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tv   Whatd You Miss  Bloomberg  September 15, 2015 5:30pm-6:01pm EDT

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alix: we are moments away from the closing bell. u.s. stocks rally in the s&p 500 heading for its highest close since august 28. joe: the question is what you miss. we sit down with the chief economist at goldman sachs to talk about what is that they are -- is at stake. alix: the past is prologue. what happened the last three times the fed raised rates.
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joe: and it is all about brazil, with the global markets turmoil. one of the top ceos is your best. alix: we have to begin with the markets. it was quite a ral. at one point the dow was up well over 230 points. all u.s. stocks are of about 1%. it was a risk on dave. -- a risk on day. caterpillar was back in the dow. joe: one thing that we saw was dollar strength. it does not like the market was rallying because they thought the fed would be on hold. everybody was up, it looks like a true risk on day. alix: right around 2:00, it dipped extremely. president obama's spokesman said that president obama was not for the house ban to lift oil experts.
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-- to lift oil exports. joe: this will be a while until that happens. alix: we do want to take a deep dive into the bloomberg terminal looking at the 25 year charge up i guess and manufacturing group looking at the previous rate high cycle you have 1990 4, 1999 and 2000. what is interesting about this is it comes from goldman sachs and all of the are between 52 and say hi 60's -- the low 60's i should say. we are below that right now, we are at 51. turn to the strength that we saw. joe: i want to dive into my terminal because i mentioned short-term rates. a short-term rate. the gold line is the line on the u.s. to year, the highest level since 2011. the white line is the yield on
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the u.s. six month which we do not talk about a lot. we are talking about and will the fed raise rates at what happens if fed rate hikes. rates are rising at the short end. it is kind of already here. be market seems to be digesting it. alix: perfect lead-in to our superstar guest. there are two days to go until the crucial rate decision. she should make her move this month, saying it is fully appropriate for the fed to normalize policy. it is no longer appropriate for the fed to be so far away from neutral. jan hatzius is the chief economist at goldman sachs. you have been saying september since june, others have joined your camp. what do you see that so many others do not? jan: it is looking at what the committee seems to be
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communicating at how things are developing relative to that. we switched our call to september from december right after the meeting in june because it seems like the message sent by chair yellen was more of a december baseline message it and then the question was really, did things after that come in stronger than what she expected at that time? the answer to that is no. in our economy, it is fairly close to expectations. in the financial environment, clearly weaker than those were expecting. that said, pretty clearly, unless our assessment of where she was back then was very wrong, that should not even close a call this week. joe: if the fed looks of the economy right now, let's ignore the market volatility for a moment right if the fed looks of the economy is a severe not there yet, what are we going to see between september and the december meeting that would give
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it more confidence in the hike? jan: on the economy, with one is continued labor market improve it, that we have thawing out of unemployment rate and other measures of the labor market's lag. but if you continue improvement, and strengthen the mandate. right now on information -- core inflation we are on the lowest levels of the last four years. if that gets falling that would obviously be a disaster. our expectation is that it is going to be a little higher time -- by the time of the december meeting. alix: the argument many make is that it is transitory. your work tells you something different, that it is more consistent. jan: we would not want to write off that it has had some impact.
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it is slow, but it is not that low. it is only about 40 bases its less than the average of the last 20 years. but 40 basis points are only worth index, is only about 1/10 of a percentage point. it has contributed but it seems like most of the undershoot relative to the target is due to other factors. it may be that we as an health care costs, but it does not seem like you can explain, or most of the -- all were most of the weakness from this. joe: there is this drumbeat give you fear it among traders that says the fed should get on with it. what is it waiting for, bite the bullet. is there any merit to the idea that the fed should get on with it and move off of zero for the second moving off zero? jan: i do not see a justification for that.
