Transcripts For BLOOMBERG Bloomberg Markets 20160912

We are halfway into the trading day. Lets head to the markets desk were julie hyman has the latest. Julie after the big selloff on friday, its interesting to see a bounce back. It did not happen in european trading, but it has been gaining steam since the open with the nasdaq consistently leading and now up 8 10 of 1 . On friday, we broke that range bound street that the s p 500 had been on for a couple of months. The vix had been very low for quite some time. Volatility spiked, although it is coming back down today. Btv 3447. At g this looks at a measure of the ranges we have seen. This is the s p 500 with the 50 day moving average. And below the moving average on friday. This is despite of a little bit of a pop today. This is the streak that we saw with this range bound street for the s p 500 again below it on friday. Even though we are seeing a bounce, we are still not above the bounds of that range as of yet. Couple individual stocks to watch today samsung fell in asian trading down 7 . Perhaps apple is the beneficiary of samsungs recent issues with its note seven, which it recalled over concerns over battery fires. One analyst says that apple could be benefiting from samsung s as people look to iphone instead of galaxy. Matt we saw european stocks close down. It is declining into this fed meeting that we are all waiting for with bated breath. Julie and the commentary this afternoon from brainerd as well. Ist is interesting an that we saw a move in tandem with stocks and bonds. Both of them selling off. With stocks rebounded, we still have stopped selling off. That was not the case in europe. Not a big move, only of a basis point. It is an opposite move to what we saw friday in stocks but not in bonds. Again back to these levels where we were at the end of june after the u. S. Dollar. We have been seeing a little bit of a gain for the dollar. It moves interestingly away from stocks, not quite as dramatic today. If you look on the flip side and look at some of the metals and how they have been trading, there we have been seeing pretty sharp declines in some cases. Gold is often little bit as we have seen a little bit of Risk Appetite come back into the market. Palladiumatinum, and selling out more sharply than goal today. Matt julie hyman there with a look at the markets. Lets check with the first word news. For now we go to Mark Crumpton. N the newsroom coul mark Mark Crumpton says Health Issues is now an issue in the president ial race. Hillary clinton appeared to stumble as she was helped into a van after 9 11 ceremonies in new york. Trump spoke to fox news today. The coughing fit was a week ago, i assumed that was pneumonia also. Something is going on, but i just hope she gets well and get back on the trail. We will be seeing her at the debate. Mark trump says he will release more of his own Health Record soon. Police and ford are investigating a fire at a mosque that was attended by the gunmen who carried out the deadly orlando nightclub shooting. The fire was at the Islamic Center of fort pierce. The mosque was attended by omar mateen, who fired into the pulse nightclub on june 12 that left 49 people dead and 53 when did. It was the worst mass shooting in modern u. S. History. The truce in syria takes effect at this hour. Russias job was to convince the syrian president to temporarily and the filing. The u. S. Role was to enforce the truce. To enforce the David Cameron says he is quitting parliament immediately. Todays announcement comes less than three months after cameron resigned as Prime Minister following the printe brexit vot. His departure will trigger a special election for his seat. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, im Mark Crumpton. Stocks today rebounded after the biggest route since june wiped out about 500 billion in the value of equities. Treasury yields are holding your twomonth highs. There is concern that Central Banks will be winning markets office to meals measures. We are awaiting comments from brainerd. They may say a little bit more about what that member of the fed board of governors and the board will do when it meets on the 20th. She will be speaking in chicago and a little over an hour. Right now, lets talk about what inkets are dealing with equities and bond space. Lisa,g us now is mike and both bloomberg gadfly columnist. Lets talk about what is going on in equities. Even though u. S. Markets opened down, they are climbing up with these comments. What does that mean . Mike it is always interesting when you have a big selloff on friday like we did. If you look at last audited and brexit, both were very weak markets heading into the weekend with friday being very ugly. You had real followthrough on monday, which a lot of people point to retail investors. As much as they are told to never touch your ira, the concern is that people to. They see an ugly market on friday and start tinkering around with their 401 k on saturday and sunday and then you have added selling pressure on monday. To me, over the weekend that was my main concern. Was this all enough . Whoever was selling on friday, whether it be institutional hedge funds or Systematic Strategies reacting to an uptick in volatility, would it be enough to spook the investor into selling . What i worry about today is looking at fidelitys trade data , showing that they bought on friday, at least the customers. They bought the s p etfs at about a threeto ratio. Matt it is odd because they are selling bonds. What does that mean . That the equities investors are buying, what are they expecting from the fed . Lisa this leads to a big question right now. With a hiccup we are seeing in Government Bond yields, it is not necessarily tripping into a risk off mood into riskier assets. On the bond side, it is. Youre seeing withdrawals from highyield bond etfs and you saw the biggest oneday withdrawal from the biggest emerging markets bond etf on record on friday. People are definitely pulling cash. One day does not make a trend, but you are getting this feeling. It was a mostly hundred Million Dollars of withdrawals and one day, the most in this funds history. The fear is that a little bit of selling could escalate. Typically Institutional Investors do not make big allocations to emerging markets going into the end of the year. It is typically not as accepted for a Portfolio Manager to go to their boss and say, hey, we just moved all of our allocation to this highly valued asset at this point. You normally see that in january and february. There is not the same cushion against selling, even on the periphery of emergingmarket debt. Matt i learned a great new function today brgi. The people who are running our barclays index put it together to show you real tick by tic k data. What you see with the bart chart is a total return month to date. It is down for the longer bond, down for five to seven, down really across the board, except when you get back into the really short ratio. Matt this is really driven by overseas. Lisa yields are now almost positive for the First Time Since february. You are seeing similar trends in europe. This is absolutely being led from overseas. What you are getting is the relative value of investors. It is not there to the same degree. Not only is the currency swap more and more expensive, but now yield arising on the longer end in japan and europe, making it less attractive for international investors. Matt the bonds seem to be saying that they affect the rate rise or at least lisa this is to some degree related to the fed, but its something separate as well. It is heading off to the long and. This is not just the fed. Matt that is why we could see equities not so bearish. Mike not at least today. To have a lot of ground to make up from friday, but there is this general sense that a lot of smart people really want this stock markets correct and take some of the wind out of the sales that have pushed these valuations to the size they have. It is interesting the year and target from strategists that we compile here of bloomberg. Was well above it, and now its below it. As they were setting new highs, they want to respond with higher price estimates. Goldman is calling it a fat and flat trading range. Even into 2017, they do not expect a lot of games, but they do expect a fat trading range. Matt at least fat are the last two months before friday. Mike regan, thanks so much. Lisa abramowicz from gadfly as well. For more commentary, go to gad f go. We will bring you brainerds comments live at 1 15 p. M. Eastern time. Everybody is waiting to see what she has to say. This is bloomberg. Matt this is bloomberg markets. I am matt miller. Time now for the Bloomberg Business flash, a look at the biggest business stories in the news right now. Samsung electronics heir apparent has been nominated to the board. Asis better known as jay y south koreas Largest Company struggles with the recall of the note seven smartphones. Regulators, airlines, and samsung has warned customers to stop using the phones after reports of the battery catching fire while charging. Horizon pharma is buying Rapid Pharmaceuticals for about 800 million to bolster its red Disease Treatment business and expand nationally. It will pay da nine dollars a share in cash. Expected toion is close in the Fourth Quarter of 2016 and should add to earnings next year. And target says it will hire more than 70,000 Seasonal Store workers during the busy Holiday Shopping season. That is about the same it hired last year. They also plan to hire an additional 7500 people for distribution facilities. Targets those existing employees will get first choice for the extra Holiday Hours they want to work. And that is your Bloomberg Business flash. The health of the democratic presence of candidate Hillary Clinton is moving from the fringes to the center of the 2016 president ial campaign. That is after she made an abrupt from a september 11 commemoration at ground zero here in manhattan on sunday. It was later disclosed that she had been diagnosed with pneumonia. This episode feels criticism about clintons lack of transparency. How detrimental is this to Clintons Campaign and the final stretch before the november election . How is her Actual