the fed is what we call the lender of last resort. before there was a federal reserve we had a history of banking crisis in the united states and it was more frequent. banks in these periods get into trouble. not because they are sitting on bad debt but they lose deposits and liquidity. even though they are in a good situation they don't have the money because, if you have seen it is a wonderful life, as a deposit in businesses and they cannot get it back. they can step in to provide the liquidity and make these crises much less frequent and severe.>> the president tweeted this this morning. jobs created since the election and greater than i anticipated and only doing better as trade deals come to for wishon. does he deserve credit? >> i think he has not messed it up. there has been a long recovery. the unemployment rate has been falling. it hit 10 % during the crisis were during the recession. it has been coming down ever since then. unemployment is not a new phenomenon. since president trump took office, he passed tax changes which

it is not an audit of the fed's .ooks it is an audit of the fed policies. ral other policies with dilute the power of the fed. with arthur burns and richard nixon, even alan greenspan, you saw pressure on these fed chairman. we saw economic performance not looking good. joe: this is just my opinion. chairman powell does not strike me as hawkish. he seems to have some skepticism of the usefulness of the idea of the unemployment as we know it. be what president trump backfires that it makes people on the fomc more inclined to assert their independence through policymaking? >> absolutely. that is a great point. two scenarios. the fed says we are independent and we are going to raise rates whether we like it or not. the other would be if the fed starts to slow down. tariff war's get worse, the fed gets reluctant to raise rates aggressively. the fed is would say slowing down because it is being pressured by the white house. either way you have to say that the fed's motives may be questioned more because trump has injected himself in this debate. joe: you can't un

think the fed will continue on with its independence. chairman powell has a path, and that won't change as a result of the comments from the present. jonathan: we have gone back and forth. you think yield could have a handle on tenure can walk me through where we get from 10 year yield and treasury over the next 12 months. points is only 100 basis from here and is against the backdrop of the fed having raised rates for two and a half years, indicating they will go for another year. that is a lot of upward pressure. does it look reasonable to buy treasury with the 3% in tenure? -- 10-year. ? i don't think so. it is not fully into the system. you have treasury supply that will fit the market over the next 12 months. i think a good stopping point for the fed is june of next year, two and three quarters to 3%. it will look like a good place to stop, that the economy will do great. jonathan: you mentioned that the issuance is at the front end. the consensus of everyone coming from the program is at the curve will flatten. butonly looking to 4%

in the fed's funds rate maybe we , are. ere is no way to actually -- you know, there are tons of different estimates, right? my estimate for the real rate might be 3%. so two more hikes we are there. , that is not saying very much. but other people might think it is 2%. which means that the fed has already reached neutral and they are going to be tightening. so you look at things like the yield curve. i think field curve point is very important because i think one of the reasons term premium is so low and premium terms are so flat is because we are nearing the real rate being met by the front end. you know as we do that, if the , fed keeps on tightening then effectively, they are tightening beyond the neutral rate, and that is where policy mistakes come in. jonathan: krishna, what do you think of people who turn around and say the long end of the curve is more capturing the global bond market story, the trade story has been just another excuse to demolish the curve even flatter? if i got rid of the trade story today, just li

do you think we will see the fed get more global? of all of those forces were to happen at once, it starts to the thinking.r of think they will change their tune that quickly. stay theone the way, course and show they believe in long-term views. , have been handling all of these coming from external forces. this all happens at once and of course, it is a different story. money: i am looking at the seven heads -- 710 spread just a little above three basis points. where are you looking for any sort of value. cycle, we areking do a pause into the fourth quarter. as we wait, investment grade probably ok,t up in that area, that probably has enough to create a tactical trade. by large, going down the curve, short-term rates are high enough for the performance here. we think is setting up a fourth .uarter is what we are doing . >> what do you expect in terms of regulatory conversation, the volcker rule, the bank stress test? >> it will tend -- depend on the political party. republicans passed a measure earlier this year for the banks, but s

