Latest / Bloomberg Intelligence / Instant Reaction: The Fed Decides

Transcript

Instant Reaction: The Fed Decides · Bloomberg Intelligence

0:06
Speaker 1: Risks to the economy are now balanced, Defense says, and
0:09
Speaker 1: they're no longer talking about raising rates, but do not
0:12
Speaker 1: expect cuts soon. No change in rates today, and the
0:15
Speaker 1: statement drops the reference to additional policy firming, now saying quote,
0:21
Speaker 1: in considering any adjustments to the target range, the Committee
0:24
Speaker 1: will carefully assess incoming data, the evolving outlook, and the
0:28
Speaker 1: balance of risks. But before you buy March futures. The
0:32
Speaker 1: statement goes on to say the Committee does not expect
0:35
Speaker 1: it will be appropriate to reduce the target range until
0:38
Speaker 1: it has gained greater confidence that inflation is moving sustainably
0:42
Speaker 1: toward two percent. Official say the economy is solid, job
0:46
Speaker 1: gains remain strong, and the Committee judges that risks to
0:51
Speaker 1: achieving its employment and inflation goals are moving into better balance. Inflation, however,
0:57
Speaker 1: has eased over the past year, but remains abated. This
1:00
Speaker 1: statement says the economic outlook is uncertain and the Committee
1:04
Speaker 1: remains highly attentive to inflation risks. There is no change
1:09
Speaker 1: to balance sheet policy, nor does the statement suggest any
1:12
Speaker 1: changes are imminent. The Fed will keep the sixty billion
1:15
Speaker 1: dollar cap on treasury roll offs and the thirty five
1:18
Speaker 1: billion dollar cap on mortgage bonds. The decision today unanimous.
1:22
Speaker 1: And one other bit of business, the Fed has extended
1:26
Speaker 1: its tight its tighter policies on investment in trading to
1:30
Speaker 1: senior staff and any staff with access to confidential information.
1:35
Speaker 2: My McKeith, thank you, sir. Let's get to the price
1:36
Speaker 2: sanction immediately, look at equities. Equities on the s and
1:39
Speaker 2: P five hundred just to touch lower by almost one
1:41
Speaker 2: percent on the SMP. On the NASTAG we're down by
1:44
Speaker 2: one point four if you just turn to the bond
1:46
Speaker 2: market briefly, yield to a lower by about ten basis
1:48
Speaker 2: points at the front end now four twenty five sixty one.
1:51
Speaker 2: That may face just a little bit so least. So
1:53
Speaker 2: let's go through what we got here. We've dropped the
1:54
Speaker 2: tightening bias, but on a full embrace of the right
1:57
Speaker 2: cut conversation taking place on Wall Street.
1:59
Speaker 3: And then a little bit of appointment clearly that you
2:01
Speaker 3: can see on the front end with people maybe thinking
2:03
Speaker 3: they would lean into a march rate cut, saying not
2:05
Speaker 3: thinking ninety times soon, highly attentive to inflation risks. That
2:09
Speaker 3: focus may be casting a bit of cold water on
2:12
Speaker 3: some of the hopes and dreams.
2:13
Speaker 2: C K down five basis points on the tenure just
2:15
Speaker 2: showed a four percent here at about three ninety eight.
2:18
Speaker 4: Come in a little move here, John and I still
2:21
Speaker 4: say we're radically different from when we were earlier this morning,
2:24
Speaker 4: or even days and days ago. Yes, we've pulled back
2:26
Speaker 4: a little bit. It'll be interesting to see the press conference,
2:29
Speaker 4: to say the least, this is well timed. Joining us
2:32
Speaker 4: now is Richard Clarida. He is with Pimpco, our global
2:36
Speaker 4: economic advisor. He's the former vice chair of the FED
2:39
Speaker 4: and far more associated forever with his Columbia University Richard Clarida.
2:44
Speaker 4: Ethan Harris, student of Columbia ex Bank of America wrote
2:49
Speaker 4: a brilliant piece off his hero at Columbia, Phil Kagan,
2:53
Speaker 4: the other day, and he said, we've blown it on
2:56
Speaker 4: our inflation studies. We've got to get on trend. And
2:59
Speaker 4: for him, the trend is the Dallas trim mean, the
3:02
Speaker 4: Cleveland media and the rest of it. What is a
3:05
Speaker 4: trend right now, Professor Clarita in inflation, Well.
3:09
Speaker 5: Thank you for having me on.
3:11
Speaker 6: Tom a good friend of Ethan, and Phil Kagan was
3:15
Speaker 6: a colleague and a friend for many years. I look
3:17
Speaker 6: at Dallas Fed trimmed mean too. It's running somewhere in
3:20
Speaker 6: the mid twos on an inflation that's down a lot
3:24
Speaker 6: from a couple of years ago, but it's still obviously
3:27
Speaker 6: somewhat above the Fed's long run goal of two percent.
3:29
Speaker 5: But I think that's a good reading right now.
3:32
Speaker 2: Rich when you look at the pushback, and it's such
3:34
Speaker 2: a pushback in this statement, why do you think this
3:36
Speaker 2: Federal Reserve is not quite prepared to fully embrace that
3:39
Speaker 2: ray cut conversation taking place on more straight.
