Fed Leaves Main Rate Unchanged, Saying Policy Is Appropriate

Week on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show weekdays at two pm Eastern only on Bloomberg Radio. Bloomberg Jersenys Week with Carol Masser and Jason Kelly on Bloomberg Radio Live from the Miami Convention Center. We are live on Radio Row Carol Master along with my co host Jason Kelly on this FED decision day and of course awaiting that latest FED decision. And the FED decision is out as expected, though leaving

the benchmark rate unchanged, says policy is appropriate. They are lifting the ioe er rate five basis points and we'll be looking at that reverse repo to one point five percent. The FED extending REPO operations at least through April. That is one thing that Wall Street has been very closely watching, all right, and I'm just taking a quick look in terms of market reaction. Looks like equities are certainly pretty much so far staying pat uh in terms of where

they were prior to the release of that information. And I'm just checking on that tenure uh it two is pretty much staying where it is, so we're not seeing too much reaction. I think widely expected what we were going to get from the Fed today in this first meeting of twenty but nonetheless at press conference will be very key in terms of predicting a little bit of outlook and what he has to say about some of

the big factors are out there, including the virus. Absolutely, we're going to break that down what the statement has We're gonna hear from j Poll in just about half an hour. But before we get to that end to our team's analysis, let's get to Charlie Pett back into your k Charlie, thank you very much, and good afternoon, Happy FED Wednesday. With the DAL, the SMP and NED stack all higher. Right now, we are seeing the tenure up thirteen thirty seconds yield there one point six o percent.

We've got the SMP higher by eleven again. There are four tenths of one percent thirty two eighties seven right now. The down pushing higher by a hundred and thirty one points, up five tenths and one percent. Navstak is up thirty eight points again. There are four tenths of one percent. Gold up three tenths now fifteen seventy one the ounce crude oil West Texas Intermedia down thirty five cents to barrel Trump. There of seven tenths of one percent in

addition to the FED. The other big story today has to be earnings and earnings reactions. Lots coming out after the bell. Facebook will be among them, along with Tesla and Microsoft. Apple shares climbing to a record after last night's report up by three percent. A m D the other direction down by seven percent. General Electric the major standout today up by ten percent. Recapping. We've got the tenure up twelve thirty seconds yield one point six one percent.

SMP up eleven again, there are four tenths of one percent. I'm Charlie Pellett's that is a Bloomberg Business Flash. You're listening to Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. Do you want to get more reaction to today's FED decision? This is a big deal, first meeting of the year on while it was pretty predicted, um, fairly well, really well by economists and folks watching this decision.

We still have to wait for that live press conference that's gonna happen at the bottom of the hour with j Pell c s Yankees with US back with US Chief Economic Advisory UM kill Point. He is a former US Treasuring and White House National Security Council staff member based in Washington. He's in our Bloomberg Interactive Broker studio back in New York. Also with US is Frances Donald, chief economist, head of macro economic strategy at Manual Life

Asset Management. On the phone from Toronto. Steve, let's start with you, so nice to have you back with US. UM. You know, we all pretty much called this one fairly well. What's important about this, this meeting, this decision so far, and what's to potentially come from j Powell? Well, the meeting came off as expected, as you said, no big surprises.

Everything was anticipated. H think that the biggest challenges they see the FED right now, are this uh um quantitative easy which they don't describe as quantitative easy, adding to their balance sheet to deal with the refail market problem. Uh. They've telegraphed that that'll end after tax season in April. But I think the challenge is going to be while they don't see it as quantitative easy, and they can explain why the market season is quantitative easy, and when

it stops, how they explain it. It's gonna be very, very important so as not to leave markets spook the way we saw at the end of two thousand and eighteen right well, and for instance down we remember that all too well. That really for that first period in Chipell's tenure, it felt like the market was cool with the statement, and then he opened his mouth and investors started,

uh selling off. He's learned a lot about communication. I think it's fair to say, but what do you read in the statement and what do you need to hear when we do hear from chair Powle it a bit well, I think in terms of what do you analysis today, I'm sorry, I was going to go ahead, Francis from the statement. The message from the statement is pretty clear, which is that cheer Powell isn't blinking. He's not blinking over coronavirus. He's not vocal blinking on market based in place.