." ♪ jonathan: coming up, stepping on the fed's independence. ident trump pushing back against higher rates. chairman powell testifying that rate hikes will continue. for now. and meeting presidential resistance. the dollar rally and the u.s. struggling to find stability. we begin with a big issue, stepping on fed independence. >> ultimately it puts into question what the stature of the fed is, and fomc and their ability to maneuver. >> the fed is not going to react from tweets from the president. they don't need to. >> it is a strong institution, and they have staying power. >> it is time to move rates back to normal. i think they will continue on that path.. >> if people start to feel the fed is going to kowtow to the president and allow the economy to grow too fast and inflation to go up, interest rates will rise. bond vigilantes will kick in and rates will rise, which is what the president does not want. or maybe the fed will say to show its independence, it will preemptively raise rates. either way, the president is shooting himself in the f

that is something the fed may not care about. i think by 2019, they will have no choice but to care about. i think that is where the transition will take lace. jon: whether the feedback loop is still sort of there, whether we can get a u.s. economy that responds to what is happening in european high-yield and in asian high-yield and whether there is feedback into u.s. credit. right now, on the screen, equity bonds rolling over. enthusiasm about the u.s. economy and u.s. high-yield being the place to be, does that change? iain: i do not think it does and i would disagree with the investment rate. there is a reason it has been selling off in the u.s. we have seen leverage ratios picking up. it has been classic late cycle behavior but we are not seeing that in the high-yield market. high-yield market leverage ratios is coming down following the energy crisis. there is a bit of a disconnect at that is why we have seen the underperformance. when we look at the rest of the world, the european market looks healthy to us on the investment

it also authorizes the fed to provide immediate relief. it's my hope they probably provides relief to those within these thresholds. by rightsizing regulation the bill will improve access to capital for consumers and small businesses that help drive our economy. the banking regulators are already considering this bill in some of their statements and rule makings. earlier this month, the fed, fdic and occ issued a joint statement outlining rules immediately impacted by the bill. including a separate letter issued by the fed that was particularly focused on those impacting smaller, less complex banks. there's so much work to do on the bills implementation. as the fed and other agencies revisit past roles and develop new rolls in conjunction with the bill, it's my expectation that such rules will be developed consistent with the purpose of the bill and intent of the members of congress who voted for bill. with respect to monetary policy, the fed continues to monitor and respond to market developments and economic conditions. in recent comments

the mantra was, don't fight the fed. you are trying to stay away from the risk you are fighting , the fed. the fed is not your friend anymore as a fixed income investor. all of the investors that were espousing that mantra should now start to believe it on the other end of this because that is the biggest issue for fixed income markets, treasuries included, which is the reduction of the fed balance sheet. lisa: ok. taking that, let's take a look at a chart that i find fascinating that shows the massive divergence between the long and short positions in the treasury market. you can see the divergence between the real money long and the speculative shorts has reached the widest since leading back to the last financial crisis. joe, who is right here, the longs or the shorts? joe: i believe 2.85% on a 10-year is not a bad entry point. i think the longs are more correct. we heard the fed for the first time in recent weeks or days comment that they are hearing and local districts that businesses are slowing capex. we really ne

the fed again on twitter complaining that quote the us is raising rates while the dollar gets stronger and stronger with each passing day taking away our big competitive advantage that that is slowly raised rates since late two thousand and fifteen higher interest rates tend to support a stronger dollar which makes u.s. exports relatively less affordable abroad mr trump's critics were upset by him and his lack of deference rather to the unwritten policy of avoiding comment on fed decisions that begin during the clinton administration and federal reserve president from st louis president jim boehlert said the comments would not affect the fed's decisions on interest rates but other still fear that the fed choices will now be second guessed to an even higher degree. we have seen record bank profits some of which we reported here on the program earlier in the week at the same time we see continuing calls for relaxing regulation in the financial sector and even things like stress tests conducted by the federal reserve which are meant to guard against another government big bank bailout and

