tv Bloomberg Markets Americas Bloomberg January 13, 2022 10:00am-11:00am EST
♪ alix: it is 30 minutes into the u.s. trading day on this thursday, january 13. fed hawks pylon up. the chorus grows for a march lift off and bullard floats four hikes this year. the dollar conundrum. bloomberg dollar index down for a third day, falling below key technical levels. has the u.s. dollar peaked? it is up and away. france lifts restrictions on u.k. travelers. guy booked a vacation, and delta says it will return to profit in the second quarter. this is "bloomberg markets." i wondered why guy was in such a good mood this morning. then i realized he booked a vacation that he think he's going to be able to take. guy: i have to say, my wife is much more cautious that i am.
i am confident that i will be hurtling down a peak very soon. i'm delighted. alix: that is the optimism part of it. on the flipside, used to have the market aching all of the data we are getting relatively in stride. guy: i am genuinely amazed how little reaction we are getting. the market seems to have fully factored in the idea that we will get three hikes. the market i think still has some degree of ambiguity around what is happening in terms of qt. what causes a shock here is my question. we are trying to figure out exact a how forward go -- how far we go. would it be a more aggressive qt strategy? i don't know at this point, but everybody seems super calm with the idea the fed is about to hike three times. i think if you said six months ago the fed is about to hike three times, they would have freaked out.
the one area that we are getting a reaction is in the dollar. i find that fascinating as well. what is the dollar signaling? what is the dollar telling us about this story? is the dollar basically signaling the idea that maybe the fed is going to make a policy mistake? my question is a low bit more nuanced. does the buck stock here? let's bring in bloomberg's michael mckee, or international economics and policy correspondent, and the one and only vincent cignarella, bloomberg's global macro strategist. vince, does the buck stop here? vincent: i don't think so. this could be a temporary selloff. one of the issues i am seeing with the dollar, people are always focused on real yields, why are treasuries up and down. what is really going on right now is this is still being
driven by the consumer. when you see what cpi's doing through disposable income, if the consumer can't keep pace, dollar assets are not going to be that attractive. we see it obviously in fixed income with a 30 basis point move any 10-year, but what the dollar is telegraphing is we may be seeing a little but of a peak in equities if this trend doesn't reserves -- doesn't reverse. that either means inflation needs to come off, or we need to see wages in order for the consumer to continue to drive growth. that points to the mortgage rate number headline jumping to 3.45% , pretty much the highest into years, and i can tell you the anecdotal evidence we are seeing in the real estate market in westchester county right now the same thing we saw with the pandemic in 2020, except it is not being driven by a pandemic. everybody stage left exit
outside of manhattan, but rather the u.s. consumer is getting into that potential feeding frenzy of inflationary expectations, where next month is going to cost more than this month, so they are starting to get on the ball of that side of buying structure. that is negative for the dollar. alix: that means inflation expectations may begin little more entrenched to the upside. let's take that view and flip it a touch. from the fed perspective, does the bond market bleed -- on market believe the fed can handle inflation, while the equity market does not believe the fed can handle inflation? michael: the bond market is looking at shorter maturities. the market gets ready for the fed to take action, whereas the longer ones, the curve has flattened because they do seem to think the fed can handle it. you can do futures, but
basically the forex market is looking much more short-term, so what you are seeing is reaction to perhaps even more of a reaction to the economic data. by that i don't just mean the cpi number in the u.s.. you are seeing inflation around the world. you are seeing some members of the ecb start to talk about maybe we are going to have to act sooner rather than later. everybody expects the bank of england to follow the fed higher, so you are going to have a lot of cross currents in the fx market that you won't necessarily have an the bond market, so the dollar could continue to fall if we start to see other central banks get aggressive as well and talk about raising rates, and that will make the dollar just a little less attractive. guy: can i pull together a little but of what vince said was what is happening with the dollar? vince was talking about the idea that maybe consumer expectations on inflation are certain to become un anchored.