3:42
Speaker 6: Well on this one, John, I I actually agree with him.
3:45
Speaker 6: I myself, looking at the data they're looking at, would
3:47
Speaker 6: have thought March would be too soon. We don't get
3:51
Speaker 6: a lot more data in March than we have today. Moreover,
3:55
Speaker 6: as you've pointed out on airon I've been watching, you know,
3:58
Speaker 6: there is still some upside risk on the inflation picture.
4:02
Speaker 6: So I just think good policy of prudence would call
4:05
Speaker 6: for getting more information. And I applaud what they did
4:08
Speaker 6: in the statement today they did.
4:09
Speaker 5: I don't have it in front of me.
4:11
Speaker 6: I read Mike's account. Looks like there's a lot of
4:13
Speaker 6: red ink in it, and I think that made sense today.
4:15
Speaker 3: Yeah, especially with that particular comment. The committee does not
4:18
Speaker 3: expect it will be appropriate to reduce the target rate
4:20
Speaker 3: until it has gained greater confidence that inflation is moving
4:24
Speaker 3: sustainably toward two percent. I'm wondering, which do you think
4:27
Speaker 3: that the New York Community Bank ORP issue changes the
4:29
Speaker 3: equation even on the margins for the FED? And if
4:32
Speaker 3: you are on the FED, for you.
4:35
Speaker 6: Given what I know right now, Lisa, I would say not.
4:39
Speaker 6: But I do think that the reality is is that
4:42
Speaker 6: you know, we have a number of regional banks in
4:45
Speaker 6: the US, you know, above one hundred billion, but not
4:47
Speaker 6: in that mega category. And the FED FED did what
4:51
Speaker 6: it needed to do last spring, and I have no
4:53
Speaker 6: doubt that they will be there if further is needed.
4:56
Speaker 6: So I'd say right now, this doesn't appear to me
4:59
Speaker 6: to be a stemic. But whenever banking is involved and
5:02
Speaker 6: you see an unexpected loss, it certainly is on their radar,
5:05
Speaker 6: and I'm sure.
5:06
Speaker 2: It is rich as you know, As we know, a
5:08
Speaker 2: lot of thought goes into the language that gets put
5:10
Speaker 2: in this statement that line greater confidence. A lot of
5:14
Speaker 2: people are going to stress test that line greater confidence
5:16
Speaker 2: for the next one month or so. Neil datsra good
5:18
Speaker 2: friend over renaissance, Macro writes in what exactly does greater
5:22
Speaker 2: confidence mean? Can you talk to us about that? Rich?
5:25
Speaker 2: What do you think greater confidence means? And I'm going
5:27
Speaker 2: to ask this question just to wind up TK.
5:29
Speaker 5: Is it one?
5:30
Speaker 2: CPI print? Is it two?
5:32
Speaker 5: Is it three?
5:33
Speaker 7: Rich?
5:33
Speaker 2: What is it?
5:34
Speaker 5: Well?
5:34
Speaker 6: I think you know, at the risk of exaggeration, you
5:37
Speaker 6: might have nineteen opinions on that on the committee.
5:40
Speaker 5: I think the center of gravity though.
5:41
Speaker 6: Look, the price inflation numbers have been moving in a
5:44
Speaker 6: very good direction six months now. Core inflation or Dallas
5:49
Speaker 6: FED measures are definitely close to to percent. But we
5:52
Speaker 6: do have an economy in which wage inflation is running
5:56
Speaker 6: about a point hotter than probably they think would be
6:00
Speaker 6: consistent with the long run goal. So I think implicitly
6:03
Speaker 6: they'll be looking at a number of indicators from the
6:05
Speaker 6: labor market. We got some good news today on ECI,
6:08
Speaker 6: but even with that, ECI is still probably about a
6:11
Speaker 6: point hotter than they would ultimately like to see.
6:14
Speaker 4: Rich Clarida measured, I'm going to associate it with Allan Greenspan.
6:19
Speaker 8: You.
6:19
Speaker 4: Yeah, I got to take it back further, but I'm sorry.
6:22
Speaker 4: We are slaves to measured in our great fear of
6:25
Speaker 4: becoming unanchored. We have regret. We're worried about the Bank
6:29
Speaker 4: of Japan. I believe it was back in the early
6:31
Speaker 4: two thousands. We need to be measured.
6:33
Speaker 7: How do we be.
6:34
Speaker 4: Measured after this pandemic and after this original economics?
6:41
Speaker 6: Not surprisingly good question there, because a measured was used
6:45
Speaker 6: by the Maestro in four to talk about a measured
6:49
Speaker 6: pace of rate increases. But certainly now it may enter
6:52
Speaker 6: the conversation once they start to cut, and I think
6:56
Speaker 6: here you do see the tug of war.
6:57
Speaker 5: Folks look at past history.
6:58
Speaker 6: They see that when the FED starts to cut, it
7:01
Speaker 6: cuts very fast and in big chunks.
7:03
Speaker 5: Oftentimes.
7:04
Speaker 6: Typically if you go back and look Tom in soft
7:07
Speaker 6: landings and what turned out to be soft landings, it
7:09
Speaker 6: looks a lot different, more like two or three cuts
7:12
Speaker 6: seventy five bases points there. So so I think a
7:15
Speaker 6: lot of the measured in this cycle on the down
7:18
Speaker 6: direction is going to depend upon how soft the landing is.
