'Bloomberg Surveillance Simulcast' Full Show 8/25/2022

'Bloomberg Surveillance Simulcast' Full Show 8/25/2022

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I think it's really reasonable to think that core inflation could surprise people to the downside. You're seeing the patient expectations rise quite meaningfully across the globe. That acceleration that we've seen in wages you'll probably see that chilling up in prices so we could actually accelerate in some components of inflation. What's very very unique about this cycle is that recession risks and inflation risks are at odds with each other. With respect to policy we're on the clock or we're in a global recession and we think this is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Live from Jackson Hole Wyoming our audience worldwide. Good morning.

Good morning. This is Bloomberg Surveillance TV and Radio alongside Tom Keene and Lisa Abramowicz. I'm Jonathan Ferro so scatterbrained we came inside. That's not the truth. What does absolutely abysmal outside.

The team's been rallying through the night to bring us inside and bring the show to you. T.K. still a big day. Inclement weather here in Wyoming for Chairman Paul. This is gonna be really really

interesting John. What's interesting I did an all nighter folks who were such chaos here in the weather. I haven't had any sleep. And I noticed about 2:00 a.m.

there was chairman while Powell rewriting the speech. Would you like to talk about that all night that you pulled last night. No but I think that's the tension. This is not a normal Jackson hole. And they're rewriting the speeches right now. It's not a normal Jackson Hole. And so I think we've all got to look back to twelve months ago when Chairman Pound delivered a speech right here and reread that speech because I was reading that speech in the last 24 hours.

And I have to say history hasn't been kindly sir. Trent in that speech transitory has failed. The idea of passing over inflation has not borne out in any way shape or form.

How did they reshape that. How did they get ahead of that especially given the feeling that perhaps some of these inflationary aspects are stickier for a very protracted period of time. How do they reshape of 18 putting together some great articles this morning and throughout the day no doubt here it will impact this from Marcus Ashworth Tom of Bloomberg Opinion. Jackson Hole should be a central bank mea culpa. A central bank mea culpa.

That's true. And Governor Bailey is going to show up to give his part of the media mea culpa. I think it's 20 20. Hindsight is valid this time around. There's some real questions.

Jurors spoke last night to Jacob Frenkel the former governor of the Bank of Israel and he was not scathing is that's not the right word. But he's very cognizant that they have to reset here after a difficult 18 months. We've got to reset and talk about the price action this morning. And here it is for you.

We are positive about a half of 1 per cent on the S&P 500 in the bond market. I've got to say the one thing that I looked at through the whole of yesterday was how close we came to 340 on a two year yield. Grandma backing away this morning by a couple of basis points.

But what were we five six basis points away from the year highs on a two year yield gone into Chairman Powell with a Mark Gurman with greater inversion and this expectation for hawkishness. And really how does he deliver on that. And if he doesn't deliver on that do you see a rally in markets especially as they pull together. More significantly this is day one of the Jackson Hole meeting. We are not inside because of the bear threat although I will say that when I got to the airport it did say you can read bear spray see a very busy side. Now you know that within my target I felt something about borrowing hikers etc. We have an incredible roster of guests including Seth Carpenter of Morgan Stanley St George. We'll be speaking with our own Michael

McKee and Megan Green joining us here. We're also going to be getting initial jobless claims 830. This to me is going to be really interesting because it's all about the jobs market at this point how much they speak about what kind of pain what kind of unemployment rate we have to see in order to achieve lower inflation. And today Tom was skeptical to me that I was interested in Dollar Tree and some of the other retailers. But there are a bunch of retailers that are going to be reporting earnings including Dollar Tree Dollar General Abercrombie and Fitch is not in the same kind of sort of category but also facing some other retail threats as well as Ulta Gap Williams-Sonoma. The read on the consumer that we're getting from some of these retailers is fascinating.

And we're at a moment where we're really seeing some demand destruction as a result of inflation. Is this Fed speaking John to the people. That's Shop Dollar Tree. That's the heart of the matter. I think that's a really important point. And when we catch up with Fed officials for the next 24 hours I think that's a point we can bring up repeatedly. Let's not the coverage this morning. We can do that without him asking.

The chief international strategist at Deutsche Bank Anonymous stop right here. Chairman Powers tomorrow what are you looking for. But I think we shouldn't get ahead of ourselves. I think that's the starting point. I mean he spoke about a month ago.

I do think the Fed is going to push back on all this chatter about pivots. I think the notion of a hiking cycle that ends and turns into a rate cut cycle by the second half of 2023 I think we've seen consistency from Fed officials that they don't really believe in that kind of cycle that rates might well remain at some sort of plateau for for quite some time. And in general I think they are pushed back today and thoughts of anything like a peak in the Fed funds below what we've already got priced in that around three and three quarter per cent. And on the day of the invasion of Ukraine we spoke to your colleague David Fulford land now and he was heated about the tumult that would come particularly on fiscal policy.

The litmus paper of that is the dollar. This is what your expert at. Have you enjoyed say villas adjusted the Deutsche Bank dollar call with its dollar strength that we see. I think what we're what we've been doing a time is really pushing out the thoughts in terms of dollar weakness and the broader idea that the dollar is not going to peak in a convincing way until there's greater resolution in terms of how Europe navigates its energy crisis through the winter. I think that's the first port of call in general dollar strength you're seeing is it.

No in no small part related to problems elsewhere. It's in Europe. China's obviously slowing. Japan's got its problems in terms of very low interest rates and very easy monetary policy to the dollar by default. I think there remains strong at least for the next few months. I like the. Alan this goes to a point that you are writing a lot of power that I find really compelling which is the dollar is a safe haven and the potential squeeze inherent in that.