i am sure people are referencing it, that we are going to hike three times. if the fed is seeing that the consumer is coming unanchored in terms of inflation expectations, is there a sense that maybe it needs to do more, that it needs to deliver shock and awe in terms of bringing expectations down again? michael: i think it is a little early for that. they are pretty thing consumers are going to back off and that the inflation rate is going to come down because a lot of the fiscal help that consumers got is going to start falling off, so a lot of this is going to depend on when inflation goes down, and why inflation goes down. it is because the fed has raised interest rates, or because the consumer has run out of things to buy? we will find out if that is the case, but it will take a couple of months for that to happen. alix: running out of things to buy, that is not a thing, just
so you know. i want to take it from a different point of view. this really ties into what we heard from delta. they will return to profit in the second quarter. france is going to open up. people starting to buy vacations again. if we see it reopening and omicron was not as bad as we feared, is that why we are seeing weaker dollar, money flowing into assets outside the u.s.? vincent: i am not so sure that is the case. what we still need to see in terms of services index pmi's coming up versus manufacturing, that is the pandemic sort of correlation. we have seen some reduction in prices paid coming out of the ism surveys, which is a good thing. when i look at the data we have seen in cpi and ppi, i know headline year-over-year gets everyone's attention, but i would ignore that. month over month is the current trend you want to see. month over month is stable or
coming off a little bit, so i the fed is in that camp that they believe inflation is going to come down. they can take their time raising rates if this is an emergency situation. they may see to do for this year -- they may see 2% to 4% this year, but not necessarily coming one after another. i personally would rather see them reduce the balance sheet as opposed to raising rates and let the market take interest rates where they want to take it, and the fed should follow. the fed should not be meeting the market and telling the market what to do, but rather following suit, and the balance sheet for me is where the fed should be reacting right now, not in the interest rate environment. guy: i think a lot of people argue with the size of the balance sheet we currently have, the market and its ability to act as a signaling mechanism may have been broken a little bit. final quick question for me. jane fully was talking about this a little bit earlier on. did the market just get to long? is this just a simple position
unwind? is that what we are seeing in the dollar? vincent: it is very possible. typically we going to the new year and every buddy wants to sell the dollar. this year i think history has burned all of those decisions, so we went into this year a little but aggressive. i am just taking a quick look at the end of the last quarter or so, when the dollar has come off a touch. what i am worried about is that people who jump on this trade think this is for sure what is going to happen, the dollar is going lower. you look at the other side of this equation, if the pandemic eases, if inflation pickup in -- inflation picks up by the consumer, you will potentially see real euros pickup in the u.s., all of that is dollar favorable. if we get to stretched on the short side, we will see exactly a reverse of what we are seeing right now. alix: it will be really interesting to see how this
shakes out and develops. thank you very much. coming up, we will get into the even more. other dollar's best days -- already dollar'-- are the dollar's best days behind us? moneta's cio coming up. you have senator to me speaking now -- senator toomey speaking right now, giving his opening remarks. we will get the beginning of the statement from lael brainard, the fed governor. this is bloomberg. sen. toomey: we have now had nine consecutive months were in place and has been more than two times the fed's
joining us is aoifinn devitt, moneta chief investment officer. has the buck stopped here? aoifinn: i don't think it has. there's less uncertainty around covid for the dollar come but i can not see the currency that is an obvious trait at this moment. it may level out. but i don't see it dropping here. guy: is this just positioning unwinding? aoifinn: i think so. clearly the dollar was a currency of left -- of last resort. the equity market has far outstripped any developed market, any emerging market, and clearly there's a sense that it's started to rebalance, and maybe wishful thinking that some of that wishful thinking --
maybe wishful thinking that some of that reverses. alix: i mentioned this in the last segment. is that a shift to other currencies moving money broadly out of the dollar come out of u.s. equities, and into other areas? aoifinn: i think if there is a shift, it will very much be at the margins. there will be a sense that some of these currencies have languished, the british pound for example has not performed very well. i personally think these central banks are likely to be far behind the fed, and that will be a fundament of technical factor driving the dollar. i don't really see a dramatic decline from here. guy: is there a signal and what is happening around the dollar? other asset classes seem are markedly convertible with where the fed is going. three hikes this year, everybody seems on board with that is a concept. we will be hearing from lael brainard in a moment. but as the dollar sending a signal that that is going to be really hard to achieve, or that maybe delivering a soft landing
