Surveillance: New Fed Framework With Sahm

and every day. A Bloomberg opinion columnist, she is fearless about what's in the textbooks and what we're doing right now that is not in the textbooks. Claudia, the question the Twitter verse wants to know, are we practicing monetary a modern monetary theory. That's not the way that I would describe it. I think, honestly, as you put it, the textbooks haven't been written. I mean, we really are are trying to figure this out. We are living both

a sea change in monetary policy. We have a new federal reserve framework that is frankly being tested as we speak, and we've seen fiscal policy in fits and starts really shift in terms of putting support into the economy. You put those two things together, this is not a constellation that we've seen before, and the ink is not dry on it either, So this is a very fluid moment. There's a lot to be proud of with this. I mean, we have a recovery that is just so much better

and faster than last time. Help me were the word measured and maybe a Bank of England that was many measured. Arthur Burns used to make big moves. When he made a move, he's smoking the pipe and the pipe smoke coming up and everybody interpreting what the spipe smoke Man Greenspan invented measured? Are we measured now in our movements or potential movements? I think the big change for the Federal Reserve right now is that their communication policy has

become so much stronger. Given the interest rates are a lot lower than they were in either of those two past uh FED FED times, so they have I don't think the word measured is what they're thinking of. Is that no surprise, right? We have watched them do so much messaging and that you don't want to do big moves unless you have to. We know from March the Fed is more than willing to just move when it needs to. But at a moment like this, they want

to bring everybody along. J p How spends a lot of time trying to explain to us what they're thinking and where their head is. Claudia, how much are you taking a signal from the pact that J. Powell is reiterating some of the economists who are decrying the inflationary push that we're seeing is something that you have to address,

versus the bond market, which is saying it's not a problem. Well, this also goes very much to the communication we need and we need to believe that we have a FED that is awake at the wheel, and they absolutely are. But it is important that they address some of those individuals and say, hey, like we are watching this, we see it, and we are deeply concerned. I worked at the FED for over a decade. They are always deeply concerned about inflation. That's what the central Bank is there

in part to do. I think they've just been so much more explicit and trying to help the outside world understand the risk and the risk have been shifting, right. It is absolutely appropriate how their communication and what they're telling us has moved over time. The world is moving, but Claudia how much is this a shift in perception and a shift in ideas at the Federal Reserve? How

much is this something more political? There have been some massive pivots done by FED Chair J. Powell, the fact that he thought that it was appropriate to keep the bond purchases where they were, that the tapering where was where it was, and suddenly we're doubling it and talking about how everything looks very hot the labor market. We want to get to full participation. We want to see the labor market participation rate go up. Now we don't even know what that means. It's not going to be

the same economy. This is a vastly different FED Chair J. Powell to what we heard. Do you read something different into this? Right? So? I think this question is interesting about the politics. I actually wrote my sub stack post right before the meeting on this question because I was I found it interesting that this has some creeds in in some circles. The FED is is a politically independent

in its policy decisions. It's in Washington, d C. Politics are there, and it it has gotten pulled into some of these very complicated issues about especially in labor markets,

like how inclusive and the diversity, and it's tough. But the thing is, and I really do believe that the decisions they are making are being driven by what's happening in the economy, and unfortunately, the FED is setting up for this tough trade off between inflation is staying high, we need to get that back down and we want to get every worker back to work, so they are going to face this trade off. Frankly, they haven't done a great job of explain and how that works in

the new framework. But I don't they're pushed around by politics. Politics plays them as I'm sure we'll see what the next set of the appointments, but I don't think that's what's driving what Jay is doing in the FED. Talk to us clowly and quickly about where the importance of an inclusive labor market dominates for the next month or so.

Because for now we seem to not worry the black unemployment is still at seven percent, whereas general unemployment is at about four We put more of a focus on price stability, helping particularly the lower income parts of the industry and indeed of the labor market. Right, I think it's right to be focused on next year, but it's important we step back, look at what the inflation numbers are not right now, and the FED funds rate is

still at zero. Like, this is a FED that is incredibly focused on both sides of their dual mandate in a way that we would not have seen even a few years ago. So what does that mean in terms of being inclusive and the broad based. I think this is a big discussion, and it came up on Wednesday, is of the people who left the labor force, who is coming back and how quickly can they come back? Right? And I that's going to I think be the big debate going into next year. Claudia, I'm depressed when it

came out thirty two years ago. I read every word of Heile Broner and Bernstein The Debt and the Deficit. I must have sold Peter Bernstein thirty copies of that book, where I just said to people, shut up and read this so we don't panic. Douglas cast a wonderful trade of this morning, and investor asked you about modern fiscal theory from your monetary view, back to the classic book by Hile Bronner and Bernstein. What is our modern fiscal theory? Yeah, well so I wish I had that answer for you.

