Instant Reaction: Jay Powell on Fed Policy

Bloomberg Audio Studios, podcasts, radio news. 0:00:13.680 --> 0:00:17.120 An absolutely fascinating news conference with Chairman Powell. 0:00:17.280 --> 0:00:19.000 Where do we start? Where do we end? 0:00:19.040 --> 0:00:21.520 A twenty five basis point reduction for the Federal Reserve 0:00:21.800 --> 0:00:25.160 as anticipated, but some drama over the last forty five 0:00:25.200 --> 0:00:25.840 minutes or so. 0:00:26.200 --> 0:00:28.080 Let's start with the equity market. 0:00:28.280 --> 0:00:29.880 On the S and P five hundred, we look a 0:00:29.880 --> 0:00:31.880 little something like this at all time highs up eight 0:00:31.960 --> 0:00:34.639 tenths of one percent. On the NASDAG we're up by 0:00:34.680 --> 0:00:36.520 one point six at the moment. 0:00:36.560 --> 0:00:37.000 Looking at the. 0:00:37.000 --> 0:00:40.199 Russell, we're up, down by about a tenth of one percent. 0:00:40.479 --> 0:00:42.240 Let's switch it up and get to the bond market 0:00:42.360 --> 0:00:44.560 and we'll go through these yields. Let's look at yields 0:00:44.560 --> 0:00:46.680 at the moment, down six basis points on twoes and 0:00:46.720 --> 0:00:49.279 down about eleven on tens. On a thirty year, we're 0:00:49.320 --> 0:00:52.600 down about eight basis points of the moment. On policy, 0:00:52.880 --> 0:00:56.440 this was really really subtle. Did they drop their easing bias? 0:00:56.800 --> 0:00:59.320 Not quite? Did they find a way to find some 0:00:59.400 --> 0:01:03.400 optionality without a doubt, effectively endorsing a view that we've 0:01:03.400 --> 0:01:05.479 had around this table over the last few hours. As 0:01:05.480 --> 0:01:08.800 times goes by, these decisions get a whole lot harder 0:01:09.200 --> 0:01:13.400 reluctance to endorse the September forecast, acknowledgment that downside risks 0:01:13.400 --> 0:01:17.560 have diminished. Awareness the White House policy could redefine the 0:01:17.640 --> 0:01:20.479 outlook as anticipated. A lot of questions on one thing, 0:01:20.920 --> 0:01:22.639 this week's election. Take a listen. 0:01:23.720 --> 0:01:26.720 In the near term, the election will have no effects 0:01:26.760 --> 0:01:29.840 on our policy decisions. Here, we don't know what the 0:01:29.880 --> 0:01:33.120 timing and substance of any policy changes will be. We 0:01:33.160 --> 0:01:36.400 therefore don't know what the effects on the economy would be, specifically, 0:01:36.760 --> 0:01:39.240 whether and to what extent those policies would matter for 0:01:39.280 --> 0:01:42.600 the achievement of our goal variables maximum employment and price stability. 0:01:44.000 --> 0:01:46.720 We don't guess, we don't speculate, and we don't assume. 0:01:47.760 --> 0:01:49.000 That's the take awaund the election. 0:01:49.880 --> 0:01:52.600 The obvious follow up to that question, are the September 0:01:52.680 --> 0:01:54.160 forecasts still valid? 0:01:54.440 --> 0:01:55.040 Take a listen. 0:01:55.960 --> 0:01:59.400 I think you take away a sense of some of 0:01:59.440 --> 0:02:03.800 the downside risks to economic activity having having been diminished 0:02:04.560 --> 0:02:09.200 with the Nipper revisions in particular, and so overall feeling 0:02:09.240 --> 0:02:13.400 good about economic activity. I think really the question is December, 0:02:13.400 --> 0:02:16.200 and you know by December we'll have we'll have more data. 0:02:16.840 --> 0:02:19.960 I guess one more employment report, two more inflation reports, 0:02:20.000 --> 0:02:21.560 and lots of other data. And you know we'll make 0:02:21.560 --> 0:02:23.679 a decision as we get to December. 0:02:24.080 --> 0:02:27.600 So obviously that decision in December will be totally data dependent. 0:02:27.639 --> 0:02:30.600 But that sounds you heard just the door slowly opening 0:02:30.639 --> 0:02:33.040 to a pause if they need to. Now that's policy. 0:02:33.400 --> 0:02:35.720 Let's talk about leadership. You want some tension in this 0:02:35.800 --> 0:02:39.000 news conference. Take a listen to this exchange from about 0:02:39.000 --> 0:02:40.160 twenty minutes ago. 0:02:41.000 --> 0:02:44.359 Some of the president's alex advisors have suggested that you 0:02:44.480 --> 0:02:45.280 should resign. 0:02:45.880 --> 0:02:48.680 If he asked you to leave, would you go? No? 0:02:50.280 --> 0:02:53.560 Can you follow up on do you think that legally 0:02:54.240 --> 0:02:57.480 you're not required to leave? No? 0:02:57.480 --> 0:03:00.000 No, and then no again, and a follow up question 0:03:00.120 --> 0:03:01.960 a little bit later in the news conference. The answer 0:03:02.040 --> 0:03:05.000 to that follow up Lisa, not permitted under the law. 0:03:05.200 --> 0:03:09.400 Even demotion is not necessarily permitted under law. The interesting 0:03:09.440 --> 0:03:12.600 aspect of this Number one, he was very definitive. Number two, 0:03:12.639 --> 0:03:14.280 he had a clear answer. It was clear that he 0:03:14.360 --> 0:03:16.800 had looked at that law ahead of this meeting and 0:03:16.800 --> 0:03:18.920 that it was fresh on his mind. It seems like 0:03:19.400 --> 0:03:21.600 this is going to be a very interesting transcript that 0:03:21.639 --> 0:03:22.680 we get in five years. 0:03:23.080 --> 0:03:25.919 There's two press conferences today, genis smiled at Colby Smiths 0:03:25.919 --> 0:03:29.200 de Lisman and all asking adult questions about the economics. 0:03:29.400 --> 0:03:31.920 I went to Craig Trres after his question, our great 0:03:32.000 --> 0:03:35.640 historian and economics, and I said, Craig finally, and with 0:03:35.760 --> 0:03:38.800 Craig Trus launching off John, we got into the emotion 0:03:39.080 --> 0:03:43.240 of this election and fed independence into twenty twenty five. 0:03:43.400 --> 0:03:45.800 We've got to separate these two issues, haven't we policy 0:03:45.840 --> 0:03:49.800 for December, which seems highly dependent on recent data and 0:03:49.880 --> 0:03:53.200 incoming data between now and then. Then the projections around 0:03:53.240 --> 0:03:56.080 policy which still feels some way off at the moment. 0:03:56.280 --> 0:03:58.600 There's nothing to model. I think it's basically what Sham 0:03:58.680 --> 0:04:01.040 and Pause said in that news conference. So let's park 0:04:01.040 --> 0:04:03.120 the politics just for a while. Just park the policy 0:04:03.680 --> 0:04:06.240 based on the data we've had since that September meeting 0:04:07.000 --> 0:04:09.840 and basically depending on the data we get when we. 0:04:09.800 --> 0:04:12.520 Go into December. That sounds like a feder reserve. 0:04:12.520 --> 0:04:14.440 That's t and us up for something that the former 0:04:14.520 --> 0:04:16.720 vice chair Richard Clara talked about in this program before 0:04:16.760 --> 0:04:19.240 that news conference started, that we could see Chair and 0:04:19.240 --> 0:04:22.080 Powell look to find some optionality going into December. 0:04:22.320 --> 0:04:24.640 That is what the market was looking at, and what 0:04:24.680 --> 0:04:27.279 I was looking at was a FED fund's futures, which actually, 0:04:27.360 --> 0:04:30.920 after pricing in a ninety ninety five percent chance of 0:04:30.960 --> 0:04:33.280 a FED rate cut in December as recently as the 0:04:33.360 --> 0:04:36.880 end of October, was pricing in a sixty percent chance 0:04:37.040 --> 0:04:38.240 as recently as a. 0:04:38.160 --> 0:04:40.400 Few minutes ago, as j. Powell was talking. 