Surveillance: Dollar Dominance With Rahbari

It's a delicate moment. Risk appetite and the sixth clarities of the market just done it to build over the last few weeks, and at the same time, the relationship between China and the United States breaking down. What's the message to clients at the moment, Jared, Well, yeah, it's great to be with you all. I think that the message for us is that the key thing for returns of the next several quarters is what kind of policy path we take, you know, coming out of this pandemic

and charting a path forward. You know, three broad scenarios if we do just give you know, you know, extensive unemployment insurance, plug the revenue hole for states. We think that will happen, but that's the limit of what we happen. We think it's the return to the sort of secular stagnation that we're all familiar with. And the portfolios that investors have already crowded into tech and healthcare and investment grade and so on. Not huge, you know, scope who

are really massive will market off of that. But the two more interesting scenarios and and the two that I think deserve much more attention, or the the sort of stagflationary effects if you do see increased friction of you know, tech regulation, friction with China, and then and then the third scenario, not stagflation, but I'm calling elevation, where we get bold new policy post globalization, shifting towards higher capex, higher R and D, new industrial policy, the kind of

things that can really boost productivity and growth. And I think that's what the market is really underprising. Jared. What's so great about your academic track with theology and your PhD and philosophy is maybe you can give us a new philosophy for a new market. Is the philosophy forward and Investing in two thousand twenty one, two thousand twenty three and beyond twenty two and beyond twenty three and beyond. Is it the same as the old philosophy or is

it something new? Well, I think it's absolutely something new. I mean, just look at the realignment happening in you know, and in political cultures around the world. You're seeing people, uh, you know, the populace left, the populace right coming together on propositions that they that you know, we're never up

for discussion before. Just look at what the U. S. Government has done, you know, in a Republican controlled Senate, you know, expanding fiscal policy on a scale we've never seen before in US peacetime, something that nobody would have thought possible. I mean just remember the top vote in two thousand and eight when they voted down you know,

that package and crushed market. And it's that on this occasion, you know, I think that that Republicans have surprised everyone with the willingness to uh, you know, grow, grow, grow the government balance sheet. Um, what's happening? You know, Uh, the same thing is happening in Europe now with you know, potential volution in terms of fiscal policy. Japan coming through with you know, eleven percent of real water fiscal stimulus.

I mean, these are things that we're unthinkable even six, six or twelve months ago, and if they're followed through with, you know, they're kind of productivity boosting policies that can really uh get us to a new level. I think it requires a complete rethink of active allocation and portfolios. So so how would that make you reallocate your your

your investments. Well, if we're gonna you know, if developed countries are gonna stop relying on you know, just monetary policy to to help us limp along, but invest in you know, new technology, you know, you know, incentivized corporate capex,

invest in research and development. Again, I mean, there's nothing that correlates better with productivity than than R and D. So if you do see scope for productivity to rise, for you know, employment to broaden out, income inequality to decline, that's how you can see you know, really meaningfully higher GDP growth and developed economies that otherwise you know, kind

of stagnated. It wanted to person. That means suddenly all the trades that everyone has hated for us so long, the you know, value stocks, the financials, you know, materials, industrials, um you know, Europe, Japan, the things that people don't own today suddenly become much more attractive in a world of higher growth and productivity. Jan what did a Bank

of America with us? So? Jardy, are you telling me that this rotation into value into the six colories of this market is not just a squeeze, It has legs. I'm not telling you this is the one, John, but I'd love it would be true. But we need more to confirmation. We need more confirmation. Yeah, there's two things in in our our latest report that we flagged as things to watch to know when it's a big one.

You know. Number one is the bond market. It's great to see you know, value and and and high yield in Europe rallying. But until you see confirmation from bond yields telling you that a higher growth, higher demand driven inflation is in the future, that's number one. Number two is Brett You know, when the top five stocks in the SMP are more than market cap, that's not the that's not the instide of a shiny new ball market

to see a big rally. We found in our in our quantitative study that you need to see um much broad participation before you see big equity returns, right, Jared, It's amazing how rude John is on a Friday. It's just it's really really typical, folks. We'll get through it today, Jared. I I the last time I saw Ken Lewis was a Bank of America's shop in Singapore. That was a long, long time ago, and that was the last time international stocks did well. When does the international equity market finally

