1 00:00:05,519 --> 00:00:08,720 Speaker 1: Let's head over to Bloomberg's Michael McKee with the headlines mic. 2 00:00:10,160 --> 00:00:12,959 Speaker 2: No surprises, no news, a few new words. In a 3 00:00:13,080 --> 00:00:16,840 Speaker 2: unanimous decision, the Fed retains its five and a quarter 4 00:00:16,920 --> 00:00:19,880 Speaker 2: to five and a half percent target range for its 5 00:00:19,880 --> 00:00:24,000 Speaker 2: benchmark borrowing rate, and retains its language about determining the 6 00:00:24,079 --> 00:00:28,200 Speaker 2: extent of additional policy firming that may be appropriate. The 7 00:00:28,240 --> 00:00:32,640 Speaker 2: Policymaker's assessment of the economy contains some new adjectives, but 8 00:00:32,800 --> 00:00:36,640 Speaker 2: no new information. Activity expanded at a strong pace in 9 00:00:36,720 --> 00:00:39,800 Speaker 2: the third quarter, and instead of solid job gains have 10 00:00:40,000 --> 00:00:45,000 Speaker 2: moderated instead of slowed, Inflation remains elevated. The statement says 11 00:00:45,159 --> 00:00:49,199 Speaker 2: tighter financial and credit conditions for households and businesses are 12 00:00:49,360 --> 00:00:52,760 Speaker 2: likely to weigh on economic activity. That adds the words 13 00:00:52,960 --> 00:00:55,480 Speaker 2: financial to this sentence, and it may be a nod 14 00:00:55,520 --> 00:00:59,000 Speaker 2: to the idea expressed by many Fed officials that raising 15 00:00:59,120 --> 00:01:02,080 Speaker 2: market rates are doing some of the Fed's work for 16 00:01:02,120 --> 00:01:05,840 Speaker 2: it a reason not to have raised rates today. This 17 00:01:06,000 --> 00:01:07,800 Speaker 2: is the second meeting in a row that the Fed 18 00:01:07,840 --> 00:01:11,040 Speaker 2: has held rates unchanged, and although the dot plot suggests 19 00:01:11,080 --> 00:01:13,880 Speaker 2: one more move by the end of the year, the 20 00:01:14,120 --> 00:01:18,120 Speaker 2: markets may interpret today's decision as confirming that rates have peaked. 21 00:01:18,680 --> 00:01:20,760 Speaker 2: That's going to be a key question for Chairman J. 22 00:01:20,959 --> 00:01:21,959 Speaker 2: Powell coming up. 23 00:01:22,560 --> 00:01:24,080 Speaker 3: You'll see, Mike McKee. We want to get to you 24 00:01:24,200 --> 00:01:26,520 Speaker 3: quickly here. But we see the market moving lifting up. 25 00:01:26,520 --> 00:01:29,640 Speaker 3: Equity's lifting up higher right now, with the Dow up 26 00:01:29,720 --> 00:01:32,399 Speaker 3: eighty points two tenths of a percent, Nazek one hundred, 27 00:01:32,440 --> 00:01:34,959 Speaker 3: do a tear up eight tenths of a percent as well? 28 00:01:35,000 --> 00:01:38,199 Speaker 3: The tenure yield comes in ever lower bond prices up, 29 00:01:38,560 --> 00:01:42,520 Speaker 3: yields down on the tenure yield four point seventy nine percent, 30 00:01:42,680 --> 00:01:46,959 Speaker 3: distant from the five percent yield. Mike, the statement is here, 31 00:01:47,000 --> 00:01:49,720 Speaker 3: and maybe it's a preparation for December fifteenth, but it 32 00:01:49,760 --> 00:01:54,680 Speaker 3: seems to be a preparation for a presumed slower American 33 00:01:54,760 --> 00:01:58,120 Speaker 3: economy into this press conference. Do you assume we go 34 00:01:58,240 --> 00:02:02,080 Speaker 3: from four point x percent Q three down to something 35 00:02:02,200 --> 00:02:04,680 Speaker 3: dramatically weaker in this present quarter. 36 00:02:06,200 --> 00:02:07,560 Speaker 2: I don't think the Fed is going to put it 37 00:02:07,600 --> 00:02:09,960 Speaker 2: that way. They took recession out of their forecast a 38 00:02:10,000 --> 00:02:13,080 Speaker 2: meeting or two ago and basically have said that the 39 00:02:13,080 --> 00:02:19,000 Speaker 2: economy can grow at a reasonable rate without without going 40 00:02:19,040 --> 00:02:22,359 Speaker 2: into recession. Now J Powell has suggested we still need 41 00:02:22,440 --> 00:02:26,600 Speaker 2: a period of below trend growth. We're nowhere near that now. 42 00:02:27,120 --> 00:02:29,480 Speaker 2: If we do see it slow down, the question is 43 00:02:29,560 --> 00:02:32,200 Speaker 2: does it go too far too fast right now? All 44 00:02:32,200 --> 00:02:36,200 Speaker 2: indications are it wouldn't that we could see slower growth 45 00:02:36,240 --> 00:02:40,040 Speaker 2: without seeing recession, and we could see inflation continue to 46 00:02:40,080 --> 00:02:43,200 Speaker 2: come down. But that's a question for them. There are 47 00:02:43,240 --> 00:02:46,640 Speaker 2: they in damaged control right now making sure that they 48 00:02:46,639 --> 00:02:49,320 Speaker 2: don't go too far because they think the economy is 49 00:02:49,360 --> 00:02:51,839 Speaker 2: going to slow or do they think they've done enough 50 00:02:51,880 --> 00:02:52,480 Speaker 2: at this point. 51 00:02:52,600 --> 00:02:54,760 Speaker 1: Michael McKeith, thank you so much. We'll be catching up 52 00:02:54,800 --> 00:02:57,680 Speaker 1: with you throughout the afternoon, just taking a look at 53 00:02:57,680 --> 00:03:00,120 Speaker 1: what's going on. The two year yields to me, Tom 54 00:03:00,360 --> 00:03:05,200 Speaker 1: really stands out sharply down below five percent. As really 55 00:03:05,240 --> 00:03:07,360 Speaker 1: to Mike's point, the market is taking this is the 56 00:03:07,400 --> 00:03:09,919 Speaker 1: FED has done hiking rates for this ect already. 57 00:03:09,960 --> 00:03:12,079 Speaker 3: Headlines out now. Mike mckeel have much more on this 58 00:03:12,200 --> 00:03:15,440 Speaker 3: as well as our guest. But low Brainerd showed up 59 00:03:15,440 --> 00:03:17,240 Speaker 3: for the FED meet today. She's at the white outs 60 00:03:17,320 --> 00:03:20,720 Speaker 3: now holding Quota's national Economic advisor. And let me read 61 00:03:20,720 --> 00:03:23,959 Speaker 3: this headline. It's a brainer headline. FED repeats it will 62 00:03:24,000 --> 00:03:29,400 Speaker 3: take a cumulative tightening and lags into account. Drogy would 63 00:03:29,400 --> 00:03:31,800 Speaker 3: have just said, we're going out to twenty twenty five. 64 00:03:31,919 --> 00:03:34,160 Speaker 1: Well, and we're not going to hike anymore, because if 65 00:03:34,200 --> 00:03:38,320 Speaker 1: you think about the cumulative rate hikes, have we seen 66 00:03:38,720 --> 00:03:41,480 Speaker 1: enough from what already has been done? Or is this 67 00:03:41,560 --> 00:03:43,080 Speaker 1: the long and variable lags that a lot of people 68 00:03:43,120 --> 00:03:43,840 Speaker 1: are talking about. 