Latest / Bloomberg Intelligence / Instant Reaction: Jay Powell's Jackson Hole Speech

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Instant Reaction: Jay Powell's Jackson Hole Speech · Bloomberg Intelligence

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Speaker 2: Joining us now is someone who is very familiar with
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Speaker 2: these types of speeches. Saint Louis FED President James Bullard,
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Speaker 2: who recently was in the media talking about his preference
0:37
Speaker 2: for one hundred basis points of rate cuts this year
0:40
Speaker 2: heading into twenty twenty six. Also a potential contender, I
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Speaker 2: should say to be the next FED chair James Jim,
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Speaker 2: how much are you seeing what we heard from Fedchair
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Speaker 2: j Powell and seeing anything different that you would really
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Speaker 2: say say if you were at that podium.
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Speaker 3: He used the speech to solidify expectations for twenty five
1:03
Speaker 3: basis points in September. I was expecting that anyway markets
1:07
Speaker 3: were expecting that. He leaned into the most recent labor
1:12
Speaker 3: market report, which was very soft, and so I think
1:16
Speaker 3: that's a done deal. He didn't say too much about
1:21
Speaker 3: beyond that, what you want to do with the October
1:25
Speaker 3: meeting or the December meeting. I have set one hundred
1:27
Speaker 3: basis points, you know, going into twenty twenty six. I
1:31
Speaker 3: think you could adjust as you go forward and eventually
1:37
Speaker 3: get a full hundred basis points, but I would go
1:39
Speaker 3: slowly in order to watch the data and then on
1:42
Speaker 3: the framework review. I'm sure much earlier in the year
1:46
Speaker 3: they had targeted that they would have the framework discussion
1:50
Speaker 3: and that they would use the Jackson Hole speech to.
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Speaker 4: Talk about changes to the framework.
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Speaker 3: I thought those were thoughtful, and they were well presented
1:59
Speaker 3: in this speed each and they're about what many.
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Speaker 4: Have speculated on.
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Speaker 3: So I think they did about as much as they
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Speaker 3: can on the framework side.
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Speaker 5: Jim Bowler, Tom keenan good morning to you. I definitely
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Speaker 5: consider this my conversation of the day. You served a
2:15
Speaker 5: lengthy term at the Saint Louis FED. You have lived
2:19
Speaker 5: the decline of a greater economy decades and decades ago
2:24
Speaker 5: in the effort to provide for a resurgence Saint Louis
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Speaker 5: is a next chairman of the FED, whoever that may be.
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Speaker 5: Do they have to manage for two American economies, a
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Speaker 5: technology driven exceptional economy and another, to use a cliche,
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Speaker 5: America flat on their back? How would a chairman execute
2:46
Speaker 5: those two Americas.
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Speaker 3: Yeah, I think in commonwealth distributsha have become more salient
2:51
Speaker 3: topics for the FED.
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Speaker 4: Is not that clear how much the FED can really do.
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Speaker 3: Providing interest rate Paul, for the whole economy of if
3:02
Speaker 3: you change the rate structure, that affects everyone, not just one.
3:07
Speaker 4: Particular group that you might be targeting.
3:11
Speaker 3: So I think that's been something we've had to wrestle with,
3:14
Speaker 3: and I've actually done research on it myself to try
3:18
Speaker 3: to understand it better from my point of view.
3:20
Speaker 4: So I think there's been been a theme.
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Speaker 3: For a while, and that'll be an important theme in
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Speaker 3: Macreconowics going forward.
3:28
Speaker 5: Mike McKee's got a lot of smarter questions than me
3:31
Speaker 5: on the immediacy of this speech. I'm going to ask
3:33
Speaker 5: one more distant question, Jim Bollard. You're at Purdue executing
3:38
Speaker 5: online technology education every single day. How do you define
3:45
Speaker 5: the new technology productivity that America faces?
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Speaker 6: Is it enough to save us?
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Speaker 5: Is it enough to really add on to our present
3:55
Speaker 5: gdp Oh.
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Speaker 4: Yeah, I think that the AI boom is.
4:02
Speaker 3: You know, it's a general purpose technology that will diffuse
4:06
Speaker 3: through the economy. I think the key question is how
4:08
Speaker 3: fast does that actually diffuse? And sometimes marcus can get
4:13
Speaker 3: ahead of themselves and think it's going to happen sooner.
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Speaker 3: Sometimes they're too late and it happens faster than markets think.
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Speaker 3: But nevertheless, anyway you look at it, it's an important technology.
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Speaker 4: It can drive productivity and.
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Speaker 3: I think in higher education is one of the places
4:30
Speaker 3: where you can really have the biggest impact. We put
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Speaker 3: a AI requirement in at the Danniel School here for
4:37
Speaker 3: every single student, and we're trying to expand that to
4:40
Speaker 3: all produce. So I think that just shows you how
4:43
Speaker 3: important this technology is.
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Speaker 6: Jim, it's Mike McKee.
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Speaker 7: I have a question about sort of the process involved
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Speaker 7: in this speech. The chairman is giving his own speech,
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Speaker 7: but basically when he says it's time to maybe adjust policy,
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Speaker 7: he's speaking for the entire open market. Can going into
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Speaker 7: a speech like this, would he have polled everybody? Does
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Speaker 7: he think he has the votes for that? Because we've
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Speaker 7: been speaking with FED officials here in Jackson Hall and
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Speaker 7: there's still some who were saying, well, we're not sure
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Speaker 7: that we need to do that yet.