turn on a relative or even dare say, an absolute basis. Well, the news this weekend and last week out of Japan and Europe, I think is is a really great start. Um, if you can see you know, I mean, Europe has some ways to go to verify and approve the packages that they're talking about it. But if you if you see resistance from northern European countries, uh, you know, see those dominoes fall, and we suddenly have scope for you know, some kind of debt mutualization, for some kind of continent

wide fiscal policy. Then um, you know, some of the deep value trades is maybe value traps European banks, maybe most of all, are suddenly in play. From an investor point of view, things that nobody's own blows have been you know, decimated in those kind of assets in Japan as well. I mean, they relied on extreme nentary policy for so long that if Japan can start to boost you demand get out of this balance sheet recession that they've been been stuck in, and suddenly I think those

assets become attractive. You've got to see follow through obviously, um, but once we get confirmation from from the market that things are really starting to turn, you see in inflation expectations turn, then I think it represents an incredible, maybe even generational buying opportunity. Jarn would Banks for America, Chared, We've got to continue this conversation. Jared's not saying this is the one PM, but it might be the dollar

week the euro advances. And this for me, Tom the story at the moment, risk appetite continues to build and that dollar strength continues to fight, no question about it. Catherine Man of course, running economics at City Grow Up, and what a job Villin Powder did providing leadership there. One of his great acquisitions is Abraham Robari, who was just brilliant on Europe with a certain authority and then on foreign exchange as well. And we're thrilled that Dr

Robari could join us. This morning, Abraham John mentions the yuro call one ten. John has seen this forty seven times in his lengthy career. Are we gonna get suckered again into strong euro? And then? Oops? Yes, Tom, Tom, thanks for having me on. That's exactly how we feel. So we think for the for the moment, there is a bit of upside drift in the Euro, and that's partly because there is a search in markets for undervalued assets and euros on equities btt s, and to some

degree the Euro show up there. But we think this is going to be on borrow times. So even though we think there will be a little bit more upside drift in the Euro and the euro dollar for instance, we think that there won't be much more headroom and just as before, this rally will be over before long. There's a question about the other side of that trade, which is the dollar and watching the dollar continue to weaken.

I was kind of shocked this morning when I came in to my living room, uh that the dollar was weakening versus even the Chinese u N there in Minby, despite the elevated tensions between the US and China, are we finally reaching a point where people have had it with the increase in the debt loads and some of what's going on in the United States and are moving away from the dollar or is this just a temporary reallocation. So from our perspective, it is probably more temporary, and

there are good and bad reasons for it. I think the good reasons for why the dollar is a little bit under pressure right now is that the global investor base is getting less worried about the rest of the world. So we are seeing activity indicators in general slightly exceeding what people were expecting. But even on the health side, I think the long suffering emerging markets are seeing signs of flattening as well. So they're good reasons for the rest of the world if you like to see a

little bit of dollar downside. And that also translates again into looking for what looks cheap, and US acids don't look cheap by any metric across the board. And then there are the bad reasons quote unquote. So there's some level of concern around US China attention, the debate about US debatement, and then also slowly beginning concern about the potential risk attached to the U S election so these are I think, very acute for the time being, but

once again we think that's probably temporary. We think that the US still looks, as you know, among the least ugly in the in the global economy. That the likelier of a bound second growth in the US is is much higher than elsewhere. So we we think it's once again too early too to write off the dollar and call an end to the strong dollar. Even right now, it just feels like a sentiment story. It feels like a positioning story, and that's what's pushing some of these

big moves over the last several weeks. It doesn't feel like it's got anything to do with right differentials, just optimism around places like Europe. Why don't you buy into the euro optimism of the last couple of weeks, Abra him, Yes, So we think there are two reasons why we're skeptical.

