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tv   Bloomberg Markets Trump First 100 Days  Bloomberg  March 15, 2017 1:00pm-2:01pm EDT

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the fed decides. gametime in one hour. tom: gametime -- i have not been my brackets. i'm sorry, go ahead. scarlet: the on the expected announcement, there will be looking at how policymakers change their prospects. hard versus soft the data -- the committee will continue to acknowledge the ongoing improvement in the outlook for the u.s. economy, probably. we will look for updated language in the statement and news conference. tom: and let's do a data check. we are thrilled you are with us. a lot of good guess. dow -- are with the nice advance. 73. tentativeness early this morning. we'll get to the chart with carl riccadonna on flattening. use -- the the pros difference in yield between the year and the two-year.
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the euro does nothing to rebound after a set of difficult days for oil. scarlet: yes, but it stabilized off the lows of november. tom: here's another data check. a two-year yield, 1.39 percent. the red should be green -- of a basis point. again, 114.60. scarlet: everyone is in a holding pattern right now. we also have the dutch elections as well. tom: get, i would go with that, but the holding pattern for me is the press conference coming up. scarlet: that is coming up to 2:30 p.m. tom: with us, carl riccadonna and bloomberg intelligence, neal soss with us. -- dr. neal soss: let dr. neal soss,
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let me start with you. we are nowhere near where a rate hike affects business and economy of america can we are distant from that, aren't we? neal soss: i think that is right. we're in a circumstance where from the point of view of monetary lsu is or is, interest rates are way lower than they need to be, the way the economy is functioning. unemployment has been falling with relatively tepid gdp growth by historic standards, suggesting that potential gdp really is, regrettably, on the low side. that means you don't need very high interest rates, but that doesn't mean you need rates this low. to get from here to a you need to get, you have to get started someplace along the way, and i suspect that is really the significant motivation in recent weeks. fact,t: caps on in getting started is a good way to put it because this could be the first of three or four rate increases for the year. carl riccadonna, when you look at the data out there, what has changed materially from december when we last got the statement
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of economic direction? carl riccadonna: it is in its think question -- when we look at the hard measurements, industrial production, housing activity, or even consumer spending, you don't see a significant shift in gears. you did see, obviously, a tremendous pickup in what we call the soft data, the survey-based metrics that should be measuring activity, but could take on sentiment as well. etc. er sentiment, etc., tom: what is the history of soft data getting out in front of hard data. is this original this time around? carl: i don't think it is original, but when you have turning shifts, presidential elections, right now, you can see the -- what not -- you can see this change. tom: eu you buy that -- we have a trump feedback mechanism? carl: we just have not seen it
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to any degree. forecast, then moves you get at business cycle turning points to give you some information, and away from that, it is kind of random. we will see if there is a turning point beneath here. i don't mean the innovation of a recession. i mean the economy picking up into a higher gear. i'm not so sure that is the forecast. carl: to the point regarding sentiment gauges, equity markets are also a tremendous sentiment gauge. i would say even a bigger motivation to fed policymakers are things like down 21,000 crossing the wire. the fed is very concerned about inflating asset bubbles by keeping rates so low as the economy is on the mend. they have been there with thousands a look, the stock bubble in the past. they don't want that to happen again, --so i suspect the updates will be telling in this regard.
