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Instant Reaction: Jay Powell on Fed Policy · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:12
Speaker 2: It's a special coverage of the Federal Reserve meeting. Let's
0:15
Speaker 2: start with the scores, all time highs on the S
0:17
Speaker 2: and P five hundred positive by zero zero point eight
0:20
Speaker 2: percent on the Nasdaq, at one percent on the Russell,
0:23
Speaker 2: at one point six in the bond market, a rally
0:26
Speaker 2: for most of that news conference on a two year
0:28
Speaker 2: yield to lower by six basis points to four sixty
0:31
Speaker 2: one ninety three.
0:32
Speaker 3: So let's talk about the why.
0:33
Speaker 2: The why is in the outlook the projections from the
0:36
Speaker 2: Federal Reserve. Growth revised higher, unemployment revised down, inflation revised up,
0:42
Speaker 2: all my maintaining the same medium dot implying three cuts
0:46
Speaker 2: in twenty twenty four. So there was a clear and
0:48
Speaker 2: obvious contradiction in the outlook and a clear and obvious
0:50
Speaker 2: question to ask in this press conference.
0:52
Speaker 3: What gives this? Is what the chairman had to say,
0:56
Speaker 3: It doesn't mean.
0:57
Speaker 4: What it means is that you know, we we've seen incoming.
1:01
Speaker 4: As I pointed out in my opening remarks, we did
1:04
Speaker 4: mark up our growth forecast, and so have many other forecasters.
1:08
Speaker 4: So the economy is performing well, and the inflation data
1:13
Speaker 4: came in a little bit higher as a separate matter,
1:15
Speaker 4: and I think that caused people to write up their inflation.
1:19
Speaker 4: But nonetheless we continue to make good progress on bringing
1:22
Speaker 4: inflation down.
1:23
Speaker 2: There's two ways to interpret this, the unkind way and
1:26
Speaker 2: the kind way. The unkind way, if you're a FED Basha,
1:28
Speaker 2: you would say he wasn't prepared for that question. The
1:30
Speaker 2: kind way would be to assume that he was, and
1:33
Speaker 2: there was a message, a signal in that non onset Bramo,
1:36
Speaker 2: I have to say, I'm in the natsakamp and not
1:38
Speaker 2: the full mat.
1:39
Speaker 3: I would agree.
1:40
Speaker 1: I actually think that there was a message in this,
1:41
Speaker 1: because honestly, he didn't really push back on financial conditions either,
1:45
Speaker 1: and didn't really have any concrete answer. I heard a
1:47
Speaker 1: lot of words. I didn't hear some sort of answer
1:49
Speaker 1: to our financial conditions moving the economy in the wrong direction,
1:54
Speaker 1: which makes me think he's comfortable with it. He's not
1:56
Speaker 1: going to push back. This is a FED that wants
1:58
Speaker 1: to cut rates. They still want cut rates. And when
2:01
Speaker 1: he talked about inflation coming down over time, I'll stress
2:05
Speaker 1: the overtime. This is higher inflation for a longer period
2:09
Speaker 1: of time that will be tolerated by.
2:10
Speaker 3: This Federal reserve.
2:11
Speaker 2: Strong growth isn't a problem. Equity markets at all time
2:14
Speaker 2: highs not a problem the feed chair. I think this
2:17
Speaker 2: is important how they've set up the perceived asymmetric policy
2:20
Speaker 2: stance of the federal reserve in the minds of so
2:22
Speaker 2: many in this market. Right now, the FET chair is
2:24
Speaker 2: signaling repeatedly he is more willing to respond to weaker
2:27
Speaker 2: growth than he is stronger growth. So even if you
2:30
Speaker 2: project stronger growth, Bramo, it doesn't matter. He doesn't mean
2:34
Speaker 2: he's going to raise interest rates anytime off the back
2:36
Speaker 2: of that.
2:36
Speaker 3: But week of growth, they're ready to go.
2:38
Speaker 1: And you pointed this out. He distinguished the idea of
2:42
Speaker 1: growth that was horder from inflation as though those stories
2:45
Speaker 1: were independent of one another. And it raises this question,
2:48
Speaker 1: are they still looking at this as a supply side
2:50
Speaker 1: driven kind of issue that caused the inflation kind of
2:54
Speaker 1: the pandemic effects and the ripple throughs that will naturally subside,
2:57
Speaker 1: which raises the question have they really done anything to
3:00
Speaker 1: inflation or is this just some sort of other type
3:03
Speaker 1: of influence that they're kind of riding and trying to
3:06
Speaker 1: give out.
3:07
Speaker 2: You know what stood out to me as well, the
3:08
Speaker 2: story hasn't changed. When he says the story hasn't changed,
3:12
Speaker 2: yet the data has, I think the meaning of what
3:14
Speaker 2: he's saying has changed.
3:15
Speaker 3: The meaning is different.
3:17
Speaker 2: If you say the story hasn't changed even though inflation
3:19
Speaker 2: comes in hotter than expected, you're changing. You're sending a
3:22
Speaker 2: very different signal to the one that you were sending
3:24
Speaker 2: even a month two months ago.
