker 1: The inverted yield curve in the MUNI market. I didn't
12:15
Speaker 1: know there was such a thing, but there is, and
12:17
Speaker 1: it takes Joe's reporting. The Muni yield curve remains inverted
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Speaker 1: a rare occurrence in Muni's. So there you go, all right,
12:24
Speaker 1: smp F I found it off two percent here and
12:26
Speaker 1: looking at the corporate the treasury yield tenure treasury up
12:29
Speaker 1: just to smidge three point zero three percent the two
12:32
Speaker 1: year up four basis points three point four. Oh, it's
12:35
Speaker 1: it's about a thirty seven point inversion in the US
12:39
Speaker 1: treasury yield curve. We'd like to welcome all of our
12:44
Speaker 1: viewers and listeners worldwide to Bloomberg as we digest Jpile's
12:48
Speaker 1: speech this morning, as guy mentioned a very very short
12:52
Speaker 1: speech eight minutes thirty eight seconds. Uh, it was six
12:55
Speaker 1: pages long. His previous speeches have been like fifteen sixteen
12:58
Speaker 1: pages long, and if very direct message, stay the course.
13:02
Speaker 1: We do want to welcome now Cleveland fled President Loretta Mr.
13:05
Speaker 1: You were in the room. Uh, did he give from
13:09
Speaker 1: your perspective the way you look at the markets, and
13:12
Speaker 1: did he give the message that you felt needed to
13:15
Speaker 1: be given. I think that was a very strong message,
13:18
Speaker 1: and I'm certainly aligned with that. This is not a
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Speaker 1: short campaign here. It's gonna take time and more fed
13:24
Speaker 1: work and more fed attention to get inflation on a
13:27
Speaker 1: trajectory down to our two percent goal when we're all
13:30
Speaker 1: in and we're gonna be resolute about it. So I
13:32
Speaker 1: thought the message was strong and right resolute from your
13:36
Speaker 1: point of view, What does that mean? Resolute? Means that
13:38
Speaker 1: this is not a quick fix. This is we're going
13:40
Speaker 1: to have to bring rates up from their current levels
13:43
Speaker 1: and continue doing that until we see compelling evidence and
13:46
Speaker 1: inflation is moving back down towards two percent, and until
13:49
Speaker 1: it does, um, we're gonna have to just be very
13:53
Speaker 1: very resolute in in that being our goal. You know,
13:57
Speaker 1: the July inflation import was welcome news, but we really
14:00
Speaker 1: can't let wishful thinking substitute for compelling evidence. So we
14:04
Speaker 1: need to see a lot more data. I personally need
14:06
Speaker 1: to see a lot more convincing evidence than inflation is
14:09
Speaker 1: moving back down. Do you have a feeling about September
14:11
Speaker 1: twenty one? You get more evidence and the jobs report
14:14
Speaker 1: in the CPI report before then. But are you leaning
14:16
Speaker 1: one way or another at this point? I mean, I
14:18
Speaker 1: want to wait until the data comes in. I mean,
14:20
Speaker 1: as the markets assume it's going to be fifty or
14:23
Speaker 1: to seventy five, you know, that's what my head is,
14:25
Speaker 1: that's going to be one of those two. But I
14:27
Speaker 1: do think that we're going to have to move interest
14:29
Speaker 1: rates up from current levels, so I want to see
14:32
Speaker 1: that data. I'll sess it. Look at the decompositions of
14:35
Speaker 1: the inflation data um more carefully, and also the the
14:40
Speaker 1: inflation expectations data I think is very important as well.