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i suspect financial markets, potentially overheating, was as much of a motivational factor to move march onto the table as any other indicators. tom: we have the famous curtis chart. harda set of soft data -- data, and compare them. scarlet: this is impressive. tom: carl riccadonna, princeton is in the brackets this year, not cornell. scarlet: thank you for that reminder. the soft data versus the hard data, and it has exploded only once in 2011 --the red circle. we have the skew of soft data getting out in front. i will go back to the same question i asked dr. neal soss, is it because of president, or is there something else going on? carl: it is largely because of the president, but if we look back some before we knew what the election outcome was, we did see an inherent improvement in
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the economy, the on implement rate grinding lower, and that is the key underpinning. since the election if have had an awakening of animal spirits. we see it in home building sentiment, the process of deregulation, banking sentiment, consumer sentiment, small business and even big business. there's only for everyone, and until details are revealed, everyone can be happy something big is coming, whether it is the regulation or copies of tax reform. scarlet: i want to think about what you said, the fed looking carefully at tao 20000 and equity prices. neal, you think that influence the fed to improving march as a certainty? neal: i want to be a tad old-fashioned. how about just plain old inflation, which has begun to show signs of life? a lot of that, measured year-over-year, is because gasoline prices were so
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depressed and so forth. scarlet: and oil has stabilized. neal: not precisely. if you are the fed, and it is part of your statutory duty, you are growing, if not faster. that is reason enough. so, i would lean on the. i would also lean on the idea of a can't really say they know what fiscal policy will do, -- they can't really say they know what fiscal policy will do, but the tone of political discourse suggests we might get more physical action sooner than we might have thought -- fiscal action sooner than we might have thought. some of it is contentious, health care, but the politics of it is a bit of a juggernaut. tom: let's go back to paul volcker, and your service to the country working with chairman poker. for the -- chairman paul volcker. for the bank of japan, they had
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a paul volcker moment. they raced rates. bring up the chart. this is history and the making, and this is the back of everyone's mind, governor bernanke's speech in tokyo -- they raise rates, and had to retract. if that is why we are having the srama this afternoon -- the oop if they get this wrong? carl: that is part of the underlying story. they have been extreme cautious policymakers, sensitive to the mistakes of moving preemptively in the past, so that is why even though i think they are moving today, it is going to be critical for the fed to signal this is not suddenly a new, more aggressive, hawkish fed. they slightly tgood with the timeline. tom: time for r fed economic ss,tory moment -- dr. so
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friedman, ben bernanke, on and on, on how a central bank acts -- they accepted the fact, right? they don't get out front, do they? neal: it is hard to know the future. and they have the dots cristobal -- crystal ball. dots -- andave had failed to achieve it. what is more important is where the long-term dot. -- settles. tom: it is right now at 3%. neal: that means gdp is not that high. what is happening is they have not changed the judgment, but they want to get there faster than the earlier expected. it is the path upwards that is steeper, not the endpoint. the endpoint,
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that is a big statement about soft data. carl: then moving along the path more aggressively of not necessarily recognizing the economy has shifted to a higher gear. gdpatlanta fed's tracking forecast is below 1% based on the latest retail sales data. in my mind, this is telling me that policymakers are very serious about the potential for financial markets getting ahead of themselves. thelet: when they look at financial markets, you mentioned equities being one point they are fixated on. do think the dollar plays in -- we know the president is fixated on the dollar. carl: the dollar has been a factor in the past, but it was the stronger dollar leading janet yellen and companies to delay the onset of stronger tightening. we have seen some telestrate since the election, but more recently seems to be evening out. they are looking overall financial conditions, credit spreads, and equities in particular telling them maybe eyeing thed start punch bowl.
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tom: our many hours of coverage continues her. we now have to have a moment of silence for carl riccadonna. bring this up if you want one more time -- this is important, the fed decides -- how appropriate. orange is the color. scarlet: is this a bracket joke -- what is this? --: notre dame, princeton give us a briefing. i don't see princeton beating notre dame. help me here. neal: hope springs eternal. tom: that is how janet yellen will start the press covers. really, that is what janet yellen is going to say, hope springs eternal on wage growth. neal: i must say my knowledge of sports is profoundly close to zero. tom: you and me are in common here. neal: i went to princeton -- i never went to notre dame. i have a dog, sadistic, in that fight, but i have no way of predict the outcome. some great guests
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coming up, and we will not bore them with the brackets. scarlet: in the meantime, carl riccadonna, think you so much. neal soss will be staying with us. coming up, professor carmen reinhart joined the conversation from new york. this is bloomberg. ♪
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tom: we say good afternoon to all of you. kathleen hays in washington will come to us a good 45 minutes before we see the announcement.