7:22
Speaker 4: You J.
7:22
Speaker 6: Powell thinks the runway for a soft landings in sight,
7:25
Speaker 6: but right now that's a forecast, so it will be
7:28
Speaker 6: data dependent. Sorry that's a cop out, but I do
7:30
Speaker 6: think that it will be data dependent.
7:32
Speaker 3: Can the FED afford to be measured well, I mean,
7:34
Speaker 3: can the FED afford to be measured and start later
7:37
Speaker 3: if we're also bumping up against a political silly season.
7:40
Speaker 3: As Tom would say, this has become something that more
7:44
Speaker 3: and more economists are looking at. Why not start earlier,
7:47
Speaker 3: go more slowly, and be less susceptible to becoming a
7:50
Speaker 3: political football.
7:53
Speaker 5: Great, great point. It is an election year.
7:55
Speaker 6: I noticed historically and you can confirm this on your
7:58
Speaker 6: Bloomberg terminal the FED. Historically, the FAT has moved in
8:01
Speaker 6: election years in both up and down. So I think
8:04
Speaker 6: the Paler FED will do what it needs to do
8:07
Speaker 6: this year in terms of adjusting rates, presumably downward.
8:10
Speaker 5: But I do agree with you Lisa.
8:11
Speaker 6: You know, if you think you're going to cut three times, say,
8:14
Speaker 6: which was what the December SEP was, certainly it would
8:17
Speaker 6: make sense to get that process going, you know, perhaps
8:20
Speaker 6: in the summer and not wait till November.
8:23
Speaker 4: Shall we say to dovetable the academics of Richard Clara
8:26
Speaker 4: joining us now from the Midwest, Diane Swack of Michigan
8:29
Speaker 4: chief economist KPMG, really please to have you here with Diane,
8:33
Speaker 4: let me get away from the monetary mumbo jumbo. Diane,
8:36
Speaker 4: you are expert on the pulse of corporate America on
8:40
Speaker 4: this technology overlay we've witnessed look at the profits of
8:43
Speaker 4: Microsoft yesterday and also on this new change in productivity.
8:49
Speaker 4: Does this Federal Reserve have any understanding of the new
8:52
Speaker 4: productive America?
8:56
Speaker 8: I think they do. I think they're watching it very
8:58
Speaker 8: carefully with the question is is it something that's sustainable?
9:02
Speaker 8: And you know, this is why I agree one hundred
9:04
Speaker 8: percent with rich the measured concept, because I think the
9:07
Speaker 8: markets really want to see much more aggressive rate cuts
9:09
Speaker 8: and the FED. I think they start in May, but
9:12
Speaker 8: I think what's important about it is they start before
9:15
Speaker 8: the second half of the year, before we really get
9:17
Speaker 8: into the summer. And I think that's going to be justifiable.
9:20
Speaker 8: But I really think it's important to understand what's going
9:24
Speaker 8: on in terms of productivity. Growth picked up in part
9:27
Speaker 8: because people are not quitting jobs as much, they're learning
9:30
Speaker 8: the jobs they had. We're also finally leveraging all that
9:33
Speaker 8: technology that we took on as we pivoted online.
9:37
Speaker 5: That's all good news.
9:38
Speaker 8: The question is how sustainable is it? And I think
9:41
Speaker 8: that's something the FED still hasn't figured out. And that's
9:44
Speaker 8: what we're going to see in the minutes. I mean,
9:46
Speaker 8: it's really interesting to me that the December meeting, when
9:49
Speaker 8: Powell came out and had a much more dubbish tone
9:51
Speaker 8: and was pretty excited, and markets got pretty excited off
9:55
Speaker 8: of his comments. The actual minutes to the meeting were that,
9:58
Speaker 8: you know, hey, we're worried inflation rist search of the upside,
10:01
Speaker 8: and so it'll be really interesting to see the minutes
10:04
Speaker 8: off this meeting in terms of how they see the
10:06
Speaker 8: productivity growth continuing in twenty twenty four.
10:09
Speaker 5: And you know, it's a cop o.
10:11
Speaker 8: The FED gets to be able to react and be
10:13
Speaker 8: data dependent, and Rich is absolutely right about that.
10:16
Speaker 5: But that's what they're going to do.
10:17
Speaker 8: They're looking at a meetium ma Beetian basis, and I think,
10:19
Speaker 8: you know, we'll have enough information by May and June
10:22
Speaker 8: to begin those cuts. But I think that measured side
10:26
Speaker 8: of it is also really important, because the markets really
10:29
Speaker 8: want to take off and put a lot more cuts
10:31
Speaker 8: in than the FED is really.
10:32
Speaker 5: Willing to do.
10:33
Speaker 2: It was a really bizarre sequence to have the chairman
10:35
Speaker 2: engage in a conversation about interest rate cuts.
10:37
Speaker 5: Then New York Fed President.
