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tv   Bloomberg Markets Balance of Power  Bloomberg  September 6, 2019 12:00pm-1:00pm EDT

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where the world of politics meets the world of business. on the brief today, michael mckee from washington on the mixed u.s. job report. kevin cirilli from the white house on the trump administration plans for fairly may and freddie mac, and from on the, david welch antitrust investigation of automakers. let's start with you, michael. we were together when you announce the numbers. it is a mixed report at best. michael: the headline numbers not so good. 130,000 jobs created. if you look at private sector jobs, only 96,000, which is 50,000 lower than the consensus forecast. as you can see, the yellow line is wages. they have been rising. up .4 during the month and that left the year-over-year gain of 3.2%. economists had forecast a decline. that is good news and keeps hope
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alive that the consumer keep spending. the fed has two ways to look at it. the economy is slowing or the economy is hanging in there where it was with job creation little lower, but wages rising and the workweek a little bit longer. that means the expansion keeps going. david: the question is what does it mean for the fed. let's talk about that as we are waiting for jay powell to speak. we will come back to michael mckee. in the meantime, kevin cirilli at the white house. finally, we have a plan from the white house on what to do with fannie mae and freddie mac? kevin: they are calling it a roadmap. steven mnuchin unveiling a plan that would re-privatize fannie mae and freddie mac. it was back during the bush administration that the republican part of that $190 billion bailout from taxpayers issued a conservatorship for fannie mae and freddie mac. as of now, they make up about half of the mortgages in the $11 trillion mortgage market.
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it is a long shot to get them privatized. even behind the scenes, talking to sources this morning, republican saying something they would like to see happen, but with the divided government and heading into an election year, the plausibility of this getting over the finish line remains a challenge to say the least. also presentrdles some opportunities for hedge funds. that would mean they would be able to invest in this type of market. the administration says they want to see more competition in the mortgage market as well. it is a benchmark, it is a long way to go, but a long-awaited unveiling from the treasury department. david: it is a process. you have to start somewhere. many thanks to kevin cirilli. let's go to detroit. i was stuck -- i was struck that the white house says they will investigate automakers in connection with auto emissions. always -- forhas
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a long time has had its own standards for fuel economy and greenhouse gas and they are tougher than what the federal government has and what the trump administration once. volkswagen,ers, bmw, honda, and ford decided that they will stick with california's rules. now the justice department is saying they want to investigate them to make sure it is not antitrust. it looks like the battle lines are being seriously drawn in this fight between the federal government and its desire to have weaker fuel economy standards, and california's desire to keep its tougher standards. david: president trump has not been secret in his feeling he should get to set the rules and not california. it is possible the government would be encouraging the automakers to compete with one another on dirty cars. that is essentially what this amounts to. >> exactly. what the companies are saying is
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that no matter what the trump administration does, they want to do something more efficient. the federal government, through the justice department, by having this investigation going on, and if they do find them in violation of antitrust laws, they will be saying you cannot join together and so you will be more efficient than what the law once. my guess is they would want them to make this decision independently, and then what would they do to stop them from doing it? exactly right. they want to say it you should be as inefficient or as dirty with your cars as the law allows and not a bit better is the message. david: there you have it. many thanks to david welch, our bureau chief in detroit. let's go back to michael mckee in washington. the question is what is the fed going to do? we had an interesting exchange earlier today with bluebird -- with bloomberg where we had
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larry kudlow talking about the former new york resident and what mr. dudley had to say about the fed. this is what larry kudlow had to say about mr. dudley. >> bill dudley went over the cliff. what his statement suggested is that the federal reserve should adopt a monetary policy geared towards defeating president trump in 2020. the most politicized statement i have ever heard. david: whether that is the most politicized statement ever or not, how much more does this complicate chair powell situation as he tries to take into account what is being done on the political situation, which is trade, without trying to affect the politics. michael: it is a little bit more complicated, but jay powell and the rest of the fed -- jay powell is just one vote -- they have to look at the policy, and dudley's argument was the policy is bad because the policy is
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hurting the economy and the fed has to react to that. maybe if they push back, the president might change policy. they will look at larry kudlow and safety he is just defending the president. that is his job, that is just politics. both sides have politicized the issue, not jay powell, but dudley in his commentary. it is left outside the fed's decision room. when they get together, they will not be talking about that. they will be talking about what the data are telling them to do. you look at today's jobs report and it is telling them to cut 25 basis points if you want insurance because there is a slow down, but do not go too far because we are seeing wages rise. have seen larry kudlow argue 590 thousand new jobs were created in the household there, a little bit of a cherry pick, and wages were up .4%, so under those circumstances the fed should be raising rates. this is politics. david: i am not sure that is
