tv Maria Bartiromos Wall Street FOX Business March 31, 2019 8:00pm-8:30pm EDT
testifying on thehill, we heard nothing about it and that's so much more vital thistime . >> there's many more issues far more vital . and the president now with this burden off his back . ria bartiromo's "wall street" begins right now. ♪ >> from the fox studios in new york city, this is maria bartiromo's" wall street." maria: happy weekend. welcome to the programming that analyzes the week that was and helps position you for the week ahead. i'm maria bartiromo. we have another jam-packed program this weekend. coming up, blackrock's rick reider is with me overseeing $2 trillion in assets under management in fixed income among other areas, in blackrock's firm of almost $6 trillion of assets under management. later on, minneapolis federal reserve president and ceo neel kashkari will be here as well. a big story for the market this is week was the inverted yield curve when short-term interest rates are higher than long-term
interest rates. a couple of reasons why. the ten-year yield broke 2.4% this week. concern about global growth as well as trump's nominee for the federal board, steven moore, saying the fed should cut interest rates immediately. he thinks the fed should cut rates saying that the fed is sucking the oxygen out of the economy, and it's created an economically debilitating deflation, deflation shrinks the economy. the fed should reverse its disastrous rate hikes, writes steve moore. joining me now, rick reider: great to see you. >> thanks, maria. maria: i was trying to really make the case and explain to our audience how significant your portfolio is at 2 trillion in a firm that has almost clash 6 trillion in -- $6 trillion in assets under management. you watch this stuff really closely and come up with recommendations. what was your opinion of what
steve moore said? >> i don't think we need to cut interest rates, but was also against last year that they didn't need to keep raising rates. we're at or about the neutral rate, and one of the things that has happened when you started to see thing it is like housing, auto sales bend down, they're intra-sensitive parts of the economy that were really starting to come off. the economy has things like education, health care as a mature, older demographic. it's when the interest-sensitive areas start to come down, the fed needs to stop. i think they were maybe a bit late in terms of stopping. i don't think in december they needed to go again. but we're at or about the neutral rate. in and around 2%, i would argue a little higher than 2%, maybe we could debate that, that's where potential growth is. that's where rates should be. we're in a different demographic and historically when people say, gosh, rates are really low, actually, the economy can't grow globally not as a demographic older than it was years ago in the u.s. you think about places like
japan or europe, potential growth is lower. we're at or about neutral. economies are operating fine, moderating a little bit, the fed can go away for a period of time, let the economy do what it's going to do, and if there's a recession, which i don't think is the case, it could start to do more. maria: our viewers will remember when the whole world was talking about the fed raising interest rates back in 2018, i believe it was september9 when you were on this program, you said the fed needs to get out of the way. you were spot on because then the fed had that enormous pivot, and now we're talking about the potential for cutting. how worried are you about the global slowdown? >> so i think you have to put it in perspective. you said what's the tail risk to the u.s. economy. i don't think it's sitting within the u.s. economy. the bigger -- people underestimate. china is now, depending how you measure it, 40% of global growth today. it is hugely important, and it's about 50% of commodity demand. and it's a massive component of trade and manufacturing trade.
they're a tremendous exporter. why does europe slow significantly, the rest of asia slow significantly? you could look at china as a really big driver of that. we have to keep one eye on china. the economy is tremendous now. it's the second largest economy in the world now, and it's been growing faster, slowing now to about 6% or so. you have to keep an eye on it. if china stabilizes finish which i think it will, because the amount of stimulus they're putting in, monetary, fiscal, legal, regulatory, etc., is going to stabilize that economy. which means german manufacturing pick up, korean manufacturing will pick up, taiwanese, etc. so you've not to keep an eye on that. if we're wrong, that's where i think the risk is in the u.s. economy. it's if the global economy drags it down, and i think the fed's been clear about that recently. maria: and we're going to get the chinese purchasing managers index this weekend. >> it's important. maria: which will give us an indicator of how the chinese economy is doing. can the u.s. keep growing the way it is even with what's happening in china?