for the u.s. economy bringing inflation down while not crashing the economy is going to be tougher than people think? aoifinn: i am not reading much into that signal at all. but in the pricing is just how calmly markets are taking this indicated action by the fed. isaac we have to rumor that no matter what, this is still a very low rate of interest rates historically, even if we do have four rate rises in 2022. alix: have markets re-rated enough in terms of the equity markets to justify current valuations? goldman sachs saying that only a modest further move in longer-term yields is now expected. this means limited further risk to growth valuations from a discount rate. what do you think? aoifinn: i would agree with that. i think certainly, growth stocks are where investors want to bet right now. there has been a huge desire to
sponsor the disruption trade, and any technical effect of higher rates, i think people are back on the bandwagon. we did have to look at the equity flows to see where the demand is. that is why any of these corrections in markets are very short-lived. guy: thank you for your time today. we greatly appreciate it. lael brainard is currently being sworn in. we are going to hear her prepared remarks. she is just sitting down. let's take a listen. sen. brown: welcome to the committee. if you would like to introduce family or friends, i would welcome you to do that. governor brainard, please begin. ms. brainard: is this working? yes. chairman brown, ranking member
toomey, other members of the committee, thank you for this opportunity to appear before you. i am greatly honored to be nominated by president biden to serve as vice chair of the federal reserve board of governors command i am honored to be here alongside acting director thompson. i look forward to continuing to work with numbers of this committee. we are seeing the strong this rebound in growth and decline in unemployment of any recovery in the last five decades. over the past year, unemployment has fallen by 2.8% and growth is estimated to be around 5.5%, according to a variety of private forecasts. but inflation is too high, and working people around the country are concerned about how far their paychecks will go. our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone. this is our most important task. when the pandemic struck in
2020, i worked closely alongside chair powell, secretary mnuchin, and many others with the support of congress to calm financial market turmoil and save american jobs and businesses. when markets stabilized, i worked to responsibly wind down the emergency facilities that were established, and today the economy is making welcome progress. but the pandemic continues to pose challenges. our priority is to protect the gains we have made support the recovery. since 2014, as a member of the federal open market committee, i supported monetary policy that is responsive to economic conditions as the evolve. our approach helped sustain the longest recovery on record, with low inflation and millions of jobs. more broadly, i have worked to safeguard and grow our economy during the administrations of five presidents from both parties. i have worked on the u.s. policy response to every major financial crisis over three
decades. in some foreign countries, i have seen up close how high inflation hurts workers and families, especially the most vulnerable. i am committed to pursuing the federal reserve's and rationally mandated goals of price stability and maximum employment , and to maintaining the strength and resilience of our financial markets. i am committed to the independent and nonpartisan status of the federal reserve. if confirmed, i look forward to supporting chair powell in carrying out the response abilities assigned to the federal reserve and in fostering transparent communication and accountability to you and to the american people more broadly. i will bring a considered and independent voice to our deliberations, drawing on insights from working people, businesses, financial institutions, and communities large and small across the country. before closing, i want to thank my husband kurt, my daughters for their steadfast support of
my work, and i would like to commend the outstanding efforts of the many individuals across the federal reserve system who have worked so hard every day to serve the american public. senators, i think you for your consideration, and i look forward to answering your questions. thank you. sen. brown: thank you, dr. brainard. acting director thompson? >> i first want to thank president biden for nominating me to serve as director of the federal housing finance agency. it is the greatest honor of my career to appear before you today. thank you to the senators and the staff members with whom i have met in advance of this hearing. if i am fortunate enough to be can turned -- to be confirmed, i look forward to working with all of you on the important issues. i would like to introduce my sons, jared and aaron, who are here with me today, and i would like to recognize and thank my parents.
