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The Fed has no clue how the economy will look next year · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck
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Speaker 1: Zada and Mike Armstrong.
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Speaker 2: It's the day after the September FED meeting. Chuck, Mike
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Speaker 2: Nentucker here to break down what happened for you. If
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Speaker 2: you want the quick and easy summary, The Federal Reserve
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Speaker 2: cut interest rates the short term FED funds rate by
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Speaker 2: a quarter percent. They made no changes to their plans
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Speaker 2: for the FED balance sheet, and there was only one
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Speaker 2: descent that we saw on that quarter percent cut. The
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Speaker 2: one descent was from Stephen Moran, who was just appointed
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Speaker 2: to the Federal Reserve Board of Governors, and he dissented
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Speaker 2: in a more dovish direction, wanting to cut by a
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Speaker 2: half percent. Interestingly, no descents to the upside. I wondered,
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Speaker 2: you know, prior to the FED meeting, could we maybe
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Speaker 2: see bi directional descents where you have one or two
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Speaker 2: descents to the downside and maybe one or two saying hey,
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Speaker 2: let's not cut interest rates right now. You didn't see
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Speaker 2: that directly, I say directly, because we'll talk about what
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Speaker 2: we got from the summary or the uh, yeah, the
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Speaker 2: summary of economic projections in just a bit. But ultimately, Mike,
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Speaker 2: the actual action taken by the Fed completely in line
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Speaker 2: with expectations from the market and not unexpected in any way,
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Speaker 2: shape or form.
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Speaker 3: Yeah, look at confirmed what everyone had been anticipating, a
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Speaker 3: twenty five BIB cut, but a lot less drama in
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Speaker 3: the vote itself and press conference afterward than I think
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Speaker 3: some probably in the media had been hoping for. There
2:38
Speaker 3: were like you said, there is one descent, And how
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Speaker 3: are we pronouncing his name because I've heard it pronounce
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Speaker 3: Miran Myron.
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Speaker 2: I guess it doesn't matter, but I'd like to get
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Speaker 2: his name right. I've been going with Miran, but it
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Speaker 2: might be different. Okay, well we'll look at quite a few. Yeah, yeah,
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Speaker 2: I've heard. I've heard a number of pronunciations. But I mean,
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Speaker 2: I remember before Scott Besson came in, it was Bessent,
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Speaker 2: it was yeah, yeah, you know, Yeah, I don't know.
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Speaker 2: So we can't all have nice simple names like Zoda
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Speaker 2: and I have.
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Speaker 3: To say your name is Zoda to get my phone
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Speaker 3: to actually call the right person when I do it.
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Speaker 2: So I appreciate your phone.
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Speaker 3: The drama, the fireworks that people were alluding to ahead
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Speaker 3: of this, right, you've had a few different pieces of this.
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Speaker 3: You've had the President calling for three hundred basis points
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Speaker 3: worth of cuts. You have a brand new member of
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Speaker 3: the FED who is taking a leave of absence from
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Speaker 3: his role at the Council of Economic Advisors. But that
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Speaker 3: is a first time something like that's been done since
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Speaker 3: I think the nineteen thirties on the FED, right, this
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Speaker 3: is usually they are independent members who resigned from their
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Speaker 3: other jobs. Myron, hasn't you have the attempted firing of
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Speaker 3: Lisa Cook where a judge blocked it at the last
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Speaker 3: minute so that she could actually vote in this matter.
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Speaker 3: And then beyond all of that, you have in slightly
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Speaker 3: unbattled Jay Powell here, who has been heavily criticized by
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Speaker 3: the President for his lack of action so far on
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Speaker 3: the on interest rates, for his oversight of a construction project,
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Speaker 3: and you know what seems like the President's just general
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Speaker 3: distrust and dislike of the sitting FED chair. And you know, honestly,
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Speaker 3: to I guess Jay Powell's credit, he was able to
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Speaker 3: really bring everybody in and say, hey, we need to
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Speaker 3: act together on this, and they really did without any
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Speaker 3: of those fireworks that could have been there. So I
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Speaker 3: don't know that there's much else to read into other
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Speaker 3: than yeah, the other members of the FED really wanted
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Speaker 3: to show a I guess a united front that hey,
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Speaker 3: this is where we think the direction should be. To
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Speaker 3: your point, a lot less clarity wants to start looking
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Speaker 3: at those economic projections, which came out yesterday and come
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Speaker 3: out once per quarter or four times a year.
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Speaker 2: So let's look at those, and then and after I
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Speaker 2: want to talk about Powell's press conference, because I thought
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Speaker 2: his press conference was one of the more interesting ones
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Speaker 2: that I've seen in a few different respects. But let's
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Speaker 2: talk first about the Summary of Economic Projections. Sure, so
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Speaker 2: four times a year, the FED meets eight times a year,
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Speaker 2: and in half of those meetings they put out the
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Speaker 2: STEP and it's basically, hey, where do you think they
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Speaker 2: ask each member on the Fed, and it's it's all
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Speaker 2: done anonymously, so no one knows, you know, who exactly
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Speaker 2: is saying this or that, But they say, where do
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Speaker 2: you think GDP is going to be? Where do you
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Speaker 2: think headline and core piece of ear going to be?
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Speaker 2: Where do you think the Fed funds rate is going
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Speaker 2: to be? And where do you think the unemployment rate's
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Speaker 2: going to be? And they do this the one that
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Speaker 2: we got this week or this this round was you
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Speaker 2: get twenty five, twenty six twenty seven twenty eight, so
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Speaker 2: you know, four years of projections and then longer run.