14:44
Speaker 1: We had good news on that front today that Michigan
14:46
Speaker 1: numbers come down obviously gasoline, but they're still elevated. Do
14:51
Speaker 1: you still have any concerns at this point that we
14:54
Speaker 1: have seen any kind of expectations get built in? Well,
14:58
Speaker 1: I do think we're at the for the range of
15:01
Speaker 1: you know, being longer term inflation expectations being consistent with
15:05
Speaker 1: two inflation. I don't think they're they're over that range yet,
15:10
Speaker 1: but I think we have to take it very seriously
15:12
Speaker 1: when we see those those levels being elevated and sustained elevated,
15:17
Speaker 1: because if inflation expectations were to move above levels consistent
15:21
Speaker 1: with two percent or long run two percent inflation goal,
15:24
Speaker 1: then getting inflation back down will be that much harder
15:26
Speaker 1: and that much more painful. And so that's why I'm
15:29
Speaker 1: very focused on that as well as well as the
15:32
Speaker 1: other data on inflation to be able to assess, you know,
15:35
Speaker 1: how much demand moderation is happening, how much supply change
15:39
Speaker 1: is happening, because we really have an imbalance in demand
15:43
Speaker 1: and supply. Of course, the FED tools work on the
15:46
Speaker 1: demand side. Um, so that's the one thing you can't
15:53
Speaker 1: control here, and that is obviously a danger going forward.
15:57
Speaker 1: You don't know what's going to happen. Well, but they're
15:59
Speaker 1: ups I'd risks they're right because we know that the
16:02
Speaker 1: European situation with Ukraine and the Russian supply of oil
16:06
Speaker 1: that's going to be you know, those numbers are coming
16:09
Speaker 1: out or that environment means that probably gasoline prices may
16:13
Speaker 1: not be sustained at lower levels. So again, I don't
16:16
Speaker 1: think this is a time to declare victory over inflation.
16:19
Speaker 1: There's a lot going on in the economy that will
16:21
Speaker 1: affect inflation going forward, and we just have to be
16:24
Speaker 1: very resolute. If you look at services inflation, rents are
16:28
Speaker 1: still very elevated, and rents flow through into those underlying
16:32
Speaker 1: inflation numbers with a lag. And so again I think
16:36
Speaker 1: there's reasons to be cautious on declaring that inflation is peaked,
16:41
Speaker 1: and cautious in thinking that it's on a trajectory moving down.
16:44
Speaker 1: And that's the approach I'm taking. I really need to
16:46
Speaker 1: see convincing evidence of that before I would say that
16:50
Speaker 1: we can ease off of our need to raise interest rates.
16:54
Speaker 1: Chairman said that the goal is to get rates to
16:57
Speaker 1: a slightly restrictive stance, which he said, you look at
17:00
Speaker 1: that summary of academic projections from June and it was
17:04
Speaker 1: around three four. Buddy caveated debt by saying September twenty one,
17:09
Speaker 1: you have a new set of projections. Have you changed
17:12
Speaker 1: your view on where you think the terminal rate needs
17:16
Speaker 1: to be? So there's a lot of confusion out there
17:19
Speaker 1: about what that three point for UM. That's a long
17:23
Speaker 1: run You know, there's a long run neutral and a
17:26
Speaker 1: short run neutral. And if you think about where inflation
17:30
Speaker 1: expectations are, and you think about what's a real rate,
17:33
Speaker 1: a neutral real rate UM, that's like about a half
17:36
Speaker 1: a percent. We're still in negative real rates. So we
17:39
Speaker 1: haven't even gotten to a neutral in that sense um
17:43
Speaker 1: inflate fed funds rates. So we're gonna have to move
17:46
Speaker 1: rates up. I mean, I think we're going to have
17:48
Speaker 1: to move them up, and this is based on just
17:50
Speaker 1: my current rate of the data above four and probably
17:54
Speaker 1: need to hold them there next year. So in other words,
17:58
Speaker 1: move them up to slightly above four percent UM sometime
18:02
Speaker 1: early next year, and it just keep them there in
18:04
Speaker 1: order to get this inflation under control went back down
18:07
Speaker 1: to two. The markets looked at what the VET has
18:12
Speaker 1: been saying about that and say we don't think they
18:14
Speaker 1: can do that, that we're going to see recession going forward.
