Latest / Bloomberg Intelligence / Instant Reaction: Jay Powell Talks Fed Policy

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Instant Reaction: Jay Powell Talks Fed Policy · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:11
Speaker 2: This market got the dubvishness it wanted to hear. The
0:15
Speaker 2: equity market's positive by close to two percent on the
0:17
Speaker 2: S and P five hundred on the NAS NAK one
0:19
Speaker 2: hundred up by three point three. We're moving closer to
0:22
Speaker 2: cunning interest rates. September could well be on the table.
0:25
Speaker 2: Push that through the bond market. A fifth consecutive day
0:28
Speaker 2: of gains for the ten year tracery yield to lower.
0:31
Speaker 2: We're down by four basis points on a ten year.
0:33
Speaker 2: It's a break of four point one percent. So we've
0:35
Speaker 2: all got the same question. Just how low is the
0:37
Speaker 2: bar for a rate cut in September. This is what
0:40
Speaker 2: the chairman had to say.
0:43
Speaker 3: The question will be whether the totality of the data,
0:47
Speaker 3: the evolving outlook in the balance of risks are consistent
0:50
Speaker 3: with rising confidence on inflation and maintaining a solid labor market.
0:54
Speaker 3: If that test is met, a reduction in our policy
0:57
Speaker 3: rate could be on the table as soon as the
0:59
Speaker 3: next meeting in September.
1:01
Speaker 4: So let's talk about the calendar.
1:02
Speaker 2: The next meeting September eighteenth, the data in between August second,
1:07
Speaker 2: This come in Friday payrolls August fourteenth, CPI report, September sixth,
1:12
Speaker 2: the jobs report on the eleventh, another CPI report, going
1:15
Speaker 2: into a Federal Reserve decision week, and most people are
1:18
Speaker 2: seeming after that, Lisa, we're like this far away from
1:21
Speaker 2: that interest rate cup, especially at.
1:22
Speaker 1: A time where there was a different type of language
1:25
Speaker 1: in this communication. We are not data dependent. They are
1:29
Speaker 1: or they are data dependent, They're not data point dependent.
1:32
Speaker 1: They want to draw distinction that one data point isn't
1:34
Speaker 1: going to throw them off materially. They repeated the totality
1:38
Speaker 1: of the data as well as how they just need
1:41
Speaker 1: to see the same kind of good data that they've
1:43
Speaker 1: already been seeing.
1:44
Speaker 5: Turn continuum to me was critical that Steve Leisman's question
1:47
Speaker 5: was great about measured alluded to this their slaves to measure. John,
1:50
Speaker 5: that's other is to it. I just don't know what
1:52
Speaker 5: else to say. You know, I'll talk to Dudley about
1:54
Speaker 5: it here. This to have Clarena and Dudley with.
1:56
Speaker 2: Us today is fantastic last lights out and I really
1:59
Speaker 2: for you a global Wall Street.
2:01
Speaker 5: What's coming up here with doctor Dudley is required listening.
2:04
Speaker 2: There was a fantastic line that came from evercause Krishnakua,
2:07
Speaker 2: I want to share this quote with you. He thinks
2:09
Speaker 2: they've laid the foundations for a rake Caunt September. I
2:11
Speaker 2: think a lot of people observing that news conference would agree.
2:15
Speaker 2: But this quote's interesting. We think in practice it's not
2:18
Speaker 2: very data point dependent and view the cautious evolution of
2:21
Speaker 2: the statement as intended to carry hawks along and avoid descents,
2:24
Speaker 2: as was indeed the case today. Expect a clearer signal
2:28
Speaker 2: a month from now at Jackson Hole. I'm thinking about
2:31
Speaker 2: the minutes as well. I just wonder how well set
2:34
Speaker 2: the stage is for the doves to dance and sing
2:37
Speaker 2: very loudly in these minutes that come out in a
2:39
Speaker 2: number of weeks time.
2:40
Speaker 1: I was very happy that the reporter asked him to
2:42
Speaker 1: elaborate on the fact that at this particular meeting they
2:45
Speaker 1: did discuss the possibility of cutting reeds, that there were
2:49
Speaker 1: a few members but not the vast majority. Here is
2:52
Speaker 1: the question, how loud was that voice and what did
2:55
Speaker 1: they have to give to those people to get on
2:57
Speaker 1: board with them in terms of this decision?
2:59
Speaker 5: Did you bring the dark to Dudley? Moments ago the
3:01
Speaker 5: ten yure yield broke down to a four oh eight
3:03
Speaker 5: ninety two. It's a new low yield. Could you imagine, John,
3:06
Speaker 5: what our shows are going to be like with a
3:08
Speaker 5: three ninety nine ten year I can't get.
3:11
Speaker 2: There where we're going to be in September. Where's the
3:13
Speaker 2: unemployment rate going to be in September? That's the big question.
3:16
Speaker 2: I have gone into the payrolls report this Friday. Bill
3:19
Speaker 2: Dudley got a shout out in this news conference. Bill
3:21
Speaker 2: dut Lee joins us now the former New York Fed
3:23
Speaker 2: president and Bloomberg opinion columnist as well. Bill, I want
3:27
Speaker 2: to go to your column that you wrote in the
3:29
Speaker 2: last week or so. It was quoted in this news conference.