. >> this won't change the fed to change course by itself. a few more reports in this direction, if we do see a wave of people coming back to the labor force, i would not expect that, but as it does seem to be the case, it could cause an adjustment in their thinking. >> the fed will hike at least once more. why not more than that? simply because wage growth is still sluggish. >> the fed is going to go -- i would argue they will go another two times this year, but i wonder how they are going to go if the economy starts to bend down a little bit and the curve -- and the front end of the curve today is pricing in pretty close to the peak of where you will go. jonathan: joining me in new york city is ira jersey and krishna memani from oppenheimer funds. coming to me from london, iain stealey. krishna, let's begin with you. solid, solid, solid. it's all i heard this morning. is that what it is? krishna: it was across the board, reasonably good. good for risky assets, for sure. good growth in employment. so telling us overall economic growth is dece

they have tapered off still have amassed a multi-trillion dollar book of assets from the banks to the fed over the last ten years and as a result they've been able to buy their own stock with the blessing of the fed pay dividends to shareholders to also buy their own stock and to invest in complex securities and activities that enable them to extract high fees from their businesses which in turn produce bigger profits for the. u.s. sort of nutty i want to get into some of the details a little bit asked for your help in trying to explain some of it earlier in the week a federal reserve chair jay powell took some heat on the senate side at least from some democrats elizabeth warren idea some others and sherrod brown the ranking democrat on the committee for rolling back the so-called stress test and on these supplemental leverage ratio and i know those seem like they may be complicated for folks but they have a lot to do with what you were just talking about and the white the fact that the chairman said chair paul said that these stress tests were tougher than ever that really doesn't seem

the week ahead features the fed's jay powell, and the release of china gdp.his is "real yield." ♪ lisa: i am lisa abramowicz. this is bloomberg "real yield." time for the final spread. coming up over the next week, we will get fresh readings on china's gdp and president trump and russian president vladimir putin will meet. fed chair jay powell testifies before congress. and we have a bunch of earnings, including goldman sachs. still with me is oksana aronov, joe higgins, and matt toms. i want to start out with china's gdp. we have seen a bit of deterioration in chinese corporate bonds, particularly denominated in dollars. i am wondering, joe, are you concerned at all about some of the weakness we have seen, or are you starting to see the time to buy? joe: certainly weakness in china has implications for em, and risk sentiment globally. it is very important. we remain generally somewhat concerned about the weakness in the renminbi. what happens with further dollar strength? it is something to incorporate in your asia play. lisa: matt, how much are you paying a

the banks just got huge tax breaks. three fed presidents, president rosengr rosengren and president nester said it is a time to raise capital requirements and to strengthen the banks and to syphon off cash to fed holders. so why is the fed under your leadership persistently looking to weaken the stress tests? >> with respect, senator, we're not doing either of those things. in fact, the stress tests that in 2018 was the early more stressful, the amount of the loss and the amount of required capital to pass the test was the highest by far of any test. >> look, i don't know what to say. the fdic doesn't see it that way. goldman sachs doesn't see it that way. and the data don't seem to back you up on this. the feds capital requirements and the stress test are like a belt in suspenders. you can loosen the belt and rely on the suspenders, or you can take off the suspenders and rely on the belt. but if you do both, your pants will fall down. and chairman powell, we learned in 2008 that when the big banks' pants fall down, it's the amer

the fed is following the yield curve, as always, and there was a debate at the fed as to why this doing it. somethink it is technical, think it is the insatiable foreign demand for u.s. treasuries that pushes down on the long end. powell did not offer explanations from his point of view but said the fed would continue to keep an eye on it. did not seem to think that continuing to raise rates on the short end will drive it negative. know the yield curve has remained flat for many years without inverting, and he did not think at this point it necessarily will. shery: again, we had economic data today showing the capacity utilization came in lower than expected. some argument that inflation will remain contained. anymore hence on where we are headed there from chairman powell? michael: no, he stuck to the party line that the fed is data dependent will see. they had three rate hikes pencil then, they have done two they could do a fourth of they need to. the fed is pleased inflation is that 2% but he suggested that was largely because of oil prices. oil prices have been going down the last f

