tv Bloomberg Markets Bloomberg June 15, 2016 3:00pm-4:01pm EDT
federal funds rate. there is great uncertainty in that number. as i said, we have good reason to believe this so-called neutral rate, rate compatible with the economy operating at full employment is low at the present time. believe as a base case it is reasonable to assume those rates will move up over time, but we are not certain of that. it is one of the uncertainties. there could be revisions in either direction. recent times, revisions have mainly been in a downward direction. the idea that a loan neutral rate may be closer to the new normal. but you do still see some reversions.
so we are really quite uncertain about that. in your speech in philadelphia, you call the slowdown in job growth last month concerning. you mentioned today that you want to verify the underlying momentum in the economy and labor market is continuing. what do you need to see to convince you that the labor market is still moving toward full employment, and how long do you see it? i cannot give you a formula, i know that you would like to have a number that is a cut off for what we need to see in a particular report. there are a lot of different indicators of the labor market. for example, the labor market has 19ons index different indicators. clearly, we will be looking at the next jobs report. if we were to see a healthy pace of job growth, above that needed
to kind of maintain the status quo in the labor market. i should say, over time, we should expect to see, as the economy comes closer to maximum employment, the likely pace of job gains is probably going to slow down somewhat. we have seen some slowing. but the recent couple of months was very low, and arguably not even at the pace we need to see to maintain stable labor market conditions. we want to see an adequate pace of job creation. there might be revisions to previous months if we change our views, but there will be other surveys of employment intentions , other indicators of the labor market that we will be focusing on. there is no formula for what it
takes, but we will be looking at the labor market. also in philadelphia, you did not say that it would probably be appropriate for a rate hike to occur in the coming months. did you intentionally leave that out? you know, we do need to make sure there is sufficient momentum. i don't know what the timetable will be to gain that assurance. every meeting is live. there is no meeting that is off , that no meeting is out, in terms of a possible rate increase. but we really need to look at the data. i cannot pre-specify a timetable. i am not comfortable to say it is in the next meeting or two, but it could be. not impossible.
it is not impossible that by july, for example, we would see data that lead us to believe that we are in a perfectly fine course, and that data was an aberration and other concerns in the past. we are in election season. in the past, the fed has been sensitive to making policy changes in election years. you have three more meeting before the november presidential election. could you comment on whether or not the election will come into , and any concern that if you change policy ahead of the election -- based on your forecast today, you could -- are you concerned that that could lead to charges that the fed is trying to change policy to influence the outcome of the election? because if it has been sensitive
to that in the past. are verylen: we focused on assessing the economic outlook and making changes that are appropriate without taking politics into account. look, if the incoming data were, in the coming months, to justify the kind of gradual increases that we have long discussed, that we see is appropriate in thinkof the outlook, i markets should not be surprised by such a decision, if we make it. it is obviously consistent with seen and theave company will feel approved -- free to move in the coming months if appropriate. remarksentioned in your that we are getting a slightly
different signal when you look at inflation versus inflation expectations. could you detail which you look at and weight more? are you focusing on the pickup in inflation? chair yellen: we are looking at both. with respect to the behavior of behaving, inflation is roughly in the manner i would have expected. i was really not seeing significant surprises there. we have long said, an important reason inflation is as low as it has been, is because of past declines in energy prices, increases in the value of the dollar. as those factors begin to dissipate, we would see inflation moving up. now that is exactly what we are seeing. that is in line with our thinking and with the data. those things have stabilized.
their influence is dissipating. inflation,t to core which is partly influenced also by the dollar, much wrong to pull out the dollar in import rice influence, core inflation seems to be behaving roughly as one would expect with well anchored inflation expectations and an improving labor market. ,o i'm not seeing anything inflation, even core inflation is running under 2%. i continue to think the evidence supports a projection that it will move up over the next couple of years back toward our 2% objective. , andve seen in the past economic theories suggest, inflation expectations are relevant to price and wage setting decisions. so we do monitor indicators of inflation expectations carefully.
