THINKING ABOUT PULLING HUNTING
GEAR FROM THEIR STORES.
JAY POWELL, HE SAID THE ECONOMY
IS DOING WELL.
HE ADDRESSED THE NEW YORK
ECONOMIC CLUB YESTERDAY.
POWELL SAID THE FED IS CLOSE TO
FULFILLING ITS GOALS OF
PROMOTING MAXIMUM EMPLOYMENT AND
PRICE STABILITY.
>> THE UNEMPLOYMENT RATE IS
3.7%.
A 49-YEAR LOW.
MANY OTHER MEASURES OF LABOR
MARKET STRENGTH ARE AT OR NEAR
HISTORIC BESTS.
INFLATION IS NEAR OUR 2% TARGET.
THE ECONOMY IS GROWING AT AN
ANNUAL RATE OF ABOUT 3%, WELL
ABOVE MOST ESTIMATES OF ITS
LONGER RUN TREND.
MY COLLEAGUES AND I AS WELL AS
MANY PRIVATE SECTOR ECONOMISTS
ARE FORECASTING CONTINUED SOLID
GROWTH, LOW UNEMPLOYMENT AND
INFLATION REMAINING NEAR 2%.
MARIA: THOSE COMMENTS GETTING
THE ATTENTION OF INVESTORS.
THE DOW INDUSTRIALS SHOT UP AS
YOU CAN SEE, CLOSING UP BETTER
THAN 600 POINTS ON THE SESSION.
THAT WAS 2.5%.
JOINING ME RIGHT NOW IN A FOX
BUSINESS EXCLUSIVE, UBS
CHAIRMAN, AXEL WEBER.
THANK YOU FOR JOINING US.
YOUR REACTION TO JAY POWELL
YESTERDAY?
>> I THINK AS A FORMER CENTRAL
BANKER I WOULD SAY THERE WAS
NOTHING EXTRAORDINARY HE SAID.
HE WAS ACKNOWLEDGING THAT BY NOW
AFTER SEVERAL RATE HIKES OVER
TWO OR THREE YEARS, THE FED IS
CLOSE TO NEUTRAL.
AND I THINK THE REAL ISSUE FOR
MARKETS IS THEY HAVE BEEN QUITE
JITTERY THIS YEAR BECAUSE OF THE
MAJOR EXPECTATION OF WHAT
SUPPORTED EQUITY MARKETS IN THE
PAST ARE STARTING TO BE
QUESTIONED.
THE FIRST IS WILL EARNING GROWTH
CONTINUE TO BE AS STRONG AS IT
HAS?
THERE'S SOME DOUBT ABOUT THAT.
THE SECOND ONE IS REALLY
MONETARY POLICY THAT WAS A MAJOR
SUPPORT I OF EQUITY MARKETS IS
STARTING TO BE AT NEUTRAL.
IT'S LESS SUPPORTIVE.
THE FINAL POINT IS THE ECONOMY
DATA, THE ECONOMIC DATA WE'RE
SEEING IS MORE MIXED.
THERE'S A MIX OF HEAD WINDS THAT
THE MARKETS ARE EXPERIENCING
THAT WE HAVEN'T SEEN IN THAT
COMBINATION FOR THE OF LAST
COUPLE OF YEARS.
MARIA: THERE ARE OTHER THINGS
THAT THE FED IS DEALING WITH.
YOU WERE THE CHAIRMAN OF THE
BUNDAS BANK, THE PRESIDENT OF
THE BUNDAS BANK.
YOU DIDN'T HAVE THE ISSUE OF
WINDING DOWN A $3 TRILLION
BALANCE SHEET.
THAT'S ONE OF THE ISSUES THE
FEDERAL RESERVE FACES RIGHT NOW,
NOT JUST RAISING RATES BUT
WINDING DOWN THE BALANCE SHEET.
WILL THEY BE ABLE TO DO THAT
WITHOUT TIGHTENING TOO MUCH TOO
FAST?
>> THAT'S WHAT JAY WAS POINTING
AT.
THERE'S TWO ISSUES THEY FACE.
THEY NEED TO CONTAIN INFLATION
BECAUSE WITH THE ECONOMY DOING
WELL, THERE IS A RISK THAT
INFLATION WILL GO UP.
IT'S BEEN PRETTY CONTAINED.
THE FED WAS ABLE IN THIS CYCLE
TO RAISE RATES, ROUGHLY AT HALF
THE SPEED OF WHAT THEY DID IN
THE PAST, AND THEY'VE TRAVELED
ABOUT HALF THE DISTANCE.
AND THE REAL QUESTION IS, I
DON'T THINK THAT NORMALIZATION
OF MONETARY POLICY WILL BE
COMPLETED IN THE CURRENT SIGH
HE'LL.
IT WILL TAKE ANOTHER ECONOMIC
CYCLE TO GO TO NEUTRAL.
