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Instant Reaction: The Fed Decides · Bloomberg Intelligence

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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is a breaking
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Speaker 1: news update from Bloomberg, instant reaction and analysis from our
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Speaker 1: three thousand journalists and analysts around the world.
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Speaker 2: The news is sparse, no change in rates, nine in favor,
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Speaker 2: three decent slogan, Hammock and Cashkari. Other than that, there
0:27
Speaker 2: is not a word of difference between the June statement
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Speaker 2: and this one. Economic activity is expanding at a solid pace.
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Speaker 3: It says.
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Speaker 2: Uncertainty is elevated in part because of the Middle East. Productivity,
0:40
Speaker 2: growth and capital investment are strong. Job gains have kept
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Speaker 2: pace with the workforce, and unemployment has changed little. Inflation
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Speaker 2: remains elevated relative to the two percent goal, in part
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Speaker 2: reflecting supply shocks that have driven price shocks. The statement
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Speaker 2: again concludes by saying the Committee will deliver price stability.
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Speaker 2: I think this is the shortest summary I have ever
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Speaker 2: given you, and I've padded it out a little bit
1:06
Speaker 2: just to make it a little longer and feel like
1:08
Speaker 2: I've done something. There's no real surprise in here. You
1:11
Speaker 2: could point to the dissenters, but they've all said something
1:14
Speaker 2: about inflation and the fact that we might have to
1:16
Speaker 2: raise interest rates in the future, so it doesn't really
1:19
Speaker 2: give you a clue about what's going on, and there's
1:22
Speaker 2: no hint in the statement about what might happen in
1:25
Speaker 2: the future. So if Kevin Warsh wants a spotlight definitely
1:28
Speaker 2: on him today.
1:29
Speaker 4: And Michael come back to you in just a second.
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Speaker 4: Let's whip through the price action. So as expected, widely expected,
1:34
Speaker 4: no change on this decision, some descent not one, not two,
1:38
Speaker 4: but three dissenting voices from regional Fed presidents from the
1:41
Speaker 4: obvious places. The move in the market is interesting, though.
1:44
Speaker 4: Equity's off the lows on the S and P five hundred,
1:46
Speaker 4: just to raising some of the losses. So farther southternoon
1:48
Speaker 4: on the S and P five hundred, still negative, but
1:51
Speaker 4: not as low as we once were with the SMP
1:53
Speaker 4: negative just zero point three percent, and we're gaining some
1:55
Speaker 4: confidence in the tech trait. The nasdack down by point two.
1:58
Speaker 4: In the bond market, let's just the front end of
2:00
Speaker 4: the yield curve. Two yr yields were hired by basis
2:02
Speaker 4: point of two, now down four to four twenty five.
2:06
Speaker 4: So often talk about this Bramo, the difference between economist
2:09
Speaker 4: expectations and the risk that the market was pricing gain
2:12
Speaker 4: and clearly just a little bit of a gap there
2:14
Speaker 4: even with that descent, some relief at the front end
2:16
Speaker 4: of the curve a rally on two.
2:17
Speaker 5: So there truly was about a thirty percent chance of
2:20
Speaker 5: a FED rate hike at this meeting, and that chance
2:22
Speaker 5: was not necessarily fulfilled. It is notable, though, that there
2:25
Speaker 5: were three descents, and that I think is the news
2:27
Speaker 5: from this particular statement, given the fact that Neil Koshkari
2:31
Speaker 5: also joined Laurie Logan and Beth Hammick. I was on
2:34
Speaker 5: a panel with him and he was talking about this
2:36
Speaker 5: with a bunch of CEOs and saying this is a
2:38
Speaker 5: problem and it is more pernicious for the average consumer
2:41
Speaker 5: in this country right now that inflation is so high,
2:44
Speaker 5: the potentially the labor market is oftening because it's not
2:47
Speaker 5: and I think that is something that you are hearing
2:49
Speaker 5: in the minority.
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Speaker 3: On the fair.
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Speaker 4: The good news here for the leadership of Kevin Walsh
2:52
Speaker 4: early days quick reaction the descent came from the regional
2:56
Speaker 4: presidents and not from the board. Because it it came
2:58
Speaker 4: from one of the board members this afternoon, I think
3:00
Speaker 4: we'd be having a very different conversation tk to the
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Speaker 4: one we're about to have.
3:04
Speaker 3: It's a market voting Apple five point zero five to
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Speaker 3: three trillion dollars just out to a new record high
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Speaker 3: three forty four. Is a market voting here on.
3:13
Speaker 4: Their new I think Apple's voting on a lack of CAPEX,
3:15
Speaker 4: and I think that's been a story on I hope, yeah,
3:17
Speaker 4: I know.
3:17
Speaker 3: That I get that run. But I mean, right here
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Speaker 3: within the minutes after this announcement, with the SPX popping
3:23
Speaker 3: up as well, I mean, they certainly like what they saw.
3:27
Speaker 4: Well, let's take a step back and think about what's
3:28
Speaker 4: been happening in asset classes. We've had this massive move
3:31
Speaker 4: higher in energy and lots of volity in between, volatility
3:34
Speaker 4: in between. Over the previous five months. You've seen that
3:37
Speaker 4: ripple through interest rates. We've priced out cuts and in
3:40
Speaker 4: many places priced in hikes and in some places actually
3:43
Speaker 4: engineered rate hikes. What we haven't seen is a growth scare.
