Fed Maintains Monetary Stimulus, Cites Moderating Recovery

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. Let's learn a little bit more about what we got from the Fed. Joining us Kathleen Hayes, Global Economics and Policy editor at Bloomberg News. She's here in our New York City bureau along with Dave Wilson stocks Or at Bloomberg News on the remote access from New Jersey. So, Kathleen, I feel like steady, She goes, Uh, we know pretty much what we expected

from the FED. What we expected, and that's going to be very reassuring to the markets because there has been, uh, there's been comments made in the last say two or three months by ay and ful of Fed officials that depending on the economy, they could see that FEDS starting to taper its bond purchases in the second half of this year. So what they said today, I think let

me grab another headline here that is very important. The Fed repeats in its policy statement that it's buys, it's it's bond buys will continue until quote substantial further progress. And I'll add to that headline has been made because this is language they've added recently to underscore that they want to see not just the moderating economy and job market they mentioned, which which you were just reading from the headlines. They want to see not just inflation starting

to move higher. They want to see inflation at two percent and above. They want to see a lot better uh, job growth. They want to see claims coming down, And Kathleen, they're willing to let it run a little bit of hot. We've heard this a lot from J. Powell and company because because they want to see and make sure that the economy gets back on a firmace. Well, two things here. Number One, you got let around hot, I think is the idea to ever even have a chance in in

you know where to get inflation above two percent. And then the second thing is, you know something They even added it's a small thing, but it means a lot. I think when they said that the economy's path will depend significantly, they said not just on the coronavirus itself, but also on progress with inoculations. That's another word for vaccinations, right, So they're very hopeful, as many people are, that the vaccine rollout will go quickly. When I spoke to Lotmesters,

president Kansas City Fed, a couple excuse me, Cleveland Fed. Sorry, Lauretta, sorry, Yester. Straight there you go, two powerful women there no one to get their fed banks mixed up. But she said she thinks by the third quarter that will have you know, not full vaccination, but with so much of the population will have it that that's where we're going to start seeing a really strong rebound to the economy. At the press conference of j POWE, that's going to be listening for.

I think one more interesting thing I've been thinking about the last couple of days. If you start seeing that strong rebound and there's all this like another maybe two trillion dollars of stimulus being debated, you know, One of the people who have in the middle here is Janet Yellen, and she has said, right now, you gotta act big. You've got to act now. But I think this is a very interesting question that Republicans will probably raise. Look, if we're getting ready for a big reround, do we

really need to spend that much now? I hope that's another question that j Pal gets asked today. Dave Wilson, come on in here, Stocks editor at Bloomberg News joining us on the remote from New Jersey. Um, what do you see in the equity markets as far as reaction to the FED decision? I mean, energy still higher in every other s and p sector lower. Basically a lack of reaction. And maybe that's not a surprise because you've got sort of two overarching stories at work beyond what

the FED is doing. One is what's happening in terms of earnings in fests looking at the results and not so much focusing on the past quarter, but on the outlook and not liking what they're seeing for the most part. I mean, you consider a company like Anthem and Health Insurance down more than six percent, Starbucks down more than six percent. You look at the semiconductor companies concerned that they may have supply issues down the line, So you

see declins and advanced micro devices and Texas instruments. There are a lot of stories like that, And then there is what you might call the Reddit market, where shares just revolution. I'm kind of loving that. Well, whether meeting, I'm interested, we shall see that in any case, I may. We're seeing shares just take off again. Game stops more than doubled, AMC Entertainment, the movie house owner, and the

expressive power retailer is more than tripled. And you know what else has my stock of the day, which I'll be talking about about two hours. You know, it's I know exactly what you're talking about, Dave. I'm ready for it. Um, Dave, I I gotta get you just to talk more about this, because, as I mentioned, this has been like dominating Twitter, dominating our show throughout the day today. Um, how does it end? You know? That's a very good question. Yeah, I mean,

because you see it today to some extent. I'm just taking a quick look at Pitney Bows because those shares had run up eighty one percent yesterday. Uh. Somebody out on the financial website Seeking Alpha was comparing the maker of postage meters to game Stop. Well, today the shares are down twenty six percent, so you know, I mean they've given back a whole lot of what they made yesterday and you still have making money on all that volatility.

