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Instant Reaction: Jay Powell on Fed Policy · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio.
0:06
Speaker 2: News, the Chairman of the Federal Reserve to rump out,
0:09
Speaker 2: wrapping up the June FED decision. No change at the
0:12
Speaker 2: Federal Reserve to interest rates, Plenty of changes in the forecast.
0:16
Speaker 2: Inflation moving up a little bit, the dot plot moving
0:19
Speaker 2: down a little bit. Equity market is just about holding
0:21
Speaker 2: onto gains and still near all time highs on the
0:23
Speaker 2: S and P five hundred on the NASDAK we're still
0:26
Speaker 2: highed by one point eight percent, the rustle up by
0:28
Speaker 2: two point two. We turn the page and switch at
0:30
Speaker 2: the board and get to the bond market. This is
0:31
Speaker 2: where things start to get. Interestings we're down by double
0:34
Speaker 2: digits at the front end throughout most of the morning
0:37
Speaker 2: and into the afternoon. We're now down by only nine
0:39
Speaker 2: on a two year at four seventy four fifty five.
0:42
Speaker 2: And if you take an inter day chart of the
0:44
Speaker 2: two year yield, this shows the story of the morning
0:46
Speaker 2: and the afternoon perfectly. I want to show you three moves.
0:49
Speaker 2: The first move was eight thirty Eastern time this morning
0:52
Speaker 2: when CPI came out cooler that expected what you see
0:55
Speaker 2: on yields drop easy to see on the far right
0:58
Speaker 2: side of the chart. Two moves I want to points
1:00
Speaker 2: out once at two pm. Another is in the news
1:02
Speaker 2: conference at two pm. We had some forecasts. The dot
1:05
Speaker 2: plot came out and we all wanted to know where
1:07
Speaker 2: the median dot would be in March. It signored or
1:10
Speaker 2: at least implied three cuts for twenty twenty four. That
1:13
Speaker 2: came down to one. You'll started to climb, and then
1:15
Speaker 2: we all had a big question going into the news conference.
1:18
Speaker 2: We'll hang on a minute. Did they factor in the
1:20
Speaker 2: inflation report that came out this morning? And obviously, inevitably
1:23
Speaker 2: Chairman Power was asked about it. This is what he
1:26
Speaker 2: had to say.
1:28
Speaker 3: What's in the SEP actually does reflect the data that
1:31
Speaker 3: we got today to the extent you can, you know,
1:33
Speaker 3: reflect it in one day. I think, well, you know,
1:36
Speaker 3: you will see PPI tomorrow. Will know more about the
1:39
Speaker 3: PCEE reading as the month goes on, but the initial
1:42
Speaker 3: CPI reading and it's you know, kind of first level
1:45
Speaker 3: translation to pce we did have this morning. We were
1:48
Speaker 3: briefed about it and people were able to consider whether
1:52
Speaker 3: they should make changes, and.
1:53
Speaker 2: It didn't look like many people made any changes at least,
1:55
Speaker 2: and for that reason, that's why you see that spike
1:57
Speaker 2: car that little move high again on a two year
1:59
Speaker 2: yield que The confusion around the forecasts, well, is this.
2:03
Speaker 1: By design in some levels? Basically, there were a number
2:05
Speaker 1: of Fed officials who got that CPI print and opted
2:09
Speaker 1: not to change their inflation forecast. Do they do so
2:12
Speaker 1: because they want more than three inflation reads to really
2:14
Speaker 1: gain confidence in some sort of disinflationary trend? Is it
2:18
Speaker 1: because all things being equal, it's better to send a
2:20
Speaker 1: hawkish signal to markets that are eagerly looking for any
2:24
Speaker 1: opening to buy into any idea of a rate cut.
2:27
Speaker 1: All we know is that that was a slight disappointment
2:29
Speaker 1: that's being reflected in slightly higher yields that have taken
2:31
Speaker 1: back about five basis points from earlier this morning.
2:33
Speaker 2: There's always going to be a big conversation about where
2:35
Speaker 2: the medium dot is. But when these numbers came out,
2:38
Speaker 2: you were the first to point this out. The split
2:40
Speaker 2: amongst the policy makers now swear TK Just to go
2:42
Speaker 2: through this again for those of you just joining us,
2:45
Speaker 2: this is what we saw get away from the media
2:47
Speaker 2: on the committee right now. The dot plot shows four
2:49
Speaker 2: policy makers who saw no cuts this year, some anticipated
2:53
Speaker 2: just one reduction, that was seven and expected tom two cuts.
