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Has Strengthened; Yellen: Gradual Increases In The Fed Rate Will Likely Be
Sufficient; Yellen: Partisan Politics Plays No Role In Our Decision - Part 1>
Rosengren; Loretta Mester; Esther George; Economy; Japan; Jobs; Business;
Finance; Inflation; Congress; Consumers; Elections; Employment and
Unemployment; Financial Services; Labor; Meetings; Policies; Real Estate;
Taxes; Trade; Fiscal Policy; Monetary Policy>
TRISH REGAN, FBN HOST: Very, very carefully to see what Janet Yellen and company indicates. Let's go to Peter he's got it.
PETER BARNES, FOX BUSINESS WASHINGTON CORRESPODENT: No rate hike today, Trish. No rate hike today. But it looks like the Fed is teeing up at least one rate hike before the end of this year. It says the case by the end of this year, they says the case for raising has "strengthened."
And, the vote to keep rates unchanged today was 7-3 with three Fed members dissenting. That is a huge dissent here. They wanted to raise rates today. They wanted to go today. And the Fed's own economic projections new today, see one rate hike this year. And that is down from two hikes in 2016 from the June projections. The fed forecasting now, slightly downgrading its outlook for economic growth for the year.
Here's the key line in the statement, "The committee judges that the case for increase in the federal funds rate has strengthened, but decided for the time-being to wait for further evidence of continued progress towards its objectives." It has two more meetings this year, November and December.
The dissenters for the record were Eric Rosengren from the Boston, Loretta Mester of Cleveland, and Esther George, once again from Kansas City, Trish.
REGAN: Let me just ask you Peter. You say they're downgrading their economic outlook, and yet, they say the case has strengthened for them to raise rates?
BARNES: Compared to the first half of the year they feel the economy is stronger -- is getting stronger in the second half despite some numbers that we've seen recently, the retail sales a little softer, the jobs report a little softer. They took their growth forecast for GDP in 2016 from 2 percent in June to 1.8 percent. So, slight downgrade.
REGAN: OK, I see. All right, Peter Barnes. Thank you so much. We're going to check .
BARNES: Yes.
REGAN: . back in with you later.
I'm joined right now on set by Ashley Webster. Our very own Ashley Webster, as well as Kevin Kelly, from Recon Funds, Kathleen Hartnett White, is joining us as well, she's from Donald Trump's economic team, along with Steve Cortes, who is an economic advisor to Donald Trump, he's also at BGC Capital, as well as our own Lori Rothman, who is on the floor of the exchange right now.
And I can see Lori that the markets are starting to trade up a little bit higher on this news. You're looking at the market as we went in to this that was up about 20. Now we're up nearly 60 points. So, perhaps some people breathing a sigh of relief that there is no rate hike today?
LORI ROTHMAN, FOX BUSINESS: Breathing a sigh of relief, indeed, that not only was there no rate hike but that it was also a very hawkish report as well.
Three dissenters as Peter reported. And also talking about the case to raising for a rate hike. There were poll was only a couple of weeks ago that the Fed Chief Yellen herself said that the case was indeed strengthening for this economy to withstand interest rates, that things were getting better for that to happen.
So, stocks here are climbing. Now they're fading a little bit, the Dow is up about 50 points. Don't forget, you also have the market taking serious concerns and serious digestion with the bank of Japan.
So, this rate control that the BOJ is going to go ahead with, keeping the 10-year benchmark, 10-year yield at zero. Right now it's a negative territory. So, that's going to create a steeper yield curve in Japan. So, that's actually very good for U.S. banks in particular.
So, right now we are seeing stocks climb here on a dovish action by the Fed. No rate hike, but look at Fed funds futures. See what they're saying about December, because chances are the folks here do believe we will see rate tightening before the end of 2016.
REGAN: Yeah, there's -- people are saying, you know, we're just quoting Charlie Brady, of course, Neil Cavuto as referring to him saying 58 percent chance according to Fed funds futures right now, of a rate hike before the end of the year.
Ashley, however, I got to say, I feel like once again we're living in this world where the Fed tells us one thing but, you know .
ASHLEY WEBSTER, FOX BUSINESS NETWORK OVERSEAS MARKETS EDITOR: Yeah.
REGAN: . does something different. They're downgrading their economic outlook. So, they're saying, yeah, things are not as good as we thought, 1.8 percent is the projection for annual growth for 2016. And yet, they're saying the case has strengthened for them to have rate hike.
WEBSTER: I mean I hate to use the word clueless, but I'm going to use it, clueless. I mean, look, we have four rate hikes this year, four next year, four in 2018. Then they cut it to two this year, now it's one this year.