And I take a look at not only interest rates but also the fact that we could get a 2020 like move into the dollar. How risky is that at a time when the market is trading on macroeconomics more than possibly ever in its history according to certain Barclays indicators. Yeah. Interesting Lisa that we've already had enormous flows into the dollar that relates to this sort of so-called flight to quality. Wouldn't get too hooked up on the word quality but by again by default the dollar has drawn in something to the tune of one point four trillion dollars of short term flows between the end of 2019 and Q1 of 2022. A staggering number.

So a lot of the dollar's strength does relate to short term flows concerns about liquidity elsewhere concerns about price action and risk elsewhere. And the dollar is the main beneficiary in this cycle. There are some other beneficiaries of course. Switzerland has drawn in a huge number as well in terms of dollars in relation to GDP. So big a big level of support for the Swiss as well. And the notable outflows have occurred from China. So John and Tom are talking a lot

yesterday Allan about how even if the ECB hikes rates substantially it's not going to support the euro. What could potentially stave off the decline. How steep could the decline be in the euro versus the dollar. If we see energy prices continuing to climb to new highs as they are today. Yes I think it's a short term story and

there's a long term story over the longer term if Europe and the ECB stick to hiking interest rates because they see through this energy crisis then the Europe euro in particular will benefit. I think you'll see the euro solidly above parity in 2023 under that kind of scenario. If we get through the winter I think it's a case of navigating the winter. And I wouldn't rule out. It's not our central forecast.

I certainly wouldn't rule out numbers like zero point nine five on euro dollar if the crisis the energy crisis turns into rationing for example and real restrictions in terms of output at the moment. We're thinking in terms of a a slight recession i.e. a slight negative growth in the likes of Germany.

But if that turns into something that's much worse than that that's not what the markets are pricing in at this point. Alan I've got to wrap it up and ask you about whether you expect some tension between central banks at some point between the ECB the Federal Reserve between the Federal Reserve and the Bank of England. Clearly euro dollar and a break apparently is not what this ECB wants. Clearly a break of one 18 is not what

this Bank of England wants. When do you expect that to be some real tension on the international stage. Yeah I don't think we're there. I think central banks generally believe in flexible exchange rates. They believe. I think that the market is saying something in terms of terms of trade shocks in particular that we've been very sharply moving against the likes of the euro in particular sterling to a degree and that's actually been helpful for the dollar. So I think you don't want to fight real forces like terms of trade.

You don't want to fight monetary policy either. But I think the terms of trade elements of agreement are very much underestimated. So I think in this instance the central banks are not going to push back in a big way. Adam Ruskin Deutsche Bank captain great to catch up. It's okay. This is a big problem. It's gonna be a problem already for the ECB for the Bank of England and central banks too. You can do the math.

You can do the math on the turmoil. And Ruskin is expert at this into his point. We are not anywhere near some form of drama like a Plaza Accord level. We made a joke yesterday about the grizzly accord. I think what you'd hear here is they

don't need it. You they don't. We get closer to that. Are we getting close. We are definitely moving in that direction. And that's a concern and to be prepared for it.

But those stresses just aren't there yet. Where are they on level. I'm going to guess you know point 9 0 euro drama. This is a problem already. I suggested the problem already for the ECB and the Bank of England that these weak currencies are not helping them all.

Although what are they going to do about it. And this is the conundrum that I think a lot of people are facing which is they are facing inflation. They have not faced for 30 some odd years 40 some odd years in the face of that. What do they do. What does that accord look like. How do they project out with the inflationary trend is going to be over the longer term. In an era of deep globalization and

structurally potentially higher commodity costs. Did you see the same. A capital economics this morning. Capital Economics came out a little bit early this morning and essentially said the question is no longer whether Germany enters recession but how deep it is Lisa. That's why we're out in Europe. We know where we are in China. It's not pretty. I just wonder at what point we start thinking about this really hitting the United States. And what really struck me this week and I think it struck me to how quickly we were.

So just ignore the PMI ISE out of the United States is if they don't match it just wait. The ISF just ignore the PMI. The negative data at this point is being looked at as peripheral even when it comes to home housing prices. If you take a look at housing activity people are like that. It doesn't really matter. It doesn't matter which Tom Keene and Lisa Abramowicz some Jonathan Ferro an open house and Jackson tomorrow from Jackson Hole Wyoming and that three point five one cluster of Haidi Lun point five million for a.

It's hardly that you want to talk about life from Jackson Hole this morning. Good morning. This is Bloomberg Surveillance. He'd be up to date with news from around the world with the press right. You can get it as more pressure on consumers in France and Germany today after power prices rose to record highs. They're now about 10 times higher than

what they were a year ago. The astronomical rise is being driven by tighter gas supplies from Russia. That pushes up the price of the gas that fuels Europe's power stations. China has stepped up its attempts to

stimulate the economy. It's adding 146 billion dollars of spending largely focused on infrastructure spending. That won't likely go far enough to counter the damage from repeated Covid lockdowns and a property market slump. President Biden's plan to forgive a portion of student loans held by tens of millions of people will ripple through the economy. But no factor will be more closely watched than inflation. Bloomberg Economics sees the potential to add as much as two tenths of a percentage point to the inflation rate next year. That comes at a time when inflation is