now, it is very hard to know exactly what inflation expectations are relevant to actual price and wage decisions. so for example, we have seen the michigan survey, a measure of household inflation, expectations move down. that is a preliminary number. it is hard to know what to make of it. we have certainly taken note of it. but survey-based measures, where forecasters were queried, have all been stable. measures of inflation compensation -- i always been careful to call it compensation rather than expectations -- because they are not inflation expectations. inflation expectations influence those market ensures, but there is also an inflation risk review. -- premium. there is good reason to think the inflation risk premium could
have declined significantly and maybe depressing those numbers. so we watch them, we have taken note in the statement that they have moved down. actual inflation is behaving more or less as we expected. >> wendy april minutes were released, they caught markets by surprise. they seem to show there was an active discussion of a possible june rate increase, something we had not gone from the policy statement that was issued right after the meeting. was that a conscious decision to hold back and tell us when the minutes came out about the june discussion? if so, could you tell us what surprises we could see in the june minutes? so, the minutes
always have to be an accurate discussion of what happened at the meeting. they are not changed after the fact in order to correct possible misconceptions. there was a good deal of discussions that meeting of the possibility of moving in june. that appeared in the minutes. i suppose, in the april statement, we gave no obvious h signalcalendar-based that june was a possibility. but i think if you look at the statement, we pointed to slower there was no fundamental reason for growth to have slowed. we pointed to fundamentals underlying household spending decisions that remained on solid ground, suggesting maybe this
was something transitory that would disappear. we noted labor market conditions continue to improve in line with our expectations. ourid downgrade somewhat expressions of concern about the global risk environment. were hints inre the april statement that the committee was changing interviews of what it was seeing . we continue to say that if we think economic developments involved in line with our expectations, the gradual and cautious further increases we expect to be appropriate. i suppose i was somewhat surprised with the market interpretation of it. but the minutes of the april
meeting were an accurate summary of what had happened. >> the fed has repeatedly voiced its concern over the slow base of wage growth. i was wondering, do you think increasing the federal minimum wage could be of any help, could it boost higher wages and eventually drive up inflation? chair yellen: i think the minimum wage increases that have gone into effect, estimates that i have seen suggest it is a relatively minor influence on the aggregate level of wage .nflation i would take somewhat faster wage increases to be a sign that labor market slack is diminishing than that the labor market is approaching conditions that are consistent with maximum
.mployment i think we have seen some hints, perhaps pulmonary indications, that weight growth is picking up. as much as anything, i think it is a sign of a generally healthy labor market, which is what our mandated objective is, to achieve maximum employment. so it would be a symptom of it. there has been a lot of discussion in the last couple of months about the slow pace of the man in the global economy. some economists think central banks should you can about using helicopter money. they be in japan or your first. europe first.
then former chair ben bernanke weighed in and said it would be a good idea to put helicopter in then its tool kit, united states. i like to get your comments on that. in normal times, it is important that there be a separation between monetary and fiscal policy. it is a primary reason for independence of the central bank . we have seen all too many examples of countries that end up with high or even because those in charge of fiscal policy, directors, central-bank, to help them finance it by printing and maintaining price stability and low and stable inflation is very much aided by having central bank independence. times,id, in unusual
where the concern is with very weak growth and possibly deflation, rather rare circumstances. first of all, fiscal policy can be an important tool. it is natural that if it can be employed, just as monetary policy is doing a lot to try to stimulate growth, the fiscal policy should play a role. normally, you would hope an economy with no severe downside risks, monetary and fiscal policy, would not be working across purposes, but together. whether or not in such extreme circumstances there might be a nation --let's say," close coordination, where the central bank plays a role in financing policy, this is something that academics are debating. it is something that one may
legitimately consider. as verysee this ,bnormal, extreme situation where one needs an all-out attempt. even then, it is a matter that academics are debating, but only in an unusual situation. now that the fed has started the process of raising rates, various fed officials have said, including ben bernanke, that the fed could go cash flow negative in this situation as capital losses are taken on the portfolio bond. do you see this happening, and when might this happen? chair yellen: talking about our income going negative? scenarioceivable, in a where growth and inflation
really surprises us to the , that we would have to raise short-term interest rates so rapidly that the rates we would be paying on reserves would exceed what we are earning on our portfolio. we have about $2 trillion of liabilities, mainly currency, on which we pay no interest. so this does require an extreme scenario with very rapid increases in short-term interest rates. so it is conceivable but quite .nlikely that it could happen it were toow, if happen, we would have an economy that would be doing very well. this is probably an economy that everybody would feel very pleased was performing well and ourer than expected, and