0:04:40.680 --> 0:04:42.320 Key question is how much does this turn up the 0:04:42.400 --> 0:04:45.159 volume on CPI that we get next Wednesday, especially given 0:04:45.440 --> 0:04:49.200 that he pinpointed just some stickiness in the latest inflation. 0:04:49.279 --> 0:04:51.080 This is something you said when the news conference is on. 0:04:51.160 --> 0:04:53.040 Lisa and I were talking about this, and you said, 0:04:53.480 --> 0:04:55.560 this is a Federal Reserve that prepared for this moment. 0:04:56.040 --> 0:04:58.360 The very fact that he responded in this fashion, that 0:04:58.400 --> 0:05:01.440 he responded to the questions in such direct way coming 0:05:01.480 --> 0:05:03.880 into next year, it sets up some real tension for 0:05:03.920 --> 0:05:06.240 twenty twenty five and perhaps even beyond. 0:05:06.080 --> 0:05:08.159 Because this is not a FED that is just being 0:05:08.240 --> 0:05:10.760 passive and hoping people don't ask the questions. This is 0:05:10.800 --> 0:05:12.880 a FED that's very prepared. They were prepared in how 0:05:12.920 --> 0:05:14.760 they were going to answer it. They were prepared even 0:05:14.800 --> 0:05:16.880 for the yield move question, saying that we only take 0:05:16.880 --> 0:05:18.719 it into consideration when it has been that way for 0:05:18.800 --> 0:05:21.600 a prolonged period of time. Again, this is setting up 0:05:21.640 --> 0:05:24.280 tests for the market to take a consideration into consideration 0:05:24.360 --> 0:05:27.400 at a time when they are saying they're opening the 0:05:27.480 --> 0:05:29.800 door to responding by not necessarily cutting. 0:05:29.600 --> 0:05:30.799 Intocember equity markets. 0:05:30.880 --> 0:05:32.840 Right now, session highs, record highs on the S and 0:05:32.880 --> 0:05:35.520 P five hundred up by nine tens of one percent yesterday, 0:05:35.520 --> 0:05:38.760 a big sell off and fixed income TK this afternoon. 0:05:38.880 --> 0:05:41.159 We're seeing a bit of a rally Yield Stowa across the. 0:05:41.160 --> 0:05:42.560 Camp, a bit of a rally. John, Do you have 0:05:42.600 --> 0:05:45.359 your six thousand banner ready? I mean you don't have 0:05:45.400 --> 0:05:47.599 an SBX six thousand bannerred. 0:05:47.160 --> 0:05:50.119 Now TK seventeen points away. Yeah, we're far away. 0:05:50.600 --> 0:05:52.880 We can't do Dow forty four thousand banner, but we 0:05:52.920 --> 0:05:54.239 can do SBX six thousand. 0:05:54.320 --> 0:05:55.240 I'm sure they get that. 0:05:55.320 --> 0:05:57.520 The present elect will be very interested in doing now. 0:05:57.960 --> 0:05:58.919 He wouldn't have one thousand. 0:05:59.000 --> 0:06:00.320 He will be through next time year. 0:06:00.560 --> 0:06:02.839 I said earlier on in the program this morning, it's 0:06:02.839 --> 0:06:05.360 funny you mentioned this. Stewart Kaiser City was sitting right 0:06:05.360 --> 0:06:07.560 there this morning and he said, you know, TK likes 0:06:07.560 --> 0:06:09.279 to down, and I said, I'm trying to change that, 0:06:09.880 --> 0:06:12.880 and going into next year, I'm trying to change President 0:06:12.920 --> 0:06:14.880 elect as well, to make sure that maybe he shifts 0:06:14.880 --> 0:06:16.880 away from that to the S and P five hundred. 0:06:16.920 --> 0:06:18.760 I think that you have an equal chance at both. 0:06:20.440 --> 0:06:20.800 Exactly. 0:06:22.120 --> 0:06:23.120 Here's my response. 0:06:23.560 --> 0:06:26.200 No, but what about him? 0:06:26.560 --> 0:06:30.279 No, And I'm sure the President elect would say the 0:06:30.279 --> 0:06:32.400 same thing. Rick Reader joined us now from black Rot, 0:06:32.480 --> 0:06:34.680 one of the very best in global fixed income and 0:06:34.720 --> 0:06:37.800 cross asset in markets worldwide. Rick, welcome to the program. 0:06:37.839 --> 0:06:39.920 You followed that news conference. Let's just start with your 0:06:39.920 --> 0:06:41.800 first takeaway, Rick, what's your big one? 0:06:43.200 --> 0:06:45.640 So, first of all, say, there's some drama there, and 0:06:45.680 --> 0:06:46.840 I thought that was interesting. 0:06:46.880 --> 0:06:47.159 Listen. 0:06:47.200 --> 0:06:50.479 I think I agree with that comments that they have 0:06:50.560 --> 0:06:53.800 to introduce some balance. I think in December, listen, I 0:06:53.839 --> 0:06:57.440 think the takeaway is they still think readers restrictive. I 0:06:57.520 --> 0:06:59.479 still think you got to get that fronds rate down 0:06:59.760 --> 0:07:02.680 four or ish. I think that you got it. You're 0:07:02.720 --> 0:07:04.480 going to go in December. I think you got to 0:07:04.480 --> 0:07:06.000 get the you know, you gotta be really careful about 0:07:06.000 --> 0:07:08.039 the mortgage rate in this country. We could talk about, 0:07:08.880 --> 0:07:10.280 but I think they're going to go in December. I 0:07:10.320 --> 0:07:12.200 think he's got that that that's part of the plan. 0:07:12.320 --> 0:07:15.200 But then as you get into next year, listen, I mean, 0:07:15.200 --> 0:07:17.119 you got it. You've got what could be a pretty 0:07:17.120 --> 0:07:20.960 significant policy change setup policy changes, and I think the 0:07:21.040 --> 0:07:24.000 dots when you go back to the September forecast, I 0:07:24.000 --> 0:07:26.680 think you gotta, you know, really think about that and evaluate. 0:07:26.720 --> 0:07:27.920 I think that's going to be one of the most 0:07:27.920 --> 0:07:31.360 fascinating things going forward is how do they adjust terminal 0:07:31.440 --> 0:07:34.800 rate from here? How do they adjust where they project 0:07:34.840 --> 0:07:36.320 growth to be when you're going to go through it 0:07:36.360 --> 0:07:38.400 could be some pretty significant evolution from here. 0:07:38.520 --> 0:07:40.160 So, Rick, because I go through the cannon drove the 0:07:40.160 --> 0:07:42.840 FEDERASERF there's two dates with some asterisks over the next 0:07:43.040 --> 0:07:45.240 six months or so, and those little stars in the 0:07:45.240 --> 0:07:47.800 corner of those dates mean you get some projections at 0:07:47.800 --> 0:07:50.840 those meetings. So the next one is December eighteenth, and 0:07:50.880 --> 0:07:53.600 then as we work forward into the following year, we're 0:07:53.640 --> 0:07:56.280 going to get a decision from the federaserv in twenty 0:07:56.320 --> 0:07:59.640 twenty five in the spring a March nineteenth, a March 0:07:59.760 --> 0:08:02.720 nineth teenth, Rick, we'll have a new president who may 0:08:02.720 --> 0:08:07.600 be already coming forward with some policies and some big tariffs. Rick, 0:08:07.680 --> 0:08:10.560 do you think it's still too early on March nineteenth 0:08:10.640 --> 0:08:13.440 to expect this veneras f to bank in some policy 0:08:13.520 --> 0:08:16.800 from DJT the former president and President elect Donald Trump. 0:08:17.960 --> 0:08:21.080 Can I can I also say that we'll wait and see. 0:08:21.640 --> 0:08:21.960 Listen. 0:08:22.000 --> 0:08:24.880 I think that. I think that. 0:08:25.400 --> 0:08:25.720 Listen. 0:08:25.720 --> 0:08:28.000 I think you're going to have to evaluate that policy. 