2:57
Speaker 2: The Federal Reserve is kind of all over the place.
3:00
Speaker 4: Created and what's important here is the dispersion is not smooth.
3:02
Speaker 4: So there's basically two camps. I thought Lukawa, of all people,
3:06
Speaker 4: had a wonderful tweet out and that's really pointing out
3:08
Speaker 4: the polarity that we see in the Fed as we
3:10
Speaker 4: staggered through the summer.
3:12
Speaker 2: I want to pick up on the labor market and
3:13
Speaker 2: talk a little bit about that. So on Friday, payrolls
3:16
Speaker 2: came in and it looked really hot on the headline
3:18
Speaker 2: number two seventy two. But there's two surveys that go
3:21
Speaker 2: into payrolls. There's the Establishment survey payrolls. There's the household
3:25
Speaker 2: survey that's the unemployment rate. Unemployment came up to about
3:28
Speaker 2: four percent. We all wanted to know what weight would
3:30
Speaker 2: shairman Power put on the headline figure and how much
3:32
Speaker 2: weight would he put on the household survey, and it
3:35
Speaker 2: kind of said something like this, Sometimes it's difficult to
3:38
Speaker 2: reconcile the differences. Payrolls might be a little bit overstated.
3:42
Speaker 2: Makes more sense to look at things over the last
3:44
Speaker 2: six months or so, Lisa. Overall, the picture is strong,
3:47
Speaker 2: and we've got a gradually calling labor market.
3:50
Speaker 1: People really honed it on the idea that the payroll
3:53
Speaker 1: jobs growth maybe overstated. That line caught a lot of
3:56
Speaker 1: people's attention at a time where he reflected the confusion
3:59
Speaker 1: that we all felt, which is the reason why some
4:01
Speaker 1: people said, we don't believe these numbers. Will wait for
4:04
Speaker 1: the revisions. Nonetheless, this is why he's talking about a
4:06
Speaker 1: series of data points, and maybe is part of the
4:09
Speaker 1: reason why they aren't having much conviction, because this is
4:13
Speaker 1: just sheer confusion that we're feeling from the feed.
4:14
Speaker 2: Do you remember when Dan Swank used to talk about
4:16
Speaker 2: aspirational forecasts of the FETA reserve. Let's have a look
4:19
Speaker 2: at unemployment together. Four percent on Friday. This is where
4:22
Speaker 2: they see it. Year end medium projection four percent, year
4:25
Speaker 2: end twenty four four point two percent, year end twenty
4:29
Speaker 2: five at LISA year end twenty twenty six, four point
4:32
Speaker 2: one percent. Now, I understand the Fetter Reserve has a
4:35
Speaker 2: great influence on things. They can shape the events they anticipate.
4:39
Speaker 2: If they start to signal the unemployment's kind of five percent,
4:41
Speaker 2: we've got a problem, and I think you see the
4:43
Speaker 2: market freak out. But to signal, based on your own projections,
4:47
Speaker 2: that we finish basically flat from where we are unemployment
4:49
Speaker 2: by year end and climb to four point two by
4:52
Speaker 2: twenty twenty five, is that aspirational or realistic?
4:55
Speaker 1: You know, we said a lot of their projections were
4:57
Speaker 1: aspirational a year or two years ago, and yet they
5:00
Speaker 1: were correct. So I'm humble to sit here and say
5:04
Speaker 1: that they're just purely aspirational. And we have not seen
5:07
Speaker 1: the unemployment rate climb to such a significant degree, and
5:09
Speaker 1: they've actually had to decrease their expectation for unemployment rates
5:13
Speaker 1: just simply because the labor market was stronger than they expected. Now,
5:17
Speaker 1: I would argue that the idea of upgrading their expectation
5:21
Speaker 1: for inflation and keeping the same number of cuts, just
5:23
Speaker 1: pushing them back to a later time raises some questions,
5:26
Speaker 1: And this was ask the press conference. How did they
5:29
Speaker 1: accept that, given that they don't see the labor market
5:32
Speaker 1: breaking and that they want to get back down to
5:34
Speaker 1: two percent, how do we cross how do we thread
5:37
Speaker 1: that needle? And that's a good question that I didn't
5:39
Speaker 1: really hear an answer to.