3:26
Speaker 1: And you can see that just frankly in the data
3:28
Speaker 1: that they should put out there. Their forecasts exactly are
3:30
Speaker 1: not the same. When they talk about core PCEE coming
3:33
Speaker 1: to two point six percent at the end of this
3:35
Speaker 1: year versus the expected two point four percent previously. When
3:38
Speaker 1: you talk about the growth projection increasing materially, this is
3:42
Speaker 1: a shifted kind of landscape with higher inflation and a
3:46
Speaker 1: higher rate for longer. But they're saying the story hasn't changed,
3:50
Speaker 1: which again talks about a green light to stocks, which
3:52
Speaker 1: is exactly what we're seeing.
3:53
Speaker 2: Let's bring in the guests with equities at old time highs.
3:55
Speaker 2: We can catch up with Bill Downley, the former New
3:57
Speaker 2: York Fed President and Bloomberg Economic senior advisor. Bill the
4:01
Speaker 2: feed Chess said, we're committed to getting inflation back to
4:03
Speaker 2: two percent. How committed did he sound in that news conference.
4:07
Speaker 5: I think he's changed the story at all.
4:09
Speaker 6: I think what people are a little bit flummoxed by
4:11
Speaker 6: is the fact that fedsi's stronger growth, a little bit
4:14
Speaker 6: higher inflation, yet the same number of indust rate cuts
4:17
Speaker 6: penciled in for twenty twenty four. I think the reality
4:21
Speaker 6: is it almost flipped. I mean, one more person had
4:23
Speaker 6: moved their interest rate forecast up, it would have been
4:26
Speaker 6: two rate cuts since the media and rather than three,
4:28
Speaker 6: and people probably would be interpreting this in a much
4:31
Speaker 6: more different manner. I think, you know, Paul's confident about
4:34
Speaker 6: a couple of things. Number one, that inflation is coming down.
4:37
Speaker 6: Number two that there that the liver supply is increasing
4:40
Speaker 6: and that's creating slacking the labor market. And three ben
4:44
Speaker 6: mantary policies tight, and that's why he's confident that eventually
4:47
Speaker 6: he is going to cut rates.
4:48
Speaker 5: Just a question of.
4:48
Speaker 1: Timing, Bill, do you think that there's something incompatible about
4:52
Speaker 1: shifting upward a growth target, shifting upward targeted PCE for
4:56
Speaker 1: the end of the year, and even shifting up just
4:59
Speaker 1: slightly where rates are going to be, and saying the
5:01
Speaker 1: story hasn't changed. That the inflation target is still the same,
5:04
Speaker 1: it just might take a lot longer.
5:07
Speaker 6: I think what people I think misinterpret is the Summer
5:10
Speaker 6: of Economic Projections is not a Federal Reserve forecast. It's
5:13
Speaker 6: not Powell's forecast. It's a collection of individual forecasts. And
5:17
Speaker 6: the Fed doesn't coordinate the s B. They're not trying
5:19
Speaker 6: to go out and ask people to write down certain
5:22
Speaker 6: numbers to tell a certain story.
5:24
Speaker 5: It's just a collection of individual forecasts.
5:26
Speaker 6: And as we see in this case, you know, one
5:28
Speaker 6: dot moves, you have a slightly different story. So I
5:31
Speaker 6: think that Powell's basic message is that the underlying story
5:34
Speaker 6: hasn't changed. We didn't completely buy into how good the
5:37
Speaker 6: inflation numbers were in the second half of the next year.
5:40
Speaker 6: We're not completely put off by the bad inflation readings
5:43
Speaker 6: in January and February.
5:44
Speaker 5: We still think minetary policy is tight. We still think
5:47
Speaker 5: we're going.
5:47
Speaker 6: To get more confident about getting inflation down to two percent,
5:50
Speaker 6: and so we still think we're going to cut rates
5:51
Speaker 6: this year time. He's uncertain, and you know he said
5:53
Speaker 6: over and over again it depends on the data, but.
5:56
Speaker 3: Not all dots are created equally.
5:58
Speaker 2: Where do you think Chairman Powell is on this story
6:00
Speaker 2: right now, because it just seems to me there is
6:02
Speaker 2: a bias to cut interest rate. Steve Raschudov and Zuhi
6:04
Speaker 2: came on this program in the last week or so
6:06
Speaker 2: and he said, this Federal Reserve wants to cut interest rates.
6:09
Speaker 2: Shaman Pale wants to cut interest rates. Is the bias
6:12
Speaker 2: to cut regardless of what the data looks like.
6:15
Speaker 6: I wouldn't go as far as to say the bias
6:17
Speaker 6: is cut no matter what the data looks like. I mean,
6:19
Speaker 6: the Fed's still committed to trying to get inflation down
6:21
Speaker 6: to two percent. But I think what's driving Pal is
6:24
Speaker 6: the fact that he thinks that monetary policy is restricted.
