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Instant Reaction: The Fed Decides · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:12
Speaker 2: With your fet decision, He's Mike mckag two dots, no
0:16
Speaker 2: rate move.
0:17
Speaker 3: The median of the nineteen Fed officials projection for rate
0:20
Speaker 3: cuts this year moves to two from three in March.
0:24
Speaker 3: Policymakers are quite divided, however, eight members seat just two
0:28
Speaker 3: cuts this year, seven set only one for vote no change.
0:33
Speaker 3: They now have four penciled in for twenty twenty five,
0:37
Speaker 3: although the range is so wide it's almost meaningless. The
0:42
Speaker 3: neutral rate also moves up the media, now two point
0:45
Speaker 3: eight percent from two point six percent, although they don't
0:48
Speaker 3: get there until after twenty twenty six. Nine members see
0:52
Speaker 3: neutral as three percent or higher, one as high as
0:56
Speaker 3: three point seven five percent. The fedce target range stays
1:00
Speaker 3: in the range of five and a quarter to five
1:03
Speaker 3: and a half percent. No change in the two point
1:06
Speaker 3: one percent GDP projection for twenty twenty four, two percent
1:10
Speaker 3: for next year. No change in the four percent unemployment
1:13
Speaker 3: forecast for this year, though twenty twenty six moves up
1:16
Speaker 3: a tick from March to four point two percent. It's
1:20
Speaker 3: PCEE inflation where we see the biggest change in the
1:23
Speaker 3: forecasts headline of two point six this year, up from
1:26
Speaker 3: two point four percent in the March. Projections next year
1:29
Speaker 3: to three from two two. Corps PCEE is forecast at
1:34
Speaker 3: two point eight percent this year, up from two point
1:37
Speaker 3: six percent next year, also two point three from two
1:40
Speaker 3: point two. Inflation was the only significant change in the
1:44
Speaker 3: statement following today's better than expected CPI. The statement now
1:48
Speaker 3: says in recent months there has been modest further progress
1:52
Speaker 3: toward the committee's two percent inflation target.
1:55
Speaker 4: The decision was unanimous. Mi McKay.
1:58
Speaker 2: Thank you, sir. If you were looking for five works
2:00
Speaker 2: in financial markets, you missed it all. It happened about
2:02
Speaker 2: six hours ago at eight thirty Eastern time, and the
2:05
Speaker 2: equity market. Some of these, most stick on the S
2:07
Speaker 2: and P five hundreds, still positive by about zero point
2:10
Speaker 2: nine percent on the Nasna Cup by Malvin one four
2:12
Speaker 2: percentage point to Yale to Lisa, just off the loads
2:15
Speaker 2: of the session, but still down twelve or thirteen basis
2:17
Speaker 2: points to four seventy on a two year.
2:20
Speaker 5: There's nothing that would really shake up what we saw earlier.
2:22
Speaker 5: It is interesting, though, that they did increase their expectation
2:25
Speaker 5: for crow PCE inflation to two point eight percent versus
2:28
Speaker 5: two point six percent, and it raises a question about
2:31
Speaker 5: the idea of are they tacitly allowing inflation to go
2:34
Speaker 5: be two point something to Muhammadalarian's point, rather than exactly
2:38
Speaker 5: two percent as they allow this to happen even with
2:41
Speaker 5: two potential rate cuts baked in TK what's your takeaway?
2:45
Speaker 6: My takeaway here is at eight thirty was really really important,
2:48
Speaker 6: and it moves us right onto all the other economic data,
2:51
Speaker 6: and I go back to economic growth and there is
2:53
Speaker 6: a surprise this year that we get more buoyant economic
2:56
Speaker 6: growth than a lot of the gloomen grews talking about.
2:58
Speaker 2: Want to get back over to my MAAC might just
3:00
Speaker 2: briefly just work through that again for us, Explain to
3:03
Speaker 2: us where that median dot is. We were looking for
3:05
Speaker 2: three cuts in the median dot last time around. Where's
3:08
Speaker 2: that median doll for twenty four?
3:09
Speaker 3: Now the median dot is at two cuts for twenty
3:14
Speaker 3: twenty four for twenty twenty five, but the range has
3:19
Speaker 3: narrowed considerably but still broad because there are at this
3:24
Speaker 3: point eight members seeing two cuts this year, so that
3:27
Speaker 3: makes it the median seven saw only one and four
3:31
Speaker 3: voted for no change, so they seem quite divided, which
3:35
Speaker 3: would suggest that at this point there is no consensus
3:38
Speaker 3: on the committee about what's going to happen the rest
3:41
Speaker 3: of this year.
3:41
Speaker 2: Mike McKay, Thank you, sir. Mike mcke will be in
3:44
Speaker 2: that news conference in about twenty seven minutes time when
3:46
Speaker 2: it kicks off with Sham and poal from any any
3:48
Speaker 2: questions for Cham and Powell in this press are based
3:50
Speaker 2: on that.
