Biden Selects Powell To Lead Federal Reserve Again

And I guess, uh, we're talking about consistency here, and that's kind of what the market likes. With the SMP up nine tenths of one percent this morning. Let's get some color behind the decision. We can do that with Craig Tours, Federal Reserve, an economy reporter for Bloomberg News. So, Craig again, I guess this. The message here today is consistency. Yeah. Yeah. And the so elevation of Governor brainer to vice chair is interesting in that gives her a little bit more

agency over monetary policy. I think, um, I can go into that if you want, yeah, please, okay, So, chairs Taylor have to kind of be in the center. Right, They can't be like on one side of their committee or on the other. They have to find the consensus. And right now you to both know the consensus is

shifting towards tighter policy. So where I think Governor Brainard comes in as a voice that doesn't have to be in the center, but kind of can kind of push hard on the flank, um, and maybe push the consensus one direction or another. UM. I want to as suspect that she'd opposed the chair, but she she can exercise a lot of weight here. That That's how I view it. Craig, what do you think? I guess you know, Taylor and

I were just talking earlier. This just feels like a decision that could have been made days ago, weeks ago, and agree to the timing here. I don't have a lot of thoughts the timing, and as you know, there are more vacancies. UM. It does seem that the delay gave rise to a lot of, um, frankly distasteful personal digging at both these people. So I don't know why it took so long. People say democrats are a complex lot now, UM, so maybe there was some work to do.

I just don't know. On that note, Craig, it's not just sort of the two headliners that we got today, but a vacancy for Vice Chair of Supervision to other vacancies as well. Are we going to hear more about those in early December? And you know who do we think could be in the front running for those? I mean clearly, Um, the White House will want diverse voices at the FED. Of course that's important. Um uh So I would expect them to go in that direction on

the two governors seats and on the Vice Chair of Supervision. Wow, that requires a lot of expertise. It's highly complicated. Um. Obviously Democrats like Elizabeth Warren want to see a new direction after Randy Quarrels. I really don't have any idea who they're going to pick for that, but it probably won't be as complicated as as controversial um as their pick for o CC So, Craig, we're gonna hear um from the President um and the FED Chairman Palellan uh

and Governor brainer. Did I guess one Wall Street time here, what do you expect to hear from the President as it relates to these selections. You know, I think what he said a lot is um. He's emphasized independence, and so now we have a Republican. His chair at Democrat is vice chair. I think he'll strike that note, but I think he'll also strike, uh, Paul, the note of inflation is high and he expects that independence to lean against us. If you look at pulling on biden Um,

inflation is really hurting them. So I think those are the two things he'll bring up. And Craig talked to us more about that because we're Some have said this is one of the more difficult times that we faced in Federal Reserve history, given inflation is taking up, and yet there has been an increased emphasis on meeting maximum in full employment, and the measures of that full employment are looking a little bit differently than they did before.

How are you thinking about a balancing act of tackling inflation but maximizing full employment. So good observation. Taylor and I had a story on this on the Terminal and on our website yesterday. So this is a challenge, right

they made. They went around the country in and with this trumping that maximum employment is a broad Bay East an inclusive mandate which is aimed at correcting their past mistakes of tightening before, things like minority unemployment rates had moved down substantially, before female labor force participation have moved up substantially. So what are they going to do here? How are they going to keep that pledge but go on the fight against inflation? I think one answer is gradualism.

This is a highly credible central bank. They don't have to use a lot of power to get um inflation expectations nailed down. But you pointed directly at the challenge their Taylor, just like third thirty seconds. Do you think this White House is adequately you know, touting the success they're having with the economy coming out of this pandemic or it just seems like maybe the inflation narrative is

overtaking it. It does as I said, It does seem to be overtaking the public sentiment for sure, and that's showing up in lots of places. As you both know, Uh, inflation, it's probably in your food basket when you go to the grocery store and other costs. You have. Americans really of all levels, Okay, Americans of all income levels really don't like inflation. Greig Tours, thanks so much for joining us Craig is the Federal Reserve, an economy reporter for

