Surveillance: Monetary Policy Tools Are Ineffective, Kelly Says

chart which defines how lonely Europe is right now. This is Swiss twenty year with a normal yield. Here in August of two thousand and seven, the great deflation, we flatten and we've just ron over again. And I would suggest David that this is a linkage of courage into eerie and not only for the ECB, but for all of us. The theory of how we've extricated ourselves from

this crisis is really under test. Oh yes, it is because one of the things that's happened, you know, there there are things that are pushed down in faction of the long run, including information technology. One of the big things is QUI basically causes as surprises go up more than real output um. It also tends to help push income towards upper income individuals. The snag is upper income

individuals don't spend the money exactly. And so what happens is you produce a hundred dollars worth of output, you produce a hundred dollars income with it, but the income doesn't actually come around by the output. So this, this process of actually this growing wealth gap and growing income gap is actually sucking demand out of the global economy. So you've got to do something, oddly enough, very egalitarian to try and actually generate more aggregat And what's so

important here, and I continue to go back this. I know I can do this with you, with your work with Bob Goodman a million years ago. Look at the X axis. We've been doing this for a decade exactly. It's not one your inner three year in Mama Marvin good Friends, which they do a two year experiment. It is the definition of year experiment. How do we extricate ourselves off the XX Well, I think, I think actually we need to look at this distribution issue and the

issue of aggurate amount of the economy itself. Oddly enough, if we think about taxation and spending in a way to give more money to lower middle income people, they will spend it. Then you get hundred dollars worth of spending for hundred dollars worth of output, and suddenly the economy picks up. It's what I mean. I'm not saying that because I believe in great income redistribution as a is a good thing in general, but actually it's an economic palette of it probably would work, but you can't

fix it through monetary policy. Low interest rates will not fix this, friends, Right, Okay, David, let's you know, take it the other way around. If there is a recession, does do central banks have enough tools to do with it? Um? No? But but but I would argue that the what central banks could do it was what they could always do, which is that can they can be a buyer of last resort and they can protect the financial system and then allow the economics recovered by itself. I think the

economy will tend to recover by itself anyway. But um, I don't think that you know, another twenty five basis points or fifty basis points would actually stimulate economic growth. It hasn't done it in Japan, it hasn't done it in Europe. I don't really think it did is in the United States either. I think that was more cyclical forces which pulled the economy back up, natural cyclical forces

rather than rather than monetary stimulus. So I'm not too worried about them not having tools in their tool kit, because frankly, I think they're ineffective anyway. But I do think we need to think very honestly and carefully about how how is it that that monetary policy is not pushing up in flasher pushing up aggregate demand, and think about how do you get aggregate demand going. Let's just think about how do you get demand going in an economy.

And you can do it by giving more money to lower middle income consumers, or you can create more certainty for businesses, and that means get rid of tarr trade wars, get trades certainty, get immigration certainly, try to have more policy certainty, and that will promote more investment spending, and

that can also give your aggurate amount. But you've really got to think directly about how do you get demand going in an economy, And that's really outside of the purview of central banks, right, And that's one of the concerns actually that Japan has had to grapple with for for many decades. Is Europe becoming like Japan? Uh? Well, I think there there's there are some similarities. Of course, I think you've got demographics not as badly about as

in Japan, but you've got some problems. But I think you do have some positives. And the unemployment rate is still coming down in Europe. They've still got about eight percent unemployment in Japan, It's like two and a half percent um. So Europe has got more unutilized resources, and they also didn't have the huge asset bubble that really

propelled Japan to the problems it had. And and the third advantage of that Europe has is despite the problems we have in easily or certainly the problems we have in Greece, the aggregate debt of Eurozone countries is far smaller relative to your zone GDP than is the case in Japan. So I think Japan has gone is a lot further down that sort of miserable path than Europe is. Let's clear markets, David All, he knows his chart. He and I lived in I'm just making this up quick.