6:27
Speaker 6: So if you stay at the current setting, the connie
6:30
Speaker 6: will gradually slow, and that will set the stage for
6:33
Speaker 6: less strength in the labor market, which will then motivate
6:36
Speaker 6: cutting interest rates. That's what he's highly confident about. When
6:39
Speaker 6: he got the question to day about financial conditions, he
6:41
Speaker 6: showed no concern at all about easing and making the
6:45
Speaker 6: economy too strong. I thought that was noteworthy because in
6:49
Speaker 6: the past he's talked about financial conditions a lot. It's
6:51
Speaker 6: an important way that monetary policy gets transmitted to the
6:55
Speaker 6: real economy.
6:56
Speaker 5: But this time he did not take the bit on
6:58
Speaker 5: financial conditions easing. And of course when he doesn't take
7:00
Speaker 5: debate on financial conditions easy, what does it do. Because
7:03
Speaker 5: financial conditions to ease more.
7:05
Speaker 2: It's a green light to buy stocks. That's exactly what's
7:07
Speaker 2: happened in the S and P five hundred at all
7:09
Speaker 2: time highs and up another zero point eight percent. But
7:12
Speaker 2: we often hear that we're restrictive, and there are some
7:14
Speaker 2: people to come on the program and push back against that.
7:16
Speaker 2: Exactly because stocks at all time highs, credit spreads are
7:20
Speaker 2: very tight, and unemployment is still below four percent. What
7:23
Speaker 2: do you point to if you were back on the FMC,
7:25
Speaker 2: just to demonstrate more clearly to people as to why
7:28
Speaker 2: this FMC believes we are sufficiently restrictive.
7:33
Speaker 5: Well, first of all, the economy does seem like it's slowing.
7:35
Speaker 6: I mean, we grew four percent in the third quarter,
7:38
Speaker 6: three something set in the fourth quarter.
7:40
Speaker 5: It looks like we're gonna get something like two percent
7:41
Speaker 5: in the first quarter, and there are signs of weakness.
7:44
Speaker 6: And if you look at industrial production over the last year,
7:46
Speaker 6: it's actually been down.
7:47
Speaker 5: If you look at ours work they've been soft. So
7:50
Speaker 5: I think the economy.
7:51
Speaker 6: I think the FED is getting enough evidence that the
7:53
Speaker 6: economy is slowing that gives them confidence that monetary policy
7:56
Speaker 6: is actually restrictive. And of course, you know, as loans mature,
8:00
Speaker 6: they get repriced at higher interest rates, and so you know, as.
8:03
Speaker 5: Time passes, you stay at the current level of interst.
8:05
Speaker 6: Rates, that's going to exert more restraint because it's going
8:07
Speaker 6: to drive up financing costs for a lot of smaller
8:10
Speaker 6: businesses and for consumers.
8:11
Speaker 1: I guess I want to just sit on the whole idea,
8:13
Speaker 1: that of financial conditions and the idea that he didn't
8:15
Speaker 1: push back and that's why it's a green light to
8:17
Speaker 1: buy stocks. Is that correct in your view that this
8:21
Speaker 1: isn't something that's going to move against them in terms
8:24
Speaker 1: of allowing capital markets to really foster a lot faster
8:28
Speaker 1: growth and potentially even more inflation, like we hear from
8:31
Speaker 1: lenders themselves, even to middle market companies day after day.
8:36
Speaker 6: I don't think it's a green light to buy stocks
8:38
Speaker 6: because it could be the wrong decision. Maybe financial conditions
8:41
Speaker 6: are making the economy too strong, and maybe they will
8:44
Speaker 6: keep inflation too high, and in that case, then the Federaliser
8:46
Speaker 6: won't cut rates, and.
8:47
Speaker 5: Then financial conditions will will tighten.
8:49
Speaker 6: I mean, one reason why financial conditions are as easy
8:52
Speaker 6: as they are is because the market is highly confident
8:54
Speaker 6: that the Fed's going to cut rates, not just in
8:55
Speaker 6: twenty twenty four, but also in twenty twenty five. You
8:58
Speaker 6: look at the so for a few market they have
9:01
Speaker 6: rates coming down to about three and a half percent
9:02
Speaker 6: over the next.
9:03
Speaker 5: Couple of years. So it's that prospect of.
9:05
Speaker 6: Rate cuts that's really providing support to the stock market
9:09
Speaker 6: and to credit spreads. You know, the market basically sees
9:13
Speaker 6: the Fed is having their back. If the e commedy weakens,
9:15
Speaker 6: the Federal cut rates. I mean, that's the other thing
9:17
Speaker 6: that came through in his remarks today. If the labor
9:20
Speaker 6: market were to weaken, the Federal Reserve would take that
9:22
Speaker 6: into account in terms of the timing of interest rate cuts.
9:25
Speaker 6: So we don't really have to worry about the economy
9:28
Speaker 6: collapsing because of it starts to weaken significantly, the Federal
9:31
Speaker 6: Reserve will ride to the rescue with rate cuts.
