Watching here, losses to end the week, stoxx 600 down 1. 25 . Of the major european indexes, the ftse is the biggest loser right now, down 2 . Thats because some of the heaviest stocks affected are british trading in london. Hsbc, london shares of royal dutch shell, British American tobacco, bp, all big losers, and they are very heavy, so they weigh on the ftse. It has been a banner week for equities. If you were long this week, you did quite well because we were up the past four trading. Essions it is not taking away the gains you made for the week. You can see the pound rising. This also amplifies losses on the foot. There tends to be inverse correlation between the pound and the ftse 100. And then rollsroyce. This is not the carmaker. That brand owned by bmw. ,ut the jet engine maker already troubled. It was cutting 9000 jobs it announced earlier this week, but now s p has cut rollsroyces longterm Credit Outlook two junk, and the outlook is negative, so rough for rollsroyce. Vonnie lets get to our resident fed expert, Michael Mckee. We are awaiting remarks from the fed chair jay powell, and conversation with princetons alan blinder. We will be bringing you those comments. Michael mckee is with us, and michael spoke with Loretta Mester earlier on. I would like to talk to you about about that conversation before we hear from the fed chair. It is going to be a really interesting interlook you should come alan blinder. What did you learn from Loretta Mester about what we might see from the fed and the fomc . Michael that is the question. June 10 is the next decision day for the fed. If jay powell wants to send a message, he will have to do it today. The message from Loretta Mesters we are going to do another round of Monetary Policy stimulus, but it is probably too early right now. The other thing wall street wants to know beside timing is what tools we are going to use. She suggested they will use asset purchases over guidance, which everybody has said. So then the question becomes what kind of asset purchases, and in that case, yield curve control comes up. Matt so what do you expect to hear in terms of yield curve control . Loretta mr. What Loretta Mester told us, no decision has been made. Can listen to what she had to say. Yield curve is very flat at the short end, so maybe before guidance we have given already, it is not necessary to do something to emphasize that forward guide. But i dont want to take it off the table as something that is a potential for me to think about as a possible tool. I just dont see that we needed in this space, nor do i see that we would necessarily need to use it. But if we were to use it, i would view it as a reinforcement for forward guide the short end. Vonnie so they are definitely floating the idea of at least front end curve control. Much of atext, how departure is this for one mike John Williams the new york fed for one like John Williams of the new york fed . Michael it isnt all that much different from quantitative easing in the situation we are talking about. What we are trying to do now is hold the yield curve down. The fed was using quantitative easing to pull the longterm down and push people into more risky investments. Now that they are trying to push more people into risky investments, from what lamere, mr. Said from what Loretta Mester said, they are looking more the short end. The thing is he promised to buy as many securities is necessary to push it down. If youve got credibility, you probably dont have to buy very many securities because they wont start pushing the writeup. So it could be cheaper in the long run for the fed. Matt youve spoken to Loretta Mester today, John Williams yesterday. I remember you talking to Robert Kaplan a few days ago. You spoke to rosengren a couple weeks ago. Are you just on a hot streak as an economics editor for bloomberg tv, or is the fed trying to communicate a message to the markets . Michael obviously both, matt. [laughter] im on a hot streak because im obviously the best reporter out there. No, seriously, i think the fed has embraced the idea. When i went to them, and we have interviewed just about everybody now, i suggested this is the time when people are going to want to hear from the policymakers. They are going to want some direction because this is all new to everyone. I think they have embraced that idea, not necessarily because i raised it, but the idea that you get out there and talk to your consistent wants talk to your constituents. The fed was criticized for bailing out the banks and leaving the ordinary people alone. It is hard to understand a lot of these Lending Programs. For the fed to get out there proactively and explain what they are doing is probably a good strategy for them going forward, and i think that is what they are trying to do now. Vonnie theres that, but then there is also the markets. Markets are little bit more savvy. You could say there are those that are fed watchers, that are very nuanced about what the fed says, and they want to keep an eye on what Market Participants do with regard to pricing, right . They dont want to be front run by the markets when growth begins to maybe pick up slowly. Michael thats one of the problems with Forward Guidance. If you do get a runaway train, they are a where of that. But i think the markets have a pretty good idea of where the fed is now. When we talked to the right a muster today and get the information that we are going to do another round, and it is probable not going to be in tune, i dont think anybody on the trading desk doesnt understand that. It is good to have it specifically said, but people have a goodi have a good idea of where the fed is now. It is a very good example of the secondary Market Securities program, where they were going to buy etfs. You look