He's guys falling, falling every little in the statement, he's only made two slow changes to the language. If we're gonna get any form of debbish or pocket plant, it's going to come in the press conference. But my sense is if they wanted to send a message that the power put us back on, there would have been more to digest for the statement, and there just isn't. So if we head into that press conference and we don't think, not my senses, that equity markets, they might be a

little spirits for lack of a better term. Steve, come on in honest, Well, I've Ruth Francis. Uh uh. They're very careful in the statement. There was really nothing that they needed to say. The you know, the the slight tick up and interest on access reserves was expected not to have done. It would have probably just cause some head scratching because everything is working so well right now.

Probably the only irritant out there is is some recent comments by the President about why the Fed doesn't do more to to cut interest rates. But they're just going to be steady about that. They don't have to do

anything about that. What they do need to be thinking about, though, is, um, what are some additional recession fighting tools that they need to be developing internally and thinking about so that when we come on down the line and then they haven't cut rates, or even if they have cut them a little bit more than they have so far, what's going to be in their tool kit to deal with that? You know, you know, I'm Steve. I want to ask you.

I I'm looking at our FED live blog and everybody from the you know, our Bloomberg news team and economics team kind of weighing in, and um, they pointed out one of our individuals, UH, the FED as marked consumers spending to market as the only real change in the statement. And here's why it's maybe worth keeping a watch on it.

The annual growth in the national paychecks that we're talking about, the twelve month change an average weekly hours average weekly pay payrolls has decelerated to three point a percent, its slowest rate of growth since January. UM. Consumer, we talk about it, you know, at nauseum about how important it is to the economy obviously, UH, and keeping things going. What are you keeping an eye on for the consumer?

Anything out there that makes you a little bit nervous about whether or not the consumer is going to be able to keep up spending well. I pay a lot of attention to consumer sentiment to the University of Michigan study and the Conference Board Consumer Confidence and UH. And right now consumer confidence and consumer sentiment is high UH

and it seems to be staying there. The only the only slight ding in that is that the release in January from my University of Michigan showed that the forward looking outlook in terms of consumer sentiment is off a little bit. So long as they remain confident and feel safe, they will continue to spend. What we're also hoping for is that we're going to see some return of business investment,

and there are signs that that's starting to appear. I do want to bring some headlines to our audience about LIFT. There have been some reports earlier from The New York Times that LIFT was planning some job cuts as part of a broader restructuring, announcing this ahead of earnings. Bloomberg now reporting that LIFT is going to cut about ninety employees,

representing about one point six percent of its staff. It says it's cutting staff also at the same time planning to hire more than a thousand people in the stock had been down almost four percent earlier in the session, now still down, but a little less than sure dipping, I would say on those headlines, yeah, for sure. And uh, you know, this is a company like it's chief rival, rival rival Uber Uber. Can't say rival or Uber, Uh, it's chief rival Uber that's trying to figure out, you know,

how to make money essentially. That seems to be the big question. Yeah. And I think what's interesting to Steve and and you know, this is something that we've been talking a lot about. You know, whether it's a FED decision day, whether it's trade tensions. Uh, you know, companies are making decisions, whether it's to cut workers spend money differently. I mean, do you feel like companies there's enough out for the out there for them to increase cap spending,

to be more confident about the outlook. I think that there is a in many of the sectors. Interestingly, what we haven't seen much in the headlines uh lately is all of the tail um businesses that are closing up stores and laying off thousands and employees. Um, you know, it's it's headlines of job cuts that the ding consumer confidence directly, it's a phenomenon if someone else is losing their job, how safe is my job? And of course,

