Listen: US, Europe And Bloomberg discussed on Bloomberg Best
"This is Bloomberg best. I'm June Grasso. And I'm Ed Baxter. A fight is brewing among economists and fed watchers on the path of monetary policy June. Less bullish analysts have wondered if a rate cut is looming. Among them is Bloomberg opinion columnist Mohamed Al Arian who cites spillover from slowing global growth and Al Arian spoke with Bloomberg's Jonathan Farah walk us through your thinking, then the potential fed response through this year. I it's not I repeat it's not about a recession in the US the chances of a recession the US are very low. This is about what's happening in the rest of the world where does a significant weakening in Europe and in China with the possibility of spill back. This is about commuted inflation in the US. This is about the fed not wanting to take on the markets again. And this is about evidence of slack. So when you put all that together, even though the US economy will continue to do. Well, the fed is likely to stay on hold for for this year and the balance of risks towards a cut for next year. So Mohammed that doesn't sound like a. Recipe for cutting interest rates that won't me through the potential Catholics that leads the fed to turn around from stopping from taking a pause into an interest rate. What is it? It is spill back from what's happening abroad. You don't see much happening in Europe in terms of pro growth policies, and you're unlikely to see much because of the politics the EU just revised downward significantly growth projections with all four major economies taking a hit. And it's likely that the growth prospects are going to them even further in China, the typical stimulus measures aren't producing what they used to. So it's about the rest of the world. You mentioned the CPA. And actually, I think you've been quite critical. It's the last couple of months of the European Central Bank for me for the Federal Reserve. It was about policy mistake two months ago. And now for Europe is about policy in percents. I'm not sure Mohammed what in the European officials can actually do to counter the slow down there you. Well. I I'm puzzle. We've got to comments that Bloomberg news covered. Well, from ECB officials, basically dismissing the weakness one calls it a soft patch. The other one saying we don't have to we don't we shouldn't over-react data points. No. This is a widening slowdown in Europe. And it has to be taken seriously in terms of policy responses. You're right interest rates are already negative. I mean, they can possibly delay. What they've told us about possible rate hikes. But it's about other policy-makers you had today, the minister of economy from Germany, and he is in a country that just averted a technical recession just wanting. Budget surplus, and yet the fiscal response is very limited. And yet we seem confident that when you have a low growth story at Mesa even less likely that they introduced some kind of fiscal stimulus Muhammed is there anything can the politics and the thing in the political leaves in Europe that you see that would push the Europeans to change their pro-cyclical fiscal impulse. Is there anything there at Seoul? Not as yet. Donaldson. I think it would take a major slowdown for the politicians to respond. I mean that is one of the risks of the central banks having delivered this continuous low growth. It's it's taking the politicians off the hook. And the result of that is a structural impediments have accumulated and now we seeing a renewed slowdown Europe. So let's talk about how you express this in financial markets Muhammed quite obviously couple of weeks ago. The Federal Reserve did it's full one eighteen formalized in full retreat. And it was a lot of people that came out of the woodwork and said, this is about the awakeness now is sold about dollar weakness. We're about to find out it ain't not straightforward. It ain't that fit forward for the simple reason. That he can growth matters for currency as well. So what I think you're going to see is to return of the divergence trade where the US assets outperform others, and I think that that is going to include a stronger, not a week a dollar. So we'll be throws. Muhammad convergence trade through nineteen could mean outside of say show, your dollar, which is already at one thirteen what's lacking? And what's needs to catch up the obvious? Relative trade is US stocks vexed the rest of the world what we've seen in the recent past is that the rest of the world has done better than the US. I think that's going to reverse. Secondly, you've got a interest rate differential in ten year at about two fifty three basis points between the US and Germany that's going higher not lower. So I would look in a different currency that was Mohammed area. Bloomberg opinion columnists and coming up, David Herro of Harris."