Instant Reaction: Jerome Powell Defends 50 Point Rate Cut

Bloomberg Audio Studios, Podcasts, Radio News. 0:00:12.440 --> 0:00:15.800 Good afternoon for our audience worldwide, Welcome to the program, 0:00:15.800 --> 0:00:19.000 a special edition of Bloomberg Surveillance on a Federal Reserve decision. 0:00:19.040 --> 0:00:22.319 The decision as follows, a fifty basis point cut with 0:00:22.400 --> 0:00:25.119 a sprinkle of descent. Your ecory market on the S 0:00:25.160 --> 0:00:27.480 and P five hundreds still just about firmer. But rolling 0:00:27.520 --> 0:00:29.720 over in that news conference, we're now firmer by just 0:00:29.760 --> 0:00:32.639 a quarter of one percent on a Russell, still elevated 0:00:32.720 --> 0:00:35.680 up by more than one full percentage point straight out 0:00:35.680 --> 0:00:39.600 of the gate in that news conference. Framing policy recalibration 0:00:39.800 --> 0:00:44.200 something he said multiple times, a process that evolves over time. 0:00:44.800 --> 0:00:46.400 Take a listen to what the Chairman had to say 0:00:46.640 --> 0:00:47.519 on the path forward. 0:00:48.840 --> 0:00:51.280 I do not think that anyone should look at this 0:00:51.360 --> 0:00:54.720 and say, oh, this is the new pace. You know, 0:00:54.920 --> 0:00:56.560 you have to have to think about it in terms 0:00:56.600 --> 0:00:59.200 of the base case. Of course, what happens will happen. 0:01:00.320 --> 0:01:02.720 In the base case. What you see is look at 0:01:02.760 --> 0:01:06.080 the SEP. You see cuts moving along. The sense of 0:01:06.080 --> 0:01:10.320 this is we're recalibrating policy down over time to a 0:01:10.360 --> 0:01:14.360 more neutral level, and we're moving at the pace that 0:01:14.720 --> 0:01:15.240 we think is. 0:01:15.160 --> 0:01:20.760 Appropriate recalibration on repeat, Lisa looking forward to meeting by mating, 0:01:21.280 --> 0:01:24.040 this is not the new pace. That's something he puts 0:01:24.040 --> 0:01:27.160 some weights on, some emphasis in that news conference. 0:01:26.760 --> 0:01:29.559 And if you were basically judging his news conference based 0:01:29.560 --> 0:01:33.000 on the stock reaction, there's a little wobble after that statement, 0:01:33.040 --> 0:01:35.480 and even more of a wabble after you really addressed 0:01:35.480 --> 0:01:37.480 the idea of a neutral race. He told it a 0:01:37.560 --> 0:01:40.000 sense of neutral, whatever that may be. And he said 0:01:40.040 --> 0:01:42.600 that my own sense is we're not going back to 0:01:42.640 --> 0:01:46.119 that nehru time or that negative rate, very low rate time. 0:01:46.720 --> 0:01:49.920 Neutral rate is probably much higher. You saw a reaction there, 0:01:49.920 --> 0:01:52.040 but then people shook it off and said, hey, he's 0:01:52.040 --> 0:01:52.640 got our back. 0:01:53.360 --> 0:01:56.400 I look, John, I strapped a fibonacci across this, and 0:01:56.440 --> 0:02:00.920 from where we were to the midpoint of the pandemic 0:02:01.040 --> 0:02:05.000 low is two and seven eighths. He is correct. It's 0:02:05.040 --> 0:02:08.520 just a nudge in the distance to travel just to 0:02:08.560 --> 0:02:10.160 get back to the midpoint. 0:02:10.440 --> 0:02:11.280 Call it normal. 0:02:11.800 --> 0:02:15.280 It's a lot longer than the job owning in the 0:02:15.280 --> 0:02:16.799 press conference that we just saw. 0:02:16.960 --> 0:02:19.359 We're lucky to have Mohammad alongside us. He won't say 0:02:19.400 --> 0:02:22.400 mission accomplished. He refused to say in this news conference, 0:02:22.400 --> 0:02:23.919 But we've got to ask, isn't it implied? 0:02:24.320 --> 0:02:24.880 Listen to this. 0:02:25.280 --> 0:02:28.040 The labor market conditions are pretty close to maximum employment. 0:02:28.320 --> 0:02:30.800 Retail sales GDPs show the economy is growing at a 0:02:30.800 --> 0:02:33.480 solid pace. We're not seeing rising layoffs or hearing it 0:02:33.560 --> 0:02:36.520 from companies. It's time to support the labor market when 0:02:36.560 --> 0:02:38.680 it's strong. That's what we're trying to do. Is that 0:02:38.720 --> 0:02:40.359 mission accomplished? Isn't it implied? 0:02:40.840 --> 0:02:41.000 Yeah? 0:02:41.040 --> 0:02:44.359 I mean Jason Furman put it as well as anybody 0:02:44.360 --> 0:02:46.880 can when he said if you look at the projection, 0:02:47.080 --> 0:02:49.200 and now if you listen to his statement, it is 0:02:49.200 --> 0:02:51.920 and I'm quoting him, just about the closest thing to 0:02:51.919 --> 0:02:55.640 mission accomplished banner that you can imagine them unfiling. So 0:02:55.720 --> 0:03:00.520 I think it is the hard thing for Power is 0:03:00.560 --> 0:03:04.400 that we're not just recalibrating policy. We're recalibrating what we 0:03:04.480 --> 0:03:07.520 mean by a fifty basis point cut. You don't start 0:03:07.680 --> 0:03:11.799 a fifty basis point cycle with a fifty basis point 0:03:11.840 --> 0:03:13.800 cut and say at the same time, the economy is 0:03:13.840 --> 0:03:16.240 in good place. And that's what he had to navigate 0:03:16.280 --> 0:03:18.520 all the time. If the economy is in a good place, 0:03:18.919 --> 0:03:22.200 why are starting with fifty basis points? And it was 0:03:22.360 --> 0:03:24.800 harder for him to reconcile it too, because he didn't 0:03:24.800 --> 0:03:28.800 want to acknowledge that keeping weights unchanged in July was 0:03:28.800 --> 0:03:32.200 a mistake. So that's the tension that played throughout the 0:03:32.240 --> 0:03:32.960 press conference. 