3:51
Speaker 1: Uh yeah, I do.
3:53
Speaker 5: Number one, how long will you tolerate inflation above two percent?
3:56
Speaker 5: How quickly is an okay pace to move to get
3:58
Speaker 5: inflation down? And the second thing I'm still thinking about this.
4:01
Speaker 5: One participant had a new neutral rate proposal of three
4:05
Speaker 5: point seventy five percent.
4:07
Speaker 1: That's pretty bold.
4:08
Speaker 5: I mean it's pretty much in line with my marketsar
4:09
Speaker 5: for three and a half percent. Nonetheless, that resets a
4:13
Speaker 5: lot of questions about market valuations that maybe on the margins,
4:16
Speaker 5: could really change investment pieces.
4:19
Speaker 2: Joining us now to discuss is Mohammad al Aaron of
4:21
Speaker 2: Queen's College, Cambridge, Bob Michael, JP Morgan still around the
4:24
Speaker 2: table with us. Mohammed, I want to come to you
4:26
Speaker 2: first if you want these forecasts based on what we
4:28
Speaker 2: learned early this morning at eight thirty Eastern time.
4:32
Speaker 7: So I wonder John whether those forecasts fully reflect this
4:36
Speaker 7: morning or whether were they were finalized before this morning.
4:41
Speaker 7: I was surprised to hear that four voted for no cuts,
4:45
Speaker 7: and I was surprised to see the inflation numbers go
4:48
Speaker 7: up both for the PC, both at headline and core.
4:54
Speaker 4: So only the one question I would have.
4:56
Speaker 7: For Chairman Powell is do those numbers and the expectations
5:01
Speaker 7: that four people had of Norway shots reflect this morning's
5:04
Speaker 7: inflation data or not.
5:07
Speaker 6: Mohammed timekeen good morning and a good afternoon. I should
5:10
Speaker 6: say good late afternoon and evening to you somebody today,
5:14
Speaker 6: echoed Peter or Zeg A long time ago of LS
5:18
Speaker 6: at a school. Mohammadself west of Cambridge, and Peter Orzeg
5:23
Speaker 6: talked about glide pass.
5:24
Speaker 4: Is our great underestimation.
5:27
Speaker 6: That the glide pass to get out of the pandemic
5:29
Speaker 6: with all this monetary policy is a much longer timeframe
5:33
Speaker 6: than we think. We're modeling FED meeting, the FED meeting,
5:37
Speaker 6: the silliness of September and December, where we should be
5:40
Speaker 6: modeling twenty twenty seven.
5:44
Speaker 7: We shot Tom and I've been urging to combine data
5:48
Speaker 7: dependency with more of a forward looking view of the economy.
5:53
Speaker 7: But that's not where the FED is, and as a result,
5:56
Speaker 7: that's not where the markets are. The markets are reacting
6:00
Speaker 7: to every single data point in the last month, just
6:03
Speaker 7: the last month, teny yields went up thirty basis points,
6:06
Speaker 7: came back down forty basis points, went back up twenty
6:08
Speaker 7: basis points, and came back down forty basis points. And
6:12
Speaker 7: what you realize is that there's no anchor. There's no
6:15
Speaker 7: longer term anchor to markets, and there's no longer term
6:18
Speaker 7: anchor to policies. We should be talking about the big
6:22
Speaker 7: secular changes and how that's going to impact the next
6:26
Speaker 7: twelve months, but that's not where the FED is, and
6:29
Speaker 7: therefore that's not where the markets are right now.
6:32
Speaker 5: I wonder how significant it is to Muhammad that we
6:35
Speaker 5: did see at least one participant materially mark up their
6:38
Speaker 5: long term neutral rate. As people try to understand what
6:42
Speaker 5: this means longer term.
6:43
Speaker 1: For what a FED rate cutting path could look.
6:45
Speaker 4: Like, it's about time.
6:48
Speaker 7: I mean, you know, there is a very active discussion
6:52
Speaker 7: of what's happening in the structure of the economy and
6:55
Speaker 7: why it is that the neutral weight is well above three,
7:00
Speaker 7: nearer to four. But the FED is moving very slowly
7:04
Speaker 7: on this, and FED chair Pale has refused to engage
7:08
Speaker 7: in discussions, either saying I don't care about it or
7:12
Speaker 7: I don't have a view about it. So yeah, it's
7:15
Speaker 7: about time they're going to have to really think about this.
7:17
Speaker 7: But again, Lisa, that is a forward looking parameter, and
7:21
Speaker 7: this is a FED that focuses excessively on the past
7:26
Speaker 7: and doesn't want to signal much about what's ahead.
