Instant Reaction: Jay Powell on Fed Policy

Bloomberg Audio Studios, podcasts, radio. 0:00:06.400 --> 0:00:09.560 News, the Chairman of the Federal Reserve to rump out, 0:00:09.600 --> 0:00:12.520 wrapping up the June FED decision. No change at the 0:00:12.560 --> 0:00:16.200 Federal Reserve to interest rates, Plenty of changes in the forecast. 0:00:16.320 --> 0:00:19.120 Inflation moving up a little bit, the dot plot moving 0:00:19.200 --> 0:00:21.640 down a little bit. Equity market is just about holding 0:00:21.680 --> 0:00:23.720 onto gains and still near all time highs on the 0:00:23.800 --> 0:00:26.040 S and P five hundred on the NASDAK we're still 0:00:26.079 --> 0:00:28.480 highed by one point eight percent, the rustle up by 0:00:28.520 --> 0:00:30.479 two point two. We turn the page and switch at 0:00:30.520 --> 0:00:31.920 the board and get to the bond market. This is 0:00:31.920 --> 0:00:34.840 where things start to get. Interestings we're down by double 0:00:34.880 --> 0:00:37.200 digits at the front end throughout most of the morning 0:00:37.400 --> 0:00:39.760 and into the afternoon. We're now down by only nine 0:00:39.880 --> 0:00:42.360 on a two year at four seventy four fifty five. 0:00:42.520 --> 0:00:44.600 And if you take an inter day chart of the 0:00:44.640 --> 0:00:46.800 two year yield, this shows the story of the morning 0:00:46.800 --> 0:00:49.800 and the afternoon perfectly. I want to show you three moves. 0:00:49.840 --> 0:00:52.400 The first move was eight thirty Eastern time this morning 0:00:52.440 --> 0:00:55.880 when CPI came out cooler that expected what you see 0:00:55.920 --> 0:00:58.520 on yields drop easy to see on the far right 0:00:58.560 --> 0:01:00.280 side of the chart. Two moves I want to points 0:01:00.320 --> 0:01:02.800 out once at two pm. Another is in the news 0:01:02.800 --> 0:01:05.840 conference at two pm. We had some forecasts. The dot 0:01:05.880 --> 0:01:07.720 plot came out and we all wanted to know where 0:01:07.720 --> 0:01:10.520 the median dot would be in March. It signored or 0:01:10.560 --> 0:01:13.319 at least implied three cuts for twenty twenty four. That 0:01:13.360 --> 0:01:15.960 came down to one. You'll started to climb, and then 0:01:15.959 --> 0:01:18.040 we all had a big question going into the news conference. 0:01:18.040 --> 0:01:20.120 We'll hang on a minute. Did they factor in the 0:01:20.120 --> 0:01:23.600 inflation report that came out this morning? And obviously, inevitably 0:01:23.880 --> 0:01:26.120 Chairman Power was asked about it. This is what he 0:01:26.200 --> 0:01:26.960 had to say. 0:01:28.080 --> 0:01:31.280 What's in the SEP actually does reflect the data that 0:01:31.319 --> 0:01:33.560 we got today to the extent you can, you know, 0:01:33.640 --> 0:01:36.360 reflect it in one day. I think, well, you know, 0:01:36.520 --> 0:01:39.399 you will see PPI tomorrow. Will know more about the 0:01:39.440 --> 0:01:42.440 PCEE reading as the month goes on, but the initial 0:01:42.480 --> 0:01:45.080 CPI reading and it's you know, kind of first level 0:01:45.120 --> 0:01:48.840 translation to pce we did have this morning. We were 0:01:48.840 --> 0:01:52.040 briefed about it and people were able to consider whether 0:01:52.040 --> 0:01:53.400 they should make changes, and. 0:01:53.320 --> 0:01:55.560 It didn't look like many people made any changes at least, 0:01:55.640 --> 0:01:57.400 and for that reason, that's why you see that spike 0:01:57.440 --> 0:01:59.480 car that little move high again on a two year 0:01:59.520 --> 0:02:03.040 yield que The confusion around the forecasts, well, is this. 0:02:03.040 --> 0:02:05.440 By design in some levels? Basically, there were a number 0:02:05.680 --> 0:02:09.480 of Fed officials who got that CPI print and opted 0:02:09.520 --> 0:02:11.960 not to change their inflation forecast. Do they do so 0:02:12.080 --> 0:02:14.839 because they want more than three inflation reads to really 0:02:14.840 --> 0:02:18.080 gain confidence in some sort of disinflationary trend? Is it 0:02:18.120 --> 0:02:20.920 because all things being equal, it's better to send a 0:02:20.960 --> 0:02:24.120 hawkish signal to markets that are eagerly looking for any 0:02:24.200 --> 0:02:26.880 opening to buy into any idea of a rate cut. 0:02:27.080 --> 0:02:29.359 All we know is that that was a slight disappointment 0:02:29.400 --> 0:02:31.760 that's being reflected in slightly higher yields that have taken 0:02:31.800 --> 0:02:33.760 back about five basis points from earlier this morning. 0:02:33.800 --> 0:02:35.639 There's always going to be a big conversation about where 0:02:35.680 --> 0:02:38.079 the medium dot is. But when these numbers came out, 0:02:38.120 --> 0:02:40.360 you were the first to point this out. The split 0:02:40.400 --> 0:02:42.920 amongst the policy makers now swear TK Just to go 0:02:42.960 --> 0:02:45.240 through this again for those of you just joining us, 0:02:45.240 --> 0:02:47.400 this is what we saw get away from the media 0:02:47.520 --> 0:02:49.560 on the committee right now. The dot plot shows four 0:02:49.560 --> 0:02:53.079 policy makers who saw no cuts this year, some anticipated 0:02:53.200 --> 0:02:57.120 just one reduction, that was seven and expected tom two cuts. 0:02:57.160 --> 0:02:59.480 The Federal Reserve is kind of all over the place. 