Instant Reaction: Jay Powell on the Fed Decision

Bloomberg Audio Studios, podcasts, radio news. 0:00:13.080 --> 0:00:15.840 These always go on maybe one or two questions too long, 0:00:15.880 --> 0:00:16.239 don't they. 0:00:16.239 --> 0:00:17.360 That wraps up the first. 0:00:17.120 --> 0:00:20.200 News conference with Chairman Power for twenty twenty five. If 0:00:20.239 --> 0:00:22.520 you are just joining us, welcome to the program. A 0:00:22.560 --> 0:00:25.279 two part story here, one part the statement, the second 0:00:25.320 --> 0:00:28.200 part the news conference. The statement push stocks down and 0:00:28.240 --> 0:00:31.200 bonyards a little bit higher. In the news conference, equities 0:00:31.240 --> 0:00:33.839 came off the lows and bonyards came off the highs. 0:00:33.840 --> 0:00:37.120 In the statement, the Federal Reserve repeated that inflation remained 0:00:37.159 --> 0:00:40.159 somewhat elevated, but removed this reference to this line of 0:00:40.240 --> 0:00:43.040 it having made any progress towards their two percent goals. 0:00:43.080 --> 0:00:45.640 So that sounded somewhat hawkish, didn't it. 0:00:45.680 --> 0:00:49.000 So ultimately, inevitably the Federal Reserve chair was asked about this, 0:00:49.040 --> 0:00:50.960 and this is what he had to say in Oppressor 0:00:51.120 --> 0:00:51.840 just moments ago. 0:00:52.440 --> 0:00:54.760 If you just look at the first paragraph, we did 0:00:54.800 --> 0:00:56.960 a little bit of language clean up there. We took 0:00:57.000 --> 0:00:59.760 out a reference to since earlier in the year is 0:01:00.000 --> 0:01:03.480 related to the labor market, and we just chose to 0:01:03.720 --> 0:01:04.720 shorten that sentence. 0:01:05.080 --> 0:01:05.360 Again. 0:01:05.400 --> 0:01:07.920 I mean, if you look at the sort of intermeding 0:01:08.080 --> 0:01:11.440 data was good, and there was another inflation reading I 0:01:11.480 --> 0:01:14.039 guess just before the December meeting. So we've got two 0:01:14.080 --> 0:01:15.920 good readings in a row that are consistent with two 0:01:15.920 --> 0:01:18.920 percent inflation. Again, we're not going to over interpret two 0:01:18.959 --> 0:01:21.560 good or too bad readings. But this was not meant 0:01:21.600 --> 0:01:23.600 to send a signal other than this. 0:01:24.160 --> 0:01:26.000 Sole So we talked about it for the best part 0:01:26.000 --> 0:01:27.880 of thirty minutes. We thought it was a hawkish till 0:01:27.920 --> 0:01:30.000 and the statement. The chairman came out and said that 0:01:30.040 --> 0:01:32.040 line was not meant to send any signal. 0:01:32.240 --> 0:01:34.160 It was just language cleanup. 0:01:34.200 --> 0:01:36.120 If you look at the first sentence, when you take 0:01:36.160 --> 0:01:38.600 your sharpie, you go like this, and then you go 0:01:38.720 --> 0:01:41.920 like this. I mean, look, this was someone who talked 0:01:41.959 --> 0:01:44.200 in circles quite a bit. It was sort of saying something, 0:01:44.240 --> 0:01:46.199 but what are these? These are words, We don't know anything. 0:01:46.200 --> 0:01:48.200 I don't want to start speculating because he really to 0:01:48.720 --> 0:01:52.360 that and we can't really have any model. So he 0:01:52.480 --> 0:01:54.800 basically came out and did exactly what he wanted to do, 0:01:54.840 --> 0:01:55.400 which was. 0:01:55.400 --> 0:01:57.120 Say nothing on the labor market. Downside. 0:01:57.200 --> 0:01:59.400 Risk of the labor market appeared to have abates it. 0:01:59.480 --> 0:02:01.640 This is a cha from where they were maybe back 0:02:01.640 --> 0:02:05.120 in September. There was this labor market scare tek in 0:02:05.160 --> 0:02:07.880 the summer, which this fed responded to with one hundred 0:02:07.880 --> 0:02:10.800 basis points of carts to insulate the economy from seeing 0:02:10.800 --> 0:02:13.480 getting further weakness, something that the chairman said at Jackson Hole 0:02:13.520 --> 0:02:15.480 he didn't want to see t Ken. It feels like 0:02:15.520 --> 0:02:17.720 they're a lot more comfortable with the situation. 0:02:17.800 --> 0:02:19.520 I totally agree when you heard that from our guests 0:02:19.560 --> 0:02:23.000 in the previous pre press conference. Prestatement as well. And 0:02:23.040 --> 0:02:25.680 it does get to John wnder Claim's breakout the basic 0:02:25.720 --> 0:02:28.400 you know stuff we cover each and every day, and 0:02:28.440 --> 0:02:30.639 it goes to get the march the idea of how 0:02:30.680 --> 0:02:32.800 many meetings do we have, how many inflation reports do 0:02:32.840 --> 0:02:35.000 we have? How many jobs reports? I think the most 0:02:35.000 --> 0:02:37.799 amazing thing about this is you and I could focus here. 0:02:37.800 --> 0:02:40.280 I mean, we're twenty minutes in with Man City, twenty 0:02:40.320 --> 0:02:42.720 three minutes in with Man City, and they haven't got 0:02:42.720 --> 0:02:44.000 it done versus Club Brush. 0:02:44.160 --> 0:02:47.520 I mean, no, no, this is just no, just I 0:02:47.560 --> 0:02:50.080 was joking about it. You're actually watching it. No, it's important, 0:02:50.520 --> 0:02:50.720 you know. 0:02:50.840 --> 0:02:53.840 I mean, there's what eighteen nineteen champions games going on 0:02:54.120 --> 0:02:56.000 that's more exciting than the press conferences. 0:02:56.000 --> 0:02:58.000 Definitely, Roth of woll Th Research is not watching the 0:02:58.040 --> 0:03:01.360 European football right now. Is excite hit on that nearest 0:03:01.360 --> 0:03:03.440 conference we all just had in the last sixty minutes. 