goal is price stability and maximum employment. we would, we feel good that we had done well in achieving that. we usually make money. we have been making a lot of money in recent years, but the goal of monetary policy is not to maximize our income. in a very strong economy like that, the treasury would be seeing a lot of inflows in the form of tax revenues, too. >> to what extent do you feel constrained in raising interest rates by the low or even that foreigns central banks are pursuing, possibly out of concern for what it might mean for the dollar exchange rate? if that is a constraint, to what
extent might you also be concerned about the impact ratesange of low domestic on possibly distorting domestic markets? chair yellen: the state of foreign economies, both their growth outlooks and their stance those arey policy, factors that influence the u.s. theook and influence appropriate stance of monetary policy. we do look at ,oreign rates, the prospects and the prospects for growth in those economies in considering the stance of policy. differentials between countries in the likely policy pads do tend to spillover into exchange rates.
that is a standard part of how monetary policy works. does have bothar a depressing effect, they create channels through which domestic demand is depressed. for quite some time, and probably going forward, net exports will probably be a drag on u.s. growth. so that is a factor we take into account. increases in the dollar that we 2014 have since mid- served to push inflation down as well, can also have impacts on commodity prices that are relevant. relevant to the stance of u.s. monetary policy, and a factor, but one says a
constraint, i would not go as far to say that it is a constraint on monetary policy. when we have an outlook or ,ontinuing above trend growth holding rates absolutely flat, we have reason to believe inflation would overshoot our target, we would see a case to gradually raise rates over time. at the moment, i think, markets expect -- and this is factored into market prices -- a gradual path to rate increases over time. for example, if we were to see upside surprises to growth and inflation, and had to raise short-term rates faster than we thought we should, one of the channels by which that would work would be the associated impact on the dollar. that is a standard channel through which the monetary policy transmission mechanism works, and we would take that into account, and would not feel
constrained. that would be part of how it would work. >> how much are you watching oil prices and their impact on inflation, and how that could affect the timing of future rate increases, and how much you might increase rate? chair yellen: oil prices have had many different effects on the economy. we have been watching oil prices closely. pricessaid, falling oil pull downinflation -- inflation. it takes falling oil prices to lower inflation on a sustained basis. once they stabilize, at whatever level, their impact on inflation .issipate over time so we are beginning to see that happening. not only have they stabilize,
they have moved up some. their impact on inflation is waning over time. but oil prices have also had a very substantial negative affect on drilling and mining activity that has led to weakness in investment spending and job loss and manufacturing, obviously, in the energy or. sector. it has different effects in different countries or different sect hers. for american households, it has been a boon. we have estimated since 2014, the decline in energy prices, oil prices, has probably resulted in gains of about $1400 per u.s. household. that has had an outstanding positive impact on spending. but in many countries around the world that are important commodity exporters, the decline
we have seen in oil prices has had a depressing effect on their growth, their trade with us, and causedrade partners, and problems that have had spillovers to the global economy as well. so it is a complicated picture. tom: the chair getting more practice at her press conference. michael mckee has attended 432 of these back to alexander hamilton. you are not in a broadway play. mike: you did not have to pay that kind of money to get in that. tom: how is this different from mario draghi's press conference? mike: very much the same. you don't get a chance to ask a follow-up question but people are focusing on the implications of it. that becomes an issue when a meeting with july is on the table. she tried to make the case,
probably not for economic reasons today, but there are people who think they should have these every day. tom: let's welcome back our audience. good morning to you in asia, certainly listening in a very interesting europe as well. you are watching and listening to bloomberg television and bloomberg radio. i am talking with michael mckee. let's do a quick data check before we get to our esteemed guest. vice chairman blinder is scheduled to join us. setback back usual from the shock and all of the meeting, but nevertheless, these are changed screens from one 1:45 this afternoon. we will come to yen in a moment. 05.06, steepening out over the
last hour. there is the two-year yield again. full this together, economics, finance and investment, with the global litmus paper, which is foreign exchange. working with james sweeney is shabab jalinoos. i want to go right to the chart and the look on dollar yen. for those of you on bloomberg radio, i will put this out. this is a chart that many of our viewers and listeners know. yen. wants a weaker a good part of a stronger yen is chair yellen. is chair yellen the central banker to the people of japan? >> we get to see tonight, i guess, with the outcome of the readingn interest-rate -- meeting. my question would be, what is the point of easing now ahead of the potential brexit risks that the markets are facing?