you heard about the fed. a lot of other ground to cover. that's coming up after this break. a mu-sstee interview you won't want to miss 6:00 a.m. eastern time keep it tuned here are you ready to take your wifi to the next level? then you need xfinity xfi. a more powerful way to stay connected. it gives you super fast speeds for all your devices, provides the most wifi coverage for your home, and lets you control your network with the xfi app. it's the ultimate wifi experience. xfinity xfi, simple, easy, awesome. . >>> good morning welcome to a special edition of "squawk box. coming up, president trump's one-on-one interview with joe kernen he speaks up about the fed >> i don't necessarily agree with it. >> the trade war with china. >> we are being taken advantage of i don't like it. >> and vladimir putin. >> i'll be the worst enemy he's had. >> it's friday, july 20, 2018. "squawk box" begins right now. >> live from new york where business never sleeps, this is "squawk box. >>> good morning, everybody. welcome

we don't see the fed respond to the president's pressure. you might make the case that going back to the late 80's and 90's, it had more resolve to stay the course in terms of fed policy because the pressure from the white house. is committedowell to an independent fed. the personnel is committed to that. it's important that congress is as well. it's limited as to what the president can do. vonnie: why does the market react so much? why we see this dive off? libby: the market has been reacting to president trump since he was elected. oftentimes, it recovers. there's a lot to the market to be digesting right now, not just the tweets about the fed, but currency manipulation and trade. of all of those things, i think we should take the president most seriously on trade. he's been consistent on trade. the administration is very serious about bringing china to the negotiating table. it seems like whatever it takes. vonnie: i was reading this be two, there would hikes coming. will there be negotiations between china and the u.s. that will put down

is that the card played here. >> i think there are people who can speak for the fed before the fed speaksun that by me again. >> i'm thinking janet yellen ben bern naeng allen green span is also a former fed chairman who could speak up you might expect them to speak at some point. i think powell wants to stay out of this if he can. i think increasingly it's becoming difficult for them to do it. i think the reaction of the federal reserve is one where they keep going and stick to their knitting in terms of their intentions for this year right now that december rate hike has now become a political litmus test for the federal reserve. >> yes. >> and what's really interesting is president trump may have made that second rate hike more likely now because the federal reserve. >> that was your point. >> the federal reserve might have to do this. >> to prove. >> to prove independence. >> can we just highlight now crossing the wires u.s. dollar index slipping to four-day low after cnbc reports the president is worried that fed will raise rates twice this year. >> trump he likes. >> he is getting w

the fed says a cost u.s. consumers, the average household is spending this year about $300 extra at the pump. spending butmer changes in the u.s. economy, particularly where oil is produced, not as bad as it used to be. it's as higher oil prices imply much more of a net overall drag on the economy than they did in the past. something's not in this report, no extended discussion of either the flattening yield curve, of great concern to many participants in the market. number two, no extended discussion on trade disputes. , when hejay powell goes to capitol hill next week to present this report and testify before the senate banking committee on tuesday morning and the house financial services committee on wednesday, not going to be able to get away with ignoring that topic. predict hesure to will be pressed on how much the growing trade disputes are affecting the fed outlook for the economy. vonnie: yes, indeed, the house and senate will have a field day on trade. chris condon at the federal reserve, thank you f

welcome to "the half time report." we begin with fed chair jay powell delivering his semi-annual testimony before the senate banking committee the fed chair saying growth in the second quarter considerably stronger than in q1. that inflation will remain nr