I think right now it's it's the we're I mean, we're gonna talk so much about the FED, but when we look out years to come, what's happening in Congress right now is where the debate should be. And I worry that when we get like there's the models and exactly how much dead and what can we spend, it gets past the we move past the well what are

we trying to accomplish? What types of investments are we trying to make in our infrastructure and our people in our planet, and that in the end of the day, those discussions are going to loose so much larger, and I worried that that theory is going to be written after the fact. Claudius brilliant, Thank you so much with the Jane Family Institute on the equity markets and on joins us now from Wells Fargo, always wonderful, particularly on

the dynamics that she observes within the markets. You've got a single sense and I'm not going to mince words about it. You say high quality is where to be. We're hearing that from Wells Fargo. We're hearing that from Goldman Sachs others disagree. What is the risk of acquiring low quality shares? Well? As we get more lane into the cycle that textbook fundamentals. As you see credit liquidity decrease, you see monetary accommodation decrease. This was pressure on the

funding markets. And we've seen time and again that equity volatility is tied to credit and rate volatility. So as you see credit spreads winding, we expect more equity volatility. And those are the kind of situations where we're not particularly fully risked off here, but we need a little more protection and we like it in the form of high quality. So we would reduce our exposure to the very high leveled companies look for a little wider profit margins, a little harder higher r o s in that kind

of scenario. So Anna, does that just mean to go into big tech? Actually, I would shy a little away from certain parts of the tech market there, but we are still a proponent of Here is cyclicality, and right now, as you get with yields rising, you get monetary comedies coming off. We've seen what happens to the very high flyer growth at any price kind of sectors. They're in a little bit in trouble, and we think that kind

of volatility or that could back isn't over yet. So rather than just pour into tech as a whole, I think you look market across, look broadly, and look for somewhere where we can get high quality but at the right price. This is important, especially because a lot of people cheered after the Fed's hawkish tills and the market's response, which was it's all good copasetic keep on partying. And then yesterday we saw the NASAC in particular and big tech stocks tumble. Is that more of what's to come?

Is that a signal of what we can expect in terms of an even potential correction in big tech? Well, I think none of us really want to leave the party too soon. We don't want to miss out. But at the same time, we are realizing that some parts of tech how run very hot. And in that scenario, as you start thinking about what's going to happen next year as potential for us, we're projecting multiple multiple compression. You want to look at what really has run hot

and maybe take them off the table here. So you may be seeing a little bout those dynamics. And again, even though we're coming from a place of very liquid markets and a lot of accommodation. The directional change and the pull forward in the taper schedule and the potential rate HeiG schedule. This is a velocity change here we're seeing,

and that's really what the market is digesting. And I don't want to put strategists versus strategists, but I'm reading the note of course, and Bank of America's chief invessel strategist, Michael Horton, that's saying he still is remaining bearish until we get full blown capitulation in the market. Here's risk of us. And I'm interested in your perspective as to what makes you feel that market should still go into

equities at this point. Where is market sentiment, where is positioning out From your perspective, Well, it's interesting we have actually seen capitulation in some parts of the equity market. Earlier this year. You saw that investors reduced China exposure. That was two women sh of a painful thing for

portfolio managers throughout the year, and that was reduced. You also saw that there was a lot of crowding of some of the tech favorites, and some of that is being washed out here one of the reasons why we've seen so much pressure on the tech parts of the market. But going forward, we don't think it's time to give up on equities as a whole, because we still think that there is a game to be played in cyclical parts of the market. But that's why we're actually barbelling

that with quality here. We're not saying risk on, but we're not heading for the hills either. How do you find I'm sorry, Caroline, excuse me, I'm sorry, Caroline, go ahead. Oh no, thank you, Tom, such a gentleman. I'm interested in. I know your perspective on does the US remain the only game in town? Do you still see US equities outfull in the likes of Europe? The Europe has a little bit more value to it. Well, in the near term, we like the US because we have a little more

clarity on it. But will be very important next year is where different nations are in their tightening cycle, because as you start to see sort of divergence or different timing on when people are hiking versus when that accommodation is coming off, that's going to also have a big impact not just on equities, but really the Underlyer here, which is the currency markets. So these are the kind of things we need to consider going into next year.