potentially seeing a lack of response in the markets. and then potentially having to ease again. it is difficult at this point. janet yellen did note in her news conference that brexit was a factor in her decision-making. they don't know what will happen. it is a factor in the trade right now, the uncertainty surrounding this? >> if you look at fx options markets, currencies could be far away from the u.k., they are also pricing in quite a lot of implied volatility over the brexit. that is really the only issue right now that is affecting markets. none of the fed is out of the way, with the exception of the bank of japan meeting. mike: then the question becomes, suppose they will to stay in the european union. on june 24, does everybody had for the same door?
potentially, yes. a lot of inability in the market at this point to provide an, in terms of hedges for those worried about brexit risk. presumably, markets are underweight sterling assets, material way, european assets generally more. it could lead to a risk on environment. it depends on how conclusive the outcome is as well. votediscussion about a tie lead to some risk aversion in the u.k. but a clearer when would be a narrow entry. thatwith the uncertainty bob nardelli and the business world talk about, is your world busy, or are you all at the beach and the hamptons? mike: you have to stay through thursday of next week. >> exactly. we do have to focus on the markets. tom: are people taking bet s?
>> it is difficult to say. investors have certainly try to cover the risk, but actively betting -- it is hard. for example, if you want to bet on brexit right now, it is expensive to do that. the risk premiums are high. not very appealing at this point to do anything on that front. when we are seeing our market participants looking at areas where they still might be cheap on brexit. bets we believe implied volatility in the canadian dollar is too low. if you get a general market dysfunction, even a currency that is completely unrelated could see a lot of volatility. there are still these possibilities on the sidelines, but not that many. schatzker traded his ticket to "hamilton" to a seat at the press conference. he has come out of the meeting now.
what did you see as the most important thing that she said? number of important things, we can certainly go through a bunch of them. it took a while for her to answer or address the question that so many people were inevitably asking after reading this pigment and looking at the summary of economic projections and importantly, the dot plot. could the fed actually move any time during the next three she was adamant the band will feel free to move the data coordinate. she said it could be at the next meeting or two and she said, and i quote her, july is not impossible. she has been saying this consistently but it is clear that she wants to leave the world with an understanding that the bed is a dependent, it will not be swayed by politics, even if there is a disorderly market reaction to a poorly handled dead right like -- fed rate hike.
