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Yield Curve Front And Center For Fed Chair Powell: BI’s Jersey · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
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  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
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  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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• 0:33
  Speaker 1: time to bring in Dave Wilson, Bloomberg Stocks columist and
• 0:35
  Speaker 1: blogger at M live go on the Bloomberg. Remember to
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  Speaker 1: send Dave an email at d Wilson at Bloomberg dot net,
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  Speaker 1: sign up for his daily free email newsletter, and follow
• 0:46
  Speaker 1: Dave on Twitter at the One Dave. Alright, the one, Dave.
• 0:50
  Speaker 1: What are you looking at today? I was looking at
• 0:52
  Speaker 1: cruise line operators. Yeah, it's a good day for transportation
• 0:55
  Speaker 1: stocks in general. You can put the cruise lines together
• 0:58
  Speaker 1: with the airlines and uh, I'm sure because of the
• 1:03
  Speaker 1: United Continental reports exactly, I'm sure you were looking at
• 1:06
  Speaker 1: Norwegian cruise lines. Uh. As far as focusing on that industry,
• 1:12
  Speaker 1: they expect to raise their earnings forecast for this year,
• 1:16
  Speaker 1: talking about booming demand in their main markets around the world.
• 1:21
  Speaker 1: And that's saying something when you know there's so much
• 1:23
  Speaker 1: of a focus on, you know, whether economies outside the
• 1:28
  Speaker 1: US are doing as well or perhaps headed for some
• 1:31
  Speaker 1: weakness and relative to the US. And yet you know
• 1:34
  Speaker 1: you've got all these stocks moving up in Norwegian Cruise
• 1:37
  Speaker 1: Lines has the second biggest game in the S and
• 1:39
  Speaker 1: people I'm under now it's up more than eight percent.
• 1:41
  Speaker 1: You know, but you know where the demand is coming
• 1:44
  Speaker 1: from China? That would make sense. You know, you've got
• 1:48
  Speaker 1: people who have more wealth, uh, that are more able
• 1:52
  Speaker 1: to travel, and so it stands to reason that you'd
• 1:56
  Speaker 1: be getting the demand from China. You know, United Continental,
• 1:58
  Speaker 1: I mean they're talking about raising their earnings forecast for
• 2:01
  Speaker 1: this year at a time when fuel prices are going
• 2:04
  Speaker 1: up and we've seeing other companies cutting their projections. So
• 2:07
  Speaker 1: you know that that's the positive surprise there. Uh. You know,
• 2:11
  Speaker 1: you've got United up seven and a half percent, American
• 2:13
  Speaker 1: Delta Southwest all higher. We should point out to that
• 2:17
  Speaker 1: Royal Caribbean and Carnival are following Norwegian Cruise Lines leads.
• 2:22
  Speaker 1: So those are a couple of areas that definitely get
• 2:25
  Speaker 1: your attention to this market alright. One area that's getting
• 2:27
  Speaker 1: my attention is the underperformance of tech stocks to the naztacs,
• 2:31
  Speaker 1: certainly underperforming the SMP and down Jones. What's behind that, Well,
• 2:35
  Speaker 1: it doesn't help matters that Alphabets down, you know, the
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  Speaker 1: owner of Google. This five billion dollar fine imposed by
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  Speaker 1: the European Union, I should point out though, I mean
• 2:43
  Speaker 1: those two classes of shares that are in the SMP
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  Speaker 1: five hundred, the uh the voting class A, which is
• 2:49
  Speaker 1: the ticker g O O G L, and the non
• 2:51
  Speaker 1: voting class C, which is g O G they're only
• 2:54
  Speaker 1: down about a quarter at this point. That exact what
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  Speaker 1: I was gonna say. I mean, this is the biggest
• 2:58
  Speaker 1: fine ever of its hype. It certainly is a big headline.
