Bloomberg Markets Full Show (12/01/2021)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. If 30 minutes into the US trading day Wednesday December 1st happy December. Here are the top markets stories that we're following for you at this hour. It's a by the tip day. This with some more volatility. Stocks bounce yields rise oil pop since day two of J. Palin Janet Yellen ISE testimony on Capitol Hill and Dudley says accelerates the taper. We're going to speak to the former New York Fed president after he warns that it will be too late if the Fed doesn't speed up its taper in December. And Macron concerns the variant pops everywhere as countries tighten travel rules and Germany talks about potentially a mandatory vaccine. From New York I'm Alix Steel my co host in London Guy Johnson. Welcome to Bloomberg Markets. And speaking of those
tighter rules in terms of travel. Guy you were just at an aviation conference. What was your biggest takeaway. So my biggest takeaway is short term yes there is an impact. Short term that impact is manifesting itself in Europe. There is some impacts in the North Atlantic but most of it is in Europe right now. I talked to a bunch of us CEOs at the moment. Bennett see any effects. Thanksgiving was really strong. They expect Christmas to be strong.
So it feels from an aviation point of view at the moment to be a very European problem. Alex. Yeah. I just wonder if we're again six weeks behind you guys. So as a European problem is it gonna be our problem right after the holidays. We'll wait. We'll watch. We'll see. But the sense at the moment is that the issue is is actually less overcrowded and more delta. That's certainly the problem here in Europe. But we are starting to certainly see more cases popping up. I'm waiting to see what the US does. The expectation certainly amongst those I talked to this morning was the what. While we're not likely to see the trans-Atlantic shutting down we may see increased testing rules. Yeah. That's how I was worried. trans-Atlantic
route. Yeah absolutely. You should come back for Tom Mackenzie. That's the expectation. Let's talk about the data. Let's get back to what is happening with the economy and focus on what is going on that we're getting the ISF manufacturing data out at sixty one point one bang in line with expectations sixty one point to the expectation up though from sixty point eight. That's the headline number. Let's break it down. Prices paid eighty two point four. That drops a little bit. So we're starting to see some evidence that we are seeing some of those supply chain issues beginning to get
tamped down a little bit. The expectation that was for 85 new orders sixty one point five. The employment component rises to fifty three point three. So some of those unfilled jobs. Some of that struggle that industry is having to fill positions at the moment. Maybe we're starting to see some evidence of that leaving a little bit as well. Let's get a breakdown on the ISIS numbers. Tim Fiore puts them together. He is ISIS is a business survey committee chair. Tim
what should I read into this data. Good morning. So we had another really good month of course. And the only thing is though is that the dynamics that make up the PMI did shift a little bit as they move closer to equilibrium. And what I mean is really that the supplier chain issues eased a bit but it was offset by gains on production and employment. So that's really where we want to go. The input side has been super strong driving the number. We really need more output. And I think the month of November saw Spike made gains on that. So that's in some ways a little more backward looking and might
encompass Delta but not a crime. Do you have any idea what these numbers going to look like on Monday. Well I think we really continue to exceed expectations that demand levels are still really high. We rebounded from the month of October where we used a little bit. We're now back over 60. The backlog numbers are still extremely high. Over 60 customer inventories are at record lows. Export led levels that are pretty good. There seems to be some gains here now. Unemployment side which is what we've all been waiting for. So 7 percent of my employment comments indicated that things are getting better in the number up from 5 percent in October 3 percent in September and 0 percent in August. So now that we have a trend there it's a positive trend.
It's not overwhelming but it really just indicates that there's going to be a climb out here to really fully staff the factories as well as the supply base. But overall you know we had a really good move. I think having inputs is a little bit offset by the consumption side. And then the other final comment here is that the transportation sector is still restricted still had very high level of comments on transportation disruptions 50 percent or so. My comments were pretty transportation related. Looking to see that is a little bit but I don't want to see it is too much because we're performing really well. The the chair of the Federal Reserve yesterday retired. The word
transitory. If you were to think about a word to describe what you're seeing right now in terms of the inflation impulse that you're getting through your data what would it be. Well you know I think we are in a cycle here. You did note that the prices index did soften a little bit. Not a lot but a little bit which is good. At the same time the supply delivery numbers softened a little bit which is good again. Yeah we ran up some really high peaks
here. You know Steele's running somewhere around two thousand dollars a short time only a couple of months ago now down to 1750. That's a positive indicator. Generally run 646 46 50. I don't know that we're ever going to get to that level again without something really not so good happening. But it looks like we're kind of easing a little bit. I think the month of
December will tell a lot. Hey Tim and crystal ball for me one more time here. If we wind up having sort of issues with travel or something along those lines because the new variant. I'm wondering if that expectation is more work from home meaning buying more stuff which means the backlog kind of continues those inflationary pressures build. Any signs yet from you on
that. Well you know that the big indicator here is the import side. You know the ports are still had trouble. We did come through the peak in November October November. We are now in the lunar new year phase and we are starting to negotiate the labor contracts on the West Coast. So looking to see those those ports kind of free up a little bit. Now our number one industry sector is furniture and they're a big