Oh yeah, and you're gonna have to presume that at some point you're gonna see this with a whole lot of other shares. I was just gonna point out that the former SEC chairman, Arthur Levitt, a member of our board here at Bloomberg LP, has a commentary out today history has a warning for game Stop traders, So you know, look out for the Securities and Exchange Commission. That's something that will definitely be worth the watching for. Well, yeah,

go ahead, come yeah. I was wondering what Arthur was. I'm assuming our team had had brought it up with Arthur, because I was curious what he had to think, you know, what he what he was thinking in terms of regulatory And I'll say that we did just here minutes ago in the White House press briefing room. The Biden team is quote monitoring the situation when it comes to game Stop, right exactly. I saw that coming in right right, It's reached.

I tweeted this has reached the White House press briefing room. It has. Yeah, I mean, Dave and I know we're supposed to be talking about the FED, but I do feel like in terms of the equity markets, I mean, this is what people are watching because it's not just one or two. It feels like it's picking up a lot more momentum and spreading out to a lot more names. Here. Oh, absolutely,

there's no question about that. I mean, you can just go to a list if you can pull it together of companies saying the Russell three thousand index a pretty broad gage of US stocks, uh that had the biggest short positions relative to their float. Now there the most shares barred and sold relative to the number available for trading. And you just look at them from across the board, they're higher. Got it? Got it? Hey, Kathleen, save forty

seconds for you. Here already are a live blog on the FED meeting today and the upcoming FED press conference. Democratic lawmakers will no doubt cite the fed's new language about the weakening of the economic company and pushing for the full one. Certainly, as I said, I think that this is definitely going to enter into conversations around this need for money. The gem Democrats are already some of them acknowledging that maybe it shouldn't be sending checks to everybody,

maybe this could be more targeted. I want to quickly throw in something. In the last two days, uh in China, p BOC said they're not going to remove stimulus prematurely. But they also Ye Gong, the head of PBOC, says, but we're watching debt risks closely. A former economic advisor to the p bocs warns warns of equity bubbles, acid bubb So I should say they had a huge sell off in stocks, a big jump in bond yields are

overnight repo rate jump. Bond markets around the world are very nervous about this whole question of central bank tapering. I think game Stop is an amazing story today. I've been on watching all and listening to all this coverage. At the same time, I think when you step back for some of these big market moves, this is something that the FED reassured the markets on today. Let's see what j Pal says in about what an hour? Alright, yeah, just about twenty minutes. All right, let's guys, thank you

so much, Kathleen Dave, thank you so much. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovic from Bloomberg Radio. Let's get some analysis from Francis Donald. She's global chief Economist, head of macro Strategy over Manual Life Investment Management. She's with us on the phone from Toronto. I write Jersey with us as well, Chief US Interest Rate Strategies at Bloomberg Intelligence on the phone in New Jersey. Frances, I'm going to start with you.

We got pretty much what we expected. What's important here though, in your view, Well, the race of course when the said statements come out is to do that comparison this one versus last one, and they have this mark to market. Yes, the economy, the pace of the recovery has moderated. They have to say this. The data has been worth. What's really fascinating to me is that in the past they have told us that the path of the economy will

depend on the course of the virus. But they have added in this little sentence which now says including progress on vaccinations. Now that kind of seems obvious, but there's another central banks that did that last week the Bank of Canada, and what it appears to me is happening is that central banks are giving themselves an off ramp

if they need it. They're giving themselves a caveat that if vaccinations are delayed, it will give them an excuse to perhaps appear maybe less like they want to taper, give them that ability to be more debblish. It also means we are all now going to become obsessed even more than we are with vaccinations data. I said, the fact that becomes the data du jour for the rest of the month and into the next one, Like we could be any more obsessed because Tim and I are

incredibly obsessed. Are come on in on here. Um you just heard what francis her takeaway? Um, do you concur and what jumps out for you? Yeah? I mean the statement The last couple of meetings, quite frankly, has been pretty dull affair generally speaking, it's really the press conference that has has generated some of the fireworks and market movements.

