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Instant Reaction: Fed Holds Rates, Three Officials Dissent · Bloomberg Intelligence

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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Speaker 2: This is a breaking news update from Bloomberg, instant reaction
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Speaker 2: and analysis from our three thousand journalists and analysts around
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Speaker 2: the world. Mima kay As your.
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Speaker 3: Decision, no change in rates, but we have four four descents.
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Speaker 3: Laurie Logan, Beth Hammock, Neil Kashkari agreed rates should stay
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Speaker 3: on hold, but they did not support including an easing
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Speaker 3: bias in the statement at this time. Stephen Myron wanted
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Speaker 3: a quarter point cut. The last time there were four
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Speaker 3: descents October sixth of nineteen ninety two. As for that
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Speaker 3: easing bias, the statement still contains the phrase in considering
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Speaker 3: the extent and timing of additional adjustments to the target
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Speaker 3: range aligned meant to suggest that the easing cycle has
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Speaker 3: not necessarily ended. The Iran War figures prominently in the
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Speaker 3: economic overview. Inflation is elevated, in part reflecting the recent
1:02
Speaker 3: increase in global energy prices. The statement says developments in
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Speaker 3: the Middle East are contributing to a high level of
1:09
Speaker 3: uncertainty about the economic outlook. The Committee remains attentive to
1:14
Speaker 3: the risks on both sides of its dual mandate. It says,
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Speaker 3: even though recent indicators suggest that economic activity has been
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Speaker 3: expanding at a solid pace, job gains have remained low
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Speaker 3: on average, the statement says, and the unemployment rate has
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Speaker 3: been little changed in recent months. The descents open up
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Speaker 3: a whole new line of questioning for Chair Powell. For
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Speaker 3: descents would ordinarily be a sign of discontent with the Chair.
1:41
Speaker 3: Since this is likely Powell's last meeting as the chair,
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Speaker 3: it may not be anything more than expressions of concern
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Speaker 3: about the toll of the war. At each meeting this year,
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Speaker 3: the number of Open Market Committee members who have worried
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Speaker 3: they might have to raise rates has increased. We shall
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Speaker 3: see when we get a chance to talk to the.
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Speaker 4: I'm a key, stay close. I just want to run
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Speaker 4: through the price action. I've got a big question to
2:04
Speaker 4: come back at you with in just a moment. Equities
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Speaker 4: have stayed slightly lower, no drama here, down by zero
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Speaker 4: point two percent. Into this decision, Yields were already elevated,
2:12
Speaker 4: particularly at the front end of the curve. They stay
2:14
Speaker 4: somewhat elevated, up seven basis points at three ninety. This
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Speaker 4: isn't the kind of decision that moves around crude could
2:19
Speaker 4: is still higher by sixty seven one eighteen on Brent
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Speaker 4: Mike McKee. I just wonder coming into this decision, we
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Speaker 4: were talking about the possibility, the potential this Federal Reserve
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Speaker 4: introduced some symmetrical reaction function, but looking at that kind
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Speaker 4: of descent, I wonder if the descent alone has achieved
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Speaker 4: the same thing just by introducing to two way risk.
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Speaker 4: Given the level of descent you can see in this
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Speaker 4: afternoon's decision, that's a.
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Speaker 3: Very good point because, of course, if Powell leaves the FED,
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Speaker 3: that's one less vote that we know would be on
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Speaker 3: the easing side. At this point, we're going to have
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Speaker 3: to wait for the minutes unless the Chairman wants to
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Speaker 3: give us a number, which I doubt he will. Of
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Speaker 3: people who think that they should be at least suggesting
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Speaker 3: the idea of raising rates in the future, but it's
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Speaker 3: obviously grown since the last time, and feelings have grown
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Speaker 3: more certain, at least among those who think that two
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Speaker 3: way warning should be included in the statement. It's very,
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Speaker 3: very unusual. Obviously, it has been almost thirty years since
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Speaker 3: we've seen anything like this, and it is definitely a
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Speaker 3: sign that the FED is split over this question. And
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Speaker 3: one would think that if these people were willing to
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Speaker 3: dissent because they wanted a two way warning, because they
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Speaker 3: did not want an easing bias in the statement, that
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Speaker 3: they probably would have voted for a rate increase had
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Speaker 3: that been on the table.
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Speaker 4: Mamma Kay, appreciate your time you get in the news conference,
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Speaker 4: looking forward to you a lot of questioning. A little
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Speaker 4: bit late to that news conference, twenty seven minutes away,
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Speaker 4: we have an eight to four vote at the Federal Reserve.
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Speaker 2: That's some level of descent.
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Speaker 5: Yeah, And didn't Mike just say that that was the
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Speaker 5: first time we've seen that since October sixth, nineteen ninety two.
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Speaker 5: This is unusual to me. This really highlights the committee
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Speaker 5: aspect of this, and the fact that Fedcher J. Powell,
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Speaker 5: for all the job owning from the President, sits on
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Speaker 5: the more dubvish end of this, and I think that
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Speaker 5: that's very notable. So how does he message this given A,
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Speaker 5: he probably doesn't matter as much, but B, how does
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Speaker 5: he signal that this isn't necessarily a sign of dysfunction
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Speaker 5: ahead of a new FED chair coming in, but rather
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Speaker 5: how difficult this moment really is.