0:03:00.000 --> 0:03:02.840 Created and what's important here is the dispersion is not smooth. 0:03:02.960 --> 0:03:06.200 So there's basically two camps. I thought Lukawa, of all people, 0:03:06.240 --> 0:03:08.560 had a wonderful tweet out and that's really pointing out 0:03:08.600 --> 0:03:10.920 the polarity that we see in the Fed as we 0:03:10.960 --> 0:03:11.959 staggered through the summer. 0:03:12.000 --> 0:03:13.359 I want to pick up on the labor market and 0:03:13.400 --> 0:03:16.360 talk a little bit about that. So on Friday, payrolls 0:03:16.360 --> 0:03:18.480 came in and it looked really hot on the headline 0:03:18.560 --> 0:03:21.239 number two seventy two. But there's two surveys that go 0:03:21.280 --> 0:03:25.200 into payrolls. There's the Establishment survey payrolls. There's the household 0:03:25.240 --> 0:03:28.160 survey that's the unemployment rate. Unemployment came up to about 0:03:28.160 --> 0:03:30.720 four percent. We all wanted to know what weight would 0:03:30.720 --> 0:03:32.680 shairman Power put on the headline figure and how much 0:03:32.720 --> 0:03:35.240 weight would he put on the household survey, and it 0:03:35.320 --> 0:03:38.160 kind of said something like this, Sometimes it's difficult to 0:03:38.200 --> 0:03:42.000 reconcile the differences. Payrolls might be a little bit overstated. 0:03:42.320 --> 0:03:44.320 Makes more sense to look at things over the last 0:03:44.360 --> 0:03:47.040 six months or so, Lisa. Overall, the picture is strong, 0:03:47.720 --> 0:03:49.960 and we've got a gradually calling labor market. 0:03:50.280 --> 0:03:52.920 People really honed it on the idea that the payroll 0:03:53.040 --> 0:03:56.280 jobs growth maybe overstated. That line caught a lot of 0:03:56.280 --> 0:03:59.760 people's attention at a time where he reflected the confusion 0:03:59.800 --> 0:04:01.920 that we all felt, which is the reason why some 0:04:01.960 --> 0:04:04.280 people said, we don't believe these numbers. Will wait for 0:04:04.280 --> 0:04:06.840 the revisions. Nonetheless, this is why he's talking about a 0:04:06.920 --> 0:04:09.920 series of data points, and maybe is part of the 0:04:09.960 --> 0:04:13.040 reason why they aren't having much conviction, because this is 0:04:13.080 --> 0:04:14.760 just sheer confusion that we're feeling from the feed. 0:04:14.800 --> 0:04:16.520 Do you remember when Dan Swank used to talk about 0:04:16.560 --> 0:04:19.640 aspirational forecasts of the FETA reserve. Let's have a look 0:04:19.640 --> 0:04:22.800 at unemployment together. Four percent on Friday. This is where 0:04:22.800 --> 0:04:25.840 they see it. Year end medium projection four percent, year 0:04:25.920 --> 0:04:29.200 end twenty four four point two percent, year end twenty 0:04:29.240 --> 0:04:32.279 five at LISA year end twenty twenty six, four point 0:04:32.360 --> 0:04:35.400 one percent. Now, I understand the Fetter Reserve has a 0:04:35.440 --> 0:04:39.360 great influence on things. They can shape the events they anticipate. 0:04:39.400 --> 0:04:41.720 If they start to signal the unemployment's kind of five percent, 0:04:41.720 --> 0:04:43.200 we've got a problem, and I think you see the 0:04:43.240 --> 0:04:47.000 market freak out. But to signal, based on your own projections, 0:04:47.000 --> 0:04:49.560 that we finish basically flat from where we are unemployment 0:04:49.560 --> 0:04:52.000 by year end and climb to four point two by 0:04:52.240 --> 0:04:55.440 twenty twenty five, is that aspirational or realistic? 0:04:55.720 --> 0:04:57.880 You know, we said a lot of their projections were 0:04:57.880 --> 0:05:00.960 aspirational a year or two years ago, and yet they 0:05:00.960 --> 0:05:04.320 were correct. So I'm humble to sit here and say 0:05:04.320 --> 0:05:06.960 that they're just purely aspirational. And we have not seen 0:05:07.000 --> 0:05:09.840 the unemployment rate climb to such a significant degree, and 0:05:09.880 --> 0:05:13.559 they've actually had to decrease their expectation for unemployment rates 0:05:13.640 --> 0:05:16.599 just simply because the labor market was stronger than they expected. Now, 0:05:17.080 --> 0:05:20.960 I would argue that the idea of upgrading their expectation 0:05:21.120 --> 0:05:23.880 for inflation and keeping the same number of cuts, just 0:05:23.920 --> 0:05:26.760 pushing them back to a later time raises some questions, 0:05:26.800 --> 0:05:29.520 And this was ask the press conference. How did they 0:05:29.720 --> 0:05:32.240 accept that, given that they don't see the labor market 0:05:32.279 --> 0:05:34.400 breaking and that they want to get back down to 0:05:34.440 --> 0:05:37.000 two percent, how do we cross how do we thread 0:05:37.040 --> 0:05:39.400 that needle? And that's a good question that I didn't 0:05:39.400 --> 0:05:40.159 really hear an answer to. 0:05:40.160 --> 0:05:41.840 You want McKays run out of the news conference and 0:05:41.880 --> 0:05:43.839 got in front of the camera for us, Mike, let's 0:05:43.880 --> 0:05:46.320 catch out with you, Chairman Pow. Did he manage to 0:05:46.320 --> 0:05:48.320 square the circle in that news conference? 