CIBC's Tucci: Fed Raising Rates Is About Asset Prices (Audio)

two hundred twenty eight point nine million dollars. Also reporting moments ago, Autodesk second quarter net revenue coming in at five hundred fifty seven million. The estimate there was for five hundred twelve point three million. Stocks lower the DAL, the SMP, NESDAC all declining today SMP five hundred index down three to seventy two, a drop of one tenth of one percent. Naztack lower today by five points, down one tenth of one percent down, Industrials down thirty three,

a drop there of two tenths of one percent. The tenure down four thirty seconds, with the yield of one point five eight percent. Gold down three ninety ounce two drop of three tenths of one percent. Crude oil up one point one percent, picking up fifty four cents of barrel one on West Texas Interemedia Crude. I'm Charlie Pellette. That's a Bloomberg Business Flash. This is taking stock with Bim Box and Kathleen Hayes on Bloomberg Radio. If central banks want rates to rise, why do they keep buying

up all the debt? I mean, doesn't that just increase the price, driving yields even lower. Let's find out. Maybe Tom Tucci, head of US Treasury Trading at CIBC World Markets, has an answer. Tom Tucci, thanks for being with us. So can you explain that? Does that make any sense? Well, I think it's the magnitude of what you're talking about when you say the central banks are looking at the

raising interest rates. It's only here in the United States that they're talking about that, and they're not talking about that about raising them too dramatically. But having said that, I mean, if they want rates to actually increase, why don't they just sell some of the treasuries that are on the balance sheet of the US Federal Reserve because

that creates a complete dislocation of markets in general. The Bank of Japan has been buying assets for over two decades with none of those assets ever coming back into the market. It will happen the same way in the United States. These assets will never be sold back into the market, So the Federal Reserve will orchestrator maintain the structure of interest rates through the actual overnight rate itself.

All right, And of course we just spoke to Rob Kaplan here on taking stock here in Jackson Hall, Wyoming at the Big FED symposium today. Rob, of course President Dallas Fed and met it wasn't talking as much about bond buying. My uh, Tombody did say, basically, as Steve Matthews are Bloomberg News reporter here who helped cover the interview, negative rates in the US. Forget about it that Rob Kaplan says will distort the banking stem. It just wouldn't

work here. Does that give you any comfort that at least one beneficial saying even if we you know, even if we don't have room to cut rates in a recession, we're not going to go there, right I think happing the biggest thing that's happening right now is all the central banks realized that these negative interest rates that we're seeing out of the Bank of Japan and the CD they're not working. The question is what is their alternative,

And to date they don't have a solution. They don't have a transition mechanism or an alternative to move away from that. And they're concerned about moving away from that because what it will do to asset prices as a whole. So they walk this fine line. The interest rate policy, the monetary policy that they've established creates this kind of asset inflation that we've been experiencing now for years, and by pulling away they would deflate that. And so it's

a very fine line that they're walking. They've painted themselves in the picture. And I would imagine that the symposium that we're having here at Jackson Hole, we're going to talk about a lot of different al henatives. A lot of different ideas are going to be thrown on the table. Not that I think that they have one uh cemented, but I think a lot of people have to rethink

of policy, structure, economy outlooks, inflation outlooks. All these things have to change, and I think they're trying to adapt to that. Well, if all these things have to change, tom, I mean, isn't that going to create that very chaotic and dislocated situation that you just described a moment ago. I think it's how it's managed. If you think about it. From the first part of our conversation, you talked about raising interest rates. I don't think it's the FEDS intentions

the significantly raised interest rates. If you look at their forward forecasts, which haven't been very correct, but their outlook has been more consistent of late, they've reduced their expectations for where they think the neutral terminal FED funds rate is,

so that's pretty well established. I think everybody agrees that they don't expect rates to move up to what we've seen historically in the past, where rates have had to move significantly higher because we currently don't have an inflationary type environment. So when we talk about why are they raising rates, I personally don't think it has anything to do with anything other than asset prices. We don't have an inflationary picture. The economy as a whole, as far

as GDPs calculated, certainly isn't overheating. We do have a stronger employment picture. But if you listen to a lot of the FED members, including the Chairman themselves, they still think there's some slack there, and I do believe that the makeup of them of employment is different than what

it was even three or four years ago. So it's how they communicate the message about what it is that they're doing with interest rate policy and how they're going to restructure that in order for the market to understand, and we don't get that type of volatility or that asset selling that might happen if we were going into an extreme interest rate rising environment. Tom Today we had

Rob Kaplan say he's patient on raising rates. Oh, patient, patient, patients, Steve Matthews said, implicitly, he seems to be one who's not necessary pushing for September at all, right for the rate high we had Jacob Frankel, who is the former head of the Bank of Israel and he's the chairman of JP and work in Chase International. They've got a move, he said, and he thinks they're helping to distort investment decision.

It may not be the inflation problem, it's getting back to a more normal kind of financial markets in relationship with investing, which is so lacking in this country right now. What do you expect you from Janet Yellen tomorrow? That's the big speech tomorrow morning, right, and you know, I think that what's happening here is you have seen several of the FED members, particularly some of the ones that

you would consider in the inner circle. And what I mean by that as Fisher and Dudley have come across a little bit more hawkish in the last week, and I personally think it's a direct result of where the stock market has been asset prices in general. Bill Dudley even mentioned the fact that he was surprised at how low the yield was on the turn your note, So

I think it's in response to that. The problem the dislocation in the marketplaces right now are if you remember two years ago when the Feds are to their tapering and the potential for tightening, the markets swung and a complete uh parish direction, and that we were expecting significantly higher interest rates. Well we've spent two years trimming that down, even the Fed, as I said earlier, trimming down their

forecast where they think that neutral funds rate is. And what you have now is a situation where the Fed loss their credibility. They've talked tough many times and never followed through with any action. So I think Jenny Yellen is going to help smooth out that credibility tomorrow. God leave it there. With Tom Tucci from CNBC World Markets, I'm Kathleen Hayes along with Pim Fox. Day one of

our Jackson Hole coverage. This is Bloomberg coming up. Bloomberg Law is brought to you by cash pro, the cash management platform from Bank of America Merrilange. Cash Pro let you stay on top of your working capital in real time. It's totally pro business. That's the power of global connections.