JPMorgan's Bob Michele Talks US Economy Amid Iran War
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News. We are thrilled to bring you Bob Michael, Global Head of Fixed Income, JPMorgan Asset Management. The real yield out of 2.11%. I haven't done a standard deviation study. When does a higher real yield impinge on the American economy and on industry in America?
Well, I would argue right now it's already starting to have an impact because it was only a week ago that we came out of the FOMC meeting expecting a couple rate cuts, and you looked at the labor market. That was their primary concern for good reason. It seemed a bit soft. Now you're paying a lot more to fill up your automobiles, and if you're a business, your input cost for energy has gone up. I would say it's having an impact right about now.
If that is the case, certainly for a lot of folks, they're starting to feel it. How does the Fed react to that? There's really not a whole lot they can do, is there?
I think the problem is at these levels, there's no obvious solution because even ourselves with $100 oil, we don't see recession. We see growth slowing down a lot from where we had it, inflation going up a little bit. Then they just have to wait and see what cracks first. Does the labor market come under a lot of pressure and unemployment go up? Or do they see energy prices pass through to finished goods and services and consumers still buying and demanding wage price spirals?
David Rosenberg in Toronto publishes moments ago, Rosenberg Research, quote, still no market panic in equities, even with a VIX out of 29.53. How do you measure and is there panic in the Bob Michael world? I mean, price down, yield up. How does it, you know, equity panic? How does that work in the bond space?
Well, there are also volatility indicators in the bond market, and they've actually been muted. So it's been a surprisingly orderly sell-off, a little bit at a time, a lot of confidence that you have an administration looking for an off-ramp. They'll find one. They watch the markets. They know the midterm elections are coming up soon. They have to figure out how to extricate themselves from the Middle East. And that's what the market's hanging its hat on.
So the Fed has a little bit of leeway, the U.S. economy. We are a net exporter of oil. But boy, I guess we're all learning how exposed other parts of the world are to this pinch in Mideast oil. How do you expect other central banks around the world to react here?
It's strange, right, because this all started with us being told that 20% of oil passes through the Strait of Hormuz. So you say, okay, $60 a barrel, let's go to $72 a barrel, maybe a little premium in there, you're up at $80. not you're going to write to a hundred and hanging out there and expectations I saw one could be two hundred dollars I think that's a bit extreme I think by the time you get to 120 to 150 you'll create a tremendous amount up demand destruction I'm so it's bit puzzling that you're there
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