I mean it's understandable. In the retail space, there's there's been a shift from in store consumer spending to online consumer spending, and we've watched that evolve. Uh, But but there is that vulnerability in two consumer confidence in in these job shifts, as the new jobs are not telegraphed as much as uh, the jobs that are lost when when these stores and shops close up. And so for instance, Donald chief economists over at Manual Life Investment Management come

on back in. I do want to ask, you know, sort of given what we've been talking about with the FED, given what we've talked about, what we know so far about the coronavirus, what's an investor to do in this

type of market? How do you synthesize all of this into a strategy at this moment, Well, you have no choice but to accept that there's more uncertainty that if you were counting on a China rebound, it might be delayed, and you have to widen your confidence intervals, and this is exactly what the FET is going to have to do and all central banks will have to do, is say, we just need to be a little bit more cautious

as we assess the damage as it heads out. But most pandemics have showed us to turn out to be a buying opportunity. We just have to get a sense of when that might be. My bigger concern is that this is landing in a period where I suspect we're still going to have weak group growth to one being a problematic a quarter for growth, it might compound some of that weakness and make it difficult to differentiate between what is true cyclical weakness and what is this virus

compounding on top of it. All Right, so of course, let's just remind everybody at the bottom of the how are we will hear from FIT Chairman J Powell is regular press conference coming after the meeting. We will take you live there to the FED in Washington to listen to that. So, Steve, I think I ask you this every time we're together, But what would you want to ask J Powell right now? I really want to ask

him what his biggest concern is in going forward? And developing new tools and having to address the day of reckoning with shutting off the money spikett that they've had on since September. You know, four hundred four hundred billion dollars in uh in new liquidity is a lot of money in the markets have come accustomed to it. And how would he help us understand how that's going to get tapered in a way that doesn't really change the way things work in the markets. And Francis, let's put

that question to you. What would you want to ask J Powell today? I'd like to know how Chair Powell is thinking about inflationary pressure. As we've had a pullback in oil market based inflation expectations are lower, um, you know, average hourly earnings have pulled back. These are all deflationary pressures, and yet the Fed doesn't seem to be too worried

about them. In the statement, I'd like to get a sense of how much their view on that outlook has changed and what they're gonna do if these problems worsened and and those problems worsening again, like what I guess, for instance, I'm trying to understand and we've talked about this a little bit, but this virus, we're still trying to get our our hands around it and our arms around it. Especially from an investors perspective, when do you

act on the fear or the worry? At this point, I think markets have already acted on the fear and the worry. They've already placed in a probability of the worst outcome. That's what markets do, they say. I think there's an ex percentage chance that this turns into something worse than it is now. We've seen that in the market. The bigger question for me is when do I buy again? And if Powell comes out in this press conference and says,

you know what, the door is open. If this produces more damage, then you know we will pull the trigger, that to me will be an important buying opportunity, just like it was in the other thing. I want to ask you guys, because I feel like this is another thing. Um. When we're hitting the tenure anniversary this past summer of the longest economic expansion on record, I think we're like, Okay, that's it. It's gotta you know, something's got to happen. Steve.

When you look at this economy, is there more momentum to kind of keep it going like we have seen the last few years. Well, the momentum seems to be growing, and there's an expectation that could be even better than obviously there's a lot of things that can affect that along the way, but very you know, you look just across the sectors and economic growth has been robust. Employment continues to grow, housing starts in December year over year,

and another six percent in building permits. Uh uh that that continues to be strong, consumer confident, consumer sentiment continues to be strong, Small business optimism off a little bit, but continues to be strong. And so when we see what happens with business fixed investment, I think that will

tell us a lot. But if but if that starts to move forward, that that would be a very good indicator as to where we might end up with a level of economic growth, probably somewhere in the range of two to two and a quarter percent in right, Just kind of does that make it more of the same. Francis you agree with what Steve is Steve's assessment that

we could keep this economic expansion still moving along. Yeah, my senses, we've actually had three almost recessions in the cycle already and had we not seen fed cuts Q four this year. In Q one could have been something that looked much more like a recession. So now what we're seeing in a re acceleration, that sort of V shaped recovery that we see after these weak economic times, and that can persist in the second half of But there are still some missing ingredients that that a robust recovery.