0:03:03.440 --> 0:03:04.360 Stephanie's going to see you. 0:03:04.400 --> 0:03:04.920 Good to see you. 0:03:04.960 --> 0:03:05.720 What did you make of that? 0:03:06.320 --> 0:03:07.800 He didn't say all that much, and he then he 0:03:07.800 --> 0:03:09.680 did a little bit of reversal from the hawkish part 0:03:09.720 --> 0:03:11.640 of the statement. It was January clean up, like you 0:03:11.720 --> 0:03:14.480 just mentioned, and then some of the key things was 0:03:14.560 --> 0:03:17.480 meaningfully above long term neutral, and then he made some 0:03:17.480 --> 0:03:21.520 conflicting statements about yes, rates are above neutral, but then 0:03:21.560 --> 0:03:23.440 financial conditions are a little bit easy. So he kind 0:03:23.440 --> 0:03:25.000 of settle a little bit of a lot. 0:03:25.680 --> 0:03:28.320 That's exactly what I've been trying to wrap my head around. 0:03:28.520 --> 0:03:31.679 Meaningfully above neutral, but we can move slowly and we 0:03:31.720 --> 0:03:32.639 don't have to move at all. 0:03:32.680 --> 0:03:35.520 We could just observe we are looking. 0:03:35.280 --> 0:03:38.760 At restrictive rates but also accommodative conditions. 0:03:39.360 --> 0:03:41.440 Was this successful? Yeah? 0:03:41.440 --> 0:03:43.080 I think he wanted to get in and out without 0:03:43.120 --> 0:03:44.800 moving markets all that much, and yeah it was a 0:03:44.800 --> 0:03:47.200 bit of a ride, but that's kind of what he accomplished. 0:03:47.520 --> 0:03:49.680 I want to note Meta and Microsoft leg up here 0:03:49.720 --> 0:03:51.720 as we get to those earnings as well. Somewhere in 0:03:51.760 --> 0:03:54.080 there was some stuff in yourro Off language where he 0:03:54.160 --> 0:03:57.720 talked about a central a limit, you know, a Gaussian curve, 0:03:57.800 --> 0:04:00.680 a bell curve in that My basic is, this is 0:04:00.720 --> 0:04:03.720 not a bell curve society. There's a log normal risk here. 0:04:03.960 --> 0:04:06.720 What's the risk for you, Stephanie Roth In terms of 0:04:06.760 --> 0:04:10.720 the Fed parlor game forward? What's the thing they really 0:04:10.760 --> 0:04:12.600 need to focus on to stagger to march? 0:04:13.160 --> 0:04:14.880 The most important thing that we're going to be watching 0:04:14.920 --> 0:04:17.640 for is what happens from labor supply perspective, because there's 0:04:17.640 --> 0:04:20.200 going to be three and a half million people potentially 0:04:20.279 --> 0:04:22.320 losing their visa status over the next two years, and 0:04:22.320 --> 0:04:24.760 that could tighten the labor market, and it could happen 0:04:24.880 --> 0:04:26.880 kind of slowly and gradually, and maybe we won't really 0:04:26.960 --> 0:04:28.760 realize it until the second half of this year, and 0:04:28.760 --> 0:04:29.839 then you realize, wow. 0:04:29.720 --> 0:04:30.200 The uneployed. 0:04:30.240 --> 0:04:33.040 Right, will the president focus on the labor mandate or 0:04:33.080 --> 0:04:35.599 will the president focus on inflation? Or is he just 0:04:35.640 --> 0:04:38.800 going to focus on I'm a real estate transactional guy 0:04:39.000 --> 0:04:40.159 and I need low rates. 0:04:40.800 --> 0:04:45.200 Probably the latter, but the other things are going to 0:04:45.200 --> 0:04:47.760 be important too, Right, So if we have the immigration 0:04:47.880 --> 0:04:50.479 thing slowly happening in the background, and we don't really 0:04:50.520 --> 0:04:52.839 notice it until the labor market's kind of quite a 0:04:52.839 --> 0:04:53.200 bit tight. 0:04:53.440 --> 0:04:54.960 So we just we just changed our FED call. 0:04:55.000 --> 0:04:57.000 We were calling for previously for two cuts, now we're 0:04:57.040 --> 0:04:59.240 calling for one in May, and then I think after 0:04:59.240 --> 0:05:00.560 that they're going to be done for a while. They're 0:05:00.560 --> 0:05:02.040 gonna have to wait and see how things play out. 0:05:02.160 --> 0:05:05.880 Just out of interest, why mightna We're gonna probably have 0:05:05.920 --> 0:05:07.600 some bad data for the next couple of months from 0:05:07.600 --> 0:05:08.760 an inflation perspective. 0:05:09.080 --> 0:05:11.560 We still have the Q one seasonal problems from inflation, 0:05:11.640 --> 0:05:13.240 so we're gonna have to get through that, and then 0:05:13.240 --> 0:05:16.440 in May you can have some better data because you'll 0:05:16.440 --> 0:05:18.360 start to see a little bit of that inflation coming out. 0:05:18.480 --> 0:05:21.159 Do you feel like there's clarity and meaningfully restrictive. I 0:05:21.160 --> 0:05:22.640 want to go back to that for one second. I'm 0:05:22.640 --> 0:05:23.680 still trying to wrap my head around. 0:05:24.720 --> 0:05:25.760 Well, I'm with you. 0:05:26.560 --> 0:05:29.039 I kind of feel like it's important here because that 0:05:29.160 --> 0:05:31.360 was one of the key questions. That was what Bob 0:05:31.400 --> 0:05:34.720 Michael was talking about, and that is the question how 0:05:34.800 --> 0:05:35.400 much do you. 0:05:35.320 --> 0:05:37.760 Have to reduce it? And then you kind of was like, 0:05:38.520 --> 0:05:39.159 we're above it. 0:05:39.200 --> 0:05:42.560 And maybe we'll reduce it. Is it a problem, just 0:05:42.600 --> 0:05:45.120 going back to this Mohammedalarian point, Is it a problem 0:05:45.480 --> 0:05:47.560 that this is a FED that doesn't seem to have 0:05:47.600 --> 0:05:50.479 a clear message or a clear direction at a time 0:05:50.760 --> 0:05:53.240 when people view this as one of the biggest potential 0:05:53.360 --> 0:05:56.120 upsets to the market and to some of the stability 0:05:56.120 --> 0:05:57.839 that we're seeing in terms of the self landing. 