And there may be more opportunities that open up later in the back half of depending where we are in our tightening cycle. Anna, thank you so much, Anahan with

a start today with Wells Fargo. Greatly appreciate that. Right now if you get a three hour discussion with Andrew Peckha she's professor in viiologists at Johns Hopkins with professor Breyer, and we got eight ways to go here Andrew, But I want to go to the cold heart reality that the President of the United States knows and that the United States has a vaccination rate published out at and a nation is beleaguered as Italy has a vaccination rate out at. How far behind is the look that we

seem to be very far behind? Well, you know, we we were one of the first countries to roll out vaccines UH in mass and it seems like ever since we started to row out the vaccines, we've fallen behind other countries that are able to not only more effectively do it, but also convinced their population about the benefits

of vaccination um in many different ways. And I think that as we moved through these variants, we saw this with Alpha, we're now we saw with Delta, and now we're seeing all of the signs with all macron of the same thing, which is, these viruses are moving through

the population. Vaccines are protecting us from severe disease, but it's the unvaccinated population that's really going to be the population that's going to put us stress onto our healthcare system because these viruses are spreading incredibly efficiently and they're gonna find unvaccinated people in the disease and unvac stated people. Is yet to be really determined how virulent this virus is. Dr package the uptick in cases that we're seeing in New York City in particular, or is that the O

Macron wave actually happening here? Really difficult to differentiate between what's happening with the Delta surge, which certainly was going on across many parts of the US just after Thanksgiving, and what A macron is doing. Are sequencing efforts here in the US lag behind a little bit the efforts that are going on in the UK and South Africa, So we're not hearing about the O Macron cases as

quickly as we should. It's quite possible that um the surges that we're seeing now are contributed to buy all Macron, because the data coming out of Europe is showing this virus is at least as good as Delta, if not better than Delta at transmissent transmitting in populations that have some immunity. Even how important DR package is a psychological impact of a lot of people who got vaccinated. They did exactly what they thought that they should do, and

they're still getting sick. Everybody know somebody like that. As this O Macron variant starts to spread, how much does that discourage people from both getting vaccinated and from listening to health officials by saying you'll be protected if you just take these measures. Yeah, it's important to get the message of primarily protection from severe disease is what we're seeing these vaccines doing quite well, and that is actually held true even with Alpha, even with Delta, and now

with O Macron as well too. So I think the realistic expectation for people is that COVID ncteen is looking more and more like seasonal influenza. The vaccines are going to prevent some level of infection, but not all, but they're going to make a really big dent in terms of the severe disease and that is probably where six months a year from now we're going to really be

settling in in terms of managing this disease. Vaccines will limit cases and disease severity, will have treatments like anti virals that also will limit to base disease severity, and we'll be dealing with this as a virus similar to influenza. We're not at that place yet, but that's where we

will be in a few months. And there is an element though, in the here and the now that we've heard from Chris Witty, the Chief Medical Officer of England, about the worry that eventually hospitalizations might well run much higher than they have done previously because we're about to come together as families, because once again we're exhausted from the mental strain of all of this. We want to

be together. We're going to put the most vulnerable at risk. Meanwhile, the US very much standing might stance and they want to see families together for the festive period. What do you make of that risk at the moment, Well, there is a way to manage this risk. It does take engagement, and it does take effort. Testing is an important part of this. The rapid testing and some and other forms of testing like saliva testing are really good methods to

make to keep monitoring for infections. UM making sure that that you understand your gatherings and your workplaces and maintain some level of social distancing there is also important. There are ways to manage the risks of transmission right now.

But what's important to note is more cases will equal more hospitalizations, and so we have to really make an effort to limit cases because irrespective of whether O macron is more or less virulent than delta, if it causes more cases than delta, it will cause more severe cases than delta. Talk to me quickly about why I can walk into a library, into a pharmacy anywhere in the UK and get a lateral flow test and in fact have many ahead of the Christmas period to be able

to ensure that we're remaining safe. But is it right that it feels much harder to do that in the United States? And what reason is that it is most definitely harder to do that in the United States. I think there wasn't an emphasis early on about using these at home tests, and it wasn't a real understanding of how to use these at home tests effectively. UM other countries have moved forward with that and are able to use these tests effectively. I think we're starting to learn

that here in the US. But now it's becomes basically a supply and demand a problem. Now people are trying to get these these tests here, but we simply don't have the supply to meet the demand that's here right now. I assume that will change with some of the pandemic plans at President Biden's administrators is putting forward, but for the short term, people are really desperate for these tests and not being able to get them in many parts of the United States. Dr Pickoff, thank you so much.

If I don't speak to you before the end of the year. Thank you for your support and your education of all of us on radio and television worldwide. Here is with JOHNS. Hopkins at University hallne Becker once again our senior research channelists at Cowen working with Chivan Rumor, the airline franchise. AC Cowen has been globally respected for decades. We're thrilled that Ms Becker could join us this morning.