So I think that you know, j Powell being asked, you know, maybe to clarify things on you know, what is what did he mean by it's not time to think about thinking about raising rates, like what would change that? What would what's the outlook on inflation with inflation expectations above two percent? And uh, some market measures, although in my view a lot of those market measures are being manipulated a little bit by the fed's action of buying

a lot of the assets uh that underlie them. So so I think I think the press conference could see additional market moves. I would be shocked if he wasn't asked about some of the craziness going on, and you know game Stop in those names too. Um, he won't answer them, I think, except to say that you know, the regulators will look into it, the SEC as the regulator of record for that, you know, that kind of thing.

But nonetheless, he's going to be asked and and you know, some of the comments that he makes could move the rates markets quite a lot. If if he suggests that, you know, if vaccinations go really well, that they could be hiking next year, which you know it is not our base case scenario, but it's certainly something that the market is going to look out for. Yeah. I want to stick on that because, as you know, I'm absolutely

obsessed with this game Stop story. I mean, what questions would you ask ask the FED share about this if you could, well, well, if I could, I would ask him about that inflation story, like how much stock does the FED put into the tips market? And what the tips markets showing about inflation, because you know, the FED has always talked about, you know, very weak wages and the employment situation the way it is that it's not likely to see an inflationary impulse, but that's not what

the markets are pricing at the moment. And of course you know how much of that is being manipulated by by the feds massive purchases of the tips market. We have to appreciate the FED used to own around eight percent of the tips market back in February of last year, UM and now they own of the market, so you'd think that they're having some impact on the pricing there. All right, Francis, come on in on it. What would be kind of some of the questions you want to ask?

And I'm curious if you're as interested too in this game stop trade that we've been kind of all obsessed with. Yeah, of course, I mean you come in, you see moves like this, How could you not be obsessed with it? But then let's take a step back. What's really going to change the outlooked for the market. It's when is the FED going to high rate market now pricing name for three. What I find so fascinating is I, like everybody else, am obsessed with infletion. We spent a huge

amount of time looking at that. But the Fed has a dual mandate. And while it is clear that inflation is going to spice off and then probably enough around two percent, the employment mandate is doing terribly. We've had two very bad weeks of jobless claim we had a negative number on non found carerolls in December. And sure, maybe a huge amount of people will be were hired, but we have ten million Americans that need to be rehired. And I'm struggling to see why the set is not

emphasizing the employment side of their mandate more. I'd want to ask him, why are you so nonchalant about this? Where are we just misinterpreting your views? I think that's a really part of the story. The market just does not buy that the SET is equally waiting both sides of its mandate. And that's really peculiar because with average infletion targeting, the market should be understanding this and we're

just not there yet. Ira. I also do wonder, you know, it's it's gonna be an interesting environment because you've got FED Chief J Powell, You've got the incoming Treasury Secretary, a former FED Chief Janet Yellen, And I do wonder about that relationship, that understanding, and what that might mean in terms of smart monetary policy or policy that's needed

by the economy. Well, I think that Janet Yellen, having been at the FED, you know, and been a colleague of of J. Powell's, I think that she'll try to be someone hands off. I would be surprised if some people at the SET didn't ask her, maybe for her advice or whatever. But but but I think she understands

that an independent central bank is very important. And you know, unlike some of the rhetoric that came out of the Trump white House, I think that the Biden White House will be a little bit more hands off when it comes to things like monetary policy. But yeah, you know, after after the UM the Dodd Frank regulations were passed ten years ago or so, UM, you know, the Treasury Secretary now has a lot of power and control in what the FED can do in terms of emergency measures.

So we have to remember that that by design, Congress gave the Treasury Secretary quite a bit of of power over the fed UM. You know, not not monetary policy, but those special things like the Main Street facility and some of the corporate bond buying program for example, and things like that have to be approved by the Treasury Secretary.