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Speaker 2: I don't really care about the twenty seven and twenty
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Speaker 2: eight ones because who knows. Let's be honest, do we
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Speaker 2: have any idea where the economy is going to be
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Speaker 2: in twenty twenty eight? No, like you could have. You know,
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Speaker 2: Yellowstone erupted into super volcano and the whole world changes,
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Speaker 2: and so I don't really care about the twenty twenty
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Speaker 2: eight projections or even the longer run ones. What I
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Speaker 2: do find interesting are the twenty five and the twenty
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Speaker 2: six ones. And let me give kind of the base
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Speaker 2: summary that we have here. For twenty twenty five, they
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Speaker 2: guided up growth from one point four to one point
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Speaker 2: six percent. Okay, good, so they think growth is gonna
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Speaker 2: be stronger than they thought three months ago. For twenty six,
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Speaker 2: same thing, they guided that growth would be one point
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Speaker 2: eight versus one point six percent. Okay, these are good things.
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Speaker 2: Headline PCE for this year, they still think it's gonna
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Speaker 2: come in at three percent versus two point I'm sorry,
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Speaker 2: versus three percent last time, So no change there. They
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Speaker 2: do think headline pc is gonna be a little hotter
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Speaker 2: next year. So two point six versus two four. So
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Speaker 2: growth is gonna be stronger next year, but inflation's gonna
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Speaker 2: be a little bit higher as well. Okay, core PC
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Speaker 2: they still think is gonna be three to one this year,
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Speaker 2: same as the last time. For next year, they think
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Speaker 2: it's gonna be two six versus two four. So again
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Speaker 2: saying even core inflation gonna remain a bit more elevated
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Speaker 2: than they thought in March. By the way, they thought
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Speaker 2: it would be two to two for next year. So
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Speaker 2: up all, you know, four tenths of a percent since
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Speaker 2: their March estimate. FED funds rate they think at the
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Speaker 2: end of this year it's now gonna be three six
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Speaker 2: versus three to nine in the previous meeting, and for
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Speaker 2: twenty six it's gonna be three to four versus three six.
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Speaker 2: So let's this is the first place where we start
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Speaker 2: to get some real meat here that you can talk about.
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Speaker 2: They're now bringing in one additional cut this year than
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Speaker 2: they previously were, So previously they were guiding towards two cuts.
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Speaker 2: They're now guiding towards three by the end of the year.
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Speaker 2: Kind of matches what the market was expecting. That's firmed
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Speaker 2: up a little bit in the last couple of weeks,
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Speaker 2: and the place where there's divergence from the market, the
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Speaker 2: market was expecting three cuts next year. FED basically is
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Speaker 2: guiding towards only one. That's a divergence there, and that's why,
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Speaker 2: in my opinion, you see kind of the intermediate from
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Speaker 2: the belly out on the yield curve from basically like
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Speaker 2: the two year on up through the thirty year bonds
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Speaker 2: have been selling off since the FED meeting is because
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Speaker 2: they're not guiding as dubvishly longer term. So I think
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Speaker 2: that that kind of messures with what you're seeing there.
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Speaker 2: Unemployment rate. They think this year is still gonna finish
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Speaker 2: at four to five. Next year, they think we'll finish
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Speaker 2: at four to four versus four or five previously. So
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Speaker 2: you take this and you say, okay, what does this mean.
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Speaker 2: They think the economy is going to be doing GDP
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Speaker 2: is gonna be up so hotter, growth, inflation is gonna
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Speaker 2: be higher than they projected. So that tells you higher
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Speaker 2: nominal growth, not just higher you know, real growth. But
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Speaker 2: they're gonna cut more than expected and unemployment's gonna be lower.
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Speaker 2: So pretty much it's the FED saying yeah, We're willing
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Speaker 2: to let things run a little hot, but we're not
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Speaker 2: gonna confirm three cuts next year because that would be
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Speaker 2: too hot. Is the message that I think they're sending.
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Speaker 3: I tend to agree.
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Speaker 1: Yep.
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Speaker 2: It's kind of a messy step this time around, like
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Speaker 2: nothing's quite pointing in a clear direction. Now, there are
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Speaker 2: a couple of interesting things, because the numbers that I
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Speaker 2: just gave you were the basically the median of the
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Speaker 2: people that the FED asks on this. But you do
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Speaker 2: also get what's called the dot plot, which shows you where,
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Speaker 2: specifically for the FED funds rate, where members are saying, hey,
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Speaker 2: this is my marks to you know where I think
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Speaker 2: the FED funds rate is going to be in these times.
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Speaker 2: It's still done anonymously, so you don't know who is who.
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Speaker 2: But you do get a couple of interesting things here
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Speaker 2: the first week. I know who one of them is.
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Speaker 2: I think we have a pretty good idea who whose
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Speaker 2: dot is at the bottom, and that's Steve Morons or
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Speaker 2: Steve Myrons. And that's because he's saying there's one dot
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Speaker 2: saying FED funds rate should be two point nine percent
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Speaker 2: by the end of this year, which is an additional
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Speaker 2: one and a quarter percent in cuts from where we
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Speaker 2: are today. Given that he was the only one to
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Speaker 2: dissent at fifty bases points, I think we have a
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Speaker 2: pretty good idea that that's him. The one that's really
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Speaker 2: interesting to me, hike, there's one dot saying a quarter
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Speaker 2: percent hike from where we are today. So someone in
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Speaker 2: the FED, in the Board of Governors, or a Federal
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Speaker 2: Reserve Branch president, because those are the people that get
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Speaker 2: you know, surveyed for the dot plot.