3:47
Speaker 4: The backdrop for growth is still pretty good consensus for
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Speaker 4: GDPs that around two unemployment's been falling closer to four
3:52
Speaker 4: and away from five. That's good news. Now you've got
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Speaker 4: a feeder reserve that doesn't still see a reason even
3:57
Speaker 4: with that as your backdrop. They don't see a reason
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Speaker 4: high interest rates right now today. Some do, but not
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Speaker 4: the committee as a whole. If you're looking at that
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Speaker 4: from a risk asset standpoint on, that's risk positive without
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Speaker 4: a doubt it is.
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Speaker 3: I mean, I mean, they're moving forward, and to me,
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Speaker 3: the key thing after Jackson All is to get to
4:15
Speaker 3: that next meeting. All of a sudden, Jackson Hole may
4:17
Speaker 3: be interesting.
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Speaker 5: Oh, I definitely think it's gonna be interesting. We need
4:20
Speaker 5: to hear about insights from task forces. That said, right now,
4:24
Speaker 5: I do think you know how I think that they're
4:26
Speaker 5: going to be important to me. This is actually a
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Speaker 5: fascinating statement. Does he set up a September rate hike
4:32
Speaker 5: with the idea that there are three descents and potentially
4:34
Speaker 5: there is another CTI and PPI print that will be
4:37
Speaker 5: potentially hotter than next.
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Speaker 4: Dot to run back always early to publish. He says
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Speaker 4: the following, I think the descents tell you the direction
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Speaker 4: of travel. It will be very tough for WASH to
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Speaker 4: hold the line into September. I hope Mike mc key's
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Speaker 4: holding the line. Just before he goes into that news
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Speaker 4: conference in about twenty five minutes time, Mike given the
4:54
Speaker 4: lack of new information here beyond just a descent. What's
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Speaker 4: your approach to the news conference at two thirty Easton time?
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Speaker 2: Well, I think we have to ask very direct questions
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Speaker 2: of the chair. We can't ask him broad questions like
5:05
Speaker 2: what is your reaction function or something like that, because
5:09
Speaker 2: then he's going to just lead those questions and we
5:12
Speaker 2: won't get good answers. So we'll have to pick out
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Speaker 2: some things like where we are with rates, are those
5:18
Speaker 2: sufficient at this point? Something to try to get him
5:21
Speaker 2: to give us some specifics on how he's thinking. But
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Speaker 2: I think what you guys have just gone through is
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Speaker 2: what he's looking for. He'd rather have you speculating markets
5:31
Speaker 2: speculating than give you a hint. And nature abhors a vacuum,
5:35
Speaker 2: so the markets are going to fill it with what
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Speaker 2: they think might happen. But it's going to be hard
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Speaker 2: for anybody to really know unless Worsh wants to start
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Speaker 2: tipping his hand, which it'll be a battle between us
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Speaker 2: and him.
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Speaker 4: I guess looking forward to it. Mike, thank you, buddy.
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Speaker 4: Can't start that news conference. Mi McKay will come into
5:51
Speaker 4: that news conference for us. It will begin at about
5:53
Speaker 4: twenty five minutes time. If you're just joined the program,
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Speaker 4: welcome to the program. So unchanged to the Federal Reserve.
5:57
Speaker 4: But the vote is different. It's nine to three and
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Speaker 4: the assenting voices are as follows bottom of the statement.
6:02
Speaker 4: Beth Hammock, Noil Kashgari, Lori logan descent coming from the
6:05
Speaker 4: obvious places, all three of those voting for an interest
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Speaker 4: rate hike. At the bottom of the statement. That line
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Speaker 4: sticks the committee will deliver price stability. We've got Bob
6:15
Speaker 4: Michael a JP Morgan Act Management alongside us. Bob, is
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Speaker 4: that line in the statement enough for US not to
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Speaker 4: question their commitment to price stability? With inflation running above
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Speaker 4: target for as long as it has been running above target.
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Speaker 1: I think the three descents are more important than that
6:32
Speaker 1: last statement. I think that it shows that they're starting
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Speaker 1: to migrate towards tightening policy. You know, there's still seventy
6:41
Speaker 1: five percent of the voting members that were in favor
6:44
Speaker 1: of no change, so you're only a twenty five percent,
6:47
Speaker 1: But I think it's important. If I were at the
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Speaker 1: press conference, I'd ask about quantitative tightening. Are they talking
6:54
Speaker 1: about that? Is that something they could start up again
6:57
Speaker 1: and help snug the liquidity that in the system.
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Speaker 4: Best guess for September. Limited additional information, but best guess
7:04
Speaker 4: for September. What would you call now.
7:06
Speaker 1: They do nothing? But maybe there are four descents.
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Speaker 4: Well, Michael is going to stick with us going into
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Speaker 4: that news conference. Twenty five minutes away. Joining us now
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Speaker 4: is Jim Bianco of Pianco Research. Jim, welcome to the program.
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Speaker 4: It's a whole new world, a new era for this
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Speaker 4: central bank. You've been writing about it extensively. Just first
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Speaker 4: of all, your reaction to this decision this afternoon.
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Speaker 6: Not surprised by the decision that the Fed did not
7:29
Speaker 6: raise rates. I still would defer with Bob and think
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Speaker 6: that they are going to raise rates in September. I
7:36
Speaker 6: think the descents are the most important thing because one
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Speaker 6: of the things I've been emphasizing is after Trump attacking
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Speaker 6: this FED for two years, they want to be independent,
7:46
Speaker 6: and they've decided that independence is twelve independent voters. So
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Speaker 6: what we're going to get at the press conference is
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Speaker 6: one twelfth of the opinion of the Fed is we're
7:56
Speaker 6: going to get washed, or maybe we won't get it
7:58
Speaker 6: at all. If he doesn't express it. He's got a
8:00
Speaker 6: lot of power he could probably, you know, twist some
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Speaker 6: arms to get them over the line whichever way he
8:06
Speaker 6: wants to go. I suspect that if they were all
8:09
Speaker 6: voting their true conscious, we might have had a few
8:11
Speaker 6: more descents, maybe not enough to raise raids, but a
8:13
Speaker 6: few deferred because he didn't want to do it.