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was almost canceled yesterday, but i believe they got business done. we're getting business done here. scarlet fu and tom keene with neal soss, who was ousted in the heat of the crisis in 2007. i gave him very -- credit for the phrase forward we fence.o ring ncing thise ring fe afternoon --confidence? neal: i'm not sure that is a metaphor for today. the fed has been telling us they are on a program of gradual, methodical, one way of getting interest rate calibrated to where the economy is, and i think this is another move along the way. ande is but a certain drum because a few weeks ago the market did not believe it. -- itma because the fee
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is a few weeks ago the market did not believe it. scarlet: what we know about the relationship between the fed and the markets? wrotewas -- stephen -- there was a job owning campaign, the most aggressive they can member before the fed lost their nerve because of a soft jobs report. as the fed recovered from that episode and are they better able to can indicate intentions or thinking to the market? neal: well, we will know soon. if they lose their nerve, it would be quite a surprise. part of what is happening here, with the potential for so much change in the fiscal front, you cannot be sure what it is. you don't want to be involved in it because that is not your job as a central bank, but at the same time, i think all the signals are that the juggernaut,
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if you will, of politics, is moving that way. if you're going to get some kind of stimulus now, you want to get ahead a little bit as a central bank. scarlet: you have to keep in mind with the dollar is as well -- the dollar is something the white house is fixated with, and with the talk of a border adjustment tax, tom, that will play out in the currency markets. tom: it has been quiet -- one of the surprises for the strong dollar people has been we have a quiet now. this is a fun chart -- going way back to the broad, trade weighted dollar including china, adjusted for price change. there is a huge move up to the strong dollar in the 1980's, the late-19 90's dollar. showed this change -- like that the yellow or the red arrow with what we have seen now. we're getting down to a room and dollar movement. other thing that is
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visible in that chart is the dollar can move by a lot from time to time and it seems to have a relatively long stretch in which it is going up, and then a long stretch in which it comes down, stabilizes, and then a long stretch in units of time and in units of value, and we are in the midst of one now. and the implications of a value added or border-adjusted cash flow tax, however this thing will ultimately turn out, all else equal, would be to raise ,he dollar further, and the fed i think, doesn't want to be too much involved in pushing it further. tom: agreed. mindfult it needs to be of the fiscal stimulus, if it is coming. tom: and what are things you will here is where are we right gdp, and9% real everybody has to live through that. nominal gdp is sub 4%.
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at what interest rate does dollar worry begin to affect and governoren fisher? where does that click in? i would say it is where the mortgage rate affects housing and domestic activity more so than where the dollar does. i do not think our foreign trade is particularly sensitive to the dollar when all is said and done. so much of the trade is denominated in dollars to begin with. so much of it is associated with the development come over the last -- a good generation, maybe shorter than that, of supply chains -- the kind we did not used to seeing. so, i think, by and large command were in the world, the particular in the states, the exchange rate has less influence on trade balances and so forth than it used to. i am actually much more in just in seeing what the mortgage rate does. the row number of a 4% mortgage
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rate does not seem to be that much of an inhibition if you have always jobs created, and so could but maybe a 5% rate make a difference, and that is where the sensitivity arises. the exchange rate, as scholars suggested, has a more political dimension -- small p and large p, but then again, the federal reserve is located in washington, d.c.. tom: neal soss is with us. we are going to bring your andard clarida of columbia pimco as well. do not forget later, bill gross will join us after the fed decision and the press covers. we are with you all through the afternoon. scarlet fu and tom keene -- the fed decides. ♪
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scarlet: we are live from bloomberg television and bloomberg radio. this is special coverage of the module fomc rate decision. i'm scarlet fu with tom keene. with a still is neal soss of credit suisse. we're talking about mortgage rates, and you have a couple of mortgages to pay for. tom: i have not put this up in ages -- how about the 30-year rate -- dr. soss nailed this as he has done for decades. we are nowhere near the yellow line in the middle, which is the glory years -- 2003 to 2000. you refinanced six times. scarlet: i think it was seven. tom: varies the people they care of the fancy economics we look at. scarlet: and that is what you are looking at to see the effects of a series of rate increases from the federal reserve. my question to you -- you said the level at which people start to feel it -- if we have had lower for longer for this long, does the absolute level matter
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as much as the rate of change? if we see it ratchet higher, doesn't that matter more? neal: that is not a new question, so to speak, in macroeconomic interest rate changes. motion, or isin it a level that make a difference here, and similarly in other economies. i think the answer is what really makes a difference is something that catches the attention of the participants in the economy. scarlet: whatever it may be. tom: this is a real treat. i just saw professor richard clarida walk by. join us from st. petersburg florida, down there for spring training --carmen reinhart. she and ken rogoff change the dynamics -- the dialogue of economics. she has the research across dab of linking in our debt, deficit, public and private, with where we are. professor reinhardt, they give for joining us. it is fed day.