continued all the way through february 11. energy guys talking about brexit. obviously that is a big deal. she said the brexit looms very large for the bed. -- the fed. idea how did she swear the -- inflation rising and unemployment staying above where it is close to full employment, yet the fed be on hold and lowering its forecast for rate increases? erik: jews asked that question a couple of ways and i do not think you could find anybody in that room who thought the explanation for that was satisfactory. whether we are going back even further to see how the fed has ratcheted down what the expectations for what the normal rate should be at the economy is
operating at full employment while at the same time cranking down, ratcheting down its expectations for inflation for unemployment at the same time but most important for economic growth. i do not think i'm alone and coming out of that room feeling like that question was well answered. mike: the market had to like the fact that the fed came down towards where the market is, but do you have a better idea of what the reaction function is? what the shows of the importance of global events. we have weak growth outside of the u.s. leading to is inflows into u.s. debt markets. you have aof the day situation where net trade has a negative effect on gdp and if
the dollar were to surge, that you have a feedback loop back into inflation. in my view come at it is difficult right now for the fed to be doing anything approaching a sequential series of hikes. japantarting in the thursday, today is wednesday, right? for you and me, we are not sure. but seriously, this is a really important question. we have to open in japan that we have to go to europe. europe negative rates closed ugly. how will they adapt to this moment as they recalibrate less to brexit and more to the next moment? shahab: at the time being it is
hard to look beyond brexit, to be honest. there's so much requirement right now to not lose money. tom: brilliantly said. shahab: it makes it hard to look that far out. that is a big change for people in the markets because it was easy to make money, gentle banks were pumping money into the global economy. the goal is, just do not lose? it is very difficult to calibrate just what will happen to markets in a brexit outcome. but markets are defensive. tremendous paid a amount of yield to take risk at this point in time. so why do it? why look to take on aggressive positions ahead of an event which is very difficult to analyze? has put the market in this defensive mode we have right now. is telling status
banks things are not good, -- the i was surprised at amount of talk on the labor economy in 60 days of lousy labor numbers. what was the energy in the press conference by the blunt instrument of payrolls? erik: there were a lot of questions. we will see to justify a rate increase. shequestion might be -- said on more than one occasion you have to look beyond 18 a point. -- one data point. you have to look beyond a single data point. to isolate one thing that janet yellen seems most concerned about, it is the labor market, more so than inflation. she kept down these concerns
about deteriorating inflation compensation, which is how she describes things like tips or break evens. give us a couple other clues about what it would take for the fed to want to raise rates. we have got into a bunch detailed about one of them which is international or external developments. but the other two were worth pointing out, which were subdued household formation and thirdly, meager productivity growth. those are things the fed consider headwinds. if there was progress on either of those two fronts, she believes will blow through right to job creation and ultimately we would see it in the form of higher inflation. tom: thank you so much. moving to july.
i think i'm going to do a data check here quickly on the yield market in what we saw in the gyrations and wondering where ruvell be tomorrow morning. 160, bobbingnder around but still a lower yield on this call. is 106 a moment ago. mike: let's look at the two-year yield. the yield curve is steepening a bit. the two-year probably more than the 10 year. as people take the fed out of the market for at least three to six months or so. tom: a must read book. over a decade ago, i was the work of alan blinder at princeton university. he is the former fed vice chairman. you know him from his recent book on the crisis, but when i remember was a quiet resolution
talking about banking going modern. they working out of your cortex work or as everything we heard today absolutely original in a very loud revolution? know if it is completely original but it is very modern. great hallmarks of modern central banking as opposed to older -- and i do not mean archaic, just a few decades ago -- is central talk with communication with the public. as alan greenspan never was, a press conference to explain the fed's banking. alan greenspan was bed -- fed chairman not too long ago and now was unthinkable and now it is just normal. mike: what did you learn today about the fed's reaction? why would they consider giving their economic outlook?
it is a further tightening of the labor market starts to show evidence of inflationary pressures. was interesting to me that esther george did not dissent decision because if you look at the data in a certain way you can see signs of that. for example, we see that the unemployment rate is just slightly below the fed's estimate, and we see both wages and prices accelerating, though from very low levels, not levels that scare anybody right now. but they are moving up, not down. if you are sufficiently hawkish, that would be -- those would be nals tol figures -- sig start getting onto normal interest rates but the fed did not think that way today. mike: you look at the economic
projections they put out and they see inflation rising but the unemployment rate over the falling evens further than they have before. alan: that is the kind of thing i mean. they are forecasting inflation below nehru which is consistent with lysing -- rising inflation. they haven't signed us a long time to they had going to tolerate an overshoot of inflation. they did not let a number on that but a lot of people estimated that meant 2.5% instead of 2%. the principle is the important thing, they have been very forthright about some willingness to overshoot inflation. mike: do you think they can get their? alan: i do think they can get there. very recently, i'm talking about the last couple months, inflation is basically the fed's