0:05:49.880 --> 0:05:52.919 Not really, John. I was thinking during this of the 0:05:53.240 --> 0:05:55.960 line from the old movie Blazing Chaddles where the preacher says, 0:05:56.200 --> 0:05:59.000 you're on your own boys, because there doesn't seem to 0:05:59.000 --> 0:06:02.039 be any kind of direction here from the FED about 0:06:02.040 --> 0:06:05.200 which way they're going to go and when they're still 0:06:05.360 --> 0:06:07.800 base their base cases. I mentioned in my question to 0:06:07.839 --> 0:06:10.000 the chairman is that they're going to cut rates this year, 0:06:10.279 --> 0:06:12.280 but they don't see any difference at the end of 0:06:12.320 --> 0:06:15.760 the year between the economy now and the economy then. 0:06:16.279 --> 0:06:20.440 So how are investors supposed to anticipate what the FED 0:06:20.560 --> 0:06:23.960 is going to do if the FED doesn't know and 0:06:24.360 --> 0:06:27.839 can't give you any guideposts. The Chairman said, well, we 0:06:27.920 --> 0:06:32.560 need a couple more reports that show things improving, but 0:06:32.960 --> 0:06:37.640 what is improvement? Last month we saw the CPI changed 0:06:37.680 --> 0:06:40.320 by about a tenth of a point and the PCE 0:06:40.720 --> 0:06:42.560 changed by about a tenth of a point, and Chris 0:06:42.600 --> 0:06:44.719 Waller said, well that's not good enough. I give those 0:06:44.800 --> 0:06:48.880 reports a C plus. So it's really hard to tell 0:06:49.000 --> 0:06:52.640 what's going to move them Obviously he's sort of signaling 0:06:52.720 --> 0:06:56.720 not July, but from September on. It's an open question. 0:06:57.080 --> 0:07:01.760 Mike. They want the convenience of a dramatic ex post decision. 0:07:02.520 --> 0:07:05.320 Maybe that's not what the way the script goes this time. 0:07:05.760 --> 0:07:09.840 What will you watch in the data that allows them 0:07:09.880 --> 0:07:13.280 to get out front is they've never done before, well 0:07:13.280 --> 0:07:16.520 maybe the nineties, but basically that they've never done before. 0:07:17.760 --> 0:07:19.600 Well, basically you want to see what they want to 0:07:19.640 --> 0:07:24.520 see an improvement in inflation data. But how much is 0:07:24.840 --> 0:07:26.880 going to be the tricky part. We'll have to watch 0:07:27.200 --> 0:07:29.960 both what the market reaction is and what the data show, 0:07:30.040 --> 0:07:33.400 and then what they say in their speeches. At the 0:07:33.400 --> 0:07:36.440 same time, we will also be looking at the unemployment 0:07:36.520 --> 0:07:38.920 rate and job creation to make sure things don't go 0:07:39.080 --> 0:07:44.040 south there. Either one might push them one direction or another. 0:07:44.840 --> 0:07:47.640 I think that at this point they're going to be 0:07:47.680 --> 0:07:51.600 as cautious as possible, but they do seem determined to 0:07:51.600 --> 0:07:52.880 get at least one cut in. 0:07:53.480 --> 0:07:56.480 Mikeel A lot of people were asking, including both Muhammada 0:07:56.520 --> 0:08:00.440 and Bob Michael, whether the finficials really under stood the 0:08:00.480 --> 0:08:04.080 CPI data and kept their projections. We got kind of 0:08:04.080 --> 0:08:06.560 an answer but Sima Sha put it this way. You know, 0:08:06.720 --> 0:08:09.920 if they did know that, maybe that implies that they 0:08:09.960 --> 0:08:13.400 need more than three months of softer inflation prints before 0:08:13.440 --> 0:08:16.000 they can be convinced to cut rates. Do we have 0:08:16.120 --> 0:08:19.080 any clear message from the idea that yes, FED officials 0:08:19.160 --> 0:08:21.680 had the information, and yes they had the chance to 0:08:21.760 --> 0:08:24.440 change their forecasts, and no they did not. 0:08:24.480 --> 0:08:24.920 Do it. 0:08:26.600 --> 0:08:26.880 Well. 0:08:26.960 --> 0:08:30.520 The chairman suggested that some people may have changed their forecast, 0:08:30.600 --> 0:08:35.440 but the majority didn't. It's not going to be extending 0:08:35.480 --> 0:08:40.319 the number of inflation data that they get. It's going 0:08:40.400 --> 0:08:42.720 to be more of the same that we saw today. 0:08:43.160 --> 0:08:45.840 Doesn't have to be maybe the same magnitude, but it 0:08:45.880 --> 0:08:50.120 has to be a continued sequence of slowing inflation for 0:08:50.200 --> 0:08:54.720 them to gain confidence. That's their magic word is confidence. 