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Instant Reaction: Jay Powell on Fed Policy · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:13
Speaker 2: After reducing interest rates by twenty five basis points straight
0:17
Speaker 2: out of the gate in that news conference, asked an
0:19
Speaker 2: obvious question, why do this when you're expecting inflation to
0:22
Speaker 2: remain above target? The chairman acknowledging today was a closer
0:26
Speaker 2: call that we've cut interest rates by one hundred basis
0:28
Speaker 2: points across three meetings. The recalibration phase is over. We're
0:32
Speaker 2: in a new phase. Things of foggier, the darker you
0:35
Speaker 2: move more slowly. Well, this was the price reaction to
0:37
Speaker 2: that in the market. Equities slammed down one point five
0:41
Speaker 2: percent on the S and P on the natstack, down
0:42
Speaker 2: by more than two the small caps. Some outperformance on
0:45
Speaker 2: the small caps going into the decision, real underperformance coming
0:49
Speaker 2: out of it, the small caps down by two point
0:52
Speaker 2: eight percent. In the bond market, big move at the
0:54
Speaker 2: front end of the curve, yields up across the curve twos, tens,
0:57
Speaker 2: and thirties on a two year up by more than
0:59
Speaker 2: ten to four thirty four eighty two. And off the
1:03
Speaker 2: back of that and foreign exchanges, you might expect the
1:05
Speaker 2: dollar stronger against everything in G ten ripping up em
1:08
Speaker 2: you wrote dollar breaking down through one oh four and
1:11
Speaker 2: threatening to do the same to one oh three. You
1:13
Speaker 2: wrote dollar right now at one o three sixty four.
1:16
Speaker 2: We all had questions about the forecasts. Why have you
1:18
Speaker 2: bumped it up on inflation. Why are you projecting higher
1:21
Speaker 2: inflation than you were projecting back in September. Why have
1:24
Speaker 2: you reduced the number of interest rate cards from four
1:27
Speaker 2: to two in the median dot for the dot plot
1:29
Speaker 2: in twenty twenty five? Is it about the data or
1:33
Speaker 2: is it about Donald Trump? Take a listen to the
1:35
Speaker 2: Chairman of the Federal Reserve.
1:38
Speaker 3: Some people did take a very preliminary step and start
1:42
Speaker 3: to incorporate highly conditional estimates of economic effects of policies
1:48
Speaker 3: into their forecasts at this meeting and said so in
1:50
Speaker 3: the meeting. Some people said they didn't do so, and
1:54
Speaker 3: some people didn't say whether they did or not. So
1:56
Speaker 3: we have people making a bunch of different approaches to that.
2:00
Speaker 3: But some did identify policy uncertainty as one of the
2:05
Speaker 3: reasons for their they're writing down more uncertainty around inflation.
2:10
Speaker 2: Compare and contrast that to what you heard from the
2:12
Speaker 2: chairman back on November seventh. We don't guess, we don't assume.
2:16
Speaker 2: We don't speculate. December eighteenth, some of us guests, some
2:20
Speaker 2: of us assume, and Lisa apparently some of us speculate.
2:23
Speaker 1: The we is doing a lot of heavy lifting at
2:25
Speaker 1: a time where clearly he's reflecting a splintering committee that
2:28
Speaker 1: is dealing with a whole host of different outcomes and
2:31
Speaker 1: potentially political leanings. And I just want to go here,
2:34
Speaker 1: this is going to be viewed through a political lens. Inevitably,
2:38
Speaker 1: it already was threatening to do so. Now there are
2:41
Speaker 1: some people who are incorporating highly conditional estimates. I wish
2:46
Speaker 1: that we had learned more about what those estimates looked
2:49
Speaker 1: like and whether they all were inflationary or whether some
2:52
Speaker 1: of them were to slower growth.
2:53
Speaker 2: Neil Datta wanted to jump onto the program. We can
2:55
Speaker 2: bring them into the program right now, Nil Detta of
2:58
Speaker 2: renmac neil. Is this federal resist on a collision course
3:01
Speaker 2: with the incoming administration.
