Instant Reaction: Jay Powell on the Fed Decision

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In the next twenty minutes. On this program, we need
to discuss two things. The future of Chairman Paw One
the easing bias at the Federal Reserve. Two on the
future of Chairman pow staying one as a governor of
the Federal Reserve. He was asked why this is what
he had to say.
My concern is really about the series of legal attacks
on the FED. These attacks are battering the institution and
putting at risk the thing that really matters to the public,
which is the ability to conduct monetary policy without taking
into consideration political factors.
The Federal Reserve Chairman Jay Powell on independence. I think
FED independence is at risk. So what about the easing
buss Let's talk about monetary policy. A question coming into
this decision is whether this reserve would move to a
more symmetrical reaction function. That's the juket. This is a
plane speak. Isn't just as likely they'll hike as they'll cut.
They didn't do it this time around, but there was
some descent. This vote was eight to four. Four descents
haven't seen that since the nineteen nineties. Of those four
to three wanted to get rid of that easing bus.
This is what the chairman had to say on that issue.
You know a number of people on the committee who
either could support that language change, changing to a more
neutral stance so that a hike is as likely as
a cut. That number has increased over the inter meeting period,
and it's easy to see why we had the discussion.
The majority are still on the page of not feeling
the need to move to that level, and that's where
I am.
I get it though.
You know at a certain point you would move, and
that that conceivingly could come as soon as the next meeting.
They're getting closer, but they're not there yet. So much
to learn apparently over the next thirty to sixty days.
I thought that was the most market moving aspect of
the news conference, the idea that it wasn't just the
three dissenters who are to shift to a more neutral
kind of positioning symmetric kind of positioning, but that it
was a bigger group that just didn't feel like there
was a need to move right now, because ultimately, why
move now, and so much can change. Nonetheless, this goes
on for as long as people are might be thinking
based on the oil prices in the future. This is
something that clearly will come back on the table.
I like the way on the Bloomberg Professional Service we
have a way to see the president's tweets quickly. I
am waiting to see a president and tweet wheeler. Do
we get it by the time the clock turns around?
Or do we get it by metas earnings here in
X number of mini.
Things have softened somewhat around this institution just a little bit.
We heard from the Treasury Secretary scope person who said
it's understandable if this fed remains on hold for some time.
But the last thing we had from the President was
something like this, if the chairman doesn't leave on time,
I'll fire it now.
What is on time actually mean?
Because he can stay on as the Board of governors,
he can stay on that board until twenty twenty eight.
Is that on time? Or is the president looking for
something else?
Are we entering a new standoff? We're dealing with a
standoff of the Middle East. We were dealing with the
staring contest between Tom Tillis and Donald Trump, and now
might be dealing with President Trump versus j Powell the governor,
to see who blinks first, who's going to drop the
legal cases, who's going to step away? And this could
potentially get pretty tense, especially if the bar is that
much higher. Right now for FEED chair Jay Powell.
My mccame is in that news conference. He'll join us
in just a moment. I want to start with Jimpanco
of Pianco Research. Jim, Welcome to the program, buddy. I
think FED independence is at risk. The chairman's words, I'll
continue to serve as a governor for a period of time.
Recent events have left me no choice but to stay.
Your reaction, please, I think it's one of the most
disappointing things that he's done during his chairmanship. That is
a political decision. The decision was made to push the
investigation of the building to the Inspector General. The Inspector
General finds some malfeasans or wrongdoing with the building, they'll
have a criminal referral. That is appropriate. He seems to
be saying that has billions of dollars in building construction
and no one's allowed to ask any questions about it,
and he's going to stand in the doorway and disrupt
the FED as long as they're going to look into
this building. I think that that is a big, big disappointment.
I would have expected more from him, to be very honest,
and I'm a guy that liked him. I'm a guy
that would have reappointed him, and I think this is
a big disappointment that I've seen from him.
Jim, do you think that it has longer term ramifications
for the institution based in the fact that he is
saying he does think that this is an independent institution,
a committee, but does want to avoid some of the
attacks that he says are battering the institution.
Marin or Eccles is the only other FED chairman that
stayed on in the late nineteen forties, and his memoirs
say that he stayed on because he saw, with Bretton
Woods and with the World Bank and the IMF in
the post World War two period, change was coming and
he wanted to marshal the world through those changes. It
seems like what Chairman Paul is saying is we're eighty
years later and changes coming. I want to stand in
the doorway and prevent those changes. He said he wants
to see a more traditional move back to the FED.