already at a four decade high. In your body Texas the school board has fired the school police chief following that mass shooting in which 19 fourth graders and two teachers died. An investigation described Pete Arredondo as the commander responsible for police response. Law enforcement waited outside the school for more than an hour while the gunman was inside. And Swiss drug maker Novartis planned to spin it off its Sandoz unit that would create the largest European generic and biosimilars drug company. The unit generated nine point seven billion dollars last year. That is more than 18 percent of the

parent company's sales. Novartis will now concentrate on developing breakthrough medicines globally 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than a hundred and twenty countries. And which could get to. This is Bloomberg. Live from Jackson Hole this morning. Good morning. We'll be catching up with the good and the great over the next 24 hours. The good and the great that have had a difficult time cold in this economy over the last 12 months. Your equity market coming into that

future shaping up as follows just about positive on the S&P 500 fading just a little bit dug up about five or six tenths of one percent. Mike Wilson of Morgan Stanley yesterday absolutely scathing about the idea of making a call of new highs on this equity talk anytime soon bringing those comments a little bit later. Want to talk about the bond market as well. We've mentioned this a few times. Lisa's been talking about it through the week to yield to the front end just climbing back towards 340 and yesterday's session.

We back away by a couple of ISIS points this morning down to 337 down a couple of basis points. It's a Chairman Powers speech tomorrow looking at foreign exchange. This is how we started the program this morning. Euro dollar at about ninety nine.

Eighty five. A stronger euro today. But take this has got to be a problem for the ECB. A problem for the Bank of England who are grappling with much much higher inflation than they would like the imported inflation side. Certainly a weaker currency a weaker euro weaker pound sterling is not going to help them. One of the great things is John that

we've got an on radio. I'm holding my iPhone. We've got the Bloomberg Markets squeezed into an iPhone. And John it really works. And the data point to your point is yen

yen hasn't moved 130 654. Powell gives a different speech with unit 138 certainly 140 weak. You banking imaginable. The bank Japan hasn't moved either. Right. That's the big difference between say the BMJ the ECB and the be wake up. As you know the BLT and the ECB they're staring down really really high inflation. I want to come back to this city earlier

this week. We should not let the Scott city early this week coming out with a forecast for 18 percent CPI in the UK in January. It was just sort of a number we threw out there and we talked about a little bit. But can you imagine 18 percent inflation in the U.K.. This is where people are gaming out. And this is really on the heels of energy. And it's not just the U.K. You're dealing with it in Europe as

well. I just want to note that the euro valuation you're talking about below parity is coming as traders price in the most hawkish moves ever from the ECB in the past few decades. This is a game changer in terms of the scenario for central banks but the potency is in question of the past. And not just that the front end of the German yield curve. I think it's quadrupled in the last

month or so. And yet so we've got a weaker currency. That's a problem. The prospect of higher interest rates. Yes still a weaker currency. LEGARDE missing from these meetings by the ECB represented in full force here. And they'll have comments I'm sure in

the coming days. Right now stuff Carpenter joins us the chief global economist at Morgan Stanley. What's so important about Carpenter is the historical perspective. Let us frame the Jackson Hole. This began in August of 0 7 and have a founder's recollection of Stanley Fischer on the phone. Urgent conversations. Two weeks after your world and our world

blew up Ben Bernanke rewrote his speech on August 30 first 15 years ago. It is not the responsibility of the Federal Reserve nor would it be appropriate to protect lenders and investors from the consequences of their financial decisions. Fifteen years on S Carpenter didn't work out balance sheet dynamics. Original monetary policy explained to us how we finally extricate ourselves from a 15 year experiment that it's gone wrong. Yeah I think that quotation from Ben is

important. It sort of is was supposed to have put paid to the idea that there is a Fed put the problem in so many people in interpreting what happened though is the financial system. It's so fundamental to the US economy that even if you're not trying to save investors from their decisions if you're trying to save the economy you end up intervening in a big way in markets. I think your question though about

extricating the balance sheet they are set at the beginning of next month to double the pace of the run off of the balance sheet. The market knows that it's coming. I think the proof will be in the pudding though once that extra paper really starts to hit people's balance sheets. Exactly how smoothly markets absorb. Right.

Run on. Sophie Kamaruddin what happens to our viewers and listeners if we get a Mohamed El-Erian I'm going to call it 4 percent level or analyzing it. Bloomberg Economics how does that destabilize our financial system. If we get if the Fed takes the funds rate up to 4 percent then. Yes. Yes. Well I mean first I think we have to admit that that's clearly in the realm of possibility the peak rate.

I've been reminding our clients where the Fed ends up with the funds rate is not sort of something they know ex ante. It's not a gold that they're shooting at beforehand. It's the result of how the economy is evolving as they tighten policy. I thought there was interesting comments from Rafael Bostic of the Atlanta Fed earlier today in the news that you know they've got more data coming in. Those data could come in much stronger than they think. And those sort of determinations is going to help them decide. Seventy five or 50 of the next meeting

and ultimately where things end up. So how do we get to 4 percent. I think we end up at 4 percent of the economy actually is fundamentally stronger. So the real side of the economy than then we're forecasting right now. S he mentioned QC as well. And I think we've got to pick up on that. I caught up with your colleague Michael Olson just yesterday.