Bloomberg News. I want to bring in Brian ben Diggi's president of m JP Wealth Advisors. Bryant thinks so much for joining us here. I don't know. I'm looking at my screen here. I see a lot of green here. So the market likes I guess some continuity at this Federal Reserve. What do you make of the announcements this morning? But Fed Chairman J. Pale, good morning Taylor. Yeah, I

completely agree. Uh, you know, less than certainty regarding UM leadership at the FED obviously reduces some concerns and policy direction moving forward. I mean, Chairman has done a great job in trying to be as transparent as a communicator in light of all the conflicting variables. I think, um, you know, the focus is going to be moving forward. Are we going to stay at this pace of bond tapering or will that be accelerated as as we as

we look at economic numbers moving forward? And obviously some commentary coming out of the St. Louis Fed, um, you know, which isn't encouraging the f o MC to continue to look at that policy. But I think at the end of the day. UM, you know, less change is good, especially when considering UM, some of the news out of Europe and in the oral markets, and and obviously inflation

and interest rate. We have a full full plate here, so one less item on on on on the on the list is better for I think decision mature is moving forward. You talk about the news out of Europe. Of course we can talk about COVID cases. We can also talk about the Buddhist being talking about six percent

inflation and this is a global inflationary story. How are you thinking about markets next year as you have a FED that's trying to confront inflation and maybe walk back comments that it's uh less transitory than they thought, but also trying to tackle full employment mandate and the changes

and what full employment really means. Great question. I think we need to think about inflation actually into three parts, uh and I'll take the easiest part, which is that the FED does have a dual mandate, So until we reach uh full unemployment, I think the FED is going to be very cautious about raising short term interest rates.

And based on our analysis, m full employment UM is getting to an unemployment rate probably around three point eight percent when taking into account the number of folks that have retired early or have chosen not to re engage

on a on a full time basis. And the economy now the other two parts of the inflation store, I think is breaking down the components of cp I. If we take a look at food, energy, auto sales, and some of these items that are really impacted by the supply chain and efficiencies, we think that those core components of inflation should come down as we move into Q three in the beginning of Q four second half of

next year. I think the twelve six curveball or the point of uncertainty is really around wages and wage labor as being a critical driver of inflation year over year. And I think as we look at the level of engagement in the workforce, we look at the productivity numbers moving forward, how technology is impacting employer's decisions as well as, to be fair, the cultural shift that's going on, I think domestically between people evaluating do they work to live

or live to work? Um if that's going to keep a watchful eye on that. And I think that as time goes on, with science, you know, trying to help us lead out of this pandemic can We're optimistic that next year will be in an epidemic UM. That should help. The labor marks has been cool some of the wage labor inflation concerns, but that is definitely something I don't think anyone can prognosticate with accuracy as of this point

in time. Hey, Brian, you know, looking at the SMP, boy, what a year investors have had up twenty year to date. When you talk to your clients about how do you start the conversation? Absolutely, I think moving forward the point is to break it down into a couple of quadrants.

I mean, the first is looking at things from a fundamental economic perspective, which obviously is driving valuations UH, and looking at corporate earnings and the pessimism that I've gone into corporate earnings, and and the fact that you know, over the last success of quarters we were beating those expectations and earnings growth for next year is still robust.

We're thinking about a four percent global GDP growth perspective, supply chains UH, inventory levels UH being healed, demand for goods and services exceeding supplies, so we're still um optimistic about the market continuing to grind higher over the course of the next twelve thirteen months. But at the same point in time, we have to be cognizant of those risks, and those risks are policy decisions coming out of Washington and the Fed. It's obviously the confluence of variables around

interest rates and inflation. So it doesn't mean we're risk gone. We definitely need to find areas to allocate capital um that that can that can think about portfolio management and asset allocation, but doing it a little bit different. And that's why I think, you know, looking at you know, assets like real estate for example, might be a better hedge, let's say, than you know, trying to stick to the traditional sixty forty portfolio with with bonds being being the

other side of that allocation. Brian, thanks so much for joining us. Really appreciate getting your thoughts here on this market. Brian Vendigi's president of m JP Wealth Advisors, Paul, we know, of course, the big news of the day has been some of the consistency the clarity coming out of the White House when it comes to the Federal Reserve. J Powell of course getting the renomination for the head of the Federal Reserve and Leal Brainerd of course the nominee

now for Vice chair. Of all of that, we talked about some of the headline news, but really, Paul, what stands out to me is some of the headline news that we've gotten out of the rate markets. You have

two year yields now climbing about six basis points. Let's do all of this with the Lnend Managing director and head of US rates strategy for BEMO Capital Markets, where he helps run the fixed income strategy team, and Ian maybe talk to us about some of the jerk reactions that we see within the rate market up six basis

