Latest / Bloomberg Intelligence / MUFJ's Herrmann: Yellen's 'About Face' Is Not A Strategy(Audio)

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MUFJ's Herrmann: Yellen's 'About Face' Is Not A Strategy(Audio) · Bloomberg Intelligence

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  Speaker 1: Broadcasting live to New York Bloomberg eleventh, Rio to Washington,
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  Speaker 1: with Pim Fox. Janet Yellen, the Fed Chair, wraps up
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  Speaker 1: two days of testimony. It is clear that the Fed
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  Speaker 1: Chair is no longer certain that rate hike rate hikes
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  Speaker 1: are inevitable this year. Uh And having said that, she
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  Speaker 1: thinks maybe there's a little too much hope in Janet
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  Speaker 1: rate strategy at Mitsubishi e u f J Securities. He
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  Speaker 1: says that the hope is not a strategy. I'm gonna
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  Speaker 1: you him Fox sant Kikathleen Hayes that Dow is lower
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  Speaker 1: down two point three percent forty four right now on
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  Speaker 1: was interviewed this morning on Bloomberg Television. Here's what he
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  Speaker 1: the things that I've been fascinated by is this uh
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  Speaker 1: constant reference to uncertainty. Um, they'll we have very high
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  Speaker 1: degrees of uncertainty today. We've always had high degrees of
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  Speaker 1: insert and date we probably get it a little bit
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  Speaker 1: more in terms of the instantaneous technology feeds of that
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  Speaker 1: news flow. But I can't remember a time in my
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  Speaker 1: career that there wasn't uncertainty. And you know, if you
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  Speaker 1: there's always uncertainty. And again recapping, we do have a
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  Speaker 1: In next sense, the game of point one percent, the
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  Speaker 1: Dow down ten, a drop there of one tenth of
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  Speaker 1: and we thank you, and again recapping S and P
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  Speaker 1: five index higher a little change right now, up one
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  Speaker 1: point at two thousand ninety eight. That is a gain
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  Speaker 1: that's a Bloomberg business flash. Is taking stock The FED
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  Speaker 1: in Focus on Bloomberg Radio, The Fed in Focus. Our
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  Speaker 1: next guest says that Chair Janet Yellen's current outlook is
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  Speaker 1: entirely based upon hope, and he goes on to add
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  Speaker 1: that it is never ever a strategy. Here to tell
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  Speaker 1: us more about this is John Herman. He's the director
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  Speaker 1: of rate Strategy at Mitsubishi u f J Securities. John
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  Speaker 1: always a pleasure. So go ahead, explain what you mean
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  Speaker 1: by this. Gave him So you and you and Kathleen
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  Speaker 1: and I go way way back a couple of decades
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  Speaker 1: at this point. So let's just you know, we have
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  Speaker 1: to really fess up on a couple of things. One um,
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  Speaker 1: you know, she all the issues, just just you know,
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  Speaker 1: a few weeks ago, four weeks ago, she was telling everyone,
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  Speaker 1: get prepared for rate high, get prepared for rate high.
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  Speaker 1: But basically, the john market has lost a lot of
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  Speaker 1: momentum very rapidly over the last five or six months,
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  Speaker 1: and that totally caught them off guard. And up until
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  Speaker 1: this point, she's been saying things that, you know, there's
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  Speaker 1: a couple of head winds that the economy faces, and
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  Speaker 1: she expects them to fade over time and for rates
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  Speaker 1: to go back up and you know, growth to go
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  Speaker 1: back up and flash. And now she's basically thing, you know,
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  Speaker 1: maybe those head winds are really only going to slowly
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  Speaker 1: fade over time, and we're really uncertain over it. So
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  Speaker 1: she's had a major about faith and she's listed and
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  Speaker 1: now an enormous list of headwinds. It used to be
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  Speaker 1: just a couple of headwinds. It used to be just
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  Speaker 1: oh there's some weak productivity goes, household formation rates amongst millennials,
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  Speaker 1: not where we wanted to be. We've got some overseas
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  Speaker 1: economic and financial developments were concerned about. Now we've got
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  Speaker 1: a whole laundry list of stuff. And she said today
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  Speaker 1: at the beginning with the House testiment, she said, you know,
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  Speaker 1: I don't want to send a message of pessimism on economy.
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  Speaker 1: That's the exact quote from her. I don't want to
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  Speaker 1: say so. She doesn't want to delivers. But the thing
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  Speaker 1: is she has to. She has to tell people what
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  Speaker 1: is really going on so that maybe policy makers can
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  Speaker 1: do something about it. And that's my issue. But go ahead, okay,
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  Speaker 1: which I think we gotta put a couple of things
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  Speaker 1: on the table. Yeah. Number one, Uh, there is no
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  Speaker 1: conclusive evidence that we're heading into her session. You see
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  Speaker 1: recession signs, people are looking for them, because once the
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  Speaker 1: economy peaks and you know, yields bottom and job has
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  Speaker 1: claims bottom, the next move is frequently towards recession. There's
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  Speaker 1: no definitive sign of that right now. And there are
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  Speaker 1: even people people number one and number two, people uh
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  Speaker 1: would criticize her like crazy you want the FED chair
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  Speaker 1: to come out and go, yeah, I think maybe recession.