I want to read a quote share a quote of his from yesterday's appearance on this program to be making some big call about new high says quite frankly it's irresponsible given what's going on with the Fed and Kuti coming. Seth it's remarkable to me and I'd like to know what your conversations with clients sound like right now but hardly anyone talks to us about Kuti the impact on the market that it could have and impact. For that matter on the economy as well. Seth how were you thinking about that

dynamic as it set to ramp up and kick in through the next several months. I mean I think it's a critical part of the Fed's policy. Mike has been bearish for a while. And I think you know the recent bear market rally that he's sort of not particularly enthusiastic about apart from that the sell off that we've seen earlier this year has been very consistent with this call. What is the Fed trying to do with higher interest rates with the unwind of the balance sheet. They are trying to tighten financial conditions to slow the economy down not just a little bit slow it down so much that the inflationary pressures abate over time. That kind of slowing growth slowing in

spending in the economy can't possibly be good for earnings. And I think you know our economic view and makes you an equities are very much alive in that regard. But there's a larger point here which is how do we look at inflation and what the Fed is combating and I say this because isn't just about the strength of the economy or is it about a fear that is growing among Fed officials. As per a Wall Street Journal article that came out yesterday that this inflation is much more intractable than they previously thought is rooted in a sort of a reversal of the 90s globalization as well as structurally higher commodity prices. How much are you really looking at that changing Fed policy over a longer term.

Key question and I think you want to break inflation at least conceptually into three different parts. One is the part of inflation that the Fed really can't control by itself and could very well go away on its own. And there I'm talking about energy prices food prices. We've seen oil prices peak and start to come off. So part of that inflation looks like it should take care of itself. Then there's the part of inflation that really is driven by strong underlying aggregate demand. So if you think about housing inflation

40 percent of core CPI inflation is owners are going to look around and tenants. Right. That's really driven by the strong underlying economy and the continued strong job gains. Right. Over 500000 jobs. And then the third component though is is the mindset the mindset the psychology when economists call inflation expectations. And I think that last part is where the

Fed has a right to be worried. What happens if everyone just starts building at higher prices. So what what's the solution. I think the Fed solution and I happen to agree with it is slow the economy down.

It's growing faster than can possibly be sustained long term. Five hundred thousand jobs for a month just can't be sustained for that long. Slow it down get realized inflation down and then rely on the idea that slowing realized inflation especially as energy prices come off is going to prevent that psychological change to do to the higher a sustained inflation. Hey Seth. Appreciate your time as always Seth

Carpenter of Morgan Stanley. His comments on the economy very much in line with the comments we have from Michael Barr some of the equity market of Morgan Stanley just yesterday. And I want to reflect on what von Michael Barr J.P. Morgan Asset Management had to say on

this market as well. And let's be clear about BOPs through this year. It's not going to permit that. He's actually light high yield when spreads gapped out wide to about 580 basis points. High yield spreads came all the way back here to somewhere close to 400 basis points. Guess what he thinks now. He thinks yesterday. This is what he said yesterday. He thinks we're rich almost his words.

Precisely. And he thinks looking out to next year you can have a situation where high yield spreads gap. Maybe it's 650 pushing 700 basis points now. But my course. Right.

And you have a dynamic where high yield is back out 650 700 basis points to imagine why this equity market is Lisa. With that go Annmarie Horden. Well and this is the weakness in the economy that the Fed is trying to engineer that has not been priced in. Well not only the equity markets but also the credit markets when the credit markets start to get a whiff of it. Is that the signal to the equities. Hey NASDAQ it a little moment. My chair one inch away from his too. So gloomy here in the magic.

I'm here in the manager's Wyoming. There are no empty suits on any airplanes. North sell from Phoenix to Anchorage. The real estate price in Jackson Hole is comical the way it is. We have we have people driving us around that they commute from Idaho which I think is like a million miles away. I think the bloom is unfounded. It's a stated story. I get it.

But there is an optimism after that America can can work through this versus other more static. And we're talking past each other though a little bit just in terms of where I am or where we talk. Well maybe that's an evergreen comment but there is a question about longer term making it work and shorter term a pretty massive sea change in inflation and what the Fed's role has to be in combating it. And I think that's right. I'd go another step further. And so I think you're on the same page. How many times you talked about the two

Americas. Our experience on a plane come into Jackson Hole and landing at an airport with about 10 different commercial flights had different private jet. My mind is very different to the experience of the stat that we read out yesterday on this program.

One in six Americans are falling behind on their utility bills. Do you not think there's something going on here. I can't just make these broad based assumptions about the strength of the ideal consumer considered critical in sort of recession if that's what we're in. These people are crushed in the middle class of America. I'm sorry Paul has to address that

tomorrow. Chairman Powell come out tomorrow. Life in Jackson Hole Wyoming this morning. Good morning to you all with Lisa. Rabbits and some cane.

I'm Jonathan Ferro NIKKEI from Buffalo. So let's give you a buffalo 20 bison. Keeping you up to date with news from around the world with the best word armor you could get after the Biden administration has won a judge's order ensuring women in Idaho can get abortions in medical emergencies. That came less than a day after the administration lost a similar fight in Texas. The mixed outcomes point to a hotly contested court battles ahead in the UK. Two research groups say the government will have to draw up previously unthinkable measures on the energy crisis. The Resolution Foundation and the

British Chambers of Commerce are calling for Covid style emergency support to deal with soaring costs natural gas prices and at 10 times higher than the last decades average. In Los Angeles a jury has awarded the widow of basketball star Kobe Bryant 16 million dollars in damages over photos taken at the scene of the helicopter crash that killed her husband. The spouse of another victim was awarded 15 million. The photos were taken by emergency personnel.

Los Angeles taxpayers foot the bill. More signs of weakness in the semiconductor industry. And video gave a disappointing forecast for the current period. That comes two weeks after the company

warned that sales for the latest quarter would come in well below original expectations. And Bed Bath and Beyond is closing in on a lifeline from 6 3 Street Partners. Bloomberg's the home goods retailer isn't to explore a new line of credit that may be around three hundred seventy five million dollars. That will give Bed Bath and Beyond

breathing room while sales slump and it burns through cash. Global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries. And which could get to is to be. Our view is that the Fed basically stops by the end of the year. I mean you basically you're in a 350 and hiking cycle is gonna be done.