Helena I want to get away from the store aries and the Yanks to the moment and do sell side one oh one. Your single best buy right now is United Airlines. They are down nineteen percent a years since Valentine's Day of two thousand and twenty. Why when the airlines get off the mat, is United going to be the winner? Yeah, that's a good question. Thanks, and thanks for having me, tom So. Our view on United is that they're leveraged to international and their leverage to corporate.

About half their revenue comes from international roots and the other half from domestic um. And what we're seeing two things and and actually Delta seeing this too, and and we could easily have gone with Delta although they're less

less exposed to international um. The key element is that UH consumers are buying up into premium economy or into premium seats because the price points between the two have narrowed, and people find that they like having that little extra room or a little extra comfort in the front of the cabin. They get extra miles um with the more expensive tickets, and they which I think is important to people right because they work towards free tickets and upgrades

faster UM. But with United. They're adding a lot of service this summer, especially into leisure international destinations, places that have never really had UM international NonStop service from from the US, like Palma, New yorka Bergen in Norway. Let me ask you a points guy question, because the points guy, Brian Kelly worships at the altar of Elaine Becker. Are miles gonna matter? Are miles gonna matter after the pandemic? Yes, I think so, I think, And I think that's why

you seek hard usage increasing and card acquisition increasing. One of the things that United said on their last confidence called on Delta said yesterday on Investor Day, was that they're seeing increases in the number of cards that are being issued. And I think it's a combination of millennials, UM who weren't supposed to own anything and now own stuff and and have kind of bought all the things

that they need to buy. So we're probably going to see an increase in service spend UM once the pandemic becomes endemic, which we also think is going to happen, you know, sometime in the first or second quarter of next year, UM or at least people will realize it, and then I think we're gonna see more people travel.

And of course, if you spend on the card um to buy your things, right, if you're buying clothing to go back to the office, or you're buying washing machines or dryers to you know, replace broken ones, or just or to get out your house, um, then I think you you are going to want those miles so that you can earn free trips quicker. In the meantime, Helene, we still are dealing with O Macron, which a lot of people are saying has not fully been priced in.

What's your view when you take a look at United and Delta h and an American air that have lost more than twenty percent of their value since the beginning or the middle of November. Yeah, so it's priced in. I think I think investors you think it's not priced in are probably being shortsighted. It is absolutely being priced in. In our view, the stocks have underperformed, to your point, quite a lot just in the last four weeks in

an environment where we're seeing really good strength. I mean, we saw a record Thanksgiving traffic, Domestic leisure is above pre pandemic levels, pricing is above fourth quarter nineteen levels.

We are going to see very strong revenue um this quarter, and it's going to be partially offset by installationary pressure in wages and fuel for sure, but fuel costs aren't even as high as we thought they were going to be, so they've come down a little bit, and I think going into the first quarter, what we've said is we think that after the first week of January, we'll see about three to four weeks of a slow down, and then we think mid February, right, so around President's Day week, um,

we'll see a pickup and then we think that's going to continue through the summer. It's interesting that here in the UK and Europe some of the airlines have been colmoring from all government support, ringing their hands at the latest need for PC artests to travel internationally, saying that's going to reac havoc on their Christmas bookings and winter bookings.

What real time time data are you looking at? Is it always about the t s A data or can you get a feel for the flow of bookings and how how real they are or how many cantulations were starting to see? Yeah, so that's that's a good question. We rely on t SA data number first and foremost, because I guess that's the best um read on what's happening exactly today, and not only t s A. By the way, we get the data from europe Control as well.

And then in terms of the forward bookings, we rely on arc A r c our Corporate gives us the numbers every week, so we rely on that as well. We don't you know, we don't have a credit card company that we're with whom we are associated, so we rely on that. And then not enough time. But I've got to ask you this news driven question. Airbus is cleaning Owen's clock. What are they talking about in Chicago and Seattle today to right the Boeing ship? Well, you

know that's Kai's per view. I'm asking you. I don't so so I think the key Eleman is getting the seven eight seven's delivered again. That's number one. And I think the other big issue is getting the Maxes out there and getting him in the air again. Um, which is happening. I've I've flown that Max a few times now and and just love it. It's a great It's a great plane in my opinion. Elaine Becker Kivan Rumor There at Cow and what a duo on aviation that we all care about only thank you. This is the

Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten am Eastern on Bloomberg Radio and on Bloomberg Television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, sound call out, Bloomberg dot com, and of course on the terminal. I'm Tom keene In. This is Bloomberg m