7:30
Speaker 2: So if you are just joining us, welcome to the program. Equally,
7:32
Speaker 2: is still firmer by zero point nine percent on the
7:34
Speaker 2: S and P five hundred, we were hired by more
7:36
Speaker 2: than one four percentage point. Just ondoing some of the
7:38
Speaker 2: moves in the bond market. On a two year yield,
7:41
Speaker 2: yields are lower still by twelve basis points. They were
7:43
Speaker 2: lower by a little bit more than that earlier on.
7:45
Speaker 2: There was a lot of interest in the medium dot
7:47
Speaker 2: for twenty twenty four. Just want to clarify something that
7:49
Speaker 2: Mike was saying, they're now signaling they expect to cut
7:51
Speaker 2: rates only once this year, compared to the reduction of
7:55
Speaker 2: three which was kind of signaled back in March Bromo.
7:58
Speaker 2: So that's the change we were looking for. Would we
7:59
Speaker 2: come down for two, Well, it's a one. It looks
8:01
Speaker 2: like we've come down to one. But twenty twenty five
8:03
Speaker 2: kind of makes up for some of that in some way.
8:05
Speaker 5: Which is what some people were saying, is that you
8:07
Speaker 5: just basically push it out the following year, which is
8:09
Speaker 5: why it might not have been a massive deal. There
8:11
Speaker 5: was a big question before this whether or not it
8:14
Speaker 5: would matter to markets on the margins. Maybe you take
8:16
Speaker 5: back some of the gains in certain bonds right now,
8:19
Speaker 5: nonetheless not.
8:20
Speaker 1: A huge shift when you look at the overall cutting cycle.
8:23
Speaker 6: Well, Michael, I've got the ten year yield just touching
8:25
Speaker 6: two standard deviation move it's not a big deal. Four
8:28
Speaker 6: point two eight percent and gyrating around. What level of
8:33
Speaker 6: ten year yield do you need to really signal, to
8:36
Speaker 6: use Bullet's word, a new regime.
8:40
Speaker 8: It's not so much the ten year yield as the
8:42
Speaker 8: front end of the curve. I think the front end
8:45
Speaker 8: of the curve, you've got to see the Fed start
8:48
Speaker 8: cutting rates and then the front end start coming down
8:52
Speaker 8: towards four percent. I think that will pull the ten
8:55
Speaker 8: year down as well a little bit, but there's an
8:58
Speaker 8: awful lot into ten year part of the year.
9:02
Speaker 4: It's an unfair question.
9:03
Speaker 6: I'm going to ask you to speak for Michael Ferolian
9:05
Speaker 6: Kasman and the other economists at JP Morgan. Do they
9:09
Speaker 6: do harm to the American economy by being expost and delaying?
9:15
Speaker 6: What would your economists say?
9:17
Speaker 8: They do no harm to anyone? That I'm pretty sure of. Look,
9:22
Speaker 8: I think when you look at market movements, you have
9:26
Speaker 8: to understand that there are different constituencies that are involved.
9:31
Speaker 8: We talk to a lot of very large plans that
9:34
Speaker 8: are waiting for the Yeald curve to disinvert because based
9:38
Speaker 8: on their investment analytics, it doesn't make sense for them
9:41
Speaker 8: to come out of cash into the longer end of
9:44
Speaker 8: the curve. There are other buyers out there that are
9:47
Speaker 8: looking to part cash into safe dollar assets. So they're
9:52
Speaker 8: big dollar buyers. They want to own the dollar, and
9:56
Speaker 8: treasuries are the largest, most liquid way to do that.
10:00
Speaker 5: I have to say, I'm right now, I'm parsing through
10:01
Speaker 5: the statement and all the details, and it's a confusing one,
10:04
Speaker 5: so let's just go over it.
10:05
Speaker 1: Four FED officials see no rate cuts this year.
10:08
Speaker 5: That is up from two officials in the March production,
10:10
Speaker 5: so that is a more hawkish tilt. Seven C one cut, well,
10:14
Speaker 5: eight C two cuts. Honestly, we're looking at right now
10:17
Speaker 5: a narrow majority seeing no more than one cut this
10:19
Speaker 5: year is a base case this according to the statement.
10:23
Speaker 5: I'm looking at this and I'm wondering, John, all the
10:25
Speaker 5: people who said this would be some kind of massive shift.
10:28
Speaker 1: It isn't being taken.
10:29
Speaker 5: That way by the market as people pass through the
10:32
Speaker 5: longer term expectations for what the Fed hopes to accomplish
10:35
Speaker 5: and where the balance of risk is.
10:36
Speaker 2: Because we had a soothing number eight thirty Eastern time,
10:39
Speaker 2: I think that's kind of the takeaway, Is that, right, Boff?
10:41
Speaker 8: Yeah, I think so. It's what I started with. This
10:44
Speaker 8: is what you look for in the numbers. If there
10:46
Speaker 8: are a lot of people clustered around one dot, then
10:49
Speaker 8: they don't change their projections after the number they've submitted them.