• 3:02
  Speaker 1: The reaction is to Minimus exactly. I mean, people anticipating
• 3:07
  Speaker 1: that the EU was going to weigh in. That this
• 3:09
  Speaker 1: has been playing out for some time, so it's not
• 3:11
  Speaker 1: like it's snuck up on anyone. And just looking at
• 3:15
  Speaker 1: you know, Alphabet's performance, I mean you see just in
• 3:19
  Speaker 1: terms of how much they earn in a quarter. Yeah, well,
• 3:24
  Speaker 1: I mean you're talking about nine billion dollars. They could
• 3:27
  Speaker 1: pay it off with a month and a half worth
• 3:29
  Speaker 1: of earnings. Let's get a little bit more insight on
• 3:31
  Speaker 1: exactly what this fine was and why stock investors just
• 3:34
  Speaker 1: really don't care share over a joint us. Now, she's
• 3:36
  Speaker 1: a technology columnist with bloom Bloomberg Opinion. UM, we're talking
• 3:40
  Speaker 1: about this five billion dollar fine by the European Union.
• 3:44
  Speaker 1: Can you just give us why Google was fined this
• 3:47
  Speaker 1: way and why shareholders are just shrugging it off? Sure? So, Basically,
• 3:53
  Speaker 1: what the European regulators said was that Google has been
• 3:56
  Speaker 1: illegally abusing its power over Android, which is the operating
• 4:01
  Speaker 1: system that powers something like eight five percent of smartphones
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  Speaker 1: in the world. And the Europeans basically said Google um
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  Speaker 1: illegally compelled the companies that make devices that run Android software,
• 4:16
  Speaker 1: so that would be companies like Samsung and hp C
• 4:20
  Speaker 1: an LG that makes phones. Google compelled them to install
• 4:25
  Speaker 1: other Google apps on those Android phones, including things like
• 4:28
  Speaker 1: the Google Search app, the Chrome web browser. UM and
• 4:33
  Speaker 1: the Europeans said that this was sort of an illegal
• 4:35
  Speaker 1: abuse of Google's power over Android. And as for why
• 4:42
  Speaker 1: UM investors don't care, look, as you guys said, this
• 4:45
  Speaker 1: has been telegraphed for a long time. This investigation has
• 4:48
  Speaker 1: been ongoing and it's a little bit hard to know
• 4:52
  Speaker 1: exactly how this might crimp Google's revenue and profits that
• 4:57
  Speaker 1: you know, we're now in a world where Google has
• 5:00
  Speaker 1: become the de facto um you know, starting point for
• 5:06
  Speaker 1: a lot of people on their phones, whether that's YouTube
• 5:10
  Speaker 1: or the Chrome browser or Search. Certainly, and no matter
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  Speaker 1: what regulators do, the question is, um has will will
• 5:20
  Speaker 1: the rule changes or will Google behavior changes do anything
• 5:23
  Speaker 1: to change the status quo of Google's power in the
• 5:26
  Speaker 1: smart home world. And you have to bear in mind too,
• 5:29
  Speaker 1: we've seen this movie before. Go back a couple of decades,
• 5:34
  Speaker 1: the EU regulators told Microsoft they had to break up
• 5:39
  Speaker 1: in essence, the Internet Explore browser from the Windows operating system.
• 5:44
  Speaker 1: It's the same thing, only it's playing out now with
• 5:47
  Speaker 1: mobile phones and Microsoft seems to have survived just fine
• 5:51
  Speaker 1: in the last couple of decades. And so here we are.
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  Speaker 1: It's the same situation you know that that Google's facing.
• 5:58
  Speaker 1: And you know, at least we have a press the
• 6:00
  Speaker 1: suggest that may not be the end of the world. Well, Shira,
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  Speaker 1: I just want to understand Android as the operating system.
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  Speaker 1: It's a Google product, right, is a Google product? Yes?