3:31
Speaker 2: I'm sure you heard it. What did you think of
3:33
Speaker 2: the chairman's response to it?
3:36
Speaker 6: I thought it was a fair response. I mean, this
3:37
Speaker 6: is my opinion and is reaching a slightly different opinion.
3:41
Speaker 6: I mean, we're at a point where the risks are
3:44
Speaker 6: pretty closely balanced, and so the question is do you
3:47
Speaker 6: go a little earlier or do you go a little later?
3:49
Speaker 6: I think you know the reason why I thought it
3:51
Speaker 6: makes more sense to go is that if the market's
3:53
Speaker 6: already pricing in September with a high degree of certainty.
3:56
Speaker 6: What are you really waiting for at this point? Why
3:59
Speaker 6: take the additional risk of you know, the community deteriorating further,
4:03
Speaker 6: so you know, end of the day, it's probably not
4:04
Speaker 6: going to make a big bit a lot of difference.
4:06
Speaker 6: But I think you know, given the fact that the
4:09
Speaker 6: market expects the Fed to cut once that decision is
4:11
Speaker 6: mostly made, and I think you heard today it was
4:13
Speaker 6: mostly made, then why are you waiting?
4:16
Speaker 5: Bill Dudley, your essay heard around the world, the single
4:19
Speaker 5: sentence the Fed doesn't want to be fooled again. You've
4:22
Speaker 5: held court at Princeton, where the late wonderful Daniel Kahneman
4:27
Speaker 5: held court. Here's common with Taversky. Decision makers know they
4:30
Speaker 5: are prone to regret, and the anticipation of that painful
4:34
Speaker 5: emotion plays a part in many decisions. How is regret
4:38
Speaker 5: aversion playing in to this massive data dependency x post ballet.
4:46
Speaker 6: What maybe happening here is the fact that they got
4:49
Speaker 6: fooled on inflation, you know, earlier this year where the
4:51
Speaker 6: data came in bad makes them overly cautious that they're
4:55
Speaker 6: going to make this and that they they can make
4:56
Speaker 6: the same mistake again by going early. I think it's
5:00
Speaker 6: you know, kind of has talked about recency bias, you
5:02
Speaker 6: put too much weight on the most recent experience. So
5:05
Speaker 6: this may be a case where they're not putting enough
5:07
Speaker 6: weight on the on the fact that, you know, things
5:09
Speaker 6: are slowing and the inflation's coming down, and maybe now
5:12
Speaker 6: it's the time to act. I think it was interesting
5:14
Speaker 6: you got a question about the sombrule. You know that
5:16
Speaker 6: the fact when the unemployery climbs above zero point five
5:19
Speaker 6: percent on a three month moving average basis you always
5:22
Speaker 6: have recession. He said he's aware of it, but clearly
5:26
Speaker 6: the FED doesn't put a lot of weight on that risk.
5:29
Speaker 1: Do you feel like we're getting closer to the moment
5:31
Speaker 1: where we will see real dissent on a committee that's
5:34
Speaker 1: being cobbled together and you can kind of feel the
5:36
Speaker 1: strains in some of the community case.
5:40
Speaker 6: Now, I think what happened, you know today was basically
5:43
Speaker 6: the Doves got a pretty dubbish statement and a pretty
5:47
Speaker 6: dubblish press conference, and so you know, they're sort of
5:50
Speaker 6: set on board, and the Hawks got more patience. And
5:53
Speaker 6: so when you arrive at the center Tamber meeting, assuming
5:56
Speaker 6: the outlook doesn't change in the material way and That's
5:58
Speaker 6: basically what pub was saying. It's not about a single
6:00
Speaker 6: data point. The outlook has a change in a fundamental
6:03
Speaker 6: way for the FED not to go to in September.
6:05
Speaker 6: At that point, you have something to basically you give
6:08
Speaker 6: to both the doves and the hawks. The doves, you
6:10
Speaker 6: thank you for being patient. The Hawks, we waited, So
6:13
Speaker 6: let's go together unanimously at the September meeting. So I think,
6:17
Speaker 6: you know, I think it's a good, good possibility that
6:19
Speaker 6: you'll see an unanimous vote at September for a twenty
6:22
Speaker 6: five base point recud.
6:24
Speaker 2: But you brought up the Psalm rule. The chairman also
6:26
Speaker 2: brought up the yield curve in this news conference as
6:29
Speaker 2: well and highlights it the false positives we're getting from
6:31
Speaker 2: traditional indicators. Just to reflect back on that piece that
6:34
Speaker 2: you wrote for Bloomberg Opinion, can you walk us through
6:37
Speaker 2: why you do think actually the Psalm rule does matter,
6:40
Speaker 2: that maybe we should have a little bit more of
6:42
Speaker 2: a focus on these traditional indicators still and not completely
6:45
Speaker 2: ignore them.