But the real risk is that the Fed does not not hitch its wagon from inflation particularly headline prices and that they just keep on going. That was Tom Selleck ISE RBC Capital Markets just yesterday if you just checked again on TV and radio. There is a reason we are indoors and it is not grizzly bars. The weather's appalling gas side.

So it seems that a fantastic job overnight. That is the truth. DAX stop rumors and conspiracy theories. Gary I'd say you've spent the last several hours putting together a little mini studio inside the lodge. So it means that we can be very critical of the Federal Reserve now. But at some point and it's not Chairman

Paul's going to wake up and walk past and there will be really a lot of time. Maybe we'll be super supportive of that speech. It's 12 months ago because Tom how could he possibly know that inflation would not be temporary and so-called transitory. No we to see on that. And that's certainly the theme here is to look back. But I think to look forward is just as important. What I would note in coming to Jackson

Hole is you see front and center elements of the drought that is across this nation John. Some of when we came out of that. Yeah. The water level was way way lower. The lack of snow I've never seen two years in a row here with the real lack of snow futures right now positive about a half of 1 percent on a S&P 500 just a wet freeze. Some of the price action out there for

you. Yields coming back in to three basis points on a two year. Mentioned this a few times already. We'll keep going over. It came very close to the intraday yet to date highs multi-year highs on a two year yield of 345.

Just yesterday just short of that some at about 340 right now 336 to the chairman's speech tomorrow. The cliche and this from Senator Edwards of Louisiana John Edwards years and years ago is of two Americas but maybe it's three Americas. Wendy Schiller now joins us director of the Tobin Center for American Politics at Brown University. And Wednesday here's the reality. The first three conversations I had in Jackson roll off the fancy airplane with people with foreign accents.

Immigration is critical to the spirit of this nation. It's hugely contentious. I want you to describe as Powell speaks as Biden moves forward what they do with our three Americas the haves the have nots and the immigrants that are keeping us going.

Well you're raising an extremely important part that even among immigrants there is wide disparity. There are skilled immigrants. There are people who come to go to college in America graduate school and stay strictly in the tech industry for example. And then there are immigrants that are you are working those the lowest wage jobs in a lot of our industries and our sectors. Some are documented. Some are not. So there's and there's generations now immigrants. So even our political assumptions about how different ethnicities or nations of origin people vote. That's changing all the time because

it's not just first generation or even second generation. Now we're talking about third and fourth generation who have very different views than their parents or grandparents. So the politics and the economics are really every year are getting more and more disparate. They're really different particularly where people live across the country.

What have you learned in the recent days the recent weeks the primary season as we move to the midterms and critically to 2024. What is the power for the president to power for the chairman of immigrants first generation the kid from Belarus that drove me yesterday. The people in Pueblo Colorado is an example of the Latino vote there that shifting dramatically Republican. What's their power that you've learned about. Well one of most important things is that when you are an immigrant and you are not yet a citizen for example you know you obviously have different political rights. But immigrants are not do not qualify for federal benefits or usually state benefits unless you have relocation assistance meaning they have to work for whatever they have.

So when you see the Biden administration doing things like forgiving student loans which we could talk about for people go to college on less than 40 percent of America goes to college 60 percent doesn't go to college. And you are not eligible for any of these benefits that you see being given away that sticks with you. That stays with you as you go through the naturalization process and become a voting citizen. So I think that's what the Republicans figured out is that Democrats think immigrants will be for them because of the rhetoric.

Fortunately for Donald Trump among others. But in fact immigrants tend to go the other direction because they say well we work for everything we have. We're not eligible for anything and you're giving our money away. So I think that is a big divide and I think it's a win. Chronic and growing misperception by the

Democrats. Let's talk a little bit about the student loan relief that we heard about from yesterday from President Biden. A lot of people are saying this is going to help heading into the midterm elections. What's your view on how inflation

muddies the water and the estimates from a whole host of different shops partisan and bipartisan that this will be somewhat inflationary on the margins. Well I think people vote when they're most people vote when they have an axe to grind or they're really enthusiastic. So we know that Republicans have an axe to grind and we know that people are suffering from inflation gas prices and many of whom may not have gone to college or aren't in college or paid off their student loans already will not benefit from this at all.

So you know if you raise the deficit a little bit you're going to add to inflation. That rhetoric helps the Republicans and people who are college educated. Democrats have a majority of those voters now. They're voting Democratic anyway. And we don't know how enthusiastic they are. So I'm not sure this ten thousand dollars or even twenty thousand dollars gets them out the door to vote. And lastly students who are in college states have done a pretty good job. Jihye Lee Republican controlled states

of limiting their ability to vote their residency requirements making it more difficult for them to vote if they're not there full time. So in some ways you're not going to get that student vote that you hoped to get from this move. Wendy you're a dyed in the wool Democrat. You also are at a university that is very prestigious and known for for its academic prowess.