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what carrie -- larry kudlow meant, but that is essentially what he said. thanks to michael mckee. let's find out what is going on in markets. abigial: looking at small gains for u.s. stocks. looking at the dow, the s&p, the nasdaq, just slightly higher after the job report that was a bit of a mess, but could make the case for the fed rate cut michael mckee was talking about. plus ahead of jay powell who will be speaking shortly. the bigger story is the week. take a look at the s&p 500. monday or tuesday was a down day. trade fears and that disappointing ism manufacturing report. small gains on wednesday. investors forgetting about that. bigger gains yesterday on trade hopes. week,now up 1.9% on the the second up wait for the s&p 500 and a rope. 5%. that time, up many talking that the august
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range has been broken. many of the big winners are coming from retail or chips. cap a straight up 14.7%. though shares sharply higher after the company reaffirmed their fiscal year. pvh corp., the clothing company, up 13.4%. it is thought their ceo is buying more shares of the company. take a look at western digital and micron, both of these companies have ties to china. on trade hopes we see though shares rallying. the biggest is bonds. we see earlier the uncertainty, there has been a bid for bonds. yesterday the biggest move up from the 10 year yield back to 2016. that is true over the last few days. that is the presidential election. that is the degree investors are rushing out of those haven assets. ay: a huge move -- david: huge move, the tenure all the way up to 1.54. coming up, a hot august was not
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enough to stop a -- what the job loss means for jay powell. that is next. this is bloomberg. ♪
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david: i am david westin. we turn to mark crumpton for bloomberg first word news. mark: hurricane dorian has made landfall in north carolina's outer banks. high winds and heavy rain are bettering the low lying islands. dorian has been downgraded to a category 1 storm with winds of up to 90 miles an hour. the hurricane is expected to get weaker as it moves up the east coast. u.s. job growth came up short in august.
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private employers added a worse than expected 96,000 jobs. larry kudlow downplayed the report. working, and america is getting paid, and the economy is very strong, probably much stronger than all of this rumor mill, media narrative would suggest. these are very very strong numbers today. mark: total payrolls although -- also climbed to a below forecast 136,000. harold schulz has suspended his presidential campaign. he intended to run as an independent. he called himself a centrist independent, opposing opponents freemedicare for all and public college. he was a longtime hero of zimbabwe who critics say turn into a villain. robert mugabe is dead. he was a driver of the 1970's
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were of independence that ended white minority rule. his tenure as president was marked by violence and chaos. robert mugabe was 95 years old. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am mark crumpton. this is bloomberg. did not addd states as many jobs last month as people thought. gains in private payrolls hit a three-month low, even though overall numbers were helped by the hiring of 25,000 temporary government workers to work on the census. here to take us through the numbers is the chief u.s. economist at oxford economics. welcome. good to have you here. the top line was disappointing, the private number was troubling. what happened? >> overall, the labor market continues to point toward a maturing economy and labor market where we will see fewer
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job growth. what was encouraging in this report was the fact that wage growth remained above 3% and that the labor force participation rose, which means people are coming back into the labor market. david: what about wages? isthe right balance to have to have wage growth around 3%. if you get higher than that and wage growth accelerates, businesses will not be able to pass on those costs. with profit margin shrinking, that could lead to pullback in investment and hurt the economy instead of helping it. david: participation was encouraging. we went up in the number of hours worked per week. what does that mean for the fed? fed'sy: from the perspective, this report is backward looking. what the fed is supposed to be is look at the outlook, how things will be six to 12 months down the road. the environment now is an
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environment of slowing growth. we are not in a recession, we are not headed into a recession, but we are headed into a slower economy. in the face of global headwinds, rising trade uncertainty, and slower labor market growth, i think the fed is likely to provide further accommodation. isnie: is that -- david: that 25 basis points? gregory: i think it is 25. if the fed proceeds with 50, people will be asking what does the fed know that we do not know. there are already speeches from the fed, some preferring no rate cuts, some preferring 50 basis points. i think jay powell's speech will clarify that the fed intends to go gradually. david: the magic word is uncertainty. one way to look at this as employers are not hiring but they are not firing, they are slowing down hiring in part because of uncertainty. to what extent is that trade uncertainty, particularly in the
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u.s. and china, suppressing growth and employment. gregory: uncertainty is a big factor. for u.s. economy closed to international trade globally, what is important is the uncertainty. the fact that businesses do not know what will happen in terms of their trading pattern makes them holdback in terms of new investment. that is what is causing this economy to grow at a more subdued pace. already we have seen business investment grow at a much more subdued pace. uncertainty is key. if we have further uncertainty, that just further fuels the fire. david: can we get any sense of how much? there is a paper out from the fed that says .8% global growth has been suppressed by trade uncertainty. does that sound right? gregory: i think that is the right order of magnitude. we just did a study that looked at the effect of tariffs. tariffs have sacrificed .03% of gdp.