69 00:03:44,000 --> 00:03:46,840 Speaker 3: Richard Clareda with us still he is with PIMCO and 70 00:03:46,920 --> 00:03:52,080 Speaker 3: Columbia University. Richard Clareda, I look at cumulative and that 71 00:03:52,280 --> 00:03:54,880 Speaker 3: just tells me we're going out there. Drogy would have 72 00:03:54,920 --> 00:03:57,760 Speaker 3: put a date on it. Can Professor Clareda put a 73 00:03:57,880 --> 00:04:00,440 Speaker 3: date on this longer FED at this. 74 00:04:00,200 --> 00:04:03,600 Speaker 4: Level, Well, I don't think so. I think you know 75 00:04:03,640 --> 00:04:07,280 Speaker 4: that language curuity has been in there for several meetings, 76 00:04:07,280 --> 00:04:10,320 Speaker 4: and it does recognize that the path forward depends upon 77 00:04:10,360 --> 00:04:13,320 Speaker 4: how much they've done in the past. As I've said, 78 00:04:13,520 --> 00:04:16,479 Speaker 4: these are always balancing acts. I think the Fed's baseline 79 00:04:16,480 --> 00:04:19,000 Speaker 4: outlook makes a lot of sense. But if there is 80 00:04:19,040 --> 00:04:21,640 Speaker 4: a risk, the risk is that inflation is too stubborn. 81 00:04:21,720 --> 00:04:24,440 Speaker 4: If I were recommending or talking to J. Powell, I 82 00:04:24,480 --> 00:04:28,159 Speaker 4: would recommend that he leaves the door open to doing more. 83 00:04:28,200 --> 00:04:30,520 Speaker 4: It doesn't have to commit to it. Every meeting's live, 84 00:04:30,680 --> 00:04:33,640 Speaker 4: but I definitely don't think he wants to walk away 85 00:04:33,680 --> 00:04:37,560 Speaker 4: today with the markets seeing the headline as FED is done. 86 00:04:37,200 --> 00:04:39,839 Speaker 1: That seems to be certainly, at least the initial read 87 00:04:39,960 --> 00:04:42,600 Speaker 1: on this one line that Michael McKee pulled out was 88 00:04:42,920 --> 00:04:46,240 Speaker 1: the tighter financial as well as credit conditions are set 89 00:04:46,279 --> 00:04:49,480 Speaker 1: to weigh on the economy. They added financial into this. 90 00:04:49,800 --> 00:04:51,760 Speaker 1: How much do you think the Federal Reserve and the 91 00:04:51,800 --> 00:04:54,720 Speaker 1: members are concerned about some of the volatility we've seen 92 00:04:54,839 --> 00:04:56,880 Speaker 1: on the long end of the curve, that maybe it's 93 00:04:56,920 --> 00:04:59,400 Speaker 1: getting to something a little dysfunctional, a little bit less 94 00:04:59,640 --> 00:05:00,799 Speaker 1: just restrictive. 95 00:05:01,240 --> 00:05:04,839 Speaker 4: Yeah, well, you know, the short answer is there's probably 96 00:05:04,839 --> 00:05:09,000 Speaker 4: a range of opinions, but certainly Cha Powell recently and 97 00:05:09,080 --> 00:05:13,560 Speaker 4: Lourie Logan, president of Dallas, have indicated that it reflects 98 00:05:13,560 --> 00:05:15,680 Speaker 4: it is doing some of the Fed's job for it. 99 00:05:15,720 --> 00:05:19,960 Speaker 4: They haven't pushed back against it. I do think that 100 00:05:20,080 --> 00:05:23,440 Speaker 4: the challenge, you know, having word Smith with others some 101 00:05:23,520 --> 00:05:26,799 Speaker 4: of these things, the challenge of putting the financial conditions 102 00:05:26,880 --> 00:05:30,520 Speaker 4: term in this statement is, you know, financial conditions can 103 00:05:30,560 --> 00:05:32,960 Speaker 4: go up and down be vital for a lot of reasons. 104 00:05:33,240 --> 00:05:36,720 Speaker 4: And then at some point they they may regret that 105 00:05:36,760 --> 00:05:38,440 Speaker 4: they included it in the first place. 106 00:05:39,000 --> 00:05:41,080 Speaker 3: A vice chairman, thank you so much. He's a former 107 00:05:41,200 --> 00:05:45,320 Speaker 3: vice chairman of the Federal Reserve. Stress he's going to 108 00:05:45,360 --> 00:05:47,520 Speaker 3: stay with us. Yes, okay, I did not know that. 109 00:05:47,600 --> 00:05:49,560 Speaker 3: That is very good. Rich Claire to thank you for 110 00:05:49,600 --> 00:05:54,279 Speaker 3: the generous time today giving your responsibilities at PIMCO. Joining 111 00:05:54,360 --> 00:05:59,320 Speaker 3: us now. Diane Swank, chief economist KPMG, and Matthew Hornbach 112 00:05:59,360 --> 00:06:03,760 Speaker 3: with his global head of macro strategy, Morgan Stanley Dan Swank. 113 00:06:04,080 --> 00:06:07,880 Speaker 3: We're talking rates, We're talking inflation. I believe there's an 114 00:06:07,880 --> 00:06:11,560 Speaker 3: employment mandate as well, and part of that to all 115 00:06:11,640 --> 00:06:16,880 Speaker 3: of your Midwestern heritage. Are auto workers better paid? How 116 00:06:16,920 --> 00:06:20,840 Speaker 3: do we have wage disinflation if we have unions garnering 117 00:06:20,880 --> 00:06:22,719 Speaker 3: the historic pay raises. 118 00:06:24,200 --> 00:06:26,760 Speaker 5: Well, first of all, I want to echo what Rich 119 00:06:26,800 --> 00:06:30,200 Speaker 5: said is our concern is sort of around May and June. 120 00:06:30,080 --> 00:06:31,920 Speaker 5: Where is the FED going to be? And I think 121 00:06:31,960 --> 00:06:34,760 Speaker 5: the optionality to have rate hikes still on the table, 122 00:06:34,760 --> 00:06:38,040 Speaker 5: and that every meeting's live is really important. So I 123 00:06:38,080 --> 00:06:40,680 Speaker 5: really agree one hundred percent with Rich on that. I 124 00:06:40,720 --> 00:06:43,720 Speaker 5: think the issue on the UAW strikes and what they 125 00:06:43,800 --> 00:06:46,679 Speaker 5: have seemed to have gotten is that, first of all, 126 00:06:47,000 --> 00:06:50,600 Speaker 5: union contracts were lagging private sector contracts during much of 127 00:06:50,640 --> 00:06:54,160 Speaker 5: the expansion and the frenzied hiring boom, and so some 128 00:06:54,200 --> 00:06:56,880 Speaker 5: of this is catch up. I think also it's important 129 00:06:56,880 --> 00:07:00,279 Speaker 5: that there will be spillover effects in the manufacturing setctor. 130 00:07:00,640 --> 00:07:04,800 Speaker 5: More broadly, the key issue is how much will those 131 00:07:05,080 --> 00:07:09,440 Speaker 5: higher wages spill over into other manufacturers. That's yet to see, 132 00:07:09,640 --> 00:07:12,480 Speaker 5: but I do think that's where their tension could show up, 133 00:07:12,800 --> 00:07:15,720 Speaker 5: and it's yet to happen, and so they're going to 134 00:07:15,800 --> 00:07:18,240 Speaker 5: ratify it. These were good contracts and a good win 135 00:07:18,320 --> 00:07:21,240 Speaker 5: for the UAW, harder for the automakers. But I do 136 00:07:21,280 --> 00:07:24,040 Speaker 5: think what's important to understand is that many of these 137 00:07:24,120 --> 00:07:27,400 Speaker 5: contracted wages in the public sector as well are just 138 00:07:27,560 --> 00:07:29,760 Speaker 5: now beginning to reset and catch up to where the 139 00:07:29,760 --> 00:07:32,200 Speaker 5: private sector already was several years ago. 140 00:07:32,440 --> 00:07:36,320 Speaker 3: Matt hornback, what all that Lisa and I have done today? 