importer and is in a lot of trouble for that as everyone kind of knows. But you know I think we're in a good position here even if you have an issue with Micron. I think the manufacturing economy will continue to perform well on an even keel on the service side fully opens back up. There's been enough say by Americans. I think there's at least a six
month carryover in the fields right now within industry as this is going to carry right through 20 20 through. Wow. OK that's a long time. That's stepping not trans target. All right Tim. We generally run some which only run thirty five. Thirty six month cycles on the manufacturing spans. Right now we're 18 months. So there's still a good runway. This is not a typical expansion. But that again is no reason to think it's going to collapse either side. We're into 2023. Tim thanks a lot. We really
appreciate. We'll see you next month. Well getting the answer analysis. Tim Fiore ISE Business Survey Committee chair. Thank you very much. A guy was just talking about a Fed chair Jay Palace testimony yesterday before the Senate Banking Committee was about to tease tapering and transitory. Here's what he said about inflation. The test that we've articulate I think clearly has been met. Now you know you're absolutely right. Inflation has run well above 2 percent for long enough. The word
transitory has different meanings to different people. I think it's it's probably a good time to retire that that word and try to explain more clearly what we mean. Well joining us now Bill Dudley Bloomberg opinion columnist and senior adviser to Bloomberg Economics. And he wrote in a recent Bloomberg op ed that quote The Fed should and probably will double the pace of tapering setting a trajectory to the end of the asset purchase program by mid March. And Bill joins us now Bill. I'm assuming yesterday you're listening to this testimony and validated what you thought is a good thing.
Yeah absolutely I mean the Fed is very behind the curve. They're still adding monetary policy stimulus even as the economy is overheating even as the supply of labor is quite tight. So they're behind the curve and they need to free up some space so they can actually have greater optionality in terms of the timing of liftoff. And I'm sure Paul's testimony based basically they're going to do that at this next. Yes I've seen you know accelerate the taper finished by mid-March. That means that the
possibility of liftoff can start at the March meeting or or are somewhat somewhat later. Even then would they still be behind the curve. We still got another few months of stimulus being added to the economy. Bill. How do how does the Fed get in front of this inflation story. What does it need to do. Does it want to be in front of this inflation story. What's interesting about the market reaction is markets are not acting like the Fed is behind the curve. You
look at the peak federal funds rate that the market's expecting for this cycle it's only about one half and three quarters percent. That's very consistent with what inflation's doing. And how late the Fed is is in responding to that that inflation risk. So I think that the market's going to have to be significant price. At some point. The Fed will probably have to go faster than what people expect the price to go higher than what people will expect. And that's going to be a bit of a shock to financial markets. Well Bill that's interesting point because when we were discussing this
yesterday it seemed what the market is pricing in was maybe more aggressive rate hikes but a lower terminal rate. They just don't last as long. It didn't go as high for example. How unprepared you feel I guess the market for this area that you're outlining. I think it's very ever Brahimi. As you pointed out yesterday it wasn't about increasing the amount of tightening built in by the Fed being more concerned about inflation which is pulling it forward. So there's more rate hikes priced into 2022 in the first half 2023 but there's virtually nothing beyond the middle
of 2023 24 25. And the terminal rate is really really low. So I think there is still I think you are overestimating how easy it is going to be for the Fed to get inflation under control. The idea that the Fed tightens three or four times in the awesome inflation just melts away. I don't think that's how it's going to work. The Fed Reserve has to tighten sufficiently to
essentially slow the economy and prevent the economy from overheating. And so it's going to take more than what's priced in today to do that. But we haven't had a credit cycle. Are we about to have one. I don't think we're gonna have one really in the very near term because the Fed is still on hold for a while. The Fed is expected to tighten moderately over the next couple of years and earnings growth is really really strong right now. So I think the credit cycle is going to happen but it's only going to happen when there is a realization that the Fed Reserve has done quite a bit more. Even the Fed reserve itself thinks that the peak in the cycles will be quite a bit higher than what markets raised. And if you look at the summary of economic projections they view a neutral
short term rate with a 2 percent inflation as students 3 percent inflation is well north of 2 percent. So if they're gonna make monetary policy tight they think that the rates are going have to go well above 2 to 3 percent. So that's you know there's a there's a disconnect between market expectations and what the Fed thinks and what the Fed's going to have to do with respect to inflation. Yeah. Fair enough. I mean I feel like the markets led the Fed for the last few years when it comes to this. I want
to get your take on what's happening with the long end of the curve. Take a bit of a bit different than yesterday. But when we saw sort of the front end rate really rise and the back end did not flatter flatter flatter the five for example the flat since March of 20 20. Does this throw some cold water on the idea that the Fed is suppressing long term rates. They have been not easing. They have been paring back some. They have been tightening those financial conditions. And yields haven't really moved. I think the hard part to evaluate is the effects of the Fed's asset purchases at a time that the Treasury's borrowing needs have actually fallen. So the Fed is taking out a lot of treasuries from the market relative to the net new supply. And so I think we're not really going to get a good sense of where
the Treasury market should actually perform in the longer run until the Fed essentially backs away from quantitative easing. And that's still you know three or four months away. What is the current paradigm do you think that the Fed is operating with. We clearly probably have worked our way through a symmetrical inflation target. What comes next. Well the paradigm that they've been operating with is the idea that we have trouble pushing inflation up to 2 percent.
