Federal Reserve, United States, Bloomberg Intelligence discussed on P&L With Pimm Fox and Lisa Abramowicz


View. Listen really closely. You can hear the helicopters hovering above you. Ready to drop some cash. That is sort of a feeling out. There is A. Us government passes one stimulus effort bailout effort. If you WANNA call it that that will deliver checks to Americans already in. The works is get another one and the question that I have been. Having persistently is is this inflationary or deflationary. Jersey has a very strong view on this chief. Us interest rate strategist for Bloomberg Intelligence. And I want to continue the conversation because a lot of people are struggling here thinking that normally when you print money that is inflationary. Why is the Bond Market? Saying the exact opposite. Yeah I think for two reasons I think one is that the you know quote unquote helicopter money. That you just mentioned is really just replacing. Income and revenues that are going to be lost by a lot of businesses globally. Because the way that money gets into the economy is the Federal Reserve creates base money right or any central bank creates what's called base money and then banks go out and then lend money to other people to their to their customers. And that's how money flows into the system in an environment like this. You're not creating a lot of new money and a lot of loans that are going to be used to expand businesses. These are just going to be used to keep businesses afloat so it's not necessarily In inflationary where you're going to see hyperinflation and it's designed in many ways to reduce the worst case deflation scenarios and the Markets. Kinda pricing for that. Because we're not pricing for For a consumer prices to go down a lot For a long period of time. So it's basically we're expecting prices to go down very quickly now. But then rebound to some level of like one and a half percent a couple of years from now so talk to us a little bit about the liquidity that we're seeing in the marketplace. That was really a concern. A couple of weeks ago gives a sense of kind of where that is right now or the markets functioning well at this stage. Well I would say they're functioning better. Okay and they were certainly last week and the week before but they're still not to where they were say a month ago In in late February when you were able to buy or sell significant amount of risk one of the reasons for that Is At this. Point is actually the opposite problem then. We had two weeks ago which is two weeks ago. Basically a bank balance sheets would banks were and dealers were unwilling to take a lot of risk onto their bucks one way or the other whether they were short rates are long rates now with the Federal Reserve purchasing you know hundreds of billions of dollars of treasury securities from the dealers every week Dealers are not left with a lot of securities on their balance sheet so You've seen a couple of Auctions that were undersubscribed so basically dealers didn't even offer enough bonds into these auctions for the Fed to buy all of them so You're an environment now where There's actually it's much easier to sell bonds for sure because the feds buying Almost every bond that they can find But at the same time it's not normal market function the market function when you see the Fed's balance sheet spike upwards. It's now about five and a quarter trillion dollars that de leveraging period. The shrinking of the balance sheet happened for about two minutes there. I'm just wondering. I talked about this last time. Given the renewed assumptions and the expectations around the fiscal rescue efforts and beyond how big is central banks ballots. She can get eventually in this year or in the near future. If so the Fed's balance sheet are our expectations for it to basically double this year from where it was a couple weeks ago and then You know well more than double Over the next couple of years and a big reason for that though and we have to revise that too now because the Fed actually just came out with a new program. This where it's going to allow Foreign Central banks to repo their treasury bonds. That's going to expand the balance sheet even further So I it's going to get big right. It's going to be a ten trillion dollar number easy If not more Paul. It's going to carry carry on so one of the you know but but the size of the Fed's balance sheet even though it's GonNa be really large. It's going to be very variable and and a lot of the programs that they're designing now are naturally going to go away so it's likely you know that will we might spike the. Fed's balance sheet over the next year so to you know ten eleven twelve trillion dollars but then it might naturally come back down to seven or eight billion dollars just because they're gonna own all these treasuries and probably hold them for a long period of time probably forever quite frankly but some of these other programs like the Ribaud programs and the like those will naturally shrink as the economy improves. Hopefully you know come twenty. Twenty one twenty twenty two. So our what's next for the Federal Reserve that they have any tools left in their toolbox but they have a lot of tools certainly funding. I think you know basically implementing the programs that have already been announced. I think is has to be the next thing remember. We haven't most of the programs that were announced last week have not yet implemented so things like the commercial paper funding program. That's not gonNA be Probably started till next week or the week after you have the corporate bond buying program and importantly and I think this is the single biggest one for the overall health of the economy is that main street funding facility so the small and medium size enterprise facility run between the Treasury the Small Business Administration and funded by the Fed. That program has to get going in half to get going quickly if we're GONNA see a v-shaped recovery over the next year if not then it's going to be much more of a u In my opinion our church. Thank you so much for joining us. Really appreciate your thoughts here. Ira Jersey Chief U S interest-rate strategist for Bloomberg Intelligence. Join US on the phone. Thanks for listening to the Bloomberg Piano. Podcast you can subscribe and listen to interviews at Apple podcasts or whatever podcast platform you prefer Paul Sweeney. I'm on twitter at PT. Sweeney and Lisa Abramowicz. I'M ON TWITTER AT LISA. Abramowicz one before the podcast. You can always catch US worldwide on Bloomberg radio..

Coming up next