141 00:07:36,520 --> 00:07:41,000 Speaker 3: The single moment for me was your Seth Carpenter explaining 142 00:07:41,120 --> 00:07:45,040 Speaker 3: the Zetner deceleration in this economy from four point x 143 00:07:45,120 --> 00:07:48,680 Speaker 3: percent I know inventories in that down to something sub 144 00:07:48,720 --> 00:07:52,120 Speaker 3: one percent in the Q four. What do our markets 145 00:07:52,200 --> 00:07:56,160 Speaker 3: do with that deceleration presumed in real GDP. 146 00:07:57,560 --> 00:07:59,800 Speaker 6: Yeah, well, thanks for having me on the program, Tom. 147 00:08:00,080 --> 00:08:03,480 Speaker 6: I do think that the deceleration will be important and 148 00:08:03,600 --> 00:08:07,000 Speaker 6: factor into how the FED thinks about this higher for 149 00:08:07,120 --> 00:08:08,400 Speaker 6: longer mantra. 150 00:08:08,800 --> 00:08:09,480 Speaker 1: I mean, it's. 151 00:08:09,320 --> 00:08:13,280 Speaker 6: True that the meeting today didn't really offer too many surprises, 152 00:08:13,320 --> 00:08:15,560 Speaker 6: but we do have one more meeting before the end 153 00:08:15,600 --> 00:08:18,000 Speaker 6: of the year, and even though we don't expect the 154 00:08:18,000 --> 00:08:21,080 Speaker 6: Fed to be hiking rates at that meeting, there is 155 00:08:21,120 --> 00:08:24,880 Speaker 6: an open question about what they do with their guidance 156 00:08:24,960 --> 00:08:27,680 Speaker 6: that comes in the dot plot that I do think 157 00:08:27,760 --> 00:08:31,760 Speaker 6: is going to be levered to the growth outlook, and 158 00:08:31,800 --> 00:08:34,240 Speaker 6: if we do get this deceleration that Ellen and Seth 159 00:08:34,280 --> 00:08:37,800 Speaker 6: are looking for, then we do I would suspect that 160 00:08:37,960 --> 00:08:41,160 Speaker 6: the Fed may have to take a slightly more dovish 161 00:08:41,200 --> 00:08:44,080 Speaker 6: approach to their outlook for interest rates in twenty twenty 162 00:08:44,080 --> 00:08:44,720 Speaker 6: four and beyond. 163 00:08:45,400 --> 00:08:47,760 Speaker 3: Very importantly, Lisa, the two year yield breaks down to 164 00:08:47,800 --> 00:08:49,760 Speaker 3: a new lull on the two year yield, as you 165 00:08:49,800 --> 00:08:53,120 Speaker 3: mentioned earlier in ten basis points, now in round it 166 00:08:53,200 --> 00:08:55,840 Speaker 3: up on eleven basis points four point ninety percent. 167 00:08:56,000 --> 00:08:58,080 Speaker 1: This raises this question, how do you have a hawkish 168 00:08:58,080 --> 00:09:00,880 Speaker 1: pause if a pause is a pause. Matt, Oh, what's 169 00:09:00,920 --> 00:09:03,800 Speaker 1: your view? I mean, how much can really Fetcher J. 170 00:09:03,960 --> 00:09:06,000 Speaker 1: Powell lean into this idea that they may not be 171 00:09:06,120 --> 00:09:08,760 Speaker 1: done without the market saying yeah, you've been following us 172 00:09:08,760 --> 00:09:09,200 Speaker 1: all year. 173 00:09:10,520 --> 00:09:11,079 Speaker 5: Yeah, Lisa. 174 00:09:11,400 --> 00:09:15,000 Speaker 6: I think that what will be key is Powell focusing 175 00:09:15,040 --> 00:09:18,480 Speaker 6: on the data dependence of the Fed. We just got 176 00:09:18,480 --> 00:09:21,320 Speaker 6: through a pretty strong round of data for the month 177 00:09:21,320 --> 00:09:24,400 Speaker 6: of September. We've got two more months of data before 178 00:09:24,559 --> 00:09:28,360 Speaker 6: the FED convenes in December, and then again that dot plot, 179 00:09:28,400 --> 00:09:31,280 Speaker 6: I do think is going to be an important signaling mechanism. 180 00:09:31,760 --> 00:09:34,880 Speaker 6: To the extent that they are done hiking rates, they 181 00:09:34,920 --> 00:09:38,160 Speaker 6: can always double down on the higher for longer theme 182 00:09:38,600 --> 00:09:40,920 Speaker 6: by taking all of the rate cuts out of twenty 183 00:09:40,960 --> 00:09:43,280 Speaker 6: twenty four. So that's going to be an important variable 184 00:09:43,520 --> 00:09:45,160 Speaker 6: that investors will be paying attention to. 185 00:09:46,120 --> 00:09:49,640 Speaker 1: Diane, how much are you looking at the reliance on 186 00:09:49,720 --> 00:09:52,760 Speaker 1: financial markets to do the work for them at a 187 00:09:52,800 --> 00:09:56,760 Speaker 1: time things are volatile and to Rich Clarreta's point, financial 188 00:09:56,840 --> 00:10:00,640 Speaker 1: conditions can change. How much is that not exactly comfortable 189 00:10:00,679 --> 00:10:02,320 Speaker 1: place for the Federal Reserve to be in? 190 00:10:03,480 --> 00:10:03,560 Speaker 3: Well? 191 00:10:03,600 --> 00:10:05,600 Speaker 5: I agree one hundred percent with Rich on that, and 192 00:10:05,640 --> 00:10:06,800 Speaker 5: so I guess Rich and I are just in one 193 00:10:06,840 --> 00:10:09,160 Speaker 5: hundred percent agreement today, But I think that is going 194 00:10:09,200 --> 00:10:11,960 Speaker 5: to be a danger for the FED because they're looking 195 00:10:12,040 --> 00:10:15,280 Speaker 5: for this doing the heavy lifting forum. It is obviously 196 00:10:15,320 --> 00:10:17,760 Speaker 5: already throwing a bucket of ice on the housing market 197 00:10:18,120 --> 00:10:20,800 Speaker 5: that's going to come up in the fourth quarter. That said, 198 00:10:21,240 --> 00:10:25,320 Speaker 5: the consumer is remarkably resilient. We've got double the savings 199 00:10:25,320 --> 00:10:27,679 Speaker 5: we thought we had with the benchmark revisions, and it's 200 00:10:27,720 --> 00:10:31,680 Speaker 5: getting interest paid on it now. That is really important 201 00:10:31,679 --> 00:10:34,959 Speaker 5: to take into account. And the strength of the economy. 