target. they are basically there now but it is rising. it looks to me we're going to get an overshoot in the not-too-distant future. not a giant overshoot them about an overshoot. overshoot,l get an but this links in with your work of linking finance into economics, we do it with a massive distortion of interest rates. , they fed extends it lengthen and strengthen -- maybe it is lower longer -- do the banks of the world, can they had the patience and the time to wait for the head to move -- fed to move or are they going to run out of degrees of freedom? going to runank out of degrees of freedom? alan: i do not think so. to your question, they do not have any choice but to wait. they may wish for a higher interest rate environment, but
they are not getting it quickly. the question is, what can i do about it, can they hold out? this is squeezing bank profits, more so in europe than the united states. but businesses have flush times and lean times and they are going to have to live through the lean times. when you look at u.s. banks, you raised deutsche bank and are others, but when you look at u.s. banks, they are doing pretty nicely right now in terms of profitability. they are not suffering very much. they would be better off interest rate were higher, but they are not suffering severely from a low interest rate environment. tom: you and your staff couple eluded a terminal value for the american economy. mitsubishi is way below 2%. growth, potential gdp,
whatever you want to call it. idea, is this a new america, a sub 2% america? alan: i noted with interest that 2% gdp has stuck to its growth rate in the longer run column on the projections. come down a bit over the last two years but i do not think enough. the main part of that growth rate is productivity. it is not population growth. labor force growing slowly and everybody knows that. that kind of a number is consistent with roughly eight 1.7% annual productivity growth rate. in the last five years we have been doing one half of 1% productivity growth rate. i do not know what the future
will bring, neither does janet yellen, but to me, an assumption that relatively soon we're going to see productivity growing at 1.7% looks quite aggressive to me. i would be much lower than that. fed is about there, but that you look at inflation expectations. we have a chart that shows consumers and wall street view. they are not going in this direction. we will this out for everyone to look at, but the market still does not believe that. i think is more willing to look at global developments and take signals from what is going on in japan, what is going on in your area, potential risks from china. doctors also need to be considered only look at the u.s. economy. at theiew, when we look
u.s. economy we do it from a u.s.-centric perspective, which historically has been the right way. become his are unfolding more broadly, that is changing. i think markets may be indicators of where the economics looks at the u.s. economy will be going for it. them still burning disinflation into the united states? shahab: that is the signal the markets are giving right now. there is difficulty for market observers to see what is really going on in china, what is really going on in europe. is not something that is very transparent but what we do know is that the market periodically as large pickups in relation to those issues and many of the problems they pose have not gone away at all. let's imagine you get a brexit outcome and u.k., what then happens to your economy? these are issues that are no means assault and it is difficult for me to imagine they
will become inconsequential going forward. you have been a supporter of democratic party politics, you are a strong supporter of john kerry. have you spoken to secretary clinton and specifically, have you spoken to secretary clinton about a renewed fiscal policy? alan: i have not come i am not spoken to her at all recently, she has been a very busy person. these are the kinds of things you talk about after a campaign is over. we might need it, it is possible. my best guess now is that we but i do not hold that guests with a great deal of confidence. that could be wrong and we could need a fiscal stimulus down the road. throughwe can get one congress is another question entirely and will depend on other things, on the outcome of the election.
mike: i was just going to add to the last point. i think the markets of gotten a little too modern. yes, we are influenced by japan and china in europe, and so on, but exchange rates are gloating and that leaves a lot of room for diverges and inflation rates in the u.s. versus europe. i do not put a lot of weight in projecting u.s. inflation on the inflation rate in europe or japan, for example. tom: vice chairman blinder, is he cratering the market right now? mike: he was trying to be optimistic, i think. i do not think i have that
power anymore. push against vice chairman blinder, if you would, as you do with great respect, the economics of say alan melzer of carnegie mellon and others who say that the market take care of itself. is, leave the markets alone, everything will be fine. where are you on that meter right now? do we need to be intrusive or not? alan: you're talking about monetary policy. i think we need, or at least should be informative. pastis, markets in the often flew off on tangents making extrapolations about what they thought the fed was going to do that were very poorly more in reality. -- moored in reality. it is much harder to do that now. the markets cannot get exactly
where the fed's rates will be right now. the fed doesn't know that either. but the possibilities that believe in the markets become totally unhinged from federal reserve reality are severely diminished by the greater --i will givethis you an example, back in the day when i was vice chairman of the fed, and this is when the fed was very quiet and said nothing about its board intentions. i was aggravated that the market 8% the fed rate was going to and most of us inside the building thought it was unlikely %, but weher than 6 said nothing officially to bring the markets expectations down. eventually they did come down %,d the rate topped out at 6
but we let that misconception sit there for months and months. the fed doesn't do that anymore. mike: they give us reasonably explicit guidance. this --sk you both, does forward guidance work at this point? cannotseful if the fed know what happens, and we do not know what is going to happen with all these global developments that keep popping up? alan: i think it is very useful. meanhat does not controlling. the market has look at past history, correctly seen that the fed has overestimated the strength of the economy, conclusively overestimating and expressing this belief in that forecast. that is fine.