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people are more patient, some are more impatient. i do not think that is really that relevant a consideration for monetary policy. the question is, is the right time to move off of zero at a time when clearly you are closer on employment. you can make a reasonable are -- argument that some slack remains. you are quite far away on the immunization side. my answer is no. alix: speaking of labor slack, you have the great chart in the most recent note, versus the implied rate. can you explain to us what this charge means and what is life? -- chart means and what it implies? jan: the rate moved very closely with one another. the fixed rate includes
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marginally attached workers and involuntary part-timers. after 2008 the improvement that started a few years ago was not fully matched by the fixed rate. the blue line grappling -- extrapolate what would have happened if it has the same relationship is prior to 2008. alix: it is not as long as you think. jan: in all the measures, it implies the equivalent of a 6% unemployment rate, not 5.1. joe: people look back at history note that there was a lot more consensus about when it was going to happen, the fed telegraphed it more. what do you make of the fact that there is so much disagreement? some people it will be right
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now, something the middle of next year. jan: for me, it is true certainly that back in 2004, when the time they actually hike in june of that year, we know it. this time it has not been the case. i think that is probably an argument, an additional argument why that is not going to go. usually there will be some concern the market is not prepared for it. we had lot of volatility, had so the risk of adverse market reaction. that is not the only consideration. if they do not like this we will let me get to the case. alix: does that bring into question the credibility? what do they need to telegraph? is their credibility issue? jan: a lot of people say, they
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kept pushing back the left off. what credibility do these statements really have? i take a more sanguine view of that because they push for liftoff in response to weaker inflation numbers in particular relative to their expectations. that was the forecast there, although it was a forecast error that was shared by many people. but responding to new information and then changing data for liftoff seems like a very rational response to something that is running in the data. joe: in addition to the market volatility, the other common thing is market slowdown around the world to what extent should that factor into their decision, and also, how prepared is to the world to deal with this? with this excel right that slowdown? alix: you were looking at the global growth for the world and
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the u.s. during the previous tightening cycles. the u.s. is inching closer to world growth although bones are are down cycles rae lower than before. jan: world growth matters because the u.s. is not an autonomous economy. it does strange with the rest of the world and there are important financial relationships. what happens elsewhere is important and does factor into the decision. factors into the gdp numbers, the evaluation of financial concerns. at the margin, this is a move to be a little later than this week in terms of hiking rates. it is a risk relative even to a december call. if things go badly rest of the world, and they intensify from here, in that case they would have a good reason to push it in 2016. it is not my baseline, but it is not a crazy scenario.
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joe: you are staying with us after the break. alix: when we come back, what was real gdp the last three times the fed raised rates? ♪
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alix: i am alix steel. joe: i am joe weisenthal. what did you miss. you can see three points were the fed hiked. real gdp growth averaged 3.9%. alix: we are not there. we're back with jan hatzius. you said there was a risk. there is a divergence here.
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what is this part line telling you about actual conditions? jan: the a low-lying is are we -- weighted average of long-term rates and credit rates. is the yellow line. the weeks are chosen to mimic the impact of each of these variables on gdp growth over the next year. when it is high that means we restrict the negative impulse and vice versa. the blue line is essentially our rules for financial conditions. we have a federal reserve that would like a natural conditions to be, how far the way our bench -- how far away they are, when the inflation is high and the
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economy is overheating. right now, the line is relatively low because inflation is quite low rate but actual financial conditions have tightened quite sharply. there has been a lot of tightening that the markets have put in place right there is an incentive for the market to push against the tightening to ease financial conditions and push it back to appropriate conditions. i would not be totally mechanical about that. these role model calculations right it is more of the general idea that matters is the markets have done a lot of the things that you normally hope to achieve by tightening monetary policy and have done it in spades and done it to a degree that is somewhat excessive
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joe: we have been talking about the strength of the dollar a lot this year. the economy looks like it is doing ok. forecast q3 is pretty solid. why do we not see the solid -- slowdown in gdp forecast? jan: first of all, there are a lot of things going on in the economy. secondly, a significant part of the increase in the index has only occurred in the last couple of months. a lot of that has happened in the early part of august. i would say that at least so the data for september most -- september is first so far committed really have two indicators. the preliminary index, and both of those were relatively weak. at a minimum, you want to be a little more information on how the economy is holding up before you want to do mandatory policy. these are pretty noisy numbers.