10:53
Speaker 8: They let them go. The fact that there were four
10:56
Speaker 8: with no change, seven withth one dot, and only eight
11:00
Speaker 8: with two dots two rate cuts tells me that they
11:03
Speaker 8: submit them, they don't do anything. The statement's completely different.
11:07
Speaker 8: This statement talks about modest progress, continue to continues to
11:11
Speaker 8: be made on inflation.
11:13
Speaker 2: Let's get Mi McKay back into the conversation before Mike goes.
11:15
Speaker 2: Since that news conference, Mike, just to clarify some of
11:17
Speaker 2: the comments you had earlier.
11:18
Speaker 4: Your thoughts, well, I misspoke.
11:23
Speaker 3: One cut is themedian dot this year for this year,
11:27
Speaker 3: but it is, as you say, come somewhat confusing because
11:31
Speaker 3: of the way they do it. But looking out over
11:34
Speaker 3: the course of the year, the question is when do
11:36
Speaker 3: they do it because their PCE projection is basically for
11:40
Speaker 3: the year where PCE is now, So that's going to
11:43
Speaker 3: be a question for j Powell in his news conference.
11:46
Speaker 2: Mike, you get into the pressor thanks for your time, sir,
11:49
Speaker 2: happens to all of us, looking forward to your conference.
11:50
Speaker 2: In that news conference with Chairman Powell. A little bit later,
11:53
Speaker 2: Don Swunk is with us from KPMG. I want to
11:55
Speaker 2: bring her into the conversation. Mohammed's still with us, Bob,
11:58
Speaker 2: Michael as well. Dan, You've had about fifty minutes, ten
12:00
Speaker 2: minutes soside to go out of these numbers. What jumps
12:02
Speaker 2: out for you, Well.
12:05
Speaker 9: Certainly the upward rise in inflation. I was surprised at
12:08
Speaker 9: I expected them to mark down inflation a little bit
12:11
Speaker 9: so that is one that I think Mohammad also flagged.
12:14
Speaker 9: But I think what's important is we know that they've
12:17
Speaker 9: delayed the putting marking down of their dots on the
12:21
Speaker 9: dot plot, and that has become more of an iterative
12:24
Speaker 9: process to reflect more of a consensus of what they
12:28
Speaker 9: do talk about at the meeting. So I'm not sure
12:30
Speaker 9: that there's the dissonance there that we'd like to some
12:33
Speaker 9: would like to see in those numbers between today's data.
12:37
Speaker 10: And those actual dots.
12:38
Speaker 9: I think what it probably did was took out of
12:41
Speaker 9: play some people who might have had hikes in their
12:44
Speaker 9: interest rate scenario for twenty twenty four that then moved
12:48
Speaker 9: them to the zero portion those four people who voted
12:52
Speaker 9: for no change in rates. But I think that's very
12:54
Speaker 9: important is that the FED has also been very careful
12:57
Speaker 9: not to declare victory, as Julia said at the beginning
13:00
Speaker 9: at the end of the last show, and I think
13:02
Speaker 9: that's really important. They don't go out and say mission accomplished.
13:06
Speaker 9: They are very deliberative right now in terms of not
13:09
Speaker 9: getting too far ahead of themselves until the data comes
13:12
Speaker 9: to them.
13:13
Speaker 2: Now.
13:13
Speaker 9: I disagree that that's sort of neutral and doesn't cause
13:17
Speaker 9: any harm data dependence. The data are lagged, and so
13:21
Speaker 9: by the time the data comes to you, even if
13:23
Speaker 9: you're willing to settle in to a higher rate, ultimately
13:27
Speaker 9: it's still lagged, and it could be after the fact.
13:29
Speaker 9: And I think that's what you see in terms of
13:32
Speaker 9: the nervousness with j.
13:33
Speaker 10: Powell, because he worries much.
13:35
Speaker 9: More than some of his colleagues about overtightening.
13:38
Speaker 6: Dan swank I look at where we are and what
13:40
Speaker 6: the key thing is is, Bob Michael said, is we're
13:42
Speaker 6: beyond the first quarter of this year, the lethargy, the
13:46
Speaker 6: slow down, maybe some of the fear of the first quarter.
13:49
Speaker 6: What does your take on the state of the American
13:51
Speaker 6: economy is they stagger to September and December.
13:57
Speaker 9: Well, we're still in an economy that's generating a lot
13:59
Speaker 9: of jobs. You know, the household survey and the establishment
14:03
Speaker 9: survey aren't quite syncd up. They haven't been synced up
14:06
Speaker 9: for a long time, in part because we're undercounting the
14:09
Speaker 9: number of immigrants in the country and that's not fully
14:12
Speaker 9: showing up in the.
14:13
Speaker 10: Household survey as well.