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Speaker 5: Would be my guest, Jim, do you think it's significant
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Speaker 5: that none of the governors joined with the dissenters, even
8:22
Speaker 5: though there were some reports of some pretty interesting family
8:25
Speaker 5: fights over dinner last month.
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Speaker 6: I'm mildly I was expecting that maybe Chris Waller was
8:32
Speaker 6: going to be a dissenter. He still might be a
8:35
Speaker 6: voter for a rate hike in September, maybe a couple
8:39
Speaker 6: of others. But I do want to emphasize again, we're
8:42
Speaker 6: going to parse every word that Warsh wants to say.
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Speaker 6: I think that the FED is more of a vote
8:46
Speaker 6: tailing our exercise right now. You know, you got to
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Speaker 6: look at all twelve people and say which columns are
8:51
Speaker 6: they in high colder cut and seven is a majority?
8:54
Speaker 6: And which column has seven? And that's what the Fed's
8:56
Speaker 6: going to do. That's how they work now.
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Speaker 3: But Michael, the young Ripersentagim Bianco a couple of years ago,
9:01
Speaker 3: had an arch call calling for higher interest rates when
9:04
Speaker 3: no one was looking for it. The other day, Edyard
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Speaker 3: Denny said, these are normal rates. We have to get
9:09
Speaker 3: used to rates being here again, is doctor Yardnny and
9:13
Speaker 3: Jim Bianco correct? We just got to get used to
9:15
Speaker 3: these higher rates.
9:16
Speaker 7: Yeah.
9:17
Speaker 1: I think what we're seeing more broadly across the economy
9:20
Speaker 1: is a need for capex. There's demand for capital, there's
9:24
Speaker 1: a productive use of it. There's going to be competition
9:27
Speaker 1: and a cost of it. That's pre GFC kind of
9:30
Speaker 1: macro environment. You're not going back to zero to two
9:33
Speaker 1: percent rates.
9:34
Speaker 6: No.
9:35
Speaker 1: I think there's enough cause for them to hike in
9:37
Speaker 1: September as opposed to next year. I don't think inflation
9:40
Speaker 1: is going to change that much.
9:42
Speaker 3: I can't remember, Jennifer, you're on or off here, but
9:44
Speaker 3: you said this twenty minutes ago. What percentage of people
9:46
Speaker 3: in the street actually remember pre GFC.
9:50
Speaker 4: We were very live, and I remember what I said.
9:52
Speaker 4: I talked about the average engine on the trading floor,
9:54
Speaker 4: which is probably mid thirties right now. So the world
9:56
Speaker 4: that they used to is not the world that Kevin
9:58
Speaker 4: Walsh wants to take us. Back to it's also not
10:00
Speaker 4: the world that we've experienced in financial markets. Side it
10:02
Speaker 4: to your point, we had these anchors across fixed income
10:06
Speaker 4: for the last ten to fifteen years at least, and
10:08
Speaker 4: I have talked about them daily, how they're disappearing. Germany
10:12
Speaker 4: had fiscal prudence for decades, it's disappearing. Japan had disinflation
10:17
Speaker 4: deflation for decades. It's changed. And in America, the biggest
10:22
Speaker 4: companies in the planet were buying themselves, not issue in stock,
10:25
Speaker 4: not issuing debt. That's changed as well, the price of that.
10:28
Speaker 4: But what is the price of that and what part
10:29
Speaker 4: of this market is most vulnerable to that competition for capital?
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Speaker 1: It feels like it's the sovereign market. I don't know
10:36
Speaker 1: a sovereign which isn't interested in investing in energy, security,
10:41
Speaker 1: in investing in the defense of its borders, in investing
10:45
Speaker 1: in AI and technology. More broadly, they don't have the
10:48
Speaker 1: budgets to do it. They're going to have to go
10:51
Speaker 1: out and borrow. That's going to create more competition for
10:54
Speaker 1: the capital. That's okay, that's a normal capitalist environ We're
11:00
Speaker 1: okay with that. But it doesn't mean zero to two
11:03
Speaker 1: percent central bank rates and treasury government bond yields is
11:08
Speaker 1: the right level. It means probably neutral rates for the
11:12
Speaker 1: FED are around three to five percent, and you're looking
11:15
Speaker 1: at a ten year treasury that who knows could be
11:17
Speaker 1: four to six percent.
11:19
Speaker 5: In this world where suddenly you have to battle for
11:21
Speaker 5: capital and Jim, I'd love your take on this. Is
11:23
Speaker 5: it a policy error if a FED share Kevin worsh
11:26
Speaker 5: allows the move to stick that we're seeing right now
11:29
Speaker 5: in markets. Now there is not a full rate hike
11:31
Speaker 5: being baked into September, and frankly, the initial move has
11:35
Speaker 5: given back at least at the long end of the
11:36
Speaker 5: yield curve. Do you think that it is important for
11:38
Speaker 5: this FED, whether it intends to hike or not, to
11:42
Speaker 5: keep the message that they are prepared to do so
11:44
Speaker 5: to tame inflation.
11:46
Speaker 6: I think so. If you want to back up, go
11:48
Speaker 6: back to September of twenty four, that's when the FED
11:51
Speaker 6: first started cutting rates. The thirty year yield was four percent,
11:54
Speaker 6: was exactly four percent. Right now it's five to ten.
