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tv   Bloomberg Markets The Trump Economy  Bloomberg  June 14, 2017 1:00pm-2:01pm EDT

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television and radio. it is not business as usual in washington african man fired i republican lawmakers baseball congressmanjuring steve skill. the house delayed votes. steveent trump said is wounded but fine. federal reserve policymakers will conclude their two-day meeting as originally scheduled. they will have a decision announcement at 2:00 p.m. janet yellen will have a news briefing at 2:30 p.m. i am joined by my cohost tom keene and michael mckee. gentlemen, my initial thoughts are the economic data we got this morning was interesting, critical data that moved in the wrong direction. bondl sales and court cba,
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debt and core cpi, does it give the fed reason to adjust its characterization of the economy? michael: i would say the same thing. based on the way the market is set up and the death and what the fed has said going to the meeting, you figure they will still go ahead with a rate move but it raises questions about their forward guidance. wouldonomic projections indicate one more rate increase but when you get to september, if we still see disinflation and weak consumer spending, do they really want to go ahead question mark they will have a debt limit debate underway in the possibility of a government shutdown. it may change what they say about what will happen going forward the rest of the year. what will they say about the balance sheet. tom: i agree with that.
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i agree with the idea that the date it was a shock today. this chart brings in the perspective of bringing -- of being near escape velocity. way up here in the upper right corner is this pullback in bonds today. it's an extraordinary decline of 10 basis points. what is the why for lowering yields this morning? michael: the market is beginning to price out the idea of another fed rate move. whenhad already done that you look at fed fund futures trading but they see of no other way that the fed will raise rates anytime the rest of this year. the problem is, the data are not behaving as they should. when you get unemployment as low as it is, we should see wages and prices rising. why aren't they? that's a question for janet yellen. inflation and
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disinflation is transitory. can they continue to make that argument if we get this news month after my? -- month after month question ? tom: equities are not really in the game, up 18, that i would point to the two-year yield. those are lower yields. it's extraordinary with a weaker 10 -- atd the yen at one dollar eight cents. everything but equities is coordinated. scarlet: equities are trading near record highs. lots of conversation and lots of debate over the next couple of hours. let's begin by bringing in carl riccadonna, you wrote that the the unknown.to >> said officials of joke that
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the balance sheet unwind should be like watching paint dry. the fed does not want this dramatic. they want the unwind to be a passive strategy. want to operate quietly in the background's of the fed can do interest rate alice he as the main active level. tom: i look at the idea of a balance sheet and interest rate dynamic low. which is the cart and which is the horse question mark >> the balance sheet can be a long process of normalizing it and they are not entirely sure what the reaction function will be if that happens. they are more closely attuned to the interest rate policy. tom: here is a chart where you can dive in. michael mckee has to go into lock up soon. tom: this is the atlantis to keep price inflation series. sticky is the atlanta
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price inflation series. this is three hours of coverage for the fomc. this is an extraordinary statement of what janet yellen does not want to see. we are two standard deviations below trend. are we in a new world of stagflation? carl: i don't think so. we have been in a low growth environment so we should not be surprised to see a very moderate inflation pressure. if the economy accelerates out of this 2% range it has been stuck in for the past several years, inflation will pick up with a lag of about six quarters. oh, michael mckee is still here. are we in a period of
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stagflation? we are two standard deviations weaker off of the disinflationary trend. it has to be a shock. michael: disinflation is a concern to the fed we don't have to -- we don't seem to have the stag part. we had a slow first quarter and now it appears to have rebounded. what are the components of the rebound? consumer spending appears to be week which is 3/4 of the economy. will the consumers come back? the fed will want to track is over the next couple of months before it makes its next decision. tom: real gdp equals inflation. inflation is coming in but real gdp is pretty good. stanleyman at morgan was adamant about this. the week inflation numbers
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make it that much easier to have higher growth in the quarter. scarlet: today was a good example of week inflation. what kind of last-minute changes might the federal reserve may to its statement today or its projections? i don't think they will respond to this data. maybe it's giving the doves on the committee more leverage to evaluate inflation risks. it could change the composition of the minutes of the meeting the be outright statement i don't think changes considerably. driver of this inflation trend is weakness in the service sector. the main input cost in the service sector is labor. pressures mayage be later than usual but that will drive a rebound in insulation and i think we can still hit the fed inflation target this year. tom: we should explain where mr. mckee has gone.