0:08:28.080 --> 0:08:30.640 I mean, we're going to get more data on tariffs, 0:08:30.640 --> 0:08:32.560 We're going to get more data on how we deal 0:08:32.600 --> 0:08:36.120 with spending deficits. Listen. I think there are some extremes 0:08:36.120 --> 0:08:39.040 that gets said in a when you go through an 0:08:39.040 --> 0:08:42.600 election campaign like this, how aggressive will be on tariffs, 0:08:42.640 --> 0:08:45.800 how aggressive will be uncutting spending? And then I think 0:08:45.840 --> 0:08:47.840 you're going to start to see some clarity. You're going 0:08:47.840 --> 0:08:49.679 to see by the way, and you're going to see 0:08:49.679 --> 0:08:51.240 what a cabinet looks like. You're going to see who 0:08:51.280 --> 0:08:53.400 the people are. You're going to have a sense for 0:08:53.480 --> 0:08:57.040 those personalities and they you know what their disposition is 0:08:57.040 --> 0:08:59.200 with regard to policy. So yes, I think in March 0:08:59.679 --> 0:09:01.840 then you are going to have you're going to have 0:09:01.880 --> 0:09:03.960 to evaluate that and nine and have to evaluate what 0:09:04.000 --> 0:09:06.920 it means for the forward growth forecast that's Edrica. 0:09:07.040 --> 0:09:09.080 One thing really stood out to me in the press conference, 0:09:09.120 --> 0:09:12.320 and yes, it was the no and the preparation for 0:09:12.400 --> 0:09:15.920 that question, but also this focus on inflation being a 0:09:15.920 --> 0:09:19.480 little bit stickier than in prior readings, and to me 0:09:19.559 --> 0:09:21.559 that was notable because it seemed like they had left 0:09:21.720 --> 0:09:22.800 inflation for dead. 0:09:22.880 --> 0:09:24.280 That wasn't even part of the mandate. 0:09:24.320 --> 0:09:27.520 It was, you know, sort of autopilot cutting until you 0:09:27.600 --> 0:09:29.160 sort of get to a certain place and then you 0:09:29.200 --> 0:09:31.720 wait and see how much does this turn the volume 0:09:31.800 --> 0:09:33.840 up on CPI that comes out on Wednesday? 0:09:35.360 --> 0:09:35.800 It does. 0:09:35.880 --> 0:09:39.120 I mean, it's gonna listen, I think one man's opinion 0:09:39.480 --> 0:09:42.559 or more our team's forecast. Listen, we think most of 0:09:42.600 --> 0:09:45.320 the descent and inflation has happened. You know, we think 0:09:45.360 --> 0:09:48.720 you've got tremendous goods deflation. Now you've got base effects 0:09:48.720 --> 0:09:52.320 that aren't a tailwind going forward. What does service inflation 0:09:52.480 --> 0:09:55.520 do from here? I mentioned it earlier. I think shelters 0:09:55.559 --> 0:09:57.280 a really big deal and part of why I think 0:09:57.320 --> 0:09:59.440 you got to get that rate down. You know, you 0:09:59.520 --> 0:10:01.080 have you see you know what you've seen over the 0:10:01.120 --> 0:10:03.360 last month. You look at housing affordability still a problem. 0:10:03.360 --> 0:10:06.400 Housing starts are low, building permits are low, existing home 0:10:06.440 --> 0:10:09.760 sales are low. You have a problem today, chilters. You're 0:10:09.760 --> 0:10:11.320 not getting enough home building. You look at all the 0:10:11.320 --> 0:10:15.040 home builder earnings, you know, pretty rough because they're subsidizing 0:10:15.559 --> 0:10:20.720 mortgages or subsidizing houses through through their bottom line. Listen, 0:10:20.760 --> 0:10:22.040 I think you're going to get the rate down. You 0:10:22.120 --> 0:10:25.560 got to get housing moving more efficiently, and that, by 0:10:25.559 --> 0:10:27.800 the way, that'll bring shelter inflation down. But that's been 0:10:27.840 --> 0:10:30.120 the thing that's sticky. But yeah, I think we're going 0:10:30.160 --> 0:10:32.840 to focus on what these in particularly I focus on 0:10:32.920 --> 0:10:35.160 service inflation. Where are we going to be over the 0:10:35.200 --> 0:10:36.600 next couple of months, And I think it's going to 0:10:36.600 --> 0:10:38.679 be pretty important. I think most of the benefit you've 0:10:38.720 --> 0:10:39.760 seen it play out already. 0:10:40.000 --> 0:10:42.200 Rick, it's away from your rema. I was talking with 0:10:42.240 --> 0:10:46.800 Derek Belchunis are et face BlackRock's got an interesting bitcoin 0:10:47.200 --> 0:10:52.960 moments from printing seventy seven thousand, equities are moving, bonds 0:10:52.960 --> 0:10:56.160 are moving in the way we've discussed what does bitcoin 0:10:56.200 --> 0:11:00.960 at seventy seven thousand signal to fixed income into equities 0:11:01.080 --> 0:11:02.520 and for that matter, to the dollar. 0:11:04.840 --> 0:11:06.559 These are good questions, hard questions. 0:11:06.880 --> 0:11:07.160 Listen. 0:11:07.200 --> 0:11:09.960 I will say one thing. I mean, obviously, what bitcoing 0:11:10.000 --> 0:11:14.360 is reflecting is a change, potential change in policy and 0:11:14.440 --> 0:11:17.720 a more favorable disposition towards crypto. I think that's point 0:11:17.720 --> 0:11:20.800 one and that's clearly the big driver. Second one that 0:11:20.840 --> 0:11:24.400 I'll throw out there that I think is robust. Listen, 0:11:24.440 --> 0:11:27.160 we got to deal with debt and deficits and what 0:11:27.160 --> 0:11:30.320 does it mean for currency going forward? And listen, I 0:11:30.360 --> 0:11:32.680 mean it's a scarce asset. It's becoming more scarce. And 0:11:32.720 --> 0:11:34.559 I think, and I will tell you from doing a 0:11:34.640 --> 0:11:37.840 lot of client meetings, people more and more thinking about 0:11:37.880 --> 0:11:41.280 real assets. People are thinking about, gosh in a different world. 0:11:41.760 --> 0:11:43.040 You know, what does it mean? You know, we got 0:11:43.040 --> 0:11:45.320 to get our spending down because our debt is too large. 0:11:45.920 --> 0:11:49.480 Do I own some scarce assets, some harp some real assets? 0:11:49.880 --> 0:11:52.600 And I think that's playing through obviously, alongside the bigger 0:11:52.600 --> 0:11:56.679 one being a more favorable disposition from policy in terms 0:11:56.720 --> 0:11:58.920 of where that is. But Gosh, I hear more and 0:11:59.000 --> 0:12:01.280 more about real assets. It's not just crypto, but in 0:12:01.280 --> 0:12:01.880 other places. 0:12:02.040 --> 0:12:03.120 Rick, I've got to follow on that. 0:12:03.559 --> 0:12:05.559 I really want to understand from your perspective, whether you 0:12:05.600 --> 0:12:07.720 see signs at the moment of people pushing back because 0:12:07.720 --> 0:12:10.880 of the deficits. So let's take yesterday's price action as 0:12:10.920 --> 0:12:13.360 just a snapshot of where things are out. So we 0:12:13.440 --> 0:12:16.720 saw a big self and fixed income. And typically if 0:12:16.720 --> 0:12:19.440 this was EMSA and we saw moves like that and 0:12:19.480 --> 0:12:22.440 I was worried about the fiscal position of that country, 0:12:22.559 --> 0:12:23.920 we'd see the currency weakness too. 0:12:24.280 --> 0:12:26.000 But you didn't see that yesterday. You saw a lot 0:12:26.000 --> 0:12:26.680 of dollar strength. 0:12:26.960 --> 0:12:29.120 So I'm wondering, from your perspective outside of that, whether 0:12:29.120 --> 0:12:32.080 you are already seeing signs of pushback and whether you'd 0:12:32.080 --> 0:12:33.800 expect to see it pop up in the US dollar 0:12:33.840 --> 0:12:34.560 anytime soon. 0:12:34.720 --> 0:12:35.520 If it's all. 0:12:37.120 --> 0:12:39.240 So, I think the first thing people react to is 0:12:39.240 --> 0:12:43.800 you got a change in policy, tariffs, stronger dollar generally, 0:12:43.840 --> 0:12:45.920 and I think that's a market tends to knee jerk market. 