5:40
Speaker 2: You want McKays run out of the news conference and
5:41
Speaker 2: got in front of the camera for us, Mike, let's
5:43
Speaker 2: catch out with you, Chairman Pow. Did he manage to
5:46
Speaker 2: square the circle in that news conference?
5:49
Speaker 5: Not really, John. I was thinking during this of the
5:53
Speaker 5: line from the old movie Blazing Chaddles where the preacher says,
5:56
Speaker 5: you're on your own boys, because there doesn't seem to
5:59
Speaker 5: be any kind of direction here from the FED about
6:02
Speaker 5: which way they're going to go and when they're still
6:05
Speaker 5: base their base cases. I mentioned in my question to
6:07
Speaker 5: the chairman is that they're going to cut rates this year,
6:10
Speaker 5: but they don't see any difference at the end of
6:12
Speaker 5: the year between the economy now and the economy then.
6:16
Speaker 5: So how are investors supposed to anticipate what the FED
6:20
Speaker 5: is going to do if the FED doesn't know and
6:24
Speaker 5: can't give you any guideposts. The Chairman said, well, we
6:27
Speaker 5: need a couple more reports that show things improving, but
6:32
Speaker 5: what is improvement? Last month we saw the CPI changed
6:37
Speaker 5: by about a tenth of a point and the PCE
6:40
Speaker 5: changed by about a tenth of a point, and Chris
6:42
Speaker 5: Waller said, well that's not good enough. I give those
6:44
Speaker 5: reports a C plus. So it's really hard to tell
6:49
Speaker 5: what's going to move them Obviously he's sort of signaling
6:52
Speaker 5: not July, but from September on. It's an open question.
6:57
Speaker 4: Mike. They want the convenience of a dramatic ex post decision.
7:02
Speaker 4: Maybe that's not what the way the script goes this time.
7:05
Speaker 4: What will you watch in the data that allows them
7:09
Speaker 4: to get out front is they've never done before, well
7:13
Speaker 4: maybe the nineties, but basically that they've never done before.
7:17
Speaker 5: Well, basically you want to see what they want to
7:19
Speaker 5: see an improvement in inflation data. But how much is
7:24
Speaker 5: going to be the tricky part. We'll have to watch
7:27
Speaker 5: both what the market reaction is and what the data show,
7:30
Speaker 5: and then what they say in their speeches. At the
7:33
Speaker 5: same time, we will also be looking at the unemployment
7:36
Speaker 5: rate and job creation to make sure things don't go
7:39
Speaker 5: south there. Either one might push them one direction or another.
7:44
Speaker 5: I think that at this point they're going to be
7:47
Speaker 5: as cautious as possible, but they do seem determined to
7:51
Speaker 5: get at least one cut in.
7:53
Speaker 1: Mikeel A lot of people were asking, including both Muhammada
7:56
Speaker 1: and Bob Michael, whether the finficials really under stood the
8:00
Speaker 1: CPI data and kept their projections. We got kind of
8:04
Speaker 1: an answer but Sima Sha put it this way. You know,
8:06
Speaker 1: if they did know that, maybe that implies that they
8:09
Speaker 1: need more than three months of softer inflation prints before
8:13
Speaker 1: they can be convinced to cut rates. Do we have
8:16
Speaker 1: any clear message from the idea that yes, FED officials
8:19
Speaker 1: had the information, and yes they had the chance to
8:21
Speaker 1: change their forecasts, and no they did not.
8:24
Speaker 6: Do it.
8:26
Speaker 7: Well.
8:26
Speaker 5: The chairman suggested that some people may have changed their forecast,
8:30
Speaker 5: but the majority didn't. It's not going to be extending
8:35
Speaker 5: the number of inflation data that they get. It's going
8:40
Speaker 5: to be more of the same that we saw today.
8:43
Speaker 5: Doesn't have to be maybe the same magnitude, but it
8:45
Speaker 5: has to be a continued sequence of slowing inflation for
8:50
Speaker 5: them to gain confidence. That's their magic word is confidence.
8:54
Speaker 5: And they don't tell us what would give them confidence,
8:57
Speaker 5: but it seems like several more, one or two more
9:00
Speaker 5: maybe would give them the confidence that they could start
9:04
Speaker 5: moving towards cutting rates.