202 00:10:35,320 --> 00:10:37,360 Speaker 5: I think we're going to see a acceleration in the 203 00:10:37,600 --> 00:10:39,599 Speaker 5: it's hard not to from almost five percent in a 204 00:10:39,640 --> 00:10:41,960 Speaker 5: fourth quarter, but the consumer is still going to be 205 00:10:41,960 --> 00:10:44,720 Speaker 5: pretty strong. We're set up to have pretty strong gains 206 00:10:44,760 --> 00:10:46,520 Speaker 5: still with two and a half percent or so gains 207 00:10:46,520 --> 00:10:51,240 Speaker 5: and consumer spending. The strength of the economy justifies higher rates, 208 00:10:51,440 --> 00:10:55,240 Speaker 5: and it also brings into question how much restriction we have, 209 00:10:55,480 --> 00:10:58,760 Speaker 5: and if financial conditions were to unwind and the route 210 00:10:58,760 --> 00:11:01,680 Speaker 5: and the bond market were to un that takes away 211 00:11:02,240 --> 00:11:04,520 Speaker 5: the restriction that's out there, and all of a sudden, 212 00:11:04,520 --> 00:11:05,920 Speaker 5: the FED has to get back in the game, and 213 00:11:06,000 --> 00:11:10,320 Speaker 5: so that optionality of being every meeting live critical. 214 00:11:10,200 --> 00:11:12,920 Speaker 3: Rich Clarina, what's so important to me is again the 215 00:11:13,080 --> 00:11:17,360 Speaker 3: analogue that we're conveniently using of taking Powell back to 216 00:11:17,480 --> 00:11:21,240 Speaker 3: Vulcar and his Bill Dudley Rice an hour ago. For Bloomberg, 217 00:11:21,679 --> 00:11:24,920 Speaker 3: he says, the arch fear was Arthur Burns, who allowed 218 00:11:24,920 --> 00:11:29,160 Speaker 3: inflation to get out of control in the nineteen seventies. 219 00:11:29,640 --> 00:11:32,840 Speaker 3: I believe we have a disinflation vector. But should we 220 00:11:32,960 --> 00:11:35,960 Speaker 3: fear that inflation is out of control? 221 00:11:37,880 --> 00:11:40,400 Speaker 4: Well, the analogy I would use, which I think the 222 00:11:40,480 --> 00:11:43,320 Speaker 4: FED would want to avoid at all costs, is nineteen 223 00:11:43,440 --> 00:11:48,040 Speaker 4: sixty six LBJ had guns and butter. Inflation was moving up. 224 00:11:48,080 --> 00:11:50,600 Speaker 4: The FED hiked and then they blinked and they cut 225 00:11:50,640 --> 00:11:53,240 Speaker 4: in nineteen sixty seven and what we now call the 226 00:11:53,280 --> 00:11:57,960 Speaker 4: Great Inflation I think stems back to a hiking episode 227 00:11:58,000 --> 00:12:00,120 Speaker 4: that got cut short, and the FED did not re 228 00:12:00,240 --> 00:12:03,600 Speaker 4: engage when inflation went up. I don't think the power 229 00:12:03,600 --> 00:12:06,679 Speaker 4: Fed would make the same mistake, But that's the part 230 00:12:06,720 --> 00:12:08,600 Speaker 4: of the history book i'd be looking at and trying 231 00:12:08,600 --> 00:12:09,080 Speaker 4: to avoid. 232 00:12:09,600 --> 00:12:09,840 Speaker 7: Matt. 233 00:12:09,840 --> 00:12:11,480 Speaker 1: When we take a look at how the market is 234 00:12:11,520 --> 00:12:14,959 Speaker 1: handling this, we're not talking at all about the balance sheet. 235 00:12:15,200 --> 00:12:17,080 Speaker 1: Should we be I mean, is that part of the 236 00:12:17,160 --> 00:12:18,640 Speaker 1: discussion in a material way. 237 00:12:20,040 --> 00:12:22,920 Speaker 6: Well, Lisa, I do think that the balance sheet will 238 00:12:22,920 --> 00:12:26,240 Speaker 6: be an important topic to discuss in twenty twenty four, 239 00:12:27,080 --> 00:12:29,360 Speaker 6: but that's to us probably a bit more of a 240 00:12:29,400 --> 00:12:32,400 Speaker 6: second half of next year issue as opposed to a 241 00:12:32,440 --> 00:12:36,040 Speaker 6: first half issue. Nevertheless, you know, we will see the 242 00:12:36,040 --> 00:12:39,040 Speaker 6: Fed's balance sheet continue to shrink in terms of its 243 00:12:39,040 --> 00:12:42,800 Speaker 6: securities holdings. The issue that we would be focused on 244 00:12:42,840 --> 00:12:47,320 Speaker 6: here is what ends up happening with the BTFP, that 245 00:12:47,480 --> 00:12:51,040 Speaker 6: term funding facility that the Fed introduced back in March, 246 00:12:51,520 --> 00:12:53,520 Speaker 6: to see what kind of take up we end up 247 00:12:53,559 --> 00:12:56,600 Speaker 6: getting through the first several months of twenty twenty four. 248 00:12:56,640 --> 00:12:58,960 Speaker 6: I do think that will be an important factor that 249 00:12:59,000 --> 00:13:00,800 Speaker 6: we should all continue to pay attention to. 250 00:13:01,480 --> 00:13:04,000 Speaker 3: Dian swank to pick up on what Matt Hornbook just 251 00:13:04,000 --> 00:13:06,000 Speaker 3: talked about. And of course we see this in Japan 252 00:13:06,120 --> 00:13:08,880 Speaker 3: with the Arch debate even into this evening. Pay attention 253 00:13:09,000 --> 00:13:12,320 Speaker 3: folks Bloomberg Asia, a Don Mann and the rest over 254 00:13:12,360 --> 00:13:16,880 Speaker 3: in Hong Kong following Japan in their odd economic experiment, 255 00:13:17,400 --> 00:13:21,400 Speaker 3: Diane Swanker, are we going to successfully extricate ourselves from 256 00:13:21,679 --> 00:13:23,960 Speaker 3: what did normal were being? You call it? Qi one, 257 00:13:24,200 --> 00:13:27,120 Speaker 3: q E two, QE three, four five six, I mean 258 00:13:27,200 --> 00:13:31,440 Speaker 3: Dian Swank where I mean McKees mcke's encyclopedic on this, 259 00:13:31,840 --> 00:13:33,920 Speaker 3: I don't get it. Are we going to get ourselves 260 00:13:34,000 --> 00:13:37,359 Speaker 3: out of this qwy qt model successfully? 261 00:13:39,640 --> 00:13:42,040 Speaker 5: That's a big question. I'd love to hear Rich's response 262 00:13:42,080 --> 00:13:44,280 Speaker 5: on that one. I think you know what's interesting is 263 00:13:44,280 --> 00:13:46,880 Speaker 5: the FED wants to stop well short, is likely to 264 00:13:46,880 --> 00:13:49,040 Speaker 5: stop short of their objective in terms of how much 265 00:13:49,080 --> 00:13:52,880 Speaker 5: they drain their balance sheet. That said, the quantitative tightening, 266 00:13:52,920 --> 00:13:55,000 Speaker 5: the reductions, and their bloated balance sheet, they're still going 267 00:13:55,040 --> 00:13:56,920 Speaker 5: to stop at a level that's much higher than it 268 00:13:57,000 --> 00:13:59,840 Speaker 5: was in the past. And what we've seen is any 269 00:13:59,840 --> 00:14:02,800 Speaker 5: time there is a financial crisis, this is something that FED. 270 00:14:03,120 --> 00:14:05,400 Speaker 5: Once we get down to the zero boundary, we have 271 00:14:05,480 --> 00:14:07,560 Speaker 5: to rely on now. The one thing that might be 272 00:14:07,640 --> 00:14:09,840 Speaker 5: hopeful for the future is that it looks like the 273 00:14:09,840 --> 00:14:13,360 Speaker 5: non inflationary rate is rising and that we're no longer 274 00:14:13,400 --> 00:14:15,760 Speaker 5: coming out of a global financial crisis. And if we 275 00:14:15,800 --> 00:14:20,640 Speaker 5: can avoid another major financial crisis where we literally have 276 00:14:20,680 --> 00:14:22,360 Speaker 5: to go back down to the zero boundary, we've got 277 00:14:22,400 --> 00:14:25,200 Speaker 5: a lot of room to stimulate now without going back 278 00:14:25,240 --> 00:14:28,040 Speaker 5: into the balance sheet. That's for now, and it looks 279 00:14:28,080 --> 00:14:30,880 Speaker 5: like we'll have some cushion and the descent on rates 280 00:14:30,960 --> 00:14:33,320 Speaker 5: is going to be significantly slower and end up at 281 00:14:33,360 --> 00:14:37,040 Speaker 5: a much higher level than we entered the situation at 282 00:14:37,120 --> 00:14:37,920 Speaker 5: in twenty twenty. 