Today, and then he said he did not think they needed to do 50 basis points. That is one of the key questions wall street has had. How far do they go if they go on july 31 . Suggestions from jay powell suggest the center of the fed has not changed. They will closely monitor the data and act as appropriate, which is exactly what he said at his News Conference a week ago after the fed meeting. He said the economy is in pretty good shape, describes in the same way that he did with strong consumer spending, weak business spending, concerns about trade. Nothing new from powell in his remarks that would change the calculation. However, he will be taking questions from people at the council on Foreign Relations, so we may look for some elucidation there. Vonnie repeating again that the fed is weighing whether uncertainties call for using. Call for using. Call for easing. I was struck by what kathleen asked, bond buying in europe, and also japan. He made comparisons in some ways to both economies in question. He said it was not helpful in the case of japan to look for asset bubbles. Sounded like he was saying that is what is happening in the u. S. I would have thought that we did not want comparisons with japan. Mike you dont want to be japan. They have not been able to move the needle on inflation. There are concerns that we will be stuck with low inflation for a long time, and the fed may not be able to do any better than the bank of japan. The u. S. That rejects that idea and that is part of what they are doing. Vonnie lets get to the council on Foreign Relations and jay powell. Maximum employment and price stability, dual mandate. Then i will discuss the outlook for the u. S. Economy and Monetary Policy. I look forward to our discussion that will follow. We areour public review, seeking perspective from people across the nation and we are doing so through open Public Meetings that are live streamed on the internet. Let me share some of the thinking behind this review which is the first of its nature that we have undertaken. The fed is insulated from shortterm political pressures, what is often referred to as our independence. Congress chose to insulate the fed this way because it had seen the damage that often arises when policy bans to shortterm political interests. Central banks in major democracies around the world have similar independence. Along with this independence comes the obligation to explain clearly what we are doing and why we are doing it, so that the public and their elected representatives in congress can hold us accountable. But real accountability divans more of us than a clear explanation. We must listen. We must actively engage those who serve we served to understand how we can more effectively and faithfully use the powers theyve entrusted to us. That is why we are formally and publicly opening our decisionmaking to suggestions, scrutiny, and critique and with on a plummet low, the economy ouring, and inflation near symmetric 2 objective, this is a good time to undertake such a review. Another factor motivating the review is the challenges of Monetary Policymaking have changed in a fundamental way in recent years. Interest rates are lower than in the past and likely to remain so. The persistence of lower rates means that when the economy turns down, Interest Rates will more likely fall closer to zero, the effect of lower bound, elb, as we call it. Proximity to the yield be poses new problems to Central Banks and calls for new ideas. We hope to benefit from the best thinking on these issues. At the heart of our review are our fed listens events, which includes town hall style meetings in all 12 reserve bank districts. These meetings bring people together with wide ranging interests and expertise. We also want to benefit from the insights of leading economic researchers. We recently held a conference at the Federal Reserve bank of chicago that combined Research Presentations by top scholars with roundtable discussions among leaders of organizations that serve union workers, low and moderate income communities, small businesses, and people struggling to find work. We have been listening. What have we heard . Scholars at the chicago event offered a range of views on how well our Monetary Policy tools have effectively promoted our dual mandate paid we learn more about cuttingedge ways to measure job conditions. We heard the latest perspectives on what financial and trade links with the rest of the world mean for the conduct of Monetary Policy. On thed scholarly views interplay between Monetary Policy and Financial Stability. We heard a review of the clarity and efficacy of our communications. Like many others at the conference, i was particularly struck by two panels that included people that work every day in the and middle income communities. What we heard loud and clear was that todays tight labor markets means the benefits of this long recovery are now reaching these communities to a degree that has not been held for many years. We heard of companies, communities, and schools working together to bring employers the productive workers they need. We heard of employers working creatively to structure jobs so that employees can do those jobs while coping with the demands of family and life beyond the workplace. We heard that many people who in the past struggled stayed in the workplace are now getting a new opportunity to add a new and better chapters to their life stories. All of this underscores how important it is to sustain this expansion. The conference generated vibrant discussions. We heard we are doing many cangs well, we have much we improve, and there are different views about which is which. That this agreement is neither surprising nor unwelcome. The questions we are confronting about Monetary Policymaking and communication, particularly relating to the effect of lower bound, are difficult ones that have grown in urgency over the past two decades. That is why it is important we actively seek opinions, ideas, critiques from people throughout the economy to refine our understanding of how best to use the Monetary Policy Powers Congress has granted to us. Beginning soon, the federal open Market Committee will devote time at our regular meetings to assess lessons from these events supported by analysis from staff. We will publicly report the conclusions of our discussions likely during the first half of next year. Anyonemeantime, interested in learning more can find information on the Federal Reserve board website. Longernow turn on the term issues that is the focus of our review to the nearterm outlook or the economy and Monetary Policy. So far this year, the economy has performed reasonably well. Solid fundamentals are supporting continued growth and strong job creation, keeping the Unemployment Rate near historic lows. Although inflation has been running someone below our symmetric 2 objective, we expected to pick up, supported jobolid growth and a strong market. Along with this favorable picture, we been mindful of ongoing crosscurrents including trade developments and concerns about Global Growth. When the fomc met at the start of may 8 weeks ago, tentative evidence suggested these crosscurrents were moderating and we saw no strong case for adjusting our policy rate. Since then, the picture has changed. The crosscurrents have reemerged with apparent progress on trade turned to greater uncertainty and with incoming data raising renewed concerns about the strength of the Global Economy. In business and agriculture report heightened concerns over trade developments. These concerns may have contributed to the drop in Business Confidence in recent surveys and may be starting to show in incoming data. For example, the limited Available Evidence we have suggest investment by businesses has slowed from the pace earlier this year. Against the backdrop of heightened uncertainty is, the baseline outlook of my fomc colleagues, like that of many other forecasters, remains favorable with unemployment remaining near historic lows, inflation expected to return to 2 over time, but at a slower pace than what we foresaw earlier this year. However, the risks to this payroll of baseline outlook, appear to have grown. Last week, my colleagues and i held a regular meeting to assess the stance of Monetary Policy. We did not change the setting for our main policy tool, target range for the federal funds rate, but we did make significant changes to our policy statement. Since the beginning of the year, we have been taking a patients dance for the need about making any policy change. We know state the committee will monitor the incoming information for an outlook and will act as appropriate to sustain the expansion with a strong labor market inflation near its symmetric 2 objective. And ition my colleagues are grappling with our whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation. Many fomc participants judge the case for somewhat more accommodative policy has strengthened. Are also mindful that Monetary Policy should not overreact to any individual data point or shortterm swing in sentiment. Doing so would that even more uncertainty to the outlook. Monitor theely implications of incoming information for the Economic Outlook and will act as appropriate to sustain the expansion. Thanks very much. [applause] so as you suggested last week in your press conference and again just now, it looks like cutting Interest Rates in the coming months is a strong possibility. Six months ago, you and your colleagues raised Interest Rates, and were expecting to do so again in 2019. What has changed in the six months, what do you know now that you did not know then . First of all, let me say thanks for being here. We had an fomc meeting, press conference last week. The things i say about Monetary Policy here today intend to be fully consistent with the message i delivered at that press conference. Today, and i,ues are tightly focused on our , andng of Monetary Policy getting it sent at the appropriate level two best fulfill our dual mandate objectives, as i mentioned. You asked what has changed. A lot has changed since december, including, for example, estimates of Global Growth or 2019 have come down substantially. In fact, quite a lot has changed since may 1, which is only eight weeks ago. At the meeting that ended on may 1, we had coming out of that meeting an excellent job report, very strong report that friday, we were looking at what tentative signs that the crosscurrents were abating. Tentative reports of progress toward reaching a trade deal with china. There was better data coming out of china, europe. All of that changed coming out of that meeting, beginning with the news that the trade negotiations with china had moved away from agreement and toward greater confrontation. I would just say, my colleagues and i still see a favorable outlook as the most likely outlook but we see the risks of that outlook have increased. We are very mindful of those risks and are prepared to use our policy is to support activity as needed. One way of reading the shifts in bond yields since december would be this the fed over tightened, you raised rates too much last year, that is point on future growth expectations. Did you make a mistake raising four times over 100 basis point last year . I go back to may 1, and the committee is looking at the performance in the first half of the year. Pretty positive picture, keeping in line with expectations. The committee