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Bill Lee, chief economist at the Milkin Institute, who is in Singapore for the eleventh annual Milkin Institute Asia Summit. Bill, always a pleasure to have you with us on the program. Lots to talk about this morning. We can talk about China, we can talk about the US. We can talk about US, China and the FED. Let's start off with the Fed. I'm curious why you think this time the FED decided to not be very clear about its course of action. Generally, the market tends to know what the Fed is going
to do when we get to the day. Not this time.
Why, under Chair Powell, I think we've noticed that the FED has really held its cards very close to the chest, and they're maximize the amount of optionality they have by saying that we're completely data dependent and we're going to look at the last bit of data before we make up our minds. In a way, it's done a disservice to financial markets. When I use that the FED Reserve in the old days, there's a lot of there's a sense that we understood how the FED worked, we understood
its framework, we can anticipate its decision making. And I said, I must say a criticism of the current FED is this complete data dependency without telling markets what exactly it's going to do with the data. And I think that has been characteristic of Chair Paul's caution and wanting to preserve his legacy of sticking the soft landing and being one of the few FED chairmen who's able to do that.
Bill We've been talking about this debate in the marketplace whether it's going to be a twenty five basis point raid cut or a fifty basis point raid cut.
WO tear to weigh in, Well, let me just bring out the old school model of how the Federal Reserve has always worked and really continues to work at its core, which is to say, they really want to make a path that's clear to financial markets that we are going to get back to neutrality. I personally believe that that we should do it fairly quickly because the economy has been cruising at at a steady pace, at a very strong,
steady pace, with inflation clearly coming down. But we're so far away from a neutral interest rate that we should just get on with it because there isn't a lot of danger of inflation resurging, and the weakening economy has got financial markets concerned, and I think cher Paul should do a better job of explaining to financial markets there's
nothing to be concerned about. The US economy is on cruise control and where in fact, you know, better than normal right now, the labor market is not really shows no signs of weakness at all, regardless of what whether people believe this so called sombl or not. Normally pay roll increases are like one hundred and fifty thousand.
We're a little crimped on time today. So let's kind of have a little rapid fire action here. Let me ask you, you know we usually have unanimous votes there, do you expect a lot more divergence or dissent in this decision?
I think the current Fed really is really wanting to show a sign of unity, and that's why Chirpaul has been so cautious in telling markets what the FED will be doing until it actually does it, So I doubt that there'll be much in a way of decent.
So I'm imagining that China is going to be a big topic for the eleventh annual Milkin Institute Asia Summit. Are you concerned about the degree to which China is really stuck in this deflationary trap?
You know absolutely. In fact, I've been in Korea at the World College Forum. I just came here and the discussion is really all about China, and I've been telling everyone China suffers some of the bad des deficient demand, debilitating debt, and dismal demographics, and the debt's burden local governments has really hindered the ability of the local governments to part participate in the kind of fiscal policy that's
needed to stimulate the economy. And Chairman, She's aversion for direct transfers to households and keeping supply side measures going has really shown to be ineffective. And I hope they will see the light that the American and Western way of COUNTERCYCLEO fiscal policy directly transferred to the households.
We imagine the Chinese economy to be stumbling a little bit now, but the US economy to be in a good place. Meantime, China's actually going faster than the US, even if it doesn't make the five percent target.
Why, well, what's relative to normal?
Right?
China's demographics has really slowed down to the point where normal growth to keep the population employed, it has to be above five to seven percent, And now it looks like the every forecast is showing China to be below five except for the official one. So I think the measures of differences about normality and population and technology and productivity growth are really explaining most of the difference between the two growth rates.
Very quickly, Bill, in about ten seconds, will we get something from the PBOC that is stimulative here in the near term.
That's not what they need. They need a fiscal policy, fiscal stimulus, support income.
Okay, yeah, Bill Well Billy, chief economist at the Milk and Institute in Singapore for the eleventh annual Milk and Institute Asia Summit.