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Speaker 3: Now he's going to report on the center of gravity
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Speaker 3: of the committee, even though there might be people that
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Speaker 3: have misgivings. At the June meeting, the committee had a
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Speaker 3: median dot dot plot of two rate reductions by the
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Speaker 3: end of the year, and I think the minutes, you know,
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Speaker 3: suggested something that was more like fifty to fifty.
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Speaker 4: But then the labor market report came in.
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Speaker 3: I think that tilted the balance, so he could have
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Speaker 3: he could have pushed back a little bit. I think
5:45
Speaker 3: financial markets were expecting him to come be a little
5:48
Speaker 3: bit more hawkish here and try to set up a
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Speaker 3: fifty to fifty meeting where you would wait and see
5:55
Speaker 3: for the rest of the data to come in. But
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Speaker 3: I don't think that's where the center of gravity is
6:01
Speaker 3: on the committee, so so.
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Speaker 4: He went ahead and leaned in.
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Speaker 3: I thought there was quite a bit of talk about
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Speaker 3: the labor market at the at the beginning. You know,
6:11
Speaker 3: you could have could have been a little more, uh,
6:14
Speaker 3: you know, a little more emphasis on the low unemployment rate,
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Speaker 3: for instance. And you know, he did come out at
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Speaker 3: the end of that discussion saying, well, it's in balance,
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Speaker 3: but we're a little bit nervous. So I think, you know,
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Speaker 3: I think he's accurately uh describing where the bulk of
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Speaker 3: the committee is.
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Speaker 7: Well where would you be on this question, because we've
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Speaker 7: heard FED officials for some time now saying, yes, we
6:38
Speaker 7: had poor job creation in recent months, but the unemployment rate,
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Speaker 7: as you just mentioned, has been low, and they've described
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Speaker 7: the labor market as solid. Now, this seems to be
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Speaker 7: sort of a major shift in the way they view
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Speaker 7: the outlook and the sort of balance between the two mandates.
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Speaker 3: Yeah, what he did at the end of that discussion,
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Speaker 3: he said, well, it's in balance.
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Speaker 4: But I think the committee's nervous.
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Speaker 3: I think it has been slowing, and I think the
7:07
Speaker 3: policy rate is moderately restrictive. Is maybe you know, one
7:11
Speaker 3: hundred and twenty five basis points above the neutral rate.
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Speaker 3: Is that really where you want to be in this circumstance.
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Speaker 3: I think the answers no, So you can come down
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Speaker 3: some and still have moderately restrictive monetary policy that puts
7:26
Speaker 3: gentle downward pressure on inflation. And then the other thing
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Speaker 3: I think has happened is that this argument from Chris
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Speaker 3: Waller and others on the committee that the you know,
7:39
Speaker 3: you should look through the one time increase in goods
7:42
Speaker 3: prices coming from tariffs.
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Speaker 4: I think that's carrying the day.
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Speaker 3: And you know, then he emphasized that inflation expectations remain
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Speaker 3: anchored and so on, and so I think that sets
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Speaker 3: up a modest move downward in September.
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Speaker 2: Jim, We've been talking with you for years and you
7:59
Speaker 2: are very focused on the discipline of economics. Right now,
8:02
Speaker 2: I'm looking at the headlines that are crossing from the
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Speaker 2: past hour. The top one, of course, is a Jerome
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Speaker 2: Powell fedchair saying that shifting risks may warrant adjusting rates.
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Speaker 2: The second one is that Trump says that hell fire
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Speaker 2: the Fed's Lisa's cook if she doesn't resign as someone
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Speaker 2: who is thought to be a contender to become the
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Speaker 2: next FED chair. Jim, how much does it concern you
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Speaker 2: that there's this increasing political noise around the seat and
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Speaker 2: exactly what the path of policy forward looks like.
8:31
Speaker 3: Yeah, I want to see due process around something like this.
8:35
Speaker 3: I want to see you know, you can make charges
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Speaker 3: against anybody about anything, I guess, and you know the
8:42
Speaker 3: person can answer the charges and the dojke and decide
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Speaker 3: what they want to do and so on.
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Speaker 4: So I think this has, you know, should.
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Speaker 3: Have longer to play out before you took that step.
8:55
Speaker 3: Otherwise it's just is kind of the wild West, and
8:59
Speaker 3: she can get reinstate later, I guess, or something if
9:02
Speaker 3: there wasn't a conviction.
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Speaker 4: So seems messy to me.
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Speaker 3: I think these kinds of these kinds of charges are
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Speaker 3: made from time to time against various officials around Washington,
9:14
Speaker 3: but I'd.
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Speaker 4: Like to see due process there.
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Speaker 2: Jim, there's another question here, and aside from Governor Cook
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Speaker 2: and what happens there, about how the perception of political
9:24
Speaker 2: interference handles the market reaction to Fed policy. There is
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Speaker 2: this perception that that could cause the dollar a week
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Speaker 2: in more because there is more of an emphasis on
9:34
Speaker 2: supporting growth and supporting the label market than containing inflation.
9:37
Speaker 2: And some people are worried that if the Fed does
9:40
Speaker 2: cut by fifty seventy five one hundred basis points, as
9:43
Speaker 2: you were talking about this past week, that you could
9:45
Speaker 2: see a move up in long end yields akin to
9:48
Speaker 2: what we saw last year. If you are on the
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Speaker 2: FED currently and you did see yields along the long
9:54
Speaker 2: end moving up in response to near term FED rate cuts,
9:58
Speaker 2: what would you do?
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Speaker 4: Definitely be a concern.