6:47
Speaker 6: Well, if I can start with the yelkur the reason
6:49
Speaker 6: why I don't think the ill curve is necessarily a
6:51
Speaker 6: good predictor is the US curves is inverted because people
6:53
Speaker 6: think monetary policy is tight. So it's not that you'll
6:57
Speaker 6: cruise shape that causes the economy to week it weaken.
6:59
Speaker 6: It's the prison sumption that monitary policy is restricted because
7:02
Speaker 6: of the economy weaken. Most of the time when the
7:04
Speaker 6: occurs inverted, monitary policy is tight, and so the he
7:07
Speaker 6: occurs a good predictor The soumrule, I think is a
7:10
Speaker 6: little bit different and basically saying once the libor market
7:12
Speaker 6: deterioration goes beyond a certain point, it becomes self reinforcing. Essentially,
7:17
Speaker 6: why I think happens is business households here about the
7:20
Speaker 6: liver market weakening, they pull back on their consumer spending.
7:23
Speaker 6: That causes businesses to pull back in terms of investment
7:26
Speaker 6: and hiring, and that leads to further weakness and consumption.
7:29
Speaker 6: And then for the rises in the unemployer rate, it's
7:31
Speaker 6: a pretty amazing statistical regularity that either rises less than
7:35
Speaker 6: a half a percent or next stop is a full
7:38
Speaker 6: blown recession. There's nothing in between. The smallest increase in
7:41
Speaker 6: the unemployer rate trough to peak is either between zero
7:46
Speaker 6: point five and one point nine percentage points. There's nothing
7:48
Speaker 6: in the middle, which I think is pretty interesting statistically,
7:51
Speaker 6: Now he did recognize that as a statistical just a
7:54
Speaker 6: statistical result. There's nothing sort of there's no economic law
7:57
Speaker 6: behind it. But the track record is thirteen and oh.
8:00
Speaker 6: So you know, think about the odds of flipping a
8:02
Speaker 6: coin thirteen times and coming up heads there every time
8:04
Speaker 6: after a Why you're starting to believe that the next
8:06
Speaker 6: flip is going to generate the same result?
8:08
Speaker 5: Bill take us back to first principles. Why can't they
8:12
Speaker 5: just cut and say one and done and will observe
8:15
Speaker 5: versus our addiction to measured?
8:19
Speaker 6: Well, I think what will happen is once they start
8:21
Speaker 6: start to cut, they'll probably keep going. You know, once
8:24
Speaker 6: they start to do the first rate cut, they basically
8:27
Speaker 6: decide that mantre Paul's that we've accomplished our mission in
8:29
Speaker 6: terms of inflation and unemployment. Policies restrict us, so we
8:33
Speaker 6: know now have to go back to neutral. Neutral's not
8:36
Speaker 6: twenty five bases points away. So if you have a
8:39
Speaker 6: rate cut in September, it's probably gonna be followed by
8:41
Speaker 6: raycuts at least one or two more raycuts later this year.
8:45
Speaker 1: Well, it seems like this was a setup for Jackson Hall.
8:48
Speaker 1: We've been talking about that. It seems like there will
8:50
Speaker 1: be some sort of policy regime shift that we will
8:54
Speaker 1: observe in August. What do you think it will be.
8:59
Speaker 6: I think that Paul really needs to save much more
9:02
Speaker 6: than what he said today, frankly, and I think the
9:04
Speaker 6: changes in the statement and the press conference the day
9:07
Speaker 6: basically tell you that September is going to happen unless
9:09
Speaker 6: the economic outlook changes materially. Now that's possible, you could
9:14
Speaker 6: get a whole string of bad inflation numbers, or the
9:17
Speaker 6: economy could come in hot, but I think, you know,
9:21
Speaker 6: in the next six weeks or seven weeks, is the
9:24
Speaker 6: outlook going to change materially? I doubt it. So I
9:26
Speaker 6: think regardless of what happens in Jackson Hole, I think
9:29
Speaker 6: the Fed's going to cut in September. I think, you
9:31
Speaker 6: know this, Paul will sort of check in at the
9:35
Speaker 6: Jackson Hole and basically, you know, probably confirm that we're
9:39
Speaker 6: still on track for this this result for Ray cut
9:42
Speaker 6: in September. But I don't I don't think it's you know,
9:44
Speaker 6: I don't think he has to use.
9:46
Speaker 1: It for that well, although it's not just about September,
9:49
Speaker 1: it's not just about whether they're going to move again
9:51
Speaker 1: one more time this year. It's about what the destination is,
9:54
Speaker 1: it's about the pace, it's about what the goal is.
9:57
Speaker 1: In terms of just the view of where the economy is, Bill,
10:00
Speaker 1: do you expect there to be any discussion about the
10:02
Speaker 1: terminal rate, about what it means to be neutral at
10:05
Speaker 1: a time or this is a very different economy than
10:08
Speaker 1: pre pandemic.
10:09
Speaker 6: Well, I would assume that once you get inflation, you know,
10:12
Speaker 6: highly common the inflation is going back to two percent,
10:15
Speaker 6: and you think the labor markets and balance, then you
10:17
Speaker 6: presume you want to go back to a neutral manitrate policy.
