Bloomberg's Riccadonna and Dean on Yellen and Dodd-Frank

whether at the grocery store or the trading floor. Find the Bloomberg P and L Podcast on iTunes, SoundCloud and at Bloomberg dot com. I would like to get a better sense of what caused the bond market to make such a significant move yesterday following Jenny Ellen's testimony in front of the Senate UH Committee. I want to bring in Carl Rickadonna, chief US economist for Bloomberg Intelligence. Carl, I noticed that the probability of a March rate hike rose to from just two days ago. What do you

think drove this move? This is a double whammy UH due to her remarks yesterday which really focused on the dangers of waiting too long, which is something we had actually heard from her on several prior occasions. So you know, was this an unjustified moved I to me, it looked overstated yesterday and you saw about a five basis point move in the tenure and then it kind of faded later in the day. Then this morning, this is the other part of the double whammy. You get this barrage

of strong economic data. The New York Empire Survey was very strong, Retail sales were very strong. Cp I surprised the the upside. And so this all just seems to fall on. When it rains, it pours, right, Uh. And so this just falls onto the notion that the Fed is going to be forced to, uh you know what, maybe adhere to a tighter tightening schedule. Uh. Then uh, maybe they had preferred just a few weeks so or a month or so ago. I like that whammy. Can

I add another whammy? All right? What are they going to do in March? They're gonna raise rates. I don't think they're going to move in March. I know the odds are increasing. We take no for an answer, all right, So move ahead? Sure, how many rate heights for the rest of the year. I still think it's going to be too now. It is subject to the data, and

Cherry Yellen has made that abundantly clear. And if we really see a new normal for the economy which is vigor as opposed to sluggishness, then they could they could possibly, uh stick to that schedule of three. But I really think that that we have persistent sluggishness endemic in the U. S economy and that's going to limit them to two. I got it. So you think that you're gonna have

two interest rate increases this year? Yes, if the composition of the border governors of the Federal Reserve changes dramatically and or we get a signal between now and let's say that second rate increase that you're describing, If we get a signal that Janet Yellen is not going to be around in two thousand eighteen on as chair of the Federal Reserve, what happens anything, Well, we are economists and Fed watchers will have to re evaluate the FED

reaction function based on who's at the Fed. And if it's uh someone who is looking like the next chair is going to be someone more hawkish, then you have to reprice FED action as a result. Right, you know, it's interesting. Uh, your question, Pim really highlights one of the big tensions that Janet Allen is going to be facing today in her testimony as she did yesterday, which is the Fed's role in regulatory supervision of the banks.

And I want to bring in UH Dean and Nathan Dean, who's the government analyst for Bloomberg Intelligence, to give us a little bit more of a sense of first of all, what the significance is of Dan Trullo stepping down as a federalsor of governor in the upcoming months. Uh and and and two you know where we are with respect to the Dodd Frank overhaul and what the implications there

could be. So the the earth of nation of Daniel Trula really takes away the point man on the subtle reserve capital requirements, the negotiations with Bossel and the International UH Capital Requirements Framework. And what it does is that it pushes him aside. It allows Donald Prompt to bring in this new vice Vice Chair of Supervision and Regulation, and it really negates any future rulemakings that we're going

to see from the Fed. UH. You know, there was a lot of talk about, you know, will the Governor Trulo continue to negotiate, continue to sign up for more capital rules. Uh. And this really negates that. You know. It's interesting. Trula is on Bloomberg Television earlier today. Uh, and he highlighted, in response to a question of a from Bloomberg Televisions David Weston, that perhaps the net was cast too large originally with the Dodd Frank Act. Take

a listen to what he had to say. The post U crisis regime, both supervisory and regulatory, that's been put in place in many instances cast the net perhaps too broadly or deeply. I've been particularly concerned with the impact on community banks. You know that the risk based capital rules had to be changed to take into account what the media that the big regionals and the largest banks were doing, But in the process, those same rules applied

to community banks. Uh. Nathan, do you think that it's significant that Dan Trullo himself sees places where Dodd Frank could be potentially curtailed. Absolutely. And I think the debate that we're going to see over the next year is what's the scope of the curtailing or the weakening of these provisions. You know, the Photo Reserve has already taken steps to weaken the qualitative c CAR for banks between

fifty and two and fifty billion. Bloomberg News obtained a memo about the next version of the Choice Act trying to do away with that qualitative c CAR. So I think what we're going to have to expect from the

set over the next year. Maybe Jennet Allen will tell us a little bit more in this cestimony this morning, is what are her plans for the next year are she Is she going to be open to working with Republicans to scaling back down regulations for those fifty billion dollar size and banks, or is she essentially going to say that, you know what, I think what we have is appropriate right now and it will be up to the next said share in the next you know, Donald

