Fomc, United States, Federal Reserve discussed on Bloomberg Businessweek

Automatic TRANSCRIPT

This is the story that we need to be focusing. So it's simple. So we've always talked. So goes, a USO goes the rest of the world Jeffrey. So I mean, I am curious certainly from an investor's perspective that if the rest of the world is kind of not so great it twenty nine hundred. Do we start to see you know, money and investment flows back into US markets. He not I would just echo the earlier comments. The fed is one thing. And I don't think they delivered. What market so poor here to sort of turn risk markets around. Hey, but we're watching next is the global data. We do see some stabilization or even a little bit of a pickup in Europe that helps if China dip the data they're up stabilizes and picks up a little that would be a key point. And then the oil price story. I mean, much what's Wayne on many client investor minds is the downdraft and oil is at a supply story or is that global growth. Well, what do you think it is Jeffrey I think it's supply it's weighing on the market price. That's right, Carol then. It's not this demand. Global growth slowdown story. It's more of a temporary thing we come back in the year head we get that that that will provide some support to the market. That's a bear market. I just wanna remind everybody WTI crude it is down thirty seven percent since the beginning of October. So yeah, it's been dramatic. And for instance, how do you think about oil in the broader picture here? Well, I think about it all day every day because to me it's been the biggest incremental change to the macaroni atmosphere is absolutely oil and US dollar are the most important calls of two thousand nineteen flows through into inflation expectations and therefore bonds it flows to inflation forecasts it flows through to consumer activity business investment to the downside EM's major developed economies. Like, Canada, the Nordics that are relying on oil when oil moves to that degree, the entire macro, environment shifts and also be keeping my eye on US dollar. I think that's a really key input for the Federal Reserve outweighs Francis. Okay. That's really a bummer for those oil-based economies and oil based companies. But what about making it cheaper for consumers and also cheaper for companies? I mean, we constantly talk about the US economy, and it's all about the consumer. Well, that's very true. And this is one of the reasons I like, the consumer as not just a pillar of US growth, but global growth in the first quarter this here, they get tax receipts. That's great. They get gas relief. That's good and those headwinds from higher interest rates and mortgages those shakeout by about spring. So that's a bright spot. But let's not forget that the energy sector has grown to be fairly sizable in the United States. And we're at a point when we judge the economic data here that it's difficult to say in any given quarter does falling oil actually help or hurt the US economy, the old correlations. They don't exist today. It's so funny because right we spent so much time talking about big tech over the last year. But we have yet. Are we forget how important energy is? Let's remind everybody of the news, right? So you're listening to Bloomberg BusinessWeek here on a Wednesday afternoon. It is fed day. We did hear from the Federal Reserve that they are indeed as expected hiking rates, some commentary that we heard that risks are quote, roughly, balanced, the fed judges that. Some further gradual increases are warranted and signalling to twenty one thousand nine hikes versus three which was there September estimate stocks. The major indices now turning positive. We have seen the move lower. And all the way into the negative at the moment. The Dow up about half of one percent s&p similar and the NASDAQ now in the green after being in the red for quite some time after the decision there now up about one tenth of one percent, Carol and just a quick check on the ten year note two point eight percent. We were at eighty two heading into the fed decision at the end of the curve at two year note with the other two sixty seven which is a little bit of a who believe it or not where we were just before that fed decision. We're talking about Francis. Donald different Manulife in Jeffrey Cleveland at pain and regal just twenty seconds Francis. What do you wanna hear from Jay pouches just quickly? I want to know how he's different from the dots. Selfishly? That's what I wanna know. I wanna know how is thinking about the world differently than these optimistic Datsun two thousand nineteen and twenty twenty where he's getting. That optimism and why hasn't changed at. Hey, Jeffrey, Cleveland, what do you want to hear from Jay Powell who speak in just a few seconds? I think investors really are interested not just in the fed funds rate, which we focused on but also on quantitative tightening so-called, so any thinking has changed around the balance sheet size when it might stabilize any any type of like that. I think it would be interesting for risk assets. Jeffrey, Cleveland, one more follow up. What would he what surprise you coming from Jay Powell? Surprising. Regarded the balance sheet, it's something is going to shift soon on that. Leading role offense fifty billion per month sooner than than we think we think that should continue over the next year or so, so sooner. Ceasing of that decline. That would surprise me. Jeffrey Cleveland is chief economist at Peyton and regal in Los Angeles. Joining us on the phone from their Princess Donald head of macroeconomic strategy at Manulife asset management here. This in our Bloomberg interactive brokers studio, thank you both. All right. Jay Powell stepping up and getting ready to give his speech and answer questions from the press community. Let's head to Washington. Over the past year. The economy has been growing at a strong pace. The unemployment rate has been near record lows and inflation has been low and stable all of those things remain true today. Since the September meeting of the FOMC. However, some cross-currents have emerged. I'll explain how my colleagues, and I are incorporating those cross-currents into our judgments about the outlook and the appropriate course of policy. Since september. The us economy has continued to perform well roughly in line with our expectations. The economy has been adding jobs at a pace that will continue bringing the unemployment rate down over time. Wages have moved up for workers across a wide range of occupations. A welcome development. Inflation has remained low and stable and is ending the year a bit more subdued than most had expected. Although some American families and communities continue to struggle and some longer term economic problems remain, the strong economy is benefiting many Americans. Despite this robust, economic backdrop, and our expectation for healthy growth, we have seen developments that may signal some softening relative to what we were expecting a few months ago. Growth and other economies around the world has moderated somewhat over the course of two thousand eighteen albeit still solid levels at the same time. Financial market volatility has increased over the past couple of months and overall financial conditions tightened that is they have become less supportive of growth. In our