0:05:59.040 --> 0:06:01.920 I mean, so the channel, they don't they don't have 0:06:01.960 --> 0:06:03.719 a firm view on policy, and they don't even seem 0:06:03.760 --> 0:06:05.200 to agree to some extent, nor do they want to 0:06:05.200 --> 0:06:07.200 come out and say it from a policy in terms 0:06:07.200 --> 0:06:09.719 of how they're assessing fiscal right. So it's going to 0:06:09.839 --> 0:06:11.920 very much depend on inflation expectations. 0:06:11.920 --> 0:06:12.640 Are they anchored? 0:06:13.000 --> 0:06:17.120 And Powell mentioned the Teal book from September twenty eighteen, 0:06:17.160 --> 0:06:18.640 and I think that's exactly how they're going to look 0:06:18.640 --> 0:06:21.680 at it. If we see inflation expectations remain anchored, the 0:06:21.720 --> 0:06:24.480 Fed could wait for a while and then next year 0:06:24.480 --> 0:06:26.680 we're probably going to see slower growth as a result, 0:06:26.680 --> 0:06:28.960 and that's when they might have an opportunity to cut again. 0:06:29.200 --> 0:06:32.039 When you talk about inflation expectations in near term and 0:06:32.120 --> 0:06:34.360 long term, what are we talking about Are we talking 0:06:34.400 --> 0:06:37.480 about the University of Michigan sentiment survey that is hugely 0:06:37.520 --> 0:06:41.239 politically affected. Are we talking about the consumer Conference board? 0:06:41.520 --> 0:06:44.400 Are we talking about five year five year forward break events? 0:06:44.440 --> 0:06:44.600 Right? 0:06:44.640 --> 0:06:47.600 What is the gauge that is important to this federal Reserve? 0:06:47.760 --> 0:06:50.719 I would say probably you missed and probably inflation break evens. 0:06:50.720 --> 0:06:52.520 The combination, even though we all know you miss isn't 0:06:52.520 --> 0:06:53.239 that grade of a measure. 0:06:53.240 --> 0:06:55.720 But we all seem to watch it anyway. I don't 0:06:55.720 --> 0:06:56.280 know why, but. 0:06:56.279 --> 0:06:58.960 We watch it because they do. That's fair and pound 0:06:59.000 --> 0:07:00.640 on this Federal Reserve. Respect on the two edge. 0:07:00.640 --> 0:07:02.599 You remember that jump by right hind back in the day, 0:07:02.839 --> 0:07:05.400 you Mitch apparently, Yeah, and. 0:07:05.360 --> 0:07:07.960 It notoriously comes out with the reading and then the 0:07:07.960 --> 0:07:10.280 final reading ends up getting revised back down from an 0:07:10.280 --> 0:07:11.120 inflation perspective. 0:07:11.160 --> 0:07:12.080 Where are we in June? 0:07:12.120 --> 0:07:13.840 I mean you mentioned March and May and the meetings, 0:07:13.880 --> 0:07:16.120 But within the conversation we have with four or five 0:07:16.160 --> 0:07:20.000 worthies today, the question is what real GDP does out 0:07:20.040 --> 0:07:23.080 to June? I mean, you know, the facts change, Are 0:07:23.120 --> 0:07:24.560 the facts going to change? Or are we going to 0:07:24.640 --> 0:07:28.520 continue with this growth economy helping part of America not 0:07:28.640 --> 0:07:29.640 all of America. 0:07:29.920 --> 0:07:31.880 We're probably going to be in this growth economy. 0:07:32.240 --> 0:07:35.480 The one thing from from a sort of lower income 0:07:35.560 --> 0:07:40.400 perspective is animal spirits may support the broad based the 0:07:40.680 --> 0:07:43.880 broad based consumer. We might actually start to see good 0:07:43.880 --> 0:07:46.280 spending pick up, which could help kind of the bulk 0:07:46.360 --> 0:07:48.440 of the economy because they're getting ahead of tariffs. 0:07:49.040 --> 0:07:51.480 Yeah, and John, I mean I got Microsoft legging up 0:07:51.480 --> 0:07:53.480 here now or it was before the meeting. I mean, 0:07:53.520 --> 0:07:55.560 we're going into earnings in one part of America. 0:07:55.680 --> 0:07:55.920 John. 0:07:56.320 --> 0:07:58.520 They don't give a damn what Jerome poll says. They're 0:07:58.560 --> 0:08:00.920 just looking at free cash flow. Microsoft. 0:08:00.920 --> 0:08:02.760 On the rest, I'm miss working with you on a 0:08:02.800 --> 0:08:04.840 daily basis for a whole host of reasons. But just 0:08:04.840 --> 0:08:06.200 then I had no idea if you're coming to me 0:08:06.240 --> 0:08:07.480 because Man City had scored. 0:08:07.680 --> 0:08:11.760 If they'd scored, I. 0:08:11.720 --> 0:08:14.119 Wasn't sure what to brak is in my ear saying, 0:08:14.160 --> 0:08:17.240 don't you dare? I don't even know how to pronounce it. 0:08:17.480 --> 0:08:19.800 Zagreb one ac milan zero. 0:08:20.000 --> 0:08:23.320 Is that that's true? Is that just happened? You're okay? Okay, 0:08:23.400 --> 0:08:24.200 Well I'm not okay. 0:08:24.240 --> 0:08:29.600 Now's continue by talking about financial market and central bank decisions. 0:08:29.640 --> 0:08:32.520 Lisa mentioned the Bank of Canada a little bit earlier, 0:08:32.840 --> 0:08:35.120 Luke Howard writes and and said thank you, by the way. 0:08:35.360 --> 0:08:37.720 Yeah, well it's important, Luke, I got you back. 0:08:37.800 --> 0:08:40.320 Tiff Maclin and a Bank of Canada. They did decide 0:08:40.320 --> 0:08:42.360 to reduce interest rates. They did decide to say, you 0:08:42.440 --> 0:08:44.800 know what, we can't offer guidance because of Tariff's Why 0:08:44.880 --> 0:08:47.640 is it any different for Chairman Powell and this feeder reserve. 0:08:48.080 --> 0:08:50.320 We have an economy that's running well above trend. We 0:08:50.320 --> 0:08:52.160 were going to see a GDP print that's close to 0:08:52.200 --> 0:08:53.280 three percent this week. 0:08:53.440 --> 0:08:53.600 Right. 