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Speaker 3: And that's the tricky part of this business, is that
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Speaker 3: you know, you think you're pursuing a dubbish policy at
10:08
Speaker 3: the short end, but the long end goes up because
10:11
Speaker 3: in place and expectations start to rise, markets start to
10:15
Speaker 3: lose confidence in the FED and the credibility of the FED,
10:19
Speaker 3: and that can go very very badly and unfortunately fairly quickly.
10:24
Speaker 3: So I think you do have to be come You
10:27
Speaker 3: do have to be careful here. But I'm saying that
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Speaker 3: I think that committee has room to maneuver if they
10:32
Speaker 3: proceed carefully over the remainder of twenty five and the
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Speaker 3: first half of twenty twenty six.
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Speaker 5: I don't want to get out front of the debate
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Speaker 5: here the moment, Jim Bullard, But what I would say
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Speaker 5: to Chairman Bullard and Mike.
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Speaker 6: McKee, I got to turn to you.
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Speaker 5: You and I used to sit and look at the
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Speaker 5: dots and go which one is Bullard?
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Speaker 6: I mean, you and I do.
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Speaker 7: It's fairly easy after a while to figure out.
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Speaker 5: I've Chairman Bullard, is your first act if you take
10:58
Speaker 5: over the FED as your act to get rid.
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Speaker 6: Of the dots?
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Speaker 4: Yeah.
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Speaker 3: I've threatened to well, ex President, I threatened to withdraw
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Speaker 3: from the dot plot. I think this could be done better.
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Speaker 3: This was discussed at the Framework conference and former chair
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Speaker 3: of Bernanke gave a very nice presentation and talk about
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Speaker 3: a quarterly monetary policy report, get more organized about it,
11:23
Speaker 3: put out a forecast.
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Speaker 4: I think all of that could be done.
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Speaker 3: I've advocated that for a long time, and so I
11:30
Speaker 3: think that would sort of clear up some of the
11:33
Speaker 3: misconceptions around the dot plot.
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Speaker 6: Okay, this is really really important, Folcus.
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Speaker 5: Jim Bullard made he can history i'd say, a decade ago,
11:40
Speaker 5: with a small, short paper forceful on regime change. How
11:45
Speaker 5: do we get a new FED away from the guessing
11:48
Speaker 5: and the certitude and the silly parlor game of it,
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Speaker 5: Jim Bullard, with great respect, how do we get to
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Speaker 5: that more disciplined study around the game of the FED
12:00
Speaker 5: and regime change?
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Speaker 3: Yeah, I think regime switching is a great way to
12:06
Speaker 3: think about the global economy and the US economy and
12:11
Speaker 3: how it operates. There are relatively long periods of time
12:16
Speaker 3: where you might have let's say, slow growth and very
12:20
Speaker 3: low interest rates, and you might switch to another time
12:23
Speaker 3: with faster growth and higher interest rates. I think understanding
12:27
Speaker 3: that and understanding how that affects policy choices is a
12:32
Speaker 3: great thing to study further and talk about further in
12:37
Speaker 3: the years ahead, So you know, I think it's very
12:40
Speaker 3: salient for what the committee does.
12:43
Speaker 2: Jim Bullard, former FED President of the Saint Louis Bank,
12:47
Speaker 2: will be sticking with us.
12:49
Speaker 6: Right now.
12:49
Speaker 2: In markets, you can see a cheering across Wall Street
12:52
Speaker 2: to the opening the door to a potential rate cut
12:55
Speaker 2: next month. Potentially more. You could see equities surging higher
13:00
Speaker 2: across the different of the different indexes, led by some
13:03
Speaker 2: of the more interest rate sensitive sectors. The Russell two thousand.
13:07
Speaker 2: You can see ten year yields down now about six
13:10
Speaker 2: basis points, even more at the front end, down ten
13:12
Speaker 2: basis points. As people look to the prospect of the
13:15
Speaker 2: Fed looking through some of the inflation from tariffs. You
13:19
Speaker 2: could see the dollar markedly weaker one seventeen on the
13:23
Speaker 2: euro dollar cross up on nine tenths of a percent
13:27
Speaker 2: in terms of just the percentage rise up about a
13:30
Speaker 2: basis point. And there's a real question here about what
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Speaker 2: this means going forward. City Wealth Chief Investment Officer Kate
13:35
Speaker 2: Moore is still with us, freezing a little bit because
13:38
Speaker 2: it is a little bit chilly.
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Speaker 4: Here, nippy in the morning.
13:40
Speaker 2: I am curious though about what you're hearing in terms
13:44
Speaker 2: of prospective FED chairs and the politicization of the Federal Reserve.
13:47
Speaker 2: If this is a FED willing to err on the
13:50
Speaker 2: Dubvish side, does that mean something that materially is higher
13:55
Speaker 2: with respect to returns and with respect to risk appetite.
13:58
Speaker 8: Look, markets love certainty and our investors love certainty, and
14:01
Speaker 8: we want a certainty in terms of the process around
14:04
Speaker 8: making monetary policy decisions. So I don't have any insight
14:07
Speaker 8: into who might be named next FED chair, But what
14:10
Speaker 8: I will say is if there is a sense that
14:12
Speaker 8: the process is changing, I think that will lead to
14:15
Speaker 8: some pause and perhaps some volatility in the market. You know,
14:18
Speaker 8: our expectation is that regardless of who takes the next
14:21
Speaker 8: chair and what seats are filled, we'll have a continuous
14:23
Speaker 8: continuation of the process of being data dependent, of being thoughtful,
14:27
Speaker 8: of having great debate and discussion amongst the FED governors
14:31
Speaker 8: and their staff. But if that were to change, I
14:34
Speaker 8: think that would introduce volatility. I think the most important
14:36
Speaker 8: thing for us right now is to recognize that so
14:39
Speaker 8: much of the data is going to be mixed through
14:43
Speaker 8: the back half of the year, and that's going to
14:45
Speaker 8: have a huge impact I think in terms of investor sentiment,
14:48
Speaker 8: and I would suggest even more crowding in some of
14:50
Speaker 8: the favored trades.