10:20
Speaker 6: And the question is what's neutral? And that comes down
10:23
Speaker 6: to that whole question of what is the level of
10:25
Speaker 6: our star the neutral federal fund rate. I think that
10:29
Speaker 6: neutral is clearly lower than where we are today, But
10:32
Speaker 6: is it one hundred basis points lower or two hundred
10:35
Speaker 6: basis points lower. That remains to be seen. So the
10:37
Speaker 6: Feds can be sort of feeling its way now. Obviously,
10:39
Speaker 6: if we fall into recession, then the whole story changes
10:43
Speaker 6: because in a recession environment, the Fed doesn't want to
10:45
Speaker 6: go to a neutral manitrate policy. They want to go
10:47
Speaker 6: to a stimulative mantarate policy. So if we actually, if
10:50
Speaker 6: it turns out, with the benefit of hindsight, that the
10:53
Speaker 6: FED is late and we have a mild recession, then
10:55
Speaker 6: the Fed's going to cut rates much more dramatically.
10:58
Speaker 5: Bill, I've never said this. I've got Dudley, Krugman and
11:02
Speaker 5: Blinder on the same page. Never did I think i'd
11:05
Speaker 5: say that the money paragraph from your good friend Alan Blinder,
11:10
Speaker 5: any such early cut should be accompanied by a warning
11:13
Speaker 5: not to expect a steady stream of rap cuts. He
11:16
Speaker 5: alludes to the ECB. Do we need some MECB religion
11:20
Speaker 5: at the Eccles building?
11:23
Speaker 6: Now? I think that the FED will probably cut more
11:25
Speaker 6: than one, because once you start to cut, you're basically saying,
11:28
Speaker 6: I think it's time to remove montary restraint. And Monterey
11:32
Speaker 6: restraint is not going to be removed with just one
11:34
Speaker 6: twenty five base point raycut.
11:36
Speaker 2: Bell great to get your thoughts, appreciate it, go down
11:38
Speaker 2: be there. The former New York Thanking President Wengan on
11:41
Speaker 2: this Federal Reserve decision. As you got a lot of
11:43
Speaker 2: people talking over the last week about the need to
11:45
Speaker 2: move in July and the mat thing this just passed,
11:47
Speaker 2: I want to bring you a headline comes from the
11:49
Speaker 2: New York Times and it reads as follows around Supreme
11:52
Speaker 2: leader ordering a retaliatory attack on Israel. The New York Times,
11:57
Speaker 2: citing three Iranian officials, brief on the order. This is
12:01
Speaker 2: what I can tell you about crude. Crud's been rallying
12:03
Speaker 2: all day, and the price of crude looks like this
12:05
Speaker 2: at a moment, Brent crude by four percentage points TK.
12:09
Speaker 2: You would off to say, overtaken by events. The last
12:11
Speaker 2: thing that FED needs other next month or so is
12:14
Speaker 2: an energy price shock.
12:15
Speaker 5: I'm so glad you brought this up. Jan We let
12:17
Speaker 5: off the show this morning with Ethan Bronner, our Tel
12:20
Speaker 5: Aviv Nears news bureau chief encyclopedic in the region, and
12:25
Speaker 5: he says the position here now is unprecedented, and he
12:28
Speaker 5: made clear there's going to be immediate news following both
12:31
Speaker 5: from the north to Lebanon. In the news that you
12:34
Speaker 5: just have from Tate Ryan.
12:35
Speaker 2: As we get those updates, we'll bring them to you.
12:37
Speaker 2: I just want to reset if you are joining us.
12:39
Speaker 2: We've just had a federal reserve decision in the last
12:41
Speaker 2: couple of hours. Interest rates unchanged, incremental changes to the statement.
12:45
Speaker 2: There was a sense that in September the Federal Reserve
12:47
Speaker 2: chair would set us up for a rake cut. In September,
12:50
Speaker 2: he took a baby step towards doing so, and the
12:52
Speaker 2: market picked up on things accordingly, big rally across equities
12:55
Speaker 2: on the NASTAC on the s and P on a rustle,
12:57
Speaker 2: it looks like this right now. It fades just to touch,
12:59
Speaker 2: but we're still higher by one point four percent on
13:02
Speaker 2: the SMP. Bear in mind, the Nasdaq was poised for
13:04
Speaker 2: the worst month of the year, and at one point
13:06
Speaker 2: in the last couple of hours was on course for
13:08
Speaker 2: its best day of twenty twenty four. That fades, We're
13:11
Speaker 2: back down to about two point seven percent higher on
13:13
Speaker 2: the session on the Nasdaq. We reference this stat a
13:15
Speaker 2: little bit earlier on today a few times. We are
13:18
Speaker 2: now on course for the seventh consecutive Fed decision day
13:23
Speaker 2: rally on a two year bond at least, so that
13:25
Speaker 2: yield is lower by six basis points.
13:27
Speaker 1: How much is this just that Jerome Powell tends to
13:30
Speaker 1: skew dubvish And how much is this that the market
13:33
Speaker 1: still has a probability or a possibility baked into what
13:38
Speaker 1: the yield is that the Fed could maybe surprised in
13:41
Speaker 1: a hawkish manner. Either way, this is a market that
13:44
Speaker 1: likes to hear FED shero Powell to speak, and today
13:46
Speaker 1: was no different.