9:06
Speaker 4: Mike, you're expert at the data far more than i am.
9:09
Speaker 4: If you look at domestic final sales, take out the
9:12
Speaker 4: noise of trade, the world's agony, etc. If you look
9:16
Speaker 4: at domestic final sales, what's the run rate? On the
9:18
Speaker 4: economy that they're going to be dealing with to July
9:21
Speaker 4: thirty one, September eighteenth, and near the election November seventh, well, we.
9:27
Speaker 5: Were still in that area. Tom two point eight percent
9:30
Speaker 5: in the first quarter, still well above trend growth for
9:35
Speaker 5: that and the Atlanta Fed GDP now is running above
9:39
Speaker 5: three percent. If you take that one and you take
9:42
Speaker 5: the first quarter GDP at average them, you're at two
9:45
Speaker 5: point two percent for the first half. So they're going
9:50
Speaker 5: to be dealing with and they predict they're going to
9:51
Speaker 5: be dealing with an economy that doesn't slow down at
9:54
Speaker 5: this point and doesn't affect the labor market at this point.
9:58
Speaker 5: And the interesting thing is they see core PCE inflation
10:01
Speaker 5: going up, but they're still talking about raising rates or
10:05
Speaker 5: cutting rates rather. So it's it's a situation that kind
10:09
Speaker 5: of leaves everybody at sea here as to what it
10:12
Speaker 5: is they're actually going to do. If they want to advertised,
10:15
Speaker 5: listen to our speeches. This is a good advertisement for that.
10:20
Speaker 2: Yeah, Mike, I'm not sure if that one bites. Let's say,
10:22
Speaker 2: if that works. Mike McKay, thank you, sir, great work
10:25
Speaker 2: As always in the news conference. Once again, this is
10:28
Speaker 2: the calendar for the next month or so. So July fifth,
10:30
Speaker 2: you get another jobs report. Let's see if it looked
10:32
Speaker 2: like the one we got on Friday, July eleventh. You've
10:34
Speaker 2: get a CPI report back end of July, very last
10:37
Speaker 2: day of the month, July thirty one, another Federal Reserve decision.
10:40
Speaker 2: No questions really about July, Lisa, but I guess it
10:42
Speaker 2: was implied based on the forecast we got a little
10:45
Speaker 2: bit earlier.
10:45
Speaker 1: Basically, it seems like July is squarely off the table.
10:48
Speaker 1: It was not even an consideration September though. J. Pewell
10:51
Speaker 1: didn't even entertain that idea. He kind of hemmed, in hard,
10:54
Speaker 1: I don't want to talk about timeframes. I don't we
10:57
Speaker 1: don't want to be like, you know, squirred in give it.
11:00
Speaker 2: I would have a suppression of it.
11:01
Speaker 1: Well, I meaning again, honestly, that was exactly what he
11:04
Speaker 1: needed to do, right, Wasn't that kind of the goal
11:06
Speaker 1: that Bob Michael set out for him was to do nothing?
11:09
Speaker 1: I mean, if anything, he had the most hawkish message
11:11
Speaker 1: relative to market expectations.
11:12
Speaker 7: In a long time.
11:13
Speaker 1: So it was somewhat of a different Ja Powell than
11:15
Speaker 1: we've gotten in the past. But you know, he wouldn't
11:18
Speaker 1: really solidify anything, and that I think was by design
11:22
Speaker 1: given their confusion.
11:23
Speaker 2: I think emphasis really matters in news conferences. Of course
11:26
Speaker 2: it matters. It's pretty straightforward. It's where he didn't put
11:29
Speaker 2: the emphasis. He didn't really put much emphasis on the
11:32
Speaker 2: forecast for economic growth, on employment or inflation. Where he
11:35
Speaker 2: actually put emphasis was on the destination for the FED dots.
11:38
Speaker 2: And I thought it was pretty interesting. So we were
11:40
Speaker 2: all sort of geared up to focus on twenty twenty four.
11:43
Speaker 2: Would the dot plot, the median dot come down from
11:45
Speaker 2: three to two, maybe to one? It comes down to one,
11:48
Speaker 2: but then you're looking out to twenty twenty five and
11:50
Speaker 2: they give you one back, so they take two away
11:52
Speaker 2: and then throw an extra one in in twenty twenty five.