0:03:33.080 --> 0:03:35.480 He did mention that if they had that Job's report 0:03:35.880 --> 0:03:38.400 before that mating in July, that maybe they would have 0:03:38.440 --> 0:03:40.760 gone twenty five at that mate, take what did you 0:03:40.800 --> 0:03:41.240 make of that? 0:03:42.240 --> 0:03:44.600 I made of that this idea that what does he 0:03:44.680 --> 0:03:46.640 mean about the totality of data? And he didn't talk 0:03:46.640 --> 0:03:49.640 about data dependency in quite the same way when he started. 0:03:49.720 --> 0:03:52.520 When he was asked by our own Michael McKee about 0:03:52.640 --> 0:03:57.440 what he was looking for and how much he seems 0:03:57.440 --> 0:04:00.640 to be reconciling something, he didn't have a real clear 0:04:01.240 --> 0:04:03.640 view on that. What is the data we're looking at now? 0:04:04.120 --> 0:04:07.240 Is it basically revisions to the jobs numbers that we're getting, 0:04:07.600 --> 0:04:11.000 as well as potentially the Beige Book. 0:04:11.080 --> 0:04:13.400 You've said this a few times. Revisions seems to be 0:04:13.400 --> 0:04:14.960 more weight now in revisions, and I think over the 0:04:15.040 --> 0:04:18.320 last few news conferences now he's basically said, whatever payrolls is, 0:04:18.800 --> 0:04:22.160 he thinks he's overstating jobs growth in this country, which. 0:04:21.920 --> 0:04:24.280 Has been just the truth over the past couple of 0:04:24.279 --> 0:04:26.760 months and frankly more than a year. Typically, when you 0:04:26.839 --> 0:04:28.880 get a weakening labor market, the data that you get 0:04:29.000 --> 0:04:32.880 initially is stronger than what you get on the revisions downward. 0:04:33.000 --> 0:04:35.440 But just to build the idea of mission accomplished, he 0:04:35.600 --> 0:04:38.520 kept saying that the only reason he could really make 0:04:38.560 --> 0:04:41.440 a commitment to fifty basis points is we are committed 0:04:41.640 --> 0:04:43.440 to coming up with a good outcome. He came up 0:04:43.480 --> 0:04:45.960 with lots of He went to the thesaurus of outsoft landing, 0:04:46.000 --> 0:04:47.599 but that was really where he was heading. 0:04:47.800 --> 0:04:50.239 Joining us now to discuss the continue the conversation built 0:04:50.240 --> 0:04:52.160 down to be the former New York Fed president and 0:04:52.160 --> 0:04:56.760 Bloomberg Economics senior advisor, billing your piece before this decision 0:04:56.800 --> 0:04:59.280 on Bloomberg opinion, you said the Fed should go big. 0:04:59.320 --> 0:05:02.479 Now I think it will it did. What did you 0:05:02.480 --> 0:05:03.880 think of what you heard this afternoon? 0:05:05.400 --> 0:05:08.239 It's pretty much what I was expecting in the sense 0:05:08.279 --> 0:05:10.640 that one of the issues that Paul had is how 0:05:10.640 --> 0:05:13.479 do you two fifty without scaring people that you know 0:05:13.560 --> 0:05:15.760 something bad about the economy? And I think he did 0:05:15.800 --> 0:05:18.640 that very well. He basically said we're doing this because 0:05:18.640 --> 0:05:22.680 the news is good. We've made progress on inflation, as 0:05:22.720 --> 0:05:24.960 opposed we're doing this because the news is bad. So 0:05:25.240 --> 0:05:27.800 I thought it was a very uh, you know, providing 0:05:27.839 --> 0:05:31.920 reassurance to people that thinks that they've they've got it. 0:05:32.279 --> 0:05:34.680 You also, you know, when he's asked about, you know, 0:05:34.120 --> 0:05:36.599 the Sam rule and the risks that the unemployment rate 0:05:36.640 --> 0:05:39.480 could go up by quite a bit, more pretty reassuring 0:05:39.520 --> 0:05:42.360 on that. You know, thinks that the labyer market can 0:05:42.360 --> 0:05:44.760 stabilize close to where we are today, and that's really 0:05:44.839 --> 0:05:47.279 hugely important because you know, if the layer of market 0:05:47.320 --> 0:05:49.880 doesn't stabilize, then we will have them out recession and 0:05:50.360 --> 0:05:52.680 then the FED will have to ease a lot more So, 0:05:52.760 --> 0:05:55.279 I thought the general tone of the of the press 0:05:55.320 --> 0:05:58.040 conference and the statement was we've got that, We've got it. 0:05:58.600 --> 0:06:01.680 Bill. Congratulations your essay today. You think you were one 0:06:01.680 --> 0:06:05.680 of the Fed whispers everybody's talking about out there right now. 0:06:06.400 --> 0:06:08.839 Bill Dudley, I look at where we are and where 0:06:08.880 --> 0:06:12.120 we're heading, and it simply comes down to the strength 0:06:12.279 --> 0:06:16.440 of the American economy. Forgetting about the theater of recession. 0:06:17.160 --> 0:06:21.320 Where does GDP settle, whether real GDP or nominal GDP. 0:06:22.040 --> 0:06:24.440 How do you envision that in a year or even 0:06:24.520 --> 0:06:25.120 two years. 