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should monetary authorities and chair yellen worry about a fiscal program out of capitol hill? carmen: i am sorry, tom, could you repeat the question? tom: i will try toepeat it if i can remember it -- the question is with monetary policy, should the fed worry about fiscal policy that could come out of the senate, the house, and out of president trump's administration? carmen: of course. look, a combination of loose fiscal policy and tight monetary policy is tailor-made for raising interest rates and strengthening the dollar. our of those things combine -- may initially not do much damage, but high interest rates and a strong dollar would not be the kind of combination that -- that would certainly foster a --
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you know -- the kind of growth the administration has been announcing. tom: let's do this. professor reinhardt, let's come back as we can. we were set up with professor reinhardt. we will get her back. scarlet: absolutely. i want to get her take on the recovery we are stuck in. for faster carmen reinhart with us, and still with us, neal soss of credit suisse. are we living in a carmen reinhart, ken rogoff economy recovery that has dragged and dragged. from new york, this is bloomberg. ♪
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scarlet: we are live from bloomberg's world headquarters in new york. this is the fed decides.
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i am scarlet fu, with tom keene, and with us from st. petersburg, .lorida, carmen reinhart she and professor rogoff wrote the authoritative "this time is different," examining financial crises sees, how they happen, and how we recovered. my question is how -- where are we in this recovery? are we still in the financial crisis recovery phase? haven reinhart: well, we recovered in terms of gdp. we have recovered for years now. what we have not recovered is that welevels of debt had before the crisis on the fiscal side, and certainly on the households and financial sector, the levels of leverage -- while not a source of preoccupation, r, you know, fairly high -- are, you know, fairly high by historic
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standards. scarlet: do you see any signs that we are building toward another crisis because of the amount of debt we are building up in the private sector public-sector, and how does that play out? , i think the united states is a far way off from having a debt crisis. i do think, however, the more we seet concern is that a sustained increase in interest rates comparable with a strong dollar and that puts a real dent in the economy, which is why i believe theto rising rates will be of the milder variety. i think we are facing the threat of losing competitiveness if we allow the dollar to continue its upward march.
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so, given all of that, how does the federal reserve fold in the perspective of what it is about tembarkn -- a 2 basis point increase today, potentially to other increases, maybe three later this year? this 25% basis point increase is factored in -- it has been anticipated. the real issue is looking forward, will it be two or three rate hikes? i think there has been little to suggest that this stage that we will see something beyond two. this is -- i'm inclined to believe that the yellen fed will normalize policy at a more think,pace, and i don't despite a stronger jobs report, that that has changed.
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tom: professor reinhardt, one of the great differences -- this is -- oneprofessor reinhart of the great differences, and this the hallmark of your work, the debt is not the same as it was under the years of ronald reagan. we are up at 100% of our gdp in that. some would say that is up to our eyeballs. this is different -- the deficit to gdp. if we roll over, as we are on the right side, and if we go back to reagan-like deficit to gdp, we are not in the same my loop as we were back then, -- meaning you as we were back then, are we? carmen: not even close. if you look at the total flow of funds, total debt, it is 300% of gdp. tat is a very farry from
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mid-1980's -- a far cry from the mid-1980's, which is why i made the earlier remark that one of the things that will temper the magnitude of the rate hikes that we see is the fact that this is a highly leveraged economy. help me here on what the senate's you do want something tactical. richard clarida will join us. neal soss is with us. bill gross will opine. you are advising the senators about generating a $300 billion cost savings on our health care system. how do someone like you look at the debt dynamics of these early proposals by the trump administration and by republicans? are they responsible fiscal proposals? so, on the tax overhaul, that is something that has been however, i think
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when you get into the plan to stimulus spending, and when you of a plan ofck attack on the entitlement programs, which is really the long-term driver of the debt, then, you know, it basically leaves us in a path where, as the congressional budget office highlighted, it is where you start to see concerns about the debt emerge. but let me highlight that what makes it hard for the u.s. is that other countries are willing to hold u.s. debt, and that makes it much harder for politicians here to take to heart that adjustment is needed. tom: i am fascinated, if we're going to see the questions of the press conference be more
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about present policy -- where they will be asking for chair yellen to advise president trump on what to do. scarlet: i think she will be careful in avoiding to say something of that kind. tom: after the third question, she might say something. scarlet: it depends on how many different ways we can think of to ask that question. the president has promised to eliminate the national debt in eight years. that is probably not going to happen -- probably -- understatement. given thenot happen size and the time that he has, but what is the most effective way for him to start. that down? -- pairing that down? been done inhas the past is to cut discretionary spending, and discretionary spending means you are also cutting things like infrastructure and all kinds of things that may help you in the short run, but don't do much for the long run.