13:47
Speaker 2: Mike McKee was in the room with a Federal Reserve
13:49
Speaker 2: chair down in Washington, d C.
13:51
Speaker 4: He joined us from the nation's capital.
13:52
Speaker 2: Now, might you've just got outside walk us through your
13:54
Speaker 2: biggest takeaway from that news conference this afternoon.
13:58
Speaker 7: Well, I think what you walk away with is what
14:00
Speaker 7: Bill Dudley was talking about. If the economy doesn't do
14:03
Speaker 7: something weird, change positions, change directions, then the Fed is
14:07
Speaker 7: going to be cutting in September.
14:09
Speaker 4: But there are a lot of.
14:10
Speaker 7: Potential twists and turns between now and then. Friday is
14:14
Speaker 7: e at risk with the jobs report, and of course
14:16
Speaker 7: you just mentioned the situation with Iran. I don't think
14:20
Speaker 7: the Fed was taking those things into consideration today as
14:24
Speaker 7: reasons not to move today, but they do have to
14:28
Speaker 7: worry about.
14:29
Speaker 4: Them and what might happen.
14:31
Speaker 7: So they will at this point be on a cutting
14:36
Speaker 7: course unless something significantly changes. And I think that was
14:39
Speaker 7: the message that Paul wanted to deliver, and I think
14:42
Speaker 7: Bill put it well when he talked about how the
14:44
Speaker 7: statement was skewed to the doves a little bit, and
14:48
Speaker 7: the news conference maybe to the hawks, and both sides
14:52
Speaker 7: get something out of it.
14:53
Speaker 5: Mike, you've been doing this for a few years. Back
14:55
Speaker 5: to mcchestney Martin, we almost printed a four h six
14:58
Speaker 5: ten year moment. Go Can the bond market tell the
15:02
Speaker 5: Fed what to do?
15:06
Speaker 7: Probably not. And one of the things that you have
15:09
Speaker 7: to keep in mind is that we have all this
15:11
Speaker 7: international news going on, and the US bond market is
15:16
Speaker 7: the haven market. So a certain amount of what's going
15:18
Speaker 7: on today is probably in reaction to Israel and Iran,
15:23
Speaker 7: and a certain amount of it is the politics going
15:26
Speaker 7: on in this country. And then on top of that,
15:29
Speaker 7: what the FED is considering and what the economic data
15:32
Speaker 7: are showing. But I suspect today's less about the Fed
15:36
Speaker 7: and the data than it is about other things. Because
15:38
Speaker 7: the market had pretty much priced for a September breake cut,
15:41
Speaker 7: they didn't get any surprises out of the Fed today.
15:44
Speaker 1: Mike, you're referring, of course, to the news that John
15:47
Speaker 1: broke about Uranian Supreme leader ordering an attack on Israel
15:52
Speaker 1: for the two assassinations that Israel carried out. Right now,
15:55
Speaker 1: we're seeing crude markedly higher, particularly Brent crud Mike. I
15:58
Speaker 1: wonder how this relates to Fedchair Powell has been talking
16:01
Speaker 1: about that this is actually better inflation data today than
16:05
Speaker 1: it was, say late last year or earlier this year,
16:08
Speaker 1: simply because it is not being driven by goods, It
16:10
Speaker 1: is being driven by the employment market, is being driven
16:13
Speaker 1: by services. How much do you believe based in those comments,
16:17
Speaker 1: this is a FED that is willing to look through
16:20
Speaker 1: good side inflation and focus much more on something else.
16:24
Speaker 7: Well, I think they are, especially if oil prices go
16:27
Speaker 7: up only temporarily. The problem is if oil prices go
16:30
Speaker 7: up for quite some time, then that feeds through into
16:33
Speaker 7: the real economy, particularly on the services side. See surch
16:37
Speaker 7: charges by delivery companies. Airline affairs might go up, that
16:40
Speaker 7: sort of thing. So they're going to have to keep.
16:42
Speaker 4: An eye on that.
16:43
Speaker 7: But their general instinct would be to look past any
16:46
Speaker 7: kind of energy price change that comes about that they
16:50
Speaker 7: think might be temporary. And at this point we have
16:53
Speaker 7: been waiting for a major shift in energy prices since
16:57
Speaker 7: October seventh, when the first attack on Israel game.
17:01
Speaker 4: So we haven't seen it yet.
17:03
Speaker 7: Let's see whether this holds or not, and then the
17:05
Speaker 7: FED would have to take it into account.
17:07
Speaker 4: If it's still going up.
17:09
Speaker 2: Five percent rally in crew today might make great work.
17:11
Speaker 2: As always, sir, appreciate it. We'll catch up with you
17:13
Speaker 2: a little bit later. This week's not over. Still got
17:16
Speaker 2: some work to do. The FED decision behind us. Tomorrow
17:19
Speaker 2: we'll get jobless claims. On Friday, we'll get a payrolls
17:22
Speaker 2: report and we'll be catching up with Jeff Rosenberg of
17:24
Speaker 2: black Rock. We can do that now, Jeff at eight
17:26
Speaker 2: thirty one on Friday, Will this decision today to do nothing?
