Listen: Federal Reserve, Jay Powell And Peter Coy discussed on Bloomberg Businessweek
"This week's broadcast Pulitzer prize winner Zach miner, he's teamed up with Zeke FOX they have been investigating Carol the predatory lending industry. It's a blockbuster love about it. Jason is that investigators have really kicked into action because of their reporting and their stories, and the story isn't over. Also, I love one of the most read stories on the Bloomberg this week about Wall Street's role for the metoo era. And it's basically avoid women at all costs. Some really great details. A little bit of a chilling effect for sure plus it's the Bloomberg fifty those who made an impact in twenty from a variety of industries. So we'll have the highlights from that group. But I have Jason Carroll every day on our radio show. I feel like we're doing tea leaf reading round the Federal Reserve. Serve Jay Powell feels like sometimes still finding his way. Yeah. This job, especially the precision of language that you might expect a little better from a fed chair with all the experience he has one of our favorite watchers of all this one of our favorite tea leaf readers. Peter coy is here with us. So Peter neutral neutral, I'm going to just use air quotes every time. I say the word neutral is to get annoying. But it's neutrals a term of art in monetary policy. You know, in common language, just means, you know, Switzerland beige, but in when it comes to monetary policy. It means a very specific thing, which is the topic of enormous debate within monetary policy circles and November twenty eighth that debate really came to the surface because Powell Jay Powell, the chairman of the fed gave a speech in New York New York in which he said that interest rates were just below neutral. And the stock market took off Dow Jones went up more than six hundred points, which is like two and a half percent gain. And the reason was everybody said, oh, maybe the fed is turning dovish. Maybe there'll be fewer hikes and the interest rate than we expected, which of course is good for stocks and basically good economy. So. Everybody started saying did he really mean what he said? Or we over interpreting it markets tend to do that they tend to write overreact parse everything seven, particularly the fed chairman, but the media reaction before you have time to parse is just a hit the right by trade trade trade, and that's what they did. But it does seem there was something to that speech. Because one of the things you point out in your story, which is so dead on is if the fed is doing its job, right? It doesn't surprise anyone. Right. And the markets don't react, wildly one way or another. So by that measure fail. Yeah. Unless you unless you subscribe to the theory that the towel wanted to send a message to the market and the in our Tober, he gave a speech that was very different thing. Atmos- he said that we're kind of well below the lower range of the neutral funds. Right. So that actually hurt the stock market stocks went down like ten percent over the following month and a half. So there is a theory that he said, okay, we got a slap market the face say, you guys are overly pessimistic. That's not what I meant. Professor Koi, let's class here. Because the neutral rate is an interesting, it's not an exact number can move around. But the whole ideas, and you put it, and we hear this with our guests that kinda Goldilocks economy that perfect spot where everything's just kind of moving along. It's just kind of right where you have. Is low and stable right right around the Fed's target of two percent and economies at full employment. Everybody who wants a job has one and right now, we're kind of at a Goldilocks economy. So you're thinking, why do we need stimulus anymore for monetary policy? And that's debate the Fed's going through right now if they raise rates to abruptly though, they could actually not growth out inflation would start to fall back down could trigger recession. What's so interesting to write coming off, the financial crisis and the great recession. They didn't need to really worry about this. Right. 'cause it was just stimulate the economy. Right. I get things neutral was an ear relevant concept. Right. You they knew the rival on sorry. They were trying to be neutral at that time. They were putting their finger on the scale trying to stimulate the economy as they succeeded. They found themselves in this issue where now they're forced to confront a number because it kind of unknowable, but have to start to make the best guess of where that number is we now I if we have this conversation, which we sort of did three months six months ago. It was a pretty clear path into twenty nineteen of consistent rate hikes. That was you know, what the dots? And all of that showed that that's where the feds mind was. But it feels like in the last few weeks all of a sudden December feels like a lock. Yeah. Going into twenty nineteen continually raising interest rates is not necessarily a given. And there's a wide dispersion of views about this. Goldman Sachs is still predicting for increases in two thousand nine hundred lockstep once every quarter. But you're hearing other people talk about two one. I mean, they're even some people are saying zero that's extreme end of the spectrum which would make the president of the United States. Very happy. Yeah. And that's just yet another element of this whole thing. You can no longer look at just the economics. When you talk about interest rates, look at the politics, president United States actively saying he thinks he made a mistake appointing Jay Powell, chairman of the fed that he really worries that the interest rate increases are going to kill the recovery. But a happy not Peter coy always love."