thought our policy stance was appropriate, as of that date, may 1. Coming out of that meeting, a very strong jobs report. It really looks like the policy stance was appropriate. Things have changed since. The global risk picture has changed really just in the last six to eight weeks. It is around trade developments and concerns about Global Growth. Our focus is looking forward through the windshield at what the right setting is for Monetary Policy Going Forward to achieve our goals. Emphasize a lot of the shifts in markets, Economic Data have happened recently since may 1. I gather the reason you did not actually cut rates last week is you want to see confirmation of these trends for pulling the trigger. What would have to happen before you change the direction you are going . Chair powell we are not looking at any one particular thing, monitoring the full range of developments on Economic Data, Political Developments and such. The question we are going to be asking ourselves is whether these uncertain is will continue to weigh on the outlook. I think with reading Financial Market data, that is always market data, always a challenge to know how to react. That is something that every central bank aces consistently. A lot of the movement in the Economic Data have been startled. Ism, manufacturing indexes. How much do you interpret this as a risk to the real economy in the u. S. . That is the question. If you look at the real economy data, consumer is very solid. That makes a ton of sense. Low unemployment, high confidence readings still, wages moving up. You have surveys that show businesses think it is hard to find good workers, workers think that jobs are plentiful. This is a good time for consumers and spending data has been strong. You havehappened is seen weakness in manufacturing really around the world. We can talk about that. That is a story we are seeing consistently around the world. Again, we are looking at the overall situation, one to see more, frankly. Some of these developments happened in the second half of the last in a meeting. Intervening period. Its important not to react in the short term two things that may be shortterm. That is the data side, there is the market side. Longerterm, median term yields have fallen in the last few weeks. Always attention for central bankers in how much you dont want to overreact to move that might be random volatility in markets. You also dont want to under react and miss out on signs the Economic Outlook is changing. Can you discuss the conceptual issue of overreacting are under reacting to market moves, and how that applies to this circumstance . Chair powell how to incorporate Financial Conditions into Monetary Policy is one that Central Banks face all the time. Matterse, anything that for the achievement of the dual. Andate should matter for us that is true of Financial Conditions and many other things. Conditions, our policy works through Financial Conditions. In addition, Financial Markets can be thought of as an aggregator of the views of Market Participants about the future. You are going to learn a lot about listening to them. But what we always say is, we dont react to anyone it is not one thing but the broad range of Financial Conditions and we look for sustained changes. We try to look through shortterm changes. Of course, sometimes Financial Markets can be quite prescient about evolving risks. Other times they can be excessively optimistic. They can look through excessively exuberant, ignore risks. We have to use some judgment and some experience in looking at Financial Market development over time to decide what to react to. The principle we articulate is we are looking for changes in Financial Conditions that could affect the achievement of our dual mandate goals. Those tend to be broad changes in Financial Conditions that are sustained for a period of time. That is part of why our thinking was to wait and see. So much of what happened happened in a few weeks before the last meeting. I want to ask a lot about i were that you and your colleagues have used a lot, normalization. It seems like there has been a desire to return to what were more historically normal levels of Interest Rates, the size of the balance sheet. Considering we are in a world where all Central Banks are stuck near the zero bound, have been for a long time, is that a mistake . What does normalization mean in a world where we are trapped in this low rate around the world . Chair powell it is clear for now, and probably for some time, what we think of the neutral rate of interest has fallen significantly in the wake of the financial crisis, by as much as two or three Percentage Points. Neither pushing up nor pushing down, neither restraining or supporting Economic Activity. Sort of a neutral rate. Federal openthe Market Committee range between 2. 5 and 3 in nominal rates. The way, means by that seems to be true around the world. The forces that have been behind that involve demographics, lower productivity, aging population, things like that. It is likely that will stay with us over time. The implications of that or the economy and central banking are that we will have less policy space to cut. We typically have cut over the course of a cutting cycle to battle a downturn, about 500 basis points, five full Percentage Points, since world war ii. Unlikely we are going to have some neglect that in the current environment. The current federal funds rate is only 2. 4 . It is a challenge. This is probably what we are doing with the review look at our full toolkit, which includes what we so in the financial crisis, that we have the tools we need to carry out our mission with the benefit of the public. But it is a challenge faced by all Central Banks around the world. I would say a big part of that is keeping inflation up to 2 . We have seen what has happened in japan, now in europe. Down below 2 for a sustained period. That implies ultimately Interest Rates will be that much lower, too, which means even less policy space. We have chosen to make a point fighting to keep underlying inflation around 2 . Does the lack of policy space in europe, japan, other advanced markets, affect your assessment of the global risk profile . Chair powell i think in a world , thewer Interest Rates research seems to show, and this is fairly widely accepted, that it is better to act preemptively. As a general matter, most Central Banks would want to act preemptively and not let a downturn gather steam. The thought being, an ounce of prevention is worth a pound of cure. I think that is in the thinking of central bankers around the world, including ours. If you see weakness, it is better to come in earlier, rather than later, as a general principle. Have noted before the last two expansions in the u. S. Did not end because of inflation, fed tightening, but financial bubbles popping. History, i that wonder how concerns over bubbles are dealing what dont much as the fomc meets, what you see as the interplay between Monetary Policy and Financial Risks . You gave a speech a few weeks ago about signs of a bubble in leveraged loans. I wonder how these types of loans around Financial Stability fit into your construct of what is the appropriate Monetary Policy . Traditionally, earlier in our lifetimes, the traditional Business Cycle involved the economy overheating, inflation going up, fed type thing. That has not happened in sometime. The last Business Cycles, the financial crisis before that, before that, the. Com bubble bursting, and before that, the s l crisis. So the question is how to financiale these stability vulnerabilities into Monetary Policy. Monetary policy already has two that he will goals, maximum employment and stable prices. Ideally, it was not also have to serve a third goal. It would be better if there were tools to address the third goal, Financial Stability. Without Financial Stability, you will have Macro Economic stability. I think most of my business think, if the tools for Financial Stability are separate him those of Monetary Policy, separate from Interest Rates, things like higher capital standards, liquidity standards, stress tests, resolution planning, all of things that we have done to improve the resilience of the Financial System. Levelspy to report the of capital liquidity, the understandings of risk being run, are far higher than when they were before the crisis. No question in my mind that the Banking System, Financial System is much more resilient than it was. We try hard to look at that as the principal tool to deal with Financial Stability risks as opposed to using Monetary Policy. Youhat does that imply as attempt to cut rates in the future . Your colleague has suggested user easier Monetary Policy should include things like buffers. Do you agree, that you need to be tougher on the financial regulatory side . Chair powell there could well come a time where we would deploy Something Like the countercyclical capital buffer. Let me come back to that. We approach Financial Stability completely differently than we did in the precrisis world. Before the crisis, it was more there was an emergency, get the team together, and we will fight this. Now we have a framework for assessing Financial Stability, vulnerabilities on an ongoing basis. We publish it so that everyone can see it. The fomc has quarterly briefings on this. Financialtly monitor conditions, what is happening with leverage in the economy, funding conditions, all those things. And we reach a judgment about the level of vulnerabilities in the economy, and then we tell the public what that is. Right now our judgment is on balance the financial vulnerabilities are at a moderate level. Which is not to say nonexistent. Just that they are at a normal level. There will always be vulnerabilities. As i said at the beginning, would not hesitate to deploy a countercyclical capital buffer, if those tests were met under our framework, it vulnerabilities are elevated. That is how we think about that. Lets talk about the trade wars, escalation of tariffs in the last few months. This seems to have weight on your decision last week. I think a lot of the models that some of us had for how tariffs and trade wars affect the economy may have been off, as we see these go into effect. Higher taxes, that raises prices, that is inflationary. We are seeing some countervailing effects. Commodity price drops, a strong dollar. As you sit around at the fed trying to figure out how this will ripple through the economy, what does it look like in your model . Inflationary, deflationary . How does all of this net out . Chair powell standard thinking on tariffs, to the extent byiffs and that being paid the consumer, it represents a onetime increase in the price level. As long as Inflation Expectations remain anchored, it shouldnt mean higher inflation Going Forward. In fact, what you asked more broadly, how do tariffs figure into our thinking of the economy . In placet of tariffs right now is not large enough to represent a major itself from a quantitative standpoint major threat to the economy. That is not really the point. The concern is more around the loss of confidence or Financial Market reaction. Those are the bigger factors that can affect Economic Activity. What we are hearing from our contacts and all around the country, we collect the thinking of thousands and thousands of getse every fomc cycle, it accumulated into the beige book. Then the reserve Bank President s talk about