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until the broad-braced -- brought-based entitlements issue is addressed, the debt problem will not be tackled, and the probability of working it off in eight years is, in my view, slim to nonexistent. , thanks soinhart much. carmen reinhart with the harvard kennedy school for spring -- from spring training in florida. , youetersburg, florida have to assume that is what she is doing. this is carmen reinhart's career -- the total debt to gdp, and i put every president -- the , whereng of reagan, bush we diminish the debt for a cup of coffee, the younger bush moment, president obama, and the president see, to new trump. richard clarida with us.
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selling will join us. he really has thought about wage dynamics. calculus here -- the first and second derivative dynamics of wage growth. we will do that with tom po rcelli. the fed decides. stay with us. ♪
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scarlet: we are live on bloomberg television and bloomberg radio. i am scarlet fu, with tom keene, about 20 minutes away from the fed decision. in the meantime, we have judy shelton, a former trump economic advisor, and codirector of the sun money project at the atlas network. it with us in new york, dr. richard clarida, a global
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judy, let me start with you and when we talk about the federal reserve, its mission, mandate -- it has two mandates -- full employment and controlling inflation. 2%.t now it is to get to you think that should be the primary mission, or should it be to focus on something else, such as a stronger stable currency? a stableton: i think currency is by far the more important of those tasks. that comes out of the humphrey hawkins legislation of the late-19 70's, and we call it a dual mandate -- there were really three parts to it. in addition to maximizing employment and having stable prices, the federal reserve was also supposed to be responsible for moderate, long-term rates, editing a lot of people on pensions or have bank savings accounts, would say they have seen extraordinary extremely low rates and they would like them to be moderate. scarlet: dr. richard clarida, does the fed have three minutes?
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clarida: it does, we tend to focus on two, but let me pick up on wood judy said -- the fed wants to be at neutral now. they have defined neutral at at least two. until we get that to two, we are in an emergency, accommodative mode, so i agree. longer: and it is no necessary. richard: we are at full employment. inflation is at 2% at i know the fed wants to be gradual. they should be gradual, but i think it is time to get away from zero. tom: rich clarida, let me go to you first -- if you look at what you invented, we are still in a great distortion. let's be clear about this. richard: sure. we are in a global distortion and have negative interest rates in japan, negative interest rates in europe. that is an -- that is create incredible distortions globally and that is flowing into the u.s.. that is part of the strong
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dollar others are talking about. tom: dr. shelton, let me bring this up -- bill gross will join us. mr. gross is clear we will see financial repression for years, decades. asou mentioned, retirees are getting absolutelyilled. let's bring up the chart of the inflation-adjusted five-year yield. that is what was the red line. what is the urgency to raise rates so that chair yellen can bondwashington to normalcy? i think federal reserve officials are eager to normalize. chair yellen when she last testified, and i almost thought she was saying we need to start brazing so we would have room to maneuver if we need to drop it again, but there is
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clearly a sense it has been abnormally low, and i think when president trump was a candidate, he pointed out that that monetary policy -- in his words, ended up causing savers to get creamed, even though developers such as himself had access to extremely cheap money -- almost free money, he called it. first off, i would say the federal reserve's model has not worked in an admirable way, in that it has caused a financial is asian of the economy. it has been great for wealthy investors that could borrow 1% money, and invested in a market at 9%, but it has not caused increase lending for small business, and, in fact, we are seeing a contraction there. what bothers me the most is not decision to raise -- it is a show of confidence in this new administration, but it is the mechanism. the race we will raise rates is
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by paying banks, that already have two trillion in excess reserves sitting idle -- money that we could lend out, and they will now give them more incentive through this higher interest rate to not let it -- lend it out, but leave it still, doing nothing, possibly collecting a higher rate for the federal reserve. i do not see that is a progrowth action. tom: dr. -- scarlet: dr. clarida, you are not in your head. richard: what she points out, because of the crisis, the huge balance sheet in the excess reserves, the fed has said they would like to move back to monetary policy before the crisis, but right now they are raising the rate of interest they will be paying. tom: to the doves out there right now, if we get a rate increase now, taking meeting off, another rate increase in wee, will the world end as