14:51
Speaker 7: We tend to get reactions like we're seeing in the
14:54
Speaker 7: market now on a day when news breaks. But I
14:56
Speaker 7: think we're probably going to see extended rally here because
15:00
Speaker 7: people are anticipating great conscience. Does that worry you in
15:04
Speaker 7: terms of a bubble forming or some sort of excess
15:10
Speaker 7: spending that would push up inflation because of inflated asset prices.
15:15
Speaker 8: Yeah, so I have been a little bit worried actually
15:18
Speaker 8: about positioning. I feel like I've been a little bit
15:20
Speaker 8: more cautious frankly than some of my peers on the
15:23
Speaker 8: street and saying, you know, people own the highest quality
15:26
Speaker 8: parts of the market. It's quite crowded. Some of the
15:29
Speaker 8: shorts when we're looking at some of the fast money
15:31
Speaker 8: a community are very similar across the board, and we've
15:35
Speaker 8: seen people kind of shrug off concerns around economic growth
15:38
Speaker 8: or even the technological disruption across a lot of industries.
15:42
Speaker 8: We've seen significant improvements in terms of the earnings or
15:45
Speaker 8: vision ratios, City Economic surprise index has moved up, you know,
15:49
Speaker 8: and all of this together I think sets us up
15:52
Speaker 8: for you know, a little bit of weakness if there
15:55
Speaker 8: was a bad data point, or if there was a
15:57
Speaker 8: bit of a shock where there's a lot of consensus positioning.
16:01
Speaker 2: Well, Jim, Jim Bullard, I'd love to bring you back
16:03
Speaker 2: in here. How much does that concern you that sort
16:06
Speaker 2: of a bias to cut rates could cause asset price
16:09
Speaker 2: inflation to get ahead maybe of where the economy is.
16:13
Speaker 3: Yeah, equities, except for just recently, equities have been doing
16:16
Speaker 3: very well as they've digested the new trade policy of
16:21
Speaker 3: the US and how that's going to play out globally.
16:24
Speaker 4: You've got the AI boom going on, really a driver
16:29
Speaker 4: for the big tech companies, and you know.
16:32
Speaker 3: I do get concerned that things we get ahead of ourselves.
16:36
Speaker 3: Sure it's a great technology and everything, but how fast
16:40
Speaker 3: is it really going to in diffuse into actual productivity
16:44
Speaker 3: in the economy. But overall, I would say, you know,
16:49
Speaker 3: it's possible that we'll get higher productivity growth ahead and
16:54
Speaker 3: really a good outcome for the second half of the
16:57
Speaker 3: twenty twenties here, much as we had in the for
17:00
Speaker 3: the nineteen nineties.
17:01
Speaker 5: Let me talk to the chief investment strategist Purdue University
17:04
Speaker 5: right now. I'm going to do a double barrel question
17:06
Speaker 5: first to doctor Bullard and then to doctor Moore. Jim
17:09
Speaker 5: Bullard as simple as I can all of my conversations
17:12
Speaker 5: rather Jakamnagel, Bundesbank, Kate Moore, City Group and on and on,
17:17
Speaker 5: is about an elevated or persistent nominal GDP.
17:21
Speaker 6: Do you frame out that.
17:22
Speaker 5: We're going to have an animal spirit in the country,
17:25
Speaker 5: whether it's better real growth okay, inflation too much inflation, okay,
17:31
Speaker 5: real growth, But what we're talking about forward is an
17:34
Speaker 5: elevated nominal GDP.
17:38
Speaker 3: If you think real growth is going to be faster
17:40
Speaker 3: than yes, nominal gp growth would be faster even if
17:43
Speaker 3: the Fed hits it's two percent inflation target over that period.
17:47
Speaker 3: So yeah, you would see higher, faster nominal GDP growth.
17:53
Speaker 6: I mean, I look at this, Kate Moore, and it's
17:54
Speaker 6: a higher manner.
17:55
Speaker 5: And I'm really surprised by your comments. I think they're
17:57
Speaker 5: extremely important our back to the US quality, etc.
18:00
Speaker 6: But it sounds like.
18:01
Speaker 5: City Group is modeling out through all the emotion, the fear,
18:05
Speaker 5: the turmoil, the political debate.
18:08
Speaker 6: As we just sign next to the eight foot there
18:10
Speaker 6: in the lobby.
18:11
Speaker 5: The answer here is you're modeling out that will be
18:15
Speaker 5: okay and there'll be a better nominal GDP, it leads
18:18
Speaker 5: into revenue, etc.
18:19
Speaker 8: Look, I think we're going to have an okay growth environment.
18:22
Speaker 8: But one thing we keep on talking about is sort
18:23
Speaker 8: of the ke shape. Right there are the haves and
18:25
Speaker 8: have nots across all the different industries and different consumer groups.
18:29
Speaker 8: And so I don't think that we want to assume
18:32
Speaker 8: that everyone is going to experience strong growth in the
18:35
Speaker 8: second half the year. And we're seeing this, of course
18:37
Speaker 8: in the consumer companies. We're seeing this across you know,
18:39
Speaker 8: segments of different households. We're seeing this even in technology companies,
18:43
Speaker 8: those that have made the investments and are reaping dividends
18:46
Speaker 8: from it. So yes, we may have these good headline numbers,
18:49
Speaker 8: but I think as investors we have to really pay
18:51
Speaker 8: attention to what's going on beneath the surface, and I
18:54
Speaker 8: think there's an opportunity for differentiation over the next couple quarters.