3:05
Speaker 4: I mean, it certainly feels like they're tempting faith, you know,
3:09
Speaker 4: I mean Powell's talking about he goes through a litany
3:11
Speaker 4: of indicators talking about how the labor markets are cooling,
3:15
Speaker 4: and then he, you know, in the same sentence basically
3:18
Speaker 4: talks about how they're dialing back rate cuts. So I
3:21
Speaker 4: think that that's that's a problem. And you know, I
3:24
Speaker 4: think the the optimistic take around this is by making
3:28
Speaker 4: the forecast adjustments that they've made, they're actually, in some
3:32
Speaker 4: respects lowering the bar for additional action, you know, early
3:36
Speaker 4: next year. So like two point five percent on core inflation,
3:40
Speaker 4: I mean, that's a reasonably high number. And you know,
3:45
Speaker 4: given what we know about rental inflation, that's probably going
3:49
Speaker 4: to slow down, given what we know about you know,
3:52
Speaker 4: consumer goods. You know, if you look at things like
3:56
Speaker 4: freight rates, it's probable that consumer durable goods price is moderated,
4:00
Speaker 4: you know, over the next couple of months, you know,
4:02
Speaker 4: just as the new administration's coming into office. So you know,
4:06
Speaker 4: I think they're signaling a pause. But it's also important
4:10
Speaker 4: to remember that by March the forecast might look a
4:12
Speaker 4: little bit different and they maybe they may have to
4:17
Speaker 4: cut again.
4:18
Speaker 5: Neil, you were my Economics of the year two years ago.
4:21
Speaker 5: You were optimistic when few were. Now you've switched flat
4:25
Speaker 5: out switches, no other way to put it. How off
4:28
Speaker 5: is Atlanta GDP now at three point one percent? Is
4:32
Speaker 5: Powell know something we don't know, and those visible present
4:36
Speaker 5: numbers are just flat out wrong.
4:39
Speaker 4: I never I never think. I mean, I don't think
4:41
Speaker 4: the FED really has an economic forecasting edge of any
4:44
Speaker 4: meaningful degree. You know, Tom, the FED doesn't have a
4:49
Speaker 4: GDP mandate. So it's interesting to see how much Powell
4:52
Speaker 4: was talking up gross domestic product, private final you know,
4:57
Speaker 4: domestic sales. I thought that was pretty interesting, quite revealing, actually,
5:01
Speaker 4: because that was sort of a way for him to
5:03
Speaker 4: avoid the questions around the labor market. And we know
5:05
Speaker 4: that duration of unemployment as an example, has gone up
5:08
Speaker 4: by two to three weeks over the last couple of months.
5:10
Speaker 4: Leaving that aside, I mean, you're right, I mean I
5:12
Speaker 4: am more cautious. I remember two years ago, around this time,
5:17
Speaker 4: the consensus was conditioned for you know, basically everyone was
5:21
Speaker 4: penciling in recession, and all I did was point out
5:24
Speaker 4: the fact that the labor markets were fine and housing
5:27
Speaker 4: stocks were moving up into the right Fast forward to today,
5:30
Speaker 4: it's literally the opposite situation. Everyone is sanguine on growth.
5:35
Speaker 4: It's very difficult to talk about recession. No one really
5:38
Speaker 4: wants to hear it. And at the same time, we
5:40
Speaker 4: know that the labor markets are slowing by Powell's owned admission. Okay,
5:45
Speaker 4: and just pull up a chart of homebuilding stocks.
5:49
Speaker 1: Well, meanwhile, Neil, I just want to point out the
5:51
Speaker 1: fact that other people are taking a different tack than
5:54
Speaker 1: you are, as you say, your contrarian thinking that there's
5:56
Speaker 1: more weakness in the market. Peter sheher saying this he
5:59
Speaker 1: doesn't think is necessarily political. He said, this is a
6:01
Speaker 1: fed that is worried that inflation isn't coming down fast enough.