So so I think by design there has to be at least a cordial relationship between the White House and the Treasury extume me between the Treasury Department and the fed UM. Otherwise, you know, in another crisis, it won't work. Francis I. I I wonder what we'll hear from j. Powell in terms of his message for lawmakers. In the past few months, we've really heard him say, hey, we've done what we can do from the perspective of monetary policy. Now there is a new Congress in session, now there

is a new president. What is the message that you think he's going to have for lawmakers to try to compel them to act on fiscal stimulus. Well, he'll probably get questions about how much of the fiscal are you incorporating? Usually that I'd likes to see it actually delivered before it's incorporated into their comments. But we're going to hear the same thing we hear from all Central Bank, which

is seed more fiscal. What I'd like to hear is whether j poll can make some sort of comment about regulation that helps to prevent bubbles from developing, or more focused on some of the other areas the Central Bank has been focused on climate change, into qualities housing. I mean, the things the set is looking at are really expanding

beyond this installation and employment. It would be good to get a sense of how he sees the Central banks roll on those topics, would have which has traditionally been something more at play in Washington, right, and so was something we've heard about from President Biden a lot this week. And I remember you and I on the last FED meeting when we heard J Powell talk about climate change. That was one of the things that stood out for us. I want to pose a question to both of you,

uh and are maybe take it first. I mean, I am curious what line J. Powell will walk when it comes to that one point nine trillion dollar stimulus plan. Do you think that we might hear words from his mouth that are going to be more supportive of a bigger stimulus package versus a smaller one, because you know the press community that's going to be a lot of the questioning. And I know, I think Francis you brought it up, and I know some of our other team

Kathleen Hay saying that's what I want to know. Yeah, I think he's gonna say what he said before Congress a couple of a month or so ago, and that's that, you know, the fiscal stimulus is up to you, but it needs to be targeted. It should be UM. It should make sure that it affects the sectors of the economy that our hardest hit. UM. So he'll I think he'll continue to with that rhetoric. UM. There is a there is a limit I think to what he's able to say. But he'll say it has to be big

enough to spur the economy. It's not his job to UM, you know, to give any precise number. UM. But then I'll say, you know, maybe he'll say like bigger is better, Like that's not out of the question that he says something like that. I don't think he will UM, but he might hint at that maybe in words, And I'm sure he's you know, tried the word Smith the last couple of hours thinking about how to answer the many questions that he's likely to get on the stimulus. Francis,

what about your thoughts on that? You know, I'm going through the press conferencing about one thing and one thing only, and i know it wasn't your question, but I'm just upset with it, which is how the heck is how we going to get people to stop talking about papering. It hasn't come up. He clearly doesn't want us talking about papering, so maybe even bringing it up isn't a

good idea. But he has to get this market just stop thinking about it, and one of the only ways he can do that is really come down super hard during the press conference. So you know, there's gonna be questions about fitzol, there's many questions about same stop maybe put a different way. But what I really need to hear from him is are you happy that Bostic rays papering and that we're starting to think about it or

do you want us to put us aside? And my entire freed view for the next three to six months is based on the tone of that commentary. That's what's really going to drive rates here? So what else would you ask him personally? Yeah, yeah, sure, So I have a whole list. I want to hear about something. I don't want to hear about employment versus inflation, convinced markets that you really do are doing average inflation targeting, because

they clearly don't do that. I'd also love to hear how he's used short term downside risks versus medium term outlook improving now the statement actually took out the words short term and medium term, which I think are very interesting. I think they just want to give themselves some optionality. But how is he thinking about just how bad the next two months can be versus how much better twelve

months from now should be. That's also going to put some stuff in here, And of course we got lots of new is about the e c D not being very expended about market pricing, on the possibility of rate cuts today. I think they're talking down the euro. You might get a question into one usc he won't answer it, but I'd probably ask it anyway. Yeah, if I can

like just to go on that. I think that near term and medium term is interesting because I think that goes to the point that you know they're trying to get away from needing to answer the question like when will we taper or when are we going to hike rate? It's like like that that's something that they just want to get out of the vernacular. I agree with that

that idea. I don't think you can though, because because ultimately, like if you're if you're trading a five year treasury note, you have to have some kind of view on what short term magistrates are going to be and going to average over the next five years. So so the question is how you know that he doesn't want to hand tie themselves by saying, look, we're not hiking until at

least three Like that would be the answer. That would be as clear as anything um And you could always change that later, like if if the facts change and the economy is growing like gangbusters at the end of the year, you can change it. But but that would be a a massive signal he won't say it. But that ultimately is the only kind of thing I think you could say to avoid the market continuing to question when are they going to taper and then follow solong