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Speaker 3: And remember here that this does not necessarily mean that
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Speaker 3: they voted yesterday, no, because.
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Speaker 2: It could be a non voting president. Remember the presidents
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Speaker 2: rotate through so it could be a non voting member,
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Speaker 2: and so it doesn't necessarily matter. But there's someone on
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Speaker 2: the FED board or a FED president who said, yep,
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Speaker 2: I got a quarter percentage point in rate hikes by
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Speaker 2: year end. That's kind of interesting to me. Yeah, So
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Speaker 2: that's what we've got on kind of the summary of
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Speaker 2: economic projections. Let's take a quick break. When we come back.
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Speaker 2: I want to talk a little bit about j. Powell's
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Speaker 2: press conference, because really interesting one for me, and I
10:58
Speaker 2: don't want to spoil it. So let's just take a
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Speaker 2: quick break we'll talk about why I thought this was
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Speaker 2: one of Powell's most interesting press conferences. Right after this.
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11:33
Speaker 4: The Committee decided to lower the target Marange for the
11:35
Speaker 4: Federal friends rate by a quarter percentage point in the
11:38
Speaker 4: near term. Risks to inflation are tilted to the upside
11:41
Speaker 4: and risks to employment to the downside, a challenging situation
11:45
Speaker 4: when our goals are intentioned like this. Our framework calls
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Speaker 4: for us to balance both sides of our dual mandate,
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Speaker 4: with downside risks to employment having increased, the balance of
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Speaker 4: risks has shifted.
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Speaker 2: All right, So we've covered the summary of economic projections
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Speaker 2: from the Fed. Now, Mike, it's time to dig into J.
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Speaker 2: Powell's press conference. And I take two different kinds of
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Speaker 2: notes when I'm listening to this. Uh. The first, I
12:15
Speaker 2: try to directly transcribe what Powell is saying, or at
12:18
Speaker 2: least like as closely as I can to get, you know,
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Speaker 2: the gist of it. And that makes up ninety five
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Speaker 2: percent of the notes that I take, just because I
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Speaker 2: want to be able to, you know, say, Okay, here's
12:27
Speaker 2: what he said. And I'm basically looking at, you know,
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Speaker 2: the market while this is happening, just so that I
12:33
Speaker 2: can see how the market is reacting specifically to what
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Speaker 2: he's saying, like what is moving the market in different directions.
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Speaker 2: The other piece that I do, and this is maybe
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Speaker 2: five to ten percent of the notes I take, is
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Speaker 2: my own interjections as to, oh, gee, here's why I
12:51
Speaker 2: found this interesting. And I had one of these yesterday
12:57
Speaker 2: and it's this is direct from my my notepad. Here
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Speaker 2: says not a direct quote. They have no idea what's
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Speaker 2: gonna happen with the economy next year either. Yeah, at
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Speaker 2: least we're on the same boat. I have never seen J.
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Speaker 2: Powell so confused in a press conference. And I don't
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Speaker 2: mean confused like oh, like you know, I don't understand,
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Speaker 2: you know, what's going on, like where I am. What
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Speaker 2: I mean is I truly think that Powell and the
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Speaker 2: rest of the Fed have absolutely no idea what's gonna
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Speaker 2: happen to the economy next year? And it's because it's
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Speaker 2: at this hinge point. It's at this pivot point right now, where, hey,
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Speaker 2: if the labor market continues to worsen, yeah, there's some
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Speaker 2: real problems and they're gonna have to cut rates, you know,
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Speaker 2: significantly further. If it turns out that this labor market
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Speaker 2: stuff is just an aberration and a short term dip
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Speaker 2: that you know, gets resolved. I think Jay's sitting there saying,
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Speaker 2: pretty glad I'm off the job in a few months,
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Speaker 2: because I might have to be dealing with higher inflation
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Speaker 2: next year in the event that this economy starts to
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Speaker 2: really get cranking. Yeah.
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Speaker 3: I did also get the sense, and I wasn't watching
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Speaker 3: it live, I was in a few meetings. I did
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Speaker 3: get the sense that there was a general struggle to
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Speaker 3: describe I guess the trade offs right now between their
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Speaker 3: dual mandate which one they should be more concerned about.
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Speaker 1: And I just.
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Speaker 3: I struggle to believe that they are going to be
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Speaker 3: If inflation ends up being the bigger concern, I'm very
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Speaker 3: concerned about their ability to react to it. If it's
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Speaker 3: an unemployment I think they've got a pretty good playbook.
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Speaker 3: I know, I think I know exactly what they're going
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Speaker 3: to do. But man, if the inflation comes back, I
14:41
Speaker 3: don't think that anybody there has a real solid sense
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Speaker 3: of how they're going to successfully combat it and convince
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Speaker 3: the general public that they've got it under control.
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Speaker 2: And so this came to a head. The inflation question
14:53
Speaker 2: came to ahead Mark McKee. I'm sorry, Mike McKee asked
14:56
Speaker 2: this question yesterday, which that was a great question. The
15:00
Speaker 2: people who were there like they were honestly like, what
15:03
Speaker 2: are you talking about on this? This is Mike's question.