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at uncertainty that, you could get to .3%, .4%, .5%. an interesting development is the reaction in terms of financial market volatility and confidence has an raised. that is the key risk for the economy. david: the real issue for the united states is the consumer. can the consumer hold up? as you look at the jobs number, does that tell you anything about the consumer's ability to carry the economy? gregory: the consumer remains in steady health. we have job growth trending at 150,000, 170,000 jobs. people are still employed, the employment rate is low. wage growth supports the income momentum, which has been driving consumer spending. david: manufacturing has not been doing well. how do you assess the rest of there being a bleed over from a downturn of manufacturing into the consumer? gregory: it is a real risk. if you look at the ism manufacturing versus
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nonmanufacturing, you are starting to see this crocodile mouth creep up. the manufacturing data has come to a stall, but the money -- the nonmanufacturing data remains fairly positive. the question is whether the service sector gets dragged down or manufacturing gets pulled up. the last time manufacturing was pulled up, but we had a fiscal stimulus. this time i do not think we will get a major fiscal stimulus. the likely trajectory is for slower growth in the coming months. david: thank you so much for being here. u.s.ry daco, chief economist at oxford economics. chairman powell speaks at 12:30 from zurich. we will bring you those remarks live right here. this is bloomberg. ♪
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david: you are watching "balance
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of power." i am david westin. we want to go live to pictures from hong kong. protesters are still out on the street. demonstrators have been smashing subway signs. earlier this week, carrie lam said she would withdraw the extradition bill but protesters have several other demands which have not been met. you can see they're not very satisfied after midnight in hong kong. another geopolitical story involving china, the ups and downs of u.s. china trade discussions are affecting many u.s. companies doing business in china. when i talked with kevin johnson yesterday, he told me so far they have not been affected at starbucks. is a huge we can build new stores and grow for the rest of my lifetime in china. it is that big of an opportunity. david: starbucks has been in china for 20 years? beijing two or three months ago celebrating the
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20th anniversary of starbucks entering china. we have built starbucks in china, for china. that means we have a complete beverage and food team, our store design team are based in china. we brought the starbucks brand to life in a way that is relevant to the chinese consumer and pays respect to the chinese culture. david: what extent does that put starbucks in a different position than other u.s. companies doing business in china. does that put a damper on your growth plans in china? kevin: we are in 80 markets around the world so we do with geopolitical situations all the time. in the case of the trade dialogue between the u.s. and china, that has had no material impact on our business. we employ roughly 55,000 starbucks partners in china who proudly wear the green apron. when we build stores, we hire
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local chinese craftsman who build these stores. far, we've not seen any material impact on the geopolitical situation. that said, i would say we are not immune but this far we have navigated it quite well. david: at what point will starbucks get rid revenue from china than the united states? kevin: as united states we are at 16,000 stores, we are at 4000 stores in china. it will be a long time. the power of those growth engines, the u.s. and china for our coffee retail business are significant. we also complement that with the global alliance we have with nestle. nestle announced a global coffee alliance. we have brought our coffees to cpg and singleserve platforms in china. in that partnership with nestle we've expanded to 16 new markets
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over the last six months and we have plans to continue to expand. i think we have really good growth in the long-term and that is what has fueled the growth in scale of jobs. myid: that was part of interview with starbucks ceo kevin johnson. geopolitics may not have affected starbucks in china, but they are certainly playing a major role in energy and latin american. alix steel has an important program on what is going on on oil in the southern hemisphere and is called "oil's next big boom. " alix steel is here to talk about it. david: it is a terrific thing. tell us about it. thesis is latin america has so much amazing resources but they cannot seem to get their act together to capitalize on their resources. part of the reason is politics. i went to oil because that is my jam and i went down to argentina
