Room were taking stock the Fed in Focus. There's certainly a lot of discussion about whether or not the FED is going to try to hike rate again this year. We think the Fed by December will be ready to do another hike. That sounds like a big difference from the markets, but it's not that big a difference. I think at this point the Fed is going to remain on the sideline through and most likely the better part of because they have a huge communication problem with the
public about what's driving their policy decisions. They basically have no strategy. The Fed in Focus on Bloomberg Radio. The Fed in Focus on Taking Stock is brought to you by a Commonwealth financial network. When it's time to change the conversation, talk with a broker dealer. Are I a that's ready to listen? Call A six six or six two three six three eight or visit Commonwealth dot com to learn more. And when we want to learn more about the Fed, where they are and where they are heading,
we often call on William Pool. Bill Pool is former feder Reserve, a Bank of St. Louis president and senior fellow at the Cato Institute and very busy traveling around the world to talk to people about so many things that have to do with the FED and the economy. Bill, welcome back to the show. Hey, Kathleen, how are you just great? You know um coincidentally to you coming on
the show today. Our our team of FED reporters from around the world, led by Craig Torres in Washington, did it a story with a triffic headline and a great of content. FED deluge of dots and discord leaves global markets baffled. Is this a fair charge? Uh? Probably? I think he also leaves the FED itself baffled. Why and in what way? Well, I think the f O m c IS is really sort of uh screwed up in
its communications approach. Uh. You may remember last year, at this time we got past the September meeting, there was all this speculation about liftoff, and the FED had promised lift off, seemed to promise lift off with the dot diagram in and eventually in December meeting last year they did it. Uh. It didn't make very much difference, and as one could reasonably expect basis points, there's not much
of a move. And I think it's true that the UH long bond long long bonds in the US are actually lower than they were a year ago, so it didn't lift off long treasuries. So now they're doing exactly
the same thing. It appears. If assuming that at the meeting, our September meeting next week, when I say our, there's UH that they passed again, which is the market betting, then they're going to come up to December, and depending on what they say in September, UH, if they leave some guidance in effect, that they're going to have another rate increase in six and then we'll play the game
all over again. Uh. So the problem is that this this whole communications strategy of the forward guidance is deeply, deeply flawed. It's not as if we haven't been here. When I was on the f O m C, we went around and about over exactly the same issue back in the early part I guess we would say the early part of the century. At that time, it had to do with the so called tilt language, or the bias of the bias language, or the balance of risks language.
And I eventually came to the view that this whole approach of trying to provide market guidance was ill advised and the reason is very simple that at the time that we've tried to provide any such advice, things change, and in that case, we will have been in a place where we've provided this advice. But then the world has changed, it didn't come out exactly the way we thought it was going to come out, and then the forward guidance doesn't look so sensible anymore. Never does work
out the way you think it's going to. There are always things that you don't understand, and one of the things I don't understand, Billpool, is that asset prices are high while consumer price the CPI, the Consumer Price index is not accelerating. What's up with that? Well, what's up with that is that the obviously the economies growth is low. G d P growth has been low. It's the weakest recovery um since World War Two. And I believe that the reason for that is that there have been uh
two major depressants, if you will. One is the budgetary uncertainty and the possibility of tax increases in the future, and that's really staring us in the face now with the demographics changes that we have known about for a long time UH coming. And then the other the the regulatory constraints on economic activity. We're going through this again
in the news. We've got this Dakota pipeline situation, and to me, it's just crazy because pipelines are clearly both more efficient, that is, lower costs and safer than transporting oil by rail or by truck, and it takes the pressure off the rail and the highway infrastructure. Uh, it's just nutty. It just doesn't make any sense. And yet that there's there's where we are. This Dakota pipeline is now tied up in the courts. Uh. We had another
situation that I've looked at rather closely. He's taking stock the FED in Focus on bloom Word Radio, The FED in Focus with William Pool. Bill Pool is senior fellow at the Cato Institute, former president of the St. Louis Federal Reserve. He joins us, Now, Bill Pool, I beg your pardon. You were concluding your thoughts and adding some more and just wanted to focus on asset prices, high
inflation constrained. Go ahead, tell us more. Okay, the the feed is always made clear, and it's especially clear when they started this to the statements of policy intentions, uh, strategy, where they had the inflation target. That there is UH no way that the FED can control real conditions, real economic conditions, such as the long run rate of unemployment. So the same thing is true of the rate of
productivity growth. Federal reserve has nothing to do with that, And the same thing is true of the real rate of interest. So it looks as though the FED has influenced over the rate of interest because it sets the federal funds rate, but that's only the short rate in the short run, and it is fundamentally constrained by the productivity of the economy. The demand, the underlying demand for
funds to finance investment. Investment has been slow to recover in this recovery period, and that's an essential feature of this recovery. So I think that the UH that the market analysts have generally underplayed the importance of various environmental especially constraints on expansion of infrastructure such as pipelines. And the reason that companies aren't building this stuff is that
they're not allowed to. It's just very simple. And so if you go to great lengths, as the Jordan's cove case for the Federal Regulator, the UH that case that came to ahead last March, the Energy Regulatory Commission denied permission to go ahead to build an export terminal and that was the end of it. So why should companies go to the expense of preparing an environmental impact statement when they're going to get chopped off by this vague
standard of public bill. Here's one thing, though, I don't understand. I know you could argue that the amount of regulation and the kind of constraints on various kinds of investments have increased over the years, but that's been in a place for a while. And what hasn't been in place for a while is this current zero interest rate policy and in fact, in some cases negative rates in other countries.
And we've seen this and very low bond yields, and I do I am curious what you would say in response to Jim Low, who's this It's just me Jim Tiss, who's the CEO of Lows, speaking to a Bloomberg event today. Uh. He says that this policy hasn't worked. Uh. He says the Fed has gotten itself into a hole of zero interest rates and they don't know how to get out, and in fact that the keeping the yield suppression is hurting investors, right, it's harder to get yield. How do
you respond to that? Is the Fed a fault there? And should they start raising rates as a result? The Federal Reserve cannot raise rates above what the market will support. The demand for funds around the world is weak because of the demand for investment, physical investment, which is financed through the bond markets. So the Federal Reserve can no more raise the rate of interest than the Department of Agriculture can simply double the price of wheat. It's just
that simple bill pool. If there is an inflation target of let's say this coming from a speech by San Francisco FED President John Williams earlier in the month, Uh, what would you think that would do to asset prices? Do you think that he doesn't care what it does two asset prices? And you think that he reflects the thinking of Janet Yellen share the feeder reserve? Well, I have no idea about Janet Yellen's views on that, although I think that she has reinforced the view that the
two percent target will be retained. What I find strange about the argument of changing the target to four percent is that the Fed can't even get up to two percent, and what instruments does it are available to even get the two percent? The Feed has been struggling to get even to two percent. So the argument that joined the four would be helpful is one that I just don't understand. If I'm going to raise the key rate this year, is it not gonna happen. I don't know what the
Fed is going to do. That's part of the problem. The Fed itself doesn't know what it's gonna do. Alright, Well, we're gonna leave it there. Bill Poll always always, i'd like to talk to you. Thank you so very much for joining us. Bill is former president of the Federals at Bank of St. Louis, so he's been there and done that. Though we've got a kind of a a brave new world of zero rates since Bill took over that office and then left. I'm Kathleen Hayes along with Pim Fox.
This is taking Stock. Got a lot more coming up on the show. Keep it right here. This is Bloomberg