He wants to see the FED institution remain the way
it is and not evolve. Now, as far as independence goes,
I think we've solved the independence pro problem with the
vote today eight four. We have twelve independent voters. The
Chairman is one of those voters. That is how you're
going to get a truly independent FED. The Chairman cannot
dictate the policy like he has for the last forty years.
He needs six other people to agree with him in
order to get that policy across. What's going to happen
if we continue to have these descents. I'll remind you
last year the Bank of England had a four to
four to one vote. If we get to a six
to six vote with this FED we're already at eight four.
That gives Chairman Powell all the power to decide what
the policy's going to be. Even though he said he's
not going to give any speeches and he's going to
remain in the background, or is he saying that he
will just do whatever to Chairman wash tells him to
do and that's the way he's going to vote and
he's not going to vote independently, So it's a big
problem that he needs to define and try to explain,
and he didn't did this press conference, Jim.
I look at this simplistically. I got oil at one
nineteen sixty one in this announcement that I saw on
the Bloomberg that we're leaving an aircraft carrier from the
Middle East, the gerald Ford, with five four hundred sailors.
I believe it as is coming home exhausted. Is Jerome Powell,
simplistically in the same way, just staying to block a
Trump appoint period.
I hope he's not, you know, and I hope that
you know he's he's trying to be fair minded in
his decision, and I disagree with the decision, and we
can have disagreements in it, and that is it being
as political as that that he doesn't want Trump to
have another appointee. And by the way, we'll get the
Leasa Cook decision by June when the court adjourns, and
if they do allow him to fire Lisa Cook for cause,
I would assume probably the same day he'll fire j
Paul and we'll have to and then he'll get two
votes or he'll get two open seats to be able
to replace Now. Of course the court could rule otherwise,
but that's coming as well too. But I hope it's
not that. I hope that it is more that he
has a view about the institution not changing in a
world where I think we're changing and it needs to evolve,
and he's preventing that.
Jim, stay close. I've got Miama Cay standing by it.
Just hopped out of the news conference and one of
his reactions to one of this as well, Mike here
in the room. Have you got a different perspective on things?
Yes, I think I do. I was listening to what
Jim said. I don't think Jay Paul is staying because
he's trying to stand in the way of progress at
the FED. I think Jay Powell is staying because he
doesn't trust the Department of Justice. He noted at the
top that the Justice Department had said that they were
dropping the probe, but he referenced back to Janine Piro's
comment about we could file another criminal complaint and he
doesn't know, oh what the Justice Department will do, whether
or not there would be validity in what the Justice
Department might do, So he wants to make sure that
that is the case, and he will at least probably
stay through the Inspector General's report. It is also possible
he would stay on beyond that in order, as you did,
mention that in order to deny the President the possibility
of another seat if he thinks what the President wants
to do is take political control of the FED.
Said Jim, I want to give you a chance to
respond to that. If anything, the Chairman's been consistent, he
said a bah. He said this needs to be rapped
up with transparency and finality, and based on the comments
we've had, according to the Chairman, he thinks the full
and short of that bound.
Jim, Yeah, I think he thinks that. Senator Tillis does
not think that. That's why he voted today to advance
his nomination. And I agree with Mike that he does
not trust the Justice Department. But it's not his call.
It's the Justice Department that the American public elected through
the election of Donald Trump. And if he doesn't like it,
he's going to then stay as a disruptive force to
the FED to prevent them from making any kind of
changes or referrals or even looking in Remember this is
all about the building cost and why it's been taken
several years and his run so expensive, and it seems
like he's saying we're not allowed to ask.
I've got another disruptive force to talk about, Jim a
labor to jump in one twenty on Brent just breached
that level moments ago, high on the session by eight percent.
Let's just take a step back. The chairman's future is
one part of the discussion. These market moves are something else.
At the moment, Brent at one twenty just sit on
that yields high at the front end of the curve,
retesting the highs of the last two months or so,
and equities bring up the equity screen. At the moment,
equity is this afternoon, in the face of these moves
and fixed income, these moves in commodities doing almost nothing.
Bramo hardly moved, not even phased ahead of these earnings
later this so afternoon.
And this was what the Fed was talking about. Right,
we have the NASDAK that actually up four tens ofiven
percent ahead of those earnings. As we look to the
strength that fetcher J. Powell was talking about it as
last press conference. But this is where it becomes tricky.
At what point do those higher oil prices that might
be leaving big tech unphased become an inflationary pressure that
can be withstand what we could be withstood simply because
there is enough momentum in this economy.
Jim, let's get to the price section.
Not so interested in should should an interested in market consequences.