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Speaker 2: Every year since twenty fifteen, your step has stated that
15:11
Speaker 2: you would reach your inflation target two years later, and
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Speaker 2: this set says that you're going to hit your target
15:16
Speaker 2: two years later. Two percent inflation does not seem to
15:20
Speaker 2: be in sight. Does that suggest that the two percent
15:22
Speaker 2: target is not really achievable? And does this present any
15:26
Speaker 2: credibility problems for you in telling people that's what you're
15:29
Speaker 2: going to do if you can never can reach it?
15:31
Speaker 2: Which is like wow, like, hey, fed you guys say
15:35
Speaker 2: you've got a two percent inflation target, but you never
15:37
Speaker 2: hit it? What gives man? I mean I'm like, okay,
15:41
Speaker 2: like that, that's a real question. Sure. And Powell's answer
15:45
Speaker 2: I wrote down. He says, you're putting down a rate
15:48
Speaker 2: path that is designed to get to two percent inflation.
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Speaker 2: The nature of the exercise is to put down policy
15:53
Speaker 2: that will get you to the goal by the end
15:54
Speaker 2: of the exercise. So that's why he basically says, Look,
15:57
Speaker 2: we always say we're going to get to two percent
15:58
Speaker 2: inflation because we think we're gonna be able to prescribe
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Speaker 2: policy that gets us there. Well, okay, is kind of
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Speaker 2: what what Mike's saying. But how come you never actually
16:11
Speaker 2: get there? And should we believe you when you say
16:14
Speaker 2: you're targeting two percent inflation when you're cutting into three
16:17
Speaker 2: point one percent core inflation right now? Which I just
16:21
Speaker 2: thought was like a great question on okay, we believe
16:24
Speaker 2: you on the employment side of things, because quite honestly,
16:28
Speaker 2: as we've talked about a lot, Powell's Fed has always
16:31
Speaker 2: been dubbish when faced with a fork in the road.
16:34
Speaker 2: You can go back to late twenty eighteen, when hey,
16:38
Speaker 2: the Fed's balance sheet is on autopilot, and then the
16:41
Speaker 2: stock market and bond market started getting a little wobbly
16:44
Speaker 2: and three weeks later, Pal's like, now we're gonna stop
16:46
Speaker 2: the balance sheet run off. Now, I don't think we're
16:49
Speaker 2: gonna do that anymore. And there were no more right
16:51
Speaker 2: hikes in twenty nineteen. After hiking in twenty eighteen. We
16:54
Speaker 2: then come to, you know, early twenty twenty two, late
16:57
Speaker 2: twenty one, inflation's running north of seven percent. Still, Hey,
17:02
Speaker 2: what are you gonna do with your first you know,
17:04
Speaker 2: meeting of twenty twenty two. Now we're gonna hike by
17:07
Speaker 2: a quarter percent? You're gonna do what? Yeah? We you know,
17:11
Speaker 2: there's still you know, some risks that may materialize. We
17:13
Speaker 2: don't want to go too far. Okay, Well, then surely
17:15
Speaker 2: once you know, war breaks out in Ukraine and oil
17:19
Speaker 2: prices go through the roof, Hey, you're gonna hike faster
17:22
Speaker 2: because inflation's coming, you know, more hot and heavy. Well,
17:26
Speaker 2: there's potentially downside risks to the economy because of this,
17:28
Speaker 2: so we don't want to go too quickly. Okay, Okay,
17:32
Speaker 2: I got you. Okay. Then we come to last year.
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Speaker 2: Economy is slowing and you know, some concerns about the
17:43
Speaker 2: labor market heading into the fall. What are you doing September?
17:46
Speaker 2: We're gonna cut by fifty bases points Jeremy Siegel's screaming
17:50
Speaker 2: for seventy five and an intermeding you know thing, but
17:53
Speaker 2: we're not gonna do that, Well, we'll do fifty, okay. So,
17:59
Speaker 2: like the facts are in evidence that when faced with
18:02
Speaker 2: inflation versus the labor market, they've typically wanted to support
18:06
Speaker 2: the labor market more than batten down the hatches against inflation.
18:11
Speaker 2: You could make a case that that's probably why we're
18:13
Speaker 2: still in this situation right now. Is Look that the
18:17
Speaker 2: biggest problem with the Powell Fed. They did not hike
18:21
Speaker 2: quickly enough and steeply enough in twenty twenty two, in
18:24
Speaker 2: my opinion, and that might be why inflation's still lingering
18:28
Speaker 2: is you didn't just beat it into submission at the
18:31
Speaker 2: cost of, you know, the labor market to a certain extent.
18:35
Speaker 2: So I think that what you have here is Powell's
18:40
Speaker 2: just kind of uncomfortable right now because he's like, I
18:43
Speaker 2: think there's problems with the labor market. And he said this,
18:46
Speaker 2: there's a couple other quotes that I want to read
18:48
Speaker 2: on this. He said, Uh, let me make sure that
18:52
Speaker 2: I have them here we go. I don't think we
18:54
Speaker 2: can say that conditions do not warrant a restrictive policy now.
18:57
Speaker 2: So he's not saying that we shouldn't be restrictive, but
19:00
Speaker 2: that the risks were tilted towards inflation, but are now
19:03
Speaker 2: towards you know, a more equal balance, and if they
19:06
Speaker 2: continue to move in that direction, then we need to
19:07
Speaker 2: be moving more in the direction of neutral as it
19:11
Speaker 2: goes there. So what he's saying is the risks are
19:13
Speaker 2: evolving right now where he's more concerned about, you know,
19:17
Speaker 2: they're kind of in balance, but because of the direction
19:20
Speaker 2: of travel, they want to try to get ahead of
19:22
Speaker 2: it and prevent the labor market from becoming even worse.