points across the curve. What does that tell you? Well, I think that the biggest take away from today's events was that Biden has effectively doubled down on Powell, saying that this is the person that we think should be leading the tightening campaign the end of KIWI in the first series of rate hikes. And what we're seeing in the market is that any risk that we would have a more decidedly dovish chair has been limitated until we're

pricing in rate hikes. We see that in the two year sector, the three year sector, and the five year sector. And what I'm watching is the continued flattening of the five thirties curve that we expect will actually be very thematic in two thousand and twenty two and be somewhat at odds with what one would typically expect for this point in the cycle. So in Taylor had to, you know,

correct me earlier this morning. She's so discussed about my lack of knowledge of the yield curve because I said, Hey, I look at the tenure and I see it at one point six percent. It's kind of been around there for a long time. What's the big deal? And she says, no, you're looking at the wrong part of the curve. Look at the short end, where you know, the two years gone from you know, a little more than twenty basis points up to where we are today at uh, you know,

close to fifty six basis points. What does that tell you? Why should I be looking at the short end of

the curve? Well, what it tells us at a minimum is that borrowing costs are going to be increasing for a lot of the corporate sector and for a lot of the economy because most rates, with the exception of mortgages and longer dated paper, tend to be focused on the two and five year sector as key benchmarks, and that's why the FEDS tightening campaign, a potential tightening campaign, is going to have so many ramifications for the outlook on inflation as well as a potential for slowing growth

in a recovery that quite frankly has been going pretty strong thus far. But two thousand and twenty two and twenty three are are key periods of uncertainty for that. What about borrowing costs for the Treasury? Your notes? Looking

at two's and fives today, what do you expect? I do think that the Treasury Department has done a good job historically in terms of turning out their debt, so rising rate environment won't be too dramatic for the budget in terms of federal borrowing in the very near term. The two and five year auctions today, given the holiday shortened week and some of the price action that we have seen, will represent an important litmus tests for investor demand.

But all else being equal, the backup and rates I think are going to provide an attractive buying opportunity for investors in the front GEAM today, Ian, how do you think the Fed will move here? Um? You know, assuming they finish their you know, repurchases, the kind of kind of winds down mid next year. How do you think they're going to be in terms of raising rates in because there's some folks out there, like pre Amira of TV Security suggesting a gonna do anything three. What do

you think? Well, I think they will have a lot of information over the course of the next two weeks running up to the December f fm C meeting, and if they're actively discussing accelerating the tapering process when they meet in December, that suggests that they could be done with kilee, not in the middle of but earlier let's call it the INDO the first quarter, and then that opens up the possibility for two rate hikes or potentially

more if the situation dictates it. What I worry about is that Powell has come out and he had has said that the set is expecting inflation to moderate in Q two and Q three. So that's effectively the chair doubling down on the transitory narrative and saying we're going to continue to assume that this is temporary, temporary influence on inflation until at least the middle of next year. So while we might see an argument to be made

to two QUEI more quickly. At the end of the day, we suspect that the FED will be content to deliver one rate hike in two. Is that then, the why behind the flattening of the yield curve that you started this conversation with and you said it was traditionally not

what you would expect in this part of the economic cycle. Well, I think one of the key reasons that we're seeing the curve flatten is that there's already so much inflation in the system, and the FED is has proven that they're going to be reactive, perhaps not proactive, but trying to make sure that inflation doesn't get out of control.

And so in that in that environment, we would typically expect it to the curve to flatten, but we wouldn't expect it to flatten with outright yields flat to lower. And I think that that's the real interesting part of what we're seeing play out in the market right now, is that there's inflation that the market believes the FED

can counteract. But the global growth story has campt rates contained overall, and when we think about it, each individual economy up coming out of the pandemic in a different setting, and I think that's what has contributed to that. Very good. All right, and thank you so much for joining us. Really appreciate it. In LinkedIn Managing director and head of US Rates Strategies at BMO Capital Markets for home Strategy team. That's Bank of Montreal for the folks that go back

a little bit. All right, let's talk tech with Dan. I'ves he's a managing director senior equity analyst at Wedbush Securities. There's a million ways we can go with Dan, but I want to start in honor of Matt Miller with Tesla and the EV market. Um. Dan, you've been so out in front on this story, and you've been so kind to share your thoughts with us here Bloomberg Radio and TV over the years about your bullishness about this

story and this market. Here as you think about two, how do you think the EV market from a competitive stamp point is going to evolve? And then how does

