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we begin this morning talking about the state of the economy the fed and sort of where markets are headed from here after a very busy week for corporate data but also a busy week in the world of central banking and economic data joining us now to discuss is muhammad al-ararian president queen's college cambridge university and chief economic advisor at allianz muhammad great to talk with you once again let's begin with the federal reserve and what we heard from fed chair jay powell earlier this week i think sounding a little bit more dovish after some some fairly hawkish economic projections perhaps back in june how did you read his comments and um the market's let's say muted reaction to sort of what we heard if anything you know maybe more of a risk on type environment in the wake of that good morning miles thanks for having me yes he was more dovish than the statement and that was a boost to markets and rightly so because what he basically told us is that we don't have to worry about growth it's going to be solid we don't have to worry about inflation it will be transitory we don't have to worry about elevated asset prices and that he will maintain the 120 billion of monthly asset purchases for longer than the markets except expected the market now have pushed back the expectations of taper until the end of the year muhammad it's julie good morning it's good to see you we got inflation numbers this morning of course we got the pce pce deflator month over month in june uh pce deflater what up a half of one percent a little bit lighter a little bit better than had been estimated but i know you have been consistently on record saying you don't think inflation is transitory what would you have to see that would sway you from that view so i think we need to keep an open mind and that's particularly true for the fed in the old days the fed used to talk about the two tails of the distribution it used to talk about insurance against both of them now we have become a one-sided fed this conviction that inflation will be transitory it's a conviction what we're hearing from companies suggests that we should have a more open mind they're telling us about input costs going up labor costs going up transportation costs going up they tell us they don't see the light at the end of the tunnel for these three things they tell us they have more pricing power so the only thing i'm saying is keep an open mind and what i will look at is what companies are telling us i would like companies to tell us that there's less cost pressure and that they don't feel inclined to increase prices that's what would make me feel comfortable that inflation is transitory and so muhammad how do you think about the bond market then and jay powell himself i wrote about this a few days ago he said he's not so sure what to make of the decline we've seen in the 10-year how have you thought about you know that rally on the long end of the curve so if the fed is going to be more dovish than people expected if it will continue buying emergency level bonds at 120 billion if it's going to continue buying mortgages even though the housing market is red hot then the bond market will respect that you want to respect the buyer especially when the buyer happens to be the fed printing press in the basement pursuing non-commercial objectives meaning it is not price sensitive and what you get are people buying ahead of that who's buying foreign foreigners are buying people with asset liability matching needs are buying so what you really get is a compounding of the fact that the fed is continuing to buy for longer than what most people think was going to happen and indeed quite a few people think they are they should be starting to taper now muhammad i want to switch gears because i want to get your thoughts on the sort of retail trading revolution for lack of a better term and of course it's fresh in our minds because of the of the robin hood ipo which did not have a huge positive reception right how are you thinking about that trend where we are in that cycle and whether or not this represents an inflection point so i think it's wonderful that more people are getting involved in the stock market especially the younger people i think for the future of a market-based system it is good that the younger people have a stake that are they that looking to understand how capital is raised how capital is allocated so i am actually very encouraged by by this i'm also encouraged by the fact that robin hood has shown us that through smart interfaces you can communicate with the new generation what i do worry about is how people are investing i worry a little bit that there's too much of a fad going on that people tend to buy things because other people are buying things hopefully there'll be a learning process but i think julie if we step back we want broader participation in the stock market and so muhammad thinking about the stock market then and really valuations has been the conversation um all year particularly with with most of the thanks all the fangs having reported their results such a large percent of the market cap does the market the stock market u.s stock market feel healthy to you at this moment in time look if liquidity continues to be so incredibly supportive then yes it is healthy um you know i am among the many people who are riding this wonderful liquidity wave and it's been great but we think tactically and this is really important to understand we recognize that at some point the wave may break um it was summed up best by leon cooperman when asked how do you feel about this market what are you doing he said i'm a fully invested bear so he's bearish about the outlook but he's fully invested for now and that's the concern is that if we don't start tapering early you may end up having a massive shock and unnecessary disorderly shock to both the markets and to the economy and muhammad speaking of shocks the last couple of weeks we have seen a number of headlines related to chinese regulatory actions that i think have taken a lot of u.s investors by surprise does this concern you just in terms of you know as analysts and strategists like to say having visibility on on this pocket of the market and whether we can trust so many of these businesses that have come indeed to the u.s markets so there's two elements of contagion we should look at um and they are indirect so i don't worry that there will be a cascading effect through the markets and the economy but i keep an eye on two indirect effects one is what i call the index effect china has grown to be quite a big portion of the emerging market indices and to the extent that china becomes less investable which is what's going on right now people may start selling the index as a whole and then the second issue is we were all hoping for a rotation the u.s leads then europe follows and then emerging markets the tr what's happening in china is going to hold back the emerging market trade even more so we're going to continue to rely on the us as a driver of global markets when a lot of people were hoping for some sort of rotation to keep it more balanced mohamed brian here i really enjoyed your latest uh ft op-ed and you're talking at great length about crypto and you see western governments need to stop dismissing the crypto revolution what should western governments be doing then so i think both the crypto world and governments need to come together and talk a common language we have in the crypto revolution really important innovations that have to do with the payment system and we have to take that seriously why do we have to take it seriously for two reasons one it can make financial intermediation more efficient and second if we're not careful china which is taking a very top-down approach may start defining the agenda why do i say the crypto world as well because the crypto world has to take seriously concerns about illicit payments concern about money laundering and concerns about energy use so it's time for them to speak a common language and try to channel what i think is a really important disruptive innovation in a way that actually helps finance and the society and what's the biggest risk of of not doing that of us authorities sort of continuing in this line of sort of being skeptical of the crypto world so two ways the internal risk is that the the government will will see adoption by the private sector and we're seeing greater adoption by the private sector we're seeing it every single day so it's not something that's going to disappear you'll end up with this very tense tug of war which is unnecessary in my opinion but the second more important issue is that china is not waiting china has has an image about what digital money looks like it has decided it should have a top-down approach and it has decided that it wants to export its approach why because of it gives it access to payments platform regionally it gives it access to data so we have to take this seriously otherwise we are going to lose the narrative completely and mohammed before we let you go uh july is is wrapping up you know what that means right around the corner zach wilson how how are we feeling so i should ask you you know i i'm i'm actually closing my eyes the mets are still in first place the jets look somewhat better i don't want i don't want to jinx all this i'll leave that to you i'm not talking about it because i still can't believe the mets are in first place at the end of july that's right uh mets and jets fans know it's better to not talk about it and then just at the you know in november you can go see how the mets did and it'll it'll end up being better than if you watch and i have my handkerchief ready there you go all right i always appreciate the time muhammad all area president queen's college cambridge university and the chief economic advisor to allianz mohammed appreciate it i know we'll talk soon
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