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  Speaker 1: So they don't make money directly from Android. But yes,
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  Speaker 1: it is a product that Google makes and distributes. They
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  Speaker 1: got two billion monthly active users. That's the largest installed
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  Speaker 1: base of any operating system, and that fits into the
• 6:28
  Speaker 1: Google Play Store. So you've got what three million plus
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  Speaker 1: apps on the Play Store. What would be the technical
• 6:36
  Speaker 1: consequences of separating Google from the actual operating system of
• 6:42
  Speaker 1: mobile phones. Yes, fair question. Um, I think the most
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  Speaker 1: honest answer is we don't know exactly what will be
• 6:51
  Speaker 1: the consequence of this you crackdown on Google and how
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  Speaker 1: Android operates. Um, what it could mean is in the future,
• 7:00
  Speaker 1: if you buy an Android phone, whether it's a Samsung
• 7:03
  Speaker 1: phone or an HBC phone or somebody else's phone, Um,
• 7:06
  Speaker 1: maybe it won't have the Google Search app installed on
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  Speaker 1: it automatically. Maybe it won't have the Chrome web browser
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  Speaker 1: installed on it automatically. Right, And look, those kinds of
• 7:17
  Speaker 1: default do matter. That is why companies make deals so
• 7:22
  Speaker 1: their phones come pre installed with all those apps, because
• 7:25
  Speaker 1: people tend to use whatever is already on their phone
• 7:28
  Speaker 1: rather than seeking out those apps or internet services on
• 7:32
  Speaker 1: their own. All Right, So you know, we started out
• 7:35
  Speaker 1: talking about the under performance of NAZA of the Nasdaq index,
• 7:40
  Speaker 1: and so it seems like it's pretty clear that this
• 7:42
  Speaker 1: is a slap on the risk for Google with the fine,
• 7:45
  Speaker 1: it's not going to materially alter their outlook. Netflix perhaps
• 7:49
  Speaker 1: is in a different situation. You are seeing those shares
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  Speaker 1: continue declining today after yesterday's de clim which wasn't as
• 7:55
  Speaker 1: bad as it could have been. And I guess I'm
• 7:56
  Speaker 1: trying to figure out, is this sort of the moment
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  Speaker 1: of truth? Do you think shia for Netflix, just with
• 8:04
  Speaker 1: respect to they actually start to face some challenges with
• 8:08
  Speaker 1: their business model of raising money and then burning it.
• 8:13
  Speaker 1: I think probably not yet. Um. Look, the thing about
• 8:17
  Speaker 1: Netflix is it's pretty easy to argue that one quarter
• 8:20
  Speaker 1: or even two quarters um of soft subscriber growth or
• 8:26
  Speaker 1: subscriber numbers um is a blip that if you look
• 8:31
  Speaker 1: at Netflix's track record over the long term, it is
• 8:34
  Speaker 1: a pretty amazing story of a company that has managed
• 8:37
  Speaker 1: to gain a huge number of users in a short
• 8:41
  Speaker 1: period of time and for the most part, is still
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  Speaker 1: adding to its user base, even in a country like
• 8:47
  Speaker 1: the United States where something like half of all households
• 8:50
  Speaker 1: with internet access or Netflix subscribers. It's pretty impressive. Um.
• 8:55
  Speaker 1: You know, but the thing about Netflix, right is that
• 8:57
  Speaker 1: it's a self fulfilling prophecy that people's investors belief that
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  Speaker 1: Netflix will keep growing gives it the money both from
• 9:07
  Speaker 1: the debt markets and exequity value, gives Netflix the money
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  Speaker 1: to keep spending on programming so that it can gain
• 9:15
  Speaker 1: more users. And if one part of that virtuous circle
• 9:19
  Speaker 1: starts to uh kind of collapse a little bit of
• 9:23
  Speaker 1: people believe it might start to collapse, then the whole
• 9:27
  Speaker 1: cycle doesn't work. Right. That is, investors believe, Okay, maybe
• 9:31
  Speaker 1: Netflix isn't going to grow to the moon, or at
• 9:33
  Speaker 1: least to have to grow as quickly as we thought
• 9:35
  Speaker 1: in terms of subscriber numbers. Maybe they're less willing to
• 9:39
  Speaker 1: um loan money to Netflix to fund its programming costs.