10:38
Speaker 2: John Williams come out and say, not really talking about
10:41
Speaker 2: rate cuts, and then the minute seem to back up
10:43
Speaker 2: Williams and not power down. We'll let it go. Let's
10:45
Speaker 2: see if they repeat it again. I think today there's
10:48
Speaker 2: a feeling they are going to engage in a conversation
10:50
Speaker 2: a little bit more openly about the timing of interest
10:52
Speaker 2: rate reductions. Do you think they need to draw a
10:54
Speaker 2: clear distinction between adjusting rates and easing policy.
11:00
Speaker 8: Yes, absolutely, and I'm sure Rich would agree with me.
11:02
Speaker 8: I mean, this is removing the restriction, but not trying
11:07
Speaker 8: to stimulate the economy, and I think that's very important.
11:10
Speaker 8: They're trying to normalize rates, They're not trying to stimulate
11:14
Speaker 8: a moribund economy, and that's a very different scenario as
11:17
Speaker 8: when you pointed out from a soft landing and what
11:20
Speaker 8: may be at the moment and extremely soft landing. We
11:23
Speaker 8: also know that, you know, we're kind of coming in
11:26
Speaker 8: really strong in the first quarter on consumer spending, even
11:30
Speaker 8: with January and some weather disruptions. You don't mean much
11:34
Speaker 8: consumer spending for it to be very robust in the
11:37
Speaker 8: first quarter, and that's something that Fed's very attentive to
11:40
Speaker 8: right now as well.
11:41
Speaker 3: So in the press conference, most certainly rich. There's going
11:44
Speaker 3: to be someone who comes up and asks fed Shaw
11:46
Speaker 3: J Powell, so how much did you guys talk about
11:48
Speaker 3: rate cuts?
11:49
Speaker 5: Did you throw out dates?
11:49
Speaker 3: Did you throw out what your criteria are? If you
11:52
Speaker 3: were on the FED, what would you hope he would say?
11:55
Speaker 3: How granular should they be? Given the fact that people
11:58
Speaker 3: know they're talking about it, they have to be talking
12:00
Speaker 3: about it. Everybody else is talking about it. How much
12:03
Speaker 3: do they really telegraph.
12:04
Speaker 5: To the market. I'ms Lisa when the press conference is.
12:12
Speaker 6: Moving beyond what was in the statement, sometimes because the
12:16
Speaker 6: chair wants to move in that direction, or because you've
12:18
Speaker 6: got a dividing committee. I think today, and of course
12:21
Speaker 6: we'll find out to thirty, I think today is a
12:24
Speaker 6: day when the chair on that question in particular, will
12:27
Speaker 6: hug the FOMC statement pretty closely, because it was a
12:31
Speaker 6: big change from December. Some of it was expected, some
12:34
Speaker 6: of it was a little bit more hawkish, and so
12:37
Speaker 6: knowing J. Powell, I think today will be a day
12:39
Speaker 6: when he gets a question like that, he will hug
12:41
Speaker 6: the FMC statement language pretty tightly.
12:45
Speaker 2: That's what you do with Bramo questions, just hold on
12:47
Speaker 2: to the statement, trying to cap All the question. I
12:50
Speaker 2: just wonder how many times they shared the love letter
12:52
Speaker 2: from Senate Banking Committee chairs share a brown and the
12:55
Speaker 2: letter from Senator Elizabeth Warren had a Democratic colleagues, Rich,
12:58
Speaker 2: you've got experience of this under the Trump administration. It's
13:02
Speaker 2: often and I'll say it for you. It was inappropriate,
13:04
Speaker 2: then it's inappropriate. Now how did you deal with it?
13:07
Speaker 7: Then?
13:08
Speaker 2: How do you suspect this FMC will deal with it now?
13:11
Speaker 2: As you see lines like this from senators down in Washington,
13:14
Speaker 2: d C. That I urged the Federal Reserve to ease
13:16
Speaker 2: monetary policy early this year.
13:18
Speaker 5: How'd you deal with that? Rich?
13:21
Speaker 6: Obviously we had to deal with it in a different contact.
13:24
Speaker 6: But it goes way way back, and I think FED
13:28
Speaker 6: institutionally and Jay Powell individually understands the stakes and I
13:33
Speaker 6: think he just thinks this is just part part.
13:35
Speaker 5: Of the job, and the FED will, FED will look
13:38
Speaker 5: through it.
13:38
Speaker 6: And of course the data is breaking in a direction
13:41
Speaker 6: where that completely reinforces it.
13:43
Speaker 4: Richie Clarido, though, this is a good time to mention,
13:45
Speaker 4: of course, this is your public service to the nation
13:48
Speaker 4: is with John Snow and Treasury Paul O'Neil. Your work
13:51
Speaker 4: of course, is vice chair recently annoyed by the Museum
13:55
Speaker 4: of American Financial the Whitehead Award, and I'm going to
13:57
Speaker 4: go back there to Paul Voker and others. I'm sorry,
14:00
Speaker 4: Richard Claire. At the end of the day, you were
14:02
Speaker 4: teaching politics one on one at Columbia. This FED has
14:06
Speaker 4: to go into an election cycle.
14:08
Speaker 5: No one watching or listening.
14:09
Speaker 4: Has ever seen how political does the FED get, say,
14:13
Speaker 4: Labor Day.