One is exactly on that issue of risk appetite. I think a good chunk of that was that previously we had very defensive positioning, and and I think we are now at a point where positioning is by no means stretched, but it's it's no longer very defensive. So we're already

at relatively neutral levels, and we do think they're significant risks. Well, let's call it the second phase of the recovery down the road, so significant risks of disappointment that could weigh on broader risk appetite, and again I think assets like yours and equities would be very vulnerable. The second has to do much more with the specific European developments. We of course had these initiatives around the EU recovery from

the French, German proposals and so forth. And though we think that these are significant visible fiscal transfers supported by Germany, we don't think they're a Hamiltonian moment. We don't think this is a game changer for the Eurozone or for the euro in that it doesn't really chart the clear path going forward. It's it's dealing with the one off

situation in a faily, in a fairly constrained way. So these two reasons make as skeptical that we're looking at a kind of enduring break in the euro or enduring upside for Eurozone assets. Abraham and Bowery of Silly Group with us today. Abraham is just follow up on the CP next week, just briefly might sound stupid on the surface of things, but I'm trying to work out whether more que next week is euro positive or euro negative. Which one is it. It's a very good it's a

very good point. We think on balance right now more quies euro positive, and that's because you still have a risk premium, particularly for BTPs and Euro purchases. A BUREASID purchases by BCB bring down that risk premium. So in that sense we think if bTB did not increased asset purchases, in fact, the Euro would end up setting off, and so would of course in particular periphery sovereign day Abraham. You mentioned a Hamiltonian moment. Many people are thinking the

Broadway play. I'm thinking about way way back, where maybe it was fractious, but Hamilton's had to deal with I'm going to say thirteen colonies or states, however you want to describe it. You can't have a Hamiltonian moment with twenty seven just have countries, can you. I am very sympathetic to your perspective. I wouldn't completely write it off for you know, very different future, but but but I think certainly this isn't it, and we're far away from it.

And in this specific case, as I mentioned, it's it's one off. There's no transfer of physical powers or political powers even and we're dealing with a construct that's not even easily scaled. So I think it is very inappropriate to refer to this as as Hamiltonian. So, just going forward, to broaden out your base, cases that the dollar will resume its strengthening and you'll see a weakening in the Euro going forward, and that the dollar will end the year as the dominant currency, just as it was a

couple of months ago. Is that correct? Yeah, I think broadly. But we're we have a couple of things along the way, and I think the one that obviously stems out is the U S. Election. So what we assume is that we are in a sort of late stage of the ridge recovery, but then there will be a period of uncertainty around the U S. Election, and we think that the dollar might end up be a little bit under pressure because of that, but then around the election the

dollar would once again risen with uptrend as well. So are a few more absence laws, but we believe that the dollar bull market can still continue. It's John Freu, I want you to get a question in here on the CC before meeting, because I think you know, John, you looked awfully good on the lawn of the ECB building just a few years ago. I mean you were like the Frankfurst expert as well. John, what do you see from the c B? And I know you've got

a question for Dr Roberry about it. Tom. I used the time my visits to the e c B really effectively because they go on tour twice a year, so I'd end up in places like Cyprus covering the European Central Bank. You've got to time these things properly. Will do that. Hopefully next year, if these get back to normal, will go on one of those ECB tours as well. That's the problem for the CB. They're already doing so much.

What's the objective of the next move. You'll remember just a couple of months ago, Christine the Guard said she was not here to close spreads. She wanted to put pressure on the fiscal policymaker. What kind of pressure do you put on fiscal if you follow up next Thursday

with more que, more asset purchases. Well, I think it's absolutely critical that they continue and reinforce at this next meeting, because not only are spreads still wide in in peripery sovereign DETT, but in between we've had the German court ruling with HAVE which had questions the ECB capability to do its job. So I think at this meeting it's totally essentially the DCB at least in some shape or form,

reinforces its presence in in asset markets. But beyond that, also just keep in mind, unlike the fat DCP has not been particularly proactive, forceful or aggressive as Chappower likes to refer to it, we've seen a pretty steady run rate from d CD, so I think it's again important for the ECB symbolically to be active, even if kind of on a weekly basis. We don't see particularly pressure rising on on risk assets in Europe, but I think that the CB does act in some shape or form.

Next week will be extremely important. Abraham mc bery city grow up on a situation in Europe and a foreign

exchange market. Abraham grant a cash off the sir, thank you, send O best to it say it's so important about the US Chamber of Commerce, which I guess is a lobbying group as it's founding in nineteen o eight was an international delegation to to Japan at the time that was extraordinary, and then President Taft really driving forward the founding of the Chamber to the modern day of this controversy and that, but also the representation of business abroad.