0:12:45.920 --> 0:12:47.680 You usually can only focus on one thing at a time, 0:12:47.960 --> 0:12:50.640 and I think it was focused on that. I don't 0:12:50.640 --> 0:12:52.839 do a client meeting today. We're not The first or 0:12:52.880 --> 0:12:54.880 second question is about the debt. It isn't about the 0:12:54.880 --> 0:12:58.040 debt of the country. The deficits were running. I think 0:12:58.080 --> 0:13:00.880 this administration is going to have to this Congress is 0:13:00.920 --> 0:13:03.160 going to have to address there's too much debt coming do. 0:13:03.200 --> 0:13:05.720 If you said to me next year, like Lisa said, 0:13:05.720 --> 0:13:08.880 We're going to be laser focused on inflation. We're also 0:13:08.880 --> 0:13:11.960 going to be laser focused on auctions because we're issuing 0:13:12.040 --> 0:13:16.280 so much debt every single week. Every client wants to 0:13:16.280 --> 0:13:18.000 know and I think gets to that question of why 0:13:18.000 --> 0:13:19.920 people are buying real assets. How the thing about, by 0:13:19.920 --> 0:13:23.960 the way, equities are an operating leverage machine on GDP 0:13:24.640 --> 0:13:27.480 and car fank you think about what does well in 0:13:27.520 --> 0:13:31.200 this environment. Equities still do well. But I gosh, every 0:13:31.280 --> 0:13:33.480 client meeting I go to, people want to talk about 0:13:33.480 --> 0:13:35.559 the debt. And I think it is definitely going to 0:13:35.640 --> 0:13:40.360 become much much more of the regular dialogue in everything 0:13:40.400 --> 0:13:43.280 we do. Investor, by the way, not just financial investors, 0:13:43.640 --> 0:13:46.920 corporate CEOs, CFOs, how they think about cap x, R 0:13:47.000 --> 0:13:48.559 and D. I think it's going to be a big 0:13:48.559 --> 0:13:49.440 deal going forward. 0:13:49.640 --> 0:13:52.080 Can you just elaborate on that in terms of when 0:13:52.120 --> 0:13:55.200 we'll actually see it in a more dramatic fashion, because 0:13:55.240 --> 0:13:57.079 you can make a lot of arguments for why yilts 0:13:57.120 --> 0:13:58.240 have gone up, and frankly J. 0:13:58.360 --> 0:14:00.800 Powell said, I'm not going to parse out. 0:14:00.679 --> 0:14:02.680 What's what, but some of it could be deficits, some 0:14:02.720 --> 0:14:04.560 of it could be the political regime, some of it 0:14:04.559 --> 0:14:06.480 could be better than expected growth. I don't even know. 0:14:06.559 --> 0:14:08.719 I don't care it's going to stop anyway. At what 0:14:08.760 --> 0:14:11.320 point do you say this is real and this is 0:14:11.400 --> 0:14:13.920 actually a risk premium that's being put on for the 0:14:13.960 --> 0:14:14.520 first time. 0:14:14.400 --> 0:14:15.120 In a long time. 0:14:16.000 --> 0:14:19.000 Yeah, you know, we'd say a couple of things that, 0:14:19.080 --> 0:14:22.080 you know, Listen, it's hard to parse any individual movement 0:14:22.480 --> 0:14:25.840 that takes place in markets. But I think more and more, 0:14:25.920 --> 0:14:27.400 you know, by the way you look at what's happened 0:14:27.400 --> 0:14:30.400 to the credit markets. Spreads keep tightening, spreads keep tightening. 0:14:30.960 --> 0:14:33.040 You know, I've said this before. If you go through 0:14:33.120 --> 0:14:35.720 some of the companies today, high free cash flow, don't 0:14:35.720 --> 0:14:38.400 borrow on the front end of the curve, don't have 0:14:38.480 --> 0:14:40.800 any financing, don't have a maturity wall. I then think 0:14:40.800 --> 0:14:43.280 about the US government. We threaten a default every couple 0:14:43.280 --> 0:14:45.160 of years. We borrow at the front end. And the 0:14:45.200 --> 0:14:50.480 immense size of bill COUPONSI bill auctions we do every week, 0:14:50.640 --> 0:14:53.560 coupon auctions we do every week. Listen, I think it 0:14:53.600 --> 0:14:56.200 is you know, it's part of why every auction you 0:14:56.280 --> 0:14:58.320 got to watch, you know, is the particularly in the 0:14:58.360 --> 0:15:00.240 back end of the curve. Listen, I think there's going 0:15:00.280 --> 0:15:03.320 to continue to be a strong bid to you know. 0:15:03.360 --> 0:15:05.400 And by the way, part of why I like portfolios 0:15:05.680 --> 0:15:07.240 clip a lot of yield in the front end. Just 0:15:07.320 --> 0:15:09.960 keep clipping that yield, clipping that yield, you know, the 0:15:10.000 --> 0:15:11.360 back end. I think it's going to be a big 0:15:11.400 --> 0:15:14.200 focus going forward. Like you said, you know, we've never 0:15:14.280 --> 0:15:17.080 had I would argue in the US, it's not just 0:15:17.120 --> 0:15:19.640 the amount of debt, it's the debt service. We're talking 0:15:19.640 --> 0:15:23.000 about interest rates. We used to print treasury bills at 0:15:23.080 --> 0:15:26.320 zero percent, one percent, you know. Now we're printing huge 0:15:26.360 --> 0:15:28.920 size treasury bills every week at high level. So it's 0:15:28.920 --> 0:15:31.280 going to be it's going to be a big focus. 0:15:31.360 --> 0:15:33.920 And you know, is there one event listen, I think 0:15:33.920 --> 0:15:35.840 auctions are going to be are going to be worth watching, 0:15:35.880 --> 0:15:37.800 and I listen to the shape of the curve, you 0:15:37.840 --> 0:15:39.840 know what. I would say one last thing, and I 0:15:39.880 --> 0:15:42.440 think JPO was very clear and right. In this markets 0:15:42.440 --> 0:15:44.520 can be wrong a lot. You know, we had we 0:15:44.600 --> 0:15:47.160 priced two hard landings already this year. Markets can get 0:15:47.200 --> 0:15:49.440 crazy extreme one way or the other. But I think 0:15:49.440 --> 0:15:52.480 you've got to watch over time the premium we're paying 0:15:52.480 --> 0:15:54.720 in this country for the amount of debt that we're 0:15:54.720 --> 0:15:56.240 going to issue, what it means for the currency, and 0:15:56.240 --> 0:15:58.720 what it means, you know, for how much how much 0:15:58.720 --> 0:16:01.360 will people absorb, not justically but internationally. 0:16:01.600 --> 0:16:03.440 Rick, I've had a couple of whispers, and I'd love 0:16:03.480 --> 0:16:06.440 your response to this. From a couple of banks, they're 0:16:06.440 --> 0:16:10.720 anticipated that maybe credit trades through treasuries, investment grade US 0:16:10.720 --> 0:16:14.600 corporate credit trading through treasuries. I'd love your view on that. 0:16:15.080 --> 0:16:18.120 Is that possible because for some companies, we're not that 0:16:18.240 --> 0:16:20.240 far away. Do you think we could see that in 0:16:20.240 --> 0:16:21.400 the next twelve months. 0:16:23.320 --> 0:16:25.080 Sir Jonathan, I never thought if you go back a 0:16:25.120 --> 0:16:26.960 few years ago, I never thought. We've talked about it 0:16:27.040 --> 0:16:29.720 years ago. Remember we were funding companies a negative yield, 0:16:29.800 --> 0:16:31.320 Like I never thought that would happen. Do you remember that 0:16:31.320 --> 0:16:33.600 in Europe? Like we're lending company and I remember it 0:16:33.600 --> 0:16:35.160 explaining to my kids, like I'm lending money to the 0:16:35.160 --> 0:16:37.120 companies that negative I'm paying them to take my money. 0:16:37.120 --> 0:16:39.000 But then, you know, explaining why bons where they are 0:16:39.120 --> 0:16:42.240 starting to hard to explain anyway. So is it possible. 