• 9:43
  Speaker 1: And if that's the case, then maybe Netflix can't spend
• 9:46
  Speaker 1: as much as it has been, and then maybe it
• 9:48
  Speaker 1: doesn't get as many subscribers as people thought, and then
• 9:51
  Speaker 1: the whole thing starts to come unraveled. So we don't
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  Speaker 1: know the impact. It's only one quarter, but remember that
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  Speaker 1: Netflix basically live or dies based based on the kind
• 10:02
  Speaker 1: of faith of investors, and that faith could be tested. Now, sure,
• 10:06
  Speaker 1: Netflix has what a hundred and thirty million subscribers paying
• 10:11
  Speaker 1: every month. Correct, that's a lot of cash flow, isn't it. Well,
• 10:18
  Speaker 1: it's a lot of cash flow in theory, but if
• 10:20
  Speaker 1: you look at Netflix's cash flow, it's negative to the
• 10:24
  Speaker 1: tune of several billion dollars a year um and they've
• 10:28
  Speaker 1: said that the free cash flow is going to be
• 10:31
  Speaker 1: negative three to four billion dollars this year. And the
• 10:34
  Speaker 1: reason for that is, Yeah, there's a lot of customers
• 10:36
  Speaker 1: coming in the door paying their bills every month, but
• 10:39
  Speaker 1: there's even more money going out the door for Netflix
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  Speaker 1: to pay for Oranges, the new Black and Stranger things
• 10:45
  Speaker 1: than all the other literally hundreds of new shows and
• 10:50
  Speaker 1: movies that it airs on a yearly basis. So it's
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  Speaker 1: spending more than it's it's taking in. I think they're
• 10:58
  Speaker 1: supposed to be about seven hundred programs on Netflix Original programming. Dave,
• 11:03
  Speaker 1: you're shaking your head. The shares and Netflix are down
• 11:05
  Speaker 1: about nine That's a lot to watch, no question. Yeah,
• 11:09
  Speaker 1: Netflix shares it back to where they were a little
• 11:11
  Speaker 1: more than a month ago. So we mean, yeah, you
• 11:14
  Speaker 1: saw the reaction. Uh, late Monday, early yesterday, stock bounced
• 11:20
  Speaker 1: back close with a loss of a little more than
• 11:22
  Speaker 1: five percent after falling as much as four percent. Yeah,
• 11:25
  Speaker 1: it's lower today, but two thirds of repersent at the moment,
• 11:28
  Speaker 1: so it's not like things are falling apart, at least
• 11:31
  Speaker 1: in the eyes of investors when they look at Netflix. Yeah.
• 11:34
  Speaker 1: Netflix shares now trading about three hundred and seventy five
• 11:38
  Speaker 1: dollars a share. Thanks very much. Sara over Day Bloomberg Opinion,
• 11:41
  Speaker 1: a columnist all Things Technology. We encourage you to follow
• 11:45
  Speaker 1: her on Twitter at Shara over Day and to read
• 11:47
  Speaker 1: all of her opinion columns at Bloomberg dot com slash Opinions.
• 12:08
  Speaker 1: I want to bring an Ira Jersey, Chief US Interest
• 12:10
  Speaker 1: rate strategist for Bloomberg Intelligence. Ira, Yesterday's Q and A session,
• 12:15
  Speaker 1: in my opinion, didn't really guild much. It was a
• 12:17
  Speaker 1: lot of grand standing on the part of politicians, and
• 12:20
  Speaker 1: there wasn't much with respect to monetary policy. What are
• 12:25
  Speaker 1: you expecting from today? Yeah, so I think the Senate
• 12:28
  Speaker 1: you tend to get higher brow questions, and you do
• 12:30
  Speaker 1: in the House of Representatives, you'll still get a little
• 12:32
  Speaker 1: bit of grandstanding, and certainly some members um trying to
• 12:36
  Speaker 1: trying to goad Chair Powell into coming to their point
• 12:40
  Speaker 1: with their point of view. So things like things like growth,
• 12:43
  Speaker 1: why the FEDS growth forecast or what they are m
• 12:46
  Speaker 1: I'm sure we'll be asked about the balance sheet. We'll
• 12:48
  Speaker 1: be looking with that, and I wouldn't be surprised at all.
• 12:50
  Speaker 1: And something that I'll be looking and listening for is
• 12:52
  Speaker 1: any comments about how concerned about the shape of the
• 12:56
  Speaker 1: yield curve that the FED is. That's been brought up
• 12:59
  Speaker 1: in almost re every time we look at the minutes.