18:18
Speaker 1: Are you willing to go into recession to maintain rates
18:23
Speaker 1: at that level? Well, I think we're going to have
18:25
Speaker 1: to assess demand versus supply right the imbalanced there, But
18:29
Speaker 1: I do think we'd have to see inflation coming back
18:31
Speaker 1: down because even if UM growth and I do think
18:34
Speaker 1: growth will be slow. Um, I'm not projecting over recession,
18:38
Speaker 1: but I do think we're gonna have below trend trend
18:40
Speaker 1: growth UM this year and into next year. But I
18:44
Speaker 1: think that's necessary in order to get inflation under control.
18:47
Speaker 1: And we'll see increasing in the unemployed rate unfortunately. UM.
18:51
Speaker 1: But I don't think excessively deep in terms of either
18:54
Speaker 1: a pullback and growth or UM labor markets, you know,
18:58
Speaker 1: being totally disruptive because the labor market is so strong
19:01
Speaker 1: right now. It's still extreme, you know, very tight. We
19:03
Speaker 1: have labor demand really outpacing labor supply. So again there's
19:07
Speaker 1: a reason to think that, yes, we're going to see
19:09
Speaker 1: a slowing in fact, our policy is intended to work
19:12
Speaker 1: on that demand side. But there's also reason to think
19:15
Speaker 1: that it may not be um a prolonged or deep
19:19
Speaker 1: um slow down. It could very well be that we
19:21
Speaker 1: have to have some slow down, but it won't be
19:24
Speaker 1: one that's really a painful one in terms of the
19:27
Speaker 1: longevity or deepness in it. That said, we're going to
19:31
Speaker 1: have to have that, I mean, and if we don't
19:33
Speaker 1: have that, I don't think we're gonna get inflation moving
19:35
Speaker 1: back down, and that will create more problems. It'll be
19:38
Speaker 1: very painful. We won't be able to get the strong
19:40
Speaker 1: labor market conditions we had in the last expansion unless
19:43
Speaker 1: we get this inflation down. We're speaking with Lareta Master,
19:46
Speaker 1: the president of the Cleveland Federal Reserve Bank, who was
19:49
Speaker 1: in the room as Jaremen J. Powell spoke today. Uh,
19:52
Speaker 1: some of your colleagues argue for a go go slower
19:56
Speaker 1: approach in terms of raising rates to that restricted because
20:00
Speaker 1: they're considered about long run legs, and some of the
20:03
Speaker 1: others we've talked to say, Uh, that's not really an
20:06
Speaker 1: issue because policy lags are much shorter these days, and
20:10
Speaker 1: so we don't have to worry that a year from
20:12
Speaker 1: now we're going to be choking the economy. Where do
20:14
Speaker 1: you follow on that spectrum? Well, I do think that
20:17
Speaker 1: the because of the forward guidance that the FED gave
20:19
Speaker 1: when it pivoted, you saw the financial markets react probably
20:23
Speaker 1: sooner um and more sharply than typically. But that doesn't
20:28
Speaker 1: necessarily mean that the real economy is going to the
20:31
Speaker 1: effect of the policy changes on the real economy are
20:33
Speaker 1: going to happen faster. So I think I'm agnostic on that.