Health . Let us ask Bloomberg Politics who joins us now from washington. Im hearing throughout the morning more and more about the disclosure of senator clintons pneumonia and less and less about her Actual Health. Which one is more troubling for her campaign . I think that is exactly the right question. Overis point the fax health are a lot less troubling than the way they handled this episode and the transparency issue that you brought up. The campaign did not disclose that she been diagnosed with pneumonia on friday and the remission that something wasnt right. There were rumors that something wasnt right. The campaign tried to play it off and she appeared and said she was feeling great later. It was only after this video appeared that showed her stumbling and is he into her dan that the campaign it was only after that but the Campaign Said she has been diagnosed with pneumonia. She is not all of cap the moment in terms of her health. Ok at the moment in terms of her health. If they are not forthcoming about this, what else are they not forthcoming about . That fuels conspiracy theories that have been floating around on right wing websites that theres something seriously wrong with her health. There is no evidence that theres something seriously or majorly wrong with her health but pneumonia. People get ok. The question is how do they handle the stuff. Matt not everybody recovers quickly from pneumonia at the age of 68. Is a pretty serious disease. Obviously we all hope that she recovers well. Donald trump actually wishing her well, which i thought was interesting. He has not released too much about his own health, has he . Sahil no, he hasnt. He released a doctors note that drew a lot of mockery for the way it was written. His doctor claimed he would be the healthiest and most fit president ever elected in the history of the country. I dont know how he could possibly know that. Trump has suggested that he will release the results of a physical he took. Trump has not been transparent about this stuff either, which is why he is not a great messenger to attack killing clinton on it. Matt hes going to release more and the Clinton Campaign says they will release more health info as well. We hope they all remain healthy. Thank you so much from Bloomberg Politics. Coming up tomorrow, we will have a big focus on the economy and finances of argentina. We will be live all day from buenos aires for the argentina business and Investment Forum with exquisite interviews from the president and bob dudley as rocca. Paolo it starts at 830 a. M. Eastern. For coverage throughout the day on the terminal and on television, this is bloomberg. Matt you are watching bloomberg markets. I am matt miller. And commodities news, crude prices trading just below 46 a barrel, paring some of their losses from fridays slide. Hopes of a production freeze are starting to dim. Michael laid out the factors that will affect prices on bloomberg surveillance this morning. Michael but we have seen in the last couple of months because theres so much concern on what is going on in the demand side and oil market, there has been a very strong correlation between other Asset Classes as well. I think they all feed on each other. When we have positioning on extremes the way they are over the last couple of weeks, we have seen short positioning and oil go to the extreme. We have seen that over the course of the last week. The opposite has been much more along positioning as the extreme and that has led to this track down that we have seen in the last week from when. Oil. Which is the biggest factor in our consumption of oil what happens with the fed or with opec . I want to describe how you plug them into your models. Very lowis a probability that we get any kind of decision from opec at the end of september. Theyre going to meet in algiers and talk about the market. We can expect some kind of statement from them. I think what the market and what the investors in the macroeconomy are much more concerned about over the course of the next 23 weeks is what the fed is going to do. There still seems to be this disconnect between the likelihood of a rate hike and what the market actually believes is going to be a fed rate hike. I think as we have noted in our research and the research of our colleagues at barclays, we do expect that over the course of the next week or two, we even could see today from one of the speaking ismembers a higher probability of a rate hike. It will have an effect on the dollar, strengthen the dollar, and we could see some weakness in to oil as we reach into the month anend. On china to understand this concept you addressed earlier on and what will happen next. Were going to see technology overtake its usefulness and we are going to see therefore the developed markets and the emerging markets shift away from hydrocarbons. What is the most rational way of pursuing policy if you are an opec member like saudi arabia . Is it to pump as much oil as you possibly can . Right nowhe problem for saudi arabia is that they are caught between these two conundrums. On the one hand, if they come to any kind of agreement with the urge other members to come to an agreement. They essentially are on additional demand. That also results in a reduction in their market share. Over the longer term, every single time the price goes a little bit higher, they have to ensure that they are not leading into the longterm demand for their commodity. On the other hand, if prices lowo, they face the prospect that they could reduce the amount of fiscal reserves and they threaten the Overall Economic strength of their country. Its a bit of a tradeoff that they have to face monthtomonth. At this point, they can still continue to pump as much as they would like. Matt that was barclays head of Energy Commodities Research Michael cohen. Lets now go to Abigail Doolittle live from the nasdaq. We are seeing some games now and the speech that were all waiting for. Abigail were looking at a very nice snapback rally for the nasdaq after the big fall on friday. We have the nasdaq near session highs. We have all the big wellknown nasdaq make a cat names participate iing. This includes amazon, apple, and alphabet. One of those is tesla after ceo elon musk yesterday said they are introducing a new autopilot software, a new software that would have saved the life of a navy seal killed back in may using that autopilot safety software. It appears the difference has to do a lot with the new software using more radars over cameras. This could provide relief of uncertainty for investors around the story. Theres so much uncertainty around target and cash burns. This could be checking one of those uncertainty boxes off and that could be why tesla shares are higher. Matt cap the guilty little, thanks so much Abigail Doolittle, thanks so much. Jamie dimon will be giving his thoughts on the u. S. Economy and the election and income inequality. Were going to bring you those comments live as soon as the kickoff. This is bloomberg. Matt you are looking at a live at her midtown manhattan World Headquarters here in new york city. This is bloomberg markets. Lets kick it off with headlines from bloomberg first word news. For that, we go to Mark Crumpton in the newsroom. Mark c. thank you. Several members of Hillary Clinton staff reportedly had pneumonia before the nominee became ill. Unnamedagazine sites sources saying that at least six Campaign Staffers were sickened. Will meet with the top four leaders of congress today. It comes as another Government Shutdown deadline is approaching. Lawmakers on the white house are also moving towards a deal to find the fight against the week of ours. Also on the table, and asian free trade deal. As many as 1300 americans have been on the island since 2002. European Union Leaders will meet in malta next year to discuss the future when britain leaves. Malta takes over the eus rotating presidency next year. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more i am markountries. Crumpton. This is bloomberg. Matt thank you very much. I want to take a look quickly at markets. We are just about 45 minutes speech we are all waiting for to help decipher exactly what the fed is thinking one week ahead of its next meeting. Here, you see equities climbing into this meeting, which is interesting. European stocks were down across the board. On friday we had a big drop on the s p 500. Willoncern is that the fed raise rates for the september 20 meeting. By the looks of equities today, you would say that investors are not scared off. On the other hand, if you look at bonds, they are selling. Of course, they would do that if they thought that the fed would raise rates. Twoyear right now, up one basis point. The 30 year at 2. 40. The longer bond is unchanged. Lets take a look at commodities as well. We salt cold having parchment this run. It is now down about eight dollars and . 