Folks were throwing this out, Jimmy. I'll get this to you in a bit. This is allied Irish Bank from another time in place and what the Irish did, and they had the courage to clear the market going from five thousand essentially zero five euros or whatever it is per share. Is all we're talking about is Europe has a fear they can't clear their troubled financial system. Well, I think I think that's that's obviously it's it's a

pro Irish. Well, well, they Irish. You know, that was very controversial, controversial because what they iris is they and they had the courage to get out front of everybody else and clear the banking. Also, they also suffered a huge recession because of it, and they and they did take on a lot of responsibility upon the Irish people for stuff that really was the responsibility of international investors.

I think history is on, you know, unclear and whether they did the right thing or not, but Ireland has What they did do is they took the tough fiscal medicine they made, They made the tough fiscal choices they they and the population put up with it. And so the Ireland has bounced back. Um, but I think that. But to be honestly, ours political system actually works rather well.

I mean, you know, relative to what you see in the US or in Britain, there are relatively logical choices being made by the major parties on both sides to keep Oreland on a relatively even keel. And and then I think is also helping. Politics doesn't matter. I could just see you, me, Vanni, Quinn, Francie, all of us in Dublin going over the success of the Irish clearing of markets. It was truly courageous. As David mentioned, a

real debate about how Ireland did it. But boy, that was something back in oh seven, oh eight oh nine, David Kelly, thank you so much. With JP Morgan, asset manager. One of the joys of my year is the Quinnipiac conference without just a thousand college kids. It's a great, great moment in New York. And even better, Francis Donald joins me on stage this afternoon over at one of our larger hotels. She is with Manu life uh and

in strategy and economics there as well. Francis, it's great to get up on stage with twelve kids or whatever it is, and explain the idiocy of the media and the frenzy in hysteria right now. Let's let's pretend we're Quentin Pia this afternoon. What is the hysteria right now that most upset you that we need to ignore? Well, I certainly take a different approach than you do. Tom. What I'm going to talk about today for the first time in the several years that we've been doing this

is we're at end cycle. This is the first possible recession that these kids have seen in their adult lifetime, and that many of us in this industry will experience firsthand. So you're calling recession you have before. So we certainly have been looking at the very hot or the much higher probability of a recession, and it looks like the

markets have come into this framework as well. The big question that I have now and I have been a recession believer, is that the FED has moved devish ly in my view, much earlier than I had initially expected. Have they actually managed to engineer a soft landing by using forward guidance, by using their dot plot to inject some easing into this market that actually reduces my probability of a recession. It remains to be seen. So let's

talk about the doom crew. Because you walked into the room, Francis, and the first thing you said was I think of recessions in and you guys always come at me. So let's talk about it. Why twenty what's so special about isn't actually a year where something blows up. It's not a two thousand eight scenario. It's a year where the model signal to us that the combination of fiscal tightening, monetary policy tightening, and some tariffs way on GDP and we get close to about zero percent. And this is

where the decimal start to matter. And this is why I actually care about geopolitical risk more than I did two years ago, because this is a year where decimal points will matter, where the math will matter if we actually flip into sub zero. Present grows. So there was another group of paper at the back end of twenty seen that said, look at what's going to happen here

is we're gonna return towards trend growth. And as the economy decelerates back towards trend growth, there's going to be some people that confuse that for a trip towards a recession. Now I'm trying to work out whether this is a trip back towards trend growth or a trip towards recession. How do you get the clarity between the two things as to where we're heading. Well, in this case, we're both right. So is a trip back down a deceleration? My concern is those who call for recession. There's still

a lot of fiscal stimulus in this pipeline. The bigger confusion isn't twenty recession session, it's what happened in Q four and Q one. We have seen substantial distortions to the economic data in Q one. I don't think they lift until we start getting March data, which is only going to come through in the middle of April. But to me, starting in that segment, you are going to see a recceleration of Q two Q three, and the recessionistas might back off that pedal a bit. But let's

keep our timelines very clear here. We still have have some breathing room before the negative growth prints. Financial conditions materially looser over the last several months. Off the back of all of this, we now have a rights market that is pricing rate cuts. Do you think that's a little bit too premature, or do you think that's the right move? Hit, I have a different perspective on how