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but he is innate locked area where they see everything. they see the statement and that they are locked up until they are allowed to come out at 2:00 p.m. scarlet: i wonder to what extent -- willllen will dull address the delayed fiscal stimulus. the fed has not made explicit mention of it at all. the fed policymakers have made it known that some of them have incorporated fiscal stimulus and other held off on doing that. there has been an ongoing debate but i think the prospects for trumponomics have slipped and as they have, we have removed it from the picture. inmajor fiscal stimulus terms of tax reform, tax cuts or
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infrastructure spending or any of the protectionist border adjustment tax. of theook it out picture, it meant we did not change our 2017 forecast. moved not think that would the needle this year but subtract at about half a percentage point from 2018 in outline years. trumponomics is out of the picture and makes it a difference moving the needle. tom: it mows the growth needle -- it moves the growth needle and it continue the idea of fiscal stimulus. are you saying we will see something out of washington for getting the horrific distraction of today? we tooke had it in but it out at the beginning of this week. washington has prioritize border security and has been valuable political capital and legislative time on these other
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non-economic initiatives. scarlet: have other companies taken out the projection? think they are being watered down at this point. maybe not what we thought on january 20. scarlet: thank you so much. today is a different the fed decides meeting. we have been doing this for years with michael mckee. there is no question that today is an original meeting. our chief washington correspondent is kevin cerrilli who has been covering the shootings in alexandria. what is new since the president told us the shooter is dead question markken: business has continued somewhat at the white president the p leading a roundtable with top seals from several companies including siemens.
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house speaker paul ryan as well as a top democrat in the house nancy pelosi both offered remarks on the floor of the house of representatives, calling for unity in the wake of the horrific tragedy early this morning. the president himself addressed the public from the white house, calling again for unity, issuing his condolences as well as his praise for capitol police and the other acts of heroism that occurred on the baseball field in suburban virginia in alexandria. hownnot underscore enough much of a nonpartisan event the congressional baseball game is. frome received word several staffers, democrats and republicans alike, both incribing how the feeling washington has shifted and it has shaken this city to the core. lawmakers on both sides of the aisle are calling for the game to go on. it will be played tomorrow night across town at the nationals park. of imagery and the symbolism
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the importance of this game, no need for words to describe that. scarlet: you bring up a good points -- can you tell us more about what we know about the shooter? the president said he was shot and has died from his injuries. yes, the shooter has been shot. this is someone who apparently was someone who had participated in the campaign of senator bernie sanders. the senator from vermont has quickly said he does not support nor condone any of these heinous acts of violence. we should also note that all of this comes at a time when the sandy hook memorial gala is scheduled for tonight in washington. top senators are scheduled to attend including senator chuck senator chrisl as murphy. i spoke with the organizer of the event and a plan to address this somehow. right now, the investigation from authorities is ongoing. i spoke with a senior aide to
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house speaker paul ryan who said right now, the politicians are relying on the authorities, the capitol police in particular, to get to the bottom of this investigation. earlier today on capitol hill, lawmakers, republicans and democrats in the house of representatives, met with the sergeant of arms to get a full briefing on the status of the investigation which is very much ongoing. tom: thank you so much, from the white house. this is the afternoon of the fed decision and we will have more coming up. we will have smart guests talking about the shock of the economic data, the mystery of the balance sheet reduction. one of them has done great work with the optimistic shock. torsten e joined by slok. stay with us, the fed decides. ♪
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tom: good afternoon, the fed decides. an extraordinary day. thank you kevin cirilli for his report a few moments ago from the white house that we continue with our fed coverage. markets have moved through the morning off economic data. rate dynamics with balance sheet dynamics -- let's focus on the rate market. jersey joins us. let's start with the steepness of the yield curve. the big issue i have, bring up the chart -- i don't have a marker but the idea -- bring it over here -- we are coming down from 130 basis to 85 down the red arc
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basis points and everyone says there is no recession, no worry. i have seen this three or at far times before -- i have seen this three or four times before. >> this morning's number was a bit of a game changer given the weakness of inflation. getting back to the lows we had in 2016 is likely. the way that will be driven is for the 10-year rate continuing to move lower and perhaps seeing 2% in the not-too-distant future on 10 year yields. scarlet: i extended the chart for longer. there is the curve flattening and there's where it was in 2016. the white line is the fed funds rate so as they continue raising rates, could we presume we will get an aversion? hike scummy wind up with flatter curves because the front and yields go up and the longer it yields are priced for lower inflation.