6:04
Speaker 1: And well, it might play in the back of their mind.
6:07
Speaker 1: They aren't responding to fiscal potential policy on the margins.
6:10
Speaker 1: Some are, but he's saying in general they are not.
6:13
Speaker 1: Why do you disagree so fundamentally with that?
6:16
Speaker 4: Just go through the go through the document, look at
6:20
Speaker 4: the balance of risk to the inflation forecast. It's a
6:24
Speaker 4: dramatic increase in the number of participants that see the
6:27
Speaker 4: risk to headline and core inflation eskewed to the upside. So,
6:32
Speaker 4: I mean, they can say whatever it is they want,
6:35
Speaker 4: but based on the data, it's very difficult to justify
6:37
Speaker 4: the distribution of risk that you see in the projections.
6:43
Speaker 4: And how are the risks to inflation going up at
6:46
Speaker 4: a time when labor is cooling and wages are slowing.
6:49
Speaker 4: We know that recruiting intensity is down, we know that
6:52
Speaker 4: quits rates have collapsed. Okay, that probably implies that there's
6:57
Speaker 4: further cooling with respect to compensation growth between now and
7:00
Speaker 4: the next couple of quarters. The dollar is surging today
7:04
Speaker 4: because of what just happened, you have to start thinking
7:07
Speaker 4: about what that might mean for the emerging market space,
7:10
Speaker 4: because obviously these countries have a lot of dollar denominated
7:12
Speaker 4: debt and that's going to imply tighter financial conditions in
7:15
Speaker 4: those economies. So okay, I mean, I think based on
7:20
Speaker 4: the data, it's really difficult to say that the distribution
7:22
Speaker 4: of risks have changed that much. And Powell even said
7:26
Speaker 4: that based on the inputs from core CPI and producer prices,
7:30
Speaker 4: you'll probably get a pretty weak reading on core pc
7:33
Speaker 4: inflation when that data are released on Friday. And the
7:36
Speaker 4: big story again out of the inflation data over the
7:39
Speaker 4: last week has been the normalization of housing rental inflation.
7:43
Speaker 4: So I think, you know, to me, this is it
7:47
Speaker 4: feels a little bit like they're pre judging potential policy outcomes.
7:51
Speaker 2: Em currencies right now getting hammered. Neil, I don't expect
7:54
Speaker 2: the caller. I don't expect the tide, but maybe just
7:57
Speaker 2: a jack in next time, Noil, maybe a jack hid
8:00
Speaker 2: you know, for some post fed show commentary.
8:03
Speaker 6: In the studio.
8:06
Speaker 4: Back in the studio, I'll put on you know, my
8:10
Speaker 4: my Gucci for you.
8:11
Speaker 2: There we go. I'll make that happen, Neil, make it
8:13
Speaker 2: happen soon and Neil appreciate it, sir, enjoy the holidays.
8:16
Speaker 2: Neil Dutta there.
8:17
Speaker 6: Showing up in a Christmas sweater.
8:18
Speaker 2: I mean, next time, white t shirt was better. I've
8:22
Speaker 2: got one with a better bad joke on the back.
8:24
Speaker 6: Do you really a number ten?
8:25
Speaker 1: Produce Christmas hanging like.
8:29
Speaker 2: Not with like you know, jingle bows going on.
8:31
Speaker 6: Like lights, its lights. It serves Monday. I mean it serves.
8:36
Speaker 2: Monday, Monday, definitely when I'm not here. Sarah House of
8:38
Speaker 2: Wells Fargo joins us. Now for more, Sarah, These forecasts
8:41
Speaker 2: some controversy around them. Neil Duttter making the argument that
8:44
Speaker 2: he believes that underpinning that shift in inflation higher in
8:48
Speaker 2: those dots for the dots coming down from four cuts
8:50
Speaker 2: to two, he believes as a real Trump effect in
8:53
Speaker 2: the forecasts. Sarah, is it the data or is it
8:56
Speaker 2: the incoming president.