11:54
Speaker 2: So really, today, when you look at the dot plot
11:56
Speaker 2: the OTTOMN destination, what's changed for the FMC incens to
12:00
Speaker 2: topoth the rights from Haya.
12:02
Speaker 1: Basically that just the disinflationary trend is happening more slowly
12:05
Speaker 1: than they previously thought, but that at some point they
12:08
Speaker 1: will have this same trajectory, just on a delayed timeframe.
12:11
Speaker 1: And that was essentially what Ja Powell laid out today
12:14
Speaker 1: and maybe on the margins that's a bit more hawkish
12:16
Speaker 1: than the two year was pricing them before.
12:17
Speaker 4: I'm going to go to modest further progress. Modest is
12:20
Speaker 4: on the yactis. I have no idea what it means.
12:23
Speaker 4: Further in progress, John, is exactly what you were talking about,
12:26
Speaker 4: which is what they're doing here, is they're extending out
12:30
Speaker 4: the optionality of their timeline. Their ex exis. Because your point, Lisa,
12:37
Speaker 4: this disinflation. It is slower. David Rosenberg not the next Rosenberg.
12:42
Speaker 4: David Rosenberg says eureka. But what they did today was
12:46
Speaker 4: extend out the X axis with further progress. That's not
12:51
Speaker 4: in any textbooks. That's marketing bologney.
12:53
Speaker 2: As far as i'm we can get to Jeff Rosenberg
12:56
Speaker 2: right now as Blackrock, Jeff want to put a catch
12:58
Speaker 2: up with you, sir. Let's get into it. How did
13:00
Speaker 2: you make these forecasts? And can you square the circle
13:02
Speaker 2: for us?
13:04
Speaker 6: You know, I agree with Lisa, it's a little bit
13:06
Speaker 6: hard to square the circle here from the press conference.
13:09
Speaker 6: I mean, obviously, the morning's data set the tone for
13:13
Speaker 6: a very douvish press conference, and the one hike Median
13:18
Speaker 6: kind of took the wind out of the sails and
13:20
Speaker 6: so the so Powell was kind of faced with that
13:22
Speaker 6: as the as the backdrop, and so it was maybe
13:24
Speaker 6: a little bit less of the dubbish Powell than we've
13:27
Speaker 6: seen in the past. But I think he did give
13:29
Speaker 6: us a couple of insights. One, he did talk about
13:33
Speaker 6: the overstatement argument on payrolls, you know, a little bit
13:37
Speaker 6: to last week's data.
13:38
Speaker 7: Two, you know, he talked about two point six two point.
13:42
Speaker 6: Seven as being I can't remember exactly the quote a
13:44
Speaker 6: fine place to be. And I think that does reveal
13:47
Speaker 6: that this is a FED that doesn't have to get
13:49
Speaker 6: to two percent anytime soon, and that's part of this
13:52
Speaker 6: asymmetric response function. If inflation is a little bit too hot,
13:56
Speaker 6: then we'll just hold pat and if there's weak in
14:00
Speaker 6: the labor markets or any kind of unexpected weakening, then
14:03
Speaker 6: we're going to cut, and we'll cut more aggressively. And
14:06
Speaker 6: so I think they're comfortable with this path of inflation.
14:09
Speaker 6: And then I think on the third point, there's just
14:11
Speaker 6: a bit of confusion about how stale are the SEP
14:15
Speaker 6: forecast relative to the new information from the morning. I
14:19
Speaker 6: think what is clear here is that having.
14:21
Speaker 7: Been a little bit burned by.
14:23
Speaker 6: The enthusiasm at the end of last year and then
14:26
Speaker 6: the reversal on inflation. They're not going to want to
14:30
Speaker 6: reverse so quickly with just one good print, and he
14:33
Speaker 6: stated again and again they'll need more than just one.
14:37
Speaker 6: And I think that's why you had maybe the hesitancy.
14:39
Speaker 6: But understand that the difference between two cut and one cut.
14:42
Speaker 7: Median is one member. This is a very fine.
14:45
Speaker 6: Point to be seeing, you know, pretty big shifts in
14:48
Speaker 6: market pricing. I think the broader theme here is this
14:52
Speaker 6: is still a FED that is looking to cut rates,
14:56
Speaker 6: very supportive to financial markets. Obviously the data this morning
14:59
Speaker 6: is portive to that, a little bit dismissive about the
15:02
Speaker 6: strength of the labor market. So I think this is
15:04
Speaker 6: a pretty good set up here for bonds and stocks.