the market is looking at rate cuts. So let's say I think we have like thirty basis points priced in for to me, that's not the market saying we have one and change cuts. It's the market saying we have about a thirty percent probability of a hundred basis point move. Because if the Fed moves in, it's not going to be by basis points. That's not going to be enough. When you're this close to the zero lower bound, you've

got a shock and awe. It's going to be three to four cuts if they choose to go that route. Let's go back six months. Do we have wage inflation? We certainly have wage inflation. It's deflating, Is that what I'm getting here? No, it means that it's not filtering through into our CPI or pp I data to the same extent. A variety of structural factors, globalization, the inability to pass on these cost pressures that come through. We'll probably see it in margins with about a nine month lag.

But the question is, even if we were to see two or two and a half percent pc with the FED respond I don't think so. We just said David Kelley and with Michael Faroli's great work at JP Morgan and the new terminal rate, is this two percent bogey on inflation, on nostalgic thing of the past. Absolutely, does it need to be set at one point eight or something like that in my view probably? I mean, look at the City Surprise Index on inflation, not the economic one,

but the inflation one. We have seen eight years where inflation data has come in below economist expectations eight years. The only reason Francis Donald brings up the City Surprising nextus because she and to Bias Lefkovic are the biggest Montreal Canadian fans and that it's waiting for us to get to ice helcake. You know, It's just it's had nothing to do with with City group, but everything to do so. I actually saw to Bias earlier this week and the two things we talked about where the Montreal

Canadians and the FED. What was the most interesting, The most important one was drug Canadians. Well, and in both cases, I think we have some concerns leading forward into next year. But but let's let's take this forward mantro was terrible last year at full disclosure, folks, I bleed lesabitan, but they've really done a lot better this year. Is that where the FED is six months from now? Now? I think the FED needs to put itself on the sidelines. If the FED can be successful, I think Mr Powell

agrees with you. And so when I hear that there's days like today's with a significant amount of FED speak, I get a little curvous. I don't want to see a lot of FED speak. I want the Fed out of the picture so that risk asses can rally. I'm looking it yields John mentions is sophisticated yield curve in version, which he does on the real yield one PM on Fridays. That's all great, but what it means is more financial repression for our listeners, right and it just continues forward? Yeah,

I mean yield caravan version. What is it telling us that we didn't already know? Growth expectations are low, the Feds on the sidelines, and there isn't a lot of inflation. Sure, there are probably some distortions here. I'm sure you've had dozens of guests that explain that the level might not be as indicative as it has in the past. But a flat ter inverted yield curve is telling us what we should already see in the data, which is that we're end cycle. The FED may have gone too far

and it's probably done. So, Francis, you've come on the program before with us and said, there's three puts to this market, the Federal reserve, trite talks, and Chinese stimulus. Any of those three right now that you have some confidence that you think could push back your base case of recession. So the FED move came earlier than I was expecting. We didn't see, you know, rate hike in twenty nineteen, starning about early March based on the paradigm

shift within the FED towards average inflation. My concern right now is that there might be a little bit too much optimism in that China put story, that it's probably mostly in the price I hear a lot of analysts tell me that we're going to see a U shaped or V shaped recovery in China. To me, it looks a little bit more like a stabilization by the end of this year. If we don't get that V shaped recovery,

there could be some disappointment. Are they pushing their disinflation and goods deflation out to the rest of the world. They have, They have done it for years. They will probably continue to do it. I think this is an interesting sideline story that should gain more attention into China is about to enter deflation by PPI measures. We feel that in the United States, we feel that globally this

is a massive deflationary shock. I'm sure it's part of the reason why the Fed said, you know what, we're not going to get to two percent average inflation in or and through the weekend we get the p m I s for China and into next week to so some really interesting data points coming from the Chinese side of things. A fan of p m I s, but

I must admit they're important right now. I'm not a fan of them either, except for the fact that out of China we have so little real time activity trackers that it's probably one of our best bet I would actually watch that employment sub index within it as a good sense of what's happening to the jobs growth there. Francis Donald, thanks update as well. Let's go right over the foreign exchange Jane following with us right now Jane Folly,

let me set it up. D X Y blended Dollar index, stronger, yen not doing much, Euro maybe going through one twelve, and all of a sudden emerging markets perking up weaker as well. That's set What are you focused on? Well, to be honest, most of what you just said pointed to me that the dollar can remain really quite firm because in an environment where you see emerging markets looking more belie, that's is suggestive of a lack of confidence in the market. We've see that of course in stocks too.