AFTER A VERY LONG PERIOD OF VERY
LOW INTEREST RATES, RAISING
INTEREST RATES HAS HAPPENED VERY
CAUTIOUS, BUT THE BALANCE SHEETS
ARE STILL VERY, VERY EXPANDED.
SO THEY'LL CONTINUE TO REDUCE
THE BALANCE SHEET.
MY EXPECTATION IS THEY WON'T GO
BACK TO WHERE THE FED'S BALANCE
SHEET WAS BEFORE THE CRISIS.
CENTRAL BANKS HAVE BECOME A MUCH
LARGER CENTRAL COUNTERPARTY IN
MARKETS.
FOR THAT, I THINK STRUCTURALLY
CENTRAL BANK BALANCE SHEETS WILL
BE LARGER.
I THINK THERE'S GOOD REASONS TO
BE CAUTIOUS ABOUT NORMALIZING
MONETARY POLICY BECAUSE WE'RE
COMING OUT OF A 10 YEAR LOW
INTEREST RATE ENVIRONMENT AND
THEREFORE YOU HAVE TO BE
CAUTIOUS AND YOU SHOULDN'T
OVERSHOOT.
YOU NEED TO LOOK AT THE ECONOMY
WHERE CENTRAL BANK SUPPORT HAS
BEEN TAKEN FOR GRANTED FOR A
DECADE.
WEANING THAT OFF HAS TO HAPPEN
WITH SOME EYES ON A REALLY
CAUTIOUS NORMALIZATION.
IN CAN'T STAY WHERE THEY ARE FOR
A LONG TIME.
FINANCIAL MARKETS STABILITY
COULD BE THREATENED.
THAT WAS POINTED OUT YESTERDAY.
MARIA: AS RATES MOVE HIGHER AND
AS WE SEE COMMODITIES PRICES
FACING THE IMPACT OF PERHAPS
TARIFFS, YOU'RE SEEING THIS
WORRY ABOUT MARGINS.
SO MARKET HAS BEEN VERY
VOLATILE.
ARE YOU SEEING MARGIN PRESSURE
AT UBS?
>> NO, I THINK WHAT WE'RE
EXPECTING GOING FORWARD IS THERE
WILL BE CONTINUED CHALLENGES IN
THE MARKETS AND MARGIN PRESSURE
WILL ARISE HERE AND THERE.
THE REAL CHALLENGES THE MARKETS
WILL HAVE IS LIQUID AT THIS.
AS THE ECB GETS OFF THEIR
PURCHASE PROGRAM FOR THE FIRST
TIME IN THE LAST 10 YEARS,
CENTRAL BANK BALANCE SHEETS
GLOBALLY, THE SUM OF WHAT
CENTRAL BANKS ARE DOING WILL NO
LONGER SUPPORT THE ECONOMY.
IT WILL NO LONGER EXPAND BALANCE
SHEETS.
CENTRAL BANK BALANCE SHEETS
GLOBALLY WILL START TO SHRINK.
THAT'S A NEW PHENOMENON.
SO FAR, THE ECB'S EXPANSION AND
THE BANK OF JAPAN'S EXPANSION
HAS MORE THAN MADE UP THE
SHRINKING OF THE BALANCE SHEET
BY THE FED.
THAT WILL CHANGE AT THE END OF
THE YEAR.
SO THERE'S CLEARLY GOING TO BE
HEADWINDS FOR THE NEXT YEAR
ECONOMY.
THERE'S GOING TO BE SOME
HEADWINDS FROM THE EFFECTS OF
THE TAX REDUCTIONS AND PHYSICAL
REFORMS IN THE U.S. ARE
STARTING.
MARKET GROWTH IS GOING TO BE
MORE NORMALIZED.
BUT THERE'S NO REASON TO WORRY.
I DON'T SEE AN IMMINENT
RECESSION ON THE HORIZON, MAYBE
A SOFT SPOT IN THE ECONOMY FOR
THE NEXT FIRST HALF OF THE YEAR.
ONE THING THAT HAS TAKEN A TOLL
IS THE TRADE DISPUTES WHICH
DIDN'T REALLY IMPACT THE ECONOMY
BUT NOW WITH CHINA, U.S. HEADING
AHEAD IN A SORT OF MORE
CONFLICTED WAY, MANY GLOBAL
FIRMS ARE RE-WIRING THEIR HE
GLOBAL PRODUCTION CHAINS.
SO MULTINATIONALS ARE REALLY
CHANGING THE WAY WHERE THEY
PRODUCE, HOW THEY PRODUCE AND
THAT HAS TAKEN A TOLL FOR A
SHORT-TERM ON THE ECONOMY.
I EXPECT THE FIRST QUARTER, THE
SECOND QUARTER NEXT YEAR TO BE
QUITE WEAK AND THAT IS A SOFT
SPOT.
IT'S NOT A RECESSION.
MOST DATA THAT WE'RE SEEING ARE
NOT IN THE TYPICAL PATTERN OF
WHAT USUALLY YOU SEE BEFORE A
RECESSION.