The early 1980s when it was not clear the fed could control inflation and the 1990s when the fed controlled inflation. Inflation today is under control, but there are new challenges from trade. Inhave much experience addressing typical macroeconomic developments, but fitting trade policy uncertainty into this framework is a new challenge. Unemployment is near a 50 year low. Inflation is not rising as the old model suggested it would. With Inflation Expectations so w, the neutral of rate neutral rate has fallen. Incorporating a lower right into policymaking does not require a significant change in our approach, but it may demand more fundamental change. How they change will depend on the policy review the fed is conducting this year. He takes no position on where they will end up. Does a promise to act as appropriate meet wall streets test . Vonnie i know we have to let you go in a moment. I want to get reaction from you to this speech. It says a lot for the jackson hole speech. The fed chair talking about acting as appropriate to sustain the expansion and mentioning brexit, hong kong, and china as factors the fed needs to consider. Inflation seems to be moving closer to 2 . Markets are not reacting tremendously. We are seeing an improvement for equities. Thoughtsous as to your for where this stands . Michael it is not a promise to do something in the same way ben bernanke brought to jackson hole, but it appears the fed chairman wants the world to know the fed stands ready to act and will do what is needed. He does run through that list of challenges and problems he says has come up since their last meeting on july 31. He said several times that the Economic Outlook for the u. S. Is good. He wants to leave himself some policy options to conclude a trade deal in the near future. To being to balance very balanced and walk that tight rope. We will see the markets agree. Vonnie it does not seem like midcycle adjustment was in there. Will this satisfy markets . Is this a decisive message to markets . Michael it does not appear to be decisive. It appears to be a placeholder. We are still with you. We are still watching. We are not going to make any commitments until we have to pay he does not know until we have to. How the markets take it, i dont know. They have been pricing recession rather than midcourse correction. Orther they are reassured not remains to be seen. Vonnie thanks to Michael Mckee. Michael is going to head off to that speech. We will speak with him later on. You have a lot more interviews. Joining us from jackson hole, mellon chief economist, and in new york. Peter coy. Ew york did the markets here something useful . See over myn shoulder, this is hiking territory. Powell cast a pretty big tent. There was something for everyone. From a market perspective, he did not push back at the current expectations of a toy five basis point ease a 25 basis point ease. I would assume this is a lock. They are doing 25. The rest of the speech is a placeholder. There is something for everyone. The last time they eased, individual Committee Members did it for different reasons. Those were all repeated. Something for everybody. Vonnie he did say fitting trade policy uncertainty into this framework is a challenge. Ds greatestfe challenge . It is a combination. One is managing the message. There is economic momentum. The expectations of what the fed tol do our outsized relative the current assessments of the macroeconomy. The big challenges are how to manage the message and how to incorporate trade uncertainty and the possibility something may go wrong. For tough talk for a central banker to respond to a political event. Just ask mark carney. How do you position Monetary Policy today on the probability of hard brexit on halloween . Vonnie what is the feeling among those attending and the fomc participants about what the fed is doing right and what it is doing wrong . Is there a sense that anything is standing out at the moment . I think you heard it in the way chair powell closed his remarks. Of progress and opening more lines of communication, reaching out to a Broader Group of people is an important improvement in communication. It is not a closed shop the same way it used to be. That is important for its political legitimacy. Is it isd part of it tough to leave markets because you get criticized, and it is tough to follow markets because sometimes markets get ahead of themselves. Chair powell tried to move from the front of the pack to the back of the pack, telling Market Participants we are listening. We make decisions meeting by meeting. The problem is Market Participants have probably gotten too far out in front and expect too much from them to deliver. Vonnie i am just going to bring in peter coy. There is no threat the markets anything inrpret these remarks. Not a huge reaction from the bond market. Owell is speaking to multiple audiences. He is speaking to the people in the room. He is speaking to foreign leaders, donald trump, and the other voters on the federal open market committee. He is the person who needs to try to knit together a