283 00:14:38,160 --> 00:14:39,400 Speaker 1: Matt, I want to pick up on what you were 284 00:14:39,400 --> 00:14:42,400 Speaker 1: talking about with the funding program that the FED is 285 00:14:42,440 --> 00:14:45,200 Speaker 1: set up for the banks. How much are you seeing 286 00:14:45,240 --> 00:14:48,600 Speaker 1: signs that there would be serious financial distress if the 287 00:14:48,600 --> 00:14:51,880 Speaker 1: FED were to wean the market from this backstop that 288 00:14:51,920 --> 00:14:53,160 Speaker 1: they created after SVB. 289 00:14:54,640 --> 00:14:57,600 Speaker 6: Well, Lisa, I mean, banks, of course have the ability 290 00:14:57,680 --> 00:15:01,920 Speaker 6: to raise funding in other ways. Is but it's clear 291 00:15:02,000 --> 00:15:05,480 Speaker 6: from the weekly take up at this facility that there 292 00:15:05,520 --> 00:15:08,920 Speaker 6: are certain institutions out there in the market that feel 293 00:15:08,920 --> 00:15:12,840 Speaker 6: it's in their best interest to continue to tap this facility. 294 00:15:13,840 --> 00:15:17,360 Speaker 6: We wouldn't expect the facility to go away in March, 295 00:15:17,440 --> 00:15:21,160 Speaker 6: but it is something that we carefully monitor. In addition, 296 00:15:21,600 --> 00:15:23,239 Speaker 6: you know, when you look at the amount of reserves 297 00:15:23,480 --> 00:15:27,520 Speaker 6: in the banking system, you know they've been resisting falling 298 00:15:27,520 --> 00:15:30,600 Speaker 6: from their current levels, and so in some ways, I 299 00:15:30,640 --> 00:15:33,640 Speaker 6: think what the system is telling us is that the 300 00:15:33,640 --> 00:15:37,560 Speaker 6: FED may have already reached the minimum level of reserves 301 00:15:37,560 --> 00:15:40,560 Speaker 6: that are required for these banks to continue to conduct 302 00:15:40,600 --> 00:15:43,000 Speaker 6: their businesses. So we're kind of trying to monitor all 303 00:15:43,040 --> 00:15:46,840 Speaker 6: of these various signs and what we see does concern us. 304 00:15:46,840 --> 00:15:49,400 Speaker 1: I have to say, Matt Harnbach, We're going to have 305 00:15:49,440 --> 00:15:51,800 Speaker 1: to finish that conversation another time. Diane Song to both 306 00:15:51,840 --> 00:15:54,320 Speaker 1: of you, thank you so much for taking the time 307 00:15:54,440 --> 00:15:57,080 Speaker 1: on this FED day. And I've got to say, we 308 00:15:57,160 --> 00:15:59,720 Speaker 1: have such an ace panel with us, Tom, the fact 309 00:15:59,760 --> 00:16:03,040 Speaker 1: that we have such incredible names, Matt Hornback, Diane swank 310 00:16:03,280 --> 00:16:05,560 Speaker 1: Rich Clarita who is sticking with us, and we are 311 00:16:05,600 --> 00:16:08,760 Speaker 1: grateful for that joining us Now to the conversation. Greg 312 00:16:08,760 --> 00:16:12,600 Speaker 1: Peters Cocio at PGM Fixed Income and Kathy Jones, chief 313 00:16:12,680 --> 00:16:16,720 Speaker 1: fixed income strategist at Charles Schwab. And to that point, Greg, 314 00:16:16,760 --> 00:16:19,240 Speaker 1: do you see things starting to break in the financial 315 00:16:19,280 --> 00:16:22,000 Speaker 1: sphere that the FED is kind of papering over with 316 00:16:22,080 --> 00:16:24,360 Speaker 1: some of the programs that'll be key to watch. 317 00:16:26,000 --> 00:16:28,200 Speaker 8: Oh, I don't think so. I mean, I think those 318 00:16:28,240 --> 00:16:31,920 Speaker 8: backstops are just that their backstops. I think there is 319 00:16:31,960 --> 00:16:35,800 Speaker 8: this persistent worry around the proper function of the treasury market, 320 00:16:36,120 --> 00:16:40,320 Speaker 8: so regulators are vigilant around that as is the FED. 321 00:16:41,320 --> 00:16:43,880 Speaker 8: So no, I don't think anything's breaking at this point. 322 00:16:44,600 --> 00:16:47,480 Speaker 8: And if you just take the data on balance, it's 323 00:16:47,520 --> 00:16:51,120 Speaker 8: actually reasonably good. So there's this whole sky is falling 324 00:16:51,200 --> 00:16:55,360 Speaker 8: mentality out there, and you know, preparing for a rainy 325 00:16:55,440 --> 00:16:58,040 Speaker 8: day is important, of course, but out of the right 326 00:16:58,080 --> 00:17:00,200 Speaker 8: now it's pretty bright and side. 327 00:17:00,480 --> 00:17:04,600 Speaker 3: Greg Peters, where's an appropriate inflation adjusted rate? If I 328 00:17:04,600 --> 00:17:07,160 Speaker 3: look at the ten year real yield two point five 329 00:17:07,280 --> 00:17:09,440 Speaker 3: zero earli early this morning. I know you came in 330 00:17:09,520 --> 00:17:12,840 Speaker 3: late today, Greg, right now two point three nine percent. 331 00:17:12,880 --> 00:17:15,920 Speaker 3: We've seen a reduction there, but still way elevated over 332 00:17:16,000 --> 00:17:21,040 Speaker 3: two years ago. Where's the appropriate real yield? Yeah? 333 00:17:21,080 --> 00:17:24,000 Speaker 8: So, I mean I think we've been so stuck in 334 00:17:24,040 --> 00:17:27,919 Speaker 8: this central bank dominant world where everything was topsy turvy 335 00:17:28,000 --> 00:17:32,920 Speaker 8: upside down, where actually negative real yields was an inducement, right, 336 00:17:32,960 --> 00:17:35,760 Speaker 8: and that was a far cry. And how we thought 337 00:17:35,800 --> 00:17:38,960 Speaker 8: about real yields in the past, right, really yield our 338 00:17:38,960 --> 00:17:42,560 Speaker 8: function of you know, pretty strong growth, stable growth, and 339 00:17:42,600 --> 00:17:44,639 Speaker 8: you know, a little inflation. So I think we're in 340 00:17:44,680 --> 00:17:49,440 Speaker 8: a much more normal environment today. And quite frankly, Tom, 341 00:17:49,480 --> 00:17:53,280 Speaker 8: I think we're so jaded by this recency bias when 342 00:17:53,320 --> 00:17:56,560 Speaker 8: the FED just dominated the game and pushed real yields 343 00:17:56,600 --> 00:18:00,600 Speaker 8: to really kind of unpactors flee life levels. 