19:25
Speaker 2: I want to talk more on this because again I
19:27
Speaker 2: think there's this it's a really interesting position that fed's
19:30
Speaker 2: in right now. Quick Break Wall Street. Watch more FED talk.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall Street.
19:54
Speaker 1: Watch a complete look at what's moving markets so far
19:57
Speaker 1: today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: Market seeing a little bit of a rally here today
20:02
Speaker 5: after the Federal Reserve reduce interest rates by a quarter
20:06
Speaker 5: of a percent. That's at the conclusion of their meeting
20:09
Speaker 5: yesterday afternoon. AI in Chip Giint in Vidia also remains
20:13
Speaker 5: in the spotlight with more developments. Right now, the Dow
20:17
Speaker 5: is up six tenths of one percent, or two hundred
20:21
Speaker 5: and ninety six points higher, SMP five hundred is up
20:25
Speaker 5: eight tenths of one percent or fifty three points higher,
20:28
Speaker 5: and the Nasdaq is up over one percent or two
20:31
Speaker 5: hundred and sixty one points. Russell two thousand is up
20:34
Speaker 5: one point six percent. A ten year treas reeled up
20:37
Speaker 5: four basis points at four point one two percent. In
20:41
Speaker 5: crude oil is up about a half a percent, rating
20:44
Speaker 5: at sixty four dollars in thirty seven cents. A barrel
20:47
Speaker 5: big tech news on the day revolves around in Nvidia
20:50
Speaker 5: and Intel, after Nvidia said it would invest five billion
20:54
Speaker 5: dollars in struggling chip maker Intel to code develop data
20:58
Speaker 5: center and PC products. After losing nearly three percent yesterday,
21:02
Speaker 5: and Video stock is a rebounding three percent today, Intel shares,
21:07
Speaker 5: on the other hand, are surging twenty seven percent. Meanwhile,
21:11
Speaker 5: shares in Novo Nordisk jumping over six percent after the
21:14
Speaker 5: drug maker said late stage trials of its once daily
21:17
Speaker 5: obesity pill showed significant weight reduction in line with its
21:22
Speaker 5: we Go Vi injectable weight loss drug. Elsewhere, PayPal and
21:26
Speaker 5: Alphabet announced it would team up on online shopping, laying
21:30
Speaker 5: out plans to combine Paypals payment infrastructure with Google's AI expertise.
21:35
Speaker 5: Both PayPal and Alphabet shares are climbing one percent. Cracker
21:40
Speaker 5: Barrel posted mixed quarterly results after it missed on earnings
21:43
Speaker 5: yet beat revenue expectations. The family dining chain also said
21:47
Speaker 5: it expects guest traffic to fall further a mid controversy
21:51
Speaker 5: over its branding. That stock is down one percent, sticking
21:55
Speaker 5: with the restaurant space where Darden shares are sinking ten
21:58
Speaker 5: percent after the Olive Garden owner raised its annual outlook
22:02
Speaker 5: but posted adjusted earnings below forecasts. And after today's closing bell,
22:07
Speaker 5: we'll see earnings from FedEx and Lennar. I'm Tucker Silvan.
22:12
Speaker 5: That is Wall Street.
22:13
Speaker 2: Watch, Mike. We we were talking about j Poll's press
22:17
Speaker 2: conference last segment. Anything that you want to add on it.
22:20
Speaker 3: No, I think I agree with you that there's a
22:24
Speaker 3: fair bit of uncertainty about what comes next. I think
22:27
Speaker 3: part of that. As critical as I am about where
22:31
Speaker 3: the fed has found themselves over the course of the
22:33
Speaker 3: last few years, and they're seeming biased towards protecting the
22:36
Speaker 3: labor market over inflation.
22:40
Speaker 2: I will be more than.
22:42
Speaker 3: Happy to say that it is easy to tell why
22:45
Speaker 3: they're confused about what to do next. Sure, it is
22:49
Speaker 3: not an enviable job to try and navigate this right now,
22:52
Speaker 3: because there are a lot of things that point towards
22:54
Speaker 3: both threats from inflation as well as higher unemployment. And
22:58
Speaker 3: so I do not envy the position, and I just
23:04
Speaker 3: remain convinced that should I'm not sure that I'm not
23:08
Speaker 3: convinced that we will get the inflation, but if we do,
23:12
Speaker 3: I'm convinced that we have a federal reserve that is
23:14
Speaker 3: not doesn't really have a great playbook for what to
23:16
Speaker 3: do about it.
23:18
Speaker 2: No, I mean, look, look, they were clearly behind the
23:20
Speaker 2: eight ball in twenty twenty two, and you know, did
23:23
Speaker 2: not respond appropriately as rapidly as they needed to in
23:28
Speaker 2: my opinion, And if faced with rising inflation again, it's
23:33
Speaker 2: an open question because of something that was just three
23:35
Speaker 2: years ago, Hey, how would you do it differently this time?
23:39
Speaker 2: I think is a real question.
23:40
Speaker 3: So, and by the way, all this is feeding into
23:43
Speaker 3: you know, market optimism long term rates coming down over
23:47
Speaker 3: the last several weeks is I think most investors and
23:50
Speaker 3: most people looking at this are taking a look at
23:52
Speaker 3: the FED and saying, what is the path for them
23:55
Speaker 3: to really hyke rates here? How bad would things need
23:57
Speaker 3: to get on the inflation side, because that's ultimate What
24:00
Speaker 3: could hit markets pretty hard and reverse this trend line
24:04
Speaker 3: that we've seen is them happening to reverse course, and
24:06
Speaker 3: there just doesn't seem to be much of an appetite
24:08
Speaker 3: to do so.