onto that when are they going to hype rate? And I should point out one of the headlines we had earlier this morning, just after the open uh in New York, UCB official said to see markets underestimating the rate cut odds. Hey, one thing I want to just post to both of you as well. We've got a great Bloomberg exclusive by a team of reporters here at Bloomberg, and it talks about the amount of debt nineteen and a half trillion dollars of global debt that has been added as a

result of COVID nineteen. We're talking about government debt, corporate debt, add it all up together. It's all been done to avoid some kind of deep and lasting depression around the globe. Uh Ira, Let me ask you. We've had to do that, There's no doubt about it. And does that worry you

at all, that amount of debt. Yeah, well, it worries me only in so far as what happens when interest rates eventually, assuming they do eventually do go up, and we have to have higher interest rates, and that becomes an interest payments become a much larger and larger part

of the government's budget. Right because the governments are getting more and more hand taught, and in the US that's that's true because of things like medicair sort of security, that only leaves a little tiny bit basically of the total government expenditures um to you know, basically to be allocated to everything else. And the the challenge then is if interest payments get bigger and bigger and bigger, that reduces the flexibility of what Congress can do in the future.

Um But but to your point, I think it is something that had had to be done, and probably more needs to be done. Is one point nine trillion the right number? Maybe? Maybe not. I think you could maybe target, you know, do a n trillion now and then if you need to do more later, you can still do more later. So Francis, come on in here. Based on your own and modeling your own expectations, when is a realistic time to think that interest rates could foreseeably actually

go up. I have the interest rate hype at four. But what I tell the teams I work with is, you know, what I'm way more interested in is how high can interest rates actually go when we get to that normalization cycle. And my view is that exactly as I was just laid out, because of high levels of debts, because these central banks are focused on issues beyond the traditional instlation mandate. They're probably not going very high the terminal rate and the next typing cycle is probably two

percent or less. And so those of us who are long term investors, it's not so much as it had second half of three or first half of four. It's how high are these things gonna go? Right? Thanks, very high? Right, and you do under its level as well as how quickly they get there. Um, folks, thank you so much. Francis Donald Cheese, Global chief Economist, head of macro strategy at Manual Life Investment Management, on the phone from Toronto,

and our thanks to our own irate Jersey. Actually she was on the phone from Montreal, our Jersey chief US interest rate strategist at Bloomberg Intelligence on the phone from New Jersey. This is Bloomberg Business Week with Carol Messer

and Bloomberg Quick Takes Tim Stinovic from Bloomberg Radio. So, uh, FED Chairman J Pal, as you know, just wrapping up that press conference, his comments and his pressor just going shy of sixty minutes long, but nonetheless pretty much getting as expected among the headlines, FED Chief Jpal making it clear the US Central Bank was nowhere near exiting massive support for the economy during the ongoing coronavirus pandemic, and

officials leaving their benchmark interest rate unchanged near zero, flagging a moderating US recovery. So let's get into it back with us Steve Skanky, he's chief economic advisor over at kill Point, former U S. Treasury UH and White House National Security Council staff member. He is based in Washington, but today we find him on the phone from Florida. Carbar Kadana with US chief US economist of Bloomberg Economics on the phone in New Jersey. Car, let me kick

it off with you. What stands out for you, especially in that press are from J. Powell. Well, good afternoon, Carol. We certainly saw some big market gyrations during the course of the statement release and the press conference, but I do have to think that this is maybe tied into other factors at play in a very volatile day for stocks.

If we look at the tenure yields, for example, really not much movement over the course of the press conference, and so the Fed here signaling that there's some moderation and deterioration UH in the economy at the moment, but they look at that as kind of very concentrated in some very obvious pockets like restaurants, tourism, etcetera. So, in fact, I would say there's a little bit of a silver lining to the statement here that because when they asked j.