what you like the markets to do is processing a lot of information, including what comes out of the federal reserve , and make its own judgments. that is what people get paid to do, and that is fine. i think it is good. it is certainly useful in terms of setting a framework for the market to look at events. having said that, it is interesting me to talk about issues like china, like brexit, issues that clearly nobody has a handle on in terms of what kind of reaction they will elicit an the market or the economy. but still have forecast so much higher than where the market is. the market is giving information to policymakers as well as much --his telling policymakers those tell risks has severe affects. this gap between the markets and the policymakers does raise some questions. tom: we thank you for joining us
on bloomberg television and bloomberg radio. professor blinder, we show this chart earlier of columbia and now pimco and we did this and -- idea of them looking at the overshoot -- you mentioned this earlier, the idea overshoot.at will i'm going to say six years ago, we need to reflate. in your reading of economics, can you reflate a society? is there any evidence that bernanke -- can they reflate an economy? is lots of evidence from the past but in those past episodes, the central banks werely, if ever, faced the --
used to call it the zero lower bound, now we know we can go negative. in these past episodes of reflation, the effect of lower bound was almost never a factor. we just were never anywhere near it, therefore it was never an effective constraint. with the effect of lower bound, the central bank is constrained to weaker instruments, as we now know. and we also now know that it takes, to use a technical term, a hell of a lot of quantitative for 1% change of interest rates. up, is where the fed wound and that means they have less power in the current circumstances to reflate an economy than they are used to and have been accustomed,
historically, to have. mike: where do we go from here? falls, theif the sky british move out any market falls apart, that is one thing. the fed is now on hold from here until probably december, what is the trade, where do we go? shahab: this might be negative views that were put forward in terms of how the broader global economy is going, on a technical basis, at that point i suggest getting back into risk, especially in europe, the u.k. decides to remain. but the market could move after thinking the fed will talk up again the possibility -- mike: you do not believe them when it never a statement like this? shahab: what you find is the fed doesn't appear to like the market pricing. like to take advantage
of times it can to lift expectation. tom: thank you so much. our blinder, a special thanks to you, greatly appreciate your perspective. he is former vice chair of the federal reserve. i think we should do a quick check here. bloomberg radio and bloomberg television through the afternoon. -42 on the dow. i do not want to overplay that but it is unique to stocks. utilities -- i want to go back to the chart is believed here. the fun game to play is who is debbie downer? there is one member who thinks we're not going to see any rate increases. this is going to be the parlor game for everybody. who is the real pessimists out there? -- ithe real pessimists
was a joke -- mike: he believed that would be the policy. tom: would you suggest the former president of the fed was out in front of everybody else? maybe that is the headline today. mike: it will be interesting to see who that was. tom: i want is a quickly, bloombergradio and television will be most interesting. mike: we will wrap up our next, would you miss coming up on bloomberg television. ♪
,carlet: stocks closing lower treasury yields in the dollar extending declines. joe: the question is "what'd you miss?" makers ratchet down their outlook, predicting one rate hike this year. next central-bank decision, when boj announces. scarlet: frontier market no more, emerging market status for pakistan, stocks jumping the most in a year. ♪ scarlet: we begin with market minutes. after fed decided to leave rates , indexes plunging to their lowest levels of the session. if you look at the numbers, they weren't that extreme.