0:06:26.520 --> 0:06:29.040 I think if you look at the Fed's forecast and 0:06:29.279 --> 0:06:32.359 look at how that growth affects the unemploying rate, the 0:06:32.360 --> 0:06:35.240 FED thinks that, you know, growth in the medium term 0:06:35.360 --> 0:06:38.840 is going to be two percent two percent plus at 0:06:38.839 --> 0:06:41.200 annual which rates. So and that's sort of what we're 0:06:41.240 --> 0:06:44.520 doing right now. So you know, the FED got a 0:06:44.600 --> 0:06:46.839 sort of soft landing in place. If the commy continues 0:06:46.839 --> 0:06:49.599 to growth at the same pace as it's doing right now, 0:06:49.640 --> 0:06:52.560 the unemploying rate will stay relatively stable. You know, you 0:06:52.560 --> 0:06:55.040 saw in the Summary of Economic Projections, the FED shows 0:06:55.040 --> 0:06:58.520 a modest, very modest, further increase in the unemploying rate 0:06:58.560 --> 0:07:01.440 of from four point two today to four point four percent, 0:07:01.480 --> 0:07:04.240 but you know, nothing beyond that. So it's sort of 0:07:04.279 --> 0:07:05.800 a soft you know, if you look at their forecast, 0:07:05.839 --> 0:07:07.960 it's a soft landing kind of story, and you know, 0:07:07.960 --> 0:07:09.040 I hope they could pull it off. 0:07:09.640 --> 0:07:11.600 Right now, the stock market and the bod market are 0:07:11.600 --> 0:07:13.800 trying to understand what the reaction function of the Federal 0:07:13.800 --> 0:07:16.560 Reserve actually is and to which data they're going to 0:07:16.600 --> 0:07:19.120 look at. It seemed like there was a renewed focus 0:07:19.200 --> 0:07:22.320 on both jobs revisions as well as the Beige Book, 0:07:22.520 --> 0:07:25.600 which was the input to potentially some of the heavier 0:07:25.640 --> 0:07:28.600 weight on fifty basis points. Do you view that now 0:07:28.680 --> 0:07:31.000 so as sort of these data points is taking on 0:07:31.080 --> 0:07:32.080 outsized importance. 0:07:33.280 --> 0:07:35.280 I think they are more focused on the liver market 0:07:35.680 --> 0:07:38.000 because there has been deterioration in the labor market. I 0:07:38.000 --> 0:07:40.000 think there are much more confident than inflation is going 0:07:40.040 --> 0:07:42.960 to continue to come down because they've seen more slack 0:07:43.000 --> 0:07:46.000 in the economy and the labor market. They've seen inflation 0:07:46.120 --> 0:07:49.680 progress that we've already had, they've seen wage inflation moderating. 0:07:49.960 --> 0:07:51.760 So I think their concerns are very much on the 0:07:52.040 --> 0:07:52.840 labor market side. 0:07:52.840 --> 0:07:55.000 So when I'm looking at the economic data right now, 0:07:55.440 --> 0:07:58.040 I'm focused on the liver market data, and that will 0:07:58.040 --> 0:08:00.520 determine whether, you know, we just get continued at a 0:08:00.560 --> 0:08:04.000 relatively modest pace after this the twenty five basis point reductions, 0:08:04.120 --> 0:08:06.160 which is essentially what was implied in the summary of 0:08:06.200 --> 0:08:10.200 economic projections, or whether they'll become more concerned about downside 0:08:10.280 --> 0:08:13.080 risk and then we'll have to get thrown a few fifties. 0:08:13.960 --> 0:08:14.200 Bill. 0:08:14.240 --> 0:08:17.760 Congratulations both on what you said they should do. And 0:08:17.800 --> 0:08:20.240 what you said they would do. And part of your 0:08:20.280 --> 0:08:22.520 argument was on the unemployment rate. So I want to 0:08:22.520 --> 0:08:25.160 go back to that. There revision up to four point 0:08:25.200 --> 0:08:27.760 four percent by the end of this year, stays at 0:08:27.800 --> 0:08:30.840 four point four percent at the end of twenty twenty five. 0:08:31.360 --> 0:08:35.240 Are you comfortable that we can stabilize here without the 0:08:35.280 --> 0:08:37.000 tipping points that you were so worried about. 0:08:38.559 --> 0:08:41.439 That's well, we're going to find out over the next year. 0:08:41.480 --> 0:08:44.600 I mean, the somils are very simple, you know, tells 0:08:44.640 --> 0:08:46.959 us a very simple story. When the unemployment rises beyond 0:08:46.960 --> 0:08:49.720 a certain threshold, the next stop is a full long recession. 0:08:50.520 --> 0:08:54.200 The question is what's the right threshold. Historically, the Sambrell 0:08:54.240 --> 0:08:55.880 threshold has been a half a point rise in the 0:08:55.960 --> 0:08:59.160 unemploying rate on a three month moving average basis over 0:08:59.240 --> 0:09:02.480 the over twelve period. And we've already pierced that threshold. 0:09:02.880 --> 0:09:05.320 So you have to believe that, you know, there is 0:09:05.360 --> 0:09:07.920 some risk here. You know, Paul was asked about the 0:09:08.040 --> 0:09:10.720 risk and you know, downside risk to the labor market, 0:09:10.720 --> 0:09:13.600 and you sort of, you know, mostly dismissed that. But 0:09:13.679 --> 0:09:15.959 I do think that I actually do think the risks 0:09:15.960 --> 0:09:19.280 are you know, maybe at best they're balanced, But I 0:09:19.320 --> 0:09:21.599 would actually be more concerned about the downside risk to 0:09:21.679 --> 0:09:24.199 the labor market now than thee risk to inflation. 0:09:24.520 --> 0:09:27.480 Bill, You'll always find a politician that's unhappy. I found one, 0:09:27.679 --> 0:09:30.240 Senator Warren. This kind of interest rates has yet another 0:09:30.280 --> 0:09:33.560 acknowledgement that power waited too long to reduce interest rates. 0:09:33.600 --> 0:09:36.400 I do think the politics are relevant here. November seventh 0:09:36.400 --> 0:09:39.200 will be the next meeting. We might have a decision 0:09:39.200 --> 0:09:41.120 in hand by the American public as to who they'd 0:09:41.160 --> 0:09:43.120 like the next president of the United States to be. 0:09:43.440 --> 0:09:45.640 We might know the makeup of Congress as well. We 0:09:45.720 --> 0:09:47.680 might have a better idea of what policy looks like 0:09:47.720 --> 0:09:48.560 in twenty twenty five. 0:09:48.600 --> 0:09:49.360 Bill, you've lift this. 0:09:49.880 --> 0:09:52.400 You were on the FMC back in twenty sixteen, I believe, 0:09:53.080 --> 0:09:55.440 can you walk me through your experience back then and 0:09:55.480 --> 0:09:57.160 whether the same applies this time around. 