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, where the shale oil fields are in argentina and i got a look at an independent company named vista operating their. i talked to them about the potential and then the primaries happen in august and the shift and what that has done to potential growth. david: there is no way to know the answer. to what extent have those primaries changed what could happen? alix: it could be really significant. wipe is a state owned oil company. some analysts estimate you need $20 billion to develop the region. they are spending -- they had to cut it. now they are spending $2 billion to $3 billion because of the oil tax freeze, where they can sell the oil for x amount. david: one of the problems has been that in success you bring in outside companies. when that happens there is a resentment. we saw that with christina
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fernandez -- cristina kirchner, where she nationalized. ypf. she nationalized she called the ceo back from london and said you have to run this oil company for me. that is the concern. every single company has bought into this dream and the question is will they stay there and develop it. david: you will explain tonight, all of that and more. alix: in a hard hat and overalls. david: at 9:00 on bloomberg. fed.e want to turn to the jerome powell is said to begin speaking in a few moments. the federal reserve chairman will take the stage in zurich against the backdrop of an august job report that came in below estimates and continued attacks from president trump. joining us is douglas holtz-eakin, president of the american action forum. it strikes me this is on the eve
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of the blackout period for the fed for the next meeting. it is clear that the chair timed it. why does he want to have the last word? douglas: he did not have united fomc last time. today's report was strong enough they were -- there will be dissenting boats again. he will have to make the case for a rate cut on the merits, not because of political pressure. he needs the podium to that without someone contradicting everything he says. characterize the numbers that came out today, because they were mixed. it missed on the top line. private employment was down. at the same time, there was some good news as well. wages are going up, participation is going up. average hours worked are going up. douglas: i think you just summarize the numbers perfectly. the things you should see happening late in the cycle are happening. job growth is slowing, that is
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inevitable, is not a mess, it is reality. the gravity will bring it down to something around 100,000. when that stops happening, other things have to show up. greater labor force participation or rising wages, and we saw both in the report. this was a good report for a late cycle report. it is as good is you will probably get, and it gives people who do not want to cut more ammunition than those who do. david: we have heard from chair powell before. he wants to do everything he can to extend the cycle. is there much the fed can do to extend the cycle? douglas: the fed can avoid mistakes. the question is which is a greater mistake? a miss on inflation, or keeping rates too low. that is the way to think about the fed dilemma. i come down on the side of do not cut. an asset bubble is a bigger danger than a low inflation rate. other people come to different
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decisions. david: we are watching the stage in zurich as we are waiting for chair powell to give his remarks. hadlas: he had -- david: he some dissents in his last meeting. how troubling should that be? douglas: the dissents reflect the reality on the ground. this is a tale of two economies, one is a household director that keeps dragging along with the sole exception of the august conference numbers. the other random is the business sector, week investment bleeds into poor manufacturing. is, do youe question need to step in and help the business sector or to just wait for to catch up with a household sector. david: we can see chairman powell getting ready to go up to the podium in zurich. one of the issues is the strength of the dollar, which has -- which is persistently strong. is there much the fed can do to
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affect that and should they be taken that into account because they can tighten financial conditions? douglas: they will inevitably take into account. they have an underlying macro forecast that will defend on the strength of the dollar. it is in their calculations no matter what. i don't think they should pay attention to it, per se. the dollar is a reflection of the fact that the u.s. economy is growing better than expected despite our concerns, and we don't want to trade up for a weaker dollar. interest rates are higher than other places, a dollar that is stronger in other places. if you want low interest rates and a weak dollar, you have to take a bad economy in the equation. david: the president has been very outspoken and now we have the former fed president, mr. dudley, kanaan with a piece on the bloomberg, saying the fed should take into account in some part what is happening in politics. will that affect the fomc at
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all? douglas: bill dudley is a tremendous economist, a fantastic beneficial, but that op-ed was a mistake. those are things that should have not been aired in public. it only gives a president that wants to politicize the fed more ammunition to do so. i think you should rue the day th he decided to write it. david: we are watching the welcome right now over in zurich for chairman powell. michael mckee, let's go back to you. this is the last thing we will hear before the blackout window. hear,o you expect to asking you to speculate, which you should not do as a reporter. think i would be going too far over the line to say that i don't think you'll get much out of jay powell today that you have not already heard. he is speaking for himself here and not the committee, so he will probably say what he said