18:58
Speaker 2: We are looking at a market that is moving, We
19:00
Speaker 2: are looking at headlines that are coming. And I want
19:03
Speaker 2: to bring this to you that Canada is planning to
19:06
Speaker 2: remove retaliatory tariffs on many US products in an olive
19:10
Speaker 2: branch to President Trump. And there is this feeling that
19:14
Speaker 2: maybe some of the tariffs are fungible, that we are
19:17
Speaker 2: going to see some of them removed, or US as
19:20
Speaker 2: a negotiating state.
19:21
Speaker 5: I strongly agree with what you're saying. This was sort
19:23
Speaker 5: of out there in the ether last night, but to
19:25
Speaker 5: see these headlines is another example we adjust well.
19:29
Speaker 2: And that's one of the reasons why there has been
19:31
Speaker 2: a focus on the labor market fed chair to ome
19:33
Speaker 2: Powell speaking just moments ago, really focusing on the complications
19:38
Speaker 2: for the labor market overall.
19:40
Speaker 9: While the labor market appears to be in balance, it
19:42
Speaker 9: is a curious kind of balance that results from a
19:45
Speaker 9: marked slowing in both the supply of and demand for workers.
19:49
Speaker 9: This unusual situation suggests that downside risks to employment are rising,
19:54
Speaker 9: and if those risks materialize, they can do so quickly
19:57
Speaker 9: in the form of sharply higher layoffs and rising unemployment.
20:00
Speaker 2: Some people might say that a fetcher J. Powell is
20:03
Speaker 2: coming around to the Chris Waller view of things, that
20:06
Speaker 2: there is this feeling of potentially the weakening and the
20:09
Speaker 2: labor market taking priority over inflation at a time where
20:12
Speaker 2: some of these tariffs are put on taken off, and
20:15
Speaker 2: that's what we're seeing a little bit in terms of
20:17
Speaker 2: negotiation this morning.
20:19
Speaker 5: Well, the given the take and it goes back to
20:20
Speaker 5: Kate Moore's optimism on investment in America and you see
20:23
Speaker 5: it a dollar thank you, and you putting up that
20:25
Speaker 5: wonderful dollar Looney chart and you see things adjusts and
20:29
Speaker 5: you wonder, Okay, what do we do with China, what
20:31
Speaker 5: do we do with Mexico with the produce debate? And
20:36
Speaker 5: pharmaceuticals with Europe? Guess what there may be constructive surprises
20:41
Speaker 5: is the certitude of the tariff debate gives way, It
20:44
Speaker 5: makes it easier for the next chairman, and maybe maybe
20:48
Speaker 5: I'll get out of triple levers all cash. It's fifty fifty.
20:51
Speaker 2: Oh, now is the time to definitely do it? Yeah,
20:53
Speaker 2: for sure, Jim. Before we let you get on with
20:56
Speaker 2: your day, I do want to finish there that have
20:59
Speaker 2: we seen from tariffs that there is this fungibility there
21:03
Speaker 2: that they get put on, they get taken off, and
21:05
Speaker 2: that right now the path of travel is lower from
21:08
Speaker 2: where we were maybe on April second, not higher again,
21:11
Speaker 2: And so you can look through in another kind of
21:13
Speaker 2: way some of the inflationary impact.
21:16
Speaker 3: Yeah, I mean, I think it was great to reach
21:19
Speaker 3: a pluminary deal with the EU. That's one of the
21:21
Speaker 3: bigger blocks in the world.
21:24
Speaker 4: China put on the back burner.
21:26
Speaker 3: Markets like that for now, and then you've got Canada
21:31
Speaker 3: and Mexico. Looks like we're headed toward renegotiation of the USMCA,
21:38
Speaker 3: which I think would be a fine thing to revisit.
21:42
Speaker 3: Was scheduled for twenty twenty six anyway, so it's maybe
21:47
Speaker 3: a little bit more settled than it was earlier this year,
21:51
Speaker 3: and I think markets are liking that.
21:54
Speaker 4: That's making it easier to plan. So far, so good
21:58
Speaker 4: on that.
21:59
Speaker 2: Jim Bullard, former Saint Louis FED President, joining us. Thank
22:03
Speaker 2: you so much for being with us. Maybe a future
22:05
Speaker 2: FED chair. We shall see. The process is ongoing. And
22:08
Speaker 2: City Wealth Chief Investments Officer Kate Moore, before we let
22:12
Speaker 2: you go, I just would like your take on this,
22:14
Speaker 2: the idea that we are at a moment where suddenly
22:17
Speaker 2: people are looking through the inflationary ramifications of tariffs. Are
22:21
Speaker 2: you seeing the same kind of thing? And that's appropriate
22:23
Speaker 2: that this isn't nineteen seventies. This is a different shock
22:26
Speaker 2: that usually is a demand shock in the end.
22:29
Speaker 8: Look, I will say people have been looking through the
22:31
Speaker 8: inflationary impact of terriffs for the entirety of the summer.
22:34
Speaker 8: At this point, there's been an enormous roller coaster ride
22:38
Speaker 8: in terms of expectations for end tariffs. But what I
22:41
Speaker 8: will say is this, you know, even if we're at
22:43
Speaker 8: a lower rate, I'm just going to say fifteen percent
22:45
Speaker 8: effective tariffs relative to where expectations were in the beginning
22:49
Speaker 8: of April. I think we have to keep our eye
22:51
Speaker 8: on the sectoral teriffs and this has potentially some of
22:53
Speaker 8: the biggest impact for overall earnings. And those are sticky,
22:57
Speaker 8: we know, and are likely to endure through multiple different administrations.