we have a very solid chairman of the fed. he certainly did a great job up in capitol hill for two day this is week. >> jordan i'm letting you pass on that. what is going on the markets finishing higher or lower this year. >> i think the year ends a little higher from here. you know, 10% plus or minus, call it an 8 to 12% target by the end of the year. we doenltd explicitly project returns. but looking at the economy and looking at correspondent performance, looking at the interest rate environment. we think that's supportive and constructive of some grinding forward of the market over the course of the year albeit with some volatility here and there as you know events take place in middle of the earnings season a good example of that. probably the biggest uncertainty is trade and we have, you know, everybody has been talking about that incestantly the last few months for good reason. a trade war is something that there may be some that lose less, but nobody really wins in a trade war. if there is an extensive or extended trade

a real wartime duty at the fed. dr. federal reserve system, we looking at something as stan fischer said altra accommodative. the president is all upset. low rate donald is all upset. where are we on the continue tim -- continuum of accommodation, neutrality, and a restrictive fed? we are still enjoying an accommodative monetary policy. economic performance flex that. i think the fed is in a very methodical, well-thought-out process of removing that accommodation and i agree with michael that i don't think the presidents tweet or answers to questions are going to alter the way the fed makes his decision from here. they are going to follow their process, moved to a neutral stance very gradually. who wedanny blanchflower spoke to earlier thinks the president had a point and the fed shouldn't be following the rate hiking path it's on. which you agree? julia: i don't agree. i think the fed is following a reasonable path talents in the risks of an economy that could go too far into overheating territory with allowing the fed

the fed is managing interest-rate policy. is hard to see the problem trump is talking about. >> equity markets did not really change that much but the dollar took a hit. >> yes, we saw that but the market is basically telling you today, they are not too concerned about this. looking at the 10 year yield and the two-year yield, they did not even budge. still tracking 2.84, which is where we were for most of the afternoon. that is telling a lot about how the market views what will happen going forward. point, there is a lot of face being shown in the market so far. they seem to take these more calm and genteel and soft-spoken us. i do not think the one comment by the president will be enough to shake that. president, into, the i think that would be more of a concern. jobe tweeted out before summer. which youver story in talked about the possibility about the changes the president is making to the world order will be permanent. >> maybe not permanent, but certainly lasting beyond his administration. but for example, one thing is

the fed then a ecb and the boj was lacking. for rates toe case be rising a little bit over run the world. >> let's talk about the spread that has been superwide. it has widened much of this week as well. could see that spread start to tighten. do you expect to tighten? >> i think it will tighten. this issue globally through the next 12 months. with the balance sheets that you have. obviously the thread is -- fed is tightening. we just spoke about bank of japan, you see it there. that should moderate as well. over the next 12 months if you look at the whole group of central banks, you have quantitative tightening going toward the end of 2019, that will make that spread come lower. i was speaking to clients of the conference this past week and we had a chart up that showed the otherr u.s. against the tenure sovereigns. there is a huge gap there. that gap is holding our long and down and that will have to narrow as quantitative tightening becomes part of anyone's. >> expectations are so low to the ecb. very little was priced in. w

obviously, the fed is reducing their balance sheet. en you look at the boe, they are ending their bond buying program. i would expect their balance sheet to start to contract some next year. and we just spoke about the bank of japan, we see it there. it really, the pboc is the only one that has quite a bit of expansion going on with their balance sheet, but that should moderate as well. so over the next 12 months, you look at this whole group of central banks, and i think you have quantitative tightening going towards the end of 2019. that's going to make the spread come lower. i was actually just speaking to some clients at a conference this past week, and we had a chart up that showed the 10 year u.s. against all the other 10 year sovereigns, and there is a huge gap there, except for italy, where it had its spike with elections, but otherwise there is a huge gap that is holding our long end down. and i think that is going to have to narrow as quantitative tightening becomes part of everyone's plan. jonathan: is that your argument too,