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know it, and politically the great plutocracy? the answer is no. clarida -- richard: for a long time i have said we need the rate of inflation in real terms. we'rstill talking about accommodative policy. tom: dr. shouting -- jeff -- dr. shelton -- jeff hensing has been in front of changing the model of the fed. gradual andto be speak to people like richard clarida, or see something more abrupt? carefule has to be being too abrupt because the power of financial markets worldwide is pretty sobering, but at the same time, i think there is an opportunity for this administration to talk about the need for fundamental monetary reform, and i think they have already begun laying the groundwork in saying that it is wrong to have a false economy. you want to put the economy on a solid footing, and to reconnect monetary policy to the real economy. wonderful ofton,
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you to be here with the sound money project and advice to the trump campaign as well. richard clarida is with us and will continue to be with us. coming up, tom porcelli. fedinutes away of the decision, the widely assumed rate increase. ♪
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--: good morning, everyone good afternoon as well. early, early asia -- good morning, 2:00 a.m. in hong kong. it is the fed decides from our studios in new york. kathleen hays is in washington, and she will bring us that announcement. neal ssith us, richard arida as well. now joining us from the trenches of rbc capital markets, tom porcelli. readas you know, i love to your work on wages and the linkage to the fed. give us an update on wage growth, and particularly wage
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growth giving -- given rising inflation. stealing toe -- something we have been talking about, and not something we expect will abate anytime soon. we could have the philosophical conversation -- is it the right level, should it be higher, and that, alone, is fine, but the reality is wage pressures are here. we expect they will continue to build. again, not to the point where it will change the consumption dynamic and united states. we are still looking at 2.5% of consumption for the next year or two, but it is enough to continue to, sort of, support the narrative. tom: greg peters says you are right, but he says with it we will see an inflation left. that ahave confidence nominal level of wages will stay out front of rising inflation, or do we have a real risk of flat real wages? tom p.: we do inspect that
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inflation pressures will build it we do not think they will build to such an extent that it will take a bite out of the economy -- would you mean by that -- at the core level we expect coursey pi to cover 2.3%, and that is something we would expect over the balance of the year. it is hard to build a case for materially higher inflation pressure. we think of floors to put on inflation, and given where we have come from, no small victory at this point scarlet: --point. scarlet: tell me understand, if that is the case, why does the market only believe we will get two rate increases in 2018 -- 2017? tom p.: this is something we have been pounding the table for a few weeks -- we think there is a disconnect between the market buying into this hawkish fed guard of pushing up thod significantly for march, and still only believing in two
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hikes next year. i get it -- there is uncertainty over the balance of the year -- the market wants to see pro-growth fiscal policies from trump and company come to fruition, however if the market is buying into this hawkish narrative today and nothing has happened from a fiscal policy perspective, i think there is a massive disconnect with them only thinking two hikes next year. that is something we would look to fade. scarlet: in the meantime, jeffrey good luck has indicated he sees the fed going old school, sequential rate increases, back-to-back meetings, maybe. tom p.: again, an idea we have written about. you have to start to consider 2018 -- do you see a hike every meeting? do they sprinkle a 50-basis point hike? let me be clear before i get jumped on for this idea -- a lot has to happen. the backdrop has to rewrite --
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has to revolve in a constructive way, but that is where the conversation has to work toward. materialize, but that is what the conversation has to go. tom k.: where is your neutral rate -- i do not know where mine is? do you have a clue? tom p.: let the other guests, we are properly trained economist, and it forced, we could come up with a point estimate, but practically speaking, it is difficult to pinpoint an estimate, and i think it is fair to think about it in terms of around 2%, you know, for the, sort of, more medium term. telling the pinpoint estimate is difficult, as rich and any of the other guests would attest to. tom k.: we you get that your customers, clients. tom porcelli, chief u.s. economist on wages. this is fascinating. i go to your colleague james sweeney who eight months ago was screaming about don't worry about inflation, and now we're