consensus. Issents at the last meeting. Then you have somebody like jim bullard who wants a robust debate on a half point cut. He is trying to pull together people who have strong opinions of their own and knit together some kind of consensus. Even the people who favored a quarterpoint favored it for different reasons. He cannot go too far in any direction. He cannot allow his personal views to come forward to much. Vonnie it does seem like the fomc is less aligned than ever these days. Jim bullard wanting a robust debate on a 50 basis point cut at the next meeting. Why is there so much disagreement . Is it the data . I think there are two reasons. It is not new. The Committee Members have always disagreed. They feel more empowered to speak. If you are hearing what is going on inside the room more than what you are used to, that is part of the decision on the be. R on how imperial to it is easier to get an agreement when it is obvious what the macroeconomy is doing. Ofn you are on the precipice a recession, nobody is going to get in the way of cutting rates. To slow in ame measured way, the chairperson can convince them to do that. Did it. N and yellen when you get to an Inflection Point where maybe it is time to stop or ease more, and you have objectives,ferent the inflation goal relative to maximum employment, and what concerns do you have about Financial Stability . Pitched all clearly big tent. He was talking to a lot of people in the room, people outside the room. One feature of trying to Say Something for everybody is nobody is going to be completely pleased. Vonnie is this any longer a data dependent fed . Is it falling behind on its job if it is only data dependent . I would say it is outlook dependent. Normally the u. S. Economy moves and are surely enough that you enough thattially you know what is coming up in the next meeting. He did not push back at current pricing. In that sense, does anything that comes out between now and then really matter . It would have to be a really high bar. The data that are coming in are consistent with an economy that has some momentum that is cooling a little bit and one in which inflation is not a pressing problem. As he says, it is in a good place. Could it be in a better place . To conduct Monetary Policy on ifs. He said there is no recent president s for the situation we are in now. Does that ring true . It is the wrong household to ask that question. There is usually a precedent for some things. To august of 1998 when everybody was talking about jackson hole and the closed door sessions to talk to policymakers to discuss what to make of the problems with russia. That was followed by the implosion of longterm capital markets. That was not about an evident event in the u. S. Economy that you could read in the payroll data. That was a concern about Financial Stability and the current stance of policy and whether that was consistent with the outlook going forward. I dont know that it is harder to figure out what the consequence of a russian default ns lord and increase or a increase in tariffs. Monetary policy is about making decisions under uncertainty. It is about risk management. Reinhart wrote the book this time is different. Many officials were reluctant to say if they saw shocks on the horizon. Shocks on the horizon . If i knew what shocks were on the horizon, i would be telling the traders on our floor. There are evident risks on the horizon. The big one is trade. Is there one that could get president s trump and xi to the table . The interesting thing about hong kong is it reflects a concern about the status of president xi and the possibility of capital flight making it harder for him to limit depreciation of their currency. China is a big shock. What will really be material for the Global Economy . You should probably look at the two biggest economies of the world, the u. S. And china. We know another shock coming is brexit on october 31. The u. K. Is less than 5 of global nominal gdp. Trade is probably right, is the biggest uncertainty. Do you buy the argument some are making that the fed is somehow enabling President Trumps aggressiveness on trade by promising to make sure the Monetary Policy accommodates any downturn caused by trade frictions . I think that is playing the game two levels more complicated than the reality. There is an unfortunate feature. If the fed is sensitive to markets, and markets are sensitive to President Trump, then President Trump has an influence on the fed to the extent that the president anticipates the fed will be accommodated, it allows him to take a slightly harder line on trade. He can see the feedback loop. Tle the chain on trade, markets adjust. Thatpolicy makers look at when they are thinking about what they would like to do. I think it is an unfortunate loop. Vonnie on the chinau. S. Trade war front, we got retaliatory tariffs from china this morning. Economicee a huge reaction or even a mediocre economic reaction to these particular tariffs . There is the direct channel and the indirect channel. The direct channel is pretty small. We are changing relative