20:36
Speaker 1: And even when we say long and variable, it's a
20:39
Speaker 1: long and variable part. So six months, eighteen months is
20:42
Speaker 1: still a long time. So that isn't really a frame
20:44
Speaker 1: that I'm I'm using to sort of determine where I
20:47
Speaker 1: think appropriate policy is. Rather, I'm going to be looking
20:51
Speaker 1: at the data and what it's informing me about the
20:53
Speaker 1: outlawk So I know a lot of people say, well,
20:55
Speaker 1: why are you looking at data that's past, you know,
20:57
Speaker 1: talking about the past and not looking forward. I I'm
21:00
Speaker 1: looking forward. But the data helps inform my outlook for
21:03
Speaker 1: the economy and assess the risk to that outlook. And
21:06
Speaker 1: so I'm looking forward, and I think we have to
21:08
Speaker 1: with policy. So, for example, I don't believe we're going
21:12
Speaker 1: to be raised it would be appropriate to continue raising
21:14
Speaker 1: rates until inflation is down to two We're gonna at
21:19
Speaker 1: some point have to pause, keep rates probably at an
21:22
Speaker 1: elevated level for some time, and then make sure that
21:26
Speaker 1: inflation is on the downward trajectory. What do you see
21:30
Speaker 1: or what are people telling you in your district, both
21:32
Speaker 1: businesses and consumers about how they feel about the economy,
21:36
Speaker 1: because there's a potential uh self creating problem there. I
21:41
Speaker 1: think there's a lot of concern about the future. If
21:45
Speaker 1: you talk to businesses now, a lot of them say,
21:47
Speaker 1: you know, things are so really good. I still have orders,
21:50
Speaker 1: you know, I have a backlog of orders, and manufacturer
21:52
Speaker 1: will say so, I think that activity will stay, you know,
21:55
Speaker 1: relatively strong this year. It's about the future. It's about
21:58
Speaker 1: what's going to happen next year and and going forward.
22:01
Speaker 1: And the same on the consumer side. When you talk
22:03
Speaker 1: to the the households, you know they're struggling with this inflation.
22:06
Speaker 1: I mean, the inflation is very painful, and that's why
22:09
Speaker 1: it's some imparative that the Fed do this action um
22:12
Speaker 1: to get that inflation under control. But again, most of
22:16
Speaker 1: it's not about necessarily the current situation. It's really what
22:19
Speaker 1: is the future going to bring and that's why it's
22:21
Speaker 1: very important for the FED to be doing actions now
22:25
Speaker 1: so that the future can be a better future. Well,
22:27
Speaker 1: thank you very much for joining us today. The right
22:29
Speaker 1: semester is the president of the Federal Reserve Bank of Cleveland.
22:33
Speaker 1: A busy day, J Pile telling the markets to stay
22:36
Speaker 1: the course. There, Atemester telling us she's with J Pop.
22:43
Speaker 1: All right, let's stay on this. We want to just
22:45
Speaker 1: get some more color here because it is clearly moving
22:48
Speaker 1: the markets where the equity market is bringing. Steve Matthews,
22:51
Speaker 1: US economy reporter for Bloomberg News. Steve again, you know,
22:55
Speaker 1: we were kind of parsing through what we heard from
22:57
Speaker 1: FED Chairman J. Pal but in terms a messaging, well
23:00
Speaker 1: you gotta give him two thumbs up. Pretty clear, pretty concise, uh,
23:05
Speaker 1: and really didn't leave much wiggle him there. Yeah, that's
23:08
Speaker 1: exactly right. I mean I saw one Wall Street report
23:11
Speaker 1: that referred to the speeches short and sweet, although it
23:15
Speaker 1: was really more short and not very sweet. I mean
23:18
Speaker 1: it was like, we're gonna do whatever it takes, and
23:21
Speaker 1: that's gonna mean pain for the economy, pain for households,
23:26
Speaker 1: and we're okay with that. I mean, there were all
23:28
Speaker 1: these references to Paul Vulker, who was the FED chair
23:33
Speaker 1: in the early nineteen eighties and caused unemployment to hit
23:37
Speaker 1: ten percent and serious recession, actually two recessions, and that
23:45
Speaker 1: was kind of the praiseworthy FED chair that that he cited.
23:49
Speaker 1: So it was pretty clear that the big message was UH,
23:55
Speaker 1: in July after the FED meeting when they rates by
24:00
Speaker 1: seventy five basis points, and he said at the press conference,
24:05
Speaker 1: We're gonna see some slowing of rate increases in the future,
24:10
Speaker 1: and you know, it would be extraordinary to continue to
24:13
Speaker 1: have seventy five basis points every meeting. Uh and and
24:17
Speaker 1: there would be no forward guidance. Wall Street took that.
