WEBVTT - Steve Matthews on the Fed (Audio)

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<v Speaker 1>As we have been discussing this morning, three regional FED

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<v Speaker 1>presidents have reiterated and separate remarks today that curving inflation

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<v Speaker 1>is their top priority. Joining us now more bigger pattern.

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<v Speaker 1>To discuss this more, we have Steve Matthews, Bloomberg Economics reporter.

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<v Speaker 1>So Steve, just to set the scene, summarize the tone

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<v Speaker 1>for us from John Williams, Thomas Back, and Raphaelbustic. Well,

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<v Speaker 1>the tone, as you suggest, is very much, you know,

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<v Speaker 1>the same from all of them. They're basically echoing what

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<v Speaker 1>FED share, the FED shared Jerome Powell said on Friday

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<v Speaker 1>at the Jacks and the whole conference, which is that

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<v Speaker 1>they're going to do whatever it takes to to reduce inflation,

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<v Speaker 1>and if it causes some pain, they're okay with that.

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<v Speaker 1>And if it causes, you know, a period of below

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<v Speaker 1>trend economic growth, they're okay with that. And then you know,

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<v Speaker 1>while you sometimes here FED presidents talk and you know,

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<v Speaker 1>there's a lot of discussion from bed watchers about Okay,

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<v Speaker 1>there's a doublish wing that's worried about employment, and there's

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<v Speaker 1>a hawkish wing that's worried more about inflation. Right now,

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<v Speaker 1>it's really hard to separate the hawks from the doves,

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<v Speaker 1>because everybody is pretty hawkish, and everybody is pretty united

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<v Speaker 1>and behind the chairman, and so you know, we continue

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<v Speaker 1>to raise rights and and that kind of sets the

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<v Speaker 1>states for September. Yeah, and it's it seems tempting to

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<v Speaker 1>think that the Bears are going to win this battle

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<v Speaker 1>in the equity market. And the reason is is that

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<v Speaker 1>you know, the fit is is kind of defending its

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<v Speaker 1>manhood here and and really is going to stay higher

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<v Speaker 1>for longer. They've told us that, and they've rammed it home,

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<v Speaker 1>but they've also admitted that there's a lag effect to

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<v Speaker 1>raising interest rates, and so really this process puts us

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<v Speaker 1>in a position of just giving up on any hope

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<v Speaker 1>of threading the knee. They're not going to be nuanced.

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<v Speaker 1>They're not going to be able to be nuanced about

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<v Speaker 1>this and try to achieve a soft landing. It's going

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<v Speaker 1>to go. It's going to be a hard landing. So

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<v Speaker 1>be it. Well. I think I think that tried. Although

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<v Speaker 1>I think Neil cash Cars comments yesterday in the podcast

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<v Speaker 1>with with the the Odd Lots Crew was really interesting,

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<v Speaker 1>but perhaps you misinterpreted. I think that, you know, I

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<v Speaker 1>don't think that the FED is definitely trying to lower

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<v Speaker 1>stock prices. What they're trying to do is to have

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<v Speaker 1>the investment community aligned with their view of what's going

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<v Speaker 1>to happen with rights. And what they saw in July was,

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<v Speaker 1>you know, the the investment community was saying, the FED

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<v Speaker 1>is pivoting, the Fed's gonna cut rights and in early

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<v Speaker 1>next year or something. Some folks were saying as early

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<v Speaker 1>as the first half of next year. And there's still

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<v Speaker 1>rate touch that the markets are pricing in for next year,

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<v Speaker 1>and they're pushing back against that. I take that point,

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<v Speaker 1>and Steve, I take that point completely. I don't think

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<v Speaker 1>that it really addresses what I said, which is basically

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<v Speaker 1>that you know, we're going to we're going to have

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<v Speaker 1>to go through a lot of pain here because the

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<v Speaker 1>FED is telling you it can't afford to be nuanced

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<v Speaker 1>that that is correct, and they are willing to take

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<v Speaker 1>some pain. Uh, you know, at least publicly. Uh. For example,

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<v Speaker 1>the Richmond FED president was saying, was was asked about

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<v Speaker 1>recession and you know the risk of recession. He said, yeah,

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<v Speaker 1>there's a risk of recession, he said, but that's we're

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<v Speaker 1>not focused on that. We're focused on inflation and you know,

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<v Speaker 1>we're not trying to raise the unemployment, right, We're just

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<v Speaker 1>trying to lower the inflation, right. And he may be, uh,

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<v Speaker 1>you know, perhaps being diplomatic, but that's kind of the

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<v Speaker 1>view from a lot of the Fed folks is that

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<v Speaker 1>the goal is not really to raise the unemployment, right,

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<v Speaker 1>it's deuced inflation um and they're not necessarily the same thing.

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<v Speaker 1>Maybe it will be required that that unemployment has to

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<v Speaker 1>go up, but they're not willing to concede that that's

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<v Speaker 1>the only way it's going to happen. And nuance a

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<v Speaker 1>side though, the market is still going to try and

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<v Speaker 1>play the usual game of guessing what the next move

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<v Speaker 1>is going to be fifty or seventy five at the

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<v Speaker 1>next meeting in September twenty What are the odds saying

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<v Speaker 1>at the moment, what the odds of the markets are

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<v Speaker 1>saying seventy five is the is the high likelihood? It

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<v Speaker 1>was interesting, you know, if you're looking for some good

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<v Speaker 1>news out of the Fed talk today, Raphael Boston was

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<v Speaker 1>that if we get good inflation news, maybe we'll go

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<v Speaker 1>less than seventy five. So you know, and for that matter,

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<v Speaker 1>the Richmond Fed President Barkin was saying uh, you know,

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<v Speaker 1>he's not going to pre judge the meeting. It's all

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<v Speaker 1>dependent on the data. We'll get employment report, uh in

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<v Speaker 1>on Friday. In two weeks we get CPI. Those are

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<v Speaker 1>the two reports that are royally gonna matter. Yeah, it

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<v Speaker 1>is really interesting, Steve. I think we probably can sneak

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<v Speaker 1>this in. Do we need three prints in a row?

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<v Speaker 1>Is that what we need from the Fed in terms

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<v Speaker 1>of slowing growth? I think that, you know, you'll definitely

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<v Speaker 1>need several good inflation reports in a row before they're

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<v Speaker 1>going to start to you know, at least often the

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<v Speaker 1>language or something yeah, yeah, to blink a little um,

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<v Speaker 1>and who knows how they'll present that does Steve, great stuff.

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<v Speaker 1>Thank you very much for joining. Steve Matthews, Bloomberg Economics Reporter,