while due to covid considerations, they are not able to be here in person, the fact that my parents are still alive to witness today's hearing is very meaningful to me. i was born and raised on the south side of chicago to my extraordinary parents, who came to chicago from mississippi as part of the great migration. my parents and family, along with the chicago public school system and my beloved howard university right here in washington, taught me hard work, dedication, determination, and perseverance. i would specifically like to recognize schools in chicago that helped me succeed. mcdade element or school, gillespie junior high school, and bloom technical high school. my nomination is a great privilege. i recognize that it is rare for a career public servant to have the opportunity to lead a federal agency, and as the first
african-american woman nominated for this position, i appreciate the opportunity to demonstrate my expertise, good judgment, and leadership in this position. i am proud of the work we have done at fhsa.we have done work in providing access to credit nationwide and promoting the soundness of the housing finance system through fannie mae, freddie mac, and the federal homeland system. throughout my 40 year career, my experience in mortgage markets and financial regulation at multiple agencies, i have seen what it takes to lead a federal agency and be effective in that role. in my work at fdi see and -- fdic and fhsa, i have demonstrated my understanding of the industry, a fair and balanced perspective, and a strong belief in the importance
of the safety and soundness of america's financial institutions. during my time in federal financial institution regulation, i have witnessed and worked in several financial crises. these crises exposed some truths in housing finance. when i served as the fbic head of -- the fdic head of consumer protection, i witnessed the consequent is of irresponsible lending with hundreds of banks across the country closed and a record number of homes went into foreclosure. i saw how the borrowers who received unsustainable and predatory loan products were devastated and the downturned, and historically underserved and disadvantaged communities were hit especially hard. years of progress in closing the homeownership and wealth cap -- alix: you have been listening to the senate banking committee confirmation of lael brainard for vice chair. you can continue following along on bloomberg tv .
we will also bring you part of that q&a at a moment. we did want to go live to kennedy space center in cape canaveral, florida, where a spacex thousand nine rocket with numerous satellites for commercial customers, is ready to go live. joining us as bloomberg's ed ludlow. this is basically bring a lot of stuff into space. ed: yes, imagine uber pool, but for government agencies, private sector companies who want to send satellites into space. it is low cost. you can pay $1 million -- sounds like a lot of money, but in the context of space, it is not. literally one satellite or a cluster of satellites on board, and this opens the door for so many other companies have designed satellites, they want to put items in space, but they have not been able to afford to do so until this point. guy: what is on board?
ed: one of the most interesting is it is usually military would pay attention to because remember, spacex is really owning this relationship not just with nasa, but with space force, the u.s. public sector space agency. there's also a public traded company that went public via spac. that is basically a data generating satellite that gives us a better image here on earth of what is happening in our atmosphere and helps inform all kinds of things. and then planet lab sells the data and diagnostics around that as well. but there are a number of customers in total, and more than 100 set lights within that. -- 100 satellites within that. alix: what are you watching for in this particular launch? ed: what is so fascinating is this booster, the literal rocket
>> as you can see, falcon 9 has cleared the tower, lifted off from cape canaveral space for station. we just heard the call out that the vehicle is supersonic. we are currently going to throttle down the engines in preparation for max q, coming up. that was the moment of greatest aerodynamic pressure. ed: we just heard the moment of maxim aerodynamic pressure stress on the rocket. this is the second of the year. over the next six minutes, it will go into orbit, and what it basically does is orbit lower for about an hour, and then after an hour it will deploy a satellite. because of limited ground coverage, we won't actually have a strong video feed to see much of that deployment this time around, but routine has become
normal. guy: absolutely. just a quick question on this. we talked to version orbit the other day. these are the four microsatellites it is also launching. how crowded is this space going to become? there are different options for launch, but clearly there's going to be a huge market here. ed: there is, and the competition is already growing. i talked earlier about the satellites on board. virgin is moving into this space with a very different delivery mechanism. spacex does corner the market because they launch with such regularity. you can go to spacex.com and try to get a spot on one of their rights. we know blue origin has ambitions in this space. companies like rocket lab are ramping up their own activity. even though they are operating out of new zealand and the united states, they are winning nasa contracts. so spacex has competition, but
because it launches so often, it is basically the main option that people go to. alix: the video is tremendous, the live shots we are looking at. i feel like you said something really important earlier. the fact that we can get this to be something routine is really quite important for the development of whether you are going into deep space, the moon, high orbit, or low-earth orbit. ed: when we prepare for these launches, we always talk about what is going to happen. one of the key times there is inherent risk is highly calculated, much of the process is autonomous. if the computer detects an issue before launch, it shuts down. from the moment of lift off, anything can happen. these are very volatile propellants which the booster uses to breach earth atmosphere, but 137 launches has changed the game. the regularity is amazing. that booster that we saw, falling back down to earth, i think it has done seven missions