Then in verse just's have to make a decision about where else are they're going to go. They're worried about risk capetite, they're pulling back on their risk. They generally come back into safe assets, to come back into detail currencies, and generally because they say favors are the yen and a thesis fact. But when you've got negative yields and those the dollar too, many people may look like a

better safe haven. That's certainly what happened I think last year when we saw itself off in an emerging market, and I think that's again what we're seeing right now. So, Jane, is the breaks that continues to wind its way through a parliament. It seems like we're maybe getting a little

bit closer. I hastened to say that, what is your call on sterling, given you know, we have a little seems like there might be a real path here, or split in the path where there's hard breaks that are still on the table, but they seem to be making some progress. How do you think the pound reacts here

either way? Well, you know, we we saw yesterday that the pound, at least in the cable dip into the lower levels of the week yesterday, and this is on disappointment that the MPs had their their votes last night on eight amendments and there wasn't a majority for single one, and that seems to disappoint the market invested. I think we're hoping for some solid direction for an alternative to treason maze plan, which of course me no MPs don't like,

so the markets disappointed. But actually I'm not as disappointed as perhaps the value of sterling would would suggest, because I think some progress was made. I think what we see perhaps as uh, the the the plan about a potential customs union, and this of course is a trade

arrangement with with Europe. Seemed to get more support than than the others, and this might again see some progress over the weekend as MP's get together and they talk about common ground and I think by by Monday we might have a clearer view about the potential alternatives for a Brexit deal. But of course people must remember that legally, as it's positioned, the UK is going to leave um um in a couple of weeks time the EU and we need a change in law in order to avoid that.

So that as you've just slightly pointed out, that threat of the no deal Brexit is still hanging over the heads of earning investors and we're limited any recovery. Where's the EM opportunity right now? And Jane Folly well, I think that's a that's a difficult question given the environment that we're in. I mean, certainly I would be very cautious about e M. The market has been nervous about global growth. We see Hourkeey playing at in the back that we've got elections there in a couple of weeks

and market extremely nervous. And when you've got a big EM player like that Turkey really looking at and you've got that on top of global growth, I think it's a very nervous viral, you know, away from the idiosyncratic. So I got I got a four print and Brazilian real and I got argentinean Paso out pushing forty four.

Come on, there's there's sort of a group tendency here, isn't there Well, there is, there is, and and to be honest, I think you know, the wise investors always going to look through the bigger picture and pick out the countries that are doing better. Where you see the economy, We'll pick out for us where is it well, you know, again, a lot large part of this comes down to what

happens with China and US and the trade negotiations. Some countries could benefit from agriculture down there, um, and again it depends which way it's going to swing. It if China again is picking up buying sybean from the US, and maybe there isn't going to be the benefits for other Latin American countries with which there could be. So there's there's there's a lot of risky, there's a lot of um potential outcomes and a lot of these are a really good picture events. Amazing Jane Folly, thank you

so much. Wonderful update with robble Bank just always advantage when she's um, do you want to bring in our esteem guests? Absolutely? Um. You know. Obviously we are are here at the Bloomberg Equality Summer broadcasting live from the link at our world headquarters here in Lectionton Avenue fifty ninth Street, and we think about Hollywood. It's been said that Hollywood is one of the least welcoming industries for women. And I love this point that I think our guests made.