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when you don't have inflation and the fed might high, that changes the dynamic. tom: scarlet is competing directly with me. scarlet: i have a red curve. 3-2, scarlete is is killing me. we know if we come down to a flat yield curve, where the two-year is equal to the 10 year, we get there and people start talking recession. is this time different? the news zero level would be higher than the 10 year before we worry? >> i'm not sure that's the case. in a perfect world, you would want to see some forward inflation expectations stop you want to see a yield curve remains a steep. that's what the fed was trying to engineer. if you look at the chart and you look at when the curve got superflat, it's when the federal
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reserve hiked too much. the fed is trying to avoid that too much. the economy is not cooperating right now. exactly, they say they want to engineer -- i much her what that means -- since when does the central bank engineer? it has to be after the fact. a littleill always be bit behind because they are looking at the data coming in and adjusting their own forecast. at some point, they will either make a mistake and that might -- mistake might be that they don't hike fast enough and some people are worried about that. some people have been worried for a decade that the federal reserve was behind the curve and the fact that they have a $4.5 trillion balance sheet means we will have runaway inflation at some point but we are seeing the opposite. the federal reserve does not need to sell treasuries or reduce their balance sheet. desta moneymand demand is not so aggressive that
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you're getting any kind of inflation pressure. tom: we will continue with your expert sees -- you with your expertise. there are two ideas of interest rolldynamics with how you off the balance sheet in the coming quarters and the coming year or maybe the coming decade. scarlet: i think it has to do with tightening. tom: we are learning about this. the phd's at the fed are learning this as well. scarlet: still ahead, the former economic adviser to president under a trumped presidency. this is bloomberg. ♪
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decides this is the fed on bloomberg television and radio. joining us now from washington
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is judy shelton, a former trump economic advisor who is currently a senior fellow at the atlas network. with the fed and its effort to normalize interest rates. whatever one thinks of central bank policies up until now, we know the economy is doing well enough that the fed can try to normalize and get back to some form of conventional policy. what should be the path forward? the problem is, as much as the fed talks about wanting to normalize, there is nothing normal about the way the fed raises interest rates. we have really change the game. think back to august of 2008. it was $1.9 billion in excess reserves in the system. 2015, it was $2.6 trillion. in the 2.5 years since then, it has not gone down that much. it's still over $2 trillion.