0:08:54.760 --> 0:08:56.960 And they don't tell us what would give them confidence, 0:08:57.320 --> 0:09:00.320 but it seems like several more, one or two more 0:09:00.400 --> 0:09:03.880 maybe would give them the confidence that they could start 0:09:04.240 --> 0:09:05.680 moving towards cutting rates. 0:09:06.000 --> 0:09:09.240 Mike, you're expert at the data far more than i am. 0:09:09.360 --> 0:09:12.560 If you look at domestic final sales, take out the 0:09:12.600 --> 0:09:16.040 noise of trade, the world's agony, etc. If you look 0:09:16.080 --> 0:09:18.880 at domestic final sales, what's the run rate? On the 0:09:18.920 --> 0:09:21.800 economy that they're going to be dealing with to July 0:09:21.920 --> 0:09:27.880 thirty one, September eighteenth, and near the election November seventh, well, we. 0:09:27.760 --> 0:09:30.439 Were still in that area. Tom two point eight percent 0:09:30.480 --> 0:09:34.319 in the first quarter, still well above trend growth for 0:09:35.080 --> 0:09:39.160 that and the Atlanta Fed GDP now is running above 0:09:39.240 --> 0:09:42.480 three percent. If you take that one and you take 0:09:42.520 --> 0:09:45.000 the first quarter GDP at average them, you're at two 0:09:45.040 --> 0:09:49.920 point two percent for the first half. So they're going 0:09:50.000 --> 0:09:51.760 to be dealing with and they predict they're going to 0:09:51.800 --> 0:09:54.480 be dealing with an economy that doesn't slow down at 0:09:54.480 --> 0:09:58.679 this point and doesn't affect the labor market at this point. 0:09:58.760 --> 0:10:01.679 And the interesting thing is they see core PCE inflation 0:10:01.800 --> 0:10:05.360 going up, but they're still talking about raising rates or 0:10:05.400 --> 0:10:09.160 cutting rates rather. So it's it's a situation that kind 0:10:09.160 --> 0:10:12.040 of leaves everybody at sea here as to what it 0:10:12.120 --> 0:10:15.439 is they're actually going to do. If they want to advertised, 0:10:15.679 --> 0:10:20.000 listen to our speeches. This is a good advertisement for that. 0:10:20.280 --> 0:10:22.719 Yeah, Mike, I'm not sure if that one bites. Let's say, 0:10:22.720 --> 0:10:24.839 if that works. Mike McKay, thank you, sir, great work 0:10:25.040 --> 0:10:28.040 As always in the news conference. Once again, this is 0:10:28.080 --> 0:10:30.360 the calendar for the next month or so. So July fifth, 0:10:30.400 --> 0:10:32.320 you get another jobs report. Let's see if it looked 0:10:32.320 --> 0:10:34.600 like the one we got on Friday, July eleventh. You've 0:10:34.640 --> 0:10:37.120 get a CPI report back end of July, very last 0:10:37.200 --> 0:10:40.760 day of the month, July thirty one, another Federal Reserve decision. 0:10:40.880 --> 0:10:42.800 No questions really about July, Lisa, but I guess it 0:10:42.800 --> 0:10:45.040 was implied based on the forecast we got a little 0:10:45.040 --> 0:10:45.520 bit earlier. 0:10:45.720 --> 0:10:48.360 Basically, it seems like July is squarely off the table. 0:10:48.400 --> 0:10:51.480 It was not even an consideration September though. J. Pewell 0:10:51.559 --> 0:10:54.719 didn't even entertain that idea. He kind of hemmed, in hard, 0:10:54.760 --> 0:10:57.120 I don't want to talk about timeframes. I don't we 0:10:57.120 --> 0:10:59.719 don't want to be like, you know, squirred in give it. 0:11:00.000 --> 0:11:01.200 I would have a suppression of it. 0:11:01.320 --> 0:11:04.480 Well, I meaning again, honestly, that was exactly what he 0:11:04.640 --> 0:11:06.680 needed to do, right, Wasn't that kind of the goal 0:11:06.720 --> 0:11:08.840 that Bob Michael set out for him was to do nothing? 0:11:09.080 --> 0:11:11.120 I mean, if anything, he had the most hawkish message 0:11:11.120 --> 0:11:13.160 relative to market expectations. 0:11:12.559 --> 0:11:13.240 In a long time. 0:11:13.320 --> 0:11:15.600 So it was somewhat of a different Ja Powell than 0:11:15.600 --> 0:11:18.240 we've gotten in the past. But you know, he wouldn't 0:11:18.320 --> 0:11:21.960 really solidify anything, and that I think was by design 0:11:22.080 --> 0:11:23.040 given their confusion. 0:11:23.160 --> 0:11:26.440 I think emphasis really matters in news conferences. Of course 0:11:26.880 --> 0:11:29.600 it matters. It's pretty straightforward. It's where he didn't put 0:11:29.640 --> 0:11:32.080 the emphasis. He didn't really put much emphasis on the 0:11:32.080 --> 0:11:35.280 forecast for economic growth, on employment or inflation. Where he 0:11:35.320 --> 0:11:38.680 actually put emphasis was on the destination for the FED dots. 0:11:38.679 --> 0:11:40.559 And I thought it was pretty interesting. So we were 0:11:40.559 --> 0:11:42.800 all sort of geared up to focus on twenty twenty four. 0:11:43.240 --> 0:11:45.440 Would the dot plot, the median dot come down from 0:11:45.480 --> 0:11:48.080 three to two, maybe to one? It comes down to one, 0:11:48.280 --> 0:11:50.040 but then you're looking out to twenty twenty five and 0:11:50.040 --> 0:11:52.280 they give you one back, so they take two away 0:11:52.520 --> 0:11:54.800 and then throw an extra one in in twenty twenty five. 0:11:54.880 --> 0:11:56.920 So really, today, when you look at the dot plot 0:11:56.920 --> 0:12:00.480 the OTTOMN destination, what's changed for the FMC incens to 0:12:00.520 --> 0:12:01.640 topoth the rights from Haya. 0:12:02.000 --> 0:12:05.320 Basically that just the disinflationary trend is happening more slowly 0:12:05.360 --> 0:12:08.160 than they previously thought, but that at some point they 0:12:08.160 --> 0:12:11.000 will have this same trajectory, just on a delayed timeframe. 