Myron Brilliant is involved with this, is head of International Affairs for the Chamber, and he joins us. Now, let's say, Myron, you and the crew where to get on Kathay Pacific tonight and Monday morning. You're in Hong Kong or in Beijing to bring a business delegation in. It's not going to be a normal meeting, isn't well, Tom, I wasn't alive in night when the US Chamber of Commerce was created by President Tafts support. But I can tell you

that our mission hasn't changed. Right. We know that we have tremendous interest in selling and exporting around the world, and of course Hong Kong has been an important gateway to China and to Asia, and we do a fair amount of business sixty seven billion dollars of trade investment between Hong Kong and I'd say so if I were landing today in Hong Kong, I'd be very concerned about Hong Kong's future. We issue earlier in the week about this, okay,

but this is really really important. Iron We've got a press conference coming up with the President of this afternoon. I hear Kizzier or Mr Kudlosier or somebody else's ere My Ironnew, what would you say to them about how to handle this exceptionally delicate time. Well, if the China US relationship has never been more complex, and I've been involved in it for about thirty years, I was there, uh lobbying for China's accession to the WTL and getting rid of the annual MFN status debate in the nine

so I know the history here. But China US relations are much more important on a national security front, on the geostrategic front, and of course on economic terms as well. So what I would be saying is that I think China does need to have a response from the US government.

Of course, the business commit doesn't want to have the claddal consequences of that, But there has been an action taken by the Chinese government that is an erosion of the one country, two systems approach that has served Hong Kong well, has served the course, Hong Kong as an international community of financial hub, a rules based economy, and

I think it served China's interest well. And this action taken by China to adopt a new national security law, I think undermines that confidence and creates instability and insecurity and adds to a plafila of issues that already exists in the U S China relationship that are complex and challenging, from technology to trade to Hong Kong, obviously human rights

and other issues as well well. Uncertainty is the key word here, and that was the prevailing sentiment among businesses and c suites when we saw the trade tensions ramping up between the US and China. Now there's a question of the uncertainty of whether the Phase one deal is off the table, whether we're going to see the US take measures that increased sanctions or tariffs on China. How much are you were read about that uncertainty, that lack of clarity on the US response and what China will

do in retaliation of the effect on US businesses. So, first off, we very much supported UH the US administration's effort to try to address unfair trade actions through a trade negotiation, and we were very much supportive of the actions around intellectual property, around technology transfer. Of course, trying to deal with some issues that were not addressed in Phase one, like subsidies and state owned enterprise structures and

things like that. However, we believe that Phase one agreement is in the interest of both China and the United States and brought out in some stability. China has not fulfilled all of its obligations under its Phase one agreement. This is gonna be another issue of tension and has

emerged as one in the last few weeks. But I think that the negotiations between China United States on the trade front has been to some extent isolated from the broader political challenges in the relationship, and that's a good thing. We want to see China the United States work through these difficult trade issues because the stakes are so large for the economy of China, the United States, and of

course the global economy. But that said, uh, this is an issue that is coming to the forefront because it's been a very difficult environment with COVID nineteen. The pandemic has of course created a challenge before trying to purchase all the goods they should be purchasing from the United States, and I think they've been a little slow and implementing some of their obligations around financial services in I p R, although they have taken some steps in that direction. I

hope those negotiations get fully implemented. I think the Phase one agreement is something we supported very forcefully. We provided a lot of input to our government. We talked to the Chinese government about it. But there that's a four that's not a ceiling in this and there's so much more work to be done to improve the commercialationship between China the United States, and we're going to continue to

be advocates in that front. Martin brilliant with full let's continuing the conversation of the US Chamber of Commis right now with a someone and I always go back, folks to his fabulous interview with Jeff Bezos of a number of the years ago. David Rubinstein with his efforts here at Bloomberg, with Leadership Live and others to speak to people directly and at length about the sensitive issues of their business. Mr Rubenstein clearly with the Carlisle Group as well,

