WEBVTT - Bloomberg Surveillance: Powell's Optimistic Outlook 0:00:05.080 --> 0:00:08.280 This is the Bloomberg Surveillance Podcast. I'm Lisa A. 0:00:08.320 --> 0:00:11.640 Bromoids, along with Tom Keen and Jonathan Ferrell, join us 0:00:11.680 --> 0:00:15.280 each day for insight from the best in economics, geopolitics, 0:00:15.320 --> 0:00:16.440 finance and investment. 0:00:16.760 --> 0:00:18.760 Subscribe to Bloomberg Surveillance. 0:00:18.400 --> 0:00:21.840 Undemand on Apple, Spotify and anywhere you get your podcasts, 0:00:22.160 --> 0:00:25.200 and always on Bloomberg dot Com, the Bloomberg Terminal, and 0:00:25.200 --> 0:00:26.440 the Bloomberg Business app. 0:00:26.800 --> 0:00:30.160 The inflation fight is an over, speaking of CBS over 0:00:30.160 --> 0:00:33.120 the weekend, joining a chorus of Fed officials pushing back 0:00:33.320 --> 0:00:36.400 on ray cut speculation in the wake of Jpow's dubvish outlook, 0:00:36.560 --> 0:00:39.839 Former New York Fed President Bill Dudley, calling POW's comments 0:00:39.960 --> 0:00:43.160 a gamble warning quote. There's plenty that can go wrong. 0:00:43.600 --> 0:00:46.960 Power has repeatedly emphasized that the Fed must finish the job. 0:00:47.240 --> 0:00:49.239 Yet the more weight he puts on cutting rates to 0:00:49.280 --> 0:00:52.440 avoid a recession, the greater the risk of falling and 0:00:52.479 --> 0:00:57.200 failing to control inflation of markets getting a big, unpleasant 0:00:57.280 --> 0:01:00.560 surprise one way or another. Twenty twenty four promises be 0:01:00.600 --> 0:01:03.200 an interesting year. Thanks for tearing that up, Bill. Let's 0:01:03.200 --> 0:01:05.640 start the conversation there, just why do you think that 0:01:05.760 --> 0:01:07.800 is so risky? And what on earth happened at the 0:01:07.800 --> 0:01:10.800 news conference last week? We spoke immediately afterwards. You've had 0:01:10.840 --> 0:01:12.720 an extra week. What was that, Bill? 0:01:13.880 --> 0:01:16.120 I think he's been very pleased with how the economy 0:01:16.120 --> 0:01:19.280 has performed to be pretty stridy growth. Yet the inflation 0:01:19.400 --> 0:01:22.120 rate has come down, so the prospects of the soft 0:01:22.200 --> 0:01:23.160 landing have gone up. 0:01:23.319 --> 0:01:25.240 I think that's all really good and positive. 0:01:25.640 --> 0:01:27.759 What I don't understand is why you'd want to add 0:01:27.760 --> 0:01:31.800 fuels of the fire and cause financial conditions to ease substantially, 0:01:31.880 --> 0:01:35.080 which is whether he provoked last week. The stocks are 0:01:35.160 --> 0:01:38.560 up quite a bit, bonnials are down, financial conditions are 0:01:38.600 --> 0:01:41.800 much more accommodative. The Goldman Sachs Financial Conditions Index, for example, 0:01:41.800 --> 0:01:44.440 it is by a four percentage point at a time 0:01:44.480 --> 0:01:46.600 that the economy has been growing, and above trempe ss. 0:01:46.959 --> 0:01:49.120 To me, I'm worry the defense is not going to 0:01:49.240 --> 0:01:51.480 finish the job. He's behaving a little bit more like 0:01:51.560 --> 0:01:53.320 Arthur Burn than he is like Paul Bunker. 0:01:54.200 --> 0:01:56.040 Bill, let's build on that just a touch more. Do 0:01:56.080 --> 0:01:57.920 you think he's seduced by the prospect of net and 0:01:57.920 --> 0:01:59.600 the soft landing. Do you think that's what sucked him 0:01:59.600 --> 0:01:59.960 in a little bit. 0:02:01.080 --> 0:02:03.440 Well, I think that's certainly what he's trying to achieve, 0:02:03.440 --> 0:02:05.720 and if I was in issues, I would do the same. 0:02:06.000 --> 0:02:08.040 I think there's there of a contest going on right 0:02:08.080 --> 0:02:10.680 now between how to think about monitary policy. Is policy 0:02:10.720 --> 0:02:13.399 really tight because real rates are high and inflation's coming down, 0:02:13.880 --> 0:02:16.359 or is policy not so tight because financial condition that 0:02:16.440 --> 0:02:19.160 needs significantly and that's providing support to the economy. If 0:02:19.200 --> 0:02:21.840 we look at the Atlanta Fed GDP now has for 0:02:21.880 --> 0:02:24.480 the fourth quarter, it's now tracking two point six percent 0:02:24.720 --> 0:02:26.519 after a five point two percent growth right in the 0:02:26.600 --> 0:02:28.880 third quarter. So it's not really clear that the economy 0:02:28.919 --> 0:02:31.320 needs a lot more accommodation to support itself. 