Do you think that this is a good policy forgetting the prices of tuition lower or do you think it inflates it further. Well these aren't registered independent. So they're there's my political affiliation for you. I think that you know if university costs are outside my lane you know I'm a research and teaching professor. But you know every business and higher education is a business now raises its costs depending on how much money you can make. So if in fact loans are forgiven and there isn't a greater possibility of affording college then there isn't any reason really for universities to cap their prices. So I think the whole student loan system

I think contributes to the rise in tuition that universities charge. And like any other business it's a competitive consumer driven business. Now they're going to raise their prices when they can. Wendy Schiller of Brown University. I apologize to my colleague rule independent impartial. I'm sorry. I didn't mean to scare you. I'm listening to you sir for the ISE

David Ingles RTS. I'm not Maria Tadeo. Okay. Bye bye. Can't we cancel the price of Brown University. No. And T.K. I think we've got to do that. We've got to do it in the heart of the problem. And Brown has done it several times this

week. It's the price of college tuition in America. You're ready. All in Brown University eighty thousand four hundred forty eight dollars per year. A year.

And that doesn't include Wendy's show as classic textbook. But that is for a university that is highly respected and where a lot of the people who go have more money to spend. This is the issue when you have for profit universities and people not completing those degrees and whether they get the jobs afterwards that give them the salaries that make it worthwhile and to see larger structural problem. It is a massive one. How do you get it done.

Unclear. I tell you people in the UK fallen off their seats listening to some of this nonsense and standing domestic to go to Oxford or Cambridge. I'm here in eighty thousand U.S. Eighty two astronomers. Prednisone Leeds. Chelsea Wurst on Joel Weber Scarlet Fu. When the bottom of the bottom line is is

this a massive own goal for president by saying this is about to quit soccer. That was beautiful. No one in Wyoming played soccer Friday. No one. There is no Wyoming is free.

We know you don't know that. Life in Jackson Hole the imported stuff this is blowing back. I think it's really reasonable to think that core inflation could surprise people to the downside you're seeing patients vacations rise quite meaningfully across the globe. That acceleration that we've seen in wages you'll probably see that chilling up in prices so we could actually accelerate in some components of inflation.

What's very very unique about this cycle is that recession risks and inflation risks are at odds with each other with respect to policy. We're on the course or we're in a global recession and we speak. This is Bloomberg Surveillance with Tom Keene Jonathan Ferro and Lisa Abramowicz. Live from Jackson Hole Wyoming for our audience worldwide. Good morning.

Good morning. This is Bloomberg Surveillance on TV and radio alongside some kid at Lisa Abramowicz some Jonathan Ferro with equity features just about positive. It's the drum beat C.K. giving it to Chairman Powell tomorrow and the chairman tomorrow. And it's a two Americas of a booming Wyoming that we're seeing. And we saw that coming in here through the airport and the prosperity of a Wyoming that's part of a booming works even within drought.

And that's part of what he has. He has a product to do a productivity dearth no question about that. He's got massive data dependence. And it's how does he speak to the tension. You mentioned earlier the Bloomberg article of one in six Americans having trouble paying their electricity bills. That's the core issue. How does he speak to the data point of the moment Lisa. Eight point five per cent CPI in America.

And the fact that this is going to have and is already having a ramification that people are feeling you're seeing on the margins people changing what they eat what they buy how they travel because of that eight and a half percent inflation which goes to the momentum that you talk about Tom and how quickly does it fade. Well how do you speak to tomorrow with the strength and who does you speak to last night to greet Jacob Frenkel the former governor of the Bank of Israel iconic within foreign exchange academics. John does he speak to an international audience including talk about challenges.

GOVERNOR BAILEY THE BANK I think it is tremendously difficult for this chairman to navigate the problems of board with so many problems at home. If he's worried about having his message being misinterpreted I think that the greatest route to go down to really confuse things is to start talking about Europe start talking about China and anything else that's happening on the planet. It's got an inflation problem. Does he have a market problem as well. And we need to talk about that too.

This equity market bottomed on June 16th. And since then until very recently we had equity markets to the moon BMO and we had credit spreads tied to tight to to tighter. And we need to ask whether we've seen an unwarranted easing of financial conditions relative to what they need to do to get CPI inflation back in and the previous communication. He did not push back dramatically against that market action. Does he do that now especially considering the fact that we're looking right now at markets that are pricing in there moving away since the central bank leader jawbone markets didn't meet in the last day. I just don't think he's going to come out and say the markets are wrong. He's just not going to do that.

They've been doing that for the last 10 years. I think have been validating. He's running away from things. Tell me what happened in late 2018 December 2018.

Well the Red Sox traded for a week ago. So come on. We all know what happened in the market and how it changed policy for this Federal Reserve. OK. The market changed policy. But the idea that a central banker is

going to lecture the markets at Jackson Hole I just think is is is not Carol Massar. It would not be the first time. It would not be the first time especially because financial conditions are the mechanism that they use to transmit financial parts and transmit monetary policy to the rest of the economy. That's one big issue. You didn't make most noises. ISE. There was a fast sound effect through tonight. OK.

Just to confirm for everyone we're not inside because of bars. And I said vice settings. We have we're inside because the weather's so bad. The team put together a little mini studio for us inside the lodge where Chairman Powell be walking around a little bit later. Hopefully hopefully the weather will become honest and tell them the truth. I did an all nighter folks with some of

the great people here and they just set up the studio. That's right. The difference between what a diner scene. Okay.

We walk in bow tie suit tie cowboys. Cowboys do like right off ripping off his bow tie. I'm taking off my tie. Esther George looks up at us and cuts a come. The New Yorkers Abigail Doolittle side of it welcomes us.

T.K. sits that two martinis in front of him and the Kansas City Fed shout over to me. Are you going to look after Tom tonight. What do I do. I go home and go to bed. No idea what happened to this one in the hours after. I was very careful.