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Speaker 6: The expert on this is John Ferrell is the gentleman
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Speaker 6: from the United Kingdom, or descent is far more evident.
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Speaker 6: There were two moments of four descents in the eighty
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Speaker 6: nine to ninety two period, and the distinction here, John
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Speaker 6: is those descents were too ease to let up as
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Speaker 6: green span was stricter. And this is radically and historically different.
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Speaker 4: So I remember a level of descent, at degree of
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Speaker 4: descent back of the bank having that coming out, what
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Speaker 4: to do right? He wanted Milkiwi, And I remember the
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Speaker 4: governor being voted down on countless occasions. On this occasion,
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Speaker 4: I'm looking at this level of descent, and I just
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Speaker 4: wonder if the chairman would welcome it.
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Speaker 2: I think it's probably a good thing.
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Speaker 4: Right now that there is no group thing that we're
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Speaker 4: in a situation at the moment that deserves some kind
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Speaker 4: of debate about where policy should be and where is
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Speaker 4: it going and what kind of risks we face in
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Speaker 4: the economy right now. I actually also think that that's
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Speaker 4: the kind of committee that Kevin Wall should want to inherit.
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Speaker 4: Group think has been a problem at this institution for
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Speaker 4: the last five years. I wouldn't look at that as
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Speaker 4: a committee that's voted down the chairman in quite the
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Speaker 4: same way that the committee voted down the governor at
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Speaker 4: the Bank of England a number of years ago.
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Speaker 2: This feels somewhat different.
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Speaker 4: And if you want to move to some kind of
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Speaker 4: symmetrical reaction function at the Federal Reserve based on that vote,
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Speaker 4: I don't think you need it.
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Speaker 2: In the statement, I think the descent already speaks.
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Speaker 5: To it, which I think is why I'm noting the
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Speaker 5: increase in the dollar more than anything in body yields.
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Speaker 5: You're seeing a strengthening in the dollar versus the euro,
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Speaker 5: and that I think gives you a sense maybe at
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Speaker 5: least of the tendance question and the fact that this
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Speaker 5: truly is a committee.
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Speaker 6: But to get up in front of a pundits, is
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Speaker 6: this the committee and descent that President Trump wants?
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Speaker 2: That's a different question.
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Speaker 4: Yeah, this president clearly wants lower interest rates TK and
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Speaker 4: the kind of thing that we've just seen voted for
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Speaker 4: right now is not for lower interest rates. You've got
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Speaker 4: a committee that's worried about the prospect of a market
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Speaker 4: thinking they'll always get interest rate cuts that they don't
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Speaker 4: have to worry about inflation. First and foremost, the first
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Speaker 4: rule for any central banker, any real central banker anchor
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Speaker 4: inflation expectations.
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Speaker 2: This is part of the exercise.
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Speaker 5: Yeah, as Neil Dota put it, he messaged, it's clear
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Speaker 5: that worsh has his work cut out for him. Good
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Speaker 5: luck convincing some of these folks that it's time to
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Speaker 5: cut rates and potentially overall the whole system.
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Speaker 2: Different question entirely.
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Speaker 4: Bob Michael with us around a table from JP Morgan
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Speaker 4: Asset Management. Bobby Ready reflections on this decision.
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Speaker 1: Yeah, clearly it's in the dissense. Clearly they're moving more
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Speaker 1: towards a symmetrical policy. It's confirmed in the first paragraph
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Speaker 1: where they characterize inflation previously as remained somewhat elevated, they
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Speaker 1: remove the somewhat and it's just elevated. So they're telling
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Speaker 1: us they are increasingly concerned about the level of prices,
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Speaker 1: the level of oil, and the potential paths through to
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Speaker 1: the system. I think you're right. I think this is
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Speaker 1: less a message about JPAL and more a message to
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Speaker 1: the incoming FED chair that hey, we could be dissenting.
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Speaker 1: Get prepared for that. He may welcome that.
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Speaker 4: T K asked the question about the president, what the
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Speaker 4: president would like? This is another exercise it's quite important.
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Speaker 4: Everyone's been worried about the future of the Federal Reserve
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Speaker 4: Central Bank independence.
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Speaker 2: Will the chairman stay on? That degree of descent makes.
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Speaker 4: The life of I think Chairman Powell easier to walk
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Speaker 4: away from this institution. There's no capture of this institution.
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Speaker 4: This institution is still independent. Inflation expectations are still anchored,
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Speaker 4: and that is not dependent on fetch J. Pow staying
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Speaker 4: gone as a governor on this board for the next
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Speaker 4: two years.
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Speaker 5: I see what you did there.
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Speaker 2: So maybe they agreed.
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Speaker 5: Four people dissent, although one of them is perhaps in
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Speaker 5: a different direction. You're to Jerome Powell coming out and
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Speaker 5: saying I'm gone.
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Speaker 2: Good luck for you. Go ahead, Kevin.
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Speaker 4: I'm not suggesting there was any choreography here, just that
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Speaker 4: there are some benefits to that level of descent stefinitely. Rather,
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Speaker 4: Wolf's research has been going through the statement and reacting
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Speaker 4: to all of this and looking at the price action. Stephanie,
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Speaker 4: you're really take please.