15:06
Speaker 1: Does this mean in your view that September is still
15:09
Speaker 1: very much on the table, even if Fetcher Powell really
15:12
Speaker 1: demurred when it came to a timeframe.
15:15
Speaker 7: I do think it is.
15:16
Speaker 6: And I think obviously you know, this is the volatility
15:19
Speaker 6: that is what happens when the data lights the way,
15:23
Speaker 6: when you're when you're completely abandoning forecast based policy for
15:28
Speaker 6: data dependents. But if we do get in the interim
15:31
Speaker 6: period between now and September.
15:34
Speaker 7: Reports that are along the lines.
15:36
Speaker 6: We don't have to get as big of a downside
15:38
Speaker 6: surprise as inflation as we've seen, but that continued gradual
15:42
Speaker 6: rebalancing in the labor market stabilization to slowing on the
15:46
Speaker 6: inflation side, then I think absolutely September is in play
15:50
Speaker 6: as well as December and the two cuts that are
15:53
Speaker 6: you know, not in the median, but I think are
15:55
Speaker 6: still very much in play here.
15:56
Speaker 7: Jeff.
15:56
Speaker 4: When he stepped off the stage, we were up two
15:59
Speaker 4: point any standard deviations on both SPX and Nasdaq one hundred.
16:04
Speaker 4: We've pulled back a little bit from their selling into
16:07
Speaker 4: the excitement tomorrow morning. I guess, Jeff Rozenberg, simple, how
16:10
Speaker 4: do you invest in this? Do you just clip a coupon?
16:13
Speaker 4: Do you increase your cash level in this uncertainty? Is
16:17
Speaker 4: there an opportunity?
16:20
Speaker 7: Well?
16:20
Speaker 6: I think, as I mentioned, the opportunity here is that
16:23
Speaker 6: this is a FED that is very asymmetric, and they're
16:26
Speaker 6: asymmetric with regards to holding policy flat in the face
16:31
Speaker 6: of disappointing data in terms of strength or policy progress
16:35
Speaker 6: on inflation, and then very supportive on unexpected weakening in
16:39
Speaker 6: the labor market. I think that's very supportive to financial
16:43
Speaker 6: market conditions. I think there's a longer run you know,
16:45
Speaker 6: problem with that potentially, but in the short run, this
16:49
Speaker 6: is a little bit more favorable to risk markets and
16:52
Speaker 6: to risk taking. You can step out of cash into
16:56
Speaker 6: that front end of the curve. This is a fed
16:57
Speaker 6: that's telling you that they're going to cut rates. So
17:00
Speaker 6: cash has been very supportive because they've held rates up.
17:03
Speaker 6: But the path going forward, and Jonathan mentioned it, you know,
17:06
Speaker 6: this is just shifting the cuts into twenty twenty five,
17:10
Speaker 6: So you're going to lose the income by hanging out
17:13
Speaker 6: in cash. The belly of the curve for fixed income investors,
17:16
Speaker 6: the front belly of the curve two to five year apart.
17:18
Speaker 7: I think that's a very attractive part of the curve.
17:21
Speaker 6: I do think you have to start moving out into
17:23
Speaker 6: that part of the curve to lock in those rates.
17:26
Speaker 6: And the economy to the comments on Mike McKee GDP,
17:29
Speaker 6: now the forecasting you know above trend growth relative to
17:34
Speaker 6: the fears of recession, this is a very supportive in
17:37
Speaker 6: market market environment for credit. That's a carry argument. I
17:40
Speaker 6: think you can clip coupon there, take some risk there
17:44
Speaker 6: because the default risk is still very much low because
17:49
Speaker 6: the growth side of the economy.
17:50
Speaker 7: Is very strong.
17:51
Speaker 2: Jeff, stay close. I get you back in in just
17:53
Speaker 2: a moment. I want to talk about twenty five by
17:55
Speaker 2: talking about twenty four. There's four meetings left this year
17:58
Speaker 2: July thirty one, September eighteen, November seventh, December eighteenth. I
18:04
Speaker 2: want to go to the November mating. November fifth is
18:06
Speaker 2: an election. The day after they kick off a FED mating.