Analysis of the Fed was sure there was. I looked forward to the Covid on that. That's not your brother. I'm sure he's right now they are positive. A half of one percent on S&P 500 least

in the bond market. It's been about year time. Just yesterday yields coming in at the front end with 20 basis points 337 on a two year. All right. So today obviously we're in Jackson Hole. It is day one. And we've got a whole host of great guests including Esther George who I'm sure we'll be checking in on Tom s Carpenter and Megan GREENE. Also joining us 830. We get initial jobless claims. And this is Eastern Time not not where

we are right now but how much do we get to read from the labor market of a softening and how much is this really what the Fed is looking for. And there a whole host of retail earnings today. And I know that Tom you were skeptical about Dollar Tree Dollar General why we care. This is the other half.

This is where people shop where they're looking for a bargain. And we also. Gap at Williams-Sonoma as well as Ulta. But how much do we get a sense people are pulling back from their spending. We saw this already at a whole host of different companies including Nordstrom even the higher end. Seeing that if we all forgotten that headline from Wal-Mart earlier this month Wal-Mart came out and said high income middle income Americans are now coming to Wal-Mart. That's a big change to high income Americans going to Wal-Mart because it's not just low income workers getting squeezed.

To your point and you've made this over the last several months people are looking at the bills and they're looking to go elsewhere. Own brands store. We've got hooks. That's where a lot of business has been gone. I hope for the bloom first here market for one of it is you know OK it's here. Good. J.P. Morgan he's measured and he talks a glide path down and inflation solved by a lessening of supply side shock like something Dean Dean Hubbard would talk about.

You're really scraping the barrel for the bills if you'd gone to the pump. I'm doing it for the buyers and I'm doing it for the bulls. So let's get to the theme of the moment in Jackson Hole Wyoming case. The title Reassessing Constraints on the

Economy. Let's have that conversation now with Glenn Hubbard a professor of finance and economics at the Columbia Business School. Glenn great to have you with us. Can you frame how challenging this moment is for this Fed chair. Well I think it's it's very challenging for two reasons.

One it's momentous time in the economy with both significant uncertainty about inflation and recession. Two it's important for him and communication. I actually have the old whip inflation now buttons from the Ford administration. And I think Chair Powell needs to do better in expressing words some candor about the past not necessarily a mea culpa for what happened and about the future what it's going to take as well as talking about the difficult path of getting inflation all the way back down to 2 percent getting it down to four maybe straightforward getting into too much hard. Glenn Hubbard the arc of Republican economics represented by so many here at Jackson Hole is that the system will solve itself is a general statement is the religion of supply side economics or the religion that the American economy can heal itself. Has that failed. I don't think so. I mean the economy is a lot of self a

liberating mechanism. The question is over what time period in the presence of such large shocks. I think policy still has a role to play a role to play in the Covid pandemic. And the Fed just can't wait to let inflation work itself out. So Dean Hubbard Glenn what's your view

on our debate that we were just having about whether this Fed chair will speak to markets what he will say about their enthusiasm about some sort of pivot or some sort of pause in a Fed rate hikes. Well I think the message he could give. Going back to the point I said about candor about where we have to go is what it would take to reduce inflation. I don't think he's literally going to lecture the markets and the stock markets to high or something like that. But I think he can outline a path that says we have work to do to getting that work done requires tighter financial conditions. And speaking in general terms I think that would be wise to make that kind of communication to the public and to the markets.

There was there was an article in The Wall Street Journal I keep mentioning this because it really caught my attention about whether we have seen the end of the low rate policies is what PIMCO has put out there and the possibility of inflation remaining high for a longer period of time due to a deep globalization due to structurally higher commodity prices due to a lack of investment over the past few years. Do you buy into this theory. And if the Fed does. What does that mean in terms of how high rates have to stay and for how long. Well I think there's certainly something to the fact that we have demographic changes structural changes globalization changes. I'd be hesitant to draw straight lines and say that's just going to be permanent. But I think it's definitely something to watch.

To my mind the concern for the Fed ought to be there's probably two worlds one in which we keep inflation expectations anchored around 2 percent. The other in which they go off kilter. I think that's the challenge the chair faces. And you'll have to quote do what it takes to make that happen. Excellent.

Thank you sir. It's good to hear from you as always. My pleasure. From Columbia Business School. That's that's been a theme that's come up multiple times over the last week the last three months on this program. I don't think that theme is going to weigh how much weakness is this Fed willing to tolerate. What's the price of GDP that they're willing to pay top to get inflation back down towards double. This is important. We double barreled that yesterday and that there's a growth dynamic in the labor dynamic. That's the politics of it.

How much will they tolerate. And the backdrop here which we don't talk enough about is productivity. And it's a triple ratio. There's a lot of dynamics in this fancy word productivity. And it's a mystery now how we jumpstart American productivity. We were lucky fortunate to catch up with you on Hatzius of Goldman earlier this week. And the point that he was making essentially Lisa is that the bar to cut the hurdle is really really high.

And effectively what we have to be discussing is not the the hurdle to cut interest rates. It's the hurdle to Paul Allen. Yes. At what point did they pause this hiking expedition if you want to call it that pause and wait a pause and wait. Raise and hold. I think it's going to be a phrase you hear a lot this week. Wyoming it's a good time for an

expedition. I guess a rate hiking expedition actually makes perfect sense. Look it's not just that but also for how long do they pause. And this to me I think was the young RTX

key point which is it could be four years because that is where this economy is at. In terms of inflation and you're almost talking two years maybe a three point five percent. Any animal noises you done squeeze women. Well this was the Golden Eagle Mohammed. If you're out there you can postpone this appearance.

