Surveillance: Easing Policy Is Not Free, Fed's George Says

joins US Cities Global Economists. Good morning to Dana, Good morning, how are you. Let's talk about what you've seen in the FED minutes and what you expect from Chairman pal on Friday. Just walk us through it. Sure, I mean the FED minutes are a little bit dated, but I think what's important is that the Fed was again very clear about what the reasons from why they cut interest rates.

Three things. Number one, inflation persistently missing there to present target and concerns about making sure that they achieve that target over the next two years. Number two, a lot of concern about the global economy um reflected in financial markets. And number three uncertainty. Uncertainty brought about by the trade wars between the US and the rest of the world. And so with those three things, the FED said, yes, we're implementing this insurance cut, and this is a mid

cycle adjustment. Um, what is the FED looking at? I see six things. On the one hand, the Fed's looking at the real economy, growth, inflation, and the labor market. On the other hand, the FED is looking at financial conditions, the external environment, and the generalized degree of uncertainty. And so with those things, at least three of the six are signaling red signals right now, right, I love the idea of of six things. It's sort of like throw a dart, which one is going to actually be the

most important to look at it any given moment. So, DNA, I want you to weigh in on the on the sort of hypothetical that John and I were talking about. Let's say the FED cuts rates by seventy five basis points in September, totally surprises everybody. I'm not saying this is likely possible whatever, They're not going to do this, but let's just say they do. Will that steep in the yield curve? Will that prompt a further rally in stocks,

or will that send shock and fear through markets? Well, I'm gonna be the two handed economists a little bit here. I wouldn't expect well, first of all, I mean, first of all, we probably would be among those analysts lined up outside of your window saying, hey, the FED just wasted you know, a lot of precious UM monetary policy space. UM. But the thing is that you have these these these two different uh things that are weighing on the yield curve.

At the short end, yes, markets are expecting the FED are believing that the FED should go seventy basis points. At the other end of the curve, you have a lot of pressure because their concerns about the equity market. Um, we're looking at earnings for the I can have of this year. They're going to be downgraded considerably, And so you have this flight to quality. That's great the US. The scene is quality. UM. But with all those things,

the FED kit possibly really affect everything. UM. The FED has the most control over the shorter end of the curve. And certainly if the FED does implement all of this, you still have them trade wars and everyone's thinking that the FED can offset the negative effects of policies in Washington. Just to build on Lisa's question. I think it's an important one. Typically, what you would expect is the curve to bull steep in the front end yields to drop aggressively,

and the longer end maybe even pick up. What we've seen though in places like Europe, in Japan, and increasingly maybe even here in the United States, is when we start to think about easing, where the short rate goes, that just bleeds across the curve and the whole curve

just becomes a whole lot shallower. Do you see any reason to believe why cutting aggressively will actually boost growth expectations, boost inflation expect titians to the extent that people won't just take that view on short rates and say, you know what, I just think we're going to be low for a whole lot longer. I'm going to drop the whole curve down flatter, flatter, flatter, and just beat the

whole thing even lower. Your sentiments are exactly what our rate strategist have been saying that if the FED goes goes hard in terms of cutting interest rates, that we were not going to see the stepening of the YO curve because everyone globally is going to expect low for longer, lower growth rates, potentially lower inflation, lower interest rates both nominal and real. And so we're not going to see this stepening. And that's the challenge for the FED. What

does the FED do in this environment. Let's say we do get a trade deal, let's say the US and Chin to make progress. Does that materially change the outlook? And the reason why I'm asking this is because Stephen Major of HSBC, who has gotten the rates picture correct, he's been sort of the lone voice getting it right year after year. He came out and said, not even that would be enough to cause yields to go up

at this point. It's deeper than that. Would you agree, Well, we would say this that even if there is a deal, it's uncertain what this deal might look like. It's probably going to be an ear of a deal. But the damage has already been done globally as well as in u as. We've already seen businesses pull back, They've retrenched with respect to investment um, Factory activity has collapsed. People. Uh, you know, with the trade deals, or rather with the

trade wars. We have businesses that are losing clients. You can't reverse all of that and the damage has already been done, and you would need a very significant trade deal and some reorientation that would benefit the global economy from trade command on a bright spot, just a little one, just a little glimmer of hope, But that wasn't helpful to you. In Germany incredibly incredibly important manufacturing sector, we'll all agree with that, much more important for Germany than

say the United States. And yet still the service actor is okay. Can't the United States take a little bit of confidence from that that in Germany they have a terrible manufacturing situation right now and services is still holding up. If that's the case, isn't that pretty encouraging for the United States? Well, I think as an economist anything that