9:34
Speaker 1: I'm looking right now at FED Fund's futures and it
9:36
Speaker 1: points to yesterday a fifty seven percent chance of a
9:39
Speaker 1: June rate cut and right now it's something around sixty
9:42
Speaker 1: eight sixty nine percent chance, so increasing the expectation for
9:46
Speaker 1: a rate cut in June despite the fact that the
9:48
Speaker 1: data didn't give j. Powell any extra confidence. Some people
9:52
Speaker 1: would look at this and say, Okay, maybe they see
9:55
Speaker 1: signs of restrictiveness, although what he pointed to was the
9:57
Speaker 1: quits rate, which is the common sort of the thing
10:00
Speaker 1: that people point to as signs of weakness. Other people
10:03
Speaker 1: would say, why the urgency is as politically motivated to
10:06
Speaker 1: get going before the election takes off, because then they
10:08
Speaker 1: could potentially be influenced even more. There is there something
10:11
Speaker 1: else weighing on the decision making process that's pushing the
10:17
Speaker 1: FED to air on the side of being a bit
10:19
Speaker 1: more dubvish and allowing this economy to run hot.
10:23
Speaker 6: Well, I think, as he said, as inflation comes down,
10:26
Speaker 6: then the FED can focus on both sides of their
10:28
Speaker 6: dual man and not just the inflation side, but also
10:30
Speaker 6: the growth side. And so I think he Fed more
10:32
Speaker 6: and more is conscious of the fact that they they
10:36
Speaker 6: want to do enough to bring inflation down to two percent,
10:38
Speaker 6: but they don't want to overdo it inadvertently cause or recession.
10:41
Speaker 5: So in some ways, the Fed is trying to have
10:42
Speaker 5: their taken hit it too right.
10:44
Speaker 6: They want to ease, but not so soon that they
10:47
Speaker 6: that they run the risk of easing prematurely.
10:50
Speaker 2: Just to go through these full costs. It's a big
10:52
Speaker 2: up with revision to GDP. December projection was one point
10:54
Speaker 2: four percent. New projection is two point one col pc eight.
10:58
Speaker 2: It goes up from two point four to two point
11:00
Speaker 2: six And I just want to get into the details
11:02
Speaker 2: of that with you.
11:02
Speaker 3: Bill.
11:03
Speaker 2: Constant Hunter just wrote in said why is the equity
11:05
Speaker 2: market up so much with a basically unchanged dot plot?
11:08
Speaker 2: Because productivity is expected to continue, which will allow stronger
11:11
Speaker 2: growth with little additional inflationary pressure. This scenario is good
11:15
Speaker 2: for risk. Can you talk to us about that, Bill,
11:17
Speaker 2: the relationship between stronger growth and maybe muted inflation. Inflation
11:21
Speaker 2: that doesn't climb that much off the back of a
11:23
Speaker 2: whole economy. How important is that missing ingredient that has
11:26
Speaker 2: been missing over the previous ten years, Say that productivity
11:29
Speaker 2: that maybe we're starting to see come back through in
11:31
Speaker 2: a stronger way, I mean.
11:34
Speaker 5: Protin It could be part of that.
11:35
Speaker 6: We don't really know what the pro to A trend
11:37
Speaker 6: has been it was very weak during the pandemic, and
11:38
Speaker 6: that it's been very strong over the last year. I
11:40
Speaker 6: think the big thing where the FEDS taking some comfort
11:43
Speaker 6: from is the fact that the liver force growth has
11:45
Speaker 6: picked up dramatically, both because of participation rates among working
11:50
Speaker 6: age population has increased quite a bit and also immigration.
11:53
Speaker 6: So you know, the real question is how long is
11:56
Speaker 6: that strong labor force growth going to last. If it
11:58
Speaker 6: lasts all the way through twenty twenty four, that allows
12:01
Speaker 6: the economy to grow, you know, more quickly without it
12:03
Speaker 6: generating a tighter labor market. So the growth rate of
12:06
Speaker 6: the layer force is can be a very very important
12:08
Speaker 6: factor determining exactly when the Fed can cut rates in
12:11
Speaker 6: at what growth rate.
12:12
Speaker 1: And Bill he did mention immigration, and I really that
12:15
Speaker 1: was notable to me because we heard from Morgan Stanley's
12:17
Speaker 1: Ellen Sentner, and we also heard from Jon Hatsias at
12:19
Speaker 1: Goldman Sachs in his reports where he's talking about immigration
12:22
Speaker 1: is one of the big wild cards for why you
12:24
Speaker 1: have seen some of the wage pressure come off and
12:28
Speaker 1: participation go up, and even some of the unemployment data
12:30
Speaker 1: take a little bit higher just because some of the
12:32
Speaker 1: new members, new new migrants to this country are filing
12:37
Speaker 1: for claims. How much is that changing the dynamic in
12:41
Speaker 1: ways that is unappreciated.
12:44
Speaker 6: Well, I think you know what's happened is we had
12:46
Speaker 6: a very sharp restraint on labor supply during the pandemic
12:51
Speaker 6: because we weren't letting letting anybody into this country except
12:53
Speaker 6: people who are.
12:54
Speaker 5: Coming over illegally.