11:57
Speaker 6: It's going up one hundred and ten basis points. While
12:00
Speaker 6: the FED has been cutting rates. By my measures, I
12:03
Speaker 6: can't find another example of a rate cutting cycle that
12:06
Speaker 6: produced that big a rate a yield increase in the
12:09
Speaker 6: long end since the nineteen eighties. But then again, we
12:12
Speaker 6: also had fourteen percent interest rates then and without that
12:15
Speaker 6: never in anything back to the nineteen fifties. So really,
12:19
Speaker 6: the market is trying to tell you that I think
12:21
Speaker 6: the direction of travel is going to be higher. It's
12:24
Speaker 6: more worried about inflation. And if the you know, go
12:27
Speaker 6: back to that last sentence, if the Fed wants to
12:30
Speaker 6: deliver price stability, I'll throw one another into you. Kevin
12:33
Speaker 6: Walsh said that inflation is a choice. They might have
12:36
Speaker 6: to choose to do something about it fairly soon and
12:38
Speaker 6: maybe as early as the September meeting.
12:40
Speaker 5: Jim.
12:41
Speaker 3: If they do something about it, do we continue with
12:43
Speaker 3: this robust nominal GDP we've seen.
12:47
Speaker 6: I think we can, and I also think if the
12:49
Speaker 6: Fed were to raise rates that that might put the
12:52
Speaker 6: high end yields for the year. I think part of
12:54
Speaker 6: the problem has been that now that we don't have
12:57
Speaker 6: forward guidance, the market is pricing what it thinks, and
13:00
Speaker 6: I think it thinks that's there's an inflation, let's say
13:03
Speaker 6: issue or worry. I don't want to go full blown
13:06
Speaker 6: problem or crisis it's not that bad. Yeah, and that's
13:09
Speaker 6: why yields keep going up. And I think you would
13:12
Speaker 6: like to see the old line, the old adage on
13:14
Speaker 6: Wall Street I've been using is that bond traders can
13:17
Speaker 6: relax or stop panicking won the FED starts panicking, and
13:22
Speaker 6: maybe a little bit of panic from the Fed might
13:24
Speaker 6: go a long way to helping the bond market stop
13:27
Speaker 6: with this yield rise on the long end.
13:28
Speaker 4: As about a point, Jim, I appreciate your time, buddy,
13:30
Speaker 4: as always, Jim Pianco there of Bianco Research, if you're
13:33
Speaker 4: just shown in the program, welcome a news conference with
13:36
Speaker 4: Chair Wash in about seventeen minutes time. The decision thirteen
13:40
Speaker 4: minutes ago, leaving rates unchanged to vote of nine to three,
13:43
Speaker 4: three dissenting voices, three regional FED presidents Hammock of Cleveland,
13:48
Speaker 4: Kashgari of Minneapolis, and Logan of Dallas, three voices who
13:52
Speaker 4: have given us a decent step that this might be
13:55
Speaker 4: the outcome of this meeting, at least for them. Next
13:57
Speaker 4: two weeks might be interesting. I think we're all going
13:59
Speaker 4: to look for that schedule, aren't we. Those speeches what
14:02
Speaker 4: everyone thinks, and this was always the problem for this
14:04
Speaker 4: fed chair looking to put communication back in the box,
14:07
Speaker 4: back in the bottle, and throw it away and bury it.
14:09
Speaker 4: Everybody else still wants to talk. And if you speak less,
14:13
Speaker 4: we just put more weight on the people that do speak.
14:15
Speaker 4: And that's what we'll be doing in the coming weeks.
14:17
Speaker 5: It's going to be a vote telling exercise over the
14:19
Speaker 5: next two weeks, with people watching every single press conference,
14:22
Speaker 5: every single speech and wondering who is going to be
14:25
Speaker 5: the additional voice to vote for a rate hike and
14:27
Speaker 5: how close are they And that is ultimately the calculus
14:29
Speaker 5: that we're going to see. Kevin Warsh could potentially put
14:31
Speaker 5: that back in the bottle if he gives us some
14:33
Speaker 5: sort of quantification or characterization of what the reaction function is.
14:37
Speaker 5: But barring that, we're going to be doing vote telling
14:39
Speaker 5: and we're going to have a bingo card and it's
14:40
Speaker 5: going to be a.
14:41
Speaker 1: Lot of fun.
14:41
Speaker 4: Can we go from three to four, to five, to six, etc.
14:43
Speaker 4: To seven? Dance swamk of KPMG joined just now for more. Dan,
14:47
Speaker 4: Welcome to the program. Do you believe this is the
14:49
Speaker 4: direction of travel? This is the first of many votes
14:52
Speaker 4: that will look for higher interest rates?
14:55
Speaker 7: Absolutely. I think the three percents from the president is
15:00
Speaker 7: exactly we should expect right now, and those descents were
15:03
Speaker 7: not done in a vacuum. They also are representing presidents
15:06
Speaker 7: who could not vote at this meeting. That is often
15:09
Speaker 7: what is done. And I also think many people on
15:11
Speaker 7: the board are leaning towards a rate hike as well.
15:14
Speaker 7: We've already gotten a lot of indication of that, and
15:17
Speaker 7: so I do think we do get rate hikes in September.
15:20
Speaker 7: I actually think today would have been better, but I
15:23
Speaker 7: expected them to skip today even though there was a
15:26
Speaker 7: thirty percent chance out there that they would do it today,
15:29
Speaker 7: because we're starting to get This is something that Kevin
15:32
Speaker 7: Warsh has said himself. We've had five years of inflation.