344 00:18:01,160 --> 00:18:03,879 Speaker 3: Kathy Jones with us of Charles Schwab and her recency 345 00:18:03,920 --> 00:18:06,800 Speaker 3: bias is clients going, should I buy a money market 346 00:18:06,840 --> 00:18:09,800 Speaker 3: funder an eight year CD? Kathy Jones, You know, I 347 00:18:10,240 --> 00:18:12,880 Speaker 3: look at the moment that Greg Peters was just describing 348 00:18:13,760 --> 00:18:16,080 Speaker 3: just simply, all it comes down to me is what 349 00:18:16,119 --> 00:18:18,879 Speaker 3: do I do with five percent cash? What are you 350 00:18:18,960 --> 00:18:22,439 Speaker 3: seeing at Schwab? What are people doing off of the 351 00:18:22,480 --> 00:18:25,040 Speaker 3: FED action with a money market fund? And I'm going 352 00:18:25,080 --> 00:18:26,560 Speaker 3: to call it five and a half percent? 353 00:18:28,720 --> 00:18:31,680 Speaker 7: Well, we're saying again clients do lots of different things 354 00:18:31,680 --> 00:18:34,919 Speaker 7: that have lots of different clients, but we are seeing 355 00:18:35,160 --> 00:18:39,080 Speaker 7: a lot of interest in say CD ladders, treasury bill ladders, 356 00:18:39,080 --> 00:18:43,159 Speaker 7: treasury bond ladders. As people look at where the yields 357 00:18:43,200 --> 00:18:45,440 Speaker 7: are and the real yields, which we've been pointing out 358 00:18:45,560 --> 00:18:48,680 Speaker 7: have been pretty attractive, they're starting to sort of tiptoe 359 00:18:48,720 --> 00:18:51,439 Speaker 7: out the curve. We don't have a lot of interest 360 00:18:51,480 --> 00:18:53,600 Speaker 7: in going very long on the curve, but I think 361 00:18:54,000 --> 00:18:59,200 Speaker 7: the idea of capturing four or five six percent, depending 362 00:18:59,240 --> 00:19:02,760 Speaker 7: on what instruments you're in yields going over the next 363 00:19:02,760 --> 00:19:05,119 Speaker 7: five to seven years is looking more attractive. So we're 364 00:19:05,160 --> 00:19:07,280 Speaker 7: starting to see a little bit of that action. A 365 00:19:07,320 --> 00:19:10,000 Speaker 7: lot of louder securities though, is a way to kind 366 00:19:10,000 --> 00:19:12,320 Speaker 7: of average into the market. But I do think we 367 00:19:13,119 --> 00:19:15,560 Speaker 7: the longer we can hold in some sort of a 368 00:19:15,680 --> 00:19:18,840 Speaker 7: range and stabilize, and the more we can get a 369 00:19:18,880 --> 00:19:21,000 Speaker 7: signal from the FAT that maybe there's not a lot 370 00:19:21,040 --> 00:19:23,160 Speaker 7: more common in the way of tightening, you know, the 371 00:19:23,160 --> 00:19:25,960 Speaker 7: more people will get up the courage to extend out 372 00:19:26,000 --> 00:19:27,000 Speaker 7: a little bit in duration. 373 00:19:27,359 --> 00:19:29,280 Speaker 1: Kathy, I know that you're very interested in the balance 374 00:19:29,320 --> 00:19:31,480 Speaker 1: sheet and hearing about what the FED has to say, 375 00:19:31,560 --> 00:19:33,840 Speaker 1: and we did just here from Matt Hornback that he 376 00:19:33,920 --> 00:19:37,879 Speaker 1: thinks that the FED has hit the minimum amount required 377 00:19:38,280 --> 00:19:41,480 Speaker 1: of reserves, that basically we're bumping up against the size 378 00:19:41,480 --> 00:19:43,280 Speaker 1: maybe the balance sheet needs to be. 379 00:19:43,760 --> 00:19:48,080 Speaker 7: Do you agree with that? Yeah, you know, I have 380 00:19:48,160 --> 00:19:49,800 Speaker 7: only done a small amount of work on it, which 381 00:19:49,840 --> 00:19:51,360 Speaker 7: is why I want to hear what the FED has 382 00:19:51,440 --> 00:19:52,959 Speaker 7: to say about it, because I like to know what 383 00:19:53,000 --> 00:19:55,320 Speaker 7: their thoughts are, and we really haven't gotten them to 384 00:19:55,320 --> 00:19:58,200 Speaker 7: talk about what's the optimal size. We've had some estimates 385 00:19:58,200 --> 00:20:01,000 Speaker 7: of twenty to twenty five percent of g If you 386 00:20:01,080 --> 00:20:03,840 Speaker 7: do that, you're going back. You know, we're going down 387 00:20:03,920 --> 00:20:07,080 Speaker 7: quite a bit more. Put that against where you know 388 00:20:07,160 --> 00:20:10,560 Speaker 7: reserve requirements should be, and you know you're you're kind 389 00:20:10,600 --> 00:20:13,560 Speaker 7: of at odds. Which is why I find this question 390 00:20:13,760 --> 00:20:17,639 Speaker 7: of the FED continuing QT even when they eventually shift 391 00:20:17,680 --> 00:20:20,800 Speaker 7: to easier policy. I find that to be a big 392 00:20:20,880 --> 00:20:23,600 Speaker 7: question mark in my mind as to how back can 393 00:20:23,680 --> 00:20:27,080 Speaker 7: those two policies can kind of coexist smoothly. So I 394 00:20:27,119 --> 00:20:30,600 Speaker 7: don't know that we're at the minimum level yet. I 395 00:20:30,640 --> 00:20:33,400 Speaker 7: think there's some room to go from here, but I 396 00:20:33,440 --> 00:20:35,560 Speaker 7: am concerned. I would like to know what they're a 397 00:20:35,600 --> 00:20:39,000 Speaker 7: deeper thought process than the little information should we've been given. 398 00:20:39,119 --> 00:20:41,280 Speaker 3: You know, Rich Clarina, what's so important here? And I'm 399 00:20:41,280 --> 00:20:44,240 Speaker 3: thinking of your conversations and your council, to the portfolio 400 00:20:44,280 --> 00:20:47,320 Speaker 3: managers at PIMCO, and in the moment we're in there 401 00:20:47,320 --> 00:20:51,520 Speaker 3: are select people out there saying bonds out immaturity are 402 00:20:51,520 --> 00:20:55,120 Speaker 3: a screaming buy. How do you frame that at PIMCO? 403 00:20:55,240 --> 00:20:59,560 Speaker 3: Given what the FED is doing post pandemic. Can you 404 00:20:59,680 --> 00:21:03,440 Speaker 3: say price up, yield down and go out in maturities 405 00:21:03,720 --> 00:21:05,040 Speaker 3: to get total return. 406 00:21:06,240 --> 00:21:11,720 Speaker 4: Well, that's what exactly, in the sense that investors can 407 00:21:11,920 --> 00:21:14,560 Speaker 4: earn returns that they would have been drooling over three 408 00:21:14,640 --> 00:21:17,760 Speaker 4: years ago by not moving all that far out on 409 00:21:17,880 --> 00:21:20,480 Speaker 4: the on the curve, certainly if you look at investment 410 00:21:20,520 --> 00:21:24,840 Speaker 4: grade corporate or or or mortgage backed security. So what 411 00:21:24,840 --> 00:21:28,760 Speaker 4: we're saying is that there is a menu of opportunities 412 00:21:28,800 --> 00:21:33,080 Speaker 4: available to investors. But when you can get returns real 413 00:21:33,160 --> 00:21:35,560 Speaker 4: rates where they are now, and because we're in the 414 00:21:35,600 --> 00:21:38,280 Speaker 4: camp that thinks the FED will succeed in ultimately bringing 415 00:21:38,280 --> 00:21:42,040 Speaker 4: down inflation, but this is at a great entry level 416 00:21:42,160 --> 00:21:44,240 Speaker 4: and you don't have to take a lot of duration risks. 