12:56
Speaker 6: And then all of a sudden, you have a ketchup
12:58
Speaker 6: for all those people that wanted to get come into
13:01
Speaker 6: the country, you know, in twenty twenty and twenty twenty one,
13:04
Speaker 6: twenty twenty two, now coming in twenty twenty three. So
13:06
Speaker 6: the real question is that just a temporary period of
13:09
Speaker 6: ketchup or do we have a sustained growth of faster
13:12
Speaker 6: labor force growth. So I think that's that's that's a
13:15
Speaker 6: wildcard for the outlook.
13:16
Speaker 2: Frankly, hey, Bill enjoyed this fantastic catch out with this
13:20
Speaker 2: Bill Anty there, the former New York Fed President, reacting
13:22
Speaker 2: to that news conference with Chairman Powell. This afternoon, old
13:25
Speaker 2: time highs on the S and P five hundred zero
13:27
Speaker 2: point nine percent, up more than one four percentage point
13:30
Speaker 2: on the NASNAK Right now, the small CAPSNA performing positive
13:33
Speaker 2: by two point two percent on the Russell two thousand.
13:36
Speaker 2: In that news conference, Mike McKee asking a couple of questions.
13:39
Speaker 2: He's back out of that news conference for us now, Mike,
13:41
Speaker 2: your reaction to that one, please.
13:45
Speaker 7: Well, basically, I think Bill Dudley has it right. The
13:47
Speaker 7: chairman was trying to tell people that the situation hasn't changed,
13:50
Speaker 7: even if the FED is being more realistic, shall we
13:53
Speaker 7: say about growth and inflation?
13:55
Speaker 2: Now?
13:56
Speaker 7: The thing he left out is that a significant number
13:59
Speaker 7: of members of the committee did raise their inflation forecasts,
14:04
Speaker 7: and that has some implications down the road in that
14:08
Speaker 7: with only one dot needing to switch, we aren't guaranteed
14:12
Speaker 7: three this year. We could see if we get another
14:14
Speaker 7: bad inflation report. This easily flipped two dots instead of
14:18
Speaker 7: three dots. But for right now, he's saying there isn't
14:22
Speaker 7: really a change.
14:23
Speaker 1: Bill Dudley pointed to the fact that there was no
14:25
Speaker 1: pushback to the financial conditions point, and this was notable
14:28
Speaker 1: because this is a second press conference in a row
14:30
Speaker 1: that people asked about financial conditions easing and he didn't
14:33
Speaker 1: take the bait. How much signal is there in this
14:36
Speaker 1: that essentially he is not bothered by the fact that
14:39
Speaker 1: we're seeing stocks at all time highs.
14:42
Speaker 7: Well, the FED doesn't really worry about stock hitting all
14:45
Speaker 7: time highs, except for if there's some sort of bubble
14:49
Speaker 7: bursts that they have to deal with. They view it
14:52
Speaker 7: as just another way that people are collecting income. Now,
14:56
Speaker 7: it could be a bubble, but they're looking at the
14:58
Speaker 7: cost of doing this business. And right now what we're
15:01
Speaker 7: seeing is the prime rate is unchanged. Mortgage rates have
15:05
Speaker 7: come down, but only a little bit. Credit card rates
15:07
Speaker 7: have actually gone up on average. Companies are still borrowing,
15:12
Speaker 7: and credit spreads have come down, but they're not borrowing
15:16
Speaker 7: as much as they were. So at this point, is
15:19
Speaker 7: it restrictive? Is it not restrictive? Financial conditions reflect what's
15:24
Speaker 7: happening in the stock market and to a lesser extent,
15:26
Speaker 7: the bond market, but not necessarily what's happening in the
15:29
Speaker 7: real economy.
15:30
Speaker 1: Do you get the sense, Mike, that there's a bit
15:31
Speaker 1: of hurting cats here? I mean, as Bill was talking
15:33
Speaker 1: about Bill dud Layton and former New York FED president,
15:35
Speaker 1: that there is a sense it's not a collective view
15:38
Speaker 1: of what's going to happen. It's each FED member coming
15:41
Speaker 1: out with their projections and him having to cobble together
15:44
Speaker 1: a narrative about that. Is that essentially what we saw,
15:47
Speaker 1: in particular with the first answer to this question of
15:50
Speaker 1: trying to pull together all of these new pieces.
15:53
Speaker 7: Yeah, I think the first question was one that any
15:55
Speaker 7: one of us would have asked because it was so
15:58
Speaker 7: obvious the Fed is raising its inflation forecast, it's growth forecast,
16:02
Speaker 7: and not changing. The fact that it wants to cut
16:04
Speaker 7: three times makes sense of that. I'm not sure he
16:08
Speaker 7: completely made sense of it, except for the fact, as
16:11
Speaker 7: Bill Dudley put it out, that not everybody switched their vote.
16:14
Speaker 7: We needed one more dot to move, and we could
16:17
Speaker 7: have seen that. But they do have a problem with
16:20
Speaker 7: the dot plot in that Wall Street tends to see
16:23
Speaker 7: it as a collective forecast rather than as a collection
16:27
Speaker 7: of nineteen individual forecasts. And if you break that down,
16:30
Speaker 7: you do see what I was talking about earlier, that
16:33
Speaker 7: a significant number raised their inflation forecast, and so it
16:36
Speaker 7: probably wouldn't take much to tip us into two if
16:39
Speaker 7: we continue to see this kind of inflation data. It
16:43
Speaker 7: was interesting though, that he gave us the Fed's core
16:47
Speaker 7: PCE reading basically thirty basis points for the month of February.
