# Fed Raises Rates, BOJ Hike Anticipated

An episode of [Bloomberg Daybreak: Asia Edition](https://invisiblenetwork.ai/podcast/1663863437), 17 Sep 2026, 22 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/58e85be7-dbb5-4043-afed-af80014dc0b3/7bc77e09-1b2b-44d6-9b13-b4c8003322a1/audio.mp3?utm_source=Podcast&in_playlist=27143354-63aa-4ac5-965d-af80014dc0d3

Business and finance news from the Asia-Pacific. The yen's sharp drop after the Federal Reserve's hawkish hike is raising the stakes for the Bank of Japan's policy meeting Friday, with strategists warning the currency could weaken further unless officials convince markets that more tightening is coming. The Fed lifted borrowing costs Wednesday for the first time since 2023 and projected further increases, prompting traders to price three additional hikes by the middle of next year. That threatens to keep the US-Japan rate gap wide even as the BOJ is expected to raise its own policy rate this week. We speak to Bloomberg's FX and Rates Strategist David Finnerty. And for more reaction to the Fed's decision, Bloomberg's David Ingles spoke to Former St. Louis Fed President James Bullard from the sidelines of the BNP Paribas APAC Global Markets Conference. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: Bloomberg Audio Studios, podcasts, radio, news.
[0:11] Speaker 2: Welcome to the Daybreak Asia podcast. I'm Doug Krisner. So
[0:14] Speaker 2: the Fed raised interest rates by a quarter percentage point
[0:17] Speaker 2: on Wednesday. That move was widely expected by markets. Policymakers
[0:22] Speaker 2: also penciled in an additional rate hike later this year. Obviously,
[0:26] Speaker 2: the goal here is to contain inflation. Today's decision, if
[0:30] Speaker 2: you're wondering, was unanimous. Here is Chair Kevin Warsh.
[0:33] Speaker 3: I would be hard-pressed to describe broad financial conditions as restrictive.
[0:39] Speaker 3: This view was widely shared by the committee. So we
[0:43] Speaker 3: removed a dose of accommodation. Consider the geopolitical landscape of
[0:49] Speaker 3: shocks and uncertainty. And you begin to appreciate the resilience
[0:54] Speaker 3: of the U.S.
[0:55] Speaker 1: Economy.
[0:56] Speaker 2: In fact, Warsh went on to say the American economy
[0:58] Speaker 2: appears to be strengthening. So the Fed funds rate is
[1:01] Speaker 2: now in a target range of three and three quarters
[1:03] Speaker 2: to four percent. The White House described the decision as
[1:07] Speaker 2: rather unfortunate. And later in the day, in a post
[1:09] Speaker 2: on Truth Social, President Trump said rates should be one
[1:13] Speaker 2: percent or less because the U.S. has the best credit
[1:16] Speaker 2: in the world. And he went on to say the
[1:18] Speaker 2: Fed should lower rates fast. For a closer look, let's
[1:23] Speaker 2: bring in Bloomberg's David Finnerty. David is a MarketsLive FX strategist,
[1:27] Speaker 2: and he joins from our studios in Singapore. Thank you
[1:30] Speaker 2: for being here. Give me your reaction to everything that unfolded.
[1:35] Speaker 4: Well, it was very interesting. It was obviously highly anticipated.
[1:38] Speaker 4: I think going into it, the market pricing was certainly
[1:42] Speaker 4: very hawkish. They were looking for basically three, three and
[1:46] Speaker 4: a half hikes, including one yesterday. And if you look
[1:50] Speaker 4: at it, so what did happen, Fed raised, that was expected.
[1:53] Speaker 4: The dot plot signaled one more hike this year and
[1:57] Speaker 4: then signaled maybe flat next year or maybe one more hike.
[2:01] Speaker 4: So total sort of two more after yesterday's hike, which
[2:05] Speaker 4: is not quite as hawkish as the market looked. But
[2:08] Speaker 4: the market said, normally that would mean, OK, well, you've
[2:10] Speaker 4: disappointed us. Ironically, what happened on this time is, After
[2:14] Speaker 4: Fed Chairman Walsh's comments, the market said, you know, our
[2:20] Speaker 4: pricing is not hawkish enough. We should price more. So
[2:23] Speaker 4: now you've got the market actually pricing three more Fed hikes,
[2:27] Speaker 4: basically through June, July next year, with the first one
[2:31] Speaker 4: in December, even though the Fed dot plot signals one,
[2:36] Speaker 4: maybe two. You know, so it's very interesting. You've had
[2:40] Speaker 4: normally it will go the opposite way around. The market
[2:43] Speaker 4: will adjust down to what the dot plot. But obviously
[2:46] Speaker 4: what Fed Chairman Walsh said, they said, OK, he's on
[2:49] Speaker 4: ball now and we're going to be hiking. So they
[2:52] Speaker 4: actually were happy to run with it, even though the
[2:55] Speaker 4: dot plot didn't say that. So a slight discrepancy there.
