Criticism From All Sides, As Fed Signals More Cuts

Bloomberg Economics, to stay with us. We are ten seconds away from when we expect to get j. Powell's speech, at least the release of the text that he is delivering to Jackson Hole uh and currently it is out. He is saying that the economy is in a favorable place, although it does face significant risks, so trying to thread that needle, highlighting the need for the Fed to be on high lord while also remaining confident in the US economy.

He said, we are carefully watching developments as we assess their implications for the u S outlook in the path of monetary policy. Interestingly, he said, well, monetary policy is a powerful tool that works to support consumer spending, business investment, in public confidence. It cannot provide a settled rule book for international trade. Matt Bosler is over in Jackson Hole joining US now. Matt Bosler covers the economy and the Matt Bosler is over in Jackson Hole, joining US now.

Matt Bosler covers the economy and the FED for US at Bloomberg News. So, Matt, what stood out to you most from the text of FED chair J Powell speech? Yes? So the really the main takeaway from j. Powell speech today and Jackson Hole, UM is he's talking about the outlook for policy over the next you know, a few weeks and months. And he says that the three weeks since our July MC meeting have been eventful, beginning with

the announcement of new tariffs on imports from China. He talks about the global slowdown in some of the negative data that we've gotten out of Germany and China lately. H plus geopolitical events like the rising risk of a are Brexit and tensions in Hong Kong, the dissolution of

the Italian government. So you put all these things together and I think it indicates that, um, you know, just since the July of form C meeting, UH, they have a lot of new things on their plate to consider, and probably all of those things, uh, you know, point toward further easing later this year. So, Matt, it's interesting the do you think the chairman pals he really has to throwd the needle here, doesn't he because he's got lots of cross currents ahead of them, as does the

FED Reserve overall. Yeah, that's exactly right. So I mean, of course, the flip side of this story, which Powell also refers to in his speeches, that you know, the U S data have been pretty strong and we haven't really seen much deterioration in the US economic data yet outside of UM you know, a few key admittedly sectors

like business investment and what's going on in manufacturing. But of course you have to balance that with UM, you know, the low unemployment rates, the strong labor market data, UM, and this conviction that inflation is still going to go back up to their two percent target and so UM. Certainly, all of the Fed speak and what we saw in the minutes on Wednesday indicated that this is still a very split committee on the need for easing at this point.

And so J. Powell's job is really to try to you know, convey the message while keeping the committee together.

So right now we are looking at bond yields heading lower does appear to be perceived as a dobish uh FED speech, And Dave Wilson Blobrick Socks editor here in our Bloomberg eleven three oh studios, let's just get a sense of the read through right now of market reaction, because this has been perceived again as J. Powell in some ways confirming the market view that even though things look pretty good, they are willing to act in face in the face of uncertainty, which if you think about it,

considering the China, you know, put up those seventy five billion dollars of retaliatory tarroriffts, that's exactly what you would want to hear. I mean, they start kicking in next week. You know, we'll see more of them out of December. So that's you know, a more direct sort of concern. And and you know, the Fed has a lot on its plate, so the idea that you know, they're going to move further if they need to sustain you know, the economic expansion, I mean, that's that's just really what

people would want to hear at this point. I mean I'm watching the auto stocks as an example, because they took a hit, uh, right after the China move, and you know, we're seeing those losses being trimmed. I mean, Ford in general motors down less than one percent at this point. So you know, I mean there's sort of a good uh, sort of the litmus test, you might say, if only because you know the automakers relatively sensitive to what's going on with interest rates, and that's where the

