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00:00, CHAIRMAN, JPMORGAN CHASE BANK. AS ALWAYS, THANK YOU FOR GIVING US YOUR TIME. I THINK WHEN YOU LOOK AT EMERGING MARKETS AND THE ROUTE WE SAW, SHOULD THAT INFLUENCE THE FED AND OTHER CENTRAL BANKS TO ACTUALLY HOLD TIGHT AND WATCH WHAT IS HAPPENING IN EMERGING MARKETS BEFORE HIKING RATES? JACOB: WE WILL WATCH VERY WELL WHAT IS GOING ON, BUT I MUST SAY THE PRIMARY OBJECTIVE OF THE VARIOUS CENTRAL BANKS IN THE INDUSTRIAL WORLD WILL MAKE SURE THEIR ECONOMIES ARE STABLE AND GROWING, AND IN FACT, THIS IS THE BEST WAY THEY CONTRIBUTE TO THE EMERGING MARKETS. ONE OF THE DANGERS IN EMERGING MARKETS IS CAPITAL FLOWS , AND PROBABLY NOT ALWAYS READY TO DEAL WITH THESE FLOWS IN APPROPRIATE WAYS. I THINK THERE ARE TWO SCENARIOS, TURKEY AND ITALY, THEY WILL BE CONTAGIOUS, AND THE REST WILL BE LIKE A DOMINO EFFECT. WE SHOULD LEVERAGE IT IN THE OPPOSITE WAY, AND SAY, WHY ARE THINGS SO BAD TODAY IN TURKEY? WHY IS THERE A PROBLEM IN BRAZIL? WHY ARE THE PROBLEMS IN OTHER PLACES? PRIMARILY, IT IS DOMESTICALLY CREATED. IT IS IRRESPONSIBLE POLICIES. I THINK ONCE WE LOOK AT IT THIS WAY, WE HAVE AN AGENDA HOW EMERGING MARKETS SHOULD IMITATE OTHER EMERGING MARKETS THAT IS DIFFERENT FROM THAT. I THINK EMERGING MARKETS ARE NOT A MONOLITHIC GROUP, AND THEY SHOULD STRENGTHEN THEIR DOMESTIC INSTITUTIONS. FRANCINE: WHEN YOU LOOK AT WHAT THE FED 10 DO NEXT, HIKING RATES, SHOULD THEY BE THE CENTRAL BANK TO THE WORLD? OR SHOULD THEY FOCUS ON THE U.S. ECONOMY? THIS IS A DOLLAR STRENGTH STORY HURTING EMERGING MARKETS. JACOB: THE U.S. IS THE MOST IMPORTANT CENTRAL BANK OF THE WORLD, AND THEREFORE THEY ARE VERY CAREFUL, PRUDENT, AND RESPONSIBLE. SHOULD THE U.S. CONTINUE IN RAISING RATES? THE ANSWER IS ABSOLUTELY YES. THE REASON IS WE HAVE NOT SEEN SUCH A PERFORMANCE IN THE U.S. FOR MANY YEARS. WE MAY COME TO A LATER, BUT I CAN SAY THE U.S. ECONOMY IS SUFFICIENTLY STRONG AND ROBUST TO JUSTIFY THE NEXT MOVE ON RATES. FRANCINE: TODAY IS ALSO U.S. JOBS DAY AND WE WILL SEE IF THE STRENGTH HOLDS. IF YOU LOOK AT THE FED CYCLE, THERE IS A CONCERN THAT A TAX CUT EFFECT IN THE U.S. DROPS OFF A CLIFF IN A COUPLE OF YEARS. DO YOU WARY THAT THE U.S. ECONOMY CAN SUDDENLY TURN? JACOB: THE U.S. ECONOMY WILL TURN, BUT IT WILL NOT BE SUDDENLY. IT IS IMPORTANT WHAT HAPPENS BETWEEN NOW AND THEN. THE RECOVERY HAS BEEN A LONG TIME IN THE MAKING, AND IT IS VERY ROBUST. THE JOB MARKET IS EXTREME A POSITIVE. INFLATION EVEN REACHES THE OBJECTIVE OF THE FED, AND THEREFORE, YES, WE ARE AT A LOW INTEREST RATE RELATIVE TO WHERE WE SHOULD BE. BY THE SAME TOKEN, WHEN INTEREST RATES RISE, OF COURSE IT WILL CREATE SOME NEGATING AFFECT. BUT THE FED NEEDS TO PREPARE AMMUNITION FOR THE NEXT TURNAROUND. AT THE PRESENT TIME, INTEREST RATES ARE TOO LOW TO ENABLE IT, TO DEAL WITH THE NEXT CRISIS EVEN WHEN IT COMES. THAT IS WHY IT WILL BE PRUDENT TO RAISE INTEREST RATES. FRANCINE: SHOULD THE FED WORRY ABOUT AN INVERTED YIELD CURVE? AND DO WHAT THEY CAN TO STOP IT FROM HAPPENING? JACOB: EVERYTHING IN THEIR POWER IS NOT THE RIGHT THING TO DO. WHAT THE FED SHOULD DO IS DO EVERYTHING IN THEIR POWER TO ACHIEVE ITS OBJECTIVE. THE YIELD CURVE IS NOT AN OBJECTIVE FOR THE FED. THE YIELD CURVE IS A MANIFESTATION OF THE STATE OF THE ECONOMY, BUT THE FED OPERATES ON THE SHORT RUN. IT WILL AFFECT THE LONG RUN TO EXPECTATIONS, AND THAT IS WHY THE STEADY AS YOU GO APPROACH, AND THE TRANSPARENCY IS SO IMPORTANT. THAT IS THE WAY THE FED CAN BROADCAST THE LONG RUN INTO THE SHORT-TERM. FRANCINE: IN THE PAST, EVERY TIME YOU PREDICTED A RECESSION, AND INVERTED YIELD CURVE, IT HAS BEEN ACCURATE OF AN IMPENDING SLOWDOWN. WILL THIS TIME BE DIFFERENT? JACOB: I'M NOT SURE, AND I AM A SURE I WOULD CALL IT A RECESSION, BUT I AM CONFIDENT THAT THE CURRENT PERFORMANCE OF ECONOMIC GROWTH IS NOT GOING TO SUSTAIN ITSELF WITH THE CURRENT FUNDAMENTALS. WE HAVE AN ISSUE OF LONG-TERM BUDGET TATION, AND LONG-TERM DECK WILL COME BACK TO HAUNT US. ON THE SUPPLY SIDE, THE REACTION IN THE CORPORATE TAX RATES, THE REPATRIATION OF THE OIL INVESTMENT, THE DEREGULATION,

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JPM's Frenkel Says 'Absolutely, Yes' U.S. Should Continue Hiking Rates

Jacob Frenkel, chairman at JPMorgan Chase International, discusses his concerns about emerging markets and why the U.S. economy allows the Federal Reserve to continue hiking interest rates. He speaks with Bloomberg's Francine Lacqua from the Ambrosetti Forum in Cernobbio, Italy on "Bloomberg Surveillance." (Source: Bloomberg)

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