8:59
Speaker 7: I think it's a little bit of both. John, So,
9:01
Speaker 7: I think you've seen certainly there's been a little bit
9:04
Speaker 7: stronger momentum in terms of the inflation numbers. That's why
9:06
Speaker 7: you got the upward revisions to the Q four numbers
9:10
Speaker 7: here for this year. But I think when you look
9:13
Speaker 7: at just the magnitude of the change as well as
9:15
Speaker 7: the balance of risks. We heard pal say that at
9:18
Speaker 7: least some participants included some assumptions around policy, and some
9:22
Speaker 7: didn't say if they were. So I think there is
9:24
Speaker 7: a little bit of recentering the risks around the forecast
9:27
Speaker 7: within these projections.
9:29
Speaker 5: Sir, When you do all the math at Wells Fargo
9:32
Speaker 5: as you do with Jay Brice, and when you sum
9:34
Speaker 5: it up, what are you going to watch forward to
9:36
Speaker 5: the next FED meeting? I mean, Neil Dudda just said
9:39
Speaker 5: GDP is not part of the mandate. Do we watch
9:42
Speaker 5: the jobs report? Do we look at inflation? I mean,
9:45
Speaker 5: what really matters in the guestimate forward into late January?
9:51
Speaker 7: Yeah, it's jobs and inflation. So I think after today's
9:54
Speaker 7: meeting it's a little bit more on inflation. So I
9:56
Speaker 7: think that's one of the big takeaways is we're seeing
9:59
Speaker 7: that emphasis shift back towards more of a focus on
10:02
Speaker 7: inflation after I think the labor market took more of
10:05
Speaker 7: the spotlight in the late summers. We had a couple
10:07
Speaker 7: week jobs report, unemployment rate going up pretty quickly there.
10:11
Speaker 7: But I think today's Today's message was they have less
10:14
Speaker 7: conviction about that downward path of inflation. So I think
10:17
Speaker 7: the next few reports, especially getting through the first quarter,
10:20
Speaker 7: where there's a lot of questions about residual seasonality. So
10:24
Speaker 7: do we actually see enough of a slowdown where you
10:27
Speaker 7: start to see that twelve month trend which Paul talked
10:29
Speaker 7: about so much in today's press conference, do you see
10:31
Speaker 7: that begin to come back down? But they are still
10:34
Speaker 7: looking at the labor market, and I think that did
10:36
Speaker 7: feature in not just today's cut, but also still what
10:39
Speaker 7: is an easy bias where they do have a couple
10:41
Speaker 7: more rate cuts penciled in for next year, because as
10:44
Speaker 7: you heard Paul also talk about in the press conference,
10:47
Speaker 7: they're still seeing that labor market.
10:48
Speaker 1: Cool Right now, We're seeing markets respond pretty strongly to
10:51
Speaker 1: this and people forecasting that maybe at least this is
10:55
Speaker 1: the implication this could potentially make a more difficult circumstance,
11:00
Speaker 1: particularly for smaller companies. From your vantage point on the margins,
11:03
Speaker 1: if this is a FED that sees itself in a
11:05
Speaker 1: dark room full of furniture or in a foggy land
11:09
Speaker 1: that's moving more slowly that that on the margins is
11:12
Speaker 1: going to slow your expectations, Sarah, for growth next year,
11:17
Speaker 1: I think a little bit.