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Speaker 7: Yeah, I mean, I think when it tells us that
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Speaker 7: the committee is certainly divided, and they're not going to
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Speaker 7: be a committee that's willing to just cut rates because
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Speaker 7: Warts wants them to do so, and It's also interesting
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Speaker 7: because in the hearing last week, Warsh noted that he
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Speaker 7: wants the bit in the room, but he wants a
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Speaker 7: more unified statement, and that's certainly not what we got today.
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Speaker 7: So the odds of COTS later this year certainly should
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Speaker 7: go down on the back of what we're seeing today.
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Speaker 7: It's just a committee that certainly doesn't even want to
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Speaker 7: have an easing bias, let alone easing in the near term.
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Speaker 5: Stephany, does it surprise you that more members of the
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Speaker 5: Federal Reserve didn't get on board with moving to a
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Speaker 5: more symmetrical type of approach.
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Speaker 2: A little bit?
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Speaker 7: I mean it certainly it sounds like it was a
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Speaker 7: fairly divided group, and perhaps there were others that were
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Speaker 7: even more on the fence that didn't officially dissent. This
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Speaker 7: was a big question for the meeting today. There was
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Speaker 7: actually two big questions. One was were they going to
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Speaker 7: maintain the easing bias in the statement? And many thought
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Speaker 7: that they would actually remove it, So that was, you know,
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Speaker 7: perhaps a bit of a surprise to some extent. And then,
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Speaker 7: of course the other question is how is how we're
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Speaker 7: going to answer the questions about what his plans are
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Speaker 7: once wars is actually confirmed.
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Speaker 6: But Michael, what is our overall stimulus right now? I
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Speaker 6: know we had timing for tech season where everybody got
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Speaker 6: a check in the mail and all that, But what
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Speaker 6: is all of this discussion about an historic post COVID
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Speaker 6: stimulus that it's starting to make the wheels come off
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Speaker 6: the wagon.
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Speaker 1: Yeah. Well, when I was listening to Matt and Subadra
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Speaker 1: earlier going into this, I was thinking the Fed would
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Speaker 1: be nuts not to move to a symmetrical posture because
9:32
Speaker 1: we know we have higher prices. And what I heard
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Speaker 1: from them is the economy is doing just fine. They're right,
9:37
Speaker 1: You've got the stimulus from the one big, beautiful Bill
9:40
Speaker 1: Act that's not finished. We know there's a tremendous amount
9:44
Speaker 1: of CAPEX. When I talk to our clients, they're just
9:47
Speaker 1: getting started on the AI journey. There's a lot more
9:51
Speaker 1: spending to come. And we also know there's a lot
9:53
Speaker 1: of money slashing around the system. You look at any
9:56
Speaker 1: measure of money, M two deposits, you know, money market funds,
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Speaker 1: they're still going vertical.
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Speaker 2: Can I do an audible?
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Speaker 6: Yeah, you're doing audible here to get the four pm
10:08
Speaker 6: and four fifteen pm. You're the bondpro what's sowhat of
10:12
Speaker 6: thirty billion dollars from one of these mag simis. They're
10:16
Speaker 6: going to put the money out, They're going to call
10:17
Speaker 6: Bob Michael, it's all going to go to JP Morgan.
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Speaker 6: And when they do that, what does it mean for
10:23
Speaker 6: the dynamics of their balance sheet? What does it mean
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Speaker 6: for the dynamics of the American fixed in gum market?
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Speaker 1: Well, the guys reporting today, if they were to issue
10:32
Speaker 1: thirty billion, you'd hardly notice it. That's how big they are,
10:37
Speaker 1: that's how little leverage they've carried. And in our conversations
10:41
Speaker 1: with a lot of big borrowers, we want to know
10:43
Speaker 1: do they see the demand? These guys have the demand.
10:47
Speaker 1: They'll show you the demand, and they can't monetize it
10:50
Speaker 1: until they put in place the capacity. So there is
10:54
Speaker 1: a big bill to go, and I think these guys
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Speaker 1: are right to borrow and get that bill going.
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Speaker 4: Are you some twos at three ninety three up? Ten
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Speaker 4: basis points off the back of this?
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Speaker 5: Do you know?
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Speaker 1: You ask me what if the FED did this and
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Speaker 1: we never really thought they were going to do this,
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Speaker 1: It's a very artistic way to do it. Nope, I
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Speaker 1: wouldn't touch it to that.
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Speaker 4: Point, to that framing, that's really important. Haven't they achieved
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Speaker 4: the same thing you don't need it in the statement?
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Speaker 4: Haven't the sents achieved the same thing?
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Speaker 1: Well, it's kind of in the statement. It's the last
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Speaker 1: line at the statement. It's and you talked about was
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Speaker 1: this choreographed or not? I absolutely think it was. Every
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Speaker 1: single word in the statement is choreographed. They sit there
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Speaker 1: and they debate it. I think this very nicely opens
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Speaker 1: the door for Jay to peacefully deparse it, depart from
11:39
Speaker 1: the FED.
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Speaker 5: So this is their sort of offering to him. The
11:42
Speaker 5: farewell gift to him is here you go, and that
11:44
Speaker 5: ultimately we're going to give Kevin wartsh a hard time.