14:16
Speaker 6: I think the pal FED will not be political, but
14:18
Speaker 6: it's inevitable monetary policy will be pulled into the political
14:23
Speaker 6: presidential discussion. I think they're prepared for it, and I
14:27
Speaker 6: think they have decided or they're deciding what they think
14:30
Speaker 6: they need to do based on the economics, and when
14:32
Speaker 6: they're ready to go, they'll communicate it. I'm confident they'll succeed,
14:37
Speaker 6: but I don't disagree that there is going to be
14:40
Speaker 6: an enhanced emphasis and focus and a political element to
14:43
Speaker 6: the focus on this.
14:45
Speaker 3: In the meantime, there's a real question, Diane about what
14:47
Speaker 3: exactly greater confidence means. As John was talking about earlier,
14:50
Speaker 3: what metrics are you looking at? I was struck by
14:52
Speaker 3: doom spending, which of course caught my eye, but some
14:55
Speaker 3: of these areas that might be distorted because of changes
14:58
Speaker 3: post pandemic. What gives you the clearest read.
15:04
Speaker 8: Oh, I think you're just going to have to continue
15:05
Speaker 8: on the labor market and inflation. Those are the two
15:08
Speaker 8: most important things. Those are the two most important data
15:10
Speaker 8: points to the Federal Reserve, and that's what they're going
15:12
Speaker 8: to be watching. I want to just echo something that
15:15
Speaker 8: you know, Rich said. You know, we've seen Powell go
15:17
Speaker 8: through some pretty hard political times already, and he's proven
15:22
Speaker 8: himself to be an institutionalist with the FED on that
15:25
Speaker 8: and I think that's a positive thing. The FED doesn't
15:28
Speaker 8: have a horse in this race. That said, they will
15:31
Speaker 8: be blamed for no matter what they do, no matter what,
15:34
Speaker 8: and they know that. And I think that's what Rich
15:36
Speaker 8: is telling you, and that's you know, that doesn't mean
15:38
Speaker 8: their decisions are going to be influenced by it. It
15:40
Speaker 8: just means that they know how to go through the
15:43
Speaker 8: hailstorm that's about to hit them. That said, they're looking
15:47
Speaker 8: for continued improvement in inflation and continued improvement in services inflation.
15:53
Speaker 8: I think they're going to get it, and I think
15:55
Speaker 8: they will be moving by May. But the bottom line
15:58
Speaker 8: is they want to see that continued. And they're also
16:01
Speaker 8: watching the consumer out there pretty closely, because this has
16:04
Speaker 8: been a remarkable not only resilient consumer, a defiant consumer,
16:09
Speaker 8: showing just how strong they really are.
16:12
Speaker 2: Diane my McKee is still listening before he goes into
16:14
Speaker 2: that news conference. Questions for Chairman Powell, what are they now?
16:20
Speaker 8: The biggest questions are, you know, how do you talk about?
16:24
Speaker 8: What is that exact issue is? What does this mean
16:27
Speaker 8: when you guys feel confident enough to cut rates? What
16:30
Speaker 8: is going to be the criteria? That's what all the
16:32
Speaker 8: focus is going to be on. And my guess is
16:34
Speaker 8: he's going to talk about it vaguely. And that's the
16:38
Speaker 8: problem for financial markets because they want something corincrete. And
16:41
Speaker 8: this is when you get as rich about it, but
16:44
Speaker 8: you get to the hard part between monetary policy as
16:48
Speaker 8: a science or an art.
16:49
Speaker 2: This is the art at the moment, Dane. Thank you
16:51
Speaker 2: Van swamp there on the latest Let's reset here if
16:54
Speaker 2: you are just joining us live on TV and radio.
16:57
Speaker 2: It is a special edition of Bloomberg Surveillance. The FED decides,
17:00
Speaker 2: the news conference is in about thirteen minutes time. We
17:02
Speaker 2: had the decision about seventeen minutes ago. No change on
17:05
Speaker 2: interest rates. They drop this bias towards further tightening. There's
17:09
Speaker 2: this new line we need to talk about. The Committee
17:11
Speaker 2: does not expect it will be appropriate to reduce the
17:13
Speaker 2: target range until it has gained greater confidence that inflation
17:16
Speaker 2: is moving sustainably towards two percent. So listen to the
17:19
Speaker 2: market response to all of this. The rectory market this
17:22
Speaker 2: afternoon looks like this. On the S and P five hundred,
17:24
Speaker 2: down by zero point nine percent. We're down one point
17:26
Speaker 2: three on the net stack LISA in the bond market
17:29
Speaker 2: by eight or nine basis points, not session lows on
17:32
Speaker 2: bond yields. I have to say this move faded just
17:34
Speaker 2: to touch. So the market is looking at the Federal
17:36
Speaker 2: Reserve hoping the inch towards interest rate cards. They're kind
17:39
Speaker 2: of taking a baby step today, but not fully embracing
17:41
Speaker 2: the idea just yet.
17:42
Speaker 3: The fact that they sort of said there's still a
17:44
Speaker 3: prolonged period of time before we reach our inflation targets
17:46
Speaker 3: to cast some cold water. There's store people out there.
17:48
Speaker 3: We thought maybe we'd get a cut at this meeting.