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  Speaker 1: Oh probably not. There'd be one headline, I think we
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  Speaker 1: might have a recession and you see stocks creater O.
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  Speaker 1: Let's go through, Kathany, and let's go through it. So
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  Speaker 1: if you're right for this year, we don't see a
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  Speaker 1: recession this year. She doesn't see it. We don't see it,
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  Speaker 1: and most other people in the business don't see it.
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  Speaker 1: But when you look out past this year, uh, you know,
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  Speaker 1: and you look in twenty you know, towards the twenty
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  Speaker 1: end of the labor fourth has a very strong bias
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  Speaker 1: to contract after the year eighteen. It's it's even assuming
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  Speaker 1: a hundred percent participation rate amongst millennials, were biased to
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  Speaker 1: contract every month, every quarter every year from twenty end through.
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  Speaker 1: So this is is you know, the likelihood of a
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  Speaker 1: of a major slowdown at that point is going to
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  Speaker 1: be you know, very high. So that's as as a
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  Speaker 1: very basic but the other things, you know, even in
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  Speaker 1: the nearer turn, there's there's some things to concern people,
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  Speaker 1: which is that you know, business profits and basically started
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  Speaker 1: to roll over for the last three quarters. So that
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  Speaker 1: is a leading indicator of slowing activity, and and more
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  Speaker 1: cautious business investment, more cautious hiring and so on, and
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  Speaker 1: potentially some layoffs. And as this stuff starts to work,
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  Speaker 1: potentially work at Swains and Country, then you would see
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  Speaker 1: the spill over to consumer spending and the like and
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  Speaker 1: risk taking and so on. So you know, we're not
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  Speaker 1: out of the clear by any stretching imagination. She's now
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  Speaker 1: seems to be more open and receptive to these risks,
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  Speaker 1: and now she's guiding us that she's gonna really really
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  Speaker 1: raising rates very gradually, very slowly. And the next rate
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  Speaker 1: hike isn't really even on the table just right now
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  Speaker 1: because you can't she can't even convincingly argue right now
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  Speaker 1: when the next hike is coming. So that's so she's
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  Speaker 1: done a big about face. But there's a ton, uh,
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  Speaker 1: you know, a ton of issues here, and and what's
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  Speaker 1: amazing to me is that, you know, she has to
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  Speaker 1: really be pushed. You know, the the Senate Q and
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  Speaker 1: A was fairly collegial and polite and a lot of
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  Speaker 1: niceties and so on. But the House, both sides were
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  Speaker 1: you know, you know, much more harsh in their criticism
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  Speaker 1: of the policy and the questioning and so on and
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  Speaker 1: so there was she was more disclosing of what some
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  Speaker 1: of her concerns really are. And and suddenly there's like
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  Speaker 1: this long list of things everything from again like the
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  Speaker 1: millennials in their situation, the formation rates, their their indebtedness, etcetera.
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  Speaker 1: These big strains in the income and wealth gaps in
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  Speaker 1: the US, especially between you know, educated whites versus you know,
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  Speaker 1: less educated uh, you know, minorities. I mean, there is
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  Speaker 1: huge things. And and then the questions about what that
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  Speaker 1: does to the local communities where people reside and so on.
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  Speaker 1: I mean, these are very big issues. The things about uh,
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  Speaker 1: you know, productivity being weak and protest it has been
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  Speaker 1: weak for seven years now, business capex has been weak
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  Speaker 1: for eight years now. I mean, it's a whole bunching,
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  Speaker 1: the hollowing out the middle class. She said, you know,
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  Speaker 1: this has been going on, you know for years and
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  Speaker 1: decades and decades, and you know, and now she's more
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  Speaker 1: disclosing on that. And and and you know, the regulation,
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  Speaker 1: the excessive regulation that's being burdened on community banks and
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  Speaker 1: on businesses more generally, the high corporate tax rates more generally,
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  Speaker 1: all these things are just starting to you know, to
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  Speaker 1: come out in her testimony, but she has to really
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  Speaker 1: be pushed by, you know, a fairly contentious group of
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  Speaker 1: representatives to get it out, all right, John German, thank
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  Speaker 1: you so very much. Director of Interest Rate Strategy Mitsubishi
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  Speaker 1: U s J Securities UH saying Jenna Ellen is not
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  Speaker 1: being negative enough on the economy. He sees the session
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  Speaker 1: signs and at least he says she has backed off
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  Speaker 1: on her course of interest rates. Kathleen Hayes, pim Fox
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  Speaker 1: Tavy stuff we've been radio. The FED in Focus is
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