Latest / Bloomberg Intelligence / FTN's Low: Disagreement in Fed Continues Along Same Line(Audio)

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FTN's Low: Disagreement in Fed Continues Along Same Line(Audio) · Bloomberg Intelligence

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  Speaker 1: one percent. Minutes from the latest Federal Reserve meeting show
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  Speaker 1: officials were split on weather and in trust rate increase
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  Speaker 1: I'm Charlie Pala. Fat's a Bloomberg Business Flash. You're listening
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  Speaker 1: to taking Stock with pim Box and Kathleen Hayes on
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  Speaker 1: Bloomberg Radio and Divine. I've had a reserve over how
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  Speaker 1: soon to raise its key rate again. That is one
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  Speaker 1: of the elements it seems to emerge from the minutes
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  Speaker 1: of the July seven policy meeting, released just about eighteen
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  Speaker 1: minutes ago here on taking Stock on Bloomberg Radio. Let's
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  Speaker 1: bring back to the table now. Chris Lowe is chief
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  Speaker 1: economist at f t N Financial. So, Chris, if what
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  Speaker 1: do you what would you say about the odds of
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  Speaker 1: the FED moving in September moving in December? Based on
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  Speaker 1: number one, these minutes? Right, so, even after a week
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  Speaker 1: employment report which they had seen, they were still thinking
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  Speaker 1: about the need to raise the key rate, right uh?
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  Speaker 1: And then also based on what you've heard from BEETE
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  Speaker 1: officials the last couple of days. Well, okay, we can
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  Speaker 1: start with they think the odds are higher than the
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  Speaker 1: market does. But the market is pretty much dismissed the
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  Speaker 1: rate hike this year, especially right away, so it is
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  Speaker 1: interesting to see those odds readjusting after Dudley yesterday. Uh,
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  Speaker 1: my sense is that the odds are probably close to
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  Speaker 1: about in September, which might sound high, but my my
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  Speaker 1: thinking is that they really would like to get this
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  Speaker 1: done before the election, so they're feeling a little bit
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  Speaker 1: of pressure that sooner is probably better than later if
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  Speaker 1: they can get away with it. But at the same time,
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  Speaker 1: it still doesn't quite get you over because they are
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  Speaker 1: still worried about things. Uh. Two things that jumped out
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  Speaker 1: at me in the minutes. First, Uh, they had they
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  Speaker 1: spent quite a bit of time talking about inflation, and
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  Speaker 1: they're just not convinced it's going to accelerate to two
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  Speaker 1: I think that's really important because after all, what's the
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  Speaker 1: point of raising rates if you never get to two
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  Speaker 1: percent inflation. The the other one is the discussion of
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  Speaker 1: risks overseas. Yes, Brexit is on the radar, but there
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  Speaker 1: were two other things they're watching as well. They're watching
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  Speaker 1: bad loans at European banks. They're worried about the possibility
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  Speaker 1: that that could uh weigh on economic growth in the region,
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  Speaker 1: and of course that's something equity investors have been on
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  Speaker 1: too as well. And then they're watching China. They are
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  Speaker 1: still worried about China's far an exchange policy and the
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  Speaker 1: implications of Chinese debt, which has run up now to
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  Speaker 1: a very significant portion of GDP. Chow, Is it possible
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  Speaker 1: that we're going to get uncertain events between now in
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  Speaker 1: September or even now in the end of the year
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  Speaker 1: that will preclude any action on the part of the
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  Speaker 1: Federal Reserve? I think it's likely. Uh. You know, when
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  Speaker 1: when you look back, the FED had every intention of
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  Speaker 1: tightening once a quarter when they made the decision to
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  Speaker 1: raise rates last year, which by the way, they made
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  Speaker 1: at the April meeting, and then they didn't get that
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  Speaker 1: first rate out hike out until December. And of course
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  Speaker 1: now we've already moved out to September, so it's nine
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  Speaker 1: months later. So the reason is that at every meeting
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  Speaker 1: since December, there has been something going on overseas. Uh.
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  Speaker 1: And what's noteworthy about that is it FED officials Bob Kaplan,
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  Speaker 1: for example, in Dallas, are starting to connect the dots.
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  Speaker 1: Maybe we shouldn't worry about each one of these crises.
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  Speaker 1: Maybe it's time to recognize that they're all connected, uh,
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  Speaker 1: that they're connected by virtue of the fact that global
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  Speaker 1: growth is absolutely disappointing. That means that there's too much
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  Speaker 1: global wage slack. That means that global inflation is low,
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  Speaker 1: global interest rates are low, and you know, if you
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  Speaker 1: follow that to the obvious conclusion, it means the need
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  Speaker 1: to raise rates just isn't what you would normally expect.
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  Speaker 1: And at the end of a business, you know, Chris,
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  Speaker 1: uh and of course all our taking stock listeners will
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  Speaker 1: be speaking to Rob Kaplan, President Dallas FED a week
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  Speaker 1: from tomorrow at the Jackson holl Symposium. He'll be joining
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  Speaker 1: us live to certainly to talk about these very very issues.
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  Speaker 1: It's it's an interesting connection he's making in that way, Chris,
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  Speaker 1: in terms of in terms of the bond market, you know,
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  Speaker 1: and you look where things are. The work as a
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  Speaker 1: matter of fact that I just mentioned being above has
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  Speaker 1: dropped to forty five point three. Clearly there's a little bit,
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  Speaker 1: at least from the FED funds futures traders standpoint, a
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  Speaker 1: little bit of a sense of huh. Maybe it's just
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  Speaker 1: disappointment that there wasn't more of a sign of the
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  Speaker 1: Fed reared up to raise rates or even considering September.
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  Speaker 1: As Bill Dudley from the New York FED was possible yesterday. Yeah,
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  Speaker 1: I think that's exactly right. You know, I read these
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  Speaker 1: minutes and that they still tilt towards caution as much
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  Speaker 1: as they do. You know, there's there's never anything definite,
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  Speaker 1: but uh, you know the fact that they are still
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  Speaker 1: looking at problems that we know are have not gone away,
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  Speaker 1: particularly problems on bank balance sheets in Europe. I think
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  Speaker 1: that is a major issue, uh, which I can't remember
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  Speaker 1: the FED focusing on since the European banking crisis way
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  Speaker 1: back in and eleven, So it's it's noteworthy they're looking
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  Speaker 1: at that. Uh. And by the way, remember too that
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  Speaker 1: there were two big European banks that they're subsidiaries failed
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  Speaker 1: the FED stress test, so that might be another reason
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  Speaker 1: they're on the fed's radar. Thanks very much for spending
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  Speaker 1: time with us. Chris Lowe is the chief economist for
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  Speaker 1: f t N Financial, giving us his perspective on the
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  Speaker 1: release of today's f o MC meeting minutes from the
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  Speaker 1: July six and twenty seven meeting, in which it seems
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  Speaker 1: as though the participants were split about increasing interest rates
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  Speaker 1: sooner rather than later. You're listening to taking stock. I'm
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