Banks Pass Fed Stress Test; Fed Talks Rates

Good morning.

I'm Nathan Hager and I'm Karen Moscow. Here are the stories we're following today.

Karen, we begin with the biggest banks on Wall Street rallying this morning. This comes after they pass the Federal Reserves annual stress tests. Let's get the details from Bloomberg's John Tucker in New York. Good morning, John and Nathan.

After the collapse of three US banks this year's stress tests, they carried extra weight passing grade on the annual exam for the twenty three lenders, means they can probably go ahead and pay billions of dollars in dividends to shareholders. The results determine how much capital banks need to set aside as a cush Alason Williams is the senior bank analyst for Bloomberg Intelligence.

The good news is that the capital requirements are basically headed lower as a result of this test.

Well less of a required cushion means more for shareholders. JP Morgan, Chase, Morgan, Stanley, Goldman, Sachs, Wells Fargo. Their balance sheets showed improved resiliency. A city group citizens financial and capital, and we're less resilient. I'm looking at shares trading of the pre market right now, you have JP Morgan Chase, that's a one point two percent. Bank of America is up one percent in New York. I'm John Tucker Bloomberg day Break.

All right, John, thank you. Let me turned to the broader economy now and hawksh talk from central bankers. For the second day in a row. J Powell is signaling more rate hikes are on the way. The FED chair spoke this morning at a Bank of Spain conference in Madrid.

As noted in the fmc's summary of Economic projections, a strong majority of Committee participants expect that it will be appropriate to raise interest rates two or more times by the end of this year.

And J. Powell says the Fed still has a long way to go to get inflation back down to two percent.

All rates do appear headed higher. Caaren, a former FED official, says the central bank could take a u turn as soon as next year. We caught up with former Federal Reserve Vice Chair Richard Clarina.

The feds rationale is that if they succeed and inflation starts to fall, they can cut rates basically to keep real rates unchanged. So I do think their baseline probably does have some cuts, does have cuts for next year, certainly in the baseline. The question is markets I think have priced in more than the FED seas right now.

Former FED Vice Chair Richard claire To says he can see inflation falling below three percent next year.

Well, Nathan, as inflation and rates remain front and center. US China relations are also and focused. This morning, Treasury Secretary Janet Yellen says she hopes her upcoming trip to China will lead to better ties between the world's two largest economies.

We really welcome and want to have a healthy economic relationship, and we think it's generally beneficial. We have disagreements. My hope in traveling to China is to re establish contact. They're a new group of leaders. We need to get to know one another.

And Secretary Yellen made the comments in an interview with MSNBC.

President Biden is staying laser focused on the economy care and it has emerged as a major theme in the president's reelection campaign. In Chicago yesterday, the President said Bidenomics is working man. The trickle down approach from Republicans has failed the middle class.

Under trickle down economics, it didn't matter whether you made things as long as you help the company's bottom line. Eight of that meant seeing jobs and industries go overseas for cheaper labor, supply chains and key products moved overseas like China and much of Asia.

And then President Biden says the billions spent under the chips in science and inflation reduction acts will grow the middle class and promote competition to cut costs.

Meantime, Nathan, we're learning more about the sleeping habits of the President. It's been disclosed that mister Biden now uses a seapat machine at night. Bloombergs Amy Morris has more from Washington.

President Biden first disclosed his sleep apnea during the campaign in two thousand and eight. It's a common condition in which your airway becomes obstructed while you were asleep, and that can restrict airflow. The President's medical report also shows he's dealt with restricted airways for most of his life. He has asthma and carries an inhaler so the White House says the apnea isn't new, but the use of the machine is. The CPAP machine helps improve sleep quality

Thank you, Amy. Turning back to market shares of Micron Technology. You're up three and a half percent in early training after an upbeat forecast from the chip maker. We get more from Bloomberg's Charlie Pellett.

Micron is the largest American chip maker, and the quarter indicates that an industry glut is easing, even as the chip maker continues to face challenges in China. Like many of its peers, Micron Who's suffered a collapse in orders for its products after sluggish demand for smartphones and personal computers led to a build up of inventory in New York. Charlie Pellett Bloomberg Daybreak.

Ll right, Charlie, thank you.

Well.

Elsewhere on Wall Street, we're learning Fidelity Investments plans to convert six more of its mutual funds into exchange traded funds. According to a cord filing, the Acid manager will turn these six actively managed mutual funds into ETFs in November. Those Fidelity funds collectively manage assets worth roughly thirteen billion dollars.

Time now to take a look at some of the other stories making news in New York and around the world, with Bloomberg's Michael bar Good morning, Michael.

Good morning Nathan. In air quality emergency from the Canadian wildfires is growing in the US. At least twenty states and several major cities from Chicago to Detroit to Pittsburg are affected. New York City will see SMAG today emergency room physician doctor dry and Sutton.

The chemicals inside that bloom are what danger is. And I'm talking not just about the soot that you might see on the ground. I'm talking about microscopic chemicals, things like nitrogen dioxide, sulfur dioxide, carbon monoxide.

Doctor Sutton spoke to ABE ahead of Fourth of July travel this weekend. Airlines are playing catch up after widespread flight delays blamed on weather and staffing issues. Passengers in the New York area have been frustrated, as well as these passengers in San Francisco.

I've got my wife who hasn't slept in like thirty six hours. I've got two kids. They are just absolutely.