0:12:11.240 --> 0:12:13.560 And that was essentially what Ja Powell laid out today 0:12:14.000 --> 0:12:16.400 and maybe on the margins that's a bit more hawkish 0:12:16.520 --> 0:12:17.760 than the two year was pricing them before. 0:12:17.800 --> 0:12:20.800 I'm going to go to modest further progress. Modest is 0:12:20.840 --> 0:12:23.120 on the yactis. I have no idea what it means. 0:12:23.200 --> 0:12:26.440 Further in progress, John, is exactly what you were talking about, 0:12:26.880 --> 0:12:30.000 which is what they're doing here, is they're extending out 0:12:30.040 --> 0:12:36.560 the optionality of their timeline. Their ex exis. Because your point, Lisa, 0:12:37.120 --> 0:12:42.280 this disinflation. It is slower. David Rosenberg not the next Rosenberg. 0:12:42.600 --> 0:12:46.360 David Rosenberg says eureka. But what they did today was 0:12:46.400 --> 0:12:51.320 extend out the X axis with further progress. That's not 0:12:51.400 --> 0:12:53.680 in any textbooks. That's marketing bologney. 0:12:53.679 --> 0:12:55.920 As far as i'm we can get to Jeff Rosenberg 0:12:56.160 --> 0:12:58.080 right now as Blackrock, Jeff want to put a catch 0:12:58.160 --> 0:13:00.240 up with you, sir. Let's get into it. How did 0:13:00.280 --> 0:13:02.360 you make these forecasts? And can you square the circle 0:13:02.440 --> 0:13:02.839 for us? 0:13:04.480 --> 0:13:06.280 You know, I agree with Lisa, it's a little bit 0:13:06.280 --> 0:13:09.360 hard to square the circle here from the press conference. 0:13:09.360 --> 0:13:13.000 I mean, obviously, the morning's data set the tone for 0:13:13.080 --> 0:13:17.920 a very douvish press conference, and the one hike Median 0:13:18.080 --> 0:13:20.200 kind of took the wind out of the sails and 0:13:20.360 --> 0:13:22.640 so the so Powell was kind of faced with that 0:13:22.760 --> 0:13:24.880 as the as the backdrop, and so it was maybe 0:13:24.920 --> 0:13:27.839 a little bit less of the dubbish Powell than we've 0:13:27.840 --> 0:13:29.400 seen in the past. But I think he did give 0:13:29.480 --> 0:13:32.920 us a couple of insights. One, he did talk about 0:13:33.520 --> 0:13:37.400 the overstatement argument on payrolls, you know, a little bit 0:13:37.440 --> 0:13:38.839 to last week's data. 0:13:38.880 --> 0:13:42.479 Two, you know, he talked about two point six two point. 0:13:42.240 --> 0:13:44.880 Seven as being I can't remember exactly the quote a 0:13:44.920 --> 0:13:47.680 fine place to be. And I think that does reveal 0:13:47.840 --> 0:13:49.600 that this is a FED that doesn't have to get 0:13:49.640 --> 0:13:52.440 to two percent anytime soon, and that's part of this 0:13:52.480 --> 0:13:56.360 asymmetric response function. If inflation is a little bit too hot, 0:13:56.760 --> 0:13:59.920 then we'll just hold pat and if there's weak in 0:14:00.280 --> 0:14:03.439 the labor markets or any kind of unexpected weakening, then 0:14:03.480 --> 0:14:06.040 we're going to cut, and we'll cut more aggressively. And 0:14:06.080 --> 0:14:09.520 so I think they're comfortable with this path of inflation. 0:14:09.920 --> 0:14:11.720 And then I think on the third point, there's just 0:14:11.760 --> 0:14:15.520 a bit of confusion about how stale are the SEP 0:14:15.720 --> 0:14:19.280 forecast relative to the new information from the morning. I 0:14:19.280 --> 0:14:21.840 think what is clear here is that having. 0:14:21.600 --> 0:14:23.440 Been a little bit burned by. 0:14:23.720 --> 0:14:26.680 The enthusiasm at the end of last year and then 0:14:26.800 --> 0:14:30.120 the reversal on inflation. They're not going to want to 0:14:30.160 --> 0:14:33.760 reverse so quickly with just one good print, and he 0:14:33.920 --> 0:14:37.360 stated again and again they'll need more than just one. 0:14:37.400 --> 0:14:39.680 And I think that's why you had maybe the hesitancy. 0:14:39.880 --> 0:14:43.040 But understand that the difference between two cut and one cut. 0:14:42.880 --> 0:14:45.960 Median is one member. This is a very fine. 0:14:45.680 --> 0:14:48.840 Point to be seeing, you know, pretty big shifts in 0:14:48.920 --> 0:14:52.040 market pricing. I think the broader theme here is this 0:14:52.120 --> 0:14:54.960 is still a FED that is looking to cut rates, 0:14:56.120 --> 0:14:59.680 very supportive to financial markets. Obviously the data this morning 0:14:59.720 --> 0:15:02.360 is portive to that, a little bit dismissive about the 0:15:02.400 --> 0:15:04.000 strength of the labor market. So I think this is 0:15:04.000 --> 0:15:06.360 a pretty good set up here for bonds and stocks. 