14:15
Speaker 9: But we do know that we continue to generate jobs,
14:18
Speaker 9: we continue to generate paychecks, and if the last month's
14:21
Speaker 9: report is to be believed, and we have to be
14:24
Speaker 9: careful on that that we actually saw on acceleration in wages,
14:27
Speaker 9: that's something to sort of, I think, take with a
14:30
Speaker 9: grain of salt. But at the end of the day,
14:32
Speaker 9: this is an economy that for the moment is still
14:35
Speaker 9: hanging in there, although slowing from what was a stunning
14:39
Speaker 9: pace in twenty twenty three.
14:42
Speaker 5: Mohammed, I'd love to bring you back in here. I'm
14:44
Speaker 5: just going through all the different statements and this is
14:46
Speaker 5: a mess. I mean, in terms of all the different views.
14:49
Speaker 5: This is not a consensus that you could see that
14:51
Speaker 5: was easily reached.
14:52
Speaker 1: Maybe there it is for right now, but later.
14:54
Speaker 10: In this year.
14:55
Speaker 5: What the balance of risks here really is all over
14:58
Speaker 5: the map when it comes to the different Fed officials.
15:01
Speaker 5: Do you think that there is too much hawkish talk
15:04
Speaker 5: right now and too much hawkish projections at a time
15:07
Speaker 5: when it seems like the Fed is saying we still
15:09
Speaker 5: haven't done enough. We want to get to two percent
15:11
Speaker 5: a little bit sooner, even as we acknowledge this is
15:13
Speaker 5: going to.
15:13
Speaker 1: Be a battle.
15:15
Speaker 7: Yeah, I think if you were to take the SEP
15:18
Speaker 7: and the statement on face fully, on face value, this
15:22
Speaker 7: would be an overly hawkish policy.
15:25
Speaker 4: Stand for this economy.
15:28
Speaker 7: Among the other things, the fact that we are now
15:32
Speaker 7: at one cut means that given that the FED will
15:36
Speaker 7: not want to stop go stop go cycle, that means
15:41
Speaker 7: that cut comes late in the year, very late in
15:43
Speaker 7: the year. And I agree with Diane, it does matter
15:46
Speaker 7: when you start the cutting cycle. It really does matter.
15:50
Speaker 7: It matters for small businesses, it matters for low income households,
15:55
Speaker 7: and it matters for the economy. So if you were
15:58
Speaker 7: to take this at face value, then this the market
16:02
Speaker 7: would be selling off right now.
16:03
Speaker 4: But it's not for good reason.
16:05
Speaker 7: And that's what I said earlier and Bob mentioned it
16:08
Speaker 7: as well, is I don't think this fully reflects the
16:11
Speaker 7: latest set of data. And given that this is data
16:14
Speaker 7: the dependent FED. If this had if the data had
16:17
Speaker 7: happened yesterday or the day before, the S and P
16:20
Speaker 7: would look very different than it is today. And that's
16:23
Speaker 7: why the press conference is going to be so critical.
16:25
Speaker 7: And that's why Chap Pak can I'll do what Bob
16:28
Speaker 7: wanted him to do half an hour ago, because he's
16:31
Speaker 7: really going to have to explain things now.
16:33
Speaker 2: There's a mammad based on this, based on the guardnance
16:35
Speaker 2: we've got in our hands. At the moment, it sounds
16:37
Speaker 2: like December. Are you telling me, by the time this
16:39
Speaker 2: news conference had finishes, it will sound like September. I
16:43
Speaker 2: suspect so, John, Bob, you agree with that, don't you?
16:46
Speaker 8: Yeah, I completely agree with that. And I think Diane
16:49
Speaker 8: and Muhammad point out a very important thing, which are
16:52
Speaker 8: the long and variable lags are real when we look
16:55
Speaker 8: at lower and middle income households, when we look at
16:59
Speaker 8: small business is they're struggling with the high cost of everything.
17:03
Speaker 8: They're struggling with the much higher cost of financing those
17:07
Speaker 8: higher prices, and you're seeing it in delinquencies. You're seeing
17:11
Speaker 8: it in charge offs and write downs and losses.
17:17
Speaker 5: Right now, I'm looking at some of the commentary, some
17:19
Speaker 5: people saying that the reason why there was a hawkish
17:20
Speaker 5: tilt was because of PTSD from the first quarter. Diane,
17:24
Speaker 5: I'd love to think your take on this, you think,
17:26
Speaker 5: and not to be all conspiracy theorists, but do you
17:28
Speaker 5: think that any FED officials thought to themselves, you know,
17:31
Speaker 5: we should probably be hawkish just to offset the inevitably
17:34
Speaker 5: dubvish message that we're going to get from FED chair
17:36
Speaker 5: Powell later today and we can frankly offset that later
17:38
Speaker 5: in this year if the data comes in such.