0:16:42.280 --> 0:16:45.400 It's definitely possible. You know, the supply demand dynamics are 0:16:45.480 --> 0:16:48.240 quite different, and it's definitely possible. I mean the spread 0:16:48.240 --> 0:16:52.040 tightening you're seeing across the board is pretty powerful. Listen, 0:16:53.040 --> 0:16:55.960 one thing, ultimately, taxing authority is a really big deal. 0:16:56.320 --> 0:16:58.760 And there's one thing that I think is usually important 0:16:58.760 --> 0:17:02.160 for the next couple of years. There's been a massive 0:17:02.160 --> 0:17:04.280 transfer of money from the public sector of the private Chector. 0:17:04.359 --> 0:17:06.199 The private sector has got I think the numbers two 0:17:06.280 --> 0:17:10.080 hundred and twenty trillion of net worth. The asset coverage 0:17:10.119 --> 0:17:12.480 in the United States is pretty darn good. How do 0:17:12.560 --> 0:17:14.480 you get at that asset coverage? How do you get 0:17:14.480 --> 0:17:16.919 at that net worth to send some of that money 0:17:16.960 --> 0:17:19.280 back to the government versus what they've transferred to the 0:17:19.280 --> 0:17:21.560 private sector. And that's going to be the evolution that 0:17:21.600 --> 0:17:23.680 I think this administration is going to have to navigate. 0:17:23.720 --> 0:17:27.080 John, your insight there is critical. At least thirty five 0:17:27.160 --> 0:17:29.800 years ago, I had the privilege of hearing John Templeton 0:17:30.359 --> 0:17:34.240 say the same idea the credit would trade through full 0:17:34.240 --> 0:17:38.560 faith and credit. Then it was unbelievable. Now it's unbelievable, 0:17:38.680 --> 0:17:40.120 but it's a critical insight. 0:17:40.240 --> 0:17:41.840 Yeah, but you heard what Rick said there, and it's 0:17:41.880 --> 0:17:45.560 really important. Through the pandemic, there was a massive transfer 0:17:45.920 --> 0:17:47.960 of money top and it was from the self righn 0:17:48.359 --> 0:17:51.600 to corporate America to individuals, the households, Which is why 0:17:51.640 --> 0:17:54.399 what we've seen ultimately because of policy coming out of 0:17:54.400 --> 0:17:56.880 the pandemic is the balance sheets the corporates are better. 0:17:57.359 --> 0:18:00.600 Balance sheets from households were rock solid. And what got weaker? 0:18:00.680 --> 0:18:03.960 Where is the leverage the sovereign? Now, Rick, you followed 0:18:03.960 --> 0:18:06.320 that up and said that ultimately that's going to have 0:18:06.359 --> 0:18:07.440 to be a source of revenue. 0:18:07.480 --> 0:18:09.000 But that's not the policy proposal. 0:18:09.520 --> 0:18:11.800 The policy proposal, as you know, is to drop corporate 0:18:11.840 --> 0:18:14.360 tax rates from twenty one to fifteen with conditions, which 0:18:14.480 --> 0:18:17.320 is domestic manufacturing. I get all of that, Rick, Are 0:18:17.359 --> 0:18:18.960 you basically saying that at some point we need to 0:18:19.040 --> 0:18:21.040 understand that that's what we need to do, even if 0:18:21.040 --> 0:18:23.080 it's not what we want to do. And Rick, for 0:18:23.119 --> 0:18:25.800 that to happen, you need guardrails, You need constraining forces, 0:18:25.840 --> 0:18:27.240 and I don't see any sign of that from many 0:18:27.240 --> 0:18:30.040 policy makers in Washington. And ultimately, it means it needs 0:18:30.040 --> 0:18:32.080 to come from the market. And the question is, Rick, 0:18:32.080 --> 0:18:34.320 it's the question we've asked for a decade plus. Will 0:18:34.320 --> 0:18:38.159 the market actually provide those forces? Will they constrain the 0:18:38.320 --> 0:18:43.080 hopes of fiscal policy? Makers the tax cut hopes from campaigning. 0:18:43.240 --> 0:18:45.040 Do you think the market will be a constraining factor 0:18:45.119 --> 0:18:45.320 or not? 0:18:48.000 --> 0:18:52.480 The answer is yes. Listen, I think policy generally doesn't react. 0:18:52.600 --> 0:18:54.640 You know, hopefully I'm wrong in this case, but generally 0:18:54.640 --> 0:18:57.160 policy doesn't react to the sharks right next to the boat. 0:18:57.640 --> 0:18:57.840 Yeah. 0:18:57.840 --> 0:19:00.159 And I think you know, the markets will usually and 0:19:00.200 --> 0:19:02.600 to anticipate things, and by the way, I often anticipate 0:19:02.600 --> 0:19:06.720 them too early or wrong. But I think the markets 0:19:06.760 --> 0:19:10.200 are going to be a great barometer for what policy 0:19:10.240 --> 0:19:12.800 needs to adjust to. So you know, I'm hoping it's 0:19:12.800 --> 0:19:15.000 not egregious in terms of how that manifests itself. And 0:19:15.000 --> 0:19:17.080 I will say one thing and we get debate tax policy, 0:19:17.160 --> 0:19:21.000 marginal tax rates. Listen, I think the US economy, there's 0:19:21.000 --> 0:19:23.000 only one way that you bring the debt down. You 0:19:23.040 --> 0:19:26.200 got to outrun it and nominal GDP. We have to grow. 0:19:26.680 --> 0:19:29.240 Economy's got to grow. There's a series of initiatives you 0:19:29.280 --> 0:19:31.240 can have. You can have fiscal spend as long as 0:19:31.240 --> 0:19:34.280 it's got velocity to it and that the economy is growing. 0:19:34.520 --> 0:19:36.280 And then the cost of the debt has to come down, 0:19:36.320 --> 0:19:38.000 and the shear size of the debt has to come down. 0:19:38.320 --> 0:19:41.840 And then we slowly bring the debt problem down in 0:19:41.880 --> 0:19:43.679 this country. But I think it has to be a 0:19:43.680 --> 0:19:47.159 whole series of initiatives and quite frankly, policy needs to 0:19:47.200 --> 0:19:52.120 create confidence of investors of the general populace that they're 0:19:52.160 --> 0:19:54.760 moving the boat in that direction. And by the way, 0:19:54.920 --> 0:19:58.200 confidence is hugely powerful. You can do a tremendous amount. 0:19:58.240 --> 0:20:01.160 Your comment or it's comment about emerging markets the one 0:20:01.160 --> 0:20:03.280 thing US has, and you look at the faith in 0:20:03.320 --> 0:20:05.359 the fat and the faith in the in the confidence 0:20:05.720 --> 0:20:08.440 that will ultimately do the right thing. But I think 0:20:08.480 --> 0:20:10.679 you think that's going to be really critical going forward. 0:20:10.880 --> 0:20:13.080 Rick, you're a money manager. Can we finish there on 0:20:13.119 --> 0:20:15.160 what you've been doing? Were selling bonds yesterday? 0:20:17.000 --> 0:20:21.320 No? The uh no, not yesterday. But you listen to me, 0:20:21.600 --> 0:20:25.000 you know, I would just say, if you know, listen 0:20:25.040 --> 0:20:27.680 there without getting specific in terms of things we're doing. 0:20:27.960 --> 0:20:29.840 You know, I think there was regulatory change, or I 0:20:29.840 --> 0:20:33.080 think there's potential regulatory change. The financials are interesting. I 0:20:33.080 --> 0:20:37.080 think fixed income products like mortgages are interesting. When you 0:20:37.240 --> 0:20:40.359 change the regulatory dynamic around banks and their ability to 0:20:40.359 --> 0:20:43.080 buy different things, so you know, those assets have become 0:20:43.359 --> 0:20:47.240 more interesting. Listen, I think equities are rightly moving in 0:20:47.280 --> 0:20:49.879 the direction they should move with with a series of 0:20:49.920 --> 0:20:54.639 initiatives that could stimulate growth here going forward. So you know, 0:20:54.680 --> 0:20:57.560 I like, I like parts of the equity market, and 0:20:57.600 --> 0:20:59.240 that's so that's been And then you know the other 0:20:59.280 --> 0:21:00.640 side of it is that you know something that I'm 0:21:00.680 --> 0:21:03.760 just going to keep persisting on the front to the 0:21:03.760 --> 0:21:09.320 belly of the curve, yielding assets, credit, securitized assets Europe 0:21:09.640 --> 0:21:12.080 where you buy credit, et cetera. Like, if you just 0:21:12.160 --> 0:21:14.960 keep clipping this yield it is I mean, even if 0:21:15.080 --> 0:21:17.879 rates move up somewhat, you're still able to build portfolios. 