Therefore we have to prove the limits of maximum sustainable employment. And it turns out that was the problem of the last cycle. But that's definitely not the problem this time because they're missing badly on their inflation objective currently even as they still think there's some slack left in the U.S. labor market. So the regime that they've put in place is just ill suited for the current set of circumstances. Something that's been happening that has been quite strange is
that the job market continues to be really solid and job openings are plentiful and consumer confidence keeps rolling over. Is inflation. To explain for that what is the biggest issue. I think inflation is absolutely which would explain it. Otherwise it makes it makes little sense. Why would comments be going down as the economy is recovering and job markets are really robust. It's gotta be because higher inflation is
crimping people's disposable income and they're feeling the strain of buying gasoline buying groceries that things are much more expensive than they were a year ago. Bill what is your global perspective on what is happening here. Is inflation a US problem. Is it a is it a eurozone problem. Is it going to be a problem in Japan. Because if the latter two don't see the same issues that the Fed sees then they are going to act as a as a kind of counterpoint to the liquidity squeeze. The Fed is going to put on. We could potentially see the ECB in the BMJ countering that. I appreciate the global liquidity will still fall but nevertheless we're still going to have two major providers in the market. So far Europe is fine. The US just not quite as severely in terms of the amount of inflation pressure but inflation it has
gone up quite substantially in Europe as well a little bit less you know supply disruptions because they didn't lay off a lot of workers when the pandemic hit. So there haven't the companies haven't had to scramble some hard to get their workforce back in place. And in Japan there's not so much inflation at all. So though Japan is still in a very different place than the rest of the world and that's been the case for for several decades now. Hey Bill before we let you go I'm Jay Powell. Yesterday made it very clear like the next two weeks of dad is gonna be super important. You got the CPI and the jobs number Friday. You also have the case count if we see any rise here in the US. I'm a moron and I wonder what's the number one thing you're going to be reading between the lines. Well I don't think the economic data is going to dissuade said
in terms what they do at the next meeting. We know that labor markets are strong. We know we have an inflation problem regardless of what the next Fed report report looks like or what's the next consumer price index report it looks like. The big wildcard of course is the new variant. And if that turns out to be very severe short term very
contagious and very severe outcomes in terms of people who get sick you know. Could that affect the Fed's decision making. Yeah it could. But I think as Jay Powell made clear yesterday even if the variance turns out to be bad it has demand effects but also supply effects. It's not clear that demand effects would be more important than supply. So I think that you know you're pretty
locked in for acceleration that take the next meeting two weeks from now. Bill Bill really enjoyed the piece this morning. Incredibly timely. Really enjoyed our conversation. Bill Dudley polemic opinion columnist and Bloomberg Economics senior adviser because of the New York Fed. Tune in to an exclusive interview we're gonna have a little bit later on TV. Land Fed President Loretta Mess stuff. We'll be on Bloomberg Daybreak Asia a little later on. That's going to be 6 p.m. New York time. What we've got coming up for you. Stocks as Alex indicated the top bouncing back steep sell offs obviously dominating the last few days. Our next guest though says don't aggressively buy the dip. Well not yet Mr. Panda J.P. Morgan Asset Management global market
strategist joining us DAX. This is Bloomberg. Let's take a look at the equity markets incredibly well bid overseas on a five day basis still down. But today we are certainly catching a beat when it comes to stocks. As you can see we are tracking a little bit higher. Keep an eye on obviously what is going on in the bull market. The ongoing repricing is something you definitely want to pay attention to.
The US two year as you could see on offer today the dollar on offer. Crude coming back. Wow what a ride it has been. We're now trading at sixty eight. Forty nine. So strong kind of move from equities does seem to be based on the economic data. And if you look back on the past 31 years traded traders would often say that. Tina when it comes to U.S. equities. What does that mean. There is no alternative. Just like over the past 31 years at Bloomberg there has been no alternative when it comes to making a decision about our next guest. He's a must have. There is no alternative. Bloomberg Steve Wilson that skinny tagline over to
you. Thank you guy. I mean think of the chart I put out today as sort of a career summation going back to October 1990 when I started here and just do a basic comparison of market performance. U.S. stocks international stocks U.S. bonds international bonds money markets commodities. And I got to tell you when you see the results it's clear why Tina is something that people have been talking about for years. The Russell 3000 index on a total return basis. So you're including dividends in
that at one point last month up 30 fall from where it was in October 1990 four times the game we saw in an MSCI index that tracks markets outside the US and a dollar denominated basis and you find bonds behind them your money markets based on Ryan Labs you know us cash in DAX behind them. And then finally commodities. You know it just goes to show you you know how much U.S. stocks have really been dominant when it comes to performance over the past 30 plus years. I mean it just it jumps out and it really does kind of make clear why for many people there is no alternative to U.S. stocks here and there is no alternative for you either. Dave listen thanks a lot. And as you mentioned I've been here 31 years at Bloomberg and Dave is retiring in education. Bloomberg is greatly appreciated. And we hope that you enjoy your life from retirement as much as we enjoyed you. How long you get bored.