prior, but spacex says falcon 9 has done 10 missions in 26 months, launching every 70 days or so. it is quite a feat. guy: in terms of how cost is going to be affected, you say around $1 million to get a small satellite up into space right now. how quickly do people think that cost will come down? ed: it is really interesting. by the way, on the right-hand side of your screen, you saw the nose of the rocket, basically jettison's off and exposes the satellite. that is what you saw a moment ago. spacex is iffy on its economics, its business model. it talks about being profitable, but also elon musk has talked about how they are a long way from being positive on the star link business, their space age internet. they are charging revenue for these launches carrying other people's payloads and then making money on the nasa
contracts. at the same time, they are in growth mode on their other business, star link. it will be interesting to learn in the future how those two interact, but volume, economies at scale, this is what elon musk has talked about, and that is what they need to bring the cost down. alix: we've also heard elon musk say spacex could go bankrupt if it can't ramp up production. so to your point, a huge spread in what is actually going to happen for these companies. what i think begs a broader question is what is the addressable market for space? ed: this is a point you and i have discussed endlessly. ill and must sometimes contradict himself, but he has been pretty transparent that they launch business, what we are talking about on the screen here, sending stuff into space for other people, he says that is a $3 billion a year business. the data generated in space is a different story. he sees star link, the space station to operate his own
constellation of satellites, beaming internet down to remote corners of the earth, being a $30 billion a year business, but they have to build up the constellation capacity in space. he talks about investment of $5 billion to $10 billion before they are cash positive in that business, and may be as much as $30 billion all told for the complete network. so there's a long way to go here. it is a nascent industry, but everyone is trying to get in on this space. the forecast is for the money to be made in the data, not blasting things into orbit. guy: in terms of how crowded it is going to become up there, in order to make that data system work, you need to have a lot of small satellites floating around the world. my question is, as we start to see more and more stuff being put into low-earth orbit, we've got these satellites up there, what is the danger that we actually don't have the precision to be able to keep
these satellites perfectly positioned and avoid the debris that there is out there? ed: guy johnson on bloomberg television talking about space environmentalist and. i never thought i would see the day. but spacex and elon musk have come into criticism from a lot of parties, i worry about space debris. i talked about the parts getting jettisoned off. those do not get recycled. not the entire rocket is reused. some of it ends up in space. there's a worry about the density of satellites in space, but elon musk and spacex have pushed back very hard on this. they are engaged with the agencies. they are engaged with astronomers. they don't want to block the view of astronomers in space. they want to work with astronomers. it is some thing they say they are conscious of, but it is a concern for the international scientific community and some thing that has been discussed at government will and agency levels. alix: spacex has launched its
third transport mission from cape canaveral in florida. you are looking at a live shot of that in space, and as well at the booster coming back down. can you just refresh us as to what we are looking at right now? ed: you can see they are kind of flat at the bottom of the booster. as it approaches the distance of a few thousand feet above the earth, it gives an initial burst. it starts to stabilize itself. we are get in closer and closer to earth. aboard the falcon 9 -- i am actually go to be quiet because this is a beautiful moment. i want the audience to hear it. [rocket engines] [cheers and applause] >> as you heard from the callout and from the cheers behind me, we have successfully landed this falcon 9 for the 10th time. it is also the 100 -- ed: so in summary, another
routine launch and landing. you are going to stop inviting me on the show. alix: never, ed. [laughter] guy: ed, let's be clear. that is never going to happen. this is still exciting. shooting stuff into space is still quite cool, and will remain so for quite some time. ed ludlow, it is always a pleasure. thank you. very much for joining us. i look forward -- thank you very much for joining us. i look forward to the next time. ed ludlow joining us on the latest spacex launch, and critically, spacex recovery. let's come a little closer to home. let's get back to washington, d.c. fed governor lael brainard is speaking to the senate banking committee on her nomination for fed vice chair. let's return to that hearing. dr. brainard: -- very attentive to potential risks from the financial system. >> here's my concern, and i am certainly not alone in this. the other risk, the actual
evidence shows that there is no real risk. the transition risk israel, as chairman powell at spleens the source of that. the source of transition risk is really government policy. this is what is concerning. there are lots of risks out there that there could be a trade war with china, there could be geopolitical turmoil coming from a russian invasion of ukraine. we could have the government engage in shutdowns again in response to a pendant. actually, i would argue each of those poses a greater risk to the financial system than some sort of climate event, which has never resulted in the failure of a major bank. but you have not advocated doing stress tests around those other risks. the only when i know of that you have advocated is stress tests for the less likely risk, which is the climate-related risk, and the concern that many of us have is that this whole construct unique to climate risk, even
though it is really not a threat in the foreseeable future to the financial system, it is all about a precursor for using the regulatory power of the regulatory power of the fed to direct capital away from politically disfavored industries. sarah bloom raskin is, by some accounts, might be president biden's next nominee to be the vice chair for supervision. she has been explicit on this point, and she has argued regarding the able mentation of the c.a.r.e.s. act that the fed "should not be directing money to further entrench the carbon economy." so she has especially advocated that the advocate capital by denying it to this disfavored sector. my question is, do you agree with ms. raskin that the fed should play that role? dr. brainard: let me just respond to your question. thanks for asking. i have not suggested that we should do stress tests for climate.