They are to scrambling. And to Peter's point retail sales down, production manufacturing down, housing starts down 5.8 percent in August, the jobs numbers not that great, the latest jobs numbers.
I think it's a weak environment, but on the other there's another part of me that wants to, I got to be honest (ph) rip the band-aid off. Go with the rate hike right now. Shock the market, and say, all right, let's get out of this artificial world and get down to business. It didn't happen. And I just think they're clueless. They need fiscal policy support as much as they do monetary policy.
REGAN: That's a good point. So, let me go to over to Kathleen on that one, because you're advising Donald Trump on the economic front. When Ashley says, you know, you got to have both monetary and fiscal policy working together, what does he mean?
KATHLEEN HARTNETT WHITE, DONALD TRUMP'S ECONOMIC ADVISOR: Well, I think he means they can be at odds with one another. But I'd like to add, and as the previous guest just said that, you know, this may be utmost important for banks, and a real catalyst for the markets.
The stock markets, using fiscal and monetary measures as a means of stimulating economic growth through this long, slow, recovery period has been very underwhelming. And I think it's very interesting that Donald Trump's economic policy is not real heavy on monetary or fiscal policy. It's very heavy on let's let competitive markets work. Turn the free actors, the investors, the small business people loose. Cut their taxes. And get a regulatory burden off .
REGAN: Well, you know, that's just the policy though, right? You know, you got to have Washington doing its part. And, that would be according to Donald Trump via lower taxes, thereby unleashing some of that entrepreneurism that you're talking about Kathleen.
KEVIN KELLY, RECON CAPITAL PARTNERS, CIO: You're right.
REGAN: Let me go over to you for a minute, Mr. Kelly. And, you tell me your thoughts on whether or not we really going to see a rate hike anytime this year?
KELLY: Yeah, I don't think we're going to see a rate hike this year. And I think one of the most important data points that came out recently was the non-manufacturing PMI. That's a leading economic indicator. It's the lowest in six years, back at 2009 levels.
Contraction, that's the majority of our economy.
One of the reasons why the market is rising right now is because the defensive (ph) names are trading at historical multiples, because their earnings are worth more in a low interest rate environment.
The 10-year treasury tells you everything you need to know. It was that 2.3 percent last time the Fed raise the rates. It's around 1.5 percent right now which telling you that they cannot raise rates, because that's the tightening mode. And that will hurt economy more.
And guess what, the data is getting worse and worse and worse, even the jobs number. They have two data points and mandates. It jobs and it's inflation. Inflation is nowhere close. It's starting to creep up.
If they tighten, it won't get to their 2 percent number. And guess what, should we get into another environment where we start to get towards recession zone? They don't have anymore bullets. What are they going to do?
REGAN: Well.
KELLY: The problem is .
WEBSTER: Exactly.
KELLY: . the Fed has lost all of their meaning.
REGAN: Lost all their meaning, all their credibility, all their ammunition.
I mean Steve, what could they do? Is there anything left out there? I mean you look at Japan which had a really improvise and get innovative in terms of its monetary policy, what else can we do if anything?
STEVE CORTES, DONALD TRUMP'S ECONOMIC ADVISOR: Well, what we can do Trish, is not on the monetary side in my opinion. I think Japan is very instructive in that regards, and so as Europe by the way. Easy B (ph) doing everything it possibly can to inflate, and yet, we see almost structural disinflation occurring there.
And we see that for decades, Japan -- Kevin is exactly right, we have a decelerating economy right now. We had it for long time, I mean the manufacturing. Now we're starting to see that in the service sector.
So it is the wrong time actually to normalize policy as much as I want to see that happen as a free market guy.
REGAN: I know.
CORTES: Having said all that, the Fed is going to do it in December. And I'll tell you why, because they so fear that they have lost credibility. They don't have the guts to do it right now weeks in front of a U.S. election.
REGAN: OK, so .
CORTES: The Fed is .
REGAN: Let's talk about that though. So, walk me through that. If they in fact do this come December, and they raise rates by a quarter point. Do you think the market handled that OK?
CORTES: No, I.
REGAN: Or do you think we can actually start to see people take money off the table?
CORTES: I think off the table. I think we'll see a replay of what we saw last December. And by the way, are they going to start doing this every December? It's the going to be Christmas present that the Fed delivers to us once a year they raise rates? I hope we can do it more than that.
But, if you look at last December, January then was a mini meltdown in global markets. So, no, I anticipate that if I'm right about them doing in December. We're going to have a very tumultuous start for the New Year.