17:30
Speaker 4: Will that look like the right one?
17:34
Speaker 8: Well, you know, it might look like the right one.
17:36
Speaker 9: But I think the point you're also getting to is
17:38
Speaker 9: that Friday, and we'll see on Friday as well, is
17:40
Speaker 9: going to be.
17:41
Speaker 8: Much more consequential.
17:42
Speaker 9: But I think the important point about how it's going
17:45
Speaker 9: to be more consequential is what we've heard from everybody
17:48
Speaker 9: so far. We've heard from the chairman and in the
17:51
Speaker 9: statement is this is very much setting the table for September,
17:55
Speaker 9: and the bond market had already priced that outcome. And
17:58
Speaker 9: so what you look at into and the payroll is
18:01
Speaker 9: you're setting up the bond market, perhaps broader markets for
18:04
Speaker 9: a very asymmetric outcome. If the data is much much stronger,
18:10
Speaker 9: then you're going to have some disappointment. If the data
18:13
Speaker 9: comes in along lines of what Chairman Powell was talking
18:18
Speaker 9: about in terms of gradual normalization, or even a little
18:22
Speaker 9: bit weaker than that, the market will continue to price
18:25
Speaker 9: in this path of a cut in September, a cut
18:29
Speaker 9: in December, and even more into twenty twenty five. So
18:32
Speaker 9: I think Friday, the risk is really on the upside
18:34
Speaker 9: that you get a surprisingly strong payroll report, and that
18:39
Speaker 9: has to call into question whether or not policy is
18:43
Speaker 9: really as tight as it is, and that's really the issue.
18:47
Speaker 9: Everyone's kind of saying, hey, this is right. The Fed's
18:50
Speaker 9: got it right. The Fed saying we've got the soft landing.
18:53
Speaker 9: We want to secure the benefits of soft landing. But
18:56
Speaker 9: he kept report repeating PDFP at two point six percent.
19:00
Speaker 9: You look at the GDP number that just came out,
19:01
Speaker 9: You look at Atlanta Fed GDP now forecast for third quarter.
19:05
Speaker 9: We are well above in growth terms anything associated with
19:10
Speaker 9: long term sustainable growth. And so yes, we've seen some
19:13
Speaker 9: signs of restrictiveness, but how much of that restricted because
19:18
Speaker 9: that's where the asymmeturity.
19:19
Speaker 2: Against the grain totally against the grain. And I think
19:21
Speaker 2: you know you well, most of the people coming on
19:23
Speaker 2: this show right now, if they're going against the Federal Reserve,
19:27
Speaker 2: they're saying it's because they think this FED is too tight,
19:29
Speaker 2: not restrictive enough. You're making the point, hey, Jeff, that
19:32
Speaker 2: might be they're not as tight as they think they are.
19:35
Speaker 2: Now that really goes against the grain, Jeff. Is that
19:36
Speaker 2: the point you're trying to make?
19:39
Speaker 9: That is the point exactly that I just made. No
19:41
Speaker 9: one's really talking about it because the Fed's not talking
19:44
Speaker 9: about it, But the data is what your question was
19:47
Speaker 9: about what happens on Friday and how does that make
19:50
Speaker 9: this moment?
19:51
Speaker 8: Look?
19:52
Speaker 9: Well, if the data comes in continually stronger, then we're going.
19:57
Speaker 8: To have to start to talk about that.
19:58
Speaker 6: Now.
19:59
Speaker 9: I'm not saying that that's where we're going. Where we
20:01
Speaker 9: have been, and what we tend to do is to
20:04
Speaker 9: extrapolate where we just have been. So we're extrapolating out
20:08
Speaker 9: the benefits of the gradual slow down in labor markets.
20:12
Speaker 9: The normalization ecis another great data point.
20:15
Speaker 8: There's nothing in the crystal ball that says that that
20:17
Speaker 8: won't happen.
20:18
Speaker 9: But your question was, what if it does then you
20:21
Speaker 9: start to think about these things. And my point is
20:24
Speaker 9: everyone is so one sided on this point that the
20:27
Speaker 9: asymmetry to the market reaction is much greater to the
20:30
Speaker 9: upside surprise and strength on Friday than it is to
20:34
Speaker 9: coming in in line or even being weaker.
20:37
Speaker 1: So let's put a call around that, Jeff, are you
20:38
Speaker 1: basically selling to your notes right now, trying to lock
20:41
Speaker 1: in because you think that this could be the highs
20:42
Speaker 1: given that they are not recognizing the risk of an
20:45
Speaker 1: upside surprise to the job's report.
20:48
Speaker 9: No, I wouldn't say I'd go that far, But what
20:50
Speaker 9: I would say is it tempers some of the enthusiasm
20:53
Speaker 9: for adding to two years at this point when it's
20:57
Speaker 9: all in the price and even more so, releive to
21:00
Speaker 9: what the Fed is saying that you're going to get.
21:02
Speaker 9: So the bar is a little bit higher to what
21:06
Speaker 9: do I do with this information in my portfolio when
21:09
Speaker 9: you look at well, you know, the bond market's really
21:11
Speaker 9: quite a priced a lot of that in so it
21:14
Speaker 9: makes it a little bit more tricky than just saying, Oh,
21:16
Speaker 9: the Fed's going to cut rates and I should back
21:19
Speaker 9: up the truck and buy a whole bunch of duration well,
21:22
Speaker 9: a lot of that trade has happened in the last month.
21:24
Speaker 9: So if you're just talking about maintenance cuts and the
21:28
Speaker 9: degree of maintenance cuts that are required is what you
21:31
Speaker 9: were talking about with Bill Dudley a minute ago. We
21:33
Speaker 9: don't really know where that neutral is. So how do
21:36
Speaker 9: we know where neutral is? You know it when you
21:38
Speaker 9: see it, meaning you know it when you see it
21:40
Speaker 9: in the data. So if the economy doesn't slow and
21:45
Speaker 9: that unemployment rate doesn't continue to rise, and it says
21:49
Speaker 9: you're not so restrictive as you think you are, and
21:52
Speaker 9: I think, you know, we just kind of have a
21:54
Speaker 9: pile up on one side of the debate here when
21:57
Speaker 9: the data is still saying two point six percent PDFP.
22:03
Speaker 8: He said it twice during the press conference.
22:07
Speaker 9: He also said the other thing that has been supportive
22:09
Speaker 9: of restrictedness interest rates, sensitive sectors and the slowdown in
22:13
Speaker 9: the labor market. But it's a more balanced view around
22:16
Speaker 9: this debate around how restrictive we are than where the
22:19
Speaker 9: market is kind of lining up, and that sets up
22:21
Speaker 9: in asymmetry to the outcome.
22:22
Speaker 5: And Jeffrey a great student of history, and if we
22:25
Speaker 5: have the headlines that John Farrell was talking about, there
22:28
Speaker 5: of Tehran and Israel, and for that matter, up to
22:32
Speaker 5: Lebanon as well. How far out the full faith and
22:35
Speaker 5: credit curve does politics does war do our fears play in?
22:41
Speaker 5: Is it short term, is it out to the two
22:43
Speaker 5: year pinch, or is it out even further to the
22:46
Speaker 5: ten year note.
22:49
Speaker 9: So I'm going to frame that in that question or
22:51
Speaker 9: my answer to that question, in terms of how does
22:55
Speaker 9: the kind of flight quality response in the bond market
22:59
Speaker 9: place out in this environment. I've said this on the
23:02
Speaker 9: show maybe a couple of times. We've written about it,
23:05
Speaker 9: that flight to quality during the q zero interest rate
23:08
Speaker 9: policy environment was.
23:10
Speaker 8: A curve flattener.
23:11
Speaker 9: If you're very close to zero rates in the front
23:14
Speaker 9: end and you're looking for portfolio protection, you buy it
23:17
Speaker 9: in the long end. Today we're in a very different environment.
23:20
Speaker 9: Five and a quarter to five and a half. There's
23:22
Speaker 9: plenty of room for the front end to go down,
23:24
Speaker 9: and so it's more of that pre GFC kind of
23:28
Speaker 9: bond market reaction, where flight to quality is a steepener
23:32
Speaker 9: and it's in the front end of the curve.
23:33
Speaker 8: So I think you see the most powerful reaction.
23:36
Speaker 9: It's hard to disentangle the high frequency between the news
23:39
Speaker 9: that Jonathan Broke and.
23:42
Speaker 8: The result of the press conference.
23:44
Speaker 9: But you do see a little bit of a steepener
23:47
Speaker 9: move into the market. Again, hard to disentangle the two,
23:50
Speaker 9: but I think when you take a step back, flight
23:52
Speaker 9: to quality now is the steepener trade, and your better
23:56
Speaker 9: yield response is going to be more in the front
23:58
Speaker 9: end in this kind of environment.
24:00
Speaker 1: What's interesting to me today, Jeff, is what's not rallying
24:03
Speaker 1: on the heels of some of those headlines, especially in
24:05
Speaker 1: light of the fed's dubbish tilt. Yes, but they did
24:08
Speaker 1: not cut rates, is that the dollar is not catch
24:10
Speaker 1: it a bit. It's weakening pretty dramatically. You're seeing the
24:12
Speaker 1: Bank of Japan very happy today. They're getting what they
24:15
Speaker 1: wanted in terms of a little bit more yen strength.
24:18
Speaker 1: How much is this sort of the new narrative that
24:21
Speaker 1: in a flight to safety type of moment, if the
24:23
Speaker 1: FED is going to cut rates and not recognize that
24:26
Speaker 1: upside risk, you will see persistent dollar weakness heading into
24:30
Speaker 1: next year.
24:32
Speaker 9: It's a tricky one, Lisa, because you know, on the
24:34
Speaker 9: one hand, you've got kind of interest rate differentials driving
24:38
Speaker 9: some of those dollar moves. Clearly with the yen a
24:42
Speaker 9: balanced against the other side of flight to quality, which
24:46
Speaker 9: is which is the pure risk off trade, is usually
24:49
Speaker 9: dollar strength. You go for the strongest institutional protection in
24:56
Speaker 9: terms of wealth, and so I think I think initially
24:59
Speaker 9: the move is much more about interest rate differentials, and
25:02
Speaker 9: that's why you're not seeing so much of the move
25:03
Speaker 9: on the dollar. I think it's too soon to say
25:06
Speaker 9: whether or not you're going to see a bid to
25:08
Speaker 9: the dollar from political risk.
25:10
Speaker 8: But I think if it was a.
25:12
Speaker 9: Larger issue that spreads, you're going to think more Traditionally
25:17
Speaker 9: that's going to be dollar strength.
25:18
Speaker 5: You got to jump down and gold up forty one dollars.
25:20
Speaker 2: Got a big running in the bond market too, and
25:22
Speaker 2: equities as well. Jeff, just find a question before I go.
25:24
Speaker 2: There's people watching listening to this program right now. They
25:27
Speaker 2: just want to know, can I buy the S and
25:28
Speaker 2: P five hundred and take a vacation? Is there anything
25:31
Speaker 2: to worry about between now and September.
25:35
Speaker 8: Well, you know, you never want to say take a vacation.
25:38
Speaker 9: You know, buying equities you've got some risk, but you
25:42
Speaker 9: take the totality of what the chairman went over, and
25:45
Speaker 9: this is a lot of good news. I mean, this
25:47
Speaker 9: is a chairman, basically saying without saying it, we've achieved
25:51
Speaker 9: the soft landing. That's a great outcome for the equity market,
25:56
Speaker 9: it's a great outcome for the economy.
25:58
Speaker 8: It's a great outcome.
25:59
Speaker 9: More more broadly, So I think that's the takeaway and
26:03
Speaker 9: generally that's going to be pretty supportive. I think the
26:05
Speaker 9: other thing, just to mention, obviously, you know you're not
26:08
Speaker 9: really buying the S and P five hundred.
26:10
Speaker 8: It's not the economy.
26:11
Speaker 9: It's a collection of stocks that has a very high
26:13
Speaker 9: weight to a secular technology theme. And that secular technology
26:17
Speaker 9: theme is playing out again today following Microsoft's earnings and
26:21
Speaker 9: you're seeing a bid back to Semis. So you've got
26:23
Speaker 9: like the micro story there a lot as well as
26:27
Speaker 9: the policy story, and we've got to keep that in
26:30
Speaker 9: mind when we're looking at this high frequency data, and
26:32
Speaker 9: if you're buying the S and P five hundred with
26:34
Speaker 9: a very high historical share to tech, it's really also
26:38
Speaker 9: buying into that tech story as much as it is
26:40
Speaker 9: about the macro economy.
26:42
Speaker 4: Just trying to take a vacation.
26:43
Speaker 2: Jeff, appreciate it, Jeff Rosenberg, the frank Row Jeff, thank you,
26:46
Speaker 2: deeply thoughtful stuff go into payrolls on Friday. We should
26:49
Speaker 2: share with you the numbers that we're looking for on Friday.
26:52
Speaker 2: Just another peak snap peak of the payrolls survey here
26:55
Speaker 2: at Bloomberg. The meeting estimate, it's one seventy five on Friday,
26:58
Speaker 2: the previous number two of six. Unemployment coming into focus
27:02
Speaker 2: much more for many of you, I know. So here's
27:04
Speaker 2: the estimate for unemployment four point one percent, in line
27:06
Speaker 2: with the previous number previous month of four point one percent.
27:09
Speaker 4: Lisa.
27:10
Speaker 1: And the reason why it matters that unemployment read possibly
27:13
Speaker 1: more than anything else, is because of a guest to
27:14
Speaker 1: four point two percent.
27:15
Speaker 4: It triggers a S rule.
27:16
Speaker 1: Bill Dudley talking about why that's important at that point,
27:20
Speaker 1: Historically it becomes a self reinforcing mechanism of weakness.
27:24
Speaker 5: The difference is you and I are taking vacation like
27:26
Speaker 5: eighteen hours. Pharaoh's taken eighteen days. That's the difference here.
27:30
Speaker 1: Actually, I'm missing Fridays. I'm going to be on vacation.
27:33
Speaker 1: Thank you you're missing it's on American It had to
27:37
Speaker 1: do a kid's schedule.
27:38
Speaker 4: That's a manager here.
27:39
Speaker 2: As a manager, here are I track everyone's vacation. You
27:44
Speaker 2: absolutely correct, you've both taken much more than I have. Okay,
27:48
Speaker 2: just for the bar chart of it I do at home.
27:51
Speaker 2: It's a spreadsheet I let up with the Boomberg terminal
27:53
Speaker 2: and a monochy vacation at the same time.
27:55
Speaker 1: That's productivity.
27:56
Speaker 4: Miss this, haven't we appreciate?
27:58
Speaker 2: It's going to see its TK Please, thank you, sir, Lisa,
28:01
Speaker 2: thank you, thank you. You're going to bless us with
28:03
Speaker 2: some of your criticism of the Federal Reserve tomorrow.
28:10
Speaker 4: That's the line of the press conference.
28:12
Speaker 8: That really is
28:15
Speaker 6: M m hm