FED pops in. So Carl, Carl, Rico, Donna Bloomer Economic still with us. Carl, what are your thoughts were your initial kind of read through here? Well, I think Matt Bosler hit the nail on the head in terms of pulling out the key operative line of that speech. The three weeks since the last FO m C meeting have been eventful, uh. And that is a chair pal saying basically what we had placed into the profile on July

thirty one, that we can rip up that script. Uh. And we're now looking at a different course, which obviously is going to be a more devish course here. So the FED was looking at one or two cuts now I think this is a pal's way of signaling maybe a little bit more and just one final thought there. President Trump earlier this morning tweeted, now the Fed can show their stuff. Uh, this is not the type of speech that President Trump wanted, where he would presumably want

a much more aggressive FED. So this is this is devish, but not nearly as devish is what the President wants. So I will certainly be keeping an eye on the foot on his Twitter feed and potential dissatisfaction or maybe if it's not coming from the Fed, then he's going to get it on the tariff front exactly. Carlock Down, Bloomberg Economics, thanks so much for joining us for your thoughts. Right now, we want to turn to Kathleen Hayes. Kathleen's

a global policy and economics editor for Bloomberg News. Kathleen loved to get your initial thoughts here on the commentary from FED chairman Pale. They're still open to rate cuts. Uh, no clear sign that they're going to walk through all though. Jim Bullard prison St. Louis said said earlier today that he does see the need for more cuts, and I think that's a somewhat different tone than we heard from him just a couple of weeks ago. So clearly there

are some. In fact, I think he specifically mentioned the yold curve. Uh. And of course in UH, that's that key part of j. Pale's speech where he talked about the three weeks. That's one of the things he mentioned, of course, is markets and market volatility and and and and everyone knows third to your bond fell below two

percent for the first time ever. Right, it's back above. Nevertheless, I think it's also important that there's another line where he says, because he's talking about three phases of Monterrey policy. Phase one was several years of bringing inflation down. Phase two keeping rates very low, but then you had financial successes. Phase three, since the Great Recession, getting back on track,

trying to keep it going. But then at some point in this final section he throws in, I'll pair of but you know, now we're trying to visit policy in the middle of the trade war. You know, this really muddies the water so much it makes it much more difficult. He talks about having to look down the road. Here we are now, but we have to look over the next year. Seems to me that if I'm gonna say, gosh, you asked Kathleen one one way or the other. Do

you think he's four right cuts or not. I think he may be gently on the side of those, saying, you know, maybe one more isn't such a bad idea. You know what, man, I just wanna get a funal thought for you. We know you have to run. You've got a lot on your plate there. I'm curious about what your take is on how j Powell addressed trade.

This has been a key issue. He acknowledged this has been a key driver in this slowdown, but also said that monetary policy basically implying it's an imperfect tool to address it. So what's your take on that? Kathleen nailed it.

I mean, there's a big portion in Jay's speech where he talks about just the fact that, you know, the models that they've been using to make monetary policy for the last you know, thirty or forty years or so don't really have some variable for trade developments in them, right, So in that sense, this is just not something they're used to dealing with. Um. One interesting thing I also wanted to flag from the speech that kind of gets to this is Paul also talked about how, along with

July's rate cut, the shifts in the anticipated path of policy. Um, you know, over the remainder of the year, have eased financial conditions, and he says that helps explain why the outlook for inflation and employment remains largely favorable. So he's kind of hinting that, you know, not only the July rate cut, but also what is price in the markets for beyond is a big reason why the outlook um

is still favorable in their minds. And so I think that potentially constitutes another hint that, um, you know, if you thought that they had to follow through on the promise of a July rate cut, um, that kind of thinking may still be you know, top of mind for them going forward over the next couple of weeks and months. Matt Boso, thank you so much for joining us. Matt from Bloomberg News giving us his thoughts on Chairman House

comments from this morning. Dave Wilson, looking at the you know, the markets here kind of they came back a little bit. We have the SMP down five, NaSTA Act down about twenty five doll down six, so coming back a little bit, so proceed perhaps a little bit dubbish coming out of the Fed, but still you've kind of got that ying

and Yang of the Fed and monetary policy. But trade on the other hand, right, you know you still do no question and uh, you know, as much as bringing down interest rates, we'd probably counter that to some extent. I mean, we won't know how much and whether it's really going to be effective for some time. You know, especially as you know the Chinese tariffs ramp up. You know it's going to be even more that the Central Bank may or may not decide to offset in terms

of where they go with monetary policy. So when you put it all together, it's not like, I mean, the playing field has really changed all that much from where we've been for the last few week. Eggs with you know, people anticipating that rates are going to come down multiple times and soon. I want to bring in Bob Eisenbie's he's vice chair and chief Monetary economistic Cumberland Advisors, and also he is the former director of research at the