80 an ounce. ,rude has had a miserable week at the end of last week. Up. You see nymex commodities, a little bit of a mixed picture. We are going to hear from jamie dimon at the Economic Club in washington. A conversation about inking, politics, society, income inequality. We will have it for you live here on bloomberg television. You can also check out on the bloomberg at any time. This is bloomberg. Matt jp morgan chairman jamie dimon will be speaking shortly at the Economic Club and washington, d. C. He is expecting to share his thoughts on the u. S. Economy and brexit. What else can we expect to hear . We ask Michael Moore who joins us now from london. What are you hoping to hear today . Michael i imagine he will talk about the election, regulation, one of his usual topics, saying that we have gotten past the worst of the crisis and it is time to let the banks to their job. You have heard him talk about that in the u. S. And recently talk about the trend in europe as well, allowing the thanks to do their job in the economy and ramp up regulation at each time. We have seen David Rubenstein host these events before. He had one with michael corbett. F citigroup last year he tends to let them go forth on what they want to talk about. Matt im sure you can hear David Rubenstein talking in the background. We are just about to go live to that. What has jamie dimon said about record so far . Is jp morgan ready to move everyone out of london . Michael before the vote, he talked about moving as many as 4000 employees out of the u. K. He was very much against brexit happening. Since the vote happened, we have not heard as much. I think they are taking a waitandsee approach as far as the negotiations go. Certainly the risk is still out there. it is said they will keep as many people as they can in london. Is that right . Michael right. They are coming at it from different vantage points. They have kind of got different negotiating strategies at this point. Obviously jp morgan, if they are not able to have services into the eu from london, will have to adjust. Incomee will hear about inequality, wages, and how much people are paid in this country and around the world. Are these topics near and dear to his heart . Michael yes. They have been very outspoken about this. They made a push to increase the minimum wage for their employees that above, boasting the requirement in many states. Jamie dimon has talked about the need for corporate engagement on andincome inequality font in addition to many of the policy issues that he has pushed , including a lot of education reform. Matt how about regulation . Surely every banker thinks they are overregulated. What you expect to hear about the business of banking . Michael i think you will hear vocal ofe is the most the bankers, at least in the u. S. , about the regulation topic. I think you will hear a consistent theme from him on that. Rateo wonder he thinks the hike matt is warranted at this matt point. I will cut you off because i think we are going to hear jamie dimon talk about the fed. He has been asked about janet yellen. Mr. Dimon asset prices are up. And sheersonal view, does not call me for advice, by the way 25 basis points is a drop in the bucket. Going reallyts slow, dont really worry about it, lets just raise rates. You dont want to be behind the eight ball on this one. The fed has to maintain credibility. I think it is time to raise rates. Normality is a good thing, not a bad thing. To me, the return to normal is a good. The rate itself gets much more psychological attention that the actual economic effect of raising rates. You would say raising in september or december makes no difference . Mr. Dimon i would go sooner rather than later. They even made it clear that they would raise rates when they see the white of their eyes. I will let them look at all the factors and decide when the right time is. I think we have made some news. The markets are probably going to move now. Lets suppose that in a few months mr. Dimon i have to remind the full in this room, right now, we kind of tell you what will happen, we forecasted going what thewe look at government thinks. For rates were raised on a. Unday night, 200 points there are other ways to do this. You cannot make that which is uncertain certain. We should stop trying to do that. So, lets suppose the next president of the United States were to call you and say, you are a leader in the Financial Services community, i would like advice. What would you advise the next president to do to get the economy growing at a better clip . Mr. Dimon there are serious issues that the country has. I do think that the next president , if they focus on the issues, and theyre not republican or democrat, not left or right they are issues that. E talk about and know about tpp would be positive for gdp, positive for wages. It has negatives which have to be recognized for this trade assistance. Im a big believer in getting the trade deal done. Give people income assistance, training. Innercity education is a disgrace. We should be ringing an alarm bell. Over 50 of kids and innercity schools do not graduate. Schools, and those who create jobs Work Together to make sure that certificate, whether it is high school, vocational, community college, or college, and up in a job. We are driving American Capital and businesses overseas every day. This problem is also making advantageous, believer or not, for Foreign Companies to buy American Companies, to invest here more than American Companies buying American Companies and invest here. Likeld propose something an earned income tax credit. The democrats are right. We need more infrastructure. And talking about transportation, tunnels, bridges, roads, airports. The democrats are right. Raisingy are afraid of taxes. They hear the sucking sound of washington. More crony capitalism. This is the Perfect Place to get people in the room and stay, how can we do this in a way to improve it . I believe the president took care of all of those things. The economy would be booming. I dont believe your garment the argument of stagnation. We could be looming. We are not believe because of all the issues we have selfcreated and have slowed down growth. By the way, wages will fix growth inequality. Studies show that cutting Corporate Taxes will help wage equality, make it better. Aboutl should be better policy. Issuppose the next president hearing this and said, those are good ideas, would you be my secretary of treasury . What would you say . Mr. Dimon i would say, David Rubenstein. [laughter] im talking about banks because you may have Money Managers who could possibly get that job. It is too hard to get through congress. They should really get someone qualified to grow the American Economy and negotiate with overseas and understand the that business plays in all of this. You come to washington from time to time to meet with legislators. Look at the its date is that for you . [laughter] mr. Dimon first of all, if you get is important that business get involved in washington. Im not a person who says, i never go there. Policy is that here. A lot of people really do care about making a better company. Country. Obviously the Regulatory Environment for banks not just for us i travel the United States of america, and i go to groups like this in any city and i get your full about regulations completely unrelated to banks. I come down, i do the best i can. It is my job to do with regulators and politicians and policy issues. I also think that the interest of the country should be put before the interest of the industry or the company. If businesses are constantly coming down and asking for that one little thing to help them i hear these horror stories. Do what is right for the country. Business has to be a little careful. It is too selfserving. That does not appeal to the american public. It does not help politicians get done. That is what im saying. An earned income tax credit, those would be good things for america. We should do that and help them at the lower end but have Corporate Tax for firm. The interview is over. [laughter] affordon you can it, ok . Let me ask you, on the economy, you get data from all over the world that jp gets. What do you say right now, the u. S. Economy is in reasonable shape . Do you fear a recession . We have not had one in seven years. We usually have them every seven years. Mr. Dimon i dont buy that. When we look at the economy, where are the potholes . We saw potholes in 20072008. There are no real potholes there. Wages are going up, household formation went up. Homes are in short supply. Housing prices are almost back to where they were. We still at 3 million americans roughly. We need to build more homes. People are spending their money. Markets are wide open. Companies are flush with cash. There is no immediate hospital. They are not systemic. They will not think the American Economy, they will just slow it down. I should point out that you hear about all the Serious Problems we have, and we have them. I dont think the democrats should degrade the tears coming of theut this years government, but i would give it the other way around. America has best hand dealt to any country on this planet ever. Americans dont fully appreciate what i will say. We have peaceful, wonderful neighbors in canada and mexico. Militaryhe biggest ever pulled. We have all the food, water and energy we will ever need and we have the best military on the planet, and we will, as long as we have the worlds best economy. If you are listening to me closely on that one, the chinese would love to have our economy. We have the best universities on the planet. We have rule of law, which is exceptional. Written, brazil, argentina, china, india. Believe me, it is not quite there. We have innovation from the core of our bones. It is not just the steve jobs we have the deepest Financial Markets we have ever seen. I just made a list of these things, and maybe i missed something, it is extraordinary. We have it today. Yes, we have problems. You travel around the world and go to all these other countries and tell me what you think. Go to europe. You want to talk about tough regulations and bad politics . We have it all. Ourselvese shooting in the foot, in my opinion. We do a pretty good job shooting ourselves in the foot. [applause] you would never consider running for office, would you . Mr. Dimon i would love to be president of the United States of america, ok . I said, you will never have a rich is this man in politics be president. I was clearly wrong about that. It is just too hard. Most people, you have to be member or governor, be of a party. Michael bloomberg was qualified, but it was just too hard. By the way, i think this collaboration you here, get the experts out of the room, we have heard that before. We need policy. Self for people. We need analytics, we need to do it right, and do it together. The government cannot fix all of the things itself. The acts like the government is the only solution. I remind them about the post office, the department of motor vehicles. Really the only thing they do really well is the United States oteri. [applause] mr. Dimon collaboration works. If you go around the country, it works in all the cities, all these states. It is here, for some reason, we get bogged down. Europe. Entioned you were quoted before the brexit phot as saying maybe would have to move people out of london. Do have new thoughts on that . Mr. Dimon brexit is a vote for the unknown that we thought would reduce the gdp of the u. K. It is going to. It is pretty much going to foreign direct investment, people opening factories. It is not a disaster. We think 1 . 