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when the fed talks about raising the rate, they mean the rate keep those banks to reserves just sitting there doing nothing for the private economy. i was struck by the conversation a moment ago about the fed wanting to engineer the economy. whatever happened to free market capitalism? i thought central planning outcomes or not a foregone conclusion. tom: can you suggest that we will see republican policy affect fiscal stimulus out of washington cut? will you get a pop to the economy from the public is in washington? >> i did when i think that would be very healthy for the real economy. tom: which legislation will apply a pop to assist janet yellen? >> if we get the tax reform, that would be extreme important,
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regulatory reform, manufacturing and small business are crying out for that. it would be nice to do something substantial on health care reform. has a lote president thrown in front of him that is distracting from the progrowth agenda but if we can get back to that, we could see things get that could really help the economy instead of just relying and thisd stimulus model that has not really produced the productivity, the increasing wages, or the real growth we were hoping for. scarlet: i think the fed would agree that it would rather keep emphasis on employment and inflation rather than trying to stimulate the economy through low rates. do you feel the fed is not being aggressive enough when it comes to stimulating the economy? in what ways can it be more progrowth or getting out of the best way? >> getting out of the way, the fed model has not worked. the fed thought that cheap money wooden ties companies to invest in plants and equipment and
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would expand their production capabilities and that would make them hire more people. that would cause which is to go up and their only concern was inflation. as it turned out, companies used a lot of the cheap money to buy back their own shares in wealthy investors have lots of access to cheap money to bid up markets and governments can use the cheap money to finance deficit. none of that contributes to productive growth or the real economy. it would be a good first step for the fed to it knowledge that it is so preoccupied with the models that it forgets the goal. --even see now it's ignoring if it went by the data it used to say was driving its decisions, it would not be raising now. scarlet: judy shelton, former trump advisor, from new york, this is bloomberg. ♪
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scarlet: live from bloomberg world headquarters in new york city, i am scarlet fu along with tom keene. we are bringing you special
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coverage of the fed announcement which is one amount -- which is one hour away. check.t's do a data we have seen a lot of adjustment by global wall street with views on the american economy. that's a better number up top. that was stunning earlier. it has given back a little bit. the curve is flattening from 85 basis points. the difference in yield between 10's.s and the i am looking at the dollar-yen. stronger yen, that global thermometer. the heelst comes on of disappointing retail sales and consumer price data. retail sales was soggy to put it mildly. still whether this is i read jersey.
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ira jersey.k - how does the fed project rate increases for the rest of this year and the next your? >> we have been trying to determine is whether the federal reserve will bring down its specifications of where rates will go in how quickly they will hike? the longer term might not change. they might think 3% is a good rate but the path of getting there has to change. you have seen fed funds futures and the overnight swap market which is based on the fed funds rate -- those things have been lower. see that the white and magenta line are way below which is where the market is pricing the fed, way below with the federal reserve thinks where they will be by the end of the year. tom: they believe is the green arrow on the left side is 3%.
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that's where the phd's at the fed think that's where we are going. do you have a terminal value for the ddots that is different than janet yellen? difficult for the fed to approach 3%. 2% is likely because you have physical changes that will happen. after today's number, we have to rethink many thanks. when you have data as poor as this, you don't want to take one number in isolation. it is very meaningful. ss in cpi is noise. iss is something you have to be concerned about. that's why you have things like the japanese yen. that's the yen getting stronger against the dollar. scarlet: it's not just one month's worth of data, this has
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been three months. the fed saynt can these are transitory factors? will that be in the language? >> it's getting more difficult for them to say that. they have to say whether they are concerned or looking through these numbers. for gets more difficult them to say in a credible way the more data points we get that miss the target. moment minutes to the and it will be all fed talk and market reaction. you have been doing this long enough. when the facts change, you change. this is a big thank you to ted wiseman at morgan stanley. this is the ratio of non-store sales to the retail sales we saw today. this is the amazon chart. the idea is 15 years ago, non-store sales were like 12% of sales. they are now almost 50%.
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scarlet is too young to remember this. scarlet: catalog? catalog was this thick and now the kids go to amazon and by the dam thing without you knowing it. at 50% of regular brick-and-mortar sales. these are technological changes which have to change your analysis. thehey do in that's one of reasons were you cannot expect inflation of 4% like we had in the 1980's. tom: janet yellen has to worry about jeff bezos. but the problem is, is 1% inflation a problem in the long term? it's only a problem because we have never experienced it for a protracted time without being in a recession. have 1% inflation? that might work in some situations but in an economy like ours where we have leverage and corporations have a lot of
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debt and the government has a lot of debt and were households have a lot of debt, you want more inflation because that debt becomes less valuable and easier to manage. this is one of the challenges is that technology is taking away the ability for the fed or the federal government to have fiscal policy. it will necessarily be inflationary. scarlet: two policymakers include this in their analysis? >> they do on occasion. they certainly worry about the changing economy and that the economy has always been changing and that's true. the technological advancements but it's also demographics. and we haveng older these issues that tends to be deflationary. stickyis is the atlanta cbi, and shelter, ask food, the grind of life.