18:09
Speaker 2: Michael McKay, we're all talking about folksts for twenty twenty five.
18:13
Speaker 2: None of us are got a clau halfway about what
18:15
Speaker 2: twenty twenty five is going to look like.
18:17
Speaker 5: Well, you take a look at the dot plot for
18:19
Speaker 5: twenty twenty five, and compared to twenty twenty four, it's
18:21
Speaker 5: very very spread out. There is no consensus at all.
18:25
Speaker 5: We pick a median for convenience and talk about it
18:28
Speaker 5: and we say, Okay, they're putting us up to four
18:31
Speaker 5: rate cuts next year. But really, what the dot plot
18:34
Speaker 5: is telling you is they have no idea. And one
18:37
Speaker 5: of the reasons is we could have a completely different
18:39
Speaker 5: fiscal policy next year, and we have a lot of
18:41
Speaker 5: issues including debt ceiling, the government funding and the tax
18:47
Speaker 5: cuts that are going to expire that could change the
18:50
Speaker 5: economic picture tremendously. So I'm not going to tell Jeff
18:54
Speaker 5: Rosenberg how to trade that, but I don't think you
18:56
Speaker 5: can have a whole lot of confidence that what their
18:59
Speaker 5: predict today is going to be anything like what we'll
19:02
Speaker 5: be seeing at the November meeting.
19:04
Speaker 2: Am im kay, thank you sir. Of course, the forecasts
19:06
Speaker 2: are always more instructive to really gage the reaction function.
19:09
Speaker 2: That's what's important here, how they respond to incoming information.
19:12
Speaker 2: But let's just run with this, the forecast for twenty
19:14
Speaker 2: twenty five, Brami, what are they worth given how much
19:17
Speaker 2: could change in November onwards.
19:19
Speaker 1: Well, this is the reason why Bob Michael said I'm
19:21
Speaker 1: in charge here. I'm a bond Micael investor, and I'm
19:25
Speaker 1: the person who sets the rates right now, not the
19:27
Speaker 1: Federal Reserve at a time where they are just as
19:29
Speaker 1: confused as ever before. I am curious, Jeff, what is
19:31
Speaker 1: your take on that that right now we see big
19:34
Speaker 1: bond investors saying we're setting rates, the Fed is a
19:37
Speaker 1: bunch of confused people who are looking at the same
19:39
Speaker 1: data and equally confuses everybody else. We can look at
19:42
Speaker 1: supply and demand. We can react to all of the
19:44
Speaker 1: economic data. Sure, yields jump up and down, but we're
19:47
Speaker 1: the ones that are kind of the main guy in
19:49
Speaker 1: the room.
19:51
Speaker 6: You know, I'm going to agree with Bob Michael very
19:54
Speaker 6: much so, especially when we're talking about the back end
19:58
Speaker 6: maturities and the term premium. You know, this is a
20:00
Speaker 6: FED that's gonna get less into the business of setting
20:05
Speaker 6: term premium and influencing the maturity of rates and the
20:09
Speaker 6: difference between demand and supply. Particularly as Mike McKee was
20:13
Speaker 6: just mentioning, we're gonna have a big issue around fiscal
20:17
Speaker 6: deficits in their financing, and much more of that is
20:20
Speaker 6: gonna be borne by us, the bond market, investors, the
20:23
Speaker 6: private sector, so a lot more of that term premium
20:26
Speaker 6: and then resetting that term premium is gonna be dictated
20:28
Speaker 6: by financial markets. It's partly why I think the front
20:31
Speaker 6: end of the curve is a bit more attractive because
20:35
Speaker 6: the term premium, you're going into that uncertainty with relatively
20:39
Speaker 6: low yes we're off the historical lows, but relatively low
20:43
Speaker 6: compensation for both term and inflation premium. I think that
20:46
Speaker 6: makes the back end a lot more challenging, and because
20:50
Speaker 6: we view it as more challenging, there's less demand, you're
20:54
Speaker 6: gonna have more supply. I think that could be a
20:56
Speaker 6: factor towards a little bit longer run process of steepening
21:01
Speaker 6: out both term and inflation premium.
21:02
Speaker 4: You back, Jeff, what's important here, and you said that
21:05
Speaker 4: there's a risk on field of this, and certainly we've
21:07
Speaker 4: seen it in technology and SPX before he ended his
21:11
Speaker 4: press conference up well over two point eight standard deviations?