Well I'm going to try very hard not to. I mean I'm involved with my undergraduate alma mater Monmouth University and my church. So that's sort of a starting point. But the beauty of it is I have time to figure out. The rest of my career has been pretty much uninterrupted started a little paper in South Jersey then went to Dow Jones then came here to Bloomberg. Not much of a break. So it'll be nice to have the opportunity to kind of reflect. Figure out what's next. Well we look forward to seeing what that's going to be Dave. Thanks a lot. We appreciate you. Appreciate you coming on as well. Guy. The opportunity of being bored sounds actually quite nice to me but we'll pop that thought for a moment maybe for a few years. Let's sort out what
is going on right now. Yesterday we didn't know we were going to get such amazing breaking news from the hearing with Jay Powell and Janet Yellen. The Fed chair Jerome Powell and the treasury secretary are back on back on Capitol Hill. They are preparing to face questions. This is obviously the second time that we're seeing this now in the old days. Alan Greenspan might just finesse the message that testifying before the House Financial Services Committee on the pandemic response. Bloomberg International economics and policy correspondent Mike McKee joins us now to discuss. Mike as I say
in the olden days Greenspan would kind of see what the market reaction was to day one and then kind of finesse the message on day two. Isn't he finessing of the message that needs to happen here. No I don't think so. You talk about the olden days with David Meese. You're still here. Yeah I put the kids through college. They're in the Greenspan days. Of course the Fed was not nearly as transparent as it is. And over the years we've evolved into this sort of pattern where the Fed hints at strongly enough what they're going to do that the markets can absorb that without the Fed doesn't make a promise and say this is exactly what is going to happen. But they say basically we think this would be a good idea or we're going to talk about this and then everybody can reprice without having a shock in the markets and without having what we saw in the taper tantrum. And that was because Ben Bernanke's surprised the markets with his comments. So I think Jay Powell
did a good job yesterday of basically saying the market's right. You think we should taper faster and we're probably going to do that. And he held up the one figures except we don't know what's going to happen with McCrum. All right Mike thanks. I really appreciate how you got to run to Bloomberg's Michael McKee joining us there. Let's get the market reaction before we get defense here. J. Palin Treasury Secretary Janet Yellen. We're joined now by Mira Panted at JP Morgan Asset Management and global market strategist Mira. What is the trade after yesterday. Well markets don't like uncertainty and certainly there's a lot of uncertainty with the virus right now a lot of unanswered questions. So what we're likely to see is some choppiness in markets going forward over the next couple of weeks until we get
some answers to those unanswered questions. But right now we wouldn't necessarily advocate for huge shifts in portfolios. We're not necessarily going to aggressively buy the dip. But at the same time it's still a pretty favorable backdrop for stocks all things considered. And we dealt with the virus in various surges before. So in that respect we still you know for those more concerned about the virus and where we go from here areas like technology health care have tended to be good ports during the storm over the last two years. But equally if we think beyond just the next few weeks of uncertainty to the next few months with rates as low as they are they're likely going to be on the rise again. Growth is still at a pretty solid place and
inflation is high. So we don't necessarily want to give up on some of those cyclical areas of the market either. Yeah. It feels mirror that you've got two different forces at work here that maybe slightly pulling in different directions. You've got what is happening with a macro on the Delta surge that we're seeing that may encourage some of the stay at home stocks to come to the fore. It may encourage people to continue to hold technology stocks. The the rerating of the taper and the rate hiking cycle feels like it is also quite opaque at the moment. What is your sense of how the journey to clarity is going to go. We don't know what rate they're going to be tapering at. We don't know what the first rate hike is going to
look like. We don't know how rates are how high rates are ultimately going to go. How do we kind of put these two things together. Well Powells comments yesterday implied that the Fed is more concerned at this point about inflation than potential impacts to growth or jobs from this variant. And in some ways that is surprising in the broader context of how accommodative and patient the Fed has been. In particular in recent years even if
we go back to 2019 and think about some of the rate cuts in that environment. So this is certainly a shift and it does raise the stakes for the December meeting in terms of a potential acceleration of the tapering timeline. And the challenge we face there is on the on the one hand from a markets perspective that does give the Fed a bit more flexibility in terms of lift off on the other hand until we see that happen. There could be quite a bit of interest rate volatility as markets try to time when that lift off will be. But I don't think we should get ahead of ourselves on liftoff either. Again the key is buying that
flexibility. And where we are economically today could be very different in the middle of next year when growth is slowing consumer demand is potentially waning. Inflation is starting to break. So the Fed is going to have to make decisions based on the future economy not the present state of the economy today. Mirror Under what conditions you think that the Fed could actually get the real rate towards zero. And if we were successful in that where do you think we'd see the biggest asset repricing. It's a real challenge and I think there's a lot of question about what that terminal rate would be at the end of this cycle and at what pace we're going to potentially see hikes. I mean
certainly with the accommodation we've seen from a monetary perspective and additionally from a fiscal perspective it puts us in a different place even than last cycle in terms of not only rates or inflation. So we're going to have to be increasingly cognizant of how this environment shifts. But the challenge we also face today is that stock valuations are high bond valuations are high. There are certainly some constraints going forward in terms of where returns are going to go. So investors are really going to have to look globally looking both public and private markets and be well diversified to navigate a very different economic environment going forward. We are a state that we need to carry on the conversation we'd
like you to be part of it. Let's bring another voice into discussion though Bloomberg Markets Signorile. Joining us now. Vince how should I think about the Fed puts. How should I think about asset valuations with reduced liquidity. What is your current assessment. I think what what you need to look at and I think what Powell said yesterday was a significant change of how the Fed is now looking at economic data. Prior to yesterday the Fed had always concentrated pretty much on jobs and saying jobs had need to be returned to that pre pandemic level before the Fed would actually really move. I mean we know we're gonna get taper but that doesn't mean the Fed is still not going to be accommodating yesterday.