0:09:58.559 --> 0:10:01.640 I would be very surprised that the election outcome affected 0:10:01.760 --> 0:10:04.560 what the FED does over the near term, because you know, 0:10:04.640 --> 0:10:07.600 an election outcome is one thing, but what that incoming 0:10:07.640 --> 0:10:09.840 president will be able to do with you know, as 0:10:09.840 --> 0:10:13.640 closely divided Congress, Congress remains very uncertain, and so I 0:10:13.679 --> 0:10:16.320 think the FED reacts to the world as it is 0:10:16.360 --> 0:10:19.560 as opposed to speculates about how the world could be. 0:10:20.240 --> 0:10:22.160 So I would be I would be very surprised if 0:10:22.160 --> 0:10:24.760 the Fed doesn't cut rates at the November meeting. I mean, 0:10:25.080 --> 0:10:27.319 if they don't cut rates of the November meeting, it's 0:10:27.320 --> 0:10:30.280 because the economy is bounced back and very strong, or 0:10:30.320 --> 0:10:33.400 the inflation news is really bad between now and then, 0:10:34.160 --> 0:10:35.839 and that's not something I expect at this point. I 0:10:35.880 --> 0:10:37.960 don't think that Powell expects it. I think, you know, 0:10:38.000 --> 0:10:40.079 the odds of a twenty five basic point rate cut 0:10:40.160 --> 0:10:44.280 in November are very very high, and if the economy shows, 0:10:44.520 --> 0:10:47.520 you know, more weakness than maybe even fifty basis points. 0:10:47.960 --> 0:10:50.840 I bill appreciate it as always built upley of Bloomberg 0:10:50.880 --> 0:10:53.240 opinion the Fed should go big now I think it will. 0:10:53.679 --> 0:10:56.560 It did it did about an hour and thirty minutes ago. 0:10:56.800 --> 0:10:58.920 Let's bring Gid Michael McKee. He was in the news conference. 0:10:58.960 --> 0:11:01.360 Mike McKee, I want your thoughts on that press conference 0:11:01.520 --> 0:11:03.120 where there was a little bit of tension for you. 0:11:03.320 --> 0:11:04.560 How did you walk out of this one? 0:11:06.280 --> 0:11:08.559 Well, I don't think there was a huge amount of tension, 0:11:08.800 --> 0:11:11.040 except for the fact that as you were just talking 0:11:11.040 --> 0:11:14.160 about with Bill Dudley the idea that there is probably 0:11:14.160 --> 0:11:17.200 more risk to the labor department, to the labor market 0:11:17.520 --> 0:11:20.760 than the FED is letting on. And that's the concern. 0:11:21.160 --> 0:11:24.240 And to get to my question at Lisa mentioned the 0:11:24.280 --> 0:11:29.720 FED was data dependent until they were confident that inflation. 0:11:29.440 --> 0:11:30.760 Was going to be down to target. 0:11:31.120 --> 0:11:35.199 But how can they be data dependent on the unemployment rate? 0:11:35.240 --> 0:11:36.560 We don't know what it's going to be, and as 0:11:36.600 --> 0:11:40.079 Bill suggested, it could go up rapidly. Do we get 0:11:40.080 --> 0:11:43.679 a rapid response then, especially since policy works with a lag, 0:11:43.920 --> 0:11:46.560 it's a little unclear what their reaction function is going 0:11:46.600 --> 0:11:47.720 to be going forward. 0:11:47.880 --> 0:11:50.040 Might looking forward to catching up with you tomorrow. Lots 0:11:50.040 --> 0:11:52.640 to talk about plenty more data just in the next 0:11:52.640 --> 0:11:54.840 week or so. Equities right now on the SMP Lisa 0:11:54.920 --> 0:11:57.640 firma by four tenths of one percent, the unperformance on 0:11:57.640 --> 0:11:59.000 the small camps that you might expect. 0:11:59.120 --> 0:12:01.520 Yeah, and the Fed basically gave this market what it 0:12:01.559 --> 0:12:03.880 was looking for, and then some a question now of 0:12:03.920 --> 0:12:06.640 just how much this market has moved ahead of what 0:12:06.679 --> 0:12:10.280 the Fed has said. Mohammed, I would love your thoughts 0:12:10.400 --> 0:12:13.400 on what the new data dependency actually is given the 0:12:13.400 --> 0:12:16.200 fact that people are looking for a litmus test to 0:12:16.280 --> 0:12:19.280 understand what the reaction function is of a FED. That 0:12:19.760 --> 0:12:23.320 kind of is playing with what they get, which is 0:12:23.440 --> 0:12:25.160 the same lack of clarity that we have. 0:12:25.880 --> 0:12:28.240 Yeah, I think the data dependence all comes down to 0:12:28.280 --> 0:12:32.160 the labor market, and he went through in detail a 0:12:32.240 --> 0:12:35.280 number of indicators he looks at and when he says 0:12:35.320 --> 0:12:37.680 the totality of the data, I think he really means 0:12:37.720 --> 0:12:41.360 it when it comes to the labor market. Lisa, I'm 0:12:41.400 --> 0:12:43.520 surprised you haven't picked up on the fixed income market 0:12:43.559 --> 0:12:46.200 and what has happened to treasuries that they're now higher 0:12:46.240 --> 0:12:49.640 on the day. There's been quite a move when this 0:12:49.760 --> 0:12:53.600 statement was announced. The tenure went down to three sixty 0:12:53.600 --> 0:12:55.679 four is currently trading at three seventy. 0:12:55.800 --> 0:12:58.120 It's up six spaces points space. What do you think 0:12:58.120 --> 0:12:58.439 that is? 0:12:59.200 --> 0:13:03.360 I think they some and the curve has steepened. Two 0:13:03.440 --> 0:13:06.120 stands are now nine basis points. I think there is 0:13:06.200 --> 0:13:09.840 some concern as what does it mean longer term for inflation. 