Powell what's wrong, he didn't say everything. He said some very certain pockets of the economy. That's actually a little bit of an optimistic of view that he sees a kind of K shaped recovery where certain sectors are really in adult rooms, but the rest of the economy is functioning pretty well all things considered. Yes, skanky, same question over to you. What stands out as far as initial impressions go from Palace press conference? Well, I think a

couple of things. Uh. Clearly, the the inclusion of the language of moderated that the economic growth is moderating in recent months and that reflects the lower consumer spending in November and December. But but then uh, they go on to include the language progress on the vaccinations. Uh, clearly optimistic with various parts of the economy being way more resilient than people had expected. He noted that at the end of his press conference that that was one of

the things that had actually amazed him. Uh. He was also very specific though about the the importance of addressing unemployment continuously and with with full force. Really tried to take off the table any notion that they were going to do anything to tighten up a taper any time soon. You know. He pointed out that there's still nine million people unemployed from the pandemic, which was more than the total number of jobs lass in the great financial crisis

that twelve years ago. It really puts into perspective, it does well, and it's you know, speaking to I think what struck him and myself as well as J Powell. I feel like early on and then of course later on in in his initial statement just talking about he finished up saying, we need to finish the job of

defeating the pandemic. It came down to, no surprise, it unless we get this virus under control in the vaccine rollout moving along more smoothly and more quickly, you know, that is going to be key in terms of, you know,

as he said, the most important economic policy. That's it, you know, Carl, you guys are constantly looking at economic metrics, but I mean it really does come down to that, you know, in term said, or do you see it differently, if we don't get the vaccine out, if we don't get to kind of create confidence once again in the economy and let people start getting back to work, back

to normal. Uh, kind of all bits off. I agree, Carol. Uh, this is very clear to J. Powell, This is clear to Janet Yellen, This is clear to President Biden that getting the virus under control is the best economic policy so that other measures of stimulus, whether it's fiscal support or very accommodative monetary policies in the said, can actually

have their desired effects. And you know, really it kind of summed it up quite nicely towards the end of the press conference when J. Powell said, my my concern is filtered far more towards an incomplete economic recovery. Uh that leaves businesses failing in the individuals who want to work not able to get back into the workplace. H. He's much more concerned about that outcome than possibly inflation running a little bit hot at some point in the

distance future. This, as you, absolutely this is an accommodative fed U that is nowhere near the point of tapering or thinking about exit strategies. I'm wondering, Carl, why you why you think we saw a bit of a sell off happening? Um, right now, smp FO foundered down more than two point three percent, down down two point on Why do we see that happen? Was it? Was it him saying there are considerable risks of the economic A

look like there are some pretty downtrodden comments. I feel like by j I think that was consistent with what we heard from him previously in the tone of the statement, what was expressed at the December meeting when we didn't see these moves. So I do think there's a kind of videosyncratic stock story. Right if if we were really trading off of comments from the Fed chair, you would see a similar reaction in the treasury market, which you don't see that kind of reaction. So that tells you

maybe it's more of a microeconomic story. Uh. There were some headlines about from Senator Warren talking about the situation with game stuff, and uh some bitcoin headlines also during the course of the press conference, So I think there were some other factors that are are driving that equity market so off. Well, for equity market has become bitcoin and game stop on then a lot nervous um come

on in stick to that point. Car No really did say that, you know, he is focused on financial stability, but he does not see a need for the Fed to be acting based on one day's market moves or particular stocks or or movements in the financial markets and the broader financial stability risk. Otherwise they'll sit back and let the bubbles take care of themselves. Correct. Well, that's the question. Is this more than a one day or

three day phenomenon? Go ahead, go ahead, Steve well being Uh, the volatility in the stock market is, as Carl said, sometimes just about specific things going on. But clearly the UH, the stock market has been driven over the last three or four months, in particular by physical stimulus, and UH the optimism surrounding the vaccinations and getting the pandemic under control.

UH and and share. Powell also pointed this out that it's not what the FETE is doing that drives the stock market as much as UH, what's happening on the on the fiscal side of things and getting the money out into the economy. And UH they're just going to

continue to focus on getting people back to work. I think that resonated very seriously as to how much they are focused on that people who've lost their jobs, who have left the labor force, needing to to make that a major effort, and that's where that's what the FETE is going to be looking at, and less interned about these other things. He also pointed out that when it comes to inflation, they know how to they know how to curtail inflation. They've got a lot of experience and

policy tools to do that. But right now is to get people bending and jobs back in play listen, I thought one of the more interesting things, and I agree, like I think, right now the market is just realizing any kind of further stimulus is going to take a while. We're still smack in the middle of a pandemic. There's some nervousness about variants. And again I think to hear, I mean, we already saw nervousness at the get go