stress tests are very specific. they are related to the capital planning of large financial institutions. we do actually include geo economic risks in those stress tests, so we have included things like brexit in our stress tests, but i certainly have not stated that we should do climate stress tests. in terms of supervisory guidance, what we tend to do is ask large institutions in particular, do you have a good risk management framework for assessing all of your material risks? we would not tell banks which sectors to lend to or which sectors to not lend to, but we do want to make sure that they are measuring, monitoring, and managing their material risks in many large financial institutions. sen. toomey: so just to be clear, you disagree with ms. raskin on this point? dr. brainard: i honestly have
not studied her positions, and i would simply say i can speak to what we do in our supervisory guidance, and it is pretty meat and potatoes. it is very well known to the large institutions, and really not that different from what they are doing today. the one thing i would also want to clarify, i don't think that is appropriate for small institutions. i think small institutions don't have as big a footprint. i think they will decide what their risks are, but i'm really more focused on the large institutions that come into tell us they would like to have more consistent expectations in this area across jurisdictions. sen. brown: thank you, senator toomey. senator menendez of new jersey is working as. sen. menendez: let me first thank you for your leadership on reforming the community reinvestment act rule of the past several years. in the middle of 2020, when the
trump administration was ramming a flawed rule to the fcc, civil rights advocates, banks, and other advocates look -- and other parties look to you as a serious voice in the room, and if confirmed, i have no doubt that you will continue in that spirit, as we approach dr. king's birthday commemoration this coming week. i think about this as one of the essential elements of a move. as you are engaging in network, what did you hear from minority led investigations about the changes needed to further incentivize investments in minority communities who were impacted by dependent? -- by dependent? -- by the pandemic? dr. brainard: thank you for your question.
i believe the room again does provide a nice ground for what would be good modernization measures. what we hear still from many communities around the country is that they still don't have similar access to credit. there are still barriers in terms of getting that access. they really like having bank branches in their neighborhood, but particularly in rural areas, that is not always the case. they want to be able to have more interaction with financial institutions. they want minority depository institutions and community development financial institutions which do tend to be very good at serving those underserved communities to be strengthened. they care really deeply about the community reinvestment act, as do many banks. sen. menendez: would you commit to making it a top priority to work with the other regulators to issue a strong new rule in a
timely fashion? dr. brainard: i will certainly support that effort with the board and with others, yes. sen. menendez: i appreciate that because minority communities are hurting right now, and this needs to be a priority. the pandemic has brought the white house a severe lack of -- and i think it is time for regulators to work together on effective and updated rules. i looked over to your leadership. ms. thompson, missouri is a state that spurs the economy -- new jersey is a state that spurs the economy. new jersey has the second-best school system in the country and the highest per capita income in the country. in other words, do a great job of educating our kids and giving them the ability to reach their potential. that is not just because new jerseyans are smarter than their father americans, but it is
because we invest in our people. so this is a state that is part of a region that generates 20% of gdp for the entire nation. so we make money for the federal treasury. but as we met yesterday, and i appreciated our visit, i explained how many new jersey homeowners are being hit with a one-two punch of rising flood insurance rates, and unfair cap on state and local tax does actions -- tax deductions of the internal revenue code, and thanks to the trump tax bill, which we are fighting to reverse both of those bad policies, but i want to make sure that is director of the fhsa, you are sensitive to the concerns of homeowners not just in new jersey, but other high-cost states. yes, we want to be fiscally responsible to the entities that
are under your purview, we can't simply do it on the backs of those that are actually generating revenue for the federal treasury. can you comment on that? ms. thompson: sure, and thank you for the question. certainly we care very much about the high cost loans. as you know, last year we had a historic increase in home prices, and that it states that have high cost areas probably harder than most. one of the actions that we undertook was to increase the fees for some of the higher balance loans, and that may unduly impact a number of counties across the country. i think most of the country is not impacted, but there are 104 counties across the country that are. having said that, we do recognize that there is a difference between buying a home
in new jersey versus buying a home in south carolina, and we have excluded from this fee first-time homebuyers with median incomes less than 100%, and we have also excluded our affordable products so there is no fee associated with first-time homebuyers who live in high cost areas. we know that there is a huge affordability issue, especially with first-time homebuyers, and we did not want to exacerbate the problem. sen. menendez: thank you. finally, governor brainard, the fed has a serious diversity problem, something i keep pressing. i had it with jerome powell, and i am compelled to raise it with you as well. if you are confirmed, what steps are you going to take to improve minority representation, particularly latino representation, which is among the worst of the diversity that exists at the federal reserve?