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before, that the fed will do whatever he thinks is appropriate to keep the economic expansion going for as long as possible because that's good for the country. he will probably steer clear of politics and say when we are in the fed meeting room, we don't think about what the president is saying. david: he may not want to talk about them, but a lot of the uncertainty we are seeing is around trade. everyone seems to agree with that, which is a political issue. how do they manage that difficult situation where they have to take into account politics? can they reduced the uncertainty that businesses are facing? oug were talking about the bill dudley op-ed, where he said the policy is bad and the fed has to react to the consequences of a bad policy. jay powell doesn't want to come out and say it's a bad policy but he does want to say, as he did in jackson hole, that the
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trade wars are causing uncertainty, and that is cutting back on business, and that is hurting the economy. you draw your own picture from that. he does want the public to understand that it is not the fed's fault that the economy may have slowed a little bit. certainly no business leader is saying the cost of capital is the problem, it is the trade war this,ainty, and doug said close to the end of a business cycle. you would expect some slowing at this point. he wants to keep the focus on those issues rather than on the idea that there is any politics being played. of the problem goes back to you, a couple meetings ago, you asked the chair, how is this going to help with the problem underlying it? daly and shed mary said, if there is cheaper capital, maybe it will help around the edges somehow. does the fed believe that lower
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rates are really the problem -- the solution to the problem? mike: no, they don't. what they will admit privately is they are doing what they can do. they only have the one instrument, if you don't count extraordinary monetary policy. it all gets back to how expensive capital is. businesses don't think capital is expensive but they don't want to spend it because it is the return side they don't have a clue about. are they going to get their money back? this point, until the uncertainty is lifted, there is not much the fed can do. what mary daly and others i have asked about it have said, the fed can reassure some people that somebody is doing something. on the margin, maybe, that may help. it also helps wall street that something is happening, keeps perhaps asset prices going up or
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at least stable. they want to avoid any kind of asset price crash that could also lead to recession. for those reasons, they will do what they can, but they don't want to go too far and cut rates do much, because if we do have a recession, they don't have any ammunition left. david: we are continuing to watch the introduction for chairman powell. talk about the strength of the dollar. it has been stubbornly strong, which does affect financial conditions. is that something the fed can do anything about at this point? technically, yes, if you cut rates to zero or negative rates, the dollar would go down because the return in the united states would not be as strong. but that is not the fed's goal and they try to stay away from managing the value of the currency. they take it into account as a variable. if it goes up, that's a problem for exporters, but it keeps
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inflation down. if it goes down, we have more of an inflation issue but helps on the gdp side portrayed. that into their considerations of what will happen to the economy down the road. they don't want to get in the business of managing the currency. took over as the treasury, he instituted the strong dollar rule. it was not so much the strong dollar that the administration wanted, but a stable dollar. that way businesses can plan. if the dollar stays at a certain level, it is better overall for the economy. would like to do is stay out of the business of trying to manipulate it one way or the other, because you may not get the result you want. david: explain the interaction between the major central banks, for example, with the ecb coming up next week, to what extent is the fed cutting rates allowing or encouraging other central
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banks to cut further? governor of the bank of australia brought this up in jackson hole, suggesting banks need to coordinate more, not agreeing to do something in concert, but understanding what the others are doing, so they can better manage their economies. when you get is a major spillover effect, particularly from the united states on to other countries with our interest rates. that sucks in capital to the united states. they will watch what happens with the ecb, and to a similar extent, the bank of japan. those countries are in negative rates, if they go further negative, and that is likely to push capital towards us, which would make the dollar stronger. with trade wars, that fx those economies. -- affects those economies.