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--ex-shelter, ex-food, the grind of life. from the 70's until the early greatcan you say the moderation is still in place and any sense of re-inflation is gone? oh backnk so in a few and look at inflation from 1790 at the founding of our country -- scarlet: let it be known that ira jersey is wearing a flag day tied. before theo back 1970's, he always had inflation that was 0-3%. that was what inflation was for decades that many centuries. we grew up in the zero where we thought six or 7% inflation is normal and we can get back to that. that was not a normal time in history. that was very abnormal.
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if you go back to the civil war, for example, you only had inflation in the mid-single digits. you did not have 9% inflation. ira jersey with his flag day tie, thank you very much. tom: right now, we had a different day on this fed meeting day. the fed decided this money to continue with the meeting and the janet yellen press conference. we go to kevin cirilli come our chief washington correspondent at the white house. it's next ordinary moment. we saw speaker ryan and the president speak. what is the agenda for late afternoon and the shock of washington? n: votes in the house of representatives have been postponed because of the tragedy that occurred early this morning. the president is still very much in the white house and continuing with business as usual. trump convened top ceos
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earlier today about an apprenticeship program. there was an event schedule that the department of later -- of labor that was postponed as a result of the tragedy early today. top ceos including the ceo of siemens are gathering at the white house. they are discussing economic measured moodore coming out of 1600 pennsylvania avenue. tom: it seems forever ago when we were speaking in the 6:00 hour this morning about business as usual. let me address one item that seemed important at 5:00 a.m. and that is the senate discussion of our health care in america. janet yellen has to worry about the amount we spend on health care. what is the senate going to do on obamacare and trumpcare? there is still no
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timeline in terms of a plan but we hear that they are nearing a plan. the republican part of the group of lawmakers working on -- to reach a deal in the senate still say the discussion is ongoing. the federal reserve also look at economic stimulus plans. in addition to health care and the effective as in broader economy, tax reform and infrastructure packages, several folks in the fed board are saying we are naturally economy can handle such an economic growth package. is a cloud over washington regarding that shooting earlier today, a terrible tragedy. scarlet: do we know anything more about the shooting? the identity of the shooter has been revealed and we know he has died as a result of injuries but do we know anything about motive? kevin: the investigation is still ongoing. police briefed republicans and democrats earlier today on capitol hill. the investigation is ongoing and lawmakers will have the baseball
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game tomorrow night at the urging of democrats and republicans a rare moment of congressional unity. we heard from democrats speaking out today for their thankfulness for the capitol police. pelosi was speaking on the house floor earlier today following remarks by republican paul ryan and she said this is all in the family. we heard that sentiment echoed throughout the hall of congress at a member level but also at a staff level. so much, greatly appreciate it. our chief washington correspondent. scarlet: we will have the fed decision in less than an hour's time. it will be at 2:00 p.m. in new york followed by news conference from chair janet yellen the fed will decide to go ahead with its schedule as plain and we have a full line up of the decision.