it. We have been hearing quite a lot about concerns about uncertainty around trade throughout the last year and a half. Those concerns heightened quite substantially as of the last beige book. The number of mentions of trade concerns last beige book, the one for this meeting. That is clearly something that is on peoples minds, as i mentioned. Ie effects are not so much would say the actual mechanical effects on demand, what we have seen so far, is meaningful, but not large. There is discussion of much greater tariffs. That is where the uncertainty is, that is where the concerns are on the part of business. In your opening remarks, you mentioned the monetary framework, what will be the way of operating Going Forward. That is the question that you and your colleagues are trying to way as we speak. I do want to challenge you a little bit on this. It sounds like you are committed to the 2 inflation target, considering adaptations to make sure that you hit that target in a consistent way. Tinkering . T is there a case for something more radical, for exploring these options that people are looking at, getting away from the phillips curve concept, higher inflation target, some newer ideas around targeting gross labor income, something not in the existing framework. Otherch are you open to than just playing around the existing 2 target, how radical should we be in this world of low Interest Rates . Early toell it is too prejudge what the outcome will be. We are still in a relatively early stages. To go through what i went through we are having a series of Public Events around the country that are streamed on the internet where we meet with all kinds of constituencies that we serve, to hear what they think about the job we are doing. Then we had this academic conference at the reserve bank of chicago. A are going to begin shortly series of fomc meetings where we will discuss all of the issues that are on the table, ways in which we can improve our framework. This is always a good thing to do but particularly now with the effect of lower bound problems. The problems of being closer to the effect of lower bound. Saidrms of specifics, we we were not going to look at simply raising the inflation target. A couple reasons for that. 2 has become the global norm among Central Banks. I think there is value in low and stable inflation, somewhat question whether significantly higher than 2 would meet the statutory definition of price stability. I also think there are credibility issues. Central banks around the world are fighting hard to get closer to their 2 objective from below. We are doing better than most. Just saying we are going for a higher target, im not sure how credible that will be. The bank of japan did Something Like that a couple years ago and it did not work. Ist we are really looking at not so much raising the target as looking at framework changes that will make that target more credible, that will allow us to symmetrically achieve 2 inflation, so Inflation Expectations will be well and truly anchored at 2 . You mention the strategy. There is a category of Monetary Policy strategies called makeup strategies. The thinking behind this is fairly clever. Rather than letting bygones be bygones, if you have a shortfall in inflation during a downturn, you would promise to make up for that by inflation a bit about your 2 target for a period. And the public, knowing that you would do that, after that weak period, you would allow the economy to be strong, keep Interest Rates low, knowing that if they know that is coming, they would bring forward their consumption spending and act on that knowledge. In a model, this works very well. S is a very strong but it is not a model. Chair powell that is where im going. The world is not a model. The real world works differently than models. Notwithstanding that, it is an interesting insight. We are looking at all of those ideas, those makeup ideas, to try and find a credible, practical actionable sort of framework that the public would understand and would act on to some extent. That is something we are looking at very carefully. We have seen a lot of measures of Inflation Expectations, surveys, bond breakevens. What does that tell us about where peoples heads are on inflation right now . As you try to anchor those expectations, something does not think you working right now. We think Inflation Expectations are anchored near 2 . Earlier in the year let me take a step back. Inflation ran pretty close to our 2 objective throughout most of 2018. And then dropped in the First Quarter of this year by a few tenths of a percent. It was broadly the thinking on the committee that that would be a temporary phenomenon. The latest data shows a couple things. First, that that undershoot, if you will, looks like it may be more persistent than we had hoped. That is not a good thing. We want inflation to be at 2 and not close to 2 . Happened, thing that marketbased measures of Inflation Expectations, breakevens, dropped sharply in the last intervening until, as the longerterm sovereign rates around the world dropped, so do breakevens for inflation. That is just a marketbased measure of what markets are saying inflation will be Going Forward. We do follow Financial Markets very closely, and we take these things seriously. We called that out in our statement. People on the federal open Market Committee are concerned another argument rank report providing more policy accommodation. More policy accommodation, lower Interest Rates would support Economic Activity, which would put more upward pressure on inflation. I would say that is an argument for lower Interest Rates. A book on as micro question of how to navigate a career in the winner take all economy, where superstar firms dominate the industries, i wonder if we could talk about the macro question raised by that trend . Superstar firms, industrial concentration is a factor of what we see in the labor market. Low share of national income. Low worker bargaining power. First of all, do you buy those theories . Do you think or for power is a factor in a low wage growth we have seen, does this phenomenon affect how you set Monetary Policy . Chair powell this whole interesting area of research was the topic of a conference last year, our annual systems conference. What we observed is the level of concentration across a broad range of industries in our economy is increasing. By which i mean, if you give the top 10 firms in an industry, the amount of the industry they have control over has increased. You are seeing measures of concentration increasing. At the same time come you are seeing low productivity, rising inequality, wages not move up as fast as they ought to, given all the things we know about the current rate of the economy. The question is, is the first thing somehow related to the second thing . Earlywere a couple of papers connecting the two, and now there are some pushing back on that. We dont know the answer. It is something that is definitely under active study. I will tell you why it is complicated. , a lot of the consolidation, concentration that happens, the biggest area in the economy, is the retailers and wholesale distributors who serve. That was a lot of momandpop stores going out of business. The connection is not cleaned or obvious. It is clear the two things are happening at the same time. I would also point out there are many factors all over the world weighing on inflation, weighing on wage growth, weighing on productivity. Is, is this concentration thing also contributing . I dont rule it out him it is just not easy to pin these things down. It is something we are very aware of. Big picture question before we turn to your questions. This has been a remarkable period for Global Economic governance. The financial crisis, world Central Banks took a dominant role in cutting the World Economy. Now we are in an era where the Central Banks are near the limits of their abilities, a decade of low rates, qe, there is soon going to be a change in leadership at the ecb, bank of england. The disruptions we are seeing now are not things that Central Banks deal with, truth pours, brexit, the things that are really affecting the outlook. My question is, given these shifts come a what now for the Central Banks, World Economy . What do you say to people about your successors role in the second half and what do you see this different as what we are coming out of . Chair powell a lot of ways to go with that but i would start with how we react in a crisis. The first thing is, our to be the our ability socalled lender of last resort to solve institutions, providing liquidity to institutions in severe stress, we still have those powers and would use them. The second thing is Monetary Policy. Will we be able to react with our monitor Monetary Policy toolkit . The answer is yes. We will have fewer rate cuts thate, which means is one of the reasons we are looking for strategies to strengthen our toolkit. The other thing we have done and will continue to do is build a more resilient Financial System. We have done all of that and we are not going to get away from that job. We are going to make sure the Financial System is more resilient. What happened in the financial crisis is the system was not resilient enough to handle the economic shock. It should have been stronger to deal with and it was not. That is what led to much of the damage. We are not looking to make that mistake again. Those are things that we can do and will do. Almost the more important things about our economy are not really things that the central bank can do. We need to focus on more as a country. Im thinking about the potential growth our potential growth. That goes to the skills and aptitude of the workforce, policies that will get people into the labor force and keep them there. It goes to policies that will lead to investment, technological advance, support productivity growth. Also policy that will give everyone a chance to share in the prosperity. These are more important issues than the ones that we are the fed deal with, but they are not really consigned to us. These are issues that the legislature and the public need to understand and do with deal with. To invite members to join the conversation with their questions. This meeting is on the record, in case the cameras in the back were not clear enough. Wait for the microphone, speak directly into it. State your name, affiliation, limit yourself to one question. Lets start over here. Lou alexander from the world. One of the question that market prices appends are trying to think through is the pace of any changes in policy. There are good reasons why you lower rates faster than you raise rates. I wonder if you could talk about that. Obviously, one of the characteristics of the forecasts we got from the Committee Last week is there seems to be pretty significant division between roughly half of the committee that seems convinced they should be lower in rates, the other have that is not fully convinced. I wonder how you think those two sets of arguments are likely to affect your decision Going Forward . So muchwell well, lou, is going to depend on the incoming data and the course of events in the near term. Really, the committee has not focused on those specific issues yet. Will be very much driven by the evolving risk picture in the incoming data. That is really all i can say. Thank you for your service, thank you for doing this today. Do you treat the