24:09
Speaker 2: Now. The interesting thing is, for all of the noise about,
24:14
Speaker 2: you know, kind of where interest rates are and everything,
24:16
Speaker 2: and how they've been moving, yesterday and today, tenure treasury
24:21
Speaker 2: moved back up about thirteen fourteen basis points between the
24:27
Speaker 2: two days, and you're pretty much the same spot that
24:31
Speaker 2: you were at right after the jobs report. Now at
24:34
Speaker 2: the beginning of this month, you're also, by the way,
24:37
Speaker 2: at the same spot that you were in the end
24:41
Speaker 2: of April, the start of March, and the end of December.
24:46
Speaker 2: The tenure Treasury has effectively not really moved in the
24:52
Speaker 2: last ten months. Now. It's wobbled, certainly, and it's just
24:57
Speaker 2: been there's been no trend. I guess is what I'm
25:00
Speaker 2: getting at like it's gotten up to a high of
25:01
Speaker 2: four eight, it's gotten down to a low of you know,
25:03
Speaker 2: three eight, and we're at four one two right now.
25:07
Speaker 2: We've mostly spent most of our time, you know, between
25:10
Speaker 2: four two and four five. That's kind of in the
25:12
Speaker 2: range that we've we've landed in generally, but rates haven't
25:15
Speaker 2: really moved a ton h overall. Does that, you know,
25:20
Speaker 2: start to change? I think again we need clear facts
25:24
Speaker 2: in one direction or another. Either the economy is worsening
25:29
Speaker 2: to the point where recessions a real concern, and the
25:31
Speaker 2: Fed's got to you know, cut interest rates you know
25:33
Speaker 2: two three percent, or hey, inflation is you know, accelerating
25:39
Speaker 2: past you know, three and a half, and the Fed's
25:41
Speaker 2: got to start hiking again. And to this point, I
25:44
Speaker 2: don't think you have you know, evidence that either of
25:46
Speaker 2: those are happening, right, you know, for better for worse.
25:51
Speaker 2: I'm not saying this is good, bad, or ugly. I'm
25:53
Speaker 2: just saying that it is. If inflation sits at three
25:56
Speaker 2: and unemployment stays at four three for the next year,
26:00
Speaker 2: should the tenure be anywhere different a year from now?
26:03
Speaker 3: Yeah?
26:04
Speaker 2: Hypothetically, No, not really, you know, like the direction to
26:07
Speaker 2: travel matters, obviously, But this is kind of the place
26:11
Speaker 2: that we've been for the last year. I mean again,
26:13
Speaker 2: unemployment is pretty much the same spot it was in
26:15
Speaker 2: last year. Inflation basically in the same spot it was
26:20
Speaker 2: in last year, a little bit hotter there. Unemployment's a
26:23
Speaker 2: little bit higher as well, but like we're talking like
26:25
Speaker 2: a quarter percent on each Yeah, is it any surprise
26:28
Speaker 2: that the tenure hasn't really moved in a year. Not
26:32
Speaker 2: really the times that it has moved. It got up
26:34
Speaker 2: to four to eight at the beginning of this year
26:37
Speaker 2: when just before the inauguration and everyone was excited about
26:40
Speaker 2: the potential for more growth. It got down to three
26:43
Speaker 2: to nine shortly after Liberation Day when people were worried about,
26:47
Speaker 2: you know, how high tariffs could impact the US economy.
26:50
Speaker 2: And other than that, it's basically been just in a
26:53
Speaker 2: pretty narrow range, not really doing much of anything. So
26:58
Speaker 2: this is why we keep coming back. Like I've been
27:01
Speaker 2: getting a lot of questions like, Hey, how come the
27:02
Speaker 2: market's not reacting as much to different, you know, announcements
27:05
Speaker 2: in this and that anymore. I'm like, the market cares
27:06
Speaker 2: about data now, doesn't care about announcements. The economic data
27:11
Speaker 2: is what's going to drive the tenure treasury or you know,
27:14
Speaker 2: things like that. The market's not worried about announcements anymore.
27:18
Speaker 2: Did that in the spring and decided, Hey, like I'm
27:20
Speaker 2: not going to pay attention to that. Yeah, you know, uh,
27:23
Speaker 2: let's talk a little bit about anything else on FED
27:27
Speaker 2: or rates or anything.
27:27
Speaker 3: Mike, No, he Look, this was making a splash because
27:31
Speaker 3: it is the restart of a rate cutting cycle. I
27:34
Speaker 3: do tend to think that we're going to see a
27:36
Speaker 3: few more of these. Based on the SEP and based
27:39
Speaker 3: on the commentary, it seems likely that we will see
27:41
Speaker 3: this at one or both of the next two meetings
27:45
Speaker 3: as well. And you know what it means for everybody
27:50
Speaker 3: out there listening is yeah, lower rates on some types
27:55
Speaker 3: of financial products, but a real lack of clarity about
27:58
Speaker 3: what might come now. And I don't know were at me,
28:03
Speaker 3: It is me to some extent, I am preparing for
28:07
Speaker 3: higher inflation for not the immediate but you know, for
28:12
Speaker 3: kind of the intermediate term as a potential outcome of all.
28:15
Speaker 2: This also just one other thing, and to look, it's
28:18
Speaker 2: it's one day, so let's not read too much into this.