11:18
Speaker 7: I mean, we're still looking for three rate cuts next year,
11:21
Speaker 7: so not terribly different from what the FED has penciled in,
11:24
Speaker 7: but of course when they come could have implications for
11:27
Speaker 7: what happens with financial conditions over the coming months. So
11:31
Speaker 7: I think when we look at the inflation picture the
11:33
Speaker 7: rate picture, I think overall we're not seeing a meaningful
11:38
Speaker 7: dialing back of policy in the months ahead to the
11:40
Speaker 7: same extent that we were over the past four months,
11:44
Speaker 7: where you still have the real rates you know, closer
11:47
Speaker 7: to one and a half percent, so not much change there,
11:49
Speaker 7: and I think that is still likely to be ahead
11:51
Speaker 7: when particularly in some sectors like you know, Neil was
11:54
Speaker 7: talking about home builders. So I think there's still certainly
11:57
Speaker 7: some pressure in some of those more rate sensitive sectors
12:00
Speaker 7: of the economy that are going to feel it a
12:01
Speaker 7: little bit more. If the Fed's not going to be
12:03
Speaker 7: cutting quite as much or quite as fast as what
12:05
Speaker 7: they were thinking a few months ago.
12:06
Speaker 2: The next twelve months is going to be quite a ride. Sarah,
12:09
Speaker 2: thank you. I appreciate your time. Sarah House of Wells Fargo.
12:12
Speaker 2: This is the FED Decide to Bloomberg Savaded Special live
12:14
Speaker 2: on Bloomberg TV and on Bloomberg Radio if you are
12:17
Speaker 2: just joining us. A twenty five basis point reduction from
12:19
Speaker 2: the feder Reserve about an hour and thirty five minutes ago,
12:23
Speaker 2: followed up by quit a news conference with the chairman J. Powell.
12:25
Speaker 2: Lots of questions about the forecast. They revised their forecast
12:28
Speaker 2: for inflation a bit higher for twenty twenty five and beyond,
12:31
Speaker 2: and they took down their projection for interest rate reductions
12:34
Speaker 2: for next year down from four in the medium dot
12:37
Speaker 2: down to two. Off the back of that, there were
12:38
Speaker 2: some questions about why cut interest rates at all. The
12:41
Speaker 2: chairman called it a close call, said the recalibration phase
12:44
Speaker 2: was behind us. We're in a new phase where we
12:46
Speaker 2: have to move more slowly. Off the back of that,
12:49
Speaker 2: Equerry is just getting absolutely smoked right now. We're down
12:51
Speaker 2: by more than two percent on the s and P
12:53
Speaker 2: five hundred down by close to four on the Russell
12:56
Speaker 2: two thousand, some severe significant underperformance on a small caps
13:00
Speaker 2: If you check out the bond market, we'll just take
13:02
Speaker 2: a quick slice of it, the two year the yield
13:04
Speaker 2: higher at the front end by double ditchits. The two
13:06
Speaker 2: year yield pushing higher up by a round about ten
13:09
Speaker 2: basis points on my screen at the moment, cool eleven
13:12
Speaker 2: now to four thirty five. That's cross over. Toma McKee
13:15
Speaker 2: was in the room in the news conference, Mike, you'll
13:17
Speaker 2: big takeaway walking out of that room.
13:20
Speaker 6: Well.
13:20
Speaker 8: A number of interesting things in the news conference, including
13:23
Speaker 8: the chairman talking about some members of the committee pricing
13:26
Speaker 8: in some possible effects from the new Trump administration fiscal policies.
13:32
Speaker 8: But the biggest takeaway that I had is that the Fed,
13:35
Speaker 8: including the Chairman, are less confident. He wouldn't say he's
13:39
Speaker 8: not confident anymore, but they are less confident about the
13:42
Speaker 8: path of inflation. He basically said, it's come down, so
13:46
Speaker 8: we think it's going to keep going down. But it's
13:49
Speaker 8: not like we were seeing in the summertime, where they
13:52
Speaker 8: were very convinced that inflation was on the right track
13:55
Speaker 8: and headed to two percent, So that's really going to
13:57
Speaker 8: inform their decisions as they go forward. The other thing
14:01
Speaker 8: that I take away from this, John, interesting is we
14:03
Speaker 8: need to rename this show because you call it the
14:06
Speaker 8: FED Decides, but I would add the words the market disagrees.