23:00
Speaker 8: So you know, this a give and take between some
23:02
Speaker 8: of our trading partners around the reciprocal tariffs we're watching
23:06
Speaker 8: that it's very hard to trade around it. But I
23:08
Speaker 8: will say the sectoral tariffs are going to be very
23:10
Speaker 8: important for our outlook.
23:13
Speaker 6: Stay with us.
23:14
Speaker 5: More from Bloomberg Surveillance coming up after this.
23:24
Speaker 1: This is the Bloomberg Surveillance podcast. Listen live each weekday
23:28
Speaker 1: starting at seven am Eastern on Apple Cocklay and Android
23:31
Speaker 1: Auto with the Bloomberg Business app. You can also watch
23:34
Speaker 1: us live every weekday on YouTube and always on the
23:37
Speaker 1: Bloomberg terminal.
23:38
Speaker 2: Well, let's take a listen to what Fedchara Jerome Powell
23:41
Speaker 2: had to say about tariffs and what the impact is
23:44
Speaker 2: on the economy.
23:45
Speaker 4: Take listen.
23:46
Speaker 9: The effects of tariffs on consumer prices are now clearly visible.
23:50
Speaker 9: We expect those effects to accumulate overcoming months, with high
23:54
Speaker 9: uncertainty about both timing and amounts. The question that matters
23:59
Speaker 9: for monetary policy is whether these price increases are likely
24:02
Speaker 9: to materially raise the risk of an ongoing inflation problem.
24:06
Speaker 2: What you could see is the response is rip roaring
24:09
Speaker 2: in markets, with equities surging, yields plunging on the front end,
24:13
Speaker 2: yield curve steepening at a dollar a weeker Pimpko global
24:17
Speaker 2: economic advisor and former FED Vice chair Rich Clarita joining us.
24:22
Speaker 2: Now and Rich, what's your take on what we just
24:24
Speaker 2: heard from FED share j Powell?
24:26
Speaker 10: Well, I think the share certainly intended to open the
24:29
Speaker 10: door pretty wide to cutting in September. Importantly, Lisa, he
24:35
Speaker 10: spent a lot of time on balance of risk, which
24:37
Speaker 10: is what policy makers do, but at the two key
24:39
Speaker 10: junctures he highlighted the balance of risk to the labor
24:43
Speaker 10: market is to a weaker labor market, and he basically
24:46
Speaker 10: indicated that the balance of risk to higher inflation doesn't
24:50
Speaker 10: appear to be a first order concern in terms of
24:53
Speaker 10: persistent inflation. So I think the message was they think
24:56
Speaker 10: they're going to cut in September, we get some more data,
24:59
Speaker 10: and the markets every acted to that.
25:01
Speaker 2: How much do you think that this is partly to
25:03
Speaker 2: maintain the Fed's credibility, not necessarily with respect to the president,
25:08
Speaker 2: but that right now, if they get it wrong on
25:10
Speaker 2: the labor market front, that it is that much more
25:13
Speaker 2: pernicious based on some of the job owning by what
25:16
Speaker 2: we hear from the President.
25:18
Speaker 10: Well, yeah, I mean, as the chair said in the remarks,
25:21
Speaker 10: it's a curious kind of balance in the labor market.
25:24
Speaker 10: The payroll employment growth has been very, very weak in
25:27
Speaker 10: the private sector, but the unemployment rate has not gone up,
25:32
Speaker 10: and so they are really focused on the balance of risk.
25:35
Speaker 4: Look, the FED has a dual mandate.
25:37
Speaker 10: It's costly to let inflation move higher and stay there,
25:40
Speaker 10: but it's also costly to have a recession with the
25:42
Speaker 10: rise of the unemployment. And I think, Lisa, you're correct
25:45
Speaker 10: they are tilting in that direction.
25:48
Speaker 4: Now.
25:48
Speaker 2: It feels like a very different Jackson Hole. And this
25:51
Speaker 2: is something that we've been talking about with all of
25:53
Speaker 2: our guests today, Rich that people have come on and
25:55
Speaker 2: said there is a different tone about central banking independence
25:59
Speaker 2: and a question of how to communicate at a time
26:02
Speaker 2: of such political interference. What's your sense of where that
26:06
Speaker 2: was in the speech that we just heard from Fedchair
26:09
Speaker 2: J Powell.
26:10
Speaker 10: I think the approach the Chair took was to really
26:12
Speaker 10: focus front and center Lisa on the dual mandate that's
26:16
Speaker 10: assigned by Congress maximum employment and price stability, and the
26:20
Speaker 10: Chair gave a very reasoned and thoughtful analysis and discussion
26:25
Speaker 10: of how they're balancing the dual mandate risks.
26:29
Speaker 4: And I think that's the j. Powell message to the
26:31
Speaker 4: issue of FED independence.
26:33
Speaker 10: We have an assignment from Congress, and this is what
26:35
Speaker 10: we're doing to achieve it.
26:37
Speaker 2: At this point, we also are dealing with the headlines
26:40
Speaker 2: that are coming out about FED Governor Lisa Cook, where
26:43
Speaker 2: at the same time that Jerome Powell was giving his speech,
26:46
Speaker 2: President Trump came out with this truth post saying that
26:49
Speaker 2: he will fire Lisa Cook if she doesn't resign. We
26:52
Speaker 2: did hear reports that in the Jackson Lake Lodge and
26:55
Speaker 2: the lobby that James Fishback was screaming at so Cook
27:00
Speaker 2: that why did she commit mortgage fraud? What's your take
27:03
Speaker 2: on what this does in terms of both the FED
27:07
Speaker 2: composition but also just the ability to be clear minded
27:11
Speaker 2: about making FED policy.