He essentially said that jobs are not going to return to pre pandemic that they've been looking at that a little bit incorrectly and that the jobs data that they were going to get is going to take far longer than they originally thought to get it back to the pre pandemic levels. He then shifted the conversation to inflation and then inflation is going to be obviously not transitory removing the word and being longer term. I think for ass evaluation is what that means is there's I think a little bit of an underpricing in the long end of the curve while we are going to see the near end react a little bit more aggressively obviously because it's tied to the Fed funds rate. But arguably we're not going to see an inversion of the yield curve. So therefore the entire curve needs to ratchet up. And I think the long end is well underpriced. So if that's the case how much tightening needs to then be priced into the dollar and in business former life. He's well he is a recovering ethics
trader hence the no hair thing. What needs to be in the dollar now. I think the dollar is also underpriced. I know a lot of people look at it and people have been trying to sell the dollar since 2016 and have been getting burned for the better part of five years now. And I think they're going to get
burned again next year. That ratcheting up of the yield curve is going to make the dollar a little bit more attractive than for instance say Europe Europe or even the U.K. While they may be looking to hike rates the U.K. rate hikes before actually very very bad reasons and that they import a great deal of product with the situation still ongoing with the EU. And I can't believe I'm saying this again Brexit they're there. I know their inflation situation is going to be a little bit more difficult than the U.S. situation in terms of the bad kind of inflation. So I think overall our
overall positive for the dollar. And again in emerging markets as well. When you see U.S. rates going up a lot of yen debt is priced in dollars and dollar debt. So quite negative for the the balance sheets of emerging market countries. And at the same time you know with the spread of the variant it is obviously spreading in places that are having more difficulty getting the vaccine. And that's not a case for instance in the United States. Mira let me bring you back into the conversation Mira Panted of J.P. Morgan Asset Management. If Vince is right and we're going to see a stronger dollar does that mean I am best off putting my assets into the United States next year already. If you compare and contrast for a euro investor versus a dollar investor in the S&P it's a 10 percent difference in terms of the performance. If the dollar continues to strengthen that will only widen. Should I favor US stocks if we're going to
get a stronger dollar. On a shorter term basis we're seeing better growth within the US. I think that that is pretty clear across the world to everyone. But what I think we could see is is a shift to a more global recovery now. The variant does throw a bit of a spanner in the works in that if we do see a surge within this new variant and globally particularly in some of the less vaccinated areas that could postpone it or delay some of that global recovery. I don't think it's going to derail it entirely. So I do think that we're going to gear portfolios in a more international way in the
second half of next year. But right now we are still seeing that U.S. growth continues to outpace international growth. That has helped prop up the dollar along with some of these new concerns in which the dollar tends to be a safe haven. So for now the US is a good bet in terms of where investors are positioning. But I do think we're going to
want to make sure that portfolios are more geared globally in nature into 2020 to mirror. Do you think that they also need to be geared towards more cross asset volatility. You're likely to see more volatility not only because of the variant right now and what you're seeing within the equity markets but also the taper timeline and how that will evolve. Plus the timeline in terms of rate hikes is probably going to result in a decent amount of rate volatility with that uncertainty. And as we are in such a transition period for the economy and for monetary policy across the board investors
should be prepared for some degree of volatility next year despite the fact that the economic fundamentals are still pretty solid. It's just not necessarily going to continue to progress this recovery on an entirely linear path. Vince if the Fed is going to remove the punchbowl or at least start to drain it. Are we about to have a credit cycle. How many businesses have been able to survive this downturn because of the largesse of the Fed. There are some high profile names that I can think of. Is that about to turn around. Is the credit cycle about to reassert itself. I think that's a I think you hit it on the head a little bit. I think that's a real possibility. We know we've seen many many AIG issuances in this year where a
great deal of corporations not just in the US and abroad have taken advantage of low interest rates and tried to tie up money for the foreseeable future in expectation of this state. So I think a lot of companies have have taken the steps necessary to protect against it. However I think a lot of the smaller businesses don't have that that ability. And I think they're the ones that are probably going to suffer the most. So if we see our credit cycle fall out like that. Is it like the last ones that we've seen or is this time going to be different events. I don't think we're going to see the financial stress pressures that we've seen in the past because I think any moves by the Fed I think are going to be very very gradual. And I
think the corporate world will be able to keep pace with it. It's going to be more expensive obviously but certainly not so expensive that it's going to crush any one in particular. The Fed is not going to be doing the 50 basis point hikes of the Volcker era. They're going to kill us with the thousand cuts the Greenspan era of 25 basis points at a time. And once that cycle begins I know it. I don't think we're going to be in a situation that we've seen in the past where the Fed has made you know clearly made mistakes where they've raised four times and then realized they pay rates too soon and then had to lower four times. This cycle looks like we're really at a a 40 year low or so in interest rates. And that the next cycle is going to be