And the biggest one is where is China stimulus. It's not as powerful, it's not as national as it used to be. Um, you know, we're still looking at some elevated global debt levels that are relevant to this. I'd like to see a weaker US dollar help contribute to that rebound. Uh. You know, there's some components here. They are not quite like those past recoveries. So can we moddle through, absolutely, but we've still got to get through a rough Q one. Let's not discount the fact that

global growth hasn't yet turned. Global trade still falling, world industrial productions still falling, real car loadings still falling. We're not out of the woods yet. Alright, Gonna leave it on that note. Thank you so much. I really appreciate both of yours insights and analysis. Steve Skanky, chief economic advisor at Keel Point. Back in our Bloomberg Interactive Broker studio. Francis Donald, chief economists and head of macro economic Strategy

at Manulife Facet Management on the phone from Toronto. You're listening to Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. Let's break it down with our team back in New York. Bloomberg News Bounder reporter Alex Harris is there and Josh Wright, chief economists at I Simms. They're gonna help us recap it all. Josh, I want to start with you. What jumped out at you, if anything,

from what you heard from j Pow. This is really a press conference for the nerds, and I think of it as this is the education of a fed him. This ones for the nerds. What a journey this has been. What a journey? Huh? It used to be? These are really short press conferences, and he was really candid and somewhat off the cuff, and this time it was longer,

it was much more scripted. It was very disciplined. He was on message, and you can see very clearly that he's prepared to talk about the process for unwinding what they've been doing with the balance sheet. But he was not going to be taken off course, not for one minute. Yeah, it doesn't feel like very much like he had a fail a plan and really did stick to it. I agree, Alex. What do you think besides I know you laughed big time there a h Josh, and we prefer front end wonks,

not nerds. But now there there was really it was there was a feast of information, I think, on on the front end and their plan. And you know, there was a bit in the implementation note, which is you know, the FED issues their statement at two o'clock and then they put in a note with all their processes and none of this was really in there except for the fact that we're extending the repo operations, you know, into April.

And so for him to come out and say, well, we're going to continue these repo operations, but you're going to see us adjust the quantity and adjust the price. You know, that was new and that was more for the market. And I think it takes a lot of surprise out of the next few months when we get these repo schedules. You know, every ninth business day of the month. And then the other thing is his his comments on the bill purchases and the fact that they're

going to taper those before outright ending them. You know, that was another surprise, you know, I think it was funny and we were laughing here in the studio about the number of times people ask variation on the question of what is your definition of ample? And like Joshua pointed out, they did not waver from that. He was saying, the minimum is one and a half trillion dollars of reserves.

But I think it also tells you that there's still a long waves from even hitting that level and feeling really comfortable because there's so much variation and those number the level reserves can vacillate so much, especially in April with the taxiason upon us speaking of not being happy the FED chairman saying not comfortable with inflation persistently below two percent, expect inflation to move closer to two percent.

Josh if I had a nickel for every time I heard someone say we're going to get there, were going to get there. Um, I don't know. You could be in the repo market. I could be in the reput market. I could own an NFL team playing. But I mean, what about inflation? I mean, I don't know. It does feel like something is different, U. I think we might

say that we're at the desperation point here. You know, the FED does not change its inflation framework words policy framework lately, and as you can see, even once they've announced this process however many months ago, it's still going to be another six months and they're not ready to talk about it or give any overt hints, although there are some signs based on some of the informal comments and some interviews you've heard recently, Basically the FED is

saying we're not getting there. We don't The tools that we've been trying to apply before don't seem to be enough. Although they don't want to say that explicitly, the fact that they want to roll out a new kind of tool for a new kind of approach suggests that they see a lack and they want to close that down. And so, Alex, let's chalk a little bit about the REPO mention and everything that's been going on. We know you love to talk about it. So what does it

mean for the bond market going forward? That this is a friend of mine? Oh, this is going to be a very boring repo market for the time being, and you've seen it already. They've really kind of held rates well but in a good way, right. I mean that's that you kind of want a boring repo market, right. And this is where this is where it sort of disagree with with Jerome Powell saying on behalf of the Fed where we want volatility, like volatility in this market

is normal. Well, if volatilities normal, start rolling back those repo operations sooner rather than later. What are you afraid of? Because the other issue is this is remember the the benchmark of choice to replace libor as as directed by the official sector, is the secured overnight financing rate that's repot back so first, and if that remains steady and there's no volatility there, if you're an investor, like a money market fund, why would you want a SOF linked

floating rate debt instrument. There's no volatility there, there's no opportunity for yield, and I think that's maybe why we've seen such a drop off in issuance in that area transition moving forward, and I think it's going to be a problem. So it's almost like the FED was too clever for their own good here and and it might end up being a problem for them in this other area.