27:14
Speaker 10: Well, obviously understand just looking at the headlines that you
27:18
Speaker 10: mentioned myself and don't know the details or the facts
27:22
Speaker 10: in this particular situation, but clearly we're in an environment
27:28
Speaker 10: where FED independence is under scrutiny. And my conviction is that,
27:34
Speaker 10: notwithstanding all of the very relevant factors that you mentioned,
27:37
Speaker 10: that the Fed's is going to keep doing keep doing
27:40
Speaker 10: his job.
27:41
Speaker 5: Richard Claire to Tom Keene here, thank you so much
27:43
Speaker 5: for joining.
27:44
Speaker 6: U's very valuable.
27:45
Speaker 5: I've got two tasks I want to take here that
27:47
Speaker 5: I think are important. You recently said that what matters
27:51
Speaker 5: is the institution that this chairman and any future chairman
27:56
Speaker 5: has to protect the institution. What's the day one first
28:00
Speaker 5: mandate to protect the institution for the next chairman?
28:03
Speaker 10: Well, I think first and foremost it's to have in
28:06
Speaker 10: place a plan and communication that will deliver expectations of
28:12
Speaker 10: price stability. I think the chair was right today to
28:15
Speaker 10: emphasize that the FED has to focus on getting price stability,
28:19
Speaker 10: because that's going to deliver the ability to deliver maximum employment.
28:24
Speaker 10: I've also written Tom that the FED is sort of
28:27
Speaker 10: a complex and cumbersome institution with nineteen folks around the
28:31
Speaker 10: table and the Reserve Bank presidents. But I do think
28:33
Speaker 10: that is a strength right now of the institution.
28:37
Speaker 5: Right Well, this is really important because it's as fractiiced
28:40
Speaker 5: as a meeting of the bond team at Pimco. In
28:43
Speaker 5: the middle of the speech, Powell channeled a few years
28:47
Speaker 5: ago at PIMCO the new normal for a moment, I thought.
28:50
Speaker 5: Mohammed Ilarian persued it in to write the speech, What
28:54
Speaker 5: is your optimal new normal for the FED? Which Powell
28:58
Speaker 5: mentioned today? What's the best new normal for the next FED?
29:02
Speaker 10: Well, I think a new normal would be inflation moving
29:05
Speaker 10: down towards the two percent target, which would let the
29:08
Speaker 10: next BEED chair cut rates down towards a neutral level.
29:11
Speaker 10: You know, Pimco in twenty fourteen we rolled out the
29:14
Speaker 10: idea of a new neutral and we've been operating in
29:18
Speaker 10: that new neutral world now for more than a decade,
29:21
Speaker 10: and so I think well anchored inflation expectations, getting tariffs
29:25
Speaker 10: in the rear view, Mirr would allow the FED to
29:28
Speaker 10: cut rates by probably one hundred and fifty basis points
29:31
Speaker 10: from here and achieving that ultimate soft landing. So I
29:34
Speaker 10: think that would be a good new normal destination for
29:37
Speaker 10: the next FED chair.
29:39
Speaker 2: What risks are there to that given what we're seeing
29:41
Speaker 2: with the dollar, given the fact that we really have
29:43
Speaker 2: a very high level of uncertainty around which tariffs are
29:46
Speaker 2: going to stick and how much is going to get
29:47
Speaker 2: past along to consumers.
29:49
Speaker 10: Sure, and I think the Chair was right to point
29:52
Speaker 10: out that we are seeing evidence of tariffs showing up
29:55
Speaker 10: in the price indexes for imported goods, but that's been
29:59
Speaker 10: offset to extent with the decline in services inflation. Again,
30:04
Speaker 10: I think where they are focused is to make sure
30:07
Speaker 10: that what is an inevitable increase in the price level
30:10
Speaker 10: from tariffs does not over time result in persistent inflation.
30:15
Speaker 10: And I think the speech today addressed their thinking right now,
30:19
Speaker 10: which is that their baseline is that that will not happen,
30:22
Speaker 10: which will give them the room possibly in September, to
30:26
Speaker 10: cut rates.
30:27
Speaker 5: Yeah, Lisa, I think it's important to mention within the
30:29
Speaker 5: market check that the market is putting on steam. Here
30:32
Speaker 5: an hour after the beginning of the speech and Mike
30:35
Speaker 5: McKee's bombshell headlines a Dow lifting up. I'm not told
30:39
Speaker 5: I can't leave Jackson Hall unless Dow goes up a
30:42
Speaker 5: thousand points.
30:42
Speaker 6: Well, I'm getting pretty close to you.
30:44
Speaker 2: It sounds like you're going to be hiking for maybe
30:46
Speaker 2: another six hours and then all of a sudden not
30:48
Speaker 2: so much rich. I do want to know, though, about
30:50
Speaker 2: what this does in terms of the currency ramifications and
30:54
Speaker 2: where your preference lies in terms of the good investment backdrop,
30:58
Speaker 2: because what we heard from fetcherg is so vastly different
31:02
Speaker 2: from what we heard from Joakim Novel of the German
31:06
Speaker 2: Central Bank, where he said we have to focus on
31:09
Speaker 2: inflation and right now that is more concerning to them
31:12
Speaker 2: than trying to support growth by cutting rates or being stimulative.