considerably over time higher but not necessarily in an exaggerated path. I think at a very slow sort of glacier speed if you will. Hey guys really appreciate the wine up there. Thank you so much. Mira Pan and J.P. Morgan Asset Management and Bloomberg Benson Signorile. You can check him out on the Bloomberg Audio Swap as Q You go on the terminal where currently Fed Chair Day Power on Treasury Secretary Janet Yellen are not taking questions from the members of the House Financial Services Committee. MAXINE Waters is speaking now. Listen in. It builds a new stronger and more equitable economy for the future. So let's talk about the progress we're making sure how the American rescue plan that passed in March. Help accelerate
vaccinations and reopening over the last nine months. The economy was as added over five point six million jobs. And workers have started to see meaningful meaningful rather wage growth for the first time in decades. Do you view these wage growth trends as positive. How does your economic recovery compare with other major economies. And do you still think that
inflation will be temporary. And if so why. Thank you Madam Chairwoman. So on wages we have seen wages moving up significantly. And at this point of course we like to see wages move up. Everyone likes to see wages move up. That's how incomes rise. Generation to generation. And so particularly at the lower end of the wage spectrum we are seeing wages move up. At this point we don't see them moving up at a troubling rate that would that would tend to spark higher inflation. But that's something we're watching very carefully in terms of other
economies. Our our recovery is is the strongest. It's stronger than the others. We've had we had stronger fiscal support frankly. And and so part of that part of it is that but our recovery is really the farthest advanced of any of the largest ones in terms of the temporary nature of inflation. I would say that the inflation that we're seeing is still clearly connected to the real to pandemic related factors. I would also add though that it has spread more
broadly in the economy. And I think that the risk of persistent higher inflation has clearly risen. And I think that our policy has adapted to that. And we'll continue to adapt. If you could expound a little bit more on. What is happening. I remember when we first started to talk about inflation we basically all talked about it in terms of it being transitory. And I think that what you just alluded to relative to how the economy will act or recover. Are you directly talking about stimulating the economy with for example build back better and that will help with the inflation that we are experiencing.
Well I do think that. Forecasters at the Fed and around pretty much all forecasters do expect that inflation will move down over the second half of next year closer to our two hour longer run goal of 2 percent. But as I mentioned we've seen we've we've seen inflation be more persistent. We've seen the factors that are causing higher inflation be more persistent there. I'm thinking of the combination of very high demand but also the supply side difficulties that we're having with blockages in that sort of thing and shortages in terms of the effects of the build back better Bill. That's not something that it's appropriate for me to comment on.
Thank you Secretary Yellen. When you were fed chair you were known for looking beyond the top line unemployment rate to other figures like the rate of employees quitting the so-called quits rate to determine whether the economy was reaching full employment. The quits rate has surpassed previous records leading some to label what has happened in the economy as the great resignation when Chair Powell testified in our committee in July. He identified childcare and school closures as one of the biggest barriers to further labor market recovery. Can you explain what the good quit rate tells us about the economy
today. And do you believe that the investments that the Build Back Better Act would make in child care and universal pre-K help with this. Will the quit rate when it is high an issue mentioned it's the highest it's been in the history of this series. It signifies a tight labor market one where workers are leaving their jobs because they feel confident about their ability to get others often are getting outside offers and feel good about the labor market. And that's what we have. And we see it reflected in surveys of workers who feel that jobs are plentiful. And of
course businesses almost universally complain now about the difficulty of hiring workers. But this is a very unusual shock that's hit the economy. And at the same time we see that a large number of workers have their participation in the labor force has declined and it hasn't yet gotten back up to normal levels. In some cases it's because there weren't really retirements. And
of course the pandemic did result in unfortunately a large death toll. But I think there is still many people who especially low income workers who don't feel confident that about the health consequences of working especially in face to face type jobs. And so those people are still out of the labor force. And I think is
that we get greater control over the pandemic. The supply of workers will increase as those people come back to work. The gentleman from North Carolina Mr. Mac Henry who is the ranking member of the committee is now recognized for five chair. Powell lost somewhere here. In fact both in September and July. Ask you about this. The Fed incorporates new spending from the fiscal house from from Congress and the White House. They incorporate that into projections right in the and the effects of your monetary decisions with the knowns of fiscal policy. And at the time you've said this twice before I think you'll say it again. But a lot depends on the details. Certainly you incorporate that information but a lot depends on the details.