this morning. But I think then to have J. Powell even say, you know, remind everybody that we are just tied to getting this under control, and until we do, there's a fair amount of uncertainties. Having said that, Carl I thought it was interesting what he had to say about how we are moving towards a very different or we're going to a very different economy learning that things can be done from remote locations. These are his words,

that technology can replace people. Uh. You know, it's interesting to hear him really kind of come out and talk about that when we still have a lot of executives are like, no, no no, no, nothing's gonna change. We're gonna get people back to work. I mean, it really does feel like we're going through a significant change in our economy right now. Carl. Well, Carol, there's two issues in what you just said. So one is uh, the uh notion of technology allowing us to work remotely, uh not

have everyone, uh you know, centered in the headquarters somewhere. Uh. And that I believe is absolutely the case in terms of technology supplanting labor. I mean, this is an ongoing story in place since the Industrial Revolution. But the issue is when labor costs are cheap, then the incentive to make those capital investments is relatively low, and so you tend to hire a lot of cheap labor rather than

make expensive investments in technology and whatnot. So I think the reality of the situation, given those stunning job loss numbers which Steve highlighted the headlines from J. Pow. We're still deep in the whole, which means there's tremendous labor slack out there. There will not be a lot of lage pressures, and therefore there's not going to be a tremendous incentive to for a factory owner to try to automate their assembly line, given that workers will not have

much margeting power amid such excessive slack. Well, and what's interesting too is listen um the move towards technology and automation. If one country rejects it, another country is going to adopt it, and then that's going to certainly cement to some extent your place in the global economy. Steve, how do you see at those comments that we heard from J. Powell about we're going to a very different economy. It's like I kind of want to get a T shirt and just bold and put it on it, because I

think that's pretty significant to hear the FED chiefs say that. Well, it is in his acknowledgement of that is extraordinary. His comment about being so surprised how technology has allowed us to to really carry on in many cases, or in both cases, except for those who have to be in some place to to do their job. When when we look forward to you know, the great risk to the US being eclipsed by China's economic growth sooner rather than

later is going to be in technology. And if we just look at things like artificial intelligence, the ability to augment labor capacity. I mean, China's population is is so much greater than ours, it's only a matter of time as their productivity catches up that their economy eclipses. Are right, that's just pure math, right in terms of more people and being more productive that it's going to pay off

in economic growth. It is in the United States opportunity is to continue leading the area of technology and whatever the Biden initiatives for Buy America, bringing jobs home, building good jobs at home. It also depends on infrastructure spending that gives us a technology boost in areas that will be dominant over the next several decades. Uh. And that'll be a big surprise, I think too as we see that play out in a very positive way. Yeah, good point. Um,

We're gonna leave it on that note. Hey, guys, thank you so much. Steve b Well, Steve Skanky, chief Economic Advisor of A Keel point former U. S Treasury UH official also White House National Security Council staff member Steve is based in Washington, d C. On the phone in Florida today and of course our thanks to our own Bloomberg Economics Chief US Economists call Ricka Donna. He on the phone in New Jersey. I'm broom mac journal. Yeah, but you let me drive home, honey, please, I'll do

the right velvet. I want to drive, Just drive baby, the questions trying. This is the drive to the globe community. Thanks, we'll drive us to dawn. On Bloomberg Radio, it is time for the drive to the close. And with us is Dave Ellison. He's portfolio manager over and Hennessy Funds. They've got roughly three and a half billion in assets under management. He's involved in naging the large camp and

small cap financial funds. At large cap financial fund beating most of its peers over the past five years, returning on average nearly sixteen percent. Small cap fund having a tougher time over the past five years, but beating most of its peers so far this year. Let's get into it. Dave with us on the phone from Boston. Uh, Dave, nice to have you here with us. I'm feeling like, where do I feel like I'm playing a game show? Do I want to start with the FED? Do I

want to start with game Stop? Do I want to start with tech news? Um? Where so we begin? What's on your mind? Oh? I guess you could talk about all but I sort of funny with the game stop, you know, and that type of thing that's happening in the marketplace. I guess we remind ourselves that it was I don't know, not that long ago that oil was trading at a negative number and that and that didn't

