Sir Marco Bana, Bill Dudley, Powell discussed on Bloomberg Surveillance

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If they start to shrink the balance sheet at some point next year that we think could really weigh against risk assets because it's going to be adding duration risk to the market It'll be adding more term premium that will lean against the flattening pressures slightly but most importantly it's going to be withdrawing liquidity out of markets And the extent to which Powell elaborates on this or provides hints in that direction may end up being the big surprise for the meeting next week Monk just quickly just in terms of sequencing then Do you think that needs to happen before we get that rate hike And does that change your view on when they make a move No we think that the sequencing will be as they have historically done Rate hikes before balance sheet reduction or perhaps rate hikes with balance sheet reduction at the same time We don't think it's likely that they begin balance sheet reduction before rate hikes Primarily because the fed has a much better understanding of how rate hikes or increases in the federal funds rate end up impacting the real economy They've done this for years They've got good models that give them confidence and how it works But they're less confident less confident in is how the balance sheet actually influences underlying economic conditions That said how has told us all along that they have multiple tools with the emphasis on the plural here to deal with elevated inflation The two most to us are rate hikes and balance sheet reduction That means that balance sheet reduction could potentially be pulled forward Gets you thinking Mark just wonderful brilliant Thank you sir Marco bana of Bank of America global research Where do you start Lisa with that conversation Let's start with our view of being sympathetic to the view of Bill Dudley on this program yesterday talking up a move on the 24 tart to two 50 from one 80 And a conversation that we had yesterday If they start to forecast that does it make it less likely that they can achieve it Because ultimately imagine the amount of financial condition tightening that you will see of the back of those kind of forecasts Especially if there is some sort of guidance about balance sheet reduction I mean where you said where do you go You go to four 30 p.m. on every Thursday today and take a look at their balance sheet which has more than doubled since the onset of the pandemic from about $4 trillion to about $8.7 trillion At what point does that become the more disruptive force among the potential tools plural that the fed has Just to be clear here that's where you go for 30 Eastern Time on a first date Correct I'm well and truly checked out after 4 p.m. Oh I don't believe it Your record market definitely That's a lie I mean I was tweeting Morgan Stanley's calling bed last night at 9 p.m. Futures downer said I'm trying to sound cool It's 49 73 on ten for New York City This is Bloomberg Now with the latest news from New York City and around the world here's Michael Barr Lisa thank you very much The Macron variant of COVID-19 is.

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