Even the coal industry does a better job deally being accepting and support above women than this Hollywood. So it help us kind of dig through this issue. We welcome our our guess, Maria Geis. She is a writer and director. Maria's thanks so much for joining us here at Bloomberg. How did it ever get so bad for women in Hollywood? What's the history there? Well, let's see. Let's start with what Hollywood does today. I mean, Hollywood pays out seven

billion dollars in wages every year. It creates eight percent of the media content that's distributed globally, and it helps form our cultural narrative through the stories that are told there. This is an incredibly powerful industry. And it's run by a very small group of mostly white liberal men. UM the history of of Hollywood, as told so beautifully in the film by Tom Donahue called This Changes Everything Screen

Here Last Night. UM shows that in the pioneer days of of Hollywood, which began in with the invention of the movie camera, the cinematograph um invited women in and there were lots and lots of women directors, writers, and producers up until the big money came in. And as soon as the big Wall Street money came in, women

got pushed out. So we really saw almost no women in the industry as storytellers from about nineteen thirty until nineteen seventy nine, after the civil rights movement of the nineteen sixties and the Women's lib movement of the nineteen seventies, and then we began to see some shift. So really one can look at this as an economic issue, a battle for resources. It's a patriarchy. Have has the so to what extent has the meat too? This is just

recent history. To what extent has the meat too? Movement? Do you think going going to impact Hollywood going forward? Because it seems to be of the me too movement? UM came in based on the work of the A

C l U and the e O C. SO. On October sixteen, the e e O C the Equal Rights um Commission of the United States Department of Justice started an investigation for women directors in Hollywood, and UH two years later, almost the day, on October five seen The New York Times finally had the Kahan s to publish the exposs on Harvey Weinstein. Incidentally that they had been holding onto since two thousand and four for thirteen years. So when Hillary Clinton was in the Clintons were no

longer in power, and Trump was now in power. UH, the major media was emboldened to publish these stories. It was a watershed moment, there's no question about it. But I believe, you know, also a diversion because Hollywood has been able to use me Too and the stories of sexual harassment and abuse in the workplace and actresses to

um control the narrative. And that's what they're doing because when you talk about equal employment Opportunity law and the enforcement of Title Federal Enforcement Title seven in Hollywood, you're talking about fundamentally a redistribution of jobs from men to women. And that is something that Hollywood doesn't want you very quickly here just because of time. You came out of U. C l A. There's other combines of screenwriting and directing

around the world. Out of Tish came out and Bowden and Ryan Fleck and they're doing Captain Marvel in that. Do women have to advance and succeed going from small movies and working up the food time over like you did, Frankly, or can they jump in now at a higher level? Uh? Basically the way it stands right now, women directed in Women were directing cent of episodic TV shows, four percent

of studio features and through Amazon and Netflix. Know that fundamentally, what is happening here is that women can work if they work for free. Women are doing the lower end of It's it's the exception Lawrence said four years ago. She's sick of being adorable. I mean that's simple. Yeah, that women need to demand their rights under our laws. You see that changing over the grill at the Beverly Hills Hilton or at the Sunset Toro Hotel. Is that dynamic changing? Um? I think that there is a great

deal of pressure right now on the industry. I think the federal investigation and the work of the a C L you rock to the industry to its core, and they're worried about lawsuits and so um they're going to move those numbers up through inside efforts, but those will have not historically proven to be enduring. Is Disney Fox good for women? Is James Wurduck and the rest of them out there with Mr Igorant Disney Fox in the new combination? Nobody is good for women. Nobody is good

for women. All all of these, the organizations that make up Hollywood, including the unions, the talented agencies at studios, and the network streaming giants, they all need to be challenged by the BYE by a legal action. Is that coming? Is that forthcoming? Do you think legal action? I My belief is because the a E O C has been um conducting this investigation and perhaps has been in settlement talks for three years and four months six months almost and we UM don't know what is going on with

that because uh, they function in total confidentiality. However, we have been a small group of us have been working very very hard to move this into the court system, and I do believe that that is the necessary thing. This needs to end up in the Supreme Court. Right, it sounds like it sounds like pressure is building. It

sounds like the me too movement might might accelerate. That so very interesting, guys, thank you so much for joining us, like Maria as a writer and directors who joins us here talking about this equality issue in Hollywood, which again very very difficult place historically for women to do well, even harder than the coal industry. Believe it or not, but hopefully change is coming to Holly would 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