17:50
Speaker 3: Right that it was a live meeting. We heard some
17:52
Speaker 3: people saying that's what they should do right. This casts
17:54
Speaker 3: some serious cold water on it. I love the idea
17:56
Speaker 3: of what we're going to hear from j Power. Absolutely nothing.
17:58
Speaker 3: You will hug that statement. He will say as little
18:00
Speaker 3: as possible. He will be as ambiguous as possible. Just
18:03
Speaker 3: wait for it.
18:04
Speaker 5: We could get a.
18:05
Speaker 4: Surprise at last time. And I think Dan Swark was
18:07
Speaker 4: absolutely right about the science and the art. John. We're
18:10
Speaker 4: coming out of a pandemic. The great miss call last
18:12
Speaker 4: year was economic growth. Where were we twelve months ago?
18:16
Speaker 5: Doom?
18:17
Speaker 2: Gloom totally now total, just total bloom.
18:20
Speaker 4: Everybody was wrong playing I was wrong, everybody else was?
18:24
Speaker 2: He just taking this personally right now, down right in
18:27
Speaker 2: the new studio.
18:28
Speaker 5: The brim up him looks beautiful. But the point here, John,
18:31
Speaker 5: is it is in art.
18:33
Speaker 4: They're making it up as they go after this massive
18:36
Speaker 4: pandemic and massive stimulus. So I think today is less
18:40
Speaker 4: predictable because I was humbled, less.
18:42
Speaker 5: Present, Tom.
18:42
Speaker 2: It's important to pause here, and I'm pleased you've brought
18:44
Speaker 2: it up. It's important to pause and go over where
18:46
Speaker 2: we were, where we thought we'd be, and where we
18:48
Speaker 2: actually are. Where we are right now, it's unemployment, sat
18:50
Speaker 2: the four percent, inflation's doing better core PC. Last week
18:54
Speaker 2: we were talking about a two hand or not a three,
18:56
Speaker 2: which is a massive change as well. And GDP Tom
18:59
Speaker 2: gross how up in the face of interest rights climbate aggressively. Now,
19:02
Speaker 2: this is not a judgment about where we going. This
19:05
Speaker 2: is just an observation about where we are, and where
19:07
Speaker 2: we are is so much better than where we thought
19:09
Speaker 2: we'd be twelve months.
19:10
Speaker 4: There, he's been one on one.
19:11
Speaker 5: I mean, forget about measured.
19:12
Speaker 4: We have a stock market which is voting every day,
19:15
Speaker 4: every tick, and I believe since October has been on
19:18
Speaker 4: a tear.
19:19
Speaker 5: They have to fold that.
19:20
Speaker 2: Into the just putting back from old time highs. Robert
19:22
Speaker 2: Tip is with US of PGM sixth income alongside the
19:25
Speaker 2: former Fed Vice chair Richard Klouda. Robert Tip, You've had
19:28
Speaker 2: about twenty minutes to go over this one. Your reaction
19:30
Speaker 2: to it?
19:32
Speaker 7: Sure, Yeah, you know where we are versus where we expected.
19:35
Speaker 7: I mean, we did not have a backdrop for a recession.
19:38
Speaker 7: Interest rates were raised for a reason. The system had
19:41
Speaker 7: a clean backdrop. It was not one of these backdrops
19:44
Speaker 7: that was going to crumble when interest rates were raised.
19:47
Speaker 7: It continued right through SVD. The economy has plowed through
19:52
Speaker 7: and the Fed is fine tuning the policy at this point. Now.
19:56
Speaker 7: They started off with the first notion of cutting rates,
19:59
Speaker 7: I mean arguably back in July, Palell talked about how
20:02
Speaker 7: they would not wait for two percent inflation. They'll be
20:05
Speaker 7: cutting way ahead of that.
20:07
Speaker 8: Now.
20:07
Speaker 7: September saw a huge U turn, so they were fine
20:10
Speaker 7: tuning with maybe like a chainsaw at that point. December,
20:15
Speaker 7: you know, they came in and we had a U
20:18
Speaker 7: turn and a U turn frankly before that in October
20:20
Speaker 7: they called an audible as rates went up to five
20:23
Speaker 7: percent and they started to talk down their own higher
20:26
Speaker 7: for longer. At this point, they're really balanced. The market
20:30
Speaker 7: wants to get two hundred basis points ahead of them,
20:33
Speaker 7: which is actually kind of understandable. The five point three
20:36
Speaker 7: percent Fed funds rate they're running right now is a
20:39
Speaker 7: long way from the two and a half percent that
20:41
Speaker 7: they're putting forward as neutral. And inflation is hundreds of
20:44
Speaker 7: basis points off its highs and pretty sustainably, you know,
20:50
Speaker 7: is down in the threes, if not down at target
20:53
Speaker 7: right now for about six months. So their comments, you know,
20:57
Speaker 7: suggest they want to see a few more months or
20:59
Speaker 7: maybe be a big team of them want to see
21:03
Speaker 7: another six months before they go.
21:05
Speaker 5: Robert from the parlor game.
21:06
Speaker 4: Let's go to what you and Greg Peters do every day,
21:09
Speaker 4: which you've got to.
21:10
Speaker 5: Be in the market.
21:11
Speaker 4: Are you being in the market clipping the coupon or
21:14
Speaker 4: can you actually still pop a good total return this year?