Atlanta Fed. We're talking about j. Powell's speech, So with us is Kathleen Hayes as well as Dave Wilson. Bob, I want to get your sense of this speech right now is being perceived by markets, is indicating a greater willingness on the part of the FED to cut interest rates some looking right now about two point four cuts now being priced into the market by year end. Do you think this is a correct reading of J. Powell's words, Well, I hope it's not a correct reading, because I think

that's not really the appropriate path. And one of the things I found sort of interesting is when you looked at the minutes of the last MC meeting, in fact, the staff had marked up growth projections in the near term and also barked up the inflation rejections, and you put that together with the kind of rhetoric we heard from the interviews with several of the Reserve Bank presidents who were sort of saying, now is not h German Pollock has a real difficult path ahead dealing with this

mix of views on his committee. And uh, I'm I'm concerned that. Um, when you try to deal with uncertainty using policy, I don't know if any models that say that policy changes can deal with uncertainty. It can deal with risk, but it can't deal with uncertainty because uncertainty means we don't know what's going to happen. So it's hard to take out an insurance policy when you don't know what's going to happen. So, Kathleen Hayes want to

bring you back. I mean, are you surprised that to the extent that the chairman Pal seems to be recognizing, you know, kind of what is a persistent, if not growing, global trade concerns. I'm not at least bit surprised. I

don't see how he could avoid it. And I would like to throw into the mix something very interesting that Carmen Reinhardt, Harvard University professor UM said UM last night on our USA Asia shows when I interviewed her that she thinks, I said, what about this concern about recession and should have said be preemptive. She said, she thinks people are downplaying, um, the potential of shocks, and she

specifically mentioned what's going on in Hong Kong. I said, but how would that cause a shock, you know, with Hong Kong losing brown as a financial center, with the Chinese government like Russian aggressively And she said, well, whatever that happened, She said, you know, shocks don't always happen with a bank. They can happen with a whimper. But there's also bregsit we have seen all the global slowdown. I totally get if I had, if I was on

the committee. I don't know how to vote because I know exactly what what Bob saying, I know what Erica Rosenbrand say esther George. The whole question is, you know, can you wait? And I think actually one of the reasons that people like Erik rosen Gren want to wait is because the funds, right, it's barely over two percent if they do kiwie, so you've got a tenure. Note

what one point six percent is. Eric said in that interview Monday, you know that you don't have too much to do buying bonds to push down long term race throaty so low right, and you can't race But he didn't say that exactly, but that's what I think is part of the reason for people to say, let's don't

go yet. Well, Bob, then I want to just pivot back to you and your points, basically saying that the FED is not it would not be appropriate for them to cut raids given the fact that inflation is starting to pick up, in growth is strong. I'm just wondering what is the risk of overheating here? Because a lot of people say that it is still pretty small, while the chances of a FED error that causes the market tank and thus send it it's closer to recession is

much greater. Where do you weigh in on that, Well, two things. First of all, agree with the points that Kathleen has made, and most expansions and become because of some sort of a shock, uh. And I don't see a FED holding off as being sort of a contributory shock that might essentially be one of those events that would lead to a recession. So I don't see policy and a policy mistake playing into that role. At this point.

We've got trade, We've got all these other factors that are going on, which I think, frankly are a bit overblown when it comes to the importance of trade to our economy relative to what's going on on the domestic side. So uh, you know, I think that if they were to make a cut, all that's gonna do is sort of call for more cuts down the road, and it's going to put them on a path where they're going

to use up all their ammunition. And I think that's sort of the view that Eric rosen Grin and some of the other people around They don't want to sort of preemptively lose control of their tools. So Dave Wilson just looking at the markets here, the SMP kind of you know, software again down about ten, the down down fifty. It looks like the markets just you know a little bit again unsure about the the ultimate path of the Federal Reserve here not you know, taking you know, a

particularly hawkish Ordeavors view. It has that look to it. And you know, at the same time, and you have so many issues in the back robbing, cluding the ones

that were alluded to. Uh so you put it all together, and you know, we're kind of looking ahead and trying to kind of get a feel for, you know, how things shake out in terms of monetary policy, and you know, it is not quite as clear cut as a lot of people would like it to be at this point, given the focus that there has been on bringing down interest rates. Kathleen, Kathleen and his can you just give us a sense of what the mood is like in