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certainly, the europeans would like to see some fiscal stimulus. they do keep an eye on what is going on elsewhere and talk to each other, but they are not at the point yet where they will do some sort of coordinated effort. david: wherever the fed comes out, it will still have a positive sign. attzerland, bank of japan, what point do we conclude that this has not worked, that negative interest rates has not given us the growth we wanted? $16 trillion in negative yielding debt. mike: you have to wonder when other central banks will decide when that is the case. the fed's research has ruled it out, they say it would penalize savers, does not seem to incent any additional lending, and hurts the financial system. deutsche bank the other day, the bankingout how
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system has hurt them there. wonder when the ecb is going to say, that is not working. what the fed wants to avoid, being in a situation where their interest rates are so low they have no other options. david: thank you so much, michael mckee. we are watching in zurich as there has been an introduction. live fromming to us zurich. there you see jay powell, chairman of the federal reserve. everyone now waiting to see if he will give us any indication of what they will do at the next meeting. now let's listen in to chairman powell. relationshipur with switzerland, how do you perceive our country? do you like, love it? do you visit it
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? do you do sports, hiking, swimming here? the people are curious. that is a lotl: of questions, i could take a full hour. thank you so much, martin, for your remarks, and for everybody's welcome. switzerland is a place where central bankers, on a regular where we meet, with each other internationally, share candid views as equals, person to person, we developed close personal relationships with other central bankers around the world so it's absolutely essential in this globalized world that we have strong multilateral relationships like that, and they really come together importantly here in switzerland. i have been to switzerland many, many times on vacation with my wife, and a long time ago as well. we were talking, 44 years ago was my first trip to switzerland. we did not climb the matterhorn.
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i know it can be a welcoming, beautiful place, a nation with which we feel strong kinship always. >> of course, you also make contact with thomas before. chairman powell: yes. [laughter] there was that, too. >> you started your career as a lawyer in that investment banking. what prompted you to join the federal reserve board and become an expert in monetary theory? chairman powell: i have had a varied career. i was briefly an attorney, after that an investment banker, then mccain a private equity banker for a large part of my career, but i have also periodically left to do public service. that is something more typical of the american system. i think there's a great benefit to it. really sector work can inform your work as a public servant, and vice versa.
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i feel fortunate to have had that. the story of how i joined the federal reserve board, i got involved in the debt ceiling confrontation of 2011, worked hard to achieve a resolution from the private sector. as a consequence of that, i was appointed by then president obama to the federal reserve board, and then president trump appointed me as chair. the you ever regret making steps to the public sector? [laughter] chairman powell: never. it is a great honor to serve, and in particular at the federal reserve, which is committed to non-decision-making, based on the best analysis we can muster. it is a great place that has a very strong ethic, very high morale among our people, because of that commitment to nonpolitical public service. >> there were strong impact, of course. chairman powell: very important.
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>> no question. let's go more into the details of our discussion of tonight, the global economy has lost momentum, and it is said to grow at a slower pace this year than in 2018. what do you think might be the cause of this slow down, weakness? also a question for thomas. chairman powell: with your permission, martin, i will start by pointing out, the united states economy has continued to perform well, and is in a good place. we are well into the 11th year of this expansion, which again in a second half of 2009. it is now the longest such expansion since we began keeping records. outlook, the most likely outlook for our economy remains a favorable one with moderate growth, strong labor market and inflation moving back up to our 2% goal. all that said, there are significant risks.
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we have been monitoring those, including slowing global growth, uncertainty around trade policy, and persistently low inflation. a couple comments on that. we grew at 2.5% in the first half of the year. for the year, we will be summer between 2% and 2.5%. that is very much driven by consumer spending, which represents 70% of our economy. the consumer and service sector have been strong. the manufacturing, trade, and business investment side has been weaker, now sideways to slightly down. that pattern of a strong consumer economy and a weaker manufacturing, investment, trade economy, is fairly common now around the world. meanwhile, our labor market is in a strong position. for a year-and-a-half we have been at half-century lows for unemployment, we had wages moving up.