16:53
Speaker 7: We haven't got that yet, but that would suggest that
16:56
Speaker 7: inflation on a PCE basis is not excelting the same
17:00
Speaker 7: way we saw CPI and PPI.
17:02
Speaker 2: Did and Mi niquay, thank you, sir. I appreciate it.
17:05
Speaker 2: Trying to explain what's going on that news conference. Let's
17:07
Speaker 2: just put it this way. The optic's not great when
17:10
Speaker 2: you look at the medians and the shift we've seen
17:12
Speaker 2: now relative to December.
17:14
Speaker 1: I do like this explanation that basically it's not the
17:16
Speaker 1: sort of cabal coming up with some thesis that he
17:19
Speaker 1: can then put out there. It's him trying to pull
17:21
Speaker 1: together the different narratives. It is an interesting point that
17:23
Speaker 1: they basically leaked the core PCEE. They leaked this course
17:26
Speaker 1: sort of key metric as reason to not be more
17:29
Speaker 1: hawkish and push back against the market.
17:31
Speaker 2: So Pittchit had this to say, the medium didn't change
17:33
Speaker 2: for twenty four but the average change by eleven basis points,
17:36
Speaker 2: and at four point eight one percent, it's closer to
17:38
Speaker 2: two cuts than it is to three. That's a kind
17:41
Speaker 2: of way of shaping things up if he wanted to
17:43
Speaker 2: frame things at a federal reserve. In fact, that it
17:45
Speaker 2: might have been a better response for the fetcham and
17:47
Speaker 2: in the news conference to explain what's going on.
17:49
Speaker 1: Yeah, on the margins, This does shift people to have
17:52
Speaker 1: slightly less confidence, which is the reason why we're looking
17:55
Speaker 1: to potentially cut rates fewer times. We'll have more time
17:58
Speaker 1: to sift through everything and under stand whether we actually
18:00
Speaker 1: are making progress. And then everybody would have said, Okay,
18:03
Speaker 1: we've heard absolutely nothing.
18:04
Speaker 2: The fact of the matter is he didn't go with
18:06
Speaker 2: that option, though, did heme with a different option? Excuse
18:08
Speaker 2: it away? Focused on other things, and the fact of
18:11
Speaker 2: matter is lead. So we go back to something we've
18:12
Speaker 2: talked about a million times on this program. Will the
18:15
Speaker 2: FED have the ability to respond to adverse shocks? The
18:18
Speaker 2: answer is yes, based on the communication we've had. Do
18:21
Speaker 2: they see strong growth as a problem per se? The
18:23
Speaker 2: answer is no, based on the communication we've had. So
18:26
Speaker 2: what do you do today this afternoon? New by Stocks
18:29
Speaker 2: and you buy the front end of the curve because
18:30
Speaker 2: in the minds of Catholic economics this afternoon, based on
18:32
Speaker 2: their note, still on track for a rake cut in.
18:35
Speaker 1: June, which is really the market's view too. You're seeing
18:37
Speaker 1: that probability increase, constance Hunter's point is well taken that
18:42
Speaker 1: what they're looking at is the hope of productivity and
18:45
Speaker 1: the hope of supply side demand for the labor market
18:47
Speaker 1: to offset some of the growth that would have come
18:51
Speaker 1: with inflation, in sort of disinflationary nirvana. We'll see if
18:54
Speaker 1: we get it.
18:55
Speaker 2: Let's continue this conversation, Jeff Rosenberger, Black Rock is joining
18:58
Speaker 2: us now. Jeff, I just want to know what you've
18:59
Speaker 2: been in the last how you're running around the trading
19:01
Speaker 2: floor at Black Ross scream and buy stocks.
19:03
Speaker 3: How did you respond to this one?
19:06
Speaker 8: No, I think the main reaction is what you've been
19:09
Speaker 8: talking about in terms of the two cuts versus the
19:12
Speaker 8: three cuts. I mean, I think that's the headline for
19:15
Speaker 8: the bond market and why you're seeing such a big steepening.
19:17
Speaker 8: And as you point out, you know, it was really
19:20
Speaker 8: much closer to a two cut scenario, but they didn't
19:24
Speaker 8: go with that at all, and neither did the neither
19:26
Speaker 8: did the market narrative, and most of what you got
19:28
Speaker 8: from Chair Powell was kind of dismissive in terms of
19:31
Speaker 8: the uptick in the inflation forecast for twenty twenty four.