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alix: when you say the fed should think about easing rather than tightening, what does that actually mean? does that mean qe or something more nuanced? jan: it could be a range of things. the most straightforward thing to do would be to not deliver on a hike that is partially priced. the probability is 25 to 30% but nevertheless the market is trying to get some volatility that is not delivered right allows equal, that would ease conditions. of course, the question is what is the path that they project. if they wanted to do more, they can talk to others about the future. there are a number of options in addition to qe. we are very far away from that for the hurdle for that is very high.
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joe: what keeps you up at night? jan: right now i would say asia. and the financial instability out of asia. i think there are downsides risk to the chinese and the. of course, the asian economy is quite closely linked with one another. asia is a big place and important. alix: great to have you. tune in on thursday for a special report on the rates decision and new conference. joe: coming up, which major airline just grabbed a transcontinental airline flight because of the severe downturn in the oil industry. ♪
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alix: before the break we asked which international airline just grabbed a well-known flight because it troubles the oil industry. joe: scandinavian airlines is canceling the so-called oil line between houston and norway's oil capital. i love the surprise ramifications of spillover effects. i had no idea there was a flight between this small city and houston. alix: moving to brazil, the government has proposed a $14 million austerity land in hopes that attacks increases and spending cuts will bring its budget back. joe: the biggest mobile carrier in the country, we are joined by amos genish.
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alix: what does this mean for your business? >> is a challenging time for the country as a whole. we have rising inflation which is clearly a negative factor for business. unemployment is rising. all of this has been told for any business. people in brazil still have a desire to own a mobile and not the packages. -- and data packages. mobile penetration is very low. penetration is also 85% compared to the u.s. and other countries.
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there is room to grow, and we see it in pay-tv. we'll continue going forward. joe: what do brazilian policymakers need to do to restore confidence and turn everything around? >> we liked it, we were expecting to see more budget cuts. earlier, the more budgets were focused on suggesting tax hikes because we believe we impact investments. we hope that it will be strong enough to pass in the next few weeks. but no doubt there are things kept hostage coming out it might be linked to leave them, but this is the right direction rate
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-- the worst might be behind us by the end of the year. alix: do you think the president should keep her job? >> i can tell you that we believe the government finally coming up with the right packages. to build trust in the investment community easter seal outflows -- we need to see more outflow of money. we have not seen any ipo and the brazilian market for more than a year. that is an issue. that is just aspect of what they one are facing. we need to restore investment and consumer confidence. because purchasing power been affected. we see a decline in consumption.
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2.5% decline. we need this kind of action from the government from both investors. and consumers. there is concern about the impact of a fed rate hike. is that something that concerns you at all? real has beenthe devalued weighted by 50% in the last 12 months. it is a big shock to any economy. part of the fed intentions to u.s.terest rates in the is really something that will be able to adjust businesses. alix: thank you so much. joe: we will be right back. ♪
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alix: i'm alix steel. consumer price index out tomorrow at 8:30 a.m. eastern. you can show in acceleration in the year on year growth rate. joe: we are going to get more data on real earnings. because there is so much question, everyone will be watching this.
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be sure to tune to the bloomberg surveillance special tomorrow night. thanks for watching. ♪
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announcer: from our studios in new york city, this is "charlie rose." charlie: we begin this evening with the 2016 presidential race. speculation growing around the potential candidacy of vice president joe biden. in an emotional interview on late night with stephen colbert he questioned whether he has the energy to run. i do notident biden: think any man or woman should run for president unless number one, they know exactly why they would want to be president. and two, they can look folks out there and say, i

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