0:13:10.600 --> 0:13:13.560 That's the only thing I can think of. But the 0:13:13.640 --> 0:13:16.800 action has been really interesting, and once again you end 0:13:16.880 --> 0:13:19.440 up in a different place after the press conference than 0:13:19.480 --> 0:13:20.679 you wear after the statement. 0:13:21.000 --> 0:13:24.320 Yes, no question about that I think of David Kelly 0:13:24.800 --> 0:13:27.240 is JP Morgan. You know John, He's been very good 0:13:27.640 --> 0:13:30.560 about a vector of nonfirm payrolls that gets you to 0:13:30.600 --> 0:13:33.839 a negative statistic three month moving average about one hundred 0:13:33.840 --> 0:13:38.240 and sixteen thousand. Nobody's modeling in here if this job 0:13:38.280 --> 0:13:41.720 economy USANA one talks about continues to deteriorate. 0:13:41.880 --> 0:13:44.000 So what are we saying here, Muhammed, We're willing to 0:13:44.040 --> 0:13:47.520 accept three the high twos, or we're worried about going 0:13:47.520 --> 0:13:50.200 back to three point five push in four? What's the 0:13:50.240 --> 0:13:50.840 story here? 0:13:51.280 --> 0:13:54.280 So we cannot answer that story without bringing in fiscal policy, 0:13:54.320 --> 0:13:56.640 without bringing in structural reforms. I mean, that's the trap 0:13:56.679 --> 0:13:59.600 we have all fallen into. That we still think of 0:13:59.640 --> 0:14:01.760 the FED is the only game in town. But does 0:14:01.840 --> 0:14:06.080 other things happening that that speak to? What is that weight? 0:14:06.160 --> 0:14:07.760 And that's why the wage is so wide? 0:14:08.160 --> 0:14:10.560 You brought this up actually when j Powell said this 0:14:11.160 --> 0:14:13.880 over time and we're going to get down to two 0:14:13.880 --> 0:14:17.720 percent over time, it raises this question, especially as he 0:14:17.800 --> 0:14:20.840 talks about not mission accomplished but sort of you know, 0:14:21.280 --> 0:14:22.480 wishing to wash plist. 0:14:22.640 --> 0:14:26.360 But this idea that we could I'm going to ask 0:14:26.400 --> 0:14:27.360 you to say that again. 0:14:27.240 --> 0:14:31.840 Please, but this idea that you know, he's so excited 0:14:31.840 --> 0:14:35.360 about the idea of a soft landing that it will okay, 0:14:35.400 --> 0:14:37.920 it's okay for it to take a number of years 0:14:37.920 --> 0:14:39.360 to get back to that two percent target. 0:14:39.400 --> 0:14:40.840 And that's in the projections. I'm going to have him 0:14:40.840 --> 0:14:42.440 in front of me, he said, co PC Right now, 0:14:42.480 --> 0:14:45.800 it's two point seven. They're projected at two point six 0:14:45.960 --> 0:14:48.360 at the end of this year, two point two at 0:14:48.360 --> 0:14:50.760 then of next year, and two by twenty twenty six. 0:14:50.840 --> 0:14:53.120 We basically pushed back the target. 0:14:53.280 --> 0:14:55.600 I like what you said about mission accomplish, and it's 0:14:55.640 --> 0:14:58.920 this terror of getting this wrong, whether you're a governor 0:14:59.000 --> 0:15:04.160 or president. Chairman. Jason Furman out teaching AC ten up 0:15:04.200 --> 0:15:07.120 at Harvard and he was lectured by his daughter John. 0:15:07.240 --> 0:15:09.800 We got a tweet out from Jason Furman where his 0:15:09.920 --> 0:15:13.080 daughter walked in and said to Professor Furman, you were wrong. 0:15:13.200 --> 0:15:15.040 There's a lot of that going on right now. 0:15:15.320 --> 0:15:16.960 A lot of people were wrong. I think we should 0:15:16.960 --> 0:15:19.560 pointing this out. The market was priced for something closer 0:15:19.560 --> 0:15:22.920 to fifty than twenty five. The overwhelming majority of economists 0:15:22.960 --> 0:15:25.360 in our survey, and we surveyed more than one hundred 0:15:25.600 --> 0:15:28.480 not even ten percent of them saw fifty. So shout 0:15:28.480 --> 0:15:30.600 out Mike Faroli over a JP Morgan, one of the 0:15:30.720 --> 0:15:32.840 very few together without a one guy belief over at 0:15:32.840 --> 0:15:35.520 Bloomberg Economics, who we're looking for that fifty today. 0:15:35.640 --> 0:15:35.840 Yeah. 0:15:35.880 --> 0:15:38.360 Deutsche Back actually did an informal survey also that they 0:15:38.360 --> 0:15:40.760 put out today, and something like sixty one percent roughly 0:15:40.800 --> 0:15:43.480 and plus remnus a half a percent came out saying 0:15:43.480 --> 0:15:45.200 that it was twenty five basis points. So this really 0:15:45.280 --> 0:15:47.320 was kind of on the back foot. 0:15:47.360 --> 0:15:49.240 I kept it quiet. Nobody cares what they think, but 0:15:49.280 --> 0:15:50.640 the fact is I was wrong. 0:15:51.040 --> 0:15:53.360 Jeff Rosenberger black Rock joins us now for more. He 0:15:53.400 --> 0:15:55.440 wasn't wrong if you were waiting impatiently to give us 0:15:55.480 --> 0:15:57.800 his views on this. Jeff, let's talk about the bond market, 0:15:57.840 --> 0:15:59.680 and you can throw in your thoughts on this Federal Reserve. 0:15:59.720 --> 0:16:02.200 To say, the projections in the news conference as well, 0:16:02.400 --> 0:16:05.200 the botmarket's sunning golf. The thirty years up seven basis points, 0:16:05.200 --> 0:16:07.520 the ten year is up six. What do you think 0:16:07.520 --> 0:16:08.040 that signal was? 0:16:08.120 --> 0:16:08.400 Jeff? 0:16:09.960 --> 0:16:13.120 Yeah, I think the important point here is that there's 0:16:13.320 --> 0:16:16.040 the action and the fifty basis points, and then there's 0:16:16.040 --> 0:16:19.080 the expectation and what was priced in. And so while 0:16:19.120 --> 0:16:21.920 the bond market was leaning towards the fifty basis points, 0:16:22.040 --> 0:16:25.480 it was really more about that segment Jonathan of the 0:16:25.480 --> 0:16:27.000 press conference that you highlighted. 