19:35
Speaker 8: He didn't even mention it in the opening statement when
19:39
Speaker 8: he got the question on it, it was just a
19:41
Speaker 8: mark to market issue, so really trying to kind of
19:43
Speaker 8: handwave around the dissonance between stronger growth, higher inflation, and
19:48
Speaker 8: no changes to cuts. But I think that issue is
19:52
Speaker 8: going to be in front of us as we watched
19:54
Speaker 8: the data, you know, play out. They gave the forecast
19:56
Speaker 8: for the inflation. They don't see any changes, but he
19:59
Speaker 8: also said we don't really know, and so I think
20:02
Speaker 8: that'll be a little bit of longer term issue. But
20:04
Speaker 8: why you're having such a big reaction on the equity
20:07
Speaker 8: side is because the bond market is quite happy with it,
20:09
Speaker 8: and that interchange about the FED put is back will
20:13
Speaker 8: cut rates if there's any weakness in the employment picture,
20:17
Speaker 8: and risky assets love that story.
20:19
Speaker 1: But isn't that valid? I mean, at a point where
20:21
Speaker 1: we're talking about the potential to answer some of these
20:24
Speaker 1: questions about why there's been this shift on the margins,
20:27
Speaker 1: could this mean inflation is going to stay around for
20:30
Speaker 1: a bit longer. Maybe it's okay because we want to
20:32
Speaker 1: make sure we have to stick this soft landing. I mean,
20:34
Speaker 1: those would have been clear answers. Isn't the sort of
20:36
Speaker 1: non answer signal as John and I have been talking
20:39
Speaker 1: about to basically look to that FED put as a likelihood.
20:46
Speaker 8: Well it is, but there's a real problem with that,
20:49
Speaker 8: and the risk is that the FED has just got
20:52
Speaker 8: the read on their degree of restrictiveness fundamentally wrong. Look
20:56
Speaker 8: at the answer to the question that he gave on
20:59
Speaker 8: you know, how do you know that you're restricted? It's
21:01
Speaker 8: all looking at the labor market. How do you know
21:03
Speaker 8: that financial conditions don't matter and you cannot look at them?
21:07
Speaker 8: He pointed to the labor market. Well, most of the
21:09
Speaker 8: repair in the labor market has nothing to do with
21:11
Speaker 8: the fed's policy. It's all supply side. And so when
21:14
Speaker 8: you look at the implications of the fed's policy and
21:17
Speaker 8: financial conditions, and Mike McKee you talked about this a
21:20
Speaker 8: little bit, I just want to amplify that it does
21:22
Speaker 8: affect the real economy because the transmission mechanism from financial
21:26
Speaker 8: conditions is through confidence, and confidence translates into demand, and
21:30
Speaker 8: so it's absolutely acting in opposite to what the FED
21:35
Speaker 8: is intending here. And that's a tension that the FED
21:38
Speaker 8: is ignoring right now, but they ignore it at their
21:40
Speaker 8: own peril. The market is following the FED narrative, So
21:43
Speaker 8: everybody's happy with it, but the risk is that they're
21:46
Speaker 8: off and so that inflation doesn't fall as far as
21:49
Speaker 8: everyone's expecting to, and you end up having to do
21:52
Speaker 8: the opposite of what we got today, which is, uh oh,
21:55
Speaker 8: actually things are stronger. We can't cut as much as
21:58
Speaker 8: everybody expects at the opposite reaction. That's a risk for
22:02
Speaker 8: the future time. But that's why some of this matters.
22:04
Speaker 3: So, Jeff, this is refreshing. Let's put it that way.
22:07
Speaker 2: Once you've identified an inconsistency like that, as a market participant,
22:11
Speaker 2: how do you position accordingly?
22:12
Speaker 3: What do you do? What are you doing differently?
22:16
Speaker 8: So the thing that it highlights is just the asymmetry
22:20
Speaker 8: in terms of market performance. Now, you're not going to
22:23
Speaker 8: see it releve realized until it shows up in the data,
22:26
Speaker 8: but it highlights that the fed's actions and its narrative
22:31
Speaker 8: kind of conspire to push people into the same types
22:36
Speaker 8: of trades, and so when you get the surprise on
22:39
Speaker 8: the other side that might be brewing here, I'm not
22:41
Speaker 8: saying that it is, but it creates a much larger
22:45
Speaker 8: opposite reaction. I don't think you can position for that today,
22:49
Speaker 8: because you've got a position with the momentum, which is, hey,
22:51
Speaker 8: they're gonna cut three times, they're pretty sanguine and as
22:56
Speaker 8: it as you've seen in the equity market today, it's
22:58
Speaker 8: everybody back in the pool.
22:59
Speaker 1: It seems as though there aren't that many people worried
23:01
Speaker 1: about inflation getting unmoored. Everyone seems to say that doesn't
23:05
Speaker 1: seem to be the risk that we're currently facing. The
23:07
Speaker 1: Fed doesn't seem particularly worried about inflation expectations really getting
23:11
Speaker 1: out of their control, all things being equal, does that
23:14
Speaker 1: give you enough confidence to buy longer term treasuries ten
23:18
Speaker 1: year treasuries, thirty year treasuries with the conviction that the
23:21
Speaker 1: Fed will truly get inflation back down to two percent.