0:08:53.640 --> 0:08:55.920 The ecomomy's fine, there's no rush, and that's what he said. 0:08:56.000 --> 0:08:57.439 There's no They're not in a hurry. 0:08:57.600 --> 0:09:01.199 This is the single most important observation fed the sides today. 0:09:01.400 --> 0:09:04.679 America is totally different than when I witnessed in Toronto 0:09:04.960 --> 0:09:07.360 a number of months ago. We are separate in our 0:09:07.400 --> 0:09:10.319 exceptionalism and it was in spades when I. 0:09:10.280 --> 0:09:12.079 Was up in case just because of the strength of 0:09:12.080 --> 0:09:14.360 the economy. Somo, do you think it's it's a tech overlay. 0:09:14.480 --> 0:09:16.240 This is about the President of the United States and 0:09:16.280 --> 0:09:17.720 that worried about what it's. 0:09:17.360 --> 0:09:18.959 A little bit. I'll go with that overlay, but it's 0:09:18.960 --> 0:09:22.760 most about Clarita's colleague Ned Phelps, and our dynamism is 0:09:22.800 --> 0:09:26.160 tangible again with Microsoft kicking it off here with Meta 0:09:26.240 --> 0:09:28.560 in a bit, Lisa, you feel the same way. 0:09:30.200 --> 0:09:33.880 I guess the US has a much more robust economy. 0:09:34.000 --> 0:09:36.600 It also is essential bank to the world in many 0:09:36.600 --> 0:09:37.280 different ways. 0:09:37.480 --> 0:09:41.520 It also is not being subject to a president. 0:09:41.679 --> 0:09:44.079 It is part of a country with a president. It's 0:09:44.200 --> 0:09:47.800 very different for say Canada that is facing off with that. 0:09:48.559 --> 0:09:50.640 I was a little lost in thought there, and the 0:09:50.720 --> 0:09:52.440 reason why is because. 0:09:52.240 --> 0:09:53.440 You're watching a football take and. 0:09:56.920 --> 0:09:59.960 I'm trying to wrap my head around whether it's appropriate 0:10:00.320 --> 0:10:03.400 for this fed to be sort of directionless right now, 0:10:03.559 --> 0:10:06.080 or whether it's inappropriate. You know, I don't know whether 0:10:06.160 --> 0:10:08.640 it is appropriate because it is an uncertain time, and 0:10:08.679 --> 0:10:11.960 I don't know if it's inappropriate because they have to 0:10:12.000 --> 0:10:14.280 give some sort of sense of what the reaction function 0:10:14.480 --> 0:10:17.320 is and the scenario analysis and they. 0:10:17.200 --> 0:10:19.240 Could have a more clear view. I don't have an 0:10:19.280 --> 0:10:19.960 answer on that. 0:10:20.080 --> 0:10:22.480 Seventy year off how x post are they? That's all 0:10:22.480 --> 0:10:25.560 there is to it to me. They're massively exposed waiting 0:10:25.640 --> 0:10:26.200 for data. 0:10:26.320 --> 0:10:28.440 Yeah, I think that's been the case over the past 0:10:28.520 --> 0:10:31.600 couple of years. Is they've been very much data point dependent, 0:10:31.600 --> 0:10:32.240 which they say. 0:10:32.080 --> 0:10:33.480 They don't want to be, but they have been. 0:10:33.520 --> 0:10:34.040 But they are. 0:10:34.320 --> 0:10:35.920 They are, and they have been, and that's going to 0:10:35.960 --> 0:10:37.640 be the case for much of this year. They're going 0:10:37.679 --> 0:10:40.600 to react to see how fiscal policy ends up playing out, 0:10:41.400 --> 0:10:44.200 and they're in a weight and see mode, which is 0:10:44.360 --> 0:10:46.880 confusing for investors. But at least at this point, the 0:10:46.920 --> 0:10:49.200 E commy's doing just fine. Inflation has settled down, so 0:10:49.240 --> 0:10:50.640 it's not really that big of a problem. 0:10:50.720 --> 0:10:53.120 This found like a clean up for December. That's what 0:10:53.160 --> 0:10:55.520 it found like to me, a cleanup for December. This 0:10:55.600 --> 0:10:59.439 isn't about policy changes, This isn't about expected policy changes. 0:10:59.480 --> 0:11:01.840 This is about you on the labor market and inflation, 0:11:02.000 --> 0:11:04.600 and that's why we've not got interest rates today. Back 0:11:04.640 --> 0:11:07.000 in December, chem and Powell made a hash of that, 0:11:07.280 --> 0:11:08.319 and I think he made a hash of it, and 0:11:08.520 --> 0:11:10.160 I do have some sympathy that it was because of 0:11:10.160 --> 0:11:13.640 what happened with the forecasts and how some officials incorporated 0:11:13.679 --> 0:11:16.800 some policy uncertainty TK and ultimately they changed. 0:11:16.559 --> 0:11:21.640 The better because I don't Lisa reads the minutes, but 0:11:22.080 --> 0:11:24.200 when Colby, I think it was her follow on question, 0:11:24.280 --> 0:11:26.000 and you played it there when Colby Smith at the 0:11:26.040 --> 0:11:29.160 Times he's hit some mumbo jump about we cleaned up 0:11:29.160 --> 0:11:30.040 the language. 0:11:30.679 --> 0:11:35.360 What God's does read that, it's hard not to read that. 0:11:35.440 --> 0:11:37.120 It's hard to read that, and just walk away with 0:11:37.160 --> 0:11:39.480 this idea that, yeah, that doesn't mean anything. I mean, 0:11:39.520 --> 0:11:41.520 I take signal from that, whether he says there's no 0:11:41.600 --> 0:11:44.120 signal in it or not, I take signal from that. 0:11:44.160 --> 0:11:46.240 Change, which is the reason why the market hasn't given 0:11:46.320 --> 0:11:49.520 back the entirety of the move. You're right, though, again, 0:11:49.840 --> 0:11:52.480 how do we interpret the fact that don't see what 0:11:52.559 --> 0:11:54.680 your eyes see, don't read what your eyes read. 0:11:54.960 --> 0:11:56.800 There is no meaning in words. 