0:15:06.720 --> 0:15:09.040 Does this mean in your view that September is still 0:15:09.120 --> 0:15:12.200 very much on the table, even if Fetcher Powell really 0:15:12.200 --> 0:15:14.400 demurred when it came to a timeframe. 0:15:15.600 --> 0:15:16.520 I do think it is. 0:15:16.560 --> 0:15:19.760 And I think obviously you know, this is the volatility 0:15:19.840 --> 0:15:23.200 that is what happens when the data lights the way, 0:15:23.360 --> 0:15:27.920 when you're when you're completely abandoning forecast based policy for 0:15:28.040 --> 0:15:31.800 data dependents. But if we do get in the interim 0:15:31.880 --> 0:15:33.400 period between now and September. 0:15:34.920 --> 0:15:36.440 Reports that are along the lines. 0:15:36.480 --> 0:15:38.360 We don't have to get as big of a downside 0:15:38.400 --> 0:15:41.680 surprise as inflation as we've seen, but that continued gradual 0:15:42.360 --> 0:15:46.560 rebalancing in the labor market stabilization to slowing on the 0:15:46.560 --> 0:15:49.920 inflation side, then I think absolutely September is in play 0:15:50.120 --> 0:15:53.320 as well as December and the two cuts that are 0:15:53.440 --> 0:15:55.240 you know, not in the median, but I think are 0:15:55.280 --> 0:15:56.480 still very much in play here. 0:15:56.640 --> 0:15:56.920 Jeff. 0:15:56.920 --> 0:15:59.760 When he stepped off the stage, we were up two 0:15:59.760 --> 0:16:04.040 point any standard deviations on both SPX and Nasdaq one hundred. 0:16:04.280 --> 0:16:06.960 We've pulled back a little bit from their selling into 0:16:07.000 --> 0:16:10.520 the excitement tomorrow morning. I guess, Jeff Rozenberg, simple, how 0:16:10.520 --> 0:16:12.720 do you invest in this? Do you just clip a coupon? 0:16:13.480 --> 0:16:17.600 Do you increase your cash level in this uncertainty? Is 0:16:17.640 --> 0:16:18.680 there an opportunity? 0:16:20.320 --> 0:16:20.480 Well? 0:16:20.520 --> 0:16:23.320 I think, as I mentioned, the opportunity here is that 0:16:23.400 --> 0:16:26.200 this is a FED that is very asymmetric, and they're 0:16:26.240 --> 0:16:31.480 asymmetric with regards to holding policy flat in the face 0:16:31.520 --> 0:16:35.240 of disappointing data in terms of strength or policy progress 0:16:35.320 --> 0:16:39.680 on inflation, and then very supportive on unexpected weakening in 0:16:39.720 --> 0:16:43.040 the labor market. I think that's very supportive to financial 0:16:43.120 --> 0:16:45.760 market conditions. I think there's a longer run you know, 0:16:45.880 --> 0:16:49.680 problem with that potentially, but in the short run, this 0:16:49.800 --> 0:16:52.920 is a little bit more favorable to risk markets and 0:16:52.960 --> 0:16:56.040 to risk taking. You can step out of cash into 0:16:56.080 --> 0:16:57.640 that front end of the curve. This is a fed 0:16:57.680 --> 0:17:00.240 that's telling you that they're going to cut rates. So 0:17:00.400 --> 0:17:03.560 cash has been very supportive because they've held rates up. 0:17:03.560 --> 0:17:06.800 But the path going forward, and Jonathan mentioned it, you know, 0:17:06.880 --> 0:17:09.879 this is just shifting the cuts into twenty twenty five, 0:17:10.440 --> 0:17:13.080 So you're going to lose the income by hanging out 0:17:13.080 --> 0:17:16.080 in cash. The belly of the curve for fixed income investors, 0:17:16.119 --> 0:17:18.600 the front belly of the curve two to five year apart. 0:17:18.920 --> 0:17:21.080 I think that's a very attractive part of the curve. 0:17:21.160 --> 0:17:23.320 I do think you have to start moving out into 0:17:23.359 --> 0:17:25.840 that part of the curve to lock in those rates. 0:17:26.119 --> 0:17:29.800 And the economy to the comments on Mike McKee GDP, 0:17:29.920 --> 0:17:33.720 now the forecasting you know above trend growth relative to 0:17:34.040 --> 0:17:37.040 the fears of recession, this is a very supportive in 0:17:37.119 --> 0:17:40.879 market market environment for credit. That's a carry argument. I 0:17:40.880 --> 0:17:44.600 think you can clip coupon there, take some risk there 0:17:44.640 --> 0:17:49.160 because the default risk is still very much low because 0:17:49.240 --> 0:17:51.160 the growth side of the economy. 0:17:50.760 --> 0:17:51.399 Is very strong. 0:17:51.520 --> 0:17:53.119 Jeff, stay close. I get you back in in just 0:17:53.119 --> 0:17:55.320 a moment. I want to talk about twenty five by 0:17:55.359 --> 0:17:58.480 talking about twenty four. There's four meetings left this year 0:17:58.920 --> 0:18:04.199 July thirty one, September eighteen, November seventh, December eighteenth. I 0:18:04.240 --> 0:18:06.320 want to go to the November mating. November fifth is 0:18:06.359 --> 0:18:09.320 an election. The day after they kick off a FED mating. 