0:16:27.040 --> 0:16:27.960 I had it written in my. 0:16:28.000 --> 0:16:31.480 Notes as well, the interchange where Powell said, you know, 0:16:31.560 --> 0:16:34.800 don't take that fifty basis points as the new you 0:16:34.840 --> 0:16:38.200 know pace, and he pushed back against you know, this 0:16:38.240 --> 0:16:40.120 is going to be followed by he got several questions 0:16:40.120 --> 0:16:42.320 on more fifties the problem, and I think to I 0:16:42.360 --> 0:16:45.720 answer a bit of Muhammad's question, your question to Muhammad 0:16:45.720 --> 0:16:49.200 and that interchange is that the bond market was pricing 0:16:49.240 --> 0:16:54.400 in more subsequent fifties and into twenty twenty five still 0:16:54.480 --> 0:16:57.120 is pricing in bigger increases than what you're getting in 0:16:57.200 --> 0:17:00.480 the sep and Powell and the press conference really pushed 0:17:00.520 --> 0:17:01.320 back against that. 0:17:01.480 --> 0:17:03.160 So I think you have two things going on. 0:17:04.040 --> 0:17:08.600 I'm very amenable to Mohammad and Lisa's comments that you know, 0:17:08.680 --> 0:17:10.399 maybe this is a little bit of a sign of 0:17:10.720 --> 0:17:13.240 inflation and some of those concerns what you're seeing in gold, 0:17:13.440 --> 0:17:16.119 but it's also I think in the immediacy this is 0:17:16.119 --> 0:17:19.159 a little bit disappointing relative to what's been built up 0:17:19.240 --> 0:17:22.520 in bond expectations, and that from a broader perspective is 0:17:22.520 --> 0:17:25.720 really an important point from an investment perspective that you 0:17:25.800 --> 0:17:26.159 can have. 0:17:26.280 --> 0:17:27.240 Here's the headline. 0:17:27.359 --> 0:17:30.000 Fed cuts interest rates by fifty basis points and the 0:17:30.040 --> 0:17:32.520 bond market returns are going to be negative today. So 0:17:32.560 --> 0:17:36.040 it's not just you know, the action I can anticipate, 0:17:36.359 --> 0:17:37.600 you know, the fence cutting rates. 0:17:37.640 --> 0:17:39.879 It's time to back up the truck in terms of duration. 0:17:40.359 --> 0:17:43.320 The problem is it's also a lot in the price, 0:17:43.400 --> 0:17:46.639 so they've got to over deliver, and they didn't do 0:17:46.760 --> 0:17:49.200 that relative to bond expectations. And that's why I think 0:17:49.200 --> 0:17:51.879 you're seeing a little bit of that disappointment out of 0:17:51.880 --> 0:17:55.600 fixed income markets and they're read on today's decision. 0:17:55.720 --> 0:17:58.280 Jeff Muhammad scolded me because frankly, I wasn't paying enough 0:17:58.280 --> 0:18:00.639 attention to the bond market. The bond market is speaking, 0:18:00.640 --> 0:18:02.639 and the ten year note is speaking, and what it 0:18:02.680 --> 0:18:05.560 is saying is it at least has a higher yield. 0:18:05.560 --> 0:18:07.439 But we are speaking to the bond market right now. 0:18:07.520 --> 0:18:10.040 Jeff Rosenberg, what is your reaction function? Does this make 0:18:10.400 --> 0:18:13.920 you less interested on the margins in buying ten year 0:18:14.119 --> 0:18:16.280 or twenty year or thirty year treasuries. 0:18:17.560 --> 0:18:20.040 Yeah, you know, I've said in lots of different context 0:18:20.119 --> 0:18:22.840 with you guys that you have to just be careful 0:18:23.000 --> 0:18:25.720 about where you want to own your fixed income, that 0:18:26.240 --> 0:18:30.640 the yield curve move can be more important, more determinant 0:18:30.680 --> 0:18:33.359 to your fixed income returns than just the direction of 0:18:33.359 --> 0:18:35.439 interest rates. A lot of times we just think about, 0:18:35.600 --> 0:18:37.520 you want to own bonds when rates are going down 0:18:37.520 --> 0:18:40.080 when the fed's cutting. You don't want to own bonds 0:18:40.760 --> 0:18:45.320 when they're hiking. But because the curve is so flat. 0:18:45.400 --> 0:18:46.840 We're off the peak of inversions. 0:18:46.880 --> 0:18:50.159 But it's still a historic lack of premium in that 0:18:50.240 --> 0:18:53.040 back end of the curve. That where you hold your 0:18:53.119 --> 0:18:55.480 duration is going to matter as much as how much 0:18:55.560 --> 0:18:58.760 duration you hold. So it's still that story for me. 0:18:58.920 --> 0:19:01.440 It's still the front end is a little bit better 0:19:01.560 --> 0:19:04.040 five years and in you want to be careful about 0:19:04.040 --> 0:19:06.480 that term premium. And the other thing that I'm highlighting 0:19:06.480 --> 0:19:08.439 here today is you just got to be careful about 0:19:08.720 --> 0:19:09.560 how much is. 0:19:09.520 --> 0:19:10.479 Already priced in. 0:19:10.560 --> 0:19:13.679 This is unique about the beginning of a FED cutting cycle. 0:19:13.720 --> 0:19:17.600 We're about twice the amount of expected cuts priced at 0:19:17.600 --> 0:19:18.320 the onset. 0:19:18.800 --> 0:19:21.400 This was John Otter's article. 