0:02:31.680 --> 0:02:34.480 Bill, do you think the Fed jer J. Powell understood 0:02:34.680 --> 0:02:36.239 what he was going to do to markets? 0:02:38.000 --> 0:02:39.480 I think that he certainly. 0:02:39.720 --> 0:02:41.560 I hope he understood that he was coming across with 0:02:41.560 --> 0:02:44.160 a very optimistic sort of framework for markets to that 0:02:44.120 --> 0:02:45.000 I digest. 0:02:46.160 --> 0:02:47.080 I think that's true. 0:02:47.200 --> 0:02:50.000 As Austin Golsby said a little a little bit earlier, 0:02:50.680 --> 0:02:53.079 that this is a forecast, and so if the forecast 0:02:53.080 --> 0:02:55.160 doesn't materialize and the FED rate cuts that are the 0:02:55.280 --> 0:02:58.040 promise won't materialize, either, so the market may be get 0:02:58.080 --> 0:03:00.560 a little bit ahead of itself. This is how Powell 0:03:00.600 --> 0:03:03.760 thinks the world is going to evolve. Paul thinks the 0:03:03.800 --> 0:03:05.679 Fed is going to be cutting rates in twenty twenty four. 0:03:05.960 --> 0:03:08.200 But it's possible that the economy could be firmer for longer, 0:03:08.200 --> 0:03:10.240 inflation could be more stubborn in the rate cuts might 0:03:10.240 --> 0:03:11.960 not actually turn out to materialize. 0:03:12.000 --> 0:03:14.200 The reason why I ask that is because feedcher Powell 0:03:14.280 --> 0:03:17.400 had an opportunity to push back against the financial conditions 0:03:17.440 --> 0:03:19.280 and the easing that we have seen. He had a 0:03:19.360 --> 0:03:22.560 chance to say this is problematic and moves counter to 0:03:22.639 --> 0:03:23.360 our goal. 0:03:23.160 --> 0:03:25.400 Of bringing inflation down. He didn't. 0:03:25.600 --> 0:03:28.560 And you're saying financial conditions still matter. So why do 0:03:28.600 --> 0:03:31.560 they still matter? Is it becoming inflationary or at least 0:03:31.919 --> 0:03:34.480 not necessarily restrictive in a way that's problematic for the 0:03:34.520 --> 0:03:37.160 Fed to see financial conditions easing as much as you've 0:03:37.160 --> 0:03:37.960 pointed out they have. 0:03:39.240 --> 0:03:41.280 Well, the big problem here is that if financial conditions 0:03:41.280 --> 0:03:43.880 ease a lot, that provides impetus to economic growth. If 0:03:43.920 --> 0:03:47.360 the economy grows faster, the labor markets tighter, wage inflation's higher, 0:03:47.360 --> 0:03:49.680 and then it's harder to actually achieve your two percent 0:03:49.760 --> 0:03:53.040 inflation objective. So the question is does the economy need 0:03:53.080 --> 0:03:55.360 more fuel? Does the economy need to grow faster? I 0:03:55.400 --> 0:03:58.920 would say probably no. Labor markets already very very tight. 0:03:59.160 --> 0:04:01.920 Wage inflation is Paul has acknowledged, is above a level 0:04:01.960 --> 0:04:04.520 consistent with two percent inflation. So I'm not sure why 0:04:04.560 --> 0:04:06.240 you'd want to put more fuel on the fire. 0:04:06.600 --> 0:04:08.280 But do you think we've learned enough about the cycle 0:04:08.400 --> 0:04:11.120 so far though to draw conclusions about the contribution of 0:04:11.160 --> 0:04:14.160 the labor market to overall price pressure and just discount 0:04:14.200 --> 0:04:16.080 it and say it's not as important as we thought 0:04:16.080 --> 0:04:16.440 it was. 0:04:17.680 --> 0:04:18.400 Well, I think it's. 0:04:18.279 --> 0:04:21.240 True that there's a big labor force supply benefit that 0:04:21.240 --> 0:04:22.800 you got. Last year. A lot of people rejoined the 0:04:22.839 --> 0:04:25.560 labor force, so the Fed got sorry, had had skicking 0:04:25.720 --> 0:04:25.920 to do. 0:04:26.400 --> 0:04:29.520 They had pretty sturdy growth, but it didn't generate inflation 0:04:29.560 --> 0:04:33.520 pressure because the labor force expanded to accommodate that growth. Now, 0:04:33.560 --> 0:04:35.279 the question is is that going to continue in twenty 0:04:35.320 --> 0:04:39.480 twenty four. That's a really important question in the eco 0:04:39.520 --> 0:04:41.880 gal Look, I'm going to continue to see that kind 0:04:41.880 --> 0:04:44.880 of rapid labor force growth that accommodates pyerial gains of 0:04:44.880 --> 0:04:47.120 one hundred and fifty one hundred and seventy two hundred 0:04:47.160 --> 0:04:48.039 thousand a month. 0:04:48.240 --> 0:04:50.159 Do you see reason to believe that it won. 0:04:51.839 --> 0:04:53.800 I think that that there's some reason to believe that 0:04:53.839 --> 0:04:55.640 some of the labor force pers we saw last year 0:04:55.760 --> 0:05:00.480 was a catchup, right. Basically, you opened up immigrat again, 0:05:00.520 --> 0:05:03.200 so you had a surge of immigration of legal immigration 0:05:03.400 --> 0:05:07.520 into the US last year. Worked from home allowed working 0:05:07.520 --> 0:05:10.440 age women to re enter the layer force. But whether 0:05:10.480 --> 0:05:12.720 that trend is going to continue at that pace, I 0:05:12.720 --> 0:05:15.000 would be a bit skeptical about that. 0:05:15.279 --> 0:05:17.839 There seems to be an acceptance or reacceptance of the 0:05:17.920 --> 0:05:23.039 concept of transitory at fedchair among the FED officials, particularly 0:05:23.040 --> 0:05:23.560 FED Shair J. 0:05:23.640 --> 0:05:25.279 Powell. Are you pushing back on that? 0:05:25.320 --> 0:05:27.320 Are you saying it's still too early to say that 0:05:27.360 --> 0:05:30.880 there's still stickier aspects to inflation that they're discounting. 0:05:32.000 --> 0:05:34.440 I think a lot of the inflation pressure clearly was transitory. 0:05:34.480 --> 0:05:36.040 A lot of the upper pressure you saw on goods 0:05:36.080 --> 0:05:38.640 prices was just to the pandemic and people increasing their 0:05:38.640 --> 0:05:42.599 demand for goods temporarily during that shutdown period. Now we've 0:05:42.600 --> 0:05:44.640 opened up the economy, the demand for goods falls, and 0:05:44.680 --> 0:05:45.400 so that all. 0:05:45.279 --> 0:05:46.520 That price pressure goes away. 0:05:46.680 --> 0:05:48.799 I think the problem on inflation is really more about 0:05:49.160 --> 0:05:51.560 pressure on resources in the labor market. The libor market 0:05:51.560 --> 0:05:54.920 is still very very tight, Wage inflation is still too high, 0:05:55.200 --> 0:05:57.640 and if the economy grows at above trend pace in 0:05:57.640 --> 0:06:00.680 twenty twenty four, all that pressure on is going to 0:06:00.720 --> 0:06:03.279 increase rather than diminished. So the real question I have 0:06:03.360 --> 0:06:06.560 in my mind is monetary policy as tight as the 0:06:06.560 --> 0:06:08.640 FED thinks it is. And I think the fact that 0:06:08.680 --> 0:06:12.000 the FED is pivoted in this way by easing financial 0:06:12.040 --> 0:06:15.360 conditions that makes monetary policy less restrictive rather more restrictive 0:06:15.400 --> 0:06:15.960 going forward. 0:06:16.120 --> 0:06:18.159 Some people have speculated that the FED wants to cut 0:06:18.240 --> 0:06:20.279 rates in the first half of the year and avoid 0:06:20.320 --> 0:06:22.800 making any moves whatsoever the second half because of the 0:06:22.920 --> 0:06:23.840 presidential election. 0:06:24.360 --> 0:06:25.120 Do you buy into that? 0:06:26.160 --> 0:06:27.120 No, I don't buy into it. 0:06:27.120 --> 0:06:28.360 I think at the end of the day, the FED 0:06:28.400 --> 0:06:31.800 accident completely a political matter, because they understand that if 0:06:31.800 --> 0:06:35.560 they start timing rate cuts or rate increases with the 0:06:35.600 --> 0:06:38.839 political cycle, that politicizes the FED and puts them in 0:06:38.839 --> 0:06:41.200 the middle of the whole debate. So the best thing 0:06:41.240 --> 0:06:43.400 the FED can do is they totally ignore the political 0:06:43.440 --> 0:06:45.560 cycle and do what they think is best to achieve 0:06:45.600 --> 0:06:47.160 their dual man date objectives. 0:06:47.279 --> 0:06:49.000 Let's just sit on the comments we've heard so far. 0:06:49.120 --> 0:06:52.760 We've had clarifying remarks from New York Fed President John Williams, 0:06:52.839 --> 0:06:56.480 year old Saint Bill, clarifying remarks from Gilsby over the weekend, 0:06:56.560 --> 0:06:59.480 from Mesta this morning and the Financial Times Bill. How 0:06:59.520 --> 0:07:02.400 does that work? These speeches, these interviews are scheduled well 0:07:02.400 --> 0:07:05.000 ahead of time as we know. Is there someone on 0:07:05.000 --> 0:07:07.440 the committee the Border government has that sends out a 0:07:07.480 --> 0:07:09.200 message to for one and says, let's all get on 0:07:09.200 --> 0:07:11.240 the same page. I need you to say x y C. 0:07:11.440 --> 0:07:11.640 Bill. 0:07:11.760 --> 0:07:12.559 Does that ever happen? 0:07:13.360 --> 0:07:14.760 So the answer is yes and no. 0:07:15.560 --> 0:07:18.400 Yes, John Williams, when John Wayns speaks, you have to 0:07:18.400 --> 0:07:21.600 believe that that's been carefully choreographed with the Board of 0:07:21.640 --> 0:07:24.640 Governors and Jay Paul. When other Fed presidents speak, No, 0:07:24.760 --> 0:07:28.040 that's not choreographed. That's them operating on their own. So 0:07:28.600 --> 0:07:31.280 Paul speaks, you want to pay Paul's speech, You want 0:07:31.280 --> 0:07:32.880 pay attention to John Wayne' speech. You want to pay 0:07:32.880 --> 0:07:35.920 attention because they're part of the Troyka, the core group 0:07:36.000 --> 0:07:37.720 that sets monitor policy for the FED. 0:07:38.120 --> 0:07:39.560 So I think, look, I think I think people are 0:07:39.640 --> 0:07:40.640 pushing back a little bit. 0:07:41.120 --> 0:07:43.480 I think the market is sort of running away from 0:07:43.520 --> 0:07:46.840 them when when the story isn't really completed yet, I 0:07:46.880 --> 0:07:51.840 mean Paul's Paul's remarks last week. We're all about how 0:07:51.840 --> 0:07:53.760 he thinks things are going to evolve. We have to 0:07:53.760 --> 0:07:56.800 see if they actually evolved in that way to provide 0:07:56.800 --> 0:07:58.040 the motivation for rate cuts. 0:07:58.240 --> 0:08:00.400 Hi, Bill, I appreciate the update, great pace of morning. 0:08:00.680 --> 0:08:03.440 Enjoyed the raid. Bill down be there of Bloomberg opinion 0:08:03.480 --> 0:08:05.800 on the gamble. He thinks this federal Reserve is taken 0:08:05.800 --> 0:08:13.400 with the grand pivot that was seemingly unofficially announced. I'm 0:08:13.440 --> 0:08:16.680 really placed to say that. Revisiting a surround a table 0:08:16.720 --> 0:08:19.800 at Prayer Misra portfolio manager at JP Morgan Asset Management 0:08:19.800 --> 0:08:22.520 more than Prayer. We were talking last week on Wednesday, 0:08:22.560 --> 0:08:24.640 going into that news conference with chairman pound pushback, I 0:08:24.800 --> 0:08:26.280 was with you. Surely we were going to get pushed 0:08:26.280 --> 0:08:28.840 back from the chairman. We didn't get any Your point, 0:08:28.920 --> 0:08:30.840 I think is an important one, and we dusting off 0:08:30.880 --> 0:08:34.000 the twenty nineteen playbook. And for those that might have forgotten, 0:08:34.000 --> 0:08:36.079 what is the twenty nineteen playbook? 0:08:36.559 --> 0:08:39.120 So in twenty nineteen, what the Fed did was try to, 0:08:39.880 --> 0:08:42.400 you know, cut rates. They cut rates seventy five basis points, 0:08:42.520 --> 0:08:45.680 really trying to extend the cycle. I think this is 0:08:45.720 --> 0:08:48.600 the power Fed. This is the Fed that says once 0:08:48.640 --> 0:08:51.040 they get the green light from inflation. What did surprise 0:08:51.160 --> 0:08:53.720 me was how quickly they convinced that inflation is actually 0:08:53.760 --> 0:08:55.520 going to head all the way back down to two percent. 0:08:55.880 --> 0:08:58.559 They're trying to get that soft landing. They're really really 0:08:58.559 --> 0:09:00.400 trying to get that, and if that means that they 0:09:00.440 --> 0:09:03.079 can normalize policy, that they can get real rates I 0:09:03.120 --> 0:09:05.920 think closer to one percent, one and a quarter. They 0:09:05.960 --> 0:09:08.240 think they can actually extend the cycle, that we don't 0:09:08.240 --> 0:09:10.520 get that recession. I think it's a little, you know, 0:09:11.000 --> 0:09:13.600 a little bit of a risky move here, because what 0:09:13.640 --> 0:09:15.920 if inflation does tall but if you're at two and 0:09:16.000 --> 0:09:18.959 a half, that's not that far from two. Now, whether 0:09:19.040 --> 0:09:20.920 it will work or not, I think that's the trade 0:09:20.920 --> 0:09:24.040 for six months out right now we're in immaculate disinflation. 0:09:24.120 --> 0:09:26.920 We're seeing growth slow down but not to recession levels, 0:09:27.360 --> 0:09:30.720 and they're hoping that by these preemptive rate cuts that 0:09:30.800 --> 0:09:34.920 they can actually you know, get that. Yeah, that's soft landing. 0:09:35.080 --> 0:09:38.400 Language matters, you didn't say easing, you said normalize. What's 0:09:38.480 --> 0:09:39.040 the difference. 0:09:39.280 --> 0:09:42.319 There's a big difference to not every rate cut is 0:09:42.679 --> 0:09:45.360 essentially created equal. I think the Fed right now, the 0:09:45.400 --> 0:09:48.560 market's hearing the Fed is cutting to the Fed is easing. 0:09:48.720 --> 0:09:50.640 I think what they're trying to do is get rates 0:09:50.720 --> 0:09:53.560 to some sort of neutral level. We don't know what 0:09:53.640 --> 0:09:55.800 neutral is now. We'll be debating our star for the 0:09:55.880 --> 0:09:59.280 next year. You know what's that level at which point 0:09:59.600 --> 0:10:03.120 policy is essentially accommodative. We're very far from accommodative. In fact, 0:10:03.160 --> 0:10:05.760 Japao said that last week. He said, we're well within 0:10:05.840 --> 0:10:09.360 restrictive territory. Normalizing, in my mind, is getting rates to 0:10:09.600 --> 0:10:12.840 you know, feed funds two seventy five, three percent, something 0:10:12.880 --> 0:10:16.960 in that range. Easy would be. Well, you know, below that, 0:10:17.000 --> 0:10:19.480 we're talking one percent two percent. The market right now 0:10:19.559 --> 0:10:22.320 is pricing in normalizing. So when I hear that too 0:10:22.360 --> 0:10:25.440 much is getting priced in, No, we're pricing in inflation 0:10:25.520 --> 0:10:27.839 getting back down close to two percent two two and 0:10:27.920 --> 0:10:30.800 a half, and you know growth in that one percent 0:10:30.880 --> 0:10:34.520 range two seventy five or three percent fed funds is normalizing. 0:10:34.760 --> 0:10:37.040 I actually think we still don't price in this chance. 0:10:37.120 --> 0:10:39.440 So the FED may have to cut well through that 0:10:39.640 --> 0:10:41.840 because they're trying to extend the cycle. But what if 0:10:41.840 --> 0:10:44.080 the damage has already been done? What if the lags 0:10:44.160 --> 0:10:46.080 kick in. I think there's a chance that the Fed 0:10:46.120 --> 0:10:48.480 may have to cut, you know, well south of that 0:10:48.559 --> 0:10:50.920 three percent level, which the market is not pricing in, 0:10:50.920 --> 0:10:52.720 which is why I think there's more room for rates 0:10:52.760 --> 0:10:53.439 to decline. 0:10:53.640 --> 0:10:55.800 Why do you think there are so many Fed officials 0:10:55.840 --> 0:10:58.360 lining up to push back, and we heard from Fedshair 0:10:58.440 --> 0:11:02.040 Japowell if it is consistent in with what they hope 0:11:02.080 --> 0:11:02.360 to do. 0:11:02.840 --> 0:11:05.160 I think they're really trying to prevent getting bullied by 0:11:05.160 --> 0:11:07.199 the market to cut all the way down to zero 0:11:07.320 --> 0:11:09.679 a one percent. Whether that will work or not, I 0:11:09.720 --> 0:11:10.880 think the market's saying it's not. 0:11:10.920 --> 0:11:12.200 Even bullying them to that degree. 0:11:12.240 --> 0:11:14.920 They're only billing them one hundred and fifty basis points exactly. 0:11:14.920 --> 0:11:17.640 But what if the growth data does start to slow down? 0:11:17.720 --> 0:11:19.559 Then I think the market might say, well, you're going 0:11:19.559 --> 0:11:21.360 all the way down to zero, and I think the 0:11:21.360 --> 0:11:23.400 Fed is saying, well, there's a very different bar. There's 0:11:23.440 --> 0:11:26.240 a different bar to normalizing, We've we've reached that bar, 0:11:26.920 --> 0:11:29.640 and then there's a different bar to actually take rates 0:11:29.679 --> 0:11:33.520 into accommodative territory. It's a very nuanced message, but it's 0:11:33.600 --> 0:11:35.360 very hard for the market to actually make that, for 0:11:35.400 --> 0:11:37.480 the for the FED to make that point, and secondly 0:11:37.559 --> 0:11:39.120 for the market to hear it. So I think the 0:11:39.160 --> 0:11:42.040 trade for today is the Fed's going to ease. They're 0:11:42.080 --> 0:11:44.760 trying to get that soft landing until we see data 0:11:44.840 --> 0:11:47.040 that it's not working. It's risk on. 0:11:47.320 --> 0:11:48.640 Well, here's my issue. 0:11:48.679 --> 0:11:50.840 There was a time when we thought that the easing 0:11:50.840 --> 0:11:53.800 and financial conditions mattered, that it actually would have some 0:11:53.800 --> 0:11:57.840 sort of stimulative effect on the economy and potentially on inflation. 0:11:58.320 --> 0:11:58.840 FED shir J. 0:11:58.960 --> 0:12:01.800 Powell had the opportunity, he had a soft path respond 0:12:01.800 --> 0:12:02.160 to that. 0:12:02.320 --> 0:12:04.440 To basically lean into that message. 0:12:04.520 --> 0:12:06.839 He did not do we take a message from that 0:12:06.920 --> 0:12:09.439 if they don't care about the easing and financial conditions, 0:12:09.640 --> 0:12:11.360 or do we take a lesson from all of the. 0:12:11.360 --> 0:12:13.120 Other Feed officials that are trying to say it still 0:12:13.120 --> 0:12:13.679 does matter. 0:12:14.320 --> 0:12:17.760 So I think financial conditions are always context dependent, meaning 0:12:18.040 --> 0:12:21.160 you know, financial conditions have yeast, but so has inflation. 0:12:21.240 --> 0:12:24.000 Inflations come back down. Look at three month moving averages. 0:12:24.000 --> 0:12:26.520 We're running, you know, south of two and a half percent, 0:12:27.040 --> 0:12:29.720 and the growth data is weakening. I mean, even if 0:12:29.720 --> 0:12:31.640 you look at payrolls, which is the strongest part of 0:12:31.640 --> 0:12:34.280 the economy, if I strip out a few sectors, it's 0:12:34.320 --> 0:12:39.160 actually looking pretty weak. The consumer is levering up, and 0:12:39.320 --> 0:12:42.320 you know, we are seeing essentially a pickup in default. 0:12:42.400 --> 0:12:45.200 So I think if the household sector is starting to weaken, 0:12:45.280 --> 0:12:47.559 the FED looks at easy in financial conditions and says, 0:12:47.880 --> 0:12:50.679 actually it's appropriate. So I don't think they push back now. 0:12:50.679 --> 0:12:53.680 If we see a reacceleration and growth, absolutely, the Fed's 0:12:53.679 --> 0:12:56.600 going to push back. If we see inflation stalling out, 0:12:56.640 --> 0:12:59.079 I think they'll say not so fast. But for now, 0:12:59.080 --> 0:13:02.320 if growth has slowing down, I think financial conditions matter 0:13:02.360 --> 0:13:02.959 a lot less. 0:13:03.200 --> 0:13:05.199 Let's go through the levels two year right now, for 0:13:05.400 --> 0:13:08.880 forty two tenure at the moment three ninety thirty years, 0:13:08.920 --> 0:13:10.920 just about four percent. How much space is there for 0:13:11.000 --> 0:13:12.760 you to the fall from here given everything you've just 0:13:12.800 --> 0:13:13.400 told us. 0:13:13.720 --> 0:13:15.440 I mean, it is going to depend on the data. 0:13:15.559 --> 0:13:19.000 My views. Things are slowing, and even though financial conditions 0:13:19.040 --> 0:13:22.160 are easying, the Fed's talking about rate cuts, it's hard 0:13:22.280 --> 0:13:24.480 for that to have an impact on the economy that quickly. 0:13:24.520 --> 0:13:27.280 So I think this zero to five or seven year 0:13:27.320 --> 0:13:29.880 part of the curve can absolutely decline a lot more. 0:13:30.120 --> 0:13:32.680 We should price in at any point a ten to 0:13:32.679 --> 0:13:35.160 fifteen percent chance of a recession. You start to put 0:13:35.200 --> 0:13:38.040 that in and then you're looking at the ten year 0:13:38.160 --> 0:13:40.559 or the five year closer to three percent. So I 0:13:40.559 --> 0:13:42.640 think there is room for it to decline. May not 0:13:42.720 --> 0:13:44.640 be a straight line. We've come a pretty long way, 0:13:44.720 --> 0:13:46.959 very quickly. Two months ago we were at five percent 0:13:47.000 --> 0:13:49.440 on tens. We're talking about, you know, the supply narrative, 0:13:49.480 --> 0:13:52.319 so it's moved a long way. I think it can consolidate, 0:13:52.679 --> 0:13:54.560 but I don't think we're getting much of a backup, 0:13:54.600 --> 0:13:57.480 so I would use any backup as an opportunity to buy. 0:13:57.559 --> 0:14:00.000 I think we can have a pretty flat gurve around 0:14:00.080 --> 0:14:01.480 three percent, and for the next few months. 0:14:01.559 --> 0:14:03.040 Let's talk about the shack of the curve on place 0:14:03.080 --> 0:14:04.880 you went there. You've alluded to this. Just why is 0:14:04.880 --> 0:14:08.040 this curve still at negative fifty one two year versus 0:14:08.080 --> 0:14:10.360 ten yere Why don't we get in that classic end 0:14:10.400 --> 0:14:12.680 of cycle boast state to come through what's happening? 0:14:13.000 --> 0:14:15.760 I think that's you know, do your question earlier around 0:14:15.760 --> 0:14:18.600 normalization versus easing. I think the market that's the part 0:14:18.600 --> 0:14:20.720 of the market that understands. So this FED is not 0:14:20.840 --> 0:14:23.200 talking about easing all the way down to zero, the 0:14:23.240 --> 0:14:26.000 curve will really steepen. I think when we see signs 0:14:26.040 --> 0:14:28.080 that were in front of a heart that a hard 0:14:28.120 --> 0:14:30.160 landing is in front of us. If we're still in 0:14:30.200 --> 0:14:32.680 a soft landing, I think we have a very flat curve. 0:14:32.960 --> 0:14:35.640 There should be some term premium there. But here's my 0:14:35.720 --> 0:14:38.920 pushback to term premium. There's six trillion sitting in money 0:14:38.960 --> 0:14:42.240 market funds. It's felt cash has felt good, right, I'm 0:14:42.280 --> 0:14:44.560 earning more If the FED hike's more well, I'll earn 0:14:44.600 --> 0:14:48.200 more well. Now, actually think about reinvestment risks. As the 0:14:48.240 --> 0:14:50.600 FED starts to cut rates, those rates are not going 0:14:50.640 --> 0:14:52.840 to stay that high. Money is going to move out. 0:14:52.880 --> 0:14:55.000 And it's not obvious to me that all moves to 0:14:55.040 --> 0:14:58.200 stocks when real rates are close to two percent? What 0:14:58.440 --> 0:15:00.400 bonds start to look very attractive as well? 0:15:00.640 --> 0:15:02.640 You said things with slowing Can we finish there? What 0:15:02.800 --> 0:15:04.960 is guiding you? Where are you looking across your dashboard 0:15:05.040 --> 0:15:07.560 right now, looking at various economic indicators? What's guiding your 0:15:07.560 --> 0:15:10.120 assessment of why this economy is going? Because I've looked 0:15:10.120 --> 0:15:12.080 at a range forward looking indicators for a while now, 0:15:12.080 --> 0:15:14.480 I've been signaling slow down and then Q three happened, 0:15:14.760 --> 0:15:16.400 So what are you looking at right? 0:15:16.480 --> 0:15:18.760 So you know, I think Q three part of why 0:15:18.880 --> 0:15:21.440 Q three happened or that strength and the data was 0:15:21.520 --> 0:15:25.680 real income surging, inflation decline, but wages was still high. 0:15:26.000 --> 0:15:28.360 Well that's starting to decline because if you look at 0:15:28.400 --> 0:15:30.800 wage growth. So what I'm looking at is I'm basically 0:15:30.840 --> 0:15:34.440 looking at the household sector. So I'm looking at small 0:15:34.480 --> 0:15:38.360 business hiring. That sentiment seems to be slowing, you know, 0:15:38.520 --> 0:15:41.200 And I'm looking at the consumer. So at the margin 0:15:41.280 --> 0:15:44.040 you've seen cracks. We still don't know if the cracks 0:15:44.040 --> 0:15:47.000 will be systemic enough and can the FED this preemptive 0:15:47.000 --> 0:15:51.280 easing actually prevent the cracks from deepening. But there are 0:15:51.320 --> 0:15:54.680 cracks in terms of the consumer you know, leverage in 0:15:54.760 --> 0:15:59.160 terms of consumer deforce delinquencies, so there's signs of trouble. 0:15:59.600 --> 0:16:01.400 I think it still too early to say is this 0:16:01.480 --> 0:16:03.800 hard landing, but we should put in some probability of 0:16:03.800 --> 0:16:04.880 a hard landing there. 0:16:05.080 --> 0:16:06.640 It's good to say, you always So it's pretty much 0:16:06.640 --> 0:16:20.720 for the JP Morgan acid matter. Let's get straight to 0:16:20.800 --> 0:16:24.160 the conversation. J Philoscy is found lonely oh year constructive 0:16:24.360 --> 0:16:26.760 on the equity market. Now he's got a company, tons 0:16:26.760 --> 0:16:29.480 of company. The founder and principal at TPW Advice we 0:16:29.560 --> 0:16:31.800 joined us now, Jay, it's wonderful to catch up with you, sir. 0:16:32.080 --> 0:16:35.440 How good does that external validation feel for you this morning? 0:16:36.240 --> 0:16:39.480 Well, it's been makes up for a warm, wet and 0:16:39.840 --> 0:16:41.120 windy Monday. 0:16:40.720 --> 0:16:43.000 Morning in New York City, that's for sure. 0:16:43.280 --> 0:16:45.920 So now it's you know, as you guys have been 0:16:45.960 --> 0:16:49.080 talking about you and Lisa and others, markets of rallied 0:16:49.120 --> 0:16:52.040 the rally right in your face. It's been very difficult 0:16:52.120 --> 0:16:53.680 to stand aside. 0:16:53.880 --> 0:16:56.560 It's a classic. As we talked about your end rally. 0:16:56.960 --> 0:16:59.040 You have a gate a calendar end of the year, 0:16:59.440 --> 0:17:03.200 you're under performing, because you have cash, you have to participate. 0:17:03.760 --> 0:17:07.639 And I read something infintwit over the week where it 0:17:07.720 --> 0:17:10.560 was like pain levels ten out of ten, right, So 0:17:10.600 --> 0:17:14.199 there's a lot of pressure on people to perform in 0:17:14.240 --> 0:17:17.439 this period and so there's a big chase going on 0:17:17.520 --> 0:17:21.480 and as you see it's continuing now into week eight. 0:17:22.200 --> 0:17:24.320 Jay, you weren't bullish for the sake of being bullish. 0:17:24.400 --> 0:17:27.480 So let's talk about your framework, the process you've been 0:17:27.480 --> 0:17:31.280 calling for this return to macro stability away from what 0:17:31.280 --> 0:17:35.320 we've been experiencing over the previous twelve, eighteen, twenty four months. Jay, 0:17:35.320 --> 0:17:37.119 why are you still so convinced by that? And why 0:17:37.200 --> 0:17:39.160 is that the big outlook for you next year? 0:17:39.760 --> 0:17:42.560 Yeah, I would say John, it's actually been three years, right, 0:17:42.600 --> 0:17:45.840