21:15
Speaker 4: Is the answer here, Jeff, that everything is just playing solid.
21:19
Speaker 4: There isn't the polarity of a boom economy or doom
21:22
Speaker 4: and gloom. It's just a solid American economy.
21:28
Speaker 7: It's pretty solid, Tom.
21:29
Speaker 6: I mean when you look at that domestic demand component
21:32
Speaker 6: and it's so solid that you know, last Friday when
21:35
Speaker 6: I was on we talked about the question that was
21:37
Speaker 6: asked a bit today.
21:38
Speaker 7: You know, how restrictive is policy?
21:41
Speaker 6: Really you're not really seeing it in the economic slowdown
21:45
Speaker 6: that you'd otherwise expect outside.
21:46
Speaker 7: Of the interest rates sensitive sector.
21:48
Speaker 6: So for risky assets and for credit, as I just mentioned,
21:52
Speaker 6: I think that's a good thing. So I do think
21:55
Speaker 6: that the strength of the economy here helps to underwrite
21:58
Speaker 6: some risk taking in a broad sense, and there's a
22:02
Speaker 6: bit of a worry there that that might be leading
22:05
Speaker 6: to maybe less progress on inflation.
22:08
Speaker 7: But I think what we heard from the chairman.
22:09
Speaker 6: Today, they don't need Yes, they're going to say we
22:13
Speaker 6: want to maintain policy and get back to two percent.
22:16
Speaker 6: But it could be a long period of willingness to
22:20
Speaker 6: accept two and a half to three percent as good enough.
22:23
Speaker 7: Take the win.
22:24
Speaker 6: We've come from seven down to below three. That's a
22:29
Speaker 6: good outcome, and not risk the economic growth side by overtightening.
22:33
Speaker 2: Jeff love doing this with you. Thank you, sir Jeff
22:35
Speaker 2: Rosenberg there of black Rock wrapping up FED decision day
22:38
Speaker 2: and CPR Lornich as well. Let's get some fun of
22:40
Speaker 2: words around a type or take ky first to you
22:42
Speaker 2: fun of thoughts.
22:43
Speaker 4: It's going to be eventful through the rest of the year.
22:45
Speaker 4: I thought it was off of CPI this morning, just spectacular.
22:48
Speaker 4: Yes they're data dependent, but you know what, it's going
22:51
Speaker 4: to be eventful right up to Jackson holand beyond.
22:54
Speaker 1: Anyone who is looking for some sort of certainty in
22:56
Speaker 1: the bond market, some sort of stability, good luck, because
22:59
Speaker 1: right now you have a green light to go crazy
23:02
Speaker 1: to see Bonker's types of moves. To quote one of
23:04
Speaker 1: our guests earlier this week, because right now there is
23:08
Speaker 1: no central planning when it comes to where reads are going,
23:11
Speaker 1: and that to me is significant at a time where
23:13
Speaker 1: at one point that was considered a financial stability risk.
23:16
Speaker 1: Right now it doesn't seem to be. I don't know
23:18
Speaker 1: if that's a sign of strength of fragility, but right now,
23:20
Speaker 1: that is the takeaway. These double digit moves, it yield
23:23
Speaker 1: on a daily basis, they seem to be here to
23:26
Speaker 1: stay well.
23:26
Speaker 2: Right now we're giving some of that up. Just recap
23:28
Speaker 2: some of the price section session highs on the S
23:30
Speaker 2: and P five hundred. About twenty minutes ago we were
23:33
Speaker 2: hired by more than one point three percent, now positive
23:36
Speaker 2: by about seven tens to one percent on the SMP.
23:38
Speaker 2: In the bond market at the low's on a two
23:40
Speaker 2: year year old, we've been down sixteen basis points. We're
23:42
Speaker 2: now down about seven or eight. So some of this
23:45
Speaker 2: unwidening just a little bit. The team's going to take
23:47
Speaker 2: over from here. They'll run you through the close. They'll
23:49
Speaker 2: catch up with former Fed Governor Betsie Duke and Jim Chenos.
23:52
Speaker 2: Look out for those conversations from New York City. That's
23:55
Speaker 2: it for us. We'll see the end of July all away.
23:57
Speaker 2: Until then, from New York was the Feticides