0:11:56.480 --> 0:11:59.880 That are very deliberately crafted to give meaning and to 0:12:00.160 --> 0:12:02.240 really gives some indication to the markets. Which is the 0:12:02.280 --> 0:12:05.720 reason why I'm grappling with the idea of a rudderless market, 0:12:05.880 --> 0:12:08.559 a rudderless fed, I should say, and whether that is 0:12:08.960 --> 0:12:12.920 okay inappropriate or whether it is potentially inappropriate at a 0:12:13.000 --> 0:12:15.320 time when a lot of people are worried about a 0:12:15.320 --> 0:12:17.000 potential FED policy. 0:12:17.120 --> 0:12:19.680 Er, Stephanie, it's going to see you as always, thanks 0:12:19.679 --> 0:12:22.280 for dropping by Stephanie Rothmare of Wolf Research. Then that's 0:12:22.320 --> 0:12:24.959 like just moments ago turning positive slightly negative now in 0:12:25.000 --> 0:12:27.480 the s and P. Five hundred, erasing the losses of 0:12:27.559 --> 0:12:30.040 this afternoon. Mike McKee was in the news conference. He's 0:12:30.080 --> 0:12:31.680 back out now he can share some of his thoughts 0:12:31.720 --> 0:12:33.760 with us. Mike, share with us how that went from 0:12:33.800 --> 0:12:36.199 your side, from your perspective in the room. 0:12:37.320 --> 0:12:39.840 Well, I would disagree with you a little bit, John, 0:12:39.880 --> 0:12:42.520 and say that this wasn't probably an effort to send 0:12:42.559 --> 0:12:46.120 some sort of signal or even necessarily a cleanup as such. 0:12:46.440 --> 0:12:49.760 I think the FED is sort of at sea. They 0:12:49.800 --> 0:12:52.160 don't know what is going to happen, and since the 0:12:52.200 --> 0:12:56.960 economy is performing well, unemployment is low, inflation is not 0:12:57.200 --> 0:12:59.679 going back up, it has stalled out a little bit, 0:13:00.080 --> 0:13:02.920 they feel they can wait. They don't need to do 0:13:03.160 --> 0:13:07.079 anything else at this point. I asked him specifically whether 0:13:07.120 --> 0:13:09.920 they had a forecast they could rely on, and he 0:13:10.000 --> 0:13:13.080 said no. He was also asked is March a live meeting, 0:13:13.120 --> 0:13:15.000 and he said, it's a live meeting. 0:13:14.720 --> 0:13:15.880 But we don't have any idea. 0:13:15.880 --> 0:13:18.360 We're going to look to the data, et cetera. So 0:13:18.400 --> 0:13:20.960 I think right now what you've got is FED that's 0:13:21.080 --> 0:13:23.560 just trying to stay out of the way as long 0:13:23.600 --> 0:13:26.480 as they can and they can as long as the 0:13:26.559 --> 0:13:29.520 data continue to show the economy's doing okay. 0:13:29.600 --> 0:13:31.680 Mike, do you expect that in March it's going to 0:13:31.679 --> 0:13:33.640 be a more complicated staying out of the way at 0:13:33.640 --> 0:13:35.840 a time where you have to reflect a number of 0:13:35.920 --> 0:13:39.719 views that might not be in the same vein as J. 0:13:39.920 --> 0:13:40.280 Powell. 0:13:40.320 --> 0:13:42.400 That seemed to be what the problem was in December, 0:13:42.400 --> 0:13:46.120 reflecting that some members did think about what policies could 0:13:46.160 --> 0:13:46.920 be going forward. 0:13:48.320 --> 0:13:51.200 Well, I think it'll probably be more confusing, But how 0:13:51.240 --> 0:13:54.680 confusing will depend on the president and what is happening. 0:13:54.720 --> 0:13:59.319 If he has imposed tariffs, if those tariffs invite retaliation, 0:13:59.800 --> 0:14:02.720 how long the tariffs will last, how high the tariffs 0:14:02.720 --> 0:14:06.080 will be, will probably present different economic models to the 0:14:06.160 --> 0:14:09.439 various voters on the Open Market Committee, and there may 0:14:09.480 --> 0:14:13.000 be some disagreement. I suppose they'll come together on whether 0:14:13.040 --> 0:14:16.440 they need to cut rates or not to overcome some 0:14:16.600 --> 0:14:20.800 of the issues that that would raise. But they're going 0:14:20.880 --> 0:14:23.280 to have to wait and see exactly. 0:14:22.840 --> 0:14:23.480 What this does. 0:14:23.520 --> 0:14:26.160 Now by March, you probably won't have much of an 0:14:26.200 --> 0:14:28.920 economic effect, so they will have to game out what 0:14:29.000 --> 0:14:33.120 they think will happen from whatever tariff announcements come out. 0:14:33.320 --> 0:14:36.720 As the defender of chief of that great institution behind you, Mike, 0:14:36.720 --> 0:14:39.000 I had no doubt you disagree with me, Michael mckaytha. 0:14:39.360 --> 0:14:41.840 Everybody on the Federals might thank you. If they're trying 0:14:41.880 --> 0:14:43.680 to stay out the way this time, it's because they 0:14:43.760 --> 0:14:46.120 got in the way back in December. And I think 0:14:46.120 --> 0:14:48.040 a lot of paper would take that perspective as well. 0:14:48.280 --> 0:14:51.520 This was I trying to walk back the idea of 0:14:52.200 --> 0:14:56.400 talking about speculation around policies. It seems as there is 0:14:56.440 --> 0:14:59.840 a divide and there is a curious question around whether 0:14:59.840 --> 0:15:01.960 it this is something built ugly raised. They're going to 0:15:02.000 --> 0:15:05.080 start to go towards the staff assumption and really reflect 0:15:05.080 --> 0:15:09.080 the staff economic forecasts and not necessarily desparate fed members. 0:15:09.120 --> 0:15:11.680 It might clear the air a little bit in terms 0:15:11.720 --> 0:15:13.560 of having some of these awkward moments. 0:15:13.600 --> 0:15:16.240 I go back to just Stephanie Roth. I think nailed 0:15:16.240 --> 0:15:18.120 it on the mandate. It's a job market. 0:15:18.240 --> 0:15:18.400 You know. 0:15:18.520 --> 0:15:21.760 Guess what Thursday claims matter. You can need afford having average. 