dr. brainard: thank you for your question. i think the federal reserve was actually founded on a recognition of the importance of bringing aid ever city of perspectives to the table. that is why we have 12 reserve banks across the country, and we have branches in communities all across the country. so we have regional diversity. we have always valued sectoral diversity. it is very important to have different kinds of backgrounds. but we really have lagged on racial and ethnic diversity. we are seeing some very important changes that we have worked very hard on at the reserve banks in terms of the boards of directors. if you look there at latino representation, it has gone up threefold in the last four years, so now we have about 25% of our class c directors are latino. we have about 1/3 that are black , and now more than half who are
minorities of one sort or another. so we have made progress there, but in terms of actual leadership positions, we have only ever had one black president. we have never had a latino president. that remains a very high priority. many of those boards have spent a great deal of time making sure that we have more diverse pools of candidates, and that our procedures and hiring are as good as best practices everywhere, because we know, as those who wrote the federal reserve act knew, that having more diverse perspectives at the table leads to less groupthink and better outcomes. sen. brown: senator brown's of south dakota is recognized -- senator rounds of south dakota is recognized. sen. rounds: thank you to both of you for your continued participation in public service. in september, the fhsa offered a
strong incentive for gse to create crt relative to the capital regime. i believe that this is a legitimate tool, knob and just curious, can you share with me briefly your philosophy on the crt and how you might utilize it further if confirmed? ms. thompson: thank you for the question. i firmly believe that the credit risk transfer program is very important for the enterprises. as i mentioned earlier, fannie and freddie are the largest holders of mortgage credit risk in the country -- in the world, and right now, fannie and freddie are able to retain capital, but not able to have enough capital to a stain a severe event, so if something really bad happens, the event
will have to be paid for once again by the taxpayers, and it is important -- alix: you have been listening to the hearing for fed governor lael brainard, testifying before the senate banking committee. also, the acting director of the federal housing finance agency. you can follow on bloomberg to follow along. lael brainard saying the fed has lagged on racial and ethnic diversity. trainers also -- brainard also talking still about climate, i would not tell what sectors and what areas they would tell banks to lend in, and it is import to understand all of the tail risks. this is where i think the climate conversation comes into play. guy: absolutely. it is interesting to compare and contrast what is happening with
central bank's the world. the ecb getting on the front foot when it comes to climate risk and certainly focusing significantly on that. senator to be pushing back on the idea that this should be something of a but and see for the fed. the president is speaking right now, talking about what is needed for america to continue to exit from the pandemic, talking about the fact that he is going to deliver remarks next week about ensuring masks apply. this is one factor that is going to be hugely significant in terms of going forward. the president obviously recently has been focusing on what has been happening with testing. it looks like we are heading in the direction of talking more about testing, talking more about masking, and that is going to be the route out of where we are now with regard to the pandemic. alix: the mask thing is really important because you can get them, but the inflation of mask prices is crazy. you could have gotten masks on
amazon for $30 or something, and now it is triple that price, so the getting that kind of supply is definitely key. that is president biden there. you can also follow along and read the headlines as they cross. i want to go back to lael brainard and her confirmation hearing in the senate banking committee. bloomberg's michael mckee is here with us. what were some stand up for you over the last half-hour? michael: i think her standard declaration that the fed is concerned about inflation and is going to do whatever it can to try to bring it down was expected. it is not a surprise to anybody. the questioning that followed was not a surprise because republicans have made a big deal out of the fed getting involved in climate change. there was some concern about remarks by sarah bloom raskin, who some have talked about as a candidate for the vice chairman for supervision, some comments she made about whether or not banks should supply credit to fossil fuel. senator pat toomey of