u. S. Dollar as an androgynous variable in u. S. Conditions, or exogenous . Well, we take the level of the u. S. Dollar of course, it is in our models is a Financial Condition. We model the effects of Monetary Policy on the real economy and on a range of Financial Conditions. The dollar is one of many Financial Conditions that adjust. I think maybe your question is do we target the dollar . We do not. The administration is responsible for Exchange Rate policies,. We are not, we dont comment on the level of the dollar. We dont target the level of the dollar. We target domestic and Financial Conditions, as other Central Banks do. Thank you. Harvard kennedy school. A lot of economists are coming to the view that there needs to be a much greater role relatively for fiscal policy, when Monetary Policy is constrained by the effect of lower bound. How do you assess those arguments . How, if at all, would you be taking those into account in the context of your review . Take powell we also fiscal policy as exogenous, but i would second your thought, fiscal policy is so powerful, particularly in a significant downturn, can have great power. It is not good to have monetary main game in town, let alone, the only game in town. I would like to see fiscal policy to be there, at least in significant downturns, to help us support demand when needed. Thank you chair powell. Allens up there. Fomc into the most recent meeting, Financial Conditions were already supportive of the outlook. Following that meeting, i wonder if you could comment on how you take that into account that the reflexivity between the feds communication and Market Expectations that Market Conditions or easier because the market is expecting a rate cut to the delivered as early as the july meeting, you take into account what impact that would have on the outlook if you were to not deliver the cut that the market expects and those Financial Conditions than reverse course. Thank you. So, we are not looking at shortterm movements and trying to provoke shortterm movements in Financial Conditions. We are looking at maximum employment, stable economy, the picture of risk around the world, trying to set our policies so that in the mediumterm it is well set to further those objectives. We understand our policy works through Financial Conditions but we are not in the business really of trying to work with shortterm movements and Financial Conditions. We have to look through that and look to the underlying economy for our main guidance. Thank you for a fascinating discussion and for your service. Work at a think tank we spoke a lot about policy. Pace, Financial Stability a key tool that you used in the last financial crisis was quantitative easing. You have made various comments about quantitative easing over time. Based on this review that you are doing, what are your thoughts on the potential to use quantitative easing in the next crisis. Do you have more room . Chair powell on quantitative easing, we are looking at the broad range of tools. Pools that we use in the financial crisis, tools of other Central Banks use and we didnt, tools that nobody used. Se would be the strategies. With quantitative easing, most of the Research Shows it did have an effect in essentially driving down term premiums, longterm bond rates. That supports Economic Activity through fairly well understood channels. I would say policy space is therefore it to be used. But i would say the principal tool is still lower Interest Rates will, that is what we are using. To the extent we have to resort to other tools, it will depend , what the right total is for that particular situation. My name is alex. Thank you for speaking with us. This has been a great discussion so far. Going back to these open sessions you are having, given changes in the economy whether the tech sector or have you or what have you, is the fed adjusting what data it looks at in guiding his decisionmaking . If you could talk about that, thank you. There is a big industry out there that uses big neartermy to assess movements in Financial Markets. That is not what we do. That is not really what is of interest to us. We have been working with big data, a lot of companies that are active, with the academics, with the purpose of better understanding the current position of the economy. Therefore, what we may expect. There is a great deal you can do with more timely information, lots of timely data about consumer spending, for example. We are close to the frontier, and it is very much early days on working with big of how wethe sense understand the Current Situation of the economy and near future, it is quite different from what the investors are doing with big data. Interestarea of real for us, have put significant resources into it. That we know the sales of walmart the tape after and then six month later, we know what happened in the country. Chair powell we are talking to retailers about getting more current data. Payroll data companies. There may be gains there. The thing is, it is hard to measure gdp. There are so many judgment calls you have to make in trying to measure economic up, attribute output to nonmarket things. Not easy to measure gdp accurately. A lot of progress to be made there. Thank you again. The shadow Banking Sector has grown exponentially since the last crisis. It is unregulated. We are also seeing introductions, Technology Driving innovation, facebook announcing libra. How will that factor into your Risk Assessment on a go forward basis . Do you think there will be regulatory creep into those areas . Chair powell i will start with libra and then go back to shadow banking. Libra is a new thing, we are looking at it carefully. I will echo what i said at the ,ress conference, which is given the possible scale of it, our expectations from a Consumer Protection standpoint, regulatory standpoint, are going to be very, very high. Libraity for overseeing will be in a number of places. The big picture is we will be looking really carefully at it. I would want to echo that. In terms of the socalled shadow mostng more generally, other welloff democracies have almost all intermediation happening in the Banking System and Capital Markets. We have a very large and vibrant capital market. That is a positive feature of our financial landscape. But if the banks that are highly regulated dont have specific capital requirements, Capital Markets are less potentially regulated. In a sense that is a good thing because there is room for funding, earlystage companies that might have no prospects, or might have prospects of having the next drug that cures an important disease. ,t is a feature of our system as well as presenting significant challenges. Weer the financial crisis, looked at many of the things that broke in the financial crisis were actually Financial Market things, the Triparty Repo system, money market funds, things like that. Systematically after the crisis, gone through and look at places where it could be systemically important if it goes wrong in the Capital Markets, trying to address those the best we can. The Financial Stability Oversight Council is the place where all the regulators get together, where if things fall between a bunch of different regulators, that is the place where that would be sorted out. It is both a challenge and a positive feature of our system. Allison. We have a president who seems quite pokeball talking publicly about the fed. I was wondering what you think about this . [laughter] well, as il mentioned, i think the independence of the fed from direct political direction sorry, control is an important institutional future that has served the country well, serve the economy well, served the American People well. Protection that other advanced economies Central Banks have. I think we have long experience bankshen these central lack these protections, you see that things happening. That includes, by the way, our experience here in the united dates. At the fed, we are a strict we nonpolitical agency. To serveing our best all americans with our tools. We understand we have an important job, are very focused on doing that job, desire to play no role in broader political issues but just to carry out that really important role. We are human. We will make mistakes. I hope not frequently. But we will not make mistakes of integrity or character. Thank you. Dan rosen. Weres. Capital markets used as a political lever, with that have an effect on their role in resilience the way you see it . Chair powell i did not follow your question. There has been talk about constraining access to american Capital Markets as a Political Tool to exert power over other nations. Would that affect their ability to contribute . Chair powell that would be beyond the scope of my responsibilities. I would not want to comment on that particular hypothetical. Roman martinez, private investor. Two questions related to the yield curve. We have a slightly inverted curve. I would let you know your views on how you take that into account, your assessment of the situation . Secondly, the 10 year has historically traded about 2 , 2. 5 Percentage Points over inflation, currently flat. What do you think is the right spread for inflation for the 10 year . Chair powell [laughter] theo, of course, look at yield curve, various measures. Many different measures of the yield curve. It is one Financial Condition among many that we look at. There is no one thing in a broad Financial Markets that we see as the dominant thing to look at, the one thing that tells us what will happen. It is just one of the many things. We are well aware of it, we know the history of it. It is something that we monitor. , i will of the 10 year have to pass on what i think the equilibrium price of it will be. Thank you. Jpmorgan. As part of your review, given you mentioned the neutral in just rate has gone down since the financial crisis, are you considering also the target inflation rate should no longer be 2 , but might have to be on a different level . Thank you. Chair powell we made a decision not to look at raising the target as such, but rather to look at keeping, making the 2 target as credible as we can. That is how we have been looking at it. We did make a decision not to look at simply raising the target or the reasons i mentioned a little while ago. My name is nancy lieberman. You addressed so many different factors in what goes into your thinking on setting rates, impact on the economy. The one thing you have not spoken about, though, addressed, maybe because you dont think of it but im sure that you do, is the over 16 trillion national debt. How does that factor into your thinking . When the next downturn comes, when we have this unprecedented amount of debt hanging out there, how is this going to affect policy . Chair powell well, i think it is widely understood that the u. S. Federal budget is not on a sustainable path. I think this is a good time to be working on that, when the economy is strong. But fiscal sustainability is really a longerterm problem, not a problem associated with the Business Cycle, for example. It does not really feature in Monetary Policy, not something we think about in setting Monetary Policy. As i mentioned, our focus is tightly right now on doing what we can to sustain this expansion , the benefits of this expansion are reaching groups that have not been reached in a long time. Unemployment is 3. 