at where spreads were and how much they have come down to basically where we were before the crisis, and all of the companies that have been able to go to market and sell debt, and yet the fed has only bought about 3 billion of etfs. It was the announcement that the fed is there, and the market knows the fed is there, that has really driven this. Obviously in europe, we have been a negative rates land for a long time. Japan as well. Bailey england, andy recently said he is not going to rule it out. Bubbly a good move. Central banks like to keep their optionality. Does the fed actually have any optionality in this sense, or are negative Interest Rates a sickly ruled out for america . Michael they are basically ruled out. They put it in terms a little andrew baileythan did. They say we are not considering it, but we wouldnt rule it out forever. But it would take an awful lot for them to go in that direction because it hurts the banks, and we know that from europes experience. It takes profit ability away from the banks, but also hurts the financial markets. It disrupts the monetary transmission, especially in the United States because some any companies rely on the money markets, and the Money Market Funds that will loan money for overnight transactions, that if you went to negative rates and Money Market Funds were losing money on those transactions, they would stop doing them. So they are very aware of that. That is not a problem you have in europe because most financing there is not done in the capital markets, but among banks, which is one reason the banks there have complained so loudly and they had to put in the tearing system to take some of the systeme the tiering to take pressure of a banks. Theink he will be doing same of what jon ferro and i were doing. Whats next . How are you going to do it . He will probably give jay powell a chance to explain some of the Lending Programs and maybe talk about when they are going to get the main street are grim up and how that is going to work because that is a very different animal than anything the fed has done before. I think he is using the opportunity to talk philosophy. We may have a little more nerdy conversation than we sometimes do because blinder is obviously a former vice chairman of the fed. Matt and a professor. I dont want to harp on negative rates, but theres so much interest here, and a lot of european viewers are tuned in because we are getting ready for the close. Someone wrote in a question, and although you are an economist, not a lawyer, i will throw it to you. Is it legal to have negative rates in the u. S. . Im sure people have thrown it around a little bit, but have you ever heard a detailed discussion on the legality of negative rates . Michael there have been discussions, and there are two the about whether it is legal in the u. S. Are questions about whether it is legal in the u. S. , given legal activism in the United States, if the fed ever went in that direction, they would probably be challenged and there would be some sort of determination eventually made. That is another reason the fed doesnt want to do it, because they dont want to step into that thicket. They would be happy if congress thought they should do negative rates, if they wrote in an actual permission to do that in the Federal Reserve act, which they dont have. It is kind of an open question. When you have market rates go negative, that is not the problem. But that could be an issue. Vonnie what kind of central banking willie have in five years . We passed through a major crisis that entails the fed getting creative. Ben bernanke was really the beginning of it, and then janet yellen with communication and so on. What does the central bank become after this, particularly now that we have in ministry should waiting and more than ever . We have the administration weighing in more than ever . That is really the question. It will depend on a lot of things. If the ball, progress on the virus and how deeply the fed has to go further into Monetary Policy. Congress and the president and the fed think their role should be. They are working hand in glove with the treasury to part. We havent seen anything quite like that since the accord of the early 1950s. The fed stopped liking that and got out of it, and now they are sort of back in it. At some point, they are definitely going to want to get back out of that again, but then congress, it will be up to them to decide if they want a completely independent central bank. Would they prefer a central bank that works with the government . Whereey set up a system the fed isnt subject to political influence if they do that . A lot of questions. I think the only thing we know for sure is that we will have a very big Balance Sheet in five years, but how they go about Monetary Policy and how the fed fits into the u. S. Financial system, an open question. Before. ve been here huge Balance Sheet, lots of stimulus, and real concerns about inflation. Vonnie matt, i am going to jump in actually because i think we are going to get to the event itself. Here is professor alan blinder with fed chair jerome powell. I want to start with a few general questions about the fed and then get more down to some of the specific things you have been dealing with. At the general level, strange as it may seem to those in the financial world, not every american spends every minute of every day thinking about the Federal Reserve. So could you maybe start us off by talking a little bit about where and how we see the fed fitting in in the more general scheme of American Government . And while you are doing that, maybe you could reveal the secret handshake. [laughter] chair powell i would be glad to. The fed is an institution, a Great American institution, founded about 107 years