21:19
Speaker 3: Yeah?
21:20
Speaker 7: I think big picture, the market is going to clip
21:23
Speaker 7: a good return. I think that your spread products, you know,
21:26
Speaker 7: as we've said, starting off, put out a piece at
21:30
Speaker 7: the end of twenty twenty two yield his destiny. You
21:33
Speaker 7: are going to clip that coupon. But we've seen the
21:35
Speaker 7: market seventy five one hundred basis points on either side
21:41
Speaker 7: of four percent roughly, and I think we're going to
21:45
Speaker 7: continue to see these big swings. Right now, the market
21:47
Speaker 7: wants to go in the dutish direction. But this powle
21:51
Speaker 7: fed is aware that the second big woop move higher
21:54
Speaker 7: in inflation in the seventies came with hostility in the Mideast,
22:01
Speaker 7: with volatility in the Middle East and a big increase
22:03
Speaker 7: in oil prices. And we have full employment around the world.
22:07
Speaker 7: We've seen very high inflation that brought about higher wages.
22:11
Speaker 7: All of that is in retrograde right now. They're going
22:14
Speaker 7: to want to make sure they have that really under
22:17
Speaker 7: control before they turn aggressively here.
22:20
Speaker 3: It's a good point, Robert, and I expect that we
22:22
Speaker 3: will hear from Fetcher J. Powell. They are watching the
22:25
Speaker 3: issues and the conflict in the Middle East carefully, Rich Clarita,
22:28
Speaker 3: one thing that was really notable about the December press
22:31
Speaker 3: conference was that Fetcher J. Powell had an opportunity to
22:34
Speaker 3: push back against that rosy outlook, the sort of flooding
22:38
Speaker 3: into risk assets that Robert Tip was talking about and
22:41
Speaker 3: that so many people have embraced.
22:43
Speaker 5: He didn't push back.
22:44
Speaker 3: Do you think it's going to be the same at
22:46
Speaker 3: this press conference that he will just say ultimately, the
22:48
Speaker 3: markets will do what we want, what they want to do,
22:51
Speaker 3: we're watching something else and we're on a good glide path.
22:55
Speaker 5: Again.
22:55
Speaker 6: I think this is going to be a press conference
22:57
Speaker 6: where it will make sense for the chair to to
23:00
Speaker 6: really hug that FMC statement.
23:02
Speaker 5: There was a lot of red ink.
23:03
Speaker 6: It was therefore a reason it gave the message that
23:07
Speaker 6: you know, basically trying to dissuade folks from pricing in
23:10
Speaker 6: that March adjustment and talk about they want to see
23:13
Speaker 6: the considerable and additional evidence and so I think that's
23:16
Speaker 6: a pretty good place for him to spend most of
23:18
Speaker 6: the day, at least on those sorts of questions.
23:21
Speaker 2: I have to say, Rich, you're not hyping up this
23:23
Speaker 2: news conference until it sounds like I can't repeat. I
23:27
Speaker 2: appreciate the honesty, though, Robert Tip. Just finally, I'm getting
23:30
Speaker 2: a load of people right in to say, what's the trade?
23:31
Speaker 2: What's your favorite trade right now? Robert, after what you've
23:34
Speaker 2: just heard.
23:35
Speaker 7: Yeah, I think that it's not the whether the cuts
23:39
Speaker 7: price in are correct or not. I think it's the
23:41
Speaker 7: timing and the shape of the curve, the ends.
23:44
Speaker 4: Of the curve.
23:45
Speaker 7: You know, whether you're looking at the next six months
23:47
Speaker 7: or whether you're looking at the tenure or the third
23:49
Speaker 7: year point, those look more reasonably priced than some of
23:54
Speaker 7: your two year out interest rates that are really banking
23:59
Speaker 7: on two hundred basis points of interest rate cuts in
24:03
Speaker 7: the next eighteen months. And I think if you can
24:07
Speaker 7: stay in the market and clip that coupon, avoid rolling
24:10
Speaker 7: up the yield curved, and also make some money on
24:13
Speaker 7: the tactics of trading this wide range on rates, I
24:16
Speaker 7: think it's gonna be a very good year for bonds.
24:18
Speaker 2: Robert Hip, thank you. Sir, from Pajim on the latest
24:20
Speaker 2: from the Fed for reserve for more his Bank for
24:22
Speaker 2: America's Mike Gape and the chief economist, Mike, you've got
24:25
Speaker 2: the Fed going in March. Do you like what you
24:27
Speaker 2: hear today? We make in that closest step, another baby
24:30
Speaker 2: step towards you'll cool.
24:33
Speaker 7: We are.
24:33
Speaker 9: I think you can interpret the statement as saying risk
24:37
Speaker 9: to the outlook our balance, therefore, our guidance should be balanced.
24:40
Speaker 9: And then did we debate a rate cut today? Yes,
24:43
Speaker 9: we did, just not for very long. What we need
24:46
Speaker 9: is more confidence before we cut rates. And I do
24:49
Speaker 9: think that involves seeing more progress on services inflation and
24:54
Speaker 9: more progress on wages, because as you know, a lot
24:57
Speaker 9: of the disinflation has come from goods price. Those declines
25:01
Speaker 9: may not persist. So the Fed we'll see more of
25:04
Speaker 9: that data. I think they can get there by March.