17:42
Speaker 9: Well, I know, I don't think that's the case, just
17:45
Speaker 9: because I just don't think they think that far ahead
17:47
Speaker 9: on this, and I think that's important.
17:50
Speaker 10: I do think that part of what we're seeing here is.
17:53
Speaker 9: Yes, they did go in to this meeting with a
17:56
Speaker 9: hawkish tilt and then in the data surprise, but we
17:59
Speaker 9: know that, you know, Chair Paul has really changed the
18:02
Speaker 9: dynamics of the SEP and I'm just surprised that given
18:06
Speaker 9: the timing of when they write this down, and you know,
18:08
Speaker 9: the FED had this data. A lot of the FED
18:10
Speaker 9: had this data last night, so they've been looking over it,
18:13
Speaker 9: you know, and came in strong with how they're going
18:16
Speaker 9: to talk about it in the morning. And I think
18:18
Speaker 9: they still have members of the board itself that would
18:21
Speaker 9: have gotten the data that would have said, you know, hey,
18:24
Speaker 9: we're still on the sidelines here or one cut and
18:27
Speaker 9: that's it. So I think that's an important way to
18:29
Speaker 9: be thinking about where they're at about what they think
18:32
Speaker 9: they need to be convinced on inflation coming down, not
18:36
Speaker 9: to get to two percent, to cut before they get there,
18:39
Speaker 9: but how much they need to be convinced.
18:41
Speaker 10: That's a lot, and I think they've set.
18:43
Speaker 9: That bar pretty high, and it's because they have been
18:46
Speaker 9: headfaked in the past. That doesn't mean we couldn't see
18:49
Speaker 9: some big improvement and get to a September cut. But
18:52
Speaker 9: I think we need a lot of improvement from here
18:55
Speaker 9: for the FED to feel convinced to do a September cut.
18:57
Speaker 2: Suddenly, this news conference in twelve minutes got a lot
19:00
Speaker 2: more interesting. Dan Swank of KPMG Dan, thank you as
19:03
Speaker 2: always if you are just tuning in and you miss
19:05
Speaker 2: the FED decision took place about eighteen minutes ago. Rates
19:08
Speaker 2: unchanged as expected. Be focused on the median dot. Basically,
19:12
Speaker 2: all the FED officials get together, they plot where they
19:14
Speaker 2: think rates should be will be for twenty four to
19:16
Speaker 2: twenty five and beyond. You take the median dot and
19:18
Speaker 2: a lot of people on Wall Street see that as
19:20
Speaker 2: a signal of how many times they get a cut
19:22
Speaker 2: in any given year. That median dot was at three
19:25
Speaker 2: cuts for this year, it's come all the way down
19:27
Speaker 2: to one. Worth noting though, that they now see four
19:30
Speaker 2: cuts in twenty twenty five, more than the three that
19:33
Speaker 2: they previously outlined. So they've pushed some of that into
19:35
Speaker 2: next year. But the range of views, I think the
19:38
Speaker 2: median marks are very, very divide. FED and Lisa did
19:41
Speaker 2: a fantastic job with that a little bit earlier, really
19:44
Speaker 2: explaining at least so that four policymakers see no cuts
19:47
Speaker 2: this year, seven anticipate just one reduction, eight are looking
19:50
Speaker 2: for two. That's a federal reserve that's all over the place,
19:53
Speaker 2: and that really.
19:54
Speaker 5: Does have at least half of it a really hawkish
19:57
Speaker 5: tilt right now at a time when other people are saying, you.
20:00
Speaker 1: Know, we'll do it for the FED. Mission accomplished.
20:02
Speaker 5: So it raises this question at this point, what is
20:05
Speaker 5: keeping them from really going all in on the immaculate disinflation?
20:08
Speaker 5: Is it just PTSD from Q one and we'll all
20:10
Speaker 5: of the sort of questions that people have around the
20:12
Speaker 5: hawkishness just disappear in the wake of the bomb that
20:16
Speaker 5: Jap Pwett tends to bring us.
20:17
Speaker 2: Mike Cape and a Bank of America is with us
20:19
Speaker 2: now for more. Mike Gape and I was sharing your
20:21
Speaker 2: words a little bit earlier, that quote from you, one
20:24
Speaker 2: giant leap for the FED. Then I explained that you
20:26
Speaker 2: still don't think they can't until December, so it's not
20:28
Speaker 2: that big a lead. What do you make of what
20:30
Speaker 2: you've heard in the last twenty minutes or so, Well, if.
20:33
Speaker 11: We thought it was a September or sooner cut, maybe
20:36
Speaker 11: it'd be one giant leap from mankind instead of the FED.
20:40
Speaker 11: Like I think what Bob and Muhammad have been saying here,
20:43
Speaker 11: I think I would I would share, which is I
20:45
Speaker 11: think that data is probably more important than the dots
20:48
Speaker 11: in this case because it is such a data dependent FED.