6 . It has not been there since i got my drivers license in 1969. That is a really good thing. That is our focus. Also keeping the job market strong, inflation at 2 . Fiscal sustainability is not really our job, does not play the bigger role at this point in our thinking. Does not play any role in Monetary Policy. Jay golden. Thank you for your service. Are there tools not available to the fed that are available to other Central Banks, or that are described in the literature, that you would like to see made available to the Federal Reserve . Chair powell in Monetary Policy, no. We have the tools that we need, tools that are quite similar to other major Central Banks. Other Central Banks have things like plenary control over payments, but that is not really that is not a sense of your question. It is not so much that we dont have particular powers, it is just that having low Interest Rates really challenges the existing toolkit of Central Banks. There are no obvious, easy answers where they could give us a new tool. We have to do some thinking about that, do what we can to put ourselves in a position to carry out the role we are assigned. Thank you, chair powell for the stimulating discussion. That will end the q a with fed chair jay powell. Speaking to the council on Foreign Relations, taking questions across the board about the remit of the Federal Reserve, political influence, and where he sees the 10year yield. Isrently trading lower, as the twoyear, and the dollar that much higher. Lets get an initial take. An initial take. Mckee, even watching throughout the statement and the q a, what really stuck out to you . Michael he didnt say anything he has not said before. Besides to say on message, same press coverage. A lot has changed since the cross currency he talked about before. He said they would keep an eye on it. He didnt bite on whether they would do 50 or 25. , jay powell said he thought 50 was too far, that it was too much. I think it was how the question was framed. The policy space to do that. They could do it if they wanted to. Over 2 even in this quarter. Unemployment he said is the lowest since the drivers license. Why panic . He did say it was available if they wanted to use it. It is not on the table at the moment. Why is the Market Pricing and not one but two . Is he trying to temper Market Expectations . In this appearance, not move things one way or another. They do not want a lot of volatility in the markets. They cannot do it they think they will do unless they want to change of opinion. They want to leave options open. Markets have been priced because they are looking at half of them for 50 basis points. Someone posed the question about inflation expectation. Up witht really match what were seeing and pricing. What has happened since the fed meeting, if you look at the breakevens, they have gone up. It is kind of question of timing. They have moved up a bit last week. Which do you want to believe their openness to a rate cut. Trump believes the u. S. Dollars to strong. There are questions hinting at the trump on the Federal Reserve. He was very good. I love the fact that if you are watching headlines go by, pals has does not target dollar in the immediate headline was trump thinks dollar is too strong. Timing is everything. It never says the is targeting the dollar but theyre well aware if they cut Interest Rates, the dollar should weaken and that is a benefit to the u. S. Economy. The dollar goes down and makes exports cheaper in they sell more and a little more indirect than that. The problem is it is all relative. The bank of japans cutting rates, less of an effect. How do you square now with a few minutes earlier . It is a little more i want to wait and see. The powell camp. Moeller made it clear in the meeting that he wanted to cut rates. Theyre are all kind of in the same area. But he has less influence than jay powell, driving the committee. If he will sign on, we will find out soon enough. Thanks. That is bloombergs mike mckee. Now onto Mark Crumpton for first word. The Russian Foreign secretary says current tensions over iran are reminiscent of the buildup to the iraq war in 2003. Speaking at a News Conference in moscow with his counterpart, he said the current prices in iran reminds him of how the u. S. Announced victory of democracy in iraq in may of 2003 after sanctions against saddam hussein. He added you can draw your own conclusions on how democracy has fared over the past 16 years until now. A saudi military spokesperson says military forces have captured the leader of the Islamic State branch in yemen in corporation with yemen forces, troops raided a house that has been under surveillance. It led to the arrest of Islamic States chief Financial Officer in yemen and other suspects. Communications equipment were confiscated as well. Khashoggie of jamal is taking up the campaign of justice to the united nations. Events the human rights in indonesia, he wants to take action following a key followingors spotting responsibility for khashoggis death. An independent expert who led the probe says the incident does not stand alone. Impunity for those killings in the continuation of those killings have not gone down. Saudi arabia is among the 47 Member States of the human rights council. The investigator is expected to present her report to the council tomorrow. Wall street is rejecting senator Bernie Sanderss plan to pay off american student loans. He wants to propose a tax on trading to cancel student debt and make public colleges free. Groups warned that the cost of that would be shouldered by main Street Investors are they say trade trading houses would pass on the cost or the tax could lead to lower returns. Global news 24 hours a day on air and at tick tock on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am Mark Crumpton. This is bloomberg. Think spirit lets get a quick check on the markets now. We saw a little bit of fluctuation as jay powell was speaking. You can see markets still in the red. Down. N see the nasdaq 100 microsoft, lululemon, kind of leading the declines. Can indications services. Tech was one of the out performers. Today does the underperformer. For a been under pressure while now. A lot of people really want to see that in play but you have a transport index of 12 , meanwhile, the Dow Jones Industrial average, a huge gap. Golderyone wants to fly to , and yen. Seeing homebuilders taking it down 3 today. Lets dive deeper with our reporters. Abigail, started. Abigail i am thinking about the fed talks in the last couple of hours, especially James Bullard saying a quarter cut against a secondhalf slowdown, as opposed to meeting but a lot of investors are looking for. That expectation of a cut has really weighed on bloomberg over the last few days. Earlier, down or you could see it spiked higher at the highs of. 3 as investors dial back expectations of what could be coming down in a rate hike. And, it has not changed all that much. This chart continues to support the idea of what Michael Mckee was saying with jay powell. He did not say anything all the new p are over the last year and a half, we see an uptrend and this year, a range between the bulls and the bears. Slightly below 200 day moving average. The bears taking control the 50ing that perhaps bit rate cut most part so many are expecting could happen considering it is down so much. That dollar really still breaking down. It is all about the fed as well for me. It highlights some comments from jay powell, when you talk about the two present, really heading lower and what that means, you year,w getting on that 10 that is just going down lower for longer. Jim bullard also talking about how it is a good time for insurance rate cut. That means some action in the bond market into the equity market, a lot of people are saying we getting defensive here with the risk off rally. We are not getting defensive, just more sensitive to the rate rate markets. With the bond markets, those are off from the 52 week high. Financials off anywhere from 5 to 6 on the 52 week highs support those moves inversely to the rate market. May be defensive and may be more tied to the big movements we see in the bond market. In the bond market and indeed in the dollar, all continuing to wet investors appetite. Again today. That 1400 and ounce. Talking about the sessions on iran and any uncertainty around trade, one strategists saying if the talks do not go well, we could be looking at gold 14 and 18, that could be an play. Take a look. They suggested is overbought. We have to stick with another central bank. 25 basis points to Interest Rates, would be enough in a sharper than expected slowdown. It is surprising given that the economy to the upside over the last two years, growth has been higher than most people have expected. Markets have been very strong with unemployment at a 50 year low. Still looking at inflation. Growth still ok. We have an inverted yield curve. Make ana good chance to insurance rate cut to reach inflation next big patience for the target. People area lot of saying gosh, a meeting at the meeting,ly, the g 20 President Trump, sitting down and talking. Could you have weighed in and see what happens there . Would that have changed your view . Would it be more prudent . Recentering inflation men Inflation Expectations, most are downplaying what will come out of it anyway. I think the u. S. And china are embroiled for a long haul here. I dont think you should look as putting annt end to this. I think it will be an ongoing you could even say regime of high uncertainty above future trade arrangements. With inflation running low and Inflation Expectations running the economy is looking to that is more sharply why thought we should cut here. By not cutting, we are putting high probability on the july meeting. Generally speaking, i do not like that as a tactic. I do not like that is a tactic. If you think the conditions are right today, you should go today. That is one reason i dissented. Do you like an element now butre saying that maybe next time, but not maybe next time, so it is very unclear what kinds of data the committee would be expecting to get during the intermediate time to make a decision to go one way or another. Grant a lot of people are waiting for g20. A lot of people now are on a and julypoint cut, meeting, are you on board with that . Just sitting here today, i think 50 basis points would be overdone. I dont think the situation really calls for that. Meetings. Prejudge things can change by the time you get there. If i was going today, that is what i will do. That was earlier today. From new york, this is bloomberg. Is it right that the u. S. Is downplaying this . Realizingy actually it is right to downplay expectations are to the upside, so much the better. At the same time, this is a different issue difficult issue. Argentinaplay out in where there was no grand agreement but the two parties can agreed to continue to talk. I think that is probably where we may be headed. Overnight, we heard from john over there. He basically said trade itself was only the first chapter and what he saw as a bigger fight between the u. S. And china over technology and really over economic power. How do you view that . Vanguards trade is the , something a lot of people can focus on. Have a massive impact on the broader economy. You heard there is some impact. What we seeing now is a National Security come opponent on top of the u. S. China relationship to the extent of supply chains, National Securities