[2:57] Speaker 4: It'll be interesting to see how that works out. Obviously,
[3:00] Speaker 4: we'll need more data to see how that plays. But
[3:02] Speaker 4: certainly December right hike is what he baked in. And
[3:06] Speaker 4: Fed Chairman Walsh does like forward guidance, but that dot
[3:09] Speaker 4: plot was pretty blatant. when you had basically 16 of
[3:12] Speaker 4: 18 people saying one hike, of which four of the
[3:15] Speaker 4: 16 said maybe two hikes by year end.
[3:18] Speaker 2: So if you look at the behavior of the dollar, David,
[3:20] Speaker 2: that was clearly the interpretation of the market. I think
[3:23] Speaker 2: the Bloomberg Dollar Spot Index popped about a half of 1%.
[3:27] Speaker 2: Flipside produced a much weaker yen. I think the yen
[3:30] Speaker 2: was considerably weaker in New York, trading down about eight-tenths
[3:33] Speaker 2: of 1% or so. So talk to me now about
[3:37] Speaker 2: what this means for the Bank of Japan. The BOJ
[3:40] Speaker 2: meets on Friday. What does the BOJ have to do
[3:43] Speaker 2: if you consider the fact that the yen was struggling
[3:46] Speaker 2: quite a bit in New York trading?
[3:48] Speaker 4: Well, I think now you've said that the ball's definitely
[3:50] Speaker 4: in BOJ's court, and I think especially the governor's press conference.
[3:56] Speaker 4: The market price seems for the BOJ is very hawkish
[3:59] Speaker 4: as well. We're looking for a hike tomorrow and another
[4:01] Speaker 4: three hikes basically tomorrow. by July so at the end
[4:04] Speaker 4: of the day they're looking for like a hike tomorrow
[4:06] Speaker 4: and pretty much one every three months from now so
[4:10] Speaker 4: again normally okay you have to meet expectations Bank of
[4:13] Speaker 4: Japan if you don't normally we will punish you and
[4:17] Speaker 4: therefore it's Governor Wade who historically has not been great
[4:20] Speaker 4: at sounding uber hawkish shall we say but again the
[4:24] Speaker 4: market expectations are this is what we factored into this
[4:27] Speaker 4: so you don't deliver this or you disappoint us a
[4:29] Speaker 4: lot we will penalise you by weakening the yen so
[4:32] Speaker 4: I think at the end of the day, given the Fed,
[4:36] Speaker 4: from the market's perspective, if you're Dolly and Long, the
[4:40] Speaker 4: Fed's come out as hawkish. Certainly the market's interpreted as
[4:43] Speaker 4: very hawkish. And now the question is, can the BOJ
[4:45] Speaker 4: live up to its expectations? Given Governor Ed has said
[4:48] Speaker 4: his history, I'm not sure if it can be, you know,
[4:52] Speaker 4: he can signal one hike for every three months through mid-year.
[4:58] Speaker 4: Maybe he can. But historically, he's not. been an uber
[5:02] Speaker 4: hawkish guy.
[5:03] Speaker 2: So there is a likelihood from what I'm hearing that
[5:06] Speaker 2: the BOJ could disappoint relative to market expectations. And then
[5:10] Speaker 2: I'm thinking, okay, so the yen weakens to the 160
[5:14] Speaker 2: level pretty quickly. Is that a possibility?
[5:17] Speaker 4: I don't know. So I definitely think that if they disappoint,
[5:19] Speaker 4: it certainly pushes higher. I think you get to the
[5:21] Speaker 4: 157 is way over 158. I don't think quite enough
[5:26] Speaker 4: to get to the 160 because I think the dollar
[5:27] Speaker 4: side of the equation is baked in. And if anything,
[5:30] Speaker 4: maybe I said, given the difference in expectations between what
[5:34] Speaker 4: the market's looking and what the Fed's saying in its
[5:36] Speaker 4: dot plot, maybe the market's gone a bit too aggressive
[5:39] Speaker 4: on that pricing. So you're going to need quite a
[5:40] Speaker 4: lot of data or oil to push higher to confirm
[5:46] Speaker 4: the market pricing. So on the dollar side of the equation,
[5:48] Speaker 4: not much there. The inside equation, I said, if they weaken,
[5:52] Speaker 4: I think you can get to maybe 158. Beyond that,
[5:54] Speaker 4: I don't know.