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Speaker 1: I don't well, okay, I didn't say that. I think
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Speaker 1: what they're indicating is, like, we recognize inflation is a problem.
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Speaker 1: We're not going to sit there and keep advocating for
11:57
Speaker 1: more monetary ease. We're going to be more balance, don't
12:00
Speaker 1: worry about the independence of the FED. Jay go off
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Speaker 1: into retirement.
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Speaker 4: You said you wouldn't buy it. Why wouldn't you buy it?
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Speaker 1: Because I think the FLED has flipped the tables on
12:12
Speaker 1: the markets right now, and what does that mean I
12:15
Speaker 1: think they've now shifted to something. It's not outright hawkish,
12:21
Speaker 1: but it's more hawkish than where they've been. And then
12:24
Speaker 1: you step back and go there is still stimulus out there,
12:28
Speaker 1: and we're in the middle of the Middle East conflict.
12:34
Speaker 1: Those things have yet to be settled. Let's just get
12:37
Speaker 1: out of the way of this and see where them.
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Speaker 2: Okay, so let's build on that. Let's extend the conversation
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Speaker 2: a little bit more.
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Speaker 4: Tens are at full forty one right now, what kind
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Speaker 4: of numbers are you thinking about?
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Speaker 1: Well, we were breaking through to new highs. I don't
12:49
Speaker 1: think you get to five percent, but do you get
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Speaker 1: to something like four and five eighths, Probably, then I
12:56
Speaker 1: get interested. Then you're starting to you're putting a percent
12:59
Speaker 1: on the Fed funds rate. And I think it's one
13:02
Speaker 1: thing to switch to a symmetrical bias. It's another thing
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Speaker 1: to actually come in and start hiking rates. And I
13:09
Speaker 1: did say I don't expect any changes in rates this year.
13:13
Speaker 1: That's cuts or hikes.
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Speaker 6: John. Five eighths is how we used to quote papers.
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Speaker 6: Thirty seconds in the next hour.
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Speaker 4: I'm aware tends right now at full forty one. With
13:22
Speaker 4: this move at the front end of the curve. As
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Speaker 4: I mentioned, up ten basis points three ninety four, let's
13:26
Speaker 4: call it three ninety three. Equity start to break down
13:29
Speaker 4: just a little bit. Don't make too much of this.
13:30
Speaker 4: We're down by zero point three percent on the S
13:32
Speaker 4: and P five hundred. You will notice Bramma the on
13:34
Speaker 4: the performance in a Russo down by one percent plus.
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Speaker 5: These are the companies that are most vulnerable to rates
13:40
Speaker 5: going higher. I really am struck by what Bob's talking about,
13:43
Speaker 5: because this is a market shift, and really it does
13:46
Speaker 5: highlight how much this war has changed the dynamic fundamentally
13:50
Speaker 5: for people who believed that rates would just gradually go lower.
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Speaker 5: And if they don't, how much does that change some
13:56
Speaker 5: of the expectations about the equal weight market which we've
13:59
Speaker 5: seen in being baked in, and frankly about the broadening
14:02
Speaker 5: out trade, and adding to that, how much steam can
14:05
Speaker 5: it be behind some of the tech trades that are
14:08
Speaker 5: somewhat dependent on some of.
14:09
Speaker 2: The consumer aspects.
14:10
Speaker 5: I'm thinking, for example, meta advertising or Amazon, your cleaning supplies,
14:14
Speaker 5: your children's costumes, whatever children's costumes.
14:18
Speaker 2: I ended to buying a lot of those. Okay, well,
14:20
Speaker 2: I had a Halloween it's getting the discount.
14:22
Speaker 5: And also senior parties.
14:23
Speaker 4: Okay, all right, important stuff. Hey's definitely good to hear
14:25
Speaker 4: from me this afternoon. Thanks for your time, Stephanie Roth
14:27
Speaker 4: for for research to talk about the equity market. Kate
14:29
Speaker 4: Moore City joined us now for more. Kay, you're just
14:32
Speaker 4: starting to move higher, getting a squeeze over and crude
14:36
Speaker 4: Brent out to close to one twenty. Equities somewhat softer
14:40
Speaker 4: but not really looking at this as a dramatic event.
14:43
Speaker 4: How would you frame things?
14:45
Speaker 8: Yeah, I don't think today's event and would have said
14:47
Speaker 8: is the big event for equities right now. This is
14:49
Speaker 8: also like a massive lallabluzo when it comes to earnings
14:52
Speaker 8: this week, which you know Donvin quite well. And I
14:55
Speaker 8: think the equity market attention is much more there and
14:58
Speaker 8: so far everything that we got yesterday, expectations for Act
15:01
Speaker 8: of the Clothes today and tomorrow are for actually quite
15:04
Speaker 8: strong numbers, reiterating not just the AI text story but
15:07
Speaker 8: also actually a very solid US consumer. So I think
15:10
Speaker 8: that is really where kind of equity risk is focused
15:13
Speaker 8: right now. Less so on this what is what I
15:16
Speaker 8: would argue is also a very interesting set of descents
15:19
Speaker 8: in the FMC.
15:20
Speaker 5: That said, is there a level or is there some
15:23
Speaker 5: sort of rate of change that gets you concerned as
15:25
Speaker 5: an equity investor about what's going on in the bond market.