• 13:02
  Speaker 1: That seems to be one of the highlights that that
• 13:04
  Speaker 1: some members are really concerned about about the shape of
• 13:07
  Speaker 1: the curve. But but Fitcher Powell actually got asked that
• 13:10
  Speaker 1: yesterday and he didn't seem overly concerned. He also did indicate,
• 13:15
  Speaker 1: uh that for now they're going to continue with their
• 13:19
  Speaker 1: gradual rate hikes. For the market took this as it's
• 13:21
  Speaker 1: still all guns blazing, Uh, let's go because to your
• 13:25
  Speaker 1: yields and made a new high yesterday, although they are
• 13:27
  Speaker 1: off the high that we saw yesterday. Yeah, So so
• 13:31
  Speaker 1: you know, some of the some of the reaction I
• 13:32
  Speaker 1: think about the curve is people are concerned that if
• 13:35
  Speaker 1: the if the FED hikes faster than the market currently expects,
• 13:40
  Speaker 1: that's really the real risk to the curve at this
• 13:42
  Speaker 1: point because it's it's well known that that or at
• 13:45
  Speaker 1: least the markets pricing that that said, it's gonna hike,
• 13:48
  Speaker 1: you know, three more times or so before the end
• 13:50
  Speaker 1: of next year. Um. So so things about the curve
• 13:53
  Speaker 1: that that we're gonna I'll be listening for that might
• 13:55
  Speaker 1: be different than yesterday. Are you know, when the curve
• 13:58
  Speaker 1: gets to zero, are you going to stop? Or how
• 14:00
  Speaker 1: many more hikes are there going to be? Uh, we
• 14:02
  Speaker 1: don't know. You're still see slacking the economy, so maybe
• 14:05
  Speaker 1: why are you still talking about the s gradule hiking
• 14:08
  Speaker 1: like all of those things are um, any change in
• 14:11
  Speaker 1: tune with what we're gonna be looking for. Now that
• 14:12
  Speaker 1: being said, I think Terry Powell has done a great
• 14:15
  Speaker 1: job staying on message, sticking exactly to where, um, where
• 14:19
  Speaker 1: he was at the last press conference in June, as
• 14:21
  Speaker 1: well as what we've seen in the minutes and and
• 14:23
  Speaker 1: the statements since he became chair. Um. You know, he
• 14:26
  Speaker 1: tends to be not quite as verbose as Cherry Yellen was,
• 14:29
  Speaker 1: and I think that that's maybe part of his legal
• 14:32
  Speaker 1: background where uh, you know, he doesn't want to give
• 14:34
  Speaker 1: away too much at at these at these hearings, but
• 14:37
  Speaker 1: at the same time, he also needs to answer the
• 14:39
  Speaker 1: questions that are asked as him. So I think things
• 14:42
  Speaker 1: like about the growth trajectory and and maybe a little
• 14:45
  Speaker 1: bit more on the labor side of things that he
• 14:47
  Speaker 1: was asked about yesterday before the House of Representatives, the
• 14:51
  Speaker 1: head of the committee talked about how the economy is performing.
• 14:56
  Speaker 1: Do you think that that is a way to support
• 14:59
  Speaker 1: the policy sees of the Federal Reserve And as much
• 15:02
  Speaker 1: as they have sort of telegraphed these rate increases, yeah,
• 15:08
  Speaker 1: you know, I think that when when we talk about
• 15:10
  Speaker 1: the rate increases and the pace of rate increases, I
• 15:12
  Speaker 1: think one of the things that that I think members
• 15:15
  Speaker 1: of Congress don't want. They don't want the Federal Reserve
• 15:17
  Speaker 1: to kind of derail the economy, and especially now at
• 15:20
  Speaker 1: a time when you're talking about midterm elections coming up
• 15:22
  Speaker 1: in just a few months. Um, you know, you're gonna
• 15:25
  Speaker 1: have Republicans in particular who seem to be a little
• 15:27
  Speaker 1: bit on the back foot when it comes to um
• 15:30
  Speaker 1: some elections, particularly in the Senate, that they're um, they're
• 15:34
  Speaker 1: likely to ask him, you know, to to stay slow
• 15:37
  Speaker 1: and yeah, you know, you've just had some members of
• 15:39
  Speaker 1: the House of Representatives also saying like, hey, you you
• 15:42
  Speaker 1: know you shouldn't we we want high interest rates because
• 15:44
  Speaker 1: we have a lot of savers and retirees, but at
• 15:47
  Speaker 1: the same time, we don't want the economy to falter.
• 15:49
  Speaker 1: So I think he'll be asked about some policies as well. UM,
• 15:52
  Speaker 1: So we'll be asked about things like, you know, what
• 15:54
  Speaker 1: are the tax increases or the tax the tax decreases
• 15:58
  Speaker 1: and the additional federal spending. What does that do to growth?