Jackson Hole. Well, it's hard to sum it all up, but I think everybody is really concerned about where the world is and where it's going. And one of the things I keep asking people about uh, in interviews or just talking is what's going on? None of the bondyles we get more every day, right, UM, you know this big dropping rate very interesting. This is maybe a little

bit nerdy, but maybe Bob Bison bis will appreciate this. UM. John Liskey, who's the former number two at the I m F and you know, was that JP Morgan as our GP economist for years, etcetera. UM said. Stanford Institute for Economic Research came out with a speech this week. I was seeking a research piece arguing that because of technology, that inflation is even not higher than we've think, but

much lower than we think. And if that's the case, real interest rates are higher, and so in that context, maybe lower yields makes sense. Jacob Frankel, jepen Borg and Chase International, former head of the Banking Israel, etcetera. UM is concerned. He thinks negative yield are a bad sign. He thinks they kind of blunt the transmission of easy policies through the financial system because it's hard for banks

to pass it on. So there's definitely concern here and people, I think a lot of people feel to like, you know what, the FED isn't doesn't have any better idea than anybody else of where we are and where to go next. They're just going to do the best they can and hope it works. Kathleen Hayes, thank you so much for joining us. Kathleen's Glow Policy and economics editor for Bloomberg News and Bloomberg Television. Bob, just want to

get one more thought from you. I mean, it's clear that Chairman Pal and the Fed are are concerned about global trade, but boy, we've got some weak numbers out of Germany earlier this week. Um, that's got to be an issue. Well, it is. It's a big issue for Germany and for Europe as a whole, because they're going to be really suffering as we see the Chinese reimposing

some of the tariffs, particularly on autos. When you consider how much of the German autos are made here in the United States, which would ultimately be exported to China. So you know they're deeply entwined across the whole global environment and that it's not without consequences when you have these kinds of trade wars going on and it turns

out there not so easy to win. Bobyes, and Bye's Vice chair in chief Monetary Economistic Cumberland Advisers, as well as the former director of research at the Atlanta FAD. Thank you so much for being with us. Dave Wilson, Libric Stocks Editor, thank you so much also for joining us and giving us the view from the market's desk, and we will be getting more from you. Well. Lisa and I've been waiting for President Trump to tweet his thoughts of FED Chairman Pal's comments this morning, and here

we have them. Uh from Donald President Donald Trump's tweeting quote as usual, the FED did nothing all caps. It is incredible that they can speak without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very week FED. I will work brilliantly with both, and the US will do great. Second tweet, My only question is who is

our bigger enemy? J Pal or Rman? She so certainly provocative tweets President Trump expressing his um I think not lack of support is probably the safe way to say it for kind of what he's seeing out of the Federal Reserve. But Paul, you raised a really interesting question, which is, yes, there's a J. Powell aspect, but Chairman Gee Juan Ping of China. How does he view this saying, wait, hold on a second, I'm your enemy. So let's bring

in Christopher Balding. He's associate professor at Fulbright University of Vietnam, a Bloomberg opinion columnist, spent a decade in Beijing. Uh, and I'm just trying to figure out. I think that Paul raises a really good question here. Is this going to be surprising to Jijun Ping that he's being publicly sort of flogged as an enemy. I don't think it's

going to come as that big of a surprise. Despite all of the polite words that Trump uses in public and on Twitter about Chairman She, Chairman She understands very clearly how he's being treated in the in the conflict between them. So I don't think he gives a lot of weight to those polite words, and I don't think it's going to surprise him. Uh. This type of criticism interesting. One of j Pal thinks being put in the same

company as Chairman She. But we'll get to that later. Um. So Christopher, let's talk about the real hard news today on the trade front, which is China announcing retaliatory tariffs on another seventy five billion dollars of US goods. What is your view of kind of this move. I think it's largely a semi irrelevant move in the sense that China this year has actually actively moved to constrict imports from a wide variety of countries, not just the United States.