that certainly is encouraging. And it's actually a story we're seeing around the world, including in the US, where manufacturing is tanking, um reflecting the fact that China has been weakening for some time, even before the trade wars, and then you have the trade wars layered on. But the services sector has been doing well, and also consumers are still spending, and so there are some bright spots regionally, domestically and among a number of economies. But you cannot

ignore the fact that trade globally has collapsed. Even in the US exports plus imports, when you add them together, growth rates have dropped to zero. Danna was great to cant shop with you. Really thoughtful stuff has always Danna Peterson Cities Global Economists. Great to have you with me, Lisa, and great to have Lisa with us on a big day for central banking as the Annual Symposium and Jackson Hole, Wyoming kicks off with the Federal Reserve, the House Fed

President in the Kansas City Chief. Of course, as that George kicks things off for us. She caught up with Michael McKee a little bit earlier on. Here's what she had to say about the outlook for monetary policy. Take

a listen. I think where rates are right now relative to the unemployment rate and inflation suggest we're at a sort of equilibrium right now, and I'd be happy to leave rates here absent seeing either some weakness or some strengthening, some kind of upside risk that would cause me to think rates should be somewhere else Where would you put the neutral rate right now relative to where you are? Are you tight? Are you loose? Accommodative? How do you see it? So I would policy to be at neutral

or even accommodated with this last rate cut. If you think about where real interest rates are relative to the rate of inflation and where the FED funds rate is, we're operating close to zero with real rates. I can't believe that that is tight in any sense for the economy right now. Would you push back against the argument then that the December rate increase was a mistake on

the FEDS part. So, I think in my public speeches, my view was we were beginning to see mounting downside risk at that time, and that those were beginning to have some concern about the outlook. Give influenced my outlook in terms of flattening a path of policy at that point. But I think, as we've judged over the last two quarters, the economy has continued to grow, and I don't think

I think the economy has absorbed that so well. If you're not ready to put more accommodation into the economy but you don't want to pre commit, uh, would you be able to say that you would definitely dissent on a fifty basis point cut like the markets are calling for. I don't see a case for a fifty basis point

cut today. But again I'm mindful in these decisions. You're making judgments about how you read the data up until the time of the meeting, And importantly for me, I use that meeting to listen to my colleagues to hear what their arguments are, how they wait some of those risks. So it's always difficult for me to prejudge where I will come out until I get into that meeting. Do you think markets are looking at the economy rationally these days? I don't know. I'm not in the markets to know

what those judgments are. I think markets see how the rest of the world is slowing. I think uncertainty never plays well UM in the market, So I understand why you see fear and uncertainty right now. That isn't the metric though that UM. I feel we have to focus on We have a clear mandate and I think a law term view that we have to stay focused on. Agriculture is big in your district. Farmers have complained that

with the trade wars, they can't sell. Prices have gone down, yet at the same time, the administration is using the extra taxes were all paying in tariffs to compensate the farmers. So are they bad badly off or are they making it through okay because of these payments. What's the real story with it? So farmers began to experience a real hit to their incomes going back before the tariffs, commodity prices for grains came off. So we're now into a

fifth year of low farm incomes. That certainly stresses that sector, but by and large those farmers are not leveraged as they may have been in past cycles. Um they would much prefer having outlets for their product as opposed to subsidies coming in for that. So I don't think it's an even substitution for them, But I think they're going to continue to struggle until all the price of their commodity moves up. I know you would tell me that

the FED is not influenced by politics. You go into the room and you put all that aside, you don't listen. But it's every day now, is it tiresome? So I'll tell you have to be focused on what your job is, and you have to understand that an institution like the FED, as many other aspects of our government, is built around

checks and balances. So I have the ability to think about with complete accountability to Congress for our mandate, being transparent about my own views, to focus on what serves the American public best, and I think what serves them best is for the committee to remain focused on how do we achieve maximum employment and stable prices for the public. And I feel good that that's where the committee is focused.