you heard the minutes yesterday, the fed is looking at the curve.here is not much they can do about curve flattening exceptions policies. for people is to , and i amlattener not asking the question, how much upside is there in two-year yields. as it is,s as flat the amount of juice is sucked out. be forced into stopping unless they want to get into a recession. further, recession is coming down the pike because they are going down the path up -- of policy tightening. argument, iard this do not see a federal reserve that is too worried. they are looking at the yield curve but they were not stopping at 50 basis points, they are not stopping at 30. when do they stop? >> i think they will keep going for a while. a very different environments to other cycles because you have the big amount of money coming into the market from the european central bank, the bank of japan that caps that premium. interesting in the curve is the second half of the year. today, 30 basis points. be at 15that to basis points for the flattener to make your money. qe occurring ou

i think the fed will continue on with its independence. chairman powell has a path that he is going to follow, and i don't think that changes as a result of the comments from the will result of the comments from the present. -- president. jonathan: we have gone back and forth on what happens with rates. you think yields are going higher. you think yields could have a full handle on the 10-year within 12 months. walk me through where we get from this really tight trading range where we experience on 10-year yields and treasuries, and how they get to 4% over the next 12 months. bob: 4% is only 100 basis points from here, and it is against the backdrop of the fed having raised rates already for two and a half years, indicating they are going to go for another year. so that is a lot of upward pressure in the front end of the curve. does it look reasonable to buy treasuries with a sub 3% handle on 10-year? i don't think so. you've got huge tax reform just starting to work its way through the system. it is not fully into the system, and you have

the fed is not your friend anymore as a fixed income investor. all the investors that were espousing that mantra should now start to believe it on the other end, because that is the biggest issue for fixed income markets, treasuries, the reduction of the fed balance sheet. lisa: ok. taking that, let's take a look at a chart that i find fascinating showing the massive divergence between the long and short positions in the treasury market. you can see the divergence between the real money long and the speculative shorts have reached the widest since back leading up to the last financial crisis. joe, who is right here, the lawns or the shorts? believe 2.85 percent on a 10-year is not a bad entry point. the longs are more correct. we heard the fed for the first days, that they are seeing districts slowing capex. we really need that to increase productivity and extend the cycle. the fact that certain fed governors are talking about it tells me that the fed will be somewhat reactive, should this go further. at the supply of and demand dynamics of the ma

let's talk about the united states. fedials said a strong economy wanted increases in benchmark rate while citing turmoil as risks to growth. that's according to the at the most the meeting. mike mckee reports. michael: been officials sought the economy running in top gear and increasing business investment. that justified another gradual increase in their benchmark interest rate, particularly since inflation might run above their 2% target, driven in part by falling unemployment that would push up wages. many business contacts said they were expensing rising income costs and they were passing them through to consumer prices." many noted that if the fed state on its path, the fun rate quote could be at or above the neutral level sometime next year. what could knock them off that path? most participants noted uncertainty and risk associated with trade policy had intensified, and that could "have a negative effect on business sentiment and investment spending." business leaders were telling the fed about scaling back or postp

the dollar reeling as president trump attacks the fed. the u.n. remains at a 12 month low as investors weigh china's monetary policy in the face of a slowing growth. and i am in new york where it is just past seven p.m. on thursday. the auto industry fights back. jobs atld put american risk. forecastonductor trims for revenue and spending but sees little impact yet i'm tariffs. -- yet from tariffs. ♪ ramy: good morning heidi and to our viewers across the asia-pacific. taking a look at where we ended here on thursday. the party had to end at some point for u.s. equities after three days of rises, they finally caught a breather here. keepdid little to actually the markets afloat. we ended in the red. an extension of moment for the fed. president trump calling in to question the rate hikes. the chinese currency falling like a rock. he is treading on dangerous ground in terms of respecting the independence of the said. we could see gains in this equity room for two and a half years. ramy: a lot of people are hoping that. let's go ahead and see how the