15:34
Speaker 7: It's not all the Fed's fault, but at the end
15:36
Speaker 7: of the day, it is the fed's choice, as Jim
15:39
Speaker 7: pointed out, to do something about it, and we need
15:42
Speaker 7: to do something about this inflation and has been around
15:44
Speaker 7: for too long and created a muscle memory. It's becoming
15:47
Speaker 7: the norm instead of the anomaly. And tomorrow we're going
15:50
Speaker 7: to get that PCE data, which the reason why Beth
15:53
Speaker 7: Hammock sort of threw down the Gauntlin and wrote the
15:56
Speaker 7: LinkedIn post hours befoard the fed's blackout period, letting us
16:00
Speaker 7: know exactly how she felt about race was because they
16:03
Speaker 7: were tracking the inputs on that number, and it will
16:05
Speaker 7: be three point three percent on the core and on
16:08
Speaker 7: the supercore I think three point seven percent supercore services.
16:12
Speaker 7: That is sticky and hot and hotter than it was
16:14
Speaker 7: at the beginning of the year.
16:16
Speaker 5: Well, Michael had a really good point earlier and she said,
16:18
Speaker 5: it kind of depends why they hike. Is it going
16:20
Speaker 5: to be that the data shows a reacceleration or is
16:22
Speaker 5: it just that they're running out of patients. And if
16:24
Speaker 5: they're running out of patients and tolerance of high inflation
16:26
Speaker 5: after more than five years, that typically isn't a great
16:29
Speaker 5: place for a central banker to be. And would you
16:31
Speaker 5: agree with that?
16:34
Speaker 7: I do agree with that to some extent, although I
16:36
Speaker 7: think we still got a little more inflation out there
16:38
Speaker 7: as well. But the problem is that it's just been
16:40
Speaker 7: too persistent. This is too long, for too much, for
16:43
Speaker 7: too long, and it's compounded much like I've argued, you know,
16:47
Speaker 7: compounding stock returns have raised the level of wealth, compounding
16:50
Speaker 7: inflation has risen the level of prices to be too
16:53
Speaker 7: high for too many, and that being front and center
16:56
Speaker 7: is not the definition of price stability. And that is
17:00
Speaker 7: what the Federal Reserve is charged to do. And with
17:02
Speaker 7: the labor market in a stronger position, there's no reason
17:05
Speaker 7: not to do it.
17:06
Speaker 3: Now. Well, Michael, I'm not going to go to the
17:09
Speaker 3: one with Sterling academics at Michigan and economics. I'm going
17:12
Speaker 3: to go to the classics major from Pennsylvania. Is it
17:15
Speaker 3: a small matter that the three des centers are an
17:18
Speaker 3: aerospace engineer educated, a public policy Lori Logan educated, and
17:24
Speaker 3: Beth Hammock of twenty one was on the desk at
17:26
Speaker 3: Golden Sex. Is this almost a dissent rebellion against traditional
17:31
Speaker 3: monetary economics?
17:34
Speaker 1: It may be more common sense than anything else. I think,
17:38
Speaker 1: as Diane pointed out, you've been a long way away
17:41
Speaker 1: from the two percent target for a long period of time.
17:45
Speaker 1: There could be a little bit of disinflation the system.
17:48
Speaker 1: I wonder what happens if the next couple prints on
17:52
Speaker 1: core PCEE you go from three to four to three,
17:55
Speaker 1: three to three one, and you see you're still above
17:57
Speaker 1: two percent. But what about in core CPI you go
18:01
Speaker 1: from two six to two five to two three, you're
18:04
Speaker 1: still above two percent. I think the sense reflect that, hey,
18:09
Speaker 1: we're not at our target. If this swings around the
18:12
Speaker 1: other way, we're poised to move, but you don't move yet.
18:16
Speaker 1: If you're starting to see some disinflat when.
18:18
Speaker 4: You talk about Goldman the death star in front of
18:20
Speaker 4: JP Morgan, can we do that on the desk?
18:26
Speaker 3: And I just nobody, nobody dissenting. John did the usual
18:30
Speaker 3: economic path.
18:31
Speaker 4: Let's go to that. Let's go to the quote of
18:34
Speaker 4: hers in the LinkedIn statement going into the quiet period,
18:38
Speaker 4: the lead up to this descent, there is no conflict
18:40
Speaker 4: in our mandate. Inflation is too high, the labor market
18:44
Speaker 4: is run around my level of maximum employment. For the
18:46
Speaker 4: first time in my tenure, I'm hearing from businesses who
18:49
Speaker 4: say they think we need to take action to curb inflation.
18:53
Speaker 4: And that's pretty punchy stuff. And when you said that
18:56
Speaker 4: dissent might be on the behalf of others on the
18:58
Speaker 4: committee who don't get a vote. How many regional FED
19:01
Speaker 4: presidents are hearing the same thing from that districts across
19:04
Speaker 4: this country.
19:07
Speaker 7: I think they all are, And I think that's the
19:09
Speaker 7: important you know, sort of what we're seeing out there.
19:11
Speaker 7: We are seeing many people across the country showing up
19:15
Speaker 7: in the Beige book as well. It's showing up out
19:17
Speaker 7: there that firms still have some pipeline even on last
19:21
Speaker 7: year's tariffs. So the new tariffs, they're reinstating old tariffs
19:24
Speaker 7: that won't add a lot of extra tariffs out there.
19:26
Speaker 7: But we also have Russia sanctions which allow up to
19:30
Speaker 7: one hundred percent tariffs on some of our trading partners
19:32
Speaker 7: at the discretion of the President. So those are coming
19:36
Speaker 7: going through Congress right now. All of that is more
19:40
Speaker 7: chook points, more shocks at the same time that we
19:44
Speaker 7: still have this persistent underlying inflation that's just not going away.