Here's a Federal Reserve debates in dropping its easy bass
pressure building the commodity market rice repricing yields higher. What
are the consequences, Jim, I think.
The consequences are huge because if you look at the
way that oil is trading. You're right that the June
contract went over one twenty a few minutes ago, and
that's the highest it's been since June of twenty two.
What about the long term? Okay, let's look at the
December contract. The December contract is making new all time
highs too, and it's saying to us, at least if
you want to take it at phase value, that the
price of oil is going to stay elevated at least
through the end of the year. As Chairman Paul said,
we already have he said, three and a half percent
on PCE inflation. That's their measure, and if it's all
driven by energy, it's going to stay there right now,
and it's going to be problematic for the Fed to
even talk about an easing with that level of inflation.
It's not going to disappear and go away unless there's
some resolution in the war. And the problem is the
market doesn't see the resolution in the war. That's why
both the June all the way to the December contract
continues to move higher.
Ay, Jim, going to see you. I appreciate your opinion,
Jim of Biancore Research. Mike always go to see you, buddy.
Great work in the news conference. Mike mckaye down in Washington,
d C. If you're just joining us, welcome to the program.
We have set out for quiet an afternoon now in
the next sixty minutes so sun, we should hear from
four of the biggest companies on the planet, Microsoft, METSA Alphabet, Amazon.
Before we get there, some big market moves to talk
about eight consecutive days of high crude prices Brent crude
through one twenty. Just briefly, we've taken out the heighs
of the year closing basis. If we close at these
levels one nineteen ninety five. Look at that WCI comfortably
into triple digits. This move in the bond market off
the back of it yields high at the front end
of the curve, up by ten basis points. Not just
about oil, also about this feeder reserve. If you missed it,
here's a summary an eight to four vote. Haven't seen
that level of descent since nineteen ninety two. Of that four,
three hawkish descents a conversation about dropping the easing bias.
They haven't got enough people on site just to do
that just yet, but we're losing support for that easing
bias at this feeder reserve.
And potentially if this conflict in the Middle East doesn't
get resolved, then all of a sudden, you will have
a consensus to move to asymmetric risk. We have now
priced out a rate cut for twenty twenty six and
the Fed Fund's futures. At what point do we start
repricing in hikes, because ultimately, this is an economy that
can would stand oil prices at this level, rates at
this level, and that was the ward that we heard
from the Federal Reserve.
Repricing here is hard because it's a war. Somebody mentioned
there it's a war. We forget we're in a war.
And within that, I don't know what the unknown known
is tomorrow or out to June seventeenth. Nobody knows. We're
just going to take in the data and take in
the war news. And what I'm waiting for John is
to take in the next marginal.
President Trump tweet the S and P five hundred down
by a tenth of one percent. If you looked at that,
it's a snoozy afternoon and nothing happened at this Federo's
Eerve meeting. That's just not the case. Jeffrey Rosenberg of
Black Rock joined us now for more. Jeff, what's the
bill case in the face of what's brewing elsewhere?
Well, you know, you highlighted it well between trying to
disconnect what's going on between oil prices and the committee
meeting today and what we heard, and you know, I
want to highlight, you know, the thing that I found
most interesting about Powell's comments were explaining the I think
the second main point and takeaway at the meeting, which
is this this theme of a divided committee that comes
out of the eight to four vote, and he framed
it as a natural consequence of the conflict in the
FEDS objectives between growth and inflation, which is the one
hundred and twenty oil you know? Is that is that you
know point? And he got asked the question about pass
through and this is I think what the markets are
really struggling with is he basically made the point it's
all about the time of which the Straits of Hormuz
remains closed, and no one knows what that will look like.
So Jim just talked about the forward curve. Uh, you know,
December contract making its new highs, but it's it's significantly
lower than the front end of the curve. So there's
an expectation here that at some point that's opening up.
We don't know what that is, and I think Divided
Committee is likely to be the continuation because of this
point that Powell highlighted that when you're faced with the
conflict of the dual objectives, that people are going to
see that in different ways. Some are going to be
arguing for the growth impact, some are going to be
arguing for the inflation impact, and that might be the
more expected outcome as opposed to what we've seen and
the historical comparisons of this being you know, very unusual,
will maybe get used to that being a little bit
more usual.
Jeff, it seems like the conflict of the Middle East
isn't necessarily that close to wrapping up. Maybe it is,
and we just all are getting mixed signals. Do you
think this market needs to price in a greater chance
of a rate hike as the next move by the
Federal Reserve?
Well, it's already done that. And to this discussion about
the easing bias and the language, you know, the market
already took the easing bias out. It did that at
the onset of the oil price impact from the Iran war.
So I don't think that as a catalyst for sort
of the next move that's made. Mostly, you know, the
Fed is a deliberate a body getting the right number
of people willing. You heard Powell talk about that they're
slow to move that bias. The market is not, and
it's moved the bias to easing out of the market pricing.
So I don't think that's really the market event. The
market event is really the uncertain unknown question that he
was asked, what's the pass through from headline inflation to
core inflation? You heard Worsh talk about it in terms
of trimmed mean and not looking at core PCE as
a measure. That's a very particular way of looking at
the potential for pass through. Will he get and move
the rest of the committee onto that view. If so,
that's a very dubvish implication, and you bring the bias
back in. But as Powell highlighted, we really just don't know.
So you're going to have to see whether or not
those pass through of headline into core shows up, whether
Worsh is more dubbish interpretation shows up, and whether you
can push the committee towards his direction, and that will
bring the bias back into market pricing. But right now
we're pricing.
Yeah, Jeff, I.
Got eight questions in time for one, and it's just
simple for our listeners interviewers across this nation and worldwide.
What is the best tool to use in the bond
market to study the potential dynamics? Don't you know the
benchmark tenure or that, or is there a unique Rosenberg spread?
It makes sense. What is the efficacious way to study
the pulse is seen in fixed income?
Yeah? You know, Tom, the kind of historical rule of
thomb is if you want to keep it simple, it's
about the five year maturity point on the treasury curve.
That's kind of impacts the best estimations of where you're
looking for current and forward looking FED expectations, and that
kind of is your benchmark for looking at you can
look a little bit shorter. Two year is going to
be the more near term expectations. I think that's a
really good metric. And then on the inflation side, remember inflation.
You know, headline inflation is going to impact shorter maturities.
You want to look a little bit further out, you
can look at the slope of the curve five year,
five year forward measures on break even inflation is better
when looking at longer term market expectations of the impact
on inflation, and so far, you know that's been relatively benign,
and so that's kind of supporting you know, Powells comments
in terms of market longer term expectations not being unduly impacted.
If you started to see that change, that's going to
be a major signal for FED policy pivoting more towards
the inflation concern. If you start to see that show
up in that metri Jeff.
Last question from US last time we had to yo
it at these levels close to them was the end
of March, and every person we spoke to and fixed
income on Wall Street had a very favorable interpretation of
these moves. They said we were creating value and they
wanted to buy it. Jeff, do you think we're creating
value this afternoon and do you want to buy.
Well?
I think the move in the front end is creating
some value. You know, you're seeing a big curve flattening again.
A lot of it is conditional on that pass through
of inflation, but stepping out of the curve into the
front end, we're having Warsh come in. He's already signaled
that he wants to look through that and take a
more dubvish interpretation, be able to bring the committee along
with them. You know, when you start pricing hikes in
it depends on the oil move and it's persistent. But
I think there's a little bit of value there. A
completely different answer really to the opposite side. When you
look in the long end of the curve, the long
end needs to build term premium. We got a savings
glut that's turning into a savings deficit, particularly as we
need to reshure, rebuild, reallocate in global savings around the
implications of this Iran war, all at the same time
as fiscal deficits are increasing the demand for that borrowing.
I think there you see a different story, and that's
a that's less of a buying opportunity and more of
something we're going to need to see increase in terms
of the term premium to bring investors back into the
long end of the curve.
He jeff got to see you a great answer, Jeffrey
Rosenberg there of Black Crock breaking down its views, not
because I think it's the right answer, just it's an
important answer to a very difficult question. Right now to
ya yields high by ten basis points tens full forty one.
If you think that right now there's a great opportunity
to buy and the tenure, give us a call, because
right now everyone who we ask seems to say go
right to the front end and saying that's where I'm
going to get some yeals. But right now on the
long end, things might be changing, and ultimately we just
can't get ahead of it. And that seems to be
a theme again and again.
Bob just emails in he's on his way to Step
one in Miami's here, and Bob's looking at and he's going.
The price of guests went up ten cents yesterday, twenty
two cents this week. People are needing out at restaurants.
That's got a lot more to do with us than
any of the.
Things that flight got more expensive. This afternoon is not over.
Big tech coming up after the close, coming up tomorrow
on Bluebacks, tav On Bloembock surveillance. We'll kick things off
with Jutying and Manuell. I've ever Call, will catch up
with Mike Wilson, I've Morgan Stanley, and a whole lot
more from New York City this afternoon.
Good afternoon,