0:19:21.119 --> 0:19:23.760 In Bloomberg, he highlighted this, it's a great chart, about 0:19:23.800 --> 0:19:27.959 twice the amount of historic FED pricing about over two 0:19:28.000 --> 0:19:31.200 and a half over two one hundred basis points, whereas 0:19:31.400 --> 0:19:33.440 historically you come in and there's only about one hundred 0:19:33.440 --> 0:19:36.359 basis points, so a lot is expected. It raises the 0:19:36.359 --> 0:19:39.800 bar for subsequent fixed income performance. We've had a great run, 0:19:40.080 --> 0:19:42.600 but that tells you a lot of the performances in 0:19:42.640 --> 0:19:44.359 the rear view mirror, and so you got to be 0:19:44.520 --> 0:19:47.320 more thoughtful about where you own that duration around the 0:19:47.400 --> 0:19:49.320 curve when we look forward. 0:19:49.600 --> 0:19:51.520 Does it give you more confidence though to go into risk? 0:19:51.600 --> 0:19:56.240 Jeff, Well, you know, I think the FED did its best. 0:19:56.320 --> 0:19:58.520 And that was the interchange you just had with Dudley 0:19:58.760 --> 0:19:59.640 the press conference. 0:19:59.720 --> 0:20:00.680 Channel lenge was. 0:20:00.600 --> 0:20:05.320 Give fifty without spooking the market. I think they're successful 0:20:05.400 --> 0:20:09.040 today in there. That's the response in terms of small caps. 0:20:09.080 --> 0:20:12.080 You only buy small caps when the fence cutting rates, 0:20:12.119 --> 0:20:15.439 when you believe in the soft landing and the denominator effect, 0:20:15.480 --> 0:20:18.200 the discount rate is dominating, you know, any of your 0:20:18.240 --> 0:20:19.520 concerns in terms of growth. 0:20:19.520 --> 0:20:22.080 So I think they navigated that pretty well. 0:20:22.160 --> 0:20:24.720 I think when you go forward, you know it is 0:20:24.760 --> 0:20:28.560 a soft landing baseline. I think that's exactly what the 0:20:28.600 --> 0:20:31.320 SEP is saying. When you look at all of the 0:20:31.359 --> 0:20:34.840 other economic data outside of the labor market data, you know, 0:20:34.880 --> 0:20:37.879 it's all very good. It's all very supportive for risky 0:20:37.920 --> 0:20:41.240 assets and the fixed income side. That's a carry story. 0:20:41.520 --> 0:20:44.040 We're pretty comfortable with that. You got to be a 0:20:44.040 --> 0:20:46.320 little bit careful that it's a symmetric that a very 0:20:46.359 --> 0:20:48.680 tight spreads any sign of recession. 0:20:49.080 --> 0:20:51.119 And I don't think we're really seeing. 0:20:51.119 --> 0:20:54.439 The recessionary signs out of the labor markets, but you 0:20:54.520 --> 0:20:56.920 have to be cogniz of it that that is the 0:20:56.960 --> 0:20:58.960 one place where you're seeing some weakness. 0:20:59.160 --> 0:21:01.440 But I think this is still supportive to risky assets. 0:21:01.480 --> 0:21:04.560 It just quickly Jeff November seventh, how different is that 0:21:04.600 --> 0:21:07.600 committee meeting going to be compared to this one? 0:21:08.600 --> 0:21:11.560 Well, you know, as you pointed out, you know you're 0:21:11.600 --> 0:21:14.040 coming on the back side of the election. But you know, 0:21:14.320 --> 0:21:17.160 as Powell answered, they're going to try to avoid any 0:21:17.240 --> 0:21:19.040 kind of discussion on that. It's really going to be 0:21:19.080 --> 0:21:21.280 about the evolution of the data. You know, the interesting 0:21:21.359 --> 0:21:23.800 data point in terms of revisions. You know, we talk 0:21:23.880 --> 0:21:27.280 about data dependence The problem is that data we're dependent 0:21:27.280 --> 0:21:28.600 on is not very dependable. 0:21:29.040 --> 0:21:30.280 Try that out slowly. 0:21:31.119 --> 0:21:33.800 But that's the payroll data, right, and so the revisions 0:21:33.800 --> 0:21:34.600 are going to be important. 0:21:34.600 --> 0:21:36.240 We're going to have another one that's going. 0:21:36.160 --> 0:21:40.040 To dictate a lot of the discussion without a deceleration. 0:21:40.440 --> 0:21:42.440 I don't think you're going to be talking about fifties, 0:21:42.520 --> 0:21:44.960 but they've clearly laid the groundwork here for a twenty 0:21:45.000 --> 0:21:48.040 five in November, twenty five in December. That's what I 0:21:48.080 --> 0:21:51.360 think is will price back into the bond market. That's 0:21:51.359 --> 0:21:53.440 why you're seeing a little bit higher rates. If they 0:21:53.480 --> 0:21:56.400 deliver on that, then there won't be as much surprise 0:21:56.560 --> 0:21:58.399 or anticipation as we had in this meeting. 0:21:58.640 --> 0:22:00.880 So Jeff, let me ask the question that I suspect 0:22:00.880 --> 0:22:05.280 you hate being asked. And let's assume that you're being 0:22:05.280 --> 0:22:08.840 asked for a retail investor sixty forty simple portfolio. What 0:22:08.920 --> 0:22:11.119 should they do now given everything you've. 0:22:11.000 --> 0:22:15.159 Just said, Yeah, I mean, the part of this discussion 0:22:15.240 --> 0:22:18.240 around the forty, around the fixed income piece, Mohammed is 0:22:18.480 --> 0:22:21.679 is that it's not the old sixty forty. It's not 0:22:21.920 --> 0:22:26.520 this era where bond volatility is three percent. Bond volatility 0:22:26.560 --> 0:22:30.240 is six to eight percent in the post COVID environment. 0:22:30.600 --> 0:22:33.280 So the forty side is really where we've got to 0:22:33.320 --> 0:22:35.919 do some rethinking, and that's where we talk about. 0:22:35.640 --> 0:22:38.200 Diversifying your diversifiers. 0:22:37.600 --> 0:22:40.800 Thinking about different ways of finding ballast in your portfolio 0:22:41.240 --> 0:22:44.400 because of the uncertainty of how duration and risk free 0:22:44.480 --> 0:22:47.920 rates are going to perform in a more inflation uncertain environment. 