0:15:22.040 --> 0:15:25.440 Thursday claims it hasn't broken yet, and when until the 0:15:25.560 --> 0:15:27.840 job market breaks? And I feel bad about this because 0:15:28.320 --> 0:15:31.120 again off Craig tour is reporting a good portion of 0:15:31.160 --> 0:15:33.520 America the job market's already broken. 0:15:34.320 --> 0:15:34.840 It's tough. 0:15:35.040 --> 0:15:37.040 I can't believe it's actually one nail. And I've got 0:15:37.200 --> 0:15:39.800 mail wound up about the football. Jeff Rosenberg and black 0:15:39.880 --> 0:15:41.640 Rocks joins us now to talk about the markets and 0:15:41.640 --> 0:15:44.280 not the European football. Jeff, Welcome to the program sir. 0:15:44.400 --> 0:15:46.800 Lots of debate about what was intended and what wasn't 0:15:46.840 --> 0:15:49.600 intended in that statement throughout that news conference. What was 0:15:49.600 --> 0:15:51.400 your big takeaway this afternoon? 0:15:52.280 --> 0:15:54.080 So a couple of takeaways, but I think the big 0:15:54.120 --> 0:15:58.600 takeaway is clearly a reiteration of the end of the 0:15:58.680 --> 0:16:03.680 December FMC signaling that this is a FED that's not 0:16:03.920 --> 0:16:06.680 in a hurry to take any further actions. And and 0:16:06.720 --> 0:16:09.040 so you kind of bookmark where we are. This is 0:16:09.080 --> 0:16:11.440 the pause, this is the articulation of the pause. 0:16:11.960 --> 0:16:12.040 Uh. 0:16:12.120 --> 0:16:14.440 And he outlined those those reasons, and I think that's 0:16:14.680 --> 0:16:17.720 kind of overriding the main story. It's not a huge 0:16:17.760 --> 0:16:20.360 story because that was pretty much well. 0:16:20.720 --> 0:16:21.280 In the market. 0:16:21.360 --> 0:16:23.760 You're not seeing a big market reaction. Second thing I 0:16:23.800 --> 0:16:26.360 would take away, Lisa, you highlighted it. You know, there's 0:16:26.400 --> 0:16:29.640 some contradictions here, uh, and they were kind of highlighted 0:16:29.640 --> 0:16:31.920 in the press conference and we've had those contradictions for 0:16:31.960 --> 0:16:35.840 a while. You know, meaningfully restrictive yet financial conditions are easy, 0:16:36.440 --> 0:16:39.520 meaningfully restrictive, yet we're not in a hurry. And I 0:16:39.560 --> 0:16:42.800 agree with you, Lisa, and have said for for a while, this, 0:16:42.800 --> 0:16:46.000 this failure to kind of take into account the role 0:16:46.040 --> 0:16:49.640 of financial conditions in the setting of policy, kind of 0:16:49.680 --> 0:16:53.240 like moving that more to the background, is a real 0:16:53.840 --> 0:16:56.800 issue here for the conduct of monetary policy, and it 0:16:57.040 --> 0:16:58.720 and it remains in that and that kind of that 0:16:58.840 --> 0:17:00.960 kind of came up. And then the third point I'd 0:17:01.160 --> 0:17:03.840 kind of highlighted, Jhonath, this is where you just left off, 0:17:04.080 --> 0:17:06.760 is you know, just how is the FED going to 0:17:06.880 --> 0:17:12.800 manage through this environment of heightened policy uncertainty? And he 0:17:12.960 --> 0:17:15.760 kind of addressed it and then didn't want to address 0:17:15.800 --> 0:17:19.280 it because there's no real good answers for that because 0:17:19.600 --> 0:17:24.359 the policy is being made and the outcomes are not known, 0:17:24.440 --> 0:17:27.720 so they're gonna have to be reactive to that. There's 0:17:27.720 --> 0:17:32.440 no forecast ability. There's a range of outcomes that he 0:17:32.560 --> 0:17:37.720 talked about, it's not elevated relative to COVID or GFC. 0:17:37.840 --> 0:17:40.320 So he got that question to kind of, you know, 0:17:40.480 --> 0:17:44.600 tamp down some of the concerns around it being elevated, 0:17:44.640 --> 0:17:48.960 but it's an elevated degree of uncertainty centered around policy uncertainty. 0:17:49.160 --> 0:17:52.199 Jeff I was musing over whether it was appropriate for 0:17:52.240 --> 0:17:55.199 a federal reserve to basically not have a clear message 0:17:55.200 --> 0:17:59.359 at a time where there are very clear economic conditions 0:17:59.359 --> 0:18:00.440 and potential. 0:18:00.000 --> 0:18:01.040 Policies down the pike. 0:18:01.640 --> 0:18:03.920 I'm going to ask you this in a slightly different 0:18:03.960 --> 0:18:05.720 way as a market participant. 0:18:05.880 --> 0:18:06.880 Does it introduce a. 0:18:06.840 --> 0:18:11.000 Greater degree of liability tied to FED decisions not having 0:18:11.000 --> 0:18:15.080 a good understanding understanding of exactly how they are going 0:18:15.119 --> 0:18:18.359 to proceed given certain potential developments. 0:18:19.640 --> 0:18:23.399 Yeah, it's what we call the reaction function, and we're 0:18:23.520 --> 0:18:27.680 very much focused on thinking a couple of steps ahead 0:18:27.840 --> 0:18:30.600 of how is the FED going to react to data? 0:18:30.600 --> 0:18:32.480 How is the FED going to react to uncertainty, because 0:18:32.480 --> 0:18:34.840 that's how we're going to price in the bond markets. 0:18:34.880 --> 0:18:37.840 You know, we moved a long way away from forecast 0:18:37.960 --> 0:18:41.840 dependency and a forecast dependent FED towards a data dependent 0:18:41.920 --> 0:18:45.919 FED and now a policy dependent FED, and so that 0:18:46.000 --> 0:18:49.560 makes it a bit challenging, but again kind of in 0:18:49.600 --> 0:18:52.600 the context of putting it into a historical context, not 0:18:52.800 --> 0:18:57.840 more challenging than it has been in the past. The FED, 0:18:58.240 --> 0:19:01.120 you know, gives us some guidance. I think he reiterated 0:19:01.119 --> 0:19:04.199 that guidance here. You see it in the pricing. The 0:19:04.359 --> 0:19:08.480 disconnect between market expectations and the FED rhetoric is actually 0:19:08.720 --> 0:19:12.600 the lowest it's been and that kind of narrows the 0:19:12.720 --> 0:19:15.199 range of outcomes here. So it's a little bit in 0:19:15.200 --> 0:19:18.800 some sense less uncertainty around the disconnect between bond market 0:19:18.840 --> 0:19:20.160 pricing and what the FED is signaling. 