0:21:17.880 --> 0:21:20.320 We have the CTF bink you're still able to create 0:21:20.320 --> 0:21:24.360 this portfolio six and a half percent yield. That's pretty spectacular. 0:21:24.400 --> 0:21:27.399 With inflation running at two you can be two point 0:21:27.440 --> 0:21:30.560 three percent. So that's my key is like, just let's 0:21:30.600 --> 0:21:32.480 keep buying this yield and hold this yield in the 0:21:32.480 --> 0:21:34.520 front of the belly and then let people take the 0:21:34.600 --> 0:21:35.920 risk further out the yield curve. 0:21:36.320 --> 0:21:37.320 Rick, this was awesome. 0:21:37.359 --> 0:21:39.439 It's going to catch have this appreciate it, Rick Rater 0:21:39.520 --> 0:21:42.160 with black Rock, when do you begin with that conversation? 0:21:42.320 --> 0:21:43.120 So let's at chew over. 0:21:43.359 --> 0:21:45.520 Yeah, Well, First of all, he was talking about inflation 0:21:45.600 --> 0:21:50.080 possibly being sticky even before what it transpired in Washington, DC. 0:21:50.640 --> 0:21:54.000 I love his response to you about were you selling bonds? 0:21:55.280 --> 0:21:57.040 We like Morgatis well on banks. 0:21:57.200 --> 0:21:58.880 We like banks, we like stocks. 0:21:58.960 --> 0:22:00.680 But this to me is really the key to pay, 0:22:00.960 --> 0:22:03.400 which is how much can you buy the front end 0:22:03.560 --> 0:22:06.120 clip the coupon? Is this making cash great again essentially 0:22:06.119 --> 0:22:08.680 for people who want to sort of get some income 0:22:09.040 --> 0:22:11.560 on their margins but then go into asset classes that 0:22:11.600 --> 0:22:14.600 are going to be less vulnerable to a potential inflationary shops. 0:22:14.640 --> 0:22:16.840 Just a guess, and I haven't hunt directly. I'm not 0:22:16.880 --> 0:22:18.920 sure if the Trump administration is looking to make cash 0:22:18.920 --> 0:22:20.240 great again, but we'll see. 0:22:20.240 --> 0:22:21.200 I guess maybe that is a go. 0:22:21.440 --> 0:22:23.600 Well, maybe it's make crypto gritty, And actually I think 0:22:23.600 --> 0:22:26.280 that it's make dollar less great so that it's weaker, 0:22:26.480 --> 0:22:28.720 although it seems like that's somewhat contradictor. 0:22:28.440 --> 0:22:29.199 Let's get to Mima kay. 0:22:29.320 --> 0:22:31.440 My mckaby was in that room in that news conference, 0:22:31.440 --> 0:22:33.879 and Mike McKay at some point there was some tension 0:22:33.920 --> 0:22:34.600 with Sham and Pow. 0:22:34.640 --> 0:22:38.400 Were you surprised, No, I don't think anybody was surprised 0:22:38.760 --> 0:22:40.520 we got about as much out of him as we 0:22:40.560 --> 0:22:43.200 thought we would get. On the issue of Donald Trump 0:22:43.240 --> 0:22:46.240 and the elections, he just answered with one word and 0:22:46.560 --> 0:22:50.120 then one sentence. No, he's not going to resign if asked, 0:22:50.200 --> 0:22:55.240 and it's not permitted by law for the president to 0:22:55.280 --> 0:22:59.000 demote anybody on the FED. And there wasn't as many 0:22:59.080 --> 0:23:01.760 questions along those lines as maybe we thought there would 0:23:01.760 --> 0:23:05.200 be because he was so definitive on those two answers. 0:23:05.320 --> 0:23:08.960 I think what you got today was two different news 0:23:09.000 --> 0:23:12.200 conference messages. One was to the people inside the beltwigh 0:23:12.359 --> 0:23:16.359 here in Washington about his relationship with Donald Trump, and 0:23:16.440 --> 0:23:18.560 the other is to the markets. And that Rick picked 0:23:18.640 --> 0:23:21.439 up on this very well. The FED does not know 0:23:21.480 --> 0:23:23.000 what it's going to do. There are a lot of 0:23:23.040 --> 0:23:25.320 cross currents coming in twenty twenty five. 0:23:25.640 --> 0:23:28.520 So if you think that the FED. 0:23:28.440 --> 0:23:30.439 Is on some sort of path because of the last 0:23:30.480 --> 0:23:33.320 sep in the last dot plot, you're going to probably 0:23:33.440 --> 0:23:35.560 be wrong. The FED has a lot to keep an 0:23:35.600 --> 0:23:38.320 eye on, not just with the president, but with everything 0:23:38.359 --> 0:23:39.600 else going on in the world. 0:23:39.800 --> 0:23:42.280 With respect to the message to the market, he was 0:23:42.359 --> 0:23:44.720 asked about the fact that the Federal moved the reference 0:23:44.760 --> 0:23:47.520 to gaining confidence on inflation, and he basically said, there's 0:23:47.520 --> 0:23:50.000 nothing to see here. It was just a semantic issue 0:23:50.359 --> 0:23:52.040 that we already said that and we're not going to 0:23:52.080 --> 0:23:52.680 repeat it. 0:23:52.760 --> 0:23:53.320 Do you buy that? 0:23:54.720 --> 0:23:55.040 I do? 0:23:55.160 --> 0:23:57.640 And that was the conclusion that not only I came 0:23:57.640 --> 0:23:59.760 to when I read this statement in the lock up, 0:23:59.800 --> 0:24:02.760 but all the other reporters basically came to as well, 0:24:02.920 --> 0:24:06.120 We've seen this before. When they start changing policy, they 0:24:06.119 --> 0:24:09.000 give a rationale for that, we're moving in the direction 0:24:09.080 --> 0:24:10.800 or we're getting close to where we need to be, 0:24:11.119 --> 0:24:13.480 and then after that they're already there, so they don't 0:24:13.560 --> 0:24:16.680 need to keep repeating that. They just took it out, 0:24:16.760 --> 0:24:18.480 as he said, for clarity. 0:24:18.960 --> 0:24:21.159 Mike McKay, I'm the latest in that news conference. Might 0:24:21.200 --> 0:24:23.680 we'll have a longer conversation tomorrow when you get back 0:24:23.720 --> 0:24:26.720 to New York City. What a news conference with chem 0:24:26.760 --> 0:24:28.919 and Pound, Tom Constant with us now of Miszoo. 0:24:29.119 --> 0:24:30.119 Tom, welcome to the program. 0:24:30.119 --> 0:24:32.000 We'll just give you the opportunity to share your initial 0:24:32.040 --> 0:24:33.919 takes from that news conference and then we'll get into it. 0:24:33.960 --> 0:24:34.760 What's that for you? 0:24:36.400 --> 0:24:38.800 It was pretty much as expected in the sense that 0:24:39.600 --> 0:24:42.359 he's still committing to the easing cycle. I think this 0:24:42.520 --> 0:24:46.280 sort of new news might be, where might they pause 0:24:46.600 --> 0:24:49.280 in the context of the new policy regime that we'll 0:24:49.320 --> 0:24:51.199 be getting with a change in the administration. 0:24:51.560 --> 0:24:52.840 But the idea is, I think. 0:24:52.680 --> 0:24:55.360 There are you know, are subjects of the data really shocking. 0:24:55.520 --> 0:24:57.639 They're kind of on an auto pilot to get rates 0:24:57.680 --> 0:24:59.840 down to around four percent and the early part of 0:24:59.880 --> 0:25:01.760 that next year, and then we take it from there. 