KELLY: Steve you bring up a great point that they raise in December, and then we saw a volatile January. That was because of their guidance. So they've already guided and taking the market to one raise this year. So, if it does happen in December, I don't think the market is going to really be surprised by. And I think people have positioned their portfolios, as what we saw in July that utilities came down over 7 percent, because they're anticipating a hike in interest rates.
So, what the Fed guides that they're going to continually and do a gradual pace, the market will blow up just like it did in January. But if they come out and it raise one time, and then they say we'll gradual, but we don't know when we're going to do it, I think the market will be tempered.
REGAN: OK, but.
CORTES: That's a good point. Forward guidance what really matters. I do agree with you on that.
WEBSTER: But why should we even listen to their forward guidance? They don't have a clue it appears.
So, how do we know what the markets are going to be doing based on the result of the election? It could -- old bets (ph) could be off.
REGAN: A very good point.
KELLY: That's because Janet Yellen may lose her job. Donald Trump had said time and time again that he may fire her. So, if she doesn't get a interest rate hike in December, she is out of a job come January 20th.
REGAN: Lori, what are the traders telling you down there on the floor? What is your thought on whether or not it happens before year end?
ROTHMAN: You know. Trish, I wanted to address your important question of, hey, if the economy, they're downgrading expectations of growth why is the economy shaping up to withstand an interest rate hike for the statement this afternoon? Well, look at reaction in gold. Gold prices shot up in the wake of the decision up about 18 bucks an ounce. And you also have part of the statement, the Fed projects PCE inflation, preferred inflation gauge of 1.3 percent for this year. That's a little shy of a 2 percent forecast.
But it still shows that this market is preparing itself. Interest rates are also higher too. It's preparing itself for higher inflation. As you know, the Fed this is Econ 101 dual mandate, full employment, and price control. So that's why we're looking likely at a rate hike before the end of the year.
REGAN: OK, rate hike before the end of the year .
WEBSTER: Shy, shy of the .
REGAN: Wouldn't that be amazing?
WEBSTER: . of inflations hiding behind the cab. It's so weak.
REGAN: Let me ask you about this. The topic we brought up a few times on this show and that is, you know, disparity in incomes that you're seeing right now in this country. And, you know, a lot of people want to blame President Obama. And certainly there is blame there. Certainly blame on Congress and D.C. for their lack of policy that they have been able to generate on the economic front.
But the other big thing, of course, is the Federal Reserve by leaving rates as low as they have less them for the last, what, eight years. Have they inadvertently, do you think actually created an environment in which only those with capital are benefiting? In other words, you got to have money to be able to take on the kind of risk to be in the equity market in the first place.
WEBSTER: And I think that's a very good icon to be made, but I feel so sorry for those retirees, whose savings -- what do you get on your savings? Absolutely nothing, you know, being rewarded for saving money. That used to be the way to go, but in this environment that's not the way to go, people have all the capital. The only ones they wouldn't make in there fate.
KELLY: And to touch based on that, the FED has really focused on a wealth effect. So what they've done is you haven't seen it translate to earnings. We hit peak earnings two years ago. Where has all the wealth come from? It's come from multiple expansions. So we've gone them from a normalized 16 peed (ph) to where we are right now, 19 forward earnings that were trading on.
REGAN: That's something crazy.
KELLY: No, it's not too crazy, but guess what, we can trade at these historical highs because the cost of debt is so low, that those earnings are worth so much more. So as they start to increase rates it will hit earnings.
WEBSTER: But what are companies doing with all this cheap money? It's not capital expenditure.
REGAN: They're buying other companies.
WEBSTER: It's down around the what? They are doing some acquisitions. A lot of it goes into share buybacks.
REGAN: But, generally, that just -- that is share buybacks and acquisition, neither which actually .
KELLY: Right.
WBSTER: No.
REGAN: . translate into jobs. I mean, in fact .
CORTES: And Trish .
REGAN: . if you buy another company, you buy out the competition, typically that's going to lead to job losses. Go ahead, Steve.
CORTES: Trish, I think they're both are fiscal side because of huge regulation and confiscatory taxation and our monetary side. What we're encouraging companies to do, what we're almost begging them to do is financial engineering, because that's how they are going to be rewarded .
REGAN: Sure.
CORTES: . near term at least, with a higher stock price. Rather than capital expenditures, investing in technology and plants and hiring people.
And by the way, I think this is why there is so much angst out there right now. And why my candidate Donald Trump is doing so well, because he's offered .
REGAN: All right.
CORTES: . solutions to the man on the street who is not seeing his portfolio change.
REGAN: It doesn't change the fact that corporate America has one goal, Steve. And that's to maximize, maximize its earnings potential. And maximize profitability.