0:18:09.800 --> 0:18:12.960 Michael McKay, we're all talking about folksts for twenty twenty five. 0:18:13.080 --> 0:18:15.080 None of us are got a clau halfway about what 0:18:15.119 --> 0:18:16.520 twenty twenty five is going to look like. 0:18:17.840 --> 0:18:19.280 Well, you take a look at the dot plot for 0:18:19.280 --> 0:18:21.680 twenty twenty five, and compared to twenty twenty four, it's 0:18:21.960 --> 0:18:24.880 very very spread out. There is no consensus at all. 0:18:25.200 --> 0:18:28.480 We pick a median for convenience and talk about it 0:18:28.520 --> 0:18:31.440 and we say, Okay, they're putting us up to four 0:18:31.520 --> 0:18:34.119 rate cuts next year. But really, what the dot plot 0:18:34.160 --> 0:18:37.200 is telling you is they have no idea. And one 0:18:37.200 --> 0:18:39.600 of the reasons is we could have a completely different 0:18:39.600 --> 0:18:41.919 fiscal policy next year, and we have a lot of 0:18:41.960 --> 0:18:47.600 issues including debt ceiling, the government funding and the tax 0:18:47.640 --> 0:18:50.760 cuts that are going to expire that could change the 0:18:50.800 --> 0:18:54.680 economic picture tremendously. So I'm not going to tell Jeff 0:18:54.720 --> 0:18:56.800 Rosenberg how to trade that, but I don't think you 0:18:56.800 --> 0:18:59.640 can have a whole lot of confidence that what their 0:18:59.640 --> 0:19:02.800 predict today is going to be anything like what we'll 0:19:02.840 --> 0:19:04.440 be seeing at the November meeting. 0:19:04.520 --> 0:19:06.720 Am im kay, thank you sir. Of course, the forecasts 0:19:06.720 --> 0:19:09.679 are always more instructive to really gage the reaction function. 0:19:09.800 --> 0:19:12.400 That's what's important here, how they respond to incoming information. 0:19:12.440 --> 0:19:14.480 But let's just run with this, the forecast for twenty 0:19:14.520 --> 0:19:17.600 twenty five, Brami, what are they worth given how much 0:19:17.600 --> 0:19:19.360 could change in November onwards. 0:19:19.480 --> 0:19:21.800 Well, this is the reason why Bob Michael said I'm 0:19:21.840 --> 0:19:25.000 in charge here. I'm a bond Micael investor, and I'm 0:19:25.040 --> 0:19:27.000 the person who sets the rates right now, not the 0:19:27.000 --> 0:19:29.000 Federal Reserve at a time where they are just as 0:19:29.040 --> 0:19:31.760 confused as ever before. I am curious, Jeff, what is 0:19:31.800 --> 0:19:34.480 your take on that that right now we see big 0:19:34.520 --> 0:19:37.439 bond investors saying we're setting rates, the Fed is a 0:19:37.440 --> 0:19:39.400 bunch of confused people who are looking at the same 0:19:39.480 --> 0:19:42.399 data and equally confuses everybody else. We can look at 0:19:42.440 --> 0:19:44.639 supply and demand. We can react to all of the 0:19:44.680 --> 0:19:47.520 economic data. Sure, yields jump up and down, but we're 0:19:47.560 --> 0:19:49.159 the ones that are kind of the main guy in 0:19:49.200 --> 0:19:50.000 the room. 0:19:51.520 --> 0:19:54.600 You know, I'm going to agree with Bob Michael very 0:19:54.680 --> 0:19:57.880 much so, especially when we're talking about the back end 0:19:58.280 --> 0:20:00.679 maturities and the term premium. You know, this is a 0:20:00.720 --> 0:20:04.920 FED that's gonna get less into the business of setting 0:20:05.080 --> 0:20:09.520 term premium and influencing the maturity of rates and the 0:20:09.560 --> 0:20:13.520 difference between demand and supply. Particularly as Mike McKee was 0:20:13.600 --> 0:20:17.080 just mentioning, we're gonna have a big issue around fiscal 0:20:17.119 --> 0:20:20.280 deficits in their financing, and much more of that is 0:20:20.320 --> 0:20:23.199 gonna be borne by us, the bond market, investors, the 0:20:23.200 --> 0:20:26.160 private sector, so a lot more of that term premium 0:20:26.240 --> 0:20:28.880 and then resetting that term premium is gonna be dictated 0:20:28.960 --> 0:20:31.600 by financial markets. It's partly why I think the front 0:20:31.720 --> 0:20:35.200 end of the curve is a bit more attractive because 0:20:35.280 --> 0:20:39.560 the term premium, you're going into that uncertainty with relatively 0:20:39.640 --> 0:20:43.160 low yes we're off the historical lows, but relatively low 0:20:43.240 --> 0:20:46.439 compensation for both term and inflation premium. I think that 0:20:46.840 --> 0:20:50.840 makes the back end a lot more challenging, and because 0:20:50.880 --> 0:20:54.200 we view it as more challenging, there's less demand, you're 0:20:54.240 --> 0:20:56.760 gonna have more supply. I think that could be a 0:20:56.800 --> 0:21:01.160 factor towards a little bit longer run process of steepening 0:21:01.160 --> 0:21:02.600 out both term and inflation premium. 