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back to stasis. can credit suisse generate an idea that we might have real inflation? neal: not really -- very much in the spirit of what tom just said, inflation seems to have a floor, but the way we analyze a cyclical dynamics in the global system, we are probably having what we used to call a speed-up scare right now, and they tend to be followed by slow down scares. we will get one of those soon enough. if you add up on a bottoms-of aces, it is hard to get inflation to go up a lot. that is not to say we are not approximately or in the neighborhood of the fed's goal or target, and that justifies moving interest rates some, but it is hard, at this judge or, to think about inflation as a runaway phenomenon -- something that will be public enemy number one and really attract policy. i broadly agree, but i
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do think the markets for several years have been undershooting the 2% target, and i think it is more likely will get a modest overshoot and a couple of years. in past rate cycles, we had a modest overshoot on core of 2.1%, 2.2%, 2.3%. i think markets are underestimating we could get a modest overshoot. recommending?you i know you and scott mathers are not on speaking terms. richard: my best buddy, scott matus. tom: he is real world. what do you tell him? medium-term, the breakeven inflation rates have dipped below 2%. we think that should be a naked. that is the key part of it. tom: we welcome all of you on bloomberg television, bloomberg
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radio take optic on sirius xm are on the nion. it will have an impact on the nation -- not so much this increase, but i haven't appeared -- may 3, june 14, july 26, september 20, is where you're going to share the stanley cup -- henrik lundqvist will bring it over here for a visit. then you really wonder about the tenure of chair yellen. scarlet: you're looking at the calendar. some will be live, and it will be a news conference. others want. do any to get away from the idea that are live meetings and dead meetings, and that the fed could go anytime? richard: i think the fed could go at every meeting with a press conference. that would solve everything. better, more consistent communication, and we would fix the notion of live in meetings that are not so live. we could get a surprise just to show they can at a non-press conference meeting. the way would be to go to eight press conference is a year.
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scarlet: how impressed were you by the fed's ability to shift market consensus of the last two weeks. it was a determined effort to get people convinced we would have a rate hike in march. two weeks ago, most people do not think it was going to happen. neal: the fact that we got a little bit in inflation continued it as a backdrop. the other thing is i think there is a growing sense more of this fiscal program from the trump administration, and ryan's agenda, if you will, is going to come to pass. keynesians either a demand stimulus in the short run, or potential gdp in the long run, or both. justify moving faster, at the very least, toward whatever the long-term rate is, and i think there is a little bit of concern -- this is reflective of judy shelton's comments -- that somebody may put a lot of pressure on the fed
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with respect to the balance sheet, and the more balance sheet adjustment one contemplates, or the sooner you contemplated, the more that changes financial market dynamics. up: i'm glad you bring this -- here we have a down -- balance sheet. we will let it go out into the future, or would you presume action? richard: rudd is frustrating is they have had five years to develop a plan and they are still talking about it. i do expect they will begin to taper the balance sheet. next year. they probably will not sell anything, but they will let securities rolloff. that process will take a long time -- well into the next decade, really, until a balance sheet gets back to a more normal level under that approach. neal: and it is a much more complicated business than it would've been in the old days because of the high-quality liquid asset requirements that banks have, which are satisfied, ideally, by holding reserves at hasfed, but if the fed
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liability, it must have assets. richard: that holds mortgages as well. that is applications for the mortgage market. about to medication -- what is interesting, they move the probability, but it was not yellen and fisher. it was kaplan. dudley. only chair yellen and stan fischer, right at the very end, sort of came on when they had been priced in. it only move the needle on the hiking probability. scarlet: but it was a concerted effort. iichard: it was correlated -- do not know how coordinated it was, but it was well correlated. tom: we have richard clarida of pimco, and neal soss of credit suisse. let's get a data check. equities, point right now -- a modest gain their as the s&p 500 holding about 1% below record highs. when you look at treasuries, the two-year yield, of course, is the one that is more sensitive
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to what the fed does next, and you can see the two-year is falling, so that means a higher yield. earlier it was up -- actually, it was a much more than that before. it has come back a little bit. nymex crude -- we are from the 47 handle >> 0.75%, 1.0. did not want to hike that key rate. remains for timate rate hikes, three rate hikes, owever it's a stronger consensus, the meeting is up and out of 11 officials are seeing three hiking in 2017. as for 2018, there is still an stimate for three hikes, however, there are more seeing at least three hikes. there is a total of six medium, recently going in t

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