Powell to Reveal Himself From Behind Yellen's Shadow: Riccadonna

US economist for Bloomberg Economics. Also with us is Dave Wilson, Bloomberg Sex editor, columnist and blogger at M Live. Go on the Bloomberg Carl, let me start with you. Uh, you know, a lot of people are sort of dismissing these hearings as a formality. Jerome Powell is a non controversial pick, largely thought to be the continuity candidate. What should we expect from these hearings and are they just sort of, uh, sort of throw off? Well, I don't

think they're a throwoff by any means. What's going to be interesting? Here are a couple of points, So why yes, j Pal is very much a continuity of JA Yellen, UH,

if you will, UH and UH. In terms of the thought process and philosophy towards monetary policy, he's always been very consistent with the Yelling Feds party line, where there's a couple of interesting UH, possible opportunities here and and and the whole focus right, maybe the whole thing is a non event, but the whole focus from Fed watchers is going to be to discern if there's any daylight between how J. Powell is viewing the world compared to

how Yelling has characterized things UH and especially UH his view towards unconventional monetary policy like quantitative easing. Given that we're now past the eight year anniversary of the current economic cycle, it is fairly likely that J. Pal will be at the helm at the FED when the next downturn does occur. I don't think that happens for quite

some time. Nonetheless, he'll be the one who has to clean up the mess, and he's gonna going to not have a lot of room to operate in terms of interest rate buffer, which means that if it is a significant downturn, he's going to have to use some type of unconventional policy tool. We'll see today if that's going to be Quee and how he thinks about Queie and how effective he thinks Quie will be. That's point number one, And point number two is going to be how he's

thinking about financial stability risks. The equity markets they're going up and up and up. Uh, and the FED is only gradually tightening policy. So we'll learn how he's thinking about that issue. Well, I'm glad you mentioned markets because I want to bring in Dave Wilson, Bloomberg Stocks, Commas, Bloggert, m Live, go on the Bloomberg and of course send Dave an email at d Wilson at Bloomberg dot net. And Dave, what are you looking at today? I've got

a list square Roku plus. I've been looking at Microsoft and then the ongoing story about Buffalo Wild Wings. The shares are up more than six and a quarter percent. Uh. This has to do with Royal Capital and their attempt to purchase or influence the future of the fast food chain. Tell us about what you're looking at today? How about r VS Alright, go for it, Winnebago four Industries, Lynchpin there. I mean, they had their fiscal first quarter results out

profit and sales beating analysts highest estimates in Bluebergh. So you're talking about strong consumer demand for travel trailers benefiting their business. So Floor is up thirteen percent, Winnebago what you mentioned, up seven percent, So you know, at least at that one sort of you know, niche area that is really dependent on consumers spending. I mean, you're seeing

some some strong demands. So you know, that's sort of an interesting, uh sidelight at a time when you know, let's face it, it's the holiday shopping season and consumers willingness to spend is really kind of runt and center here, Dave. You know, there is definitely company specific news we are awaiting. Of course, this hearing of Jerome Powell, then it's j Powell to be the next Fed chair. Our markets expected

to respond at all? Or is this largely sort of back background to noise, Well, it's probably background at this point. A real question is whether you know, you get any meaningful shift in monetary policy coming out of the transition at the Central Bank, whether there's more of a push to keep inflation down perhaps, I mean, that's a concern. There were some comments out of the Dallas FEDS President Kaplan that got some people excited on that score, or

at least it's something to focus on. You know, it really is sort of a given that we're going to get, you know, more rate increases. It's just a matter how things in fold. And Carl was talking about the whole idea of this unconventional monetary policy. I mean, that's certainly

something to watch as well, Carl. Uh. The one thing that was interesting, now, we did get his prepared remarks yesterday evening at about five pm, and it was very much generic boilerplate language which we couldn't considue a lot from it then, as might be Mike McKie highlighted on TV earlier this morning. Uh. You, you know, wouldn't have mattered whether J. Powell's name was stamped on that or Janet Yellen or Ben Bernanky. It was very much consistent