Is that still true. Yes. OK. So in light of that we had in February a Democrat only proposal that made it into law. It spent two trillion dollars. And then we have just last week another bill the administration supports that enhances the deficit according to the Congressional Budget Office. It raises the deficit by 400 billion dollars. And and so we have those two large fiscal pieces here. When share waters ask Secretary Yellen when Chair Waters ask the chairman of the Federal Reserve whether or not spending more money from the fiscal house will improve inflation. I think what she asks instead of improve. I want to translate for the public.
When a Democrat says improve inflation it means enhance or raise inflation just to be clear. OK. So my friends on the left when they say improve inflation they want more of it. So Secretary Yellen to this point now these things are imprecise. Policymaking is imprecise but back in February. There is an output gap. This administration acknowledged right. And in economic projections and came to Congress for a fiscal stimulus in the name of Covid but a fiscal stimulus right. Is it fair to say that maybe you overshot in February. Well I think it's fair to say that we had a sizable fiscal
stimulus. We were very concerned that the most significant risk facing the American economy was a shortage of jobs and a prolonged downturn that would scar many people particularly the most in February. The that the output gap. Right versus what the fiscal stimulus was that you that your administration pushed for and got.
Perhaps you overshot. Is that fair to say. Is that a fair assumption. Well I I I don't think that's a fair assumption. It's not so easy. Jason Firmest What. And very substantial risk in his chair pal just mentioned the United States. OK so you think that that fiscal regime. Reclaiming my time Madam Chair. Now look the inflation I'm ask a very particular question about the output gap the output gap at the end of the year. Was three to four hundred billion dollars. Right. Economists on the left and right were saying that that was about right. I think it was extremely hard under the circumstances to have any. And I'm asking a very real wash as well as a policy gap. OK. As a policymaker I'm just ask you. You're you're a noted economist
writer as chair of the Federal Reserve. You're now in a very different position having to I think sell what is a pretty lousy economic agenda. But you're doing a great job trying to sell this administration's agenda. The economic question that I hear from economists on the left now is that and you're a former San Francisco Fed even acknowledges that that February stimulus contributed to the inflation we're now experiencing. Look is that a fair assumption or not. Inflation is a matter of demand and supply. And it's certainly true that the American rescue plan
put money in people's pockets helped them meet expenses that they add and contributed to strong demand in the U.S. economy. But if you look at the amount of inflation that we have and it's causes that is at most a small contributor the pandemic and what it's done to supply chains diverting demand away from services and massively onto goods which has resulted in supply chain problems and the impact we have seen that's now been long lasting on Labor's supply due to the pandemic. I would say those are very worrisome but there there's a distinction here between a supply shock and a demand issue. Right. Is that fair to understand the recovery plan. Did boost demand. And that's one reason that most households are in a favorable financial position much better than they otherwise would have been. And it's enabled their spending. But the fact that the spending because of the pandemic has been so focused on goods as opposed to services has contributed massively to the supply chain problem. No listing price. So Madam Secretary Chairman Powell the Congress and the public and this administration wants to
point everything onto the Federal Reserve on inflation. That is simply not the case. It is the multiple trillions of dollars that this Congress and this administration is spending is putting jet fuel on the fires of this economy is making things worse. It is the policies of this administration. The chair when over time and I'm going over time as well. So let me just say this. I was it was the administration's agenda here that I will I will finish my sentence here Madam Chair.