24:20
Speaker 1: I mean, the FED is about the pivot. We're on
24:24
Speaker 1: the verge of a pivot. And today's message was no, no, no,
24:29
Speaker 1: there's no pivot. We're our resolute We're going to continue
24:34
Speaker 1: to push higher rates and we're going to keep them
24:37
Speaker 1: there for a long time because that's what we think
24:40
Speaker 1: is necessary to get inflation down. Paul, I have to say,
24:43
Speaker 1: I love the Have you ever kind of pay attention
24:45
Speaker 1: with Steve or Mike McKee talk about Wall Street and
24:48
Speaker 1: it's kind of like Oh those guys again. Um, see,
24:52
Speaker 1: if I gotta ask you, I mean, right now, the
24:54
Speaker 1: the bets here, it seems like it's a coin toss
24:56
Speaker 1: between fifty and seventy five. What would the extra basis
24:59
Speaker 1: point difference really make in the September hike, well, in
25:04
Speaker 1: the in the greater scheme of things, As you correctly
25:10
Speaker 1: point out or suggest with your question, it doesn't mean
25:13
Speaker 1: a lot of difference. I mean, it's the the ending
25:15
Speaker 1: point is probably more important than whether it's fifty or
25:19
Speaker 1: seventy five. Those who favor seventy five, the folks like
25:24
Speaker 1: Jim Bullard, the head of the St. Louis FED, who
25:27
Speaker 1: has been, you know, the most hawkish FED official for
25:31
Speaker 1: some time, argued that frontloading will help, you know, push
25:36
Speaker 1: the economy down. I mean, basically, the whole point of
25:40
Speaker 1: the FED tightening is you want to match supply and demand.
25:44
Speaker 1: There's too much demand, there's not enough supply. Supply is
25:48
Speaker 1: not really coming up, so you have to do something
25:51
Speaker 1: to depress demand to have it below trend, and that
25:56
Speaker 1: really hasn't happened so far. You're still getting huge jobs,
25:59
Speaker 1: get job gains and UH and income gains, so they
26:05
Speaker 1: want to move at rates higher faster so that you
26:09
Speaker 1: can get that downward pressure on the economy and the
26:13
Speaker 1: rates would be theoretically restrictive as opposed to we're about
26:18
Speaker 1: neutral right now. And Steve, another takeaway, at least for me,
26:22
Speaker 1: is that recession is clearly on the table here. Um,
26:27
Speaker 1: how do you think the FED thinks about it? How
26:29
Speaker 1: do you think the White House thinks about it? I mean,
26:31
Speaker 1: is it something that the Fed is saying, you know,
26:34
Speaker 1: shallow recession is not the worst thing in the world,
26:36
Speaker 1: because if that gets us to lower inflation, so be
26:38
Speaker 1: it is that kind of how we should be thinking
26:40
Speaker 1: about it. Powell is talking about below trend growth today,
26:44
Speaker 1: which is not exactly recession. If you if you consider
26:48
Speaker 1: that the trend growth for the economy is maybe one
26:52
Speaker 1: and a half to two percent, you could get below
26:55
Speaker 1: trend growth of I mean, if you had the theoretical
27:00
Speaker 1: soft landing, you could get blow trend growth of one percent,
27:03
Speaker 1: a half percent, you know, something close to zero and
27:07
Speaker 1: still not push the economy into recession. And I think
27:11
Speaker 1: that's their big hope, that there's still some kind of
27:14
Speaker 1: avenue to get below trend growth but without there being
27:18
Speaker 1: a serious recession, and if there is recession. They would
27:22
Speaker 1: certainly be happier with a shallow as opposed to a
27:26
Speaker 1: deep recession. But you know, the message again today was
27:30
Speaker 1: whatever it takes, so that if it, if it becomes
27:33
Speaker 1: necessary to have a significant recession to bring inflation down.