between the three. There was one sentence which that did stand out to me. Uh, and he says the following, However, while we endeavor to make the path of policy as predictable as possible, the future cannot be known with certainty. So that's that's not particularly surprising. But but this is telling you it's the first part of that sentence that I'm most focused on, uh, making the path of policy

as predictable as possible. There has been pushedback, especially from conservative circles, that the FED has been too transparent and then markets become too complaint sent j Pal is not about to shake that up and have Saturday night specials and uh surprising rate moves or uh, you know, catching the market off guard and whatnot. He wants a very predictable monetary policy and that is of significance. We will

find out from his own words. Now he did just sit down and share Crapo is talking with him Creepo about how does prepared statements and everybody. It looks like it is a full house, even though often these hearings have always shocked at how few attendees there sometimes are to some of these hearings. But this one looks like a full house. And he's no stranger to this, I mean, J Pal, I mean he's certainly served to the Department of the Treasury with Nicholas Brady, also formerly banker at

the Banker's Trust. Dylan Read a partner at the Carlisle Group, and he's got the legal background. He's a lawyer by trading he's regarded as one of the wealthiest members of the federals aboard about ten hundred and twelve million dollars of net worth and extrapolations from his revealed and he was appointed. Just to make a note that he was nominated to the Federal Reserve Board of Governors by President

Barack Obama. That was back in December of twenty eleven, and that was part of a sort of non part bipartisan effort to not only get j Powell uh nominated, but also Jeremy Stein to the Board of Directors. I don't think he's nervous. So he's done this, uh several times before as a Fed governor, so he knows the territory. Well, what's interesting here. You're not going to get the new information or the market relevant information in the opening remarks

or maybe the first couple of responses. Uh. You know, it tends to happen deep into uh the interrogation where he maybe gives a more casual answer or less prepared answer to a question, and then the markets tend to seize on that to get some in So what you know, after the senators have worn him down a little bit, as potentially when you get the information, and if you look in that context, that's exactly how the taper tantrum happened.

Happened when Chair Bernankee at the time it was in May, was testifying before the j e C. And then kind of later on in the UH in his UH testimony, gave some casual answers about how the FED would be tapering asset purchases in the markets, kind of pivoted on those remarks just a little bit more about his personal history. Graduate of Georgetown University and also a Princeton University, and he was the Under Secretary for Domestic Finance UH after

being nominated by a George H. W. Bush. So he certainly has lots of experience in Washington, but he's not an economist, which is going to be a lawyer, a lawyer, a lawyer by by training and um he did clerk for Judge Ellsworth van Gryfeland of the US Court of a Heels for the Second Circuit that was here in New York, and also a lawyer at Davis Polk So

he's got a lot of legal as well as business experience. Dave, if you were on that chair which you just repeat over and over again, yield, curve, bed funds, rate, inflation, we look at it all those are the key things. And you know it's clear that you know, he doesn't want to tie up central bank policy of the Strait Jack as much as he talks about predictable. I mean,

let's face it. You know, we had John Taylor as a candidate for the position, and it was so much concerned about whether his rules based approach to policy making would hold truth. So you can understand why there would be a nod to predictability. You can also understand why they would want to avoid it, you know, being wrote formula because you know, economy shift, the data moves where it moves, and you've got to be able, and he doesn't.

And and he has demonstrated in the past that he's been able to respond to specific situations because he was one of the very important people having to do with the Solomon Brothers investigation and sanctions over those false bids to the U. S. Treasury, and he was involved with the negotiations to actually bring Warren Buffett on as the chairman of Solomon Brothers at the time. You know, I gotta I gotta say, and Carl, I want you to

weigh in on this. I think it's fascinating that as J. Powell takes the stand, we're looking at a yield curve in the US that does continue to flatten. Two tents spread now at fifty seven a little more than fifty seven basis points. That's the lowest the smallest spread between the two since two thousand and seven. A lot of people view this as a potential FED mistake in the making.