15:28
Speaker 5: Should this FED suddenly move to put rate hikes squarely
15:31
Speaker 5: on the table.
15:34
Speaker 8: It seems unlikely in our view that the FED is
15:36
Speaker 8: going to put great hikes on the table. Lisa, I
15:38
Speaker 8: would say that is not in our kind of any
15:42
Speaker 8: of our distribution for the back half of this year stability,
15:45
Speaker 8: even as inflation is warm, and even as the FED
15:48
Speaker 8: is going to wait and see and more descent happens
15:49
Speaker 8: across the FMC. But we of course will watch what happens.
15:53
Speaker 8: Because the relationship between equities and bonds has broken down
15:56
Speaker 8: a number of times over the last couple of years.
15:58
Speaker 8: The correlations are not exactly what they had been historically,
16:02
Speaker 8: and bonds have not been the safe even asset that
16:05
Speaker 8: some people had become used to in their early days
16:07
Speaker 8: of acid allocation. So across our multi asset portfolios, we've
16:11
Speaker 8: been more Tactical's continue to be short duration. I heard
16:14
Speaker 8: Bob a moment ago say he wouldn't be buying two
16:16
Speaker 8: years at this point. I tend to agree with that.
16:19
Speaker 8: And we tend to like to take most of our
16:21
Speaker 8: risk on the equity side and think about other diversifiers
16:24
Speaker 8: outside of the fixed income space.
16:26
Speaker 6: Gay I look at where we are in the market,
16:29
Speaker 6: and John I brought this up today because frankly I
16:31
Speaker 6: have misplaced this. The Dow up twenty percent one year trailing,
16:36
Speaker 6: SPX up twenty eight percent one year trailing, all in
16:40
Speaker 6: Nasdaq of forty one percent one year trailing. Kate's completely
16:44
Speaker 6: separated from the nation's angst. What do you see as
16:48
Speaker 6: an indication that that keeps going and how can the
16:52
Speaker 6: Fed and assist with that?
16:55
Speaker 8: Yeah, Tom, One of the things we've been focusing on
16:57
Speaker 8: in something our Investment Committee was talking about earlier today
17:00
Speaker 8: is the massive dispersion in terms of sectoral earnings, not
17:03
Speaker 8: just this order, but through the balance of twenty twenty six.
17:07
Speaker 8: And this is also kind of what we're seeing in
17:09
Speaker 8: the overall economy. We've gotten hired. I think of talking
17:12
Speaker 8: about the case shaped consumer because even the bottom part
17:14
Speaker 8: of the case seems to be holding up relatively well
17:17
Speaker 8: with decent real wages, but there is a huge amount
17:20
Speaker 8: of dispersion below the surface in the equity market fundamentals
17:24
Speaker 8: and in the macro fundamentals, and that can make people uncomfortable,
17:28
Speaker 8: But unfortunately, what's really driving the market higher has been
17:32
Speaker 8: extremely strong earnings and expected free cash flow from the
17:36
Speaker 8: large parts of the market cap. And we continue to
17:39
Speaker 8: stay kind of anchored to the equity risk and loving
17:41
Speaker 8: US large caps, even as we recognize it is going
17:44
Speaker 8: to be a very uneven experience and perhaps a better
17:47
Speaker 8: opportunity for some more active management as we go through
17:50
Speaker 8: this year.
17:51
Speaker 4: Unfortunately, part of the downs right now monitoring equity markets,
17:54
Speaker 4: bond markets, and commodity markets. More importantly is following these
17:57
Speaker 4: headlines regarding the Middle East, and we've got more from
18:00
Speaker 4: the President this time, some comments on the Russian leader,
18:03
Speaker 4: Vladimir Putin. They've had a conversation. The Russian leader said
18:06
Speaker 4: he'd like to help with the Iranian enrichment. There has
18:09
Speaker 4: been some suspicion for a while that maybe that in
18:12
Speaker 4: rich Iranian would be moved to a third party, and
18:14
Speaker 4: perhaps that would be Russia. And some headlines I have
18:16
Speaker 4: to say, looking at this that are lose to that, Lisa,
18:19
Speaker 4: at least a soufternoon now, as we said on countless
18:21
Speaker 4: occasions over the last two months, one headline that speaks
18:25
Speaker 4: to one story will last about five minutes, and things
18:28
Speaker 4: can quickly change. All I can do with you is
18:29
Speaker 4: share with you the current headlines, and that the headlines
18:32
Speaker 4: that dropped just moments ago.
18:33
Speaker 5: Yeah, and they include the idea of potentially having a
18:35
Speaker 5: ceasefire with Ukraine in Russia and then Urania moving from
18:39
Speaker 5: ran over to Russia. I mean a lot of things
18:41
Speaker 5: that are a lot of questions what you do with this.
18:44
Speaker 2: I think people have.
18:44
Speaker 5: Shrugged it off and moved on because they don't know
18:46
Speaker 5: what to do with it, because it's just a headline.
18:48
Speaker 5: So they look at things like, oh, the placating idea
18:51
Speaker 5: of rates going down. You start removing some of these pillars.
18:54
Speaker 5: That's when suddenly some of the inks starts to percolate
18:57
Speaker 5: up a little bit more.
18:58
Speaker 4: Initially, I think this market took comfort from the intent
19:00
Speaker 4: they commit to de escalation, the commitment to de escalation
19:04
Speaker 4: and not returning to hostilities. But the fact of the
19:06
Speaker 4: matter is that over this entire period, creud's not been moving.
19:09
Speaker 4: Energy has not been flowing sufficiently, and every day for
19:12
Speaker 4: the last eight sessions, crew keeps grinding higher.
19:14
Speaker 2: It's intriguing about this.
19:15
Speaker 4: Every time we get a bit of hopeium some headlines
19:17
Speaker 4: and reports here, there and everywhere. CREWD has really stopped
19:20
Speaker 4: responding to it in the same way Brent is still
19:22
Speaker 4: elevated here TK one to eighteen and up on the
19:24
Speaker 4: session by six percent.
19:26
Speaker 6: I really agree with that. And you see the angst
19:28
Speaker 6: in Southeast Asia and other selected geographies, and it's way
19:31
Speaker 6: more tangible than anything we have. The sum of this
19:35
Speaker 6: is real GDP and the inflation piled on top of it.
19:38
Speaker 6: Kate Moore, if you're still with us, I'm absolutely fascinated
19:43
Speaker 6: how you feel nominal GDP will affect our listeners. In viewers,
19:48
Speaker 6: it's still going to be buoyant, I guess. But it's
19:50
Speaker 6: a different nominal GDP, isn't it.
19:54
Speaker 5: Yeah, it is.
19:55
Speaker 8: And look, I think some of this tom is getting
19:56
Speaker 8: reflected in the consumer confidence data and the surveys that
19:59
Speaker 8: have come out out where consumers are talking about their discomfort.
20:03
Speaker 8: It's not just high gas line prices, and maybe it's
20:06
Speaker 8: they don't like the direction of the country. They don't
20:08
Speaker 8: feel as confident as they have in the past. Yet
20:10
Speaker 8: the thing that I keep anchoring on is actually what's
20:12
Speaker 8: happening in their behavior. And we've been looking at all
20:14
Speaker 8: this high frequency consumer data VITA, whether it's around dining
20:18
Speaker 8: outside the home or traveling and spending. And we've got
20:22
Speaker 8: some good reports from our couple early consumer companies this quarter,
20:25
Speaker 8: and all of it is showing that despite all these
20:27
Speaker 8: negative surveys, people feeling uncomfortable with the path of the economy,
20:31
Speaker 8: that they're continuing to operate more bau. So, Tom, this
20:35
Speaker 8: is a little bit of a friction I think we have,
20:37
Speaker 8: which is maybe we don't get a massive acceleration that
20:40
Speaker 8: benefits all parts of the economy, but as long as
20:42
Speaker 8: both the consumer and the AI text space continue to fire,
20:46
Speaker 8: you know, we feel like you can't be on the
20:47
Speaker 8: sidelines for risk assets.
20:49
Speaker 4: Okay, it's going to say the cash up, as always
20:51
Speaker 4: came more than of citsy breaking down the secuity market
20:54
Speaker 4: and reflecting on this decision from the Federal Reserve about
20:56
Speaker 4: twenty minutes ago. If you're just churning again, welcome to
20:59
Speaker 4: the program. At about him time, we're here from the
21:01
Speaker 4: Chairman of the Federal Reserve, Chairman J. Powell, in what
21:03
Speaker 4: could be should be his final meeting at the Federal Reserve.
21:07
Speaker 2: Just moments ago.
21:08
Speaker 4: Twenty minutes ago, we had a decision from the Federal
21:10
Speaker 4: Reserve to leave interest rates unchanged. What stood out was
21:13
Speaker 4: the degree of descent eight to four, eight four, and
21:16
Speaker 4: that eight to four vote marking the first time since
21:18
Speaker 4: October nineteen ninety two the four officials have dissented against
21:23
Speaker 4: an f WEBC decision, so something we haven't seen a
21:26
Speaker 4: number of decades. All of this and anticipation of earnings
21:28
Speaker 4: after the closing bow from some of the biggest companies
21:31
Speaker 4: on the planet, including Microsoft, Amazon, Meta Alphabet, all of
21:36
Speaker 4: that's still to come, which has supported the Nasdaq. The
21:38
Speaker 4: nasdak is still positive by a quarter of one percent.
21:41
Speaker 4: But if you want to look at the small caps
21:42
Speaker 4: right now, the Russell down by one percent. Allow me
21:44
Speaker 4: to give you a why this move at the front
21:46
Speaker 4: end of the yield curve on a two year up
21:48
Speaker 4: nine basis points to three ninety three Off the back
21:51
Speaker 4: of this move in the commodity market, Lisa Brent crude
21:54
Speaker 4: one to eighteen and up six percent.
21:56
Speaker 5: Fed funds features have now priced out completely at any
21:58
Speaker 5: rate cuts this year. We are now racing out interest
22:01
Speaker 5: rate cuts by the Fed Reserve for twenty twenty six.
22:04
Speaker 5: Whether we shift to people starting to price in rate
22:06
Speaker 5: hikes like we did a couple of weeks ago. That
22:08
Speaker 5: remains to be seen. It also is unclear exactly how
22:11
Speaker 5: much the press conference can really do to that. It
22:13
Speaker 5: will be political intrigue and drama whether Jerome Powell's future. Nonetheless,
22:17
Speaker 5: this market is moving, it's responding, and the idea that
22:20
Speaker 5: the strength of the US economy can continue is the
22:22
Speaker 5: reason why this is viewed as more inflationary right now
22:25
Speaker 5: than maybe disinflation or outright deflationary later on.
22:28
Speaker 4: The cross asset moves are particularly spectacular. We've gone back
22:32
Speaker 4: to where we were about a month ago, about a
22:34
Speaker 4: month ago when the equity market was about thirteen percentage
22:37
Speaker 4: points south of where it is right now. In the
22:38
Speaker 4: s and P five hundred yields to bat through the
22:41
Speaker 4: heights on some maturities, I'm looking more at the long
22:43
Speaker 4: end of a curve. The long bond on thirties and
22:45
Speaker 4: crude has made new highs as well. And what's more important,
22:48
Speaker 4: I think, away from the front month of the future's curve,
22:51
Speaker 4: is what's happening on longer dated prices as well. You've
22:53
Speaker 4: talked about this around the week on Bloomberg's surveillance promo
22:55
Speaker 4: where decembers training, where the latter months are the back
22:58
Speaker 4: end of the future's curve that's making new highs as well.
23:01
Speaker 4: This is a market that's pricing high for longer, not
23:04
Speaker 4: just for interest rates, but for energy as well.
23:06
Speaker 5: And that's why we always have been talking about boiling
23:08
Speaker 5: the frog, because it's getting harder and harder and harder.
23:10
Speaker 5: And at what point do capital markets start to slow
23:13
Speaker 5: down as a result of benchmark rates going higher and
23:15
Speaker 5: inflationary pressures being This has.
23:16
Speaker 4: Been the exercise for US now for the best part
23:19
Speaker 4: of two months. Energy shock, rates shock, What does it
23:22
Speaker 4: mean for growth? But that's the question I think is
23:24
Speaker 4: still an open ended question.
23:26
Speaker 2: Really.
23:26
Speaker 4: We've seen it in commodities, we've seen it in energy,
23:29
Speaker 4: and I'm asking this question with America in might before
23:32
Speaker 4: we get to the international bank drop where it's much harder.
23:34
Speaker 2: What does it mean for US growth if anything at all?
23:36
Speaker 1: Well, I think we have to acknowledge that the three
23:39
Speaker 1: descents weren't in favor of hikes. They were in favor
23:42
Speaker 1: of a more symmetrical policy, which leaves three quarters of
23:46
Speaker 1: the FED still biased towards ease. So let's accept that.
23:50
Speaker 1: That said, the bar to hikes just got lowered a notch.
23:56
Speaker 1: What does it mean for growth? It means that unless
23:59
Speaker 1: the economy can absorb higher prices from energy and higher
24:04
Speaker 1: cost of funding from where rates are, then you're going
24:07
Speaker 1: to see a real slow down.
24:09
Speaker 5: At what point do higher yields start to crimp the
24:12
Speaker 5: capital markets activity? I'm talking about all the bond sales.
24:15
Speaker 5: I'm talking about beyond that, mergers and acquisitions that have
24:18
Speaker 5: been absolutely flying recently.
24:21
Speaker 1: I don't think we're there yet. I think really you'd
24:24
Speaker 1: have to get the ten year above five percent to
24:28
Speaker 1: create any kind of damage. And let's also remember that
24:32
Speaker 1: most of corporate America finances itself with floating rate. We
24:36
Speaker 1: should know that from private credit and direct lending now.
24:40
Speaker 1: So unless the FED is going to start hiking rates,
24:43
Speaker 1: which we're not calling for this year, then the cost
24:47
Speaker 1: of funding for most of corporate America is going to
24:50
Speaker 1: remain roughly the same.
24:52
Speaker 6: Is the FED doing policy for the havels. It's just
24:55
Speaker 6: as simple as that. The economy here between the halves
24:58
Speaker 6: and the havens. Witness attention or fourth sense, How does
25:03
Speaker 6: the new chairman address the have nuts, the people flat
25:07
Speaker 6: in their back.
25:09
Speaker 1: I don't think it's a question of have or have nots,
25:11
Speaker 1: and I think you go back to the twenty twenty
25:13
Speaker 1: two experience. I think they're scarred from that. They were
25:16
Speaker 1: late to react. Inflation was painful and it hit all
25:21
Speaker 1: levels of the economy, both the haves and the have nots.
25:24
Speaker 1: And I think they are genuinely as a body trying
25:27
Speaker 1: to get their arms around that. And there are a
25:30
Speaker 1: group of people who were courageous enough to step forward
25:33
Speaker 1: and do something different than what's been done in the past.
25:36
Speaker 6: What will the next meeting look like? For you? You
25:39
Speaker 6: guess right now what the next meeting will look like.
25:43
Speaker 1: I think there will be a lot more to a
25:46
Speaker 1: debate on whether they should be hiking rates, will they
25:51
Speaker 1: have to cut rates down the road, or will they
25:53
Speaker 1: remain Larry.
25:54
Speaker 6: Meyer wrote that monograph years ago about Alan Greenspan, and
25:57
Speaker 6: there was some real John, There were some real back
25:59
Speaker 6: and forth going on way back. Is that what we're
26:01
Speaker 6: up for now is a Lawrence Meyer Allen Greenspan fed
26:04
Speaker 6: with Chairman wsh It.
26:07
Speaker 1: Probably it doesn't feel like the Middle East is in
26:10
Speaker 1: the rear view mirror or will be six weeks from now.
26:13
Speaker 4: I've got a personnel question. When the next mate should
26:16
Speaker 4: be chairman. Walsh is pal there or not.
26:20
Speaker 1: I don't think he will be.
26:21
Speaker 2: You think he steps away.
26:22
Speaker 1: I think the FED is in good hands with Walsh.
26:27
Speaker 1: I think you've had a group of people say, don't worry,
26:31
Speaker 1: we're still independent, and I think you've just got to
26:33
Speaker 1: pass the reins on and let somebody else try things
26:37
Speaker 1: that may be a little bit more innovative, a little
26:39
Speaker 1: bit different from what you've done.
26:41
Speaker 5: Is there a market liability if he doesn't do that?
26:44
Speaker 5: Is there a market reaction?
26:46
Speaker 1: I don't think so. I think there will be a
26:49
Speaker 1: lot of concern that it's too much of a political decision.
26:54
Speaker 1: I think the door is wide open to exit gracefully.
26:58
Speaker 6: John June seventeenth, I guess I got to cancel my plans.
27:00
Speaker 6: I was supposed to be in chulting him, but instead
27:03
Speaker 6: I'll be June seventeenth.
27:04
Speaker 4: I'll be here two things, one chout them and two
27:08
Speaker 4: for the record, I won't be here.
27:09
Speaker 2: I will be away. I won't be a chouten him,
27:10
Speaker 2: though I'll be missing that one.
27:14
Speaker 4: Does this make the life of Kevin Walsh just that
27:16
Speaker 4: a little bit easier entering the Federal Reserve? This might
27:19
Speaker 4: sound somewhat counterintuitive, but entering the Federal Reserve under a
27:22
Speaker 4: little bit of a dark cloud where some people are concerned,
27:25
Speaker 4: particularly the Fed watchers, about the future of this institution
27:28
Speaker 4: and central Bank independence. I think not only of these
27:30
Speaker 4: dissenters done Shairman Powell a favor. I do think they've
27:33
Speaker 4: done Kevin Walsh a favor as well. Yes, he doesn't
27:36
Speaker 4: want this planing out in public, but one of the
27:38
Speaker 4: criticisms of this institution, particularly under Chairman Powell, is the
27:41
Speaker 4: group thing. I think it's refreshing to see the descent.
27:44
Speaker 4: We've been asking for it for ages. You can't complain
27:46
Speaker 4: about it once you've got it.
27:47
Speaker 5: Not only that, but arguably the inner Kevin worsh is
27:50
Speaker 5: a hawk is somebody who wants to say inflation is
27:53
Speaker 5: a choice. He didn't mention employment once, We didn't talk
27:56
Speaker 5: about the labor market in those hearings. He wasn't talking
27:58
Speaker 5: about the average American flat on their back. He talked
28:01
Speaker 5: about inflation and how important it was to the credibility
28:04
Speaker 5: of the Fed to get it under control. So what's
28:05
Speaker 5: the risk that he comes in is actually incredibly hawkish.
28:08
Speaker 5: It joins those three other dissenters in case of a
28:11
Speaker 5: more symmetric risk. What does a market do with that?
28:13
Speaker 4: This is the secret source of central bank independence. He
28:16
Speaker 4: want to make it easier to cut rates, convince the
28:19
Speaker 4: market you're willing to hike, and we have gone some
28:22
Speaker 4: way through that exercise the sou afternoon with this degree
28:25
Speaker 4: of descent.
28:25
Speaker 5: What's interesting is what Bob said is that levels here
28:28
Speaker 5: are not going to necessarily hijack any of the capital
28:30
Speaker 5: markets activity. It's not going to slow the M and A,
28:33
Speaker 5: it's not going to slow the huge tech trade that's
28:35
Speaker 5: really been the ballast to this market. So what exactly
28:38
Speaker 5: is it going to do to actually slow the economy
28:40
Speaker 5: and actually achieve what the FED is looking to do?
28:42
Speaker 4: Bob Michael In just about ninety seconds time, the Chairman
28:44
Speaker 4: of the Federal Serve, J. Powell, walks into that room
28:47
Speaker 4: and steps up behind that podium for probably likely the
28:50
Speaker 4: final time. Just a reflection on this man and his
28:53
Speaker 4: tenure at this institution.
28:56
Speaker 1: I think he was dealt some shockingly difficult circumstances, and
29:01
Speaker 1: I think he did his best to navigate through them.
29:05
Speaker 1: We did get through COVID, we got through the regional
29:10
Speaker 1: banking crisis. We've gotten through different rounds of tariffs, and
29:14
Speaker 1: we're looking at an economy that's actually doing pretty well considering.
29:20
Speaker 1: I think he's done a really good job. And Walsh
29:23
Speaker 1: isn't an outsider, he's an insider. He was at the
29:26
Speaker 1: FED before. He'll do a good job.
29:28
Speaker 4: But Michael, I appreciate your time, sir, thank you. BUTB
29:30
Speaker 4: Michael there of JP Morgan