0:21:02.680 --> 0:21:05.320 You back, Jeff, what's important here, and you said that 0:21:05.400 --> 0:21:07.520 there's a risk on field of this, and certainly we've 0:21:07.520 --> 0:21:10.960 seen it in technology and SPX before he ended his 0:21:11.000 --> 0:21:14.400 press conference up well over two point eight standard deviations? 0:21:15.119 --> 0:21:19.120 Is the answer here, Jeff, that everything is just playing solid. 0:21:19.600 --> 0:21:22.680 There isn't the polarity of a boom economy or doom 0:21:22.680 --> 0:21:26.040 and gloom. It's just a solid American economy. 0:21:28.080 --> 0:21:29.280 It's pretty solid, Tom. 0:21:29.320 --> 0:21:32.440 I mean when you look at that domestic demand component 0:21:32.520 --> 0:21:35.200 and it's so solid that you know, last Friday when 0:21:35.200 --> 0:21:37.480 I was on we talked about the question that was 0:21:37.520 --> 0:21:38.399 asked a bit today. 0:21:38.760 --> 0:21:40.560 You know, how restrictive is policy? 0:21:41.119 --> 0:21:44.399 Really you're not really seeing it in the economic slowdown 0:21:45.000 --> 0:21:47.400 that you'd otherwise expect outside. 0:21:46.920 --> 0:21:48.439 Of the interest rates sensitive sector. 0:21:48.560 --> 0:21:51.840 So for risky assets and for credit, as I just mentioned, 0:21:52.040 --> 0:21:54.920 I think that's a good thing. So I do think 0:21:55.080 --> 0:21:58.560 that the strength of the economy here helps to underwrite 0:21:58.560 --> 0:22:02.840 some risk taking in a broad sense, and there's a 0:22:02.960 --> 0:22:05.679 bit of a worry there that that might be leading 0:22:05.720 --> 0:22:07.920 to maybe less progress on inflation. 0:22:08.080 --> 0:22:09.840 But I think what we heard from the chairman. 0:22:09.560 --> 0:22:12.760 Today, they don't need Yes, they're going to say we 0:22:13.440 --> 0:22:16.360 want to maintain policy and get back to two percent. 0:22:16.640 --> 0:22:20.159 But it could be a long period of willingness to 0:22:20.280 --> 0:22:23.760 accept two and a half to three percent as good enough. 0:22:23.840 --> 0:22:24.520 Take the win. 0:22:24.840 --> 0:22:29.080 We've come from seven down to below three. That's a 0:22:29.080 --> 0:22:32.760 good outcome, and not risk the economic growth side by overtightening. 0:22:33.040 --> 0:22:35.080 Jeff love doing this with you. Thank you, sir Jeff 0:22:35.119 --> 0:22:37.960 Rosenberg there of black Rock wrapping up FED decision day 0:22:38.080 --> 0:22:40.560 and CPR Lornich as well. Let's get some fun of 0:22:40.560 --> 0:22:42.080 words around a type or take ky first to you 0:22:42.240 --> 0:22:42.879 fun of thoughts. 0:22:43.119 --> 0:22:45.000 It's going to be eventful through the rest of the year. 0:22:45.200 --> 0:22:48.760 I thought it was off of CPI this morning, just spectacular. 0:22:48.920 --> 0:22:51.600 Yes they're data dependent, but you know what, it's going 0:22:51.640 --> 0:22:54.240 to be eventful right up to Jackson holand beyond. 0:22:54.560 --> 0:22:56.600 Anyone who is looking for some sort of certainty in 0:22:56.600 --> 0:22:59.520 the bond market, some sort of stability, good luck, because 0:22:59.560 --> 0:23:01.920 right now you have a green light to go crazy 0:23:02.040 --> 0:23:04.520 to see Bonker's types of moves. To quote one of 0:23:04.560 --> 0:23:08.119 our guests earlier this week, because right now there is 0:23:08.240 --> 0:23:11.320 no central planning when it comes to where reads are going, 0:23:11.440 --> 0:23:13.440 and that to me is significant at a time where 0:23:13.440 --> 0:23:16.560 at one point that was considered a financial stability risk. 0:23:16.720 --> 0:23:18.240 Right now it doesn't seem to be. I don't know 0:23:18.240 --> 0:23:20.560 if that's a sign of strength of fragility, but right now, 0:23:20.880 --> 0:23:23.639 that is the takeaway. These double digit moves, it yield 0:23:23.720 --> 0:23:26.000 on a daily basis, they seem to be here to 0:23:26.000 --> 0:23:26.520 stay well. 0:23:26.560 --> 0:23:28.760 Right now we're giving some of that up. Just recap 0:23:28.840 --> 0:23:30.760 some of the price section session highs on the S 0:23:30.800 --> 0:23:33.359 and P five hundred. About twenty minutes ago we were 0:23:33.400 --> 0:23:36.000 hired by more than one point three percent, now positive 0:23:36.000 --> 0:23:38.440 by about seven tens to one percent on the SMP. 0:23:38.680 --> 0:23:40.800 In the bond market at the low's on a two 0:23:40.880 --> 0:23:42.960 year year old, we've been down sixteen basis points. We're 0:23:42.960 --> 0:23:45.240 now down about seven or eight. So some of this 0:23:45.680 --> 0:23:47.880 unwidening just a little bit. The team's going to take 0:23:47.920 --> 0:23:49.800 over from here. They'll run you through the close. They'll 0:23:49.840 --> 0:23:52.680 catch up with former Fed Governor Betsie Duke and Jim Chenos. 0:23:52.760 --> 0:23:55.560 Look out for those conversations from New York City. That's 0:23:55.600 --> 0:23:57.800 it for us. We'll see the end of July all away. 0:23:57.880 --> 0:24:01.400 Until then, from New York was the Feticides