And I don't think anyone's really thinking about that right now. Hey, Josh, let's talk a litt bit more about finding financial market conditions, because I I thought it was interesting that he did address asset values. Uh, some concerns. I'm looking for the little headlines. Yeah, yeah, thank you, Yeah exactly. So, UM, I don't know how do you assess it in terms

of some of the asset values that are out there. Well, he made the right call that you've got to focus on funding risk and you've got to focus on the leverage in the system. And that's the key distinction between what we see now versus what we saw back in the two thousand six to two thousand eight period. Although we do have elevated levels of debt in non financial corporations and that is a concern and as he said,

that could really amplify any shocks. What we have in the financial system proper is things look relatively stable, Households look good, labor markets still look strong. Um, the real issue is what's going on with confidence, because that's one of the areas where you could get a shock. A lot depends on how earnings go, valuations do look stretched, and if there's something that goes bumping the night with tech earnings or I p o s, then we could

find ourselves in a different kind of situation. And so Alex, you know, what do you think about FED wise in terms of your market between now and the next time we hear from the FED, what do you worry about? What do you I mean, does virus sort of factor into the bond market at what point? Yeah, a little bit. I think it's going to continue to just be headline driven as we've seen before. You know, when you look at the very front end, what will be interesting is

is what we get out of the minutes. You know, do we get any more details or get any sort of um information on you know, where their discussion of you know, pairing back you know, these treasury bill purchases, paring back the repo operations. You know where does where did that stand with this meeting? So that'll be kind of interesting and then just seeing how the market continues to respond and when they do decide to pull back on these repo operations. But what I think for now,

you know, the virus and the knock on effects. It's all going to be headlines driven, you know, the same as it's been with all the big issues like trade and such. So, you know, but I do think now people are sort of paying attention to the curve flattening post f O m C right now. Um, you know, and now everyone's wondering, you know, is the Fed missing something?

Are they making some sort of mistake here or is this just a response to his comments on inflation um and remaining you know below you know, remaining below two percent and what's going to get us there? And that might be a driver as well. Just remind everybody we is Bloomberg Bus this week, Carol Master, Jason Kelly live in Miami and Radio Row at the Miami Convention Center.

Just hearing from the Federal Reserve keeping rates unchanged as widely expected, and then of course hearing from j Powell coming up uh in just a few minutes Goldman SAX Chairman and CEO David Solomon on the bank's first ever investor Day. We've been covering a lot of headlines coming out of Goldman today, so we'll hear from that. Bloomberg Radio, Bloomberg TV. Simulcast in the meantime, Josh, what didn't you get from j Pal that you would have loved have heard?

Or was everything pretty well covered well? He was certainly pretty comprehensive on what the plans are for what they're going to do about the reaper market for the time being. I was surprised that he didn't say more actually about the coronavirus. And I'm one of those people that normally says, hey, let's step back and take a little more time, but he really didn't want to say anything. He said they weren't going to speculate. They want to have some cautious optimism.

It's definitely awkward timing. You know, the story just broke a couple of days ago and have to go out and face the world press. Um, you're supposed to be the man, but the plan when you don't even know what the situation is, Uh, that that's a tough position to be in. I surprise he wasn't a little more reassuring. But judging from the market, it seems like he's going

to get away with it all right. Harris's last thought to you anything else going on in the desk among your colleagues that you want to make sure our listeners know, oh, it's it's everything we've covered here. You know, it's trying to make sense of all the comments about REPO operation, Treasury bill purchases. You know, the one thing I think some people were hoping that we'd get into is to

talk about SOFA. There was a letter from Randy Quarrels and John Williams, two members of the Alternative Reference Rates Committee and there the public Private partnership responsible for the Lieboard transition, and they're saying, you know, we're going to start looking at SOFA plus a credit based component, and you know that affects a lot. You know, that affects the regulators that you know, that affects the fet itself,

that affects the transition and how people perceive it. And I think it would have been nice to have gotten a question or two from that and listen to Powell, you know, and their thoughts on it. But again, you know, to get as many questions about the balance sheet as we did, I think was a tall order in general. So I'll take that there was a lot, I agree, and kind of right out of the gate we got a lot um all right. Gonna leave with their folks.