prices between chinese goods and u. S. Goods by a modest amount. The Exchange Rate can also adjust to help offset the effect on u. S. Consumers. The action is delayed. If it is delayed, impossibly it possiblyators gives negotiators some time to pull a rabbit out of a hat. The trade discussion gets worse before it gets better. If he gets better, it is because it is in the selfinterest of the president s of the two largest economies of the world. Is notets worse, better nearly as good as it was a few years ago. We are on a permanent more hostile relationship between those two nations who admit they are competitors on a lot of different levels. That will be reflected in trade for a long time to come. The one i bet fed officials are most worried about is what does uncertainty about trade policy do to investment . Would you build an lng reshipment facility on the west coast now . Would you put something on the border of texas or canada . Wait. Ve an option to i would assume manufacturers are waiting. We are in the midst of a severe manufacturing slowdown. Trade matters more to our usading partners than to but what happens, to our trading partners matters to us. Vincentthanks to reinhart, mellon chief economist. I want to turn to peter coy. We will react as appropriate to sustain the expansion. Why is it so important to keep the economy and sustained expansion mode . The last thing you want is a recession. You hear that the recession is good, it cleans out the waste, but that is not the way you want to think about it. Any recession throws people out of work. It causes human harm, and it is a waste of resources. You have idle machines and software. Why would that ever be a good thing . Saying we heard vince the secondary effect would be business investment, business spending. At the same time we heard Michael Mckee talking about the cost of capital. It is low. If it goes lower, if the fed lowers Interest Rates, there is more incentive for companies to borrow. Does that cause a problem if there is not a need for those factories . It is not that it causes a problem. I agree that lowering Interest Rates only helps so much if businesses looking at the situation says i dont want to put in that lng facility. You have got to have an optimism about future growth. One of the channels of lower Interest Rates is it creates more Consumer Spending. That translates into stronger growth. That is what makes businesses want to invest. Lowernot just the borrowing costs. It can help, but as long as we have this trade war looming, it is going to put a damper on the demand for capital spending. Vonnie that is for sure. Kong,f brexit, hong germany, and china. Lets turn to abigail doolittle, who has been checking on Market Reaction. Abigail lets take a look at the major averages in the u. S. The dow, the s p 500, and the nasdaq modestly lower. The s p 500 down about 0. 7 . The choppy action we have seen on august really showing up the day. There is a risk off picture considering haven bonds are rallying. We have jackson hole and jay powell. We have china tariffs. Lets take a look at an intraday chart of the s p 500. Comments,ay powell s p futures had been higher around 8 00 when the tariff news of china on soybeans and certain cars, we see a steep fall in the futures. Fed chair jay powell assessed saying that the economy is in a favorable place but states significant risks. We see a little bit of a recovery. About 0. 2 . Is down very susceptible to trade war woes. Lets take a look at the chip sector. It is down 1 . It has been down 2 . We are seeing a bit of a recovery from micron. They received 57 of their revenue from china. Hitr supply chain tends to this sector more. The tariffs are more so on agricultural goods. Lets take a look at a macro chart. This is the Third Quarter chart of stocks versus haven assets. In blue we are looking at gold. In white and yellow yen treasuries. The threat of tariffs, and now we see gold is the big winner. It is up 8. 3 . Risk off considering havens are outperforming stocks. 500 on the year is up more than 15 . Vonnie thank you for that. It is time for our etf friday segment. Lets talk about haven flows following fed chair powells comments. From an etf perspective, we look at an index we have created. This includes low volatility etfs. Gold, and gold we look at the volume in those flows as a gauge for investor sentiment. That echoes what we saw back in may. Component,stors as a but also wanting to be in some safer assets. Vonnie that is partially the talks. Are we talking our selves into a recession . Do etf flows depend on what is out there . In some cases investors are responding. A lot of Retail Investors use etfs. We see etfs echoing retail sentiment. Etfs our manager centered. We see them wanting to step into safe haven assets. Vonnie what have you seen with global etfs . Discussed global headwinds. Have we seen money flow out globally . We have been watching a lower cost emerging markets fund. This is one Retail Investors use. As a product, it has seen the first outflow in a couple weeks. It is a 52 billion fund. It is interesting to see investors paring their choices. Vonnie thank you. That is etf friday. Lets check on u. S. Majors. We did see a bump up. We are still lower. The dow is down 0. 2 . The s p is down 0. 25 . They are well off index lows. This is bloomberg. At comcast, we didnt build the nations largest gigspeed network just to make businesses run faster. We built it to help them go beyond. Because beyond risk. Welcome to the neighborhood, guys. There is reward. Beyond work and life. Who else could he be . There is the moment. Beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected, to do the extraordinary. Take your business beyond. Vonnie live from new york, i am vonnie quinn. This is bloomberg markets. Lets get a check on first word news. China has now retaliated with its own proposed tariffs. 10 andge from 5 to will be impose on 75 billion of american products. This comes following President Trumps decision to impose tariffs on 300 billion of u. S. Goods. India is boosting growth. Foreigners have withdrawn more than 3 billion from indian shares since early july. That has put pressure on stocks. The European Union is welcoming people to to allow disembark. Ship isn viking rescue only designed to hold about 200 people. U. S. Aviation regulators are looking for a few good airline pilots. They want fliers with experience in the boeing 737 max. The pilots will come from around the globe, and in some cases captains,be seasoned while the faa wants those with as little as nine months of experience. Areong kong, protesters gearing up for another week of demonstrations. Widened into have a Broader Movement against beijings grip. Global news 24 hours a day, on air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am kailey leinz. This is bloomberg. Vonnie lets turn back to trade tensions. Will placencing it tariffs on 75 billion of u. S. Goods. Suspended. S had been we are joined by carla hill. Thank you for joining. Just a broad question to begin with, has the tone did hear or is this playing out as expected . I think it has deteriorated. It is unfortunate. I dont think this helps move the bilateral discussions forward. I am hopeful the trade representatives from both sides will be able to sit down during the month of september and come to a resolution. Vonnie you speak from time to time with chinese officials. Can you give us any read on whether china is still sanguine with what is happening on the u. S. Side . China is retaliating. It promised to do so on each one of the tariffs that have been imposed by the u. S. Government. They did so with our september 2018 tariffs, and they have done so with the september tariffs, and now they are saying they will do the same thing with the december promised tariffs am including covering u. S. Autos. Hasie given that china promised to tariff about as much as it can against the u. S. , where is their next move . They have already stated that they are expanding their entities list. I think that will be a problem for those u. S. Companies that are deemed unfit to sell into china. War thatfortat tariff is growing more broadly is detrimental to the economies of both sides. Vonnie we definitely saw a Market Reaction that has improved since the jackson hole comments, and having digested these trade headlines more. Automakers from tesla to bmw are lower on anticipation of weakness down the road. How much is this affecting sentiments currently . How much will it affect economic movements over the coming months . We are already seeing the uncertainty in the trade field is affecting the growth of trade. Across the infection Global Economy. We are certainly feeling it here , until the tariffs bite and some of the penalties bite, you dont see it. Uncertainty of what is going to happen does happen. Economynomies, chinas is projected to go below 6 projected growth. The u. S. Economy is certainly feeling the pain of the uncertainty. My strong hope is that we can sit down and work out a resolution. Vonnie soybeans in particular took a hit, also crude. Soybeans down about 06 . This is not going well for the Farming Community. President trump has promised to reimburse the Farming Community in some way for the paint it will suffer. How does that work . If you allow the community to be penalized only to try to make up thethat penalty, do you win broader war . Solution ishink the the agricultural subsidies that are on the Agricultural Program that has been provided to the farmers. Often this goes to the larger and more secure growers, and the smaller ones are not taken care of. It is not just the farmers. If you look at the sectors that we affected by the tariffs have impose on china, you see that it is textiles. It is clothing. It is vegetable products. I can go on and on. You are feeling the rumble across the economy. You are going to feel it more as these take hold. Of course, we are not in september yet. Then you are going to feel the bite. I dont think it is helpful. Vonnie if i can ask you something about ask you about something that came out during the week, the cbo said the budget deficit will reach 1 trillion sooner than expected. How concerned are you about the talk of ballooning deficit has gone away even in republican circles . Our deficit has not gone away. Report fromat the our congressional budget office, it is not my analysis, it is their analysis. It is steadily increasing. Something we need to address. It is something we should address. Vonnie it seems to be out of vogue to address it right now. Why is that . How has politics changed to allow that to happen . You know, we talk economics, but economics are shaped by politics. The politics are causing some decisions that most economists would not recommend. Needs the usmca still some approval at a congressional level. When do you anticipate that will happen . I think it will be hard to happen this year. We have very few legislative days after Congress Returns from its summer recess. The congressional calendar is quite full. Year, closero next to the 2020 elections, that is going to be a hurdle. I think people are becoming less optimistic. Know, hasstration, i tried to work with the congress, and Speaker Pelosi has formed a working group of democrats to work with the u. S. Trade representative, bob lighthizer. If they can get the changes they want through one manner or another, it might get through either very late this year or early next year. It is not a certainty. Vonnie it is always a pleasure to speak with you. ,hat is ambassador carla hills former u. S. Trade representative. Coming up, we are back to the jackson hole symposium. Show eichengreen joins the. That is coming up. This is bloomberg. Is is bloomberg. Vonnie live from new york, i am vonnie quinn. This is bloomberg markets. Time for another big interview from jackson hole, wyoming. Kathleen hays is in jackson hole. Im very envious here in new york city. For many reasons, not only its beautiful backdrop, but is the 35th year here at the Jackson Lake Lodge and one of the most difficult situations the fed has found itself in. Powell kicking things off here. Here to discuss the message is barry eichengreen, professor of economics at uc berkeley. The basic question for everyone wellhing markets is is po ready to do another rate cut . I think he is. He talked about trade policy uncertainty, the collapse of the italian government, brexit, and other external and internal threats to the u. S. Economy. All that reinforced the impression that more rate cuts are likely coming. The economy right now is pretty good. I found it interesting that he said that we have to look out over the next year. We have to look at how all these things are going to affect the economy. He did not use the words data dependent, but i think the fed is still data dependent and how it thinks about future rate cuts. The latest incoming data, Consumer Spending to the contrary, otherwise the incoming data has been relatively soft. The speech is laid out in three great arrows of Monetary Policy. The first bringing inflation down, the next maintaining growth, and then financial crisis and coming out of it. Is there a message we should look at in this area . That includes jay powells time at the fed,. In his discussion of the third era was low Interest Rates, low unemployment. He invokes the reassessment exercise the fed is engaged in at the moment. I would like to see more specifics. We have been in this new era of low Interest Rates for several years. The fed has been worrying about its limited room to cut rates in the next recession for several years. We did not get any specifics the Monetary Policy response should be tailored differently in the third new environment. The sense i get reading , meet the duales mandate, dont worry about trade wars. Thinking,y from that is the reason the people that want to pause are they worried that we are almost out of ammo . You can only cut so much. 1. 5 , wealready at dont have a lot of room. Do you think that is what is holding some people back . I think it is holding some people back, but i think that argument is misguided. You dont want to keep rates up just so that you can cut them when the economy weakens because of your earlier action. We have to highlight the responsibility of other branches of the government, congress, the white house, to avoid destabilizing policies and utilize other policy instruments as needed. The fed it to focus on its mandate now. Key part of that speech is when he is talking about now and how the last three weeks since the meeting, donald trump throws more tariffs at china. Market signals, yield curve inverting, 30 year bond below 2 . To those. Llude this is one of your areas of expertise. How strong are the signals . How important should they be to the fed . Allude to the inverted yield curve, chairman powell did not allude to the inverted yield curve. It does incline me to the view that he is seriously contemplating more rate cuts before the end of the year. We had an interesting comment from a viewer. Our central bankers giving politicians license to be reckless, i assume lower rates and lots of liquidity . It is not so much the budget deficit as the trade policy. You can ask if the president imposes more disruptive tariffs the damage offsets experienced by the economy, does that encourage trump to do more of the same . I think the fed has to stick to its mandate. Couldk chairman powell have made stronger statements about the damage to the economy from the tariffs, but it is not task toonsibility or adjust Monetary Policy to prevent the president from going there again. Something bringing up for me, a delicate situation for the fed. The fed is acting very independently. I think most people agree with that. Does he have to be extra careful about saying anything negative about trade and a time when the president is constantly criticizing . Is this making it tougher for the fed . It is. You have to ask the question, what is Central Bank Independence good for . If you cannot use it to call out disruptivetrations trade policies, what can you use it for . Another revealing passage in the speech was when powell said we are accountable to the congress and the public. We have to explain the rationale for our actions to the congress and the public. A quiet defense of independence, maybe you would like to hear it a little louder. I would. Really a masterful job on going into the details of reading between the lines and pulling out those key phrases that are so important. Vonnie exactly. That is why the jackson hole symposium is so wonderful. It has academics and people that are not necessarily involved in the markets thinking about what is being said and interpreting it for us. Our thanks to kathleen hays. I want to mention that President Trump has been tweeting about the federal reserve. Moments ago saying this, as usual the fed did nothing. It is incredible they can speak without knowing or asking what i am doing, which will be announced shortly. We have a very strong dollar and a very weak fed. The u. S. Will do great. Who is our bigger enemy, jay powell Board Chairman xi . This is bloomberg. Vonnie live from new york, i am vonnie quinn. This is bloomberg markets. Us live from the cme. It has been quite the friday morning. Zero, welll below lower this morning. We are back to flat for stocks pretty much. We have news on soybeans. What is taking your attention down at the cme . Soybeans are back to the levels we saw in early august and early june. Right now some of it is trade tariff related. Count came oute yesterday, about what expected. Export sales were better than expected. Who knew . Traders and investors are worried, especially farmers in the northern states will have a much harder time to export soybeans to mexico. Vonnie how do you take a longterm view on all of this . We know the tariffs could be reversed quite easily with one statement. We also know the president has promised voters that he will reimburse them. How do you take a longterm view on the price of a bushel of soybeans . I wish there was a way you could. You have to live in the moment right now. There is so much distracting news flow. , some oft unfounded that founded. Are we going to be able to export anything to china . We have spent decades cultivating this relationship. I think it is more moment by moment and knowing the market does get overbought and oversold with the news. Vonnie thank you. It is an interesting august. That is for sure. Over of the cme. We are taking a look at the automakers after china announcing 25 tariffs on u. S. Cars will resume in december with another 10 on top for some vehicles. With existing general duties taken into account, the total tariffs could be as high as 50 in certain cases. Taylor riggs has more details. You could be looking at turface as high as 50 . This chart is breaking down what would happen. Tariffs were responded, and is could resume december 15. They have given general levees up to 50 . We want to take it who is most impacted. , we drivein the u. S. Tesla. Ford or really it is tesla that is the most impacted and daimler and bmw. Six of the top 10 are coming from those cars, big suvs. Those are the cars that are being impacted the most. Those are made in the u. S. And imported over there. It is really about tesla, daimler, and bmw. These stocks are pretty resilient, but every dent is a d ent. Taylor the good news for gm and ford is they have operations up and running in china. Aey can take a little bit of breather. They only get about 8 of their revenue from china in the case of ford. Vonnie thanks to you. Coming up in the next hour, Simon Derrick joins us. We count down to the european close. I want to point to stocks being higher now, so all of the trade woe tensions seem to have come out of stocks. The dow is up 0. 2 . This is bloomberg. Is bloomberg. Vonnie this is the european close. Check european markets. The friday before a holiday weekend. We are getting a little bit of a bounce. Coming in this session, down by four points. It is trying to make his way back that it has been lower. The idea that jackson hole biggest embolus for the market might be being a stimulus for the market might be in there somewhere. Shops say it is not the place to be. They are all pulling back from u. K. Stocks until there is more brexit certainty. We were above