[5:54] Speaker 3: It was interesting.
[5:55] Speaker 4: I was talking to a trader before I came down here,
[5:58] Speaker 4: and he was saying a lot of the markets like
[6:00] Speaker 4: trying to work out, okay, at what level does you
[6:03] Speaker 4: start buying yen again? So not dolly yen, buying yen again.
[6:06] Speaker 4: So the idea in terms of, you know, shorting dolly
[6:09] Speaker 4: yen is attractive to the market. You've seen a bunch
[6:12] Speaker 4: of unwinds over basically heavily this week. They started happening yesterday.
[6:17] Speaker 4: certainly post that US CPI data and ahead of the Fed,
[6:20] Speaker 4: and they continued yesterday post-Fed. But now the interesting thing,
[6:25] Speaker 4: the market really is a sentiment of, okay, when do
[6:27] Speaker 4: we reload dollar-yen short? So what could happen tomorrow is
[6:31] Speaker 4: if the BOJ does disappoint, people may say, hey, that's
[6:34] Speaker 4: an opportunity. Certainly it's around 158 to go, let's get
[6:37] Speaker 4: back in this trade again.
[6:38] Speaker 2: So do yen-funded carry trades then remain a safe bet
[6:42] Speaker 2: for a while longer, do you think?
[6:44] Speaker 4: I think, look, With the rate differential, yen as a
[6:48] Speaker 4: carry funder is always going to exist. What you don't want, ideally,
[6:53] Speaker 4: is if you're doing that, is the yen then to
[6:55] Speaker 4: strengthen heavily, strongly. Now, we've certainly seen that over the
[7:00] Speaker 4: last few weeks. It went from 158 down to 152
[7:03] Speaker 4: and change. So you are wary of that. But I
[7:07] Speaker 4: think that at the end of the day, yen is
[7:08] Speaker 4: always going to be an attractive carry funder because even
[7:10] Speaker 4: with them raising rates, they're still, compared to other ones,
[7:13] Speaker 4: very low. Every other central bank is supposed to raise
[7:15] Speaker 4: rates aggressively as well. So you're looking at the yen,
[7:19] Speaker 4: Swiss ranks could be an attractive funder because S &
[7:21] Speaker 4: B is certainly in no hurry to go in coming months,
[7:25] Speaker 4: certainly this year. And they certainly defend against Swiss franc strength.
[7:30] Speaker 4: So that's a potential one. Maybe the Swedish kroners a
[7:33] Speaker 4: little bit. But, you know, you want a liquid currency
[7:35] Speaker 4: and the yen is certainly attractive. So I think the
[7:39] Speaker 4: yen as a carry funder is not going to disappear.
[7:44] Speaker 4: Whether other ones will become a bit more attractive such
[7:47] Speaker 4: as Swiss franc is debatable. But yes, I do think
[7:49] Speaker 4: the yen carry trades don't vanish overnight.
[7:52] Speaker 2: I'm curious to get your take on the intervention risk
[7:55] Speaker 2: that is in the market right now and whether or
[7:57] Speaker 2: not if we do flirt with a level of 160
[8:00] Speaker 2: dollar yen that perhaps Treasury Secretary Besson might come back
[8:06] Speaker 2: to the market and say, I told you not to
[8:09] Speaker 2: test my resolve here. I know that he's concerned about
[8:12] Speaker 2: the possibility that Japanese authorities may be forced to liquidate
[8:17] Speaker 2: some of their holdings in U.S. treasuries to fund a
[8:19] Speaker 2: defense of the yen. Is that still a risk in
[8:22] Speaker 2: your view?