28:20
Speaker 2: But remember last year in the fall, the Fed started
28:23
Speaker 2: a cutting cycle. They cut interest rates, They kept the
28:26
Speaker 2: Fed funds rate by one percent. During that time, the
28:29
Speaker 2: ten year treasury went from three to eight to four eight.
28:34
Speaker 2: As a result, mortgage rates went from the low sixes
28:37
Speaker 2: to the low sevens. Granted it's just one day, but
28:40
Speaker 2: yesterday what the Fed do mic cut rates. Thirty year
28:43
Speaker 2: fixed rate mortgage, according to Mortgage News Daily, up point
28:46
Speaker 2: zero nine percent to six point two two.
28:48
Speaker 3: Ten year treasure yield up today as well.
28:50
Speaker 2: So again, just because the Fed is cutting short term
28:55
Speaker 2: interest rates does not mean that long term rates move
28:57
Speaker 2: in lockstep. They may, they may not. But this is
29:01
Speaker 2: something that I just like to remind people of. The
29:02
Speaker 2: Fed does not control mortgage rates directly. They do control
29:06
Speaker 2: the short term Fed Funds rate, but longer term rates
29:09
Speaker 2: like mortgages, can move in different directions based on market behavior.
29:14
Speaker 2: Another data point that we got this morning Weekly Jobbles
29:16
Speaker 2: was claims. Last week we talked about the elevated numbers
29:19
Speaker 2: and I kind of gave the thought, look, there's a
29:22
Speaker 2: few things on this report that makes me think this
29:25
Speaker 2: is a one off outlier. First, it's around a floating
29:27
Speaker 2: holiday and Labor Day. They can have all kinds of
29:29
Speaker 2: weird seasonal impacts. Second, the Texas numbers appear skewed significantly
29:34
Speaker 2: higher because of a combination of potential fraud as well
29:39
Speaker 2: as a deadline for filing unemployment claims from the floods
29:42
Speaker 2: from this summer. And so we kind of looked at
29:46
Speaker 2: it and said, pretty unlikely that you see this repeat,
29:49
Speaker 2: but if it does, its cause for concern. The good
29:52
Speaker 2: news this week it did not repeat. Claims fell from
29:54
Speaker 2: two hundred and sixty four thousand on a revised basis
29:57
Speaker 2: down to two hundred and thirty one thousand, So you can,
30:00
Speaker 2: at least for now just kind of write that off
30:01
Speaker 2: as a one off. Yes, claims are still moving up
30:04
Speaker 2: at a you know rate of you know, six seven
30:07
Speaker 2: percent year over year, but it's not something where we
30:10
Speaker 2: were seeing this, you know, potential jumping claims that suggested
30:13
Speaker 2: a shift in the labor market in terms of more
30:16
Speaker 2: firings and layoffs. And so I think this is good
30:18
Speaker 2: news that claims came back down here. It suggests that
30:21
Speaker 2: the labor market remains you know, tentative and somewhat weak
30:25
Speaker 2: on the hiring side, probably, but there's no real uptick
30:28
Speaker 2: that I'm seeing at this point in terms of firings,
30:31
Speaker 2: and I think that's good news that the labor market
30:34
Speaker 2: doesn't appear to be, you know, worsening exponentially. It's just
30:37
Speaker 2: kind of a gradual weakening that we've seen over the
30:40
Speaker 2: course of this year.
30:41
Speaker 3: One more data point on the labor market that we're
30:44
Speaker 3: going to be getting tomorrow. Actually this was not on
30:46
Speaker 3: my on my calendar of things, but I was looking
30:49
Speaker 3: deeper the I've been pretty interested in the state level
30:52
Speaker 3: unemployment claims because we've seen such a trend here in
30:55
Speaker 3: Massachusetts and in other parts of the country. That's actually
30:58
Speaker 3: due out tomorrow at ten am. So I'll be interested
31:00
Speaker 3: to see we've seen a dramatic uptick in some parts
31:02
Speaker 3: of the country on unemployment and we will get that
31:06
Speaker 3: state by state level data for August tomorrow morning at ten.
31:09
Speaker 2: So something something else to cover tomorrow. Just take a
31:11
Speaker 2: quick break here. When we come back, we'll talk about
31:14
Speaker 2: how to handle a job market that might be a
31:16
Speaker 2: little bit worse than it looks. Right after this.
31:19
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31:26
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31:31
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31:34
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32:26
Speaker 2: Mike Pece to the Wall Street Journal titled how to
32:28
Speaker 2: Handle a Job market That's worse than it looks the subhetter,
32:32
Speaker 2: it's time to change your attitude and approach as the
32:34
Speaker 2: gloomier employment picture comes into focus. And this gets the
32:37
Speaker 2: fact that one of the things Palill said you today
32:39
Speaker 2: is like, look, we're in this unusual situation right now
32:42
Speaker 2: where both the supply of workers and demand for workers
32:45
Speaker 2: have come down quite sharply, but the demand for workers
32:49
Speaker 2: is falling a little bit faster right now, and that's
32:51
Speaker 2: why unemployment is edging up a little bit, not a ton,
32:54
Speaker 2: but just a bit. And so even though there's not
32:56
Speaker 2: a lot of firing out there, hey, if you look
32:59
Speaker 2: at this job market, it's a very slow hiring pace
33:03
Speaker 2: right now. And what this piece is arguing is, hey,
33:06
Speaker 2: you basically have to be really aggressive trying to get
33:10
Speaker 2: out there, network, do anything that you can, because hiring
33:14
Speaker 2: opportunities are not plentiful in this market.