David Finnerty from our Bloomberg Live team, So we're looking at the FED. I'm wondering, David, whether or not you think that perhaps too much positivity has been priced into markets at the moment.
Yeah. Well, in terms of you going with it's fifty or twenty five, I think, certainly at my end it should be twenty five. I think the market is, as we've seen several times, it says it's really biased what's right cuts, and it is what it is. So you give them any chance of price in fifty, those certainly run with that. And I think reality is if the Fed does cut fifty, the markets could go, oh, you mean fifty to fifty to fifty. So I reality, that's what it's going to do. It will try and price in.
I think it will. We'll be back to six rate cuts because it's called a point weight cuts this year. I mean, the market's going to go with it if you give it any chance. So I think I'm in. There's something in the twenty five camp. And one of the logic is I said, if you go fifty, the market's going to go because you remember, back in the June dot plot was we go The media forecast was for one rate cut this year, So suddenly you do fifty just three months later, it looks panicky. Yes, the
data has slowed down. I get that, but I don't think the data warrants are fifty. But if you give fifty, the market's going to go. You're behind the curve. We're going to price in more weight cuts very quickly.
Yeah, the bond market certainly has done a lot of the heavy lifting lately, and that's one of the factors that has really kind of made financial conditions relatively easy. The other part of the story is the dollar and its relative weakness, and also higher stock prices. So do you think that the FED would be right in erring on the on the conservative side.
For me based off the data? If there really the Fed's looking at, we're here not to control stock market indirect you could say it is, but if it's looking here, we're trying to get that soft landing. I think the data for me warrants a twenty five, and then you can you can leave the door open to look for data weekends, then we can do fifty. That's fine, But the moment, I don't think you know, four point two
percent on employment rate. Yes, it's been upticking, but it did stabilize last month, So let's see that uptick trend continues. I know, could argument be if you leave it you're behind the curve. But then again, are you going too aggressively too early? So I'm I'm for me. I think twenty five is wanted.
I kind of think they'll go fifty. But then we'll have more hawkish commentary than what some people might be expected, just to give them, you know, a very broad range of movement. Now you've got, you know, a lot of room there in between the fifty, and you know, Policymaker Powell who's sounding like, you know, this might be all you get for a while. So I don't know, I mean, we can muse about all of this. You know, your your thoughts on whether the economy needs some juicing.
Well, at the moment, I said, I think base it's certainly slowing down. I think twenty I said, I'm in the twenty five camp. I think the cats for the Fed if you do fifty and go oh and that's it, the market's going to go no, no, no, no, you're fifty to fifty to fifty, and that's what the market. You know, the market is buiased that way. So you know, I think you it's go be very tough for the market to the Feds have credit.
They could do it they could do it in a slightly different way. They could say, well, the Fed funds rates at five and a half percent, and they could kind of say, you know, we think fifty basis points is a way to kind of bring that because inflation's down below three percent, right, so there's a really big gap. So they could say, well, fifty basis points is the first step. It's going to take some time for us to see how this works out. I don't expect too much in the short term.
Yeah, I get your point. I mean, i'd say, the market's going to hear what it wants to hear, and the market's going to go fifty and I want six rate cuts this year. I want six quad of points and you've opened the door to that, and I'm going to run with that. So it's the market interprets it how it wants to interpret, and it's very biased towards anything dubbish. I'm going to that's all I'm going to hear. I forget the rest. I'm hearing the Dovist parts.
So you fear like a tantrum. And at this point the Fed cannot afford to have the market not on its side. Is that fair?