19:48
Speaker 7: And to think that it's going to go away on
19:50
Speaker 7: ZWN when we're seeing things like in the wages in
19:53
Speaker 7: the leisure and hospitality sector, which shed jobs last month,
19:56
Speaker 7: wages actually accelerated, that's something to watch. That's it's the
20:00
Speaker 7: service sector that is where we're seeing that booing sort
20:03
Speaker 7: of effect of wages. Also the cost holding up that inflation.
20:08
Speaker 7: That is something the Federal Reserve is very concerned about.
20:11
Speaker 7: You want low wage workers to get more pay, but
20:13
Speaker 7: only if they get more paid that's above and beyond
20:16
Speaker 7: the level of inflation.
20:18
Speaker 1: Bob, I'm struck by the neutral rate.
20:20
Speaker 5: We haven't talked about it once, but given the sort
20:22
Speaker 5: of competition for capital that seems to be going on globally,
20:25
Speaker 5: is it possible just that the real rate has to
20:28
Speaker 5: be a whole lot higher than people previously expected. And frankly,
20:32
Speaker 5: we're seeing that in the lack of any kind of
20:34
Speaker 5: erosion from demand.
20:35
Speaker 1: Remember when the Fed first started doing the dots in
20:38
Speaker 1: twenty twelve because they didn't think we in the markets
20:42
Speaker 1: were smart enough to know what normal look like. Again,
20:45
Speaker 1: so they were going to help us out. And you
20:47
Speaker 1: go to that long term median dot, which was perfect textbook.
20:52
Speaker 1: It was four and a quarter percent. How did they
20:55
Speaker 1: get there? Over the one hundred odd year history of
20:58
Speaker 1: the FED, the real Fed funds rate had been two
21:01
Speaker 1: and a quarter percent? What were they targeting two percent?
21:04
Speaker 1: You put the two together. There's your fancy algorithm for
21:08
Speaker 1: and a quarter percent. Wouldn't it be funny if that
21:11
Speaker 1: proves to be correct over the next decade.
21:15
Speaker 3: I look, John, where we are with this, and I
21:17
Speaker 3: just again, we got to get to the next meeting,
21:19
Speaker 3: this press conference. To me, I mean to Bob, it's
21:22
Speaker 3: gone out on Twitter. What Bob said about what are
21:25
Speaker 3: we going to see? We have no clue what we're
21:27
Speaker 3: going to see.
21:27
Speaker 4: Here zero zero, It's totally up to him.
21:30
Speaker 3: Will he be on time?
21:31
Speaker 4: I mentioned to Mike, I hope he will be. I
21:33
Speaker 4: mentioned to Mike earlier on this morning when we're on
21:35
Speaker 4: Bloomberg's surveillance, and I said to Mike, as a journalist,
21:38
Speaker 4: you have to change your questions because no one wants
21:40
Speaker 4: to be the journalist in the news conference that gets
21:42
Speaker 4: a two word response and it involves task force. No
21:44
Speaker 4: one wants to be that guy. So what the kind
21:46
Speaker 4: of questions you need to ask Kevin Walsh that maybe
21:48
Speaker 4: wouldn't have thought of asking cham and Powell?
21:51
Speaker 5: Yeah, well what? And what Mike said was you've got
21:53
Speaker 5: to be very specific. And I liked his question about specifically,
21:56
Speaker 5: how are you thinking about oil because right now you
21:58
Speaker 5: could say a lot of the inputs to inflation or
22:00
Speaker 5: supply shocks. How do you consider supply shocks when they
22:02
Speaker 5: are repeated supply shocks again and again and aren't likely
22:05
Speaker 5: to stop being shocks considering the fact that this conflict
22:08
Speaker 5: isn't going away anytime soon.
22:09
Speaker 4: Dan, You're great at this final question what's your question
22:11
Speaker 4: for the FED share You've talked about a new chair,
22:13
Speaker 4: an old guard. What's your question for this guy.
22:17
Speaker 7: I guess my question is really on that neutral rate,
22:20
Speaker 7: exactly as Bob outlined. I think we're actually lower than
22:23
Speaker 7: the neutral rate right now, and I think many on
22:25
Speaker 7: the FED believe that we're lower than the neutral rate,
22:28
Speaker 7: or at least at the neutral rate, which is not
22:30
Speaker 7: where we should be if inflation is at this level.
22:33
Speaker 4: Dan appreciate it. Dan swunk there at KPMG is such
22:36
Speaker 4: a good point. There's a phrase that you heard a lot,
22:38
Speaker 4: I think over the previous year or two when there
22:40
Speaker 4: were cunning rates. They talk about being sufficiently restrictive. How
22:44
Speaker 4: many times have you heard that in the last six months,
22:46
Speaker 4: being sufficiently restrictive. I haven't heard it at all from
22:49
Speaker 4: a single FED member.
22:50
Speaker 5: Because, guess what, the evidence doesn't back that up, that
22:52
Speaker 5: they're sufficially restrictive, because inflation moved in the wrong direction,
22:55
Speaker 5: and increasingly people are saying that the three insurance cuts
22:57
Speaker 5: you last year were a mistake, and that act we
23:00
Speaker 5: old some of the incredible run up and some of
23:01
Speaker 5: the memory chip names.
23:03
Speaker 4: Victori Fana as a crossmok joins us now for more Victoria,
23:05
Speaker 4: welcome to the program. Is it time to take back
23:08
Speaker 4: some of the insurance we took out last year with
23:10
Speaker 4: three cuts and the year before with interest rate cuts
23:13
Speaker 4: then too, Yeah.