[8:23] Speaker 4: I think if you get around the 160 level, yes,
[8:26] Speaker 4: I think that topic would certainly become talked about a
[8:29] Speaker 4: lot more. As you said, the idea of best and
[8:31] Speaker 4: celibacy on the house don't bet against me. But of course,
[8:34] Speaker 4: if it's gone, if it goes back to 160, it's like, well,
[8:38] Speaker 4: you won for a little bit of time, but then
[8:39] Speaker 4: the house lost again. So I do think that, but
[8:42] Speaker 4: I said the mentality is, As it grows higher, the
[8:45] Speaker 4: market at the moment, and this can always change, the
[8:48] Speaker 4: market sentiment, as I said from talking to traders, is
[8:50] Speaker 4: they are looking to reload Dolly and Shorts. They are
[8:53] Speaker 4: trying to pick the right level to do that. And
[8:55] Speaker 4: obviously sentiment can change. So near term, if Governor Ueda is,
[8:59] Speaker 4: you know, should we say, not as hawkish as the
[9:02] Speaker 4: market wants tomorrow, they may say, look, let me just
[9:04] Speaker 4: jump in dollar-yen longs for a very short period of
[9:09] Speaker 4: time until it gets to maybe that 158, 159, and
[9:12] Speaker 4: then exit and then reload the shorts. But certainly, yes,
[9:16] Speaker 4: if it got to around the 160 mark, the debate
[9:20] Speaker 4: over possible intervention... would certainly be surfaced.
[9:23] Speaker 2: So what does that mean for the Japanese bond market?
[9:26] Speaker 2: The 10-year JGB right now has got a yield of
[9:29] Speaker 2: around 2.97%. Where do we go from here?
[9:32] Speaker 4: I think Japan yields, there's a couple of things. You've
[9:35] Speaker 4: got global yields. Obviously, Japan will get pulled in where
[9:39] Speaker 4: the global yields are going, certainly where the U.S. yield goes.
[9:41] Speaker 4: So that's one thing. And then with Japan itself, I
[9:44] Speaker 4: think you have the domestic policy. So you have two things.
[9:47] Speaker 4: What does the POJ do? What does it signal? Does
[9:50] Speaker 4: it meet expectations or not? Does it disappoint? And then secondly,
[9:54] Speaker 4: what does Takahichi do? You know, she mentioned earlier this week, okay,
[9:58] Speaker 4: let's increase defense spending. You know, this idea, okay, so
[10:01] Speaker 4: we're spending more. And so if you want to, if
[10:03] Speaker 4: you think yields go high, you go, well, that's a
[10:05] Speaker 4: good reason why yields should go higher. We're increasing spending.
[10:08] Speaker 4: We know the market is worried about Japan's fiscal stance
[10:13] Speaker 4: in that it seems to be just we're adding to
[10:15] Speaker 4: fiscal deficits. So if economic policies by Takeuchi are seen
[10:22] Speaker 4: to add to those deficits, then that does put upward
[10:24] Speaker 4: pressure on the end. So there's a variety of factors there,
[10:27] Speaker 4: I think. And how it all plays out literally depends on,
[10:30] Speaker 4: let's see what BOJ does tomorrow. Let's see where global
[10:32] Speaker 4: yields go. And then, like I said, Takeuchi going forward.
[10:35] Speaker 4: Has she floated the idea of increasing defence spending? Does
[10:40] Speaker 4: she come through with it? You know, if she does
[10:42] Speaker 4: do that, OK, how are we going to offset that?
[10:44] Speaker 4: So the market's always worried about every deficit at the moment.
[10:48] Speaker 4: And certainly Japan's is one of the key deficits it's
[10:50] Speaker 4: focused on.
[10:51] Speaker 2: All right, David, good stuff. We'll leave it there. Thank
[10:53] Speaker 2: you so very much. Bloomberg's David Finnerty, MarketsLive FX and
[10:57] Speaker 2: rates strategist, joining from Singapore here on the Daybreak Asia podcast.
[11:08] Speaker 2: Welcome back to the Daybreak Asia podcast. I'm Doug Krisner.
[11:11] Speaker 2: And as I mentioned a moment ago, the Fed indeed
[11:13] Speaker 2: raised its policy rate by a quarter point on Wednesday.
[11:17] Speaker 2: We got reaction to the decision from James Bullard. James
[11:20] Speaker 2: is former president of the St. Louis Fed. He spoke
[11:23] Speaker 2: with Bloomberg's David Inglis on the sidelines of the BNP
[11:26] Speaker 2: Paribas APAC Global Markets Conference.
[11:30] Speaker 5: So they hiked once. They've signaled more.
[11:33] Speaker 6: Markets think they might go three more into next year.