417 00:21:44,240 --> 00:21:47,479 Speaker 4: Some of vextors because of their business model, do have 418 00:21:47,520 --> 00:21:49,840 Speaker 4: more duration risk, but there are opportunities even if you 419 00:21:49,880 --> 00:21:50,640 Speaker 4: don't want to add. 420 00:21:50,480 --> 00:21:51,280 Speaker 2: That this is great. 421 00:21:51,560 --> 00:21:54,960 Speaker 3: The Dean of Columbia Economics is bond manager. I think 422 00:21:55,040 --> 00:21:57,240 Speaker 3: I think Rich claar To just got out of bond 423 00:21:57,280 --> 00:21:58,480 Speaker 3: ticket and said let's go along. 424 00:21:58,640 --> 00:22:01,800 Speaker 1: Which is there reason why va I do want to 425 00:22:01,840 --> 00:22:04,439 Speaker 1: just get a sense from you, Rich about the balance 426 00:22:04,480 --> 00:22:07,240 Speaker 1: seat question about whether the Fed's balance needs to be 427 00:22:07,240 --> 00:22:09,840 Speaker 1: a lot bigger than people have previously had imagined, and 428 00:22:09,880 --> 00:22:11,560 Speaker 1: if we're kind of bumping up against that level. 429 00:22:13,240 --> 00:22:16,080 Speaker 4: I don't think we're bumping up against that level, Lisa. Remember, 430 00:22:16,080 --> 00:22:20,080 Speaker 4: the FED has something another acronym, the reverse Repo Facility program, 431 00:22:20,119 --> 00:22:23,520 Speaker 4: that's got a trillion dollars in it. That money, once 432 00:22:23,560 --> 00:22:26,400 Speaker 4: it leaves that facility will then flow back into reserves. 433 00:22:26,480 --> 00:22:27,880 Speaker 3: So I think if you if you. 434 00:22:27,920 --> 00:22:32,199 Speaker 4: Factor that in, I think there is more road for 435 00:22:32,240 --> 00:22:35,720 Speaker 4: the FED to travel to shrink its its balance sheet. 436 00:22:36,600 --> 00:22:39,760 Speaker 4: I do. I agree with your prior previous guests. It 437 00:22:39,840 --> 00:22:43,359 Speaker 4: is interesting that the FED has talked about continuing QT 438 00:22:44,280 --> 00:22:46,800 Speaker 4: even after they potentially adjust rates. You know, when I 439 00:22:46,880 --> 00:22:50,800 Speaker 4: was there in twenty nineteen, we stopped QT before we 440 00:22:51,240 --> 00:22:53,680 Speaker 4: cut rates, so that would be an interesting difference. 441 00:22:53,880 --> 00:22:56,800 Speaker 3: Professor Claire to thank you for your generous time today 442 00:22:56,800 --> 00:22:58,840 Speaker 3: here at this FED meeting. We're gonna let rich Claire 443 00:22:58,880 --> 00:23:02,040 Speaker 3: to go here six minutes away from this important press 444 00:23:02,080 --> 00:23:05,640 Speaker 3: conference with is Kathy Jones of Schwab and Greg Peters 445 00:23:05,800 --> 00:23:07,800 Speaker 3: of Pigium. Greg, I'm just going to ask you a 446 00:23:07,840 --> 00:23:10,000 Speaker 3: simple question here, and I'm starting to hear it. A 447 00:23:10,040 --> 00:23:14,480 Speaker 3: lot are bonds of screaming buy. 448 00:23:14,640 --> 00:23:18,119 Speaker 8: I think there's a tremendous amount of value in the 449 00:23:18,160 --> 00:23:20,399 Speaker 8: bond market today. But I want to go back to 450 00:23:20,960 --> 00:23:23,520 Speaker 8: you know, do you really want to extend duration. I 451 00:23:23,520 --> 00:23:26,200 Speaker 8: think you do, but you want to do it very carefully. 452 00:23:26,320 --> 00:23:29,040 Speaker 8: So I think the shape of the curve matters a lot. 453 00:23:29,359 --> 00:23:31,520 Speaker 8: You know, Tom, you keep talking about cash and the 454 00:23:32,000 --> 00:23:35,600 Speaker 8: shape of the curb tells you to be defensive, tells 455 00:23:35,640 --> 00:23:38,480 Speaker 8: you to be in cash. So if you subscribe to 456 00:23:38,560 --> 00:23:41,560 Speaker 8: this higher for longer front end rate environment where the 457 00:23:41,600 --> 00:23:44,560 Speaker 8: FED can no longer kind of cut down to zero 458 00:23:45,720 --> 00:23:49,560 Speaker 8: and has that flexibility, then you need to see the 459 00:23:49,640 --> 00:23:53,800 Speaker 8: curve normalize before you really step in and moss out 460 00:23:53,840 --> 00:23:56,560 Speaker 8: the curve. So to me, it's really quite simple. The 461 00:23:56,760 --> 00:23:59,359 Speaker 8: shape of the curve dictates where you want to be 462 00:23:59,480 --> 00:24:04,280 Speaker 8: on the curve. And while there is value, absolutely we're 463 00:24:04,320 --> 00:24:06,560 Speaker 8: excited about it, I don't really see the need to 464 00:24:06,640 --> 00:24:08,720 Speaker 8: rush out and lock in duration here. 465 00:24:08,840 --> 00:24:09,080 Speaker 3: Greg. 466 00:24:09,080 --> 00:24:11,000 Speaker 1: It seems like a year ago, but we got the 467 00:24:11,040 --> 00:24:13,960 Speaker 1: refunding agreement for a funding announcement excuse me from the 468 00:24:14,000 --> 00:24:17,119 Speaker 1: Treasury Department earlier today and it seemed to move the 469 00:24:17,160 --> 00:24:19,720 Speaker 1: market quite a bit. Do you think that we learned 470 00:24:19,720 --> 00:24:23,439 Speaker 1: today that supply right now is trumping any kind of 471 00:24:23,560 --> 00:24:27,479 Speaker 1: fundamental economic read that it really does come down to simply, 472 00:24:27,520 --> 00:24:29,960 Speaker 1: there are not enough buyers to pick up the US 473 00:24:30,080 --> 00:24:32,879 Speaker 1: debt with yields as low as they had been traditionally. 