Market briefing --- Lori (slow)
Money & Politics --- Mike (fast)
Chart of the day --- Tom (slow)
>> let’s go ahead and check on what’s coming up next on “money & politics” at 5:00 p.m. michael mckee is in washington today. mike?
>> today, “money & politics” does move to its new home at 5:00 p.m. eastern time. on the show today, we’ll have a look at the immigration debate dividing members of congress. not the two parties, but the republicans. we’ll get political reaction to today’s g.m.-gmac deal from michigan governor jennifer granholm, speak with potential presidential candidate mark warner and get the latest on the economy from matthew slaughter of the council of economic advisors. and judy woodruff will be here with a portion of her interview with william f. buckley jr. all of that coming up in about 10 minutes
>> thanks a lot. jobs data, credit suisse strategist says it is the most important insight into the fed’s next move. dominic konstam says the real issue with the fed is whether it is in fact at neutral right now. time for our regular look at “chart of the day” with bloomberg news editor-at-large tom keene. welcome.
>> it’s good to be here. this is a precursor to this friday’s jobs report. we haven’t talked about it much, the market in such gyrations last week but clearly the jobs report the most important report of the month. the bloomberg survey, 190,000. a little below where we were last month with a bang-up report the previous mont. what konstam is talking about is a sequence of events, how you get from jobs to fed policy and you jump from jobs, which mean income growth, income growth means housing doesn’t slow down or at least moderates, no boom there. and that gets you to a still strong economy which means the fed is not going to raise rates up to the neutral level, they’re going to have to overshoot it and go to a more restrictive policy. the clear thrust of his comments is the yield curve will steepen, what he calls a slightly bearish steepener and it starts going back to jobs data, a way to link the labor economy.
>> is there an absolute direct link between the two?
>> not an absolute direct link between the two but you can see in the chart, this is the inflation-adjusted fed funds rate, the real rate. you can see the general band here in the 1990’s in the green box. it’s real general. the so-called neutral rate, not accommodative, not restrictive. and the slowdown of 2001 and sluggish recovery, we go below zero for the real rate. we’ve come up nicely. konstam’s saying and i think maybe the most important insight, that the market is behind fed policy, continues to underestimate fed policy, rates to go higher.
>> weren’t economists calling for an inverted yield curve weeks ago?
>> wasn’t it march, february, you and i were all over the yield curve day after day. where did it go?
>> it’s been positive for at least a week.
>> for about a week at different parts of the yield curve but where did this discussion go? the discussion is still there. what konstam is saying is when you link it all together, in a still buoyant economy, it gets you away from that growth recession idea, it gets you away from any sense of recession and with a more buoyant economy, again, the sequence―jobs, stronger income, ok housing even robust housing, above-trend growth―it gets you to the point where the short-term yield curve comes up and with it, that long-term end like we’ve seen the 10-year now at 4.85 on its way, konstam predicting by the end of june to 5.1%.
>> what are the risks this theory doesn’t work out?
>> there are any number of risks but the big one within the mix of the idea of jobs, income, housing and growth still centers on housing. economist after economist we speak to when they focus on the domestic economy, that’s what they’re focusing on, will the housing economy actually slow.
>> what about these terms, bearish steepener, bullish steepener?
>> the grim of a bearish steepener is just the yield curve going back to normative, lower short-term rates, higher long-term rates, signaling a slower economy. konstam says we’re not there yet.
>> bloomberg news editor-at-large tom keene, thank you for joining us. we will be back in two minutes’ time with more bloomberg “after the bell.”
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>> i’m mark crumpton with a world muse update. the jury deliberating the fate of abu musab al-zarqawi has found the al qaeda―zacharias moussaoui has found the conspirator is eligible for the death penalty. the jury decided that lies told to f.b.i. agents led to at least one death. jurors will now decide if he should be executed. liberia’s former president pled not guilty to charges of war crimes and crimes against humanity. charles taylor made his first appearance at an international war crimes court in sierra leone, charged with 11 counts including sexual slavery and mutilation. taylor is accused of backing rebels in sierra leone. taylor initially toll the court he couldn’t enter a plea because he doesn’t recognize the court’s right to try