seem to set all the alarm bills off. Now of a sudden, we got, you know, eight or ten stocks that are in a short squeeze, and the hedge funds are calling for regulation, which is the very thing that they don't have, which is why they can operate as well or least as easily as they do. So it's amazing when things go against you, you want regulation. When it's going with you, you don't. You want to be left alone. So tough luck. That's the market. What did

you what? You know? It was so interesting to hear two of the first three questioners in this FED in the in the press conference with FED Chare Powell, they asked about game stuff. What do you make of that? I mean, obviously there's so much interest around it. Well that's you know, that's what people are watching. You know, they care about that, and maybe Tesla you know again you you know, it's a Baker's dozen market, right There's there's twelve companies that are running the whole economy and

the Feds carrying the rest. And we just happened to have a situation now where the little guy's gotten big enough and maybe you got on you know, on the internet enough to be able to do a flash mob against a short and all of a sudden, sudden it becomes a b a big issue for the FED, um, you know, and other things. I mean, that's just that's the reality of having a lot of money sloshing around

the system. If if I have one comment to make about the bank earnings this quarter is that I've I've never seen a situation where loan demand is basically negative and deposit flows are out off the charts, you know. So you see these banks where they've got a thirty percent growth and deposits year over year and loans are down five and of course the deposits they're paying you know,

thirty basis points. Who cares, So they're offering no value to the customer at thirty basis points, But yet the money's gushing in so well there because anecdotally, and I've talked to people who've reached out to banks and things, whether it's to refinance and stuff. I mean, the banks

are being really tough with with lending right now. Is that how they should be considering, you know, or ten years out from the financial crisis and we had some pretty sloppy landing back then, or are they being too cautious in your view? Well, I would say that the banks, from a regulatory point of view, are being put into a situation where they don't they they're not allowed to take the kind of risk that they used to now.

Putting that aside, the second issue would be with a thirty year or fifteen year mortgage at to sixty or two eighty or two ninety, I wouldn't make that loan either. And thirdly, the banks are worried about keeping their credit clean, keeping the liquidity high so they can raise their dividends and do big buy backs because there's nothing else to do. Because if they go out and make a lot of risky loans, the SAID is gonna say no buy backs,

You've got to cut your dividends, and we need new management. Hey, Dave, I know that you see that fintech has appears to have the most runway space for growth. Those are your words, thanks to a producer who got us these notes. Fintech, PayPal, square, Visa. Why are those exciting names for you? Well, again, I think if there's a difference, that there is if you're a bank and you're making loans and taking deposits, the FED controls the whole pricing structure, and they reiterated that today.

If you're a PayPal, and we can argue that may be over valued or undervalue. But let's let's assume that we're not worried about that. Right now, there's a business that's less regulated, that is gaining customers, that controls their pricing. At least for now, there isn't the regulatory overhanger. Isn't a liquid of the issue. They don't need to buy

back stock to justify their existence. They're not overemployed, and they're not stuck in it in an industry that, again is controlled by the Central Bank, which only really cares about inflation and employment. Yeah, listen, not all, not all, not all financials obviously alike. And I can kind of get you know, in terms of your play. So you do like PayPal, you like Square, but you do like a couple of the big banks, JP Morgan and Wells Fargo.

I mean Wells Fargo seems to own the mortgage market, uh in many ways, but they're also working out some of their difficulties that certainly the new CEO has inherited from the past regime. But just quickly got about fifty seconds here, what are your thinking in terms of your

investments here? Well again with the big banks? Uh, you know, I think I gave you JP Warden because they're they seem to be the best run and they have the ability to hopefully make investments and stay competitive and stay relevant. And that's the challenge. You're staying relevant, all right. You know, these guys are blockbuster headed if they don't get their act together. All right, Fargo is the worst company out there, and they're a blockbuster trying not to be, you know,

so they need to get their act together. I think I say to people Goldman needs to buy Wells Fargo or they need to buy uh Lehman or you know, or Morgan Stanley. Yeah, Lehman's already gone. Yeah no, that's an interesting and provocative play. Wells Fargo is down about pent last year, and it's pretty flat this year and still working through some things. Hey, good stuff. Thank you

so much. Dave Ellison, portfolio manager at Hennessey Funds that go out three and a half billion in nassets under management. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News