Trump's appointees to take that further. Carvera Donna, I want to put to you a scenario in which we have anti regulation at the FED. We have the promulgation of the administration's view that regulations ought to be diminished. So you have that, plus you have a relatively easy money policy. Because let's speculate that there are business leaders who will be taking some of those positions on the FED Board of governors and they're gonna want easy money. Do you

see that that is a possibility. I definitely think that the you know, the regulatory wave ebbs and uh and Wayne's over the course of the uh uh you know, the aftermastatic. So I know it has been on on the rise, and I think that we could see it retreat for a bit for the reasons you mentioned, Nathan, you agree, do and I think what's going to happen here is it's really going to be which bank is going to see the most regulatory relief. You know, there's

this huge debate in Washington. Is it the small banks? Is it the big banks? You know, we just heard that comment about community sized banks. So I think the debate is going to be can the big banks essentially attached themselves to this wave of deregulation that right now is favoring the smaller ones. P and L is brought to you by proper Cloth, the leader in men's custom shirts. At proper cloth dot com. Ordering custom shirts has never

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and have an oatmeal? Yeah? Yeah, and that's what That's what they've been bolstered by. UM. But when I look at their earnings, on the face of it, it seems like, you know, they are benefiting from the fact that its revenue it's coming from these guilt free products. I want to be that in air quote. Yes I did put that in air. I mean, come on, and nothing's guilt free. You can always put guilter at anything. Can say food, beverage and tobacco analysts for Bloomberg Intelligence, I want to

get your thoughts on Pepsi's results. High Lisa Sure, PepsiCo reported today another sound quarter. Um. You know, PepsiCo among the food beversbacal companies that I cover, seems to be the one that seems to be the most predictable, the steady grower, and this is just another quarter in that mix.

UM down well, maybe a lot of those anticipated perhaps, um From a fundamental point of view, it's biggest drivers in North America are free to lay quaker that the beverage business collectively put up good numbers, you know, high single digit sales, high signle digit operating profits. It's really the non North America operations. They're having some currency issues outside you know, the US North America. But overall, you know, if you're a fundamental owner of PepsiCo, I think you

had to be pleased with today's numbers. Hey, can can I just ask you to give us a view of the industry right now? I mean, we got the results from Dr Pepper Snapple this week. I want to know what's going on with Most and Corps Brewing in the wake of that whole beer market shake up and then Constellation brands with the Mexico can business. Sure, well, it's a lot in there to unpack their pim. But do

my best. You know, the beverage business is a steady grower, and you know, like I think, across all beverages, it's the alcohol beverages that are probably doing the best. It's still the craft distill business. The craft beers are still doing pretty well, they're getting a little more competitive. It's the non alcoholic side that, excuse me, growing a little more slowly. Some of the turmoil that the companies are siting here is some of the uncertainties in Latin America.

You know's just talk about a border tax. A lot of these companies source goods from Mexico. Um. Well, Constellation is Corona beer right in the United States. That's right. It's a big drive out of Constellation brands sales and profits. So if there's a tax imposed there, you know, that could be uh, you know, an issue for them. They have some strategies to mitigate that way they source goods and so on. Um. But nevertheless, you know, you can't scape a you know, attacks if there's one imposed on

a big piece of business. Um. But you know what about most and cores go there ken most of corps are still digesting, uh you know the full steak in the essay b. Miller Um business that they got as part of the inhazard bush Um deal with any relinquished their partnership steak. Those beers put up by most and corps tend to be slow growing because of the so called popular beers, not so much the Craft beers um that are really where the action is in the US.

You know, you're talking about Middle Light and Coors Light and so they have leading shares, but they're just not growing as quickly. I think a lot of the millennials are moving to more um you know, exotic tasting richard flavored beers. Well, I'm wondering if they're going to move toward more exotic tasting mac and cheese. Kraft Hynes is going to be reporting today after the bell shares are up more than in the past twelve months. What do you look expecting real quick out of the earnings today.

I think everyone's gonna be looking at the margins. You know, Craft is all about margin enhancement right now. They're on a tremendous sweeping cost cutting program. Uh, they're close to meeting their two year target of cost cutting. We expect at some point second quarter, maybe second half of this year for them to start looking to the top line, whether that's acquisitions, whether that's new products. But this this quarter is all about cost cutting and how much more

they can boost operating margins. All right, well, we're gonna be looking for that. Look for the earnings. The estimate is for earnings of eighty seven cents. We'll be bringing that to you, of course, as soon as it is released for craft Hines. Thanks very much for joining us. Kenna sha is food beverage tobacco analysts for Bloomberg Intelligence. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud,

or whatever podcast platform you prefer. I'm pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio. P and L is brought to you by proper Cloth, a leader in men's custom shirts with proprietary, smart sized technology and top rated customer service. Ordering a custom shirt has never been easier. Visit proper cloth dot com to order your first custom shirt today