14:11
Speaker 8: If you look at the forecast now in the markets,
14:15
Speaker 8: there is only one cut fully priced in for next year.
14:19
Speaker 8: So we're going to have this tug of war back
14:21
Speaker 8: and forth between the markets and the Fed. It seems
14:24
Speaker 8: ongoing from here.
14:25
Speaker 2: That tension continues. Mike, appreciate your time, sir, great work
14:28
Speaker 2: as always. Join us Now is Jeff Rosenberg of Blackrock. Jeff,
14:32
Speaker 2: I want your first thoughts. I asked the question to
14:34
Speaker 2: Bob Michael at JP Morkan Asset Management, and I said
14:37
Speaker 2: to him going into the news conference, are you more
14:40
Speaker 2: or less confident embracing risk given what you've just learned
14:43
Speaker 2: from the Federal Reserve? And Jeff, I want to ask
14:45
Speaker 2: that question of you after that, are you more or
14:47
Speaker 2: less confident embracing risk into twenty twenty five?
14:51
Speaker 9: Well, you can see, Jonathan, you know this is a
14:54
Speaker 9: surprise to markets, and so one of the things the
14:58
Speaker 9: markets had hoped for was a FED that was very
15:01
Speaker 9: much leaning towards easy financial conditions, focusing more on the
15:06
Speaker 9: labor side than on the inflation side, and that was
15:09
Speaker 9: pretty supportive to financial conditions and taking risks. So you
15:12
Speaker 9: see the market reactions that you just talked about not
15:15
Speaker 9: what markets were expecting. And so certainly that's a little
15:18
Speaker 9: bit less favorable environment for risk taking because you have
15:22
Speaker 9: a FED that has really kind of surprised me. I
15:24
Speaker 9: think it surprised the market here in saying, hey, we're
15:28
Speaker 9: more worried or as worried about the inflation side now
15:31
Speaker 9: than we were about the labor markets, and that means
15:34
Speaker 9: we're not going to be as quick to cut. And
15:38
Speaker 9: it's the cut in the policy and the favoring of
15:40
Speaker 9: easy financial conditions that was so supportive to taking risk.
15:44
Speaker 1: Jeff, the reviews are coming in. That was one of them.
15:47
Speaker 1: Here's some others. Steve Shivron worst performance worst power performance
15:51
Speaker 1: is twenty one. They overreacted to labor market data in September.
15:54
Speaker 1: Now they are overreacting to inflation data. Krishna MoManI, probably
15:59
Speaker 1: the worst Russer so far of his tenure, seems to
16:01
Speaker 1: support for this cut was quite spotty, but they went
16:04
Speaker 1: ahead with it anyway, Jeff, do you agree with that?
16:07
Speaker 10: Yeah, you know a lot of the sentiments in there
16:10
Speaker 10: are about just how much the FED when they stopped
16:14
Speaker 10: forecasting and became data dependent. The problem is they're dependent
16:18
Speaker 10: on like as much as he said they're not trying
16:21
Speaker 10: to be, it feels like they're dependent on the last
16:24
Speaker 10: few data releases and so yes, going into September, it
16:27
Speaker 10: was all about labor markets. Now it seems it's all
16:30
Speaker 10: about inflation. I think one of the earlier guests end
16:32
Speaker 10: and I would agree with this. You know, this is
16:35
Speaker 10: not going to be a great forecast for where the
16:37
Speaker 10: fed's future forecasts have been because they've been just so
16:42
Speaker 10: whipped around by short term movements in data. And that
16:45
Speaker 10: certainly is kind of frustrating. And Jonathan, you earlier question,
16:48
Speaker 10: you know, makes it makes risk taking a bit tougher
16:51
Speaker 10: because the FED signaling and what we're going to get
16:53
Speaker 10: out of the FED is just that much more uncertain.