• 16:01
  Speaker 1: And you know, they'll try and highlight their their kind
• 16:04
  Speaker 1: of campaign pledge on the on the Republican side, I
• 16:06
  Speaker 1: think on the Democratic side, they're going to highlight the
• 16:08
  Speaker 1: risks of those policies and and want Jay Powell to
• 16:10
  Speaker 1: say something. You know this. You know, the thing with
• 16:13
  Speaker 1: testimony these days, particularly the last couple of years, is
• 16:16
  Speaker 1: that UM people do try and have been trying to
• 16:20
  Speaker 1: get whether it was his Chairman Nankee, Chair Yell and
• 16:23
  Speaker 1: now Chair Powell, to kind of take a stand on
• 16:25
  Speaker 1: their side of the issue. So there's some sound bite
• 16:28
  Speaker 1: that they can use, um, you know, for for their
• 16:30
  Speaker 1: own political gain. Well, as I was mentioning Jeb Henseling,
• 16:34
  Speaker 1: he's the committee chairman. He also maintenance. His opening remarks
• 16:39
  Speaker 1: a little bit of comments having to do with the
• 16:40
  Speaker 1: FEDS balance sheet and the draw down of the Fed's
• 16:43
  Speaker 1: balance sheet. Do you think that's going to be a focus. Yeah,
• 16:46
  Speaker 1: I think he'll he'll he'll be asked about that. You know,
• 16:48
  Speaker 1: you know that the chair always is. I think on
• 16:50
  Speaker 1: the Republican side in particular, they think that the Fed's
• 16:52
  Speaker 1: balance sheet is far too big. They I think some
• 16:55
  Speaker 1: of them is a lack of understanding of exactly, um,
• 16:57
  Speaker 1: you know, what the FEDS balance sheet is and how
• 16:59
  Speaker 1: it's been used. Um. But but it's also an important
• 17:02
  Speaker 1: question because the FED could, like, like one of the
• 17:04
  Speaker 1: things that the Federal Reserve could potentially do, it's in
• 17:07
  Speaker 1: their tool kit. I don't think that they'll do it.
• 17:08
  Speaker 1: I think that they don't want to do. It would
• 17:10
  Speaker 1: be to sell some assets that are on their portfolio.
• 17:13
  Speaker 1: So for example, if they want to keep on hiking
• 17:16
  Speaker 1: interest rates but they want to steep in the curve,
• 17:17
  Speaker 1: one of the things that they can talk about doing
• 17:20
  Speaker 1: would be to be selling these uh, you know, twenty
• 17:23
  Speaker 1: year and twenty five year securities that they own, and
• 17:25
  Speaker 1: they own about three dred billion of them, so if
• 17:27
  Speaker 1: they were to stort to sell some of them, you'd
• 17:29
  Speaker 1: probably see a significant increase in yields in the back
• 17:31
  Speaker 1: end of the curve. I think that the Fed doesn't
• 17:33
  Speaker 1: want to do that because they see it as disrupting
• 17:36
  Speaker 1: the market more than than the way that they're letting
• 17:38
  Speaker 1: their balance sheet roll off right now. Um So, I
• 17:40
  Speaker 1: think all of those things have to be taken into
• 17:43
  Speaker 1: um be taken into account. I think j. Powell will
• 17:46
  Speaker 1: probably talk about that that you know that their balance
• 17:48
  Speaker 1: sheet is unwinding and orderly fashion right now? All right?
• 17:52
  Speaker 1: You know it's It strikes me as we await the
• 17:55
  Speaker 1: Q and a portion of this event withdrawal testifying in
• 18:00
  Speaker 1: front of Congress, it is striking that we're getting more
• 18:04
  Speaker 1: data out of the US, particularly housing data this morning
• 18:08
  Speaker 1: showing the US new home groundbreaking and permits fell in June,
• 18:12
  Speaker 1: so the slowest pace in nine months. This is being
• 18:14
  Speaker 1: taken as another sign of a greater slow down in
• 18:17
  Speaker 1: the housing market the people expected. People are attributing this
• 18:20
  Speaker 1: to higher mortgage rates as well as just the higher
• 18:22
  Speaker 1: cost of goods and labor. And I'm wondering, you know this,
• 18:27
  Speaker 1: this has to at least weigh a little bit on
• 18:29
  Speaker 1: the federal reserve right now, given the fact that you're
• 18:32
  Speaker 1: not seeing expectations of longer term growth increase. In fact,
• 18:36
  Speaker 1: they're coming down the more the Fed hikes. I mean,
• 18:38
  Speaker 1: how has he responded to that? Is it just a
• 18:41
  Speaker 1: labor market discussion? You know, Well, we're seeing good employment
• 18:44
  Speaker 1: numbers now, so let's just keep on keeping on. Well,
• 18:48
  Speaker 1: I think he'll use that as an excuse. This is
• 18:50
  Speaker 1: why they need to go gradually, because there are some
• 18:52
  Speaker 1: fragilities potentially in the economy, and you know, things like
• 18:55
  Speaker 1: housing could be on on the front foot. And certainly
• 18:58
  Speaker 1: housing starts is important for or you know, some some
• 19:01
  Speaker 1: economic numbers like like GDP for example, because it's uh,
• 19:05
  Speaker 1: it's housing stares and completions, not existing home sales that
• 19:08
  Speaker 1: go in. And that's the component of GDP UM you know.