5 . That is one thing we know. The second is this mound of uncertainty. It is not going to go away. You will be reading, for the next year or two years, about the complexity. We do not know the outcome. The best case, i give it 10 . The euro is angry and they want to keep it together. They say that you will not have free access of markets without Free Movement of people. That is exactly why the people voted against it. Their logic was why tether yourself . Thatum was passing rules affected british citizens. That was true. Fors fix the problems everybody, all 27 nations, not just britain. What worries me the most about brings it is a cause of the eurozone to unravel. You have a referendum coming up in italy which is important, you have elections next year in france, germany. You dont even know who the leadership is. You have the same pop populism servicing over there as over here. It is tough. If you see the eurozone unravel, that has potential catastrophic issues associated with it. It may be a big recession, it could be worse than that. You know what that continent has been under for years. It would be a better outcome if they have a stronger union, not a weaker union. Lets talk about your background for a moment. You get upset if people say you are a Financial Services executive, you live in new york, and they think you are jewish. You are not jewish, right . Mr. Dimon i am greek. Where is ted . I saw ted somewhere. I am proud to be greek. I got a letter when i became chairman of jp morgan. It said, rockefeller, dimon, it happens only in america. That is true, by the way. I did marry a good jewish girl from bethesda. You started out, your father was a stock worker. You started out with some background in this area. Did you ever consider going into baking banking . Is that what you always wanted to do . Mr. Dimon no. A lawyer ort to be doctor. I grope around stock ogres and wall street. My dad, who passed away recently, did an annual report, ripped out the price with the price in it, analyze it, and was immediately humbled. Immediately. I was always in the financial world. School. O is the i didnt have to go to financial. It is fascinating. You get involved in so many policy issues. It was just a fun place to build it. Normally if someone is a banker or scholar from Harvard Business school, you could go anywhere you want. Sandy, why to go to did you do that . Mr. Dimon i found him down to earth. He wanted me to go to an investment bank, i said, no. They eventually called me up and liked me. I was a baker scholar, which was important to him. He said, why dont you be my assistant . He lasted about another three years. You did learn a lot. He left. Mr. Dimon he left, i left with him. He said, we will find some and build something great. We try to take over bank of america. You may remember that. We took over this Little Company called commercial credit in baltimore here. I moved down here and we had this Little Company including a Leasing Company and israel, a loan company that went bankrupt, a small Life Insurance company. That company is the same company that became citi. Recognized. Are solomon brothers, at not, travelers life it was a conglomerate. E merged it with citi it was a hell of a run. Then, he fired me. [laughter] mr. Dimon when he did that, a year later, i called him of i called him, he did not come you, just that you know i said, it is time to break bread. He says, we will meet at the restaurant. It came out on the front page. This was like anyway, he was a little nervous. I said, all i want to say is you did the wrong thing to the company, i made a lot of are sometoo, and here that i made. After that, he said, thank you for sharing that with me, we had a very nice lunch. Life goes on. You were then in a small office, if i recall it, you rented a small office after you got fired. Mr. Dimon this shows you how stupid Corporate America gets. The company had set up. We had a cochairman and coceo. I was going to be the president and run the Global Corporate investment bank. Because the turmoil among the management, we had try heads of the Global Corporate bank, coheads of consumer and all the reported jointly to sandy and john. I said to them, you guys are crazy, this will destroy the company. The second you do this, we will be building trenches and stop tiling ammunition. By the time that you two figure this out, a lot of good people left the company. By the way, it would not be the first casualty. They said, it works for me. I said, it does not matter if it works for you, it matters if it works for the clients and the employees. Sco say, it works for me, you should question business, if it works e client ultimately. When you were thinking of the merger, it must of this mustve been audacious. For you nervous that he would say no . Said he had some good points and bad points. He went to see john at a hotel in d. C. And laid out a very basic plan. And moreintrigued because it fills out the to doutions for a city some of the Investment Banking stuff we were doing. We particularly liked how many customers we touched in Financial Services. One of the mistakes made was i think the company should have focused on what jpmorgan does today. It eventually did it, but it was under duress, spinning off the life of companies, and all these other businesses that did not belong there. It is not a conglomerate. Everything we do helps each other. If you are a consumer and walked through the front door, you bought you buy the products. That is what we do. As business using just units, but we are not unrelated and it got too big and too sprawling. When you were fired and looking for something to do, you are offered the ceo of home depot. Home depot, a couple of Big International investment banks. And ireenberg who ran aig thought myself to go from sandy to hank greenberg. A bunch of private equity folks. They were looking for president. I was thinking i would never have to wear a suit again. I would get one of those houseboats in seattle and i love what he did, it was just the on i spent my whole life in Financial Services. It is like playing tennis your whole life and in going to play golf. I love the guys at home depot. , when youonfess called me up, i had never been in a home depot before. Billy only reason i went was a guy who worked for me was someone said you have to go to one before you go to that dinner and they said they dont care, they wanted me. They said they were not interested in what i knew about merchants. Iuple of internet companies, figured this is my chance, how many major Financial Companies are there . Change their ceo in the next five years . How many of them will go outside . I said this is my commercial credit, it will be what we make it. Business like i wear the jersey, i am not a hired gun. I will leave the company and give it everything i got and handed over to someone else. I dont want people to talk about the third the company like a thirdparty. I said are you crazy, this is it, im not doing another another big thing, i love what i do. You moved to chicago. I knew one big private equity guy who at one point sometimes he comes and sees me and i say who are you here recruiting . One of those times, it was me, that a lot more than they pay me and jpmorgan. I dont do i do for compensation. When you went to bank one, did you ever expect you would move back to new york question mark i had no idea. I loved chicago, by the way. It is a great city. Me sittingcartoon of at an airport and the person saying to me, there are no scheduled flights to new york and in chicago, they didnt believe i was going to move. Are you moving here . Are your kids moving here, and i said yes, im here, im really here. I told them in chicago by state andhole life and i died they shipped my axes back to new york, they would say told you. The Banking Industry was consolidating, so i knew that i paid that they did a good job, i would be proud of that. I did not know i would be a acquirer. To me, the thing is make the company as good as you can and increase the opportunities you have. You came back, you became the ceo. Lets talk about the Great Recession and the financial crisis. Your bank was in good financial shape. You recall the call out to washington, d. C. Why did you take the money . Jpmorgan did not need government help. One of the things that happened in the crisis that destroyed banks is that all these banks were bailed out. Some were. You can be angry at banks were hoping to screw up the system, which they did. Not all equally. If i came to washington, i would say lets all sit down and actually analyze the facts including fannie mae. It was not just banks. Most of us were trying to help to the extent that we could. We bought bear stearns. They were trying to figure out what to do with tarp. It was basically to buy bad assets. They called us down and hank said you have to come down. Sixid i have been working hours for seven days a week the last six months and im taking a week off and he said it is really important. Nine of us were lined up alphabetically. It was either by name or company and hank was there and sheila bair and a bunch of others. They said we have been thinking hard and we came up with a plan that can help save america. This would take capital off the table and it would be an issue for banks. We can get other banks to take it and it would be a major stepping stone to turn this thing around. , yours is 25 billion, yours is 10 billion. It was cheap capital. We had to give the government equity warrants. He said you have to talk to your boards and a couple of people said ill take it. I called my board, explained it to the mall and said it was bad, to be honest that it was asymmetric. It was going to save some companies and hurt others. You could argue it was bad for jpmorgan and good for other people, that i said it is good for the United States are United States of america. We did not have time to think of all the ramifications. Know it was going to be a big Scarlet Letter on the back of all banks. Then we took it. It is hard not to when you think you are doing something most of us are very patriotic, and we walked out of the building and , theyhe press found out were taking pictures and asking questions and everyone of us, walked by the press, waved them off. The headline in the Washington Post was not only were they bailed out, they showed no gratitude. Much ight, i think so someone should have stopped and said we cannot tell you what we discussed, but rest assured that everything here is being done to help fix the american system. Something to show a little more graciousness. One time, you decided to help the government and they called and said could you buy bear stearns, you bought it and then excuse me for peeling you away speaking at the Economic Club. You can watch this speech on the bloomberg at live go. We want to get you ready for a couple of other events. Donald trump is speaking at a National Guard convention in baltimore. You can check that out as well. Lael brainard is about to speak and we will take that live from chicago. This is bloomberg markets. Im matt miller. And im scarlet fu. Lets get some insight into what jamie dimon has been saying, and what Lael Brainard. S going to say thank you for joining us. Jamie dimon said so much in that interview. It was all over the place, and there was so much to deconstruct. Matt it seems to be really moving the market, as well. He said he thinks the fed should raise rates, they have to do it, he thinks they should do it sooner rather than later, and he also was saying he does not love the transparency. Agree with,r part i the former i agree but you couldve made that argument for any of the past five years. The question is, if there is a risk to softening, because the headline employment numbers are much better, still not terrific in terms of the jobs we are creating and the wages, but the question is, if there is any risk, especially given all the Political Uncertainty and european uncertainty to the economy at all, to raise by 25 only to have to risk getting it back, does that do more damage to the already destroyed credibility . Scarlet and right now, they are recounting what is happening in the fall of 2008. He started by talking about the Banking Industry still being consolidated. The the banking Banking Industry has been consolidating globally as you have seen very little topline growth. You few business lines were see great opportunity and especially on the european side we are sympathetic where they are talking about the u. S. Having terrific opportunity potential, Natural Resources and that is all true, that we have been looking toward the fed for Monetary Policy to stimulate, which i agree is relatively effective and we need fiscal stimulus and i agree with that. Lets look across the water and look at europe, where we have tried to see the creation of a union without monetary a a bankingnion without union as now now as we try to put into place the banking union, you see the banking resolution mechanism. What we found is, in times of stress, each of those sovereigns are implementing the way they want, doing more damage to their ability at the sovereign level to attract capital. We are pushing for more Bank Failures in europe, and especially the largest banks where they still have real problems. Matt lets get to Lael Brainard. Was almost that she like an unannounced that speaker at the last the week before the meeting or a week and a half, does that mean that. 9 the fed is trying to tell the markets work is too low and we will raise rates in september . The tinfoil hat crowd is trying to make this into some dramatic effort from the fed to put september in play. Matt are you calling the bond market the tinfoil hat crowd . Certain performed certain participants are loving this way out of proportion. Lael brainard is a dovish policy makers. The fed is not trying to put september and play. People misreading this will looking at a fat that is trying to firmly anchor december hike expectations in place and they are misreading it as an attempt to do some kind of lastditch. Scarlet but the fed is seeking maximum option elegy and they have used fed speeches in the past as a way to achieve that. I think that you have to distinguish between each of the governors and janet yellen. She is the only one who speaks for the board. Telegraphing to markets, i think it is more the former than the latter. I think again, we all know that there is value to raising rates. That has been the case. I dont get a sense that there is any comfort that we as jamie dimon pointed out, time and again, that we have seen the likes of their eyes on the inflation horizon that would justify get from the metrics that they have been looking at, not from the should we do it . Its also not seeing the whites of their eyes on the growth front. Gdp growth is 1. 2 . That is a full Percentage Points lower than where we were, last december, when they initiated the first that hike. The economy is too weak for them to be hiking at the september meeting. Matt why would it be a colossal mistake . The economy is growing at 1. 2 . We are at greater risk. Matt the ceo of ford says he thinks his customers can handle it. When you are growing one point 2 , historically that is a growth rate for the economy is at a great risk of slipping into recession. Until 2 or better, we are not trending towards price stability. There is another issue which is for all those reasons, youre not just dying a hike on fundamentals justifying a hike on fundamentals. If we do that, you are further undermining the the credibility of the fed because all the things they have said to us over the past seven years, qe is not functional, its not working. For them to throw out the playbook and say the fundamentals dont justify more raising, it does not help more their credibility. If the economy stumbles on that rate hike, then they have huge problems. They dont have much room to further ease policy. The hurdle is extremely high. Scarlet there is an urgency to normalize quickly so that if a economy goes into a downturn, they have some room to maneuver. Fromon, we have headlines Lael Brainard. Urges continued prudence in removing accommodation and has seen signs of progress on the head inflation role inflation goal. Did you write that speech . Prudent, back in june when she last spoke as well. She is a dovish member of the committee. She continues to be one big conspiracy crowd thought she would, extremely hawkish. It is not in her nature and she did not do that here based on the headline. Matt very dovish, saying policy should that the case to tighten preemptively is less compelling on the case to continue to worry about the Downside Risks. Economy say that the has seen welcome progress on some fronts and that is probably the stabilization of oil and the u. S. Dollar. Scarlet she also sounds fairly compelling on the jobs market because you says we are continuing toward formal full employment. She doesnt necessarily want to push ahead with rate hikes to hurt that job market. Lets get a check right now on the u. S. Dollar. This is the bloomberg dollar spot index, you can see it sinking to session lows right now and this is on the heels of this fairly dovish comment from Lael Brainard. Look at then take a gip of the s p index. We are looking at gains of 1 , still a long way off from the loss that we saw on friday, but the dow is now adding back 168 points, the nasdaq up 1. 2 . Interesting to see were yields are going. Scarlet sinking. Matt you see yields coming back down, and we had been up across the board. The long bond had been unchanged, but the twos and tens were up and now you see twos intends unchanged in yields. Unchanged in yields. Scarlet 78 basis points. Matt the market does not get the the 10 hats did not get what they expected. This tells you that Lael Brainard the tiger has not changed its stripes and she is very much in the ellen cap saying we are approaching full employment, and mind you, if you are not full employment of the economy is growing below trend, you are not overheating, so there is very little urgency to raise rates. This keeps december in play, but does not guarantee it. Scarlet the odds for a december rate hike are now at 55 . They have dropped, but everything for november and september have come down quite a bit. 21 for september, 28 for november. Matt you lost 10 for september in just five minutes. You also have to remember, and a clinton administration, Lael Brainard is going to play a much more high profile and key role. For her to risk the beginning of a new administration, economically because her Monetary Policy decisions, if she can help it matt this brings me to something i want to ask both of you. Politics plays absolutely zero role in the feds discussions. Sisi risk their credibility by saying Something Like that, which we all know to be patently untrue . Fed chairs and fed officials have tried to downplay the influence of politics in their rate decisions and vice versa. Nonetheless, uncertainty in an election outcome very much factors into what the fed achieves. Scarlet it is like saying we pursue a strong dollar policy, that underlined that everyone always touts. The dollaryen also at a fresh low after Lael Brainards comments. Stocks advancing their advance and the dollar falling. You mentioned that word, prudent. What is different from when she used it in the past . I believe it was back in june and that was ahead of concerns over brexit and potentially over chinese Economic Policy as well. What has changed now, two big focuses. Financial conditions and International Economic development. On the financial conditions front, they have improved over the last couple of months, so that is a Favorable Development in her mind, and also, at least initially, we appear to have skated through brexit without some major in the Global Economy or economic global confidence, so on both accounts, she should be inching more in the direction of raising rates, but again, she does not feel a tremendous urgency to do this and that is a pretty clear insight of how janet yellen is looking at the world. If you were to look at howents from tomorrow and the Largest Global bank should not be forced to write raise more capital and him starting to push against the committee of it, it would be completely counterintuitive and contrary to suggest that we should be considering raising rates, but look for another mechanism to ease the burden on the economy like having banks build less capital. Matt you are seeing that plea from centralbank leaders to pass the baton. Mario draghi essentially saying as he voices his own incredible statements last week, that he cant do anything more and would like the fiscal side to take over. Thats fair. Chair yellen hinted in her jackson hole speech where she cannot rely indefinitely on the fed and centralbank davilas out, and this is cap the feds way of saying that time around, we might just threaten to put our hands in her pockets without more cooperation from the fiscal side. I remember sitting in the office of one of the governors in the death of the crisis as they were contemplating being forced into the auto bailout. Them saying look, we have done all we can do. Its now on the fiscal side. That was a long time ago and they never actually put their hands back in their pockets. They have threatened it in certain areas where it is clear they had the ability to push that line, they have, but at the same time, at some point, that has to be heard on the fiscal side because that is where the growth has to come from. Matt how must do you think the central bankers are working in concert, as we see trends that rippled globally and Something Like the effects of frexit on the eu are just as important to our economy as a lot of other things, domestically. Their work toward needed moves during the financial crisis. Now there is less of that really strict coordination. Nonetheless, they are trying to achieve the more goal the same goals, more inflation and faster growth. Scarlet you are looking at the Chicago Council on global affairs. There is Lael Brainard speaking, we go to her live. Lael be sensitive to the contours that shapes todays new normal. Five features of the new normal, some of which are interrelated, are particularly noteworthy. First, inflation has been persistently soft and they curve has been flatter. Past several decades, policymakers relied on the phillips curve as a key guidepost. It imply that as labor markets diminished and the economy approached full employment, upward pressure on inflation would result. The phillips curve appears to be flatter today than previously. As the employment rate has fallen from 8. 2 to 4. 9 , inflation has undershot our 2 target for 51 straight months. In this context, the incurring role of Inflation Expectations remains critically important. Here are just code recent developments that suggest people should be concerned more about undershooting than overshooting on expected inflation, similar to realized inflation. Although some survey measures have remained well anchored at 2 , consumer surveys have moved to the lower end of their historical ranges and remain there. Declinedasures have noticeably over the last two years at longerterm horizons. Despite the recent stabilization in oil and the Exchange Rate, we cant rule out that the sustained period of fun of undershooting the inflation target is weighing on inflationary expectations. This is reflected in the evolution of the forecast of fomc participants and a summary of economic projections. They have shown repeated markdowns of the central tendency for core ecp inflation and the attainment of 2 at the upper end of that range has been pushed out repeatedly from 2012 initially the 2017 most recently. The apparent flatness of the phillips curve together with evidence that Inflation Expectations may have softened of the downside and the persistent undershooting relative to our target has important implications, to the extent that the effect on inflation of further gradual tightening in labor Market Conditions is likely to be moderate and gradual, the case to tighten policy reactively is less compelling. Second, and related although we have seen important progress unemployment, this improvement has been accompanied by evidence of greater slack than previously anticipated. This uncertainty suggests we should be open to the possibility of further progress in the labor market. With Payroll Employment growth, averaging 180,000 per month this year, many observers would have expected the Unemployment Rate to drop out of than moving sideways as it has done. As all although todays 4. 9 isment rate of only 0. 1 from the median sep participants as if it estimate, the central tendency of that projection has come down significantly from a range of 2012, to0 in june 4. 7 to 5. 0 in june of this year. That is a reduction of a half percent to one percentage point. We cannot rule out that estimates of the natural Unemployment Rate may move lower. Other measures of labor market slack suggests there may be room to go. The share of employees working parttime for economic reasons has remained above its precrisis level. Eight of significance, the prime age Labor Participation rate, despite continued improvement, remains about 1. 5 below its precrisis level, suggesting room for further gains. This is reinforced by the continued muted recovery and wage growth which at about 2. 5 in recent quarters is only modestly above the pace over much of the recovery and well below the crisis growth rates. Theain point is that in presence of uncertainty, and the absence of accelerating inflationary pressures, it would be unwise for policy to foreclose on the possibility of making further gains in the labor market. Third, this inflation pressure and weak demand from abroad will likely weigh on the u. S. Outlook for some time. Fragility in labor markets could pose risks here at home. Europe, recovery continues where growth is slow and inflation is very low. Float growth and a flat yield curve are contributing to reduced profitability and a higher cost of Equity Financing for banks which could impair bank lending. A low growth, low inflation environment leaves countries with high debt to gdp ratios vulnerable to adverse shocks. Against this backdrop, uncertainty about britains relationship with the eu could dampen Business Sentiment and investment in europe. Jamaica japan remains greatly challenged by week growth and low inflation and it is striking that despite active and creative Monetary Policy in both the euro area and japan, inflation remains below target. The experiences of these economies highlight the risk of becoming trapped in a low growth lowinflation lowinflation expectation environment and suggests that policy should be oriented toward minimizing the risk of the u. S. Economy slipping into such a situation. Downside risk is also present in a emerging market economy. China is undergoing a challenging transition because of the adjustment cost along that path and demographic trends. Chinese growth will will likely continue to slow, given this township could pose risk, chinese authorities have made some progress on clarifying the policy stance and capital outflows have slowed in recent months. Nonetheless, considerable uncertainty remains and volatility cannot be ruled out, which could reverberate globally. Headwinds from abroad should matter because markets are tightly in a graded, and adverse foreign shocks are more powerfully transmitted to the u. S. Today than previously. Research suggests that changes in expectations of the path of policy in the United States relative to other Major Economies leads to Exchange Rate movements that appear to be several times higher than they were several years ago. The fact that many advanced economies are suffering from deficient demand and have policy rates at or near zero and that the u. S. Dollar is a favored safe haven asset may imply averse foreign shocks have particularly strong effect on the value of the dollar. In turn, u. S. Activity and inflation appear to be importantly influenced by the Exchange Rate movements. Estimates suggest that the nearly 20 appreciation of the dollar from june 2014 to january of this or could be having an effect on u. S. Economic activity roughly equivalent to a 200basis points increase in the federal funds rate. , that appears increasingly clear that the neutral rate of interest remains considerably and persistently lower than it was before the crisis. With theexpansion, federal funds rate at or near zero, and the Additional Support provided by asset purchases and reinvestment, gdp growth has averaged a very modest rate upward of 2 and inflation has averaged 1. 5 . 10 years ago based on the economic relationships that prevailed at that time, it would have seemed inconceivable that activity in inflation would be so subdued, given todays Monetary Policy. It is difficult not to conclude that the current level of the federal funds rate is less accommodative today than it would have been 10 years ago. In the early stages of the recovery, most observers thought cyclical headwinds were straining demand and lowering the neutral rate would dissipate. Seven years into the expansion and with a little sign of a significant acceleration, the low neutral rate looks likely to persist. Indeed, developments over the pastor confirmed the underlying causes are likely to be with us for some time. Foreign consumption and investment are weak and foreign demand for savings is high along with the elevated demand for safe assets. Productivity growth, which increases the average annual rate of 2. 5 from 1950 to 2000, has increased only. 5 on average over the past five years. Demographics also suggest the persistent slowing of the labor force. The reduction in the long run neutral federal funds rate is perhaps the most consequential change in the forecast. In the four years between june 2012 and june 2016, the estimates of the long run federal funds rate has declined present byto 2. 0 nearly one third 3. 0 by nearly one third. Over half of that adjustment occurred between december 2015 and june 2016, which onesided with a p which coincided with a period of easing of conditions as Market Participants took into account changes in the perceived fomc policy reaction function. Several econometric models and estimates from Market Participants suggest that the current real neutral rate is at or close to zero and any increase is likely to be shallow which means it may require our village of the more modest adjustment of the policy rate to return to neutral overtime than previously anticipated. These 4 features of the new normal make it likely we will continue to grapple with the fifth new reality for some time, the ability of Monetary Policy to respond to shocks as asymmetric with policy rates near the zero lower bound and likely turnover more frequent, there is a symmetry in the too available to respond to adverse developments. Lconventional changes in the federal funds rate cannot be used as readily to respond to downside trucks as the upside shocks. While there are, of course, the policy options, these alternatives have greater constraints and uncertainties than conventional policies. From the Risk Management perspective, therefore, the a symmetry in the conventional policy toolkit would lead me to expect policy to be tilted somewhat in favor of guarding against Downside Risks relative to preemptively raising rates to guard against upside risks. Because the persistently low neutral rate implies less room for conventional Monetary Policy to adjust in response to adverse developments, it will be important to assess whether our current policy tools are adequate and what adjustments might be most appropriate. There is a growing literature on policy options such as raising the inflation target or moving to a nominal income target. These options merit further assessment. However, they are largely untested and would take time to assess and prepare it for the time being, the most effective way to address these concerns is to ensure that our policy actions align with our commitment to achieving the existing inflation target, which the committee has recently clarified is symmetric around 2 , not assuming along with me not a ceiling, with maximum employment at many conclude by summarizing recent of elements. The u. S. Economy has seen welcome progress in recent months supported by the cautious approach taken by the committee and corresponding easing in financial conditions. The labor market has continued to improve. Consumer confidence has remained high. And we have navigated past year term risks from abroad. Recent data on the aggregate spending suggest we are continuing to move toward full employment, but progress will be somewhat gradual. This year, monthly job gains have averaged 180,000, below last years pace, but still sufficient to continue reducing slack. The slowing pace of job gains has been associated with a flattening out in the Unemployment Rate along with the one half percentage point increase in the prime Age Labor Force Participation rate. These of elements suggest and improving job market has made remaining in the labor force recently attractive increasingly attractive and may imply there is room for further improvement. Recent spending data suggests a pickup and thirdquarter growth. Spending increased at a nearly 4 annual pace over the three months spending in july driven by continued job growth, poignant sentiment, consumer sentiment, and rising household wealth. Nonetheless, Economic Activity over the past three quarters has been disappointing, with growth in gdp and grossed a mystic income each averaging less than 1 , significant step down from the same period in 2015. The appreciation of the dollar over the past two years has weighed heavily on net exports, corporate profitability, Business Investment, and manufacturing. Business investment has declined in each of the past three quarters, and the latest data on housing permits suggest residential investment slowed in the middle of the year. Looking ahead to stabilization of the dollar, oil, prices suggest that growth in these components should move higher with the second half. Indeed, exports from which have declined since the end of 2014, moved slightly higher last quarter and the number of Oil Drilling Rigs and operations have begun to edge up, a positive sign for Business Investment. In addition, inventory investment, which edged lower last order, should step up in the second half of this year. We have also seen signs of progress on our inflation mandate. In july, the 12month change in core pc was 1. 6 , higher than the year ago but still noticeably below our 2 target. The stabilization of the dollar in oil prices should lead inflation to move back towards our target in coming quarters. Not oil import prices, which is still which fell steadily, edge up in the Second Quarter josh rosner of Graham Fisher and co. Money. I think, you and i have been talking about what this means for markets. We actually saw a big spike in or a a big spike downward spike in yields. They kind of turned around a little bit. There is a bit of reaction from that surprise. People thought she was going to be hawkish. The point here is she is talking about the fact that maybe full employment is even considerably where economists are looking for it to be right now, somewhere in the high 4 range. That is not the language of someone getting on the bandwagon. Listening to the tone of her speech, im not sure she will be ready in time for the december meeting. Scarlet interesting. If you look at how markets are reaction, s p 500, dow, nasdaq, around session highs around the time Lael Brainard began speaking. They have turned a little bit more north again. Gains of. 7 . This is the bloomberg dollar index. What you saw was a leg lower as the headline scan out that she was fairly dovish. We have come back a little bit but this is still a loss for the day on the u. S. Dollar. Lets look at how the yields are faring right now. We saw the big back up in yields at the end of last week. Twoyear at 78 basis points. 10year at 1. 8 . Dramatic movement on the 10year and a twoyear yield. Matt selling bonds again. It turned around for a moment when the surprises over. Carl, you are saying the twoyear is important. Carl there are two points critical to focus on from her speech. One, she is not ripping up the script and looking for some dramatic change in the economy. She mentioned new normal and whatnot. She is stillllen, of the view that the models may be bent but not broken. The other thing that was very interesting here, she is very concerned about sovereign debt. She is looking at a world where we have slow growth and low and nation low inflation. Scenarios where it is very hard to manage her way out of debt levels. She is concerned about the impact in japan noted specifically china. She is concerned about that type of development in the last as well. In the u. S. As well. Matt she also says not hiking, but as long as they are not cutting, it is de facto tightening. Any gain in the dollar index is worth 200 basis points of training. Tightening. Carl shimada k for the 20 depreciation in the dollar was the equivalent of 200 basis points. She has been one all along west has been very focused on currency levels. Fed very different from its predecessors. It is very partisan of the impact of currency on domestic financials. Scarlet our federal reporter has just said that there will be a q a session after brainards speech. One question i have, carl, is how to interpret or reinterpret the comments from last week that kind of got people thinking the fed is ready to move . Carl he historically has been one of the more dovish members at the fed. He wants to get away from zero. Confident tos not move onto forecast. It will only move on hard data. We dont have hard data confirming that the economy is reexhilarating. Matt josh rosner scarlet josh rosner . Josh i think that is exactly right. They have had to scrap the playbook from the last several used to justify anything other that she just threw out there. It goes to the question of is the market and has the market gotten to a place where they overanalyze the statements as fed policy rather than the views of one governor . I think that goes back to jamie dimons point, that we probably need a little less transparency. Scarlet how has to much transparency confused you . Josh well, it has markets would sign on this kind of information. You go back to the late greenspan view, certainly with volcker, there was a recognition that the fed policy only comes from suasion and the only real effective way of suasion in markets is by shocking the markets in one direction or another. Rip ofd, the drip drip D Information that can constantly be misconstrued has caused confusion and has undermined the ability of the fed to move markets on a binary basis. Scarlet do you think the definition of data dependency has shifted and evolved . Carl i dont think it has changed and i dont think they are moving the goalposts. They have moved their forecasts around for Economic Conditions and have been very clear about the type of gdp growth in inflation and employment we would need to see for them to follow through on a certain path of rates, the data certainly hasnt calling in line with the forecast. So everyone says they lost their credibility. Janet yellen has been very clear that this is a datadriven and dated dependent datadependent fed and if the data are there matt it is 1. 6. Thane unemployment at less 5 in which, by the way, she talked about. Full employment could be much lower. How much lower could it be . 4. 9 is already pretty low historically. Carl i think what we hear from governor brainard is laying the groundwork for a significant forecast provision at the September Fomc meeting where we see the lower gdp forecast not just in 2016 but in the future as well. Effecttalking about this around low Interest Rates. When you are close to zero, you are stuck at zero. Because of the asymmetric policy risks, they dont have as much room to ease policy if they need to. Scarlet josh, earlier jamie dimon was saying the economy can withstand a 25basis point ratings increase. As someone consulting for clients, is that the message you are getting . Look, i dont think theres any question of that anywhere, frankly. I dont think it is a question of canon markets handle it. I think the question i dont think there is a question of whether it is needed. I think the question is the justification from the fed for doing it, given the fact that they have been datadependent and the data doesnt support it. Scarlet they cant contradict themselves, in other words. Josh exactly. You throw fed credibility out the window if you do. This anybody universally agreed that the fed policy has been largely ineffective to stimulate the growth weve been looking for . Of course. Does history show that those who qe2 have been largely proven correct, that in this sense you cant stimulate demand . One part of the problem is overcapacity. Absolutely. But that doesnt mean that the fed is going to change in line with that. That is part of the reason were hearing more and more talk of the need for physical schemas. Scarlet of course, Lael Brainard taking questions and answers or rather, giving answers to questions. She says it takes longer to recover from financial crisis. There has been a series of unexpected foreign shocks and potential u. S. Growth has undershot expectations. Matt all right, want to take a look quickly at what markets are doing in reaction. We did see the s p initially spiked on brainards dovish comments. Come backretty much down to where it was before she was talking to a little bit high right now. Scarlet the faded a little bit but is holding onto the gains. The it is Holding Onto Gains with more conviction than it was before she started speaking. We saw a reversal in treasuries. Lets listen in to Lael Brainard. Brainard for people to be brought back into the labor force, that is part of the reason we have seen the on employment rate thing sideways moving sideways as the jobs numbers have been quite robust in the recent months. People are coming in who have left the labor force and it may simply be that it took a while to for the labor market to be sufficiently promising for some of those former workers to be brought back in. Earlier, wageing inflation is really very subdued. It has only picked up to the 2. 5 level, well below what one would have expected precrisis. Job openings, as you say, have been elevated, but there are different kinds of ways that people post job openings and so there are a lot of speculation around whether that number is the same number as we may have been looking at precrisis and how do we compare those to it is kind of a rich data picture, which in my case leads me to conclude that there may well be additional slack. And that given the variety of reasons that we will expect inflation pressures to be quite moderate and slow, that gives us an space to continue reducing the slack in the labor market. And on the Participation Rate side, we had a real rampup in female participation, which is positive, and then leveled off. But male participation has had a longterm steady decline. Any thoughts as to why that is occurring . Ms. Brainard so i have talked to a lot of labor market economist about that question. You know, i cant offer any researchr pieces of that you are not well familiar with. But again, my sense is that there may well be a part of that that is a response to a deeply scarring financial crisis, and that we still have some room to primedrawing some of the age labor force, male and female, back into work. That matters, not just for growth, but for the longterm productive potential of the economy as well as for the wellbeing of individuals and their families. It is very important, and the decline in male participation goes well before the financial crisis. It is a longterm trend that no one can seem to explain. The other part of potential growth that you referred to his productivity growth, which is so important to our standard of living. The amount of output per unit of input or per worker. You mentioned you didnt have any good you havent been satisfied types of explanations you have heard as to my productivity growth has slowed. Do you have any thoughts on what can be done to increase productivity growth . Ms. Brainard the numbers there are really very start, upwards of 2 productivity growth in 50 years, right up to 2000, now since the crisis, we have had in the last five years only half a percentage point per year, one percentage point if you look over 10 years. There are a variety of hypotheses out there. A lot of interesting research. There is the hypothesis that we had very elevated productivity growth for a very short period of time and that innovation has been fully absorbed, and therefore, this is the return to sort of pre1990s normal. That is one hypothesis. That for aothesis is variety of reasons, in part because of primarily because of financial crisis, Credit Conditions were particularly of time,for a period the rate of business startups fell considerably, and the adoption of some of the very promising technologies has been very slow. There are Good Technologies out them, but the adoption of has been slowed by these factors. People point to artificial robotics. Ce, in that cinema exclamation you expect to see productivity starting to rise again as is this dynamism increases because conditions are better. The only other piece of information that seems important as well is this phenomena is not confined to the United States. Productivity growth has slowed globally and more so in other parts of the world. In terms of the kinds of things do, thereymakers can are probably very important things with congress and the executive branch having to do. Ith a whole host of policies infrastructure investment, r d, education, worker training. Again, those are policies that fit with the executive branch and congress. Would you add government regulation to that list . Ms. Brainard absolutely. More efficient and effective regulation is part of that list. What about Business Investment . That is a key ingredient here, too, increasing productivity and Business Investment. Incredibly slow, negative in some quarters, for about a year now. Any thoughts as to why this is occurring . Thebrainard so one of factors that clearly has been weighing on Business Investment, at least for the past three quarters, when, as you say, we have seen negative business the runup has been in the Exchange Rate and another factor that was important early period was the sharp decrease in the price of oil. We have seen a very sharp drop mining. Ing, in we have subsequently seen Business Investment more broadly being impacted. You see it on corporate offer debility, particularly corporate profitability, particularly on businesses that are internationally oriented. You see it particularly in the manufacturing actor. Some of the forces waiting on Business Investment have been global in nature. Aboutis still question having a more supportive environment for Business Investment domestically. Again, im hoping to see some of the numbers looking better in the third quarter. Better. L hope let me shift a bit to financial stability, which is an important concern of the fed. Yellen said recently that keeping Interest Rates at zero for an extended period of time might encourage excessive risktaking and undermine financial stability. Doesnt the risk increase every year that Interest Rates are so low . How do you balance this risk against the objectives, which you have talked about about growth, and price stability . Ms. Brainard in a low neutral rate environment, one of the issues that will be with us for some time is the question of yield behavior and whether we will see some development of financial imbalances with potential stability risks. We are at the board of the Federal Reserve board in the wake of the crisis have put in place a much more systematic set of mechanisms, both to monitor some of these kinds of Stability Division thatew andevoted to that with assessment which systematically looks at places where asset valuations might be out of line with historical norms, where leverage might be building, the kinds of things going into the crisis that should have been flashing yellow. And in addition we have had a whole set of strengthen authorities to deal with potential for acid you asians asset valuations to get out of whack and maturity to build. Obviously in our supervisory toolkit, apart from the leverage ratio and a massively enhanced capital requirements, liquidity requirements, we also have what i think of as extraordinarily inful stress tests that particular focus on the largest institutions that might pose systemic risks that are core to the system, and really runs them through very vigorous, forwardlooking scenarios, and asks them to hold capital and liquidity against those scenarios. We have the countercyclical buffer and the guidance on that went out last week. We have the framework to put in place as needed the countercyclical buffer. A whole host of augmented authorities. We have in fact when we have seen some excesses building can we have issued guidance and seen. Ome impact there leveraged lending guidance we put out in 2013, sequential that we saw underwriting standards and the supervisor banking system. More recently at the end of last year, we put out guidance because we were concerned of inns of building excesses the commercial real estate sector, and there, too, we have already seen in some of our lending surveys the underwriting standards have tightened. But to come back to your earlier question, absolutely come in a lowneutral rate environment, we have to be attentive to the potential for these risks. On the other hand, the kind of low inflation, low growth, low expectations environment i was describing that some other countries have been grappling with is also an environment that perilous for financial stability. Ie longer you keep dont want to put words in your mouth, but the longer you keep Interest Rates so low, is in the risk greater . Ms. Brainard i think the real question is if you are in an environment where the neutral rate is likely to remain low and those kinds of, behaviors are ones you need to be extra attentive to. One area is commercial real estate. People have expressed concern about excesses in commercial real estate. Do you have any thoughts on that . Ms. Brainard so we have in our surveillance exercises, that was a risk we were picking up. We were seeing a lot of activity in that. Not as leveraged as you would have seen going into the crisis,ut the capitalization ratios so we issued guidance at the end of last year. In collaboration with the other Bank Regulators come we have begun to see already the underwriting standards have tightened in response to that guidance. Again, it is within supervised banking sector, but we have started to see some response already to the guidance that we are going to keep a close eye on the developments. So you are monitoring it carefully. Just individuals