23:15
Speaker 8: Jonathan, I actually thought that's why we might actually see
23:17
Speaker 8: a rate hike today, and that was going to be
23:19
Speaker 8: the explanation for it. Not that they were concerned about
23:23
Speaker 8: longer term inflation. They were going to be looking through
23:25
Speaker 8: the Middle East, through oil, all of that. I think
23:28
Speaker 8: that the concern was going to say, or the explanation
23:31
Speaker 8: was going to be, we're just taking off some of
23:33
Speaker 8: that accommodation from last year that wasn't really necessary. I
23:36
Speaker 8: wouldn't be surprised if that's part of the explanation they
23:40
Speaker 8: use at the September meeting, if they decide to hike then,
23:43
Speaker 8: but I definitely think it's part of that story. It's
23:45
Speaker 8: part of where is neutral rate. It's part of the
23:48
Speaker 8: concept that maybe we are not as restrictive as a
23:50
Speaker 8: lot of people think we are. All of that goes
23:53
Speaker 8: together to tell us we probably have a rate hike coming.
23:55
Speaker 5: Victoria. Or you're in the heart of oil land in
23:57
Speaker 5: the United States, you're in Houston and it's a huge
24:00
Speaker 5: boon going on, and I'm looking at the earnings coming
24:02
Speaker 5: from the oil sector and they're doing wonderfully. It's been
24:05
Speaker 5: both yes, penalization for some consumers, but on the flip side,
24:09
Speaker 5: it's only adding to some of the robustness that oil
24:11
Speaker 5: prices have gone up to such degree. How much do
24:13
Speaker 5: you agree with what we've heard from some regional FED presidents,
24:17
Speaker 5: which is that companies are asking for action as they
24:20
Speaker 5: see both the momentum increase in tandem with prices.
24:25
Speaker 6: Yeah.
24:25
Speaker 8: You know, Lisa, it's an interesting topic because you always
24:29
Speaker 8: have people when oil prices come down, they want to
24:32
Speaker 8: know why they're not, you know, moving fast enough to
24:35
Speaker 8: bring oil prices down. And yet at the same time
24:37
Speaker 8: they want to know why these oil companies aren't investing
24:40
Speaker 8: more cash, Why aren't they drilling more, Why aren't they
24:42
Speaker 8: doing more things? And they have to have the free
24:45
Speaker 8: cash flow to do that, and I know their balance
24:46
Speaker 8: sheets are really strong right now. Energy is the best
24:49
Speaker 8: performing sector that we've seen so far this year, So
24:53
Speaker 8: I think there's an element here that the energy companies
24:56
Speaker 8: are really kind of sitting on their hands a little
24:59
Speaker 8: bit because they know that when the Middle East conflict
25:02
Speaker 8: is resolved, they're going to see that drop in prices.
25:05
Speaker 8: Look how quickly we saw prices come down almost what
25:08
Speaker 8: twenty five to thirty dollars a barrel for Brent and
25:11
Speaker 8: WTI when we had the memorandum of understanding, and we've
25:14
Speaker 8: seen it go back up in the last few days.
25:16
Speaker 8: I do think there's going to be a lot of
25:17
Speaker 8: volatility here. Earnings are actually expected to come down the
25:22
Speaker 8: rest of the year when you're looking at the energy sector,
25:24
Speaker 8: So I would be careful here. They're doing really well
25:27
Speaker 8: right now. I think it's a great long term holding
25:29
Speaker 8: to have in your portfolio, but I do think the
25:32
Speaker 8: energy companies are going to be a little bit cautious here, Victoria.
25:35
Speaker 4: Look how limited the runny was in bonds when we
25:37
Speaker 4: had that correction. Include It tells me that the outlook
25:41
Speaker 4: for rates is not that dependent on the path for royal.
25:45
Speaker 4: Is that a fair assumption of fact conclusion?
25:48
Speaker 8: I think it's a pretty fair assumption, Jonathan, because actually
25:51
Speaker 8: I think what the bond market is looking at is saying,
25:53
Speaker 8: wait a minute, yes we have this oil component, and
25:57
Speaker 8: it's making the headline numbers come down quite negatively. When
26:00
Speaker 8: we're looking at inflation reports, but the core and the
26:03
Speaker 8: super core where it's not included, we're actually seeing some
26:07
Speaker 8: still moves higher in those elements. So to me, that's
26:11
Speaker 8: the key question to this FED. How are we going
26:14
Speaker 8: to measure how much some of these shocks that you
26:16
Speaker 8: want to look through are actually seeping down into the
26:20
Speaker 8: economy as a whole. They say, the economy is expanding
26:22
Speaker 8: at a solid pace, but how long if we keep
26:25
Speaker 8: seeing pressures come in at that point? So I think
26:27
Speaker 8: the bond market is more concerned around that, more concerned
26:30
Speaker 8: around deficit spending, around money supply, not so much around
26:34
Speaker 8: oil price changes.
26:36
Speaker 4: Victoria, it's going to see you. I appreciate your time
26:38
Speaker 4: as always, Victoria Fernandez. There of crossmud going in on
26:41
Speaker 4: this FED decision. Equities this afternoon still negative by zero
26:44
Speaker 4: point five on the S and P five hundred in
26:46
Speaker 4: the bond market, twos, tens and thirty shaping up as
26:48
Speaker 4: follows twos yields down just a single basis point right now,
26:51
Speaker 4: twos around four twenty eight. Framing matters these three descents,
26:56
Speaker 4: What are the character what is the character of each
26:58
Speaker 4: individual descent? What will they say in the coming weeks
27:01
Speaker 4: in their statements? Is this about taking back the insurance
27:04
Speaker 4: they took out last year and the year before, or
27:06
Speaker 4: is it more than just that.