considerations on what will be exported. Companies are trying to react to that now in terms of moving supply chains. Even if there is a deal struck there is still National Security issues that will not go away anytime soon. Bloomberg out of bloomberg emerging markets, do with aee that even handshake and some Technology Agreement to disagree, some sort of papering over the , between chinaerm and the u. S. , in some ways the good or the bad . I think it will be with us for a long time, no question. Even the Obama Administration is recognizing the world has shifted. There is not going to be a going back to the way it was. Having said that, china continues to grow a lot. A major disruptor in the Global Economy for better or worse. It is an issue that will have to be dealt with Going Forward. What about the impact of trade, we have got data that shows global trade has dropped again. It is a trendline line we have seen for almost a year. Is not just about the u. S. And china. We are fundamentally reshaping how all companies interact with each other. Request i think that is an important point. At certainties have some have been done away with. Chains and bilateral agreements. One thing President Trump did is take the United States out of the transpacific partnership. That was not directly tied to china but it was a strategic issue remaking the relationship and asiapacific. A lot of Big Questions here. The fundamental difference in my view is that the United States moved instead of from the primary party, the tentpole holding a claim global trading, we are no longer willing to pay those global the common good of trade and now were looking much more at what we can individually get out of it. About, were hearing a bloomberg exclusive saying trump has been privately musing on potentially ending the postwar japanese packet what does that mean for Global Security . The timing on this is perfect. Just before he lands in japan, no question about that. It is another example of attempting to dismantle fundamental pillars of the postwar training and security system. Natos under question now. The u. S. Japan security relationship, the fundamental pillar of Strategic Security and u. S. Interest in the asiapacific region. Having people will really start to think, is the United States a iniable partner, and do we japan have to do things like restarting Nuclear Program . Japanese nationalists have been looking at this for a long time and saying we cannot rely on the United States. Now we are saying japan may rethink its own needs and interests in the asiapacific. That would be a fundamental shift in the security space and probably not for the u. S. Benefit. Some wonderful insight. Coming up, austria is considering watching their second 100 your security as they drop to record lows and investors are desperate for a return. This is bloomberg. The yield has gotten so bad that austria is look at the possibility of launching a new 100 year security as yields across the globe drop to record lows. Hyde, will you buy a 100 year austrian bond . Caroline you can get a security not due until 2119. The idea, the previous one, they launched one back in 2017, yields come crashing down more than one percentage point. The risks therefore do not matter. You need to get yield. Romaine the thing you have the point out is very few people will hold this 100 years. Ill it also has a 100 year bond. 35 year today, belgium. Appetite for it. I guess if you can get in and out of it, you will do all right. Meanwhile, the s p 500, a third day of losses. Best performer, this is bloomberg. I am Mark Crumpton with bloomberg word news. Acting customs and Border Protection commissioner will step down in early july. It is the latest development and the agency pacing public fury over the treatment of detained migrant children. Backthan 100 children are at a troubled borders patrol station in clinton, texas. A group that visited the facility said hundreds of migrants have been housed there for weeks without access to showers or sufficient food. Pickednt trump has Stephanie Grisham to serve as the next White House Press secretary. Grisham had been serving a spokeswoman for the first lady melania trump. The role of fill White House Communications director. That position has been vacant since bill shine resigned in march. Weighing in on tensions with said that thatl landmark 2015 nuclear deal between iran and world powers is to remain in place, iran has to appear to the terms of the agreement. With respect to irans Nuclear Program, this is crucial. They said they would reach the limits of what they are allowed to get to of enriched uranium by the 27th, that is later on this week and that is absolutely essential that they stick to the deal in its entirety. Mark he added that it is important that there are ladders for people to climb down to negotiations to take place. Illinois has become the 11 states of legalize recreational marijuana. Delivered on one of his Campaign Promises by signing. They will implement a comprehensive cannabis marketplace designed by legislators. Global news, 24 hours a day on air and tiktoc on twitter powered by more than 2,700 journalists and analysts in over 120 countries. I am Mark Crumpton, this is bloomberg. From bloombergs World Headquarters in new york, this is Bloomberg Markets the close. I am caroline hyde. I am Romaine Bostick. Breaking news right now on tyson foods and a couple of the other big poultry producers. Department hase opened a criminal investigation o what is suspected price tysons and did respond and they find the allegations baseless and says there is no merit to them, also, the chief Financial Officer saying it continues to believe the claims are old and without merit. Meanwhile, lets talk more about wall street. Banking star at deutsche it began to fall. Finally, jp morgan chief jamie dimon says he is coming for bank of america. Who is going to take us through i aml, of course, fascinated by the rise and rise of Garth Ritchie who came from exchange, buttock now his tenure may be unfolding. Writes, this is a place that has been described as game of thrones, and yet, Garth Ritchie has been able to rise caroline; game of thrones . Very dramatic morning. He waspolitical, but someone who was seen as an honest broker when there are significant losses. But performance has been pretty sluggish at the Investment Bank certainly at the equities unit that he rose up through. There were troubles all over the place. 2016 was one of them with the threat of a major doj find, ritchie was known to be someone who went out to the community and make sure the clients stuck around. Romaine i have never seen game of thrones. But there is some other story with a comparable allegory, this is the outflows we have seen over the past few days. Caroline titanic maybe . Yes, the fourth day of record outflows. It is something that our own Bloomberg Intelligence said that it will ruin any m a plans. This is obviously only one boutique, but it was one of the most successful wines, and all of a sudden, it has changed. Ones, and all of a sudden, it has changed. Whether it be swissbased or based in london, and in a u. K. Stock ticker has had a real mea culpa moment. It seems Asset Management is not too pretty. It is not too pretty. And it stems from one thing liquid holdings. This is all on the search for yield, and you have to wonder when the as going to come back home to the u. S. Romaine it seems like there is a Bank Branch Opening up every i hear it jamie dimon saying that jp morgan is now opening more branches. Yes, they are down to open at least 400. Caroline 400 . Yes, and they are also looking to compete in the digital bank. Romaine when they say all over the place, this is going to be around where they currently do not have one . Places likenitely boston, minneapolis, all over the u. S. , but one of our previous reporting by someone who covers jp morgan for us, they say that they are being opened, but they are not for lower income neighborhoods. Who are they banking . Caroline i thought it was about the digital move. Romaine i thought so, too. Downvorite restaurant shut you know they went through . Wells fargo. [laughter] like all of the duane reades in manhattan. Romaine what caroline what was your favorite restaurant . Message us if you know what he is talking about. Now coming up, gold is shining bright. This is bloomberg. The rally in gold shows no signs of stopping with prices now climbing to a sixyear high as global uncertainty fuels golds appeal as a haven. Here is our bloomberg reporter believes coverage of metals and mining in the americas. We are looking at the rally that we have seen and some of it obviously ties what we got out of the fed last week. If this all really just about what people think the dollar is going to go . I think so. Even going back a few years ago, gold has been languishing below 1350 even with all of the problems in north korea, we have always had these things about iran going back and forth, but gold never really got off, it never surged for some reason and that has always stayed below that resistance level. What has changed now is the fed. People are talking about the possibility of lower Interest Rates and given that the gold does not offer any yield, the only way you make money out of gold is when prices are going up. If you have Interest Rates going down, that becomes more competitive for gold. It appeals toonce the 1350 level and we are now in heights of 1423, 16 sixyear high, is that is showing of more and more people wanting to get in . Is this rally being believed for a long time . Luziann i think so. Speculating,een are we going into a recession, is Global Growth going to slow ugh to really dent this but i think people have already placed orders about the 1350. Everybody is just jumping in. That is spurring more demand and even yesterday, the spider gold of 1. 6a record inflow billion in one day. That is posted on friday because that is a one day lag in the daytime. There is another 100 million that came in, so it does not look like it is going to stop. Lets look at copper. Luziann copper has already been always been viewed as a barometer for growth, but the demand from china which is the largest user of metals has not really fallen off. It is all about the fears, and now people are looking at what is happening in chile. It is now facing a third strike in one of its thirdlargest mines in chile. It is not just the impact of ,hat mine because the union that particular area process is about 1. 