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fedill have two former presidents and al broadus of the richmond fed will join us. don't forget, you can watch all of our special coverage on the terminal. is live, this is a great function for traders on their desk. you can see the live feed but you can click back to where we were previously. i like this chart where you can bring it up. a gorgeous scarlet fu chart. you can steal her chart on your fedto the bar after the coverage. stay with us, many good guests including al broadus on the next fed meeting. this is bloomberg. ♪
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tom: it has been an extraordinary newsday with the fires in london and the tragedy in alexandria and in the united kind them -- and then united kingdom, the conflict between the tories and the liberal democrats. the leader of the liberal democrats said he would resign. good afternoon. good morning in asia, thrilled you're with us for our fed coverage. scarlet fu and tom on bloomberg television and radio worldwide this has become a wonderful tradition and becomes more valuable today. with thes joins us federal reserve board in richmond and retired as their president. you go into the lobby of the richmond fed and on the wall is a young, astute economist from a different time and place. his name is marvin good friend and he is being decidedly good
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vetted as a potential governor and some would say is a potential governor. he is at connie mack in. can donald he comfortable with marvin good friend coming your protege question mark >> i think anybody should be comfortable with marvin. good afternoon. marvin forth probably 25 years. i can't remember exactly. we work as colleagues in the research department but to cut to the chase, when i was president of the richmond fed mainly in the 90's through 2004, marvin was my possible advisor. he is as astute and observer of monetary economics both from a technical and analytical standpoint and from the standpoint of understanding the history of money here and elsewhere. he'sy beats marvin so being described as conservative but for me, the key is that he is an outstanding economist.
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he will call it like he sees it based on the information and analysis he is able to do. nobody's better qualified. are we drowning and forward guidance in 2017? >> i don't know. the richmond braves left some time ago. we have now the richmond squirrels. there is an awful lot of commentary out there. perspective, marvin is directly involved here because when both of us began to work at the fed, there was not much transparency. marvin wrote a seminal paper about secrecy in central bank in which started us down the road maybe that's not the starting place but certainly it was a major thrust toward greater transparency. i think that strengthens things.
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at this point, we have come a long way. some might argue that there is almost too much transparency. we have so many fed people saying things and sometimes an observer could understandably be confused. most people can take the comments and filter out what they don't think is worthwhile and focus on the things that are worthwhile. overall, i think it's been a good thing. we are kind of drowning in transparency. the average fomc official now makes about 14 speeches per year compared to 4 or 5 in 1996. to a potential marvin good friend as a federal reserve governor, what kind of transparency will he likely offer on the unwind of the balance sheet? at the last meeting, there
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was a substantial discussion of this. this would be the fomc meeting on may 3. the minutes for that meeting was released not long ago. there's a section of three or four paragraphs that i think summarizes that discussion. the bottom line is that they expect to move gradually as they downsize and right size the balance sheet. not to get into the weeds but i , they have mortgage-backed securities and treasury securities only want to reduce those balances. they have an reinvesting in those as the occasion demands. what they expect to do now is to put a small cap on how much of that they will do at each meeting. they can raise that over time so you will have a relatively small reduction the first time they do this then maybe a slightly greater one next time and so
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forth until they get the balance sheet down to where they wanted to be which is not to where it was several years ago. process.e if anyone is interested, i would recommend you go to the last part of the minutes of the last may meeting. it will give you a good description of what they will do. scarlet: what is the impetus for the fed to begin unwinding immediately? is this politically motivated in any way? getr janet yellen was to the process started before the end of her term. ?hat is your read questio moving would like to get with it. they ran up the balance sheet for good reasons i think and you need to move at some point. there is not a whole lot of point in waiting any longer. behink the trick is going to
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that a reduction in the rate at which they reinvest come a reduction in the balance sheet at any point in time is a tightening move, like an interest rate increase. they are in a tightening mode where they are raising rates so they will need to now integrate these moves into the normal path of interest rate increases and they will do that. they will look at the data at each meeting and make a decision on how much additional tightening they need to do based on the incoming data. how much will decide they want to do with respect to an interest rate increase and how much on the balance sheet. it gets into the weeds but i have confidence. tom: we don't the weeds on wednesday fed day. when i look at wage growth, the i get is froml our viewers and listeners who think we are nuts about how low inflation is.