[11:38] Speaker 5: Your initial take on aggregate?
[11:40] Speaker 7: I think it was a good decision. I think it
[11:42] Speaker 7: came off quite well here. I think it was widely
[11:45] Speaker 7: anticipated in financial markets. And the level of hawkishness or
[11:51] Speaker 7: dovishness was handled well with the press conference. So I
[11:54] Speaker 7: think this was a pretty good outcome for the Fed.
[11:58] Speaker 7: You know, they got their interest rate increase in, which
[12:00] Speaker 7: I think was appropriate. And now we're set up for
[12:04] Speaker 7: probably one more increase before the end of the year.
[12:07] Speaker 7: I would put that most likely in December. But of course,
[12:11] Speaker 7: they want to watch the data up until that point.
[12:14] Speaker 6: And with the information we have now, does three more
[12:18] Speaker 6: on top of what we had just now seem appropriate
[12:21] Speaker 6: given where inflation has been?
[12:25] Speaker 7: Yeah, three more sounds a little high compared to what
[12:28] Speaker 7: the committee seemed to be saying.
[12:29] Speaker 5: On the dots, that's right.
[12:32] Speaker 7: They probably want to see more data before they commit
[12:35] Speaker 7: to that. I think you could get into next year
[12:39] Speaker 7: and it turns out, well, inflation is turning around and
[12:42] Speaker 7: we'll move lower. And they'd probably be happy with that
[12:45] Speaker 7: and just staying at the higher level for a while.
[12:48] Speaker 5: We were talking about this a few minutes back. The 2%.
[12:53] Speaker 6: Forecast doesn't come until 28, 29. How do we, how
[12:59] Speaker 6: do markets interpret that? The commitment to bring it down,
[13:02] Speaker 6: but it doesn't seem we'll get there for another two,
[13:04] Speaker 6: three years.
[13:05] Speaker 1: Yeah, I don't know. It's a ways away. It does
[13:08] Speaker 1: seem a ways away.
[13:09] Speaker 7: I think they're hoping for some better outcome than that,
[13:14] Speaker 7: where you would get to 2% sooner.
[13:18] Speaker 5: Sure.
[13:18] Speaker 7: But they probably didn't want to put that down in
[13:20] Speaker 7: their forecast, and so it's out there in 2029. I
[13:24] Speaker 7: don't know how much those longer run forecasts really matter.
[13:28] Speaker 5: There is that.
[13:29] Speaker 7: All kinds of things will happen between now and then.
[13:32] Speaker 7: But it is a little disturbing that it was farther
[13:35] Speaker 7: out there.
[13:36] Speaker 6: Why has the economy remained extremely resilient.
[13:41] Speaker 5: In your view? What's going on there?
[13:43] Speaker 7: Well, you've got the AI boom going on, which is
[13:46] Speaker 7: a major factor in the U.S. A lot of that's
[13:49] Speaker 7: fueling investment in the U.S. And then on the consumer side,
[13:54] Speaker 7: you've got very low unemployment, certainly at or below what
[13:59] Speaker 7: most people would think is the natural rate of unemployment.
[14:02] Speaker 7: So that and you've got a level of wealth to
[14:05] Speaker 7: disposable income for the upper half of the income distribution.
[14:09] Speaker 1: It's very powerful for consumption.
[14:11] Speaker 5: That's right.
[14:12] Speaker 7: So both consumption investment look very strong in the US.
[14:16] Speaker 7: And I think that's driving growth. Also, the administration is
[14:20] Speaker 7: a very pro business administration. They're trying to do all
[14:23] Speaker 7: kinds of things to drive growth. So I think in
[14:26] Speaker 7: that sense, I think it's not surprising that we have
[14:28] Speaker 7: a good growth environment, but inflation is somewhat too high.
[14:32] Speaker 7: So you've got the Fed stepping in with interest rate
[14:34] Speaker 7: increase at this meeting.
[14:36] Speaker 5: Right.
[14:36] Speaker 6: And just your advice on how the markets on the
[14:39] Speaker 6: communication side of the Fed.
[14:40] Speaker 4: Right.
[14:41] Speaker 6: And we know Chairman Warsh prefers not to give as
[14:45] Speaker 6: much forward guidance or not at all, depending on the case,
[14:48] Speaker 6: of course.
[14:49] Speaker 5: So how should markets interpret that?