• 19:11
  Speaker 1: And and and it is true that you've seen some
• 19:13
  Speaker 1: somewhat of a slowdown as you've gotten over to about
• 19:16
  Speaker 1: four percent. UH, that the commitment rate for thirty year
• 19:20
  Speaker 1: mortgages is above four percent now, which you haven't seen
• 19:23
  Speaker 1: in over a decade UM. And I think that's something
• 19:26
  Speaker 1: that that is on the back of um of a
• 19:28
  Speaker 1: lot of UH of a lot of FED members minds
• 19:31
  Speaker 1: is you know, if if we continue to hike, will
• 19:33
  Speaker 1: that push up interest rates significantly more? You know, one
• 19:36
  Speaker 1: of the reasons why you have mortgage rates where they
• 19:38
  Speaker 1: are is not as much from the interest rate hikes
• 19:40
  Speaker 1: as it is from the runoff of the portfolio, because
• 19:43
  Speaker 1: you've seen spread slide in mortgage backed securities. Interesting, I
• 19:47
  Speaker 1: guess all. Another sort of statistics that I think could
• 19:51
  Speaker 1: come up is that real wages haven't increased it all
• 19:53
  Speaker 1: over the past year once, including inflation. And I'm wondering
• 19:56
  Speaker 1: he had He did talk a bit about that yesterday,
• 20:00
  Speaker 1: but you know, do you think that he could be
• 20:02
  Speaker 1: pressed more on that? Is there something more that he
• 20:04
  Speaker 1: could kind of offer up that would be compelling to you? Yeah, well,
• 20:08
  Speaker 1: there's not. There's not a lot that I think what
• 20:10
  Speaker 1: he would say to a question about that is that
• 20:11
  Speaker 1: there's not much that the Federal Reserve can do other
• 20:13
  Speaker 1: than keeping monetary policy reasonably accommodative, which they think that
• 20:17
  Speaker 1: they still are um or um at least some members do.
• 20:21
  Speaker 1: And uh. And because of that, it has to be
• 20:23
  Speaker 1: things like fiscal policy or some kind of um uh,
• 20:27
  Speaker 1: you know, government action as opposed to federal reserve action
• 20:30
  Speaker 1: that would potentially raise raise income. So um no, I'm
• 20:34
  Speaker 1: sure he'll be asked about trade, right, So some people
• 20:36
  Speaker 1: will say, particularly on the Republican side, will likely say that,
• 20:39
  Speaker 1: you know, these trade barriers should increase wages in some
• 20:42
  Speaker 1: sectors that have been held down because of globalization. Um.
• 20:45
  Speaker 1: I think that, you know, Chair Powell will probably come
• 20:49
  Speaker 1: down on kind of a pretty neutral stance on on
• 20:51
  Speaker 1: that if he's asked about, you know, the wage implications
• 20:54
  Speaker 1: of of any particularly any potential um reduction or increase
• 20:58
  Speaker 1: in trade barriers, and he'll he'll say that like it's dangerous,
• 21:02
  Speaker 1: it's a dangerous game. And he did come down, you know,
• 21:04
  Speaker 1: reasonably hard against trade barriers last year or yesterday rather
• 21:08
  Speaker 1: and I think that that's something that will probably come
• 21:11
  Speaker 1: up as well. Thank you very much. Ira Jersey is
• 21:14
  Speaker 1: our chief US interest rate strategist for Bloomberg Intelligence. Thanks
• 21:22
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 21:25
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 21:29
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
• 21:32
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 21:37
  Speaker 1: It's one before the podcast. You can always catch us
• 21:39
  Speaker 1: worldwide on Bloomberg Radio