pennsylvania making a big deal of that, asking lael brainard whether she agreed, and she said no, the fed does not get involved in telling people who they can lend to. so it will be interesting to see if raskin is nominated, whether it would come up there. that was the main issue for them. also, diversity in terms of lending and in terms of fed staff. guy: let's talk about monetary policy and where brainard stands on that. we have not really heard from her since september. we go into a black out period tomorrow as we head towards the next fed rate decision. we've heard from harker. we've heard from daley. where is brainard as she slots in potentially to that vice chair position going to sit on this issue? michael: she is definitely in favor of raising rates, whether she wants to do it in march or
how many is, i would guess, some things she is going to try to keep from the committee in the same way the jay powell did earlier this week. they want to let the committee know that they are on the job, as they are going to move rates if necessary. they don't want to commit to anything too much at this point because they are the leaders of the said. but as you rightly point out, a sig. get number of fed officials have said march and are signing onto the three rate moves this year. it will be kind of a question of how fast because they want to see if the fiscal cliff, the lack of government support or the economy that we are experiencing this year starts to slow consumer spending and demand, and that eases some of the bottlenecks that are causing inflation. alix: i wonder if we can tie in the inflation conversation with the risks senator toomey was grilling lael brainard on. recently, they said they will use the tools to slow inflation. how do you slow inflation when
you are also accounting for diversity, and there is a lot of question about climate? can you do all of these things, or are we going to see different kinds of tools come into the tool basket, or things like runoffs and balance sheet reductions to address the inflated asset prices versus rate hikes, which will have a broader impact? michael: the fed basically has two blunt instruments it can use in terms of rates, and that is to raise interest rates if they want to slow the economy, or they can shrink the balance sheet because they have a large one at this point, and that may put some upward pressure on rates as well. nobody is quite sure of the exact transmission effect. but everything else they want to do falls under the supervisory rubric. while i can do some of it, a lot of what is happening in these hearings is political posturing by both sides in the sense that the fed can tell banks that they need to account for what would
happen if they lent to a developer whose property is underwater because a hurricane hit it. they can tell them you've got to account for that and what danger that brings to your finances for you but they really can't tell them that they can't lend to somebody. that would take a change in the federal reserve act, so i lays a concern among republicans, it is not something the fed is likely to do unless congress orders them to do it. guy: we will leave it there. we know you are going to continue to monitor what is happening in the senate banking committee. if people want to continue to watch, they can do so on their bloomberg terminal's -- their bloomberg terminals, live . select the one for the senate banking committee and you are good to go. in terms of where we are with the markets right now, we are certainly seeing a little bit of a rollover in terms of equities at the moment. the nasdaq now starting to reverse course quite
significant. we are down 1% just a few woman's ago. looks like we are stabilizing around 0.9%. remember, this is a market that is down by nearly 4% so far year to date. european equity markets also rolling over as well. we are down near session lows. the ftse 100 down only by 0.1 percent. the cac 40 in paris in particular with luxury stocks the biggest decliner in terms of the segment story, down by around 0.9%. so the euro-dollar continues to be bashed. we will come back to that story. jack mcintyre of brandywine global is going to be focusing on that story. do we go further down from here? this is bloomberg. ♪
the countdown to the close starts right now. >> the countdown is on in europe. this is "bloomberg markets: european close," with guy johnson and alix steel. ♪ guy: as i say, european stocks rolling over. we have 30 minutes away from the close. 484, 485 is where we are trading now. the cac 40 in paris being hit the hardest. luxury stocks are down. the eurozone very much on the front -- the euro very much on the front foot. i should say, the dollar on the back foot. 1.1461, 2% to the upside for the euro. brent crude under pressure, down by 0.7%, but it has had a really fast move up. this could just be positioning. brent crude