The Kansas City Fed presidents to George that dissenting against that right the of July, speaking to Bloomberg's Michael McKee added, Jackson Home, Wyoming. As we kick off that annual symposium at the G seven, we finally have a load of politicians getting together and try and sort out some problems. And I'm really pleased to say that joining us here in New York Bob Hormat's Kissinger vice chair, Bob, I

had no idea. Sometimes I have to apologize that we get too familiar with fantastic guests, and then a piece of paper crosses my desk and I find out that you've been the U S Schrper, the presidential planner and NoteTaker in eight G seven summits, going all the way back to Bob. That's incredible. Yes, I started out in romboulle a Um nineteen seventy five and France when we were just coming out of the crisis that was caused

by the oil price increases of nineteen seventy three. The world was trying to figure out how to get back on a on a growth trajectory without triggering a lot of inflation. And you know, we had the President United States, of President of France, Chancel of Germany, premises of Japan and others. They're working together, and the notion of a collective effort by the G seven to deal with the problems was really palpable. They were all really on the

same track. Now in contrast and the meeting we're going to have in ba Ritz on there's division within the G seven, intense division, with the US threatening tariffs on automobiles, which will affect Germany and Japan. They're already tariffs on aluminum and steal uh. And the sentence of American leadership of the global economic order, constructive leadership that was so palpable then when we had President Ford, who was our

president now is not there at all. In divisions could make this a more negative environment uh than a positive one, and undermined confidence that would be harmful. You've touched on the changes initially, let's explore them further. Typically, the interpretation of perception from the outside looking again is that these were very scripted events. Diplomats behind the scenes got together. They basically scripted all the bilaterals, and the outcome was

almost predetermined before the G seven happens. Sometimes, but was that the case? Was that actually what happens, and just how unscripted is it now compared to back then? That's hair fright. I mean, there was a lot of scripting, in part because the officials who were working on this, and I was the American official, there were French, German, Japanese and others. We had a general idea what our

heads of state wanted. We had a general idea of how the countries, the major economies and furniture powers should work together to deal with the problem and we move

things ahead. But the final deal, the final arrangements, were not just what was in the communicate, although that was important, but in the minds and in the part pics and in the uh future pursuits of the leaders that they were going to work together and stay in touch with one another and try to get out of this together and so therefore it was not just the words but the general cooperative attitude um of the leaders, and we don't have that now. The last G seven we had

a big discussion over communicate language. The U S didn't want language, any protectionist language. And we know these leaders are at odds on everything. Britain's having its own problems that the Prime Minister is really not going to be focused on G seven issues UH and calla Merkel German Chancellor is now going to be sort of in her and the end of her period of time as Chancellor. Macron is working very hard and really does have a

strong leadership view, but has a lot of pressures internally. UH. Premister Abe has played a very constructive role in moving things ahead in in Asia, but now he has got a yen that's rising. He's not happy with that at the time he wants to put on UH consumption tax. And of course the United States, which really doesn't know whether there wants to be the leader of the motor lateral liberal economic order or in America first, which is

protectionists and is disruptive of that order. And others think the United States is moving in the latter direction. Which means it's hardly going to be the leader of a constructive G seven process. Just about a minute here, I'm wondering from your perspective, we're talking a lot about monetary policy, but how the focus really is shifting to fiscal stimulus. From your point of view, what is the one thing

that fiscal policymakers could do that could help the economy. Well, I think the policies that could really help the economy are not so much additional government stimulus of the kind we had in two thousand and eight, for instance, uh and some countries already have big budget deficits in probably are not gonna be able to do that. The US, I think, would just be adding to debt, probably not

boosting the economy. I think the restoring some sense of confidence in the outlook, dealing with the levels of uncertainty that have arisen as a result of trade wars, as a result of the potential threat of a of of

currency competition or currency wars. If the leaders could move ahead in a constructive way to reduce trade and investment tensions and avoid threats of new tariffs, and reduce the tariffs that have been imposed, particularly by the United States, of late that would help, and of course a resolution of the Briggs that issue would would help as well. But it's always great inside and we get it so often. I should not complain about EA and I shouldn't be

complacent about it. Bob Homas, great to see you, as great to have you with us the Kissing Device chair then joining us ahead of the G seven. This is a treat here. We uh are good friend Brian Weezer. He's a Group M president for business intelligence. He's been covering the media, uh, internet, technology space, advertising space for years from all sides and uh and we've got him here this morning. Brian, thanks so much for joining us

on the phone. Um, you know, I think I'd like to start with the deal that you and I and every other media investor has been kind of waiting for seemingly for years, which is this Viacom CBS merger. Looks like they're getting back together. What does this mean for your side of the street, Madison Avenue advertisers? Do they even care? Well? Yeah, first all, thanks for having me on.