It is the administration's agenda that is driving up the cost of things is making the American people worse off not better off. Inflation is outpacing wage increases. This is on the Democrat House Senate and White House. I yield back. Thank you. The gentleman yields back. The gentleman from Colorado Mr. Perlmutter who is also the chair of the Subcommittee on Consumer Protection and Financial Institutions is now recognized for five minutes. Thank you. Good morning and thank you too for your
service. I'm way over here today. Couple of things I have. Listening to the publicans talk about inflation. But I think more important topic we should be talking about is the fact that since the ex president Trump was defeated by Joe Biden November of last year we've added almost 6 million jobs. Six hundred and twenty thousand jobs per month. And we've seen the stock market rise from twenty six thousand to
thirty six thousand now it's backed off to about thirty five thousand in the last year at one point four billion dollars per point. It's almost up 13 trillion dollars since Joe Biden won the election last year. We've seen GDP up. Dramatically over the last year and my friends I appreciate that the Republicans want to talk about inflation because that's all I can talk about. So I'd like to ask my first question of you Secretary Ellen. Unemployment is falling at the fastest rate in 50 years and is now at four point six percent. Prior to the American rescue plan passing the Congressional Budget Office projected it would take until the fourth quarter of 2023 to get to four point six percent unemployment we're two years ahead. Madam Secretary my
question is on build back better. And how will it help in terms of the recovery and create more opportunities for everyday Americans. Well thank you for that question. Build Back Better is really focused on addressing long term issues in our economy that have been holding back economic growth and contributing to economic inequality. An important aspect of build back better is what it does for children and households with children. Two years of universal early childhood education for three and four year olds and subsidies for child care to make quality child care affordable for the great majority of households along with a continuation at least for a year of the child tax credit that his made it possible for so many families to support the needs of their children keep roofs over their heads in diminished food insecurity. And these child care provisions as well as other parts of the program should serve to boost labor force participation particularly of women where we have lagged behind most other developed countries. And research suggests that our
failure to provide adequate child care and paid family leave is an important contributor. In addition let me change the subject for one second. Just a subject that I've asked both of you about in the past. A Safe Banking Act which involves allowing financial institutions to provide financial services to the cannabis industry and those that serve the cannabis industry. And you may know that we added we passed it with big bipartisan votes out of this committee off the floor to the Senate last cycle this cycle. We amended the National Defense Authorization Act. So. That's just to remind you where we are in October. CASSIDY Collins is senior counsel in the Office of the Chief Counsel of
the IRS noted the special type of collection challenge the IRS undertakes regarding tax collection from cannabis related businesses forced to operate in cash only. It's estimated that in just three states nearly 50 million dollars in taxes went on SS because of unique issues surrounding the cannabis industry. Madam Secretary do you agree. If these business were businesses were simply allowed to access the banking system and didn't have to transact business only in cash. It would make the IRS job easier. Yes of course it would. I yield back. The gentleman yields back the gentlewoman from Missouri Mrs. Wagner is now recognized for five minutes. Thank you Madam Chairwoman. Secretary Yellen and Chair Powell thank you for joining us today. And as I express to you earlier
Chair Powell I want to congratulate you again on your renomination for another term leading the Federal Reserve Board. And I look forward to continuing to work with you. Your pal you responded that our best expectation this is your quote. Our best expectation is there will be modest upward pressure on prices this year but they won't be particularly large or persistent in the future. Powell since that hearing. Eight months ago I have asked you about higher inflation and yes to my good friend the gentleman from Colorado. We're going to
talk about inflation. That's all that people are talking about in my district Missouri 2nd Congressional District. They want to know why these prices keep going higher and higher and higher and higher. And no I don't believe it's necessarily the fall of it at the foot of the Fed. Blame it is Democrat policies and over spending. But I digress. I asked you about higher inflation two more times sir. And Americans have experience surging increases. And as I said food fuel housing leading up to the most expensive Thanksgiving Christmas and holiday season on record. Is it your view sir that these price increases still aren't quote particularly large or persistent. No that is no longer my view. Thank you for that answer. Your
pal yesterday in the Senate Banking Committee you stated that you believe it's time to retire the word transitory. I couldn't agree more and to explain more clearly what the Fed means when referring to transitory inflation like most Americans. Sir define transitory is temporary but the strain on their monthly budgets and paychecks from this inflation does not seem transitory or temporary. If that's not what you mean then could you explain the Fed's meaning please. Sure. So. The word transitory to some as you suggest has as a sense of short lived a matter of months kind of
thing. Whereas when we're using it in a specific way to say that transitory to us means that this this episode however lengthy it is will not leave a persistent long run string of high inflation behind it. And the problem you know are our whole role that we play. It really revolves around having clear communication. When you have a word that means different
things to different people we just need to move on and find a better way to explain ourselves. And most forecasters still do think overwhelmingly believe that that inflation will come down significantly in the second half of next year. But as I've said you know the risks of higher inflation have moved up higher more prices soaring debt and deficits and and excessive spending and dumping stimulus spending after stimulus spending and for stimulus spending into our economy. Will that be a driver of inflation. So I guess I would say I don't want to comment on fiscal policy directly I'm just saying in general. In general. So if you go back to last March the median of the blue chip the best best resourced forecasters thought that inflation would be right about at our Target March of this year. What was wrong with that
analysis was really that we understood demand would be strong. We didn't understand how how the significant problems of the supply side which are very hard there were unique. We have how much money there would be in households and in the demand. Demand is very very strong both from fiscal path no question from fiscal policy and also from the policy of quickly rebounding economy. The economy is very strong now. I agree. I agree. So Secretary Ellen. Let me ask you the CBO and they reflect one of the more conservative scores has said that Biden spending bill the most reach that recent one will add three hundred and sixty seven billion dollars to the deficit. Could you describe the long term
consequences of too much fiscal spending on financial markets and the price of consumer goods. So let me first put the CBO numbers that you mentioned in perspective. They did score build back better as resulting in three hundred sixty seven. Yes. Billion dollars in deficit over 10 years not in a year but over 10 years. Well there are a lot of gimmicks that went through. Forget that. Number two where was this year on this score. That score they made clear does not include the revenue that will come from enhancement of resources for tax enforcement. It doesn't include how how does this issue ending Shery Ahn on
our financial markets and deal with the price of consumer goods. Gentle gentle lady to a woman's time has expired. The gentleman from Tech.