ago. It is an interesting institution from the standpoint of it is sort of federated in nature. Theres a board and washington, d. C. The members are nominated by the president , confirmed by the senate, and serve long terms of 14 years, although your term as chair or vice chair, as you know, is only four years. Oft is meant to keep you out the political cycle, so they are not synced up with the political cycle, so we are supposed to operate in a very nonpolitical way. We also have 12 reserve banks around the country, and the president of those reserve banks also serve on the federal open Market Committee, which is where we set Interest Rates. Those are appointed by their private sector boards, with the accent of the board with the consent of the board. It is a way of making sure we dont have the kind of groupthink that could result from having everyone in one building in one part of the country. We instead have institutionalized for city of perspectives from all around the country. The fed is present in every community in one way or another all around the country. So we do a few things. We look after the overall stability of the Financial System, and we have tools to do that. In an Interest Rates effort to support Economic Activity when it needs support, and we supervise and regulate banks. We operate large parts of the payment system. We have a lot of different roles. All of them are meant to be undertaken in a strictly nonpolitical way that serves all americans. The last thing i will say is that we do have this precious grant of independence, as all Central Banks in Major Economies do, but with that comes the obligation of transparency and accountability, so we are directly accountable in our system of government to the oversight committees that we report to in congress, and we work very hard to keep their trust, to understand whats on their minds, to expand what we are doing, as a way for us to maintain our democratic legitimacy in a system where most of the authority is, as it should be, in elected people. As a somewhat specific followup to that, do you worry either generically, or especially these days when so much is going on, that the public markets, the congress, the white house hold exaggerated beliefs about what the federal actuallyan accomplish . Ission creep is one thing what do you thing about that . Chair powell i think we do have this precious grant of independence, and that means that we really need to stay in our lane and just do those things that congress assigns us to do. If we are going to rome all over the landscape, then we shouldnt be independent. We should be part of the elected branch of government. That means we stick to our knitting, i would say. We do have tools that can be used in the Financial System only in emergency situations, such as the Global Financial crisis of a decade ago, such as the pandemic. Nowe tools can only be used with the approval of the secretary of the treasury under statute passed by congress, under doddfrank. So we do use those tools, and they are very powerful, but they have quite a limited use, only to be used in unusual and extant circumstances, with the permission of the treasury secretary, who of course is part of the administration. So i think we need to stress, and we try to stress all the time, that we have tools that we can use, but they are not for general times. Particularly now, what i would say is the tools we are using our lending tools, not spending tools. We dont have the ability to make rants of money to particular groups of people, no matter how directly they are affected by the pandemic. That is a job for elected officials who control spending and taxation. It is not a job for appointed officials like us. So there is a need to underscore the limits of our powers, although our authorities are very strong, and at a time like this, you are seeing how strong they can be. Chair powell alan one of the ways alan one of the ways you draw a line between lending and only loans to make that be paid back. You might say, with 100 certainty, if there was such a thing in the world. That has generally been the dictum of the fed. You have been directed during the pandemic not you personally, the fed has been directed to make loans in places where the fed has not gone before. Not 100 they are guaranteed to pay back. I was talking a minute ago about Mission Creep or Mission Impossible does that kind of thing where you . Chair powell this is an emergency of a nature we havent really seen before. At the beginning of this, my colleagues and i really saw that we needed to be using our tools to their fullest extent, that it would be very hard to explain to the public why we would hold back from doing that at a time when we saw the 50 year low in unemployment turn into a 90 year high in unemployment in the space of 60 days. We saw economies around the world shutting down, and i think we felt called to do what we could. So we crossed a lot of redlines that had not been crossed before, and i am very comfortable that this is the situation in which you do that, and then you figure it out afterward. So that is how i would look at that. Alan thank you. In line with that, the fed has stood up in a very short time a veritable alphabet soup of special lending facilities, some of which look like what happened in the financial crisis, but many of which look very different from that. Can you give us a sense institutionally of how that was passed . To not sleeping much in march. I can sympathize with that. But can you give us a sense of how different and difficult it was for the institution . Anir powell i think it is extra ordinary institution. We are lucky to have a large number of highly dedicated, highly capable people, many of whom were here and lived through the Global Financial crisis