0:22:47.960 --> 0:22:50.119 That's the points about the yield curve and what's already 0:22:50.119 --> 0:22:52.240 priced in. So I think in that sixty forty it's 0:22:52.280 --> 0:22:57.439 really about, you know, using different ways to find diversification 0:22:57.840 --> 0:23:01.199 and diversifying that forty bucket away from kind of just 0:23:01.240 --> 0:23:02.639 piling into traditional duration. 0:23:02.760 --> 0:23:05.520 Did I hear you say a more inflation uncertain environment? 0:23:06.600 --> 0:23:07.520 That is what I said. 0:23:07.600 --> 0:23:10.119 Yes, I don't think that's what Pole thinks. 0:23:11.720 --> 0:23:15.159 There's greater confidence that inflation is on a path to 0:23:15.280 --> 0:23:18.399 returning to two percent, but we're not at two percent 0:23:18.480 --> 0:23:21.000 and that path, as we saw in the interchange, the 0:23:21.040 --> 0:23:25.520 shelter inflation, the uncertainty around how far we're going, and 0:23:25.560 --> 0:23:29.080 the wage inflation picture. Right, there's a lot of confidence 0:23:29.080 --> 0:23:32.240 that we're moving towards there, but we're not quite there yet. 0:23:32.280 --> 0:23:36.520 That's the point about a more uncertain inflationary environment, and 0:23:36.560 --> 0:23:40.080 with respect to kind of negative stockbond correlation, which is 0:23:40.160 --> 0:23:40.640 really the. 0:23:40.680 --> 0:23:42.879 Driver of the sixty forty part. 0:23:43.040 --> 0:23:46.080 The challenge is that was really working well in your 0:23:46.119 --> 0:23:50.280 portfolio when inflation was missing from below. Inflation is still 0:23:50.280 --> 0:23:53.399 missing from above, and until you get back to the 0:23:53.440 --> 0:23:56.520 period where we have too little inflation, you're not really 0:23:56.560 --> 0:24:00.160 back to that halcyon days of fixed income in sixty forty. 0:24:00.240 --> 0:24:03.280 Jeff, this was perfect. Thank you, sir, Jeff Rosenberg. There 0:24:03.440 --> 0:24:05.760 of black rock on the Federal Reserve decision. If you 0:24:05.800 --> 0:24:07.639 are just joining us, welcome to the program. It's a 0:24:07.640 --> 0:24:10.560 fifty basis point CUD from the Federal Reserve with some descent, 0:24:10.920 --> 0:24:13.639 the first descent we've seen from a sitting governor on 0:24:13.640 --> 0:24:16.399 the FMC going all the way back to two thousand 0:24:16.480 --> 0:24:19.560 and five Governor Mickey Bowman. Not a surprise for many 0:24:19.560 --> 0:24:21.240 of you who's followed some of those speeches over the 0:24:21.320 --> 0:24:23.679 last month or so. If you're looking at the equity market, 0:24:23.840 --> 0:24:26.399 just about just about attempting to hold on to an 0:24:26.440 --> 0:24:28.800 eighth day of gains on a S and P five hundred, 0:24:29.000 --> 0:24:31.199 and it's a struggle. We turned slightly negative on the 0:24:31.240 --> 0:24:33.920 SMP on the NASNAK one hundred, we're negative by zero 0:24:34.000 --> 0:24:37.639 point zero five percent. Mohammed, just a final thought what 0:24:37.760 --> 0:24:40.560 I heard from you, then, if you have any confidence 0:24:40.600 --> 0:24:43.000 the inflation story is done, that we're on a one 0:24:43.040 --> 0:24:45.040 way trip now back to neutral, which might be around 0:24:45.080 --> 0:24:48.440 three percent, are you suggesting that confidence might be misplaced? 0:24:48.680 --> 0:24:51.360 I think it's too early to declare mission accomplished. We've 0:24:51.400 --> 0:24:55.240 come a long way, but their inherent contradiction that still 0:24:55.240 --> 0:24:58.040 have to be sorted. John, this was historic. I mean, 0:24:58.080 --> 0:25:00.679 we're going to look back on this day not only 0:25:00.720 --> 0:25:04.680 as the beginning of the cutting cycle, but as having 0:25:04.720 --> 0:25:09.160 we calibrated what we mean by fifty basis point start 0:25:09.280 --> 0:25:11.640 to a cutting cycle. And we're going to look back 0:25:11.680 --> 0:25:14.520 and either this will be the absolutely white bet, which 0:25:14.560 --> 0:25:17.879 is be preemptive on the labor market after you were 0:25:18.000 --> 0:25:21.320 reactive to inflation this is a fundamental change in their 0:25:21.320 --> 0:25:25.200 reaction function. Or alternatively, we will look at this as 0:25:25.240 --> 0:25:28.199 being too aggressive. I'm hoping that it will be the first, 0:25:29.160 --> 0:25:32.680 because we all want the labor market to do well. 0:25:32.800 --> 0:25:34.880 Of course, Michael B. Key asked for about being preemptive, 0:25:34.920 --> 0:25:37.520 and he said data dependency or the totality of data 0:25:37.640 --> 0:25:39.320 My big issue coming out of this is do we 0:25:39.400 --> 0:25:42.200 understand the fed's reaction function more or do we understand 0:25:42.240 --> 0:25:43.600 it less than we did before. 0:25:43.760 --> 0:25:45.240 I think we've got a lot of questions that still 0:25:45.240 --> 0:25:47.440 demand answers, and hopefully we'll get them over the next 0:25:47.440 --> 0:25:49.840 few weeks, but I doubt it once that data starts 0:25:49.880 --> 0:25:51.600 to come in. I'm looking forward to hearing from the 0:25:51.640 --> 0:25:53.960 rest of the committee, aren't you. Oh yeah, over the 0:25:53.960 --> 0:25:54.720 next few days. 0:25:54.760 --> 0:25:55.720 It's quiet a sense. 0:25:55.920 --> 0:25:58.080 Yeah, let's just see how close some of them were 0:25:58.320 --> 0:26:02.119 to actually gun twenty five, not the fifty Mohammed Thank you,