16:55
Speaker 5: Atche Frozenberg, Ellen Meltzer, you're Carnegie Mellon come runer up
16:59
Speaker 5: at Rock had a shadow Open Market Committee, which was
17:03
Speaker 5: the first rule was stability.
17:04
Speaker 6: Stability.
17:05
Speaker 5: I don't see stability in EM I don't see stability. Granted,
17:09
Speaker 5: it's a different story in generic China ten year.
17:13
Speaker 6: They're going to open here in three or four hours.
17:16
Speaker 5: Is Blackrock internationally concerned about the Asia opening here?
17:21
Speaker 6: Call it seven pm our time?
17:25
Speaker 10: So, you know, Neil mentioned it in his comments about
17:30
Speaker 10: the impact. You know, the FED sets monetary policy based
17:34
Speaker 10: on domestic US conditions, but the impact on the rest
17:38
Speaker 10: of the world is as important, particularly when it flows
17:42
Speaker 10: back into the United States. And how is the channel
17:44
Speaker 10: for that flowing back. It's through the potential of tightening
17:47
Speaker 10: and financial conditions. I think the tightening and financial conditions
17:50
Speaker 10: from the dollar increase is going to be much more
17:53
Speaker 10: front and center in emerging markets. What Powell talked about
17:57
Speaker 10: is the exceptionalism. What no one really talked about was
18:01
Speaker 10: what is the source of that exceptionalism? What is the
18:03
Speaker 10: source of that exceptionalism. Partly, it's this incredible technology AI
18:09
Speaker 10: wealth creation story that is feeding into positive animal spirits.
18:14
Speaker 10: It's feeding directly into consumption through the wealth effect, and
18:18
Speaker 10: so that creates a little bit of a buffer around
18:21
Speaker 10: the US economy around some of the blowback issues you
18:24
Speaker 10: raise in terms of currency open and Asia. So I think,
18:29
Speaker 10: you know, we keep an eye on it, But so
18:31
Speaker 10: far it's really this much bigger story about American exceptionalism,
18:35
Speaker 10: which has a kernel a really important point of that
18:39
Speaker 10: about this incredible wealth creation we're seeing coming out of technology.
18:42
Speaker 2: Jeff, I'm pleased that Tom brought this up. The move
18:44
Speaker 2: we're seeing on the screen, the phone exchange screen on
18:46
Speaker 2: the Bloomberg terminal really lighting up. We've got a three
18:49
Speaker 2: percent move on the Brazilian currency. Yet today we're talking
18:53
Speaker 2: about a move of twenty three percent on the Brazilian currency,
18:56
Speaker 2: twenty one on the antentigin PA. So we're looking at
18:59
Speaker 2: something like seventeen percent on the Mexican pay. So, Jeff,
19:02
Speaker 2: as I look around the world beyond DM, not just
19:05
Speaker 2: the Europe, but including Asia and China specifically, China is
19:09
Speaker 2: looking at a disinflation rebust potentially. The chart of the
19:12
Speaker 2: yields government bond yields in China just lower, lower, lower,
19:16
Speaker 2: and rolling over into year end. Jeff, how much divergence
19:20
Speaker 2: do you expect for the US versus the rest of
19:22
Speaker 2: the world in twenty five.
19:25
Speaker 6: Yeah, you know, we're really exiting.