Do you expect any questions about this? Uh? I think absolutely they're going to question him on uh, not only directly the yield curve flatness, but also the factors behind it, like the fact that the FED has not hit its inflation mandate uh, really at all over the course of the last eight years. And they will that's absolutely fair game for the testimony. But I want to go back to something you said earlier, because a lot of people

are focusing on this notion that he's not an academic economist. UH. Neither was Paul Volker. There have been plenty of FED chairs who have not been formally trained academic economists, and and and you know, nothing against the profession. Certainly it's you know, a PhD in economics is a very helpful if you've studied monetary policy to be running the Federal Reserve.

But private sector expertise, UH, in the experience he has had in the Treasury Department, UH, in the banking sector, in the finance sector more generally incredibly valuable for the

for the FED chair. Yeah, will he be able to understand directly the relationship between what he does at the Central Bank and how he frames the arguments with what happens in the real world and the effects of those Absolutely, And he'll have two hundred odd economists at his disposal on the Board of Governors to help him with the FED forecasting. So, because he's not an academic economist, this is going to be a FED chair who leans more heavily on the staff forecasts. Well, that might not be

a bad thing. And also may lean heavily on the industrial sector of the economy because that was his specialty at the Carlos exactly industrial company investments in tracking the staff forecast, which we can kind of see what those look like based on the FED meeting minutes. UH, the staff forecast have had a devilish bias over the let's say, the course of the last year and a half relative to what the f o MC meeting participants have actually concluded.

So often when you read the meeting minutes, the first half of the minutes is the staff conclusions. The second half is UH that you know, the meeting participants to FED governors and presidents. There's been a little bit of a break between the two where the staff forecasts have not been as optimistic on growth rebounding and inflation picking up,

So that could be an interesting twist for UH. For Chair Powell, Carl, I just want to also put out to you that on a personal level, he comes with experience as being one of the founders of the Center City Consortium, which is a group of sixteen parochial schools in the poorest areas of Washington, d C. Also previously

on the board of the Nature Conservancy. Is that the kind of background that you normally see in a federal reserve sheep because those things can be very telling, and not only in terms of the policy, but also in terms of the practice, the way in which the process is followed. I think it's relevant that highlights, you know, the human element of the job. Right, we can't just back off onto a tailor rule regime and let the

robots or the the iPads control monetary policy. There's a very human element and I think this has been particularly evident and with the Yell and FED. We can all remember when she gave the speech and specifically named individuals who were getting access to the labor market, who had been in prison or faced other types of problems which could create based on her own that's not based on her own personal experience. In other words, that's not what

she's dedicated. I say, a portion of her life she's academic, has so because she was a labor economist, and so she was very much focused on letting the economy run hot to let those marginal participants back into the labor force, and that was embodied particularly in that speech. I believe it was in Chicago when she made those remarks, and

so that's very relevant to the FED. And even today I opened the newspaper and read this great article about the state of New Hampshire where they have extremely low unemployment and so Governor Sanunu there is UH working with employers to set up job fairs for people who have had addiction problems. And so this is evident of you know, when you get to that stage of the cycle and there's not many workers left. We can start bringing people off of the sidelines. All right, So let's bring this

back to the market. And Dave, I want to bring you in here because a lot of what we're hearing about, you know, sort of the feel good or the running hot sort of goes against what the market seems to be suggesting. Certainly going back to that yield curve, it seems to be pricing in a sort of shift in in the tone at the FED into a more hawkish kind of path. I just want to let you know j Pal is currently taking the oath. Quick question, do you believe that the Fed still is going to let

the let the let the market run hot. Well, I believe they're going to proceed and whatever happens in the market is whatever happens in the market. I mean, let's not forget that they have a mandate that has nothing to do specifically with the markets. It's all about, you know, containing inflation and promoting full employment. And that's what they're going to focus on, is they have for some time. And wherever happens in the markets, it's wherever it goes.

Thanks for listening to the Bloomberg p and l podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio