WAS EXPECTING NOT JUST 10th
RATE HIKE BUT WE SHOULD BRACE
FOR 11th ONE AS WELL.
EDITOR OF GRANT’S INTEREST RATE
OBSERVER JIM GRANT.
YOUR TWITTER HANDLE, GRANT’S
PUB.
READING NOTES I MAY NEED COUPLE
SHOTS BEFORE THE INTERVIEW IS
OVER.
LIKE THE U.S. POSTAL SERVICE,
JAY POWELL IS DETERMINED TO
DELIVER THROUGH RAIN, SLEET,
SNOW, RECESSION, NO RECESSION,
BANKING COLLAPSE, NO BANKING
COLLAPSE, THE FED IS GOING AFTER
THAT TARGET NO MATTER WHAT?
>> YES.
HE IS TIGHTENING INTO A CREDIT
CONTRACTION WHICH IS NEW THING
IN ANNALS OF CENTRAL BANKING.
NOT UNHEARD OF BUT UNUSUAL.
CHARLES: DIDN’T JEAN-CLAUDE
TRICHET DO SOMETHING SIMILAR TO
THAT AND PEOPLE SAID MADE A
MISTAKE.
>> I FORGET WHAT THE
INFLATION --
CHARLES: YES, HIKING INTO A
RECESSION.
>> EUROPEANS HAVE LESS TOLERANCE
TO THAT THAN AMERICANS DO.
CHARLES: WE LOOK AT CERTAIN
THINGS.
FOR INSTANCE CONSUMER SENTIMENT
POLLS ARE REALLY UGLY.
I DON’T CARE WHICH ONES YOU USE.
NOT JUST CURRENT CONDITIONS BUT
WHAT PEOPLE EXPECT IN SIX MONTH.
DOES THE FED CONSIDER ANY OF
THAT STUFF OR THEY STICK WITH
THE NUMBERS, THE DATA ITSELF AND
NOT SOME OF THE SENTIMENT STUFF?
>> THE FED DOESN’T SHARE IT IS
MAGIC SAUCE WITH ME.
I SUSPECT THE FED IS ESSENTIALLY
MODEL DRIVEN, TAKE AS LITTLE BIT
OF THIS, A LITTLE BIT OF THAT,
DYNAMIC STOCHASTIC EQUALIBRIUM
MODELS.
CHARLES: I HEAR THEM SAY WE
SPOKE TO OUR CONTACTS IN THE
BUSINESS AREA.
>> THEY HAVE A BEIGE BOOK.
QUESTION, THEY MEAN TO BE
UBIQUITOUS, OMNIVEROUS CONSUMERS
OF DATA.
THEY NEED GREATER CONCEPT ALL
AWARENESS RATHER THAN STATIS CAL
ONE.
CHARLES: WHAT DOES THAT MEAN?
>> THEY OUGHT TO BE AWARE THEY
ARE UNAWARE FOR EXAMPLE.
THEY DID NOT TWIG ON TO THE
ON-COMING MORTGAGE CRISIS UNTIL
SIX WEEKS AFTER IT ARRIVED.
THEY PERSISTED IN THIS STORYLINE
OF A TRANSITORY INFLATION.
THE DEPARTMENT OF COMMON SENSE
IS THE ONLY BUREAUCRACY LEFT
OPEN IN THE FED WOULD NOT BE
REDUNDANT.
CHARLES: YOU KNOW, INTERESTINGIN
AS YOU SAY THAT, ONE OF MY
PROBLEMS, I KIND OF READ OF
STUFF AND STUDY IT, THE DATA IS
ALWAYS LOOKING BACKWARDS BUT
SOME SEEMS SO SPOTTY, JOLTS
REPORT, FOLKS THAT TAKE THE
SURVEY DOWN TO 30%.
DOESN’T SEEM LIKE RELIABLE, LIKE
WHAT THEY’RE LOOKING AT IN TERMS
OF Xs AND Os ARE RELIABLE
ENOUGH TO MAKE DECISIONS THAT
CHANGE EVERYONE’S LIVES?
>> GOES WITHOUT SAYING THE DATA
IS ALWAYS MIXED.
CHARLES: RIGHT.
>> I THINK THERE ARE A LOT OF
SIGNS OF IMPENDING TROUBLE.
WE HAVE COLLAPSE IN RATE OF
GROWTH OF MONEY.
WE HAVE INVERTED YIELD CURVE,
SHORT RATES HIGHER THAN LONG
ONCE.
CRB SPOT RAW INDEX LIKE TALLOW,
THAT IS VERY WEAK, THE BURDEN OF
EVIDENCE TO ME IS ON WEAKENING
SITUATION WHICH BURDEN IS
INCREASED BY THE NEWFOUND
CAUTION IF NOT FEAR OF
COMMERCIAL BANK LENDERS.
CHARLES: WHAT WOULD YOU, WHERE
WOULD YOU RANK THAT?
I REMEMBER IN EARLY 2009, THE
WORD ON WALL STREET WAS THE NEXT
SHOE TO DROP WOULD BE COMMERCIAL
REAL ESTATE.
STAY AWAY.
A LOT OF PEOPLE MISSED THE
BOTTOM OF THE MARKET BECAUSE
THEY WERE ANTICIPATING THAT BUT
IT IS HARD NOT TO SEE.
WE SAW NORDSTROMS PULLING ALL OF
THEIR STORES IN SAN FRANCISCO,
ALREADY 30% VACANCY RATE.
IS THAT BIG ENOUGH, IS THAT BIG
ENOUGH ECONOMIC AREA TO TRIGGER
A BIGGER FALL IN THE OVERALL
ECONOMY?
>> IT IS PART OF THE MOSAIC.
I WOULD SAY PRIVATE CREDIT IS
ANOTHER PIECE OF THAT MOSAIC.
THE BANK CREDIT IS STILL ANOTHER
PIECE AND, WHEN YOU LOOK AT
THESE PIECES IN ENSEMBLE YOU’RE
LOOKING AT A SPOT OF TROUBLE.
CHARLES: BEFORE I LET YOU GO,
ELIZABETH WARREN WROTE A LETTER
TO JAY POWELL COUPLE OF DAYS
AGO.
I’M REMINDED WHAT I READ FROM
ARTHUR BURNS WHO WAS CHAIRMAN OF
THE FED FROM 1970 TO 78 WHO IS
KNOWN FOR STOP HIKING RATES,
CONSIDERED, NO ONE WANTS TO BE
ARTHUR BURNS, BUT HE HAD SO MUCH
POLITICAL PRESSURE BACK THEN HE
HAD NO CHOICE.
ANY CHANCE THAT POLITICAL
PRESSURE CAN SWAY THE FED RIGHT
NOW?
>> I DON’T THINK SO.
I THINK THE FED IS DRIVEN BY
INSTITUTIONAL EMBARASSMENT THAN
ANYTHING ELSE.
THEY’RE MORTIFIED AT THIS
INFLATION.
THEY ARE GOING TO PERSIST.
THEY ARE GOING TO BE VOLCKER AND
NOT BURNS BUT IN THE COURSE OF
THAT REACTION THEY’RE TIGHTEN
INTO A CREDIT CONTRACTION.
CHARLES: IF JAY POWELL CAN GET A
ROUND OF APPLAUSE GOING INTO THE
COUNTRY CLUB HE HAS DONE HIS JOB
WELL?
>> I THINK HE LIKES TO LOOK AT
HIMSELF IN THE MIRROR AND THAT’S
VOLCKER.
CHARLES: JIM, YOU’RE ABSOLUTELY
THE GRANT.