[14:51] Speaker 7: Yeah, I think he doesn't give forward guidance, but you
[14:54] Speaker 7: still have the dot plot. And I was speculating the
[14:57] Speaker 7: dot plot might go away by now, but.
[14:59] Speaker 1: It's still there.
[15:00] Speaker 7: And the September meeting is one where the dot plot
[15:04] Speaker 7: is filled with a lot of forward guidance because it's
[15:07] Speaker 7: Talking about the end of 2026, which is only 100
[15:10] Speaker 7: days away or something. And so they, you know, the
[15:15] Speaker 7: median of the committee said, well, one more rate increase
[15:17] Speaker 7: by the end of the year. That's pretty explicit forward guidance.
[15:21] Speaker 7: Earlier in the year, you know, you've got the horizon
[15:24] Speaker 7: shortens up. I don't know if I'm communicating this right.
[15:26] Speaker 7: But as you go through the year, the horizon on
[15:28] Speaker 7: the dot plot shortens up.
[15:30] Speaker 5: That's right, because you're moving into the end of it.
[15:31] Speaker 7: I've always felt like the September meeting is a weird
[15:33] Speaker 7: meeting because you're actually giving a lot of forward guidance
[15:36] Speaker 7: here for the rest of the year.
[15:38] Speaker 5: If not explicitly all the way when you look at December.
[15:41] Speaker 7: But the chairman doesn't want to do that, and to
[15:44] Speaker 7: his credit, he stayed away from that in the press conference.
[15:47] Speaker 6: The pros and cons of giving markets larger bandwidth to
[15:51] Speaker 6: determine policy.
[15:53] Speaker 7: Yeah, I mean, I've always felt like it's a two-way street.
[15:57] Speaker 7: You've got the market side and you've got the Fed side.
[16:00] Speaker 7: And it's some combination of those two that determines interest rates.
[16:06] Speaker 7: And I think Chairman Warsh has felt like it can't
[16:08] Speaker 7: be 90% Fed, 10% markets. It should be 50% Fed, 50% markets.
[16:15] Speaker 7: And that way he can look at what the market
[16:17] Speaker 7: is saying and get some true market signal as opposed
[16:20] Speaker 7: to just looking in the mirror and seeing what the
[16:23] Speaker 7: Fed is saying. So I think that's been his story
[16:25] Speaker 7: about why he wants to lighten up a little bit
[16:29] Speaker 7: and let market signals come through.
[16:33] Speaker 5: Right.
[16:33] Speaker 6: Now, we were talking about the absolute level of yields
[16:38] Speaker 6: in the Treasury market. I think that the 10-year is
[16:40] Speaker 6: just above 5% at the moment. Does that feature into discussions.
[16:45] Speaker 5: When you're at the Fed?
[16:47] Speaker 6: In other words, at 25 basis point hike, is it
[16:50] Speaker 6: a larger hurdle if yields were higher than they were lower?
[16:54] Speaker 1: It very much feeds into the discussion.
[16:59] Speaker 7: The committee has felt that the policy rate was slightly
[17:03] Speaker 7: above the neutral policy rate, and therefore that policy was
[17:08] Speaker 7: somewhat restrictive, and therefore that inflation would come down. But
[17:14] Speaker 7: they maybe felt like they were overplaying that a little bit,
[17:17] Speaker 7: and now they want to go to a little higher
[17:19] Speaker 7: policy rate relative to the neutral rate. Chairman Warsh said
[17:23] Speaker 7: during the press conference that they had removed a little
[17:26] Speaker 7: bit of accommodation. And I think there's some confusion in
[17:29] Speaker 7: markets about that. I think he felt that, you know,
[17:35] Speaker 7: it's hard to argue that the Fed is restrictive when
[17:38] Speaker 7: you've got arguably a booming economy, low unemployment, inflation above target,
[17:44] Speaker 7: you know, equities near an all-time high. That doesn't sound
[17:49] Speaker 7: very restrictive if you.
[17:50] Speaker 1: Just look at it that way.
[17:53] Speaker 7: But traditionally, the committee has looked at the level of
[17:56] Speaker 7: the policy rate relative to some estimate of the neutral
[17:59] Speaker 7: policy rate, and the committee has usually said that they're
[18:02] Speaker 7: somewhat restrictive.
[18:03] Speaker 1: So this will be debated out here as we go forward.
[18:06] Speaker 5: Yeah.
[18:07] Speaker 6: And not to mention as well, with rates already being
[18:12] Speaker 6: this high, you're getting this massive debt boom.