view. These developments have not fundamentally altered the outlook most FOMC participants have instead modestly lowered their growth and inflation forecasts for next year. The projections of committee. Participants released today show growth continuing at healthy levels. The unemployment rate falling a bit further next year. And inflation remaining near two percent. The projections. Also show a modestly lower pass for the federal funds rate, which should support the economy and keep us near our goals. As the economy struggled to recover from the financial crisis and subsequent recession. The committee held our policy rate near zero for seven years to give the economy the best chance to recover in economy did recover steadily. If slowly at times. Three years ago. The committee came to the view that the best way to achieve our mandate was to gradually move interest rates back to levels that are more normal in a healthy economy. Today. We raised our target range for the short term interest rates. By another quarter of a percentage point. As I've mentioned most of my colleagues expect the economy to continue to perform well in the coming year. Many FOMC participants had expected that economic conditions would likely call for about three more rate increases in two thousand and nineteen. We have brought that down a bit. And now, I think it is more likely that the economy will grow in a way that will call for to interest rate increases over the course of next year. We always emphasize that our policy decisions are not on a preset course in will change, the incoming data. Materially changed the outlook. And given recent developments the statement notes that we will continue to monitor global economic and financial developments and assess their implications for the economic outlook. Now, I will provide some additional context in detail starting with the review of policy over the last year. Last december. The unemployment rate was four point one percent and inflation had been running just below two percent FOMC participants and many other. Forecasters were predicting that growth in two thousand eighteen will be strong growth was predicted to push the unemployment rate down to near historic lows in the increasingly tight labor market was expected to help push inflation up to two percent. Given this outlook committee members judged at the appropriate way to sustain the expansion with inflation near two percent was to continue gradually withdrawing the extraordinary support for the economy that had been in place for almost ten years, thus in December two thousand seventeen the median of the projections of FOMC participants pointed to three quarter point interest rate increases in two thousand eighteen which would have left the target range for the federal funds rate at year end at two to two and a quarter percent still below most estimates of the longer run normal rate. Early in two thousand eighteen it became clear that the economy was likely to be even stronger than we had expected in part because the fiscal stimulus adopted near the start of the year was larger and more front end loaded than most hand -ticipant. The signs of a more robust economy proved accurate and the FOMC has now raised rates four times this year, counting today's action. One more time than anticipated in the median projection a year ago. This illustrates the nature of data dependence that we always emphasize in two thousand eighteen the economy was somewhat more robust than expected and this led to a slightly faster pace of policy normalization they normalization than had been projected. When the economy has instead turned out weaker than expected, the committee has slowed or paused the pace of race rate increases as we did in two thousand and sixteen. And when the economy has performed about as expected, the committee has generally moved in line with the median projection as we did in two thousand seventeen. What kind of year will two thousand nineteen be? We know that the economy may not be as kind to our forecast next year as it was this year. History attests that unforeseen events as the year unfolds made buff at the economy and call for more than a slight change from the policy projections released today. With that caveat, there are two important differences in the policy outlook today versus next year. In early two thousand eighteen we saw a rising trajectory for growth today. Instead, we see growth moderating ahead. Epilepsy. Participants along with many other forecasters headlong predicted some moderation of growth in two thousand nineteen additional tightening of financial conditions. We've seen over the past couple of months along with signs of somewhat weaker growth abroad. Have also led us to Mark down growth and inflation projections of bit the meeting of FOMC participants projections shows growth of three percent this year and two point three percent in two thousand nineteen. With growth remaining next year above its longer, run normal value. The unemployment rate is projected to fall a bit further to three point five percent by the end of two thousand nineteen inflation in the median projection remains near two percent. Second the economy has continued to strengthen this year. And given our four rate increases any ongoing reduction our portfolio monetary policy will be providing a smaller boost to the economy in two thousand nineteen after today's action the target range for the federal funds rate is two and a quarter to two and a half percent. Putting it at the lower end of the range of estimates of the longer run normal rate provided by the committee. Over the next year if events play out broadly expected federal funds rate will be in a range in which judgments of people both inside and outside the fed will sometimes differ regarding whether the stance of policy is miles. Modestly accommodative neutral or modestly restrictive when rates are in this range, the FOMC makes policy in light of the array of diverse views on the committee. Moving forward. My colleagues, and I will be watching close the economy closely for indications at the stance of policy is appropriate to sustain the expansion with a strong labor market and inflation near two percent. It's worth noting that the summary of economic projections is a compilation of the individual projections of all FOMC participants. We sometimes point to the median of these projections to illustrate the broad middle of views of the committee. Each participant's projection represents appropriate policy under the baseline outlook baseline outlook provided by that participant. We believe that the provides useful information about committee participants thinking, but the median is not a consensus judgement, and certainly does not represent a committee plan actual policy will as always be adjusted as incoming data shed light on the state of the economy the outlook and the changing balance of risks. These are the pace nor the ultimate destination of any further rate increases is predetermined. We will adjust monetary policy. As best we can to keep the expansion on track the labor market strong and inflation near two percent. We know that our policy decisions affect all American families and businesses and will continue to make our decisions, objectively and based solely on the best information and analysis. Thank you. I'll be happy to take your.

Coming up next