>> so i think people understand that the u.s. is going to -- we've gone through tremendous growth last year. potential growth in the u.s. is about two. the fiscal stimulus got us well above that. we're moderating to around potential the fiscal push now in this year is significantly less and maybe about neutral. so, you know, we should grow at about where we're growing. i think there is the potential, when interest rates come down like they've come down, you're now going to improve the housing market which ises hugely important to the u.s. economy. it'll improve the auto market. i think the u.s. economy's going to grow faster. you know, it's an amazing seasonal dynamic first quarter of every year. people get worried about where the u.s. economy is, and do you know on average the last sick years gdp has been on average about 2% higher in the second quarter than the first? there's a lot of reasons for how inventory and capital expenditure works. wait until we see the second quarter data. i still watch german manufacturing and very much watch china.
maria: second quarter data will be better than expected, is that partly due to housing? are you seeing signs that housing is getting better right now? >> 100%. i think people underestimate, it's extraordinarily interest rate sensitive. we just moved the rate down 100 basis points. i think people need to follow what building permits are going to be which tends to be a pretty good leading indicator, housing starts. by the way, some of the home builder stock, their earnings have not been that great, the markets tend to think forward about where, when you drop interest rates, where they are. home builders do well. watch housing starts. we talked about it earlier. why in california, particularly post-wildfires, watch what happens to permits and housing starts. china's -- california's 15 % of the u.s. economy. it's a big, big driver. maria: let me get your take on what the fed is focused on in terms of growth and inflation. a lot of people worry, okay, wages are not going up, but
maybe that's inflationary, and that's going to move the fed. and you say? >> just to pivot off the california thing, a stat that i think blows people away, because of the wildfires and higher utility costs, transportation costs, do you know that u.s. inflation, the top line in cpi printed at 1.6%. if you strip out california, it was 1.1. because of california, it was running about 3.8% because of the wildfires. it's amazing, meaning u.s. inflation is not scary at all. the south, northwest and northeast running at 1.1% inflation. not scary. but when people say look at wages, in the 1950s that was very relevant because if you had a manufacturing-oriented economy. when wages move up, you create a dynamic where you get a self-regulating dynamic in terms of inflation in the economy, and the thing that is just hugely important, it's a service-oriented economy today. if wages goes up, it improves
income, but -- if you see people are concerned about retirement, college costs, the savings rate's going up. it's not inflationary. people don't, like in the '80s, you don't buy a new tv or radio because you get it all digitally today. higher wages doesn't mean higher inflation. maria: rick, it's great to have you on the program. of the best analysis anywhere. >> i don't know. [laughter] maria: don't go anywhere. when we come back, minneapolis federal reserve president neel kashkari will be here. >> experts on the street see a slowdown for the economy this year. could a recession be looming as well? >> it's something i'm paying a lot of attention to, i think my colleagues are. >> neel kashkari gives maria his take when "wall street" returns. take when "wall street" returns. ♪ minimums and fees seem to be the foundation of your typical bank. capital one is anything but typical. that's why we designed savings and checking accounts with no fees or minimums.
minneapolis president neel kashkari got what he wanted haas week, no plans for rate increases in 2019. despite that victory, he's taking an issue with how the federal reserve came to the decision. he said that the he has serious beefs with how the fed is assessing the economy, having an important conference next week, an event in minneapolis to talk about it. neel kashkari will be a voting member of the federal reserve next year, and he joins me right now to explain. it's good to see you. thank you so much for joining us. i want to get into what you'd like to see happen next week, but first, the big news of the week was that yield inversion. short-term rates higher than long-term rates. and a lot of people worry that that is an indicator that a recession is at hand. how to do you see it? >> well, it's the best indicator we have of all the data that we look at historically in predicting recessions. so it's something that i'm certainly paying a lot of attention to, i think my colleagues are. at a minimum, the bond market is signaling slower economic growth
for the next few years than we'd been expecting sense months ago or nine -- six months ago or nine months ago. i also look at where the neutral interest rate is. one of the fundamental questions in monetary policy is what interest rate neither stimulates, nor restrains the economy. we don't know for sure. i think the yield curve is giving us feedback and telling us, at a minimum, we're goes close to neutral. i don't see any evidence that the u.s. economy's overheating. maria: isn't it incredible to you that we've got record low unemployment in certain areas, we've got economic growth that hit 4.2% in the second quarter, 3% overall for the year, we're seeing businesses spend money again in the economy, and yet interest rates are going down? education plain that. >> -- explain that. >> we, i think we've seen a trend where interest rates have fallen not really because of central banks, they've fallen because of of demographics, technology development, productivity and a lot of