And, in an environment such as we live in right now, the best way in most cases to maximize profitability is to actually send a lot of your operations offshore because it's more .
CORTES: Right.
REGAN: . cheap to do so. You're going to get cheap labor.
CORTES: Sure.
REGAN: So how does America compete in an environment where all of these stocks, these companies are publicly-traded, and there is all these pressure from shareholders to be as profitable as possible? How do Americans continue to succeed and get jobs when investors have effectively, and boards have a different goal than the average worker?
(CROSSTALK)
REGAN: Steve first. And then we'll get everyone in. OK.
CORTES: I think we can align those two goals. And you're right, right now there's no doubt, there is disparity between the average worker and the corporate boardroom. And I don't blame the companies. They're supposed to reward their shareholders. They're supposed to take their interest first.
But, it's because they're responding to perverse incentive. And by that, I mean two fold. Number one, we have to reform our taxes. We made a -- need a much simpler tax code and much, much lower rates particularly on the corporate tax code. So that alone would encourage companies to repatriate capital and to invest here. I think they want to. The incentives just aren't there.
REGAN: Yeah
CORTES: And then the second that I think, a manufacturing would be energy policy.
REGAN: OK.
CORTS: If we get our energy policy right .
REGAN: I mean those are two big things that he's talking about.
CORTES: I think we could have a renaissance in manufacturing again.
REGAN: I want to get to this labor issue though, Kathleen, because, you know, let's face it, an executive's job is to squeeze all that profitability out of a company and do the best for his or her shareholders.
And part of that equation is, of course, labor. I mean labor. You want to get the cheapest labor you can if you're an executive, right? If you're a shareholder and owner of the company, you want that profitability.
So, how do we account for that in an environment where things are increasingly global and globalization has effectively taken over?
WHITE: Well, I'd love to respond to that, because I think there are some factors which have not been considered that important or some opportunities that were considered totally futile by -- to allow American manufacturing for labor to become cost competitive across the world.
The two factors, energy which was mentioned. Now, we sit on top vast store of oil and natural gas in this country, why prices have fallen. The reduction in many, many industries, the greatest input is the cost of energy that they use to make their products. If that is -- is remains in the ballpark it is now, they can become competitive there.
Another subject often so boring to talk about, but it is quite a beast. The regulatory burden is unbelievable and what that adds to the cost of production in this country. You get realistic reasonable light regulation and .
REGAN: So does that mean the benefit is going to go to the workers? I mean .
(CROSSTALK)
REGAN: . you think it will? I mean if we say, OK, we're going to get rid of regulation .
KELLY: Yeah.
REGAN: . and you're going to spend less money on all those lawyers, but there are executives aren't they going to say, oh good, now I'm more profitable than ever before. They really going to actually transfer money to workers.
KELLY: I'll tell you the quickest is the most simplest way to do this is repatriating that money back here at 10-15 percent and peg it to jobs and reinvestment. If we peg it to that -- we seen what happened when a super state came in and interceded, seated between two private parties.
REGAN: OK, so a little bit of a carrot out there.
KELLY: Yeah, do you think .
REGAN: The angle something that you create jobs, you get an incentive.
KELLY: We have the highest tax rate.
REGAN: In the world.
WEBSTER: Yes.
KELLY: Yes, in the G-20, right? So guess what, if we peg it to jobs as well as business reinvestment, you will start to see companies start to pulling that capital here on tour.
REGAN: But we tried at that once before. We did try that. I mean, in all fairness, we didn't give it a real shot because it was just temporary tax holiday.
WEBSTER: Right.
REGAN: It didn't quite work. We haven't actually heard Donald Trump, correct me if I'm wrong, Steve Cortes, I just got 15 seconds. But Donald Trump has not actually suggested that we actually peg it to that. He just wants one big tax cut?
KELLY: 10 percent, yeah.
CORTES: Right, but it will be permanent. It will be permanent.
REGAN: And by the way, I just got more time. How about that!
CORTES: All right.
REGAN: It's always good thing to hear from the producer. Ashley .
WEBSTER: Yeah.
REGAN: . you do what I'm getting at though .
WEBSTER: Absolutely.
REGAN: . that the -- in other words you get -- you get things on. But you've got workers right now who need to get paid.
WEBSTER: Yup.
REGAN: And you've got shareholders that have gotten .
WEBSTER: I understand.
REGAN: They have gotten in some ways very lucky over the last several years in that companies have become increasingly profitable. I mean the profitability more have really .
WEBSTER: Well, ever since the great recession, companies found out .
REGAN: Yes.
WEBSTER: . they could do the same amount of revenue and sales with a whole lot less people.