David well timed with the leadership of YouTube. I find people glued to the product, glued to YouTube. But there are real issues here, olah, the Twitter upset of the morning with the president, there's real issues of how YouTube

will police itself. What did you learn well YouTube? When I talked to the CEO yesterday, Suechski Um, and she was the person who actually rented her garage to Sergey Brin and Larry Page when they were starting the company, and then she became I think later the sixteenth employee, and then later she when she was employeed there, she recommended they buy a little company called YouTube, and now

it's become a behemoth. Um she Uh. It was an awkward situation in the sense that we didn't really know exactly what President Trump's executive what are said, because as I was interviewing her yesterday, it hadn't yet come out. But she basically said that they do the best they can to police the things that come on you to use the word police, but if something is inaccurate on YouTube,

they try to take it down. And you have you know, I assume hundreds and hundreds of people who watch what goes on YouTube, so they can make sure that's not filled with things that are wrong or inaccurate or dangerous. I looked, David at the time that we're in with the invention of this new media property. You know, the valuations that are being put on these properties. My question of the morning, which I say to you with great respect for your for your financing of all this, are

these things news organizations? Is YouTube? Is Twitter as Facebook a news organization? To David Rubinstein, well, of course, nothing rivals Bloomberg as a news organization, I would say, But there's no doubt that many, many people, particularly younger people than me, get their news from YouTube, from Twitter, from Facebook in ways that I would have found surprising the other ways. I go out and buy the newspapers every day.

I still physically buy them and read them in the hard copy, but very few people do, including none of my children do. And so people get their news from these other kind of sources. So for many people, YouTube probably provides more news to people under the age of let's say thirty, than than the New York Times, the Washington Post, or the Wall Street Journal. So yes, they

are news organizations in that sense, David. The idea of leadership right now has a pretty interesting meeting, especially as the Twitter spat with President Trump heats up and as we see Twitter punished in stock markets for their actions and Facebook, which has not taken similar actions, were ordered by stock investors. How do you, as both an investor as well as a watcher of how these trends are evolving,

view leadership in this capacity? Where does the responsibility lie with society or some kind of great or good kind of concept or with just the bottom line? Well, two points one. Clearly, the market doesn't like controversy. So if you are in a kind of a spat with the president United States, it's probably not going to help your stock. That would be my guess. If you are saying good things about the president of the United States in this context, uh,

maybe it doesn't hurt your stock. It may help your stock, But generally, uh, I think there is a responsibility of all the organizations that have this kind of dissemination of

information to try to be reasonably accurate. Obviously don't want censorship, but you want people to make certain that they don't watch YouTube or Facebook and see something that is defamatory about something or something anti semitic, or or something that it deals with the racial overturns that that are just inappropriate so it's a tough, tough job, and I wouldn't want to be one of the people who had to figure out what is appropriate and what is not appropriate.

But there's no doubt that as we go forward as an investor, more and more value will accree to these type of organizations because that's where people are getting their news, that's where people are watching. David. You recall that video that leaked out of Facebook a number of months ago with Mark Zuckerberg talking about Senate to Warren saying, We're prepared to go to the map if they try and

break up this company. You speak to the leadership of these tech firms, can you give us a sense of the kind of things that they are worried about coming out of Washington, d C. The things that keep them up at night, the things that scather them well, um, you know Will rogers Um, the famous humorists in the I Guess nineteen thirties used to say the country is never safe when other Congresses in session. So people in Silicon Valley are always worried that Congress or the administration

will do something. But as we've learned in the Microsoft lawsuit and other kinds of things, Uh, these things take a long time to get done if they're going to get done, and it's not that easy to break these companies up. On the other hand, um A T and T was broken up and Standard Oil was broken up

many many years ago. So I don't see any of these companies being broken up, but they might change the way they operate, and they certainly are spending more and more time in Washington letting members of Congress ended members administration know their pluses. David Rubinstein an open question on a Friday. As we stagger into June with this pandemic, we are seeing a massive economic contraction out of the thirties. As you know, the Melon family was hugely charitable in

Washington a lifetime ago. Are we going to see the combinations and the transactions that lead to combinations because of this economic depression like we saw in the thirties. Are

we going to see one big roll up. Well, I don't know we'll see that, but I do think that we're going to find more and more pressure being put on the wealthiest people in the United States to give back to society, and obviously many of them are already doing that, but more and more philanthropy will be required to meet the gaps that government can no longer meet because government won't have the resource, is not going to have the budget to be able to do all the

things that it has done over the last couple of years, and some more and more philanthropy will be expected. I think of these wealthy individuals who benefited from, you know, a lot of the tech uh increase in value, and I think you will see more and more pressure for for people to do more UH where government can't do it. Remember, we're running big deficits and big debt, and I think the government at some point it's just not going to be able to pay for all the things that has

been paying for. David, always great to get your perspective. It's valuable thing. Thank you for joting to Guess this morning. Really appreciate your time, so audience worldwide on Bloomberg TV and on Bloomberg Radio. Alongside Michael McKay and May I'm really placed to say that back with us on this program is the Cleveland Fed President, Loretta Messa. Laretta, fantastic to have you with us back on the show. We just had a conversation with Muhammad al Arian a little bit.