8 million tons. So imagine if you are already looking for a short fall, if you are looking for a long huge shortfall a in supply. People are now looking at that shortage. Caroline we thank you. Great focus across the metals javier. Uziann supply following demand and the u. S. Highyield bond market. Lisa abramowicz, so much coming to the market. Want it, walltors street will create it for them. That is what we are seeing in the highyield bond market. If you take a look at the total u. S. Highyield bond sales through today, you can see it has risen to the highest in a period in about three years. Still, this is breaking the trend that we had seen of declining sales. June has been the busiest month of 2019 which is traditionally much more busy period of time. Costs look at how low have gotten for highyield companies. They are currently around the lowest since early 2018, so people are definitely coming out and saying, if we run a company, now is the time to borrow. The reason why people keep piling in, take a look at returns it has been the best year ever turn so far since 2009 for the highyield bond market. Gains despite the incredible returns since the Financial Market for this asset class. You see the white line which is Investment Grade Corporate Bonds also returning nearly 10 . Since way back before 2009. Interesting to see the incredible resurgence in the asset class. Romaine thanks, lisa. Lets turn now to our stock of the hour which is in sure bright house financial. They are headed to their worst day ever after two analysts cut their ratings on the company over fears of the impacts over lower rates. Here is dave wilson. Dave bright house is a that has been around for two years. They have the performance of a stock index that fluctuates, so they were already selling the start the stock, and today you add and Credit Suisse and Goldman Sachs to the risk. Credit suisse, you see the stock at 22 in the next 12 months and it is all about the effective Interest Rates on their earnings Going Forward. There is something romaine this is spin off that we are looking at. Dave thats right. Credit suisse focused on distributable earnings. And the calculation suggested that they have a bit more than a billion dollars in the next three years. Rates come down and stay down, it is going to go down by a billion dollars, so they may be left with next to nothing they may have no distributable earnings. It gets you are attention. Caroline it does. Talk to us about the Chain Reaction that happens here with lower rates and how it really affects the brokers. Dave if you are in this business, you are giving customers guarantees. You benefit when stocks go up, you get a cushion when stocks go down. They have to be able to afford that cushion. They have to have an event, and to be able to live up to the guarantees. It is smaller relative to variable annuities. You have rates come down, the income is not there, it is a real concern for the likes of bright house. It is showing up in terms of analysts backing away from the company. Cheerse as the market dave clearly not. Caroline dave wilson, thank you. Facebook, Whatsapp Messenger has almost one billion users yet generates almost no cash. How the companys a cryptocurrency could change that. This is bloomberg. Rg. Caroline lets talk tech because facebooks new cryptocurrency hopes to change the entire industry. But it is more likely to transform its own messaging business. It is perhaps taking pages showing what is possible when messaging apps full payments into the mix. It is a great piece you have written really highlighting how at the moment, there is a lack of monetization for things like messenger and whatsapp. Why is that . All ofbook makes almost its money from targeted advertising and private messaging is not a very good form for that. Not only are there not very many people scrolling through as the way you may do of feed, but it is an intimate space. A lot of people do not like seeing ads and brands showing up in conversations with friends and family, so facebook is not really made much money from messaging, which has not contributed much to the revenue. Romaine is there any example of how facebook can monetize whatsapp . How are they going to model this . Kurt i think the vision for a lot of this is based on payments. May be ablet libra to create a new system for which the messaging system can pay for things whether it is goods and services or their bills that way. This whole notion that commerce can come to messaging creates a lot of different opportunities for them. They can start selling things p, so commerce would more broadly be the Business Model that messenger has not had yet for facebook. Caroline David Marquez hinted at this, it takes small cuts, but if it is just payments between you or i, they will not take any sort of fee for that. But what might happen to advertising Going Forward how might the marketers win out from libra, too . Kurt this is one of the things that facebook try to spin as a time when announcing libra that if there is more people with money and and wallets, more people buying and selling on facebook, and makes advertising more valuable. You could buy it right then, right now. Facebook says that actually makes their ad business stronger just by the fact that people may have money in these new digital wallets. Romaine we have any idea if we have retailers partnering with facebook on this . Wont retailers prefer for people to come directly to their website . Kurt yeah, but i think they will have plenty of partners. We already see retailers advertising on facebook and going to amazon and other places. More than anything, it does not matter whether they come to the regular website if they are not actually closing sales. If they see facebook as a place where someone can see it on their feed and click on it right there, it will be incredibly valuable if it works. They are not at that stage just yet at least for the libra part of the project. Caroline it seems as though ecommerce and the addiction is going to continue. Kurt wagoner, thank you. Sticking with big tech, going all luxury. Gone all the days are the days of mattresses on the floor, you can now book your own tuscan estate and 1 Million Dollar polynesian island. Have the cash on hand to get the 50 people at work on this particular island to be running around for me, but it has 2000 new listings. This is not the only company that does it, they purchased a Canadian Company of luxury buteats, buying always about the highend version of airbnb. Romaine there are a lot of companies that use this. I have never used it. Caroline really . Romaine i am old fashion. Have something that is doable. Caroline why not. We potentially all need to start passionfruit all around. Romaine we want to bring you some breaking news with regards to wayfair, shares down about 5 . This after news of an employee walkout apparently related to employee concerns about the Company Selling furniture to Detention Centers that are used to detain migrants seeking asylum in the u. S. It is getting traction on social media and congresswoman alexandria ocasiocortez praising the workers who walked out. Shares are down 5 . This is bloomberg. Hey im bill slowsky jr. , i live on my own now ive got xfinity, because i like to live life in the fast lane. Unlike my parents. You rambling about xfinity again . Youre so cute when you get excited. Anyways. Ive got their app right here, i can troubleshoot. I can schedule a time for them to call me back, its great you have our number programmed in . Ya i dont even know your phone anymore. Excuse me . what . I dont know your phone number. Aw well. He doesnt know our phone number you have our fax number, obviously. Todays xfinity service. Simple. Easy. Awesome. Ill pass. Romaine i am mark i am Mark Crumpton with bloomberg first word news. Secretary of state mike pompeo today made an unannounced visit to afghanistan. He says the two sides of u. S. And taliban are close to finishing a draft text that will outline talibans commitment afghanistan becoming a terrorist haven. U. S. Special representative from venezuela Elliott Abrams denies that President Trump is losing interest in political change in that country. Ambassador abrams comments follow every cent Washington Post article citing Anonymous Sources and who made the claim. Abrams told reporters quote, the notion that there is at the highest levels of the government a demination of interest is just simply false. Unquestionably be more hands on coming from the United States because there will be more venezuelans everywhere. We have seen the u. N. Estimate of about 4 million others and higher, and it is going to hit at a certain point, 5 million. The numbers in the u. S. Are small compared to the numbers in peru. Lombi or that theams added Administration Made no decision about venezuelan refugees protective status who made their way to the u. S. But it is under consideration. Mexico says it is ramping up efforts to curb the flow of migrants across the southern border. 500co is deploying 68 National Guard members safety National Guard members. Mexicos president says quote, we have to avoid a confrontation with the government of the United States. The pilot of a helicopter that crashed into a manhattan highrise last month has had become lost in crowds. He hit the roof at a high speed. Says thenary report pilot was not certified to fly in clouds. But he told others at the heliport that he thought there was a window in bad weather through which he could fly. Global news, 24 hours a day on air and tiktoc on twitter powered by more than 2,700 journalists and analysts in over 120 countries. I am Mark Crumpton. This is bloomberg. Caroline it is 3 00 p. M. In new york and 8 00 p. M. In london, i am caroline hyde. Romaine i am Romaine Bostick in for scarlet fu and this is Bloomberg Markets the close. Oline said speech, powell fed speech. The 50 point cut that markets have been pricing in is unwarranted is what something the stress between the u. S. And iran continues to build. And another big pharma deal. Ineeing to buy a botox maker billion dollar deal. All of that and much more coming up. Romaine lets get a quick check on the markets. 10 of 1 . 00 down by 8 you can see the action in the dollaryen. Is sold center today and you have money moving into gold, money moving into yen. Plenty of fed speak perhaps moving the dollar around a bit. Deal,e anytime you get a you get a lot of speculation. Index was up a lot more and we were just talking about copper a few minutes ago. Caroline but suddenly helping the price point. Romaine lets dive deeper into the Market Action right now with all of our reporters. Lisa i want to take a look at just how much investors are preparing for the fed to cut benchmark Interest Rates. You see the u. S. Treasury 14rtment auctioning off billion in two year treasury note at the lowest deal since 2018. Somewhat considerably for the United States and another measure for just how strong this auction was. Looking at the portion of the Debt Offering taken down by primary dealers, typically when this is a high proportion, that means it was a less successful auction. When it was lower, it means it was a more popular auction and it is near the lowest level over the past three years. You can see investors are really coming out strong and liking this debt has the fed contemplates rate hikes. Looking at oil today, closing it session in the red, breaking three days of gains for oil. Session with oil rising above 58 a barrel, but falling more than 1 at the lows. Tension, thatal is the best price day for oil in three years, but Economic Data bringing the more fragile Economic Outlook back and it now seems that oils biggest consuming region and the world is flashing a warning sign. Take a look at this chart. Demand toners cutting their products. That is what we are looking at and it means the demand side of the oil story is gaining traction just as we are seeing supply concerns build. That will be a difficult balancing act for opec, and its partners. Look at the underperformance for the tech heavy nasdaq. Earlyrst three days since january, and this today having to do with one analyst talking about microsoft, making a valuation call, perhaps putting that someto investors stocks have gone too far, too fast. Every way you look at it, really and underperformance. Ly aneal underperformance. Volatilech in the quarter, but this year, a