I think it's tough to control the markets. Is that you've seen how much the markets whipsawed this year, said go back to January with the sick rate cuts, expecting one in March, and then it went back to no rate cuts. And so the market continue shows its hand in terms of its behavior. And I just think you've got to be careful what you asked for in that the market is going to go very aggressively. If you give me signals of a rate cut, I will literally
run with it. So I think fifty is the market's going. You're well behind the right curve. We're going to put in one fifty this year and then let's not get to next year because we've got to do more next year. So I think heels get crashed and stuff. So I think it's just it creates a mess for the FED to try and control it. You know, you've got like
this kid who's running around. You're trying to control what it does on the lease and the market's going, well, you give me a big leash to just do what want, and I'm going to I.
Think the market's pretty I think the market is pretty mature, and it seems like right now it's kind of understands that whether it's twenty five or fifty, it's the beginning of a cycle, and the cycle, you know, there's no rush to do it, but you do have the election coming up, so maybe you act now and then see
how things move over the next few months. I take your point that market can be kind of needy sometimes, but if you look at the market performance of late, it seems like even though we've swung from twenty five to fifty, the market's kind of hanging in there.
Well, if you mean I mean which market do you mean? You mean the equity because the equity market is going to love rate cuts and understand these, So the bond market is sully volatile. I mean, if you see the market's mature, I agree with saying, but you can go back to well, hold it just back in January, the market's going, I think the six rate cuts warrant it, and here we are later on at the moment we've had none. So yes, it is mature, But then it's
shown a very strong bias towards a certain way. And that's so that's what I'm just saying, is if you get all I'm trying to say is if you give that bias encouragement. It will run with it without question.
No doubt about that. I agree with that, and so talk to me a little bit about your expectations for how the dollar would react to the scenarios that we're laying out twenty five fifty. I mean, what is the dollar reflecting right now?
Yeah, well, I think that's a good question. I think the dollar the dollars. The reality is traders want to sell the dollars. So again it's like they want rate cuts and they headgs, funds something want to sell the dollar if they can. So I think you do twenty five or fifty. Obviously, if it's fifty, then just sell Dollar's very simple as that, because even if the dot plot is, say on the more hawkish side, so we say, the markets go, I don't care it's fifty to fifty
to fifty, it's sever a dollar. I think what happens is if you get a twenty five, you obvious get a knee cher reaction. Dollars should totally go high initially, but then very quickly it's like lots of headlines, you go, okay, that's initial. Then they'll very quickly look at what the dot plot does and then you've got to go to what Powell says. Remember it's a biased this in terms of I want to hear something duvish and then I
see it, I'm going to rum with that. So I think you got a little of whipsaws with the market trying to sell a dollar if it's got a chance.
Yeah, we had Ray Dalio on earlier. He said twenty five or fifty, it doesn't matter if the US economy is close to equilibrium. He wishes that policymakers would look at the big picture and the long term picture rather than short term consideration. So do you think there's any chance of that from the Fed or can you expect it from the fiscal authorities?
No?
I think it's a fair point. And at the end of day, you sort of you're supposed to look longer term. By again, the market thinks short term if we're wanting So I think that one thing the Federal go and the coupe anounce say, okay, where we do twenty five to fifty. The real question guys, where's the terminal rate going to be? And obviously that will have a bead
idea in that dot plot. So I think the Fed tries to go long term, but the market thinks short term, and that's sort of that austraders the FOE came about.
For the record, I don't think the market's mature all the time, just has sort of been behaving that way lately. There's plenty of times it give be Bertie Finicky, pretty panicky, David, Thank you very much, David Finnergy Bloomberg FX rates St. Paul Brody, global blockchain leader at ey Paul is in
Singapore for the Token twenty forty nine Cryptos summit. I was just talking about the transition in part from retail customers to institutional customers and what one of the catalysts might be for that.
So the thing that we're seeing is what we're calling global regulatory conversions, and what's going on here is as regulators have taken steps to bring crypto inside of legal frameworks, and we've seen that in Singapore, Japan, and across the
European Union as well as the ETS. What's happened is we've shifted from this model where any consumer can do this and their consumers were doing it, to one where things are now accessible by institutions, pension funds, major sort of private investors, things like that, And so where the big money is. If you look at the world's RULs of capital, it's inside of institutions, and they can't touch cryptocurrencies or digital assets until they are regulated in these national ecosystems.