We'd prefer we'd prefer that you stay with us. Slight Mohamed El-Erian of Bloomberg opinion and a whole lot more is going to be joining us in about 50 minutes time. Looking forward to it. From Jackson Hole this is blowing back. Keeping you up to date with news from around the world with the first word answers you can get to Atlanta Fed President Rafael Bostic says that more strong data could lead the central bank to raise interest rates another three quarters of a percentage point.

Plus he told The Wall Street Journal it's too soon to say the inflation surge has peaked. Tomorrow investors will be listening to Fed chairs you Ron Paul's speech at Jackson Hole for clues about what the Fed will do at next month's policymakers meeting. China has stepped up its attempts to stimulate the economy.

It's adding 146 billion dollars of spending largely focused on infrastructure spending. That won't likely go far enough to counter the damage from repeated Covid lockdowns on a property market that is slumping. There is more pressure on consumers over in France and Germany today after power prices rose to record highs. And how about 10 times higher than what they were a year ago.

The astronomical rise is being driven by tighter gas supplies from Russia. That pushes up the price of gas that fuels Europe's power stations. And you tax as the school board has fired the school police chief following that mass shooting in which 19 fourth graders and two teachers died. An investigation described Pete Arredondo as the commander responsible for police response. Law enforcement waited outside the school for more than an hour whilst the gunman was inside. Pelton reported for fiscal fourth quarter revenue that missed estimates.

That was a big loss in the quarter as well. One point two billion dollars. But the fitness company says that 415 million of that is going due to the ongoing restructuring Dow Jones number of connected fitness subscribers. Also it was lower than expected global news 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts and more than 120 countries on could get to. This is bring back.

Raising interest rates doesn't solve the supply side problem. It can even make it worse because what we want to do right now is invest more in the supply side bottlenecks. But raising interest rates makes it more difficult to make those investments. Joseph Stiglitz a Nobel laureate in economics catching up with us in the last couple of days. Live from Jackson Hole Wyoming this morning.

Good morning to you Will. Equity markets shaping up as follows features just about positive on the S&P 500 CAC High yesterday. It's back in today. Just a couple of basis points.

No real drama here. As we said things that get out of Fed speak a ton of Fed speak for the next 48 hours excuse me in John 24 to 22 which I think is important is a calming influence in the speech. But both you and I noticed three point four 0 2 year yield speaks for. Interesting. Is it. That's a 10 day move that's tangible saying get the front end to Germany to something we keep picking up on. Not seeing that translate into any real currency boost for the European stock. But that's the real takeaway.

What will it take for the currency to strength it. And then without that kind of follow through what can the ECB do. It led to the fastest inflation in decades. How do they counter that with Paula Zahn goes to the last three days. Stephen Engle is one example is OK you can make a weak dollar call except you can't. And the resilient or even stronger dollar call seems to be the Z. What are we doing here through the next

couple of days. I don't know what we do. It is not to say I'm not going to make a point here. It's the road to September 21 and the Fed's next meeting and beyond through next year as well and perhaps even longer.

We need to talk about September 8 and the ECB September 8th and the ECB. We've got people essentially saying Germany it's not about if they go into recession it's about how deep that recession is. And you've got a European Central Bank set to hike another two basis points in a couple of weeks time. It could choose really terms about this sergeant. He said it's just about energy.

And Steve Schork who's encyclopedic on this was adamant that energy in Europe matters to our American viewers and listeners. I noticed it's kitchen JANDA just published moments ago. Effectively the Times essentially was the news is dire but is it any worse than expected. And that's the market question isn't it. Now we get to talk about the economist's question which is how bad is the economy for the market. Is it better or worse than expected.

Well I think it's as simple as that. And in the political landscape it is just the same. Is it better or worse than expected. Get out the calendar. And the calendar is simple. The September and November elections await. Jack Fitzpatrick join us from Washington right now. Jack what is happening right now at the White House in terms of politics of September the politics of September. What big picture.

The White House is trying to accomplish everything it can especially looking at the student loan forgiveness measure to deliver for probably more Democrats their supporters who may wane or wax in enthusiasm heading into the midterms probably more those Democrats even than persuadable voters to try to get their supporters to turn out in November in November and also understanding that they may not have that many opportunities in future Congresses. Jack in Pennsylvania It's Fetterman against ISE. Are you telling me student loan debates matter over a choice there. Well that's what I'm getting at is I don't know the choice between Fetterman and Oz is going to come down to someone's views on student loan forgiveness. I think the focus on this kind of thing is is doing what they campaigned on and giving Democrats something to be enthusiastic about.

Because in a race like Fetterman versus Oz in Pennsylvania it's a truism to say it all comes down to turnout. But it seems especially true in a lot of these key races that if the Biden administration can give their Democratic supporters something to be enthusiastic about that may be more politically valuable to them than going for the swing voters that may or may not really exist in a race like that. Meanwhile perhaps the number that we are all watching most closely is 71 days. That is how many days the gasoline price or petrol price. Some might say has fallen in the United

States. And how much is this really driving. What we saw on 538 which is a more than 60 percent chance now being priced in. The Democrats are going to keep the Senate.

Yeah. Gas prices play into that if inflation can wane at all from now to November. That would be a good thing for Democrats. It's it's still in a matter of the

economy overall. On net being a weakness for four Democrats. When you look at a number like that from 538 on the Senate outlook. Keep in mind that even Mitch McConnell has said probably a 50/50 proposition on which party ends up controlling the Senate. And he said candidate

2022-08-29 19:01

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