33:17
Speaker 3: Yeah, and I can see that they interview one person
33:19
Speaker 3: who I don't know the timeframe. I think it was
33:21
Speaker 3: some time earlier this year or last that you quit
33:24
Speaker 3: a job to focus on some education stuff, and you know,
33:28
Speaker 3: just kind of assumed, based on all the reports of
33:30
Speaker 3: the labor market that would be fairly easy to find
33:32
Speaker 3: a new job and instead of finding that, Yeah, maybe
33:35
Speaker 3: those numbers that we report on all the time, and
33:39
Speaker 3: you know, I think we attempt to be a little
33:41
Speaker 3: bit more nuanced in this, but they don't reflect the
33:46
Speaker 3: hiring situation necessarily, just because we describe the unemployment rate
33:49
Speaker 3: as quite low doesn't mean that there's a big appetite
33:52
Speaker 3: to be able to find a big appetite on the
33:54
Speaker 3: part of employers to hire new people. And so yeah,
33:58
Speaker 3: I guess yeah. That's the other side of this coin
34:01
Speaker 3: is beware what you're seeing in the labor market. It
34:04
Speaker 3: might seem like your employer is desperate to hold on
34:07
Speaker 3: to you, but uh, yeah, we're finding that. On the
34:11
Speaker 3: other side, it's pretty tough to find that new work
34:13
Speaker 3: based on just the pace of those hirings.
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35:21
Speaker 2: Mike. In the high end credit card wars, American Express
35:25
Speaker 2: upping their fee on their Platinum card to eight hundred
35:29
Speaker 2: and ninety five dollars. It's a twenty nine percent hike
35:32
Speaker 2: from the six ninety five it's currently at. There are
35:35
Speaker 2: thirty five hundred dollars out there in potential annual benefits,
35:39
Speaker 2: so if you take advantage of a large chunk of these,
35:42
Speaker 2: you can end up in a situation where you're basically
35:46
Speaker 2: covering all of that fee or more. I mean, I
35:49
Speaker 2: don't know that anyone's gonna, you know, set their life
35:51
Speaker 2: up to be able to do all thirty five hundred
35:54
Speaker 2: dollars in benefits, but I guess if you do, like, okay,
35:56
Speaker 2: I guess this is the card for you.
35:58
Speaker 3: But ultimately exhaust. Well, I've got them up here. So
36:03
Speaker 3: you've got eight hundred and fifty dollars in lounge options
36:07
Speaker 3: at airports, six hundred dollars hotel credit you have to
36:10
Speaker 3: book through MX Travel, two hundred dollars in Uber cash.
36:14
Speaker 2: One hundred and twenty dollars. But the two hundred Uber
36:16
Speaker 2: cash is fifteen a month and twenty in December.
36:18
Speaker 3: Right, So like okay, one hundred twenty dollars Uber one credit.
36:24
Speaker 2: Two hundred dollars airline fee credit.
36:27
Speaker 3: So I guess like okay, this will reimburse some of
36:30
Speaker 3: your baggage fees if you book with this credit card
36:32
Speaker 3: on that airline. Five hundred dollars in value fine hotels
36:37
Speaker 3: and resorts, so you can save on that. I saw
36:41
Speaker 3: something about a meal credit if you book the reservation
36:45
Speaker 3: on rezi. You know what this reminds me.
36:47
Speaker 2: There's a Lululemon credit you can get seventy five dollars
36:50
Speaker 2: a quarter if you're spending at Lululemon every quarter.
36:53
Speaker 3: One hundred and fifty five dollars on Walmart plus. This
36:57
Speaker 3: reminds me, you know, like the sports teams that will
36:59
Speaker 3: show up and sell you those coupon books that they've
37:02
Speaker 3: gotten sponsored by every restaurant in town. It's like, yeah, yeah,
37:05
Speaker 3: there's like one hundred and fifty dollars in value here
37:07
Speaker 3: if you if you use every one of these coupons.
37:10
Speaker 3: This is what these luxury credit cards are becoming.
37:13
Speaker 2: To me. It's what they're turning into the they used
37:17
Speaker 2: to be a lot simpler and straight more straightforward, where
37:20
Speaker 2: it was, Hey, here's like three hundred dollars for travel,
37:22
Speaker 2: we'll just you know, credit your statement if it's in
37:24
Speaker 2: that category. And here's you know, a couple hundred dollars
37:28
Speaker 2: for you know, dining, We'll do the same thing. And
37:31
Speaker 2: it's it's so niche now that you kind of look
37:33
Speaker 2: at this and you're like, yeah, it's it's a big
37:36
Speaker 2: coupon book. And look, they're obviously doing it this way
37:40
Speaker 2: because yes, they can say there's all this value, but
37:43
Speaker 2: how many people actually do all of this stuff to
37:45
Speaker 2: be able to unlock it? Well?
37:47
Speaker 3: And I presume too, that like Walmart is paying to
37:49
Speaker 3: be part of this membership. You know, all of these
37:51
Speaker 3: companies aren't very happy to ooh, I might get an
37:54
Speaker 3: MX customer to try out my subscription service, but man,
37:59
Speaker 3: I just don't know who this is for.
38:01
Speaker 2: Yeah, it's uh, look it's if you're someone who's you know,
38:06
Speaker 2: a high spender and these are the things that you
38:09
Speaker 2: spend your money on, it probably makes sense then, right,
38:13
Speaker 2: I guess, if not. Kind of a tough punt quick
38:18
Speaker 2: break here, Our two coming up in a bit