23:26
Speaker 8: So, just a clarification, we're not talking about inflation going
23:29
Speaker 8: back up. We're talking about the failure of inflation to
23:31
Speaker 8: go down to two percent as fast as the FED
23:35
Speaker 8: expects it to, and therefore they can cut interest rates
23:39
Speaker 8: as fast as they need to because they are more
23:42
Speaker 8: worried about being too restrictive. So it's more about not
23:45
Speaker 8: getting as much as what the market expects than some
23:47
Speaker 8: kind of big change in terms of the inflation trajectory.
23:50
Speaker 8: On the second part of your question, Lisa, super interesting
23:53
Speaker 8: development here, kind of more minor in terms of the
23:55
Speaker 8: headlines here, but that change to the longer run dot
23:59
Speaker 8: and what you saw on curve reaction is an attempt
24:02
Speaker 8: to try to steepen the curve. Most of the reaction
24:05
Speaker 8: is just in the front end, but you look at
24:07
Speaker 8: the back end and it was flirting with higher rates,
24:09
Speaker 8: positive yield movements to the back end. And it is
24:13
Speaker 8: this longer run story that perhaps the landing point isn't
24:17
Speaker 8: as low as what we think it is today, isn't
24:20
Speaker 8: as low as what it was pre COVID, that the
24:23
Speaker 8: neutral rate ends up being much higher, and that the
24:25
Speaker 8: path of aggregate cuts as much lower. And then you
24:29
Speaker 8: add on top of that a lot of the fiscal
24:31
Speaker 8: considerations in terms of the amount of debt that's being
24:33
Speaker 8: pushed into the private side and the QT that he
24:36
Speaker 8: talked about the balance sheet slowing, less support for absorbing
24:40
Speaker 8: that that challenges the back end of the curve. So
24:43
Speaker 8: I think it's still a much more challenging environment for
24:47
Speaker 8: longer dated maturity interest rates coming out of this meeting.
24:50
Speaker 1: You put this all together, Jeff, do you feel as
24:52
Speaker 1: though this federal reserve is tacitly acknowledging that they will
24:56
Speaker 1: tolerate a higher inflation rate for a longer period of
24:59
Speaker 1: time if it's going down even very gradually to that
25:03
Speaker 1: two percent level.
25:05
Speaker 8: Yeah, you know, I think he got he got that
25:07
Speaker 8: question explicitly, and he said it explicitly as explicit as
25:11
Speaker 8: the FED is going to be within the ambiguity of language.
25:14
Speaker 8: He said over time. He's stressed over time, And I
25:17
Speaker 8: think the interpretation of that is they're not going to
25:20
Speaker 8: be so worried about hitting two percent immediately. Now, there's
25:24
Speaker 8: a lot of gap and room for interpretation about what
25:27
Speaker 8: is the difference in calendar dates and time between immediate
25:32
Speaker 8: and overtime. But I think it's pretty clear that the
25:34
Speaker 8: FED is not going to press on economic growth and
25:39
Speaker 8: recession for the benefit of going from three to two percent.
25:43
Speaker 8: And I think that's pretty clear where this bet is leaning.
25:45
Speaker 2: Chef, this was awesome, ready thoughtful stuff. Thank you, sir,
25:48
Speaker 2: Jeff Rosenberg there over at black Rock. You want two
25:50
Speaker 2: moves in this equity market right now? Stocks, old time
25:53
Speaker 2: highs take another. Guess what hit a record high just
25:57
Speaker 2: months ago? A fresh old time high goat not just stocks,
26:01
Speaker 2: but gold as well. Bramo breaking out and getting back
26:04
Speaker 2: up there.
26:05
Speaker 1: So there's one way to interpret this, which is potentially
26:07
Speaker 1: fear of inflation and then you go into gold. And
26:09
Speaker 1: then there's another version of this, which is if interest
26:12
Speaker 1: rates go down, intersparing assets are not as attractive and
26:17
Speaker 1: you can go into a hard asset. So these are
26:19
Speaker 1: two of the potential explanations people might have for gold
26:22
Speaker 1: either way, both of them taking effect exactly.
26:25
Speaker 2: So how about both the fact of the matter is
26:27
Speaker 2: they're still entertaining interest rate cauns and maybe even inflation
26:31
Speaker 2: isn't going to reaccelerate in a profound way. That's not
26:33
Speaker 2: what Jeff Rosenberger is sent over at black Rock. Perhaps
26:35
Speaker 2: it hangs around above target Sticky.
26:38
Speaker 1: Tomorrow special from Jonathan Farrow and being a Goldbug, the new,
26:41
Speaker 1: the one and only.
26:42
Speaker 2: I think it's some gold bugs out there are quite
26:44
Speaker 2: happy with that news conference.
26:45
Speaker 1: Let's put it out there, and it's been an incredible rally,
26:47
Speaker 1: and so maybe they've got it just turbocharged.
26:49
Speaker 2: We'll continue this conversation tomorrow morning. Thank you very much
26:52
Speaker 2: for tuning into Bloomberg TV and Bloomberg Radio for our
26:56
Speaker 2: audience worldwide. What a fed news conference a green like
27:00
Speaker 2: for so many of you to carry on buying equities,
27:02
Speaker 2: your stock market at all time highs from New York.
27:06
Speaker 3: This is Bloomberg