savings around the world. that's led to these lower, neutral interest rates. but i do think people are concerned about what the outlook is for the next year or two. so i think that is largely responsible for why the fed has shifted our position, but i also think markets are paying attention to risks in europe, in china and some evidence of slowing here at home. maria: a lot of things you said there, so i want to get to everything. europe. how slow is europe? can you characterize what you're seeing there? >> i mean, the big economies in europe, germany, barely growing. so it is a concern for us. and obviously the big risks around brexit, what's going the happen there. what does it mean for the future of the euro. there's still big, unanswered questions in europe with. maria: there was one prediction that said they would be lucky to even get 1 president growth in 2019 -- 1%. >> that sounds a reasonable possibility. maria: china, how significant is the slowdown we've seen in china from your standpoint? >> well, it's a big slowdown. of we know china has to slow,
there's just no way a massive economy could keep up that remarkable growth that it saw for the last ten years. so we know china has to slow. but is it slowing because of a gradual slowtown or because of shorter term factors, cyclical factors that are bringing it down. and this is a lot of questions about the chinese data. you know, we never know how serious to take the official statistics coming out of china. is it slowing more rapidly. maria: it's ad good point. we are getting the purchasing managers information, sunday morning, five a.m., that's going to tell us about manufacturing in china. we'll see if that sets the tone for markets next week. but in terms of the u.s., characterize that. how do you see it? >> well, we know that certain sectors of the u.s. economy have been slowing in part because of the federal reserve. housing has been slowing, autos have been slowing, another interest rate sensitive sector of the economy, so we're not surprised by that.
consumer spending has looked like it's fallen off somewhat at the end of the year. is that just a blip? now, for me, the best forecast in consumer spending, for me, should be wage growth. we are seeing wage growth slowly pick up, especially for lower income workers. those are families that tend to spend the money, because they need to spend it, on their -- to buy food and clothing for their families. so those are some of the things that i'm paying a lot of attention to. maria: so the president has nominated steve moore to the federal reserve board, and steve moore has called on the fed to cut rates immediately. what do you say to that? >> well, i think we don't want to be overreacting to short-term data. we know the gdp data, wage growth data, spending data, it's volatile, so we shouldn't be chasing the data. we need to actually see what's real versus noise, and we certainly don't want to be chasing the market -- [audio difficulty] is the u.s. economy slowing, is this just a blip, are we, you know, is the future going to be stronger. we need to assess that before we make a change in policy, in my
view. maria: neel kashkari, let's take a short break because i've got to hear more about this fed pivot. please explain this, because just future months ago -- five months ago we were talking about the fed raising rates, and now we're talking about maybe even cutting rates. we'll be back with our conversation when we come back. ♪ >> this fed member is thrilled with its latest decision, is why's he unhappy with how they made it9? >> i think for my colleagues, they just saw the balance of risk shift. >> neel kashkari spells it out next on "wall street." ♪ ♪ it's been a long time since andrew dusted off his dancing shoes. luckily denture breath will be the least of his worries.
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♪ ♪ maria: welcome back to "wall street." neel kashkari, our special guest this weekend. before we went to the break, we were talking about this change in the fed in terms of the pivot. can you tell us what went on? what was it that the fed saw to decide we're not going to not only not do any rate hikes, but we're actually looking at the economy, and some people are i calling for a cut. that's a big swing. >> first of all, let me just say, it isn't a swing for me. i've been objecting to rate increases simply because we're not seeing evidence that inflation is taking off. we keep being more surprised how many americans want to work. let's let that continue to run. and if inflation picks up, we can raise rates then. i think my colleagues saw the balance of risk shift. we did see some weakness in data, we did see weakness in europe, we have seen weakness in china, so i think that motivated the committee as a whole to pivot this way. maria: i worry that we don't really have much wiggle room. i mean, the fed doesn't.
because rates, even though you've been raising rates this last year and a half, rates are still very low. so to you get concerned about that, that if, in fact the, there's a situation where you do feel like you need to cut rates, can't go much lower. >> it's true, but that speaks to where the neutral interest rate is, and the neutral rate is lower. we don't control that. that's controlled bid broader macroeconomic forces. but if we did have another recession, we could cut rates. we could turn back to quantitative easing, we do have other tools that i think they're not perfect tools, but they did work in the wake of the financial crisis in helping to boost economic activity. so i don't feel like we would be out of ammunition if, unfortunately, a recession were to occur. maria: well, you're right. let me ask you about the balance sheet drawdown. the federal reserve balance sheet is still above 4 trillion right now? >> it's around four. maria: you want to get it down to one and a half?