27:07
Speaker 5: Well, they were all indicated about taking back the insurance
27:10
Speaker 5: from last year, and they've all talked about the price
27:13
Speaker 5: pressure that consumers are feeling and that they're hearing, even
27:15
Speaker 5: from companies that said, my question is about the others
27:19
Speaker 5: and who's going to potentially join them at a time
27:21
Speaker 5: of incredibly volatile inflation, And is the volatility and inflation
27:24
Speaker 5: enough to actually get them more concerned that they need
27:27
Speaker 5: to make a move and take a step there.
27:28
Speaker 3: In defense of Chairman Warrish, we're all going to be
27:31
Speaker 3: waiting on the data now. I mean the data is
27:34
Speaker 3: incredibly important. Through Jackson hole under the next week.
27:37
Speaker 4: You're curious case of this particular meeting Tacres that we
27:39
Speaker 4: looked at the data and it was sefter than expected
27:41
Speaker 4: on CPI and PPI and it was a feeling that
27:44
Speaker 4: we would move on. And we sat around this table
27:46
Speaker 4: at the time when the data dropped on Bluebeck Savants
27:49
Speaker 4: on Blueback TV on that very morning, sat there with
27:51
Speaker 4: you and we both said the same thing. It removes
27:53
Speaker 4: the urgency to hike. It won't kill the story. The
27:55
Speaker 4: debate continues, and the debate does continue even this afternoon,
27:58
Speaker 4: and now we're talking about September and maybe Septembers the day,
28:01
Speaker 4: and this is the direction of travel. Story just won't
28:03
Speaker 4: go away.
28:04
Speaker 5: Take a look at earnings. Earnings have been on fire.
28:07
Speaker 5: And it's not just in the tech sector, it's across
28:09
Speaker 5: the board. The equal weights up performing also because of
28:11
Speaker 5: a fundamental kind of bleed.
28:13
Speaker 4: Up and regional banks in this country.
28:15
Speaker 5: I mean, really, it's something that's more significant, so sufficiently restrictive.
28:19
Speaker 5: If you're looking at crimp growth in any capacity or
28:21
Speaker 5: looking for a slowdown, it's not happening.
28:23
Speaker 4: Well, what I was going to say, final word, but
28:25
Speaker 4: you might be sticking around. I have no idea how
28:26
Speaker 4: this news conference will be, but give us a final
28:28
Speaker 4: thought on what you'll be looking for through what is
28:31
Speaker 4: not a sleepy summer.
28:32
Speaker 1: I think the Fed got it right today so far.
28:35
Speaker 1: We'll see if there's a press conference in what gets
28:37
Speaker 1: up or not. I'm particularly glad with the fact that
28:42
Speaker 1: they've listed the three dissenters. Let's assume that the vote
28:47
Speaker 1: had been seven to five in favor of a rate hike.
28:50
Speaker 1: By listing the five dissenters, we would know the seven
28:53
Speaker 1: people who voted for a rate hike, and we'd sit
28:56
Speaker 1: there and go, we got two or three, Where did
28:58
Speaker 1: the other four or five come from? What were they
29:01
Speaker 1: looking at? They didn't say any of this two weeks ago.
29:04
Speaker 1: What changed their mind is at all emotion, and I
29:07
Speaker 1: think that's a great regulator to a central bank and
29:11
Speaker 1: prevents them from just acting on emotion.
29:13
Speaker 4: Well, Michael at JP Morgan Asset Management, Bob, thank you.
29:16
Speaker 4: Might be back within five or ten minutes time. This
29:18
Speaker 4: news conference is about to begin. In about sixty seconds
29:21
Speaker 4: from now, a newly minted FED check Kevin Walsh, will
29:23
Speaker 4: appear for his second press conference. Widely criticized last time around,
29:27
Speaker 4: not for his refusal to offer forward guidance that's gone,
29:30
Speaker 4: We've moved on, but his refusal to articulate his so
29:33
Speaker 4: called reaction function. I think three dissenters of the FED
29:36
Speaker 4: have been pretty clear about how they think about the
29:38
Speaker 4: incoming data and where they think policy should be.
29:40
Speaker 5: I think Mike's question earlier is a really important one.
29:43
Speaker 5: How do you consider oil and how potentially does the
29:46
Speaker 5: increase in prices affect your view? Considering it does tend
29:49
Speaker 5: to be a one time shock, but when you have
29:51
Speaker 5: rolling shocks, there is another type of dynamic that takes hold,
29:55
Speaker 5: and that is what we've seen.
29:56
Speaker 4: I'm not a big gambler. In fact, I'm against betting,
29:58
Speaker 4: but we'll ask this question, how many trading flows right now?
30:01
Speaker 4: Do you think of taking bets about how long this
30:02
Speaker 4: news conference will be? Oh with Kevin Walsh.
30:05
Speaker 5: I think that's the question. I think we're taking bets
30:07
Speaker 5: right now because we're trying to figure out for programming reasons,
30:09
Speaker 5: we're gonna have to book out rush number. I think
30:11
Speaker 5: it's going to be. I think it's going to be
30:13
Speaker 5: forty five minutes and seconds.
30:14
Speaker 4: Bramot forty five and how many seconds?
30:17
Speaker 5: Forty five and thirty two seconds?
30:19
Speaker 4: You planned this game.
30:20
Speaker 3: I'm not playing this game. I think you watching Kelsey
30:22
Speaker 3: Barrow at JP Morgan with k Here. They're all around
30:25
Speaker 3: the terminals, you know, betting here.
30:27
Speaker 4: They're probably wants running the book at JP mooret.
30:30
Speaker 3: Yeah, I think she's running the book. They're probably in
30:32
Speaker 3: a bar over at they're New dis Skyscraper