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this is wage growth minus service sector inflation. from 2007,n radio, we don't really have a positive looking at service sector inflation. do we have a wage growth? so many in america disagree with gurus like you. >> wage growth has been much slower than many people understandably would like to see it. there are a number of reasons for that. have a reason is you tight labor market so it's a bit of a conundrum. is thatfactor productivity, labor productivity has been quite weak over the last several years. clearly, that is a factor in determining the wage rate. you labor markets, i expect would agree that as tight as
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they are, i would certainly expect to see some acceleration and wage growth going forward. and i both remember the high inflation days in the 1970's and how it to off. environment,of part of the reason wages are not moving as quickly is that inflation is so well contained, maybe too well contained so that's part of it. tom: thank you so much and thank you for being with us. still ahead, a full line of guests to give you instant analysis to the fed decision. the chief international, the deutsche bank, oppenheimer funds and the professor at the university of rochester and also the former minneapolis fed president. this is the fed decides on bloomberg television and radio. ♪
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everyone,afternoon, the fed decides and what a decision it will be, highly likely we will see a rate increase. we welcome all of you on bloomberg radio and television worldwide. i get to do duty with scarlet fu. you are in shock about dan girardi of the rangers. scarlet: he was bought out. be bought yellen may out by president trump. bring in an guest. scarlet: we have the chief international economist at deutsche bank and we still have ira jersey with us. let's talk about the global central bank. the fed decision is coming up in less than five and but we also have the boe tomorrow and the boj tomorrow. -- friday. are they all moving in the same direction? it's fair to say that things
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are getting for the global economy. the u.s. economy is doing ok in the european economies and better than expected. broadly speaking, the japanese economy has been doing better so the answer is the global economy is doing ok. guess is there is very little coordination among central banks. it does not matter too much for the fed what's going on around the world other than if it has an impact on the dollar and given that the dollar is moving sideways, we don't see that as a major affect on the decision of the fed today. the boe meeting is on thursday and we got some disappointing weight data out of the u.k.. tom: we got real inflation out of the u.k. scarlet: what does that mean for mark carney? >> the key issue is that there is quite a divergence on the inflation front in the u.s.
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including the information we got today. not showing much signs of inflation. they's data dependent, should say the inflation data is not strong. tom: we are three minutes away from the fed decision. within your research report, it's stunning the lack of investments in this nation. is it because the fixed income jersey is so messed up because no one knows what rate structure to use? >> the simple explanation as we are still below full capacity. it has taken a long time to pull out of the hole. we don't need to use capex as such. what's important is there is too much capacity of service sectors. is retail part of chair janet yellen's challenge? >> i think that's important. for inflation it's critical.
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up 2/3 inflation makes of cpi. you have your rent coming or mortgage, medical services and education and that's critical for the fed. tom: do we or a janet yellen know where the risk free rate is? >> we think we know. we have our model to figure out where the natural non-accelerating rate of unemployment will be and all that but it's never obvious. where that rate is or should be. the fed seems to think it's 3%. tom: are we 12 rate increases away? >> that's a whole bunch of rate increases. i am looking at things like the five-year tips at breakeven. thatve undone everything
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was seen as inflationary since donald trump. this only crossed today and it took a negative and -- inflation trend we got this morning for inflation expectations and the longer term to get back to where they were seven months ago. awaywe are one minute so let's bring up the five-year break even. bring up the chart. normal, massive disinflation and a big recent rollover. >> it's been a recent rollover sense the great recession. -- us since the great recession. there was optimism the donald trump's policies would probably economy and that has fallen right back down. scarlet: as we look ahead to the decision, let's get you a quick data check. equities are not moving a whole lot, near record highs. in big move as been dollar-yen following the retail
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sales and inflation data misses we got this morning. there has been a lot of buying in treasuries of which means yields are coming down. and my crude 44 handle down 3.7% on the day. enormously important decision raisedas expected, they their benchmark rate to a quarter of a percentage point. what wall street takes as a rate forecast still sees one more move this year between three and four next year to -- putting it at a median of 2.1% by the end of 2018. the longer run terminal or neutral rate unchanged at 3%. committee members take note of the inflation running somewhat b

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