474 00:24:34,200 --> 00:24:37,080 Speaker 8: No, absolutely not, Lisa, what I know you like to 475 00:24:37,080 --> 00:24:39,760 Speaker 8: push that narrative. I don't think that's true. I think 476 00:24:39,800 --> 00:24:43,000 Speaker 8: on the margin, yes, it does put more pressure on 477 00:24:43,040 --> 00:24:45,240 Speaker 8: the back end, but it goes back to the shape 478 00:24:45,240 --> 00:24:47,880 Speaker 8: of the curve. Why is the curb inverted when we're 479 00:24:47,880 --> 00:24:52,080 Speaker 8: printing five percent GDP and inflations around kind of three percent, 480 00:24:52,400 --> 00:24:55,840 Speaker 8: So you know, I think that is really the fundamental 481 00:24:55,880 --> 00:24:59,359 Speaker 8: dictate here, not so much to supply. At some point 482 00:24:59,359 --> 00:25:02,520 Speaker 8: it will map, but I don't think that is the 483 00:25:02,640 --> 00:25:05,000 Speaker 8: driver today. I think that's more of a kind of 484 00:25:05,040 --> 00:25:07,440 Speaker 8: a politically driven red herring than anything else. 485 00:25:07,560 --> 00:25:09,840 Speaker 3: Keathy Jhones would be interesting to see how the chairman 486 00:25:10,000 --> 00:25:14,240 Speaker 3: addresses commercial banking. We've been talking all day about the 487 00:25:14,320 --> 00:25:18,919 Speaker 3: Keith Britt Index BKX really having some challenges technically, and 488 00:25:18,960 --> 00:25:21,080 Speaker 3: of course finding a bid has been a challenge, even 489 00:25:21,119 --> 00:25:23,760 Speaker 3: with the Dow up one hundred points, NASDA, GOP eight 490 00:25:23,800 --> 00:25:27,480 Speaker 3: tens of percent, VIC seventeen point four to three. Kathy, 491 00:25:27,520 --> 00:25:29,679 Speaker 3: the heart of the matter is a movement of money 492 00:25:29,680 --> 00:25:34,159 Speaker 3: from deposits to money market funds, and that's the theory 493 00:25:34,160 --> 00:25:37,280 Speaker 3: here of instability that could come. Do you see those 494 00:25:37,280 --> 00:25:42,800 Speaker 3: potential instabilities out there in the trust market between deposits 495 00:25:42,880 --> 00:25:44,119 Speaker 3: and money market funds. 496 00:25:46,560 --> 00:25:49,080 Speaker 7: Well, I think if there's any issue that the FAT 497 00:25:49,200 --> 00:25:52,600 Speaker 7: is now very much focused on and has its arms around, 498 00:25:52,640 --> 00:25:57,000 Speaker 7: it's this one. After what happened in March, I've got 499 00:25:57,040 --> 00:26:01,280 Speaker 7: to believe that the regulators and everyone else that the FAT, 500 00:26:02,320 --> 00:26:06,960 Speaker 7: indeed in the regulatory environment for banking in general, is 501 00:26:07,000 --> 00:26:11,119 Speaker 7: scrutinizing this pretty tightly. So I don't know that this 502 00:26:11,240 --> 00:26:13,760 Speaker 7: is going to be some sort of a trigger for 503 00:26:14,040 --> 00:26:16,679 Speaker 7: crisis so much as something that is going to have 504 00:26:16,760 --> 00:26:19,000 Speaker 7: to be worked out over time. And I think that 505 00:26:19,000 --> 00:26:23,880 Speaker 7: that probably means a lot more mergers among financial institutions 506 00:26:23,960 --> 00:26:27,840 Speaker 7: and recapitalization, et cetera. But it's usually not the things 507 00:26:27,840 --> 00:26:31,800 Speaker 7: that everyone's focused on, that is, you know, bring up 508 00:26:31,800 --> 00:26:33,600 Speaker 7: the crises. It's something that no one's left. 509 00:26:33,840 --> 00:26:36,280 Speaker 3: I can't say enough about this, Lisa, Well, what we've 510 00:26:36,320 --> 00:26:38,760 Speaker 3: done today in with the terrible construction of the Keith 511 00:26:38,760 --> 00:26:42,399 Speaker 3: Breanda Woods chart, it's simply got to come down to 512 00:26:42,600 --> 00:26:45,800 Speaker 3: combinations and transactions. I just see no other way to 513 00:26:45,800 --> 00:26:46,040 Speaker 3: do it. 514 00:26:46,119 --> 00:26:49,080 Speaker 1: Yeah, although we do see a lot of positivity in 515 00:26:49,080 --> 00:26:51,680 Speaker 1: the underlying economy, and we see that with the Ajult 516 00:26:51,720 --> 00:26:55,320 Speaker 1: report wrote earlier today and a whole host of other components. 517 00:26:55,320 --> 00:26:57,840 Speaker 1: Greg Peters really was talking about that. So, Kathy, from 518 00:26:57,880 --> 00:27:00,919 Speaker 1: your vantage point, how much when do we know that 519 00:27:00,920 --> 00:27:03,720 Speaker 1: we are underestimating the strength of the economy and the 520 00:27:04,000 --> 00:27:05,880 Speaker 1: sort of momentum behind this inflation? 521 00:27:07,960 --> 00:27:10,119 Speaker 7: Well, I think west're getting at, Lisa is this question 522 00:27:10,160 --> 00:27:13,760 Speaker 7: of you know, what's the growth rate, what's the underlying 523 00:27:13,760 --> 00:27:16,560 Speaker 7: growth rate going forward? What's our and our star and 524 00:27:16,600 --> 00:27:20,520 Speaker 7: all those questions. I think that that obviously a lot 525 00:27:20,560 --> 00:27:24,199 Speaker 7: of debate around that. There is a strong belief that 526 00:27:24,240 --> 00:27:27,800 Speaker 7: we've moved to a higher level of economic activity for 527 00:27:27,880 --> 00:27:30,360 Speaker 7: a lot of reasons going forward then we've had over 528 00:27:30,400 --> 00:27:33,360 Speaker 7: the past decade or two. And that means that we're 529 00:27:33,400 --> 00:27:36,800 Speaker 7: at higher rates for longer, that the resting place is 530 00:27:36,880 --> 00:27:40,400 Speaker 7: higher than it was before. So, you know, how will 531 00:27:40,440 --> 00:27:43,280 Speaker 7: we know? I think in the labor market is probably 532 00:27:43,280 --> 00:27:46,359 Speaker 7: the key indicator. Right if we start to see at 533 00:27:46,400 --> 00:27:51,600 Speaker 7: acceleration in jobs and you know, real decline in the 534 00:27:51,680 --> 00:27:55,800 Speaker 7: unemployment rate, that would be certainly a big surprise. I 535 00:27:55,800 --> 00:27:57,800 Speaker 7: think expectations are it's going to go the other way 536 00:27:57,880 --> 00:28:00,560 Speaker 7: since we've had so much tightening in this system, so 537 00:28:00,560 --> 00:28:04,840 Speaker 7: it'd be a pretty big shock if we saw that 538 00:28:04,960 --> 00:28:11,120 Speaker 7: component of the economic environment shift upward. I don't anticipate 539 00:28:11,119 --> 00:28:12,720 Speaker 7: that that will happen, but I think that that would 540 00:28:12,760 --> 00:28:13,600 Speaker 7: be the big surprise. 541 00:28:13,800 --> 00:28:16,159 Speaker 1: Kathy Jones and Greg Peters, both of you, thank you 542 00:28:16,200 --> 00:28:19,680 Speaker 1: so much for being with us on the playoffs game 543 00:28:19,800 --> 00:28:25,520 Speaker 1: equivalent in the economics sphere. Subscribe the Bloomberg Surveillance podcast 544 00:28:25,560 --> 00:28:28,600 Speaker 1: on Apple, Spotify, and anywhere else you get your podcasts. 545 00:28:28,920 --> 00:28:31,800 Speaker 1: Listen live every weekday starting at seven am Eastern on 546 00:28:31,840 --> 00:28:35,159 Speaker 1: Bloomberg dot Com, the iHeartRadio app tune In, and the 547 00:28:35,200 --> 00:28:38,400 Speaker 1: Bloomberg Business app. You can watch us live on Bloomberg 548 00:28:38,440 --> 00:28:42,120 Speaker 1: Television and always on the Bloomberg Terminal. Thanks for listening. 549 00:28:42,160 --> 00:28:44,520 Speaker 1: I'm Lisa Abramowitz, and this is Bloomberg