I do think that they care because it does uh concentrate a little more inventory, which in this context is probably a good thing on balance, it things like, you know, via Colm has a product called has a number of what they call advantage of products UM, and being able to apply those across CBS inventory. Being able to run a campaign across the combined CBS by a com inventory together, which is hopefully something that happens, is probably an incrementally

good thing. It's not a game changer by any stretch, but that's positive. It's and at the same time, the concentration of of ad inventory doesn't meaningly alter the dynamics conterms of who has what power in the industry. CBS was already one of the first prices you would go to spend money because of the broadcast network. Via Colm was already important because um, you know, they could sell a lot of inventory cheaply. UM. I think the bigger implications are sort of what comes next, Like do they

keep Simon and Schuster and then or not? And then do they sell it and get some uh have some capital to do something else? It's interesting, Um, do they double down on their studio um and then at the same time double down on what CBS all accesses or do they try to become this arms merchant of content uh and try to replicate what Warner Brothers was, which

is to say, every company second davorite supplier of content. Um. I don't know that they can do both, by the way, but but the implications of the industry will follow from what they choose to do once they figure out what they're going to do. Brian, I find it so interesting this transformation that's been going on from cable to online and digital and streaming, and as an advertiser as to try to try to understand how to best reach consumers.

And I'm wondering, from your perspective, which platform is the further along in term of uh creating an advertising platform that is really accessible and effective with consumers. Oh, I mean the oldest, one of the older ones, that broadcast television is probably still that thing. And it is. Oh yeah, I mean the reach of broadcast TV is still in parallel. Um. Nothing comes close. And on top of that, the um, you know, the impact of cites on emotion, the pairing

of the content brand with an advertiser's brand. I mean, you know it's no mistake that you know, a more most extreme example, I could point to something like Apple, the advertiser last at check the almost only advertised on broadcast TV and outdoor billboards, right, and which which computer company has a brand left? Right? The Apple? Yep, exactly. So I mean, so, Brian, you think about it here. Um, one of the things that inst this is that Viacom

had that. I thought it was pretty interesting and it doesn't get a lot of play. When we think about streaming, we think about Netflix, all the subscription driven uh streaming services again like Netflix or Hulu. But Viacom bought this company called Pluto TV and it's I think it's what it's called advertising streaming video on demand. Tell us about kind of that market, and do you think that's a growing viable market for the entertainment sector. Yeah, I mean,

I wouldn't think of it as anything particularly different. It's just a bunch of video inventory that's supported. In fact, I often find myself watching Bloomberg on Pluto when whatever reason. Thank you for that. Well, right now, it's funny. I'm streaming the Bloomberg on my Overexfinity, the Comcast service, and if that was down for some reason my password wasn't working or whatever, I can go and watch it on

Pluto for free. Now Viacom has some inventory there, so they're just running ads on programming that comes from Bloomberg in that case, and there's a couple of hundred other channels, many of which also run on traditional TV. So I wouldn't think of it as necessarily anything overly different. It's just primium video inventor. One thing. I'm wondering though, when you talk about cable TV and how that still is the best distribution network in terms of power and reach.

I'm wondering, though, if the time has changed, the sort of thirty second spot, whether you're seeing it compressed, how is that sort of evolving. Yeah, I mean in a traditional TV format, Uh, it really hasn't changed much at all. Um. That said, I think that there's this idea that you should be able to create video assets for digital environments where maybe inside of a new speed and thirties second add just won't work. You need assets that can be

you can work in maybe two seconds, if not six. Um. But at the end of the day, it's a very kind of add I actually think of those sorts of adds the evolution of rich media. If you go back, you know, to the dawn of the Internet, you had simple banner ads, right, which were just straight up display ads. UM. As technology became better, as a connections became factor, you had moving images on those banner ads, and then as time progressed, you could have video elements inside of his ads.

And now we're at a point where in the same place where you would have consumed a banner ad, there might be a place where you could row your cursor over it and then a video ad would pop up. It's a very different proposition because you're not as an advertiser. You're not pairing sight, sound, and motion of the content with your brand. You're not borrowing brand equity in the

same way. For whatever reason, the brand equity that a consumer attaches to the content doesn't translate to the brand the advertisers brand in the same way in that context. Right if I watched bloomber and I see a video ad, I may associate the quality of the programming I've just seen with the brand who's advertising. It doesn't always translate

as well for whatever reason in another environment. So back to the point of the two second add or a sick second add you've got a very different objective in terms of what you're trying to do and what your business school is and learning. Again, at the first point, Brian we San, thanks so much for joining us and giving us a good chunk of your time this morning talk about what's going on in the world of media and how advertisers are interacting with all the new media

out there. Brian is a Group M global president for business Intelligence. We appreciate his time, and uh, you know, I think it's interesting to see, but if you look at the dollars flow in the digital media, there's just no let up. So even though there's Facebook issues and data privacy issues, brand security issues, and you would think brands might pull away from some of these platforms, that the data just doesn't show it. Thanks for listening to

the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple podcast, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio