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Instant Reaction: The Fed Decides · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:11
Speaker 2: With your Fed decision is Mike McCaig.
0:14
Speaker 3: There is no change to interest rate. There are a
0:17
Speaker 3: number of small changes to the statement, but this is
0:20
Speaker 3: not a CU in September announcement, the FEDS forward guidance
0:25
Speaker 3: remains unchanged. Quote the Committee does not expect it will
0:28
Speaker 3: be appropriate to reduce the target range until it has
0:32
Speaker 3: gained greater confidence that inflation is moving sustainably toward two percent.
0:36
Speaker 3: There's also no change in the overall assessment that economic
0:40
Speaker 3: activity has continued to expand at a solid pace. All
0:44
Speaker 3: of the adjustments are basically to adjectives. Job gains have moderated,
0:49
Speaker 3: the statement says, instead of remains strong, Unemployment has moved
0:53
Speaker 3: up but remains low. Inflation has eased over the past
0:58
Speaker 3: year but remains somewhat element and in recent months there
1:02
Speaker 3: has been some further progress toward the two percent inflation goal.
1:06
Speaker 3: If there is a hint about the future, it's this.
1:10
Speaker 3: Instead of saying risks to employment and inflation have moved
1:13
Speaker 3: into better balance, the statement now says the Committee is
1:17
Speaker 3: attentive to the risks on both sides of its dual mandate.
1:21
Speaker 3: The decision was unanimous, and that's basically it. If there
1:24
Speaker 3: is going to be a hint about a September move,
1:26
Speaker 3: it's going to be up to Chairman Power.
1:28
Speaker 2: The two part story, Mike McKay, This was the first part.
1:31
Speaker 4: The second part starts at about twenty nine minutes with
1:33
Speaker 4: that news conference in Chairman Powell. Let's get to the
1:35
Speaker 4: equity market. We stay positive on the S and P
1:37
Speaker 4: five hundred up by about one point five percent on
1:40
Speaker 4: then that's that one hundred up by two point five
1:42
Speaker 4: in the bond market yield to look a little something
1:44
Speaker 4: like this, we've done about two basis points on a
1:46
Speaker 4: ten year the move at the front end of the curve.
1:48
Speaker 4: It's a small one, but notable, up by about two
1:50
Speaker 4: basis points on a two year at four thirty eight
1:53
Speaker 4: thirty two. I just want to get to those changes
1:55
Speaker 4: that might McKee identified. If you go back to the
1:57
Speaker 4: second paragraph of the June statement, line of that paragraph
2:01
Speaker 4: read as follows, the economic outlook is uncertain and the
2:03
Speaker 4: Committee remains highly attentive to inflation risk. If you go
2:06
Speaker 4: to the second paragraph and the last line of the
2:09
Speaker 4: statement that just dropped, the economic outlook is uncertain and
2:12
Speaker 4: the Committee is attentive to the risk to both sides
2:15
Speaker 4: of its dual mandate, and Lisa, this is the story
2:18
Speaker 4: of the dual mandate and the risks around it coming
2:20
Speaker 4: into balance. That looks like the way they formalized it
2:23
Speaker 4: this time around in the statement, and I just wonder
2:25
Speaker 4: how much the Shairman builds on that in the news
2:27
Speaker 4: conference in twenty eight minutes.
2:28
Speaker 1: I want to pick up on your point that the
2:30
Speaker 1: bond market isn't moving that much. There's only an increase
2:32
Speaker 1: of about two basis points on the front end. And
2:34
Speaker 1: that is why exactly that they recognize the risk that
2:38
Speaker 1: the labor market is one that they.
2:39
Speaker 5: Have to care about.
2:41
Speaker 1: This sets up Jackson Hole for him to come out
2:44
Speaker 1: and change the framework, and then for September to be
2:47
Speaker 1: that first rate cut. No one's changing that view based
2:49
Speaker 1: on this particular statement.
2:51
Speaker 4: The balance of risks has shifted, and you start to
2:53
Speaker 4: appear see it appear just a little bit incrementally in
2:56
Speaker 4: the statement. The decision rates unchanged. We're looking for a
2:59
Speaker 4: move still in September. To Leasa's point, we still have
3:02
Speaker 4: a news conference in front of us and Jackson holl
3:04
Speaker 4: the ann you'll get together at Jackson holl Well, I
3:06
Speaker 4: mean about a month away with us around a type
3:08
Speaker 4: on place to say. The film of fed Vice Chair,
3:10
Speaker 4: which a clamorat is with us, still with us, is
3:12
Speaker 4: about Michael jpmulgan, Asset Management.
3:14
Speaker 6: Rich.
3:14
Speaker 4: It's good to see you, sir. Let's start with you. You
3:16
Speaker 4: listen to Mike. You saw the changes in the statement.
3:18
Speaker 4: What do you make of what we just heard?
3:20
Speaker 7: Well, I'm a bit surprised, actually, I mean not with
3:22
Speaker 7: the adjectives. They needed to change some adjectives up, but
3:24
Speaker 7: I was a bit surprised about the reference to the
3:27
Speaker 7: the attuned and attentive to the balanced outlook.
3:31
Speaker 5: I mean, that's certainly correct.
3:32
Speaker 7: The chair has been making that that point, but I
3:34
Speaker 7: think it is relevant that they included it in the statement.
3:37
Speaker 7: He will certainly, I think, reinforce it in the press conference,
3:41
Speaker 7: and I think I do think it does tee up
3:43
Speaker 7: Jackson Hole.
3:44
Speaker 5: There'll be some more information before then.
3:46
Speaker 6: I look at it, and this show is the best
3:48
Speaker 6: one we've ever done. We've got Dudley with his important
3:50
Speaker 6: Bloomberg opinion piece a couple number of days ago, and
3:54
Speaker 6: I want to go to you on what you own,
3:55
Speaker 6: which is the high ground on the x anty x
3:58
Speaker 6: post debate. You've got the Economist magazine article you did
4:01
Speaker 6: a year whatever ago. You've got your January twenty twenty
4:04
Speaker 6: two context and consequence of speech. You want an ex
4:08
Speaker 6: anti aspirational FED.
4:11
Speaker 5: I don't hear that here.
4:12
Speaker 6: They're waiting.
4:13
Speaker 5: They're waiting, They're waiting, they are waiting.
4:16
Speaker 7: I think they are. They are getting greater confidence. But
4:18
Speaker 7: I think the key point not to toot my own
4:20
Speaker 7: horn is my view all on it's okay along and
4:25
Speaker 7: I think I've said so on this show, is that
4:27
Speaker 7: the pal FED really the goal is to get inflation
4:29
Speaker 7: to two points something and then they would start thinking
4:32
Speaker 7: about the next step, which would be easy, not running
4:34
Speaker 7: an easy policy, but removing restriction. So I do think
4:37
Speaker 7: this is what we're seeing, and if we do get
4:39
Speaker 7: the cut in Septembers, I think we and markets expect
4:42
Speaker 7: it will be because they expect inflation x antes to
4:46
Speaker 7: continue to fall.
4:47
Speaker 6: What are we anywhere near that? I'm sorry, this is
4:49
Speaker 6: an ex post FED. Going back to Arthur Burns, there
4:51
Speaker 6: is data dependent as I've ever seen.
4:53
Speaker 7: Yeah, they are data dependent, but I think that they
4:56
Speaker 7: attenuated and focused on the statement today emphasize there's both
5:00
Speaker 7: sides of the mandate. So I do think they're looking
5:03
Speaker 7: at just the labor market as well as the inflation data.
5:06
Speaker 5: Bob, what's your take on this.
5:07
Speaker 1: It seems like it's less dubbish, a little bit more
5:09
Speaker 1: balanced than you initially thought. Do you think this just
5:12
Speaker 1: is trying to move as incrementally as possible.
5:15
Speaker 8: I think they preserve full optionality heading into Jackson Hole.
5:19
Speaker 8: I also think that central bankers are mindful of what
5:23
Speaker 8: happened to the ECB earlier this year, where you could
5:26
Speaker 8: have made the same argument, if you're going to go
5:28
Speaker 8: next month, why not go this month? And then of
5:30
Speaker 8: course you saw what happened. So I don't see too
5:34
Speaker 8: much different than what we expected, other than they just
5:37
Speaker 8: decided to maintain the full optionality. We'll see what happens
5:41
Speaker 8: as we roll into September. We're still very much expecting
5:44
Speaker 8: twenty five basis points in September.
5:45
Speaker 4: No, doctor, if Runmack just writes in publishes with language
5:48
Speaker 4: like this, it means the Fed will have to make
5:50
Speaker 4: a more pronounced shift in language in September. I'm surprised
5:53
Speaker 4: stocks are holding up well on this statement. Perhaps equities
5:56
Speaker 4: of looking ahead to the news conference, the news conference
5:58
Speaker 4: starts in about twenty four minutes to because I to say,
6:01
Speaker 4: the FETTI is waiting for additional data. Can they even
6:04
Speaker 4: articulate why inflation might reaccelerate from here? Can we pick
6:08
Speaker 4: up on that question, Bob? Can you articulate the risk
6:10
Speaker 4: surround inflation? Why might it reaccelerate from here?
6:13
Speaker 8: Corporate profitability still looks great. We talked about S and
6:17
Speaker 8: P five hundred earnings. They're coming in ahead of expectations.
6:21
Speaker 8: You look at the guidance companies are giving you. They're
6:24
Speaker 8: up twelve percent next quarter. So we're not in a recession.
6:29
Speaker 8: We're slowing down in some parts of it.
6:33
Speaker 5: We'll see.
6:34
Speaker 8: You know, I can't find really the argument what's going
6:37
Speaker 8: to cause inflation to reaccelerate, To be.
6:39
Speaker 1: Honest, Rich, we were talking about how this was definitely
6:42
Speaker 1: going to be unanimous, and I wonder how much of
6:45
Speaker 1: wrangling of cats there is in the room and whether
6:47
Speaker 1: this is basically a representation of that that there's some
6:50
Speaker 1: members who believe that inflation has been killed, it is
6:54
Speaker 1: nowhere in sight that labor is important. And then you
6:56
Speaker 1: have others who say, well, you know, wait for the
6:59
Speaker 1: year over year, cops. Is that kind of what we're
7:02
Speaker 1: seeing here.
7:03
Speaker 5: I think it could be an element.
7:04
Speaker 7: You know, we've had some members of the committee, and
7:06
Speaker 7: I know most of these folks, but it's a different
7:08
Speaker 7: committee than the one I was on, and many of
7:10
Speaker 7: them do emphasize both sides of the duel mandate. So
7:14
Speaker 7: I'm sure that reflects a number of folks views. I
7:17
Speaker 7: do think though, this is a committee that certainly got
7:21
Speaker 7: burned earlier in this year because the inflation data went
7:24
Speaker 7: the wrong way, and to their credit, they became very
7:27
Speaker 7: data dependent, as Tom indicated. I think that they put
7:31
Speaker 7: it this way. I think they think they're going to
7:33
Speaker 7: go in September. There is a range of data where
7:36
Speaker 7: they wouldn't, but I think it's a pretty small range,
7:38
Speaker 7: and I think that's really the balance of trying to strike.
7:41
Speaker 7: And I think we'll hear that in the press conference.
7:42
Speaker 1: We were speaking earlier with James Bullard formally Saint Louis
7:47
Speaker 1: fed and he was talking about how he always raised
7:49
Speaker 1: the question at meetings that if you wanted to cut rates,
7:52
Speaker 1: most certainly at the next meeting, why not cut him now.
7:55
Speaker 1: Bob was sort of discussing that earlier, and it sets
7:58
Speaker 1: up the sort of difficult period of time where every
8:01
Speaker 1: data point could potentially upset the apple cart if it
8:04
Speaker 1: doesn't comply. Do you think that they're in that zone
8:07
Speaker 1: right now?
8:10
Speaker 5: I don't really.
8:10
Speaker 7: I mean I've certainly during my time on the committee
8:12
Speaker 7: we found ourselves there a couple of times, so it
8:15
Speaker 7: can happen. I think the data we have gotten, you know,
8:19
Speaker 7: the chair did a lot of communication before blackout, and
8:22
Speaker 7: the data since then has reinforced that view. So I
8:25
Speaker 7: think there's a pretty wide range of data where they'll
8:28
Speaker 7: feel comfortable going in September.
8:31
Speaker 5: So I don't think they're in that danger zone.
8:32
Speaker 4: Can you confind that Jim actually set those things to
8:34
Speaker 4: the fmcs?
8:35
Speaker 7: Well, of course I would never reveal what was said
8:37
Speaker 7: in an fm C me except what I say, all
8:40
Speaker 7: the brilliant things I said.
8:41
Speaker 4: So Don Swage joins us now from KPMG, alongside form
8:45
Speaker 4: of FET vice chair Rich Cloud above Michael F JP
8:48
Speaker 4: Morgan done. I want to get into this statement that
8:51
Speaker 4: came out about eight minutes ago. What do you make
8:53
Speaker 4: of it? The incremental changes and when you're looking for
8:55
Speaker 4: something bigger, I wasn't.
8:58
Speaker 9: Looking for anything bigger, and I think one of the
9:00
Speaker 9: key issues here is we saw Powell talk about in
9:03
Speaker 9: his congressional testimony when pushed on the Jewel mandate. He said, listen,
9:07
Speaker 9: this is the thing that keeps me up awake at night.
9:10
Speaker 9: The number one thing that keeps me awake at night
9:12
Speaker 9: is that overshooting, the overtightening. So that is in there,
9:16
Speaker 9: and that is what opens the door a crack, not
9:19
Speaker 9: wide open, which is what we expected for September. And
9:22
Speaker 9: I do think they do think they're going to move
9:23
Speaker 9: in September, and I agree wholeheartedly with rich on this.
9:27
Speaker 9: I think the other issue is there's sort of this
9:29
Speaker 9: tale of two economies we're seeing and merge out there,
9:32
Speaker 9: the one that's in the household survey that's close to
9:35
Speaker 9: but not yet triggered the PSALM rule, which is what
9:38
Speaker 9: got Bill Dudley up in arms, and how weak employment
9:42
Speaker 9: has been in the household survey and the establishment survey,
9:45
Speaker 9: the GDP data, other jobs data that suggests the economy
9:49
Speaker 9: is still on solid footing. And right now the Fed
9:53
Speaker 9: has been opting into more of that establishment survey, where
9:56
Speaker 9: payrolls have held up, although that they're not quite as
9:59
Speaker 9: strong as they've been. We're going to get probably some
10:02
Speaker 9: good public sector hiring in the jobs numbers on Friday again,
10:06
Speaker 9: which will help boy those overall numbers adding to some
10:10
Speaker 9: weakness in the private sector. But I think that's important
10:13
Speaker 9: is that the FED is looking at this and their
10:15
Speaker 9: wane which is the right stuff.
10:17
Speaker 5: And you really getting.
10:18
Speaker 9: To Rich's point too. There isn't just one piece of
10:21
Speaker 9: data that the market keeps looking for that could tip
10:24
Speaker 9: the apple cart. The FED is looking at the totality
10:27
Speaker 9: of the data, and that last line really gets to
10:31
Speaker 9: that point. The totality of the data will allow them
10:35
Speaker 9: to go in September, and they don't want to make
10:39
Speaker 9: the same mistake the ECB made move and then have
10:42
Speaker 9: to freeze and be in a purgatory. Their credibility is
10:45
Speaker 9: at stake. They want to make sure inflation is coming down.
10:48
Speaker 5: But I agree with Rich.
10:49
Speaker 9: They'll still cut before inflation reaches it's two percent target,
10:54
Speaker 9: anticipating that the economy by lifting off that restriction, the
10:58
Speaker 9: economy will get there.
11:00
Speaker 6: We have swank and clarity with us. Bob Michael, maybe
11:03
Speaker 6: a question for you on the economics of the moment.
11:05
Speaker 6: Are we slaves to measure we have measured for decades.
11:09
Speaker 6: We're being very measured, where maybe other central banks aren't.
11:13
Speaker 6: Are we just just so afraid to move and we're
11:17
Speaker 6: over careful, over cautious, because once we move, we've got
11:20
Speaker 6: to move in a measured vector.
11:22
Speaker 8: I feel like we're back to the green span FED,
11:25
Speaker 8: where every word is so carefully thought out it makes
11:29
Speaker 8: you want to overanalyze it and no one can give
11:33
Speaker 8: an inch. If the wrong word is in there, then
11:35
Speaker 8: the FOMA gets concerned about the market pricing and hundreds
11:39
Speaker 8: of basis points of rate cuts and risk assets being
11:42
Speaker 8: up tentskers. Okay, please, but we're talking about and rich
11:47
Speaker 8: touched on it. We're in I think, very restrictive range
11:51
Speaker 8: twenty five basis points. You're not in a loose monetary
11:54
Speaker 8: world with money flooding all over the place. You're still restrictive.
11:58
Speaker 8: You've got to start that journey somehore.
12:00
Speaker 6: This is too important, Lawrence Meyer, Washington University. Is some
12:03
Speaker 6: monograph a term at the FED to our green span
12:06
Speaker 6: apart that it was a dictatorship? Are we getting to
12:09
Speaker 6: the point now no one can dissent and everyone's measured
12:12
Speaker 6: because we're measured and appropriate.
12:14
Speaker 7: No, I think no one has descended because two years
12:17
Speaker 7: ago inflation was too damn high and they all agree
12:19
Speaker 7: they wanted to get it lower. It'll get more interesting
12:21
Speaker 7: as we get close. But what I want to say
12:22
Speaker 7: to invoke the Olympics, now, this is a FED that
12:26
Speaker 7: really wants to stick the landing. You know, they won't
12:28
Speaker 7: say this word, but their projection and what we're seeing
12:32
Speaker 7: in Bloomberg Consensus and elsewhere is a soft landing and
12:35
Speaker 7: they want to stick it. And you know, the data
12:38
Speaker 7: is now solid, is moving in the right direction, and
12:41
Speaker 7: so you know, getting back to the Green Span FED,
12:43
Speaker 7: there was a soft landing or so in those years,
12:46
Speaker 7: Alan Blinder is written. They're not common, but we do
12:49
Speaker 7: see them. I think towards in twenty nineteen. I think
12:51
Speaker 7: the Palfed got a soft landing. We don't see it
12:54
Speaker 7: in the data because we got the pandemic. The Ecomomie
12:56
Speaker 7: looked pretty good in January.
12:58
Speaker 5: Of twenty twenty. So they're trying to stick the soft landing.
13:00
Speaker 8: Forget about sticking the landing, Let's just throw them in
13:03
Speaker 8: the seine the waters.
13:05
Speaker 1: Thought there's another there's another analogy. Matt Hornback puts this
13:12
Speaker 1: out earlier, and I'd love your thoughts on this, Diane. Basically,
13:15
Speaker 1: the Olympic motto to carry on with this reads faster, higher,
13:17
Speaker 1: stronger together could have been used to talk about central
13:20
Speaker 1: banks globally altogether. Now it might be at more opper, boat, slower, lower,
13:25
Speaker 1: weaker together. Diane, how much is that looming over this
13:30
Speaker 1: FED meeting? The idea not of synchronized swimming or synchronized
13:33
Speaker 1: rate cuts, but this idea of trying to sort of
13:37
Speaker 1: take an edge off for the rest of the world.
13:39
Speaker 1: That really does seem to be dealing a little bit
13:41
Speaker 1: more with some negative growth.
13:45
Speaker 9: I don't think that's the fed's main concern, and I'm
13:47
Speaker 9: sure rich will backed me up on that. I remember
13:50
Speaker 9: seeing Ben Bernaki actually go after another central banker said
13:53
Speaker 9: you guys need to change your policy to help us out,
13:55
Speaker 9: and he said that's not our problem, basically at a
13:58
Speaker 9: Jackson Hole meetings. So that is not the fed's primary concern.
14:02
Speaker 9: That said, a strong galer helps us out down the
14:05
Speaker 9: road and keeping goods prices lower, so that helps the
14:08
Speaker 9: FED out. I think what's more important here in terms
14:11
Speaker 9: of the Olympic analogies, is that the road to gold
14:14
Speaker 9: is often paved with tears and obstacles, and I think
14:18
Speaker 9: people forget that. I'm thinking of Simone Biles here.
14:23
Speaker 5: I'm sorry.
14:23
Speaker 9: She's my hero and heroin at this point in time.
14:26
Speaker 9: But I'm thinking about, you know, soft landings. People forget
14:30
Speaker 9: the nineteen ninety four ninety five situation. It looks great
14:33
Speaker 9: on paper. I lived it.
14:34
Speaker 5: I remember it rich. You lived it too.
14:36
Speaker 9: It was ugly at the time. Chairman Greenspan's reappointment as
14:41
Speaker 9: his third term as FED chair was held up for
14:43
Speaker 9: four months in nineteen ninety six because he nearly crashed
14:47
Speaker 9: the economy in nineteen ninety five and people were so
14:50
Speaker 9: angry at him for not easying sooner. And it was
14:54
Speaker 9: his own colleagues, including Jennet Yellentt on the FED that
14:57
Speaker 9: got him to experiment with pro activity, growth and intense
15:01
Speaker 9: form competition that bringing down inflation and allowing the unemployment
15:06
Speaker 9: rate to fall instead of using monetary policy.
15:08
Speaker 5: To do it.
15:09
Speaker 9: That is really important to remember is that soft landings
15:14
Speaker 9: are not easy. They look good on paper, but getting
15:18
Speaker 9: there can be a hard path.
15:20
Speaker 4: Dan, Where does the confidence come? Where does it come from?
15:23
Speaker 4: The unemployment stabilizes at these levels and doesn't carry on
15:27
Speaker 4: shifting higher into year end?
15:29
Speaker 2: What underpends that?
15:33
Speaker 9: Well? I think I don't know if unemployment is going
15:35
Speaker 9: to stay there or not. It often moves up slowly
15:38
Speaker 9: and then moves up rapidly. Alls I know is that
15:41
Speaker 9: even Claudia sam who wants to FED to cut right now,
15:45
Speaker 9: has argue to her own rule might not be applicable
15:49
Speaker 9: in the post pandemic economy because of all the changes
15:53
Speaker 9: we've seen. We've seen much of the rise in unemployment
15:56
Speaker 9: has come from more people seeking jobs, an increase in
15:58
Speaker 9: the participation rately among primate workers. We've seen an influx
16:03
Speaker 9: of foreign workers, foreign born workers accounting for over seventy
16:07
Speaker 9: percent of the growth and civilian labor force since Februar
16:10
Speaker 9: of twenty twenty. That's helped to buoy the unemployment rate
16:14
Speaker 9: as opposed to a surge in layoffs. That doesn't mean
16:17
Speaker 9: there aren't stresses in the labor market. That doesn't mean
16:20
Speaker 9: there aren't still problems. But at the end of the day,
16:23
Speaker 9: what is it that people complain most about. They can
16:26
Speaker 9: complain most about the high level of prices still, and
16:30
Speaker 9: that's something that the FED also has to keep in
16:33
Speaker 9: front of its mind. And I think that's where we're
16:35
Speaker 9: at at the end of the day. We don't want
16:38
Speaker 9: to lose this and not hit that soft landing, but
16:41
Speaker 9: it's a rocky road to get there. I think we're
16:44
Speaker 9: still going to make it, given the fact that we
16:46
Speaker 9: saw the positive of consumers pushed back in the second
16:51
Speaker 9: quarter on price hikes, and retailers and producers capitulated.
16:57
Speaker 5: They rolled back.
16:57
Speaker 9: Prices on goods, and we saw a rebound in growth,
17:01
Speaker 9: doubling the pace of the first quarter, driven in large
17:04
Speaker 9: part by a rebound in consumer spending. That's the Goldilock
17:09
Speaker 9: scenario towards a soft landing.
17:12
Speaker 1: There's this issue, Bob. We're looking at market pricing, and
17:15
Speaker 1: right now it seems like this is consensus that they
17:17
Speaker 1: are going to land the soft landing, even though it
17:20
Speaker 1: is sort of a rarity or a white elephant. Do
17:24
Speaker 1: you think that the market has overpriced that soft landing
17:26
Speaker 1: or even underpriced it because the internal skepticism just keeps.
17:30
Speaker 8: On roaring Now, I think the markets are right on
17:33
Speaker 8: track with the soft landing, and if it in fact happens,
17:37
Speaker 8: the FED can bring down rates a fair amount and
17:40
Speaker 8: the markets will continue to appreciate. I think what's different
17:44
Speaker 8: this time is the FED and investors have a lot
17:49
Speaker 8: more real time information. I was around in ninety four
17:52
Speaker 8: ninety five. I was around in eighty one and you
17:56
Speaker 8: didn't have that information, and now you have it. It's
17:59
Speaker 8: real time, it's live. You can see what's going on.
18:02
Speaker 8: Businesses have it, households have it. And maybe it gives
18:07
Speaker 8: policymakers a false sense of comfort, but they have that
18:10
Speaker 8: sense of comfort, which.
18:12
Speaker 1: Really kind of leaves the market kind of in the way,
18:15
Speaker 1: sort of in the same boat that the FED is in.
18:17
Speaker 1: And I wonder, rich you know, if you were still
18:19
Speaker 1: on the Fed, how much the FED looks at the
18:21
Speaker 1: market to kind of gauge progress sort of follows them,
18:25
Speaker 1: if you will, because they are gauging real time data.
18:27
Speaker 1: And if anything, this is the collective will. And I
18:29
Speaker 1: love the war stories from the mid nineteen fifties for everybody,
18:32
Speaker 1: but I wonder if you know, if that's something that
18:34
Speaker 1: they could really kind of sink their teeth into.
18:36
Speaker 7: Oh sure, well, I mean, I'll just speak for myself.
18:39
Speaker 7: But you're looking at the market hopefully to try to
18:43
Speaker 7: extract signal.
18:43
Speaker 5: There's always noise.
18:44
Speaker 7: You have to be honest with yourself, but it's particularly
18:48
Speaker 7: irrelevant for things like the growth outlook and the inflation outlook.
18:53
Speaker 5: You need to know what is being expected.
18:55
Speaker 7: That's a key input to monetary policy, our expectations. I
18:58
Speaker 7: gave one of my speeches at the FED was on
19:00
Speaker 7: this point avoiding the hall of mirror problems by looking
19:03
Speaker 7: at market prices. So I'm not saying it it's easy,
19:05
Speaker 7: but I don't think there's an alternative.
19:07
Speaker 4: I want to cross back over Todayne Dan, I know
19:09
Speaker 4: you've got to go in a second. Just a quick
19:10
Speaker 4: final word a question for Chairman Powell in this news conference, Dan,
19:13
Speaker 4: what will it be?
19:16
Speaker 9: Well, this is on communication, so I think it's going
19:18
Speaker 9: to be very hard for the FED to communicate. We're
19:20
Speaker 9: already seen financial markets are trying to front run the
19:23
Speaker 9: FED on a larger cut in September. How do they
19:26
Speaker 9: calibrate their communications to deal with what may be more
19:30
Speaker 9: measured cuts?
19:31
Speaker 2: Interesting?
19:32
Speaker 4: Dan, Thank you as always, Dan Swamklair of KPMG. If
19:35
Speaker 4: you are just joining us, welcome to the program. The
19:36
Speaker 4: FED decision came out about twenty minutes ago, unchanged on
19:40
Speaker 4: interest rates and the statement largely unchanged as well, just
19:43
Speaker 4: some incremental changes. So the focus on the news conference now,
19:46
Speaker 4: which starts at about ten minutes time with us joining
19:49
Speaker 4: us now, and please to say as Mike Capen of
19:51
Speaker 4: Bank for America, Michael, going into this news conference, very
19:54
Speaker 4: incremental changes in that statement. Were you expecting more than
19:57
Speaker 4: what they delivered?
20:00
Speaker 10: No, I wasn't. I think with the strong growth numbers
20:04
Speaker 10: we receive, the right place for them to make adjustments
20:06
Speaker 10: is exactly where they did. Reflect it a little bit
20:09
Speaker 10: in cooling labor market conditions, reflect a little bit more
20:13
Speaker 10: progress on inflation, kind of pin down and nail down
20:17
Speaker 10: that balance of risks argument, because that's what the share
20:20
Speaker 10: had said in front of Congress. So I think this
20:22
Speaker 10: was the right incremental move. I think the Fed feels
20:26
Speaker 10: that it's in a sweet spot right now that the
20:28
Speaker 10: data is moving in its direction, so it's getting closer.
20:32
Speaker 10: It just needs a little bit more and then that confidence,
20:36
Speaker 10: that nebulous confidence may be there. So this is what
20:38
Speaker 10: we were expecting. We weren't expecting a big lean in
20:41
Speaker 10: either direction from the statement.
20:43
Speaker 4: The market, as you know, Mike, has been looking for
20:44
Speaker 4: September at a baby step towards that you and a
20:47
Speaker 4: team have been looking for December. What separates you at
20:50
Speaker 4: the moment, Michael, the data that backs up your view.
20:53
Speaker 4: What separates you from the rest of the street at
20:55
Speaker 4: the moment.
20:57
Speaker 10: Well, I'd say we have less concern about downside risk
21:01
Speaker 10: to the economy. We certainly are watching for it and
21:04
Speaker 10: looking out for that. We may be wrong on this view,
21:07
Speaker 10: but the economy grew at a pretty solid pace in
21:10
Speaker 10: the second quarter, and yes, things are moderating and cooling,
21:14
Speaker 10: but I still think that there's a lot of resilience
21:16
Speaker 10: to both the economy and labor markets. And we'll see.
21:20
Speaker 10: Maybe there's a little unevenness in this inflation story, but
21:23
Speaker 10: certainly September, a September cut has moved a lot closer
21:27
Speaker 10: to our baseline. So, yeah, we're still in December, but
21:31
Speaker 10: we've got two employment reports and two inflation reports between
21:34
Speaker 10: now and now, and then you know, further progress in
21:38
Speaker 10: those two variables, a little bit weaker employment, kind of
21:41
Speaker 10: repeats of what we just saw in June inflation that
21:44
Speaker 10: could easily put a cut on the table in September.
21:48
Speaker 10: So September can happen, but it may not. So I
21:51
Speaker 10: think that's how i'd frame it right now, Michael.
21:53
Speaker 1: Let's just put a bow on this. What does further
21:56
Speaker 1: progress look like to you? In the two labor market reports,
21:59
Speaker 1: the toy flation reads that we get until the next meeting.
22:04
Speaker 10: Well, I think the labor market report is maybe a
22:07
Speaker 10: little more asymmetric. You know, a strong report's probably not
22:10
Speaker 10: going to prevent them from cutting, but obviously a week
22:14
Speaker 10: one could. So if they feel the labor market is
22:18
Speaker 10: softening more than they expect, they could go in that regard. Otherwise,
22:22
Speaker 10: I think to your earlier question of what's going to
22:25
Speaker 10: cause inflation to rise, I can't see it, I agree,
22:28
Speaker 10: But I don't think what they can rule out right
22:30
Speaker 10: now is that inflation settles in at a level that
22:33
Speaker 10: feels a little uncomfortable for them. So I think, on
22:36
Speaker 10: the margin, a little more evidence that no, we're not
22:38
Speaker 10: going to get stuck with say core PCE in the
22:41
Speaker 10: high twos. It does look like it's moving lower. So
22:44
Speaker 10: one or two more reports that give them confidence about that,
22:48
Speaker 10: then I think is probably enough.
22:49
Speaker 4: Speaking of discomfort, we know a topic they're uncomfortable with,
22:52
Speaker 4: and that's politics, and it comes up in this news conference.
22:54
Speaker 2: We know what Chairman Power is going to do. He's
22:56
Speaker 2: going to ignore it.
22:57
Speaker 4: But there was a less sent to him by Senator
22:59
Speaker 4: Warren Company and TK there's a quote in this let's
23:02
Speaker 4: say the immediate press release read as follows, the failure
23:05
Speaker 4: to cut rates would indicate that the FED is giving
23:07
Speaker 4: into bullying and it's putting political considerations ahead of its
23:11
Speaker 4: jull mandate to promote maximum employment and stable prices. So
23:15
Speaker 4: you've got the Republicans saying, if you cut rights, it's political,
23:17
Speaker 4: and you've got the Democrats saying, if you don't cut rights,
23:20
Speaker 4: it's political. Sort of stuck in a rock and hard
23:22
Speaker 4: place between the boat.
23:23
Speaker 6: And what's important here, John, it's so so important is
23:26
Speaker 6: that Richard Claret is one of the people that bought
23:28
Speaker 6: history back to economics with his work at Columbia. I
23:31
Speaker 6: sat at the FED with you in that magnificent library
23:35
Speaker 6: of first editions, and Elizabeth Warren reached down and said,
23:39
Speaker 6: take the book off the shelf. And I took Torsten
23:41
Speaker 6: Veblin The Theory of the Leisure Class off the shelf,
23:44
Speaker 6: and you and I were talking about it. This is
23:46
Speaker 6: a few years back. That's what Senator Warren's talking about
23:50
Speaker 6: is the Gilded Age. Are we in a gilded age
23:53
Speaker 6: where the elites are talking only to the fancy people
23:56
Speaker 6: and indirectly doing monetary policy only for the fans see people?
24:01
Speaker 7: Well, no, And in one word, I think you know
24:05
Speaker 7: the FED has the dual mandate, inflation was too high.
24:07
Speaker 5: They're focused on both sides.
24:09
Speaker 7: I think the economies in a place where it can
24:12
Speaker 7: certainly adjust and wait another two months until the cuts command.
24:17
Speaker 5: So I would push back on that.
24:19
Speaker 4: Mike Cap, you push back, just how relevant is the
24:21
Speaker 4: US selection and US politics?
24:25
Speaker 10: Well, the way I would frame this, and I think
24:27
Speaker 10: Rich would agree. I was formerly on staff at the board,
24:31
Speaker 10: and I learned quickly that no matter what you do
24:34
Speaker 10: or don't do, somebody is going to be upset, and
24:37
Speaker 10: one side will complain or the other will complain. So
24:40
Speaker 10: I think you learned quickly the best thing to do
24:44
Speaker 10: is to do what you think is right. So I
24:47
Speaker 10: would put it at that. So they have competing opinions here,
24:50
Speaker 10: the right thing to do is to do what they
24:52
Speaker 10: feels right.
24:52
Speaker 4: Michael finished with the same question I finished with Diane
24:54
Speaker 4: Swamp questions for the chairman. If Michael McKay's listening going
24:58
Speaker 4: into this news conference, what's the number one question for you?
25:02
Speaker 10: Well, the chair is said that they could ease if
25:03
Speaker 10: there's unexpected weakness in the labor market, which is actual
25:07
Speaker 10: data that comes in below their expectation. But what about
25:10
Speaker 10: preemptive using on the risk of labor market weakening. I
25:14
Speaker 10: think that might get the gap between market pricing and
25:17
Speaker 10: what the Fed thinks that will deliver.
25:19
Speaker 4: Mike Gapin, Thank you, sir, Michael Gapin there Bank for America.
25:22
Speaker 4: The news conference about five minutes away.
25:24
Speaker 2: But there is a.
25:25
Speaker 4: Question here about what kind of interest rate it would
25:27
Speaker 4: be when we get one, if we get one in September.
25:30
Speaker 4: Is it a risk management decision? Is it a mid
25:32
Speaker 4: cycle adjustment the beginning of something much bigger than that?
25:36
Speaker 4: Do you think they have to frame it at this point?
25:37
Speaker 4: Do they think they have to characterize what it might be?
25:41
Speaker 8: I think they do, and I think they'd like it
25:43
Speaker 8: to be part of the normalization process. That they've achieved
25:48
Speaker 8: their targets on both sides of their dual mandate, and
25:51
Speaker 8: they could start to bring down what is a restrictive policy.
25:55
Speaker 6: Michael Gabin echoed your speech of January two twenty two.
26:00
Speaker 6: It's about ex ante aspiration. I don't want you to
26:04
Speaker 6: voice for the chairman. I know that's inappropriate, but how
26:07
Speaker 6: does he voice the aspiration of getting out front here
26:11
Speaker 6: in six seven minutes?
26:14
Speaker 7: Well, I think he'll stick to the mandate and he'll
26:16
Speaker 7: stick to documenting the progress, and again he won't use
26:21
Speaker 7: the word soft landing, although that's I think what they're
26:24
Speaker 7: trying to, what they're trying to achieve, and I think
26:27
Speaker 7: Governor Waller's done a very effective job as many speeches
26:31
Speaker 7: in making the point that they have time because the
26:36
Speaker 7: data is holding up quite well. You know, it was
26:38
Speaker 7: a very bold call a couple of years ago for
26:40
Speaker 7: Waller to say we can disinflate without this huge pain
26:43
Speaker 7: in the labor market. I think they were prepared to
26:46
Speaker 7: take it if it was required. It hasn't happened, So
26:48
Speaker 7: now I think they're even more focused on the soft landing,
26:51
Speaker 7: and I do think they do want to avoid a
26:54
Speaker 7: premature declaration of mission accomplished, because even if underlying inflations
26:59
Speaker 7: are going to target, there's always noise in the data,
27:02
Speaker 7: and two or three months of noise in the wrong
27:03
Speaker 7: side is a bit uncomfortable.
27:05
Speaker 1: Rich there's this feeling baked into markets that Vecho J.
27:08
Speaker 1: Powell is much more dubvish than the statement might suggest.
27:12
Speaker 1: Are you expecting that tone to kind of come out
27:14
Speaker 1: in the news conference?
27:16
Speaker 5: Interesting?
27:16
Speaker 7: You know, we heard a lot from Chair Powell at
27:19
Speaker 7: CenTra on Capitol Hill, sitting down at the Economic.
27:22
Speaker 5: Club of DC. I've gone through and looked at that.
27:25
Speaker 7: I would actually expect him to stick pretty close to
27:28
Speaker 7: that which which was very balanced, not declaring victory but
27:32
Speaker 7: acknowledging progress, emphasizing, as the statement does today, that they
27:36
Speaker 7: are really attuned and attentive to both sides of.
27:38
Speaker 5: The duel mandate. You know.
27:40
Speaker 7: So there are some times where I think the press
27:42
Speaker 7: conference is really the chair using a lot of this
27:45
Speaker 7: is what I think. I think we'll hear a lot
27:47
Speaker 7: of this is what we think today. The Committee's pretty
27:50
Speaker 7: tight tightly aligned on where they are.
27:52
Speaker 1: Bob, what are you listening for today?
27:56
Speaker 8: I actually think he will come out a bit more dubbish.
28:00
Speaker 8: I think that's the way he's rolled the last several meetings.
28:03
Speaker 8: He's surprised us by deviating from the script and indicating that, yeah,
28:08
Speaker 8: you know, he could see rate cuts on the horizon.
28:13
Speaker 8: I can't take my eyes off of the last sentence
28:16
Speaker 8: in the second paragraph, where the committee is attentive to
28:20
Speaker 8: the risk of both sides of its dual mandate. I
28:24
Speaker 8: got what I wanted at least, which is acknowledgement of
28:28
Speaker 8: risks in the labor market. The more I look at that,
28:31
Speaker 8: the more it's clear to me that they're going in September.
28:34
Speaker 8: If I were Mike McKee, a lot of people try
28:37
Speaker 8: to press the Fed on what their neutral long term
28:39
Speaker 8: rate is, I would ask him, at what level is
28:43
Speaker 8: the FED funds rate no longer restrictive?
28:46
Speaker 2: Do you think they can answer that?
28:47
Speaker 5: Rich Well, I think they won't answer that.
28:51
Speaker 7: I think they have, and this is one of their
28:53
Speaker 7: probably nineteen different opinions on the committee. One thing I'll
28:57
Speaker 7: say a little bit is right now, as I look
28:59
Speaker 7: at my Bloomberg screen or I did twenty five minutes ago,
29:03
Speaker 7: September was more than one hundred percent priced. And even
29:07
Speaker 7: I wouldn't say it's one hundred percent. There are there's
29:10
Speaker 7: data we could get between now and then that where
29:12
Speaker 7: they might not go. So that's why I skeel a
29:14
Speaker 7: little bit to being a little bit more balanced than
29:16
Speaker 7: maybe Dubvish.
29:16
Speaker 5: But you know, we'll find out.
29:18
Speaker 4: I'm pleasing you brought up Central Portugal because I think
29:20
Speaker 4: it's really important to reflect on the comments from chem
29:22
Speaker 4: and Power back in Central Portugal at the ECPs, and
29:25
Speaker 4: you'll get together. Chem and Power was talking about the
29:27
Speaker 4: strength of the labor market and the strength of the
29:29
Speaker 4: labor market being a reason for them to wait, that
29:32
Speaker 4: they have time, they can wait and see a few
29:34
Speaker 4: more months of data.
29:35
Speaker 2: Maybe.
29:36
Speaker 4: And it's his characterization again in this news conference of
29:38
Speaker 4: the labor market that I think is matters. Off the
29:40
Speaker 4: back of that incremental change in the statement that you're
29:43
Speaker 4: all picking up on around the table, that last line
29:45
Speaker 4: of the second paragraph. You've seen this incrementally in the
29:48
Speaker 4: FED speeches over the last few weeks, lease of the
29:50
Speaker 4: last month. They've placing greater emphasis on the other side
29:53
Speaker 4: of the mandate in a way that it wasn't even
29:55
Speaker 4: part of the conversation a year or so ago. Think
29:57
Speaker 4: about where we've come from two years ago. Jackson Hole,
30:00
Speaker 4: August twenty twenty two, Pain pain to get inflation down.
30:05
Speaker 4: The focus was getting inflation down. You can start to
30:08
Speaker 4: hear the focus shifting to the labor market.