REGAN: Right.
WEBSTER: And we haven't really gotten back. And then other jobs have gone overseas. And, you know, to Kevin's point, wouldn't it be great to peg by tax advantage to job creation.
You know, I get so tired when they just say, oh, it's so unpatriotic that these big American companies are holding all these money overseas.
I think the founding father .
REGAN: Can you blame them?
WEBSTER: I think the find (ph) founding fathers would say, you know what's unpatriotic? Thirty five percent corporate tax rate.
REGAN: Yeah.
WEBSTER: That's unpatriotic.
KELLY: I would hire more people to work for us if we had a tax break, because I knew I had the capital to pay for that labor. But because of the high tax environment I can't do that.
So, if you think about it conceptually for CEOs and also think about what happened to Tim Cook, right? He had an agreement with Ireland and a super state came in and interceded, and there was the E.U.
So, any of these politicians should go to business leaders and say I'm here to foster your environment. And they .
REGAN: Yeah, but if anything, you know, Lori, I think a lot of business leaders feel like the United States is not an environment they can really be guaranteed up or depend on.
I've certainly, I know you've probably have too. I've heard that over the last eight years. CEO after CEO, after CEO had said to me we need certainty. And they have not gotten that.
ROTHMAN: Being transparent, transparency, excuse me, and the feeling that's their hands are tied because of over regulation.
Let me address quickly, Trish, why the markets are fading. The DOW hit a session high of 99 about 10 minutes or so ago. Fading now, just about a gain of 62.
As I go through the details of the Fed statement, decision to leave (ph) interest rates unchanged. We had three dissenters, and one of the dissenters, meaning someone who wanted to hike rates this meeting is Eric Rosengren, the Boston Fed, he has been a noted dove.
REGAN: Yeah.
ROTHMAN: I mean he's been in favor of the historic low rates for a long time, put out a piece recently being very concerned about commercial real estate being the next bubble to burst.
So that speaks volumes this can be very interesting to say the least. As to how this market would react as we start to hear the comments from the Fed chief herself.
Quickly, the leading sectors no surprise, energy, oils, really spiking today, telecom industrials. And that will, I'll just leave it at that for you.
REGAN: OK.
(CROSSTALK)
REGAN: I hear you. It was very interesting on Eric there out of Boston. Because you know, Danny Blanchflower, an economist he's a frequent guest on this show, out of Dartmouth Economics Department have been an advisor to him. And I tell you, you can't get more dovish with Danny.
He is watching right now, we know you, Danny. You want more and more and more out of the Fed.
And so, you would anticipate that Eric would be also of that frame of mind, and he has been previously, but he is starting to shift. So, three of them now.
WEBSTER: . like trillions of dollars. They got one percent GDP? And he wants more?
REGAN: All right.
KELLY: That should stop worrying about asset, prices, every roles (ph) .
WEBSTER: Yeah.
KELLY: . and they should focused on their duo mandate. Last time they talked about asset prices, they said it was over valued in biotechnology. Biotechnology went up 50 percent.
So, focus under (ph) the core competencies to do mandate of jobs as well as inflation. Stop worrying about everything else. Because corporate, real estate and commercial real estate is going up, because negative interest rate policies across the globe, they're searching for yield. So they're coming here to the states and buying that up.
Look at the Chinese buy buildings here in New York. There's nothing the Fed can do about that.
REGAN: Yeah, well-put. All right, we are of course waiting. I should remind everyone on Janet Yellen. She's going to have that big news conference. She's going to be addressing the public there. So we are waiting on that out of the Fed.
We're going to be back with it right after this.
This is very important because you need to hear what she is going to say about the future, and whether or not we are going to get a rate hike this year. See you back here in two.
(COMMERIAL BREAK)
REGAN: All right, welcome back. We're up 73 on the DOW right now.
Breaking right now, we're waiting for Janet Yellen, the head of the Fed to speak. She's going to be addressing all of us right now giving us her though on just exactly how they came to this decision to not raise rate. And what she thinks about the future. That's critical here. What will she tell us, what will she indicate about what the Fed will do come December, come next year?
I'm here with Ashley Webster, our very own Ashley Webster, Kevin Kelly, from Recon Funds, Kathleen Hartnett White, from Donald Trumps economic team, Steve Cortes, from BGC Capital, also a Trump economic advisor, Lori Rothman, is on the floor of at the New York Stock Exchange.
And, you know, we're just talking in commercial break about this issue here along with Ashley and Kevin about globalization. And the fact, that you basically have a real disparity right now between labor and the needs of investors and shareholders. And how do you deal with that? Because it seems to me Ashley, it's just going to keep getting worst.