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today's labor market report is very much consistent with that story. and we have inflation moving back up to 2%. overall, we are in a good place, the outlook is good as well. part of the reason is the fed has, through the course of the lower the fit to expected path of interest rates. that has supported the economy. that is one of the reasons why the outlook is still a favorable one despite these crosswinds. you asked specifically about global growth. the global economy has been slowing since 2018. we see that continuing with china, germany, and the eu. there are many factors driving that, trade policy uncertainty is one of them, but it is not the only one. trade policy uncertainty will be weighing on business investment decisions and that sort of thing. still, though, i will wrap up by saying we see the most likely case for the u.s. and for the
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moderate continued growth. at the fomc, as we move forward, we will continue to watch all of these factors, geopolitical things happening, and we will continue to act as appropriate to sustain this expansion. >> thomas, do you share this perception? thomas: very much, but let me say a few words about switzerland. we are a small, open economy, and our biggest market is europe, but the united states became a much bigger market in the past couple of years, so it's very important what is going on in the united states for us. we are observing the situation and we are seeing that the global economy is slowing down. not that much in the u.s. but much more in europe and asia, and that has an impact on swiss export opportunities. we see the swiss economy is still growing, but the pace of
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growth is slower than it used to be. we have to take that into consideration when you are also considering what kind of monetary conditions are appropriate. is inflation, very low, also low in switzerland, lower than it used to be in the past. this is something that comes in addition to the slow down we are observing at this moment in the global economy. we have little influence on the global economy, but of course, the global economy is impacting us a lot. europe, u.s., and china. regional the three big parks that have a big impact on the swiss economy. uncertaintyd policy and the brexit negotiations be playing a role in dampening global growth? chairman powell: i think that is
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the case. we have been hearing -- we have a vast array of contacts within the u.s. economy, as you would imagine, and we talk to them every fomc cycle, eight every year. we have been hearing quite a bit about uncertainty. for businesses to make longer-term investment, plan for increment or software, they want certainty that the man will be there, that there will be growth, and that their supply chain is secure. we would never comment on trade policy, that is not the responsibility of the fed, but it is the case that uncertainty around trade policy is causing some companies to call back now on investment. our obligation is to use our tools to support the economy. that is what we will continue to do. recession fears. how worried should we be about an upcoming u.s. recession given all the talk in the media?
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do you see a particular shock that could trigger a recession? martin: we are not forecasting or expecting a recession. as i mentioned, incoming data ,uggest the most likely outcome outlook for the united states is still moderate growth, strong labor market, and inflation continuing to go back up. i will say more about the labor market. payroll jobs are coming in at well above the level that new people are are entering the labor market. that means the labor market is still tightening at the margin. by so many measures, the labor market continues to strengthen. the consumer is in good shape. really, our main expectation is not at all that there will be a recession. i did mention there are these risks, and we are monitoring them closely, conducting policy in a way that will address them, but i do not see recession as the most likely outcome for the
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united states or for the world economy for that matter. our base scenario is not one of a recession either for the global economy, nor for the swiss economy. in 10 days, we have a monetary policy meeting again, and then we will have a new forecast, but let me just come back to the trade issue. i think this is a very important one, especially for small, open economies. the function of global trade is key. we depend on the functioning global economy. course, uncertainty at the moment in the global economy is having a rather negative impact. not only trade, but also the brexit discussions are creating a lot of uncertainties. so consumers and investors, producers are unsure about whether they should buy, invest, or do anything. this creates uncertainty and has
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a negative impact. from the point of view of a small, open economy, it is a wish to everyone in the world to contribute to a reasonable solution to this trade dispute. martin: additional question looking at europe, the european union. someu think we have to see disruptions? regarding europe, we are in the middle of the europe, not part of the european union, but economic integration is very important. exports and imports are big. we export a lot but we also import a lot. it is of mutual interest to have sensible economic conditions. of course, every time the european economy is not growing, that has a big impact on us. would get, france together with italy, having a
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low growth situation or recession, this would have an impact on us as well. we have a big interest in a well functioning and growing economy in europe. thomas: we are all interdependent. absolutely. the federal reserve is conducting a public review of ,ts monetary policy strategy tools, communication practices. what prompted you to conduct such a review? the challenges: that central banks face of all over time and sometimes they rise to the level where we need to assess whether our policy framework needs to be updated to do with different challenges. a good example of that is after the great inflation of the 1960's, 1970's, central banks did not do a good job of getting control of inflation, coming out of that was a new commitment to get control over inflation, which was successful.
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the framework of what is called inflation targeting. we have had a number of decades where inflation has been under control and other economic outcomes have an better as well. if we look back over the last decade, we see a new macro economic landscape which looks like this, slower growth, lower inflation, and lower interest rates. the implication of that is central banks -- rates will be closer to zero, central banks will have less ability to support the economy in a downturn, should one con. this is the main challenge for central banking. lower neutral rates and lower inflation. we see what has happened in japan, and now to some extent, in europe. we thought this was a great time to look at our framework and see whether we can find new ways to address that. new tools, new strategies, communications.