hybrid trading well above their 50 day. Reason we could have the tech heavy nasdaq trade higher however, an interesting divergence of the s p 500, the tech heavy nasdaq has yet to put in an new alltime high. This is once is either goes up or down. Caroline thank you, Abigail Doolittle and the markets team. For more on todays action, lets bring in wells fargo investment chief head of asset investment. From yourring perspective, from a wells fargo perspective, have we peaked . We do not think that we have peaked but possibly for this year. Our year end target is anywhere from 2800 to 2900, so we are above that so we think it is now a good time to take some gains, rebalanced up before leo, and make sure you are at your longterm strategic targets. Romaine you have a lot of people in your Investor Survey who are in the retirement age who would be turning more toward six income. What are you hearing from those types of people with regards to how they feel about the market and their retirement . Tracie sure. We were surveying nonretirees and retirees, and the nonretirees have less invested in equities than the retirees. Thoseld be advising nonretirees to take another look at equities over the longterm and make sure they are not missing out on the Growth Potential of equities. Caroline where are the potential opportunities . Thate right now, we think small caps are probably the place to take money out of and put that money into emerging markets. We think emerging markets is the place will receive the most evaluation across the equity Asset Classes. Romaine you think that will hold up in this environment, talking more about the geopolitical environment and the effect that could potentially have on the value of the dollar and those currencies over there . Law of thedo think a geopolitical risk is already priced into emerging markets and with countries like china, increasing their fiscal stimulus, we think that will help, but also just the fact that relative to u. S. Markets, it is relatively inexpensive to buy. Caroline we had the data out today which was not too pretty, but housing data was not so pretty and the other was Consumer Confidence data. Thatoptimism survey, does reflect that come are we dialing back that optimism . Tracie we have dropped 18 points from last year at this time. Ot . Oline is that a l tracie it is for that period of time. For this cycle not for but we did this survey which we hit in the first part of 2000. The low point was the First Quarter of 2009, so the great recession. Romaine speaking of recession, talk about where we are now in this expansion which is about to become the worlds, the longest in the u. S. History there is a general sense that it is going to come to an end at some point. Tracie sure, and we asked that question, we asked when they thought the next recession would be and over 50 said within the next 18 months. But interestingly, they still say they think it is a good time to be investing. Caroline quite a contrary there. Great to have you in the insight, tracie mcmillion. Romaine lets turn now to the u. S. And iran, the tensions showing no signs of diminishing with President Trump threatening to use overwhelming force if there is any attack on the u. S. Saying the past to a diplomatic solution has closed. Meantime, expert saying the two sides do not want to go to war. Ut are on conflicting paths the iranians do not want to go to war with us and we do not want to go to a war with iran. The iranians are trying to provoke us into an unnecessary response, and over response. We have tens and thousands of forces they are in the golf, and it only takes a few minutes or something to develop. We are picking sides here, we are picking the sunni arabs and the saudis in particular over a long time future with iran, and i do not know how that is going to go well. Rolean is going to have a whether they are a Nuclear Power or not, and yet understand they are not going to take dictation from a single execute. Romaine for more on this, we are joined by al Bloomberg White house editor. By a Bloomberg White house editor. We have heard all this commentary, what are you hearing from the white house himself but not just from trump but the folks that are advising him . Telegraphinge not a lot right now, they are telegraphing more of what they hope to happen which is to clearly draw iran back to the negotiating table. It is unclear whether iran wants to do that. If you take them at their word, obviously, they have basically said that eighth has to diplomatic solution here is all but closed because of the sanctions that the white house put out yesterday against the supreme leader. Think about who is advising trump and who is sort of coming through, it is really the voice of people like john bolton who is a National Security advisor and he is a longtime hawk on iran. If you look at what President Trump has been saying, the increased tension and the rhetoric over the past weekend every sense the attacks in the strait of hormuz, the real tone has become much more bellicose, and it is unclear whether that sort of approach is going to draw back. Caroline what about how this plays out more broadly looking at headlines and saying the u. S. Of regional tension how is this affecting the global relational balance and are we starting to see the u. K. And other european nation started to side with the u. S. Or not . And . Is a great question if history is any indicator here, it does not look like they necessarily well. Europe has been on the u. S. s side with iran, broadly speaking and terms of the previous arrangement that was made under the Obama Administration 2015 to from developing nuclear weapons, but that has left the u. S. Pretty isolated because it was not just europe, it was russia, china, they were also party to this agreement. The u. S. Has taken a much different stance from everybody else. Europe does not want to see greater attention. Business tiest of to iran and want to see this resolved diplomatically. Russia has different alliances with iran because of what is going on in yemen, and they also have come out earlier today the u. S. Navy drone that iran shot down last week which has obviously been one of the main points of tension here was in iranian airspace. That obviously conflicts with u. S. Intelligence and u. S. Mines thed under u. S. Approach to taking a harder line. Caroline we thank you, joshua gallu. Oming up, the megadeal we will get into the details. Plus, dow and diversity. Ceo abouteak with dow diversity and inclusion and the importance of being out at work. After the bell. This is bloomberg. In todays deals report, big pharma sees more bigticket and the and now, a 63m a, and billion deal. Abbvie may be the knight in shining armor for the beleaguered allergan. Is leanna for more baker. We see why this might be music to allergans shareholders abbvie. T not for what were they saying . Abbvie shareholders were pretty shocked by these deals. Onare seeing that weighing shares today, on also a lot of debt to take on, about 24 billion, but humira, it will pay off that debt. It is a blockbuster drug, 20 billion dollars in revenue that it could handle it for now. Romaine i was going through s history, so forth to now be on the receiving end, i am wondering how they got to this stage where they are now being the one spot out. It all starts with the ceo Brett Saunders who knows when to sell. He has had a few great deals throughout its history selling the generic business to teva at the height of the markets, 40 billion. And the pfizer highprofile situation had to walk away from a merger. That pointares at were trading almost double where they are now. They have been frustrated in recent years and that have been at some pressure. Caroline he has been and theyre trying to shake things up. They were doing a proxy fight and they were defeated. They were asking for Corporate Governance changes, but it did not work, shareholders do not go with them. Allergan has to do something, there is pressure from that investor. Caroline romaine we have any sense that this deal is going to have an easy walk through with regulators . What kind of hurdles . The advisors i spoke with said there is no slamdunk with regulators, but the companies do not have huge overlap, so there is not any huge brain damage, but there are probably still be some divestiture. There is some overlap for a fibroid drug and cystic fibrosis, so that is where people are thinking. Romaine thank you. That is bloombergs liana baker. This is bloomberg. Caroline time now for actions insight. Caldwell. Now is luke so my people are focused on volatility or lack of it, but you are thinking of skew, so talk to us about what skew is and why you are interested in it right now . It toi am looking at oflly try to get a sense what trade is before the g20. Skew is looking at the implied volatility divided by calls, so that is a proxy for demand for each. You can confirm this by looking at the actual flows data, you can really get a sense of it on your terminal, but it would give you a sense of people flooding tryings potential or to capture potential upside vehicles. Abigail you were just talking to me about how right now and many different Asset Classes you are seeing relatively high skew, but in equities, it is depressed. Uswhat is this, talk to about specifically . Luke if you want to get a sense of how people are positioning in option ahead of this event, what this shows is that the generally, you always see put iv ahead of call iv, but the fact that it is so close to 1 there, it is a fresh one year low and what that tells you is that there is a bit of demand. The g20 trade is positioning for upside, and that is not verified when you look at things like the treasury note future and their calls are still outperforming, but that is more of the fear thing and treasuries when you are betting on the bonds that continue to rally. And in hyg, you are also seeing skew picked up. Those are more fear trades. It is actually below the one year average for pretty much 500. Ything fxi, e are also watching correlations and we have another great term that you brought up to take a look at the s p 500. Luke these are implied rather than real life allocations. Correlations. This is one more reason why you might get that your weight line is the implied correlation and the way that which stocks would be judged to be moving together. What you see in late march is that implied correlations start to get crushed. With companye specific reasons, so if you are thinking of another reason, this is more on fundamentals. Appreciateke kawa, it. From new york, this is bloomberg. The latest innovation from xfinity isnt just a store. Its a save more with a new kind of Wireless Network store. Its a look what your wifi can do now store. A get your questions answered by awesome experts store. Its a now theres one store that connects your life like never before store. The xfinity store is here. And its simple, easy, awesome. Mark i am Mark Crumpton with bloombergs first word news. Journalist Jamal Khashoggi is taking her campaign for just and is going to the united nations. She addressed the yuan human in geneva, urged u. N. To take action following a key investigators citing that saudi arabia bears responsibility for khashoggis death, and the independent you and expert who led the probe and says the incident is not standalone. That impunity for all those killings and the continuation of those killings have not gone