Thank you so much. Alex Harris, Bond, reporter at Bloomberg News, back in our Interactive Broker Studio along with Josh Wright, chief economist at I Sims. Both of them in our Interactive Broker Studio. You're listening to Bloomberg Business Week with Carol Masser and Jason Kelly on Bloomberg Radio. All right, so a busy day, busy day in New York, busy

day in Washington, busy day here in Miami. Let's stay in the state of Florida and check in with David Kotoki, of course, as the chairman and ce IO at Cumberland Advisors. He joins us on the phone from Sarasota, Florida. So from a couple of current Floridians to another, David, what do you make of today's market, how it is absorbing all these different inputs as it were? Oh my gosh. Well,

first of all, I'm delighted you're in Florida. We welcome visitors to Florida, as you know, and we're happy you're here. I know, we're happy to be here, and you have Carol with you. Wonderful, She says. She likes the cold weather, but decided to at least taste a little of sunny far what to make up today's market? The market has gone through what five six percent correction or adjustments from the coronavirus news some number like this, and then that

seemed to be over the metaphor. I would say market agents are using as stars. Um, they're looking at this as not any permanent impairment of the trajectory of very low growth, but positive very low inflation, but positive very low interest rates for a very long trajectory. And that is an environment which is great for stock prices. Um, it's also great for alternative investments. You just had an

interview with Goldman's initiative and alternative investments. They're not necessarily as liquid, and they may be opaque or not as transparent as stocks or bonds, but that's an environment for them as well. And it looks to me as if the market wants to continue based on that trajectory. So David lower for longer, right, just when you know, HARKing back to just this past summer, when we you know, hit the longest economic expansion on record, and I think

everybody's like, all right, maybe it's just time. It's got to be over. But you know, market cycles, economic cycles, they don't follow a calendar necessarily, and certainly this one doesn't seem to but lower for longer, potentially by the Federal Reserve for various reasons, and also because they don't have to raise rates if you look at what's going on with inflation. So this market environment, this economic environment can go on for longer in your perspective, Well, it

certainly can, um and it has much longer. And I don't remember years ago now, I think we did an interview on on a show and I never in a million years would have forecast this long a trajectory and the state of where things are. And had I done so, you would have had locked up. So look, so we have to lock up a lot of people. Well there

you go. So you know, I don't know how much longer this goes on if we have no recession, and I think there is a risk of a couple of quarters of damage from the virus, but it would be viewed as transient. It might scare people, worry them a little bit, but the fact is it would be viewed as transient. And so you could say yourself, teach, what if we have this one and two um policy interest rate average around the world. We keep inflation suppressed. It

doesn't have a way to ignite. I don't, by the way, agree with some forecasts at Bloomberg's and talking about the great interview that was from Davos and says we don't have business cycles anymore. We don't have boom and bust anymore. Bridge you know, I I think that the old boom and bust is alive in in many ways we are creating the terrific bust of the future while we have this asset boom, and we have asset inflation induced by

monetary policies worldwide. So the negative interest rate in the euro in Germany translates into the United States through something it's an exotic transaction for many listeners called the cross currency interest rate swap. But what that mouthful does is take negative rates in the Eurozone and translate that into the financing of the cheap money financing of the commercial development in Los Angeles. And that's the world in which

we live. The fet is stuck in the middle of that, and it will probably be there for a while until we get persistent inflation on a rising trajectory. Broadly, based on the price level. It's not the asset prices. We are going to continue in this and I don't know, Carol how long that will be. Yeah, all right, David Cochalk, always good to catch up with you, Chairman, chief investment officer of cover Lenden Advisors, joining us on the phone. Just sort of up the road ish in Sara Sota, Florida.

We're here in Miami. Thanks for listening to Bloomberg Business Week. You can subscribe to the podcast on iTunes, SoundCloud, or Bloomberg dot com. You can also listen to our radio show every weekday at two pm Eastern only on Bloomberg Radio