Earlie on Bloomberg TV for our listeners on Bloomberg Radio who may have missed that he was talking about the risk to the downside of doing more one of the downside risks for the Federal Reserve of doing even more well. The way I view what we've done so far is, remember, we saw that the financial markets were not functioning well, so we took very strong actions to make sure that the financial markets continue to function so that credit could

flow the households of businesses. Without a functioning financial system, we'd have a financial stability crisis on top of a pandemic crisis. So no one would have wanted that. So our actions so far i've been I think impactful. I think you've seen the financial markets working better. I think liquidity is flowing um and I think those have been um important programs that we set up, these emergency facilities. Some of them are still to come in terms of

opening for business. The terms are being negotiated um with Treasury and to make sure that the programs work well. So we that's kind of a state of play there. I think as the economy and more places begin to open up, we'll have a better sense of what the recovery is looking like, and we may have to and I expect that we'll have to support the recovery going forward, but we're really at the very beginning stages of that because there's still parts of the country that are shut down.

So it really depends on what you mean by doing more. I do think there's gonna be a second phase of monetary policy, but that will be more of the supporting the recovery, supporting activity making sure that we can have a recovery that that takes hold and develops well. Presidents, let's talk about that, because quite clearly, a couple of months ago it's not a day compared to where we are now, and I think it would be hard pushed to suggest that it's about market functioning anymore. You've talked

about that next phase. If the previous phase the objective was market functioning, what does the next phase look like and how are the tools different? How is the response to the federals of different? Right? So looy I view it is we you know, just think about the second quarter. The second quarter numbers when they come out are going to be very, very negative numbers. I mean, we know that we know that that was the height of the

shutdown when there was no activity. In the third quarter and fourth quarter, we're gonna cease activity begin to emerge. I think some of the quarterly growth rates are going to overstate UM the what it looks like really out in the field, because we're gonna see from a base of very little activity some pickup and activity, and they're gonna look like big growth rates. But we're still going to be below where we were at the start of

the year in terms of both employment and output. So I think we have to take this, you know, looking at how this is emerging, I think there's a lot

of concern about um second waves of the virus. So what makes this difficult is that we have both economics going on and also a health crisis going on, and so that is that's very different than other economic shocks that we've had in the past, and so I think a lot of how the recovery goes it's going to be depended on COVID testing, the three seats, COVID testing, contract MCNE, and making sure that the capacity of the health care system and handle UM and increase in cases

that every epidemiologist is telling us that we should expect over the second half of the year. That means that the recovery could be slow. Um, when you have so many people out of work, it's hard to imagine that we'd see a quick v shape recovery. I think it's gonna be slow. I think businesses are going to be thoughtful about reopening. I think people are going to be

thoughtful about spending. And so what that means is that monetary policy has a role to play as we support the economy getting back to our dual mandate goals of full employment and price stability. And so that's more traditional

monetary policy. And the tools that we have are our interest rate tool, which already is at zero, forward guidance which we've used before, and also asset purchases, but asset purchases not to improve market functioning, but really to support the economy as it moves forward towards full employment and christ stability. Well, markets want you to specify exactly what

you're going to do. What you're going to do, of course, and I'm wondering if the June tenth meeting is a time for you to announce anything new at this point. You're fed. Cleveland FED did a study of the tailor rule and five other uh, simple rules and found that if you use those you would have the FED funds rate your target anywhere from a negative two to a negative fourteen percent. That suggests at this point you're not

loose enough for the economy we have at the moment. Well, I think those rules, right are based on the dynamics and the economy, based on history and historic relationships. And if I told you that the employment rate which is now at fourteen point seven percent um, you know, when you stick that into a role, you're gonna get that kind of result from the rules. But really, right now, we're not really trying up to this point to stimulate activity. Right.