25:06
Speaker 9: So I'd say the statement was broadly in line with
25:08
Speaker 9: our thinking.
25:09
Speaker 4: Michael Gape And how aggregated are we or disaggregated are there?
25:14
Speaker 4: To America's out there in America flat on its back?
25:17
Speaker 4: And then the prosperous America is witnessed by Microsoft's profit yesterday.
25:23
Speaker 9: Yeah, there is you know, the economy is bifurgate, bifurcated.
25:27
Speaker 9: I think more broadly you could just say, you know,
25:29
Speaker 9: industrials and goods versus services. The industrial side of the
25:33
Speaker 9: economy has been suffering. Regional banks, obviously with news headlines
25:37
Speaker 9: this morning, still continue to struggle, but the consumers in
25:41
Speaker 9: good shape. The services side of the economy is doing well.
25:43
Speaker 9: Tech earnings are doing well. It has been kind of
25:46
Speaker 9: a rolling recessionary story where certain segments of the economy
25:51
Speaker 9: have had problems at different points in time, but the
25:53
Speaker 9: economy overalls has powered through. So thinking about it in
25:57
Speaker 9: that way, Tom, I think makes a lot of sense.
26:00
Speaker 3: Michael, I love hearing the bustle and the hustle behind you,
26:02
Speaker 3: and I imagine everybody's saying, the balance of risks, how
26:05
Speaker 3: do we get the greater confidence in equation is coming down?
26:07
Speaker 3: What does that mean? So what do you think that
26:09
Speaker 3: means in terms of how much you've got to get
26:13
Speaker 3: in terms of data underbelt?
26:16
Speaker 9: So I think they can get there by March in
26:18
Speaker 9: the following way, and that they'll get February PCE and
26:21
Speaker 9: they'll get the CPI and the PPI for that next
26:26
Speaker 9: pc I'm sorry the January PCE. But then they'll get
26:28
Speaker 9: CPI and PPI for that February PCE print during the
26:32
Speaker 9: blackout period, so they'll have two more inflation reports. They'll
26:35
Speaker 9: get more information on where is services inflation, where is sheltered,
26:40
Speaker 9: They'll get more wage data in the next two employment reports.
26:43
Speaker 9: I really think it's about that side of the ledger.
26:45
Speaker 9: For some on the committee for Governor Waller, he says
26:48
Speaker 9: the components don't matter. I just look at inflation, so
26:50
Speaker 9: his bar may may be lower, but others are really
26:53
Speaker 9: kind of concerned about that good services trade off and
26:56
Speaker 9: worry that services are too sticky.
26:58
Speaker 2: And it would optionality written this way because it can
27:01
Speaker 2: mean whatever they want it to mean, Lisa at any
27:04
Speaker 2: time over the next few months, which.
27:06
Speaker 3: Is the reason why he's going to hug that statement
27:07
Speaker 3: so close and everyone's going to be happy. And then you.
27:10
Speaker 4: Really, so I'm going to read a statement or read
27:13
Speaker 4: the minutes, and it's going to say in there it
27:15
Speaker 4: is written, it's gonna it's going to actually say it.
27:18
Speaker 2: Richard Clarity, let's come to you and just wind things
27:20
Speaker 2: up and put a bow on it if we can.
27:22
Speaker 2: This has been a single mandate Central Bank for the
27:24
Speaker 2: last couple of years where they focus on inflation and
27:26
Speaker 2: getting it back down towards two percent. Can we talk
27:29
Speaker 2: about the other side of the Jewel mandate? Is there
27:31
Speaker 2: anything to worry about in the labor market?
27:33
Speaker 6: From your perspective, the labor market is in a very
27:38
Speaker 6: good place. If anything, it's it's running a little hot. Uh,
27:42
Speaker 6: But I do think there's a path for that to
27:44
Speaker 6: adjust under the under the outlook. So yeah, the labor
27:48
Speaker 6: market is, you know, that's what we want maximum employment.
27:50
Speaker 6: We're at perhaps a little bit more than maximum employment.
27:53
Speaker 6: But but wage inflation is decelerating. We saw on the
27:56
Speaker 6: e CI, and I think that that's what they're factoring
27:59
Speaker 6: in for this year.
28:00
Speaker 2: Continuing there, Michael Gape, And do you agree?
28:03
Speaker 7: I do.
28:04
Speaker 9: I would say if concerns would be about the dispersion
28:07
Speaker 9: of employment growth, which is pretty narrow focused in leisure
28:10
Speaker 9: and hospitality and education and health, and then remaining growth
28:14
Speaker 9: in the private sector is basically flat. But I agree
28:16
Speaker 9: with Rich the labor market's in a good place and
28:19
Speaker 9: it's helping to drive the outlook.
28:21
Speaker 5: Mike can I You've got to run.
28:22
Speaker 2: It's great to get you cool. Michael Gape In there
28:23
Speaker 2: of Banks for America looking for a March interest rate reduction.
28:26
Speaker 2: Richard Clarida, Thank you, sir, and congratulations on that Whitehead Award.
28:29
Speaker 2: Truly prestigious, Sir. We appreciate your time.