Tesla fit into that? Yeah? I think it's it's great framing into two thousand twenty two because I think this is where we see the next level of adoption for ev s. I think you're going to see your rereading on the likes of a GM and a Ford because of what we see on evs is those comings have success and more and more the street used them as disruptive technology plays, and you lose it in others that are going to benefit because we're not five trillions of

dollars over the next decade. But but ultimately the name that's going to continue disproportionately benefit is Tesla. And that's why this is a stock despite the musk circus, Twitter poll. I think now this is this doctor's on its way. Four are base case eighteen hundred bookcase talk to us about some of the bold cases that you see more generally, Dan when you think about next year. It was so interesting.

Paul and I were earlier speaking about a big call out of b of A saying that tech is and you know, one of the biggest bubbles that they've seen going back since nineteen nine. But you have a federal reserve that's holding rates still relatively low. How are you thinking about tech and tech bubbles into next year? Yeah?

I mean, and I covered tech during the bubble and during the burst, and when I compare thement, it's an apple's oranges because the fundamental growth stories are happening, and it's a fourth Industrial revolution that's happening across clouds, tiever security, five G as well as disruptive tech with e VS front and center. So I view it totally different in

terms of the fundamental stories that are happening now. Some could, you know, web wards about valuation, but we're talking about growth over the next three, five, seven years, and there's a scarcity of growth stories. Many of them are in tech. That's why we view Nastac nineteen thousands for two thousand and twenty two. And you know, many investors that have stayed focus on the right lane on so many of

these valuation calls. You missed Amazon, you missed net Licks, you missed Tesla, and I think you know the worries you're gonna miss so many these others that are really part of this Fourth Industrial Revolution. Dan, how do you think I'd love to get the Dan eyes of you on the metaverse? To you? What is that? And is it something you want to pay attention to? Yeah, I mean to me, it's serious. Dours that's going after we'll call them is an Internet three dota or four dota.

And I think it's important because it's not just Facebook in terms of metaverse, because when you look at Apple and I believe Apple Glass comes out next summer, the a r VR headset, that's just the start of really what's gonna be in arms where it's going after metabus between big tech and as well as pure plays on gaming, as well as other errors its names like Mattaport and others that play into the scheme. And I think it's one where today you don't necessarily the revenue, but going forward,

this is not a hype theme. I mean it's real dours being spent, and I ultimately think it's really Cupertino that's going to lead the metaverse. I think facebooks on the outside looking in when it comes to this, they're gonna have to spend significant dours to catch up. But is there any regulatory risk? We have an administration that is very against and verbally has come out against big tech about big conglomerates. What's the regulatory risk for you

next year? There is regulatory risk, and I think we've seen that in terms of what coming out of the belt Way as well as Brussels. But our view is that is likely finds and importantly, the lack of consensus within the Beltway is ultimately perceived bullish for tech because the lack of consensus shows it's gonna be hard to have legally change antitrust laws. And that's why right now it's been at risk, but it's viewed as a contain

risk in the eyes of investors. I'd also say you look at a company like Microsoft, which has already been through the antect ust issues late nineties two thousands, they're much more in position or strength to do acquisitions. First. I think a lot of the traditional big tech which you're going to be constrained, especially with that you're shining light from the tour or two eight Dan, twenty seconds. What's your top pick for continues to be Apple? Um? You know, I mean Apple to me is a three

trillion dollar mark up going to next year. I think it's a massive cycle that's going on iPhone and services as a rerating, and this is one I think we're going to conceive it move the high or despite Chip shorte that's the other. I just want to say, Chip shorts Transtor and I view as just the reason to own more and more Apple. All right, Dan, thanks so much for joining us. As always appreciate getting your broad view of the tech sector. Dan ives He's a managing

director and senior equity analysts at web Bush Securities. He's also proud alumnus of the Penn State University, where I wrote many many tuition checks over the years. But Dan has been consistently bullish on technology, consistently bullosh on the ev market, and boy has he been right, and we appreciate him taking some time now. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer.

I'm Matt Miller. I'm on Twitter at Matt Miller, three pt on Fall Sweeney I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio.