WEBVTT - Instant Reaction: The Fed Decides 0:00:05.519 --> 0:00:08.720 Let's head over to Bloomberg's Michael McKee with the headlines mic. 0:00:10.160 --> 0:00:12.959 No surprises, no news, a few new words. In a 0:00:13.080 --> 0:00:16.840 unanimous decision, the Fed retains its five and a quarter 0:00:16.920 --> 0:00:19.880 to five and a half percent target range for its 0:00:19.880 --> 0:00:24.000 benchmark borrowing rate, and retains its language about determining the 0:00:24.079 --> 0:00:28.200 extent of additional policy firming that may be appropriate. The 0:00:28.240 --> 0:00:32.640 Policymaker's assessment of the economy contains some new adjectives, but 0:00:32.800 --> 0:00:36.640 no new information. Activity expanded at a strong pace in 0:00:36.720 --> 0:00:39.800 the third quarter, and instead of solid job gains have 0:00:40.000 --> 0:00:45.000 moderated instead of slowed, Inflation remains elevated. The statement says 0:00:45.159 --> 0:00:49.199 tighter financial and credit conditions for households and businesses are 0:00:49.360 --> 0:00:52.760 likely to weigh on economic activity. That adds the words 0:00:52.960 --> 0:00:55.480 financial to this sentence, and it may be a nod 0:00:55.520 --> 0:00:59.000 to the idea expressed by many Fed officials that raising 0:00:59.120 --> 0:01:02.080 market rates are doing some of the Fed's work for 0:01:02.120 --> 0:01:05.840 it a reason not to have raised rates today. This 0:01:06.000 --> 0:01:07.800 is the second meeting in a row that the Fed 0:01:07.840 --> 0:01:11.040 has held rates unchanged, and although the dot plot suggests 0:01:11.080 --> 0:01:13.880 one more move by the end of the year, the 0:01:14.120 --> 0:01:18.120 markets may interpret today's decision as confirming that rates have peaked. 0:01:18.680 --> 0:01:20.760 That's going to be a key question for Chairman J. 0:01:20.959 --> 0:01:21.959 Powell coming up. 0:01:22.560 --> 0:01:24.080 You'll see, Mike McKee. We want to get to you 0:01:24.200 --> 0:01:26.520 quickly here. But we see the market moving lifting up. 0:01:26.520 --> 0:01:29.640 Equity's lifting up higher right now, with the Dow up 0:01:29.720 --> 0:01:32.399 eighty points two tenths of a percent, Nazek one hundred, 0:01:32.440 --> 0:01:34.959 do a tear up eight tenths of a percent as well? 0:01:35.000 --> 0:01:38.199 The tenure yield comes in ever lower bond prices up, 0:01:38.560 --> 0:01:42.520 yields down on the tenure yield four point seventy nine percent, 0:01:42.680 --> 0:01:46.959 distant from the five percent yield. Mike, the statement is here, 0:01:47.000 --> 0:01:49.720 and maybe it's a preparation for December fifteenth, but it 0:01:49.760 --> 0:01:54.680 seems to be a preparation for a presumed slower American 0:01:54.760 --> 0:01:58.120 economy into this press conference. Do you assume we go 0:01:58.240 --> 0:02:02.080 from four point x percent Q three down to something 0:02:02.200 --> 0:02:04.680 dramatically weaker in this present quarter. 0:02:06.200 --> 0:02:07.560 I don't think the Fed is going to put it 0:02:07.600 --> 0:02:09.960 that way. They took recession out of their forecast a 0:02:10.000 --> 0:02:13.080 meeting or two ago and basically have said that the 0:02:13.080 --> 0:02:19.000 economy can grow at a reasonable rate without without going 0:02:19.040 --> 0:02:22.359 into recession. Now J Powell has suggested we still need 0:02:22.440 --> 0:02:26.600 a period of below trend growth. We're nowhere near that now. 0:02:27.120 --> 0:02:29.480 If we do see it slow down, the question is 0:02:29.560 --> 0:02:32.200 does it go too far too fast right now? All 0:02:32.200 --> 0:02:36.200 indications are it wouldn't that we could see slower growth 0:02:36.240 --> 0:02:40.040 without seeing recession, and we could see inflation continue to 0:02:40.080 --> 0:02:43.200 come down. But that's a question for them. There are 0:02:43.240 --> 0:02:46.640 they in damaged control right now making sure that they 0:02:46.639 --> 0:02:49.320 don't go too far because they think the economy is 0:02:49.360 --> 0:02:51.839 going to slow or do they think they've done enough 0:02:51.880 --> 0:02:52.480 at this point. 0:02:52.600 --> 0:02:54.760 Michael McKeith, thank you so much. We'll be catching up 0:02:54.800 --> 0:02:57.680 with you throughout the afternoon, just taking a look at 0:02:57.680 --> 0:03:00.120 what's going on. The two year yields to me, Tom 0:03:00.360 --> 0:03:05.200 really stands out sharply down below five percent. As really 0:03:05.240 --> 0:03:07.360 to Mike's point, the market is taking this is the 0:03:07.400 --> 0:03:09.919 FED has done hiking rates for this ect already. 0:03:09.960 --> 0:03:12.079 Headlines out now. Mike mckeel have much more on this 0:03:12.200 --> 0:03:15.440 as well as our guest. But low Brainerd showed up 0:03:15.440 --> 0:03:17.240 for the FED meet today. She's at the white outs 0:03:17.320 --> 0:03:20.720 now holding Quota's national Economic advisor. And let me read 0:03:20.720 --> 0:03:23.959 this headline. It's a brainer headline. FED repeats it will 0:03:24.000 --> 0:03:29.400 take a cumulative tightening and lags into account. Drogy would 0:03:29.400 --> 0:03:31.800 have just said, we're going out to twenty twenty five. 0:03:31.919 --> 0:03:34.160 Well, and we're not going to hike anymore, because if 0:03:34.200 --> 0:03:38.320 you think about the cumulative rate hikes, have we seen 0:03:38.720 --> 0:03:41.480 enough from what already has been done? Or is this 0:03:41.560 --> 0:03:43.080 the long and variable lags that a lot of people 0:03:43.120 --> 0:03:43.840 are talking about. 0:03:44.000 --> 0:03:46.840 Richard Clareda with us still he is with PIMCO and 0:03:46.920 --> 0:03:52.080 Columbia University. Richard Clareda, I look at cumulative and that 0:03:52.280 --> 0:03:54.880 just tells me we're going out there. Drogy would have 0:03:54.920 --> 0:03:57.760 put a date on it. Can Professor Clareda put a 0:03:57.880 --> 0:04:00.440 date on this longer FED at this. 0:04:00.200 --> 0:04:03.600 Level, Well, I don't think so. I think you know 0:04:03.640 --> 0:04:07.280 that language curuity has been in there for several meetings, 0:04:07.280 --> 0:04:10.320 and it does recognize that the path forward depends upon 0:04:10.360 --> 0:04:13.320 how much they've done in the past. As I've said, 0:04:13.520 --> 0:04:16.479 these are always balancing acts. I think the Fed's baseline 0:04:16.480 --> 0:04:19.000 outlook makes a lot of sense. But if there is 0:04:19.040 --> 0:04:21.640 a risk, the risk is that inflation is too stubborn. 0:04:21.720 --> 0:04:24.440 If I were recommending or talking to J. Powell, I 0:04:24.480 --> 0:04:28.159 would recommend that he leaves the door open to doing more. 0:04:28.200 --> 0:04:30.520 It doesn't have to commit to it. Every meeting's live, 0:04:30.680 --> 0:04:33.640 but I definitely don't think he wants to walk away 0:04:33.680 --> 0:04:37.560 today with the markets seeing the headline as FED is done. 0:04:37.200 --> 0:04:39.839 That seems to be certainly, at least the initial read 0:04:39.960 --> 0:04:42.600 on this one line that Michael McKee pulled out was 0:04:42.920 --> 0:04:46.240 the tighter financial as well as credit conditions are set 0:04:46.279 --> 0:04:49.480 to weigh on the economy. They added financial into this. 0:04:49.800 --> 0:04:51.760 How much do you think the Federal Reserve and the 0:04:51.800 --> 0:04:54.720 members are concerned about some of the volatility we've seen 0:04:54.839 --> 0:04:56.880 on the long end of the curve, that maybe it's 0:04:56.920 --> 0:04:59.400 getting to something a little dysfunctional, a little bit less 0:04:59.640 --> 0:05:00.799 just restrictive. 0:05:01.240 --> 0:05:04.839 Yeah, well, you know, the short answer is there's probably 0:05:04.839 --> 0:05:09.000 a range of opinions, but certainly Cha Powell recently and 0:05:09.080 --> 0:05:13.560 Lourie Logan, president of Dallas, have indicated that it reflects 0:05:13.560 --> 0:05:15.680 it is doing some of the Fed's job for it. 0:05:15.720 --> 0:05:19.960 They haven't pushed back against it. I do think that 0:05:20.080 --> 0:05:23.440 the challenge, you know, having word Smith with others some 0:05:23.520 --> 0:05:26.799 of these things, the challenge of putting the financial conditions 0:05:26.880 --> 0:05:30.520 term in this statement is, you know, financial conditions can 0:05:30.560 --> 0:05:32.960 go up and down be vital for a lot of reasons. 0:05:33.240 --> 0:05:36.720 And then at some point they they may regret that 0:05:36.760 --> 0:05:38.440 they included it in the first place. 0:05:39.000 --> 0:05:41.080 A vice chairman, thank you so much. He's a former 0:05:41.200 --> 0:05:45.320 vice chairman of the Federal Reserve. Stress he's going to 0:05:45.360 --> 0:05:47.520 stay with us. Yes, okay, I did not know that. 0:05:47.600 --> 0:05:49.560 That is very good. Rich Claire to thank you for 0:05:49.600 --> 0:05:54.279 the generous time today giving your responsibilities at PIMCO. Joining 0:05:54.360 --> 0:05:59.320 us now. Diane Swank, chief economist KPMG, and Matthew Hornbach 0:05:59.360 --> 0:06:03.760 with his global head of macro strategy, Morgan Stanley Dan Swank. 0:06:04.080 --> 0:06:07.880 We're talking rates, We're talking inflation. I believe there's an 0:06:07.880 --> 0:06:11.560 employment mandate as well, and part of that to all 0:06:11.640 --> 0:06:16.880 of your Midwestern heritage. Are auto workers better paid? How 0:06:16.920 --> 0:06:20.840 do we have wage disinflation if we have unions garnering 0:06:20.880 --> 0:06:22.719 the historic pay raises. 0:06:24.200 --> 0:06:26.760 Well, first of all, I want to echo what Rich 0:06:26.800 --> 0:06:30.200 said is our concern is sort of around May and June. 0:06:30.080 --> 0:06:31.920 Where is the FED going to be? And I think 0:06:31.960 --> 0:06:34.760 the optionality to have rate hikes still on the table, 0:06:34.760 --> 0:06:38.040 and that every meeting's live is really important. So I 0:06:38.080 --> 0:06:40.680 really agree one hundred percent with Rich on that. I 0:06:40.720 --> 0:06:43.720 think the issue on the UAW strikes and what they 0:06:43.800 --> 0:06:46.679 have seemed to have gotten is that, first of all, 0:06:47.000 --> 0:06:50.600 union contracts were lagging private sector contracts during much of 0:06:50.640 --> 0:06:54.160 the expansion and the frenzied hiring boom, and so some 0:06:54.200 --> 0:06:56.880 of this is catch up. I think also it's important 0:06:56.880 --> 0:07:00.279 that there will be spillover effects in the manufacturing setctor. 0:07:00.640 --> 0:07:04.800 More broadly, the key issue is how much will those 0:07:05.080 --> 0:07:09.440 higher wages spill over into other manufacturers. That's yet to see, 0:07:09.640 --> 0:07:12.480 but I do think that's where their tension could show up, 0:07:12.800 --> 0:07:15.720 and it's yet to happen, and so they're going to 0:07:15.800 --> 0:07:18.240 ratify it. These were good contracts and a good win 0:07:18.320 --> 0:07:21.240 for the UAW, harder for the automakers. But I do 0:07:21.280 --> 0:07:24.040 think what's important to understand is that many of these 0:07:24.120 --> 0:07:27.400 contracted wages in the public sector as well are just 0:07:27.560 --> 0:07:29.760 now beginning to reset and catch up to where the 0:07:29.760 --> 0:07:32.200 private sector already was several years ago. 0:07:32.440 --> 0:07:36.320 Matt hornback, what all that Lisa and I have done today? 0:07:36.520 --> 0:07:41.000 The single moment for me was your Seth Carpenter explaining 0:07:41.120 --> 0:07:45.040 the Zetner deceleration in this economy from four point x 0:07:45.120 --> 0:07:48.680 percent I know inventories in that down to something sub 0:07:48.720 --> 0:07:52.120 one percent in the Q four. What do our markets 0:07:52.200 --> 0:07:56.160 do with that deceleration presumed in real GDP. 0:07:57.560 --> 0:07:59.800 Yeah, well, thanks for having me on the program, Tom. 0:08:00.080 --> 0:08:03.480 I do think that the deceleration will be important and 0:08:03.600 --> 0:08:07.000 factor into how the FED thinks about this higher for 0:08:07.120 --> 0:08:08.400 longer mantra. 0:08:08.800 --> 0:08:09.480 I mean, it's. 0:08:09.320 --> 0:08:13.280 True that the meeting today didn't really offer too many surprises, 0:08:13.320 --> 0:08:15.560 but we do have one more meeting before the end 0:08:15.600 --> 0:08:18.000 of the year, and even though we don't expect the 0:08:18.000 --> 0:08:21.080 Fed to be hiking rates at that meeting, there is 0:08:21.120 --> 0:08:24.880 an open question about what they do with their guidance 0:08:24.960 --> 0:08:27.680 that comes in the dot plot that I do think 0:08:27.760 --> 0:08:31.760 is going to be levered to the growth outlook, and 0:08:31.800 --> 0:08:34.240 if we do get this deceleration that Ellen and Seth 0:08:34.280 --> 0:08:37.800 are looking for, then we do I would suspect that 0:08:37.960 --> 0:08:41.160 the Fed may have to take a slightly more dovish 0:08:41.200 --> 0:08:44.080 approach to their outlook for interest rates in twenty twenty 0:08:44.080 --> 0:08:44.720 four and beyond. 0:08:45.400 --> 0:08:47.760 Very importantly, Lisa, the two year yield breaks down to 0:08:47.800 --> 0:08:49.760 a new lull on the two year yield, as you 0:08:49.800 --> 0:08:53.120 mentioned earlier in ten basis points, now in round it 0:08:53.200 --> 0:08:55.840 up on eleven basis points four point ninety percent. 0:08:56.000 --> 0:08:58.080 This raises this question, how do you have a hawkish 0:08:58.080 --> 0:09:00.880 pause if a pause is a pause. Matt, Oh, what's 0:09:00.920 --> 0:09:03.800 your view? I mean, how much can really Fetcher J. 0:09:03.960 --> 0:09:06.000 Powell lean into this idea that they may not be 0:09:06.120 --> 0:09:08.760 done without the market saying yeah, you've been following us 0:09:08.760 --> 0:09:09.200 all year. 0:09:10.520 --> 0:09:11.079 Yeah, Lisa. 0:09:11.400 --> 0:09:15.000 I think that what will be key is Powell focusing 0:09:15.040 --> 0:09:18.480 on the data dependence of the Fed. We just got 0:09:18.480 --> 0:09:21.320 through a pretty strong round of data for the month 0:09:21.320 --> 0:09:24.400 of September. We've got two more months of data before 0:09:24.559 --> 0:09:28.360 the FED convenes in December, and then again that dot plot, 0:09:28.400 --> 0:09:31.280 I do think is going to be an important signaling mechanism. 0:09:31.760 --> 0:09:34.880 To the extent that they are done hiking rates, they 0:09:34.920 --> 0:09:38.160 can always double down on the higher for longer theme 0:09:38.600 --> 0:09:40.920 by taking all of the rate cuts out of twenty 0:09:40.960 --> 0:09:43.280 twenty four. So that's going to be an important variable 0:09:43.520 --> 0:09:45.160 that investors will be paying attention to. 0:09:46.120 --> 0:09:49.640 Diane, how much are you looking at the reliance on 0:09:49.720 --> 0:09:52.760 financial markets to do the work for them at a 0:09:52.800 --> 0:09:56.760 time things are volatile and to Rich Clarreta's point, financial 0:09:56.840 --> 0:10:00.640 conditions can change. How much is that not exactly comfortable 0:10:00.679 --> 0:10:02.320 place for the Federal Reserve to be in? 0:10:03.480 --> 0:10:03.560 Well? 0:10:03.600 --> 0:10:05.600 I agree one hundred percent with Rich on that, and 0:10:05.640 --> 0:10:06.800 so I guess Rich and I are just in one 0:10:06.840 --> 0:10:09.160 hundred percent agreement today, But I think that is going 0:10:09.200 --> 0:10:11.960 to be a danger for the FED because they're looking 0:10:12.040 --> 0:10:15.280 for this doing the heavy lifting forum. It is obviously 0:10:15.320 --> 0:10:17.760 already throwing a bucket of ice on the housing market 0:10:18.120 --> 0:10:20.800 that's going to come up in the fourth quarter. That said, 0:10:21.240 --> 0:10:25.320 the consumer is remarkably resilient. We've got double the savings 0:10:25.320 --> 0:10:27.679 we thought we had with the benchmark revisions, and it's 0:10:27.720 --> 0:10:31.680 getting interest paid on it now. That is really important 0:10:31.679 --> 0:10:34.959 to take into account. And the strength of the economy. 0:10:35.320 --> 0:10:37.360 I think we're going to see a acceleration in the 0:10:37.600 --> 0:10:39.599 it's hard not to from almost five percent in a 0:10:39.640 --> 0:10:41.960 fourth quarter, but the consumer is still going to be 0:10:41.960 --> 0:10:44.720 pretty strong. We're set up to have pretty strong gains 0:10:44.760 --> 0:10:46.520 still with two and a half percent or so gains 0:10:46.520 --> 0:10:51.240 and consumer spending. The strength of the economy justifies higher rates, 0:10:51.440 --> 0:10:55.240 and it also brings into question how much restriction we have, 0:10:55.480 --> 0:10:58.760 and if financial conditions were to unwind and the route 0:10:58.760 --> 0:11:01.680 and the bond market were to un that takes away 0:11:02.240 --> 0:11:04.520 the restriction that's out there, and all of a sudden, 0:11:04.520 --> 0:11:05.920 the FED has to get back in the game, and 0:11:06.000 --> 0:11:10.320 so that optionality of being every meeting live critical. 0:11:10.200 --> 0:11:12.920 Rich Clarina, what's so important to me is again the 0:11:13.080 --> 0:11:17.360 analogue that we're conveniently using of taking Powell back to 0:11:17.480 --> 0:11:21.240 Vulcar and his Bill Dudley Rice an hour ago. For Bloomberg, 0:11:21.679 --> 0:11:24.920 he says, the arch fear was Arthur Burns, who allowed 0:11:24.920 --> 0:11:29.160 inflation to get out of control in the nineteen seventies. 0:11:29.640 --> 0:11:32.840 I believe we have a disinflation vector. But should we 0:11:32.960 --> 0:11:35.960 fear that inflation is out of control? 0:11:37.880 --> 0:11:40.400 Well, the analogy I would use, which I think the 0:11:40.480 --> 0:11:43.320 FED would want to avoid at all costs, is nineteen 0:11:43.440 --> 0:11:48.040 sixty six LBJ had guns and butter. Inflation was moving up. 0:11:48.080 --> 0:11:50.600 The FED hiked and then they blinked and they cut 0:11:50.640 --> 0:11:53.240 in nineteen sixty seven and what we now call the 0:11:53.280 --> 0:11:57.960 Great Inflation I think stems back to a hiking episode 0:11:58.000 --> 0:12:00.120 that got cut short, and the FED did not re 0:12:00.240 --> 0:12:03.600 engage when inflation went up. I don't think the power 0:12:03.600 --> 0:12:06.679 Fed would make the same mistake, But that's the part 0:12:06.720 --> 0:12:08.600 of the history book i'd be looking at and trying 0:12:08.600 --> 0:12:09.080 to avoid. 0:12:09.600 --> 0:12:09.840 Matt. 0:12:09.840 --> 0:12:11.480 When we take a look at how the market is 0:12:11.520 --> 0:12:14.959 handling this, we're not talking at all about the balance sheet. 0:12:15.200 --> 0:12:17.080 Should we be I mean, is that part of the 0:12:17.160 --> 0:12:18.640 discussion in a material way. 0:12:20.040 --> 0:12:22.920 Well, Lisa, I do think that the balance sheet will 0:12:22.920 --> 0:12:26.240 be an important topic to discuss in twenty twenty four, 0:12:27.080 --> 0:12:29.360 but that's to us probably a bit more of a 0:12:29.400 --> 0:12:32.400 second half of next year issue as opposed to a 0:12:32.440 --> 0:12:36.040 first half issue. Nevertheless, you know, we will see the 0:12:36.040 --> 0:12:39.040 Fed's balance sheet continue to shrink in terms of its 0:12:39.040 --> 0:12:42.800 securities holdings. The issue that we would be focused on 0:12:42.840 --> 0:12:47.320 here is what ends up happening with the BTFP, that 0:12:47.480 --> 0:12:51.040 term funding facility that the Fed introduced back in March, 0:12:51.520 --> 0:12:53.520 to see what kind of take up we end up 0:12:53.559 --> 0:12:56.600 getting through the first several months of twenty twenty four. 0:12:56.640 --> 0:12:58.960 I do think that will be an important factor that 0:12:59.000 --> 0:13:00.800 we should all continue to pay attention to. 0:13:01.480 --> 0:13:04.000 Dian swank to pick up on what Matt Hornbook just 0:13:04.000 --> 0:13:06.000 talked about. And of course we see this in Japan 0:13:06.120 --> 0:13:08.880 with the Arch debate even into this evening. Pay attention 0:13:09.000 --> 0:13:12.320 folks Bloomberg Asia, a Don Mann and the rest over 0:13:12.360 --> 0:13:16.880 in Hong Kong following Japan in their odd economic experiment, 0:13:17.400 --> 0:13:21.400 Diane Swanker, are we going to successfully extricate ourselves from 0:13:21.679 --> 0:13:23.960 what did normal were being? You call it? Qi one, 0:13:24.200 --> 0:13:27.120 q E two, QE three, four five six, I mean 0:13:27.200 --> 0:13:31.440 Dian Swank where I mean McKees mcke's encyclopedic on this, 0:13:31.840 --> 0:13:33.920 I don't get it. Are we going to get ourselves 0:13:34.000 --> 0:13:37.359 out of this qwy qt model successfully? 0:13:39.640 --> 0:13:42.040 That's a big question. I'd love to hear Rich's response 0:13:42.080 --> 0:13:44.280 on that one. I think you know what's interesting is 0:13:44.280 --> 0:13:46.880 the FED wants to stop well short, is likely to 0:13:46.880 --> 0:13:49.040 stop short of their objective in terms of how much 0:13:49.080 --> 0:13:52.880 they drain their balance sheet. That said, the quantitative tightening, 0:13:52.920 --> 0:13:55.000 the reductions, and their bloated balance sheet, they're still going 0:13:55.040 --> 0:13:56.920 to stop at a level that's much higher than it 0:13:57.000 --> 0:13:59.840 was in the past. And what we've seen is any 0:13:59.840 --> 0:14:02.800 time there is a financial crisis, this is something that FED. 0:14:03.120 --> 0:14:05.400 Once we get down to the zero boundary, we have 0:14:05.480 --> 0:14:07.560 to rely on now. The one thing that might be 0:14:07.640 --> 0:14:09.840 hopeful for the future is that it looks like the 0:14:09.840 --> 0:14:13.360 non inflationary rate is rising and that we're no longer 0:14:13.400 --> 0:14:15.760 coming out of a global financial crisis. And if we 0:14:15.800 --> 0:14:20.640 can avoid another major financial crisis where we literally have 0:14:20.680 --> 0:14:22.360 to go back down to the zero boundary, we've got 0:14:22.400 --> 0:14:25.200 a lot of room to stimulate now without going back 0:14:25.240 --> 0:14:28.040 into the balance sheet. That's for now, and it looks 0:14:28.080 --> 0:14:30.880 like we'll have some cushion and the descent on rates 0:14:30.960 --> 0:14:33.320 is going to be significantly slower and end up at 0:14:33.360 --> 0:14:37.040 a much higher level than we entered the situation at 0:14:37.120 --> 0:14:37.920 in twenty twenty. 0:14:38.160 --> 0:14:39.400 Matt, I want to pick up on what you were 0:14:39.400 --> 0:14:42.400 talking about with the funding program that the FED is 0:14:42.440 --> 0:14:45.200 set up for the banks. How much are you seeing 0:14:45.240 --> 0:14:48.600 signs that there would be serious financial distress if the 0:14:48.600 --> 0:14:51.880 FED were to wean the market from this backstop that 0:14:51.920 --> 0:14:53.160 they created after SVB. 0:14:54.640 --> 0:14:57.600 Well, Lisa, I mean, banks, of course have the ability 0:14:57.680 --> 0:15:01.920 to raise funding in other ways. Is but it's clear 0:15:02.000 --> 0:15:05.480 from the weekly take up at this facility that there 0:15:05.520 --> 0:15:08.920 are certain institutions out there in the market that feel 0:15:08.920 --> 0:15:12.840 it's in their best interest to continue to tap this facility. 0:15:13.840 --> 0:15:17.360 We wouldn't expect the facility to go away in March, 0:15:17.440 --> 0:15:21.160 but it is something that we carefully monitor. In addition, 0:15:21.600 --> 0:15:23.239 you know, when you look at the amount of reserves 0:15:23.480 --> 0:15:27.520 in the banking system, you know they've been resisting falling 0:15:27.520 --> 0:15:30.600 from their current levels, and so in some ways, I 0:15:30.640 --> 0:15:33.640 think what the system is telling us is that the 0:15:33.640 --> 0:15:37.560 FED may have already reached the minimum level of reserves 0:15:37.560 --> 0:15:40.560 that are required for these banks to continue to conduct 0:15:40.600 --> 0:15:43.000 their businesses. So we're kind of trying to monitor all 0:15:43.040 --> 0:15:46.840 of these various signs and what we see does concern us. 0:15:46.840 --> 0:15:49.400 I have to say, Matt Harnbach, We're going to have 0:15:49.440 --> 0:15:51.800 to finish that conversation another time. Diane Song to both 0:15:51.840 --> 0:15:54.320 of you, thank you so much for taking the time 0:15:54.440 --> 0:15:57.080 on this FED day. And I've got to say, we 0:15:57.160 --> 0:15:59.720 have such an ace panel with us, Tom, the fact 0:15:59.760 --> 0:16:03.040 that we have such incredible names, Matt Hornback, Diane swank 0:16:03.280 --> 0:16:05.560 Rich Clarita who is sticking with us, and we are 0:16:05.600 --> 0:16:08.760 grateful for that joining us Now to the conversation. Greg 0:16:08.760 --> 0:16:12.600 Peters Cocio at PGM Fixed Income and Kathy Jones, chief 0:16:12.680 --> 0:16:16.720 fixed income strategist at Charles Schwab. And to that point, Greg, 0:16:16.760 --> 0:16:19.240 do you see things starting to break in the financial 0:16:19.280 --> 0:16:22.000 sphere that the FED is kind of papering over with 0:16:22.080 --> 0:16:24.360 some of the programs that'll be key to watch. 0:16:26.000 --> 0:16:28.200 Oh, I don't think so. I mean, I think those 0:16:28.240 --> 0:16:31.920 backstops are just that their backstops. I think there is 0:16:31.960 --> 0:16:35.800 this persistent worry around the proper function of the treasury market, 0:16:36.120 --> 0:16:40.320 so regulators are vigilant around that as is the FED. 0:16:41.320 --> 0:16:43.880 So no, I don't think anything's breaking at this point. 0:16:44.600 --> 0:16:47.480 And if you just take the data on balance, it's 0:16:47.520 --> 0:16:51.120 actually reasonably good. So there's this whole sky is falling 0:16:51.200 --> 0:16:55.360 mentality out there, and you know, preparing for a rainy 0:16:55.440 --> 0:16:58.040 day is important, of course, but out of the right 0:16:58.080 --> 0:17:00.200 now it's pretty bright and side. 0:17:00.480 --> 0:17:04.600 Greg Peters, where's an appropriate inflation adjusted rate? If I 0:17:04.600 --> 0:17:07.160 look at the ten year real yield two point five 0:17:07.280 --> 0:17:09.440 zero earli early this morning. I know you came in 0:17:09.520 --> 0:17:12.840 late today, Greg, right now two point three nine percent. 0:17:12.880 --> 0:17:15.920 We've seen a reduction there, but still way elevated over 0:17:16.000 --> 0:17:21.040 two years ago. Where's the appropriate real yield? Yeah? 0:17:21.080 --> 0:17:24.000 So, I mean I think we've been so stuck in 0:17:24.040 --> 0:17:27.919 this central bank dominant world where everything was topsy turvy 0:17:28.000 --> 0:17:32.920 upside down, where actually negative real yields was an inducement, right, 0:17:32.960 --> 0:17:35.760 and that was a far cry. And how we thought 0:17:35.800 --> 0:17:38.960 about real yields in the past, right, really yield our 0:17:38.960 --> 0:17:42.560 function of you know, pretty strong growth, stable growth, and 0:17:42.600 --> 0:17:44.639 you know, a little inflation. So I think we're in 0:17:44.680 --> 0:17:49.440 a much more normal environment today. And quite frankly, Tom, 0:17:49.480 --> 0:17:53.280 I think we're so jaded by this recency bias when 0:17:53.320 --> 0:17:56.560 the FED just dominated the game and pushed real yields 0:17:56.600 --> 0:18:00.600 to really kind of unpactors flee life levels. 0:18:01.160 --> 0:18:03.879 Kathy Jones with us of Charles Schwab and her recency 0:18:03.920 --> 0:18:06.800 bias is clients going, should I buy a money market 0:18:06.840 --> 0:18:09.800 funder an eight year CD? Kathy Jones, You know, I 0:18:10.240 --> 0:18:12.880 look at the moment that Greg Peters was just describing 0:18:13.760 --> 0:18:16.080 just simply, all it comes down to me is what 0:18:16.119 --> 0:18:18.879 do I do with five percent cash? What are you 0:18:18.960 --> 0:18:22.439 seeing at Schwab? What are people doing off of the 0:18:22.480 --> 0:18:25.040 FED action with a money market fund? And I'm going 0:18:25.080 --> 0:18:26.560 to call it five and a half percent? 0:18:28.720 --> 0:18:31.680 Well, we're saying again clients do lots of different things 0:18:31.680 --> 0:18:34.919 that have lots of different clients, but we are seeing 0:18:35.160 --> 0:18:39.080 a lot of interest in say CD ladders, treasury bill ladders, 0:18:39.080 --> 0:18:43.159 treasury bond ladders. As people look at where the yields 0:18:43.200 --> 0:18:45.440 are and the real yields, which we've been pointing out 0:18:45.560 --> 0:18:48.680 have been pretty attractive, they're starting to sort of tiptoe 0:18:48.720 --> 0:18:51.439 out the curve. We don't have a lot of interest 0:18:51.480 --> 0:18:53.600 in going very long on the curve, but I think 0:18:54.000 --> 0:18:59.200 the idea of capturing four or five six percent, depending 0:18:59.240 --> 0:19:02.760 on what instruments you're in yields going over the next 0:19:02.760 --> 0:19:05.119 five to seven years is looking more attractive. So we're 0:19:05.160 --> 0:19:07.280 starting to see a little bit of that action. A 0:19:07.320 --> 0:19:10.000 lot of louder securities though, is a way to kind 0:19:10.000 --> 0:19:12.320 of average into the market. But I do think we 0:19:13.119 --> 0:19:15.560 the longer we can hold in some sort of a 0:19:15.680 --> 0:19:18.840 range and stabilize, and the more we can get a 0:19:18.880 --> 0:19:21.000 signal from the FAT that maybe there's not a lot 0:19:21.040 --> 0:19:23.160 more common in the way of tightening, you know, the 0:19:23.160 --> 0:19:25.960 more people will get up the courage to extend out 0:19:26.000 --> 0:19:27.000 a little bit in duration. 0:19:27.359 --> 0:19:29.280 Kathy, I know that you're very interested in the balance 0:19:29.320 --> 0:19:31.480 sheet and hearing about what the FED has to say, 0:19:31.560 --> 0:19:33.840 and we did just here from Matt Hornback that he 0:19:33.920 --> 0:19:37.879 thinks that the FED has hit the minimum amount required 0:19:38.280 --> 0:19:41.480 of reserves, that basically we're bumping up against the size 0:19:41.480 --> 0:19:43.280 maybe the balance sheet needs to be. 0:19:43.760 --> 0:19:48.080 Do you agree with that? Yeah, you know, I have 0:19:48.160 --> 0:19:49.800 only done a small amount of work on it, which 0:19:49.840 --> 0:19:51.360 is why I want to hear what the FED has 0:19:51.440 --> 0:19:52.959 to say about it, because I like to know what 0:19:53.000 --> 0:19:55.320 their thoughts are, and we really haven't gotten them to 0:19:55.320 --> 0:19:58.200 talk about what's the optimal size. We've had some estimates 0:19:58.200 --> 0:20:01.000 of twenty to twenty five percent of g If you 0:20:01.080 --> 0:20:03.840 do that, you're going back. You know, we're going down 0:20:03.920 --> 0:20:07.080 quite a bit more. Put that against where you know 0:20:07.160 --> 0:20:10.560 reserve requirements should be, and you know you're you're kind 0:20:10.600 --> 0:20:13.560 of at odds. Which is why I find this question 0:20:13.760 --> 0:20:17.639 of the FED continuing QT even when they eventually shift 0:20:17.680 --> 0:20:20.800 to easier policy. I find that to be a big 0:20:20.880 --> 0:20:23.600 question mark in my mind as to how back can 0:20:23.680 --> 0:20:27.080 those two policies can kind of coexist smoothly. So I 0:20:27.119 --> 0:20:30.600 don't know that we're at the minimum level yet. I 0:20:30.640 --> 0:20:33.400 think there's some room to go from here, but I 0:20:33.440 --> 0:20:35.560 am concerned. I would like to know what they're a 0:20:35.600 --> 0:20:39.000 deeper thought process than the little information should we've been given. 0:20:39.119 --> 0:20:41.280 You know, Rich Clarina, what's so important here? And I'm 0:20:41.280 --> 0:20:44.240 thinking of your conversations and your council, to the portfolio 0:20:44.280 --> 0:20:47.320 managers at PIMCO, and in the moment we're in there 0:20:47.320 --> 0:20:51.520