20:51
Speaker 11: They don't want to take these structural, longer term views,
20:55
Speaker 11: so they'll be reactionary. So maybe that the dots kind
20:57
Speaker 11: of lag what's happening on the ground. Look, I would
21:01
Speaker 11: just characterize all this as an incremental shift and FED,
21:05
Speaker 11: thinking that they were trying to target us to the
21:08
Speaker 11: middle of the air inflation didn't cooperate, so they shifted
21:11
Speaker 11: things back. I would encourage them, like Mohammed is saying,
21:14
Speaker 11: to take some stands on longer term structural views. But
21:19
Speaker 11: I just this is not the FED that we have.
21:23
Speaker 6: Michael, howex post are they? I go back to the
21:25
Speaker 6: Bank of America worker, They're very retired. Ethan Harris's wonderful
21:29
Speaker 6: book Ben Bernanke's fed. Okay, great.
21:32
Speaker 4: Are we still back at.
21:33
Speaker 6: Ben Bernanki or Alan Greenspans fed where they are exceptionally
21:38
Speaker 6: ex post.
21:41
Speaker 11: I don't think so. I think I just think it's
21:43
Speaker 11: a they believe. I think, as you're noting in the dots,
21:46
Speaker 11: there's a wide disparity of views, and sometimes pulling the
21:50
Speaker 11: view out of the median is a fool's air in
21:53
Speaker 11: so it may just be that there's not a lot
21:55
Speaker 11: of structural or agreement about these longer term structural issues,
21:59
Speaker 11: so it's hard for them to be forecast based, and
22:03
Speaker 11: so you just get a plethora of views, and so
22:05
Speaker 11: they throw their arms up and say, fine, there's a
22:07
Speaker 11: lot of uncertainty. The only thing we can trust is
22:09
Speaker 11: the data under our feet. So that's what we'll focus on,
22:12
Speaker 11: for better or worse.
22:14
Speaker 5: Michael, what would be your question to feed share Powell
22:16
Speaker 5: this afternoon?
22:19
Speaker 11: How much was the data this morning reflected in the
22:22
Speaker 11: projections and the dots. If the answers yes, it sounds
22:27
Speaker 11: a little hawkish. If the answers no, then you can
22:30
Speaker 11: make a case for September still being on the board.
22:33
Speaker 11: I think the data could make a September cut viable
22:36
Speaker 11: we just think it all comes together in December. So
22:38
Speaker 11: the dots and the forecast are kind of a mic
22:41
Speaker 11: forecast right now. So I'm pretty pleased with those.
22:44
Speaker 2: Mohammed and Bob, I've got the same thoughts. Let me
22:46
Speaker 2: tell you, Mike Ape at a Bank for America. Thank you, sir, Mohammed.
22:49
Speaker 2: I wanted to come across to you on the forecast,
22:51
Speaker 2: but not on the dots. I wanted to talk about
22:52
Speaker 2: unemployment when they reflect on what we learned on Friday
22:56
Speaker 2: and you were with us working through that payrolls report.
22:58
Speaker 2: Just a difference between the two surveys. How do you
23:00
Speaker 2: think this FMC is navigating that at the moment.
23:04
Speaker 7: I think it's navigating like everybody else, trying to maintain optionality,
23:10
Speaker 7: trying to understand what's going on. And it's not just
23:13
Speaker 7: the employment data. We've had a lot of competing macro data,
23:18
Speaker 7: so you know they're just waiting. I do think there's
23:22
Speaker 7: two things going on. Certainly, the uncertainty is making them
23:27
Speaker 7: data dependent, but there's something else that's making them data dependent.
23:31
Speaker 7: Is what happened in twenty twenty one when they did
23:34
Speaker 7: take a view on inflation. They took a strategic view
23:38
Speaker 7: on inflation and it turned out to be really wrong,
23:42
Speaker 7: and I think they've been burnt and they don't want
23:44
Speaker 7: to go back to that fire anytime soon.
23:47
Speaker 4: So they will not be reconciled trying to reconcile the data.
23:52
Speaker 7: They will not be taking trying to anchor markets and
23:54
Speaker 7: their own thinking with a forward looking view. They're going
23:57
Speaker 7: to continuously react to the latest set of data.
24:02
Speaker 4: And that's what I think you're going to see, which.
24:04
Speaker 1: Could be good and it could be bad.
24:05
Speaker 5: According to you, Mohammed Bab, I'd love to bring you
24:07
Speaker 5: back in at a time when it seems like this
24:10
Speaker 5: is a FED wrestling with itself.
24:11
Speaker 1: The consensus on the top is a mirage.
24:14
Speaker 5: Sure there's consensus not to cut rates at this meeting,
24:17
Speaker 5: but that's pretty much it. What does that signal for
24:20
Speaker 5: you in terms of the clarity of purpose of their
24:23
Speaker 5: policy going forward and how to really navigate around it?