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is, wertant part of it at adone public engagement scope that they fed has never done before. the fed has never done this kind of public review before. we have had these meetings around the country, calling them to events, live streamed on the internet, and we are meeting with community groups, labor groups, business, all different constituencies, not just academic monetary economists, although we meet with them, too, and i would say the gains from that have been striking. for anyone that has been to one of these events, you are really struck by how much people care, how important it is in their lives what we do. up, we were taking all of that, and now we are having a series of meetings at the fomc, looking carefully at our tools, strategies, and communications. we will announce a decision on that sometime next year.
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so far we think it is a healthy exercise. going through the country, so to say, could also be a model for you, thomas. don't have the same exercise, but we have ongoing dialogue regarding monetary policy and our monetary policy concept. what we get as a reaction everywhere is that people like price stability. this is our mandate, this is also in the law of the swiss national bank. nobody really complains about high inflation, so people want price stability. this is a little bit different from many other central banks, but we have a definition of price stability that is arranged. this is important for us because it is rather difficult to steer inflation over the short to medium term in a precise manner. but in the average, over a medium to long-term, inflation looks very stable in
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switzerland, on average 1% over the last 25 years. in our view, that is a big success. at this moment, we have little reason to change that. as you mentioned, the lower point, not to have the possibility of lowering rates indefinitely, is of course an issue. but so far, we can circumvent that with other measures in order to steer monetary conditions in a way to achieve price stability. martin: let's talk about the interest rate. very important topic. controversial, too. it has declined substantially over the past decades. what are the natural economic implications of this decline? chairman powell: for the last 20 years, we have seen what we call the neutral interest rate decline by at least two or three percentage points.
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there are people making arguments that it is more than that. so why is that happening? it is a lot of factors. it is the aging of the population, which leads to higher appetite for safe assets, more savings relative to investment, low productivity, low growth, all of those things. you get in a world where the neutral real rate is low but inflation is also low. if you add those together, you got the interest rate. the implications are, as i mentioned, central banks will have less ability to counteract the downturn by cutting rates. typically in the united states since world war ii, we have cut more than five full percentage points, 550 basis points, in a typical downturn. now our federal funds rate is about 2.1%, so we will not have that ability here. one implication is that we need other tools, so when they got to
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the zero lower bound during the financial crisis, we used quantitative easing, forward guidance about the interest rate , and we feel they worked, although not perfect substitutes for the interest rate. one essential feature of this from our standpoint is to not allow inflation to move the two really below target. if that happens, that will work its way into interest rates. we are committed to defending the 2% inflation target on asymmetric basis. we have seen low inflation become the case moving down. you seem to get on this road that is hard to get off of. we are trying not to get on that road and defend our 2% inflation target where it is now. martin: thomas, your policy on that topic? thomas: this is one of the absolutely key questions at the moment. having the slower mutual rate is a difficult thing for these funds.
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all of this was built on higher interest rates. this is a real phenomenon, not only a monetary phenomenon. it is very difficult to explain that to the public. course, room to maneuver for central banks to shorten shocks is more important today than 20 years ago. this means that central banks have to find ways in order to have instruments available, in case it's necessary to have an impact on monetary conditions. this is much more demand and that is used to be 20 years ago. martin: and more difficult, challenging. the challenge is in a way that probably, on a global scale, leads to some extent normalization. we went all the way down to zero, even negative, with the hope that everything would go back to some normality, but that did not happen because of the economic cycle, and because
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inflation did not come back as expected. now we are in a little bit of a new situation where low levels of inflation, low interest rates , maybe some further instruments are necessary. this is the big does a --the big debate. martin: central bank governance. courtpowell, how do you in taking monetary decisions? chairman powell: in the u.s., we are blessed with a fairly large committee. as many of you will know, at full strength, there are seven governors on the federal open market committee. those are all nominated by the president, confirmed by the present -- senate, and we serve 14-your terms. we also have 12 reserve banks around the country, and those on a rotating basis, share five additional votes. when we have our meetings, everyone has a voice at the table.


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