>> well, no. it's going to be much bigger than before the crisis in part because the demand for u.s. dollars all around the world has continued to take off. demand for dollars grows around 6% a year, faster than u.s. gdp growth because people want to use the dollar. so our balance sheet is going to be a lot larger than it was before the crisis simply because these are liabilities of the federal reserve that need to be offset by an asset. simply because demand for dollars is so much larger, our balance sheet's going to be a lot bigger. and we think some of the regulations we put in place are forcing big banks especially to hold a lot of reserves, federal reserve reserves on their own balance sheets. so for a bunch of technical reasons, the balance sheet's going to be much bigger than it was back then but smaller than at the peak. maria: is fair to say you want to get it down to $3 trillion? >> it'll be around there and it's going to continue growing as demand for dollars continue to grow all around the world. maria: okay.
so you will be done with that, you think, the drawdown, by year end? >> yes. we've already said we expect sometime toward the end of the year, and then we're probably going to pause for a while, and then demand for dollars will continue to grow the balance sheet over time. maria: obviously, one of your major issues is inflation. we did get some data in terms of inflation once again weaker than expected. where's the inflation, neel? >> that's been the big surprise. you would have thought that unemployment would lead to high inflation. but my interpretation to that is the headline up employment rate fails to cature hundreds of thousands, maybe millions of americans who are out of the job and market who may still come back in. that's been the big shock to us, how many americans have come back into the job market who previously said they were not looking for a job. and that, to me, is what's keeping wages from taking off, is that more americans are coming back in. if we see wages pick up from here, we might still see more americans come off the sidelines who say, you know what? i'm going go get that job.
maria: that's why you focus so much on the participation rate. >> that's right. of. maria: every jobs number. do you think there's any reason to believe that the unemployment story changes all that much in the coming year given the fact that we are seeing economic growth and job creation? >> well, i hope it continues. i hope that if wages keep picking up a little bit, and there's still, if you consider product if it, wage growth is still not signaling inflation above 2% in the future. so we've got a ways to go on wage growth. if wages continue to pick up, i think it's going to draw more americans back in which is phenomenal. it's fantastic for them, for their communities, for the country as a whole. maria: real quick before you go, housing and the recession. what do you think about the housing market right now? some people think we're seeing green shoots, that it's actually beginning to improve, and do you expect recession on the horizon? >> the risks have tilted the more to the downside from 6-9 months ago as the ten-year
treasury rates have come could be, more gauge -- down, mortgage rates have come down. it's happier to buy a house. maria: don't go anywhere, more "wall street" right after this. ♪ ♪ 'cos i know what it means ♪ to walk along the lonely street of dreams ♪ ♪ here i go again on my--- you realize your vows are a whitesnake song? i do. if you ride, you get it. geico motorcycle. 15 minutes could save you 15% or more.
time and time again, you know when i'm doing street magic..i'll walk up to someone and i can just see they're against me right? they don't want to be amazed. they don't want this experience to happen. ♪i needed to try but then the magic happens. and all of that falls away. (amazement & laughter) it's the experience of waking up and seeing things the way you saw them before they became ordinary. ♪i need never get old i'm looking for that experience of wonder. maria: welcome back. coming up right here next weekend on the program, southern company ceo tom fang, my special guest -- fanning, my special guest. and this weekend on sunday morning futures, senator lindsey graham and former congressman trey gowdying, talking about the results of the muller probe and what happens next. that's live this weekend on fox news over on sunday morning futures.
meanwhile, start smart every weekday on fox business from 6-9 a.m. eastern for mornings with maria right here on fox business every weekday. that'll do it for me in the weekend, thanks so much for joining us here. haatatatatatatatatatatatatatata. i'll see you tomorrow. ♪ ♪ gerry: hello, and welcome to the "wall street journal" at large. all this week the country's been digesting the news that robert mueller's two-year-long intensive and comprehensive investigation of russian meddling in the 2016 election was not, after all, the mortal threat to donald trump's presidency that his critics hoped and some of his supporters feared it would be. mr. mueller's conclusion was a huge vindication for the president. although mr. mueller declined to pass judgment on wheth