27:39
Speaker 1: They view inflation as job one, and that you know,
27:42
Speaker 1: really having stable prices is a prerequisite for having a
27:46
Speaker 1: good economy. So it's like it's not an either or situation.
27:49
Speaker 1: It's really almost a sole focus right now on inflation.
27:54
Speaker 1: Can we talk about them for a moment about the
27:56
Speaker 1: quantity of tightening piece of equation. They are undertaking something
28:01
Speaker 1: that has never really been done to this extent before
28:05
Speaker 1: and only been done successfully once, and even then it
28:08
Speaker 1: wasn't done completely. Correct me if I'm wrong, Steve. But
28:11
Speaker 1: but I'm curious about what this means for the Fed's
28:14
Speaker 1: playbook when it comes to future recessions. Let's get past
28:17
Speaker 1: this shallow recession that seems to be this inevitability. But
28:20
Speaker 1: in the future, this is a tool that is now
28:22
Speaker 1: in their toolbox, and I'm curious about the success right here.
28:27
Speaker 1: Does this mean that every time we hit a recession
28:30
Speaker 1: similar to the Global Financial Crisis or COVID for that matter,
28:33
Speaker 1: that quwie is going to be a tool that the
28:36
Speaker 1: FED uses. I think the answer to that is yes.
28:40
Speaker 1: I mean that they have been relatively clear, not necessarily
28:44
Speaker 1: every recession, because it's like with with this recession, if
28:47
Speaker 1: we have a recession, and while you may think it's inevitable,
28:51
Speaker 1: the FED is still holding out hope that it's not inevitable.
28:55
Speaker 1: But when you hit a recession and you want to
28:59
Speaker 1: stimula like growth, then you know you have a lack
29:03
Speaker 1: of options. You have forward guidance, you have cut you
29:07
Speaker 1: don't really don't have cutting rights. You can cut rates
29:09
Speaker 1: to zero, but that that's it, and so you know
29:13
Speaker 1: you're left with QUEI. And and I think that's it's
29:17
Speaker 1: gonna be a permanent tool. And I think they are
29:20
Speaker 1: resolved that, you know, with with rates at zero, they
29:25
Speaker 1: have no choice but to use it as a tool
29:27
Speaker 1: in the future. I'm glad you said that, because it
29:30
Speaker 1: feels like when you have QUI as part of the playbook,
29:32
Speaker 1: with that also comes asset price inflation. So I'm wondering
29:36
Speaker 1: that in the process of quantity of TWITE tightening, why
29:39
Speaker 1: is the asset price inflation as a function of QUEI
29:43
Speaker 1: such a surprise. Well that it really shouldn't be. I mean,
29:47
Speaker 1: the problem with what the Fed has is they have
29:51
Speaker 1: a lack of tools. I mean it's like interest rates
29:55
Speaker 1: are a blunt instrument. You can raise them, you can
29:57
Speaker 1: lower them, and then you have QUI, which is also
30:01
Speaker 1: kind of a blunt instrument. I mean, it's essentially another
30:04
Speaker 1: facet of of of interest rates, and you know it's
30:10
Speaker 1: going to affect asset prices, and they you know, obviously
30:15
Speaker 1: in retrospect, they should have judged this a little bit sooner.
30:20
Speaker 1: They should have seen what was happening with housing prices
30:23
Speaker 1: and with stock prices and maybe moved a little bit faster,
30:27
Speaker 1: which they now kind of recognize. But they let things
30:30
Speaker 1: get out of uh, get get a little bit ahead
30:33
Speaker 1: of them, right, all right, Steve, great stuff is always
30:35
Speaker 1: Steve Matthews, US economy reporter for Bloomberg News. Steve has
30:39
Speaker 1: been in our Atlantic bureau since I'm gonna do the
30:44
Speaker 1: math for everybody. That's twenty five years and good for Steve.
30:47
Speaker 1: Awesome reporting coming out of Atlanta, Georgia. Thanks for listening
30:55
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
30:58
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31:03
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.
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