24:27
Speaker 8: Great question. If I were Mike McKee, I'd ask the
24:30
Speaker 8: FED have the Summary of Economic Projections outlive their usefulness?
24:34
Speaker 8: Do they do more harm than good? And if the
24:37
Speaker 8: answer is no, then I'm sitting here. We're told to
24:40
Speaker 8: look at the Summary of Economic Projections and it's reflecting
24:44
Speaker 8: a FED that's confused. And you know what, even if
24:48
Speaker 8: they submitted the projections before the CPI data, one bit
24:55
Speaker 8: of data shouldn't create that much of a change. So
24:59
Speaker 8: this is a can fused FED. What that tells me
25:02
Speaker 8: is the bond market is in the hands of people
25:05
Speaker 8: like me. I don't know what the Fed's thinking. I
25:08
Speaker 8: don't know what they're looking at. I don't know what
25:10
Speaker 8: they're going to do. All I know is current levels.
25:13
Speaker 8: I know are projections of where growth and inflation are
25:16
Speaker 8: headed to. I know the amount of buying that's going
25:19
Speaker 8: on now, I know who's waiting on the sidelines. I
25:21
Speaker 8: look at this, it tells me I certainly don't want
25:24
Speaker 8: to be short duration or underweight relative to benchmarks. I
25:29
Speaker 8: want to be somewhere around neutral. I want to be
25:31
Speaker 8: concentrated in the front end of the curve. And I
25:34
Speaker 8: like credit because everything's telling me we're gliding into a
25:38
Speaker 8: soft landing, and that's good for corporate America. It's also
25:41
Speaker 8: good for corporate Europe.
25:43
Speaker 6: Doctor Olarian, help me translate this, and you can do
25:46
Speaker 6: this out of the Peeps library at Cambridge. What in
25:49
Speaker 6: God's name is modest further progress?
25:54
Speaker 7: It is changing a phrase that used to be somewhat
25:58
Speaker 7: more halkish to something that is less hawkish but not dubbish.
26:02
Speaker 4: That is what that is.
26:04
Speaker 2: Mohammach, You've said for a while that maybe they're making
26:06
Speaker 2: a mistake, that they haven't taken this strategic view, and
26:09
Speaker 2: you were hoping that goes sooner rather than later. Can
26:12
Speaker 2: you help us understand the difference between not going three
26:16
Speaker 2: but going once, and the difference between doing that one
26:19
Speaker 2: cut at the end of the year as opposed to
26:21
Speaker 2: doing it in July. What difference does four or five
26:24
Speaker 2: months make?
26:26
Speaker 7: So I love listening to Bob Michael's or is it
26:29
Speaker 7: Bob Michelle John as you.
26:31
Speaker 4: Told me last time. Anyway, I love listening.
26:32
Speaker 7: To Bob Michael's soft landing scenario because it's very soothing,
26:38
Speaker 7: but analytically, based on how I assess the economy, I
26:43
Speaker 7: give it a fifty percent probability. It is the dominant scenario,
26:47
Speaker 7: but it is not dominant with high probability, so I
26:50
Speaker 7: have to have a risk mitigation mindset. And then when
26:54
Speaker 7: I look at the tails, I see details of recession
26:59
Speaker 7: being larger than the tail of bigger but not hotter economy.
27:04
Speaker 7: But Michael so When I look at that distribution and
27:07
Speaker 7: I look at the asymmetrical tails, I start asking what
27:10
Speaker 7: are the buffers in the economy.
27:12
Speaker 4: And that's why I start getting worried.
27:14
Speaker 7: And that's where the lay of of the weight cut
27:18
Speaker 7: means that those buffers that are already quite limited among
27:23
Speaker 7: small businesses, among low income household get eroded really quickly.
27:28
Speaker 8: Muhammad, you been around as long as I have. You're right,
27:32
Speaker 8: We've only seen one soft landing in our investment career,
27:35
Speaker 8: and this is forty plus years and that was in
27:38
Speaker 8: ninety five. So soft landings are incredibly hard to engineer.
27:44
Speaker 8: In fact, just the probabilities are way against you. But
27:49
Speaker 8: what worked in ninety five is I think what you're
27:52
Speaker 8: alluding to. The FED came in and started cutting rates.
27:55
Speaker 8: They cut rates seventy five basis points in ninety five.
27:59
Speaker 8: It was just enough to take the pressure off of
28:02
Speaker 8: businesses and households and thus we had, I believe, the
28:06
Speaker 8: only soft landing in our careers.
28:08
Speaker 2: Mohammed, we've got enough time to give you the final word.
28:10
Speaker 4: I love what Bob Jos said. Thank you, Bob.
28:14
Speaker 2: Myhammad A Laran of Queen's College, Cambridge, Muhammed, thank you