31:16
Speaker 2: The fact that that is the framework there and it
31:19
Speaker 2: is such a different framework here, does that make you
31:21
Speaker 2: want to invest in Europe a little bit more?
31:24
Speaker 10: Well, you know, I think one of our themes at
31:26
Speaker 10: PIMCO is that we're in a world where taking advantage
31:29
Speaker 10: of a global opportunity set makes sense. Also, we're in
31:33
Speaker 10: a world where makes sense to focus on valuations and
31:36
Speaker 10: without getting into particular markets or securities. There have been
31:40
Speaker 10: some pretty big divergencies between valuation in the US and Europe,
31:44
Speaker 10: especially in inequity markets. Also, you know, the Europeans are
31:49
Speaker 10: much closer to their two percent target than is the
31:52
Speaker 10: FED because from your point of view, the tariffs are
31:55
Speaker 10: really a disinflationary force. So we're at different points in
31:59
Speaker 10: the rate cycle, and that does open up some good opportunities.
32:04
Speaker 5: Richard Clarita, you are definitive in the mathematics, the modern
32:07
Speaker 5: mathematics of our economics. Then you know, we talk about
32:11
Speaker 5: a new framework and it's a lot of job boning
32:13
Speaker 5: about process.
32:14
Speaker 6: Maybe it's what are we going to do with the dots?
32:17
Speaker 6: What are we going to do with the.
32:19
Speaker 5: Mathematics of modern economics?
32:22
Speaker 6: Forward? Is it diminished after all this turmoil?
32:25
Speaker 10: You know, you know, Tom, you and I over the
32:27
Speaker 10: years decades now, I've talked about that a number of times,
32:30
Speaker 10: and my thinking continues to be the mathematics, the models,
32:34
Speaker 10: including my own, our tools. They're a starting point for
32:37
Speaker 10: analysis and discussion, but they're not They're not handcuffs, nor
32:41
Speaker 10: are they the destination.
32:44
Speaker 4: And certainly, you know.
32:46
Speaker 10: The last five years have been unusual with a pandemic
32:49
Speaker 10: and all the rest. But I continue to believe that
32:52
Speaker 10: models in math are our tools, not handcuffs.
32:55
Speaker 5: My goal right now, Rich is to get you on
32:57
Speaker 5: the short list, is to be the next chairman.
32:59
Speaker 6: So let's talk tariffs here.
33:01
Speaker 5: What is the clarita mathematics of Trump tariffs?
33:06
Speaker 10: Well, as Mike McKee said, they are raising a heck
33:08
Speaker 10: of a lot of revenue, and I would agree with.
33:10
Speaker 6: My Washington there you go.
33:13
Speaker 10: I think I think Washington may very quickly get hooked
33:17
Speaker 10: on the two or three hundred billion dollars a year
33:20
Speaker 10: in tariff revenue, especially if you know the initial cost
33:24
Speaker 10: of raising that revenue is in the rearview mirror, which
33:27
Speaker 10: which I think I expect to be the case down
33:31
Speaker 10: the road.
33:32
Speaker 6: Look, we're in.
33:33
Speaker 4: A different regime, you know.
33:34
Speaker 10: We talked at PIMCO in June about an era of fragmentation,
33:39
Speaker 10: and these trends have been accelerating and the destination for
33:43
Speaker 10: the global trading system and global economy is going to
33:46
Speaker 10: be very different in five years than it was in
33:49
Speaker 10: the thirty years of globalization. So I think to be
33:52
Speaker 10: continued is the way I would answer your question.
33:55
Speaker 2: He's running, Is that what you think? I know?
33:59
Speaker 6: Bullets running?
34:00
Speaker 5: Yeah, I think by the time we get done on
34:02
Speaker 5: the show today, we're going to have Tracy Alloway, right.
34:04
Speaker 2: I think that maybe we'll find out, But I am
34:08
Speaker 2: we will. She's sitting here with us. I'm sure, she says,
34:11
Speaker 2: I bag Rich. I am curious though, going forward this
34:14
Speaker 2: idea of how inflationary tariffs could or couldn't be given
34:18
Speaker 2: the fact that this is a new world order. And
34:20
Speaker 2: we were talking with Adam Posen of the Peter S
34:22
Speaker 2: Constitute earlier, and he was talking about how he sees
34:25
Speaker 2: inflation as having nodes of the nineteen seventies and potentially
34:30
Speaker 2: being really pernicious. Why do you not necessarily see that?
34:34
Speaker 2: Why are markets more sanguine on that risk?
34:38
Speaker 10: Well, I think simply because the nineteen seventies we're a
34:44
Speaker 10: very serient experience for the current group of policymakers who
34:49
Speaker 10: lived through it, and I think there were some important
34:53
Speaker 10: lessons learned. And one lesson learned is high and persistent
34:58
Speaker 10: inflation is very costly to the economy. And I think
35:01
Speaker 10: politicians learn that as well, and so I think that
35:05
Speaker 10: central banks have earned a lot of credibility. The under Vulcar,
35:08
Speaker 10: under green Span, under pass fed chairs in the US
35:12
Speaker 10: and abroad, and I think that expectations of inflation, we're
35:17
Speaker 10: sort of in a world in which the bomb markets
35:20
Speaker 10: at least think that over a five year period, the
35:22
Speaker 10: FED is going to do whatever it takes to get
35:24
Speaker 10: inflation down what I call two points something. And I
35:28
Speaker 10: think that's an important victory that central banks are still
35:31
Speaker 10: benefiting from, and I would expect that and certainly hope
35:34
Speaker 10: that will continue.
35:35
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