You know, it's interesting. There was a report that we were talking about last week where the FBI here in the US has closed that Americans lost to staggering five point six billion to cryptocurrency related fraud in twenty twenty three. Talk to me a little bit about the public relations campaign that needs to take place, maybe to repair some of the reputational harm that the overall cryptocurrency space has suffered as of late.
So there is a huge amount of damage that's been done. And I used to joke that the special thing that crypto was good at giving to the people who hate crypto is ammunition. We are great at sort of providing frauds and cons and things like that. And I think what's happened. And I spoke to one European regular. He put it very nice, and he said, the more we warned people against doing stuff, the more they did it.
And we came to realize that the best path to improving the ecosystem was to regulate it and give people more confidence, and I do think that regulatory involvement has been a big catalyst to improving the perception of the industry.
Yeah, that's very interesting. It's something that a lot of people in their gut probably wouldn't feel is the case that regulation can make a difference and actually broaden it. I'm curious when we talk about that move from the retail customer to the institutional does that also mean that the focus has changed a little bit away from cryptocurrencies and more to the blockchain.
A little bit.
Yes.
I think one of the consensuses here at this event is that crypto is out a role. It's going to grow substantially, but there's probably an upper limit on the sides of the cryptocurrency industry, and it's probably roughly similar to what we have in gold today, which is something between ten and fifteen trillion dollars, which, to give you
a sense of scale, is ten times what exists now. However, that hails in comparison to some of the other industries where you can have really substantial asset tokenization, such as real estate. There's three hundred and seventy nine trillion dollars of real estate in the world. There's another roughly two hundred to three hundred trillion in liquid bank deposits, bonds,
and stocks. So people really have their eye on all these other assets and they believe that the sort of overall growth room in that space is much much larger, and hence the shift towards digital assets. I wouldn't say away from crypto, but people see it as a bigger prize.
I remember the hype around blockchain when it first kind of became a point of discussion here, and then subsequently the move into a lot of the cryptocurrency, the way in which blockchain was applied to crypto. It seems though lately the market's focused on anything related to artificial intelligence. Is there a lot of competition for new capital, let's say that you're fighting for because of the current hype around AI.
There's definitely competition for capital. There's competition even more so for mind share, although there is also this integration that is going on. So two, there's probably three areas in particular where we see the most integration. First, using AI to develop crypto applications and crypto software. Secondly, using distributed computing systems built on cryptocurrency technology to handle the compute
workload for AI. And then thirdly, kind of this idea that AI is for decision making and blockchain ecosystems for execution, that they can be very complementary together.
So Jamie Diamond says JP Morgan is one of the biggest users of blockchain. Yet he says, we've been talking about blockchain for twelve years, not much has happened. Is he wrong?
He's not entirely wrong, And I, for one, kind of really believe that we The problem has been that we have not solved some of the critical issues for institutional enterprise. You just one of them was regulation, right, so institutions just really can't use it that much without good regulation. And the second is a technological one, which is mostly privacy. So the industry has done an amazing job of solving the scalability problem.
Right.
Where theorem used to be able to handle a million transactions to day, we can now do several one hundred million a day through all these layer twos. The bigger problem has been that if you're an institution or an enterprise,
you must have privacy technology. And it's really only just now that privacy systems like the architecture that we've been building and others have been working on are coming to the point where they are mature enough and scalable enough for businesses to use comfortably and without fear of kind of losing their sensitive data.
Paul Brody, thank you very much for joining us. Paul Brody, Global Blockchain Leader at EY. He drives the EY initiatives and investments in blockchain technology.
This has been the Bloomberg Daybreak Asia podcast, bringing you the stories making news and moving markets in the Asia Pacific. Visit the Bloomberg Podcast channel on YouTube to get more episodes of this and other shows from Bloomberg. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App.