The economy was shut down as an investment in our public health. Right, that was the tool that we the economic country did to sort of try to make sure that the capacity and the healthcare system could build up. More could be learned about the transmission mechanism of the

of the virus. So the tool, the work that we've done so far at the FED, and I would you know, the federal government also was really to get us through the shutdown period so that when the economy began begins to reopen, that that's a point where we can support the recovery, and I think that's where the second phase that I was talking about comes into play. We're just

at the beginning now of states beginning to reopen. So again I think we're talking about a future state right when we see what the recovery is starting to look like as more of a country is able to reopen, and so I think we're going to have that conversation, those conversations, but again I think that comes at a later stage when right we know a little bit more about what that recovery point is looking at, and we're collecting date all the time on how the opening reopening

is going, so we have some you know, information on that, but really beginning stages of that for the country, well, you the FED have long suggested that forward guidance is kind of the next tool that you would employ. But when you look at two year Treasury note futures, they're under one percent out to the end of two thousand twenty two. And it's raised a question in people's minds on Wall Street. If you give traders just a one way bet forever, you're gonna have problems down the road.

You're gonna have a taper tantrum. If everybody is in on the same trade for years and years, So I think that's always a concern when you're we're using these tools um at the zero lower bound. We always when whenever we use a tool, at least the way I approach this is we always have to think about what it looks like at the moment, but also what does it look like in the future, and how would you

exit from that tool. So I always think approach policy that way, not just looking at the current moment, but also thinking about, Okay, what's the path of this going forward, and that's really going to different be decided by what happens in the economy, what does the recovery look like, how much accommodation, monetary policy, accommodation is needed, right, and then also communicating well so that we're not surprising anyone with our policy that we want we want people to

understand where we're coming from, what our rationale is, but we don't want to necessarily mislead in some way by saying we know exactly what the economy, how the economy is going to evolve. And so that's when we got into earlier in the In the earlier recovery, it is about making sure that people understood that we're not prexyent, but we are going to base our policy actions on

what the data is telling us about the economic outlook. Well, President Memester, at the moment, there are people worried about how big the FATS role is in clearing markets now and how big the FATS role is in setting prices. And it's been a conversation in the last several weeks with us and your colleagues, including President Williams, about yield

curve control. I want to try and understand from you because this is where the confusion is on Wall Street for some people in fixed income at the moment, would yield curve control for you be something focused on the front end to the belly of the treasury curve or would you think about doing what Japan is doing, which

is all the way out to ten years. Just how much control over the yield curve, so to speak, would you be looking to have, right, So, my view of yield curve control is that it really is a support for forward guidance if we were going to do it now. The Committee has discussed yield curve control as a tool back in UM during the financial crisis, and and also as part of our framework review as a tool, a

potential tool, No decisions have been made on that at all. UM. Again, I don't think of that as something that would be in this phase of what we're doing to make sure that the markets continue to function. But as a tool, I think it's worth while thinking about what those tools are going to be that we can use. But right

now that's a discussion for the future phase. And my own view is that if you wanted to do it, UM, you'd have to think hard about how you would implement it, and also, as I said before, how do you exit from it? Because with any of these tools right there are pros and cons of using them right now. You know, as you point out, the yield curve is very flat at the short end. So maybe with the four guides we've given already, it's not necessary to do something to

emphasize at torward guides. But I don't want to take it off the table as something that's a potential for me to think about as a possible tool. I just don't see that we need it here in the space, nor do I see going forward that we necessarily would need to use it. But if we were to use it, I would view it as a reinforcement for forward guidance on the short end. Before we let you go, I have to ask you about this. There are there is the possibility we could end up in a new trade

war with China, additional tariffs going on. How would that affect the economy. Have we already absorbed that or would that be a new hit to the economy? Now? Well, I think you know, whenever there's a new rising up of uncertainty, and this is another uncertainty, I think we have to take it on board as being another potential head wind to a recovery. So I think we have to just use that as part. We have to take

the conditions as they are. Um, I think that we we've played this game before and sort of saw how the uncertainty did dampen um the expansion earlier, and so I think we had to just take that on board. Is this is another uncertainty attitude, incredible amount of uncertain we already have, Loretta, We've got to leave it there. I just wanted to say thank you and thank you for talking to us ahead of the blackout period before the next FED decision. Really appreciate your time and hopefully

we can get you back on soon. The Cleveland Fed president that Loretta Mesta. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio