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tv   Bloomberg Markets Americas  Bloomberg  December 1, 2021 10:00am-11:00am EST

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alix: it is 30 minutes into the u.s. trading day. happy december. here are the top stories at this hour. it is a buy the dip day, with some more volatility. day two of jay powell and janet yellen's testimony on capitol hill. dudley says accelerate the taper. we will speak to the former new york fed president after he warns it will be too late if the fed doesn't speed up its tapering december. and omicron concerns. the variant pops everywhere as countries tighten travel rules and germany talks about potentially a mandatory vaccine. from new york, i'm alix steel, with my cohost in london, guy johnson. welcome to "bloomberg markets." you were just at an aviation conference. what was your biggest take away? guy: short-term, there is an impact.
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that impact is manifesting itself in europe. i talked to a bunch of u.s. ceos. at the moment, they don't see any affect. thanksgiving was really strong. they expect christmas to be strong. so it feels from an aviation point of view at the moment to be a very european problem. alix: i just wonder if we are six weeks behind you guys. is it going to be our problem right after the holidays? guy: we will wait. we will watch. we will see. but the consensus at the moment is that the issue is actually less omicron and more delta. that is certainly the problem in europe, but we are starting to see more cases popping up. i am waiting to see what the u.s. does. the expectation certainly amongst those i talked to this morning was we are not likely to see the trans atlantic shutting down. we may see increased testing rules. alix: absolutely. you should have come before. that is all i'm going to say. guy: let's talk about the data.
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let's get to what is happening with the economy and focus on what is going on there. we are getting the ism manufacturing data out. 61.1, bang in line with expectations. up from 60.8. that is the headline number. let's break it down. prices paid, 82.4. that drops a little bit. maybe we are starting to see evidence that we are seeing some of the supply chain issues beginning to tamp down a little bit. new orders, 61 .5. the employment component rises to 53.3. some of those unfilled jobs, some of that struggle industry is having to fill, maybe we are starting to see some evidence of that moving a little bit as well. let's get a break and on the ism numbers. tim fiore is ism's business survey committee chair. what should i read into this data? tim: good morning. the dynamics that make up the pmi shift a little bit and move
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closer to equilibrium. what i mean is really that the supply issues ease a bit, but it was offset by gains on production employment. that is really where we want to go. the input side has been superstrong, driving the number up. we really need more output. i think the month of number -- of november saw big gains on that. alix: it might encompass delta, but not omicron. do you have any idea what these numbers will look like in a month? tim: i think we will continue to see those expectations. we are now back to over 60. the backlogs are still extremely high. customer inventories are at regular lows. there seem to be some gains on the employment side which is what we have all been waiting for. 7% of unemployment comments indicated things were getting better in november, up from 5%
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in october, 3% in october, and 0% in august. i said we have a positive trend. it is not overwhelming, but it indicates there's going to be a climb out here to really staff the factories. we had a really good move, i think, having inputs ease a little bit, offset by the consumption side, and the final comment is that the transportation sector is still restricted. we still had a very high level of comments on transportation. we are performing really well. guy: the chair of the federal reserve yesterday retired the word transitory. if you were to think about a word to describe what you are seeing right now in terms of the inflation impulse that you are getting for your data, what would it be? tim: i think we are in a cycle here. you did note that the price
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index did soften up a little bit, which is good. at the same time, supply delivery numbers softened, which is good again. we ran up some really high peaks here. steel was running about $2000 a short ton. that is a positive indicator. i don't know that we will ever get to that level again without something really not so good happening. but it looks like we are easing a little bit. i think the month of december will tell a lot. alix: if we want of having issues with travel or some thing along those lines because of the new variant, i wonder if that expectation is we will work from home, meaning buying more stuff, which means the backlog continues as inflationary pressures build. any signs from you get on that? tim: the big indicator here is the import side. we did come through the peak in october, november. we are now in the lunar new year phase, and we are starting to
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negotiate the labor contract on the west coast. looking to see those ports free up a little bit. one of our number when industry sectors, furniture, there's a lot of trouble for that, as everyone knows. but i think we are in a good position here, even if we have an issue with omicron. i think manufacturing will continue to perform well. even when the service side fully opens up, there's been enough saved by americans that i think there's at least a six-month carryover. the feeling is right now within industry, this will carry over until 2023. alix: that is a long time. that is definitely not transitory. tim: we generally run 35 and 36 month cycles in manufacturing, the right now we are 18 months. so there is still good runway. this is not a typical expansion, but there is no reason to think it will collapse either. alix: tim, thanks a lot. love getting the analysis. thank you very much.
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guy was just talking about it. fed chair jay powell's testimony yesterday before the senate banking committee was about tapering and transitory. here's what he said about inflation. chair powell: the test we have articulated clearly has been met now. you are absently right, inflation has run well above 2% for long enough. the word transitory has different meanings to different people. i think it is probably a good time to retire that word and tried to explain more clearly what we mean. alix: joining us now is bill dudley, bloomberg opinion columnist and senior advisor to bloomberg economics. he recently wrote, "the fed should and probably will double the pace of tapering, setting a trajectory to the end of the asset purchase program by mid-march." bill, i am assuming that yesterday, you are listening to this testimony, it validated what you thought. is that a good thing? bill: absolutely. the fed is very behind the curve. they are still adding monetary policy stimulus, even as the economy is overheating, even as the supply of labor is quite
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tight. so they are behind the curve, and they need to free up some space so they can actually have greater optionality. chair powell has said they are going to do that. they will etc. the taper, finish buying in march. that means the possible lift off and start at the march meeting or somewhat later. guy: even then, with a still be behind the curve? we still got a few months of stimulus being added to the economy. how does the fed get in front of this inflation story? what does it need to do? doesn't want to be in front of this inflation story? bill: what is interesting is the markets are not acting like the fed is behind the curve. you look at the peak federal funds rate, it is only about 1.5%, 1.7 5%. that is very consistent with what inflation is doing and how late the fed is responding to that inflation risk. so i think the market is going
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to have to significantly reprice at some point. the fed will probably have to go faster than what people expect. it will probably have to go higher than people expect. that is going to be a bit of a shock to financial markets. alix: that is an interesting point because yesterday, it seems like what the market was pricing and was may be more aggressive rate hikes, but a lower terminal rate. it does not go as high, for example. how unprepared do you feel is the market for the scenario you are outlining? bill: i think it is very unprepared. yesterday it was just pulling it forward, so there's more rate hikes priced into 2022 and 2023. but there's virtually nothing beyond the middle of 2023, 2024, 2025, and the terminal rate is really low, so i think people are overestimating how easy it is for the fed to get inflation
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under control. the idea that the fed tightens three or four times and all of a sudden inflation just melts away, i don't think that is how it is going to work. the federal reserve has not tightened to officially slow the economy to prevent the economy from overheating. it is going to take more than what is priced in today to do that. guy: we haven't had a credit cycle. are we about to have one? bill: i don't think we are going to have one in the very near term because the fed is still on hold for a while. the fed is expected to tighten moderately over the next couple of years, and earnings growth is really strong right now, so i think the trend cycle is going to happen, but it is only going to happen when there is a realization. even the federal reserve itself thinks the cycle is going to be quite a bit higher than what markets have priced in. if you look at the summary of economic projections, they view the short-term rate with 2% inflation at 2% and 3%, and inflation is well north of 2%,
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so if they are going to make monetary policy tight, they think rates will have to go well above 2% to 3%. there is a disconnect between market patients, what the fed thinks, and what the fed is going to have to do with was vector normalization. alix: i feel like the markets lead the fed for the last few years when it comes to this. i wanted to get your take on what is happening with the long end of the curve. today is a bit different than yesterday, but when we saw the front end rate really rise and the backend did not come of the 530 the flattest since march 2020. does this throw some cold water on the idea that the fed is suppressing long-term rates? they have been not easing. they have been paring back some. they have been tightening those financial conditions, and yields haven't really moved. bill: i thin be hard part to evaluate is the effects of fat asset purchases at a time that the treasury borrowing is actually falling. so the fed is taking out a lot of treasuries for the market of
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net new supply, so i think we are not going to get a good sense about where the treasury market should perform in the longer end until the fed potentially backs away from quantitative easing. that is still three or four months away. guy: what is the current paradigm that using the fed is operating with? we clearly have probably worked our way through asymmetrical inflation target. what comes next? bill: the paradigm they have been operating with is that we have trouble pushing inflation up to 2%, therefore we have to prove the limits of maxim sustainable employment. that was the problem of the last cycle, but definitely not the cycle because they are missing badly on their inflation objective currently, even as they still think there is some slack left in the labor market, so the regime they put in place is still suited for the current set of circumstances. alix: something that has been quite strange is that the job market continues to be really
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solid, and job openings are plentiful, and consumer confidence keeps rolling over. is inflation to explain for that? what is the biggest issue? bill: i think inflation would absently explain it. otherwise, why would confidence be going down at the economy is recovering? it has got to be because higher inflation is crimping people's disposable income, and they are feeling the strain out there buying gasoline, buying groceries, as things are much more extensive than they were a year ago. guy: what is your global perspective on what is happening here? is inflation a u.s. problem, a eurozone problem? is it going to be a problem in japan? because if the latter two don't see the same issues that the fed sees, they are going to act as a kind of counterpoint to the liquidity squeeze the fed is going to put on. we could but initially see the
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boe and the boj countering that. we are still willing to have two major providers in the market. bill: so far, europe is fine in terms of the amount of inflation pressure, but inflation has gone up quite substantially in europe as well. a little bit less supply disruptions because they did not laugh a lot of workers when the pandemic hit, so company's have not had to scribble is hard to get their workforce back in place. in japan, they are not seeing much inflation at all, so japan is still in a very different place than the rest of the world, and that has been the case for several decades now. alix: jay powell yesterday made it very clear the next two weeks of data is going to be super important. you've got the cpi, the jobs number friday, the case count. i wonder, what is the number one thing you're going to be reading between the lines? bill: i don't think the economic data is going to dissuade the fed in terms of what they do.
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they know the labor market is strong. we know we have inflation problems, regardless of what the next report looks like or what the next consumer prices report looks like. the big wildcard is the new variant, and if that turns out to be very severe, very contagious outcomes in terms of people who get sick, could that affect the fed's decision making? it could, but as jay powell made clear yesterday, even if the variant turns out to be bad, it has demand effect, but also supply effects. it is not clear that the demand affect will be more important than the supply effects. so i think you are pretty locked in for acceleration of the paper at the fomc meeting two weeks from now. guy: really enjoyed the piece this morning. incredibly timely. really enjoyed our conversation. bill dudley, bloomberg opinion columnist and bloomberg economics senior advisor. tune into an excuse of interview we will have a little later on.
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st. louis fed president loretta mester will be on bloomberg a little later on, 6:00 p.m. new york time. stocks bouncing back. steep selloff obviously dominating the last few days. our next guest says don't aggressively buy the dip, not yet. mira panted -- meera pandit, j.p. morgan global market strategist, joining us next. this is bloomberg. ♪
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♪ guy: let's take a look at the equity markets. incredibly well bid.
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on a five day basis, still down, but today we are catching a bid when it comes to stocks, as you can see. we are tracking a little bit higher. keep an eye on what is going on in the bond market. the ongoing repricing is something you definite want to pay attention to. the u.s. two-year on offer today. the dollar on offer. crude coming back. what a ride it has been. we are now trading at $68.49. a strong kind of move from equities does seem to be based on the economic data, and if you look back on the past 31 years, traders would often say tina when it comes to u.s. equities. what does that mean? there is no alternative, just like over the past 31 years at bloomberg. there have been no alternative when it comes to making a decision about our next guest. he is a must-have. bloomberg's dave wilson, over to you. david: thank you, guy.
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think of the chart i put out today as a sort of career summation. going back to october 1990 when i started here, there was a basic comparison of market performance. u.s. stocks, international stocks, u.s. bonds, international bonds, money markets, commodities. i've got to tell you, when you see the results, it is clear why tina is something people have been talking about for years. the russell 3000 index on a total return basis, including dividends in that, at one point last month, up 30 fold from where it was in october 1990. four times the gain we saw in the msci index that tracks markets outside the u.s. on a dollar-denominated basis, and you find bonds behind them. money markets based on the u.s. cash and decks them, and finally commodities. it just goes to show you how
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much u.s. stocks have really been dominant when it comes to performance over the past 30 plus years. it jumps out, and it really does make clear why, for many people, there is no alternative to u.s. stocks. alix: and there is no alternative for you either, dave. thanks a lot. you have been here 31 years at bloomberg, and david is retiring. we hope you enjoy your life in retirement as much as we enjoyed you. how long till you get bored? david: well, i am going to try very hard not to. i and and barbed -- i'm involved with my alma mater monmouth university and my church. but my career has been pretty much uninterrupted. i started a little paper in south jersey, then went to dow jones, then came here to bloomberg. not much of a break. so it will be nice to have the opportunity to reflect, figure out what is next. alix: we look forward to seeing
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what that is going to be. dave, thanks a lot. we appreciate you coming on. guy: the opportunity of being bored sounds quite nice to me, but we will park that thought for a moment. maybe for a few years. let's talk about what is going on right now. yesterday we did not know we were going to get such amazing breaking news from the hearing with jay powell and janet yellen. fed chair jerome powell and the treasury secretary are back on capitol hill, preparing to face questions. this is obviously the second time we are seeing this. in the old days, alan greenspan might just finesse the message. they are testifying before the house financial services committee on the pandemic response. bloomberg international economics and policy correspondent mike mckee joins us now to discuss. as i say, in the olden days, greenspan what kind of see what the market reaction was to day one and then finesse the message on day two. do you think there's any finessing of the message that needs to happen here?
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michael: i don't think so. you talk about the olden days with dave and me here. alix: you are still here, though. [laughter] michael: in the greenspan days, the fed was not nearly as transparent as it is. over the years, we have evolved into this sort of pattern where the fed hints at strongly enough what they are going to do that the markets can absorb that. the fed doesn't make a promise and say this is exactly what is going to happen, but they say basically, we think this would be a good idea, or we are going to talk about this, and then everybody can reprice without having a shock the markets and without having the taper tantrum, and that was because ben bernanke surprised the markets with his comments. i think powell did a good job yesterday of basically saying the market is right. using we should taper faster and we are probably going to do that. he held up one finger and said except we don't know what is going to happen with omicron. alix: mike, things a lot.
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now you've got to run. let's get some market reaction before we get to fed chair jay powell and treasury secretary janet yellen. we are joined by meera pandit, jp morgan asset management global market strategist. what is the trade after yesterday? meera: markets don't like uncertainty, and certainly there is a lot of uncertainty with the virus right now. a lot of unanswered questions. so what we are lightly to see is some choppiness in markets going forward over the next couple of weeks until we get some answers to those unanswered questions. but right now we would not necessarily advocate for huge shifts in portfolios. we are not necessarily going to aggressively buy the dip, but it is to a per to favorable backdrop for stocks, all things considered. we have dealt with the virus and various surges before, so in that respect, for those more concerned about the virus and where we go from here, areas like technology, health care has tended to be good during the storm over the last two years, but equally, if we think beyond
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just the next few weeks of uncertainty to the next few months, with rates as low as they are, they are lightly going to be on the rise again. growth is still in a pretty solid place and inflation is high, so we don't necessarily want to give up on some of those cyclical areas of the market either. guy: it feels that you've got two different forces at work here, maybe slightly pulling in different directions. you've got what is happening with omicron, the delta surge we are seeing. that may encourage people to continue to hold technology stocks. the rewriting of the taper and the rate hiking cycle feels like it is also quite opaque at the moment. what is your sense of how the journey to clarity is going to go? we don't know what rates they are going to be tapering at. we don't know what the first rate hike is going to look like. we don't know how high rates are ultimately going to go. how do i put these two things
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together? meera: powell's comments yesterday implied that the fed is more concerned at this point about inflation than potential impacts to growth or jobs from this variant. in some ways that is surprising in the broader context of how accommodative and patients the fed has been, and particular in recent years, even if we go back to 2019 and think about some of the rate cuts in that environment. so this is certainly a shift and it does raise the stakes for the december meeting in terms of a potential acceleration of the tapering timeline, and the challenge we face there is only one hand, from a markets perspective, that does give the fed a bit more flexible it in terms of liftoff -- more flexibility in terms of liftoff. there could be volatility as markets try to time when that could be, but i don't we to get ahead of ourselves on liftoff either. the key is buying that flex ability, and where we are economically today could be very
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different in the mill of next year when growth is slowing, consumer demand is potentially waning, inflation is starting to break, so the fed is going to have to be decisions based on the future economy, not the present state of the economy today. alix: under what conditions could the fed get the real rate towards zero? and if they were successful in that, where do we see the biggest asset repricing? meera: israel a question about what that rate will be and at what pace we will see hikes. certainly from a monetary perspective and a fiscal perspective, it puts us in a different place than last cycle, so we are going to have to be increasingly cognizant of how this environment shifts. but the challenge we also faced today is that stock valuations are high, bond valuations are
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high. there are certainly some constraints going forward in terms of where returns are going to go, so investors are really going to have to look globally, look in both public and private markets and the well diversified to navigate a very different economic environment going forward. guy: stay there. we need to carry on the conversation. let's bring it over voice into the discussion. bloomberg's vincent cignarella joining us now. how should i think about the fed put? how should i think about asset allocations with reduced liquidity? meera: i think what you need to --vincent: i think what you need to look at, and what powell said yesterday was a significant change of how the fed is now looking at a cannot data. prior to yesterday, the fed had always concentrated pretty much on jobs, saying jobs need to be returned to that pre-pandemic level before the fed would actually really move. we know we are going to get taper, but that doesn't mean the fed is still going to not be
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accommodative. yesterday he essentially said that jobs are not going to return to pre-pandemic, that they have been looking at that and that the jobs data they were going to get is going to take far longer than they originally thought to get it back to the prepended levels. he then shifted the conversation to inflation, and that inflation is going to be obviously not transitory, or that if it were it would be longer-term. i think for asset valuations, there's a little bit of an underpricing in the long end of the curve. while we are going to see the near end react a little bit more aggressively because it is tied to the fed funds rate, arguably we are not going to see inversion of the yield curve, so the entire curve needs to ratchet up, and i think the long end is well underpriced. alix: if that is the case, how much tightening needs to be priced into the dollar? vincent is a recovering fx trader. what needs to be in the dollar now? vincent: i think the dollar is
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also underpriced. i know a lot of people look at it, and people have been trying to sell the dollar since 2016 and have been getting burned for the better part of five years now, and i think they are going to get burned again next year. that ratcheting up of the yield curve is going to make the dollar a little bit more attractive than, for instance, europe, and even the u.k. the u.k. rate hikes for very bad reasons, and the import a great deal of product with the situation still ongoing with the eu, and i can't believe i am saying this again, brexit. [laughter] there inflation situation is going to be a little bit more difficult than the u.s. situation, so i think overall, positive for the dollar. an emerging markets as well. when you see u.s. rates going up, a lot of em debt is priced in dollar debt, so quite negative for the balance sheets of emerging market countries, and of the same time, with the
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spread of the variant, it is obviously spreading in places that are having more difficult to getting the vaccine, and that is not the case in the united states. guy: meera, let me bring you back into the conversation. if vince is right that we will see a stronger dollar, does that mean i am best off putting my assets into the united states next year? already if you compare and contrast for a euro investor is a dollar investor in the s&p, it is a 10% difference in terms of performance. if the dollar continues to strengthen, that will only widen. should i favor u.s. stocks if we are going to get a stronger dollar? meera: we are seeing better growth within the u.s. i think that is pretty clear to everyone. but what i think we could see is a shift to a more global recovery. the variant does through a bit of a spanner in the works in that if we do see a surge within the new variant, particularly in
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the less vaccinated areas, that could delay some of that recovery, but i don't get is going to derail it entirely. i think we will gear our portfolios anymore international way in the second half of next year, but we are seeing u.s. growth outpaced international growth. that has hoped prop up the dollar, so for now, the u.s. is a good bet in terms of where investors are positioning, but i thing we want to mix or that per folios are more geared globally in nature into 2022. alix: do you think they also need to be geared toward more cross asset volatility? meera: you are likely to see more volatility because of the taper timeline and how that will evolve, plus the timeline in terms of rate hikes is probably going to result in a decent amount of rate volatility without uncertainty. as we are in such a transition period for the economy and for
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monetary policy across the board , investors should be prepared for some degree of volatility next year, despite the fact that the economic fundamentals are still pretty solid. it is just not necessarily going to continue to progress this recovery on an entire linear path. guy: if the fed is going to remove the punch bowl, or at least start to drain it, are we about to have a credit cycle? how many businesses have been able to survive this downturn because of the largess of the fed? there are some high-profile names i can think of. is that about two turnaround? is the credit cycle about to reassert itself? vincent: i think that is a real possibility. we know we have seen many issuances in this year where a great deal of corporations, not just in the u.s., have taken advantage of low interest rates and tried to tie up money for
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the foreseeable future in expectation of this date, so i think a lot of companies have taken the steps necessary to protect against it. however, i think a lot of the smaller businesses don't have that ability, and i think they are the ones that are probably going to suffer the most. alix: so if we see a credit cycle fallout like that, is it like the last ones? vincent: i don't think we will see the financial stressors like we have seen in the past. i think any moves by the fed are going to be very gradual, and i think the corporate world will be able to keep pace with it. it is going to be more expensive, obviously, but certainly not too expensive that it is going to crush anyone in particular. the fed is not going to be doing the 50 basis point hikes of the volcker era. they are going to kilis with 1000 cuts, the greens baron era -- to kill us with 1000 cuts, the greenspan era.
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the fed has clearly made mistakes, where they have raised four times and then realized they raised too soon, and then had to lower four times. this cycle looks like we are really at a 40 year low or so in interest rates, and that the next cycle is going to be considerably higher, but not necessarily in an exaggerated path. i think in a very slow sort of glacial speed, if you will. alix: really appreciate the wind up. thank you so much, meera pandit of jp morgan asset management and bloomberg's vincent cignarella. you can check them out on the bloomberg audio squawk on the terminal. fed chair jay powell and secretary janet yellen are now taking questions from the members of the house financials of his committee. maxine waters is -- financial services committee. maxine waters is speaking. let's listen in. rep. waters: let's talk about the progress we are making. chair powell, the american rescue plan that passed in march helped accelerate vaccinations and reopening's over the last
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nine months. the economy was -- the economy has added over 5.6 million jobs. workers have started to see meaningful wage growth for the first time in decades. do you view these wage growth trends as positive? how does your economic recovery compare with other major economies, and you still think that inflation will be temporary? and if so, why? chair powell: thank you. on wages, we have seen wages moving up significantly, and at this point, we like to see wages move up or get everyone likes to see wages move up. that is how incomes rise generation to generation, so particularly at the lower end of the wage spectrum, we are seeing wages move up. at this point we don't see the moving up at a troubling rate that would tend to spark higher inflation, but that is something we are watching very carefully. in terms of other economies, our
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economy is stronger than the others. we had stronger fiscal support, so part of it is that come about our recovery is really the farthest advanced of any of the largest ones. in terms of the temporary nature of inflation, i would say the inflation we are seeing is still clearly connected to pandemic related factors. i would also add that it has spread more broadly in the economy, and i think the risk of persistent higher inflation has clearly risen. i think our policy has adapted to that and will continue to adapt. rep. waters: if you could expound a little bit more on what is happening, i remember when we first started to talk about inflation, we basically all talked about it in terms of it being transitory. i think that what you just
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alluded to relative to how the economy will act or recover, are you directly talking about stimulating the economy with, for example, build back better, and that will help with the inflation that we are experiencing? chair powell: i do think that forecasters at the fed and around pretty much all forecasters expect that inflation will move down over the second half of next year, closer to our longer run goal of 2%. but as i mentioned, we have seen inflation be more persistent. we have seen the factors causing higher inflation be more persistent. i am taking of the companies in a very high demand, but also the supply-side difficulties we are having with blockages and that sort of thing and shortages. in terms of the effects of the bill back better bill, that is
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not something that is appropriate for me to comment on. rep. waters: secretary yellen, when you were fed chair, you were known for looking to other figures like the rate of employees quitting to determine whether the economy was reaching full employment. the quick rate has surpassed previous records, leading some to label what has happened in the economy as the great resignation. when chair powell testified in our committee in july, he identified childcare and school closures as one of the biggest barriers to further labor market recovery. can you explain what the quit rate tells us about the economy today, and you believe that the investments that the bill back better act would make an childcare and universal pre-k help with this? sec. yellen: the quit rate, when it is high, and as you mentioned, it is the highest it has been in the history of this
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series, it signifies a tight labor market where workers are leaving their jobs because they feel confident about their ability to get others, often getting outside offers, and feel good about the labor market, and that is what we have, and we see it reflected in surveys of workers who feel that jobs are plentiful, and of course, businesses almost universally complain now about the difficulty of hiring workers. but this is a very unusual shock to tip the economy. at the same time, we see that a large number of workers, their participation in the labor force has declined, and it hasn't yet gotten back up to normal levels. in some cases it is because
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there were early retirements, and the pandemic did result in, unfortunately, a large death toll. but i think there are still many people who, especially low income workers, who don't feel confident about the health consequences of working, especially in face-to-face type jobs, so those people are still out of the labor force, and i think as we get greater control over the pandemic, the supply of workers will increase as those people come back to work. rep. waters: the gentleman from north carolina, mr. mchenry, the wrecking matter of the committee -- the ranking number of the committee, is now recognized. rep. mchenry: those in september and july, ask you about this. the fed incorporates new
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spending from the fiscal house, from congress and the white house, into projections, and the effects of your monetary decisions with the knowns of fiscal policy. a lot depends on the details. certainly you incorporate that information, but a lot depends on the details. is that still true? chair powell: yes. rep. mchenry: so in light of that, we had in february a democrat only proposal that made it into law to spend $2 trillion, and then we have just last week another bill did adminstration sports and enhances the deficit, raises the deficit by $400 billion. and so we have those two large fiscal pieces here. when chair waters asks secretary
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yellen, the chairman of the federal reserve, whether or not spending more money from the physical health will improve inflation, i think what she asked, want to translate for the public. when a democrat says improve inflation, it means enhance or raise inflation, just to be clear. so my friends on the left, when they say improve inflation, they want more of it. secretary yellen, to this point, these things are imprecise. policy making is imprecise. but back in february, there was an output gap this administration i knowledge in economic projections, and came to congress for a fiscal stimulus in the name of covid. is it fair to say that maybe you overshot in february? sec. yellen: i think it is fair
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to say that we had a sizable fiscal stimulus. we were very concerned that the most significant risk facing the american economy was a shortage of jobs and a prolonged downturn that would scar many people, particularly the most -- rep. mchenry: in february, the output gap versus what the fiscal stimulus was that your administration pushed for and got, perhaps you overshot. is that fair to say? is that a fair assumption? sec. yellen: i don't think that is a verizon should. rep. mchenry: it is not -- a fair assumption. rep. mchenry: it is not? sec. yellen: as chair powell just mentioned, the united states -- rep. mchenry: so you -- reclaiming my time, madam chair. sec. yellen: look, inflation -- rep. mchenry: i asked a very particular question about the up
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at gap -- the output gap. the output gap was $300 billion to $400 billion. economists on the left and right were saying that was about right. sec. yellen: i think it was extreme he hard under the circumstances to have any certainty. rep. mchenry: as a policymaker, i am asking you, you are a noted economist. as chair of the federal reserve, you are now in the ferry -- in a very different position, having to sell what is a pretty lousy economic agenda, but you are doing a great job trying to sell this at ministrations agenda -- this administration's agenda. what i hear from economists on the left now, and your former san francisco fed even acknowledges, that that february stimulus contributed to the inflation we are now experiencing. is that a fara sums and are not -- a fair assumption or not? sec. yellen: inflation is a
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matter of demand and supply, and it is true that the american rescue plan put money in people's pockets, helped them meet expenses that they had, and contributed to strong demand in the u.s. economy. but if you look at the amount of inflation that we have and its causes, that is at most a small contributor. the pandemic and what it has done to supply chains, diverting demand away from services and massively onto goods, which has resulted in supply chain problems, and the impact we have seen that has now been long-lasting on labor supply due to the pandemic, i would say those are -- rep. mchenry: there is a distinct and here between a supply shock and a demand
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issue. is that fair to say? sec. yellen: that is one reason why most households are in a favorable financial position much better than they otherwise would have been. it has enabled their spending. but the fact that the spending, because of the pandemic, has been so focused on goods as opposed to services, has contributed massively to the supply chain problems that are affecting prices. rep. mchenry: the congress and the public and this in ministries and want to point everyone onto the federal reserve, on inflation. that is simple enough the case. it is the multiple trillions of dollars this congress and this administration is spending that is putting jet fuel on the fires of this economy. it is making things worse.
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the chair went over time, and i am going over time as well. so let me just say this. it was the at adminstration's agenda here -- i will finish my sentence here, madam chair. it is the administration's agenda that is driving up the cost of things, that is making the american people worse off, not better off. inflation is outpacing wage increases. this is on the democrat house, senate, and white house. i yield back. >> the jim o'neill's back. the jump -- the gentleman yields back. "the jump -- the gentleman from colorado, mr. promod are -- mr. perlmutter, is rignet. rep. perlmutter: i am way over here today. i am listening to republicans talk about inflation, but i think more important topic we should be talking about is the fact that since the ex-president trump was defeated by joe biden
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november of last year, we have added almost 6 million jobs, 600 20,000 jobs per month. we have seen the stock market rise from 26,002 36,000. now it has backed off to about 35,000 in the last year. at one point, for billion dollars per point. it is all most up $13 trillion since joe biden won the election last year. we have seen gdp of dramatically over the last year. my friends, i appreciate that the republicans want to talk about inflation because that is all they can talk about. so i would like to ask my first question of you, secretary yellen. unemployment is falling at the fastest rate in 50 years, and is now at 4.6%.
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my question is on build back better, and how will it help in terms of the recovery and create more opportunities for everyday americans. sec. yellen: thank you for that question. bill back better is really focused on addressing growth and inhibiting inequality. go back better is what it does for children -- build back better is what it does for children and households with children. two years of universal early childhood education for three and four-year-olds, and subsidies for child care to make
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quality childcare affordable for the great majority of households , along with a continuation at least for a year of the child tax credit that has made it possible for so many families to support themselves. these childcare revisions, as well as other parts of the program, should serve to boost labor force participation. rep. perlmutter: the subject i
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have asked both of you about in the past, the safe banking act which involves allowing financial institutions to provide financial services to the cannabis industry and those that serve the cannabis industry, and you may know that we had it, we passed it with bipartisan votes out of this committee, off the floor to the senate. last cycle, this cycle, we amended national defense authorization act. it is estimated that in just three states, nearly $50 million in taxes went unassessed because of unique issues surrounding the cannabis industry. madam secretary, do you agree
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that if these businesses were simply allowed to access the banking system and didn't have to transact business only in cash, it would make the irs's job easier? sec. yellen: yes, of course it would. rep. perlmutter: i yield back. >> the gentlewoman from missouri, mrs. wagoner, is recognized for five minutes. rep. wagner: thank you. thank you for joining us today, and as expressed to you earlier, chair powell, i want to congratulate you on your renomination for another term leading the federal reserve board, and i look forward to continuing to work with you. chair powell, you responded that our best expectation is there will be modest upward pressure on prices this year, but they won't be particularly large or persistent in the future. chair powell, since that hearing
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eight months ago, i have asked you about higher inflation, and yes, to my good friend the jump in from colorado, we are going to talk about inflation. that is all the people are talking about in my district, missouri's second congressional district. they want to know why these prices keep going higher and higher and higher and higher, and i don't believe it is necessarily to follow the foot of the fed. it is democrat policies and overspending. but i digress. i asked you about higher inflation two more times. americans have experienced surging increases in food, fuel, housing, leading up to the most expensive thanksgiving, christmas, and holiday season on record. is it your view that these price increases still aren't particularly large or persistent? chair powell: no, that is no longer my view. rep. wagner: thank you for that
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answer. yesterday in the senate banking committee, you stated that you believe it is time to retire the word transitory. i think most define inpatient has transitory -- could you ask blaine the fed's meaning -- explain the fed's meaning? chair powell: the word transitory to some has a meaning of short-lived. we are using it in a specific way to us means that this episode, however lengthy it is, will not leave a persistent, long-run string of high inflation behind it.
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our whole world that we play really revolves around having clear communication. when you have a word that means different things to different people, we just need to move on and find a better way to a spleen ourselves. most forecasters still do think, overwhelmingly, that inflation will come down significantly in the second half of next year, but as i have said, the risks of higher inflation have moved up. rep. wagner: if soaring debt and deficits and excessive spending and dumping stimulus spending after stimulus spending into our economy, will that be a driver of inflation? rep. wagner: --chair powell: i don't want to comment on fiscal policy directly. in general, if you go back to last march, the best resource
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forecasters thought that inflation would be about at our target, march of this year. what was wrong with that analysis was really that we understood demand would be strong. we did not understand how the significant problems of the supply side, which are very unique -- rep. wagner: and how much money there would be in households. chair powell: demand is very strong from fiscal policy and from a quickly rebounding economy. the economy is very strong now. rep. wagner: i agree. secretary yellen, let me ask you. the cbo, and they reflect one of the more conservative scores, has said that bidens spending bill, the most recent one, will add $367 billion to the deficit. could you describe the long-term consequences of too much fiscal spending on financial markets and the price of consumer goods? rep. wagner: --sec. yellen: let
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me first put the cbo number you mentioned in perspective. they did score build back better as resulting in $367 billion in deficits over 10 years, not in a year. rep. wagner: well, there are a lot of gimmicks that went through to get that number. sec. yellen: that score, they made clear, does not include the revenue that will come from enhancement of resources for tax enforcement. it does not include -- rep. wagner: how does this overpricing deal with the pricing of consumer goods? >> the gentlewoman's time has expired. the gentleman from texas, mr. gonzales, is rignet for five-minute. rebel gonzales -- rep.
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gonzalez: thank you. i would like to talk about a couple of issues that have affected our district. my first question is for secretary yellen. you testified before this committee in july, you identified caregiving needs as one of the major barriers people face in getting back to work following the covid pandemic. over 80% of south texans residing in my district identify as latino, but only 19.5% of three and four-year-olds are enrolled in publicly funded preschool. what impact do you think the build back better act will have in supporting our economic recovery and getting folks back to work? specifically, do you believe investing in childcare and universal pre-k will bolster our
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economic and liver market recovery? sec. yellen: yes, i absolutely do. as i mentioned previously, one of the reasons even before the pandemic that women's labor force per dissipation in the united states fell short of that in many developed countries is the lack of public support for child care and paid family leave , and during the pandemic, this became so much worse because of the issues in childcare and schools not being open, but many childcare facilities closed, and people who work in childcare that involves face-to-face contact, health concerns have held people back from going to work there, so build back better will subsidize childcare so that it is affordable for almost all american

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