[18:14] Speaker 5: I mean, you know, a lot of these hyperscalers, U.S.
[18:17] Speaker 5: tech companies.
[18:18] Speaker 6: continue to borrow, if not more money now than they
[18:22] Speaker 6: ever have. And I wonder, theoretically, do you think that
[18:26] Speaker 6: neutral rate has actually silently shifted to the point you're making?
[18:30] Speaker 6: It doesn't seem like they are restrictive given everything explicitly
[18:34] Speaker 6: that we're seeing.
[18:35] Speaker 1: Yeah, I mean, higher, faster U.S.
[18:38] Speaker 7: Growth, that would put upward pressure on the neutral rate,
[18:41] Speaker 7: but also this, the tech.
[18:43] Speaker 1: Boom and the borrowing.
[18:45] Speaker 7: Associated with that would put upward pressure. So you're certainly
[18:49] Speaker 7: seeing that in the run-up in, let's say, the 10-year
[18:53] Speaker 7: over the last decade.
[18:54] Speaker 1: Six months or so.
[18:56] Speaker 4: Sure.
[18:56] Speaker 5: So we're at 5%.
[18:57] Speaker 6: Is there a scenario in which you see the 10-year
[19:01] Speaker 6: gravitate towards 5.5%, 6%? I know those are just not
[19:05] Speaker 6: nice round numbers, but just help us understand maybe the
[19:08] Speaker 6: risks to the bond markets giving way even further.
[19:11] Speaker 7: Yeah, I think rates could go somewhat higher from here.
[19:16] Speaker 1: It'll, of course, depend on the data.
[19:17] Speaker 7: But the kinds of things that are happening, this is
[19:21] Speaker 7: kind of good news, higher rates, because it's associated with
[19:26] Speaker 7: a strongly performing economy. To the extent the Fed is
[19:30] Speaker 7: able to get inflation to come down and turn around
[19:33] Speaker 7: a little bit, that might temper the increase in the
[19:36] Speaker 7: policy rate. You've got fiscal deficits in there, which is
[19:40] Speaker 7: a big problem for the U.S.
[19:41] Speaker 1: As well.
[19:42] Speaker 7: And there doesn't seem to be much of a plan
[19:44] Speaker 7: about containing fiscal deficits and doesn't seem to even be
[19:50] Speaker 7: an issue in the midterm elections on either side of
[19:52] Speaker 7: the aisle. So I think markets are concerned about that.
[19:56] Speaker 7: And unfortunately, it doesn't look like the fiscal situation is
[20:00] Speaker 7: going to get fixed anytime soon. So that would put
[20:02] Speaker 7: upward pressure on rates, all other things equal.
[20:06] Speaker 5: And as an economist, is that something you think we
[20:08] Speaker 5: should be worried about?
[20:11] Speaker 7: Yeah, I think it'd be one thing to say I
[20:14] Speaker 7: borrowed $ 40 trillion, but I have a plan to get
[20:19] Speaker 7: it down. But you borrowed $ 40 trillion without much of
[20:22] Speaker 7: a plan and really no one even talking about a plan.
[20:27] Speaker 7: So I think that's really the thing that global markets
[20:29] Speaker 7: are looking at, scratching their heads.
[20:32] Speaker 1: I mean, the U.S.
[20:34] Speaker 7: Is a very powerful economy, has a lot of capacity,
[20:37] Speaker 7: so markets have to weigh that as well.
[20:39] Speaker 1: But still, these seem like outside fiscal deficits.
[20:43] Speaker 2: That was James Bullard, former president of the St. Louis Fed,
[20:46] Speaker 2: speaking with Bloomberg TV host David Inglis on the sidelines
[20:50] Speaker 2: of the BNP Paribas APAC Global Markets Conference, bringing you
[20:54] Speaker 2: their conversation here on the Daybreak Asia podcast. Thanks for
[21:00] Speaker 2: listening to today's episode of the Bloomberg Daybreak Asia Edition podcast.
[21:05] Speaker 2: Each weekday, we look at the stories shaping markets, finance,
[21:09] Speaker 2: and geopolitics in the Asia Pacific. You can find us
[21:12] Speaker 2: on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere
[21:16] Speaker 2: else you listen. Join us again tomorrow for insight on
[21:19] Speaker 2: the market moves from Hong Kong to Singapore and Australia.
[21:24] Speaker 2: I'm Doug Krisner, and this is Bloomberg.

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