0:19:20.240 --> 0:19:23.320 And Jeff the technology of America, you're hardwired with it 0:19:23.320 --> 0:19:26.680 with your heritage to Carnegie Mellon. We saw the technology 0:19:26.720 --> 0:19:30.679 bro line up at the inauguration front and center as well. 0:19:31.000 --> 0:19:35.399 How do you overlay this technology boom that we're in 0:19:35.480 --> 0:19:37.880 right now? I'm looking at the Nasdaq back thirty years 0:19:37.880 --> 0:19:42.080 It's unreal, And he answered, Jeffers, how do you overlay 0:19:42.119 --> 0:19:46.640 this technology boom into your rate space and into what 0:19:46.680 --> 0:19:49.000 the FED will do? It's a bolt on which I 0:19:49.320 --> 0:19:51.000 just can't get a handle on. 0:19:52.080 --> 0:19:54.160 Yeah, it's a great question. It came up a little 0:19:54.200 --> 0:19:57.560 bit in the press conference today as well, and so 0:19:57.880 --> 0:19:59.880 you know, one way and it's not the only way, 0:20:00.000 --> 0:20:01.719 because what we're talking about here and when we talk 0:20:01.760 --> 0:20:05.320 about the megaforces of AI, you know are so profound 0:20:05.359 --> 0:20:08.000 through so many parts of our economy, But a very 0:20:08.040 --> 0:20:10.639 simple way of thinking about it in the macro lens 0:20:11.280 --> 0:20:14.560 is the wealth creation that we've seen in terms of 0:20:14.600 --> 0:20:18.879 the equity market, equity market performance, the way in which 0:20:18.920 --> 0:20:25.160 that translates into financial conditions, into wealth effects, into confidence effects, 0:20:25.280 --> 0:20:26.879 and ultimately into consumption. 0:20:27.040 --> 0:20:27.600 I think it's a. 0:20:27.560 --> 0:20:32.040 Big reason for why the disconnect between looking at the 0:20:32.080 --> 0:20:37.480 degree of policy restrictiveness, meaningfully restrictive takes the lens of 0:20:37.880 --> 0:20:41.440 what is the interest rate relative to inflation? How does 0:20:41.480 --> 0:20:45.960 that look historically, But it ignores the impact of the 0:20:46.000 --> 0:20:49.239 wealth effect that we're seeing in consumer confidence effects from that, 0:20:49.440 --> 0:20:53.240 which have a large element of the AI mega trends, 0:20:53.280 --> 0:20:56.920 the AI boom, the incredible experiment in profits and revenues 0:20:56.960 --> 0:21:01.520 that we're seeing flow through into people's feelings of wealth, 0:21:01.560 --> 0:21:05.400 and we know that consumers and consumption is very much 0:21:05.520 --> 0:21:07.880 driven by that aspect. And so I think that's been 0:21:08.160 --> 0:21:14.120 kind of an underappreciated element to why despite meaningfully restrictive policy, 0:21:14.119 --> 0:21:17.560 we haven't seen it in the data in the economic performal. 0:21:17.560 --> 0:21:19.760 This is critical. We had green span of red chapter 0:21:19.840 --> 0:21:22.400 twenty two and said, you know what, the stock market matters. 0:21:22.720 --> 0:21:25.439 I believe we have a president who says the stock 0:21:25.480 --> 0:21:28.520 market matters. Do you see evidence that this fed in 0:21:28.640 --> 0:21:32.120 Chairman Powell care about that wealth effect. 0:21:33.240 --> 0:21:36.040 They most certainly care about the wealth effect. 0:21:36.160 --> 0:21:36.719 Understand it. 0:21:36.880 --> 0:21:39.520 He answered that question when he got the question about 0:21:39.520 --> 0:21:44.119 the earlier moves in the stock market on Monday, and 0:21:44.160 --> 0:21:49.280 he talked about the persistency of the impact on financial conditions. 0:21:49.280 --> 0:21:52.040 So there is the answer, right, They're not gonna worry 0:21:52.040 --> 0:21:55.080 about one two days worth of selloffs. They're gonna look 0:21:55.080 --> 0:21:58.720 at financial conditions and the wealth component, the stock market 0:21:58.760 --> 0:22:01.880 component of that, the only thing that goes into financial conditions. 0:22:01.920 --> 0:22:04.399 He was clear to highlight that the increase in interest 0:22:04.480 --> 0:22:07.320 rates in the long end has been tightening financial conditions, 0:22:07.359 --> 0:22:10.840 the impact on housing. But they're well aware of the impact. 0:22:10.440 --> 0:22:13.240 Of wealth effect. But it's not a small move. 0:22:13.520 --> 0:22:15.720 It's not an isolated move in one part of the 0:22:15.720 --> 0:22:18.520 equity market. It has to be broad based, it has 0:22:18.600 --> 0:22:21.280 to be persistent, and that's what we've seen in the 0:22:21.320 --> 0:22:25.359 past of when you can flip the script on is 0:22:25.400 --> 0:22:29.280 the economy driving markets or is the market driving the economy? 0:22:29.280 --> 0:22:32.080 When the market has a big enough decline and it 0:22:32.280 --> 0:22:35.440 impacts the wealth and confidence, then it's markets that then 0:22:35.560 --> 0:22:38.520 lead the economy, and the FED will be having to 0:22:38.680 --> 0:22:41.240 take that into account in their setting a policy. 0:22:41.359 --> 0:22:43.600 All right, Fed, Chaer Rosenberg, I want to talk to 0:22:43.600 --> 0:22:46.359 you about getting several steps ahead then of the Federal 0:22:46.400 --> 0:22:48.560 Reserve as you figure out how to position. 