19:27
Speaker 10: We talked about exiting the phase of monetary policy. We're
19:31
Speaker 10: also exiting this phase of kind of harmonized macroeconomic implications
19:38
Speaker 10: for inflation that was then feeding into harmonization for central
19:42
Speaker 10: bank policies, and so as kind of the reasons that
19:45
Speaker 10: Powell talked about for that decline in inflation without kicking
19:49
Speaker 10: up unemployment rate, it was really about the restoration of
19:53
Speaker 10: supply chains and the post COVID impact that was a
19:55
Speaker 10: global impact that's now starting to dissipate, and what's coming
19:59
Speaker 10: in and the aftermath of that are a lot more
20:02
Speaker 10: of the idiosyncratic country specific fundamentals driving those economies performance
20:08
Speaker 10: the currency you mentioned a bunch of different countries there,
20:11
Speaker 10: from Brazil to Argentina to China. That's really all about
20:15
Speaker 10: domestic economic policies economic performance that is driving. And so
20:21
Speaker 10: that's really a market environment of divergences rather than convergences,
20:27
Speaker 10: and so that's really affecting the investment outlookause, particularly for
20:31
Speaker 10: investing between the markets in what I call a cross
20:35
Speaker 10: section that's actually a better investment environment. It takes out
20:39
Speaker 10: kind of the directional call is the dollar going up,
20:42
Speaker 10: is the dollar going down? You have a lot more
20:43
Speaker 10: opportunities within that global cross section of investing both in
20:47
Speaker 10: currencies FX curves. It actually creates a better environment in
20:53
Speaker 10: some sense for alpha creation, because divergences create more alpha opportunity.
20:59
Speaker 1: Jeff, you've said a number of times that because of
21:02
Speaker 1: the increase in uncertainty at the FED to reserve, an
21:05
Speaker 1: increase and uncertainty as to the path of their policy,
21:08
Speaker 1: that it makes you less inclined to take risk on
21:11
Speaker 1: the margins, which risk in particular looks most vulnerable to
21:15
Speaker 1: you or less attractive as a result of increasing uncertainty
21:19
Speaker 1: on the FED.
21:20
Speaker 10: Yeah, and if I get I want to pair that
21:23
Speaker 10: to my last answer, because you know that's the directional call, right,
21:26
Speaker 10: So is the FED easing financial conditions, raising the value
21:30
Speaker 10: of prices makes risk taking more supportive? Then that's really
21:35
Speaker 10: talking about risk taking in in the beta sense, in
21:38
Speaker 10: the directional space. So where are you more vulnerable just
21:42
Speaker 10: to your beta exposure, beta exposure to directional rates, beta
21:46
Speaker 10: exposure to your directional equities. But the divergences question earlier
21:51
Speaker 10: about the impact thinking about globally that actually makes risk
21:55
Speaker 10: taking better in the alpha and the cross sectional space.
21:57
Speaker 10: So it's about portfolio construction and it's about how much
22:01
Speaker 10: am I putting risk on in terms of directional space.
22:05
Speaker 10: That's really where the FED today that you want to
22:07
Speaker 10: be taking down the flip side is in the alpha
22:10
Speaker 10: space in the cross section. It's actually a better environment.
22:12
Speaker 10: That's where you want to be adding risk into the portfolio.
22:15
Speaker 6: HF.
22:15
Speaker 2: I appreciate your time, Sir Jeff Rosenberg of black Rock. Enjoy
22:17
Speaker 2: the holidays remaining the team will take you through the
22:20
Speaker 2: clothes in just the moment. Tesla's want to watch going
22:22
Speaker 2: into the close down ten percent of the moment in
22:25
Speaker 2: this session, have to sort of acknowledge that we're up
22:27
Speaker 2: still about twenty percent this month alone. A couple of
22:30
Speaker 2: things to note here, Lisa, the year so far Q one,
22:33
Speaker 2: inflation headfake Q three, labor market head fake Q four.
22:38
Speaker 2: This FED looking just a little bit lost.
22:40
Speaker 1: And honestly, the market is responding to being a little
22:43
Speaker 1: bit lost by selling off in a dramatic fashion.
22:47
Speaker 6: I'm speechless.
22:48
Speaker 5: I think it's going to be interesting, particularly on watching
22:52
Speaker 5: FX into the Japan open.
22:54
Speaker 2: Could not agree more. This dollar is a whole lot stronger.
22:56
Speaker 2: Just how much oxygen is left up here? Your equority
22:59
Speaker 2: market's down as session loads with a negative two point
23:02
Speaker 2: nine percent from New York. Thank you for choosing Bloomberg
23:10
Speaker 5: M