Spend Experts say the FAA needs more air traffic controllers. The investigation into the implosion of the Titan submersible is expected focus in part on the carbon composite construction. Bloomberg's Dan Schwartzmann reports recovery efforts continue for the wreckage of the sub.

Nearly one week after the conclusion of the search for the Titan submersible, vehicle to brief from the craft was hauled back to shore near Newfoundland in Canada. Five people were killed after the Titan suffered a catastrophic implosion. As a descendant on the wreckage of the Titanic, the pieces of the craft are covered include some of the hull as well as a circular portal window. Human remains have also been found, with official saying medical professionals will study

New details about the Wagner rebellion in Russia. According to ABC AS, senior US official says that the leader of the Mercenary group of Guinea progosion contacted top Russian leaders in Moscow before the mutiny, possibly to seek their help in the uprising. Kremlin officials call that gossip. Madonna spent several days in the ICU because of a bacterial infection that has postponed her twenty twenty three celebration tour that was supposed to start July fifteenth in Vancouver. Her manager

Okay, Michael, thanks time now for the Bloomberg Sports update. After a perfect night, here's John Stashower. Yeah right, Nathan Domno Herman.

He's at his ups and downs as a Yankee, really more down than up since he was an eighteen game winner back in twenty nineteen. Injuries at a long suspension for domestic violence, a recent suspension for using an illegal substance on.

His pitching hand.

Herman took the mound in Oakland, having allowed fifteen earned runs in his last two stars, to before a crowd of only twelve thousand. Perfection twenty seven Up twenty seven down. The Yankees meet the A's eleven to nothing, with Herman throwing the twenty fourth perfect game in MLB history. The fourth player Yankee. Herman joins David Wells, David Conan, Don Larsen. His of course, came in the nineteen fifty six World Series. He struck out nine got helping the fifth inning on

I'm a patient guy.

Okay.

Now everybody wants and you know, a headline everybody says, fire this person, fire that person. But I don't see that as a way to operate. If you want to track good people to this organization, the worst thing you can do is being pulsel.

Cohen said he wants to hire a president of Baseball Operations to oversee GM Billy Eppler, but he hasn't found the right person. They held the NHL Draft in Nashville, first pick to Chicago, taking seventeen year old phenom Connor Madready scores seventy one goals and fifty one games in the Western Hockey League. Rangers in the first round drafted Gabrielle Perrot. His father had a long NHL career. The Devils, who acquired Timo Meyer from San Jose have given him an eight year extension.

John Stashewer Bloomberg.

Sports from coast to coast, from New York to San Francisco, Boston to Washington, d C. Nationwide on Syrias exam the Bloomberg Business Appen Bloomberg dot Com.

This is Bloomberg Daybreak. Good morning. I'm Nathan Hager. Could J. Powell really ratchet down rates? It's possible, depending on where inflation goes over the next several months. In a conversation with Bloomberg's Matt Miller and Katie Greifeld, PIMCO Global Economic advisor and former FED Vice chair Richard Clarita used those exact words ratchet down to describe the Fed's rate hike path. He also offered his outlook for recession in the US. Let's listen into that conversation now.

I think at the last press conference man he indicated it maybe several years before they project inflation getting down all the way to two percent. But the SEP projections themselves actually do have rate cuts in for next year. The feds rationale is that if they succeed and inflation starts to fall, they can cut rates basically to keep real rates unchanged. And so I do think their baseline probably does have some cuts, does have cuts for next year,

Looking through the headlines of what we heard this call my eye sort of on this topic that policies us getting two percent core inflation by twenty twenty five. And to your point that if you look at the dot plot, you actually see some cuts penciled in next year. Is there a situation where okay, we're not at two percent yet, but the Fed see something and is willing to cut even though we're not back to target.

Oh yes, In fact, that's that's really our baseline view at PEMCO. It's what we sometimes call the two points something a destination, that is, we could see them under their outlook, we could see inflation next year falling below three.

On June fifteenth, after the FED meeting on Bloomberg Television, I believe it was you made the point that I really think that for the first time in a long time that the FED is data dependent. Does that imply that up until this point, perhaps they hadn't been. What has changed that now they are definitely data dependent?

Well quite frankly, the FED really risk falling behind the curve last year. You know, they only began to hike rates at the March of twenty twenty two meeting, and then under Jay's Palace leadership, and I think he showed excellent leadership. He unified the committee to a very very aggressive steep lift off path. And I actually thought really for most of last year the focus was on getting rates into restrictive territory, and they were going to do

Obviously, there's going to be a recesion at some point. The question is when. On the one hand, we're seeing strong economic surprises to the upside. If you look at the Bloomberg Economic Surprise Indicator, it's really spiked over the past few weeks. And on the other hand, we're seeing things like delinquencies on car loans starting to ratchet higher, right savings and a bank balances starting to come down. What's your take on a recession and when we're going to get it?

I think you phrased the question well, Matt, there will at some point be a recession we've not banished the business cycle. Economists are not good on a lot of things, and one of things we're not good at is is forecasting recessions. If we do get a recession, say later this year or early next year, it'll probably be one of the most anticipated or forecasted recessions in my professional career. Our baseline view is, you know, monetary policy does operate

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I'm Nathan Hager and.

I'm Karen Moscow. Join us again tomorrow morning for all the news you need to start your day right here on Bloomberg Daybreak