0:22:48.800 --> 0:22:49.840 What are you looking at? 0:22:49.880 --> 0:22:52.800 What is your scenario analysis when the policies come down 0:22:52.800 --> 0:22:56.480 the pike to understand whether they're going to be potentially inflationary, 0:22:56.520 --> 0:22:59.119 whether they're going to be disinflationary, whether they can boost 0:22:59.160 --> 0:22:59.920 growth or slow. 0:23:01.200 --> 0:23:04.840 Yeah, it's about this kind of reaction function, and it's 0:23:04.880 --> 0:23:08.760 a little bit about the assessment of the asymmetry to 0:23:08.840 --> 0:23:12.720 the reaction function. You know, will they tolerate a little 0:23:12.720 --> 0:23:17.399 bit of missing on the two percent inflation trajectory relative 0:23:17.520 --> 0:23:21.680 to an outturn in labor market tightening? And so far, 0:23:22.040 --> 0:23:25.280 I think that we've seen the Fed given the willingness 0:23:25.280 --> 0:23:27.760 to cut interest rates. He got the question around you 0:23:27.800 --> 0:23:29.800 have to wait till you hit two percent. No, we 0:23:29.800 --> 0:23:32.479 already know the answers to that. They started cutting before 0:23:32.520 --> 0:23:34.480 they got to two percent, So we know that the 0:23:34.520 --> 0:23:37.840 Fed at least in the recent experience has been more 0:23:37.960 --> 0:23:43.560 concerned about labor market tightening, the concern about over tightening. 0:23:43.600 --> 0:23:47.040 The classical FED did it in terms of the create 0:23:47.200 --> 0:23:50.320 causing the recession. That creates a little bit of asymmetry 0:23:50.359 --> 0:23:53.320 of willingness to accept not getting to two percent, so 0:23:53.359 --> 0:23:56.560 that your reaction, the Fed's reaction, my expectation around the 0:23:56.560 --> 0:23:59.639 Fed's reaction to a weakening and labor markets might be 0:24:00.160 --> 0:24:03.919 more to cut than the opposite of let's say the 0:24:03.920 --> 0:24:07.920 inflation figures they start to, you know, instead of sticky, 0:24:07.960 --> 0:24:10.240 it's sticky in a little bit upward. Is the FED 0:24:10.280 --> 0:24:11.800 going to raise interest rates into that? 0:24:11.880 --> 0:24:12.440 I think it's a. 0:24:12.480 --> 0:24:16.000 Much higher bar. That asymmetry is kind of helpful to 0:24:16.119 --> 0:24:20.520 positioning and fixed income in the FED centric kind of 0:24:21.280 --> 0:24:24.800 maturity spectrum, kind of the short end of the intermediate 0:24:24.880 --> 0:24:26.400 end of the curve that are going to be more 0:24:26.480 --> 0:24:29.400 responsive to what the Fed's doing. And I think that's 0:24:29.440 --> 0:24:32.480 the place where you have a little bit better assessment 0:24:32.600 --> 0:24:34.920 because of this asymmetry between growth and inflation. 0:24:35.280 --> 0:24:37.960 JEF always great to get your views, Appreciate them this afternoon. 0:24:37.960 --> 0:24:40.399 Thank you, sir, Jeff Rosenberg. There a black rock on 0:24:40.400 --> 0:24:42.640 the latest FED decision of course, it wasn't just about 0:24:42.640 --> 0:24:44.520 the FED today, and Tom brought up the tech plays. 0:24:44.560 --> 0:24:47.439 So we're here from Meta, Microsoft and Tesla of the 0:24:47.480 --> 0:24:49.000 next few hours, and I want to bring you a 0:24:49.080 --> 0:24:53.280 number from Deutsche Bank, Amazon, Microsoft, downflimat METSA expected to 0:24:53.320 --> 0:24:57.600 surpass two hundred billion dollars in AI capex over the 0:24:57.600 --> 0:25:00.119 course of the past year. That is real money. We've 0:25:00.119 --> 0:25:02.200 talked a lot about the Federal Reserve's role in this economy. 0:25:02.240 --> 0:25:05.440 Those tech players have a huge role in this economy. 0:25:05.160 --> 0:25:07.719 On every level, and arguably some people could say that 0:25:07.960 --> 0:25:11.320 chat GPT single handedly save the US from a technical corcession, 0:25:11.359 --> 0:25:13.439 if not an outright de session, based on some of 0:25:13.440 --> 0:25:16.680 the investments that have been made. You're right to focus 0:25:16.880 --> 0:25:19.920 on big tech earnings because what this FED news conference 0:25:20.040 --> 0:25:21.800 just showed us is that you're not going to learn 0:25:21.800 --> 0:25:24.560 anything there, but you will learn from what you hear 0:25:24.880 --> 0:25:26.800 from some of these executives in terms of how much 0:25:26.840 --> 0:25:29.200 more they're going to keep investing and where they see 0:25:29.440 --> 0:25:30.840 the gravitational str quickly. 0:25:30.840 --> 0:25:33.359 Here there's a parallel to nineteen ninety five. I remember 0:25:33.359 --> 0:25:35.280 the first time I heard the word Google. I was 0:25:35.320 --> 0:25:40.680 like really, and uh yeah, sure, I didn't pony it up. 0:25:40.760 --> 0:25:43.480 But the bottom line is John, as you're right, this 0:25:43.680 --> 0:25:46.760 Capex overwhelms everything, and we're going to see that here 0:25:47.000 --> 0:25:48.960 as we begin the tech derby with Microsoft. 0:25:49.000 --> 0:25:50.720 We'll see if they can justify it, give them what 0:25:50.760 --> 0:25:52.600 we found out on Monday. If that is in date, 0:25:53.000 --> 0:25:55.439 the real tale coming up on the close, they'll follow 0:25:55.600 --> 0:25:58.080 through with the Federal Reserve decision and go into the 0:25:58.119 --> 0:26:00.359 close and pick up on a text story. Now doubt 0:26:00.480 --> 0:26:02.120 we're going to catch up with Bessie Duke, the former 0:26:02.160 --> 0:26:04.320 Federal Reserve governor, in just a moment. Like from New 0:26:04.359 --> 0:26:06.440 York City this afternoon. Good afternoon to you all. Thank 0:26:06.480 --> 0:26:09.919 you for choosing Bloomberg TV and Radio. This was the 0:26:09.960 --> 0:26:10.640 FED Decides