We see this, We see this especially with with Asian trading partners in Australia, and this is large This largely comes from various types of non tariff barriers or just orders to buy domestic Chinese production. Um, So I don't think it's going to have nearly that significant and impact. I'm trying to figure out the actual supply chain rejiggering

looks like. And I think it's really telling that you went from Beijing to Vietnam to Vietnam and a lot of people have been looking to Vietnam is sort of the logical successor to China when it comes to supply chains and producing goods for foreign factories. I'm just wondering what are some of the obstacles that you're seeing on the ground there for Vietnam becoming sort of, uh, the next place to go. I mean, it has been for

a while and it's it's kind of running out of people, right. Well, it's not that they're running out of people, but it's that in Vietnam only about thirty percent of the country is in urban areas. It's still a very rural area, very rural country. Um. And then the other factor that you hear a lot of in Vietnam is that while China may build infrastructure and expect it to be filled up to capacity in twenty years, in Vietnam they operated

much more just in time infrastructure type of models. So a lot of the infrastructure at Vietnam is largely uh, you know, maybe near capacity or something like that. And so you know, whether it's electricity or roads or ports, um, a lot of those just don't have a lot of you know, significant additional capacity. And so that's something that they're running up against. And I can tell you firsthand that they are absolutely working to ease especially electricity UH

capacities and road capacities. But those types of problems don't get solved overnight. So Chris Beck in May you said that Vietnam now is like China twenty years ago. Do you still think that's the case. I absolutely think that's the case. And you know, the scale and scope and and speed of construction that you see to improve those those levels of infrastructure UM are are are really amazing

in in Vietnam. UM. But again, you know, they they it's it's such that you just don't solve those problems overnight, and there's a very different um political decision making process in Vietnam. UM. They don't have just the the the scope of industry that they can just pull off the shelf for lack of a better term, and start building that infrastructure the way that it's there's such that history

in China. Chris, I'm wondering what we can glean about China's negotiating tactics from the terraffs the retaliatory tariffs that they said they were going to impose this morning. You said they weren't that big of a surprise. Certainly not I mean, you're not seeing a massive sell off in response,

but but certainly some weakness. I'm just wondering, you know, does this sort of indicate that j and Ping is really hunkering down for the long haul, perhaps more than people had previously expected, or does it indicate you know, just uh that you know, he wants to save face politically, I think, you know, I think President Trump had it right during one of his tweets where he said that you know, UM, he's expecting this to go through UM.

And I think that is more and more that they're playing a game of chicken, and both sides have taken you know, the U s side is effectively saying, you know, we're going to wait out and expect material concessions on economic policy, and China has said, you know, we're not changing anything about fundamentally about our economic policy, and we're gonna wait you out and UH and be all in

on Biden. So Chris, I guess the question for you know a lot of folks here is give us a sense of kind of how you think the position is, the strength, the relative strength within China four chairman she can he play the long game? Can he waited out? We know he's I guess a leader for life or something along those lines, But can he in fact played that long game? I think he can because you know, you're seeing you're seeing an increase of authoritarianism, You're seeing

increased UH nationalism. UM, whether it's how the mainland appears to be responding to the issues in Hong Kong. UM. You've heard talk about some of the potential provocations UM in the South China Sea or in Taiwan. UM. This shouldn't, however, be taken to imply that there's a significant economic growth. Just about the only thing that seems to be growing in China is steel and real estate. Uh can. The consumer sector is very weak. Car sales, telephone sales are

are dropping. Um. So in the economic realm, there's a lot of weakness, but politically he's still he still seems to be relatively strong. Christopher Balding, thank you so much for being with us. Christopher Balding as Associate professor at Fulbright University of Vietnam. He is also a Bloomberg Opinion calumnist. He is joining us from Washington, d C. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever

podcast platform you prefer. I'm Paul Sweeney. I'm on Twitter at pt Sweeney. I'm Lisa A. Bram Woyds. I'm on Twitter at Lisa Bramwoits one before the podcast, you can always catch us worldwide. I'm Bloomberg Radio