0:25:01.880 --> 0:25:04.720 If they have to respond to policies that adjust the 0:25:04.840 --> 0:25:07.720 balance of risks, for example, then you know they'll. 0:25:07.560 --> 0:25:08.920 They'll they'll figure that out then. 0:25:09.160 --> 0:25:12.440 But the election itself isn't really affecting what we thought 0:25:12.480 --> 0:25:13.760 any way they were going to do. 0:25:13.760 --> 0:25:17.440 Donickive's the theme of a Trump administration has growth at 0:25:17.480 --> 0:25:20.760 any cost, pushing against all this is going to be 0:25:20.800 --> 0:25:24.520 a nominal GDP left When you sum things together with 0:25:24.600 --> 0:25:28.160 Steve Rashudo, do you just assume a run rate five 0:25:28.280 --> 0:25:31.520 percent nominal GDP or can I even look for an 0:25:31.520 --> 0:25:34.040 animal spirit towards six percent? 0:25:35.400 --> 0:25:37.639 Well, I definitely think there's a there's an animal spirit 0:25:37.680 --> 0:25:40.840 sing out there. That's pretty interesting. I Mean, the the 0:25:40.840 --> 0:25:44.480 only caveat is when we went through tarifs before, you know, 0:25:44.480 --> 0:25:46.399 when they started to sort of hit it wasn't clear 0:25:46.600 --> 0:25:49.600 in twenty nineteen that the animal spirits were exactly kicking in, 0:25:49.800 --> 0:25:51.920 and the fact had to get into extra easing mode 0:25:52.000 --> 0:25:54.320 by then. So I think there is certainly some definitely 0:25:54.359 --> 0:25:57.439 uncertainty around the whole thing right now. Though you know 0:25:57.480 --> 0:26:00.000 the issue is a lad market. You know it's not great. 0:26:00.160 --> 0:26:03.600 I mean, employment growth is sort of stagnating. I would 0:26:03.600 --> 0:26:07.040 say the economy has been bifurcated. You've had some very 0:26:07.040 --> 0:26:09.919 strong sectors, some weak sectors, and you know, if it 0:26:10.000 --> 0:26:13.640 wasn't for the latest, you know that the election, we'd 0:26:13.680 --> 0:26:15.440 still be in the mode whereby the FED would be 0:26:15.560 --> 0:26:19.480 preemptively trying to cut rates quite quickly to stop unemployment 0:26:19.480 --> 0:26:21.919 going up. So we can't forget that, and we're going 0:26:22.000 --> 0:26:24.439 to have a few more months whereby, if animal spirits 0:26:24.480 --> 0:26:28.400 don't kick up, you might still well see unemployment rising 0:26:29.160 --> 0:26:32.479 above where the FED expects it to be. And therefore, 0:26:32.520 --> 0:26:34.800 you know, some disappointment. I mean, growth itself is a 0:26:34.800 --> 0:26:37.600 bit of a lagging indicator, and it really reflects the 0:26:37.640 --> 0:26:40.439 average of the economy, doesn't reflect the underlying weaknesses and 0:26:40.480 --> 0:26:41.320 some of the sectors. 0:26:41.359 --> 0:26:44.120 If we expect the unexpected is a year go through 0:26:44.160 --> 0:26:46.800 parody or dare I say one on three maybe and 0:26:46.880 --> 0:26:50.199 you answer one sixty will signal a new resilient and 0:26:50.280 --> 0:26:51.119 stronger dollar. 0:26:52.400 --> 0:26:53.840 Well, I mean it really should do. 0:26:53.960 --> 0:26:55.760 I mean, you know, if, especially if you're going to 0:26:55.760 --> 0:26:58.400 start pricing for the tariff. So again, what we don't 0:26:58.440 --> 0:27:00.800 know is whether the tariff threat it's just a threat, 0:27:00.920 --> 0:27:02.439 whether it's going to be enacted. If you are going 0:27:02.480 --> 0:27:04.680 to enact taris, then you know there is obviously the 0:27:04.760 --> 0:27:07.440 risk the dollar is going to basically go up, and 0:27:07.720 --> 0:27:10.440 that's a big part of that. And then you get 0:27:10.440 --> 0:27:12.600 into the you know, the instance of the tariff is 0:27:12.600 --> 0:27:16.399 obviously falling onto the exporters. The consumer is going to 0:27:16.440 --> 0:27:18.600 be somewhat protected. You know, that's where we might end 0:27:18.680 --> 0:27:21.199 up getting. But you know, Trump is Trump, and so 0:27:21.560 --> 0:27:23.680 you know it could well be just a big bargaining 0:27:23.720 --> 0:27:25.320 chip and we might not get the full force of 0:27:25.359 --> 0:27:27.280 the tariffs. I would say one thing about tarast so 0:27:27.560 --> 0:27:29.720 is we do actually need them if he's genuine about 0:27:29.760 --> 0:27:34.000 his tax cuts and the modification to the tax law, 0:27:34.240 --> 0:27:36.280 and next year, you do need the tariffs to actually 0:27:36.320 --> 0:27:38.879 pay for that. So you know, I'm guessing we're going 0:27:38.920 --> 0:27:39.720 to get the tariffs in the. 0:27:39.800 --> 0:27:42.159 End, I'm just putting the policy aside. And there have 0:27:42.200 --> 0:27:44.760 been other changes that have happened in the past three 0:27:44.920 --> 0:27:48.080 four weeks that also were addressed here. Yields have gone 0:27:48.119 --> 0:27:51.359 up because of economic surprises to the upside, Inflation on 0:27:51.440 --> 0:27:54.359 the margins has been slightly stickier. There have been questions 0:27:54.359 --> 0:27:57.080 about why long term yals are so high, and frankly, 0:27:57.359 --> 0:28:00.320 my risk assets don't care because there are basically treating 0:28:00.320 --> 0:28:04.000 it like it's for the right reason. At what point 0:28:04.200 --> 0:28:06.679 do these yields force the FED to take notice in 0:28:06.680 --> 0:28:08.800 a way that they don't have to now they can 0:28:08.880 --> 0:28:10.680 just dismiss it as a blit. 0:28:10.800 --> 0:28:12.720 Potentially, well, I. 0:28:12.680 --> 0:28:15.400 Do think a lot of the moving yields is obviously 0:28:15.520 --> 0:28:17.960 being driven by term premium, what we call term premium, 0:28:18.119 --> 0:28:21.359 and they're good reasons for why term premium is rising. 0:28:21.400 --> 0:28:24.119 One of them is taris, but another one is obviously 0:28:24.119 --> 0:28:26.399 the fiscal supply, So that means you kind of get 0:28:26.440 --> 0:28:30.480 this sort of steepening pressure through the yield market, and 0:28:30.520 --> 0:28:34.680 it's obviously consistent with the deficit concerns that are being 0:28:35.480 --> 0:28:40.600 coming out of the new policy regime forthcoming. In terms 0:28:40.640 --> 0:28:43.600 of how that affects risk ass is really a balancing act. 0:28:43.840 --> 0:28:47.160 If you have term premium going up normally, all else equal, 0:28:47.360 --> 0:28:50.280 risk ass would suffer. However, if on the other side 0:28:50.320 --> 0:28:52.760 of that, you're getting a sort of higher level of growth, 0:28:52.880 --> 0:28:56.320 let's say because of the fiscal stimulus coming through, then 0:28:56.360 --> 0:28:59.320 that really does kind of easily overwhelm the impact of 0:28:59.400 --> 0:29:02.200 term premium. So premium has been very low, so to 0:29:02.280 --> 0:29:04.600 expect it to sort of go up is not unreasonable. 0:29:04.920 --> 0:29:07.920 It's almost if you like normalizing by some models we 0:29:07.960 --> 0:29:10.000 look at, and if you can take a quid pro 0:29:10.080 --> 0:29:12.760 quo and say, well, look, we're going to have higher 0:29:12.920 --> 0:29:15.040 growth coming out of all of this, then there's no 0:29:15.160 --> 0:29:18.440 reason for risk asses to perform badly. And I think 0:29:18.440 --> 0:29:19.920 that's kind of where we are. So we're in the 0:29:19.920 --> 0:29:22.000 sort of, you know, best of all possible worlds in 0:29:22.040 --> 0:29:24.120 the sense where risk acids are okay. 0:29:24.440 --> 0:29:26.120 And yes, long term yields are. 0:29:26.160 --> 0:29:29.240 Rising, but they're not rising so much that they're going 0:29:29.280 --> 0:29:32.600 to unravel the story for riskases. And bear in mind 0:29:32.640 --> 0:29:36.040 the FED is in restrictive mode, so by the fact 0:29:36.080 --> 0:29:38.600 that they can reduce their short term rates, it will 0:29:38.600 --> 0:29:41.120 help anchor the curve lower. So you may well have 0:29:41.200 --> 0:29:43.520 higher term premium, but if short rates are still falling 0:29:43.560 --> 0:29:45.640 at the other end, then the whole curve is somewhat 0:29:45.640 --> 0:29:49.040 getting anchored, which is actually quite good news, and it 0:29:49.080 --> 0:29:50.120 does avoid one. 0:29:49.960 --> 0:29:51.280 Of the problems we had last year. 0:29:51.320 --> 0:29:53.200 If you recall, I used to I call it the 0:29:53.200 --> 0:29:56.360 Liz Trust moment, where when if the FED threatens higher 0:29:56.440 --> 0:29:58.640 yields at the front end and you have a term 0:29:58.680 --> 0:30:01.680 premium a rising in terms of hurting the long end, 0:30:01.800 --> 0:30:04.360 that's really bad news for risk assets because that kind 0:30:04.360 --> 0:30:07.560 of unravels, you know, both sides of the equation, so 0:30:07.640 --> 0:30:08.040 to speak. 0:30:08.120 --> 0:30:10.400 You said a number of things there, or one aspect 0:30:10.400 --> 0:30:13.560 as you said that the FED is clearly in restrictive 0:30:13.760 --> 0:30:17.040 territory at this point and it will be easing J. 0:30:17.240 --> 0:30:17.480 Tup. 0:30:17.480 --> 0:30:21.240 Powell actually maybe casts a little bit of question around 0:30:21.320 --> 0:30:24.080 just how restrictive they were, saying that they're trying to 0:30:24.160 --> 0:30:25.920 get down to a place and then adjust that they 0:30:25.960 --> 0:30:28.600 can figure out what that neutral rate is. Do you 0:30:28.680 --> 0:30:31.400 think that he was opening the door to pausing in 0:30:31.480 --> 0:30:34.240 December to not necessarily cutting more for the rest of 0:30:34.280 --> 0:30:34.680 this year. 0:30:35.960 --> 0:30:38.040 I for a feel that they're pretty much an auto 0:30:38.120 --> 0:30:40.920 pilot for a December cut. I definitely think he's opening 0:30:40.960 --> 0:30:43.560 the door to a pause, let's say within the next 0:30:43.880 --> 0:30:45.719 six months. So they're not going to sort of run 0:30:45.760 --> 0:30:47.480 all the way down to three percent, which is where 0:30:47.520 --> 0:30:50.240 they have that neutral rate, but they could definitely pause 0:30:50.240 --> 0:30:52.280 around four percent. Pausing around four and a half is 0:30:52.320 --> 0:30:55.520 a little premature, particularly since they haven't even seen wouldn't 0:30:55.560 --> 0:30:58.440 have seen the new administration come in, So you know, 0:30:58.560 --> 0:31:00.920 to my mind, you know, not yes is the pause, 0:31:01.320 --> 0:31:03.800 and therefore they can sort of plow through, you know, 0:31:03.840 --> 0:31:06.320 into a Q one easing and then pause, pause. Then 0:31:06.640 --> 0:31:08.840 in terms of neutral and where it is, obviously no 0:31:08.840 --> 0:31:11.280 one really knows where it is, but you know, we've 0:31:11.280 --> 0:31:14.360 done some interesting work to suggest that if interest rates 0:31:14.400 --> 0:31:17.800 don't come down, employment in certain sectors will continue to 0:31:17.880 --> 0:31:21.200 slow and go negative. And that's this kind of preemptive 0:31:21.240 --> 0:31:24.040 aspect of why they want to bring down rates, and 0:31:24.080 --> 0:31:26.160 that's kind of where, you know, why I feel that 0:31:26.280 --> 0:31:28.959 neutral is not here. It's probably not a four percent 0:31:29.120 --> 0:31:31.800 and it's probably close to three percent, but we'll see 0:31:31.840 --> 0:31:32.280 in the end. 0:31:32.440 --> 0:31:32.880 So what a. 0:31:32.880 --> 0:31:35.560 Constant and Rashido say about a run rate of non 0:31:35.640 --> 0:31:38.440 firm payrolls? I mean, can you get non firm payrolls 0:31:38.880 --> 0:31:41.280 permanent under one hundred thousand, or can you even go 0:31:41.320 --> 0:31:42.440 to a negative statistic? 0:31:43.320 --> 0:31:46.120 Well, I think, I mean clearly you can, and I 0:31:46.120 --> 0:31:48.600 think that's that's the problem. I mean, Powell himself said, 0:31:48.840 --> 0:31:51.240 the lad market has eased enough, you can't. You don't 0:31:51.280 --> 0:31:54.719 really want to have payrolls running one hundred thousand or so. 0:31:54.920 --> 0:31:57.960 And the reason or less the reason is because layoffs 0:31:58.440 --> 0:32:00.959 are still very low. The layoff rate is still running 0:32:01.040 --> 0:32:04.960 below one point two percent of the employed workforce, the idea. 0:32:05.320 --> 0:32:07.680 Before COVID, the layoff rate was in a range of 0:32:07.720 --> 0:32:10.480 one point two to one point four percent. So adjusting 0:32:10.600 --> 0:32:13.120 layoffs higher, which will be reflected, for example, in the 0:32:13.200 --> 0:32:16.800 claims data going higher and normalizing if you like, with 0:32:16.880 --> 0:32:19.800 employment growth down in around one hundred thousand or so, 0:32:20.040 --> 0:32:24.120 you will see unemployment rate rising well above the FED forecast. 0:32:24.240 --> 0:32:28.040 So you have to have basically pay rolls accelerating or 0:32:28.120 --> 0:32:32.120 somehow cross your fingers and hope layoffs never actually go up. 0:32:32.280 --> 0:32:34.400 And we're in a new world where companies just won't 0:32:34.800 --> 0:32:35.480 fire people. 0:32:35.800 --> 0:32:38.600 And in a way, that comes back to the animal spirits, 0:32:38.640 --> 0:32:41.760 animal spirits to either not lay off or animal spirits 0:32:41.760 --> 0:32:45.320 to hire more people and get pay rolls accelerating. Just 0:32:45.400 --> 0:32:48.080 keep the unemployment rates where it is in line with 0:32:48.120 --> 0:32:49.920 where the FED would like to see it in the 0:32:50.040 --> 0:32:50.560 medium term. 0:32:50.760 --> 0:32:52.600 Heydan, this was great. It's going to hear from you, sir. 0:32:52.640 --> 0:32:55.280 It's been too long. Don constant there of miszoo on 0:32:55.320 --> 0:32:57.840 a federal reserve. We'll do this all over again in December. 0:32:58.040 --> 0:32:59.640 But the key one, I think circle it on the 0:32:59.640 --> 0:33:03.640 calendar for twenty twenty five March nineteenth March nineteenth, Spring 0:33:03.640 --> 0:33:05.840 of twenty twenty five when they have to produce some 0:33:05.920 --> 0:33:08.360 new forecasts with some new policies in mind. 0:33:08.160 --> 0:33:11.280 Maybe especially as the third finishes out the first one 0:33:11.360 --> 0:33:13.840 hundred DS. It raises this real question how many of 0:33:13.840 --> 0:33:18.000 the policy implementations have really affected the trajectory of the economy. 0:33:18.320 --> 0:33:20.280 And they can't use this as a punt. We'll see 0:33:20.320 --> 0:33:22.640 what we see, they'll have seen, and they'll have to react. 0:33:22.720 --> 0:33:26.680 The Fed is reactionary, The market is anticipatory. The Fed 0:33:26.760 --> 0:33:29.680 is reacting to the data. This market is anticipating changes 0:33:29.760 --> 0:33:32.120 to policy, and a lot of that right now hinges 0:33:32.120 --> 0:33:34.280 on what happens with the House and whether we get 0:33:34.480 --> 0:33:36.800 this GOP suite from New York City that does it 0:33:36.880 --> 0:33:39.160 for us. Thank you very much, reducing Bloomberg TV and 0:33:39.280 --> 0:33:42.240 radio